##### Table of Contents









UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549




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FORM 10-K



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(Mark One)



| |   |                                              
| | - | ---------------------------------------------
| | x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934


For the fiscal year ended December 31,
2001

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 333-62989



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CDRJ Investments (Lux) S.A.

(Exact name of Registrant as specified in its
charter)




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|                                                                |  |                                         
|--------------------------------------------------------------- |  | ----------------------------------------
|Luxembourg                                                      |  | 98-0185444                              
|(State or other jurisdiction of
	Incorporation or organization) |  | (I.R.S. Employer
	Identification Number)

174 Route de Longwy


L-1941 Luxembourg


Luxembourg


(352) 226027


(Address, including zip code, and telephone
number, including area code, of


registrants principal executive
offices)


Securities registered pursuant to
Section 12(b) of the Act:

None


Securities registered pursuant to
Section 12(g) of the Act:

None


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

Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of
registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this
Form 10-K.     x

As of March 15, 2002, the registrant had
outstanding 831,888 shares of common stock, par value $2.00 per
share.



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TABLE OF CONTENTS



|              |                                                                                              |  |  |  |  |  |  | 
|------------- | -------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I       
|              | Item 1.Business                                                                             
|              | Item 2.Properties                                                                           
|              | Item 3.Legal Proceedings                                                                    
|              | Item 4.Submission of Matters to a Vote of Security Holders                                  
|PART II      
|              | Item 5.Market for Registrants Common Equity and Related Stockholder Matters                
|              | Item 6.Selected Financial Data                                                              
|              | Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operations
|              | Item 7A.Quantitative and Qualitative Disclosures About Market Risk                          
|              | Item 8.Financial Statements and Supplementary Data                                          
|              | Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
|PART III     
|              | Item 10.Directors, Executive Officers and Significant Employees of the Company              
|              | Item 11.Executive Compensation                                                              
|              | Item 12.Security Ownership of Certain Beneficial Owners and Management                      
|              | Item 13.Certain Relationships and Related Transactions                                      
|PART IV      
|              | SIGNATURES                                                                                  
|EXHIBIT INDEX
|EXHIBIT 4.21 
|EXHIBIT 21.1 



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CDRJ INVESTMENTS (LUX) S.A. AND
SUBSIDIARIES

TABLE OF CONTENTS

|         |     |             |  |                                                                                        |  |  |     | 
|-------- | --- | ----------- |  | -------------------------------------------------------------------------------------- |  |  | --- | 
|Item     |     | Description |  | Page                                                                                  
|         |     |             |  |                                                                                       
|PART I  
|         | 1.  |             |  | Business                                                                               |  |  | 1   | 
|         | 2.  |             |  | Properties                                                                             |  |  | 8   | 
|         | 3.  |             |  | Legal Proceedings                                                                      |  |  | 8   | 
|         | 4.  |             |  | Submission of Matters to a Vote of Security
	Holders                                   |  |  | 8   | 
|        
|PART II 
|         | 5.  |             |  | Market for Registrants Common Equity and
	Related Stockholder Matters                 |  |  | 9   | 
|         | 6.  |             |  | Selected Financial Data                                                                |  |  | 10  | 
|         | 7.  |             |  | Managements Discussion and Analysis of
	Financial Condition and Results of Operations |  |  | 12  | 
|         | 7   | A.          |  | Quantitative and Qualitative Disclosures About
	Market Risk                            |  |  | 27  | 
|         | 8.  |             |  | Financial Statements and Supplementary Data                                            |  |  | 31  | 
|         | 9.  |             |  | Changes in and Disagreements with Accountants on
	Accounting and Financial Disclosure  |  |  | 99  | 
|        
|PART III
|         | 10. |             |  | Directors, Executive Officers and Significant
	Employees of the Company                |  |  | 100 | 
|         | 11. |             |  | Executive Compensation                                                                 |  |  | 103 | 
|         | 12. |             |  | Security Ownership of Certain Beneficial Owners
	and Management                        |  |  | 106 | 
|         | 13. |             |  | Certain Relationships and Related Transactions                                         |  |  | 108 | 
|        
|PART IV 
|         | 14. |             |  | Exhibits, Financial Statement Schedules and
	Reports on Form 8-K                       |  |  | 110 | 
|         |     |             |  | Signatures                                                                             |  |  | 117 | 

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PART I




Item 1. Business

General

CDRJ Investments (Lux) S.A., a Luxembourg
société anonyme(Parent) is a
holding company that conducts all of its operations through its
subsidiaries. Prior to the consummation of the acquisition (the
Acquisition) by the Parent of the Jafra Business (as
defined) from The Gillette Company (Gillette), the
terms Company and Jafra refer to the
various subsidiaries and divisions of Gillette conducting the
worldwide Jafra cosmetics business (the Jafra
Business), and, following the consummation of the
Acquisition, collectively to the Parent and its subsidiaries.

Jafra is a manufacturer and marketer of premium
skin and body care products, color cosmetics, fragrances, and
other personal care products. Jafra markets its products through
a direct selling, multilevel distribution system comprised of
self-employed consultants (who perform the duties of sales
representatives). Jafras business is comprised of one
industry segment, direct selling, with worldwide operations.
Financial information relating to geographic areas is
incorporated by reference to the analysis of net sales and
operating income by geographic area in Note 11 to the
consolidated financial statements included in Item 8.
Financial Statements and Supplementary Data.

Jafra was founded in 1956, as a California
corporation, by Jan and Frank Day and was purchased by Gillette
in 1973. The Company expanded into Latin America in 1977 and
into Europe in 1978. On April 30, 1998, the Parent
completed the Acquisition of Jafra from Gillette. The Parent was
organized to effect the Acquisition. The Acquisition was
sponsored by Clayton, Dubilier & Rice Fund V Limited
Partnership (CD&R Fund V), a Cayman Islands
exempted limited partnership managed by Clayton, Dubilier &
Rice, Inc. (CD&R), a private investment firm
specializing in acquisitions that involve management
participation.

Strategy

The Companys strategy consists primarily of
the following key initiatives:

Deploy Senior Management Team with Significant
Direct Selling Experience.Jafras senior management team has an average of over
25 years of direct selling industry experience, including
various senior management positions with Jafra competitors, Avon
Products, Inc. (Avon) and Mary Kay Corporation
(Mary Kay). Jafra believes that this management team
will continue to provide the leadership required to attract new
consultants and managerial talent, inspire new and existing
consultants to greater productivity, and execute the
Companys new market development strategy.

Grow Consultant Base in Developed Markets.The Company plans to expand its
consultant base in developed markets by (i) focusing growth
efforts on targeted geographic areas and demographic groups,
(ii) ensuring that the commission and compensation
structure remain competitive while rewarding those who sponsor
new consultants, (iii) providing more training meetings and
marketing communications materials for consultant managers, and
(iv) initiating enhanced recognition programs to motivate
current as well as former or inactive consultants.

Increase Consultant Productivity.The Company plans to continue to focus
on increasing the productivity, as measured by net sales divided
by the average number of consultants, of its existing
consultants by (i) offering an improved product
selling proposition that generates excitement by linking
Company products to the latest fashion trends and
(ii) initiating improved marketing activities at the point
of sale, by providing consultants with enhanced product training
and promotional materials that emphasize the product selling
proposition.

Develop New and Enhanced Products.The Company plans to continuously
introduce new and enhanced products based on technological
advances and consumer demand by (i) being on the
cutting edge in development of skin care
formulations by fully availing itself of raw ingredients
available from manufacturers worldwide, (ii) being a leader
in identification of fashion trends which the Company integrates
into its

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development of new shades of color cosmetics, and
(iii) identifying new areas for product line development
that utilize the Companys selling system and brand
positioning, such as advanced retinol treatment.


Expand in New Markets.The Company believes that its existing
distribution and manufacturing capabilities provide a strong
platform for expansion within and into new and developing
markets, which will allow it to diversify its revenue base. The
Company began distributing products through new subsidiaries
formed in the Dominican Republic, Peru, and Thailand in 2000,
and in Brazil and Chile in 1999. The Company presently has
operations in 14 countries outside the U.S. and in a number
of additional countries through distributors. The Company
intends to focus its expansion efforts in these new and
developing markets by (i) growing the consultant base,
(ii) increasing consultant productivity, and
(iii) increasing operational efficiency. The Company may
target additional international markets in the future, if the
Company believes these markets (i) have proven to be
receptive to direct selling techniques, (ii) demonstrate
promising economic demographics, including population size,
growth of gross domestic product and an expanding middle class,
and (iii) evidence demand for quality cosmetic products.

Utilize the Internet and Electronic Commerce
to Augment Sales and Increase
Productivity. The Company believes
that use of the Internet as an order fulfillment tool by
consultants will result in better service to both the
consultants and their customers at a lower cost to the Company.
During 2001, an expanded e-commerce platform was launched in the
United States and in Mexico. In the United States, the
e-commerce platform contains a broad range of functionality
including order placing, order paying, and submission of new
consultant contracts. In Mexico, certain consultants may use the
Internet to obtain general information, view promotions, obtain
lineage information and place orders. The Company expects that
the availability of Internet access, twenty-four hours a day and
seven days a week, will increase the overall satisfaction level
of its consultants.

Improve Operating Efficiency.The Company plans to continue to
improve operating efficiency through cost-cutting, better
inventory management, and streamlining of marketing efforts and
product lines. In June of 1999, U.S. product manufacturing
functions were outsourced to a third-party vendor, which has
resulted in reduced product costs. In 2000, the Company
repositioned its European business in order to generate
additional operating efficiencies. In 2001, the Company placed
greater marketing focus on certain types of limited
life products (products that are only offered in the
Companys catalog for a limited period), which resulted in
faster inventory turns and a reduced investment in inventories.
In 2002, the Company plans to continue to evaluate its
infrastructure costs to reduce operating costs as a percentage
of sales.

Products

Jafra continuously introduces new and revitalized
products based on changes in consumer demand and technological
advances in order to enhance the quality, image and price
positioning of its products. During 2001, the Company launched
232 new products, including 72 that were designed to be used in
connection with certain sales promotions. Research and
development is conducted at the Jafra Skin, Body and Color
Laboratory, located in the Westlake Village facility. Amounts
incurred on research activities relating to the development of
new products and improvement of existing products were
$1.8 million in 2001, $1.9 million in 2000 and
$2.1 million in 1999.

Employees in the Research and Development
Department formulate products and analyze them for chemical
purity and microbial integrity. A separate small scale pilot
batch is always produced and tested prior to full scale
manufacture. Jafra continues to invest in the globalization and
upgrading of its product lines by adding new formulations and
contemporary fragrances. Through globalized product development,
manufacturing and packaging, Jafra believes that it has enhanced
the consistency and quality of its products in all geographic
regions and across all product lines.

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The following table sets forth the sales of the
Companys principal product lines for the three years ended
December 31, 2001, 2000 and 1999:

|                                  |                                                   |                 |       |            |       |                 |      |            |   |                 |       |            |       |  |      |       |   |   |      |       |       |  |      |       |   | 
|--------------------------------- | ------------------------------------------------- | --------------- | ----- | ---------- | ----- | --------------- | ---- | ---------- | - | --------------- | ----- | ---------- | ----- |  | ---- | ----- | - | - | ---- | ----- | ----- |  | ---- | ----- | - | 
|                                  |                                                   |                 |       |            |       |                
|                                  |                                                   | 2001            |       | 2000       |       | 1999           
|                                  |                                                   |                 |       |            |       |                
|                                  |                                                   | Sales by        |       | Percentage |       | Sales by        |      | Percentage |   | Sales by        |       | Percentage
|                                  |                                                   | Product Line    |       | of total   |       | Product Line    |      | of total   |   | Product Line    |       | of total  
|                                  |                                                   | ($ in millions) |       | sales      |       | ($ in millions) |      | sales      |   | ($ in millions) |       | sales     
|                                  |                                                   |                 |       |            |       |                 |      |            |   |                 |       |           
|Skin Care                         |                                                   | $               | 69.4  |            |       |                 | 19.0 | %          |   | $               | 65.8  |            |       |  | 21.0 | %     |   | $ | 62.4 |       |       |  | 21.5 | %    
|Color Cosmetics                   |                                                   |                 | 94.3  |            |       |                 | 25.8 |            |   |                 | 82.4  |            |       |  | 26.2 |       |   |   | 81.6 |       |       |  | 28.1 |      
|Fragrances                        |                                                   |                 | 125.4 |            |       |                 | 34.3 |            |   |                 | 103.7 |            |       |  | 33.0 |       |   |   | 80.0 |       |       |  | 27.5 |      
|Body care and personal Care       |                                                   |                 | 37.0  |            |       |                 | 10.1 |            |   |                 | 29.6  |            |       |  | 9.4  |       |   |   | 30.7 |       |       |  | 10.6 |      
|Other(1)                          |                                                   |                 | 39.3  |            |       |                 | 10.8 |            |   |                 | 32.6  |            |       |  | 10.4 |       |   |   | 35.8 |       |       |  | 12.3 |      
|                                  |                                                   |                 |       |            |       |                 |      |            |   |                 |       |            |       |  |      |       |   |   |      |       |       |  |      |      
|                                  | Subtotal before shipping, handling and other fees |                 |       | 365.4      |       |                 |      | 100.0      | % |                 |       | 314.1      |       |  |      | 100.0 | % |   |      | 290.5 |       |  |      | 100.0 | %
|                                  |                                                   |                 |       |            |       |                 |      |            |   |                 |       |            |       |  |      |       |   |   |      |       |       |  |      |      
|Shipping, handling and other fees |                                                   |                 | 14.7  |            |       |                 |      |            |   |                 | 10.5  |            |       |  |      |       |   |   | 9.1  |       |       |  |      |      
|                                  |                                                   |                 |       |            |       |                 |      |            |   |                 |       |            |       |  |      |       |   |   |      |       |       |  |      |      
|                                  |                                                   | Total           |       | $          | 380.1 |                 |      |            |   |                 |       | $          | 324.6 |  |      |       |   |   |      | $     | 299.6 |  |      |       |   | 
|                                  |                                                   |                 |       |            |       |                 |      |            |   |                 |       |            |       |  |      |       |   |   |      |       |       |  |      |      




|    |                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------
|(1) | Includes sales aids (e.g., party hostess gifts,
	demonstration products, etc.) and promotional materials.

Skin Care.Jafra
sells personalized skin programs in a unique free matrix
skincare system that allows individuals to select a regiment to
meet individual needs. Skin care products include cleansers,
masks, skin fresheners and moisturizers for day and night. In
addition to basic skin care products, Jafra offers specialty
products to enhance skin texture and encourage cell
revitalization, including its premier product, Royal Jelly Milk
Balm Moisture Lotion, and products for maturing skin
(Advanced Time Protector and Time Corrector),eye care
(Optimeyes)and extra firming (Skin Firming Complex).All of these special care products use the most recent
advances in biotech ingredients. Jafra is committed to
maintaining contemporary formulas and routinely evaluating and
updating its product offerings. During 2001, the Company added
three additional products to the skin care line, including
retinol capsules, featuring a slow release mechanism that
increases product efficacy, while minimizing irritation, time
corrector night moisturizer for mature skin with special
ingredients to help reduce the appearance of deep wrinkles, and
a therapeutic cooling hydrating mask. In 2002, the Company plans
to launch new products that address skin pigmentation problems.

Color.Jafras
range of color cosmetics for the face, eyes, lips, cheeks and
nails contribute significantly to Company results. The Company
develops internally its lipstick formulas, foundations and
mascaras. In 1999, the Company implemented a new color palette
strategy by introducing seasonal color products, through
innovative fashion color statements in the spring and fall shade
product offerings. This has been a consistent strategy for 2000
and 2001, and has continued to drive the sales of color. In
2001, Jafra undertook a major restage of its entire color line.
The new line consists of forty new products, including twelve
new formulas. In total, the restage involved the repackaging of
approximately 250 items. The new color line was launched in
Mexico during the fourth quarter of 2001 and is scheduled to be
launched globally in 2002.

Fragrance.Direct
selling is a significant distribution channel for fragrances,
and Jafras new scents have enabled the Company to
participate on an increasingly larger scale in this channel. In
1996, Jafra introduced Adorisse,a contemporary
womens fragrance, and Fm Force Magnetique,a
prestige mens fragrance. Jafra further extended its
fragrance line in 1997 with Le Moiréfor women and
Legend for Men.In 1999, Jafra introduced Chosen,a prestige fragrance for women, as well as a special 20th
anniversary fragrance for the Mexico market. The fragrance
category includes line extensions such as body lotions, shower
gels, deodorants, after-shave lotions and shave creams for some
of the most popular fragrances. Jafra has a continued strategy
of introducing new fragrances each year. In 2001, Spherawas introduced for women and Victuswas introduced
for men. In addition, new fragrances were distributed locally
within Brazil in 2001 and more local fragrances are planned for
distribution within Brazil in 2002. Two additional fragrances
are planned to be tailored to, and marketed for the Mexican
market in 2002.

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Body Care and Personal Care.Jafra markets a broad selection of
body, bath, sun and personal care products, including deodorants
and shampoos. Jafras premier body care product, Royal
Jelly Body Complex,contains royal jelly (a
substance produced by queen bees) in an oil-free deep
moisturizing formula with natural botanical extracts and
vitamins. Other offerings in the body care line include
sunscreens, hand care lotions, contouring creams, revitalizing
sprays, and bath products. While Jafra varies its product
offerings and continues to develop new products, its Royal
Almondand Precious Proteinlines have been top
sellers for nearly forty years. In the beginning of 2001, Jafra
completed the global launch of two major body care products: The
Tender Moments Baby Line and the Home Spa Line. The Tender
Moments Baby Line consists of 5 products created to
encourage the bonding and nurturing of mothers and babies. The
Home Spa Line consists of aromatherapeutic oils, massage creams,
and hydrotherapeutic products as well as related products, such
as scented candles and music designed especially to suit
Jafras direct sales distribution channel. In 2002, Jafra
plans to leverage the Royal Almond brand by introducing Royal
Ginger, a scent extension to the Royal Almond family, and to
launch a line of specialty body products to address stretch mark
recovery, bust firmness, body toning, and the reduction of the
appearance of cellulite.

Marketing

Strategy and Product Positioning.Jafra positions its products to appeal
to a relatively wide range of market categories, demographic
groups and lifestyles. Jafra products generally price at the
higher end of the mass market category but slightly below
prestige brands such as Clinique. As compared to its direct
selling competitors, Jafra prices are in line with Mary Kay, but
higher than Avon, which targets the lower to middle mass market.

Product Strategy.Jafras product strategy is to
provide customers with exciting and prestige quality product
lines that fit into Jafras value-added demonstration sales
techniques and promote the sale of multiple products per home
visit. To that end, Jafra develops integrated products and
actively promotes cross-selling among categories, thus
encouraging multi-product sales and repeat purchases. Product
variety and modernization are keys to the Companys
success. The Company continues to look for ways to expand
product offerings and broaden its appeal in the marketplace.
This led to the development of the Retinol capsules and the new
color line.

Marketing Material & Corporate Image.The Company supports its identity and
corporate image through its energetic network of consultants and
word-of-mouth. The Company uses a sophisticated and integrated
promotional approach that includes meetings, marketing
literature, and the Internet to create strong corporate imagery
and support corporate identity.

Independent Sales Force

Jafras self-employed sales force is
comprised of approximately 369,000 consultants worldwide as
of December 31, 2001. Approximately 68,000 of these
consultants are in the U.S., 238,000 are in Mexico and 63,000
are in Europe and other markets. These consultants are not
agents or employees of Jafra; they are independent contractors
or dealers. They purchase products directly from the Company and
sell them directly to their customers.

More seasoned senior consultants, who have
experience managing their own consultant networks, recruit and
train the Companys field level organization. Jafra sells
substantially all of its products directly to its consultants.
Each consultant conducts her Jafra sales operations as a
stand-alone business, purchasing Jafra goods and reselling them
to customers, as well as offering free personal care
consultations. The Companys independent sales force
constitutes its primary marketing contact with the general
public.

Selling.The primary
role of a Jafra consultant is to sell Jafra products. Although
the majority of the Companys sales occur as a result of
person-to-person sales, the Company also encourages its
consultants to arrange sales parties at customers homes.
Sales parties permit a more efficient use of a consultants
time, allowing the consultant to offer products and cosmetic
advice to multiple potential customers at the same time, and
provide a comfortable selling environment in which clients can
learn about skin care and sample the

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Jafra product line. Such parties also provide an
introduction to potential recruits and the opportunity for
referrals to other potential clients, party hostesses and
recruits.


Jafra does not require consultants to maintain
any inventory. The Company believes that the inventory
requirements of other leading direct sellers are often onerous
to consultants. Instead, Jafra consultants can wait to purchase
products from the Company until they have a firm customer order
to fill. Consultants generally personally deliver orders to
their customers within one week of placement of an order. By
delivering products directly to the customer, the Jafra
consultant creates an additional sales opportunity. The
short-term delivery requirements and the nature of the
Companys business preclude any significant backlog.

Recruiting.The
Company believes that it enjoys a competitive advantage in
recruiting consultants due to its lower start-up costs and its
policy of providing retail discounts even on small orders. Other
major attractions to prospective recruits include flexible
hours, increased disposable income, an attractive incentive
program (including international travel, national and regional
meetings, awards and free products), personal and professional
recognition, social interaction, product discounts and career
development opportunities.

The Company also emphasizes its commitment to
consultants personal and professional training, thereby
building consultants management and entrepreneurial skills.

Consultant Management and Training.To become a manager, a consultant must
sponsor a specified number of recruits and meet certain minimum
sales levels. Once a consultant becomes a manager, she is
eligible to earn commissions on her personal sales plus
overrides on the sales of her downline consultants. A manager
continues to gain seniority in the Jafra sales force by meeting
the prescribed recruitment and sales requirements at each level
of management. At more senior levels, managers may have several
junior managers who in turn sponsor and manage other managers
and consultants. The most successful managers have many such
downline managers and consultants, and earn commissions on their
personal sales plus overrides on their downline groups
sales.

Training for new consultants focuses first on the
personalized selling of the Jafra product line, beginning with
skin care and the administration of a Jafra business. Training
is conducted primarily by the Companys consultant
managers. Managers train their downline consultants at monthly
meetings using materials prepared by the Company. In training
managers, the Company seeks to improve leadership and management
skills, while teaching managers to motivate downline consultants
to higher sales levels.

Income Opportunities and Recognition.Consultants earn income by purchasing
products from Jafra at retail discounts and selling to consumers
at suggested retail prices. Once a consultant becomes a manager,
her compensation also includes commissions or overrides on the
wholesale value of paid sales made by herself and her recruits.
The commissions and overrides are paid to motivate and
compensate the managers to train, recruit and develop downline
consultants. Additionally, the managers perform collection
efforts on behalf of the Company, as the overrides paid on a
consultants downline productivity are paid only upon the
receipt of payment for the underlying product sale. While this
commission and override based incentive system diminishes the
Companys profit, it results in increased numbers of
consultants selling Jafra products, which ultimately earns
greater profits for the Company. The Company believes that its
structure of discounts, commissions and overrides to consultants
is one of the most generous in the direct selling business.

The Company believes that public recognition of
sales accomplishments serves the dual purpose of identifying
successful role models and boosting consultant morale. Each year
Jafra sponsors major events in each of its geographic markets to
recognize and reward sales and recruiting achievements and
strengthen the bond between the independent sales force and the
Company. Consultants and managers must meet certain minimum
levels of sales and new consultant sponsorship in order to
receive invitations to attend these events.

International Operations

Jafras international operations are subject
to certain customary risks inherent in carrying on business
abroad, including the risk of adverse currency fluctuations, the
effect of regulatory and legal restrictions imposed by foreign
governments, and unfavorable economic and political conditions.

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Jafras international operations are
conducted primarily through operating subsidiaries in 14
countries outside the United States and in a number of
additional countries through distributors. The Companys
most important markets to date are Mexico, the United States,
and Europe, which represented approximately 66%, 21% and 7%,
respectively, of total 2001 consolidated sales. See Note 11 of
the consolidated financial statements appearing in Item 8.
Financial Statements and Supplementary Data. The
Company intends to increase revenues in markets other than
Mexico in order to diversify its revenue base and to minimize
any adverse impact that a downturn in the Mexican economy may
have on the Company given the increasingly large percentage of
sales attributable to the Mexican market. The Companys
remaining foreign subsidiaries (excluding Mexico and Europe)
account for approximately 6% of total 2001 consolidated sales
which inherently reduces the risks of any adverse impact on
consolidated results. In addition, the Company has entered into
foreign currency forward exchange and option contracts to help
mitigate the risk that a potential currency devaluation in
Mexico would have on the Companys operations and
liquidity. See Item 7a. Quantitative and Qualitative
Disclosures About Market Risk  Foreign Currency
Risk.

Manufacturing

Jafra has a manufacturing facility in Naucalpan,
Mexico, which is near Mexico City. This facility produces color
cosmetics and most of Jafras fragrances. During 2001, the
company began manufacturing, through a third-party, a limited
number of items in Brazil for sale in South America. The Company
anticipates that in 2002, one-third of the Brazilian sales will
be of locally manufactured products. Until June of 1999, the
Company produced skin care and personal use products at its
Westlake Village, California manufacturing facility. In June of
1999, the Company outsourced its U.S. product manufacturing
functions to a third-party contractor (the
Contractor).

The Company and the Contractor entered into a
manufacturing agreement, dated as of June 10, 1999 (the
Manufacturing Agreement). Subject to the terms and
conditions of the Manufacturing Agreement, the Contractor has
agreed to manufacture all of the Companys requirements for
certain cosmetic and skin care products for an initial term of
five years. Following the expiration of the initial five-year
term, the Manufacturing Agreement will be automatically extended
for additional one-year terms unless terminated by six
months prior written notice by either party. The
Manufacturing Agreement provides for price renegotiations by the
Contractor if the Companys quarterly or annual purchase
volume falls below specified minimums. The Manufacturing
Agreement requires the Contractor to maintain insurance to cover
costs associated with any product liability or product recall
caused by the acts or omissions of the Contractor. In addition,
the Company is obligated to purchase materials acquired by the
Contractor based upon product forecasts provided by the Company
if the Contractor is unable to sell such materials to a
third-party. The Contractor is solely responsible for obtaining
the inventories, manufacturing the inventories at its current
location in Chino, California, complying with applicable laws
and regulations, and performing quality assurance functions.

The Company purchases from other third-party
suppliers certain finished goods and raw materials for use in
its manufacturing operations. In general, the Company does not
have written contracts with its other suppliers. Finished goods
and raw materials used in the Companys products, such as
glass, plastics, and chemicals, generally are available stock
items or can be obtained to Company specifications from more
than one potential supplier.

Distribution

Through the year ended December 31, 2001,
the Company used fourteen distribution centers around the world,
eight of which are operated by Company personnel and six of
which are outsourced. Effective January 2002, the Company uses
twelve distribution centers, eight of which are operated by
Company personnel and three of which are outsourced. The U.S.
warehouses in Bridgeport, New Jersey and Westlake Village,
California currently stock the entire Jafra product line. In
Mexico, the Company has historically outsourced virtually all of
its distribution to third-parties. However, in January 2002, the
Company opened a distribution center in Mexico and terminated
the third-party distribution function. This distribution center
services all

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consultants in Mexico. Management believes that
its facilities are adequate to meet demand in its existing
markets for the foreseeable future.


Typically, owned or leased distribution centers
are located in an area that allows for direct delivery to
consultants by either post or carrier. Maintaining a short
delivery cycle in direct selling is an important competitive
advantage.

Competition

Jafra sells all of its products in highly
competitive markets. The principal bases of competition in the
cosmetics direct selling industry are price, quality and range
of product offerings. On the basis of information available to
it from industry sources, management believes that there are
over a thousand companies (including both direct sales and
cosmetic manufacturing companies) that sell products that
compete with Jafras products. Several direct sales
companies compete with Jafra in sales of cosmetic products, and
at least two such competitors, Mary Kay and Avon, are
substantially larger than Jafra in terms of total independent
salespersons, sales volume and resources. In addition,
Jafras products compete with cosmetics and toiletry items
manufactured by cosmetic companies that sell their products in
retail or department stores. Several of such competitors are
substantially larger than Jafra in terms of sales and have
substantially more resources. Jafra also faces competition in
recruiting independent salespersons from other direct selling
organizations whose product lines may or may not compete with
Jafras products.

Jafra believes that its senior management team
with a strong direct selling track record, motivated and loyal
direct sales force, prestige quality product lines, product
development capabilities, geographic diversification, short
delivery cycle, and manufacturing technology are significant
factors in establishing and maintaining its competitive position.

Patents and Trademarks

Jafras operations do not depend to any
significant extent upon any single trademark other than the
Jafratrademark. Some of the trademarks used by Jafra,
however, are identified with and important to the sale of
Jafras products. Some of Jafras more important
trademarks are: Adorisse(a contemporary womens
fragrance), Eau DAromes(revitalizing fragrance
spray), JF9(a mens prestige fragrance), Legend
for Men(a mens premium fragrance), Le Moiré(a contemporary womens fragrance), and Optimeyes(eye treatment lotion). Jafras operations do not
depend to any significant extent on any single or related group
of patents, although the Company has applied for or received
patent protection in its major markets for certain skin creams,
dispensers and product containers, nor do they rely upon any
single or related group of licenses, franchises or concessions.
Jafra has in the past licensed know-how from Gillette relating
to the design, development and manufacture of its products and
is permitted to continue to use such know-how in connection with
its products.

In 1998, a former employee of Gillette filed
applications to register the Jafra trademark in Algeria,
Bangladesh, China, Cyprus, Egypt, Gambia, Ghana, Guyana, India,
Kenya, Malawi, Morocco, Nigeria, OAPI, Pakistan, Sierra Leone,
Syria, Sudan, Surinam, Tanzania, Tunisia, Zambia, and Zimbabwe,
jurisdictions in which Jafra does not currently operate. In
1998, Gillette obtained a court order prohibiting this employee
from transferring or licensing such trademark applications and
registrations and requiring that the trademark applications and
registrations be assigned to Gillette. The documentation has
been transferred to Jafra. Jafra has filed the documents
obtained from this former employee in those jurisdictions in
which the documentation will be accepted in order to secure the
abandonment and cancellation of this employees
applications and registrations. If Jafra is not able to secure
cancellation or abandonment of the applications and
registrations in these jurisdictions, Jafra may be prohibited
from distributing its products in these jurisdictions.

Management Information Systems

During 2001, the Company redefined its Internet
strategy and continued to develop and implement an expanded
e-commerce system. The expanded e-commerce platform became
operational in the U.S. during

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June 2001, with the consultant adoption rate
averaging 15% of order volume by year end. In Mexico, an
e-commerce platform was launched during the second half of 2001.
The Company also selected a new platform to run its core
operations in the U.S. The U.S. business will replace the order
entry, fulfillment, commission and override processing and
financial system software with Enterprise Resource Planning
(ERP) software from JD Edwards by late 2002. The Company
anticipates that this new system will be leveraged to improve
computer operations in other Jafra markets during 2003 and 2004.
During 2001, the Company modified its European information
systems to support a streamlined European organization and to
achieve compliance with the euro. The system modifications were
conducted without significant cost and did not have any adverse
affects on the business or operations.


Seasonality

The Companys sales in the fourth quarter of
the year are typically higher than in the other three quarters
of the year due to seasonal holiday purchases. Fourth quarter
net sales were approximately 27% of total net sales in 2001 and
28% of net sales in 2000. Fourth quarter operating profit was
31% and 35% of total operating profit in 2001 and 2000,
respectively.

Environmental Matters

The Company is subject to various federal, state,
local and foreign laws or regulations governing environmental,
health and safety matters. The Company believes that it is in
material compliance with all such laws and regulations and under
present conditions the Company does not foresee that such laws
and regulations will have a material adverse effect on capital
expenditures, earnings or the competitive position of the
Company.

Employees

As of December 31, 2001, the Company had 847
full-time employees, of which 273 were employed in the U.S. and
574 in other countries. On a functional basis, 187 were in
manufacturing, warehousing, distribution and technical
operations, 452 were in sales and marketing, and 208 were in
administration. The Company also had 308 outside contract
employees.




Item 2. Properties

The Company is headquartered and maintains a
warehouse and distribution facility in Westlake Village,
California, 40 miles north of Los Angeles. Manufacturing is done
on a global basis for the color and fragrance product lines at
the Companys facility in Naucalpan, Mexico. The Westlake
Village, California and Naucalpan, Mexico facilities are owned
by the Company, except for a small portion of the Naucalpan
facility that is leased. In addition, the Company leases certain
distribution facilities, sales offices and service centers to
facilitate its operations globally. As of January 1, 2002,
the Company is utilizing a leased distribution center in Lerma,
Mexico. The Companys properties are suitable and adequate
to meet its current and anticipated requirements.




Item 3. Legal
Proceedings

The Company is involved from time to time in
routine legal matters incidental to its business. The Company
believes that the resolution of such matters will not have a
material adverse effect on the Companys business,
financial condition or results of operations.




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

No matters were submitted to a vote of the
security holders of the Company during the fourth quarter of
2001.

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##### Table of Contents






PART II




Item 5. Market for Registrants
Common Equity and Related Stockholder Matters

There is no established public trading market for
Parent common stock (the Common Stock). The number
of holders of record of the Companys Common Stock on
March 15, 2002 was 32. On October 1, 1999, a former
member of management exercised options to purchase
579 shares of Common Stock for a purchase price of $100 per
share, or a total of $57,900, and then sold a total of 2,317
shares of Common Stock back to the Company at $150 per share, or
a total of $347,550; on November 19, 1999, certain members
of management and a director purchased an aggregate of
2,457 shares of Common Stock for a purchase price of $150
per share, or a total of $368,550; on July 11, 2000, a
member of management purchased 316 shares of Common Stock for a
purchase price of $150 per share, or a total of $47,400; on
July 27, 2000, a former member of management exercised
options to purchase 158 shares of Common Stock for a purchase
price of $100 per share, or a total of $15,800, and then sold a
total of 632 shares of Common Stock back to the Company at $210
per share, or a total of $132,720; on August 9, 2000,
certain members of management purchased an aggregate of
4,108 shares of Common Stock for a purchase price of $210
per share, or a total of $862,860; on November 6, 2000, a
former member of management sold 316 shares of Common Stock
back to the Company at $210 per share, or a total of $66,360; on
February 10, 2001, certain members of management purchased
an aggregate of 474 shares of Common Stock for a purchase
price of $210 per share, or a total of $99,540; on June 14,
2001, a former member of management and a former director, sold
an aggregate total of 2,563 shares of Common Stock back to
the Company at $250 per share, or a total of $640,750; on
September 19, 2001, a former member of management exercised
options to purchase 210 shares of Common Stock for a
purchase price of $150 per share, or a total of $31,500, and
then sold a total of 526 shares of Common Stock back to the
Company at $250 per share, or a total of $131,500. All of these
transactions were exempt from the registration requirements of
the Securities Act of 1933, as amended, as either offerings to
accredited investors under Regulation D or offerings to
employees under Rule 701. See Item 12. Security
Ownership of Certain Beneficial Owners and Management. No
dividends have been paid by Parent on its shares of the Common
Stock nor does Parent expect to pay dividends on its Common
Stock in the foreseeable future. The declaration and payment of
future dividends, if any, will be at the sole discretion of the
Board of Directors of Parent, subject to the restrictions set
forth in the Senior Credit Agreement and the indenture for its
Senior Subordinated Notes (the Indenture), which
currently restrict the payment of cash dividends to
stockholders, and restrictions, if any, imposed by other
indebtedness outstanding from time to time. See Item 7.
Managements Discussion and Analysis of Financial
Conditions and Results of Operations  Liquidity and
Capital Resources.

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##### Table of Contents






Item 6. Selected Financial
Data

The following is a summary of selected financial
data of the Company (amounts in millions except for consultant
and consultant productivity data). The selected financial data
as of December 31, 2001 and 2000 and for the years ended
December 31, 2001, 2000 and 1999 are derived from the
audited financial statements which appear in Item 8.
Financial Statements and Supplementary Data. The
related selected financial data should be read in conjunction
with such financial statements and notes thereto and
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations. All other
financial data presented has been derived from audited financial
statements of the Company which are not included herein. The
financial data prior to April 30, 1998 reflect the Jafra
Business prior to the Acquisition and are referred to as the
Predecessor operations.

|                                                                                                                 |                                |                          |       |              |   |             |       |              |   |             |       |       |   |   |       |       |   |   |      |     |  |   |       |      |  
|---------------------------------------------------------------------------------------------------------------- | ------------------------------ | ------------------------ | ----- | ------------ | - | ----------- | ----- | ------------ | - | ----------- | ----- | ----- | - | - | ----- | ----- | - | - | ---- | --- |  | - | ----- | ---- | -
|                                                                                                                 |                                |                          |       |              |   |             |       |              |   |            
|                                                                                                                 |                                |                          |       |              |   |             |       |              |   | Predecessor
|                                                                                                                 |                                |                          |       |              |   |             |       |              |   |            
|                                                                                                                 |                                |                          |       | Eight Months |   | Four Months |       |             
|                                                                                                                 |                                | Years Ended December 31, |       | Ended        |   | Ended       |       | Year Ended  
|                                                                                                                 |                                |                          |       | December 31, |   | April 30,   |       | December 31,
|                                                                                                                 |                                | 2001                     |       | 2000         |   | 1999        |       | 1998         |   | 1998        |       | 1997 
|                                                                                                                 |                                |                          |       |              |   |             |       |              |   |             |       |      
|Statement of Operations Data:                                                                                    |                                |                          |       |              |   |             |       |              |   |             |       |       |   |   |       |       |   |   |      |     |  |   |       |     
|Net sales(a)                                                                                                     |                                | $                        | 380.1 |              |   | $           | 324.6 |              |   | $           | 299.6 |       |   | $ | 176.4 |       |   | $ | 80.0 |     |  | $ | 236.7 |     
|Cost of sales(b)                                                                                                 |                                |                          | 87.0  |              |   |             | 79.5  |              |   |             | 82.3  |       |   |   | 56.3  |       |   |   | 22.7 |     |  |   | 68.6  |     
|                                                                                                                 |                                |                          |       |              |   |             |       |              |   |             |       |       |   |   |       |       |   |   |      |     |  |   |       |     
|Gross profit                                                                                                     |                                |                          | 293.1 |              |   |             | 245.1 |              |   |             | 217.3 |       |   |   | 120.1 |       |   |   | 57.3 |     |  |   | 168.1 |     
|Selling, general and administrative expenses(a)                                                                  |                                |                          | 236.8 |              |   |             | 200.0 |              |   |             | 183.9 |       |   |   | 112.8 |       |   |   | 51.9 |     |  |   | 147.7 |     
|Restructuring and other non-recurring charges(c)                                                                 |                                |                          |      |              |   |             | 2.6   |              |   |             | 4.8   |       |   |   |      |       |   |   |     |     |  |   | 0.4   |     
|Loss (gain) on sale of assets                                                                                    |                                |                          | 0.1   |              |   |             | 0.1   |              |   |             | (1.0  | )     |   |   | 0.2   |       |   |   |     |     |  |   | (0.1  | )   
|                                                                                                                 |                                |                          |       |              |   |             |       |              |   |             |       |       |   |   |       |       |   |   |      |     |  |   |       |     
|Income from operations                                                                                           |                                |                          | 56.2  |              |   |             | 42.4  |              |   |             | 29.6  |       |   |   | 7.1   |       |   |   | 5.4  |     |  |   | 20.1  |     
|Other income (expense):                                                                                          |                                |                          |       |              |   |             |       |              |   |             |       |       |   |   |       |       |   |   |      |     |  |   |       |     
|                                                                                                                 | Exchange (loss) gain           |                          |       | (9.7         | ) |             |       | (11.7        | ) |             |       | 3.3   |   |   |       | (1.8  | ) |   |      | 1.4 |  |   |       | 0.3  |  
|                                                                                                                 | Interest (expense) income, net |                          |       | (13.3        | ) |             |       | (15.7        | ) |             |       | (16.9 | ) |   |       | (11.5 | ) |   |      | 0.1 |  |   |       | 0.3  |  
|                                                                                                                 | Other income (expense), net    |                          |       | (0.1         | ) |             |       | 1.6          |   |             |       | 0.1   |   |   |       | (0.1  | ) |   |      | 0.1 |  |   |       | (0.5 | )
|                                                                                                                 |                                |                          |       |              |   |             |       |              |   |             |       |       |   |   |       |       |   |   |      |     |  |   |       |     
|Income (loss) before income taxes,
	extraordinary item and cumulative effect of accounting change                |                                |                          | 33.1  |              |   |             | 16.6  |              |   |             | 16.1  |       |   |   | (6.3  | )     |   |   | 7.0  |     |  |   | 20.2  |     
|Income tax expense                                                                                               |                                |                          | 17.4  |              |   |             | 10.0  |              |   |             | 10.9  |       |   |   | 1.7   |       |   |   | 2.9  |     |  |   | 4.8   |     
|                                                                                                                 |                                |                          |       |              |   |             |       |              |   |             |       |       |   |   |       |       |   |   |      |     |  |   |       |     
|Income (loss) before extraordinary item and
	cumulative effect of accounting change                              |                                |                          | 15.7  |              |   |             | 6.6   |              |   |             | 5.2   |       |   |   | (8.0  | )     |   |   | 4.1  |     |  |   | 15.4  |     
|Extraordinary loss on early extinguishment of
	debt, net of income tax benefit of $0.2 in 2000 and $0.2 in 1999. |                                |                          |      |              |   |             | 0.3   |              |   |             | 0.6   |       |   |   |      |       |   |   |     |     |  |   |      |     
|                                                                                                                 |                                |                          |       |              |   |             |       |              |   |             |       |       |   |   |       |       |   |   |      |     |  |   |       |     
|Income (loss) before cumulative effect of
	accounting change                                                     |                                |                          | 15.7  |              |   |             | 6.3   |              |   |             | 4.6   |       |   |   | (8.0  | )     |   |   | 4.1  |     |  |   | 15.4  |     
|                                                                                                                 |                                |                          |       |              |   |             |       |              |   |             |       |       |   |   |       |       |   |   |      |     |  |   |       |     
|Cumulative effect of accounting change, net of
	income tax expense of $0.1(f)                                    |                                |                          | 0.1   |              |   |             |      |              |   |             |      |       |   |   |      |       |   |   |     |     |  |   |      |     
|                                                                                                                 |                                |                          |       |              |   |             |       |              |   |             |       |       |   |   |       |       |   |   |      |     |  |   |       |     
|Net income (loss)                                                                                                |                                | $                        | 15.8  |              |   | $           | 6.3   |              |   | $           | 4.6   |       |   | $ | (8.0  | )     |   | $ | 4.1  |     |  | $ | 15.4  |     
|                                                                                                                 |                                |                          |       |              |   |             |       |              |   |             |       |       |   |   |       |       |   |   |      |     |  |   |       |     
|Balance Sheet Data (at end of
	period):                                                                          |                                |                          |       |              |   |             |       |              |   |             |       |       |   |   |       |       |   |   |      |     |  |   |       |     
|Cash and cash equivalents                                                                                        |                                | $                        | 6.7   |              |   | $           | 5.8   |              |   | $           | 4.9   |       |   | $ | 18.4  |       |   |   |      |     |  | $ | 10.2  |     
|Working capital                                                                                                  |                                |                          | 14.2  |              |   |             | 19.2  |              |   |             | 34.2  |       |   |   | 22.9  |       |   |   |      |     |  |   | 22.6  |     
|Property and equipment, net                                                                                      |                                |                          | 59.6  |              |   |             | 51.4  |              |   |             | 50.6  |       |   |   | 56.2  |       |   |   |      |     |  |   | 43.7  |     
|Total assets                                                                                                     |                                |                          | 291.1 |              |   |             | 276.9 |              |   |             | 278.4 |       |   |   | 288.6 |       |   |   |      |     |  |   | 175.2 |     
|Total debt                                                                                                       |                                |                          | 93.1  |              |   |             | 109.0 |              |   |             | 133.5 |       |   |   | 141.5 |       |   |   |      |     |  |   | 8.5   |     
|Stockholders equity                                                                                             |                                | $                        | 96.0  |              |   | $           | 81.2  |              |   | $           | 75.8  |       |   | $ | 75.4  |       |   |   |      |     |  | $ | 77.3  |     

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|                                                     |  |                          |         |              |  |             |         |              |  |             |         |      |  |   |         |   |  |   |         |   |  |   |         |  
|---------------------------------------------------- |  | ------------------------ | ------- | ------------ |  | ----------- | ------- | ------------ |  | ----------- | ------- | ---- |  | - | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                                     |  |                          |         |              |  |             |         |              |  |            
|                                                     |  |                          |         |              |  |             |         |              |  | Predecessor
|                                                     |  |                          |         |              |  |             |         |              |  |            
|                                                     |  |                          |         | Eight Months |  | Four Months |         |             
|                                                     |  | Years Ended December 31, |         | Ended        |  | Ended       |         | Year Ended  
|                                                     |  |                          |         | December 31, |  | April 30,   |         | December 31,
|                                                     |  | 2001                     |         | 2000         |  | 1999        |         | 1998         |  | 1998        |         | 1997
|                                                     |  |                          |         |              |  |             |         |              |  |             |         |     
|Other Financial Data:                                |  |                          |         |              |  |             |         |              |  |             |         |      |  |   |         |   |  |   |         |   |  |   |         |  
|EBITDA(d)                                            |  | $                        | 63.8    |              |  | $           | 51.6    |              |  | $           | 36.8    |      |  | $ | 12.1    |   |  | $ | 6.9     |   |  | $ | 24.0    |  
|Net cash provided by (used in) operating
	activities |  |                          | 30.1    |              |  |             | 32.5    |              |  |             | (1.6    | )    |  |   | 18.1    |   |  |   | (8.0    | ) |  |   | 26.7    |  
|Net cash provided by (used in) investing
	activities |  |                          | (11.7   | )            |  |             | (7.2    | )            |  |             | (3.1    | )    |  |   | (211.1  | ) |  |   | 2.6     |   |  |   | (5.8    | )
|Net cash provided by (used in) financing
	activities |  |                          | (16.6   | )            |  |             | (23.5   | )            |  |             | (7.4    | )    |  |   | 211.7   |   |  |   | (8.8    | ) |  |   | (19.0   | )
|Depreciation and amortization                        |  |                          | 7.7     |              |  |             | 7.6     |              |  |             | 7.1     |      |  |   | 5.1     |   |  |   | 1.4     |   |  |   | 4.4     |  
|Amortization of deferred financing fees              |  |                          | 1.4     |              |  |             | 1.4     |              |  |             | 1.8     |      |  |   | 1.4     |   |  |   |        |   |  |   |        |  
|Capital expenditures                                 |  | $                        | 11.4    |              |  | $           | 7.1     |              |  | $           | 5.8     |      |  | $ | 6.4     |   |  | $ | 6.1     |   |  | $ | 8.9     |  
|Total ending consultants                             |  |                          | 369,000 |              |  |             | 310,000 |              |  |             | 292,000 |      |  |   | 247,600 |   |  |   | 220,000 |   |  |   | 220,800 |  
|Average ending consultants(e)                        |  |                          | 362,000 |              |  |             | 307,000 |              |  |             | 275,000 |      |  |   | 238,000 |   |  |   | 215,000 |   |  |   | 205,000 |  
|Ordering consultants(e)                              |  |                          | 180,000 |              |  |             | 150,000 |              |  |             | 137,000 |      |  |   | 116,000 |   |  |   | 109,000 |   |  |   | 104,000 |  
|Consultant productivity(e)                           |  | $                        | 1,050   |              |  | $           | 1,057   |              |  | $           | 1,089   |      |  | $ | 1,114   |   |  | $ | 1,114   |   |  | $ | 1,155   |  




|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Reclassifications have been made to all prior
	periods to reflect late fees charged to consultants, previously
	reported as reductions to selling, general and administrative
	expenses, in net sales. The amounts that have been reclassified
	as net sales are $0.5 million, $0.4 million,
	$0.2 million, $0.1 million, and $0.3 million for
	the years ended December 31, 2000 and 1999, the eight-month
	period ended December 31, 1998, the four-month period ended
	April 30, 1998, and the year ended December 31, 1997,
	respectively.                                                                                                                                                                                                                                                                                                                                                                                               
|   
|(b) | Cost of sales for the eight months ended
	December 31, 1998 includes a $2.7 million charge
	relating to the sale of certain inventories that were revalued
	to fair value in conjunction with the Acquisition.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|(c) | Restructuring and other non-recurring charges
	include the following: for 2000, approximately $1.6 million
	of restructuring charges and approximately $1.0 million of
	asset impairment charges; for 1999, approximately
	$3.7 million of restructuring charges and approximately
	$1.1 million of asset impairment charges; for 1997, net
	reorganization charges of $3.5 million that were partially
	offset by a cash recovery of $2.3 million resulting from
	the settlement of a legal action brought by the Company against
	a computer systems contractor for which a $5.4 million
	charge was taken in 1996, and a gain of $0.8 million
	relating to the sale of a facility that had previously been
	written-off.                                                                                                                                                                                                                  
|   
|(d) | EBITDA is defined as income or loss before income
	taxes, net interest expense, exchange gains and losses,
	depreciation and amortization, extraordinary items and the
	cumulative effect of accounting change. The Company believes
	that EBITDA provides useful information regarding the
	Companys ability to service debt but should not be
	considered in isolation or as a substitute for the statement of
	operations or cash flow data prepared in accordance with
	accounting principles generally accepted in the United States of
	America and included elsewhere in this Form 10-K or as a
	measure of the Companys operating performance,
	profitability or liquidity. While EBITDA is frequently used as a
	measure of operations and the ability to meet debt service
	requirements, it is not necessarily comparable to other
	similarly titled captions of other companies due to differences
	and methods of calculation.
|   
|(e) | In 2001, the Company re-defined consultant
	productivity as net sales in U.S. dollars divided by the
	annual average number of consultants. Full year 1998 consultant
	productivity is shown for comparability purposes. Previously
	reported consultant productivity amounts have been restated to
	conform to the 2001 presentation. The average consultant base is
	calculated based on the total ending consultant base for each of
	the prior twelve months. A consultant is included in the total
	ending consultant base if she places an order within the past
	four months. The Company defines an ordering consultant as a
	consultant who has placed an order within the past month.                                                                                                                                                                                                                                              



|    |                                                                                                                                                                                                                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(f) | In connection with the adoption of Statement of
	Financial Accounting Standards No. 133, Accounting
	for Derivative Instruments and Hedging Activities,
	(SFAS No. 133) on January 1, 2001, the
	Company recorded a net gain of $126,000 (net of a tax effect of
	$82,000) as a cumulative transition adjustment to earnings.

11



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Item 7. Managements Discussion
and Analysis of Financial Condition and Results of
Operations

The following discussion of the results of
operations, financial condition and liquidity of the Company
should be read in conjunction with the information contained in
the consolidated financial statements and notes thereto included
in Item 8. Financial Statements and Supplementary
Data in this Form 10-K. These statements have been
prepared in conformity with accounting principles generally
accepted in the United States of America and require management
to make estimates and assumptions that affect amounts reported
and disclosed in the financial statements and related notes.
Actual results could differ from these estimates.

Results of Operations

The following table represents selected
components of the Companys results of operations, in
millions of dollars and as percentages of net sales. The table
reflects the operations of the Company for the years ended
December 31, 2001, 2000 and 1999.

|                                                                                                                |  |                          |       |      |  |      |       |   |  |   |       |   |  |  |       |   |  |   |       |   |  |  |       |  
|--------------------------------------------------------------------------------------------------------------- |  | ------------------------ | ----- | ---- |  | ---- | ----- | - |  | - | ----- | - |  |  | ----- | - |  | - | ----- | - |  |  | ----- | -
|                                                                                                                |  |                         
|                                                                                                                |  | Years Ended December 31,
|                                                                                                                |  |                         
|                                                                                                                |  |                          |       |      |  |     
|                                                                                                                |  | 2001                     |       | 2000 |  | 1999
|                                                                                                                |  |                          |       |      |  |     
|                                                                                                                |  |                          |       |      |  |      |       |   |  |  
|                                                                                                                |  |                          |       |      |  |      |       |   |  |  
|                                                                                                                |  |                         
|                                                                                                                |  | ($ in millions)         
|Net sales                                                                                                       |  | $                        | 380.1 |      |  |      | 100.0 | % |  | $ | 324.6 |   |  |  | 100.0 | % |  | $ | 299.6 |   |  |  | 100.0 | %
|Cost of sales                                                                                                   |  |                          | 87.0  |      |  |      | 22.9  |   |  |   | 79.5  |   |  |  | 24.5  |   |  |   | 82.3  |   |  |  | 27.5  |  
|                                                                                                                |  |                          |       |      |  |      |       |   |  |   |       |   |  |  |       |   |  |   |       |   |  |  |       |  
|Gross profit                                                                                                    |  |                          | 293.1 |      |  |      | 77.1  |   |  |   | 245.1 |   |  |  | 75.5  |   |  |   | 217.3 |   |  |  | 72.5  |  
|Selling, general and administrative expenses                                                                    |  |                          | 236.8 |      |  |      | 62.3  |   |  |   | 200.0 |   |  |  | 61.6  |   |  |   | 183.9 |   |  |  | 61.4  |  
|Restructuring and impairment charges                                                                            |  |                          |      |      |  |      |      |   |  |   | 2.6   |   |  |  | 0.8   |   |  |   | 4.8   |   |  |  | 1.6   |  
|Loss (gain) on sale of assets                                                                                   |  |                          | 0.1   |      |  |      | 0.0   |   |  |   | 0.1   |   |  |  | 0.0   |   |  |   | (1.0  | ) |  |  | (0.4  | )
|                                                                                                                |  |                          |       |      |  |      |       |   |  |   |       |   |  |  |       |   |  |   |       |   |  |  |       |  
|Income from operations                                                                                          |  |                          | 56.2  |      |  |      | 14.8  |   |  |   | 42.4  |   |  |  | 13.1  |   |  |   | 29.6  |   |  |  | 9.9   |  
|Exchange (loss) gain                                                                                            |  |                          | (9.7  | )    |  |      | (2.6  | ) |  |   | (11.7 | ) |  |  | (3.6  | ) |  |   | 3.3   |   |  |  | 1.1   |  
|Interest expense, net                                                                                           |  |                          | (13.3 | )    |  |      | (3.5  | ) |  |   | (15.7 | ) |  |  | (4.8  | ) |  |   | (16.9 | ) |  |  | (5.6  | )
|Other income (expense), net                                                                                     |  |                          | (0.1  | )    |  |      | 0.0   |   |  |   | 1.6   |   |  |  | 0.5   |   |  |   | 0.1   |   |  |  | 0.0   |  
|                                                                                                                |  |                          |       |      |  |      |       |   |  |   |       |   |  |  |       |   |  |   |       |   |  |  |       |  
|Income before income taxes, extraordinary item
	and cumulative effect of accounting change                      |  |                          | 33.1  |      |  |      | 8.7   |   |  |   | 16.6  |   |  |  | 5.2   |   |  |   | 16.1  |   |  |  | 5.4   |  
|Income tax expense                                                                                              |  |                          | 17.4  |      |  |      | 4.6   |   |  |   | 10.0  |   |  |  | 3.2   |   |  |   | 10.9  |   |  |  | 3.7   |  
|                                                                                                                |  |                          |       |      |  |      |       |   |  |   |       |   |  |  |       |   |  |   |       |   |  |  |       |  
|Income before extraordinary item and cumulative
	effect of accounting change                                    |  |                          | 15.7  |      |  |      | 4.1   |   |  |   | 6.6   |   |  |  | 2.0   |   |  |   | 5.2   |   |  |  | 1.7   |  
|Extraordinary loss on early extinguishment of
	debt, net of income tax benefit of $0.2 in 2000 and $0.2 in 1999 |  |                          |      |      |  |      |      |   |  |   | 0.3   |   |  |  | 0.1   |   |  |   | 0.6   |   |  |  | 0.2   |  
|                                                                                                                |  |                          |       |      |  |      |       |   |  |   |       |   |  |  |       |   |  |   |       |   |  |  |       |  
|Income before cumulative effect of accounting
	change                                                           |  |                          | 15.7  |      |  |      | 4.1   |   |  |   | 6.3   |   |  |  | 1.9   |   |  |   | 4.6   |   |  |  | 1.5   |  
|Cumulative effect of accounting change, net of
	income tax expense of $0.1                                      |  |                          | 0.1   |      |  |      | 0.0   |   |  |   |      |   |  |  |      |   |  |   |      |   |  |  |      |  
|                                                                                                                |  |                          |       |      |  |      |       |   |  |   |       |   |  |  |       |   |  |   |       |   |  |  |       |  
|Net income                                                                                                      |  | $                        | 15.8  |      |  |      | 4.1   | % |  | $ | 6.3   |   |  |  | 1.9   | % |  | $ | 4.6   |   |  |  | 1.5   | %
|                                                                                                                |  |                          |       |      |  |      |       |   |  |   |       |   |  |  |       |   |  |   |       |   |  |  |       |  




|    |                                                                                                                                                                                                                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Reclassifications have been made to all prior
	periods to reflect late fees charged to consultants, previously
	reported as reductions to general and administrative expenses,
	in net sales. The amounts that have been reclassified as net
	sales are $0.5 million and $0.4 million for the years
	ended December 31, 2000 and 1999, respectively.

Year ended December 31, 2001 compared
to year ended December 31, 2000

Net sales.Net sales
for 2001 increased to $380.1 million from $324.6 million in
2000, an increase of $55.5 million, or 17.1%. The
Companys average ending number of consultants worldwide
increased 17.9% to approximately 362,000 consultants in 2001, an
increase of 55,000 consultants over the 2000 average. The number
of ordering consultants increased to approximately 180,000
consultants, 20.0% over the number of ordering consultants in
2000. In general, consultants are considered to be ordering
consultants if they place

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an order within the past month. The Company
defines consultant productivity as net sales in U.S. dollars
divided by the annual average number of consultants. A
consultant is included in the total ending consultant base if
she places an order within the past four months. The average
consultant base is calculated based on the total ending
consultant base consultants for each of the prior twelve months.
The Companys consultant productivity decreased 0.7%
between 2001 and 2000 due to geographic mix and planned program
changes in the U.S. which encouraged greater activity at the
expense of productivity. Consultant productivity in Mexico
increased 3.5%.


In Mexico, net sales, excluding intersegment
sales, for 2001 increased to $249.8 million from
$201.7 million in 2000, an increase of $48.1 million,
or 23.8%. Sales in Mexico in local currency increased by 22.2%
over 2000 net sales. The year-to-year increase was driven by an
increase in the average number of consultants, an increase in
consultant productivity, and an increase in average consultant
branches, or leaders. Mexico defines a branch or leader as a
consultant with twelve or more active consultants in her
downline. The average number of leaders in 2001 increased 20.4%
compared to the 2000 average. In Mexico, the average number of
consultants in 2001 increased to approximately 229,000, or 19.6%
over the 2000 average.

In the U.S., net sales, excluding intersegment
sales, for 2001 increased to $80.8 million from
$75.2 million in 2000, an increase of $5.6 million, or
7.4%. During the later part of 2000, the U.S. established two
distinct selling divisions to focus on the individual
characteristics of the Hispanic Division and the General
Division. The focus on the distinct selling divisions
contributed to the overall sales increase. Sales in the Hispanic
Division increased 8.0% and sales in the General Division
increased 6.3% compared to 2000 sales. The year-to-year increase
was also driven by an overall increase in the number of
consultants and an increase in the percentage of active
consultants, partially offset by a decrease in productivity. In
the U.S., the average number of consultants in 2001 increased to
approximately 66,000, or 7.8% above the 2000 average. The
percent of ordering consultants increased to 53.5% of all
consultants, compared to 49.6% in 2000. Consultant productivity
decreased 6.1% over consultant productivity in 2000.

In Europe, net sales, excluding intersegment
sales, for 2001 decreased to $26.5 million from
$27.0 million in 2000, a decrease of $0.5 million, or
1.9%. The decline in net sales is primarily attributed to
unfavorable exchange rates due to the weakening of local
currency compared to the U.S. dollar. If exchange rates remained
constant between 2000 and 2001, net sales would have increased
nominally. In Europe, the average number of consultants was
consistent at an average of 17,000 consultants each year.

Gross profit.Gross
profit in 2001 increased to $293.1 million from $245.1
million in 2000, an increase of $48.0 million, or 19.6%.
Gross profit as a percentage of sales (gross margin) increased
to 77.1% from 75.5%.

In Mexico, gross margin improved primarily due to
reduced product costs, while prices increased in line with
inflation. During 2001, the peso strengthened 5.2% compared to
the U.S. dollar in 2000. The strengthening of the peso resulted
in reduced product costs as the Company benefited from foreign
currency gains as some inventory and components are purchased in
U.S. dollar-denominated transactions. These gains were
partially offset by derivative losses on forward contracts used
to purchase inventory and accounted for using hedge accounting.
Mexicos fourth quarter 2000 gross margin included certain
adjustments related to changes in cost accounting estimates,
totaling $3 million. These changes resulted in increased
margins of 76.5% in the fourth quarter of 2001 compared to 67.7%
in the fourth quarter of 2000 and 76.8% for the year ended
December 31, 2001 compared to 74.4% for the year ended
December 31, 2000.

In the U.S., the gross margin decreased as a
result of a more aggressive promotional mix. In 2001, the U.S.
sold less regular resale items and more promotional and
non-resale items. In 2001, 46.7% of resale items sold were
non-promotional, regular resale products, compared to 55.0% in
2000. Regular resale items typically contribute to a greater
margin than promotional or non-resale items.

In Europe, gross margin in 2001 increased to
approximately 79.9% compared to 76.8% in 2000 primarily due to a
more favorable product mix and less aggressive discounting.

Selling, general and administrative expenses.SG&A expenses in 2001 increased to
$236.8 million from $200.0 million in 2000, an
increase of $36.8 million, or 18.4%. SG&A as a
percentage of net sales increased in 2001 to 62.3% from 61.6% in
2000.

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In Mexico, SG&A as a percentage of net sales
increased to 48.8% for 2001 compared to 46.1% in 2000. The
primary factors for the increase in SG&A as a percentage of
net sales were sales promotional expenses, distribution costs
and administrative expenses. Sales promotional expenses
increased because there was additional promotional activity in
2001 in an effort to generate sales. Distribution costs
increased proportionally more than sales due to the shipment of
more small packages. Administrative expense increased primarily
due to additional expenses related to reserves for uncollectible
accounts receivable. Mexico charged $7.7 million to bad
debt expense during 2001, of which $3.8 million was charged
during the fourth quarter due to declining consultant liquidity
as a result of the general slowdown of the economy.

In the U.S., SG&A, as a percentage of net
sales was relatively consistent at approximately 64%. Commission
and override expenses increased $1.1 million in 2001
compared to 2000; however, remained at approximately 18.5% of
total net sales in both years. Selling expenses increased
proportionally more than sales due to the implementation of the
expanded e-commerce platform in 2001. In 2001, there was
approximately $1.2 million of increased incremental
e-commerce related expenses. The percentage increase in selling
expenses is partially offset by a decrease in sales promotional
expense and administrative expense, as a percentage of net
sales. Expenditures on major events were scaled back, which
resulted in a decrease in sales promotional expenses and cost
savings measures were employed in 2001 in an effort to reduce
administrative expense.

In Europe, SG&A expenses in 2001 decreased to
72.3% of net sales compared to 74.6% in 2000, primarily as a
result of the Companys repositioning and restructuring
activities in Europe in the second half of 2000.

Developing markets, particularly Brazil, incurred
additional SG&A expenses in 2001 compared to 2000 due to the
growing nature of the business and an increase in the allowance
for bad debts as a result of declining consultant liquidity and
economic difficulties. Corporate expenses increased
$1.8 million because of increased compensation expenses in
2001 primarily related to bonuses compared to 2000 and increased
infrastructure expenses to support the growing business.

Restructuring and impairment charges.There were no restructuring and
impairment charges for 2001 compared to $2.6 million for
2000. In 2000, the Company recorded approximately
$1.6 million of restructuring charges and approximately
$1.0 million of asset impairment charges. The restructuring
charges in 2000 related to the Companys repositioning
activities in Europe, and consisted primarily of severance
costs. The asset impairment charges consisted of approximately
$0.3 million related to the Companys repositioning
activities in Europe and approximately $0.7 million
relating to the writedown of certain capitalized computer
software costs in the United States. In 2000, the Company
consolidated the sales support and administrative functions for
Austria, Italy, and the Netherlands in Germany. Field sales
personnel continue to perform sales and marketing functions in
those locations, but the requirements for local office space and
resources have been significantly reduced. In addition, the
Company implemented a plan to close its Poland operation, and
began serving that territory through a distributor in 2001.

Exchange loss.The
Companys net foreign exchange loss in 2001 was
$9.7 million compared to $11.7 million in 2000, a
decrease in exchange loss of $2.0 million. The
Companys foreign exchange gains and losses primarily
result from its operations in Mexico. The net exchange loss has
three primary elements: gains or losses on forward currency
contracts, unrealized and realized gains or losses on the
remeasurement of U.S. dollar-denominated debt, and gains or
losses on transactions denominated in foreign currencies.

Effective January 1, 2001, the Company
adopted Statement of Financial Accounting Standards
(SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities.
SFAS No. 133, as amended and interpreted, establishes
accounting and reporting standards for derivative instruments
and hedging activities and requires such instruments to be
measured and recorded at fair value. The derivative instruments
utilized by the Company did not qualify for hedge accounting
under applicable standards prior to adoption of
SFAS No. 133, and accordingly such instruments were
marked-to-market with gains and losses included as a component
of exchange loss in the statement of operations for the year
ended December 31, 2000. Under SFAS No. 133,
certain derivative contracts do not qualify for hedge accounting
and the resulting fair value is recorded as a component of
exchange loss. However, under SFAS No. 133, the
Companys use of forward contracts to hedge certain
forecasted transactions now qualifies for hedge accounting.
Unrealized

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gains and losses from such derivative instruments
are deferred as a separate component of other comprehensive
income, and are recognized in income at the same time that the
underlying hedged exposure is recognized in income. This
accounting treatment results in the matching of gains and losses
from certain forward exchange contracts with the corresponding
gains and losses generated by the underlying hedged transaction.


In 2001, the Company continued to use forward
contracts to protect against potential devaluation of the
Mexican peso by selling Mexican pesos and buying U.S. dollars.
Throughout 2001, the forward currency contract pricing reflected
the markets expectation that the peso would devalue
relative to the dollar. However, in 2001, the peso to U.S.
dollar exchange rate strengthened, resulting in exchange losses
of $12.2 million related to forward contracts. Upon
implementation of SFAS 133 on January 1, 2001, the Company
had certain forward contracts not designated as hedges. During
2001, the Company recognized foreign exchange losses totaling
$11.4 million on certain forward contracts not designated
as hedges under SFAS No. 133. As the Company utilizes hedge
accounting pursuant to SFAS No. 133 for forward
contracts to hedge certain forecasted transactions, certain
losses are deferred as a separate component of other
comprehensive income and recognized in income at the same time
that the underlying hedged exposure is recognized in income.
During 2001, $5.5 million of losses were deferred and
$0.8 million was recognized as a component of exchange loss
and $1.0 million was recognized as cost of sales, resulting
in $3.7 million of exchange losses deferred as a component
of other comprehensive income at December 31, 2001. The
contracts are remeasured each month and the fair value of the
contracts is included in current liabilities. As the Mexican
peso strengthened in 2001, the Company recognized
$2.8 million of exchange gains on the remeasurement of U.S.
dollar-denominated debt in 2001. Additionally, the Company
recognized $0.3 million of net unrealized and realized
exchange losses on other transactions denominated in foreign
currencies.

In 2000, the peso to U.S. dollar exchange rate
was stable, resulting in $10.0 million of exchange losses
on forward contracts. The remeasurement of U.S.
dollar-denominated debt in 2000 resulted in an exchange loss of
$0.7 million, as the peso weakened against the U.S. dollar
at year-end. Net realized and unrealized losses on other foreign
currency transactions were $0.6 million.

Interest expense.Interest expense decreased to
$13.3 million in 2001 from $15.7 million in 2000, a
decrease of $2.4 million, or 15.3%. The decrease was due to
a lower debt balance, as total debt decreased approximately
$15.9 million from 2000 to 2001, and lower average interest
rates.

Other income (expense).Other expense in 2001 was nominal
compared to other income for 2000 of $1.6 million, which
consisted primarily of income related to the recovery of the
effect of inflation from a receivable due from the Mexican
government related to taxes.

Income tax expense.Income tax expense increased to
$17.4 million in 2001 from $10.0 million in 2000, an
increase of $7.4 million, or 74.0%. The increase in income
tax expense is the result of increased income generated by the
Companys U.S. and Mexico subsidiaries in 2001 compared to
2000 and approximately $0.6 million of tax provision
related to certain tax adjustments in Europe. In 2001, the
Companys effective income tax rate decreased to 52.5% from
a 59.9% effective income tax rate in 2000. The decrease in the
effective income tax rate is driven by taxable income generated
by the Companys European subsidiary in 2001, compared to a
tax loss without any tax benefit in 2000. This decrease in the
effective income tax rate is partially offset by higher
effective income tax rates in the Companys Mexico and U.S.
subsidiaries.

Net income.Net
income increased to $15.8 million in 2001 from
$6.3 million in 2000, an increase of $9.5 million, or
150.8%. The increase was due to a $48.0 million increase in
gross profit, a $2.6 million decrease in restructuring and
impairment charges, a $2.0 million decrease in exchange
loss, a $2.4 million decrease in interest expense, a
$0.3 million decrease in extraordinary loss on early
extinguishment of debt, net of tax, and a $0.1 million gain
on the cumulative effect of accounting change, net of tax,
partially offset by a $36.8 million increase in selling,
general and administrative expenses, a $1.7 million
decrease in other income (expense), and a $7.4 million
increase in income tax expense.

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Year ended December 31, 2000 compared
to year ended December 31, 1999

Net sales.Net sales
for 2000, excluding intersegment sales, increased to
$324.6 million from $299.6 million in 1999, an
increase of $25.0 million, or 8.3%. Sales in local
currencies for 2000 increased by 9.6% over 1999. The
Companys average number of consultants worldwide increased
to approximately 307,000 in 2000, or 11.6%, over the 1999
average. The average number of consultants in Brazil increased
by approximately 11,000 in 2000, which accounts for one-third of
the Companys total increase over the 1999 average. The
Companys consultant productivity decreased 2.9% in 2000,
as increased productivity in Mexico was not enough to offset
declines in productivity in the U.S. and Europe, and consultant
productivity in Brazil is below the average for the Company due
to lower comparative U.S. dollar consumer purchasing power.

In Mexico, net sales, excluding intersegment
sales, for 2000 increased to $201.7 million from
$175.9 million in 1999, an increase of $25.8 million,
or 14.7%. Sales in Mexico in local currency increased by 13.4%
over 1999. The year-to-year increase was driven by the larger
consultant base, product price increases, the introduction of
new products and increased productivity of consultants. In
Mexico, the average number of consultants in 2000 increased to
approximately 192,000, or 6.7% over the 1999 average. Consultant
productivity in Mexico increased 7.5% in 2000.

In the U.S., net sales for 2000, excluding
intersegment sales, increased to $75.2 million from
$74.5 million in 1999, an increase of $0.7 million, or
0.9%. In 1999, U.S. net sales included low margin sales to a
third-party manufacturer of $1.2 million, and there were no
such sales in 2000. In addition, during 1999, the U.S. generated
$0.9 million of net sales in the Dominican Republic. The
Company established a separate subsidiary in the Dominican
Republic in 2000, so that territory is no longer a source of
sales for the U.S. Excluding the impact of these two items, net
sales in the U.S. for 2000 increased 3.9%, primarily due to
increases in the number of consultants, partially offset by
lower productivity. In the U.S., the average number of
consultants in 2000 increased to approximately 62,000, or 10.7%
above the 1999 average. The U.S. implemented a program in 2000
whereby consultants received higher discounts on their
purchases, at lower order sizes than before. This stimulated
growth of consultants and ordering activity, but at lower
average order sizes, resulting in lower productivity per order.

In Europe, net sales for 2000 decreased to
$27.0 million from $33.1 million in 1999, a decrease
of $6.1 million, or 18.4%. Contributing to the sales
decline was an unfavorable exchange rate impact on sales of
$1.9 million. Excluding the exchange rate impact, net sales
decreased 12.7%, principally due to decreases in the number and
productivity of consultants. In Europe, the average number of
consultants in 2000 decreased to approximately 17,000, or 5.6%
less than the 1999 average. Consultant productivity in Europe
decreased 13.6% in 2000.

Gross profit.Gross
profit in 2000 increased to $245.1 million from $217.3
million in 1999, an increase of $27.8 million, or 12.8%.
Gross profit as a percentage of sales (gross margin) increased
to 75.5% from 72.5%.

In Mexico, the margin improved due to sales price
increases, a more favorable product mix, and reduced product
costs. The reduced product costs for 2000 included foreign
exchange gains from inventory and components purchased in
U.S. dollar-denominated transactions when the peso was
stronger against the U.S. dollar compared to 1999. Mexicos
fourth quarter 2000 gross margin decreased compared to the
fourth quarter of 1999 due to a combination of certain
adjustments related to changes in cost accounting estimates,
totaling $3 million, a higher promotional product mix due
to the holiday season, and sales of slow moving inventory items
at lower margins in the fourth quarter of 2000 as part of a plan
to increase inventory turnover and reduce investment in
inventory. In the U.S., the margin improvement was the result of
improved gross margins on both regular and promotional products
as a result of price increases and product cost reductions. The
margin on non-resale items (demonstration products used by
consultants, but not re-sold to clients) improved significantly
from the comparable prior year period due to price increases and
the reconfiguration of cases sold to first-time consultants. The
reduced product costs in the U.S. and Mexico included cost
reductions on skin and body products that were not achieved
until the beginning of the third quarter of 1999, after the
U.S. manufacturing of these products was outsourced. In
Europe, margins were flat in 2000 compared to 1999, reflecting
the lower product costs discussed above, offset by an increase
due to the strengthening of the dollar against European
currencies.

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Selling, general and administrative expenses.SG&A expenses in 2000 increased to
$200.0 million from $183.9 million in 1999, an
increase of $16.1 million, or 8.8%. SG&A as a
percentage of net sales increased in 2000 to 61.6% from 61.4%
for 1999.

In Mexico, SG&A as a percentage of net sales
for 2000 was virtually the same as in 1999 at approximately
46.0%. The primary drivers of the increased expenses of
$12.7 million were increased sales promotional, commission
and override expenses, which tend to increase proportionally
with sales, and increased administrative expenses, which
represent additional infrastructure costs to support the higher
sales volume. The U.S. incurred additional sales promotional
expenses in 2000 primarily as a result of the Companys
decision to hold two major promotional events within the same
year, compared to just one in 1999, as part of the
Companys commitment to expand business in the U.S. market.
In addition, the U.S. made a change in the lineage program in
May 1999 that resulted in higher commission and override
expenses for the full year 2000 compared to only eight
months impact in 1999. In Europe, SG&A expenses in
2000 decreased compared to 1999, as a result of expense
containment measures, primarily in Germany. Developing markets,
particularly Brazil, incurred additional SG&A expenses in
year 2000 compared to 1999. Corporate expenses decreased
approximately $1.1 million in 2000 from 1999, primarily as
a result of reduced compensation expenses, partially offset by
expenses incurred in connection with the development of the
Companys e-commerce systems.

Restructuring and impairment charges.Restructuring and impairment charges
for 2000 were $2.6 million and were $4.8 million in
1999. In 2000, the Company recorded approximately
$1.6 million of restructuring charges and approximately
$1.0 million of asset impairment charges. The restructuring
charges in 2000 related to the Companys repositioning
activities in Europe, and consisted primarily of severance
costs. The asset impairment charges consisted of approximately
$0.3 million related to the Companys repositioning
activities in Europe and approximately $0.7 million
relating to the writedown of certain capitalized computer
software costs in the United States. In 2000, the Company
consolidated the sales support and administrative functions for
Austria, Italy, and the Netherlands in Germany. Field sales
personnel continue to perform sales and marketing functions in
those locations, but the requirements for local office space and
resources have been significantly reduced. In addition, the
Company implemented a plan to close its Poland operation, and is
serving that territory through a distributor as of mid-2001.

In 1999, the Company recorded approximately
$3.7 million of restructuring charges and approximately
$1.1 million of asset impairment charges. The restructuring
charges consisted of approximately $2.7 million of charges
related to the outsourcing of the Companys U.S. product
manufacturing functions, and approximately $1.0 million of
other restructuring activities in the U.S., Europe and Mexico.
Substantially all of the charges related to severance costs. The
asset impairment charges consisted of approximately
$1.1 million relating to long-lived assets (goodwill and
trademarks) owned by its German subsidiary (Jafra
Germany). The Company performed an impairment review and
concluded that Jafra Germanys future undiscounted cash
flows were below the carrying value of its related long-lived
assets. Accordingly, the Company recorded a non-cash impairment
loss of approximately $1.1 million to adjust the carrying
values of Jafra Germanys goodwill and trademarks to their
estimated fair values, which were determined based on
anticipated future cash flows discounted at a rate commensurate
with Jafra Germanys weighted average cost of capital.

Loss (gain) on sale of assets.The Companys loss on sale of
assets was $0.1 million in 2000, compared to a gain of
$1.0 million in 1999, a decrease of $1.1 million. In
1999, the Company recognized a $1.0 million gain on the
sales of a parcel of property and an office building in the
United States.

Exchange (loss) gain.The Companys foreign exchange
loss in 2000 was $11.7 million, compared to an exchange
gain of $3.3 million in 1999, a change of
$15.0 million. The Companys foreign exchange gains
and losses primarily result from its operations in Mexico. In
2000, foreign exchange losses of $11.3 million were incurred in
Mexico, while in 1999, there were $3.7 million of exchange
gains in Mexico. The net foreign exchange loss for 2000 has
three elements: gains or losses on forward currency contracts,
unrealized gains or losses on the remeasurement of U.S.
dollar-denominated debt, and gains or losses on transactions
denominated in foreign currencies. During December 1999, the
Company implemented a hedging program to protect against
potential devaluation of the Mexican peso, and purchased forward
contracts selling Mexican pesos and

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buying U.S. dollars based upon forward exchange
rates. These contracts are marked-to-market each month and the
fair value of the contracts is included in current assets and
liabilities, with the offsetting gain or loss included in
exchange (loss) gain in the accompanying consolidated statements
of operations. Throughout 2000, the forward currency contract
pricing reflected the markets expectation that the peso
would devalue relative to the dollar. However, in 2000, the peso
to U.S. dollar exchange rate was stable, resulting in a
$10.0 million exchange loss on forward contracts. The
benefit of the stable peso is reflected in the Companys
operating income. The remeasurement of U.S. dollar-denominated
debt in 2000 resulted in an unrealized exchange loss of
$0.7 million, as the peso weakened against the U.S. dollar
at year-end. Net realized and unrealized losses on other foreign
currency transactions were $0.6 million. The 1999 foreign
exchange gains were primarily the result of remeasurement of
U.S. dollar-denominated debt, as the peso strengthened against
the U.S. dollar.


Interest expense.Interest expense decreased to
$15.7 million in 2000 from $16.9 million in 1999, a
decrease of $1.2 million, or 7.1%. Approximately
$0.9 million of the reduced interest expense was due to the
impact of debt restructuring activities which occurred in the
latter part of 1999 and early 2000, whereby the Company
repurchased a portion of its Notes with a face value of
$24.8 million and replaced the repurchased Notes with debt
under the Revolving Credit Facility, which currently has a lower
effective interest rate than the Notes. The remainder of the
decrease was due to a combination of lower average debt balances
and lower average interest rates.

Other income (expense).Other income for 2000 was
$1.6 million, which consisted primarily of income related
to a recovery of the effect of inflation from a receivable due
from the Mexican government related to taxes. Other income
(expense) in 1999 was nominal.

Income tax expense.Income tax expense decreased to
$10.0 million in 2000 from $10.9 million in 1999, a
decrease of $0.9 million, or 8.3%. The decreased income tax
expense for 2000 is the result of lower taxable income generated
by the Companys Mexican subsidiary in 2000 as compared to
1999. In 2000, the Companys effective income tax rate
decreased to 59.9% from a 67.7% effective income tax rate in
1999, driven by a decrease in the U.S. effective income tax rate
to 31.1% in 2000 from 51.5% in 1999. The decrease in the U.S.
effective income tax rate is due to utilization in 2000 of
certain deferred tax assets that were previously fully reserved.
Valuation allowances are provided against operating losses of
European and South American subsidiaries, and against tax credit
carryforwards in the United States.

Net income.Net
income increased to $6.3 million in 2000 from
$4.6 million in 1999, an increase of $1.7 million, or
37.0%. The increase was due to a $27.8 million increase in
gross profit, a $2.2 million decrease in restructuring and
impairment charges, a $1.2 million decrease in interest
expense, a $1.5 million increase in other income, a
$0.9 million decrease in income tax expense, and a
$0.3 million decrease in extraordinary loss on early
extinguishment of debt, net of tax, partially offset by a $15.0
million increase in exchange losses, a $1.1 million
decrease in loss (gain) on sale of assets, and a
$16.1 million increase in SG&A expenses.

New Accounting Pronouncements

In July 2001, the Financial Accounting Standards
Board (FASB) approved two new statements: SFAS
No. 141, Business Combinations and SFAS
No. 142, Goodwill and Other Intangible Assets.
SFAS No. 141 requires business combinations entered into
after June 30, 2001 to be accounted for using the purchase
method of accounting. SFAS No. 142 requires that goodwill
not be amortized, but be tested for impairment at least
annually. SFAS No. 142 is effective for fiscal years
beginning after December 15, 2001 to all goodwill and other
intangible assets recognized in an entitys statement of
financial position at that date, regardless of when those assets
were initially recognized. In accordance with this statement,
the Company is not required to complete the transitional
goodwill impairment test until June 30, 2002. The Company
is evaluating, but has not yet determined, whether the adoption
of this statement will result in an impairment of goodwill.
Additionally, the Company is evaluating, but has not determined
the useful life of certain other intangible assets under the new
accounting pronouncement. Goodwill amortization of
$2.1 million and possibly a portion of other intangible
amortization of $1.4 million recorded in 2001 required
under previous accounting standards will not be charged to
income in 2002.

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In August 2001, the FASB issued SFAS
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. SFAS No. 144 supersedes SFAS
No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of. SFAS
No. 144 retains substantially all of the requirements of
SFAS No. 121 while resolving certain implementation issues
and addressing the accounting for a component of a business
accounted for as a discontinued operation. SFAS No. 144 is
effective for fiscal years beginning after December 15,
2001. Management does not expect the adoption of SFAS
No. 144 to have a significant impact on the financial
position or results of operations of the Company.

In November 2001, the Emerging Issues Task Force
(EITF) issued EITF Issue No. 01-9,
Accounting for Consideration Given by a Vendor to a
Customer or a Reseller of the Vendors Products,
which addresses the accounting for consideration given by a
vendor to a customer or a reseller of the vendors
products. In April 2001, the EITF reached consensus on EITF
Issue No. 00-25, Vendor Income Statement
Characterization of Consideration Paid to a Reseller of the
Vendors Products, which provides guidance on the
income statement reclassification of consideration from a vendor
to a reseller in connection with the resellers purchase of
the vendors products or to promote sales of the
vendors products. This new guidance provides that
consideration from a vendor to a reseller is generally presumed
to be a reduction of the selling prices of the vendors
products, and, therefore, should be characterized as a reduction
of revenue when recognized in the vendors income
statement. Although the new guidance will not impact net income,
there will be certain income statement reclassifications,
primarily related to commissions paid to consultants related to
their sale of product. The Company is in the process of
quantifying the impact of the guidance on revenue, gross profit
and selling, general and administrative expenses. EITF Issue
No. 00-25 and EITF Issue No. 01-9 are both effective
for the Company on January 1, 2002. Upon adoption, the
Company will reclassify prior period amounts for comparability.

Critical Accounting Policies and
Estimates

Managements Discussion and Analysis of
Financial Condition and Results of Operations discusses the
Companys consolidated financial statements, which have
been prepared in conformity with accounting principles generally
accepted in the United States of America. These principles
require the appropriate application of certain accounting
policies, many of which require management to make estimates and
assumptions about future events and their impact on amounts
reported in the Companys consolidated financial statements
and related notes. Since future events and their impact cannot
be determined with certainty, the actual results may differ from
managements estimates. Such differences could be material
to the financial statements.

Management believes application of accounting
policies, and the estimates inherently required therein, are
reasonable. These accounting policies and estimates are
constantly reevaluated, and adjustments are made when facts and
circumstances dictate a change. Historically, the application of
accounting policies has been appropriate, and actual results
have not differed materially from those determined using
necessary estimates.

The Companys accounting policies are more
fully described in Note 2 to the financial statements
included in Item 8. Financial Statements and
Supplementary Data. Certain critical accounting policies
are described below.

Accounts Receivable.The Company maintains an allowance for doubtful accounts for
estimated losses resulting from the inability of consultants to
make payments. An allowance is calculated based on historical
experience and the age of the outstanding receivables. If the
financial condition of consultants were to deteriorate,
resulting in an impairment of their ability to make payments,
additional allowances may be required.

Inventory Obsolescence.The Company writes down its inventory
to provide for estimated obsolete or unsalable inventory based
on assumptions about future demand for its products. If future
demand is less favorable than managements assumptions,
additional inventory write-downs may be required. Likewise,
favorable future demand and market conditions could positively
impact future operating results if inventory that has been
written-down is sold.

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Foreign Currency Forward Contracts.The Company enters into foreign
currency forward contracts to reduce the effect of adverse
exchange rate fluctuations in the exchange rate of the Mexican
peso to the U.S. dollar. The Company places forward
contracts based on its forecasted U.S. dollar cash outflows from
Jafra S.A. over a rolling 12 month period and does not
hedge transactions that are not included in the 12 month
forecast on the date the forward contract is initiated. As a
matter of policy, the Company does not hold or issue forward
contracts for trading or speculative purposes, nor does it enter
into contracts or agreements containing embedded
derivative features nor is the Company a party to leveraged
derivatives. If the Mexican peso was to significantly strengthen
during the year compared to the U.S. dollar, the Company may
incur additional losses on forward contracts open as of the
balance sheet date. Subsequent to the year-ended
December 31, 2001, the Company modified its use of forward
contracts. See Item 7A. Quantitative and Qualitative
Disclosures about Market Risk.

Contingencies.The
Company accounts for contingencies in accordance with Statement
of Financial Accounting Standards (SFAS) No. 5,
Accounting for Contingencies. SFAS No. 5
requires that the Company record an estimated loss from a loss
contingency when information available prior to issuance of the
Companys financial statements indicates that it is
probable that an asset has been impaired or a liability has been
incurred at the date of the financial statements and the amount
of the loss can be reasonably estimated. Accounting for
contingencies such as legal and income tax matters requires
management to use judgment. Many of these legal and tax
contingencies can take years to be resolved. Generally, as the
time period increases over which the uncertainties are resolved,
the likelihood of changes to the estimate of the ultimate
outcome increases. Management believes that the accruals for
these matters are adequate.

Income Taxes.Deferred income tax assets have been established for net
operating loss carryforwards of certain foreign subsidiaries and
foreign tax credits originating in the United States, which
are reduced by a valuation allowance. The net operating loss
carryforwards expire in varying amounts over a future period of
time. Realization of the income tax carryforwards are dependent
on generating sufficient taxable income prior to expiration of
the carryforwards. Although realization is not assured,
management believes it is more likely than not that the net
carrying value of the income tax carryforwards will be realized.
The amount of the income tax carryforwards that is considered
realizable, however, could change if estimates of future taxable
income during the carryforward period are adjusted.

Impairment of Long-Lived Assets and Enterprise
Goodwill. Long-lived assets and
enterprise goodwill are reviewed for impairment, based on
undiscounted cash flows, whenever events or changes in
circumstances indicate that the carrying amount of such assets
may not be recoverable. If this review indicates that the
carrying amount of the long-lived assets and goodwill is not
recoverable, the Company will recognize an impairment loss,
measured by the future discounted cash flow method. In July
2001, the Financial Accounting Standards Board
(FASB) approved SFAS No. 142, Goodwill
and Other Intangible Assets for fiscal years beginning
after December 15, 2001. SFAS No. 142 requires that
goodwill not be amortized, but be tested for impairment
annually. In accordance with this statement, the Company is not
required to complete the transitional goodwill impairment test
until June 30, 2002. The Company is evaluating, but has not
yet determined, whether the adoption of this statement will
result in an impairment of goodwill. Additionally, the Company
is evaluating, but has not determined the useful life of certain
other intangible assets under the new accounting pronouncement.
Goodwill amortization of $2.1 million and possibly a portion of
other intangible amortization of $1.4 million recorded in 2001
required under previous accounting standards will not be charged
to the income statement in 2002.

Liquidity and Capital Resources

The Acquisition was consummated on April 30,
1998. As part of the financing for the Acquisition,
$100.0 million of Notes were issued, $41.5 million of
borrowings were initially drawn down under the Senior Credit
Agreement ($25.0 million under the Term Loan Facility and
$16.5 million under the Revolving Credit Facility), and
$82.9 million of cash was contributed as an equity
investment by CD&R Fund V, certain members of
management, certain directors and other persons. The purchase
price for the Jafra Business, after final adjustments determined
in 1999, was approximately $212.4 million (excluding
$12.0 million of financing fees and expenses), consisting
of $202.5 million in cash and $9.9 million of
Acquisition fees.

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The Companys liquidity needs arise
primarily from principal and interest payments under the Notes,
the Term Loan Facility and the Revolving Credit Facility. The
Notes represent several obligations of Jafra Cosmetics
International, Inc. (JCI) and Jafra Cosmetics
International, S.A. de C.V.
(Jafra S.A.) in the initial amount of
$60 million and $40 million (subsequently reduced in
1999 and 2000 by the repurchases described below), respectively,
with each participating on a pro rata basis upon redemption. The
Notes mature in 2008 and bear a fixed interest rate of 11.75%
payable semi-annually.

Borrowings under the Senior Credit Agreement are
payable in quarterly installments of principal and interest
through April 30, 2004. Scheduled term loan principal
payments under the Term Loan Facility will be approximately
$5.5 million, $6.5 million, and $2.5 million for
each of the years from 2002 through 2004, respectively.
Borrowings under the Revolving Credit Facility
($1.8 million as of December 31, 2001) mature on
April 30, 2004. Borrowings under the Senior Credit
Agreement bear interest at an annual rate of LIBOR plus a margin
not to exceed 1.625% or an alternate base rate (the higher of
the prime rate or federal funds rate plus 0.5%, plus an
applicable margin not to exceed 0.625%). The interest rates in
effect at December 31, 2001 were approximately 4.3% for the
LIBOR-based borrowings, and the rate for the prime-based
borrowings was approximately 5.4%. Borrowings under the Senior
Credit Agreement are secured by substantially all of the assets
of JCI and Jafra S.A. Interest expense in 2001 was
$13.3 million, including approximately $1.4 million of
non-cash amortization of deferred financing fees. During 2001,
cash paid for interest was approximately $11.5 million.

Both the indenture (the Indenture),
dated as of April 30, 1998, under which the Notes were
issued, and the Senior Credit Agreement contain certain
covenants that limit the Companys ability to incur
additional indebtedness, pay cash dividends and make certain
other payments. The Indenture and the Senior Credit Agreement
also require the Company to maintain certain financial ratios
including a minimum EBITDA to cash interest expense coverage
ratio and a maximum debt to EBITDA ratio. As of
December 31, 2001, the Company had irrevocable standby
letters of credit outstanding totaling $3.3 million.

The Notes are unsecured and are generally
non-callable for five years from the date of issuance.
Thereafter, the Notes will be callable at premiums declining to
par in the eighth year.

Consents and Waivers, dated June 30, 2001
and November 19, 1999, to the Senior Credit Agreement allow
the Company to repurchase the Notes in the open market from time
to time, with the aggregate purchase prices for all such Notes
repurchased not to exceed $50.0 million. Aggregate
repurchases as of December 31, 2001 were $24.8 million.

During the year ended December 31, 2001,
Jafra S.A. repaid the balance remaining under a one-year
term loan originally due on August 16, 2001, and entered
into an unsecured foreign bank loan agreement, borrowing the
peso equivalent of $2.1 million at a weighted average fixed
interest rate of 18.7%. Principal and interest payments are due
monthly through September 26, 2004.

The following schedule details the payment
schedule for debt and operating lease obligations as of
December 31, 2001:

Payments Due by Period

(Dollars in thousands)


|                              |  |       |        |      |  |             |       |             |  |            |       |  |  |   |       |  |  |   |        | 
|----------------------------- |  | ----- | ------ | ---- |  | ----------- | ----- | ----------- |  | ---------- | ----- |  |  | - | ----- |  |  | - | ------ | 
|Contractual Obligations       |  | Total |        | 2002 |  | 2003 - 2004 |       | 2005 - 2006 |  | Thereafter
|                              |  |       |        |      |  |             |       |             |  |           
|Subordinated notes            |  | $     | 75,180 |      |  | $           |      |             |  | $          |      |  |  | $ |      |  |  | $ | 75,180 | 
|Term loan                     |  |       | 14,500 |      |  |             | 5,500 |             |  |            | 9,000 |  |  |   |      |  |  |   |       | 
|Revolving loan                |  |       | 1,800  |      |  |             |      |             |  |            | 1,800 |  |  |   |      |  |  |   |       | 
|Unsecured bank loan agreement |  |       | 1,609  |      |  |             | 688   |             |  |            | 921   |  |  |   |      |  |  |   |       | 
|Operating leases              |  | $     | 11,331 |      |  | $           | 3,185 |             |  | $          | 4,617 |  |  | $ | 3,529 |  |  | $ |       | 

The Company believes, but no assurance can be
given, that its existing cash, cash flow from operations and
availability under the Senior Credit Agreement will provide
sufficient liquidity to meet the Companys cash
requirements and working capital needs over the next year. The
Company has experienced reduced

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consultant liquidity in certain foreign
subsidiaries. Reduced consultant liquidity could result in
future reduced cash flows from operations, which may require the
Company to use available funds under the Senior Credit Agreement.


Outsourcing of Manufacturing
Functions

The Company and the Contractor entered into a
manufacturing agreement, dated as of June 10, 1999, (the
Manufacturing Agreement). Subject to the terms and
conditions of the Manufacturing Agreement, the Contractor has
agreed to manufacture all of the Companys requirements for
certain cosmetic and skin care products for an initial term of
five years. Following the expiration of the initial five-year
term, the Manufacturing Agreement will be automatically extended
for additional one-year terms unless terminated by six
months prior written notice by either party. The
Manufacturing Agreement provides for price renegotiations by the
Contractor if the Companys quarterly or annual purchase
volume falls below specified minimums. The Manufacturing
Agreement requires the Contractor to maintain insurance to cover
costs associated with any product liability or product recall
caused by the acts or omissions of the Contractor. In addition,
the Company is obligated to purchase materials acquired by the
Contractor based upon product forecasts provided by the Company
if the Contractor is unable to sell such materials to a third
party. There have been no such repurchases to date. The
Contractor is solely responsible for obtaining the inventories,
manufacturing the inventories at its current location in Chino,
California, complying with applicable laws and regulations, and
performing quality assurance functions.

In connection with the Companys 1999
restructuring activities related to the closure and outsourcing
of its U.S. product manufacturing functions as discussed in
Note 10 to the consolidated financial statements, certain
fixed assets and inventories were sold to the Contractor in
exchange for secured promissory notes. The promissory note for
the fixed assets was for an amount of approximately
$1.5 million, carried an annual interest rate of 8%, and
commenced payments on January 1, 2000. The promissory note
for inventories of approximately $2.2 million was
non-interest bearing, and commenced payments on October 1,
1999. The note for the inventories was repaid in October 2000
and the note for the fixed assets was repaid in December 2000.

During the fourth quarter of 2000, the Contractor
obtained $1.0 million of advances from the Company in
exchange for an unsecured promissory note. The note bears
interest at an annual rate of 9% and is payable in monthly
installments commencing on February 15, 2001. At
December 31, 2001, approximately $0.3 million of the
note was outstanding and is included in receivables in the
accompanying consolidated balance sheets.

Restructuring Activities

During 2000, the Company paid out approximately
$2.0 million in charges related to restructuring
activities. Approximately $1.0 million of the payments were
for amounts accrued in 1999, consisting primarily of severance
payments relating to the 1999 outsourcing of U.S. product
manufacturing functions and certain other restructuring
activities in Europe. An additional amount of approximately
$1.0 million was paid relating to year 2000 repositioning
activities in Europe, and consisted primarily of severance
costs. The Company anticipates that substantially all of the
remaining restructuring costs of approximately $0.2 million
will be paid by the end of the second quarter of 2002.

Cash Flows

Net cash provided by operating activities was
$30.1 million in 2001, consisting of $36.8 million
provided by net income adjusted for depreciation, amortization,
and other non-cash items included in net income, less
$6.7 million used in changes in operating assets and
liabilities. The significant elements of the net cash used in
changes in operating assets and liabilities in 2001 were a
reduction of $2.8 million in prepaid expenses and other
current assets, a $7.4 million increase in income tax payable/
prepaid, partially offset by a $15.8 million increase in
accounts receivable and a $1.0 million decrease in accounts
payable and accrued liabilities. Net cash provided by operating
activities was $32.5 million in 2000, consisting of
$29.2 million provided by net income adjusted for
depreciation, amortization, and other non-cash items included in
net income and $3.3 million provided by changes in
operating assets and liabilities. The significant elements of
the net cash

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used by changes in operating assets and
liabilities in 2000 were an increase of $12.1 million in
accounts payable and a reduction in prepaid income taxes of
$12.2 million, partially offset by an increase in
inventories of $7.9 million and an increase in accounts
receivable of $10.5 million.


Net cash used in investing activities was
$11.7 million in 2001, compared to $7.2 million in
2000, an increase of $4.5 million. In 2001, investing
activities consisted primarily of capital expenditures of
$4.5 million in the Companys U.S. subsidiary,
$6.0 million in the Companys Mexico subsidiary, and
$0.9 million in other subsidiaries. In 2000, net cash used
in investing activities also consisted primarily of capital
expenditures in the U.S. and Mexico.

Capital expenditures in 2002 are expected to be
approximately $11.0 million, comprised of approximately
$7.2 million for information technology, $1.2 million
for production equipment and $2.6 million for space,
facilities and other items. These capital expenditures will be
funded by cash from operations or borrowings under the revolving
credit facility.

Net cash used in financing activities was
$16.6 million in 2001 compared to $23.5 million in
2000, a decrease of $6.9 million. In 2001, the Company made
net repayments of $12.7 million under the revolving credit
facility and $4.5 million under the term loan facility and
paid $0.8 million for the repurchase of common stock. The
cash used in financing activities was partially offset by net
proceeds of $1.3 million from an unsecured bank loan
agreement at Jafra S.A. In 2000, cash used in financing
activities consisted primarily of $10.6 million for
repurchases of subordinated debt with a face value of
$10.8 million and net repayments of $14.0 million
under the senior credit facility.

The effect of exchange rate changes on cash was
$1.0 million for 2001 compared to $0.8 million in 2000
relating to fluctuations in the exchange rate of the Mexican
peso, European currencies, primarily the deutschmark, and South
America currencies, primarily the Brazilian reals and the
Argentinean peso.

Foreign Operations

Sales outside of the United States aggregated
79%, 77% and 75% of the Companys total net sales for the
fiscal years 2001, 2000 and 1999, respectively. In addition, as
of December 31, 2001, international subsidiaries comprised
approximately 77% of the Companys consolidated total
assets. Accordingly, the Company has experienced and continues
to be exposed to foreign exchange risk. During December 1999,
the Company implemented a hedging program to protect against
potential devaluation of the Mexican peso. The Company purchases
forward contracts selling Mexican pesos and buying
U.S. dollars based upon forward exchange rates. These
contracts are revalued each month based on the fair value and
the fair value of the contracts is included in current assets
and liabilities, with the offsetting gain or loss included in
exchange (loss) gain in the accompanying consolidated
statements of operations or deferred as a separate component of
other comprehensive income. In 2001, the net loss on forward
exchange contracts was $12.2 million, compared to
$10.0 million in 2000. In addition, the Company recognized
$1.0 million of exchange losses as a component of cost of
sales that was initially deferred as a component of other
comprehensive income.

The Companys subsidiary in Mexico,
Jafra S.A., generated approximately 66% of the
Companys net sales for 2001, compared to 62% for 2000,
substantially all of which was denominated in Mexican pesos.
During 2001, the peso strengthened against the dollar. Net sales
for 2001 would have decreased $3.2 million, or 1.3%, from
the reported amounts if average exchange rates in 2001 remained
the same as in 2000.

Mexico has experienced periods of high inflation
in the past and has been considered a hyperinflationary economy.
As of January 1, 1999, the Company has accounted for its
Mexican operations using the peso as its functional currency.
Because the functional currency in Mexico is the Mexican peso,
gains and losses of remeasuring such debt to the
U.S. dollar from the peso are included as a component of
net income. In 2001, the remeasurement of
U.S. dollar-denominated debt resulted in an exchange gain
of $2.8 million, most of which was unrealized.
Jafra S.A. had $35.6 million of
U.S. dollar-denominated third-party debt and
$21.3 million of U.S. dollar-denominated intercompany
current payables as of December 31, 2001.

The Company is also exposed to foreign exchange
risk due to its operations in South America. During the end of
2001, Argentina faced severe economic and political uncertainty,
which resulted in a 65% devaluation

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of the Argentinean peso. Additionally, the
Company wrote-off $0.2 million of intangible assets as the
Company determined that the undiscounted cash flows were less
than the carrying amount of the assets due to a downturn in the
political and economic environment in Argentina. Consistent with
the Companys policy, the impairment was determined by
comparing the discounted cash flows to the carrying value. The
devaluation of the Argentinean peso did not have a material
impact on consolidated results due to the size of the operations
and as the devalution occurred during December 2001. The Company
is considering plans for restructuring or reorganizing the
Argentina business and anticipates incurring $0.1 million
of costs to implement such plans during the first quarter of
2002.


European Economic and Monetary Union

On January 1, 1999, eleven of the fifteen
member countries of the European Union established fixed
conversion rates between their existing sovereign currencies and
the euro. The participating countries adopted the euro as their
common legal currency on that day. The euro traded on currency
exchanges and was available for non-cash transactions during the
transition period between January 1, 1999 and
January 1, 2002. During this transition period, the
existing currencies remained legal tender in the participating
countries as denominations of the euro and public and private
parties paid for goods and services using either the euro or the
participating countries existing currencies.

During the transition period, the Company
utilized the respective countrys existing currency as the
functional currency. Effective January 1, 2002, the Company
adopted the euro as its functional currency for its European
subsidiaries, except for Switzerland. During 2001, the Company
modified its current systems to achieve a euro compliant system.
The system modifications were conducted without significant cost
and did not have any adverse affects on the business or
operations.

Business Trends and Initiatives

The Company has experienced significant sales
growth and an increased concentration of sales in Mexico over
the last three years, due primarily to increases in the number
of consultants. In 2001, the Companys Mexican subsidiary
generated 66% of the Companys consolidated net sales,
compared to 59% for 1999. Sales growth in Mexico during 1999 was
over 40% in local currency, but slowed to a growth rate of 22%
in local currency in 2001. Assuming a continued stable economic
environment, the Company expects to continue to grow its
revenues and representative base in Mexico, but at rates in the
range of 10-12% per year.

The Company is employing a strategy to leverage
diversification through growth in other markets besides Mexico.
In 2001, the U.S. subsidiary continued to employ two
separate distinct business divisions to focus on the diversity
of the General and Hispanic customer groups. Each division is
directed by a separate general manager and has programs tailored
to the specific needs of the customer. The U.S. subsidiary
contributed 21% to total 2001 net sales. U.S. net sales
increased 7% in 2001, compared to 1% in 2000. U.S. sales
growth is expected to continue in the low double digits in 2002.

Net sales in Europe for 2001 were flat compared
to 2000 and the average number of consultants remained stable.
Over the prior two years, European sales have declined primarily
due to declines in both the number and productivity of
consultants, along with an unfavorable exchange rate impact.
European sales have declined from approximately 11% of the
Companys business in 1999 to approximately 7% of the
Companys business in 2001. Although the European
subsidiaries did not experience sales growth in 2001, they did
not experience sales declines as noted in prior years. The
positive trend is primarily attributed to a stable consultant
base and repositioning activities undertaken during 2000. The
Company expects sales in Europe to grow in the single digits in
2002.

Since 1999, the Company has made significant
investments in new markets in South America. Sales in the South
American region grew by 8% in 2001. The Companys Brazilian
subsidiarys net sales in U.S. dollars increased 8%
compared to 2000. In local currency, Brazil sales increased 36%.
However, Brazil contributed $4.9 million of net loss to the
Companys 2001 consolidated results. The Company expects
sales in developing markets to continue to grow at even higher
rates as the markets continue to develop. The Company continues

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to invest in these markets due to the high sales
growth potential, and anticipates the level of investment as
measured by the losses contributed by these markets to decrease
over time as the business matures.


Information Concerning Forward-Looking
Statements

Certain of the statements contained in this
report (other than the Companys consolidated financial
statements and other statements of historical fact) are
forward-looking statements, including, without limitation,
(i) the statements in Business 
Strategy concerning (a) the Companys belief
that the senior management team will continue to provide the
leadership required to attract new consultants and managerial
talent, inspire new and existing consultants to greater
productivity and execute the Companys new market
development strategy; (b) the Companys plans to
expand its consultant base in developed markets and to increase
consultant productivity; (c) the Companys plans to
continuously introduce new and enhanced products based on
technological advances and consumer demand; (d) the
Companys belief that its existing distribution and
manufacturing capabilities provide a strong platform for the
Company to expand within and into new and developing markets,
which will allow it to diversify its revenue base; (e) the
Companys intention to focus its expansion efforts in new
and developing markets; (f) the Companys belief that
the use of the Internet as an order fulfillment tool will result
in better service to both the consultants and their customers at
a lower cost to the Company and will increase the overall
satisfaction level of its consultants; and (g) the
Companys plans to continue to improve operating efficiency
through cost-cutting, better inventory management, and
streamlining of marketing efforts and product lines; the
Companys plan to place greater marketing focus on certain
types of limited life products; its belief that the
focus on these products will lead to a faster level of inventory
turns and a reduced investment in inventories and the
Companys plans to continue to evaluate infrastructure
costs to reduce operating costs as a percentage of sales;
(ii) the statements in Business 
Products concerning (a) the Companys plan to
launch new products that address skin pigmentation in 2002,
(b) the Companys plans to launch the new color line
globally in 2002, (c) the Companys plan to distribute
local fragrances in Brazil in 2002 and two additional fragrances
that are planned to be tailored to, and marketed in Mexico in
2002, (d) the Companys plans to leverage the Royal
Almond brand by introducing Royal Ginger and to launch a line of
specialty body products to address stretch mark recovery, bust
firmness, body toning, and the reduction of the appearance of
cellulite; (iii) the statements in
Business  International Operations that
the Company intends to increase revenues in markets other than
Mexico in order to diversify its revenue base and to minimize
any adverse impact that a downturn in the Mexican economy may
have on the Company; (iv) the statement in
Business  Manufacturing (a) the
Company anticipates that in 2002, one-third of the Brazilian
sales will be of locally manufactured products, (b) that
finished goods and raw materials used in the Companys
products generally are available or can be obtained to Company
specifications from more than one potential supplier;
(v) the statement in Business 
Distribution that management believes its facilities are
adequate to meet demand in its existing markets for the
foreseeable future; (vi) the statements in
Business  Management Information Systems
concerning (a) the Companys expectation that the
U.S. business will replace the order entry, fulfillment,
commission and override processing and financial system software
with ERP software by late 2002; (b) the Companys
anticipation that the new Enterprise Resource Planning software
will be leveraged to improve computer operations in other Jafra
markets during 2003 and 2004; (vii) the statement in
Business  Environmental Matters that the
Company believes that environmental laws and regulations will
not have a material adverse effect on its capital expenditures,
earnings or competitive position; (viii) other statements
as to managements or the Companys expectations,
intentions and beliefs presented in Business;
(ix) the statement in Properties that the
Companys properties are suitable to meet its anticipated
requirements; (x) the statement in Legal
Proceedings that the Company believes that the resolution
of the routine legal matters in which it is involved will not
have a material adverse effect on the Companys business,
financial condition or results of operations; (xi) the
statement in  Market for Registrants
Common Equity and Related Stockholder Matters that the
Parent does not expect to pay dividends on its Common Stock in
the foreseeable future; (xii) the statement in
 New Accounting Pronouncements that
management does not expect the adoption of SFAS No. 144 to
have a significant impact on the financial position or results
of operations of the Company; (xiii) the statement in
 Critical Accounting Policies and
Estimates concerning; (a) managements belief
that the application of accounting policies, and estimates
inherently

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required therein, are reasonable;
(b) managements belief that the accruals for
contingencies are adequate; (c) managements belief
that it is more likely than not that the net carrying value of
the income tax carryforwards will be realized; (xiv) the
statement in  Liquidity and Capital
Resources (a) that the Company believes that it will
have sufficient liquidity to meet its cash requirements and
working capital needs over the next year; (b) reduced
consultant liquidity could result in future reduced cash flows
from operations, which may require the Company to use available
funds under the Senior Credit Agreement; (xv) the statement
in  Cash Flows that the Company expects
capital expenditures in 2002 to be approximately
$11.0 million, (xvi) the statement in
 Foreign Operations that the Company is
considering plans for restructuring or reorganizing the
Argentina business and anticipates incurring $0.1 million
of costs to implement such plans during the first quarter of
2002; (xvii) the statements in  Business
Trends and Initiatives that (a) assuming a continued
stable economic environment, the Company expects to continue to
grow its revenues and representative base in Mexico, but at
rates in the range of 10-12% per year, (b) the
Companys expectation that U.S sales growth will
continue in the low double digits in 2002; (c) the Company
expects sales in Europe to grow in the single digits in 2002;
(d) the Company expects sales in developing markets to
continue to grow at even higher rates as the markets continue to
develop, and (e) the Company anticipates the level of
investment as measured by the losses contributed by developing
markets to decrease over time as the business matures;
(xviii) other statements as to managements or the
Companys expectations or beliefs presented in this
Managements Discussion and Analysis of Financial
Condition and Results of Operations.


Forward-looking statements are based upon
managements current expectations and beliefs concerning
future developments and their potential effects upon the
Company. There can be no assurance that future developments will
be in accordance with managements expectations or that the
effect of future developments on the Company will be those
anticipated by management. The following important factors, and
those important factors described elsewhere in this report
(including, without limitation, those discussed in
Business  Strategy,
 International Operations,
 Distribution,
 Manufacturing,
 Management Information Systems,
 Environmental Matters,
Properties, Legal Proceedings and
Managements Discussion and Analysis of Financial
Condition and Results of Operations  Results of
Operations,  New Accounting
Pronouncements, Critical Accounting Policies and
Estimates,  Liquidity and Capital
Resources,  Foreign Operations,
 European Economic and Monetary Union and
 Business Trends and Initiatives), or in
other Securities and Exchange Commission filings, could affect
(and in some cases have affected) the Companys actual
results and could cause such results to differ materially from
estimates or expectations reflected in such forward-looking
statements:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Companys high degree of leverage could
	have important consequences to the Company, including but not
	limited to the following: (i) the Companys ability to
	obtain additional financing for working capital, capital
	expenditures, acquisitions, general corporate purposes or other
	purposes may be impaired in the future; (ii) a substantial
	portion of the Companys cash flow from operations must be
	dedicated to the payment of principal and interest on its
	indebtedness, thereby reducing the funds available to the
	Company for other purposes; (iii) certain of the
	Companys borrowings will be at variable rates of interest,
	which could cause the Company to be vulnerable to increases in
	interest rates and (iv) the Company may be more vulnerable
	to economic downturns and be limited in its ability to withstand
	competitive pressures.
|
| |  | The Companys ability to make scheduled
	payments or to refinance its obligations with respect to its
	indebtedness, and to comply with the covenants and restrictions
	contained in the instruments governing such indebtedness, will
	depend on its financial and operating performance, which, in
	turn, is subject to prevailing economic and competitive
	conditions and to certain financial, business and other factors
	beyond its control, including operating difficulties, increased
	operating costs, market cyclicality, product prices, the
	response of competitors, regulatory developments, and delays in
	implementing strategic projects.                                                                                                                                                                                                                    
|
| |  | The Companys ability to meet its debt
	service and other obligations will depend in significant part on
	the extent to which the Company can successfully implement its
	business strategy. The components of                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | the Companys strategy are subject to
	significant business, economic and competitive uncertainties and
	contingencies, many of which are beyond the control of the
	Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | The Companys ability to conduct and expand
	its business outside the United States and the amount of
	revenues derived from foreign markets are subject to the risks
	inherent in international operations. The Companys
	international operations may be adversely affected by import
	duties or other legal restrictions on imports, currency exchange
	control regulations, transfer pricing regulations, the
	possibility of hyperinflationary conditions and potentially
	adverse tax consequences, among other things. Given the balance
	of payment deficits and shortages in foreign exchange reserves
	that many such economies, including the Mexican economy, have
	suffered in recent years, there can be no assurance that the
	governments of nations in which the Company operates, or intends
	to expand, will not take actions that materially adversely
	affect the Company and its business.           
|
| |  | The direct selling cosmetics and personal care
	products business is highly competitive. A number of the
	Companys competitors, including Avon and Mary Kay, are
	significantly larger and have substantially greater resources
	and less leverage than the Company, which may provide them with
	greater flexibility to respond to changing business and economic
	conditions than the Company. An increase in the amount of
	competition faced by the Company, or the inability of the
	Company to compete successfully, could have a material adverse
	effect on the Companys business, financial condition and
	results of operations.                                                                                                                                                                                                                                                                                
|
| |  | The Companys ability to anticipate changes
	in market and industry trends and to successfully develop and
	introduce new and enhanced products on a timely basis will be a
	critical factor in its ability to grow and to remain
	competitive. There can be no assurance that new products and
	product enhancements will be completed on a timely basis or will
	enjoy market acceptance following their introduction. In
	addition, the anticipated development schedules for new or
	improved products are inherently difficult to predict and are
	subject to delay or change as a result of shifting priorities in
	response to customers requirements and competitors
	new product introductions.                                                                                                                                                                                                                  
|
| |  | The Company is subject to or affected by
	governmental regulations concerning, among other things,
	(i) product formulation, (ii) product claims and
	advertising, whether made by the Company or its consultants,
	(iii) fair trade and distributor practices and
	(iv) environmental, health and safety matters. In addition,
	new regulations could be adopted or any of the existing
	regulations could be changed at any time in a manner that could
	have a material adverse effect on the Companys business
	and results of operations. Present or future health or safety or
	food and drug regulations could delay or prevent the
	introductions of new products into a given country or
	marketplace or suspend or prohibit the sale of existing products
	in such country or marketplace. The Company believes that it is
	in compliance in all material respects with such laws and
	regulations now in effect.

While the Company periodically reassesses
material trends and uncertainties affecting the Companys
results of operations and financial condition in connection with
its preparation of managements discussion and analysis of
results of operations and financial condition contained in its
quarterly and annual reports, the Company does not intend to
review or revise any particular forward-looking statement
referenced in this report in light of future events.






|         |                                                            
|-------- | -----------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures
	About Market Risk

The Company is exposed to certain market risks
arising from transactions in the normal course of its business,
and from debt incurred in connection with the Acquisition. Such
risk is principally associated with interest rate and foreign
exchange fluctuations, as well as changes in the Companys
credit standing.

Interest Rate Risk

The Company has U.S. dollar-denominated debt
obligations in both the United States and Mexico that have fixed
and variable interest rates and mature on various dates. The
Company also has Mexican peso

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denominated-debt obligations in Mexico that have
fixed interest rates and mature on various dates. The tables
below present principal cash flows and related interest rates by
fiscal year of maturity:


Debt Obligation Information at
December 31, 2001

(Amounts in U.S. dollars in
000s)


|                                                                                         |                       |                           |   |              |   |      |   |       |   |      |   |            |   |       |   |         |  |  |   |   |  |  |   |        |   |  |   |        |  |  |   |        | 
|---------------------------------------------------------------------------------------- | --------------------- | ------------------------- | - | ------------ | - | ---- | - | ----- | - | ---- | - | ---------- | - | ----- | - | ------- |  |  | - | - |  |  | - | ------ | - |  | - | ------ |  |  | - | ------ | 
|                                                                                         |                       |                           |   |             
|                                                                                         |                       | Expected Year of Maturity |   | Fair Value  
|                                                                                         |                       |                           |   | December 31,
|                                                                                         |                       | 2002                      |   | 2003         |   | 2004 |   | 2005  |   | 2006 |   | Thereafter |   | Total |   | 2001(1)
|                                                                                         |                       |                           |   |              |   |      |   |       |   |      |   |            |   |       |   |        
|Senior Subordinated Notes, Term Loan, Revolving
	Credit Facility and unsecured bank debt |                       |                           |   |              |   |      |   |       |   |      |   |            |   |       |   |         |  |  |   |   |  |  |   |        |   |  |   |        |  |  |   |       
|                                                                                         | Fixed Rate (US$)      |                           | $ | 688          |   |      | $ | 688   |   |      | $ | 233        |   |       | $ |        |  |  | $ |  |  |  | $ | 75,180 |   |  | $ | 76,789 |  |  | $ | 82,052 | 
|                                                                                         | Average Interest Rate |                           |   | 18.66        | % |      |   | 18.66 | % |      |   | 18.66      | % |       |   |        |  |  |   |  |  |  |   | 11.75  | % |  |   |        |  |  |   |        | 
|                                                                                         | Variable Rate (US$)   |                           | $ | 5,500        |   |      | $ | 6,500 |   |      | $ | 4,300      |   |       | $ |        |  |  | $ |  |  |  | $ |       |   |  | $ | 16,300 |  |  | $ | 16,300 | 
|                                                                                         | Average Interest Rate |                           |   | 4.25         | % |      |   | 4.25  | % |      |   | 4.72       | % |       |   |        |  |  |   |  |  |  |   |       |   |  |   |        |  |  |   |        | 

Debt Obligation Information at
December 31, 2000

(Amounts in U.S. dollars in
000s)


|                                                                     |                       |                           |   |              |   |      |   |       |   |      |   |            |   |       |   |         |  |  |   |   |  |  |   |        |   |  |   |        |  |  |   |        | 
|-------------------------------------------------------------------- | --------------------- | ------------------------- | - | ------------ | - | ---- | - | ----- | - | ---- | - | ---------- | - | ----- | - | ------- |  |  | - | - |  |  | - | ------ | - |  | - | ------ |  |  | - | ------ | 
|                                                                     |                       |                           |   |             
|                                                                     |                       | Expected Year of Maturity |   | Fair Value  
|                                                                     |                       |                           |   | December 31,
|                                                                     |                       | 2001                      |   | 2002         |   | 2003 |   | 2004  |   | 2005 |   | Thereafter |   | Total |   | 2000(1)
|                                                                     |                       |                           |   |              |   |      |   |       |   |      |   |            |   |       |   |        
|Senior Subordinated Notes, Term Loan, and
	Revolving Credit Facility |                       |                           |   |              |   |      |   |       |   |      |   |            |   |       |   |         |  |  |   |   |  |  |   |        |   |  |   |        |  |  |   |       
|                                                                     | Fixed Rate (US$)      |                           |   |              |   |      |   |       |   |      |   |            |   |       |   |         |  |  |   |   |  |  | $ | 75,180 |   |  | $ | 75,180 |  |  | $ | 77,435 | 
|                                                                     | Average Interest Rate |                           |   |              |   |      |   |       |   |      |   |            |   |       |   |         |  |  |   |   |  |  |   | 11.75  | % |  |   |        |  |  |   |        | 
|                                                                     | Variable Rate (US$)   |                           | $ | 4,846        |   |      | $ | 5,500 |   |      | $ | 6,500      |   |       | $ | 17,000  |  |  | $ |  |  |  | $ |       |   |  | $ | 33,846 |  |  | $ | 33,846 | 
|                                                                     | Average Interest Rate |                           |   | 8.95         | % |      |   | 8.13  | % |      |   | 8.13       | % |       |   | 8.29%   |  |  |   |  |  |  |   |       |   |  |   |        |  |  |   |        | 

As of December 31, 2001, the Company had
$16.3 million of variable interest rate debt outstanding.
If variable interest rates had increased by 10%, the Company
would have incurred $0.1 million of additional interest
expense during 2001.




|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The Companys estimate of the fair value of
	its Senior Subordinated Notes was based on discussions with one
	of the Companys largest bondholders, and an analysis of
	current market interest rates and the Companys credit
	rating. The Companys Revolving Credit Facilities and the
	Term Loan are variable rate debt, and the interest rate spread
	paid by the Company is adjusted for changes in certain financial
	ratios of the Company. The fair value of the Revolving Credit
	Facilities, the Term Loan and the unsecured bank agreement
	approximated their carrying amounts at December 31, 2001
	and 2000.

Foreign Currency Risk

The Company operates globally, with manufacturing
facilities in Mexico and distribution facilities in various
locations around the world. All intercompany product sales are
denominated in U.S. dollars. In addition, 79% of the
Companys 2001 revenue was generated in countries with a
functional currency other than the U.S. dollar. As a
result, the Companys earnings and cash flows are exposed
to fluctuations in foreign currency exchange rates.

As part of its overall strategy to reduce the
risk of adverse exchange rate fluctuations in Mexico, the
Company enters into foreign currency exchange contracts
(forward contracts) and option contracts. The
Company places forward contracts based on its forecasted
U.S. dollar cash outflows from Jafra S.A. over a rolling
12 month period and does not hedge transactions that are
not included in the 12 month forecast on the date the
forward contract is initiated. As a matter of policy, the
Company does not hold or issue forward contracts for trading or
speculative purposes, nor does it enter into contracts or
agreements containing embedded derivative features
nor is the Company a party to leveraged derivatives.

The Company may reduce its primary market
exposures to fluctuations in foreign exchange rates and hedge
contractual foreign currency cash flows or obligations
(including third-party and intercompany foreign

28



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currency transactions) by creating offsetting
positions through the use of forward exchange contracts. The
Company regularly monitors its foreign currency exposures and
ensures that contract amounts do not exceed the amounts of the
underlying exposures.


The forward contracts utilized by the Company did
not qualify for hedge accounting under the applicable accounting
standards prior to adoption of SFAS No. 133, and
accordingly such instruments were marked-to-market with gains
and losses included as a component of exchange loss in the
statements of operations for the year ended December 31,
2000. However, under SFAS No. 133, the Companys use
of forward contracts to hedge certain forecasted transactions
qualifies for hedge accounting. Gains and losses from such
derivative instruments arising subsequent to January 1,
2001 are deferred as a separate component of other comprehensive
income, and are recognized in income at the same time that the
underlying hedged exposure is recognized in income. This
accounting treatment results in the matching of gains and losses
from such forward contracts with the corresponding gains and
losses generated by the underlying hedged transactions. Under
SFAS No. 133, certain of the Companys forward
contracts do not qualify for hedge accounting and therefore, are
remeasured based on fair value, with gains and losses included
as a component of net income. The carrying value of the forward
contracts is included in current liabilities.

The outstanding foreign currency forward
contracts had notional values of $66,824,000, of which
$59,587,000 had been designated as hedges under the provisions
of SFAS No. 133 at December 31, 2001, and $80,817,000
at December 31, 2000. The tables below describe the forward
contracts that were outstanding at December 31, 2001 and
2000 (dollar amounts in thousands).

December 31, 2001:

|                                |  |                  |        |          |  |                  |          |          |  |  |       |  |  |   |        |  
|------------------------------- |  | ---------------- | ------ | -------- |  | ---------------- | -------- | -------- |  |  | ----- |  |  | - | ------ | -
|                                |  | Forward Position |        | Maturity |  | Weighted Average |          | Fair    
|Foreign Currency                |  | in US Dollars(1) |        | Date     |  | Contract Rate    |          | Value(1)
|                                |  |                  |        |          |  |                  |          |         
|Buy US Dollar/sell Mexican Peso |  | $                | 10,674 |          |  |                  | 1/31/02  |          |  |  | 10.19 |  |  | $ | 9,546  |  
|Sell Mexican Peso/buy US Dollar |  |                  | (2,138 | )        |  |                  | 1/31/02  |          |  |  | 9.35  |  |  |   | (2,104 | )
|Buy US Dollar/sell Mexican Peso |  |                  | 6,995  |          |  |                  | 2/28/02  |          |  |  | 10.26 |  |  |   | 6,239  |  
|Sell Mexican Peso/buy US Dollar |  |                  | (2,113 | )        |  |                  | 2/28/02  |          |  |  | 9.47  |  |  |   | (2,065 | )
|Buy US Dollar/sell Mexican Peso |  |                  | 9,023  |          |  |                  | 3/27/02  |          |  |  | 10.46 |  |  |   | 7,921  |  
|Sell Mexican Peso/buy US Dollar |  |                  | (4,219 | )        |  |                  | 3/27/02  |          |  |  | 9.48  |  |  |   | (4,139 | )
|Buy US Dollar/sell Mexican Peso |  |                  | 8,310  |          |  |                  | 4/30/02  |          |  |  | 10.23 |  |  |   | 7,562  |  
|Sell Mexican Peso/buy US Dollar |  |                  | (3,118 | )        |  |                  | 4/30/02  |          |  |  | 9.62  |  |  |   | (3,034 | )
|Buy US Dollar/sell Mexican Peso |  |                  | 8,012  |          |  |                  | 5/31/02  |          |  |  | 10.11 |  |  |   | 7,453  |  
|Sell Mexican Peso/buy US Dollar |  |                  | (2,573 | )        |  |                  | 5/31/02  |          |  |  | 9.71  |  |  |   | (2,498 | )
|Buy US Dollar/sell Mexican Peso |  |                  | 8,037  |          |  |                  | 6/28/02  |          |  |  | 9.95  |  |  |   | 7,662  |  
|Sell Mexican Peso/buy US Dollar |  |                  | (3,069 | )        |  |                  | 6/28/02  |          |  |  | 9.78  |  |  |   | (2,981 | )
|Buy US Dollar/sell Mexican Peso |  |                  | 4,765  |          |  |                  | 7/31/02  |          |  |  | 10.07 |  |  |   | 4,523  |  
|Buy US Dollar/sell Mexican Peso |  |                  | 9,951  |          |  |                  | 8/30/02  |          |  |  | 10.05 |  |  |   | 9,541  |  
|Buy US Dollar/sell Mexican Peso |  |                  | 4,459  |          |  |                  | 9/30/02  |          |  |  | 10.09 |  |  |   | 4,290  |  
|Buy US Dollar/sell Mexican Peso |  |                  | 10,905 |          |  |                  | 10/31/02 |          |  |  | 10.09 |  |  |   | 10,567 |  
|Buy US Dollar/sell Mexican Peso |  |                  | 2,923  |          |  |                  | 11/29/02 |          |  |  | 10.27 |  |  |   | 2,801  |  
|                                |  |                  |        |          |  |                  |          |          |  |  |       |  |  |   |        |  
|                                |  | $                | 66,824 |          |  |                  |          |          |  |  |       |  |  | $ | 61,284 |  
|                                |  |                  |        |          |  |                  |          |          |  |  |       |  |  |   |        |  

29



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##### Table of Contents



December 31, 2000:

|                                |  |                  |        |          |  |                  |          |          |  |  |       |  |  |   |        | 
|------------------------------- |  | ---------------- | ------ | -------- |  | ---------------- | -------- | -------- |  |  | ----- |  |  | - | ------ | 
|                                |  | Forward Position |        | Maturity |  | Weighted Average |          | Fair    
|Foreign Currency                |  | in US Dollars(1) |        | Date     |  | Contract Rate    |          | Value(1)
|                                |  |                  |        |          |  |                  |          |         
|Buy US Dollar/sell Mexican Peso |  | $                | 6,980  |          |  |                  | 1/26/01  |          |  |  | 10.12 |  |  | $ | 6,679  | 
|Buy US Dollar/sell Mexican Peso |  |                  | 7,500  |          |  |                  | 2/26/01  |          |  |  | 10.20 |  |  |   | 7,187  | 
|Buy US Dollar/sell Mexican Peso |  |                  | 7,529  |          |  |                  | 3/30/01  |          |  |  | 10.36 |  |  |   | 7,162  | 
|Buy US Dollar/sell Mexican Peso |  |                  | 5,915  |          |  |                  | 4/30/01  |          |  |  | 10.48 |  |  |   | 5,607  | 
|Buy US Dollar/sell Mexican Peso |  |                  | 2,828  |          |  |                  | 5/31/01  |          |  |  | 10.61 |  |  |   | 2,670  | 
|Buy US Dollar/sell Mexican Peso |  |                  | 3,907  |          |  |                  | 6/29/01  |          |  |  | 10.24 |  |  |   | 3,861  | 
|Buy US Dollar/sell Mexican Peso |  |                  | 2,618  |          |  |                  | 7/31/01  |          |  |  | 10.31 |  |  |   | 2,588  | 
|Buy US Dollar/sell Mexican Peso |  |                  | 11,816 |          |  |                  | 8/31/01  |          |  |  | 10.32 |  |  |   | 11,804 | 
|Buy US Dollar/sell Mexican Peso |  |                  | 12,125 |          |  |                  | 9/28/01  |          |  |  | 10.39 |  |  |   | 12,119 | 
|Buy US Dollar/sell Mexican Peso |  |                  | 2,336  |          |  |                  | 10/30/01 |          |  |  | 10.70 |  |  |   | 2,290  | 
|Buy US Dollar/sell Mexican Peso |  |                  | 10,275 |          |  |                  | 10/31/01 |          |  |  | 10.71 |  |  |   | 10,078 | 
|Buy US Dollar/sell Mexican Peso |  |                  | 2,878  |          |  |                  | 11/30/01 |          |  |  | 10.43 |  |  |   | 2,934  | 
|Buy US Dollar/sell Mexican Peso |  |                  | 4,110  |          |  |                  | 12/27/01 |          |  |  | 10.71 |  |  |   | 4,120  | 
|                                |  |                  |        |          |  |                  |          |          |  |  |       |  |  |   |        | 
|                                |  | $                | 80,817 |          |  |                  |          |          |  |  |       |  |  | $ | 79,099 | 
|                                |  |                  |        |          |  |                  |          |          |  |  |       |  |  |   |        | 




|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The Forward Position in U.S. Dollars
	and the Fair Value presented above represent
	notional amounts. The net of these two amounts, an unrealized
	loss of $5,540,000 and $1,718,000 at December 31, 2001 and
	2000, respectively, represent the carrying value of the forward
	contracts (which approximates fair value) and has been recorded
	as a liability in the accompanying consolidated balance sheets
	as of December 31, 2001 and 2000, respectively.

Prior to entering into foreign currency exchange
contracts, the Company evaluates the counter parties
credit ratings. Credit risk represents the accounting loss that
would be recognized at the reporting date if counter parties
failed to perform as contracted. The Company does not currently
anticipate non-performance by such counter parties.

Based upon the $66.8 million of outstanding
forward contracts at December 31, 2001, if the peso to U.S.
dollar exchange rate strengthened by 10%, a $16.9 million
foreign currency loss on the settlement of forward contracts
would result. However, gains would be realized on the
Companys underlying hedged transactions.

Subsequent to December 31, 2001, in
accordance with previously approved policies, the Company
modified its hedging program to include the use of foreign
currency option contracts (option contracts or
options) to hedge foreign currency exposures to the
Mexican peso. In order to execute the option contracts and to
offset its current outstanding forward contracts to sell Mexican
pesos, on March 27, 2002, the Company entered into forward
contracts to buy Mexican pesos. Also, on that date, the Company
entered into a series of U.S. dollar option contracts. The
exchange rate at which the option contracts may be exercised is
based upon the market rate at the time the contracts are placed.
The Company purchased exchange rate put options, which gives the
Company the right, but not the obligation, to sell Mexican pesos
at a specified U.S. dollar exchange rate (strike
rate). These contracts provide protection in the event the
Mexican peso weakens beyond the option strike rate. In
conjunction with the put options, and as part of a zero-cost
option collar structure, the Company sold Mexican peso call
options, which gives the counterparty the right, but not the
obligation, to buy Mexican pesos from the Company at a specified
strike rate. The effect of these contracts would be to limit the
benefit the Company would otherwise derive from the
strengthening of the Mexican peso beyond the strike rate. In the
aggregate, the Company entered into approximately
$600 million Mexican pesos of matching put and call options.

The Companys Mexican subsidiary,
Jafra S.A., had U.S. dollar-denominated debt of
$35.6 million and $57.7 million at December 31,
2001 and 2000, respectively. During 2001, the value of the peso
to the U.S. dollar increased by 5.2%, and Jafra S.A.
incurred a $2.8 million foreign currency transaction gain
related to the remeasurement and repayment of
U.S. dollar-denominated debt.

Based upon the $35.6 million of outstanding
debt at December 31, 2001, a 10% decline in the peso to
U.S. dollar exchange rate would result in a
$3.6 million foreign currency transaction loss.

30



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##### Table of Contents






Item 8. Financial Statements and
Supplementary Data

INDEX TO FINANCIAL STATEMENTS AND FINANCIAL
STATEMENT SCHEDULES*

Consolidated Financial Statements 
CDRJ Investments (Lux) S.A. and Subsidiaries

|                                                                                                   |                                                                                                          |      |    |    | 
|-------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------- | ---- | -- | -- | 
|                                                                                                   |                                                                                                          | Page
|                                                                                                   |                                                                                                          |     
|Independent Auditors Report                                                                       |                                                                                                          |      | 32 |   
|                                                                                                   | Consolidated Balance Sheets  As of
	December 31, 2001 and 2000                                          |      |    | 33 | 
|                                                                                                   | Consolidated Statements of Operations 
	For the years ended December 31, 2001 , 2000 and 1999           |      |    | 34 | 
|                                                                                                   | Consolidated Statements of Stockholders
	Equity  For the years ended December 31, 2001,
	2000 and 1999 |      |    | 35 | 
|                                                                                                   | Consolidated Statements of Cash Flows 
	For the years ended December 31, 2001, 2000 and 1999            |      |    | 36 | 
|                                                                                                   | Notes to Consolidated Financial Statements                                                               |      |    | 37 | 
|Consolidated Financial Statements 
	Jafra Cosmetics International, Inc. and Subsidiaries          |                                                                                                          |      |    |   
|                                                                                                   | Independent Auditors Report                                                                             |      |    | 58 | 
|                                                                                                   | Consolidated Balance Sheets  As of
	December 31, 2001 and 2000                                          |      |    | 59 | 
|                                                                                                   | Consolidated Statements of Operations 
	For the years ended December 31, 2001, 2000 and 1999            |      |    | 60 | 
|                                                                                                   | Consolidated Statements of Stockholders
	Equity  For the years ended December 31, 2001,
	2000 and 1999 |      |    | 61 | 
|                                                                                                   | Consolidated Statements of Cash Flows 
	For the years ended December 31, 2001, 2000 and 1999            |      |    | 62 | 
|                                                                                                   | Notes to Consolidated Financial Statements                                                               |      |    | 63 | 
|Consolidated Financial Statements 
	Jafra Cosmetics International, S.A. de C.V. and
	Subsidiaries |                                                                                                          |      |    |   
|                                                                                                   | Independent Auditors Report                                                                             |      |    | 80 | 
|                                                                                                   | Consolidated Balance Sheets  As of
	December 31, 2001 and 2000                                          |      |    | 81 | 
|                                                                                                   | Consolidated Statements of Operations 
	For the years ended December 31, 2001, 2000 and 1999            |      |    | 82 | 
|                                                                                                   | Consolidated Statements of Stockholders
	Equity  For the years ended December 31, 2001,
	2000 and 1999 |      |    | 83 | 
|                                                                                                   | Consolidated Statements of Cash Flows 
	For the years ended December 31, 2001, 2000 and 1999            |      |    | 84 | 
|                                                                                                   | Notes to Consolidated Financial Statements                                                               |      |    | 85 | 
|Schedule II  Valuation and
	Qualifying Accounts                                                   |                                                                                                          |      | 99 |   



---



|  |                                                                                            
|- | -------------------------------------------------------------------------------------------
|* | Schedules other than those listed above have been
	omitted because they are not applicable.

31



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##### Table of Contents



INDEPENDENT AUDITORS REPORT

To the Board of Directors and Stockholders of

CDRJ Investments (Lux) S.A.


Luxembourg


We have audited the accompanying consolidated
balance sheets of CDRJ Investments (Lux) S.A. and subsidiaries
(the Company) as of December 31, 2001 and 2000,
and the related consolidated statements of operations,
stockholders equity, and cash flows for each of the three
years in the period ended December 31, 2001. Our audits
also included the financial statement schedule listed in the
Index at Item 14(a)(2). These financial statements and the
financial statement schedule are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements and the financial
statement schedule based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, such consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of CDRJ Investments (Lux) S.A.
and subsidiaries as of December 31, 2001 and 2000, and the
results of their operations and their cash flows for each of the
three years in the period ended December 31, 2001, in
conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, the financial
statement schedule referred to above, when considered in
relation to the basic consolidated financial statements taken as
a whole, presents fairly in all material respects the
information set forth therein.

DELOITTE & TOUCHE LLP

Los Angeles, California

March 6, 2002 (March 27, 2002 as


to the last paragraph of Note 15)


32



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##### Table of Contents



CDRJ INVESTMENTS (LUX) S.A. AND
SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)


ASSETS

|                                     |                                                                                                                                                         |                            |        |              |         |  |         |        |         | 
|------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------ | ------------ | ------- |  | ------- | ------ | ------- | 
|                                     |                                                                                                                                                         | December 31,               |        | December 31,
|                                     |                                                                                                                                                         | 2001                       |        | 2000        
|                                     |                                                                                                                                                         |                            |        |             
|Current assets:                      |                                                                                                                                                         |                            |        |              |         |  |         |       
|                                     | Cash and cash equivalents                                                                                                                               |                            | $      | 6,748        |         |  | $       | 5,838  |        
|                                     | Receivables, less allowances for doubtful
	accounts of $7,267 in 2001 and $3,553 in 2000.                                                               |                            |        | 43,898       |         |  |         | 35,919 |        
|                                     | Inventories                                                                                                                                             |                            |        | 40,515       |         |  |         | 38,146 |        
|                                     | Prepaid income taxes                                                                                                                                    |                            |        |             |         |  |         | 1,869  |        
|                                     | Prepaid expenses and other current assets
	(including value-added tax receivables of $2,308 in 2001 and
	$5,329 in 2000)                                |                            |        | 7,851        |         |  |         | 10,296 |        
|                                     | Deferred income taxes                                                                                                                                   |                            |        | 55           |         |  |         |       |        
|                                     |                                                                                                                                                         |                            |        |              |         |  |         |       
|                                     |                                                                                                                                                         | Total current assets       |        |              | 99,067  |  |         |        | 92,068  | 
|Property and equipment, net          |                                                                                                                                                         |                            | 59,598 |              |         |  | 51,448  |       
|Other assets:                        |                                                                                                                                                         |                            |        |              |         |  |         |       
|                                     | Goodwill, net                                                                                                                                           |                            |        | 71,389       |         |  |         | 72,260 |        
|                                     | Trademarks, net                                                                                                                                         |                            |        | 50,560       |         |  |         | 49,375 |        
|                                     | Deferred financing fees and other, net                                                                                                                  |                            |        | 10,522       |         |  |         | 11,793 |        
|                                     |                                                                                                                                                         |                            |        |              |         |  |         |       
|                                     |                                                                                                                                                         | Total                      |        | $            | 291,136 |  |         | $      | 276,944 | 
|                                     |                                                                                                                                                         |                            |        |              |         |  |         |       
|LIABILITIES AND STOCKHOLDERS EQUITY
|Current liabilities:                 |                                                                                                                                                         |                            |        |              |         |  |         |       
|                                     | Short-term debt, including current portion of
	long-term debt                                                                                           |                            | $      | 6,188        |         |  | $       | 4,846  |        
|                                     | Accounts payable                                                                                                                                        |                            |        | 26,516       |         |  |         | 27,988 |        
|                                     | Accrued liabilities                                                                                                                                     |                            |        | 40,916       |         |  |         | 34,223 |        
|                                     | Income taxes payable                                                                                                                                    |                            |        | 7,130        |         |  |         | 426    |        
|                                     | Deferred income taxes                                                                                                                                   |                            |        | 4,094        |         |  |         | 5,391  |        
|                                     |                                                                                                                                                         |                            |        |              |         |  |         |       
|                                     |                                                                                                                                                         | Total current liabilities  |        |              | 84,844  |  |         |        | 72,874  | 
|Long-term debt                       |                                                                                                                                                         |                            | 86,901 |              |         |  | 104,180 |       
|Deferred income taxes                |                                                                                                                                                         |                            | 20,311 |              |         |  | 16,357  |       
|Other long-term liabilities          |                                                                                                                                                         |                            | 3,088  |              |         |  | 2,366   |       
|                                     |                                                                                                                                                         |                            |        |              |         |  |         |       
|                                     |                                                                                                                                                         | Total liabilities          |        |              | 195,144 |  |         |        | 195,777 | 
|                                     |                                                                                                                                                         |                            |        |              |         |  |         |       
|Commitments and contingencies        |                                                                                                                                                         |                            |       |              |         |  |        |       
|Stockholders equity:                |                                                                                                                                                         |                            |        |              |         |  |         |       
|                                     | Common stock, par value $2.00; authorized,
	1,020,000 shares; issued and outstanding, 831,888 shares and
	834,293 shares in 2001 and 2000, respectively |                            |        | 1,664        |         |  |         | 1,669  |        
|                                     | Additional paid-in capital                                                                                                                              |                            |        | 81,921       |         |  |         | 82,128 |        
|                                     | Retained earnings                                                                                                                                       |                            |        | 18,373       |         |  |         | 2,942  |        
|                                     | Accumulated other comprehensive loss                                                                                                                    |                            |        | (5,966       | )       |  |         | (5,572 | )      
|                                     |                                                                                                                                                         |                            |        |              |         |  |         |       
|                                     |                                                                                                                                                         | Total stockholders equity |        |              | 95,992  |  |         |        | 81,167  | 
|                                     |                                                                                                                                                         |                            |        |              |         |  |         |       
|                                     |                                                                                                                                                         | Total                      |        | $            | 291,136 |  |         | $      | 276,944 | 
|                                     |                                                                                                                                                         |                            |        |              |         |  |         |       

See accompanying notes to consolidated financial
statements.

33



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##### Table of Contents



CDRJ INVESTMENTS (LUX) S.A. AND
SUBSIDIARIES


CONSOLIDATED STATEMENTS OF
OPERATIONS

(In thousands)


|                                                                                                                 |                       |                          |         |         |         |      |         |         |         |   |         |         |         | 
|---------------------------------------------------------------------------------------------------------------- | --------------------- | ------------------------ | ------- | ------- | ------- | ---- | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                                                                                                                 |                       |                         
|                                                                                                                 |                       | Years Ended December 31,
|                                                                                                                 |                       |                         
|                                                                                                                 |                       | 2001                     |         | 2000    |         | 1999
|                                                                                                                 |                       |                          |         |         |         |     
|Net sales                                                                                                        |                       | $                        | 380,081 |         |         | $    | 324,688 |         |         | $ | 299,519 |        
|Cost of sales                                                                                                    |                       |                          | 86,996  |         |         |      | 79,559  |         |         |   | 82,239  |        
|                                                                                                                 |                       |                          |         |         |         |      |         |         |         |   |         |        
|                                                                                                                 |                       | Gross profit             |         |         | 293,085 |      |         |         | 245,129 |   |         |         | 217,280 | 
|Selling, general and administrative expenses                                                                     |                       |                          | 236,793 |         |         |      | 200,021 |         |         |   | 183,903 |        
|Restructuring and impairment charges                                                                             |                       |                          |        |         |         |      | 2,626   |         |         |   | 4,812   |        
|Loss (gain) on sale of assets                                                                                    |                       |                          | 69      |         |         |      | 150     |         |         |   | (1,043  | )      
|                                                                                                                 |                       |                          |         |         |         |      |         |         |         |   |         |        
|                                                                                                                 |                       | Income from operations   |         |         | 56,223  |      |         |         | 42,332  |   |         |         | 29,608  | 
|Other income (expense):                                                                                          |                       |                          |         |         |         |      |         |         |         |   |         |        
|                                                                                                                 | Exchange (loss) gain  |                          |         | (9,658  | )       |      |         | (11,652 | )       |   |         | 3,330   |        
|                                                                                                                 | Interest expense, net |                          |         | (13,308 | )       |      |         | (15,659 | )       |   |         | (16,888 | )      
|                                                                                                                 | Other, net            |                          |         | (123    | )       |      |         | 1,563   |         |   |         | 24      |        
|                                                                                                                 |                       |                          |         |         |         |      |         |         |         |   |         |        
|Income before income taxes, extraordinary item
	and cumulative effect of accounting change                       |                       |                          | 33,134  |         |         |      | 16,584  |         |         |   | 16,074  |        
|Income tax expense                                                                                               |                       |                          | 17,420  |         |         |      | 9,934   |         |         |   | 10,874  |        
|                                                                                                                 |                       |                          |         |         |         |      |         |         |         |   |         |        
|Income before extraordinary item and cumulative
	effect of accounting change                                     |                       |                          | 15,714  |         |         |      | 6,650   |         |         |   | 5,200   |        
|Extraordinary loss on early extinguishment of
	debt, net of income tax benefit of $195 in 2000 and $177 in 1999. |                       |                          |        |         |         |      | 315     |         |         |   | 552     |        
|                                                                                                                 |                       |                          |         |         |         |      |         |         |         |   |         |        
|Income before cumulative effect of accounting
	change                                                            |                       |                          | 15,714  |         |         |      | 6,335   |         |         |   | 4,648   |        
|Cumulative effect of accounting change, net of
	income tax
	expense of $82.                                      |                       |                          | 126     |         |         |      |        |         |         |   |        |        
|                                                                                                                 |                       |                          |         |         |         |      |         |         |         |   |         |        
|Net income                                                                                                       |                       | $                        | 15,840  |         |         | $    | 6,335   |         |         | $ | 4,648   |        
|                                                                                                                 |                       |                          |         |         |         |      |         |         |         |   |         |        

See accompanying notes to consolidated financial
statements.

34



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##### Table of Contents



CDRJ INVESTMENTS (LUX) S.A. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY

(In thousands, except for shares)


|                                                |                                                                        |                            |  |         |         |        |   |        |        |        |  |         |         |  |   |        |        |  |  |         |         |  |   |        |        | 
|----------------------------------------------- | ---------------------------------------------------------------------- | -------------------------- |  | ------- | ------- | ------ | - | ------ | ------ | ------ |  | ------- | ------- |  | - | ------ | ------ |  |  | ------- | ------- |  | - | ------ | ------ | 
|                                                |                                                                        |                           
|                                                |                                                                        | Years Ended December 31,  
|                                                |                                                                        |                           
|                                                |                                                                        |                            |  |         |         |       
|                                                |                                                                        | 2001                       |  | 2000    |         | 1999  
|                                                |                                                                        |                            |  |         |         |       
|                                                |                                                                        | Shares                     |  | Amount  |         | Shares |   | Amount |        | Shares |  | Amount 
|                                                |                                                                        |                            |  |         |         |        |   |        |        |        |  |        
|Common Stock:                                   |                                                                        |                            |  |         |         |        |   |        |        |        |  |         |         |  |   |        |        |  |  |         |         |  |   |       
|                                                | Balance, beginning of year                                             |                            |  | 834,293 |         |        | $ | 1,669  |        |        |  | 830,659 |         |  | $ | 1,661  |        |  |  | 829,940 |         |  | $ | 1,660  |       
|                                                | Issuance of common stock                                               |                            |  | 474     |         |        |   | 1      |        |        |  | 4,424   |         |  |   | 9      |        |  |  | 2,457   |         |  |   | 5      |       
|                                                | Exercise of stock options                                              |                            |  | 210     |         |        |   |       |        |        |  | 158     |         |  |   | 1      |        |  |  | 579     |         |  |   | 1      |       
|                                                | Repurchase of common stock                                             |                            |  | (3,089  | )       |        |   | (6     | )      |        |  | (948    | )       |  |   | (2     | )      |  |  | (2,317  | )       |  |   | (5     | )     
|                                                |                                                                        |                            |  |         |         |        |   |        |        |        |  |         |         |  |   |        |        |  |  |         |         |  |   |       
|                                                | Balance, end of year                                                   |                            |  | 831,888 |         |        |   | 1,664  |        |        |  | 834,293 |         |  |   | 1,669  |        |  |  | 830,659 |         |  |   | 1,661  |       
|                                                |                                                                        |                            |  |         |         |        |   |        |        |        |  |         |         |  |   |        |        |  |  |         |         |  |   |       
|Additional Paid-in Capital:                     |                                                                        |                            |  |         |         |        |   |        |        |        |  |         |         |  |   |        |        |  |  |         |         |  |   |       
|                                                | Balance, beginning of year                                             |                            |  |         |         |        |   | 82,128 |        |        |  |         |         |  |   | 81,381 |        |  |  |         |         |  |   | 81,275 |       
|                                                | Issuance of common stock                                               |                            |  |         |         |        |   | 99     |        |        |  |         |         |  |   | 912    |        |  |  |         |         |  |   | 362    |       
|                                                | Exercise of stock options                                              |                            |  |         |         |        |   | 52     |        |        |  |         |         |  |   | 32     |        |  |  |         |         |  |   | 85     |       
|                                                | Repurchase of common stock                                             |                            |  |         |         |        |   | (358   | )      |        |  |         |         |  |   | (197   | )      |  |  |         |         |  |   | (341   | )     
|                                                |                                                                        |                            |  |         |         |        |   |        |        |        |  |         |         |  |   |        |        |  |  |         |         |  |   |       
|                                                | Balance, end of year                                                   |                            |  |         |         |        |   | 81,921 |        |        |  |         |         |  |   | 82,128 |        |  |  |         |         |  |   | 81,381 |       
|                                                |                                                                        |                            |  |         |         |        |   |        |        |        |  |         |         |  |   |        |        |  |  |         |         |  |   |       
|Retained Earnings (Deficit):                    |                                                                        |                            |  |         |         |        |   |        |        |        |  |         |         |  |   |        |        |  |  |         |         |  |   |       
|                                                | Balance, beginning of year                                             |                            |  |         |         |        |   | 2,942  |        |        |  |         |         |  |   | (3,393 | )      |  |  |         |         |  |   | (8,041 | )     
|                                                | Net income                                                             |                            |  |         |         |        |   | 15,840 |        |        |  |         |         |  |   | 6,335  |        |  |  |         |         |  |   | 4,648  |       
|                                                | Repurchase of common stock                                             |                            |  |         |         |        |   | (409   | )      |        |  |         |         |  |   |       |        |  |  |         |         |  |   |       |       
|                                                |                                                                        |                            |  |         |         |        |   |        |        |        |  |         |         |  |   |        |        |  |  |         |         |  |   |       
|                                                | Balance, end of year                                                   |                            |  |         |         |        |   | 18,373 |        |        |  |         |         |  |   | 2,942  |        |  |  |         |         |  |   | (3,393 | )     
|                                                |                                                                        |                            |  |         |         |        |   |        |        |        |  |         |         |  |   |        |        |  |  |         |         |  |   |       
|Accumulated Other Comprehensive Income
	(Loss): |                                                                        |                            |  |         |         |        |   |        |        |        |  |         |         |  |   |        |        |  |  |         |         |  |   |       
|                                                | Balance, beginning of year                                             |                            |  |         |         |        |   | (5,572 | )      |        |  |         |         |  |   | (3,855 | )      |  |  |         |         |  |   | 547    |       
|                                                | Net unrealized and deferred realized losses on
	derivatives            |                            |  |         |         |        |   | (3,746 | )      |        |  |         |         |  |   |       |        |  |  |         |         |  |   |       |       
|                                                | Tax benefit on unrealized and deferred realized
	losses on derivatives |                            |  |         |         |        |   | 1,311  |        |        |  |         |         |  |   |       |        |  |  |         |         |  |   |       |       
|                                                | Currency translation adjustments                                       |                            |  |         |         |        |   | 2,041  |        |        |  |         |         |  |   | (1,717 | )      |  |  |         |         |  |   | (4,402 | )     
|                                                |                                                                        |                            |  |         |         |        |   |        |        |        |  |         |         |  |   |        |        |  |  |         |         |  |   |       
|                                                | Balance, end of year                                                   |                            |  |         |         |        |   | (5,966 | )      |        |  |         |         |  |   | (5,572 | )      |  |  |         |         |  |   | (3,855 | )     
|                                                |                                                                        |                            |  |         |         |        |   |        |        |        |  |         |         |  |   |        |        |  |  |         |         |  |   |       
|                                                |                                                                        | Total Stockholders Equity |  |         | 831,888 |        |   | $      | 95,992 |        |  |         | 834,293 |  |   | $      | 81,167 |  |  |         | 830,659 |  |   | $      | 75,794 | 
|                                                |                                                                        |                            |  |         |         |        |   |        |        |        |  |         |         |  |   |        |        |  |  |         |         |  |   |       
|Comprehensive Income:                           |                                                                        |                            |  |         |         |        |   |        |        |        |  |         |         |  |   |        |        |  |  |         |         |  |   |       
|                                                | Net income                                                             |                            |  |         |         |        | $ | 15,840 |        |        |  |         |         |  | $ | 6,335  |        |  |  |         |         |  | $ | 4,648  |       
|                                                | Unrealized and deferred realized losses on
	derivatives                |                            |  |         |         |        |   | (5,504 | )      |        |  |         |         |  |   |       |        |  |  |         |         |  |   |       |       
|                                                | Reclassified to exchange (loss) gain                                   |                            |  |         |         |        |   | 797    |        |        |  |         |         |  |   |       |        |  |  |         |         |  |   |       |       
|                                                | Reclassified to cost of sales                                          |                            |  |         |         |        |   | 961    |        |        |  |         |         |  |   |       |        |  |  |         |         |  |   |       |       
|                                                | Tax benefit on unrealized and deferred realized
	losses on derivatives |                            |  |         |         |        |   | 1,311  |        |        |  |         |         |  |   |       |        |  |  |         |         |  |   |       |       
|                                                | Currency translation adjustments                                       |                            |  |         |         |        |   | 2,041  |        |        |  |         |         |  |   | (1,717 | )      |  |  |         |         |  |   | (4,402 | )     
|                                                |                                                                        |                            |  |         |         |        |   |        |        |        |  |         |         |  |   |        |        |  |  |         |         |  |   |       
|                                                |                                                                        | Total Comprehensive Income |  |         |         |        |   | $      | 15,446 |        |  |         |         |  |   | $      | 4,618  |  |  |         |         |  |   | $      | 246    | 
|                                                |                                                                        |                            |  |         |         |        |   |        |        |        |  |         |         |  |   |        |        |  |  |         |         |  |   |       

See accompanying notes to consolidated financial
statements.

35



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##### Table of Contents



CDRJ INVESTMENTS (LUX) S.A. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

(In thousands)


|                                                   |                                                                                                                                                                |                                                                   |                                           |                                                      |       |         |         |         |       |         |         |         |        |        |        |  
|-------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------- | ----------------------------------------- | ---------------------------------------------------- | ----- | ------- | ------- | ------- | ----- | ------- | ------- | ------- | ------ | ------ | ------ | -
|                                                   |                                                                                                                                                                |                                                                  
|                                                   |                                                                                                                                                                | Years Ended December 31,                                         
|                                                   |                                                                                                                                                                |                                                                  
|                                                   |                                                                                                                                                                | 2001                                                              |                                           | 2000                                                 |       | 1999   
|                                                   |                                                                                                                                                                |                                                                   |                                           |                                                      |       |        
|Cash flows from operating
	activities:             |                                                                                                                                                                |                                                                   |                                           |                                                      |       |         |         |         |       |         |         |        
|                                                   | Net income                                                                                                                                                     |                                                                   | $                                         | 15,840                                               |       |         | $       | 6,335   |       |         | $       | 4,648   |       
|                                                   |                                                                                                                                                                | Extraordinary loss on early extinguishment of
	debt, net of taxes |                                           |                                                      |      |         |         |         | 315   |         |         |         | 552    |       
|                                                   |                                                                                                                                                                | Cumulative effect of accounting change, net of
	taxes             |                                           |                                                      | (126  | )       |         |         |      |         |         |         |       |       
|                                                   |                                                                                                                                                                |                                                                   |                                           |                                                      |       |         |         |         |       |         |         |        
|                                                   | Income before extraordinary item and cumulative
	effect of accounting change                                                                                   |                                                                   |                                           | 15,714                                               |       |         |         | 6,650   |       |         |         | 5,200   |       
|                                                   | Adjustments to reconcile income before
	extraordinary item and cumulative effect of accounting change to
	net cash provided by (used in) operating activities: |                                                                   |                                           |                                                      |       |         |         |         |       |         |         |         |       
|                                                   |                                                                                                                                                                | Loss (gain) on sale of property and equipment                     |                                           |                                                      | 69    |         |         |         | 150   |         |         |         | (1,043 | )     
|                                                   |                                                                                                                                                                | Depreciation and amortization                                     |                                           |                                                      | 7,749 |         |         |         | 7,632 |         |         |         | 7,119  |       
|                                                   |                                                                                                                                                                | Amortization of deferred financing fees                           |                                           |                                                      | 1,434 |         |         |         | 1,430 |         |         |         | 1,832  |       
|                                                   |                                                                                                                                                                | Provision for uncollectible accounts receivable                   |                                           |                                                      | 9,464 |         |         |         | 5,958 |         |         |         | 4,651  |       
|                                                   |                                                                                                                                                                | Asset impairment charge                                           |                                           |                                                      |      |         |         |         | 1,019 |         |         |         | 1,084  |       
|                                                   |                                                                                                                                                                | Unrealized foreign exchange and derivative loss
	(gain)           |                                           |                                                      | (683  | )       |         |         | 2,918 |         |         |         | (2,377 | )     
|                                                   |                                                                                                                                                                | Deferred realized derivative loss                                 |                                           |                                                      | (827  | )       |         |         |      |         |         |         |       |       
|                                                   |                                                                                                                                                                | Deferred income taxes                                             |                                           |                                                      | 3,913 |         |         |         | 3,430 |         |         |         | 7,320  |       
|                                                   |                                                                                                                                                                | Changes in operating assets and liabilities:                      |                                           |                                                      |       |         |         |         |       |         |         |         |        |       
|                                                   |                                                                                                                                                                |                                                                   | Receivables                               |                                                      |       | (15,839 | )       |         |       | (10,536 | )       |         |        | (8,337 | )     
|                                                   |                                                                                                                                                                |                                                                   | Inventories                               |                                                      |       | (917    | )       |         |       | (7,856  | )       |         |        | 613    |       
|                                                   |                                                                                                                                                                |                                                                   | Prepaid expenses and other current assets |                                                      |       | 2,795   |         |         |       | (1,688  | )       |         |        | (2,960 | )     
|                                                   |                                                                                                                                                                |                                                                   | Other assets                              |                                                      |       | 192     |         |         |       | (927    | )       |         |        | (1,182 | )     
|                                                   |                                                                                                                                                                |                                                                   | Accounts payable and accrued liabilities  |                                                      |       | (1,033  | )       |         |       | 12,065  |         |         |        | (5,904 | )     
|                                                   |                                                                                                                                                                |                                                                   | Income taxes payable/prepaid              |                                                      |       | 7,376   |         |         |       | 12,156  |         |         |        | (8,198 | )     
|                                                   |                                                                                                                                                                |                                                                   | Other long-term liabilities               |                                                      |       | 722     |         |         |       | 57      |         |         |        | 627    |       
|                                                   |                                                                                                                                                                |                                                                   |                                           |                                                      |       |         |         |         |       |         |         |        
|                                                   |                                                                                                                                                                |                                                                   |                                           | Net cash provided by (used in) operating
	activities |       |         | 30,129  |         |       |         | 32,458  |         |        |        | (1,555 | )
|                                                   |                                                                                                                                                                |                                                                   |                                           |                                                      |       |         |         |         |       |         |         |        
|Cash flows from investing
	activities:             |                                                                                                                                                                |                                                                   |                                           |                                                      |       |         |         |         |       |         |         |        
|                                                   | Payments of previously accrued Acquisition fees                                                                                                                |                                                                   |                                           |                                                     |       |         |         |        |       |         |         | (1,856  | )     
|                                                   | Proceeds from sale of property and equipment                                                                                                                   |                                                                   |                                           | 93                                                   |       |         |         | 675     |       |         |         | 5,551   |       
|                                                   | Purchases of property and equipment                                                                                                                            |                                                                   |                                           | (11,372                                              | )     |         |         | (7,105  | )     |         |         | (5,798  | )     
|                                                   | Other                                                                                                                                                          |                                                                   |                                           | (408                                                 | )     |         |         | (760    | )     |         |         | (991    | )     
|                                                   |                                                                                                                                                                |                                                                   |                                           |                                                      |       |         |         |         |       |         |         |        
|                                                   |                                                                                                                                                                |                                                                   |                                           | Net cash used in investing activities                |       |         | (11,687 | )       |       |         | (7,190  | )       |        |        | (3,094 | )
|                                                   |                                                                                                                                                                |                                                                   |                                           |                                                      |       |         |         |         |       |         |         |        
|Cash flows from financing
	activities:             |                                                                                                                                                                |                                                                   |                                           |                                                      |       |         |         |         |       |         |         |        
|                                                   | Repurchase of subordinated debt                                                                                                                                |                                                                   |                                           |                                                     |       |         |         | (10,597 | )     |         |         | (13,490 | )     
|                                                   | Repayments under term loan facility                                                                                                                            |                                                                   |                                           | (4,500                                               | )     |         |         | (3,500  | )     |         |         | (2,500  | )     
|                                                   | Net borrowings (repayments) under revolving
	credit facility                                                                                                   |                                                                   |                                           | (12,700                                              | )     |         |         | (10,500 | )     |         |         | 8,500   |       
|                                                   | Net proceeds from bank debt                                                                                                                                    |                                                                   |                                           | 1,263                                                |       |         |         | 346     |       |         |         |        |       
|                                                   | Net issuance of common stock                                                                                                                                   |                                                                   |                                           | 152                                                  |       |         |         | 954     |       |         |         | 457     |       
|                                                   | Repurchase of common stock                                                                                                                                     |                                                                   |                                           | (773                                                 | )     |         |         | (199    | )     |         |         | (346    | )     
|                                                   |                                                                                                                                                                |                                                                   |                                           |                                                      |       |         |         |         |       |         |         |        
|                                                   |                                                                                                                                                                |                                                                   |                                           | Net cash used in financing activities                |       |         | (16,558 | )       |       |         | (23,496 | )       |        |        | (7,379 | )
|                                                   |                                                                                                                                                                |                                                                   |                                           |                                                      |       |         |         |         |       |         |         |        
|                                                   | Effect of exchange rate changes on cash                                                                                                                        |                                                                   |                                           | (974                                                 | )     |         |         | (840    | )     |         |         | (1,424  | )     
|                                                   |                                                                                                                                                                |                                                                   |                                           |                                                      |       |         |         |         |       |         |         |        
|                                                   | Net increase (decrease) in cash and cash
	equivalents                                                                                                          |                                                                   |                                           | 910                                                  |       |         |         | 932     |       |         |         | (13,452 | )     
|                                                   | Cash and cash equivalents at beginning of period                                                                                                               |                                                                   |                                           | 5,838                                                |       |         |         | 4,906   |       |         |         | 18,358  |       
|                                                   |                                                                                                                                                                |                                                                   |                                           |                                                      |       |         |         |         |       |         |         |        
|                                                   | Cash and cash equivalents at end of period                                                                                                                     |                                                                   | $                                         | 6,748                                                |       |         | $       | 5,838   |       |         | $       | 4,906   |       
|                                                   |                                                                                                                                                                |                                                                   |                                           |                                                      |       |         |         |         |       |         |         |        
|Supplemental disclosure of cash flow
	information: |                                                                                                                                                                |                                                                   |                                           |                                                      |       |         |         |         |       |         |         |        
|                                                   | Cash paid (received) during the year for:                                                                                                                      |                                                                   |                                           |                                                      |       |         |         |         |       |         |         |         |       
|                                                   | Interest                                                                                                                                                       |                                                                   | $                                         | 11,538                                               |       |         | $       | 15,027  |       |         | $       | 16,656  |       
|                                                   | Income taxes                                                                                                                                                   |                                                                   |                                           | 5,319                                                |       |         |         | (5,652  | )     |         |         | 10,541  |       

During 1999, the Company sold inventories with a
book value of approximately $2.3 million and equipment with
a net book value of approximately $3.8 million to a third
party contractor in connection with a manufacturing outsourcing
agreement, in exchange for notes receivable with present values
of $2.1 million and $1.5 million, respectively (see
Note 14). The resulting loss of approximately
$2.5 million was recorded as a charge against the
restructuring accrual established in connection with the
Acquisition.

At December 31, 2001, the Company had
non-cash deferred unrealized losses of $2.9 million on
foreign currency forward contracts recorded in accrued
liabilities and other comprehensive income. Additionally, the
related deferred income tax benefit of $1.3 million related
to the deferred unrealized losses has been recorded as a
component of the net deferred income tax liability and other
comprehensive income.

See accompanying notes to consolidated financial
statements.

36



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##### Table of Contents



CDRJ INVESTMENTS (LUX) S.A. AND
SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

(1) Basis of Presentation and Description
of Business

Basis of Presentation

CDRJ Investments (Lux) S.A., a Luxembourg
société anonyme(the Parent), Jafra
Cosmetics International, Inc., a Delaware corporation
(JCI), Jafra Cosmetics International, S.A. de C.V.,
a sociedad anonima de capital variableorganized under
the laws of the United Mexican States (Jafra S.A.)
and certain other subsidiaries of the Parent were organized by
Clayton, Dubilier & Rice Fund V Limited Partnership, a
Cayman Islands exempted limited partnership managed by Clayton,
Dubilier & Rice, Inc. (CD&R) to acquire (the
Acquisition) the worldwide Jafra Cosmetics business
(the Jafra Business) of The Gillette Company
(Gillette). JCI and Jafra S.A. are indirect, wholly
owned subsidiaries of the Parent. The Parent is a holding
company that conducts all its operations through its
subsidiaries. The Parent and its subsidiaries are collectively
referred to as the Company. The Acquisition was
completed on April 30, 1998.

The accompanying consolidated financial
statements for the years ended December 31, 2001, 2000 and
1999 reflect the operations of the Parent and its subsidiaries.
All significant intercompany accounts and transactions have been
eliminated in consolidation.

Description of Business

The Company is an international manufacturer and
marketer of premium skin and body care products, color
cosmetics, fragrances, and other personal care products. The
Company markets its products primarily in 15 countries, 14
outside the United States, and a number of additional countries
through distributors, through a direct selling, multilevel
distribution system comprised of self-employed salespersons
(known as consultants).

(2) Summary of Significant Accounting
Policies

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

Cash and Cash Equivalents.Cash and cash equivalents include
cash, time deposits and all highly liquid debt instruments
purchased with a maturity of three months or less.

Inventories.Inventories are stated at the lower of
cost, as determined by the first-in, first-out basis, or market.

Property and Equipment.Property and equipment are stated at
cost. Depreciation of property and equipment is provided for
over the estimated useful lives of the respective assets using
the straight-line method. Estimated useful lives are 20 or
40 years for buildings, the lesser of 20 or 40 years
or the term of the lease for improvements and 5 to 15 years
for machinery and equipment. Maintenance and repairs, including
cost of minor replacements, are charged to operations as
incurred. Costs of additions and betterments are added to
property and equipment accounts provided that such expenditures
increase the useful life or the value of the asset.

Intangible Assets.Intangible assets principally consist
of goodwill and trademarks, which are amortized using the
straight-line method. Goodwill of $77.9 million and
trademarks of $53.8 million, resulting from the
Companys acquisition of the Jafra Business from Gillette,
are being amortized over a period of 40 years. Accumulated
amortization of goodwill and trademarks at December 31,
2001 was $7,155,000 and $5,371,000, respectively. Accumulated
amortization of goodwill and trademarks at December 31,
2000 was $5,114,000 and $3,724,000, respectively. (See New
Accounting Standards).

37



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##### Table of Contents



CDRJ INVESTMENTS (LUX) S.A. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

Deferred Financing Costs.In connection with the acquisition of
the Jafra Business, the Company incurred approximately
$12.0 million of costs related to the 11.75% Senior
Subordinated Notes due 2008 (the Notes), the
Revolving Credit Facility and the Term Loan Facility (see
Note 6). Such costs are being amortized on a basis that
approximates the interest method over the expected term of the
related debt. Accumulated amortization at December 31, 2001
and 2000 was $5,566,000 and $3,998,000, respectively.

Impairment of Long-Lived Assets and Enterprise
Goodwill.Long-lived assets and
enterprise goodwill are reviewed for impairment, based on
undiscounted cash flows, whenever events or changes in
circumstances indicate that the carrying amount of such assets
may not be recoverable. If this review indicates that the
carrying amount of the long-lived assets and goodwill is not
recoverable, the Company will recognize an impairment loss,
measured by the future discounted cash flow method (see
New Accounting Standards and Note 10).

Foreign Currency Forward Contracts.During 2001 and 2000, the Company
entered into foreign currency forward contracts to reduce the
effect of potentially adverse exchange rate fluctuations in the
exchange rate of the Mexican peso to the U.S. dollar.
Effective January 1, 2001, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 133,
Accounting for Derivative Instruments and Hedging
Activities. SFAS No. 133, as amended and interpreted,
establishes accounting and reporting standards for derivative
instruments and hedging activities and requires that all
derivative instruments be recorded based on fair value. In
connection with the adoption of SFAS No. 133, at
January 1, 2001, the Company recorded a net gain of
$126,000 (net of a tax effect of $82,000) as a cumulative
transition adjustment to earnings. This adjustment relates to
derivatives not designated as hedges prior to adoption of SFAS
No. 133, and represents the difference between the carrying
value and the fair value of such instruments.

As a matter of policy, the Company does not hold
or issue foreign currency forward contracts for trading or
speculative purposes. The forward contracts utilized by the
Company did not qualify for hedge accounting under the
applicable accounting standards prior to adoption of SFAS
No. 133 on January 1, 2001, and accordingly such
instruments were marked-to-market each month based upon the
change in the spot rate from the date of contract inception to
the balance sheet date. The premium on such contracts was
amortized to expense over the life of the contracts. However,
under SFAS No. 133, the Companys use of forward
contracts to hedge certain forecasted transactions qualifies for
hedge accounting. Gains and losses from qualifying hedged
derivative instruments are deferred as a separate component of
other comprehensive income, and are recognized in income at the
same time that the underlying hedged exposure is recognized in
income. This accounting treatment results in the matching of
gains and losses from such forward contracts with the
corresponding gains and losses generated by the underlying
hedged transactions. Under SFAS No. 133, certain of the
Companys forward contracts do not qualify for hedge
accounting and therefore, are remeasured based on fair value,
with gains and losses included as a component of net income. The
carrying value of the forward contracts is included in current
liabilities. At December 31, 2001 and 2000, the Company
included $5,540,000 and $1,718,000 in accrued liabilities,
respectively, in the accompanying consolidated balance sheets.

Fair Value of Financial Instruments.The carrying amounts of cash and cash
equivalents, accounts receivable, and accounts payable
approximate fair value because of the short-term maturities of
these instruments. The fair value of the Notes and other fixed
rate long-term debt at December 31, 2001 and 2000 was
$82,052,000 and $77,435,000, respectively, based upon
discussions with one of the Companys largest bondholders
and an analysis of current market interest rates and the
Companys credit rating. As the Companys Revolving
Credit Facilities and the Term Loan are variable rate debt, and
the interest rate spread paid by the Company is adjusted for
changes in certain financial ratios of the Company, the fair
value of the Revolving Credit Facilities and the Term Loan
approximated their carrying amounts at December 31, 2001
and 2000. Prior to the implementation of SFAS No. 133, the
fair value of the Companys forward currency

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CDRJ INVESTMENTS (LUX) S.A. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

contracts at December 31 2000 closely
approximated the carrying value, as such contracts were
marked-to-market based upon changes in the spot rate from the
date of contract inception to the balance sheet date.

Revenue Recognition.The Company recognizes revenue when
title passes at shipment in accordance with its shipping terms.
Amounts billed to consultants for shipping and handling costs
are included in net sales.

Shipping and Handling Costs.Shipping and handling costs of
$28,736,000, $24,716,000 and $14,621,000 for the years ended
December 31, 2001, 2000 and 1999, respectively, are
included in selling, general and administrative expenses.

Research and Development.Research and development costs are
expensed as incurred. Total research and development expense
aggregated $1,842,000, $1,901,000, and $2,130,000 for the years
ended December 31, 2001, 2000 and 1999, respectively.

Income Taxes.The
Company accounts for income taxes under the balance sheet
approach that requires the recognition of deferred income tax
assets and liabilities for the expected future consequences of
events that have been recognized in the Companys financial
statements or income tax returns. Management provides a
valuation allowance for deferred income tax assets when it is
more likely than not that a portion of such deferred income tax
assets will not be realized.

Foreign Currency Translation.The functional currency for foreign
subsidiaries is generally the local currency. Assets and
liabilities of such foreign subsidiaries are translated into
U.S. dollars at current exchange rates, and related revenues and
expenses are translated at average exchange rates in effect
during the period. Resulting translation adjustments are
recorded as a component of other comprehensive income.

Approximately 79%, 77%, and 75% of the
Companys net sales for the years ended December 31,
2001, 2000 and 1999, respectively, were generated by operations
located outside of the United States. Mexico is the
Companys largest foreign operation, accounting for 66%,
62%, and 59% of the Companys net sales for the years ended
December 31, 2001, 2000 and 1999, respectively. As such,
the Companys results of operations are subject to
fluctuations in the exchange rate of the Mexican peso to the
U.S. dollar.

Additionally, Jafra S.A. had outstanding U.S.
dollar-denominated debt of $35.6 million and
$57.7 million at December 31, 2001 and 2000,
respectively. This debt is remeasured at each reporting date,
subjecting the Company to additional foreign exchange risk.

New Accounting Standards.Effective January 1, 2001, the
Company adopted SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS
No. 133, as amended and interpreted, established accounting
and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, and
for hedging activities. All derivatives, whether designated in
hedging relationships or not, are required to be recorded on the
balance sheet at fair value. If the derivative is designated in
a fair-value hedge, the changes in the fair value of the
derivative and the underlying hedged item are recognized
concurrently in earnings. If the derivative is designated in a
cash-flow hedge, changes in the fair value of the derivative are
recorded in other comprehensive income (OCI) and are
recognized in the statement of operations when the hedged item
affects earnings. SFAS No. 133 defined new requirements for
designation and documentation of hedging relationships as well
as ongoing effectiveness assessments in order to use hedge
accounting. For a derivative that does not qualify as a hedge,
changes in fair value are recognized concurrently in earnings.
As of January 1, 2001, the Company recorded a net gain of
$126,000 (net of a tax effect of $82,000) as a cumulative
transition adjustment to earnings. This adjustment relates to
derivatives not designated as hedges prior to adoption of
SFAS No. 133, and represents the difference between
the carrying value as measured by the difference in the spot
rate to the forward rate and the fair value as determined by
forward rates of such instruments at January 1, 2001.

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CDRJ INVESTMENTS (LUX) S.A. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

In July 2001, the Financial Accounting Standards
Board (FASB) approved two new statements: SFAS
No. 141, Business Combinations and SFAS
No. 142, Goodwill and Other Intangible Assets.
SFAS No. 141 requires business combinations entered into
after June 30, 2001 to be accounted for using the purchase
method of accounting. SFAS No. 142 requires that goodwill
not be amortized, but be tested for impairment at least
annually. SFAS No. 142 is effective for fiscal years
beginning after December 15, 2001 to all goodwill and other
intangible assets recognized in an entitys statement of
financial position at that date, regardless of when those assets
were initially recognized. In accordance with this statement,
the Company is not required to complete the transitional
goodwill impairment test until June 30, 2002. The Company
is evaluating, but has not yet determined, whether the adoption
of this statement will result in an impairment of goodwill.
Additionally, the Company is evaluating, but has not determined
the useful life of certain other intangible assets under the new
accounting pronouncement. Goodwill amortization of $2,072,000
and possibly a portion of other intangible amortization of
$1,384,000 recorded in 2001 required under previous accounting
standards will not be charged to income in 2002.

In August 2001, the FASB issued SFAS
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. SFAS No. 144 supersedes SFAS
No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of. SFAS
No. 144 retains substantially all of the requirements of
SFAS No. 121 while resolving certain implementation issues
and addressing the accounting for a component of a business
accounted for as a discontinued operation. SFAS No. 144 is
effective for fiscal years beginning after December 15,
2001. Management does not expect the adoption of SFAS
No. 144 to have a significant impact on the financial
position or results of operations of the Company.

In November 2001, the Emerging Issues Task Force
(EITF) issued EITF Issue No. 01-9,
Accounting for Consideration Given by a Vendor to a
Customer or a Reseller of the Vendors Products,
which addresses the accounting for consideration given by a
vendor to a customer or a reseller of the vendors
products. In April 2001, the EITF reached consensus on EITF
Issue No. 00-25, Vendor Income Statement
Characterization of Consideration Paid to a Reseller of the
Vendors Products, which provides guidance on the
income statement reclassification of consideration from a vendor
to a reseller in connection with the resellers purchase of
the vendors products or to promote sales of the
vendors products. This new guidance provides that
consideration from a vendor to a reseller is generally presumed
to be a reduction of the selling prices of the vendors
products, and, therefore, should be characterized as a reduction
of revenue when recognized in the vendors income
statement. Although the new guidance will not impact net income,
there will be certain income statement reclassifications,
primarily related to commissions paid to consultants related to
their sale of product. The Company is in the process of
quantifying the impact of the guidance on revenue, gross profit
and selling, general and administrative expenses. EITF Issue
No. 00-25 and EITF Issue No. 01-9 are both effective
for the Company on January 1, 2002. Upon adoption, the
Company will reclassify prior period amounts for comparability.

Reclassifications.Certain reclassifications were made to
the prior year financial statements to conform to current year
presentation.

(3) Inventories

Inventories consist of the following at
December 31, 2001 and 2000 (in thousands):

|                           |                   |      |        |        |  |   |        |        | 
|-------------------------- | ----------------- | ---- | ------ | ------ |  | - | ------ | ------ | 
|                           |                   | 2001 |        | 2000  
|                           |                   |      |        |       
|Raw materials and supplies |                   | $    | 5,923  |        |  | $ | 6,751  |       
|Finished goods             |                   |      | 34,592 |        |  |   | 31,395 |       
|                           |                   |      |        |        |  |   |        |       
|                           | Total inventories |      | $      | 40,515 |  |   | $      | 38,146 | 
|                           |                   |      |        |        |  |   |        |       

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CDRJ INVESTMENTS (LUX) S.A. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

(4) Property and Equipment

Property and equipment consist of the following
at December 31, 2001 and 2000 (in thousands):

|                              |  |      |        |      |  |   |        | 
|----------------------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                              |  | 2001 |        | 2000
|                              |  |      |        |     
|Land                          |  | $    | 17,833 |      |  | $ | 17,224 | 
|Buildings and improvements    |  |      | 18,523 |      |  |   | 17,089 | 
|Machinery and equipment       |  |      | 34,640 |      |  |   | 25,438 | 
|                              |  |      |        |      |  |   |        | 
|                              |  |      | 70,996 |      |  |   | 59,751 | 
|Less accumulated depreciation |  |      | 11,398 |      |  |   | 8,303  | 
|                              |  |      |        |      |  |   |        | 
|Property and equipment, net   |  | $    | 59,598 |      |  | $ | 51,448 | 
|                              |  |      |        |      |  |   |        | 

(5) Accrued Liabilities

Accrued liabilities consist of the following at
December 31, 2001 and 2000 (in thousands):

|                                            |  |      |        |      |  |   |        | 
|------------------------------------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                                            |  | 2001 |        | 2000
|                                            |  |      |        |     
|Sales promotions, commissions and overrides |  | $    | 14,230 |      |  | $ | 14,598 | 
|Accrued restructuring charges (Note 10)     |  |      | 201    |      |  |   | 699    | 
|Accrued interest                            |  |      | 1,549  |      |  |   | 1,512  | 
|Compensation and other benefit accruals     |  |      | 8,311  |      |  |   | 5,326  | 
|State and local sales taxes and other taxes |  |      | 4,912  |      |  |   | 4,365  | 
|Unrealized losses on forward contracts      |  |      | 5,540  |      |  |   | 1,718  | 
|Other                                       |  |      | 6,173  |      |  |   | 6,005  | 
|                                            |  |      |        |      |  |   |        | 
|Total accrued liabilities                   |  | $    | 40,916 |      |  | $ | 34,223 | 
|                                            |  |      |        |      |  |   |        | 

(6) Debt

Debt consists of the following at
December 31, 2001 and 2000 (in thousands):

|                                                                                                                                                                                                                        |            |      |        |        |  |   |         |         | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------- | ---- | ------ | ------ |  | - | ------- | ------- | 
|                                                                                                                                                                                                                        |            | 2001 |        | 2000  
|                                                                                                                                                                                                                        |            |      |        |       
|Subordinated Notes, unsecured, interest payable
	semi-annually at 11.75% due in 2008.                                                                                                                                   |            | $    | 75,180 |        |  | $ | 75,180  |        
|Term loan, secured, principal and interest due in
	quarterly installments through April 30, 2004, interest
	rates at 4.3% and 8.1% at December 31, 2001 and 2000,
	respectively                                         |            |      | 14,500 |        |  |   | 19,000  |        
|Revolving Loan, secured, due April 30, 2004,
	weighted average interest rates of 5.4% and 8.3% at
	December 31, 2001 and 2000, respectively                                                                             |            |      | 1,800  |        |  |   | 14,500  |        
|Unsecured foreign bank loan agreement, principal
	and interest due in monthly installments through
	September 26, 2004, weighted average interest rates of
	18.7% and 19.6% at December 31, 2001 and 2000, respectively |            |      | 1,609  |        |  |   | 346     |        
|                                                                                                                                                                                                                        |            |      |        |        |  |   |         |        
|                                                                                                                                                                                                                        | Total debt |      |        | 93,089 |  |   |         | 109,026 | 
|Less current maturities                                                                                                                                                                                                 |            |      | 6,188  |        |  |   | 4,846   |        
|                                                                                                                                                                                                                        |            |      |        |        |  |   |         |        
|Long-term debt                                                                                                                                                                                                          |            | $    | 86,901 |        |  | $ | 104,180 |        
|                                                                                                                                                                                                                        |            |      |        |        |  |   |         |        

The Companys long-term debt matures as
follows (in thousands): $6,188 in 2002, $7,188 in 2003, $4,533
in 2004, $0 in 2005, $0 in 2006 and $75,180 thereafter.

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CDRJ INVESTMENTS (LUX) S.A. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

On April 30, 1998, JCI and Jafra S.A.
borrowed $125 million by issuing $100 million
aggregate principal amount of 11.75% Subordinated Notes due 2008
(the Notes) pursuant to an Indenture dated
April 30, 1998 (the Indenture) and
$25 million under a Senior Credit Agreement.

At the date of issuance, the Notes represented
the several obligations of JCI and Jafra S.A. in the amount of
$60 million and $40 million, respectively, with each
participating on a pro rata basis upon redemption. The Notes
mature in 2008 and bear a fixed interest rate of 11.75% payable
semi-annually.

Each of JCI and Jafra S.A. is an indirect, wholly
owned subsidiary of the Parent and has fully and unconditionally
guaranteed the obligations under the Notes of the other on a
senior subordinated basis, subject to a 30-day standstill period
prior to enforcement of such guarantees. In addition, the Parent
has fully and unconditionally guaranteed the Notes on a senior
subordinated basis. JCI currently has no U.S. subsidiaries. Each
acquired or organized U.S. subsidiary of JCI will also be
required to fully and unconditionally guarantee the Notes
jointly and severally, on a senior subordinated basis. Each
existing subsidiary of Jafra S.A. fully and unconditionally
guarantees the Notes jointly and severally, on a senior
subordinated basis, and each subsequently acquired or organized
subsidiary of Jafra S.A. will fully and unconditionally
guarantee the Notes jointly and severally, on a senior
subordinated basis. The nonguarantor entities are the
Parents indirect European subsidiaries in Austria,
Germany, Italy, the Netherlands, Poland, and Switzerland; its
indirect South American subsidiaries in Argentina, Brazil,
Chile, Colombia, Peru, and Venezuela; and its indirect
subsidiaries in the Dominican Republic and Thailand. All
guarantor and nonguarantor entities are either direct or
indirect wholly owned subsidiaries of the Parent. The Notes were
registered in a registered exchange offer, effective as of
January 25, 1999, under the Securities Act of 1933, as
amended.

The Notes are unsecured and are generally
non-callable for five years. Thereafter, the Notes will be
callable at premiums declining to par in the eighth year.

Consents and Waivers, dated June 30, 2001
and November 19, 1999, to the Senior Credit Agreement, as
described below, allow the Company to repurchase the Notes in
the open market from time to time, with the aggregate purchase
price for all such Notes repurchased not to exceed
$50 million. Aggregate repurchases as of December 31,
2001 were $24.8 million. During 2000, the Company retired
Notes of JCI and Jafra S.A., prior to maturity, with a face
value of $6.5 million and $4.3 million, respectively.
The debt repurchases in 2000 resulted in an extraordinary loss
of $315,000, net of an income tax benefit of $195,000. During
1999, the Company retired Notes of JCI and Jafra S.A., prior to
maturity, with a face value of $8.4 million and
$5.6 million, respectively. The debt repurchases in 1999
resulted in an extraordinary loss of $552,000, net of an income
tax benefit of $177,000. In connection with the early retirement
of the Notes as described above, a portion of the unamortized
deferred financing costs was written off and included in the
determination of the extraordinary loss on early extinguishment
of debt. The total amounts that were written off during 2000 and
1999 were $733,000 and $1,239,000, respectively.

In addition, JCI and Jafra S.A. entered into a
Senior Credit Agreement that provides for senior secured credit
facilities in an aggregate principal amount of $90 million,
consisting of a multicurrency Revolving Credit Facility of
$65 million and a Term Loan Facility of $25 million.
Borrowings under the Term Loan Facility are payable in quarterly
installments of principal and interest over 6 years through
April 30, 2004. Borrowings under the Revolving Credit
Facility mature on April 30, 2004. Borrowings under the
Senior Credit Agreement bear interest at an annual rate of LIBOR
plus a margin not to exceed 1.625% or an alternate base rate
(the higher of the prime rate or federal funds rate plus 0.5%,
plus an applicable margin not to exceed 0.625%). The interest
rate in effect at December 31, 2001 was approximately 4.3%
for the LIBOR-based borrowings and the interest rate for the
prime-based borrowings was approximately 5.4%. Borrowings under
the Senior Credit Agreement are secured by substantially all of
the assets of JCI and Jafra S.A.

Both the Indenture and the Senior Credit
Agreement contain certain covenants that limit the
Companys ability to incur additional indebtedness, pay
cash dividends and make certain other payments. These debt

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CDRJ INVESTMENTS (LUX) S.A. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

agreements also require the Company to maintain
certain financial ratios including a minimum EBITDA to cash
interest expense coverage ratio and a maximum debt to EBITDA
ratio.

During the year ended December 31, 2001,
Jafra S.A. repaid the balance remaining under a one-year term
loan originally due on August 16, 2001, and entered into an
unsecured bank loan agreement, borrowing the peso equivalent of
$2.1 million at a weighted average fixed interest rate of
18.7%. Principal and interest payments are due monthly through
September 26, 2004.

As of December 31, 2001, the Company had
irrevocable standby letters of credit outstanding totaling
$3.3 million. These letters of credit, expiring on various
dates through September 25, 2005, collateralize the
Companys obligation to a third-party in connection with
certain lease agreements.

(7) Income Taxes

The Companys income before income taxes
consists of the following (amounts in thousands):

|                                                                                            |  |                          |        |      |  |      |        |  |  |   |        | 
|------------------------------------------------------------------------------------------- |  | ------------------------ | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                                                                                            |  |                         
|                                                                                            |  | Years Ended December 31,
|                                                                                            |  |                         
|                                                                                            |  | 2001                     |        | 2000 |  | 1999
|                                                                                            |  |                          |        |      |  |     
|Income before income taxes, extraordinary item
	and cumulative effect of accounting change: |  |                          |        |      |  |      |        |  |  |   |        | 
|United States                                                                               |  | $                        | 13,530 |      |  | $    | 9,741  |  |  | $ | 10,917 | 
|Foreign                                                                                     |  |                          | 19,604 |      |  |      | 6,843  |  |  |   | 5,157  | 
|                                                                                            |  |                          |        |      |  |      |        |  |  |   |        | 
|                                                                                            |  | $                        | 33,134 |      |  | $    | 16,584 |  |  | $ | 16,074 | 
|                                                                                            |  |                          |        |      |  |      |        |  |  |   |        | 

Actual income tax expense differs from the
expected tax expense (computed by applying the U.S.
federal corporate rate of 35% to income before income taxes) as
a result of the following:

|                                                                    |  |                          |        |      |  |      |        |   |  |   |        |  
|------------------------------------------------------------------- |  | ------------------------ | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                                                    |  |                         
|                                                                    |  | Years Ended December 31,
|                                                                    |  |                         
|                                                                    |  | 2001                     |        | 2000 |  | 1999
|                                                                    |  |                          |        |      |  |     
|Provision for income taxes at federal statutory
	rate               |  | $                        | 11,597 |      |  | $    | 5,804  |   |  | $ | 5,626  |  
|Foreign income subject to tax other than at
	federal statutory rate |  |                          | 4,270  |      |  |      | 2,339  |   |  |   | 2,475  |  
|Foreign tax and other credits                                       |  |                          | (3,230 | )    |  |      | (1,724 | ) |  |   | (1,784 | )
|State income taxes                                                  |  |                          | 544    |      |  |      | 243    |   |  |   | 171    |  
|Valuation allowance  domestic                                      |  |                          | 944    |      |  |      | (616   | ) |  |   | 657    |  
|Valuation allowance  foreign                                       |  |                          | 2,939  |      |  |      | 3,794  |   |  |   | 3,879  |  
|Other                                                               |  |                          | 356    |      |  |      | 94     |   |  |   | (150   | )
|                                                                    |  |                          |        |      |  |      |        |   |  |   |        |  
|Income tax expense                                                  |  | $                        | 17,420 |      |  | $    | 9,934  |   |  | $ | 10,874 |  
|                                                                    |  |                          |        |      |  |      |        |   |  |   |        |  

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CDRJ INVESTMENTS (LUX) S.A. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

The components of the provision for income taxes
are as follows (in thousands):

|                                                              |          |                          |                                                                                                                  |      |        |        |       |     |       |       |       |    |       |        | 
|------------------------------------------------------------- | -------- | ------------------------ | ---------------------------------------------------------------------------------------------------------------- | ---- | ------ | ------ | ----- | --- | ----- | ----- | ----- | -- | ----- | ------ | 
|                                                              |          |                         
|                                                              |          | Years Ended December 31,
|                                                              |          |                         
|                                                              |          | 2001                     |                                                                                                                  | 2000 |        | 1999  
|                                                              |          |                          |                                                                                                                  |      |        |       
|Current:                                                      |          |                          |                                                                                                                  |      |        |        |       |     |       |       |       |   
|                                                              | Federal  |                          | $                                                                                                                | 140  |        |        | $     | 72  |       |       | $     | 60 |      
|                                                              |          |                          |                                                                                                                  |      |        |        |       |     |       |       |       |   
|                                                              | Foreign: |                          |                                                                                                                  |      |        |        |       |     |       |       |       |    |      
|                                                              |          | Mexico                   |                                                                                                                  |      | 13,303 |        |       |     | 6,086 |       |       |    | 3,275 |       
|                                                              |          | Europe                   |                                                                                                                  |      | 641    |        |       |     | 49    |       |       |    | 99    |       
|                                                              |          | Other                    |                                                                                                                  |      | 190    |        |       |     | 54    |       |       |    | 30    |       
|                                                              |          |                          |                                                                                                                  |      |        |        |       |     |       |       |       |   
|                                                              |          |                          | 14,134                                                                                                           |      |        |        | 6,189 |     |       |       | 3,404 |   
|                                                              | State    |                          |                                                                                                                  | 544  |        |        |       | 243 |       |       |       | 90 |      
|                                                              |          |                          |                                                                                                                  |      |        |        |       |     |       |       |       |   
|                                                              |          |                          | Total current                                                                                                    |      |        | 14,818 |       |     |       | 6,504 |       |    |       | 3,554  | 
|Deferred  foreign                                            |          |                          | 1,506                                                                                                            |      |        |        | 2,539 |     |       |       | 7,320 |   
|Deferred  domestic                                           |          |                          | 2,407                                                                                                            |      |        |        | 891   |     |       |       |      |   
|Foreign deferred allocated to other comprehensive
	income     |          |                          | (1,311                                                                                                           | )    |        |        |      |     |       |       |      |   
|                                                              |          |                          |                                                                                                                  |      |        |        |       |     |       |       |       |   
|                                                              |          |                          | Total deferred                                                                                                   |      |        | 2,602  |       |     |       | 3,430 |       |    |       | 7,320  | 
|                                                              |          |                          | Total income taxes on income before income taxes,
	extraordinary item and cumulative effect of accounting change |      |        | 17,420 |       |     |       | 9,934 |       |    |       | 10,874 | 
|Income tax benefit on early extinguishment of debt            |          |                          |                                                                                                                 |      |        |        | (195  | )   |       |       | (177  | ) 
|Income tax expense on cumulative effect of
	accounting change |          |                          | 82                                                                                                               |      |        |        |      |     |       |       |      |   
|                                                              |          |                          |                                                                                                                  |      |        |        |       |     |       |       |       |   
|                                                              |          |                          | Total income tax expense                                                                                         |      | $      | 17,502 |       |     | $     | 9,739 |       |    | $     | 10,697 | 
|                                                              |          |                          |                                                                                                                  |      |        |        |       |     |       |       |       |   

The components of deferred income tax assets and
deferred income tax liabilities at December 31, 2001 and
2000 are as follows (in thousands):

|                                 |                                            |                                       |   |         |         |   |   |         |         |  
|-------------------------------- | ------------------------------------------ | ------------------------------------- | - | ------- | ------- | - | - | ------- | ------- | -
|                                 |                                            | 2001                                  |   | 2000   
|                                 |                                            |                                       |   |        
|Deferred income tax assets:      |                                            |                                       |   |         |         |   |   |        
|                                 | Accounts receivable                        |                                       | $ | 1,733   |         |   | $ | 741     |        
|                                 | Net operating loss carryforward            |                                       |   | 13,457  |         |   |   | 10,279  |        
|                                 | Disallowed interest expense                |                                       |   | 26      |         |   |   | 1,226   |        
|                                 | Accrued bonuses                            |                                       |   | 301     |         |   |   | 833     |        
|                                 | Foreign tax and other credit carryforwards |                                       |   | 5,333   |         |   |   | 4,221   |        
|                                 | Accrued sales promotions                   |                                       |   | 2,273   |         |   |   | 3,677   |        
|                                 | Other accrued liabilities                  |                                       |   | 1,963   |         |   |   | 1,653   |        
|                                 | Other                                      |                                       |   | 4,776   |         |   |   | 1,325   |        
|                                 |                                            |                                       |   |         |         |   |   |        
|                                 |                                            | Total deferred income tax assets      |   |         | 29,862  |   |   |         | 23,955  |  
|                                 | Less valuation allowance                   |                                       |   | (15,289 | )       |   |   | (11,406 | )      
|                                 |                                            |                                       |   |         |         |   |   |        
|                                 |                                            | Net deferred income tax assets        |   |         | 14,573  |   |   |         | 12,549  |  
|Deferred income tax liabilities: |                                            |                                       |   |         |         |   |   |        
|                                 | Transaction and deferred financing costs   |                                       |   | (494    | )       |   |   | (694    | )      
|                                 | Property and equipment                     |                                       |   | (4,194  | )       |   |   | (2,344  | )      
|                                 | Trademark and goodwill                     |                                       |   | (20,272 | )       |   |   | (19,046 | )      
|                                 | Inventories                                |                                       |   | (13,399 | )       |   |   | (9,684  | )      
|                                 | Other                                      |                                       |   | (564    | )       |   |   | (2,529  | )      
|                                 |                                            |                                       |   |         |         |   |   |        
|                                 |                                            | Total deferred income tax liabilities |   |         | (38,923 | ) |   |         | (34,297 | )
|                                 |                                            |                                       |   |         |         |   |   |        
|                                 |                                            | Net deferred income tax liabilities   |   | $       | (24,350 | ) |   | $       | (21,748 | )
|                                 |                                            |                                       |   |         |         |   |   |        

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CDRJ INVESTMENTS (LUX) S.A. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

The Company records a valuation allowance on the
deferred income tax assets to reduce the total to an amount that
management believes is more likely than not to be realized. The
valuation allowances at December 31, 2001 and 2000 were
based upon the Companys estimates of the future
realization of deferred income tax assets. Valuation allowances
at December 31, 2001 and 2000 were provided principally to
offset operating loss carryforwards and foreign tax credit
carryforwards of the Companys U.S., European and South
American subsidiaries.

At December 31, 2001, the Companys
deferred income tax assets for carryforwards totaled
$18,790,000, comprised of U.S. foreign and foreign asset tax
credits of $4,775,000, alternative minimum tax and research and
development credits of $558,000 and tax loss carryforwards of
certain foreign subsidiaries of $13,457,000. These deferred
income tax assets were reduced by a valuation allowance of
$15,289,000. The tax loss and certain credit carryforwards
expire in varying amounts between 2002 and 2011. Realization of
the income tax carryforwards is dependent on generating
sufficient taxable income prior to expiration of the
carryforwards. Although realization is not assured, management
believes it is more likely than not that the net carrying value
of the income tax carryforwards will be realized.

The Company intends to reinvest the undistributed
earnings of the Mexican subsidiary totaling $32,194,000 at
December 31, 2001, and accordingly, no deferred income
taxes have been provided on these earnings.

(8) Benefit Plans

Certain employees of the Companys German
subsidiary participate in a defined benefit pension plan
covering key employees (the Germany Plan). Benefits
are based on age, years of service and the level of compensation
during the final years of employment. The Companys funding
policy is to contribute annually to the Germany Plan the amount
necessary to meet the minimum funding standards. The Company
recognized pension expense of $278,000 for the year ended
December 31, 2001 and recognized pension income of $18,000
for the year ended December 31, 2000 due to the departure
of certain employees. The total pension expense was $43,000 for
the year ended December 31, 1999.

Under Mexican labor laws, employees of Jafra S.A.
and its subsidiaries are entitled to a payment when they leave
the Company if they have fifteen or more years of service. In
addition, the Company makes government mandated employee profit
sharing distributions equal to ten percent of the taxable income
of the subsidiary in which they are employed. Total expense
under these programs was $995,000, $345,000 and $391,000 for the
years ended December 31, 2001, 2000 and 1999, respectively.
The total liability was approximately $1,010,000 and $539,000 at
December 31, 2001 and 2000, respectively, and is classified
as a current liability in the accompanying consolidated balance
sheets.

The Companys U.S. subsidiary has an
employee savings plan which permits participants to make
voluntary contributions by salary reductions pursuant to section
401(k) of the Internal Revenue Code, which allows employees to
defer up to 20% of their total compensation, subject to
statutory limitations. Employee contributions of up to 10% of
compensation are matched by the Company at the rate of 50 cents
per dollar. Employees do not vest in the Company contribution
until they have reached two years of service, at which time they
become fully vested. The Companys expense under this
program was $600,000, $620,000 and $628,000 for the years ended
December 31, 2001, 2000 and 1999, respectively.

The Companys U.S. subsidiary also has a
supplemental excess benefit savings plan, which permits
participants to make unlimited voluntary contributions. Employee
contributions are matched on the same basis as under the
employee savings plan, and the vesting provisions are the same.
The Companys expense under this program was $177,000,
$213,000 and $179,000 for the years ended December 31,
2001, 2000 and 1999, respectively. Employee and employer
contributions under such plan are placed into a
rabbi trust exclusively for the uses and purposes of
plan participants and general creditors of the Company. The
Company

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CDRJ INVESTMENTS (LUX) S.A. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

has recorded an asset and the related liability
in the accompanying consolidated balance sheets of $1,880,000
and $1,472,000 at December 31, 2001 and 2000, respectively.

(9) Related Party Transactions

Pursuant to a consulting agreement entered into
following the Acquisition, until the 10th anniversary of the
Acquisition or the date on which CD&R Fund V no longer has
an investment in the Company or until the termination by either
party with 30 days notice, CD&R will receive an annual
fee (and reimbursement of out-of-pocket expenses) for providing
advisory, management consulting and monitoring services to the
Company. On January 1, 1999, the annual fee was $400,000.
As of January 1, 2001, the annual fee was increased to
$1,000,000. As required by the terms of the Companys
lending arrangements, such fees are determined by
arms-length negotiation and are believed by the Company to
be reasonable. The amendment, effective January 1, 2001,
adds to CD&Rs services under the agreement financial
advisory, investment banking and similar services with respect
to future proposals for an acquisition, merger,
recapitalization, or other similar transaction directly or
indirectly involving the Company or any of its subsidiaries. The
fee for such additional services in connection with future
transactions would be an amount equal to 1% of the transaction
value for the transaction to which such fee relates. Such
transaction fees may be increased upon approval of a majority of
the members of the Companys Board of Directors who are not
employees of the Company, CD&R or any affiliate of CD&R.
The amendment also provides that if any employee of CD&R is
appointed to an executive management position (or a position of
comparable responsibility) in the Company or any of its
subsidiaries, the annual fee will be increased by an amount to
be determined by CD&R, the amount of such increase not to
exceed 100% of the existing annual fee in effect at that time.
The CD&R fees incurred during the years ended
December 31, 2001, 2000 and 1999 were $1,000,000, $400,000
and $400,000, respectively. In addition, certain officers and
directors of CD&R or its affiliates serve as directors of
the Company.

During 1999, the Company engaged Guidance
Solutions (Guidance), a corporation in which an
investment fund managed by CD&R has an investment, to
develop its e-commerce systems. Under the agreement entered into
by the Company and Guidance, the Company agreed to pay fees of
approximately $2.0 million to Guidance in connection with
planning, defining, designing and consulting services performed
related to the Companys e-commerce initiative. During the
years ended December 31, 2000 and 1999, the Company paid
fees to Guidance of $1,798,000 and $389,000, respectively. The
Company terminated its agreement with Guidance and executed a
settlement and mutual release agreement effective
September 30, 2000. Upon execution of this agreement in
October of 2000, Guidance paid the Company $25,000 and agreed to
pay the Company an aggregate additional sum of $475,000, payable
in quarterly installments plus interest at 9.5% per annum,
beginning in January 2001 through October 2005. At
December 31, 2001, the unpaid balance was $397,000.

Members of management financed a portion of the
cash purchase price of the shares of Company common stock they
acquired through loans from the Chase Manhattan Bank on market
terms. To help members of management obtain such terms for such
financing, the Company fully and unconditionally guaranteed up
to 75% of the purchase price for the shares of Company common
stock purchased by each such member of management in 1998 and
2000. As of December 31, 2001, the outstanding guarantee
was $2,146,000.

(10) Restructuring and Impairment Charges
and Related Accruals

Current Year Impairment Charges.In 2001, the Company wrote-off
$0.2 million of intangible assets as the Company determined
that the undiscounted cash flows were less than the carrying
amount of the assets due to a downturn in the political and
economic environment in Argentina. Consistent with the
Companys policy, the impairment was determined by
comparing the discounted cash flows to the carrying amount. The

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CDRJ INVESTMENTS (LUX) S.A. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

amount is classified in selling, general and
administration in the accompanying consolidated statement of
operations.

Prior Years Restructuring and Impairment
Charges.In 2000, the Company recorded
approximately $1.6 million of restructuring charges and
approximately $1.0 million of asset impairment charges. The
restructuring charges of approximately $1.6 million related
to the Companys repositioning activities in Europe, and
consisted primarily of severance costs. As of December 31,
2001, payments of approximately $1.4 million have been made
for these charges. The Company anticipates that substantially
all of the remaining restructuring costs of approximately
$0.2 million will be paid in 2002. The asset impairment
charges of $1.0 million consisted of approximately
$0.3 million related to the Companys repositioning
activities in Europe and approximately $0.7 million
relating to the write-down of certain capitalized computer
software costs in the United States.

In 1999, the Company recorded approximately
$3.7 million of restructuring charges and approximately
$1.1 million of asset impairment charges. The restructuring
charges consisted of approximately $2.7 million of charges
related to the outsourcing of the Companys U.S. product
manufacturing functions, and approximately $1.0 million of
other restructuring activities in the U.S., Europe and Mexico.
Substantially all of the charges related to severance costs. As
the terms of such severance were not communicated to the
affected employees until subsequent to the one-year anniversary
of the Acquisition, such costs were expensed during 1999. As of
December 31, 2001, all restructuring costs were paid.

Also in 1999, the Company recognized an asset
impairment charge of approximately $1.1 million relating to
long-lived assets (goodwill and trademarks) owned by its German
subsidiary (Jafra Germany). In the fourth quarter of
1999, concurrent with the Companys annual business
planning process, the Company recognized that sales levels in
Jafra Germany had declined more than anticipated since the
Acquisition. The Company performed an impairment review and
concluded that Jafra Germanys future undiscounted cash
flows were below the carrying value of its related long-lived
assets. Accordingly, the Company recorded a non-cash impairment
loss of approximately $1.1 million to adjust the carrying
values of Jafra Germanys goodwill and trademarks to their
estimated fair values, which were determined based on
anticipated future cash flows discounted at a rate commensurate
with Jafra Germanys weighted average cost of capital.

Acquisition Accrual.In connection with the Acquisition in
1998, the Company initially recorded a $4.0 million accrual
for restructuring and rationalization costs (the
Acquisition Accrual). This accrual related to the
planned realignment of the Companys operations subsequent
to the Acquisition, and included approximately $2.9 million
of severance costs and $1.1 million of costs primarily
relating to closure and/or relocation of certain distribution
facilities. As of the consummation of the Acquisition, senior
management began formulating a plan to close certain
distribution facilities and involuntarily terminate certain
employees.

Prior to April 30, 1999 (the one year
anniversary of the Acquisition), the Company finalized plans
related to the closure of certain worldwide facilities,
principally the closure and outsourcing of the U.S. product
manufacturing functions. These restructuring plans included the
transfer of certain inventory and the sale of fixed assets at a
loss to a third party contractor (see Note 14). The total
finalized cost of the Acquisition Accrual was approximately
$4.4 million, and resulted in a net increase to goodwill of
approximately $0.4 million in 1999. The components of the
Acquisition Accrual are summarized as follows (in thousands):

|                         |  |   |       | 
|------------------------ |  | - | ----- | 
|Disposal of fixed assets |  | $ | 2,336 | 
|Severance                |  |   | 1,724 | 
|Lease termination costs  |  |   | 197   | 
|Other                    |  |   | 150   | 
|                         |  |   |       | 
|                         |  | $ | 4,407 | 
|                         |  |   |       | 

At December 31, 1999, there was no remaining
liability related to the Acquisition Accrual.

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CDRJ INVESTMENTS (LUX) S.A. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

As discussed above, the components of the
additions and/or adjustments to the aforementioned accruals
include severance, lease costs, fixed asset disposals, and other
exit costs, and are summarized as follows (in thousands):

|                               |                       |                          |   |      |   |      |       |       |       |   |       |        |       | 
|------------------------------ | --------------------- | ------------------------ | - | ---- | - | ---- | ----- | ----- | ----- | - | ----- | ------ | ----- | 
|                               |                       |                         
|                               |                       | Years Ended December 31,
|                               |                       |                         
|                               |                       | 2001                     |   | 2000 |   | 1999
|                               |                       |                          |   |      |   |     
|Additions  charges to income: |                       |                          |   |      |   |      |       |       |       |   |       |       
|                               | Severance             |                          | $ | (84  | ) |      | $     | 1,210 |       |   | $     | 3,502  |      
|                               | Lease costs           |                          |   | 80   |   |      |       | 295   |       |   |       | 57     |      
|                               | Other                 |                          |   | 4    |   |      |       | 102   |       |   |       | 169    |      
|                               |                       |                          |   |      |   |      |       |       |       |   |       |       
|                               |                       | Total additions          |   |      |  |      |       |       | 1,607 |   |       |        | 3,728 | 
|Acquisition Accrual:           |                       |                          |   |      |   |      |       |       |       |   |       |       
|                               | Severance             |                          |   |     |   |      |       |      |       |   |       | (1,176 | )    
|                               | Fixed asset disposals |                          |   |     |   |      |       |      |       |   |       | 2,336  |      
|                               | Lease costs           |                          |   |     |   |      |       |      |       |   |       | (903   | )    
|                               | Other                 |                          |   |     |   |      |       |      |       |   |       | 150    |      
|                               |                       |                          |   |      |   |      |       |       |       |   |       |       
|Acquisition Accrual, net       |                       |                          |  |      |   |      |      |       |       |   | 407   |       
|                               |                       |                          |   |      |   |      |       |       |       |   |       |       
|                               |                       | $                        |  |      |   | $    | 1,607 |       |       | $ | 4,135 |       
|                               |                       |                          |   |      |   |      |       |       |       |   |       |       

A rollforward of the activity of the
restructuring accruals is summarized as follows (in thousands):

|                               |  |                          |      |      |  |      |        |   |  |   |        |  
|------------------------------ |  | ------------------------ | ---- | ---- |  | ---- | ------ | - |  | - | ------ | -
|                               |  |                         
|                               |  | Years Ended December 31,
|                               |  |                         
|                               |  | 2001                     |      | 2000 |  | 1999
|                               |  |                          |      |      |  |     
|Opening balance                |  | $                        | 699  |      |  | $    | 1,105  |   |  | $ | 3,162  |  
|Additions                      |  |                          |     |      |  |      | 1,607  |   |  |   | 3,728  |  
|Adjustment to goodwill balance |  |                          |     |      |  |      |       |   |  |   | 407    |  
|Charges against reserves       |  |                          | (498 | )    |  |      | (2,013 | ) |  |   | (6,192 | )
|                               |  |                          |      |      |  |      |        |   |  |   |        |  
|Ending balance                 |  | $                        | 201  |      |  | $    | 699    |   |  | $ | 1,105  |  
|                               |  |                          |      |      |  |      |        |   |  |   |        |  

The remaining costs at each year-end included in
the restructuring accrual are summarized as follows (in
thousands):

|                      |  |              |     |      |  |      |     |  |  |   |       | 
|--------------------- |  | ------------ | --- | ---- |  | ---- | --- |  |  | - | ----- | 
|                      |  |             
|                      |  | December 31,
|                      |  |             
|                      |  | 2001         |     | 2000 |  | 1999
|                      |  |              |     |      |  |     
|Severance             |  | $            |    |      |  | $    | 385 |  |  | $ | 1,105 | 
|Lease costs and other |  |              | 201 |      |  |      | 314 |  |  |   |      | 
|                      |  |              |     |      |  |      |     |  |  |   |       | 
|                      |  | $            | 201 |      |  | $    | 699 |  |  | $ | 1,105 | 
|                      |  |              |     |      |  |      |     |  |  |   |       | 

The principal component of the restructuring
accruals is severance. A summary of the severance activity is as
follows (dollar amounts in thousands):

|                                   |  |                          |     |        |  |           |      |        |  |           |     |        |  |   |        |   |  |  |     |   |  |   |        |  
|---------------------------------- |  | ------------------------ | --- | ------ |  | --------- | ---- | ------ |  | --------- | --- | ------ |  | - | ------ | - |  |  | --- | - |  | - | ------ | -
|                                   |  |                         
|                                   |  | Years Ended December 31,
|                                   |  |                         
|                                   |  |                          |     |        |  |          
|                                   |  | ?2001                    |     | 2000   |  | 1999     
|                                   |  |                          |     |        |  |          
|                                   |  | # of                     |     |        |  | # of      |      |        |  | # of      |     |       
|                                   |  | Employees                |     | Amount |  | Employees |      | Amount |  | Employees |     | Amount
|                                   |  |                          |     |        |  |           |      |        |  |           |     |       
|Opening balance                    |  |                          | 16  |        |  | $         | 385  |        |  |           | 43  |        |  | $ | 1,105  |   |  |  | 47  |   |  | $ | 2,154  |  
|Planned terminations               |  |                          |    |        |  |           |     |        |  |           | 35  |        |  |   | 1,210  |   |  |  | 104 |   |  |   | 3,502  |  
|Adjustment to planned terminations |  |                          |    |        |  |           | (84  | )      |  |           |    |        |  |   |       |   |  |  | (39 | ) |  |   | (1,176 | )
|Actual terminations                |  |                          | (16 | )      |  |           | (301 | )      |  |           | (62 | )      |  |   | (1,930 | ) |  |  | (69 | ) |  |   | (3,375 | )
|                                   |  |                          |     |        |  |           |      |        |  |           |     |        |  |   |        |   |  |  |     |   |  |   |        |  
|Ending balance                     |  |                          |    |        |  | $         |     |        |  |           | 16  |        |  | $ | 385    |   |  |  | 43  |   |  | $ | 1,105  |  
|                                   |  |                          |     |        |  |           |      |        |  |           |     |        |  |   |        |   |  |  |     |   |  |   |        |  

48



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##### Table of Contents



CDRJ INVESTMENTS (LUX) S.A. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

(11) Financial Reporting for Business
Segments

Segment information has been prepared in
accordance with SFAS No. 131, Disclosure about
Segments of an Enterprise and Related Information
(SFAS 131). SFAS No. 131 requires
disclosure of certain information regarding operating segments,
products and services, geographic areas of operations and major
customers.

The Companys business is comprised of one
industry segment, direct selling, with worldwide operations. The
Company is organized into geographical business units that each
sell the full line of Jafra cosmetics, skin care, body care,
fragrances, and other products. Jafra has three reportable
business segments: Mexico, the United States, and Europe.
Business results for subsidiaries in South America, the
Dominican Republic, and Thailand are combined and included in
the following table under the caption All Others.

The accounting policies used to prepare the
information reviewed by the Companys chief operating
decision makers are the same as those described in the summary
of significant accounting policies. The Company evaluates
performance based on segment operating income, excluding
reorganization and restructuring charges, unusual gains and
losses, and amortization of goodwill and intangibles. Consistent
with the information reviewed by the Companys chief
operating decision makers, corporate costs, foreign exchange
gains and losses, interest expense, other nonoperating income or
expense, and income taxes are not allocated to operating
segments. The effects of intersegment sales (net sales and
related gross profit) are excluded from the computation of
segment operating income.

|                              |  |                        |        |        |  |        |         |        |  |          |        |             |  |              |        |   |  |   |         |  |  |   |         |   |  |   |         | 
|----------------------------- |  | ---------------------- | ------ | ------ |  | ------ | ------- | ------ |  | -------- | ------ | ----------- |  | ------------ | ------ | - |  | - | ------- |  |  | - | ------- | - |  | - | ------- | 
|                              |  |                        |        |        |  |        |         |        |  |          |        | Corporate,  |  |             
|                              |  | United                 |        |        |  |        |         | All    |  | Total    |        | Unallocated |  | Consolidated
|                              |  | States                 |        | Mexico |  | Europe |         | Others |  | Segments |        | and Other   |  | Total       
|                              |  |                        |        |        |  |        |         |        |  |          |        |             |  |             
|                              |  |                       
|                              |  | (Dollars in thousands)
|Year ended December 31, 2001  |  |                        |        |        |  |        |         |        |  |          |        |             |  |              |        |   |  |   |         |  |  |   |         |   |  |   |         | 
|Net sales                     |  | $                      | 80,772 |        |  | $      | 249,774 |        |  | $        | 26,483 |             |  | $            | 23,052 |   |  | $ | 380,081 |  |  |   |        |   |  | $ | 380,081 | 
|Operating profit (loss)       |  |                        | 11,580 |        |  |        | 71,289  |        |  |          | 1,795  |             |  |              | (5,931 | ) |  |   | 78,733  |  |  | $ | (22,510 | ) |  |   | 56,223  | 
|Depreciation and amortization |  |                        | 2,709  |        |  |        | 3,908   |        |  |          | 610    |             |  |              | 406    |   |  |   | 7,633   |  |  |   | 116     |   |  |   | 7,749   | 
|Capital expenditures          |  |                        | 4,529  |        |  |        | 6,024   |        |  |          | 230    |             |  |              | 589    |   |  |   | 11,372  |  |  |   |        |   |  |   | 11,372  | 
|Segment assets                |  |                        | 67,792 |        |  |        | 193,379 |        |  |          | 17,788 |             |  |              | 13,313 |   |  |   | 292,272 |  |  |   | (1,136  | ) |  |   | 291,136 | 
|Year ended December 31, 2000  |  |                        |        |        |  |        |         |        |  |          |        |             |  |              |        |   |  |   |         |  |  |   |         |   |  |   |         | 
|Net sales                     |  |                        | 75,229 |        |  |        | 201,724 |        |  |          | 27,025 |             |  |              | 20,710 |   |  |   | 324,688 |  |  |   |        |   |  |   | 324,688 | 
|Operating profit (loss)       |  |                        | 10,709 |        |  |        | 64,364  |        |  |          | 247    |             |  |              | (6,044 | ) |  |   | 69,276  |  |  |   | (26,944 | ) |  |   | 42,332  | 
|Depreciation and amortization |  |                        | 2,111  |        |  |        | 4,231   |        |  |          | 905    |             |  |              | 385    |   |  |   | 7,632   |  |  |   |        |   |  |   | 7,632   | 
|Capital expenditures          |  |                        | 3,662  |        |  |        | 2,262   |        |  |          | 109    |             |  |              | 1,072  |   |  |   | 7,105   |  |  |   |        |   |  |   | 7,105   | 
|Segment assets                |  |                        | 68,843 |        |  |        | 177,086 |        |  |          | 18,254 |             |  |              | 13,165 |   |  |   | 277,348 |  |  |   | (404    | ) |  |   | 276,944 | 
|Year ended December 31, 1999  |  |                        |        |        |  |        |         |        |  |          |        |             |  |              |        |   |  |   |         |  |  |   |         |   |  |   |         | 
|Net sales                     |  |                        | 74,474 |        |  |        | 175,930 |        |  |          | 33,131 |             |  |              | 15,984 |   |  |   | 299,519 |  |  |   |        |   |  |   | 299,519 | 
|Operating profit (loss)       |  |                        | 9,737  |        |  |        | 47,797  |        |  |          | (954   | )           |  |              | (3,005 | ) |  |   | 53,575  |  |  |   | (23,967 | ) |  |   | 29,608  | 
|Depreciation and amortization |  |                        | 2,569  |        |  |        | 3,276   |        |  |          | 1,022  |             |  |              | 252    |   |  |   | 7,119   |  |  |   |        |   |  |   | 7,119   | 
|Capital expenditures          |  |                        | 1,838  |        |  |        | 2,622   |        |  |          | 586    |             |  |              | 752    |   |  |   | 5,798   |  |  |   |        |   |  |   | 5,798   | 
|Segment assets                |  | $                      | 68,992 |        |  | $      | 179,606 |        |  | $        | 19,520 |             |  | $            | 9,443  |   |  | $ | 277,561 |  |  | $ | 816     |   |  | $ | 278,377 | 

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CDRJ INVESTMENTS (LUX) S.A. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

Additional business segment information regarding
product lines is as follows:

|                                  |                                                   |                 |       |            |       |                 |      |            |   |                 |       |            |       |  |      |       |   |   |      |       |       |  |      |       |   | 
|--------------------------------- | ------------------------------------------------- | --------------- | ----- | ---------- | ----- | --------------- | ---- | ---------- | - | --------------- | ----- | ---------- | ----- |  | ---- | ----- | - | - | ---- | ----- | ----- |  | ---- | ----- | - | 
|                                  |                                                   |                 |       |            |       |                
|                                  |                                                   | 2001            |       | 2000       |       | 1999           
|                                  |                                                   |                 |       |            |       |                
|                                  |                                                   | Sales by        |       | Percentage |       | Sales by        |      | Percentage |   | Sales by        |       | Percentage
|                                  |                                                   | Product Line    |       | of total   |       | Product Line    |      | of total   |   | Product Line    |       | of total  
|                                  |                                                   | ($ in millions) |       | sales      |       | ($ in millions) |      | sales      |   | ($ in millions) |       | sales     
|                                  |                                                   |                 |       |            |       |                 |      |            |   |                 |       |           
|Skin Care                         |                                                   | $               | 69.4  |            |       |                 | 19.0 | %          |   | $               | 65.8  |            |       |  | 21.0 | %     |   | $ | 62.4 |       |       |  | 21.5 | %    
|Color Cosmetics                   |                                                   |                 | 94.3  |            |       |                 | 25.8 |            |   |                 | 82.4  |            |       |  | 26.2 |       |   |   | 81.6 |       |       |  | 28.1 |      
|Fragrances                        |                                                   |                 | 125.4 |            |       |                 | 34.3 |            |   |                 | 103.7 |            |       |  | 33.0 |       |   |   | 80.0 |       |       |  | 27.5 |      
|Body care and personal Care       |                                                   |                 | 37.0  |            |       |                 | 10.1 |            |   |                 | 29.6  |            |       |  | 9.4  |       |   |   | 30.7 |       |       |  | 10.6 |      
|Other(1)                          |                                                   |                 | 39.3  |            |       |                 | 10.8 |            |   |                 | 32.6  |            |       |  | 10.4 |       |   |   | 35.8 |       |       |  | 12.3 |      
|                                  |                                                   |                 |       |            |       |                 |      |            |   |                 |       |            |       |  |      |       |   |   |      |       |       |  |      |      
|                                  | Subtotal before shipping, handling and other fees |                 |       | 365.4      |       |                 |      | 100.0      | % |                 |       | 314.1      |       |  |      | 100.0 | % |   |      | 290.5 |       |  |      | 100.0 | %
|                                  |                                                   |                 |       |            |       |                 |      |            |   |                 |       |            |       |  |      |       |   |   |      |       |       |  |      |      
|Shipping, handling and other fees |                                                   |                 | 14.7  |            |       |                 |      |            |   |                 | 10.5  |            |       |  |      |       |   |   | 9.1  |       |       |  |      |      
|                                  |                                                   |                 |       |            |       |                 |      |            |   |                 |       |            |       |  |      |       |   |   |      |       |       |  |      |      
|                                  |                                                   | Total           |       | $          | 380.1 |                 |      |            |   |                 |       | $          | 324.6 |  |      |       |   |   |      | $     | 299.6 |  |      |       |   | 
|                                  |                                                   |                 |       |            |       |                 |      |            |   |                 |       |            |       |  |      |       |   |   |      |       |       |  |      |      




|    |                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------
|(1) | Includes sales aids (party hostess gifts,
	demonstration products, etc.) and promotional materials.

(12) Commitments and
Contingencies

The Company leases office and warehouse
facilities as well as manufacturing, transportation and data
processing equipment under operating leases which expire at
various dates through 2006. The leases contain certain renewal
options and require payment of property taxes, utilities, common
area maintenance and insurance and contain rent escalation
clauses based on consumer price indices. Future minimum lease
payments under noncancelable operating leases as of
December 31, 2001 are (in thousands):

|     |  |   |        | 
|---- |  | - | ------ | 
|2002 |  | $ | 3,185  | 
|2003 |  |   | 2,567  | 
|2004 |  |   | 2,050  | 
|2005 |  |   | 1,752  | 
|2006 |  |   | 1,777  | 
|     |  |   |        | 
|     |  | $ | 11,331 | 
|     |  |   |        | 

Rental expense was $3,473,000, $5,953,000 and
$3,610,000 for the years ended December 31, 2001, 2000 and
1999, respectively.

Other income for 2000 included approximately
$1.4 million of income related to a recovery of the effect
of inflation from a receivable due from the Mexican government
related to taxes.

Subsequent to December 31, 2001, the Company
initiated product replacement for a certain product sold in 2001
and 2002. The total cost of the product replacement is estimated
to be approximately $535,000. However, management believes that
substantially all of the cost will be recovered pursuant to
contractual obligations with the third-party manufacturer. (See
Note 14).

The Company has implemented a structure in a
certain foreign jurisdiction to minimize import taxes. While
management believes this structure adequately protects and
minimizes the Companys exposure to import taxes, the
Company may be adversely impacted if this structure does not
withstand challenges by local tax authorities. Management
believes that the resolution of a tax authority challenge, if
any, will not have a material adverse effect on the
Companys business, financial condition or results of
operations.

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SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

The Company is involved from time to time in
routine legal matters incidental to its business. The Company
believes that the resolution of such matters will not have a
material adverse effect on the Companys business,
financial condition or results of operations.

(13) Management Incentive
Arrangements

Company Plan

Effective 1998, the Company adopted a stock
incentive plan (the Stock Incentive Plan), which
provides for the sale to members of senior management of up to
52,141 shares of common stock of the Parent and the
issuance of options to purchase up to 104,282 additional
shares of common stock. The Company reserved 156,423 shares for
issuance under the Stock Incentive Plan, and as of
December 31, 2001, 42,121 shares and
84,242 options were outstanding. A summary of the status
and activity of shares purchased under the Stock Incentive Plan
is as follows:

|                                        |  |           |        |           |  |   |     | 
|--------------------------------------- |  | --------- | ------ | --------- |  | - | --- | 
|                                        |  | Number    |        | Price    
|                                        |  | of Shares |        | Per Share
|                                        |  |           |        |          
|Shares outstanding at December 31, 1998 |  |           | 39,340 |           |  | $ | 100 | 
|Shares issued in 1999                   |  |           | 790    |           |  |   | 150 | 
|Options exercised in 1999               |  |           | 579    |           |  |   | 100 | 
|Shares repurchased in 1999              |  |           | (2,317 | )         |  |   | 150 | 
|                                        |  |           |        |           |  |   |     | 
|Shares outstanding at December 31, 1999 |  |           | 38,392 |           |  |   |     | 
|Shares issued in 2000                   |  |           | 4,424  |           |  |   | 206 | 
|Options exercised in 2000               |  |           | 158    |           |  |   | 100 | 
|Shares repurchased in 2000              |  |           | (948   | )         |  | $ | 210 | 
|                                        |  |           |        |           |  |   |     | 
|Shares outstanding at December 31, 2000 |  |           | 42,026 |           |  |   |     | 
|Shares issued in 2001                   |  |           | 474    |           |  |   | 210 | 
|Options exercised in 2001               |  |           | 210    |           |  |   | 150 | 
|Shares repurchased in 2001              |  |           | (589   | )         |  | $ | 250 | 
|                                        |  |           |        |           |  |   |     | 
|Shares outstanding at December 31, 2001 |  |           | 42,121 |           |  |   |     | 
|                                        |  |           |        |           |  |   |     | 

The purchase price of shares issued in 1999, 2000
and 2001 and exercised in 1999, 2000 and 2001 represented the
estimated fair value at the respective dates of issuance and
exercise, except as discussed below. In 2000, 316 shares were
issued at a price below fair value, and the Company recognized
compensation expense of approximately $19,000. In 2001, 210
shares were issued at a price below fair value, and the Company
recognized compensation expense of approximately $21,000. Under
certain circumstances, the management stockholders can require
the Company to repurchase their shares, subject to a holding
period of at least seven months from the date such shares were
acquired, for an amount not to exceed fair value.

In connection with the purchase of common stock
of the Parent, certain members of senior management were granted
options to purchase two additional shares of common stock for
each share purchased at an exercise price equal to the fair
value at the date of grant under the Stock Incentive Plan. The
options have a life of ten years from the date of grant. Fifty
percent of the options granted are expected to vest in three
equal installments on each of the first three anniversaries of
the date of grant, subject to the continuous employment of the
grantee (Option Type 1). The remaining fifty
percent of the options become vested as follows, subject to the
continuous employment of the grantee: (a) up to one-third
of the options become vested as of each of the first three
anniversaries of the date of grant if the Company achieves at
least 85% of its EBITDA target for the immediately preceding
fiscal year, (b) if less than one-third of the total number
of options shall have become vested as provided in
clause (a) above, the portion that has not become so vested
shall become vested as of the first day of the fiscal year
following the fiscal year, if any, that the Company achieves its
cumulative EBITDA target, and (c) any options that do not
become vested as provided above will become vested on the

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SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

ninth anniversary of the date of grant
(Option Type 2). A summary of the status and
activity of the options under the Stock Incentive Plan is as
follows:

|                                 |  |        |        |                  |  |        |        |                  |  |        |        |                  |  |   |        |  |  |  |        |   |  |   |        | 
|-------------------------------- |  | ------ | ------ | ---------------- |  | ------ | ------ | ---------------- |  | ------ | ------ | ---------------- |  | - | ------ |  |  |  | ------ | - |  | - | ------ | 
|                                 |  |        |        |                  |  |       
|                                 |  | ?2001  |        | 2000             |  | 1999  
|                                 |  |        |        |                  |  |       
|                                 |  |        |        | Weighted Average |  |        |        | Weighted Average |  |        |        | Weighted Average
|                                 |  | Shares |        | Exercise Price   |  | Shares |        | Exercise Price   |  | Shares |        | Exercise Price  
|                                 |  |        |        |                  |  |        |        |                  |  |        |        |                 
|Outstanding at beginning of year |  |        | 84,052 |                  |  | $      | 111.69 |                  |  |        | 76,784 |                  |  | $ | 101.03 |  |  |  | 78,680 |   |  | $ | 100.00 | 
|Granted                          |  |        | 948    |                  |  |        | 210.00 |                  |  |        | 8,848  |                  |  |   | 205.71 |  |  |  | 1,580  |   |  |   | 150.00 | 
|Exercised                        |  |        | (210   | )                |  |        | 150.00 |                  |  |        | (158   | )                |  |   | 100.00 |  |  |  | (579   | ) |  |   | 100.00 | 
|Canceled                         |  |        | (548   | )                |  |        | 163.80 |                  |  |        | (1,422 | )                |  |   | 122.22 |  |  |  | (2,897 | ) |  |   | 100.00 | 
|                                 |  |        |        |                  |  |        |        |                  |  |        |        |                  |  |   |        |  |  |  |        |   |  |   |        | 
|Outstanding at year-end          |  |        | 84,242 |                  |  |        | 112.36 |                  |  |        | 84,052 |                  |  |   | 111.69 |  |  |  | 76,784 |   |  |   | 101.03 | 
|                                 |  |        |        |                  |  |        |        |                  |  |        |        |                  |  |   |        |  |  |  |        |   |  |   |        | 
|Options exercisable at year-end  |  |        | 63,528 |                  |  | $      | 105.32 |                  |  |        | 37,655 |                  |  | $ | 100.70 |  |  |  | 12,534 |   |  | $ | 100.00 | 
|Options available for grant      |  |        | 19,093 |                  |  |        |       |                  |  |        | 19,493 |                  |  |   |       |  |  |  | 26,919 |   |  |   |       | 

The following table summarizes information about
options outstanding as of December 31, 2001:

|         |        |             |  |                       |        |                  |  |            |      |                  |  |   |        |  |  |  |        |  |  |   |        | 
|-------- | ------ | ----------- |  | --------------------- | ------ | ---------------- |  | ---------- | ---- | ---------------- |  | - | ------ |  |  |  | ------ |  |  | - | ------ | 
|         |        |             |  |                      
|         |        | Outstanding |  | Exercisable          
|         |        |             |  |                      
|         |        |             |  | Weighted Average      |        |                  |  |           
|Exercise |        | Number      |  | Remaining Contractual |        | Weighted Average |  | Number     |      | Weighted Average
|Price    |        | of Options  |  | Life (Yrs.)           |        | Exercise Price   |  | of Options |      | Exercise Price  
|         |        |             |  |                       |        |                  |  |            |      |                 
|$        | 100.00 |             |  |                       | 74,256 |                  |  |            | 6.75 |                  |  | $ | 100.00 |  |  |  | 60,123 |  |  | $ | 100.00 | 
|$        | 150.00 |             |  |                       | 948    |                  |  |            | 7.92 |                  |  |   | 150.00 |  |  |  | 609    |  |  |   | 150.00 | 
|$        | 210.00 |             |  |                       | 9,038  |                  |  |            | 8.63 |                  |  |   | 210.00 |  |  |  | 2,796  |  |  |   | 210.00 | 
|         |        |             |  |                       |        |                  |  |            |      |                  |  |   |        |  |  |  |        |  |  |   |        | 
|         |        |             |  |                       | 84,242 |                  |  |            | 6.96 |                  |  | $ | 112.36 |  |  |  | 63,528 |  |  | $ | 105.32 | 
|         |        |             |  |                       |        |                  |  |            |      |                  |  |   |        |  |  |  |        |  |  |   |        | 

The Company applies Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to
Employees, and related Interpretations in accounting for
these options. As the options were granted with exercise prices
equal to the fair value at the date of grant, no compensation
cost was recognized by the Company upon issuance of such
options. The fair value of each option granted by the Company
was estimated using the minimum value option pricing model. The
assumptions used in this pricing model and the weighted average
fair value of options granted during 2001, 2000 and 1999 are
summarized as follows:

|                                       |  |        |       |        |  |        |       |        |  |        |       |        |  |   |       |   |  |   |       |   |  |   |       |  
|-------------------------------------- |  | ------ | ----- | ------ |  | ------ | ----- | ------ |  | ------ | ----- | ------ |  | - | ----- | - |  | - | ----- | - |  | - | ----- | -
|                                       |  |        |       |        |  |       
|                                       |  | ?2001  |       | 2000   |  | 1999  
|                                       |  |        |       |        |  |       
|                                       |  | Option |       | Option |  | Option |       | Option |  | Option |       | Option
|                                       |  | Type 1 |       | Type 2 |  | Type 1 |       | Type 2 |  | Type 1 |       | Type 2
|                                       |  |        |       |        |  |        |       |        |  |        |       |       
|Risk-free interest rate                |  |        | 5.80  | %      |  |        | 5.80  | %      |  |        | 6.30  | %      |  |   | 6.30  | % |  |   | 6.03  | % |  |   | 6.03  | %
|Expected option life (in years)        |  |        | 5.0   |        |  |        | 7.0   |        |  |        | 5.0   |        |  |   | 7.0   |   |  |   | 5.0   |   |  |   | 9.0   |  
|Expected volatility                    |  |        | 0.0   | %      |  |        | 0.0   | %      |  |        | 0.0   | %      |  |   | 0.0   | % |  |   | 0.0   | % |  |   | 0.0   | %
|Expected dividend yield                |  |        | 0.0   | %      |  |        | 0.0   | %      |  |        | 0.0   | %      |  |   | 0.0   | % |  |   | 0.0   | % |  |   | 0.0   | %
|Weighted average fair value per option |  | $      | 52.20 |        |  | $      | 69.28 |        |  | $      | 56.00 |        |  | $ | 73.97 |   |  | $ | 38.55 |   |  | $ | 62.12 |  

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

Pro Forma Compensation Cost

Had the Company recorded compensation cost based
on the fair value of options granted at the grant date, as
prescribed by FASB Statement No. 123 Accounting for
Stock Based Compensation, pro forma net income would have
been as follows (in thousands):

|                            |  |                          |        |      |  |      |       |  |  |   |       | 
|--------------------------- |  | ------------------------ | ------ | ---- |  | ---- | ----- |  |  | - | ----- | 
|                            |  |                         
|                            |  | Years Ended December 31,
|                            |  |                         
|                            |  | 2001                     |        | 2000 |  | 1999
|                            |  |                          |        |      |  |     
|Net income, as reported     |  | $                        | 15,840 |      |  | $    | 6,335 |  |  | $ | 4,648 | 
|Pro forma compensation cost |  |                          | 348    |      |  |      | 680   |  |  |   | 677   | 
|                            |  |                          |        |      |  |      |       |  |  |   |       | 
|Pro forma net income        |  | $                        | 15,492 |      |  | $    | 5,655 |  |  | $ | 3,971 | 
|                            |  |                          |        |      |  |      |       |  |  |   |       | 

Employment Agreements

Certain senior executive officers have employment
agreements which provide for annual bonuses if the Company
achieves the performance goals established under its annual
incentive plan for executives.

The Company has a bonus plan for U.S. based
employees which provides that 50% of the bonus earned by any
Vice President or Director shall be deferred and shall vest in
three equal annual installments. As of December 31, 2001
and 2000, $372,000 and $179,000 of bonuses were deferred,
respectively. The Company recognizes compensation expense as the
vesting requirements are met.

(14) Manufacturing Agreement

The Company and a third-party contractor (the
Contractor) entered into a manufacturing agreement,
dated as of June 10, 1999, (the Manufacturing
Agreement). Subject to the terms and conditions of the
Manufacturing Agreement, the Contractor has agreed to
manufacture all of the Companys requirements for certain
cosmetic and skin care products for an initial term of five
years. Following the expiration of the initial five-year term,
the Manufacturing Agreement will be automatically extended for
additional one-year terms unless terminated by six months
prior written notice by either party. The Manufacturing
Agreement provides for price renegotiations by the Contractor if
the Companys quarterly or annual purchase volume falls
below specified minimums. The Manufacturing Agreement requires
the Contractor to maintain insurance to cover costs associated
with any product liability or product recall caused by the acts
or omissions of the Contractor. In addition, the Company is
obligated to purchase materials acquired by the Contractor based
upon product forecasts provided by the Company if the Contractor
is unable to sell such materials to a third-party. There have
been no such repurchases to date. The Contractor is solely
responsible for obtaining the inventories, manufacturing the
inventories at its current location in Chino, California,
complying with applicable laws and regulations, and performing
quality assurance functions.

In connection with the Companys 1999
restructuring activities related to the closure and outsourcing
of its U.S. product manufacturing functions as discussed in Note
10, certain fixed assets and inventories were sold to the
Contractor in exchange for secured promissory notes. The
promissory note for the fixed assets was for an amount of
approximately $1.5 million, carried an annual interest rate
of 8%, and commenced payments on January 1, 2000. The
promissory note for inventories of approximately
$2.2 million was non-interest bearing, and commenced
payments on October 1, 1999. The note for the inventories
was repaid in October 2000 and the note for the fixed assets was
repaid in December 2000.

During the fourth quarter of 2000, the Contractor
obtained $1.0 million of advances from the Company in
exchange for an unsecured promissory note. The note bears
interest at an annual rate of 9% and is payable in monthly
installments commencing on February 15, 2001. At
December 31, 2000, approximately $0.9 million of the
note was included in receivables and approximately
$0.1 million of the note was included in other assets

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

in the accompanying consolidated balance sheets.
At December 31, 2001, approximately $0.3 million of
the note was included in receivables in the accompanying
consolidated balance sheets.

(15) Foreign Currency Forward
Contracts

The Company is exposed to currency risk relating
to its forecasted U.S. dollar-denominated expenditures at
Jafra S.A. As part of its overall strategy to reduce the
risk of adverse potential exchange rate fluctuations in Mexico,
the Company enters into foreign currency exchange contracts
(forward contracts). The Company places forward
contracts based on its forecasted U.S. dollar cash outflows
from Jafra S.A. over a rolling 12 month period and does not
hedge transactions that are not included in the 12 month
forecast on the date the forward contract is initiated. As a
matter of policy, the Company does not hold or issue forward
contracts for trading or speculative purposes nor does it enter
into contracts or agreements containing embedded
derivative features. Prior to entering into foreign currency
exchange contracts, the Company evaluates the counter
parties credit ratings. Credit risk represents the
accounting loss that would be recognized at the reporting date
if counter parties failed to perform as contracted. The Company
does not currently anticipate non-performance by such counter
parties.

The forward contracts utilized by the Company did
not qualify for hedge accounting under the applicable accounting
standards prior to adoption of SFAS No. 133 on
January 1, 2001, and accordingly such instruments were
marked-to-market with gains and losses included as a component
of exchange loss in the statements of operations for the years
ended December 31, 2000 and 1999. Under SFAS No. 133,
the Companys use of forward contracts to hedge certain
forecasted transactions qualifies for hedge accounting. Gains
and losses from such derivative instruments arising subsequent
to January 1, 2001 are deferred as a separate component of
other comprehensive income, and are recognized in income at the
same time that the underlying hedged exposure is recognized in
income. This accounting treatment results in the matching of
gains and losses from such forward contracts with the
corresponding gains and losses generated by the underlying
hedged transactions. Under SFAS No. 133, certain of the
Companys forward contracts do not qualify for hedge
accounting and therefore, are remeasured based on fair value,
with gains and losses included as a component of net income.

The Company currently designates certain of its
forward contracts as cash flow hedges of forecasted
U.S. dollar-denominated inventory purchases, forecasted
U.S. dollar-denominated intercompany charges from JCI to
Jafra S.A., forecasted management fee charges from JCI to
Jafra S.A., and U.S. dollar-denominated interest
payments. On the date the Company enters into a derivative
contract, management designates the derivative as a hedge of the
identified exposure. The Company formally documents all
relationships between hedging instruments and hedged items, as
well as its risk-management objective and strategy for
undertaking various hedge transactions. In this documentation,
the Company specifically identifies the forecasted transaction
that has been designated as a hedged item and states how the
hedging instrument is expected to hedge the risks related to the
hedged item. The Company formally measures effectiveness of its
hedging relationships both at the hedge inception and on an
ongoing basis in accordance with its risk management policy. For
all qualifying and highly effective cash flow hedges, the
changes in the fair value of the derivative are deferred as a
component of other comprehensive income. Such amounts will be
reclassified from other comprehensive income into net income
when the underlying hedged exposure is recognized in income. For
U.S. dollar-denominated inventory purchases, this will
occur upon sale to an outside party of the related inventory.
For intercompany charges and interest, this will occur at the
date such charges are recorded by Jafra S.A.

Upon implementation of SFAS 133 on
January 1, 2001, the Company had certain forward contracts
not designated as hedges. During the year ended
December 31, 2001, the Company recognized losses on forward
contracts of approximately $12,188,000, of which $8,771,000
related to losses on settled forward contracts and $2,620,000
related to losses on outstanding forward contracts, that did not
qualify for hedge accounting under

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CDRJ INVESTMENTS (LUX) S.A. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

SFAS No. 133, as a component of exchange
loss in the accompanying consolidated statement of operations.
During the year ended December 31, 2000, the Company
recognized approximately $10,050,000 of losses and during the
year ended December 31, 1999, the Company recognized
$222,000 of gains as a component of exchange loss on forward
contracts that did not qualify for hedge accounting under
accounting standards prior to the adoption of SFAS No. 133.
Additionally, during the year ended December 31, 2001, the
Company deferred as a component of other comprehensive income
$5,504,000 of losses on forward contracts qualifying for hedge
accounting under SFAS No. 133. Of this amount,
approximately $797,000 was recognized as exchange (loss) gain
and $961,000 was recognized as cost of sales upon recognition of
the underlying hedged exposure prior to December 31, 2001.
The Company expects that substantially all of the remaining loss
of $3,746,000 deferred as a component of other comprehensive
income at December 31, 2001 will be recognized into net
income within the next twelve months. The fair value of the
forward contacts at December 31, 2001 represented an
unrealized loss of $5,540,000 consisting of $2,920,000 of
unrealized losses recorded as a component of other comprehensive
income for qualifying hedges and $2,620,000 of unrealized losses
recorded as a component of exchange loss for non-qualifying
hedges under SFAS No. 133.

During the year ended December 31, 2001, the
ineffectiveness generated by the Companys forward
contracts designated as hedges was insignificant. Certain hedged
forecasted transactions do not appear probable of occurring due
to timing differences between the original and current
forecasts, and accordingly $1,115,000 of losses were
reclassified into earnings.

The outstanding foreign currency forward
contracts had notional values of $66,824,000, of which
$59,587,000 had been designated as hedges under the provisions
of SFAS No. 133 at December 31, 2001, and $80,817,000
at December 31, 2000. The contracts outstanding at
December 31, 2001 mature in 2002 while the contracts
outstanding at December 31, 2000 matured in 2001. Notional
amounts do not quantify market or credit exposure or represent
assets or liabilities of the Company, but are used in the
calculation of cash settlements under the contracts. The tables
below describe the forward contracts that were outstanding at
December 31, 2001 and 2000 (in thousands):

55



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CDRJ INVESTMENTS (LUX) S.A. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

December 31, 2001:

|                                |  |                  |        |          |  |                  |          |          |  |  |       |  |  |   |        |  
|------------------------------- |  | ---------------- | ------ | -------- |  | ---------------- | -------- | -------- |  |  | ----- |  |  | - | ------ | -
|                                |  | Forward Position |        | Maturity |  | Weighted Average |          | Fair    
|Foreign Currency                |  | in US Dollars(1) |        | Date     |  | Contract Rate    |          | Value(1)
|                                |  |                  |        |          |  |                  |          |         
|Buy US Dollar/sell Mexican Peso |  | $                | 10,674 |          |  |                  | 1/31/02  |          |  |  | 10.19 |  |  | $ | 9,546  |  
|Sell Mexican Peso/buy US Dollar |  |                  | (2,138 | )        |  |                  | 1/31/02  |          |  |  | 9.35  |  |  |   | (2,104 | )
|Buy US Dollar/sell Mexican Peso |  |                  | 6,995  |          |  |                  | 2/28/02  |          |  |  | 10.26 |  |  |   | 6,239  |  
|Sell Mexican Peso/buy US Dollar |  |                  | (2,113 | )        |  |                  | 2/28/02  |          |  |  | 9.47  |  |  |   | (2,065 | )
|Buy US Dollar/sell Mexican Peso |  |                  | 9,023  |          |  |                  | 3/27/02  |          |  |  | 10.46 |  |  |   | 7,921  |  
|Sell Mexican Peso/buy US Dollar |  |                  | (4,219 | )        |  |                  | 3/27/02  |          |  |  | 9.48  |  |  |   | (4,139 | )
|Buy US Dollar/sell Mexican Peso |  |                  | 8,310  |          |  |                  | 4/30/02  |          |  |  | 10.23 |  |  |   | 7,562  |  
|Sell Mexican Peso/buy US Dollar |  |                  | (3,118 | )        |  |                  | 4/30/02  |          |  |  | 9.62  |  |  |   | (3,034 | )
|Buy US Dollar/sell Mexican Peso |  |                  | 8,012  |          |  |                  | 5/31/02  |          |  |  | 10.11 |  |  |   | 7,453  |  
|Sell Mexican Peso/buy US Dollar |  |                  | (2,573 | )        |  |                  | 5/31/02  |          |  |  | 9.71  |  |  |   | (2,498 | )
|Buy US Dollar/sell Mexican Peso |  |                  | 8,037  |          |  |                  | 6/28/02  |          |  |  | 9.95  |  |  |   | 7,662  |  
|Sell Mexican Peso/buy US Dollar |  |                  | (3,069 | )        |  |                  | 6/28/02  |          |  |  | 9.78  |  |  |   | (2,981 | )
|Buy US Dollar/sell Mexican Peso |  |                  | 4,765  |          |  |                  | 7/31/02  |          |  |  | 10.07 |  |  |   | 4,523  |  
|Buy US Dollar/sell Mexican Peso |  |                  | 9,951  |          |  |                  | 8/30/02  |          |  |  | 10.05 |  |  |   | 9,541  |  
|Buy US Dollar/sell Mexican Peso |  |                  | 4,459  |          |  |                  | 9/30/02  |          |  |  | 10.09 |  |  |   | 4,290  |  
|Buy US Dollar/sell Mexican Peso |  |                  | 10,905 |          |  |                  | 10/31/02 |          |  |  | 10.09 |  |  |   | 10,567 |  
|Buy US Dollar/sell Mexican Peso |  |                  | 2,923  |          |  |                  | 11/29/02 |          |  |  | 10.27 |  |  |   | 2,801  |  
|                                |  |                  |        |          |  |                  |          |          |  |  |       |  |  |   |        |  
|                                |  | $                | 66,824 |          |  |                  |          |          |  |  |       |  |  | $ | 61,284 |  
|                                |  |                  |        |          |  |                  |          |          |  |  |       |  |  |   |        |  

December 31, 2000:

|                                |  |                  |        |          |  |                  |          |          |  |  |       |  |  |   |        | 
|------------------------------- |  | ---------------- | ------ | -------- |  | ---------------- | -------- | -------- |  |  | ----- |  |  | - | ------ | 
|                                |  | Forward Position |        | Maturity |  | Weighted Average |          | Fair    
|Foreign Currency                |  | in US Dollars(1) |        | Date     |  | Contract Rate    |          | Value(1)
|                                |  |                  |        |          |  |                  |          |         
|Buy US Dollar/sell Mexican Peso |  | $                | 6,980  |          |  |                  | 1/26/01  |          |  |  | 10.12 |  |  | $ | 6,679  | 
|Buy US Dollar/sell Mexican Peso |  |                  | 7,500  |          |  |                  | 2/26/01  |          |  |  | 10.20 |  |  |   | 7,187  | 
|Buy US Dollar/sell Mexican Peso |  |                  | 7,529  |          |  |                  | 3/30/01  |          |  |  | 10.36 |  |  |   | 7,162  | 
|Buy US Dollar/sell Mexican Peso |  |                  | 5,915  |          |  |                  | 4/30/01  |          |  |  | 10.48 |  |  |   | 5,607  | 
|Buy US Dollar/sell Mexican Peso |  |                  | 2,828  |          |  |                  | 5/31/01  |          |  |  | 10.61 |  |  |   | 2,670  | 
|Buy US Dollar/sell Mexican Peso |  |                  | 3,907  |          |  |                  | 6/29/01  |          |  |  | 10.24 |  |  |   | 3,861  | 
|Buy US Dollar/sell Mexican Peso |  |                  | 2,618  |          |  |                  | 7/31/01  |          |  |  | 10.31 |  |  |   | 2,588  | 
|Buy US Dollar/sell Mexican Peso |  |                  | 11,816 |          |  |                  | 8/31/01  |          |  |  | 10.32 |  |  |   | 11,804 | 
|Buy US Dollar/sell Mexican Peso |  |                  | 12,125 |          |  |                  | 9/28/01  |          |  |  | 10.39 |  |  |   | 12,119 | 
|Buy US Dollar/sell Mexican Peso |  |                  | 2,336  |          |  |                  | 10/30/01 |          |  |  | 10.70 |  |  |   | 2,290  | 
|Buy US Dollar/sell Mexican Peso |  |                  | 10,275 |          |  |                  | 10/31/01 |          |  |  | 10.71 |  |  |   | 10,078 | 
|Buy US Dollar/sell Mexican Peso |  |                  | 2,878  |          |  |                  | 11/30/01 |          |  |  | 10.43 |  |  |   | 2,934  | 
|Buy US Dollar/sell Mexican Peso |  |                  | 4,110  |          |  |                  | 12/27/01 |          |  |  | 10.71 |  |  |   | 4,120  | 
|                                |  |                  |        |          |  |                  |          |          |  |  |       |  |  |   |        | 
|                                |  | $                | 80,817 |          |  |                  |          |          |  |  |       |  |  | $ | 79,099 | 
|                                |  |                  |        |          |  |                  |          |          |  |  |       |  |  |   |        | 




|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The Forward Position in
	US Dollars and the Fair Value presented
	above represent notional amounts. The net of these two amounts,
	an unrealized loss of $5,540,000 and $1,718,000 at
	December 31, 2001 and 2000, respectively, represents the
	carrying value of the forward contracts (which approximates fair
	value) and has been recorded as a liability in the accompanying
	consolidated balance sheets as of December 31, 2001 and
	2000, respectively.

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CDRJ INVESTMENTS (LUX) S.A. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

Subsequent to December 31, 2001, in
accordance with previously approved policies, the Company
modified its hedging program to include the use of foreign
currency option contracts (option contracts or
options) to hedge foreign currency exposures to the
Mexican peso. In order to execute the option contracts and to
offset its current outstanding forward contracts to sell Mexican
pesos, on March 27, 2002, the Company entered into forward
contracts to buy Mexican pesos. Also, on that date, the Company
entered into a series of U.S. dollar option contracts. The
exchange rate at which the option contracts may be exercised is
based upon the market rate at the time the contracts are placed.
The Company purchased exchange rate put options, which gives the
Company the right, but not the obligation, to sell Mexican pesos
at a specified U.S. dollar exchange rate (strike
rate). These contracts provide protection in the event the
Mexican peso weakens beyond the option strike rate. In
conjunction with the put options, and as part of a zero-cost
option collar structure, the Company sold Mexican peso call
options, which gives the counterparty the right, but not the
obligation, to buy Mexican pesos from the Company at a specified
strike rate. The effect of these contracts would be to limit the
benefit the Company would otherwise derive from the
strengthening of the Mexican peso beyond the strike rate. In the
aggregate, the Company entered into approximately
$600 million Mexican pesos of matching put and call options.

(16) Fourth Quarter Adjustments

During the fourth quarter of 2001, the Company
recorded approximately $4,288,000 to bad debt expense due to
declining consultant liquidity as a result of the general
slowdown of the economy in Mexico and Brazil. During the fourth
quarter of 2000, the Company recorded certain adjustments
related to changes in cost accounting estimates, which resulted
in an increase to cost of sales of approximately $3,000,000.

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##### Table of Contents



INDEPENDENT AUDITORS REPORT

To the Board of Directors and Stockholder of

Jafra Cosmetics International, Inc.


Westlake Village, California


We have audited the accompanying consolidated
balance sheets of Jafra Cosmetics International, Inc. and
subsidiaries (the Company), an indirect, wholly
owned subsidiary of CDRJ Investments (Lux) S.A., as of
December 31, 2001 and 2000, and the related consolidated
statements of operations, stockholders equity, and cash
flows for each of the three years in the period ended
December 31, 2001. Our audits also included the financial
statement schedule listed in the Index at Item 14(a)(2).
These financial statements and the financial statement schedule
are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements and the financial statement schedule based on our
audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, such consolidated financial
statements present fairly, in all material respects, the
financial position of Jafra Cosmetics International, Inc. and
subsidiaries as of December 31, 2001 and 2000, and the
results of their operations and their cash flows for each of the
three years in the period ended December 31, 2001, in
conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, the financial
statement schedule referred to above, when considered in
relation to the basic consolidated financial statements taken as
a whole, presents fairly in all material respects the
information set forth therein.

DELOITTE & TOUCHE LLP

Los Angeles, California

March 6, 2002


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##### Table of Contents



JAFRA COSMETICS INTERNATIONAL, INC. AND
SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)


ASSETS

|                                     |                                                                                                   |                            |        |        |         |  |        |         |         | 
|------------------------------------ | ------------------------------------------------------------------------------------------------- | -------------------------- | ------ | ------ | ------- |  | ------ | ------- | ------- | 
|                                     |                                                                                                   |                           
|                                     |                                                                                                   | December 31,              
|                                     |                                                                                                   |                           
|                                     |                                                                                                   | 2001                       |        | 2000  
|                                     |                                                                                                   |                            |        |       
|Current assets:                      |                                                                                                   |                            |        |        |         |  |        |        
|                                     | Cash and cash equivalents                                                                         |                            | $      | 4,081  |         |  | $      | 3,382   |        
|                                     | Receivables, less allowances for doubtful
	accounts of $523 in 2001 and
	$536 in 2000             |                            |        | 6,447  |         |  |        | 6,730   |        
|                                     | Inventories                                                                                       |                            |        | 8,677  |         |  |        | 9,455   |        
|                                     | Receivables from affiliates                                                                       |                            |        | 23,633 |         |  |        | 5,078   |        
|                                     | Prepaid expenses and other current assets                                                         |                            |        | 1,665  |         |  |        | 2,398   |        
|                                     | Deferred income taxes                                                                             |                            |        | 55     |         |  |        |        |        
|                                     |                                                                                                   |                            |        |        |         |  |        |        
|                                     |                                                                                                   | Total current assets       |        |        | 44,558  |  |        |         | 27,043  | 
|Property and equipment, net          |                                                                                                   |                            | 22,742 |        |         |  | 20,144 |        
|Other assets:                        |                                                                                                   |                            |        |        |         |  |        |        
|                                     | Goodwill, net                                                                                     |                            |        | 38,125 |         |  |        | 39,542  |        
|                                     | Notes receivable from affiliates                                                                  |                            |        | 3,902  |         |  |        | 27,182  |        
|                                     | Deferred financing fees, net                                                                      |                            |        | 3,004  |         |  |        | 3,632   |        
|                                     | Other                                                                                             |                            |        | 3,716  |         |  |        | 3,599   |        
|                                     |                                                                                                   |                            |        |        |         |  |        |        
|                                     |                                                                                                   | Total                      |        | $      | 116,047 |  |        | $       | 121,142 | 
|                                     |                                                                                                   |                            |        |        |         |  |        |        
|                                    
|LIABILITIES AND STOCKHOLDERS EQUITY
|Current liabilities:                 |                                                                                                   |                            |        |        |         |  |        |        
|                                     | Current portion of long-term debt                                                                 |                            | $      | 3,000  |         |  | $      | 2,500   |        
|                                     | Accounts payable                                                                                  |                            |        | 5,591  |         |  |        | 6,552   |        
|                                     | Accrued liabilities                                                                               |                            |        | 12,709 |         |  |        | 11,988  |        
|                                     | Income taxes payable                                                                              |                            |        | 965    |         |  |        | 393     |        
|                                     | Deferred income taxes                                                                             |                            |        |       |         |  |        | 343     |        
|                                     | Payables to affiliates                                                                            |                            |        | 2,639  |         |  |        | 2,305   |        
|                                     |                                                                                                   |                            |        |        |         |  |        |        
|                                     |                                                                                                   | Total current liabilities  |        |        | 24,904  |  |        |         | 24,081  | 
|Long-term debt                       |                                                                                                   |                            | 52,908 |        |         |  | 68,608 |        
|Deferred income taxes                |                                                                                                   |                            | 3,353  |        |         |  | 548    |        
|Other long-term liabilities          |                                                                                                   |                            | 3,088  |        |         |  | 2,367  |        
|                                     |                                                                                                   |                            |        |        |         |  |        |        
|                                     |                                                                                                   | Total liabilities          |        |        | 84,253  |  |        |         | 95,604  | 
|                                     |                                                                                                   |                            |        |        |         |  |        |        
|Commitments and contingencies        |                                                                                                   |                            |       |        |         |  |       |        
|Stockholders equity:                |                                                                                                   |                            |        |        |         |  |        |        
|                                     | Common stock, par value $.01; authorized, issued
	and outstanding,
	1,000 shares in 2001 and 2000 |                            |        |       |         |  |        |        |        
|                                     | Additional paid-in capital                                                                        |                            |        | 39,649 |         |  |        | 39,649  |        
|                                     | Retained deficit                                                                                  |                            |        | (5,376 | )       |  |        | (11,888 | )      
|                                     | Accumulated other comprehensive loss                                                              |                            |        | (2,479 | )       |  |        | (2,223  | )      
|                                     |                                                                                                   |                            |        |        |         |  |        |        
|                                     |                                                                                                   | Total stockholders equity |        |        | 31,794  |  |        |         | 25,538  | 
|                                     |                                                                                                   |                            |        |        |         |  |        |        
|                                     |                                                                                                   | Total                      |        | $      | 116,047 |  |        | $       | 121,142 | 
|                                     |                                                                                                   |                            |        |        |         |  |        |        

See accompanying notes to consolidated financial
statements.

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JAFRA COSMETICS INTERNATIONAL, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF
OPERATIONS

(In thousands)


|                                                                                                              |                                     |                          |         |        |   |      |         |        |   |   |         |         |  
|------------------------------------------------------------------------------------------------------------- | ----------------------------------- | ------------------------ | ------- | ------ | - | ---- | ------- | ------ | - | - | ------- | ------- | -
|                                                                                                              |                                     |                         
|                                                                                                              |                                     | Years Ended December 31,
|                                                                                                              |                                     |                         
|                                                                                                              |                                     | 2001                     |         | 2000   |   | 1999
|                                                                                                              |                                     |                          |         |        |   |     
|Net sales                                                                                                     |                                     | $                        | 125,086 |        |   | $    | 117,818 |        |   | $ | 121,820 |        
|Cost of sales                                                                                                 |                                     |                          | 37,383  |        |   |      | 36,063  |        |   |   | 42,839  |        
|                                                                                                              |                                     |                          |         |        |   |      |         |        |   |   |         |        
|                                                                                                              | Gross profit                        |                          |         | 87,703 |   |      |         | 81,755 |   |   |         | 78,981  |  
|Selling, general and administrative expenses                                                                  |                                     |                          | 96,439  |        |   |      | 88,750  |        |   |   | 89,588  |        
|Management fee income from affiliates                                                                         |                                     |                          | (8,504  | )      |   |      | (8,141  | )      |   |   | (5,048  | )      
|Restructuring and impairment charges                                                                          |                                     |                          |        |        |   |      | 2,392   |        |   |   | 4,575   |        
|Loss (gain) on sale of assets                                                                                 |                                     |                          | 92      |        |   |      | 147     |        |   |   | (1,043  | )      
|                                                                                                              |                                     |                          |         |        |   |      |         |        |   |   |         |        
|                                                                                                              | Loss from operations                |                          |         | (324   | ) |      |         | (1,393 | ) |   |         | (9,091  | )
|Other income (expense):                                                                                       |                                     |                          |         |        |   |      |         |        |   |   |         |        
|                                                                                                              | Royalty income from affiliates, net |                          |         | 20,098 |   |      |         | 14,620 |   |   |         | 17,838  |  
|                                                                                                              | Exchange loss                       |                          |         | (225   | ) |      |         | (178   | ) |   |         | (421    | )
|                                                                                                              | Interest expense, net               |                          |         | (6,794 | ) |      |         | (7,564 | ) |   |         | (10,323 | )
|                                                                                                              | Other, net                          |                          |         | (189   | ) |      |         | 9      |   |   |         | (76     | )
|                                                                                                              |                                     |                          |         |        |   |      |         |        |   |   |         |        
|Income (loss) before income taxes and
	extraordinary item                                                     |                                     |                          | 12,566  |        |   |      | 5,494   |        |   |   | (2,073  | )      
|Income tax expense                                                                                            |                                     |                          | 6,054   |        |   |      | 3,075   |        |   |   | 2,108   |        
|                                                                                                              |                                     |                          |         |        |   |      |         |        |   |   |         |        
|Income (loss) before extraordinary item                                                                       |                                     |                          | 6,512   |        |   |      | 2,419   |        |   |   | (4,181  | )      
|Extraordinary loss on early extinguishment of
	debt, net of income tax benefit of $120 in 2000 and $0 in 1999 |                                     |                          |        |        |   |      | 205     |        |   |   | 296     |        
|                                                                                                              |                                     |                          |         |        |   |      |         |        |   |   |         |        
|Net income (loss)                                                                                             |                                     | $                        | 6,512   |        |   | $    | 2,214   |        |   | $ | (4,477  | )      
|                                                                                                              |                                     |                          |         |        |   |      |         |        |   |   |         |        

See accompanying notes to consolidated financial
statements.

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JAFRA COSMETICS INTERNATIONAL, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY

(In thousands, except for shares)


|                                                |                                        |                                   |  |        |       |        |   |         |        |        |  |        |       |  |   |         |        |  |  |       |       |  |   |         |        |  
|----------------------------------------------- | -------------------------------------- | --------------------------------- |  | ------ | ----- | ------ | - | ------- | ------ | ------ |  | ------ | ----- |  | - | ------- | ------ |  |  | ----- | ----- |  | - | ------- | ------ | -
|                                                |                                        |                                  
|                                                |                                        | Years Ended December 31,         
|                                                |                                        |                                  
|                                                |                                        |                                   |  |        |       |       
|                                                |                                        | 2001                              |  | 2000   |       | 1999  
|                                                |                                        |                                   |  |        |       |       
|                                                |                                        | Shares                            |  | Amount |       | Shares |   | Amount  |        | Shares |  | Amount
|                                                |                                        |                                   |  |        |       |        |   |         |        |        |  |       
|Capital Stock:                                  |                                        |                                   |  |        |       |        |   |         |        |        |  |        |       |  |   |         |        |  |  |       |       |  |   |        
|                                                | Balance, beginning of year             |                                   |  | 1,000  |       |        |   |        |        |        |  | 1,000  |       |  |   |        |        |  |  | 1,000 |       |  |   |        |       
|                                                |                                        |                                   |  |        |       |        |   |         |        |        |  |        |       |  |   |         |        |  |  |       |       |  |   |        
|                                                | Balance, end of year                   |                                   |  | 1,000  |       |        |   |        |        |        |  | 1,000  |       |  |   |        |        |  |  | 1,000 |       |  |   |        |       
|Additional Paid-in Capital:                     |                                        |                                   |  |        |       |        |   |         |        |        |  |        |       |  |   |         |        |  |  |       |       |  |   |        
|                                                | Balance, beginning of year             |                                   |  |        |       |        | $ | 39,649  |        |        |  |        |       |  | $ | 38,749  |        |  |  |       |       |  | $ | 38,374  |       
|                                                | Gain on sale of trademark to affiliate |                                   |  |        |       |        |   |        |        |        |  |        |       |  |   |        |        |  |  |       |       |  |   | 375     |       
|                                                | Capital contributions by parent        |                                   |  |        |       |        |   |        |        |        |  |        |       |  |   | 900     |        |  |  |       |       |  |   |        |       
|                                                |                                        |                                   |  |        |       |        |   |         |        |        |  |        |       |  |   |         |        |  |  |       |       |  |   |        
|                                                | Balance, end of year                   |                                   |  |        |       |        |   | 39,649  |        |        |  |        |       |  |   | 39,649  |        |  |  |       |       |  |   | 38,749  |       
|Accumulated Deficit:                            |                                        |                                   |  |        |       |        |   |         |        |        |  |        |       |  |   |         |        |  |  |       |       |  |   |        
|                                                | Balance, beginning of year             |                                   |  |        |       |        |   | (11,888 | )      |        |  |        |       |  |   | (14,102 | )      |  |  |       |       |  |   | (9,625  | )     
|                                                | Net income (loss)                      |                                   |  |        |       |        |   | 6,512   |        |        |  |        |       |  |   | 2,214   |        |  |  |       |       |  |   | (4,477  | )     
|                                                |                                        |                                   |  |        |       |        |   |         |        |        |  |        |       |  |   |         |        |  |  |       |       |  |   |        
|                                                | Balance, end of year                   |                                   |  |        |       |        |   | (5,376  | )      |        |  |        |       |  |   | (11,888 | )      |  |  |       |       |  |   | (14,102 | )     
|Accumulated Other Comprehensive
	Income (Loss): |                                        |                                   |  |        |       |        |   |         |        |        |  |        |       |  |   |         |        |  |  |       |       |  |   |        
|                                                | Balance, beginning of year             |                                   |  |        |       |        |   | (2,223  | )      |        |  |        |       |  |   | (2,319  | )      |  |  |       |       |  |   | 896     |       
|                                                | Currency translation adjustments       |                                   |  |        |       |        |   | (256    | )      |        |  |        |       |  |   | 96      |        |  |  |       |       |  |   | (3,215  | )     
|                                                |                                        |                                   |  |        |       |        |   |         |        |        |  |        |       |  |   |         |        |  |  |       |       |  |   |        
|                                                | Balance, end of year                   |                                   |  |        |       |        |   | (2,479  | )      |        |  |        |       |  |   | (2,223  | )      |  |  |       |       |  |   | (2,319  | )     
|                                                |                                        |                                   |  |        |       |        |   |         |        |        |  |        |       |  |   |         |        |  |  |       |       |  |   |        
|                                                |                                        | Total Stockholders Equity        |  |        | 1,000 |        |   | $       | 31,794 |        |  |        | 1,000 |  |   | $       | 25,538 |  |  |       | 1,000 |  |   | $       | 22,328 |  
|                                                |                                        |                                   |  |        |       |        |   |         |        |        |  |        |       |  |   |         |        |  |  |       |       |  |   |        
|Comprehensive Income (Loss):                    |                                        |                                   |  |        |       |        |   |         |        |        |  |        |       |  |   |         |        |  |  |       |       |  |   |        
|                                                | Net income (loss)                      |                                   |  |        |       |        | $ | 6,512   |        |        |  |        |       |  | $ | 2,214   |        |  |  |       |       |  | $ | (4,477  | )     
|                                                | Currency translation adjustments       |                                   |  |        |       |        |   | (256    | )      |        |  |        |       |  |   | 96      |        |  |  |       |       |  |   | (3,215  | )     
|                                                |                                        |                                   |  |        |       |        |   |         |        |        |  |        |       |  |   |         |        |  |  |       |       |  |   |        
|                                                |                                        | Total Comprehensive Income (Loss) |  |        |       |        |   | $       | 6,256  |        |  |        |       |  |   | $       | 2,310  |  |  |       |       |  |   | $       | (7,692 | )
|                                                |                                        |                                   |  |        |       |        |   |         |        |        |  |        |       |  |   |         |        |  |  |       |       |  |   |        

See accompanying notes to consolidated financial
statements.

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JAFRA COSMETICS INTERNATIONAL, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

(In thousands)


|                                                   |                                                                                                                            |                                                 |                                           |                                                       |       |         |        |         |       |        |        |        |        |         |        |  
|-------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------- | ----------------------------------------- | ----------------------------------------------------- | ----- | ------- | ------ | ------- | ----- | ------ | ------ | ------ | ------ | ------- | ------ | -
|                                                   |                                                                                                                            |                                                
|                                                   |                                                                                                                            | Years Ended December 31,                       
|                                                   |                                                                                                                            |                                                
|                                                   |                                                                                                                            | 2001                                            |                                           | 2000                                                  |       | 1999   
|                                                   |                                                                                                                            |                                                 |                                           |                                                       |       |        
|Cash flows from operating
	activities:             |                                                                                                                            |                                                 |                                           |                                                       |       |         |        |         |       |        |        |       
|                                                   | Net income (loss)                                                                                                          |                                                 | $                                         | 6,512                                                 |       |         | $      | 2,214   |       |        | $      | (4,477 | )     
|                                                   | Extraordinary loss on early extinguishment of
	debt, net of taxes                                                          |                                                 |                                           |                                                      |       |         |        | 205     |       |        |        | 296    |       
|                                                   |                                                                                                                            |                                                 |                                           |                                                       |       |         |        |         |       |        |        |       
|                                                   | Income (loss) before extraordinary item                                                                                    |                                                 |                                           | 6,512                                                 |       |         |        | 2,419   |       |        |        | (4,181 | )     
|                                                   | Adjustments to reconcile income
	(loss) before extraordinary item to net cash provided by
	(used in) operating activities: |                                                 |                                           |                                                       |       |         |        |         |       |        |        |        |       
|                                                   |                                                                                                                            | Loss (gain) on sale of property and equipment   |                                           |                                                       | 92    |         |        |         | 147   |        |        |        | (1,043 | )      
|                                                   |                                                                                                                            | Depreciation and amortization                   |                                           |                                                       | 3,484 |         |        |         | 3,014 |        |        |        | 3,606  |        
|                                                   |                                                                                                                            | Amortization of deferred financing fees         |                                           |                                                       | 628   |         |        |         | 633   |        |        |        | 840    |        
|                                                   |                                                                                                                            | Provision for uncollectible accounts receivable |                                           |                                                       | 559   |         |        |         | 898   |        |        |        | 1,359  |        
|                                                   |                                                                                                                            | Asset impairment charge                         |                                           |                                                       |      |         |        |         | 1,019 |        |        |        | 1,084  |        
|                                                   |                                                                                                                            | Unrealized foreign exchange loss                |                                           |                                                       | 208   |         |        |         | 249   |        |        |        |       |        
|                                                   |                                                                                                                            | Deferred income taxes                           |                                           |                                                       | 2,407 |         |        |         | 891   |        |        |        |       |        
|                                                   |                                                                                                                            | Changes in operating assets and liabilities:    |                                           |                                                       |       |         |        |         |       |        |        |        |        |        
|                                                   |                                                                                                                            |                                                 | Receivables                               |                                                       |       | (276    | )      |         |       | 346    |        |        |        | 4,094   |       
|                                                   |                                                                                                                            |                                                 | Inventories                               |                                                       |       | 778     |        |         |       | (2,287 | )      |        |        | 8,213   |       
|                                                   |                                                                                                                            |                                                 | Prepaid expenses and other current assets |                                                       |       | 733     |        |         |       | (422   | )      |        |        | 62      |       
|                                                   |                                                                                                                            |                                                 | Affiliate receivables and payables        |                                                       |       | (18,221 | )      |         |       | 1,936  |        |        |        | (14,403 | )     
|                                                   |                                                                                                                            |                                                 | Other assets                              |                                                       |       | 254     |        |         |       | 841    |        |        |        | (315    | )     
|                                                   |                                                                                                                            |                                                 | Accounts payable and accrued liabilities  |                                                       |       | (240    | )      |         |       | (1,999 | )      |        |        | (4,282  | )     
|                                                   |                                                                                                                            |                                                 | Income taxes payable                      |                                                       |       | 572     |        |         |       | 272    |        |        |        | (721    | )     
|                                                   |                                                                                                                            |                                                 | Other long-term liabilities               |                                                       |       | 721     |        |         |       | (341   | )      |        |        | 897     |       
|                                                   |                                                                                                                            |                                                 |                                           |                                                       |       |         |        |         |       |        |        |       
|                                                   |                                                                                                                            |                                                 |                                           | Net cash provided by (used in) operating
	activities  |       |         | (1,789 | )       |       |        | 7,616  |        |        |         | (4,790 | )
|                                                   |                                                                                                                            |                                                 |                                           |                                                       |       |         |        |         |       |        |        |       
|Cash flows from investing
	activities:             |                                                                                                                            |                                                 |                                           |                                                       |       |         |        |         |       |        |        |       
|                                                   | Payments of previously accrued Acquisition fees                                                                            |                                                 |                                           |                                                      |       |         |        |        |       |        |        | (1,856 | )     
|                                                   | Proceeds from sale of property and equipment                                                                               |                                                 |                                           |                                                      |       |         |        | 92      |       |        |        | 5,551  |       
|                                                   | Purchases of property and equipment                                                                                        |                                                 |                                           | (5,091                                                | )     |         |        | (4,418  | )     |        |        | (2,355 | )     
|                                                   | Other                                                                                                                      |                                                 |                                           | (408                                                  | )     |         |        | (760    | )     |        |        | (711   | )     
|                                                   |                                                                                                                            |                                                 |                                           |                                                       |       |         |        |         |       |        |        |       
|                                                   |                                                                                                                            |                                                 |                                           | Net cash provided by (used in) investing
	activities  |       |         | (5,499 | )       |       |        | (5,086 | )      |        |         | 629    |  
|                                                   |                                                                                                                            |                                                 |                                           |                                                       |       |         |        |         |       |        |        |       
|Cash flows from financing
	activities:             |                                                                                                                            |                                                 |                                           |                                                       |       |         |        |         |       |        |        |       
|                                                   | Repurchase of subordinated debt                                                                                            |                                                 |                                           |                                                      |       |         |        | (6,358  | )     |        |        | (8,094 | )     
|                                                   | Repayments under term loan facility                                                                                        |                                                 |                                           | (2,500                                                | )     |         |        | (2,000  | )     |        |        | (1,500 | )     
|                                                   | Net borrowings (repayments) under revolving
	credit facility                                                               |                                                 |                                           | (12,700                                               | )     |         |        | (10,000 | )     |        |        | 13,000 |       
|                                                   | Capital contributions by Parent                                                                                            |                                                 |                                           |                                                      |       |         |        | 900     |       |        |        |       |       
|                                                   | Collection of notes receivable from affiliates                                                                             |                                                 |                                           | 23,280                                                |       |         |        | 14,788  |       |        |        |       |       
|                                                   |                                                                                                                            |                                                 |                                           |                                                       |       |         |        |         |       |        |        |       
|                                                   |                                                                                                                            |                                                 |                                           | Net cash provided by (used in) financing
	activities  |       |         | 8,080  |         |       |        | (2,670 | )      |        |         | 3,406  |  
|                                                   |                                                                                                                            |                                                 |                                           |                                                       |       |         |        |         |       |        |        |       
|Effect of exchange rate changes on cash            |                                                                                                                            |                                                 | (93                                       | )                                                     |       |         | 496    |         |       |        | (496   | )     
|                                                   |                                                                                                                            |                                                 |                                           |                                                       |       |         |        |         |       |        |        |       
|                                                   |                                                                                                                            |                                                 |                                           | Net increase (decrease) in cash and cash
	equivalents |       |         | 699    |         |       |        | 356    |        |        |         | (1,251 | )
|Cash and cash equivalents at beginning of period   |                                                                                                                            |                                                 | 3,382                                     |                                                       |       |         | 3,026  |         |       |        | 4,277  |       
|                                                   |                                                                                                                            |                                                 |                                           |                                                       |       |         |        |         |       |        |        |       
|Cash and cash equivalents at end of period         |                                                                                                                            | $                                               | 4,081                                     |                                                       |       | $       | 3,382  |         |       | $      | 3,026  |       
|                                                   |                                                                                                                            |                                                 |                                           |                                                       |       |         |        |         |       |        |        |       
|Supplemental disclosure of cash flow
	information: |                                                                                                                            |                                                 |                                           |                                                       |       |         |        |         |       |        |        |       
|                                                   | Cash paid during the year for:                                                                                             |                                                 |                                           |                                                       |       |         |        |         |       |        |        |        |       
|                                                   |                                                                                                                            | Interest                                        |                                           | $                                                     | 6,748 |         |        | $       | 9,669 |        |        | $      | 10,100 |        
|                                                   |                                                                                                                            | Income taxes                                    |                                           | $                                                     | 2,586 |         |        | $       | 2,154 |        |        | $      | 1,907  |        

See accompanying notes to consolidated financial
statements.

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JAFRA COSMETICS INTERNATIONAL, INC. AND
SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

(1) Basis of Presentation and Description
of Business

Basis of Presentation

Jafra Cosmetics International, Inc., a Delaware
corporation (JCI) is a wholly owned subsidiary of
CDRJ North Atlantic (Lux) S.a.r.L., a Luxembourg
société à responsabilité
limitée, which is a wholly owned subsidiary of CDRJ
Investments (Lux) S.A., a Luxembourg société
anonyme(the Parent). JCI, its subsidiaries, and
certain other subsidiaries of the Parent were organized by
Clayton, Dubilier & Rice Fund V Limited
Partnership, a Cayman Islands exempted limited partnership
managed by Clayton, Dubilier & Rice, Inc.
(CD&R) to acquire (the Acquisition)
the worldwide Jafra Cosmetics business (the Jafra
Business) from The Gillette Company (Gillette).

The accompanying consolidated financial
statements reflect the operations of JCI and its subsidiaries
(collectively, the Company). The Company is an
operating subsidiary in the United States, and currently has
operating subsidiaries in Austria, Germany, Italy, the
Netherlands, Switzerland, the Dominican Republic and Thailand.
All significant intercompany accounts and transactions between
entities comprising the Company have been eliminated in
consolidation.

In connection with the Acquisition, JCI and an
affiliated company, Jafra Cosmetics International, S.A. de C.V.
(Jafra S.A.) (the indirect, wholly owned
Mexican subsidiary of the Parent) issued $100 million aggregate
principal amount of 11.75% Subordinated Notes due 2008 (the
Notes). See Note 6. The Notes represent several
obligations of JCI and Jafra S.A., with each participating
on a pro rata basis upon redemption. JCI and Jafra S.A.
have fully and unconditionally guaranteed the obligations under
the Notes of the other on a senior subordinated basis, subject
to a 30-day standstill period prior to enforcement of such
guarantees. As the cross-guarantee of JCI and Jafra S.A. is
subject to a 30-day standstill period, the Parent is filing
these separate financial statements of JCI as a schedule to its
Annual Report on Form 10-K for the year ended
December 31, 2001.

Description of Business

The Company markets its products, which consist
of premium skin and body care products, color cosmetics,
fragrances, and other personal care products, primarily in the
United States, but also through subsidiaries in Austria,
Germany, Italy, the Netherlands, Switzerland, the Dominican
Republic and Thailand and in a number of additional countries
through distributors. The Company utilizes a direct selling,
multilevel distribution system comprised of self-employed
salespersons (known as consultants).

(2) Summary of Significant Accounting
Policies

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

Cash and Cash Equivalents.Cash and cash equivalents include
cash, time deposits and all highly liquid debt instruments
purchased with a maturity of three months or less.

Inventories.Inventories, which consist of finished
goods, are stated at the lower of cost, as determined by the
first-in, first-out basis, or market.

Property and Equipment.Property and equipment are stated at
cost. Depreciation of property and equipment is provided for
over the estimated useful lives of the respective assets using
the straight-line method. Estimated useful lives are
40 years for buildings, the lesser of 40 years or the
term of the lease for

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JAFRA COSMETICS INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

improvements and 5 to 15 years for machinery
and equipment. Maintenance and repairs, including cost of minor
replacements, are charged to operations as incurred. Costs of
additions and betterments are added to property and equipment
accounts provided that such expenditures increase the useful
life or the value of the asset.

Intangible Assets.Intangible assets principally consist
of goodwill, which is amortized using the straight-line method.
Goodwill resulting from the Companys acquisition of the
Jafra Business from Gillette is being amortized over a period of
40 years. Accumulated amortization of goodwill at
December 31, 2001 and 2000 was $3,837,000 and $2,868,000,
respectively. (See New Accounting Standards).

Deferred Financing Costs.In connection with the acquisition of
the Jafra Business, the Company incurred approximately
$7.2 million of costs related to the 11.75% Senior
Subordinated Notes due 2008 (the Notes), the
Revolving Credit Facility and the Term Loan Facility (see
Note 6). Such costs are being amortized on a basis that
approximates the interest method over the expected term of the
related debt. Accumulated amortization at December 31, 2001
and 2000 was $2,500,000 and $1,871,000, respectively.

Impairment of Long-Lived Assets and Goodwill.Long-lived assets and goodwill are
reviewed for impairment, based on undiscounted cash flows,
whenever events or changes in circumstances indicate that the
carrying amount of such assets may not be recoverable. If this
review indicates that the carrying amount of the long-lived
assets and goodwill is not recoverable, the Company will
recognize an impairment loss, measured by the future discounted
cash flow method (see New Accounting Standards and
Note 10).

Fair Value of Financial Instruments.The carrying amounts of cash and cash
equivalents, accounts receivable, and accounts payable
approximate fair value because of the short-term maturities of
these instruments. The fair value of the Notes at
December 31, 2001 and 2000 was $48,266,000 and $46,461,000,
respectively, based on discussions with one of the
Companys largest bondholders and an analysis of current
market interest rates and the Companys credit rating. As
the Companys Revolving Credit Facilities and the Term Loan
are variable rate debt, and the interest rate spread paid by the
Company is adjusted for changes in certain financial ratios of
the Company, the fair value of the Revolving Credit Facilities
and the Term Loan approximated their carrying amounts at
December 31, 2001 and 2000.

Revenue Recognition.The Company recognizes revenue when
title passes at shipment in accordance with its shipping terms.
Amounts billed to consultants for shipping and handling costs
are included in net sales.

Shipping and handling
costs.Shipping and handling costs of
$11,265,000, $12,170,000 and $8,219,000 for the years ended
December 31, 2001, 2000 and 1999, respectively, are
included in selling, general and administrative expenses.

Research and Development.Research and development costs are
expensed as incurred. Total research and development expense
aggregated $1,842,000, $1,901,000 and $2,130,000 for the years
ended December 31, 2001, 2000 and 1999, respectively. The
portion of the above-identified research and development
expenses incurred by the Company and charged to Jafra S.A.
as part of the Companys management fee income (see
Note 9) aggregated $864,000, $978,000 and $942,000, for the
years ended December 31, 2001, 2000 and 1999, respectively.

Income Taxes.The
Company accounts for income taxes under the balance sheet
approach that requires the recognition of deferred income tax
assets and liabilities for the expected future consequences of
events that have been recognized in the Companys financial
statements or income tax returns. Management provides a
valuation allowance for deferred income tax assets when it is
more likely than not that a portion of such deferred income tax
assets will not be realized. Income tax expense of the Company
is computed on a separate-company basis.

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JAFRA COSMETICS INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Foreign Currency Translation.The functional currency for foreign
subsidiaries is generally the local currency. Assets and
liabilities of such foreign subsidiaries are translated into
U.S. dollars at current exchange rates, and related
revenues and expenses are translated at average exchange rates
in effect during the period. Resulting translation adjustments
are recorded as a component of other comprehensive income.

New Accounting Standards.Effective January 1, 2001, the
Company adopted Statement of Financial Accounting Standards
(SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133, as
amended and interpreted, established accounting and reporting
standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for
hedging activities. All derivatives, whether designated in
hedging relationships or not, are required to be recorded on the
balance sheet at fair value. If the derivative is designated in
a fair-value hedge, the changes in the fair value of the
derivative and the underlying hedged item are recognized
concurrently in earnings. If the derivative is designated in a
cash-flow hedge, changes in the fair value of the derivative are
recorded in other comprehensive income (OCI) and are
recognized in the statement of operations when the hedged item
affects earnings. SFAS No. 133 defined new requirements for
designation and documentation of hedging relationships as well
as ongoing effectiveness assessments in order to use hedge
accounting. For a derivative that does not qualify as a hedge,
changes in fair value are recognized concurrently in earnings.
The adoption of SFAS No. 133 did not have a material impact
on the Companys consolidated financial statement.

In July 2001, the Financial Accounting Standards
Board (FASB) approved two new statements: SFAS
No. 141, Business Combinations and SFAS
No. 142, Goodwill and Other Intangible Assets.
SFAS No. 141 requires business combinations entered into
after June 30, 2001 to be accounted for using the purchase
method of accounting. SFAS No. 142 requires that goodwill
not be amortized, but be tested for impairment at least
annually. SFAS No. 142 is effective for fiscal years
beginning after December 15, 2001 to all goodwill and other
intangible assets recognized in an entitys statement of
financial position at that date, regardless of when those assets
were initially recognized. In accordance with this statement,
the Company is not required to complete the transitional
goodwill impairment test until June 30, 2002. The Company
is evaluating, but has not yet determined, whether the adoption
of this statement will result in an impairment of goodwill.
Additionally, the Company is evaluating, but has not determined
the useful life of certain other intangible assets under the new
accounting pronouncement. Goodwill amortization of $1,079,000
recorded in 2001 required under previous accounting standards
will not be charged to income in 2002.

In August 2001, the FASB issued SFAS
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. SFAS No. 144 supersedes SFAS
No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of. SFAS
No. 144 retains substantially all of the requirements of
SFAS No. 121 while resolving certain implementation issues
and addressing the accounting for a component of a business
accounted for as a discontinued operation. SFAS No. 144 is
effective for fiscal years beginning after December 15,
2001. Management does not expect the adoption of SFAS
No. 144 to have a significant impact on the financial
position, or results of operations, of the Company.

In November 2001, the Emerging Issues Task Force
(EITF) issued EITF Issue No. 01-9,
Accounting for Consideration Given by a Vendor to a
Customer or a Reseller of the Vendors Products,
which addresses the accounting for consideration given by a
vendor to a customer or a reseller of the vendors
products. In April 2001, the EITF reached a consensus on EITF
Issue No. 00-25, Vendor Income Statement
Characterization of Consideration Paid to a Reseller of the
Vendors Products, which provides guidance on the
income statement classification of consideration from a vendor
to a reseller in connection with the resellers purchase of
the vendors products or to promote sales of the
vendors products. This new guidance provides that
consideration from a vendor to a reseller is generally presumed
to be a reduction of the selling prices of the vendors
products, and, therefore, should be characterized as a reduction
of revenue when recognized in the vendors income
statement. Although the new guidance will not impact net income,
there will be certain income statement reclassifications,
primarily related to commissions paid to consultants related

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JAFRA COSMETICS INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

to their sale of product. The Company is in the
process of quantifying the impact of the guidance on revenue,
gross profit and selling, general and administrative expenses.
EITF Issue No. 00-25 and EITF Issue No. 01-9 are both
effective for the Company on January 1, 2002. Upon
adoption, the Company will reclassify prior period amounts for
comparability.

Reclassifications.Certain reclassifications were made to the prior year financial
statements to conform to current year presentation.

(3) Inventories

Inventories consist of the following at
December 31, 2001 and 2000 (in thousands):

|                           |  |      |       |      |  |   |       | 
|-------------------------- |  | ---- | ----- | ---- |  | - | ----- | 
|                           |  | 2001 |       | 2000
|                           |  |      |       |     
|Raw materials and supplies |  | $    |      |      |  | $ | 44    | 
|Finished goods             |  |      | 8,677 |      |  |   | 9,411 | 
|                           |  |      |       |      |  |   |       | 
|Total inventories          |  | $    | 8,677 |      |  | $ | 9,455 | 
|                           |  |      |       |      |  |   |       | 

(4) Property and Equipment

Property and equipment consist of the following
at December 31, 2001 and 2000 (in thousands):

|                              |  |      |        |      |  |   |        | 
|----------------------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                              |  | 2001 |        | 2000
|                              |  |      |        |     
|Land                          |  | $    | 6,188  |      |  | $ | 6,188  | 
|Buildings and improvements    |  |      | 6,763  |      |  |   | 5,998  | 
|Machinery and equipment       |  |      | 15,971 |      |  |   | 11,997 | 
|                              |  |      |        |      |  |   |        | 
|                              |  |      | 28,922 |      |  |   | 24,183 | 
|Less accumulated depreciation |  |      | 6,180  |      |  |   | 4,039  | 
|                              |  |      |        |      |  |   |        | 
|Property and equipment, net   |  | $    | 22,742 |      |  | $ | 20,144 | 
|                              |  |      |        |      |  |   |        | 

(5) Accrued Liabilities

Accrued liabilities consist of the following at
December 31, 2001 and 2000 (in thousands):

|                                            |  |      |        |      |  |   |        | 
|------------------------------------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                                            |  | 2001 |        | 2000
|                                            |  |      |        |     
|Sales promotions, commissions and overrides |  | $    | 3,182  |      |  | $ | 3,553  | 
|Accrued restructuring charges (Note 10)     |  |      | 128    |      |  |   | 516    | 
|Accrued interest                            |  |      | 931    |      |  |   | 892    | 
|Compensation and other benefit accruals     |  |      | 4,291  |      |  |   | 3,374  | 
|State and local sales taxes and other taxes |  |      | 1,282  |      |  |   | 846    | 
|Other                                       |  |      | 2,895  |      |  |   | 2,807  | 
|                                            |  |      |        |      |  |   |        | 
|Total accrued liabilities                   |  | $    | 12,709 |      |  | $ | 11,988 | 
|                                            |  |      |        |      |  |   |        | 

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JAFRA COSMETICS INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(6) Debt

Debt consists of the following at
December 31, 2001 and 2000 (in thousands):

|                                                                                                                                                                                |  |      |        |      |  |   |        | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                                                                                                                                                                                |  | 2001 |        | 2000
|                                                                                                                                                                                |  |      |        |     
|Subordinated Notes, unsecured, interest payable
	semi-annually at 11.75% due in 2008.                                                                                           |  | $    | 45,108 |      |  | $ | 45,108 | 
|Term loan, secured, principal and interest due in
	quarterly installments through April 30, 2004, interest
	rates at 4.3% and 8.1% at December 31, 2001 and 2000,
	respectively |  |      | 9,000  |      |  |   | 11,500 | 
|Revolving Loan, secured, due April 30, 2004,
	weighted average interest rates of 5.4% and 8.3% at
	December 31, 2001 and 2000, respectively                                     |  |      | 1,800  |      |  |   | 14,500 | 
|                                                                                                                                                                                |  |      |        |      |  |   |        | 
|Total debt                                                                                                                                                                      |  |      | 55,908 |      |  |   | 71,108 | 
|Less current maturities                                                                                                                                                         |  |      | 3,000  |      |  |   | 2,500  | 
|                                                                                                                                                                                |  |      |        |      |  |   |        | 
|Long-term debt                                                                                                                                                                  |  | $    | 52,908 |      |  | $ | 68,608 | 
|                                                                                                                                                                                |  |      |        |      |  |   |        | 

The Companys long-term debt matures as
follows (in thousands): $3,000 in 2002, $4,000 in 2003, $3,800
in 2004, $0 in 2005, $0 in 2006 and $45,108 thereafter.

On April 30, 1998, JCI and Jafra S.A.
borrowed $125 million by issuing $100 million
aggregate principal amount of 11.75% Subordinated Notes due 2008
(the Notes) pursuant to an Indenture dated
April 30, 1998 (the Indenture) and
$25 million under a Senior Credit Agreement.

At the date of issuance, the Notes represented
several obligations of JCI and Jafra S.A. in the amount of
$60 million and $40 million, respectively, with each
participating on a pro rata basis upon redemption. The Notes
mature in 2008 and bear a fixed interest rate of 11.75% payable
semi-annually.

JCI and Jafra S.A. are indirect, wholly
owned subsidiaries of the Parent and have fully and
unconditionally guaranteed the obligations under the Notes of
the other on a senior subordinated basis, subject to a 30-day
standstill period prior to enforcement of such guarantees. In
addition, the Parent has fully and unconditionally guaranteed
the Notes on a senior subordinated basis. The Company currently
has no U.S. subsidiaries. Each acquired or organized
U.S. subsidiary of JCI will also be required to fully and
unconditionally guarantee the Notes jointly and severally, on a
senior subordinated basis. Each existing subsidiary of
Jafra S.A. fully and unconditionally guarantees the Notes
jointly and severally, on a senior subordinated basis, and each
subsequently acquired or organized subsidiary of Jafra S.A.
will fully and unconditionally guarantee the Notes jointly and
severally, on a senior subordinated basis. The nonguarantor
entities are the Companys indirect subsidiaries in
Austria, Germany, Italy, the Netherlands, Switzerland, the
Dominican Republic and Thailand, and the Parents indirect
subsidiaries in Poland, Argentina, Brazil, Chile, Colombia,
Peru, and Venezuela. All guarantor and nonguarantor entities are
either direct or indirect wholly owned subsidiaries of the
Parent. The Notes were registered in a registered exchange
offer, effective as of January 25, 1999, under the
Securities Act of 1933, as amended.

The Notes are unsecured and are generally
non-callable for five years. Thereafter, the Notes will be
callable at premiums declining to par in the eighth year.

Consents and Waivers, dated June 30, 2001
and November 19, 1999, to the Senior Credit Agreement, as
described below, allow JCI and Jafra S.A. to repurchase the
Notes in the open market from time to time, with the aggregate
purchase price for all such Notes repurchased not to exceed
$50 million. Aggregate repurchases as of December 31,
2001 were $24.8 million. During 2000, JCI retired notes,
prior to maturity, with a face value of $6.5 million. The
debt repurchases in 2000 resulted in an extraordinary loss of
$205,000, net of an income tax benefit of $120,000. During 1999,
JCI retired Notes, prior to maturity, with a face value of
$8.4 million. The debt repurchases in 1999 resulted in an
extraordinary loss of $296,000, with no income tax benefit. In
connection with the early retirement of the Notes as described
above, a portion of the unamortized

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JAFRA COSMETICS INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

deferred financing costs was written off and
included in the determination of the extraordinary loss on early
extinguishment of debt. Total amounts that were written off
during 2000 and 1999 were $459,000 and $602,000, respectively.

In addition, JCI and Jafra S.A. entered into a
Senior Credit Agreement that provides for senior secured credit
facilities in an aggregate principal amount of $90 million,
consisting of a multicurrency Revolving Credit Facility of
$65 million and a Term Loan Facility of $25 million.
Borrowings under the Term Loan Facility are payable in quarterly
installments of principal and interest over six years through
April 30, 2004. Borrowings under the Revolving Credit
Facility mature on April 30, 2004. Borrowings under the
Senior Credit Agreement bear interest at an annual rate of LIBOR
plus a margin not to exceed 1.625% or an alternate base rate
(the higher of the prime rate or federal funds rate plus 0.5%,
plus an applicable margin not to exceed 0.625%). The interest
rate in effect at December 31, 2001 was approximately 4.3%
for the LIBOR-based borrowings and the rate for the prime-based
borrowings was approximately 5.4%. Borrowings under the Senior
Credit Agreement are secured by substantially all of the assets
of JCI and Jafra S.A.

Both the Indenture and the Senior Credit
Agreement contain certain covenants that limit the
Companys ability to incur additional indebtedness, pay
cash dividends and make certain other payments. These debt
agreements also require the Parent to maintain certain financial
ratios including a minimum EBITDA to cash interest expense
coverage ratio and a maximum debt to EBITDA ratio.

(7) Income Taxes

The Companys income (loss) before
income taxes consists of the following (amounts in thousands):

|                                                           |               |                          |        |        |   |      |       |        |   |   |        |        |  
|---------------------------------------------------------- | ------------- | ------------------------ | ------ | ------ | - | ---- | ----- | ------ | - | - | ------ | ------ | -
|                                                           |               |                         
|                                                           |               | Years Ended December 31,
|                                                           |               |                         
|                                                           |               | 2001                     |        | 2000   |   | 1999
|                                                           |               |                          |        |        |   |     
|Income (loss) before income taxes and
	extraordinary item: |               |                          |        |        |   |      |       |        |   |   |        |       
|                                                           | United States |                          | $      | 13,530 |   |      | $     | 9,741  |   |   | $      | 3,898  |  
|                                                           | Foreign       |                          |        | (964   | ) |      |       | (4,247 | ) |   |        | (5,971 | )
|                                                           |               |                          |        |        |   |      |       |        |   |   |        |       
|                                                           |               | $                        | 12,566 |        |   | $    | 5,494 |        |   | $ | (2,073 | )     
|                                                           |               |                          |        |        |   |      |       |        |   |   |        |       

Actual income tax expense differs from the
expected tax expense (computed by applying the U.S.
federal corporate rate of 35% to income before income taxes) as
a result of the following:

|                                                                                                   |  |                          |        |      |  |      |        |   |  |   |        |  
|-------------------------------------------------------------------------------------------------- |  | ------------------------ | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                                                                                   |  |                         
|                                                                                                   |  | Years Ended December 31,
|                                                                                                   |  |                         
|                                                                                                   |  | 2001                     |        | 2000 |  | 1999
|                                                                                                   |  |                          |        |      |  |     
|Provision (benefit) for income taxes at
	federal statutory rate                                    |  | $                        | 4,398  |      |  | $    | 1,922  |   |  | $ | (726   | )
|Foreign income subject to tax other than at
	federal statutory rate, principally withholding taxes |  |                          | 2,532  |      |  |      | 1,298  |   |  |   | 1,186  |  
|Foreign tax and other credits                                                                      |  |                          | (3,230 | )    |  |      | (1,724 | ) |  |   | (1,784 | )
|State income taxes                                                                                 |  |                          | 544    |      |  |      | 243    |   |  |   | 171    |  
|Valuation allowance  domestic                                                                     |  |                          | 944    |      |  |      | (616   | ) |  |   | 657    |  
|Valuation allowance  foreign                                                                      |  |                          | 674    |      |  |      | 1,911  |   |  |   | 2,686  |  
|Other                                                                                              |  |                          | 192    |      |  |      | 41     |   |  |   | (82    | )
|                                                                                                   |  |                          |        |      |  |      |        |   |  |   |        |  
|Income tax expense                                                                                 |  | $                        | 6,054  |      |  | $    | 3,075  |   |  | $ | 2,108  |  
|                                                                                                   |  |                          |        |      |  |      |        |   |  |   |        |  

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JAFRA COSMETICS INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The components of the provision for income taxes
are as follows (in thousands):

|                                                                                |          |                           |                          |      |       |       |       |     |       |       |       |    |       |       | 
|------------------------------------------------------------------------------- | -------- | ------------------------- | ------------------------ | ---- | ----- | ----- | ----- | --- | ----- | ----- | ----- | -- | ----- | ----- | 
|                                                                                |          |                          
|                                                                                |          | Years Ended December 31, 
|                                                                                |          |                          
|                                                                                |          | 2001                      |                          | 2000 |       | 1999 
|                                                                                |          |                           |                          |      |       |      
|Current:                                                                        |          |                           |                          |      |       |       |       |     |       |       |       |   
|                                                                                | Federal  |                           | $                        | 140  |       |       | $     | 72  |       |       | $     | 60 |      
|                                                                                |          |                           |                          |      |       |       |       |     |       |       |       |   
|                                                                                | Foreign: |                           |                          |      |       |       |       |     |       |       |       |    |      
|                                                                                |          | Foreign withholding taxes |                          |      | 2,296 |       |       |     | 1,820 |       |       |    | 1,859 |      
|                                                                                |          | Europe                    |                          |      | 641   |       |       |     | 49    |       |       |    | 99    |      
|                                                                                |          | Other                     |                          |      | 26    |       |       |     |      |       |       |    |      |      
|                                                                                |          |                           |                          |      |       |       |       |     |       |       |       |   
|                                                                                |          |                           | 2,963                    |      |       |       | 1,869 |     |       |       | 1,958 |   
|                                                                                | State    |                           |                          | 544  |       |       |       | 243 |       |       |       | 90 |      
|                                                                                |          |                           |                          |      |       |       |       |     |       |       |       |   
|                                                                                |          |                           | Total current            |      |       | 3,647 |       |     |       | 2,184 |       |    |       | 2,108 | 
|Deferred  foreign                                                              |          |                           |                         |      |       |       |      |     |       |       |      |   
|Deferred  domestic                                                             |          |                           | 2,407                    |      |       |       | 891   |     |       |       |      |   
|                                                                                |          |                           |                          |      |       |       |       |     |       |       |       |   
|                                                                                |          |                           | Total deferred           |      |       | 2,407 |       |     |       | 891   |       |    |       |      | 
|Total income taxes on income (loss) before
	income taxes and extraordinary item |          |                           | 6,054                    |      |       |       | 3,075 |     |       |       | 2,108 |   
|Income tax benefit on early extinguishment of debt                              |          |                           |                         |      |       |       | (120  | )   |       |       |      |   
|                                                                                |          |                           |                          |      |       |       |       |     |       |       |       |   
|                                                                                |          |                           | Total income tax expense |      | $     | 6,054 |       |     | $     | 2,955 |       |    | $     | 2,108 | 
|                                                                                |          |                           |                          |      |       |       |       |     |       |       |       |   

The components of deferred income tax assets and
deferred income tax liabilities at December 31, 2001 and
2000 are as follows (in thousands):

|                                 |                                           |                                       |   |        |        |   |   |        |        |  
|-------------------------------- | ----------------------------------------- | ------------------------------------- | - | ------ | ------ | - | - | ------ | ------ | -
|                                 |                                           | 2001                                  |   | 2000  
|                                 |                                           |                                       |   |       
|Deferred income tax assets:      |                                           |                                       |   |        |        |   |   |       
|                                 | Net operating loss carryforward           |                                       | $ | 6,834  |        |   | $ | 6,162  |       
|                                 | Disallowed interest expense               |                                       |   | 26     |        |   |   | 1,226  |       
|                                 | Accrued bonuses                           |                                       |   |       |        |   |   | 619    |       
|                                 | Foreign tax and other credit carryforward |                                       |   | 2,646  |        |   |   | 1,700  |       
|                                 | Other accrued liabilities                 |                                       |   | 331    |        |   |   | 244    |       
|                                 | Other                                     |                                       |   | 1,927  |        |   |   | 1,266  |       
|                                 |                                           |                                       |   |        |        |   |   |       
|                                 |                                           | Total deferred income tax assets      |   |        | 11,764 |   |   |        | 11,217 |  
|                                 | Less valuation allowance                  |                                       |   | (9,480 | )      |   |   | (7,862 | )     
|                                 |                                           |                                       |   |        |        |   |   |       
|                                 |                                           | Net deferred income tax assets        |   |        | 2,284  |   |   |        | 3,355  |  
|Deferred income tax liabilities: |                                           |                                       |   |        |        |   |   |       
|                                 | Property and equipment                    |                                       |   | (1,602 | )      |   |   | (1,221 | )     
|                                 | Trademark and goodwill                    |                                       |   | (2,631 | )      |   |   | (1,866 | )     
|                                 | Inventories                               |                                       |   | (930   | )      |   |   | (851   | )     
|                                 | Other                                     |                                       |   | (419   | )      |   |   | (308   | )     
|                                 |                                           |                                       |   |        |        |   |   |       
|                                 |                                           | Total deferred income tax liabilities |   |        | (5,582 | ) |   |        | (4,246 | )
|                                 |                                           |                                       |   |        |        |   |   |       
|                                 |                                           | Net deferred income tax liabilities   |   | $      | (3,298 | ) |   | $      | (891   | )
|                                 |                                           |                                       |   |        |        |   |   |       

The Company records a valuation allowance on the
deferred income tax assets to reduce the total to an amount that
management believes is more likely than not to be realized. The
valuation allowances at December 31, 2001 and 2000 were
based upon the Companys estimates of the future
realization of deferred income tax assets. Valuation allowances
at December 31, 2001 were provided to offset foreign
operating loss carryforwards of $6,834,000 and foreign tax and
other credit carryforwards of $2,646,000 resulting from the

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JAFRA COSMETICS INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Companys U.S. and European subsidiaries.
These deferred income tax assets were reduced by a valuation
allowance of $9,480,000. The tax loss carryforwards expire in
varying amounts between 2002 and 2011. Realization of the income
tax carryforwards is dependent on generating sufficient taxable
income prior to expiration of the carryforwards.

(8) Benefit Plans

Certain employees of the Companys German
subsidiary participate in a defined benefit pension plan
covering key employees (the Germany Plan). Benefits
are based on age, years of service and the level of compensation
during the final years of employment. The Companys funding
policy is to contribute annually to the Germany Plan the amount
necessary to meet the minimum funding standards. The Company
recognized pension expense of $278,000 for the year ended
December 31, 2001 and recognized pension income of $18,000
for the year ended December 31, 2000 due to the departure
of certain employees. The total pension expense was $43,000 for
the year ended December 31, 1999.

JCI has an employee savings plan which permits
participants to make voluntary contributions by salary
reductions pursuant to section 401(k) of the Internal Revenue
Code, which allows employees to defer up to 20% of their total
compensation, subject to statutory limitations. Employee
contributions of up to 10% of compensation are matched by the
Company at the rate of 50 cents per dollar. Employees do not
vest in the Company contribution until they have reached two
years of service, at which time they become fully vested. The
Companys expense under this program was $600,000, $620,000
and $628,000 for the years ended December 31, 2001, 2000
and 1999, respectively.

JCI also has a supplemental excess benefit
savings plan, which permits participants to make unlimited
voluntary contributions. Employee contributions are matched on
the same basis as under the employee savings plan, and the
vesting provisions are the same. The Companys expense
under this program was $177,000, $213,000 and $179,000 for the
years ended December 31, 2001, 2000 and 1999, respectively.
Employee and employer contributions under such plan are placed
into a rabbi trust exclusively for the uses and
purposes of plan participants and general creditors of the
Company. The Company has recorded an asset and the related
liability in the accompanying consolidated balance sheets of
$1,880,000 and $1,472,000 at December 31, 2001 and 2000,
respectively.

(9) Related Party Transactions

The Company distributes skin and body products to
other subsidiaries of the Parent (Affiliates). Sales
to Affiliates, primarily in Mexico and South America, were
$13,442,000, $14,297,000 and $14,318,000 for the years ended
December 31, 2001, 2000 and 1999, respectively. These sales
were made at cost plus a markup ranging from 0 to 11%. The
Company also purchases color and fragrance products from the
Parents Mexico affiliate totaling $9,849,000, $8,856,000
and $6,373,000 for the years ended December 31, 2001, 2000
and 1999, respectively.

In addition, the Company provides certain
management services, such as legal, accounting and treasury,
management oversight, and other administrative functions to
Affiliates. The cost of these services is included in selling,
general and administrative expenses in the accompanying
consolidated statements of operations. The Company charges out a
portion of these management expenses to its Affiliates based
upon charges identified to specific Affiliates and upon a
formula using the percentage of revenues of each Affiliate to
the total consolidated revenues of the Parent. The Company
believes the amounts and methods of allocations are reasonable
and approximate the cost of the actual services provided. The
management fee income, which consists of amounts billed to
Affiliates in Mexico and South America, was $8,504,000,
$8,141,000 and $5,048,000 for the years ended December 31,
2001, 2000 and 1999, respectively.

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JAFRA COSMETICS INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

At the end of 1999, the Company sold U.S.
trademarks with a net book value of $20,125,000 and German
trademarks with a net book value of $4,362,000 to Jafra S.A. for
their respective estimated fair values of $20,500,000 and
$3,500,000. The excess of the sales price over the net book
value of U.S. trademarks of $375,000 was recorded as additional
paid-in capital in the accompanying consolidated statements of
stockholders equity. The excess of the net book value of
German trademarks over the sales price of $862,000 was recorded
as an impairment loss in the accompanying consolidated
statements of operations. As a result of these sales, beginning
in 2000, Jafra S.A. began charging the Company a fee for the
right to use the Jafra trademark in the United States and
Europe. The total royalty expense charged by Jafra S.A. to the
Company was $1,639,000 and $1,126,000 for the years ended
December 31, 2001 and 2000, respectively, and is offset
against royalty income from affiliates in the accompanying
consolidated statements of operations.

The Company owns the worldwide rights to its
multi-level sales know-how (referred to as the Jafra
Way). The Jafra Way was initially developed in the United
States for lineage, training, and compensation of consultants.
Starting in 1999, the Company charged Jafra S.A. a royalty for
the use of the Jafra Way. The royalty fees charged by the
Company were $21,737,000, $15,746,000 and $17,838,000 for the
years ended December 31, 2001, 2000 and 1999, respectively,
and were based upon a percentage of Jafra S.A.s sales.

The Company has granted loans to certain
Affiliates at annual interest rates ranging from 6% to 9%. Such
loans are due to be repaid five years from the date of grant,
with no prepayment penalty. Notes receivable from Affiliates at
December 31, 2000 consists primarily of amounts owed by
Jafra S.A. as a result of the sale of U.S. and German trademarks
as discussed above, and amounts billed to Jafra S.A. in
connection with the Jafra Way royalty. At December 31,
2001, notes receivable from Affiliates consists primarily of
loans the Company has made to indirect subsidiaries of the
Parent to fund certain of their operations in South America. Net
interest income from Affiliates, was $703,000, $2,126,000 and
$121,000 for the years ended December 31, 2001, 2000 and
1999, respectively.

Pursuant to a consulting agreement entered into
following the Acquisition, until the 10th anniversary of the
Acquisition or the date on which CD&R Fund V no longer has
an investment in the Parent or until the termination by either
party with 30 days notice, CD&R will receive an annual
fee (and reimbursement of out-of-pocket expenses) for providing
advisory, management consulting and monitoring services to the
Parent. On January 1, 1999, the annual fee was $400,000. As
of January 1, 2001, the annual fee was increased to
$1,000,000. As required by the terms of the Parents
lending arrangements, such fees are determined by
arms-length negotiation and are believed by the Parent to
be reasonable. The amendment, effective January 1, 2001,
adds to CD&Rs services under the agreement financial
advisory, investment banking and similar services with respect
to future proposals for an acquisition, merger,
recapitalization, or other similar transaction directly or
indirectly involving the Parent or any of its subsidiaries. The
fee for such additional services in connection with future
transactions would be an amount equal to 1% of the transaction
value for the transaction to which such fee relates. Such
transaction fees may be increased upon approval of a majority of
the members of the Parents Board of Directors who are not
employees of the Parent, CD&R or any affiliate of CD&R.
The amendment also provides that if any employee of CD&R is
appointed to an executive management position (or a position of
comparable responsibility) in the Parent or any of its
subsidiaries, the annual fee will be increased by an amount to
be determined by CD&R, the amount of such increase not to
exceed 100% of the existing annual fee in effect at that time.
The CD&R fees incurred during the years ended
December 31, 2001, 2000 and 1999 were $1,000,000, $400,000
and $400,000, respectively. These fees were recorded as selling,
general, and administrative expenses in the accompanying
consolidated statements of operations, and a portion of the fees
was allocated to Affiliates as part of the Companys
management fee income from affiliates. Certain officers and
directors of CD&R or its Affiliates serve as directors of
the Parent.

During 1999, the Company engaged Guidance
Solutions (Guidance), a corporation in which an
investment fund managed by CD&R has an investment, to
develop its e-commerce systems. Under the agreement entered into
by both parties, the Company agreed to pay fees of approximately
$2.0 million to

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JAFRA COSMETICS INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Guidance in connection with planning, defining,
designing and consulting services performed related to the
Companys e-commerce initiative. During the years ended
December 31, 2000 and 1999, the Company paid fees to
Guidance of $1,798,000 and $389,000, respectively. A portion of
these amounts was allocated to the Companys Affiliates.
The Company terminated its agreement with Guidance and executed
a settlement and mutual release agreement effective
September 30, 2000. Upon execution of this agreement in
October of 2000, Guidance paid the Company $25,000 and agreed to
pay the Company an aggregate additional sum of $475,000, payable
in quarterly installments plus interest at 9.5% per annum,
beginning in January 2001 through October 2005. As of
December 31, 2001, the unpaid balance was $397,000.

(10) Restructuring and Impairment Charges
and Related Accruals

Prior Years Restructuring and Impairment
Charges.In 2000, the Company recorded
approximately $1.4 million of restructuring charges and
approximately $1.0 million of asset impairment charges. The
restructuring charges of approximately $1.4 million related
to the Companys repositioning activities in Europe, and
consisted primarily of severance costs. As of December 31,
2001, payments of approximately $1.3 million have been made
for these charges. The Company anticipates that substantially
all of the remaining restructuring costs of approximately
$0.1 million will be paid in 2002. The asset impairment
charges of $1.0 million consisted of approximately
$0.3 million related to the Companys repositioning
activities in Europe and approximately $0.7 million related
to the write-down of certain capitalized computer software costs
in the United States.

In 1999, the Company recorded approximately
$3.5 million of restructuring charges and approximately
$1.1 million of asset impairment charges. The restructuring
charges consisted of approximately $2.7 million of charges
related to the outsourcing of the Companys U.S. product
manufacturing functions, and approximately $0.8 million of
other restructuring activities in the U.S. and Europe.
Substantially all of the charges related to severance costs. As
the terms of such severance were not communicated to the
affected employees until subsequent to the one-year anniversary
of the Acquisition, such costs were expensed during 1999. As of
December 31, 2001, all restructuring costs were paid.

Also in 1999, the Company recognized an asset
impairment charge of approximately $1.1 million related to
long-lived assets (goodwill and trademarks) owned by its German
subsidiary (Jafra Germany). In the fourth quarter of
1999, concurrent with the Companys annual business
planning process, the Company recognized that sales levels in
Jafra Germany had declined more than anticipated since the
Acquisition. The Company performed an impairment review and
concluded that Jafra Germanys future undiscounted cash
flows were below the carrying value of its related long-lived
assets. Accordingly, the Company recorded a noncash impairment
loss of approximately $1.1 million to adjust the carrying
values of Jafra Germanys goodwill and trademarks to their
estimated fair values, which were determined based on
anticipated future cash flows discounted at a rate commensurate
with Jafra Germanys weighted average cost of capital.

Acquisition Accrual.In connection with the Acquisition in
1998, the Company initially recorded a $4.0 million accrual
for restructuring and rationalization costs (the
Acquisition Accrual). This accrual related to the
planned realignment of the Companys operations subsequent
to the Acquisition, and included approximately $2.9 million
of severance costs and $1.1 million of costs primarily
relating to closure and/or relocation of certain distribution
facilities. As of the consummation of the Acquisition, senior
management began formulating a plan to close certain
distribution facilities and involuntarily terminate certain
employees.

Prior to April 30, 1999 (the one year
anniversary of the Acquisition), the Company finalized plans
related to the closure of certain worldwide facilities,
principally the closure and outsourcing of the U.S. product
manufacturing functions. These restructuring plans included the
transfer of certain inventory and the sale of fixed assets at a
loss to a third party contractor (see Note 14). The total
finalized cost of the Acquisition

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JAFRA COSMETICS INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Accrual was approximately $4.4 million, and
resulted in a net increase to goodwill of approximately
$0.4 million in 1999. The components of the Acquisition
Accrual are summarized as follows (in thousands):

|                         |  |   |       | 
|------------------------ |  | - | ----- | 
|Disposal of fixed assets |  | $ | 2,336 | 
|Severance                |  |   | 1,724 | 
|Lease termination costs  |  |   | 197   | 
|Other                    |  |   | 150   | 
|                         |  |   |       | 
|                         |  | $ | 4,407 | 
|                         |  |   |       | 

During 1999, all of the remaining components of
the Acquisition Accrual were incurred. At December 31,
1999, there was no remaining liability related to the
Acquisition Accrual.

As discussed above, the components of the
additions and/or adjustments to the aforementioned accruals
include severance, lease costs, fixed asset disposals, and other
exit costs, and are summarized as follows (in thousands):

|                               |                       |                          |   |      |   |      |       |       |       |   |       |        |       | 
|------------------------------ | --------------------- | ------------------------ | - | ---- | - | ---- | ----- | ----- | ----- | - | ----- | ------ | ----- | 
|                               |                       |                         
|                               |                       | Years Ended December 31,
|                               |                       |                         
|                               |                       | 2001                     |   | 2000 |   | 1999
|                               |                       |                          |   |      |   |     
|Additions  charges to income: |                       |                          |   |      |   |      |       |       |       |   |       |       
|                               | Severance             |                          | $ | (84  | ) |      | $     | 1,170 |       |   | $     | 3,265  |      
|                               | Lease costs           |                          |   | 80   |   |      |       | 170   |       |   |       | 57     |      
|                               | Other                 |                          |   | 4    |   |      |       | 84    |       |   |       | 169    |      
|                               |                       |                          |   |      |   |      |       |       |       |   |       |       
|                               |                       | Total additions          |   |      |  |      |       |       | 1,424 |   |       |        | 3,491 | 
|                               | Acquisition Accrual:  |                          |   |      |   |      |       |       |       |   |       |        |      
|                               | Severance             |                          |   |     |   |      |       |      |       |   |       | (1,176 | )    
|                               | Fixed asset disposals |                          |   |     |   |      |       |      |       |   |       | 2,336  |      
|                               | Lease costs           |                          |   |     |   |      |       |      |       |   |       | (903   | )    
|                               | Other                 |                          |   |     |   |      |       |      |       |   |       | 150    |      
|                               |                       |                          |   |      |   |      |       |       |       |   |       |       
|                               |                       | Acquisition Accrual, net |   |      |  |      |       |       |      |   |       |        | 407   | 
|                               |                       |                          |   |      |   |      |       |       |       |   |       |       
|                               |                       | $                        |  |      |   | $    | 1,424 |       |       | $ | 3,898 |       
|                               |                       |                          |   |      |   |      |       |       |       |   |       |       

A rollforward of the activity of the
restructuring accruals is summarized as follows (in thousands):

|                               |                |                          |      |      |  |      |        |     |  |   |        |       | 
|------------------------------ | -------------- | ------------------------ | ---- | ---- |  | ---- | ------ | --- |  | - | ------ | ----- | 
|                               |                |                         
|                               |                | Years Ended December 31,
|                               |                |                         
|                               |                | 2001                     |      | 2000 |  | 1999
|                               |                |                          |      |      |  |     
|Opening balance                |                | $                        | 516  |      |  | $    | 1,105  |     |  | $ | 3,162  |      
|Additions                      |                |                          |     |      |  |      | 1,424  |     |  |   | 3,491  |      
|Adjustment to goodwill balance |                |                          |     |      |  |      |       |     |  |   | 407    |      
|Charges against reserves       |                |                          | (388 | )    |  |      | (2,013 | )   |  |   | (5,955 | )    
|                               |                |                          |      |      |  |      |        |     |  |   |        |      
|                               | Ending balance |                          | $    | 128  |  |      | $      | 516 |  |   | $      | 1,105 | 
|                               |                |                          |      |      |  |      |        |     |  |   |        |      

The remaining costs at each year-end included in
the restructuring accrual are summarized as follows (in
thousands):

|                      |  |              |     |      |  |      |     |  |  |   |       | 
|--------------------- |  | ------------ | --- | ---- |  | ---- | --- |  |  | - | ----- | 
|                      |  |             
|                      |  | December 31,
|                      |  |             
|                      |  | 2001         |     | 2000 |  | 1999
|                      |  |              |     |      |  |     
|Severance             |  | $            |    |      |  | $    | 346 |  |  | $ | 1,105 | 
|Lease costs and other |  |              | 128 |      |  |      | 170 |  |  |   |      | 
|                      |  |              |     |      |  |      |     |  |  |   |       | 
|                      |  | $            | 128 |      |  | $    | 516 |  |  | $ | 1,105 | 
|                      |  |              |     |      |  |      |     |  |  |   |       | 

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JAFRA COSMETICS INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The principal component of the restructuring
accruals is severance. A summary of the severance activity is as
follows (dollar amounts in thousands):

|                                   |                |                          |     |        |  |           |      |        |  |           |     |        |  |   |        |     |  |  |     |    |  |   |        |       | 
|---------------------------------- | -------------- | ------------------------ | --- | ------ |  | --------- | ---- | ------ |  | --------- | --- | ------ |  | - | ------ | --- |  |  | --- | -- |  | - | ------ | ----- | 
|                                   |                |                         
|                                   |                | Years Ended December 31,
|                                   |                |                         
|                                   |                |                          |     |        |  |          
|                                   |                | 2001                     |     | 2000   |  | 1999     
|                                   |                |                          |     |        |  |          
|                                   |                | Number of                |     |        |  | Number of |      |        |  | Number of |     |       
|                                   |                | Employees                |     | Amount |  | Employees |      | Amount |  | Employees |     | Amount
|                                   |                |                          |     |        |  |           |      |        |  |           |     |       
|Opening balance                    |                |                          | 10  |        |  | $         | 346  |        |  |           | 43  |        |  | $ | 1,105  |     |  |  | 47  |    |  | $ | 2,154  |      
|Planned terminations               |                |                          |    |        |  |           |     |        |  |           | 29  |        |  |   | 1,170  |     |  |  | 101 |    |  |   | 3,265  |      
|Adjustment to planned terminations |                |                          |    |        |  |           | (84  | )      |  |           |    |        |  |   |       |     |  |  | (39 | )  |  |   | (1,176 | )    
|Actual terminations                |                |                          | (10 | )      |  |           | (262 | )      |  |           | (62 | )      |  |   | (1,929 | )   |  |  | (66 | )  |  |   | (3,138 | )    
|                                   |                |                          |     |        |  |           |      |        |  |           |     |        |  |   |        |     |  |  |     |    |  |   |        |      
|                                   | Ending balance |                          |     |       |  |           | $    |       |  |           |     | 10     |  |   | $      | 346 |  |  |     | 43 |  |   | $      | 1,105 | 
|                                   |                |                          |     |        |  |           |      |        |  |           |     |        |  |   |        |     |  |  |     |    |  |   |        |      

(11) Financial Reporting for Business
Segments

Segment information has been prepared in
accordance with SFAS No. 131, Disclosure about
Segments of an Enterprise and Related Information
(SFAS 131). SFAS No. 131 requires
disclosure of certain information regarding operating segments,
products and services, geographic areas of operations and major
customers.

The Companys business is comprised of one
industry segment, direct selling, with worldwide operations,
principally in the United States and Europe. The Company is
organized into geographical business units that each sell the
full line of Jafra cosmetics, skin care, body care, fragrances,
and other products. The Company has two reportable business
segments: the United States and Europe. Business results
for subsidiaries in the Dominican Republic and Thailand are
combined and included in the following table under the caption
All Others.

The accounting policies used to prepare the
information reviewed by the Companys chief operating
decision makers are the same as those described in the summary
of significant accounting policies. The Company evaluates
performance based on segment operating income, excluding
reorganization and restructuring charges, unusual gains and
losses, and amortization of goodwill and intangibles. Consistent
with the information reviewed by the Companys chief
operating decision makers, corporate costs, foreign exchange
gains and losses, interest expense, other nonoperating income or
expense, and income taxes are not allocated to operating
segments. The effects of intersegment sales (net sales and
related gross profit) are excluded from the computation of
segment operating income. Gross profit from Affiliates
(primarily in Mexico and South

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JAFRA COSMETICS INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

America) is included in the following table under
the caption Corporate, Unallocated and Other.
Segment assets exclude notes and accounts receivable from
Affiliates.

|                              |  |        |        |        |  |        |        |          |  |             |       |              |  |   |         |  |  |   |         |   |  |   |         |  
|----------------------------- |  | ------ | ------ | ------ |  | ------ | ------ | -------- |  | ----------- | ----- | ------------ |  | - | ------- |  |  | - | ------- | - |  | - | ------- | -
|                              |  |        |        |        |  |        |        |          |  | Corporate,  |       |             
|                              |  | United |        |        |  | All    |        | Total    |  | Unallocated |       | Consolidated
|Dollars in thousands          |  | States |        | Europe |  | Others |        | Segments |  | and Other   |       | Total       
|                              |  |        |        |        |  |        |        |          |  |             |       |             
|Year ended December 31, 2001  |  |        |        |        |  |        |        |          |  |             |       |              |  |   |         |  |  |   |         |   |  |   |         |  
|Net sales                     |  | $      | 80,772 |        |  | $      | 26,449 |          |  | $           | 4,423 |              |  | $ | 111,644 |  |  | $ | 13,442  |   |  | $ | 125,086 |  
|Operating profit (loss)       |  |        | 11,580 |        |  |        | 2,143  |          |  |             | (768  | )            |  |   | 12,955  |  |  |   | (13,279 | ) |  |   | (324    | )
|Depreciation and amortization |  |        | 2,709  |        |  |        | 601    |          |  |             | 174   |              |  |   | 3,484   |  |  |   |        |   |  |   | 3,484   |  
|Capital expenditures          |  |        | 4,529  |        |  |        | 230    |          |  |             | 332   |              |  |   | 5,091   |  |  |   |        |   |  |   | 5,091   |  
|Segment assets                |  |        | 67,792 |        |  |        | 17,522 |          |  |             | 3,198 |              |  |   | 88,512  |  |  |   |        |   |  |   | 88,512  |  
|Year ended December 31, 2000  |  |        |        |        |  |        |        |          |  |             |       |              |  |   |         |  |  |   |         |   |  |   |         |  
|Net sales                     |  |        | 75,229 |        |  |        | 26,823 |          |  |             | 1,469 |              |  |   | 103,521 |  |  |   | 14,297  |   |  |   | 117,818 |  
|Operating profit (loss)       |  |        | 10,709 |        |  |        | 876    |          |  |             | (790  | )            |  |   | 10,795  |  |  |   | (12,188 | ) |  |   | (1,393  | )
|Depreciation and amortization |  |        | 2,111  |        |  |        | 883    |          |  |             | 20    |              |  |   | 3,014   |  |  |   |        |   |  |   | 3,014   |  
|Capital expenditures          |  |        | 3,662  |        |  |        | 90     |          |  |             | 666   |              |  |   | 4,418   |  |  |   |        |   |  |   | 4,418   |  
|Segment assets                |  |        | 68,843 |        |  |        | 17,650 |          |  |             | 2,102 |              |  |   | 88,595  |  |  |   | 287     |   |  |   | 88,882  |  
|Year ended December 31, 1999  |  |        |        |        |  |        |        |          |  |             |       |              |  |   |         |  |  |   |         |   |  |   |         |  
|Net sales                     |  |        | 74,474 |        |  |        | 33,028 |          |  |             |      |              |  |   | 107,502 |  |  |   | 14,318  |   |  |   | 121,820 |  
|Operating profit (loss)       |  |        | 9,737  |        |  |        | (302   | )        |  |             |      |              |  |   | 9,435   |  |  |   | (18,526 | ) |  |   | (9,091  | )
|Depreciation and amortization |  |        | 2,569  |        |  |        | 1,014  |          |  |             |      |              |  |   | 3,583   |  |  |   | 23      |   |  |   | 3,606   |  
|Capital expenditures          |  |        | 1,838  |        |  |        | 517    |          |  |             |       |              |  |   | 2,355   |  |  |   |        |   |  |   | 2,355   |  
|Segment assets                |  | $      | 68,992 |        |  | $      | 19,203 |          |  | $           |      |              |  | $ | 88,195  |  |  | $ | 293     |   |  | $ | 88,488  |  

Additional business segment information regarding
product lines is as follows:

|                                  |                                                                            |               |      |            |       |               |      |            |   |               |      |            |       |  |      |       |   |   |      |       |       |  |      |       |   | 
|--------------------------------- | -------------------------------------------------------------------------- | ------------- | ---- | ---------- | ----- | ------------- | ---- | ---------- | - | ------------- | ---- | ---------- | ----- |  | ---- | ----- | - | - | ---- | ----- | ----- |  | ---- | ----- | - | 
|                                  |                                                                            |               |      |            |       |              
|                                  |                                                                            | 2001          |      | 2000       |       | 1999         
|                                  |                                                                            |               |      |            |       |              
|                                  |                                                                            | Sales by      |      | Percentage |       | Sales by      |      | Percentage |   | Sales by      |      | Percentage
|                                  |                                                                            | Product       |      | of Total   |       | Product       |      | of Total   |   | Product       |      | of Total  
|                                  |                                                                            | Line          |      | Sales      |       | Line          |      | Sales      |   | Line          |      | Sales     
|                                  |                                                                            |               |      |            |       |               |      |            |   |               |      |           
|                                  |                                                                            | (in millions) |      |            |       | (in millions) |      |            |   | (in millions) |      |           
|Skin Care                         |                                                                            | $             | 36.2 |            |       |               | 34.3 | %          |   | $             | 34.3 |            |       |  | 34.9 | %     |   | $ | 35.9 |       |       |  | 34.9 | %    
|Color Cosmetics                   |                                                                            |               | 18.7 |            |       |               | 17.7 |            |   |               | 17.9 |            |       |  | 18.2 |       |   |   | 19.2 |       |       |  | 18.6 |      
|Fragrances                        |                                                                            |               | 22.1 |            |       |               | 21.0 |            |   |               | 20.5 |            |       |  | 20.9 |       |   |   | 17.8 |       |       |  | 17.3 |      
|Body care and personal Care       |                                                                            |               | 12.5 |            |       |               | 11.9 |            |   |               | 12.0 |            |       |  | 12.2 |       |   |   | 15.1 |       |       |  | 14.6 |      
|Other(1)                          |                                                                            |               | 15.9 |            |       |               | 15.1 |            |   |               | 13.6 |            |       |  | 13.8 |       |   |   | 15.1 |       |       |  | 14.6 |      
|                                  |                                                                            |               |      |            |       |               |      |            |   |               |      |            |       |  |      |       |   |   |      |       |       |  |      |      
|                                  | Subtotal before shipping, handling and other fees
	and sales to Affiliates |               |      | 105.4      |       |               |      | 100.0      | % |               |      | 98.3       |       |  |      | 100.0 | % |   |      | 103.1 |       |  |      | 100.0 | %
|                                  |                                                                            |               |      |            |       |               |      |            |   |               |      |            |       |  |      |       |   |   |      |       |       |  |      |      
|Shipping, handling and other fees |                                                                            |               | 6.2  |            |       |               |      |            |   |               | 5.2  |            |       |  |      |       |   |   | 4.3  |       |       |  |      |      
|Sales to Affiliates               |                                                                            |               | 13.5 |            |       |               |      |            |   |               | 14.3 |            |       |  |      |       |   |   | 14.4 |       |       |  |      |      
|                                  |                                                                            |               |      |            |       |               |      |            |   |               |      |            |       |  |      |       |   |   |      |       |       |  |      |      
|                                  |                                                                            | Total         |      | $          | 125.1 |               |      |            |   |               |      | $          | 117.8 |  |      |       |   |   |      | $     | 121.8 |  |      |       |   | 
|                                  |                                                                            |               |      |            |       |               |      |            |   |               |      |            |       |  |      |       |   |   |      |       |       |  |      |      




|    |                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------
|(1) | Includes sales aids (e.g.; party hostess gifts,
	demonstration products, etc.) and promotional materials.

(12) Commitments and
Contingencies

The Company leases office and warehouse
facilities as well as manufacturing, transportation and data
processing equipment under operating leases which expire at
various dates through 2006. The leases contain

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JAFRA COSMETICS INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

certain renewal options and require payment of
property taxes, utilities, common area maintenance and insurance
and rent escalation clauses based upon consumer price indices.
Future minimum lease payments under noncancelable operating
leases as of December 31, 2001 are (in thousands):

|     |  |   |       | 
|---- |  | - | ----- | 
|2002 |  | $ | 1,489 | 
|2003 |  |   | 1,142 | 
|2004 |  |   | 768   | 
|2005 |  |   | 507   | 
|2006 |  |   | 490   | 
|     |  |   |       | 
|     |  | $ | 4,396 | 
|     |  |   |       | 

Rental expense was $1,453,000, $1,617,000 and
$1,630,000 for the years ended December 31, 2001, 2000 and
1999, respectively.

Subsequent to December 31, 2001, the Company
initiated product replacement for a certain product sold in 2001
and 2002. The total cost of the product replacement is estimated
to be approximately $535,000. However, management believes that
substantially all of the cost will be recovered pursuant to
contractual obligations with the third-party manufacturer. (See
Note 14).

In connection with the issuance of the
Parents Common Stock, the Parent has guaranteed loans of
approximately $2,146,000 for some members of the Companys
management.

The Company is involved from time to time in
routine legal matters incidental to its business. The Company
believes that the resolution of such matters will not have a
material adverse effect on the Companys business,
financial condition or results of operations.

(13) Management Incentive
Arrangements

Company Plan

Effective 1998, the Parent adopted a stock
incentive plan (the Stock Incentive Plan), which
provides for the sale to members of senior management of up to
52,141 shares of common stock of the Parent and the issuance of
options to purchase up to 104,282 additional shares of common
stock. The Parent reserved 156,423 shares for issuance
under the Stock Incentive Plan, and as of December 31,
2001, 42,121 shares and

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JAFRA COSMETICS INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

84,242 options were outstanding. A summary
of the status and activity of shares purchased under the Stock
Incentive Plan is as follows:

|                                        |  |           |        |           |  |   |     | 
|--------------------------------------- |  | --------- | ------ | --------- |  | - | --- | 
|                                        |  | Number of |        | Price    
|                                        |  | Shares    |        | Per Share
|                                        |  |           |        |          
|Shares outstanding at December 31, 1998 |  |           | 39,340 |           |  | $ | 100 | 
|Shares issued in 1999                   |  |           | 790    |           |  |   | 150 | 
|Options exercised in 1999               |  |           | 579    |           |  |   | 100 | 
|Shares repurchased in 1999              |  |           | (2,317 | )         |  |   | 150 | 
|                                        |  |           |        |           |  |   |     | 
|Shares outstanding at December 31, 1999 |  |           | 38,392 |           |  |   |     | 
|Shares issued in 2000                   |  |           | 4,424  |           |  |   | 206 | 
|Options exercised in 2000               |  |           | 158    |           |  |   | 100 | 
|Shares repurchased in 2000              |  |           | (948   | )         |  | $ | 210 | 
|                                        |  |           |        |           |  |   |     | 
|Shares outstanding at December 31, 2000 |  |           | 42,026 |           |  |   |     | 
|Shares issued in 2001                   |  |           | 474    |           |  |   | 210 | 
|Options exercised in 2001               |  |           | 210    |           |  |   | 150 | 
|Shares repurchased in 2001              |  |           | (589   | )         |  | $ | 250 | 
|                                        |  |           |        |           |  |   |     | 
|Shares outstanding at December 31, 2001 |  |           | 42,121 |           |  |   |     | 
|                                        |  |           |        |           |  |   |     | 

The purchase price of shares issued in 1999, 2000
and 2001 and exercised in 1999, 2000 and 2001 represented the
estimated fair value at the respective dates of issuance and
exercise, except as discussed below. In 2000, 316 shares
were issued at a price below fair value, and the Company
recognized compensation expense of approximately $19,000. In
2001, 210 shares were issued at a price below fair value, and
the Company recognized compensation expense of approximately
$21,000. Under certain circumstances, the management
stockholders can require the Company to repurchase their shares,
subject to a holding period of at least seven months from the
date such shares were acquired, for an amount not to exceed fair
value.

In connection with the purchase of common stock
of the Parent, certain members of senior management were granted
options to purchase two additional shares of common stock for
each share purchased at an exercise price equal to the fair
value at the date of grant under the Stock Incentive Plan. The
options have a life of ten years from the date of grant. Fifty
percent of the options granted are expected to vest in three
equal installments on each of the first three anniversaries of
the date of grant, subject to the continuous employment of the
grantee (Option Type 1). The remaining fifty
percent of the options become vested as follows, subject to the
continuous employment of the grantee: (a) up to one-third
of the options become vested as of each of the first three
anniversaries of the date of grant if the Company achieves at
least 85% of its EBITDA target for the immediately preceding
fiscal year, (b) if less than one-third of the total number
of options shall have become vested as provided in
clause (a) above, the portion that has not become so vested
shall become vested as of the first day of the fiscal year
following the fiscal year, if any, that the Company achieves its
cumulative EBITDA target, and (c) any options that do not
become vested as provided above will become vested on the

77



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##### Table of Contents



JAFRA COSMETICS INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

ninth anniversary of the date of grant
(Option Type 2). A summary of the status and
activity of the options under the Stock Incentive Plan is as
follows:

|                                 |  |        |        |          |  |        |        |          |  |        |        |          |  |   |        |  |  |  |        |   |  |   |        | 
|-------------------------------- |  | ------ | ------ | -------- |  | ------ | ------ | -------- |  | ------ | ------ | -------- |  | - | ------ |  |  |  | ------ | - |  | - | ------ | 
|                                 |  |        |        |          |  |       
|                                 |  | 2001   |        | 2000     |  | 1999  
|                                 |  |        |        |          |  |       
|                                 |  |        |        | Weighted |  |        |        | Weighted |  |        |        | Weighted
|                                 |  |        |        | Average  |  |        |        | Average  |  |        |        | Average 
|                                 |  |        |        | Exercise |  |        |        | Exercise |  |        |        | Exercise
|                                 |  | Shares |        | Price    |  | Shares |        | Price    |  | Shares |        | Price   
|                                 |  |        |        |          |  |        |        |          |  |        |        |         
|Outstanding at beginning of year |  |        | 84,052 |          |  | $      | 111.69 |          |  |        | 76,784 |          |  | $ | 101.03 |  |  |  | 78,680 |   |  | $ | 100.00 | 
|Granted                          |  |        | 948    |          |  |        | 210.00 |          |  |        | 8,848  |          |  |   | 205.71 |  |  |  | 1,580  |   |  |   | 150.00 | 
|Exercised                        |  |        | (210   | )        |  |        | 150.00 |          |  |        | (158   | )        |  |   | 100.00 |  |  |  | (579   | ) |  |   | 100.00 | 
|Canceled                         |  |        | (548   | )        |  |        | 163.80 |          |  |        | (1,422 | )        |  |   | 122.22 |  |  |  | (2,897 | ) |  |   | 100.00 | 
|                                 |  |        |        |          |  |        |        |          |  |        |        |          |  |   |        |  |  |  |        |   |  |   |        | 
|Outstanding at year-end          |  |        | 84,242 |          |  |        | 112.36 |          |  |        | 84,052 |          |  |   | 111.69 |  |  |  | 76,784 |   |  |   | 101.03 | 
|                                 |  |        |        |          |  |        |        |          |  |        |        |          |  |   |        |  |  |  |        |   |  |   |        | 
|Options exercisable at year-end  |  |        | 63,528 |          |  | $      | 105.32 |          |  |        | 37,655 |          |  | $ | 100.70 |  |  |  | 12,534 |   |  | $ | 100.00 | 
|Options available for grant      |  |        | 19,093 |          |  |        |       |          |  |        | 19,493 |          |  |   |       |  |  |  | 26,919 |   |  |   |       | 

The following table summarizes information about
options outstanding as of December 31, 2001:

|         |        |             |  |             |        |          |  |            |      |          |  |   |        |  |  |  |        |  |  |   |        | 
|-------- | ------ | ----------- |  | ----------- | ------ | -------- |  | ---------- | ---- | -------- |  | - | ------ |  |  |  | ------ |  |  | - | ------ | 
|         |        |             |  |            
|         |        | Outstanding |  | Exercisable
|         |        |             |  |            
|         |        |             |  | Weighted    |        |          |  |           
|         |        |             |  | Average     |        | Weighted |  |            |      | Weighted
|         |        |             |  | Remaining   |        | Average  |  |            |      | Average 
|Exercise |        | Number      |  | Contractual |        | Exercise |  | Number     |      | Exercise
|Price    |        | of Options  |  | Life (Yrs.) |        | Price    |  | of Options |      | Price   
|         |        |             |  |             |        |          |  |            |      |         
|$        | 100.00 |             |  |             | 74,256 |          |  |            | 6.75 |          |  | $ | 100.00 |  |  |  | 60,123 |  |  | $ | 100.00 | 
|$        | 150.00 |             |  |             | 948    |          |  |            | 7.92 |          |  |   | 150.00 |  |  |  | 609    |  |  |   | 150.00 | 
|$        | 210.00 |             |  |             | 9,038  |          |  |            | 8.63 |          |  |   | 210.00 |  |  |  | 2,796  |  |  |   | 210.00 | 
|         |        |             |  |             |        |          |  |            |      |          |  |   |        |  |  |  |        |  |  |   |        | 
|         |        |             |  |             | 84,242 |          |  |            | 6.96 |          |  | $ | 112.36 |  |  |  | 63,528 |  |  | $ | 105.32 | 
|         |        |             |  |             |        |          |  |            |      |          |  |   |        |  |  |  |        |  |  |   |        | 

The Company applies Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to
Employees, and related Interpretations in accounting for
these options. As the options were granted with exercise prices
equal to the fair value at the date of grant, no compensation
cost was recognized by the Company upon issuance of such
options. The fair value of each option granted by the Company
was estimated using the minimum value option pricing model. The
assumptions used in this pricing model and the weighted average
fair value of options granted during 2001, 2000 and 1999 are
summarized as follows:

|                                       |  |        |       |        |  |        |       |        |  |        |       |        |  |   |       |   |  |   |       |   |  |   |       |  
|-------------------------------------- |  | ------ | ----- | ------ |  | ------ | ----- | ------ |  | ------ | ----- | ------ |  | - | ----- | - |  | - | ----- | - |  | - | ----- | -
|                                       |  |        |       |        |  |       
|                                       |  | 2001   |       | 2000   |  | 1999  
|                                       |  |        |       |        |  |       
|                                       |  |        |       |        |  |        |       |       
|                                       |  | Option |       | Option |  | Option |       | Option |  | Option |       | Option
|                                       |  | Type 1 |       | Type 2 |  | Type 1 |       | Type 2 |  | Type 1 |       | Type 2
|                                       |  |        |       |        |  |        |       |        |  |        |       |       
|Risk-free interest rate                |  |        | 5.80  | %      |  |        | 5.80  | %      |  |        | 6.30  | %      |  |   | 6.30  | % |  |   | 6.03  | % |  |   | 6.03  | %
|Expected option life (in years)        |  |        | 5.0   |        |  |        | 7.0   |        |  |        | 5.0   |        |  |   | 7.0   |   |  |   | 5.0   |   |  |   | 9.0   |  
|Expected volatility                    |  |        | 0.0   | %      |  |        | 0.0   | %      |  |        | 0.0   | %      |  |   | 0.0   | % |  |   | 0.0   | % |  |   | 0.0   | %
|Expected dividend yield                |  |        | 0.0   | %      |  |        | 0.0   | %      |  |        | 0.0   | %      |  |   | 0.0   | % |  |   | 0.0   | % |  |   | 0.0   | %
|Weighted average fair value per option |  | $      | 52.20 |        |  | $      | 69.28 |        |  | $      | 56.00 |        |  | $ | 73.97 |   |  | $ | 38.55 |   |  | $ | 62.12 |  

78



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##### Table of Contents



JAFRA COSMETICS INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Pro Forma Compensation Cost

Had the Company recorded compensation cost based
on the fair value of options granted at the grant date, as
prescribed by FASB Statement No. 123, Accounting for
Stock Based Compensation, pro forma net income (loss)
would have been as follows (in thousands):

|                               |  |                          |       |      |  |      |       |  |  |   |        |  
|------------------------------ |  | ------------------------ | ----- | ---- |  | ---- | ----- |  |  | - | ------ | -
|                               |  |                         
|                               |  | Years Ended December 31,
|                               |  |                         
|                               |  | 2001                     |       | 2000 |  | 1999
|                               |  |                          |       |      |  |     
|Net income (loss), as reported |  | $                        | 6,512 |      |  | $    | 2,214 |  |  | $ | (4,477 | )
|Pro forma compensation cost    |  |                          | 319   |      |  |      | 609   |  |  |   | 631    |  
|                               |  |                          |       |      |  |      |       |  |  |   |        |  
|Pro forma net income (loss)    |  | $                        | 6,193 |      |  | $    | 1,605 |  |  | $ | (5,108 | )
|                               |  |                          |       |      |  |      |       |  |  |   |        |  

Employment Agreements

Certain senior executive officers have employment
agreements which provide for annual bonuses if the Company
achieves the performance goals established under its annual
incentive plan for executives.

The Company has a bonus plan for U.S. based
employees which provides that 50% of the bonus earned by any
Vice President or Director shall be deferred and shall vest in
three equal annual installments. As of December 31, 2001
and 2000, $372,000 and $179,000 of bonuses were deferred,
respectively. The Company recognizes compensation expense as the
vesting requirements are met.

(14) Manufacturing Agreement

The Company and a third-party contractor (the
Contractor) entered into a manufacturing agreement,
dated June 10, 1999, (the Manufacturing
Agreement). Subject to the terms and conditions of the
Manufacturing Agreement, the Contractor has agreed to
manufacture all of the Companys requirements for certain
cosmetic and skin care products for an initial term of five
years. Following the expiration of the initial five-year term,
the Manufacturing Agreement will be automatically extended for
additional one-year terms unless terminated by six months
prior written notice by either party. The Manufacturing
Agreement provides for price renegotiations by the Contractor if
the Companys quarterly or annual purchase volume falls
below specified minimums. The Manufacturing Agreement requires
the Contractor to maintain insurance to cover costs associated
with any product liability or product recall caused by the acts
or omissions of the Contractor. In addition, the Company is
obligated to purchase materials acquired by the Contractor based
upon product forecasts provided by the Company if the Contractor
is unable to sell such materials to a third-party. There have
been no such repurchases to date. The Contractor is solely
responsible for obtaining the inventories, manufacturing the
inventories at its current location in Chino, California,
complying with applicable laws and regulations, and performing
quality assurance functions.

In connection with the Companys 1999
restructuring activities related to the closure and outsourcing
of its U.S. product manufacturing functions as discussed in
Note 10, certain fixed assets and inventories were sold to
the Contractor in exchange for secured promissory notes. The
promissory note for the fixed assets was for an amount of
approximately $1.5 million, carried an annual interest rate
of 8%, and commenced payments on January 1, 2000. The
promissory note for inventories of approximately
$2.2 million was non-interest bearing, and commenced
payments on October 1, 1999. The note for the inventories
was repaid as of October 2000 and the note for the fixed assets
was repaid in December 2000.

During the fourth quarter of 2000, the Contractor
obtained $1.0 million of advances from the Company in
exchange for an unsecured promissory note. The note bears
interest at an annual rate of 9% and is payable in monthly
installments commencing on February 15, 2001. At
December 31, 2000, approximately $0.9 million of the
note was included in receivables and approximately
$0.1 million of the note was included in other assets in
the accompanying consolidated balance sheets. At
December 31, 2001, approximately $0.3 million of the
note was outstanding and is included in receivables in the
accompanying consolidated balance sheets.

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##### Table of Contents



INDEPENDENT AUDITORS REPORT

To the Board of Directors and Stockholders of

Jafra Cosmetics International, S.A. de C.V.


Mexico City, Mexico D.F.


We have audited the accompanying consolidated
balance sheets of Jafra Cosmetics International, S.A. de C.V.
and subsidiaries (the Company), an indirect, wholly
owned subsidiary of CDRJ Investments (Lux) S.A., as of
December 31, 2001 and 2000, and the related consolidated
statements of operations, stockholders equity, and cash
flows for each of the three years in the period ended
December 31, 2001. Our audits also included the financial
statement schedule listed in the Index at Item 14(a)(2).
These financial statements and the financial statement schedule
are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements and the financial statement schedule based on our
audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, such consolidated financial
statements present fairly, in all material respects, the
financial position of Jafra Cosmetics International, S.A. de
C.V. and subsidiaries as of December 31, 2001 and 2000, and
the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2001, in
conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, the financial
statement schedule referred to above, when considered in
relation to the basic consolidated financial statements taken as
a whole, presents fairly in all material respects the
information set forth therein.

DELOITTE & TOUCHE LLP

Mexico City, Mexico

March 6, 2002 (March 27, 2002 as to


the last paragraph of Note 13)


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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)


ASSETS

|                                     |                                                                                                        |                            |        |        |         |  |        |        |         | 
|------------------------------------ | ------------------------------------------------------------------------------------------------------ | -------------------------- | ------ | ------ | ------- |  | ------ | ------ | ------- | 
|                                     |                                                                                                        |                           
|                                     |                                                                                                        | December 31,              
|                                     |                                                                                                        |                           
|                                     |                                                                                                        | 2001                       |        | 2000  
|                                     |                                                                                                        |                            |        |       
|Current assets:                      |                                                                                                        |                            |        |        |         |  |        |       
|                                     | Cash and cash equivalents                                                                              |                            | $      | 920    |         |  | $      | 561    |        
|                                     | Receivables, less allowances for doubtful
	accounts of $4,952 in 2001 and $2,117 in 2000               |                            |        | 34,430 |         |  |        | 26,712 |        
|                                     | Inventories                                                                                            |                            |        | 29,622 |         |  |        | 25,149 |        
|                                     | Receivables from affiliates                                                                            |                            |        | 5,938  |         |  |        | 4,679  |        
|                                     | Prepaid income taxes                                                                                   |                            |        |       |         |  |        | 1,846  |        
|                                     | Value-added tax receivables                                                                            |                            |        | 2,308  |         |  |        | 5,146  |        
|                                     | Prepaid expenses and other current assets                                                              |                            |        | 3,206  |         |  |        | 1,948  |        
|                                     |                                                                                                        |                            |        |        |         |  |        |       
|                                     |                                                                                                        | Total current assets       |        |        | 76,424  |  |        |        | 66,041  | 
|Property and equipment, net          |                                                                                                        |                            | 36,121 |        |         |  | 30,402 |       
|Other assets:                        |                                                                                                        |                            |        |        |         |  |        |       
|                                     | Goodwill, net                                                                                          |                            |        | 32,401 |         |  |        | 31,550 |        
|                                     | Trademarks, net                                                                                        |                            |        | 50,402 |         |  |        | 49,082 |        
|                                     | Deferred financing fees, net                                                                           |                            |        | 1,270  |         |  |        | 1,983  |        
|                                     | Other                                                                                                  |                            |        | 2,699  |         |  |        | 2,707  |        
|                                     |                                                                                                        |                            |        |        |         |  |        |       
|                                     |                                                                                                        | Total                      |        | $      | 199,317 |  |        | $      | 181,765 | 
|                                     |                                                                                                        |                            |        |        |         |  |        |       
|LIABILITIES AND STOCKHOLDERS EQUITY
|Current liabilities:                 |                                                                                                        |                            |        |        |         |  |        |       
|                                     | Short-term debt, including current portion of
	long-term debt                                          |                            | $      | 3,188  |         |  | $      | 2,346  |        
|                                     | Accounts payable                                                                                       |                            |        | 20,205 |         |  |        | 20,266 |        
|                                     | Accrued liabilities                                                                                    |                            |        | 27,299 |         |  |        | 20,735 |        
|                                     | Income taxes payable                                                                                   |                            |        | 6,122  |         |  |        |       |        
|                                     | Payable to affiliates                                                                                  |                            |        | 21,373 |         |  |        | 2,140  |        
|                                     | Deferred income taxes                                                                                  |                            |        | 4,094  |         |  |        | 5,048  |        
|                                     |                                                                                                        |                            |        |        |         |  |        |       
|                                     |                                                                                                        | Total current liabilities  |        |        | 82,281  |  |        |        | 50,535  | 
|Long-term debt                       |                                                                                                        |                            | 33,993 |        |         |  | 35,572 |       
|Deferred income taxes                |                                                                                                        |                            | 16,958 |        |         |  | 15,809 |       
|Notes payable to affiliates          |                                                                                                        |                            |       |        |         |  | 20,093 |       
|                                     |                                                                                                        |                            |        |        |         |  |        |       
|                                     |                                                                                                        | Total liabilities          |        |        | 133,232 |  |        |        | 122,009 | 
|                                     |                                                                                                        |                            |        |        |         |  |        |       
|Commitments and contingencies        |                                                                                                        |                            |       |        |         |  |       |       
|Stockholders equity:                |                                                                                                        |                            |        |        |         |  |        |       
|                                     | Series B common stock, no par value;
	authorized, issued and outstanding, 151 shares in 2001 and
	2000 |                            |        |       |         |  |        |       |        
|                                     | Additional paid-in capital                                                                             |                            |        | 34,184 |         |  |        | 34,184 |        
|                                     | Retained earnings                                                                                      |                            |        | 32,194 |         |  |        | 27,030 |        
|                                     | Accumulated other comprehensive loss                                                                   |                            |        | (293   | )       |  |        | (1,458 | )      
|                                     |                                                                                                        |                            |        |        |         |  |        |       
|                                     |                                                                                                        | Total stockholders equity |        |        | 66,085  |  |        |        | 59,756  | 
|                                     |                                                                                                        |                            |        |        |         |  |        |       
|                                     |                                                                                                        | Total                      |        | $      | 199,317 |  |        | $      | 181,765 | 
|                                     |                                                                                                        |                            |        |        |         |  |        |       

See accompanying notes to consolidated financial
statements.

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JAFRA COSMETICS INTERNATIONAL, S.A. DE C.V.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF
OPERATIONS

(In thousands)


|                                                                                                               |                                    |                          |         |         |   |      |         |         |   |   |         |         |  
|-------------------------------------------------------------------------------------------------------------- | ---------------------------------- | ------------------------ | ------- | ------- | - | ---- | ------- | ------- | - | - | ------- | ------- | -
|                                                                                                               |                                    |                         
|                                                                                                               |                                    | Years Ended December 31,
|                                                                                                               |                                    |                         
|                                                                                                               |                                    | 2001                     |         | 2000    |   | 1999
|                                                                                                               |                                    |                          |         |         |   |     
|Net sales                                                                                                      |                                    | $                        | 261,357 |         |   | $    | 212,263 |         |   | $ | 183,158 |        
|Cost of sales                                                                                                  |                                    |                          | 68,654  |         |   |      | 61,208  |         |   |   | 55,323  |        
|                                                                                                               |                                    |                          |         |         |   |      |         |         |   |   |         |        
|                                                                                                               | Gross profit                       |                          |         | 192,703 |   |      |         | 151,055 |   |   |         | 127,835 |  
|Selling, general and administrative expenses                                                                   |                                    |                          | 121,750 |         |   |      | 92,899  |         |   |   | 80,234  |        
|Management fee expense to affiliate                                                                            |                                    |                          | 8,498   |         |   |      | 8,164   |         |   |   | 5,293   |        
|                                                                                                               |                                    |                          |         |         |   |      |         |         |   |   |         |        
|                                                                                                               | Income from operations             |                          |         | 62,455  |   |      |         | 49,992  |   |   |         | 42,308  |  
|Other income (expense):                                                                                        |                                    |                          |         |         |   |      |         |         |   |   |         |        
|                                                                                                               | Royalty expense to affiliates, net |                          |         | (20,098 | ) |      |         | (14,811 | ) |   |         | (17,965 | )
|                                                                                                               | Exchange (loss) gain               |                          |         | (9,183  | ) |      |         | (11,295 | ) |   |         | 3,748   |  
|                                                                                                               | Interest expense, net              |                          |         | (6,111  | ) |      |         | (7,789  | ) |   |         | (6,803  | )
|                                                                                                               | Other, net                         |                          |         | (23     | ) |      |         | 1,586   |   |   |         | 53      |  
|                                                                                                               |                                    |                          |         |         |   |      |         |         |   |   |         |        
|Income before income taxes, extraordinary item
	and cumulative effect of accounting change                     |                                    |                          | 27,040  |         |   |      | 17,683  |         |   |   | 21,341  |        
|Income tax expense                                                                                             |                                    |                          | 11,202  |         |   |      | 6,805   |         |   |   | 8,736   |        
|                                                                                                               |                                    |                          |         |         |   |      |         |         |   |   |         |        
|Income before extraordinary item and cumulative
	effect of accounting change                                   |                                    |                          | 15,838  |         |   |      | 10,878  |         |   |   | 12,605  |        
|Extraordinary loss on early extinguishment of
	debt, net of income tax benefit of $75 in 2000 and $177 in 1999 |                                    |                          |        |         |   |      | 110     |         |   |   | 256     |        
|                                                                                                               |                                    |                          |         |         |   |      |         |         |   |   |         |        
|Income before cumulative effect of accounting
	change                                                          |                                    |                          | 15,838  |         |   |      | 10,768  |         |   |   | 12,349  |        
|Cumulative effect of accounting change, net of
	income tax expense of $82                                      |                                    |                          | 126     |         |   |      |        |         |   |   |        |        
|                                                                                                               |                                    |                          |         |         |   |      |         |         |   |   |         |        
|Net income                                                                                                     |                                    | $                        | 15,964  |         |   | $    | 10,768  |         |   | $ | 12,349  |        
|                                                                                                               |                                    |                          |         |         |   |      |         |         |   |   |         |        

See accompanying notes to consolidated financial
statements.

82



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##### Table of Contents



JAFRA COSMETICS S.A. DE C.V. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY

(In thousands, except for shares)


|                                         |                                                                        |                            |  |        |     |        |        |         |        |        |  |        |     |  |        |        |        |  |  |     |     |  |       |        |        | 
|---------------------------------------- | ---------------------------------------------------------------------- | -------------------------- |  | ------ | --- | ------ | ------ | ------- | ------ | ------ |  | ------ | --- |  | ------ | ------ | ------ |  |  | --- | --- |  | ----- | ------ | ------ | 
|                                         |                                                                        |                           
|                                         |                                                                        | Years Ended December 31,  
|                                         |                                                                        |                           
|                                         |                                                                        |                            |  |        |     |       
|                                         |                                                                        | 2001                       |  | 2000   |     | 1999  
|                                         |                                                                        |                            |  |        |     |       
|                                         |                                                                        | Shares                     |  | Amount |     | Shares |        | Amount  |        | Shares |  | Amount
|                                         |                                                                        |                            |  |        |     |        |        |         |        |        |  |       
|Capital Stock:                           |                                                                        |                            |  |        |     |        |        |         |        |        |  |        |     |  |        |        |        |  |  |     |     |  |       |       
|                                         | Balance, beginning of year                                             |                            |  | 151    |     |        |        |        |        |        |  | 151    |     |  |        |       |        |  |  | 151 |     |  |       |       |       
|                                         |                                                                        |                            |  |        |     |        |        |         |        |        |  |        |     |  |        |        |        |  |  |     |     |  |       |       
|                                         | Balance, end of year                                                   |                            |  | 151    |     |        |        |        |        |        |  | 151    |     |  |        |       |        |  |  | 151 |     |  |       |       |       
|                                         |                                                                        |                            |  |        |     |        |        |         |        |        |  |        |     |  |        |        |        |  |  |     |     |  |       |       
|Additional Paid-in Capital:              |                                                                        |                            |  |        |     |        |        |         |        |        |  |        |     |  |        |        |        |  |  |     |     |  |       |       
|                                         | Balance, beginning of year                                             |                            |  |        |     |        | $      | 34,184  |        |        |  |        |     |  | $      | 34,184 |        |  |  |     |     |  | $     | 34,184 |       
|                                         |                                                                        |                            |  |        |     |        |        |         |        |        |  |        |     |  |        |        |        |  |  |     |     |  |       |       
|                                         | Balance, end of year                                                   |                            |  |        |     |        |        | 34,184  |        |        |  |        |     |  |        | 34,184 |        |  |  |     |     |  |       | 34,184 |       
|                                         |                                                                        |                            |  |        |     |        |        |         |        |        |  |        |     |  |        |        |        |  |  |     |     |  |       |       
|Retained Earning:                        |                                                                        |                            |  |        |     |        |        |         |        |        |  |        |     |  |        |        |        |  |  |     |     |  |       |       
|Balance, beginning of year               |                                                                        |                            |  |        |     |        | 27,030 |         |        |        |  |        |     |  | 16,262 |        |        |  |  |     |     |  | 3,913 |       
|                                         | Net income                                                             |                            |  |        |     |        |        | 15,964  |        |        |  |        |     |  |        | 10,768 |        |  |  |     |     |  |       | 12,349 |       
|                                         | Dividends paid to parent                                               |                            |  |        |     |        |        | (10,800 | )      |        |  |        |     |  |        |       |        |  |  |     |     |  |       |       |       
|                                         |                                                                        |                            |  |        |     |        |        |         |        |        |  |        |     |  |        |        |        |  |  |     |     |  |       |       
|                                         | Balance, end of year                                                   |                            |  |        |     |        |        | 32,194  |        |        |  |        |     |  |        | 27,030 |        |  |  |     |     |  |       | 16,262 |       
|                                         |                                                                        |                            |  |        |     |        |        |         |        |        |  |        |     |  |        |        |        |  |  |     |     |  |       |       
|Accumulated Other Comprehensive
	Income: |                                                                        |                            |  |        |     |        |        |         |        |        |  |        |     |  |        |        |        |  |  |     |     |  |       |       
|                                         | Balance, beginning of year                                             |                            |  |        |     |        |        | (1,458  | )      |        |  |        |     |  |        | (309   | )      |  |  |     |     |  |       |       |       
|                                         | Net unrealized and deferred realized losses on
	derivatives            |                            |  |        |     |        |        | (3,746  | )      |        |  |        |     |  |        |       |        |  |  |     |     |  |       |       |       
|                                         | Tax benefit on unrealized and deferred realized
	losses on derivatives |                            |  |        |     |        |        | 1,311   |        |        |  |        |     |  |        |       |        |  |  |     |     |  |       |       |       
|                                         | Currency translation adjustments                                       |                            |  |        |     |        |        | 3,600   |        |        |  |        |     |  |        | (1,149 | )      |  |  |     |     |  |       | (309   | )     
|                                         |                                                                        |                            |  |        |     |        |        |         |        |        |  |        |     |  |        |        |        |  |  |     |     |  |       |       
|                                         | Balance, end of year                                                   |                            |  |        |     |        |        | (293    | )      |        |  |        |     |  |        | (1,458 | )      |  |  |     |     |  |       | (309   | )     
|                                         |                                                                        |                            |  |        |     |        |        |         |        |        |  |        |     |  |        |        |        |  |  |     |     |  |       |       
|                                         |                                                                        | Total Stockholders Equity |  |        | 151 |        |        | $       | 66,085 |        |  |        | 151 |  |        | $      | 59,756 |  |  |     | 151 |  |       | $      | 50,137 | 
|                                         |                                                                        |                            |  |        |     |        |        |         |        |        |  |        |     |  |        |        |        |  |  |     |     |  |       |       
|Comprehensive Income:                    |                                                                        |                            |  |        |     |        |        |         |        |        |  |        |     |  |        |        |        |  |  |     |     |  |       |       
|                                         | Net income                                                             |                            |  |        |     |        | $      | 15,964  |        |        |  |        |     |  | $      | 10,768 |        |  |  |     |     |  | $     | 12,349 |       
|                                         | Unrealized and deferred realized losses on
	derivatives                |                            |  |        |     |        |        | (5,504  | )      |        |  |        |     |  |        |       |        |  |  |     |     |  |       |       |       
|                                         | Reclassified to exchange (loss) gain                                   |                            |  |        |     |        |        | 797     |        |        |  |        |     |  |        |       |        |  |  |     |     |  |       |       |       
|                                         | Reclassified to cost of sales                                          |                            |  |        |     |        |        | 961     |        |        |  |        |     |  |        |       |        |  |  |     |     |  |       |       |       
|                                         | Tax benefit on unrealized and deferred realized
	losses on derivatives |                            |  |        |     |        |        | 1,311   |        |        |  |        |     |  |        |       |        |  |  |     |     |  |       |       |       
|                                         | Currency translation adjustments                                       |                            |  |        |     |        |        | 3,600   |        |        |  |        |     |  |        | (1,149 | )      |  |  |     |     |  |       | (309   | )     
|                                         |                                                                        |                            |  |        |     |        |        |         |        |        |  |        |     |  |        |        |        |  |  |     |     |  |       |       
|                                         |                                                                        | Total Comprehensive Income |  |        |     |        |        | $       | 17,129 |        |  |        |     |  |        | $      | 9,619  |  |  |     |     |  |       | $      | 12,040 | 
|                                         |                                                                        |                            |  |        |     |        |        |         |        |        |  |        |     |  |        |        |        |  |  |     |     |  |       |       

See accompanying notes to consolidated financial
statements.

83



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##### Table of Contents



JAFRA COSMETICS INTERNATIONAL, S.A. DE C.V.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

(In thousands)


|                                                      |                                                                                                                                                      |                                                            |                                           |                                           |       |         |         |         |       |         |         |        |        |         |         |  
|----------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------- | ----------------------------------------- | ----------------------------------------- | ----- | ------- | ------- | ------- | ----- | ------- | ------- | ------ | ------ | ------- | ------- | -
|                                                      |                                                                                                                                                      |                                                           
|                                                      |                                                                                                                                                      | Years Ended December 31,                                  
|                                                      |                                                                                                                                                      |                                                           
|                                                      |                                                                                                                                                      | 2001                                                       |                                           | 2000                                      |       | 1999   
|                                                      |                                                                                                                                                      |                                                            |                                           |                                           |       |        
|Cash flows from operating
	activities:                |                                                                                                                                                      |                                                            |                                           |                                           |       |         |         |         |       |         |         |       
|                                                      | Net income                                                                                                                                           |                                                            | $                                         | 15,964                                    |       |         | $       | 10,768  |       |         | $       | 12,349 |       
|                                                      | Extraordinary loss on early extinguishment of
	debt, net of taxes                                                                                    |                                                            |                                           |                                          |       |         |         | 110     |       |         |         | 256    |       
|                                                      | Cumulative effect of accounting change, net of
	taxes                                                                                                |                                                            |                                           | (126                                      | )     |         |         |        |       |         |         |       |       
|                                                      |                                                                                                                                                      |                                                            |                                           |                                           |       |         |         |         |       |         |         |       
|                                                      | Income before extraordinary item and cumulative
	effect of accounting change                                                                         |                                                            |                                           | 15,838                                    |       |         |         | 10,878  |       |         |         | 12,605 |       
|                                                      | Adjustments to reconcile income before
	extraordinary item and cumulative effect of accounting change to
	net cash provided by operating activities: |                                                            |                                           |                                           |       |         |         |         |       |         |         |        |       
|                                                      |                                                                                                                                                      | Gain on sale of property and equipment                     |                                           |                                           | (24   | )       |         |         |      |         |         |        |       |        
|                                                      |                                                                                                                                                      | Depreciation and amortization                              |                                           |                                           | 3,908 |         |         |         | 4,231 |         |         |        | 3,276  |        
|                                                      |                                                                                                                                                      | Amortization of deferred financing fees                    |                                           |                                           | 805   |         |         |         | 797   |         |         |        | 992    |        
|                                                      |                                                                                                                                                      | Provision for uncollectible accounts receivable            |                                           |                                           | 7,681 |         |         |         | 4,956 |         |         |        | 3,209  |        
|                                                      |                                                                                                                                                      | Unrealized foreign exchange and derivative losses
	(gains) |                                           |                                           | (994  | )       |         |         | 2,669 |         |         |        | (2,377 | )      
|                                                      |                                                                                                                                                      | Deferred realized derivative losses                        |                                           |                                           | (827  | )       |         |         |      |         |         |        |       |        
|                                                      |                                                                                                                                                      | Deferred income taxes                                      |                                           |                                           | 1,506 |         |         |         | 2,539 |         |         |        | 7,320  |        
|                                                      |                                                                                                                                                      | Changes in operating assets and liabilities:               |                                           |                                           |       |         |         |         |       |         |         |        |        |        
|                                                      |                                                                                                                                                      |                                                            | Receivables                               |                                           |       | (13,795 | )       |         |       | (10,655 | )       |        |        | (12,009 | )      
|                                                      |                                                                                                                                                      |                                                            | Inventories                               |                                           |       | (3,021  | )       |         |       | (6,047  | )       |        |        | (6,829  | )      
|                                                      |                                                                                                                                                      |                                                            | Prepaid expenses and other current assets |                                           |       | (1,126  | )       |         |       | (1,108  | )       |        |        | (3,560  | )      
|                                                      |                                                                                                                                                      |                                                            | Value-added tax receivables               |                                           |       | 3,057   |         |         |       | 103     |         |        |        |        |        
|                                                      |                                                                                                                                                      |                                                            | Intercompany receivables and payables     |                                           |       | 17,980  |         |         |       | 15      |         |        |        | 7,005   |        
|                                                      |                                                                                                                                                      |                                                            | Other assets                              |                                           |       | 154     |         |         |       | (1,728  | )       |        |        | (779    | )      
|                                                      |                                                                                                                                                      |                                                            | Accounts payable and accrued liabilities  |                                           |       | 330     |         |         |       | 13,581  |         |        |        | (107    | )      
|                                                      |                                                                                                                                                      |                                                            | Income taxes payable/prepaid              |                                           |       | 6,688   |         |         |       | 11,667  |         |        |        | (7,107  | )      
|                                                      |                                                                                                                                                      |                                                            |                                           |                                           |       |         |         |         |       |         |         |       
|                                                      |                                                                                                                                                      |                                                            |                                           | Net cash provided by operating activities |       |         | 38,160  |         |       |         | 31,898  |        |        |         | 1,639   |  
|                                                      |                                                                                                                                                      |                                                            |                                           |                                           |       |         |         |         |       |         |         |       
|Cash flows from investing
	activities:                |                                                                                                                                                      |                                                            |                                           |                                           |       |         |         |         |       |         |         |       
|                                                      | Proceeds from sale of property and equipment                                                                                                         |                                                            |                                           | 93                                        |       |         |         |        |       |         |         |       |       
|                                                      | Purchases of property and equipment                                                                                                                  |                                                            |                                           | (6,024                                    | )     |         |         | (2,262  | )     |         |         | (2,622 | )     
|                                                      |                                                                                                                                                      |                                                            |                                           |                                           |       |         |         |         |       |         |         |       
|                                                      |                                                                                                                                                      |                                                            |                                           | Net cash used in investing activities     |       |         | (5,931  | )       |       |         | (2,262  | )      |        |         | (2,622  | )
|                                                      |                                                                                                                                                      |                                                            |                                           |                                           |       |         |         |         |       |         |         |       
|Cash flows from financing
	activities:                |                                                                                                                                                      |                                                            |                                           |                                           |       |         |         |         |       |         |         |       
|                                                      | Repurchase of subordinated debt                                                                                                                      |                                                            |                                           |                                          |       |         |         | (4,239  | )     |         |         | (5,398 | )     
|                                                      | Repayments under term loan facility                                                                                                                  |                                                            |                                           | (2,000                                    | )     |         |         | (1,500  | )     |         |         | (1,000 | )     
|                                                      | Net repayments under revolving credit facility                                                                                                       |                                                            |                                           |                                          |       |         |         | (500    | )     |         |         | (4,500 | )     
|                                                      | Net proceeds from bank debt                                                                                                                          |                                                            |                                           | 1,263                                     |       |         |         | 346     |       |         |         |       |       
|                                                      | Note payable to affiliates                                                                                                                           |                                                            |                                           | (20,756                                   | )     |         |         | (22,946 | )     |         |         |       |       
|                                                      | Payment of dividends                                                                                                                                 |                                                            |                                           | (10,800                                   | )     |         |         |        |       |         |         |       |       
|                                                      |                                                                                                                                                      |                                                            |                                           |                                           |       |         |         |         |       |         |         |       
|                                                      |                                                                                                                                                      |                                                            |                                           | Net cash used in financing activities     |       |         | (32,293 | )       |       |         | (28,839 | )      |        |         | (10,898 | )
|                                                      |                                                                                                                                                      |                                                            |                                           |                                           |       |         |         |         |       |         |         |       
|Effect of exchange rate changes on cash               |                                                                                                                                                      |                                                            | 423                                       |                                           |       |         | (239    | )       |       |         | (161    | )     
|                                                      |                                                                                                                                                      |                                                            |                                           |                                           |       |         |         |         |       |         |         |       
|Net increase (decrease) in cash and cash
	equivalents |                                                                                                                                                      |                                                            | 359                                       |                                           |       |         | 558     |         |       |         | (12,042 | )     
|Cash and cash equivalents at beginning of period      |                                                                                                                                                      |                                                            | 561                                       |                                           |       |         | 3       |         |       |         | 12,045  |       
|                                                      |                                                                                                                                                      |                                                            |                                           |                                           |       |         |         |         |       |         |         |       
|Cash and cash equivalents at end of period            |                                                                                                                                                      | $                                                          | 920                                       |                                           |       | $       | 561     |         |       | $       | 3       |       
|                                                      |                                                                                                                                                      |                                                            |                                           |                                           |       |         |         |         |       |         |         |       
|Supplemental disclosure of cash flow
	information:    |                                                                                                                                                      |                                                            |                                           |                                           |       |         |         |         |       |         |         |       
|                                                      | Cash paid (received) during the year for:                                                                                                            |                                                            |                                           |                                           |       |         |         |         |       |         |         |        |       
|                                                      |                                                                                                                                                      |                                                            |                                           | Interest                                  |       | $       | 4,786   |         |       | $       | 5,652   |        |        | $       | 6,526   |  
|                                                      |                                                                                                                                                      |                                                            |                                           | Income taxes                              |       | $       | 2,734   |         |       | $       | (7,401  | )      |        | $       | 10,373  |  

At December 31, 2001, the Company had
non-cash deferred unrealized losses of $2.9 million on
foreign currency forward contracts recorded in accrued
liabilities and other comprehensive income. Additionally, the
related deferred income tax benefit of $1.3 million related
to the deferred unrealized losses has been recorded as a
component of the net deferred income tax liability and other
comprehensive income.

See accompanying notes to consolidated financial
statements.

84



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##### Table of Contents



JAFRA COSMETICS INTERNATIONAL, S.A. DE C.V.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

(1) Basis of Presentation and Description
of Business

Basis of Presentation

Jafra Cosmetics International, S.A. de C.V., a
sociedad anomina de capital variable, organized under the
laws of the United Mexican States (Jafra S.A.)
is owned by five indirect wholly owned subsidiaries of CDRJ
Investments (Lux) S.A., a Luxembourg société
anonyme (the Parent). Jafra S.A., its
subsidiaries, and certain other subsidiaries of the Parent were
organized by Clayton, Dubilier & Rice Fund V
Limited Partnership, a Cayman Islands exempted limited
partnership managed by Clayton, Dubilier & Rice, Inc.
(CD&R) to acquire (the Acquisition)
the worldwide Jafra Cosmetics business (the Jafra
Business) from The Gillette Company (Gillette).

The accompanying consolidated financial
statements reflect the operations of Jafra S.A. and its
subsidiaries (collectively, the Company). All
significant intercompany accounts and transactions between
entities comprising the Company have been eliminated in
consolidation.

In connection with the Acquisition,
Jafra S.A. and an affiliated company, Jafra Cosmetics
International, Inc. (JCI) (the indirect, wholly
owned United States subsidiary of the Parent) issued
$100 million aggregate principal amount of 11.75%
Subordinated Notes due 2008 (the Notes). See Note 6.
The Notes represent several obligations of Jafra S.A. and
JCI, with each participating on a pro rata basis upon
redemption. Jafra S.A. and JCI have fully and unconditionally
guaranteed the obligations under the Notes of the other on a
senior subordinated basis, subject to a 30-day standstill period
prior to enforcement of such guarantees. As the cross-guarantee
of Jafra S.A. and JCI is subject to a 30-day standstill
period, the Parent is filing these separate financial statements
of Jafra S.A. as a schedule to its Annual Report on
Form 10-K for the year ended December 31, 2001.

Description of Business

The Company is a marketer of premium skin and
body care products, color cosmetics, fragrances, and other
personal care products in Mexico through a direct selling,
multilevel distribution system comprised of self-employed
salespersons (known as consultants). In addition,
the Company manufactures color cosmetics and fragrance products
for its own use as well as for distribution to the international
subsidiaries of the Parent (referred to herein as the
Affiliates).

(2) Summary of Significant Accounting
Policies

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

Cash and Cash
Equivalents.Cash and cash equivalents
include cash, time deposits and all highly liquid debt
instruments purchased with a maturity of three months or less.

Inventories.Inventories are stated at the lower of cost, as determined by
the first-in, first-out basis, or market.

Property and
Equipment.Property and equipment are
stated at cost. Depreciation of property and equipment is
provided for over the estimated useful lives of the respective
assets using the straight-line method. Estimated useful lives
are 20 years for buildings, the lesser of 20 years or
the term of the lease for improvements and 5 to
10 years for machinery and equipment. Maintenance and
repairs, including cost of minor replacements, are charged to
operations as incurred. Costs of additions and betterments are
added to

85



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##### Table of Contents



JAFRA COSMETICS INTERNATIONAL, S.A. DE C.V.
AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

property and equipment accounts provided that
such expenditures increase the useful life or the value of the
asset.

Intangible Assets.Intangible assets principally consist of goodwill and
trademarks, which are amortized using the straight-line method.
Goodwill and trademarks resulting from the Companys
acquisition of the Jafra Business from Gillette are being
amortized over a period of 40 years. Accumulated
amortization of goodwill and trademarks at December 31,
2001 was $3,162,000 and $3,999,000, respectively. Accumulated
amortization of goodwill and trademarks at December 31,
2000 was $2,154,000 and $2,475,000, respectively (see New
Accounting Standards).

Deferred Financing
Costs.In connection with the
acquisition of the Jafra Business, the Company incurred
approximately $4.8 million of costs related to the
11.75% Senior Subordinated Notes due 2008 (the
Notes), the Revolving Credit Facility and the Term
Loan Facility (see Note 6). Such costs are being amortized
on a basis that approximates the interest method over the
expected term of the related debt. Accumulated amortization at
December 31, 2001 and 2000 was $3,066,000 and $2,127,000,
respectively.

Impairment of Long-Lived Assets and
Goodwill.Long-lived assets and
goodwill are reviewed for impairment, based on undiscounted cash
flows, whenever events or changes in circumstances indicate that
the carrying amount of such assets may not be recoverable. If
this review indicates that the carrying amount of the long-lived
assets and goodwill is not recoverable, the Company will
recognize an impairment loss, measured by the future discounted
cash flow method (see New Accounting Standards).

Foreign Currency Forward
Contracts.During 2001 and 2000, the
Company entered into foreign currency forward contracts to
reduce the effect of potentially adverse exchange rate
fluctuations in the exchange rate of the Mexican peso to the
U.S. dollar. Effective January 1, 2001, the Company
adopted Statement of Financial Accounting Standards
(SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133, as
amended and interpreted, establishes accounting and reporting
standards for derivative instruments and hedging activities and
requires that all derivative instruments be recorded based on
fair value. In connection with the adoption of SFAS
No. 133, at January 1, 2001, the Company recorded a
net gain of $126,000 (net of a tax effect of $82,000) as a
cumulative transition adjustment to earnings. This adjustment
relates to derivatives not designated as hedges prior to
adoption of SFAS No. 133, and represents the difference
between the carrying value and the fair value of such
instruments.

As a matter of policy, the Company does not hold
or issue foreign currency forward contracts for trading or
speculative purposes. The forward contracts utilized by the
Company did not qualify for hedge accounting under the
applicable accounting standards prior to adoption of SFAS
No. 133 on January 1, 2001, and accordingly such
instruments were marked-to-market each month based upon the
change in the spot rate from the date of contract inception to
the balance sheet date. The premium on such contracts was
amortized to expense over the life of the contracts. However,
under SFAS No. 133, the Companys use of forward
contracts to hedge certain forecasted transactions qualifies for
hedge accounting. Gains and losses from qualifying hedged
derivative instruments are deferred as a separate component of
other comprehensive income, and are recognized in income at the
same time that the underlying hedged exposure is recognized in
income. This accounting treatment results in the matching of
gains and losses from such forward contracts with the
corresponding gains and losses generated by the underlying
hedged transactions. Under SFAS No. 133, certain of the
Companys forward contracts do not qualify for hedge
accounting and therefore, are remeasured based on fair value,
with gains and losses included as a component of net income. The
carrying value of the forward contracts is included in current
liabilities. At December 31, 2001 and 2000, the Company
included $5,540,000 and $1,718,000 in accrued liabilities,
respectively, in the accompanying consolidated balance sheets.

86



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##### Table of Contents



JAFRA COSMETICS INTERNATIONAL, S.A. DE C.V.
AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

Fair Value of Financial
Instruments.The carrying amounts of
cash and cash equivalents, accounts receivable, and accounts
payable approximate fair value because of the short-term
maturities of these instruments. The fair value of the Notes and
other fixed rate long term debt at December 31, 2001 and
2000 was $33,786,000 and $30,974,000, respectively, based upon
discussions with one of the Companys largest bondholders
and an analysis of current market interest rates and the
Companys credit rating. As the Companys Revolving
Credit Facilities and the Term Loan are variable rate debt, and
the interest rate spread paid by the Company is adjusted for
changes in certain financial ratios of the Company, the fair
value of the Revolving Credit Facilities and the Term Loan
approximated their carrying amounts at December 31, 2001
and 2000. Prior to the implementation of SFAS No. 133, the
fair value of the Companys forward currency contracts at
December 31, 2000 closely approximated the carrying value,
as such contracts were marked-to-market based upon changes in
the spot rate from the date of contract inception to the balance
sheet date.

Revenue Recognition.The Company recognizes revenue when title passes at shipment in
accordance with its shipping terms. Amounts billed to
consultants for shipping and handling costs are included in net
sales.

Shipping and Handling
Costs.Shipping and handling costs of
$15,182,000, $10,651,000 and $5,269,000 for the years ended
December 31, 2001, 2000 and 1999, respectively, are
included in selling, general and administrative expenses.

Income Taxes.The
Company accounts for income taxes under the balance sheet
approach that requires the recognition of deferred income tax
assets and liabilities for the expected future consequences of
events that have been recognized in the Companys financial
statements or income tax returns. Management provides a
valuation allowance for deferred income tax assets when it is
more likely than not that a portion of such deferred income tax
assets will not be realized. Income tax expense of the Company
is computed on a separate-company basis.

Foreign Currency
Translation.The functional currency
for the Company is the Mexican peso. For presentation purposes,
assets and liabilities are translated into U.S. dollars at
current exchange rates, and related revenues and expenses are
translated at average exchange rates in effect during the
period. Resulting translation adjustments are recorded as a
component of other comprehensive income.

Mexico has historically experienced periods of
hyperinflation, and the value of the peso has been subject to
significant fluctuations with respect to the U.S. dollar.
The Company had outstanding U.S. dollar-denominated debt of
$35.6 million and $57.7 million at December 31,
2001 and 2000, respectively. This debt is remeasured at each
reporting date, subjecting the Company to additional foreign
exchange risk.

New Accounting
Standards.Effective January 1,
2001, the Company adopted SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities. SFAS
No. 133, as amended and interpreted, established accounting
and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, and
for hedging activities. All derivatives, whether designated in
hedging relationships or not, are required to be recorded on the
balance sheet at fair value. If the derivative is designated in
a fair-value hedge, the changes in the fair value of the
derivative and the underlying hedged item are recognized
concurrently in earnings. If the derivative is designated in a
cash-flow hedge, changes in the fair value of the derivative are
recorded in other comprehensive income (OCI) and are
recognized in the statement of operations when the hedged item
affects earnings. SFAS No. 133 defined new requirements for
designation and documentation of hedging relationships as well
as ongoing effectiveness assessments in order to use hedge
accounting. For a derivative that does not qualify as a hedge,
changes in fair value are recognized concurrently in earnings.
As of January 1, 2001, the Company recorded a net gain of
$126,000 (net of a tax effect of $82,000) as a cumulative
transition adjustment to earnings. This adjustment relates to
derivatives not designated as hedges prior to adoption of SFAS
No. 133, and represents the difference between the carrying

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AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

value as measured by the difference in the spot
rate to the forward rate and the fair value as determined by
forward rates of such instruments at January 1, 2001.

In July 2001, the Financial Accounting Standards
Board (FASB) approved two new statements: SFAS
No. 141, Business Combinations and SFAS
No. 142, Goodwill and Other Intangible Assets.
SFAS No. 141 requires business combinations entered into
after June 30, 2001 to be accounted for using the purchase
method of accounting. SFAS No. 142 requires that goodwill
not be amortized, but be tested for impairment at least
annually. SFAS No. 142 is effective for fiscal years
beginning after December 15, 2001 to all goodwill and other
intangible assets recognized in an entitys statement of
financial position at that date, regardless of when those assets
were initially recognized. In accordance with this statement,
the Company is not required to complete the transitional
goodwill impairment test until June 30, 2002. The Company
is evaluating, but has not yet determined, whether the adoption
of this statement will result in an impairment of goodwill.
Additionally, the Company is evaluating, but has not determined
the useful life of certain other intangible assets under the new
accounting pronouncement. Goodwill amortization of $870,000 and
possibly a portion of other intangible amortization of
$1,358,000 recorded in 2001 required under previous accounting
standards will not be charged to income in 2002.

In August 2001, the FASB issued SFAS
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. SFAS No. 144 supersedes SFAS
No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of. SFAS
No. 144 retains substantially all of the requirements of
SFAS No. 121 while resolving certain implementation issues
and addressing the accounting for a component of a business
accounted for as a discontinued operation. SFAS No. 144 is
effective for fiscal years beginning after December 15,
2001. Management does not expect the adoption of SFAS
No. 144 to have a significant impact on the financial
position or results of operations of the Company.

In November 2001, the Emerging Issues Task Force
(EITF) issued EITF Issue No. 01-9
Accounting for Consideration Given by a Vendor to a
Customer or a Reseller of the Vendors Products,
which addresses the accounting for consideration given by a
vendor to a customer or a reseller of the vendors
products. In April 2001, the EITF reached a consensus on EITF
Issue No. 00-25 Vendor Income Statement
Characterization of Consideration Paid to a Reseller of the
Vendors Products, which provides guidance on the
income statement classification of consideration from a vendor
to a reseller in connection with the resellers purchase of
the vendors products or to promote sales of the
vendors products. This new guidance provides that
consideration from a vendor to a reseller is generally presumed
to be a reduction of the selling prices of the vendors
products, and, therefore, should be characterized as a reduction
of revenue when recognized in the vendors income
statement. Although the new guidance will not impact net income,
there will be certain income statement reclassifications,
primarily related to commissions paid to consultants related to
their sale of product. The Company is in the process of
quantifying the impact of the guidance on revenue, gross profit
and selling, general and administrative expenses. EITF Issue No.
00-25 and EITF Issue No. 01-9 are both effective for the
Company on January 1, 2002. Upon adoption, the Company will
reclassify prior period amounts for comparability.

Reclassifications.Certain reclassifications were made to prior year financial
statements to conform to current year presentation.

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AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

(3) Inventories

Inventories consist of the following at
December 31, 2001 and 2000 (in thousands):

|                           |  |      |        |      |  |   |        | 
|-------------------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                           |  | 2001 |        | 2000
|                           |  |      |        |     
|Raw materials and supplies |  | $    | 5,717  |      |  | $ | 6,443  | 
|Finished goods             |  |      | 23,905 |      |  |   | 18,706 | 
|                           |  |      |        |      |  |   |        | 
|Total inventories          |  | $    | 29,622 |      |  | $ | 25,149 | 
|                           |  |      |        |      |  |   |        | 

(4) Property and Equipment

Property and equipment consist of the following
at December 31, 2001 and 2000 (in thousands):

|                              |  |      |        |      |  |   |        | 
|----------------------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                              |  | 2001 |        | 2000
|                              |  |      |        |     
|Land                          |  | $    | 11,645 |      |  | $ | 11,036 | 
|Buildings and improvements    |  |      | 11,703 |      |  |   | 11,091 | 
|Machinery and equipment       |  |      | 17,532 |      |  |   | 12,146 | 
|                              |  |      |        |      |  |   |        | 
|                              |  |      | 40,880 |      |  |   | 34,273 | 
|Less accumulated depreciation |  |      | 4,759  |      |  |   | 3,871  | 
|                              |  |      |        |      |  |   |        | 
|Property and equipment, net   |  | $    | 36,121 |      |  | $ | 30,402 | 
|                              |  |      |        |      |  |   |        | 

(5) Accrued Liabilities

Accrued liabilities consist of the following at
December 31, 2001 and 2000 (in thousands):

|                                            |  |      |        |      |  |   |        | 
|------------------------------------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                                            |  | 2001 |        | 2000
|                                            |  |      |        |     
|Sales promotions, commissions and overrides |  | $    | 10,936 |      |  | $ | 10,894 | 
|Accrued interest                            |  |      | 618    |      |  |   | 620    | 
|Compensation and other benefit accruals     |  |      | 3,755  |      |  |   | 1,695  | 
|State and local sales taxes and other taxes |  |      | 3,399  |      |  |   | 3,001  | 
|Unrealized losses on forward contracts      |  |      | 5,540  |      |  |   | 1,718  | 
|Other                                       |  |      | 3,051  |      |  |   | 2,807  | 
|                                            |  |      |        |      |  |   |        | 
|Total accrued liabilities                   |  | $    | 27,299 |      |  | $ | 20,735 | 
|                                            |  |      |        |      |  |   |        | 

(6) Debt

Debt consists of the following at
December 31, 2001 and 2000 (in thousands):

|                                                                                                                                                                                                                |  |      |        |      |  |   |        | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                                                                                                                                                                                                                |  | 2001 |        | 2000
|                                                                                                                                                                                                                |  |      |        |     
|Subordinated Notes, U.S. dollar-denominated,
	unsecured, interest payable semi-annually at 11.75% due in 2008.                                                                                                  |  | $    | 30,072 |      |  | $ | 30,072 | 
|Term loan, secured, U.S. dollar-denominated,
	principal and interest due in quarterly installments through
	April 30, 2004, interest rates at 4.3% and 8.1% at
	December 31, 2001 and 2000, respectively        |  |      | 5,500  |      |  |   | 7,500  | 
|Unsecured bank loan agreement, principal and
	interest due in monthly installments through September 26,
	2004, weighted average interest rates of 18.7% and 19.6% at
	December 31, 2001 and 2000, respectively |  |      | 1,609  |      |  |   | 346    | 
|                                                                                                                                                                                                                |  |      |        |      |  |   |        | 
|Total debt                                                                                                                                                                                                      |  |      | 37,181 |      |  |   | 37,918 | 
|Less current maturities                                                                                                                                                                                         |  |      | 3,188  |      |  |   | 2,346  | 
|                                                                                                                                                                                                                |  |      |        |      |  |   |        | 
|Long-term debt                                                                                                                                                                                                  |  | $    | 33,993 |      |  | $ | 35,572 | 
|                                                                                                                                                                                                                |  |      |        |      |  |   |        | 

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JAFRA COSMETICS INTERNATIONAL, S.A. DE C.V.
AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

Jafra S.A.s long-term debt matures as
follows (in thousands): $3,188 in 2002, $3,188 in 2003, $733 in
2004, $0 in 2005, $0 in 2006 and $30,072 thereafter.

On April 30, 1998, Jafra S.A. and JCI
borrowed $125 million by issuing $100 million
aggregate principal amount of 11.75% Subordinated Notes due 2008
(the Notes) pursuant to an Indenture dated
April 30, 1998 (the Indenture) and
$25 million under a Senior Credit Agreement.

At the date of issuance, the Notes represented
several obligations of Jafra S.A. and JCI in the amount of
$40 million and $60 million, respectively,
participating on a pro rata basis upon redemption. The Notes
mature in 2008 and bear a fixed interest rate of 11.75% payable
semi-annually.

Jafra S.A. and JCI are indirect, wholly owned
subsidiaries of the Parent and have fully and unconditionally
guaranteed the obligations under the Notes of the other on a
senior subordinated basis, subject to a 30-day standstill period
prior to enforcement of such guarantees. In addition, the Parent
has fully and unconditionally guaranteed the Notes on a senior
subordinated basis. Each existing subsidiary of Jafra S.A.
fully and unconditionally guarantees the Notes jointly and
severally, on a senior subordinated basis, and each subsequently
acquired or organized subsidiary of Jafra S.A. will fully
and unconditionally guarantee the Notes jointly and severally,
on a senior subordinated basis. JCI currently has no
U.S. subsidiaries. Each acquired or organized
U.S. subsidiary of JCI will also be required to fully and
unconditionally guarantee the Notes jointly and severally, on a
senior subordinated basis. The nonguarantor entities are the
Parents indirect European subsidiaries in Austria,
Germany, Italy, the Netherlands, Poland, and Switzerland; its
indirect South American subsidiaries in Argentina, Brazil,
Chile, Colombia, Peru, and Venezuela; and its indirect
subsidiaries in the Dominican Republic and Thailand. All
guarantor and nonguarantor entities are either direct or
indirect wholly owned subsidiaries of the Parent. The Notes were
registered in a registered exchange offer, effective as of
January 25, 1999, under the Securities Act of 1933, as
amended.

The Notes are unsecured and are generally
non-callable for five years. Thereafter, the Notes will be
callable at premiums declining to par in the eighth year.

Consents and Waivers, dated June 30, 2001
and November 19, 1999, to the Senior Credit Agreement, as
described below, allow Jafra S.A. and JCI to repurchase the
Notes in the open market from time to time, with the aggregate
purchase price for all such Notes repurchased not to exceed
$50 million. Aggregate repurchases as of December 31,
2001 were $24.8 million. During 2000, Jafra S.A.
retired notes, prior to maturity, with a face value of
$4.3 million. The debt repurchases in 2000 resulted in an
extraordinary loss of $110,000, net of an income tax benefit of
$75,000. During 1999, Jafra S.A. retired Notes, prior to
maturity, with a face value of $5.6 million. The debt
repurchases in 1999 resulted in an extraordinary loss of
$256,000, net of an income tax benefit of $177,000. In
connection with the early retirement of the Notes as described
above, a portion of the unamortized deferred financing costs was
written off and included in the determination of the
extraordinary loss on early extinguishment of debt. The total
amounts that were written off during 2000 and 1999 were $274,000
and $637,000, respectively.

In addition, Jafra S.A. and JCI entered into
a Senior Credit Agreement that provides for senior secured
credit facilities in an aggregate principal amount of
$90 million, consisting of a multicurrency Revolving Credit
Facility of $65 million and a Term Loan Facility of
$25 million. Borrowings under the Term Loan Facility are
payable in quarterly installments of principal and interest over
6 years through April 30, 2004. Borrowings under the
Revolving Credit Facility mature on April 30, 2004.
Borrowings under the Senior Credit Agreement bear interest at an
annual rate of LIBOR plus a margin not to exceed 1.625% or an
alternate base rate (the higher of the prime rate or federal
funds rate plus 0.5%, plus an applicable margin not to exceed
0.625%). The interest rates in effect at December 31, 2001
was approximately 4.3% for the LIBOR-based borrowings and was
approximately 5.4% for the prime-based borrowings. Borrowings
under the Senior Credit Agreement are secured by substantially
all of the assets of Jafra S.A. and JCI.

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JAFRA COSMETICS INTERNATIONAL, S.A. DE C.V.
AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

Both the Indenture and the Senior Credit
Agreement contain certain covenants that limit the
Companys ability to incur additional indebtedness, pay
cash dividends and make certain other payments. These debt
agreements also require the Parent to maintain certain financial
ratios including a minimum EBITDA to cash interest expense
coverage ratio and a maximum debt to EBITDA ratio.

During the year ended December 31, 2001,
Jafra S.A. repaid the balance remaining under a one-year
term loan originally due on August 16, 2001, and entered
into an unsecured bank loan agreement, borrowing the peso
equivalent of $2.1 million at a weighted average fixed
interest rate of 18.7%. Principal and interest payments are due
monthly through September 26, 2004.

As of December 31, 2001, Jafra S.A. has
irrevocable standby letters of credit outstanding, totaling
$3.1 million. These letters of credit, expiring on
September 25, 2005, collateralize the Companys
obligation to a third-party in connection with certain lease
agreements.

(7) Income Taxes

Actual income tax expense differs from the
expected tax expense (computed by applying the
Mexican federal corporate rate of 35% to income before income
taxes) as a result of the following (in thousands):

|                                                                            |  |                          |        |      |  |      |       |  |  |   |       | 
|--------------------------------------------------------------------------- |  | ------------------------ | ------ | ---- |  | ---- | ----- |  |  | - | ----- | 
|                                                                            |  |                         
|                                                                            |  | Years Ended December 31,
|                                                                            |  |                         
|                                                                            |  | 2001                     |        | 2000 |  | 1999
|                                                                            |  |                          |        |      |  |     
|Provision for income taxes at statutory rate                                |  | $                        | 9,464  |      |  | $    | 6,189 |  |  | $ | 7,469 | 
|Permanent differences, principally effect of
	inflation upon taxable income |  |                          | 1,116  |      |  |      | 616   |  |  |   | 1,267 | 
|Other                                                                       |  |                          | 622    |      |  |      |      |  |  |   |      | 
|                                                                            |  |                          |        |      |  |      |       |  |  |   |       | 
|Income tax expense                                                          |  | $                        | 11,202 |      |  | $    | 6,805 |  |  | $ | 8,736 | 
|                                                                            |  |                          |        |      |  |      |       |  |  |   |       | 

The components of the provision for income taxes
are as follows (in thousands):

|                                                                                            |                |                          |        |      |        |      |       |       |       |   |       |       |       | 
|------------------------------------------------------------------------------------------- | -------------- | ------------------------ | ------ | ---- | ------ | ---- | ----- | ----- | ----- | - | ----- | ----- | ----- | 
|                                                                                            |                |                         
|                                                                                            |                | Years Ended December 31,
|                                                                                            |                |                         
|                                                                                            |                | 2001                     |        | 2000 |        | 1999
|                                                                                            |                |                          |        |      |        |     
|Current                                                                                     |                | $                        | 11,007 |      |        | $    | 4,266 |       |       | $ | 1,416 |      
|Deferred                                                                                    |                |                          | 1,506  |      |        |      | 2,539 |       |       |   | 7,320 |      
|Deferred allocated to other comprehensive income                                            |                |                          | (1,311 | )    |        |      |      |       |       |   |      |      
|                                                                                            |                |                          |        |      |        |      |       |       |       |   |       |      
|                                                                                            | Total deferred |                          |        | 195  |        |      |       | 2,539 |       |   |       | 7,320 |      
|                                                                                            |                |                          |        |      |        |      |       |       |       |   |       |      
|Total income taxes on income before income taxes,
	extraordinary item and cumulative effect |                |                          | 11,202 |      |        |      | 6,805 |       |       |   | 8,736 |      
|Income tax benefit on early extinguishment of debt                                          |                |                          |       |      |        |      | (75   | )     |       |   | (177  | )    
|Income tax expense on cumulative effect of
	accounting change                               |                |                          | 82     |      |        |      |      |       |       |   |      |      
|                                                                                            |                |                          |        |      |        |      |       |       |       |   |       |      
|                                                                                            |                | Total income tax expense |        | $    | 11,284 |      |       | $     | 6,730 |   |       | $     | 8,559 | 
|                                                                                            |                |                          |        |      |        |      |       |       |       |   |       |      

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JAFRA COSMETICS INTERNATIONAL, S.A. DE C.V.
AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

The components of deferred income tax assets and
deferred income tax liabilities at December 31, 2001 and
2000 are as follows (in thousands):

|                                 |                                                 |                                       |   |         |         |   |   |         |         |  
|-------------------------------- | ----------------------------------------------- | ------------------------------------- | - | ------- | ------- | - | - | ------- | ------- | -
|                                 |                                                 | 2001                                  |   | 2000   
|                                 |                                                 |                                       |   |        
|Deferred income tax assets:      |                                                 |                                       |   |         |         |   |   |        
|                                 | Accounts receivable                             |                                       | $ | 1,733   |         |   | $ | 741     |        
|                                 | Net operating loss carryforward of subsidiaries |                                       |   | 814     |         |   |   | 573     |        
|                                 | Asset tax credit carryforward                   |                                       |   | 2,687   |         |   |   | 2,521   |        
|                                 | Accrued bonuses                                 |                                       |   | 301     |         |   |   | 214     |        
|                                 | Accrued sales promotions                        |                                       |   | 2,273   |         |   |   | 3,677   |        
|                                 | Other accrued liabilities                       |                                       |   | 1,632   |         |   |   | 1,409   |        
|                                 | Other                                           |                                       |   | 2,849   |         |   |   | 58      |        
|                                 |                                                 |                                       |   |         |         |   |   |        
|                                 |                                                 | Total deferred income tax assets      |   |         | 12,289  |   |   |         | 9,193   |  
|Deferred income tax liabilities: |                                                 |                                       |   |         |         |   |   |        
|                                 | Transaction and deferred financing costs        |                                       |   | (445    | )       |   |   | (694    | )      
|                                 | Property and equipment                          |                                       |   | (2,592  | )       |   |   | (1,123  | )      
|                                 | Trademark and goodwill                          |                                       |   | (17,641 | )       |   |   | (17,181 | )      
|                                 | Inventories                                     |                                       |   | (12,469 | )       |   |   | (8,833  | )      
|                                 | Other                                           |                                       |   | (194    | )       |   |   | (2,219  | )      
|                                 |                                                 |                                       |   |         |         |   |   |        
|                                 |                                                 | Total deferred income tax liabilities |   |         | (33,341 | ) |   |         | (30,050 | )
|                                 |                                                 |                                       |   |         |         |   |   |        
|                                 |                                                 | Net deferred income tax liabilities   |   | $       | (21,052 | ) |   | $       | (20,857 | )
|                                 |                                                 |                                       |   |         |         |   |   |        

At December 31, 2001 and 2000, the
Companys deferred income tax assets included $814,000 and
$573,000, respectively, for operating loss carryforwards. The
tax loss and asset credit carryforwards expire in varying
amounts through 2011 Although realization is not assured,
management believes it is more likely than not that the net
carrying value of the income tax loss and credit carryforwards
will be realized.

(8) Benefit Plans

Under Mexican labor laws, employees of Jafra S.A.
and its subsidiaries are entitled to a payment when they leave
the Company if they have fifteen or more years of service. In
addition, the Company makes government mandated employee profit
sharing distributions equal to ten percent of the taxable income
of the subsidiary in which they are employed. Total expense
under these programs was $995,000, $345,000 and $391,000 for the
years ended December 31, 2001, 2000 and 1999, respectively.
The total liability was approximately $1,010,000 and $539,000 at
December 31, 2001 and 2000, respectively, and is classified
as a current liability in the accompanying consolidated balance
sheets.

(9) Related Party Transactions

The Company manufactures and distributes color
cosmetics and fragrance products to other subsidiaries of the
Parent (Affiliates). Sales to Affiliates, primarily
in the United States and Germany, were $11,538,000, $10,538,000
and $7,228,000 for the years ended December 31, 2001, 2000
and 1999, respectively. These sales were made at cost plus a
markup ranging from 0 to 11%. The Company also purchases skin
and body products from the Parents United States
Affiliate. Purchases were $12,044,000, $12,331,000 and
$12,597,000 for the years ended December 31, 2001, 2000 and
1999, respectively.

In addition, the Company is provided with certain
management services, such as legal, accounting and treasury,
management oversight, and other administrative functions from an
Affiliate. The cost of these services is included in management
fee expense to affiliate in the accompanying consolidated
statements of operations. JCI charges out a portion of these
management expenses to its Affiliates based principally upon a

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AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

formula using the percentage of revenues of each
affiliate to the total consolidated revenues of the Parent. The
Company believes the amounts and methods of allocations are
reasonable and approximate the cost of the actual services
provided. The management fee expense charged by JCI to the
Company was $8,498,000, $8,164,000 and $5,293,000, for the years
ended December 31, 2001, 2000 and 1999 respectively.

At the end of 1999, Jafra S.A. purchased U.S.
trademarks with a net book value of $20,125,000 and German
trademarks with a net book value of $4,362,000 from the U.S. and
Jafra Germany (the German subsidiary of the Parent) for their
respective estimated fair values of $20,500,000 and $3,500,000.
Beginning in 2000, Jafra S.A. charged the U.S. and Jafra Germany
a royalty for the right to use the Jafra trademark in the United
States and Europe. The total royalty income charged by Jafra
S.A. to the U.S. and Jafra Germany was $1,639,000 and $1,126,000
for the years ended December 31, 2001 and 2000,
respectively, and is offset against royalty expense to
affiliates in the accompanying consolidated statements of
operations.

JCI owns the worldwide rights to its multi-level
sales know-how (referred to as the Jafra Way). The
Jafra Way was initially developed in the United States for
lineage, training, and compensation of consultants. Starting in
1999, JCI charged Jafra S.A. a royalty for the use of the Jafra
Way. The royalty fees charged by JCI were $21,737,000,
$15,746,000 and $17,838,000 for the years ended
December 31, 2001, 2000 and 1999, and were based on a
percentage of the Companys sales.

The Company has obtained loans from certain
Affiliates at annual interest rates ranging from 6% to 9%. Such
loans are due to be repaid five years from the date of grant,
with no prepayment penalty. Notes payable to affiliates at
December 31, 2000 consisted primarily of amounts owed by
Jafra S.A. as a result of the purchase of U.S. and German
trademarks discussed above, and amounts billed to Jafra S.A. in
connection with the Jafra Way royalty. Net interest expense to
Affiliates, primarily JCI, was $257,000, $1,780,000 and $227,000
for the years ended December 31, 2001, 2000 and 1999,
respectively. Interest income and expense relating to Affiliates
is included in interest expense, net, in the accompanying
consolidated statements of operations.

(10) Financial Reporting for Business
Segments

Segment information has been prepared in
accordance with SFAS No. 131, Disclosure about
Segments of an Enterprise and Related Information
(SFAS 131). SFAS No. 131 requires disclosure of
certain information regarding operating segments, products and
services, geographic areas of operations and major customers.
The Parents business is comprised of one industry segment,
direct selling, with worldwide operations. The Parent is
organized into geographical business units that each sell the
full line of Jafra cosmetics, skin care, body care, fragrances,
and other products. The Company is one of the Parents
reportable

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JAFRA COSMETICS INTERNATIONAL, S.A. DE C.V.
AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

business segments, and as such, the only
additional business segment information presented is the
following breakdown of sales by product lines:

|                            |                                                                     |               |      |            |       |               |      |            |   |               |      |            |       |  |      |       |   |   |      |       |       |  |      |       |   | 
|--------------------------- | ------------------------------------------------------------------- | ------------- | ---- | ---------- | ----- | ------------- | ---- | ---------- | - | ------------- | ---- | ---------- | ----- |  | ---- | ----- | - | - | ---- | ----- | ----- |  | ---- | ----- | - | 
|                            |                                                                     |               |      |            |       |              
|                            |                                                                     | 2001          |      | 2000       |       | 1999         
|                            |                                                                     |               |      |            |       |              
|                            |                                                                     | Sales by      |      | Percentage |       | Sales by      |      | Percentage |   | Sales by      |      | Percentage
|                            |                                                                     | Product       |      | of Total   |       | Product       |      | of Total   |   | Product       |      | of Total  
|                            |                                                                     | Line          |      | Sales      |       | Line          |      | Sales      |   | Line          |      | Sales     
|                            |                                                                     |               |      |            |       |               |      |            |   |               |      |           
|                            |                                                                     | (in millions) |      |            |       | (in millions) |      |            |   | (in millions) |      |           
|Skin Care                   |                                                                     | $             | 27.7 |            |       |               | 11.5 | %          |   | $             | 25.7 |            |       |  | 13.0 | %     |   | $ | 22.2 |       |       |  | 12.9 | %    
|Color Cosmetics             |                                                                     |               | 72.1 |            |       |               | 29.8 |            |   |               | 60.8 |            |       |  | 30.9 |       |   |   | 59.2 |       |       |  | 34.5 |      
|Fragrances                  |                                                                     |               | 99.3 |            |       |               | 41.1 |            |   |               | 79.6 |            |       |  | 40.4 |       |   |   | 59.6 |       |       |  | 34.8 |      
|Body care and personal Care |                                                                     |               | 21.4 |            |       |               | 8.9  |            |   |               | 14.7 |            |       |  | 7.5  |       |   |   | 13.4 |       |       |  | 7.8  |      
|Other(1)                    |                                                                     |               | 21.0 |            |       |               | 8.7  |            |   |               | 16.1 |            |       |  | 8.2  |       |   |   | 17.2 |       |       |  | 10.0 |      
|                            |                                                                     |               |      |            |       |               |      |            |   |               |      |            |       |  |      |       |   |   |      |       |       |  |      |      
|                            | Subtotal before shipping and handling fees and
	sales to Affiliates |               |      | 241.5      |       |               |      | 100.0      | % |               |      | 196.9      |       |  |      | 100.0 | % |   |      | 171.6 |       |  |      | 100.0 | %
|                            |                                                                     |               |      |            |       |               |      |            |   |               |      |            |       |  |      |       |   |   |      |       |       |  |      |      
|Shipping and handling fees  |                                                                     |               | 8.3  |            |       |               |      |            |   |               | 4.9  |            |       |  |      |       |   |   | 4.4  |       |       |  |      |      
|Sales to Affiliates         |                                                                     |               | 11.6 |            |       |               |      |            |   |               | 10.5 |            |       |  |      |       |   |   | 7.2  |       |       |  |      |      
|                            |                                                                     |               |      |            |       |               |      |            |   |               |      |            |       |  |      |       |   |   |      |       |       |  |      |      
|                            |                                                                     | Total         |      | $          | 261.4 |               |      |            |   |               |      | $          | 212.3 |  |      |       |   |   |      | $     | 183.2 |  |      |       |   | 
|                            |                                                                     |               |      |            |       |               |      |            |   |               |      |            |       |  |      |       |   |   |      |       |       |  |      |      




|    |                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------
|(1) | Includes sales aids (e.g., party hostess gifts,
	demonstration products, etc.) and promotional materials.

(11) Commitments and
Contingencies

The Company leases office and warehouse
facilities as well as manufacturing, transportation and data
processing equipment under operating leases which expire at
various dates through 2006. The leases contain certain renewal
options and require payment of property taxes, utilities, common
area maintenance and insurance and contain rent escalation
clauses based upon consumer price indices. Future minimum lease
payments under noncancelable operating leases as of
December 31, 2001 are (in thousands):

|     |  |   |       | 
|---- |  | - | ----- | 
|2002 |  | $ | 926   | 
|2003 |  |   | 662   | 
|2004 |  |   | 485   | 
|2005 |  |   | 411   | 
|2006 |  |   | 411   | 
|     |  |   |       | 
|     |  | $ | 2,895 | 
|     |  |   |       | 

Rental expense was $1,507,000, $3,624,000 and
$1,203,000 for the years ended December 31, 2001, 2000 and
1999, respectively.

Other income for 2000 included approximately
$1.4 million of income related to a recovery of the effect
of inflation from a receivable due from the Mexican government
related to taxes.

The Company is involved from time to time in
routine legal matters incidental to its business. The Company
believes that the resolution of such matters will not have a
material adverse effect on the Companys business,
financial condition or results of operations.

(12) Management Incentive
Arrangements

Effective as of the closing of the Acquisition,
the Companys Parent adopted a stock incentive plan (the
Stock Incentive Plan), which provides for the sale
of up to 52,141 shares of common stock of the Parent and the
issuance of options to purchase up to 104,282 additional shares
of common stock to members of senior

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JAFRA COSMETICS INTERNATIONAL, S.A. DE C.V.
AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

management of certain of the Parents
subsidiaries. Four employees of the Company participate in the
Stock Incentive Plan. These employees currently hold 3,761
shares of the Parents stock, and hold options to purchase
an additional 7,522 shares. The activity related to these
employees holdings under the Stock Incentive Plan is not
significant to the Company. The Company applies Accounting
Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees and related interpretations in
accounting for these options. As the options were granted with
exercise prices equal to the fair value at the date of grant, no
compensation expense was recognized by the Company upon issuance
of such options.

Certain senior executive officers have employment
agreements which provide for annual bonuses if the Company
achieves the performance goals established under its annual
incentive plan for executives.

(13) Foreign Currency Forward
Contracts

The Company is exposed to currency risk relating
to its forecasted U.S. dollar-denominated expenditures at Jafra
S.A. As part of its overall strategy to reduce the risk of
potential adverse exchange rate fluctuations in Mexico, the
Company enters into foreign currency exchange contracts
(forward contracts). The Company places forward
contracts based on its forecasted U.S. dollar cash outflows from
Jafra S.A. over a rolling 12 month period and does not
hedge transactions that are not included in the 12 month
forecast on the date the forward contract is initiated. As a
matter of policy, the Company does not hold or issue forward
contracts for trading or speculative purposes nor does it enter
into contracts or agreements containing embedded
derivative features. Prior to entering into foreign currency
exchange contracts, the Company evaluates the counter
parties credit ratings. Credit risk represents the
accounting loss that would be recognized at the reporting date
if counter parties failed to perform as contracted. The Company
does not currently anticipate non-performance by such counter
parties.

The forward contracts utilized by the Company did
not qualify for hedge accounting under the applicable accounting
standards prior to adoption of SFAS No. 133 on
January 1, 2001, and accordingly such instruments were
marked-to-market with gains and losses included as a component
of exchange loss in the statements of operations for the years
ended December 31, 2000 and 1999. Under SFAS No. 133,
the Companys use of forward contracts to hedge certain
forecasted transactions qualifies for hedge accounting. Gains
and losses from such derivative instruments arising subsequent
to January 1, 2001 are deferred as a separate component of
other comprehensive income, and are recognized in income at the
same time that the underlying hedged exposure is recognized in
income. This accounting treatment results in the matching of
gains and losses from such forward contracts with the
corresponding gains and losses generated by the underlying
hedged transactions. Under SFAS No. 133, certain of the
Companys forward contracts do not qualify for hedge
accounting and therefore, are remeasured based on fair value,
with gains and losses included as a component of net income.

The Company currently designates certain of its
forward contracts as cash flow hedges of forecasted U.S.
dollar-denominated inventory purchases, forecasted U.S.
dollar-denominated intercompany charges from JCI to Jafra S.A.,
forecasted management fee charges from JCI to Jafra S.A., and
U.S. dollar-denominated interest payments. On the date the
Company enters into a derivative contract, management designates
the derivative as a hedge of the identified exposure. The
Company formally documents all relationships between hedging
instruments and hedged items, as well as its risk-management
objective and strategy for undertaking various hedge
transactions. In this documentation, the Company specifically
identifies the forecasted transaction that has been designated
as a hedged item and states how the hedging instrument is
expected to hedge the risks related to the hedged item. The
Company formally measures effectiveness of its hedging
relationships both at the hedge inception and on an ongoing
basis in accordance with its risk management policy. For all
qualifying and highly effective cash flow hedges, the changes in
the fair value of the derivative are deferred as a component of
other comprehensive income. Such amounts will be reclassified
from other comprehensive income into net income when the
underlying hedged exposure is recognized in income. For

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JAFRA COSMETICS INTERNATIONAL, S.A. DE C.V.
AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

U.S. dollar-denominated inventory purchases, this
will occur upon sale to an outside party of the related
inventory. For intercompany charges and interest, this will
occur at the date such charges are recorded by Jafra S.A.

Upon implementation of SFAS 133 on
January 1, 2001, the Company had certain forward contracts
not designated as hedges. During the year ended
December 31, 2001, the Company recognized losses on forward
contracts of approximately $12,188,000, of which $8,771,000
related to losses on settled forward contracts and $2,620,000
related to losses on outstanding forward contracts that did not
qualify for hedge accounting under SFAS No. 133, as a
component of exchange loss in the accompanying consolidated
statement of operations. During the year ended December 31,
2000, the Company recognized approximately $10,050,000 of losses
and during the year ended December 31, 1999, the Company
recognized $222,000 of gains as a component of exchange loss on
forward contracts that did not qualify for hedge accounting
under accounting standards prior to the adoption of SFAS
No. 133. Additionally, during the year ended
December 31, 2001, the Company deferred as a component of
other comprehensive income $5,504,000 of losses on forward
contracts qualifying for hedge accounting under SFAS
No. 133. Of this amount, approximately $797,000 was
recognized as exchange gain and $961,000 was recognized as cost
of sales upon recognition of the underlying hedged exposure
prior to December 31, 2001. The Company expects that
substantially all of the remaining loss of $3,746,000 deferred
as a component of other comprehensive income at
December 31, 2001 will be recognized into net income within
the next twelve months. The fair value of the forward contracts
at December 31, 2001 represented an unrealized loss of
$5,540,000 consisting of $2,920,000, of unrealized losses
recorded as a component of other comprehensive income for
qualifying hedges and $2,620,000 of unrealized losses recorded
as a component of exchange loss for non-qualifying hedges under
SFAS No. 133.

During the year ended December 31, 2001, the
ineffectiveness generated by the Companys forward
contracts designated as hedges was insignificant. Certain hedged
forecasted transactions do not appear probable of occurring due
to timing differences between the original and current
forecasts, and accordingly $1,115,000 of losses were
reclassified into earnings.

The outstanding foreign currency forward
contracts had notional values of $66,824,000, of which
$59,587,000 has been designated as hedges under the provisions
of SFAS No. 133 at December 31, 2001, and $80,817,000,
at December 31, 2000. The contracts outstanding at
December 31, 2001 mature in 2002 while the contracts
outstanding at December 31, 2000 matured in 2001. Notional
amounts do not quantify market or credit exposure or represent
assets or liabilities of the Company, but are used in the
calculation of cash

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JAFRA COSMETICS INTERNATIONAL, S.A. DE C.V.
AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

settlements under the contracts. The tables below
describe the forward contracts that were outstanding at
December 31, 2001 and 2000 (in thousands):

December 31, 2001:

|                                |  |               |        |          |  |          |          |          |  |  |       |  |  |   |        |  
|------------------------------- |  | ------------- | ------ | -------- |  | -------- | -------- | -------- |  |  | ----- |  |  | - | ------ | -
|                                |  |               |        |          |  | Weighted |          |         
|                                |  | Forward       |        |          |  | Average  |          |         
|                                |  | Position in   |        | Maturity |  | Contract |          | Fair    
|Foreign Currency                |  | US Dollars(1) |        | Date     |  | Rate     |          | Value(1)
|                                |  |               |        |          |  |          |          |         
|Buy US Dollar/sell Mexican Peso |  | $             | 10,674 |          |  |          | 1/31/02  |          |  |  | 10.19 |  |  | $ | 9,546  |  
|Sell Mexican Peso/buy US Dollar |  |               | (2,138 | )        |  |          | 1/31/02  |          |  |  | 9.35  |  |  |   | (2,104 | )
|Buy US Dollar/sell Mexican Peso |  |               | 6,995  |          |  |          | 2/28/02  |          |  |  | 10.26 |  |  |   | 6,239  |  
|Sell Mexican Peso/buy US Dollar |  |               | (2,113 | )        |  |          | 2/28/02  |          |  |  | 9.47  |  |  |   | (2,065 | )
|Buy US Dollar/sell Mexican Peso |  |               | 9,023  |          |  |          | 3/27/02  |          |  |  | 10.46 |  |  |   | 7,921  |  
|Sell Mexican Peso/buy US Dollar |  |               | (4,219 | )        |  |          | 3/27/02  |          |  |  | 9.48  |  |  |   | (4,139 | )
|Buy US Dollar/sell Mexican Peso |  |               | 8,310  |          |  |          | 4/30/02  |          |  |  | 10.23 |  |  |   | 7,562  |  
|Sell Mexican Peso/buy US Dollar |  |               | (3,118 | )        |  |          | 4/30/02  |          |  |  | 9.62  |  |  |   | (3,034 | )
|Buy US Dollar/sell Mexican Peso |  |               | 8,012  |          |  |          | 5/31/02  |          |  |  | 10.11 |  |  |   | 7,453  |  
|Sell Mexican Peso/buy US Dollar |  |               | (2,573 | )        |  |          | 5/31/02  |          |  |  | 9.71  |  |  |   | (2,498 | )
|Buy US Dollar/sell Mexican Peso |  |               | 8,037  |          |  |          | 6/28/02  |          |  |  | 9.95  |  |  |   | 7,662  |  
|Sell Mexican Peso/buy US Dollar |  |               | (3,069 | )        |  |          | 6/28/02  |          |  |  | 9.78  |  |  |   | (2,981 | )
|Buy US Dollar/sell Mexican Peso |  |               | 4,765  |          |  |          | 7/31/02  |          |  |  | 10.07 |  |  |   | 4,523  |  
|Buy US Dollar/sell Mexican Peso |  |               | 9,951  |          |  |          | 8/30/02  |          |  |  | 10.05 |  |  |   | 9,541  |  
|Buy US Dollar/sell Mexican Peso |  |               | 4,459  |          |  |          | 9/30/02  |          |  |  | 10.09 |  |  |   | 4,290  |  
|Buy US Dollar/sell Mexican Peso |  |               | 10,905 |          |  |          | 10/31/02 |          |  |  | 10.09 |  |  |   | 10,567 |  
|Buy US Dollar/sell Mexican Peso |  |               | 2,923  |          |  |          | 11/29/02 |          |  |  | 10.27 |  |  |   | 2,801  |  
|                                |  |               |        |          |  |          |          |          |  |  |       |  |  |   |        |  
|                                |  | $             | 66,824 |          |  |          |          |          |  |  |       |  |  | $ | 61,284 |  
|                                |  |               |        |          |  |          |          |          |  |  |       |  |  |   |        |  

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JAFRA COSMETICS INTERNATIONAL, S.A. DE C.V.
AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

December 31, 2000:

|                                |  |               |        |          |  |          |          |          |  |  |       |  |  |   |        | 
|------------------------------- |  | ------------- | ------ | -------- |  | -------- | -------- | -------- |  |  | ----- |  |  | - | ------ | 
|                                |  |               |        |          |  | Weighted |          |         
|                                |  | Forward       |        |          |  | Average  |          |         
|                                |  | Position in   |        | Maturity |  | Contract |          | Fair    
|Foreign Currency                |  | US Dollars(1) |        | Date     |  | Rate     |          | Value(1)
|                                |  |               |        |          |  |          |          |         
|Buy US Dollar/sell Mexican Peso |  | $             | 6,980  |          |  |          | 1/26/01  |          |  |  | 10.12 |  |  | $ | 6,679  | 
|Buy US Dollar/sell Mexican Peso |  |               | 7,500  |          |  |          | 2/26/01  |          |  |  | 10.20 |  |  |   | 7,187  | 
|Buy US Dollar/sell Mexican Peso |  |               | 7,529  |          |  |          | 3/30/01  |          |  |  | 10.36 |  |  |   | 7,162  | 
|Buy US Dollar/sell Mexican Peso |  |               | 5,915  |          |  |          | 4/30/01  |          |  |  | 10.48 |  |  |   | 5,607  | 
|Buy US Dollar/sell Mexican Peso |  |               | 2,828  |          |  |          | 5/31/01  |          |  |  | 10.61 |  |  |   | 2,670  | 
|Buy US Dollar/sell Mexican Peso |  |               | 3,907  |          |  |          | 6/29/01  |          |  |  | 10.24 |  |  |   | 3,861  | 
|Buy US Dollar/sell Mexican Peso |  |               | 2,618  |          |  |          | 7/31/01  |          |  |  | 10.31 |  |  |   | 2,588  | 
|Buy US Dollar/sell Mexican Peso |  |               | 11,816 |          |  |          | 8/31/01  |          |  |  | 10.32 |  |  |   | 11,804 | 
|Buy US Dollar/sell Mexican Peso |  |               | 12,125 |          |  |          | 9/28/01  |          |  |  | 10.39 |  |  |   | 12,119 | 
|Buy US Dollar/sell Mexican Peso |  |               | 2,336  |          |  |          | 10/30/01 |          |  |  | 10.70 |  |  |   | 2,290  | 
|Buy US Dollar/sell Mexican Peso |  |               | 10,275 |          |  |          | 10/31/01 |          |  |  | 10.71 |  |  |   | 10,078 | 
|Buy US Dollar/sell Mexican Peso |  |               | 2,878  |          |  |          | 11/30/01 |          |  |  | 10.43 |  |  |   | 2,934  | 
|Buy US Dollar/sell Mexican Peso |  |               | 4,110  |          |  |          | 12/27/01 |          |  |  | 10.71 |  |  |   | 4,120  | 
|                                |  |               |        |          |  |          |          |          |  |  |       |  |  |   |        | 
|                                |  | $             | 80,817 |          |  |          |          |          |  |  |       |  |  | $ | 79,099 | 
|                                |  |               |        |          |  |          |          |          |  |  |       |  |  |   |        | 




|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The Forward Position in US Dollars
	and the Fair Value presented above represent
	notional amounts. The net of these two amounts, an unrealized
	loss of $5,540,000 and $1,718,000 at December 31, 2001 and
	2000, respectively, represents the carrying value of the forward
	contracts (which approximates fair value) and has been recorded
	as a liability in the accompanying consolidated balance sheets
	as of December 31, 2001 and 2000, respectively.

Subsequent to December 31, 2001, in
accordance with previously approved policies, the Company
modified its hedging program to include the use of foreign
currency option contracts (option contracts or
options) to hedge foreign currency exposures to the
Mexican peso. In order to execute the option contracts and to
offset its current outstanding forward contracts to sell Mexican
pesos, on March 27, 2002, the Company entered into forward
contracts to buy Mexican pesos. Also, on that date, the Company
entered into a series of U.S. dollar option contracts. The
exchange rate at which the option contracts may be exercised is
based upon the market rate at the time the contracts are placed.
The Company purchased exchange rate put options, which gives the
Company the right, but not the obligation, to sell Mexican pesos
at a specified U.S. dollar exchange rate (strike
rate). These contracts provide protection in the event the
Mexican peso weakens beyond the option strike rate. In
conjunction with the put options, and as part of a zero-cost
option collar structure, the Company sold Mexican peso call
options, which gives the counterparty the right, but not the
obligation, to buy Mexican pesos from the Company at a specified
strike rate. The effect of these contracts would be to limit the
benefit the Company would otherwise derive from the
strengthening of the Mexican peso beyond the strike rate. In the
aggregate, the Company entered into approximately
$600 million Mexican pesos of matching put and call options.

(14) Fourth Quarter Adjustments

During the fourth quarter of 2001, the Company
recorded approximately $3,809,000 to bad debt expense due to
declining consultant liquidity as a result of the general
slowdown of the economy in Mexico. During the fourth quarter of
2000, the Company recorded certain adjustments related to
changes in cost accounting estimates, which resulted in an
increase to cost of sales of approximately $3,000,000.

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SCHEDULE II  VALUATION AND QUALIFYING
ACCOUNTS

(in thousands)


CDRJ Investments (Lux) S.A. and
Subsidiaries:

|                     |      |              |   |           |  |             |   |           |  |  |   |       |  |  |   |       | 
|-------------------- | ---- | ------------ | - | --------- |  | ----------- | - | --------- |  |  | - | ----- |  |  | - | ----- | 
|                     |      |              |   | Charged   |  |             |   |          
|                     |      | Balance      |   | to        |  |             |   | Balance  
|                     |      | at beginning |   | costs and |  | Deductions- |   | at end   
|Descriptions         |      | of period    |   | expenses  |  | recoveries  |   | of period
|                     |      |              |   |           |  |             |   |          
|Accounts Receivable: |      |              |   |           |  |             |   |           |  |  |   |       |  |  |   |      
|                     | 2001 |              | $ | 3,553     |  |             | $ | 9,464     |  |  | $ | 5,750 |  |  | $ | 7,267 | 
|                     | 2000 |              |   | 3,087     |  |             |   | 5,958     |  |  |   | 5,492 |  |  |   | 3,553 | 
|                     | 1999 |              |   | 2,284     |  |             |   | 4,651     |  |  |   | 3,848 |  |  |   | 3,087 | 
|Inventories:         |      |              |   |           |  |             |   |           |  |  |   |       |  |  |   |      
|                     | 2001 |              |   | 2,462     |  |             |   | 1,879     |  |  |   | 1,520 |  |  |   | 2,821 | 
|                     | 2000 |              |   | 2,442     |  |             |   | 1,973     |  |  |   | 1,953 |  |  |   | 2,462 | 
|                     | 1999 |              | $ | 4,900     |  |             | $ | 2,256     |  |  | $ | 4,714 |  |  | $ | 2,442 | 

Jafra Cosmetics International, Inc. and
Subsidiaries:

|                     |      |              |   |           |  |             |   |           |  |  |   |       |  |  |   |       | 
|-------------------- | ---- | ------------ | - | --------- |  | ----------- | - | --------- |  |  | - | ----- |  |  | - | ----- | 
|                     |      |              |   | Charged   |  |             |   |          
|                     |      | Balance      |   | to        |  |             |   | Balance  
|                     |      | at beginning |   | costs and |  | Deductions- |   | at end   
|Descriptions         |      | of period    |   | expenses  |  | recoveries  |   | of period
|                     |      |              |   |           |  |             |   |          
|Accounts Receivable: |      |              |   |           |  |             |   |           |  |  |   |       |  |  |   |      
|                     | 2001 |              | $ | 536       |  |             | $ | 559       |  |  | $ | 572   |  |  | $ | 523   | 
|                     | 2000 |              |   | 800       |  |             |   | 898       |  |  |   | 1,162 |  |  |   | 536   | 
|                     | 1999 |              |   | 547       |  |             |   | 1,359     |  |  |   | 1,106 |  |  |   | 800   | 
|Inventories:         |      |              |   |           |  |             |   |           |  |  |   |       |  |  |   |      
|                     | 2001 |              |   | 1,404     |  |             |   | 692       |  |  |   | 617   |  |  |   | 1,479 | 
|                     | 2000 |              |   | 2,084     |  |             |   | 532       |  |  |   | 1,212 |  |  |   | 1,404 | 
|                     | 1999 |              | $ | 3,842     |  |             | $ | 1,155     |  |  | $ | 2,913 |  |  | $ | 2,084 | 

Jafra Cosmetics International, S.A. de C.V.
and Subsidiaries:

|                     |      |              |   |           |  |             |   |           |  |  |   |       |  |  |   |       | 
|-------------------- | ---- | ------------ | - | --------- |  | ----------- | - | --------- |  |  | - | ----- |  |  | - | ----- | 
|                     |      |              |   | Charged   |  |             |   |          
|                     |      | Balance      |   | to        |  |             |   | Balance  
|                     |      | at beginning |   | costs and |  | Deductions- |   | at end   
|Descriptions         |      | of period    |   | expenses  |  | recoveries  |   | of period
|                     |      |              |   |           |  |             |   |          
|Accounts Receivable: |      |              |   |           |  |             |   |           |  |  |   |       |  |  |   |      
|                     | 2001 |              | $ | 2,117     |  |             | $ | 7,681     |  |  | $ | 4,846 |  |  | $ | 4,952 | 
|                     | 2000 |              |   | 1,956     |  |             |   | 4,956     |  |  |   | 4,795 |  |  |   | 2,117 | 
|                     | 1999 |              |   | 1,155     |  |             |   | 3,209     |  |  |   | 2,408 |  |  |   | 1,956 | 
|Inventories:         |      |              |   |           |  |             |   |           |  |  |   |       |  |  |   |      
|                     | 2001 |              |   | 894       |  |             |   | 1,035     |  |  |   | 872   |  |  |   | 1,057 | 
|                     | 2000 |              |   | 269       |  |             |   | 1,337     |  |  |   | 712   |  |  |   | 894   | 
|                     | 1999 |              | $ | 1,012     |  |             | $ | 985       |  |  | $ | 1,728 |  |  | $ | 269   | 




Item 9. Changes in and
Disagreements with Accountants on Accounting and Financial
Disclosure

None.

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PART III




Item 10. Directors, Executive
Officers and Significant Employees of the Company

The names, ages and positions of the executive
officers, significant employees and directors of the Company as
of March 15, 2002 are set forth below.

|                      |  |     |    |          |  |                                                             
|--------------------- |  | --- | -- | -------- |  | ------------------------------------------------------------
|Name                  |  | Age |    | Position
|                      |  |     |    |         
|Ronald B. Clark       |  |     | 66 |          |  | Chairman and Chief Executive Officer; Director              
|Gonzalo R. Rubio      |  |     | 58 |          |  | President and Chief Operating Officer; Director             
|Ralph S. Mason, III   |  |     | 50 |          |  | Vice Chairman, Executive Vice President and
	General Counsel
|Michael A. DiGregorio |  |     | 47 |          |  | Senior Vice President and Chief Financial Officer           
|Alan Fearnley         |  |     | 51 |          |  | Senior Vice President of Global Marketing                   
|Jaime Lopez Guirao    |  |     | 54 |          |  | President of Global Operations                              
|Eugenio Lopez Barrios |  |     | 60 |          |  | President of Mexican Operations                             
|Jose Luis Peco        |  |     | 56 |          |  | President of European Operations                            
|Ademar Serodio        |  |     | 57 |          |  | President of South American Operations                      
|Beatriz Gutai         |  |     | 41 |          |  | General Manager of
	U.S. Operations  Hispanic Division     
|Dyan Lucero           |  |     | 52 |          |  | General Manager of
	U.S. Operations  General Division      
|Donald J. Gogel       |  |     | 53 |          |  | Director                                                    
|Steven D. Goldstein   |  |     | 50 |          |  | Director                                                    
|Thomas E. Ireland     |  |     | 52 |          |  | Director                                                    
|Siri Marshall         |  |     | 53 |          |  | Director                                                    
|David A. Novak        |  |     | 33 |          |  | Director                                                    
|Ann Reese             |  |     | 49 |          |  | Director                                                    
|Edward H. Rensi       |  |     | 57 |          |  | Director                                                    
|Kenneth D. Taylor     |  |     | 67 |          |  | Director                                                    

None of the Companys officers has any
family relationship with any director or other officer.
Family relationship for this purpose means any
relationship by blood, marriage or adoption, not more remote
than first cousin. The business experience during the past five
years of each of the directors and executive officers listed
above is as follows:

Ronald B. Clarkhas
served as a director and the Chairman and Chief Executive
Officer since joining the Company in May 1998. From 1997 to
1998, Mr. Clark served as President, Richmont Europe (Mary
Kay Holding Company). Prior to 1997, he was President of Mary
Kay Europe, Executive Vice President of Primerica Corp.,
President of Jafra Cosmetics International, Inc., and Vice
President of Avon Products, Inc. Mr. Clarks
employment agreement provides that he shall be a director of
Parent during the term of his employment.

Gonzalo R. Rubiohas
served as a director and the President and Chief Operating
Officer since joining the Company in May 1998. Mr. Rubio
served from prior through 1997 as Area Vice President and later
President of the European operations of Mary Kay Inc. Prior to
that, Mr. Rubio was employed by Avon Products Inc., serving
alternately as Area Director for Europe, International
Operations Director and Area Director for Latin America.
Mr. Rubios employment agreement provides that he
shall be a director of Parent during the term of his employment.

Ralph S. Mason, IIIhas served as the Vice Chairman,
Executive Vice President and General Counsel since joining the
Company in May 1998. For more than the prior five years,
Mr. Mason was the senior and founding partner at Mason,
Taylor & Colicchio, a law firm in Princeton, New Jersey.

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Michael A. DiGregoriohas served as Senior Vice President
and Chief Financial Officer of the Company since June of 1999.
From May 1998 to May 1999, Mr. DiGregorio served as
President of the United States Operations of the Company. From
prior to 1997 to June 1998, Mr. DiGregorio served initially
as Financial Director and later as General Manager of Jafra
Mexico.

Alan Fearnleyhas
served as Senior Vice President of Strategy of the Company since
July of 2001. From 1998 to 2001, Mr. Fearnley served as
Senior Vice President of Global Marketing of the Company. From
1997 to 1998, Mr. Fearnley served as Vice President of
Marketing for Dermatologica. Prior to that, Mr. Fearnley
took a years sabbatical to attend the Sloan Fellowship
Masters Program at the London Business School. During this
sabbatical, Mr. Fearnley also served as consultant to
various companies.

Jaime Lopez Guiraohas served as President, Global
Operations since joining the Company in June 1998. For more than
the prior five years, Mr. Guirao was employed by Avon
Products, Inc., holding several operational, management and
Country President positions in Europe and the Americas.

Eugenio Lopez Barrioshas served as President of Mexican
Operations since joining the Company in June 1998. From prior to
1997 to 1998, Mr. Barrios was President of Mary Kay Mexico.

Jose Luis Pecohas
served as President of European Operations of the Company since
joining the Company in June 1998. From prior to 1997 to 1998,
Mr. Peco served as Vice President of European Operations
for Mary Kay Cosmetics and President of Mary Kay
Cosmetics  Iberia.

Ademar Serodiojoined the Company in January 2000 and
currently serves as President of South America Operations of the
Company. For more than the prior five years, Mr. Serodio
was employed by Avon Products, Inc., holding several Country
President roles in Avons South American markets.

Beatriz Gutaihas
served as General Manager of the Hispanic Division of United
States Operations since September of 2000. Prior to that time,
Ms. Gutai served as Vice President of Sales for the
Hispanic Division and in various positions in sales management,
programs, and events since joining the Company in 1982.

Dyan Lucerohas
served as General Manager of the General Division of United
States Operations since September of 2000. Prior to that time,
Ms. Lucero served as Vice President of Sales for the
General Division and in various positions in sales management
and business development since joining the Company in 1975.

Donald J. Gogelhas
been a director of the Company since January 1998. Since 1998,
Mr. Gogel has served as Chief Executive Officer of
CD&R; since prior to 1997 he has served as President and a
director of CD&R and since 1989 he has been a principal of
CD&R. Mr. Gogel is also a limited partner of CD&R
Associates V Limited Partnership (Associates V), the
general partner of CD&R Fund V, and President and Chief
Executive Officer and a shareholder and director of CD&R
Investment Associates II, Inc. (Investment
Associates II), a Cayman Islands exempted company
that is the managing general partner of Associates V.
Mr. Gogel is a director of Kinkos, Inc., a
corporation in which Fund V has an investment, and a
director of Global Decisions Group, LLC, a limited liability
company in which an investment fund managed by CD&R has an
investment, and Turbochef, Inc. Mr. Gogel serves as a
member of the compensation committee of the board of directors
of Turbochef, Inc.

Steven D. Goldsteinhas been a director of the Company
since July 1998. Since July of 2001, Mr. Goldstein has
served as President and Chief Executive Officer of Chayeon Inc.
From November of 2000 to July of 2001, Mr. Goldstein served
as Chairman and Chief Executive Officer of More Benefits, Corp.
From December 1997 to November of 2000, Mr. Goldstein
served as Chairman and Chief Executive Officer of Invenet, LLC.
Prior to joining Invenet, LLC, Mr. Goldstein was employed
as President, Credit of Sears, Roebuck & Co. Prior to 1997,
Mr. Goldstein was employed by American Express Co., serving
most recently as the Chairman and Chief Executive Officer of
American Express Bank.

Thomas E. Irelandhas been a director of the Company
since March 1998 and is a principal of CD&R, a limited
partner of Associates V and a shareholder and a director of
Investment Associates II. From prior to 1997 until joining
CD&R in 1997, Mr. Ireland served as a senior managing
director of Alvarez & Marsal, Inc. Mr. Ireland
also serves on the board of directors of the Maine Coast
Heritage Trust. Mr. Ireland is a director

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of Remington Arms Company, Inc. and its parent
RACI Holding, Inc., a corporation in which an investment fund
managed by CD&R has an investment.


Siri Marshallhas
been a director of the Company since July 1999.
Ms. Marshall has been employed by General Mills since prior
to 1997 and currently serves as its Senior Vice President,
Corporate Affairs and General Counsel.

David A. Novakhas
been a director of the Company since January 1998.
Mr. Novak is a principal of CD&R, a limited partner of
Associates V, and a shareholder of Investment Associates II.
Prior to joining CD&R in 1997, Mr. Novak worked in the
Merchant Banking and Investment Banking Divisions of Morgan
Stanley & Co. Incorporated and for the Central European
Development Corporation. Mr. Novak also serves on the board
of directors of Allied Worldwide, Inc., a corporation in which
Fund V has an investment and Italtel Holdings.

Ann Reesehas been a
director of the Company since July 1998. Ms. Reese has been
the Executive Director of Center for Adoption Policy Studies
since October 2001. From 1999 to December 2000, Ms. Reese
was a professional employee of CD&R. From prior to 1997 to
March 1998, Ms. Reese was Chief Financial Officer of ITT
Corp., a company in the hotel and gaming businesses and
previously in insurance and manufacturing.

Edward H. Rensihas
been a director of the Company since July 1998. For more than
the prior five years, Mr. Rensi has been employed by
McDonalds Corp. USA, serving most recently as President and
Chief Executive Officer. Mr. Rensi also serves as a
director of Snap-On Inc. and I.S.C. Corporation, and serves as a
member of the compensation committee of the board of directors
of Snap-On Inc. and I.S.C. Corporation.

Kenneth D. Taylorhas been a director of the Company
since July 1998 and has been the Chairman of Global Public
Affairs, Inc. since prior to 1997.

At present, all directors will hold office until
their successors are elected and qualified, or until their
earlier removal or resignation.

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Item 11. Executive
Compensation

Compensation Of Executive Officers

The following table sets forth the compensation
earned by the Companys Chief Executive Officer and the
four additional most highly compensated executive officers of
the Company (collectively, the Named Executive
Officers) for each of the last three fiscal years.

Summary Compensation Table

|                            |                                    |      |      |                     |  |           |         |              |  |            |         |         |  |  |  |         |     |  |  |       |  |   |        |        | 
|--------------------------- | ---------------------------------- | ---- | ---- | ------------------- |  | --------- | ------- | ------------ |  | ---------- | ------- | ------- |  |  |  | ------- | --- |  |  | ----- |  | - | ------ | ------ | 
|                            |                                    |      |      |                     |  |           |         |             
|                            |                                    |      |      | Annual Compensation |  |           |         |             
|                            |                                    |      |      |                     |  | Long-Term |         |             
|                            |                                    |      |      |                     |  | Other     |         | Compensation |  | All Other 
|                            |                                    |      |      |                     |  | Annual    |         | Securities   |  | Compen-   
|                            |                                    |      |      |                     |  | Compen-   |         | Underlying   |  | sation    
|Name and Principal Position |                                    | Year |      | Salary($)           |  | Bonus($)  |         | sation($)    |  | Options(#) |         | ($)(1) 
|                            |                                    |      |      |                     |  |           |         |              |  |            |         |        
|Ronald B. Clark             |                                    |      | 2001 |                     |  | $         | 648,729 |              |  | $          | 391,872 |         |  |  |  |         |     |  |  |       |  | $ | 43,691 |       
|                            | Chairman and Chief                 |      |      | 2000                |  |           |         | 626,218      |  |            |         | 227,610 |  |  |  |         |     |  |  |       |  |   |        | 56,811 | 
|                            | Executive Officer                  |      |      | 1999                |  |           |         | 609,288      |  |            |         | 510,000 |  |  |  |         |     |  |  |       |  |   |        | 30,273 | 
|Gonzalo R. Rubio            |                                    |      | 2001 |                     |  |           | 540,555 |              |  |            | 326,550 |         |  |  |  |         |     |  |  |       |  |   | 36,408 |       
|                            | President and Chief                |      |      | 2000                |  |           |         | 521,832      |  |            |         | 189,666 |  |  |  |         |     |  |  |       |  |   |        | 47,341 | 
|                            | Operating Officer                  |      |      | 1999                |  |           |         | 507,740      |  |            |         | 425,000 |  |  |  |         |     |  |  |       |  |   |        | 55,228 | 
|Ralph S. Mason, III         |                                    |      | 2001 |                     |  |           | 486,557 |              |  |            | 293,910 |         |  |  |  |         |     |  |  |       |  |   | 6,554  |       
|                            | Vice Chairman, Executive           |      |      | 2000                |  |           |         | 469,672      |  |            |         | 170,712 |  |  |  |         |     |  |  |       |  |   |        | 8,517  | 
|                            | Vice President and General Counsel |      |      | 1999                |  |           |         | 456,966      |  |            |         | 382,000 |  |  |  | 146,238 | (2) |  |  |       |  |   |        | 1,771  | 
|Jaime Lopez Guirao          |                                    |      | 2001 |                     |  |           | 484,202 |              |  |            | 293,322 |         |  |  |  |         |     |  |  |       |  |   | 32,754 |       
|                            | President of Global Operations     |      |      | 2000                |  |           |         | 467,518      |  |            |         | 170,360 |  |  |  |         |     |  |  |       |  |   |        | 42,476 | 
|                            |                                    |      | 1999 |                     |  |           | 455,597 |              |  |            | 382,000 |         |  |  |  |         |     |  |  |       |  |   | 47,910 |       
|Michael A. DiGregorio       |                                    |      | 2001 |                     |  |           | 323,877 |              |  |            | 163,300 |         |  |  |  |         |     |  |  |       |  |   | 16,131 |       
|                            | Senior Vice President and Chief    |      |      | 2000                |  |           |         | 312,664      |  |            |         | 94,845  |  |  |  |         |     |  |  | 1,264 |  |   |        | 18,048 | 
|                            | Financial Officer                  |      |      | 1999                |  |           | $       | 304,352      |  |            | $       | 212,000 |  |  |  |         |     |  |  |       |  |   | $      | 22,718 | 




|    |                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------
|(1) | Amounts shown in this column constitute
	contributions by the Company under the Companys 401(k) and
	Supplemental Savings Plans.
|   
|(2) | Amount includes reimbursement for expenses of
	$140,000 incurred by Mr. Mason in order to relocate to
	Company headquarters.     

FISCAL YEAR-END OPTION VALUE TABLE

The following table sets forth information for
each Named Executive Officer with regard to the aggregate value
of options held at December 31, 2001. No options were
exercised by such executive officers during the year ended
December 31, 2001.

|                      |  |                         |        |                            |  |             |       |               |  |   |           |  |  |   |         | 
|--------------------- |  | ----------------------- | ------ | -------------------------- |  | ----------- | ----- | ------------- |  | - | --------- |  |  | - | ------- | 
|                      |  |                         |        |                            |  |            
|                      |  | Number of               |        |                           
|                      |  | Securities Underlying   |        | Value of Unexercised      
|                      |  | Unexercised Options     |        | In-the-Money Options      
|                      |  | at December 31, 2001(#) |        | at December 31, 2001($)(1)
|                      |  |                         |        |                           
|Name                  |  | Exercisable             |        | Unexercisable              |  | Exercisable |       | Unexercisable
|                      |  |                         |        |                            |  |             |       |              
|Ronald B. Clark       |  |                         | 14,840 |                            |  |             | 3,488 |               |  | $ | 2,226,000 |  |  | $ | 523,200 | 
|Gonzalo R. Rubio      |  |                         | 14,840 |                            |  |             | 3,488 |               |  |   | 2,226,000 |  |  |   | 523,200 | 
|Ralph S. Mason, III   |  |                         | 11,769 |                            |  |             | 2,767 |               |  |   | 1,765,350 |  |  |   | 415,050 | 
|Jaime Lopez Guirao    |  |                         | 4,858  |                            |  |             | 1,142 |               |  |   | 728,700   |  |  |   | 171,300 | 
|Michael A. DiGregorio |  |                         | 3,205  |                            |  |             | 1,535 |               |  |   | 437,800   |  |  |   | 134,220 | 




|    |                                                                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Calculated based on a per share price of Parent
	Common Stock of $250, the estimated fair market value as of the
	latest valuation date, less the per share exercise price.

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Compensation Of Directors

During 2001, each outside director of the Company
received a retainer of $40,000 for serving on the Board of
Directors of the Company and was reimbursed for his or her
out-of-pocket expenses incurred in connection with attending
board meetings. The Company pays no additional remuneration to
officers of the Company or the principals or employees of
CD&R for serving as directors.

Employment Agreements

The Company has employment agreements with each
of the Named Executive Officers. The employment agreements of
Messrs. Clark, Rubio and Mason have an initial term of
three years that becomes a continuous rolling two
year term as of the first anniversary of the closing of the
Acquisition (the Closing). The employment agreements
of Messrs. Guirao and DiGregorio have a continuous
rolling term of two years, commencing as of
June 1, 1998. Pursuant to their respective agreements, as
of their 2001 anniversary dates, Messrs. Clark, Rubio,
Mason, Guirao and DiGregorio receive annual base salaries of
$653,000, $544,000, $490,000, $489,000 and $327,000,
respectively. In addition, each of Messrs. Clark, Rubio,
Mason and Guirao are eligible for a target annual bonus equal to
60%, and Mr. DiGregorio is eligible for a target annual
bonus equal to 50%, of such Named Executive Officers
annual base salary if the Company achieves the performance goals
established under its annual incentive plan for executives and
may receive a larger bonus if such goals are exceeded. The
employment agreements further provide that, in the event of a
termination of any such Named Executive Officers
employment by the Company without cause (as defined
in the employment agreement) or by such executive for good
reason (as so defined), such Named Executive Officer will
be entitled to continued payments of his base salary for the
remaining term of his employment agreement and to payment of a
pro rata annual bonus for the year of termination provided that
the Company achieves the performance objectives applicable for
such year and each year thereafter. Each of the employment
agreements also contains covenants regarding nondisclosure of
confidential information, noncompetition and nonsolicitation.

Compensation Committee Interlocks And Insider
Participation

The Board of Directors of the Company established
a Compensation Committee to review all compensation arrangements
for executive officers of the Company. The individuals serving
on the Compensation Committee until July 31, 2001 were
Mr. Taylor, Chairperson, Mr. Orfalea and
Mr. Gogel. As of August 1, 2001, the individuals
serving on the Compensation Committee were Mr. Taylor,
Ms. Marshall and Mr. Gogel. Mr. Gogel is
President, Chief Executive Officer and a principal and director
of CD&R and a limited partner of CD&R Associates V
Limited Partnership (Associates V), the general
partner of CD&R Fund V. In addition, Mr. Gogel is
President and Chief Executive Officer and a shareholder and
director of CD&R Investment Associates II, Inc.
(Investment Associates II), a Cayman Islands
exempted company that is the managing general partner of
Associates V.

Pursuant to a consulting agreement entered into
following the Acquisition, CD&R receives a fee for advisory,
management consulting and monitoring services to the Company. On
January 1, 1999, the annual fee received by CD&R was
$400,000 for each of the years ended December 31, 1999 and
2000. As of January 1, 2001, the annual fee was increased
to $1,000,000 based on an amendment to the consulting agreement.
The amendment provides for an annual fee for ongoing services
provided to the Company. As required by the terms of the
Companys lending arrangements, such fees were determined
by arms-length negotiation and are believed by the Company
to be reasonable. In addition, the amendment adds to
CD&Rs services under the agreement financial advisory,
investment banking and similar services with respect to future
proposals for an acquisition, merger, recapitalization, or other
similar transaction directly or indirectly involving the Company
or any of its subsidiaries. The fee for such additional services
in connection with future transactions would be an amount equal
to 1% of the transaction value for the transaction to which such
fee relates. Such transaction fees may be increased upon
approval of a majority of the members of the Companys
Board of Directors who are not employees of the Company,
CD&R or any affiliate of CD&R. The proposed amendment
also provides that if any employee of CD&R is appointed to
an executive management position (or a position of comparable
responsibility) in the Company or any of its subsidiaries, the
annual fee will be increased by an amount to be

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determined by CD&R, the amount of such
increase not to exceed 100% of the existing annual fee in effect
at that time. Parent has also agreed to indemnify the members of
the Board employed by CD&R and CD&R against liabilities
incurred under securities laws, liabilities to third parties,
and liabilities relating to the provision by CD&R of
advisory management, consulting and monitoring services. The
Company also engaged an entity, in which CD&R has an
investment, to develop its e-commerce business. During 2000 and
1999, the Company paid such entity fees of $1,798,000 and
$389,000, respectively. The Company terminated this agreement
and entered into a settlement and release agreement with such
entity in 2000, pursuant to which such entity agreed to pay the
Company $500,000 in quarterly installments, together with
interest at 9.5% per annum through October 2005. At
December 31, 2001, the unpaid balance was $397,000. See
Certain Relationships and Related Transactions.


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|         |                                                                
|-------- | ---------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
	Owners and Management

Parent owns, indirectly, all of the outstanding
capital stock of JCI and Jafra S.A. The table below sets
forth, as of March 15, 2002, the owners of 5% or more of
the Parent Common Stock and the ownership of Parent Common Stock
by the directors and each Named Executive Officer, as well as by
all directors and Named Executive Officers of the Company as a
group.

|                                                                       |  |           |         |          |  |  |       | 
|---------------------------------------------------------------------- |  | --------- | ------- | -------- |  |  | ----- | 
|                                                                       |  | Number    |         | Percent 
|Name                                                                   |  | of Shares |         | of Class
|                                                                       |  |           |         |         
|Clayton, Dubilier & Rice Fund V
	Limited Partnership(1)                |  |           | 769,600 |          |  |  | 92.51 | 
|Donald J. Gogel(2)                                                     |  |           |        |          |  |  |      | 
|Steven D. Goldstein                                                    |  |           | 2,000   |          |  |  | *     | 
|Thomas E. Ireland(2)                                                   |  |           |        |          |  |  |      | 
|Siri Marshall                                                          |  |           | 1,667   |          |  |  | *     | 
|David A. Novak(2)                                                      |  |           |        |          |  |  |      | 
|Ann Reese                                                              |  |           | 2,500   |          |  |  | *     | 
|Edward H. Rensi                                                        |  |           | 2,500   |          |  |  | *     | 
|Kenneth D. Taylor                                                      |  |           | 500     |          |  |  | *     | 
|Ronald B. Clark(3)                                                     |  |           | 24,004  |          |  |  | 2.83  | 
|Gonzalo R. Rubio(4)                                                    |  |           | 24,004  |          |  |  | 2.83  | 
|Ralph S. Mason, III(5)                                                 |  |           | 19,037  |          |  |  | 2.26  | 
|Jaime Lopez Guirao(6)                                                  |  |           | 7,858   |          |  |  | *     | 
|Michael A. DiGregorio(7)                                               |  |           | 5,415   |          |  |  | *     | 
|All directors and Named Executive Officers as a
	group (13 persons)(8) |  |           | 89,645  |          |  |  | 10.17 | 




The symbol * denotes less than
1 percent.




|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Associates V is the general partner of CD&R
	Fund V and has the power to direct CD&R Fund V as
	to the voting and disposition of shares held by CD&R
	Fund V. Investment Associates II is the managing
	general partner of Associates V and has the power to direct
	Associates V as to its direction of CD&R
	Fund Vs voting and disposition of the shares held by
	CD&R Fund V. No person controls the voting and
	dispositive power of Investment Associates II with respect
	to the shares owned by CD&R Fund V. Each of
	Associates V and Investment Associates II expressly
	disclaims beneficial ownership of the shares owned by CD&R
	Fund V. The business address for each of CD&R
	Fund V, Associates V and Investment Associates II
	is c/o Investment Associates II, 1403 Foulk Road,
	Suite 106, Wilmington, Delaware 19803.
|   
|(2) | Does not include shares owned by CD&R
	Fund V.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|(3) | Includes 14,840 shares as to which Mr. Clark
	has a right to acquire through the exercise of stock options.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|(4) | Includes 14,840 shares as to which Mr. Rubio
	has a right to acquire through the exercise of stock options.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|(5) | Includes 11,769 shares as to which Mr. Mason
	has a right to acquire through the exercise of stock options.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|(6) | Includes 4,858 shares as to which Mr. Guirao
	has a right to acquire through the exercise of stock options.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|(7) | Includes 3,205 shares as to which
	Mr. DiGregorio has a right to acquire through the exercise
	of stock options, and excludes 160 shares held by the
	trustee of subtrusts established for the benefit of
	Mr. DiGregorios children.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|(8) | Includes 49,512 shares which the directors and
	Named Executive Officers as a group have a right to acquire
	through the exercise of stock options. On October 1, 1999,
	a former member of management exercised 579 options to
	purchase Common Stock, and then sold a total of 2,317 shares of
	Common Stock back to the Company; on November 19, 1999,
	certain members of management and a director purchased an
	aggregate of 2,457 shares of Common Stock; on July 11,
	2000, a member of management purchased 316 shares of Common
	Stock; on July 27, 2000, a former member of management
	exercised 158 options to purchase Common Stock, and then sold a
	total of 632 shares of Common Stock back to                                                                                                                            

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | the Company; on August 9, 2000, certain
	members of management purchased an aggregate of 4,108 shares of
	Common Stock, and on November 6, 2000, a former member of
	management sold 316 shares of the Common Stock back to the
	Company; on February 10, 2001, certain members of
	management purchased an aggregate of 474 shares of Common
	Stock; on June 14, 2001, a former member of management and
	a former director, sold an aggregate total of 2,563 shares of
	Common Stock back to the Company; on September 19, 2001, a
	former member of management exercised options to purchase 210
	shares of Common Stock, and then sold a total of 526 shares
	of Common Stock back to the Company in transactions exempt from
	the registration requirements of the Securities Act. Shares
	owned by CD&R Fund V are not included herein. Mr. Gogel
	is an officer, director and shareholder of Investment
	Associates II, Mr. Ireland is a director and
	shareholder of Investment Associates II, and Mr. Novak
	is a shareholder of Investment Associates II.

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Item 13. Certain Relationships and
Related Transactions

CD&R Fund V, which is Parents largest
stockholder, is a private investment fund managed by CD&R.
Amounts contributed to CD&R Fund V by its limited partners
are invested at the discretion of the general partner in equity
or equity-related securities of entities formed to effect
leveraged buy-out transactions and in the equity of corporations
where the infusion of capital, coupled with the provision of
managerial assistance by CD&R, can be expected to generate
returns on investments comparable to returns historically
achieved in leveraged buyout transactions. The general partner
of CD&R Fund V is Associates V, and the general
partners of Associates V are Investment Associates II, CD&R
Investment Associates, Inc. and CD&R Cayman Investment
Associates, Inc., a Cayman Islands exempted company. Each of
Mr. Gogel, who is President, Chief Executive Officer and a
director of CD&R; President, Chief Executive Officer, and a
shareholder and a director of Investment Associates II; and a
limited partner of Associates V, Mr. Ireland, who is a
principal of CD&R, a limited partner of Associates V and a
shareholder and a director of Investment Associates II, and
Mr. Novak, who is a principal of CD&R, a limited
partner of Associates V, and a shareholder of Investment
Associates II, is a director of Parent. See Directors and
Executive Officers of the Company.

CD&R is a private investment firm that is
organized as a Delaware corporation. CD&R is the manager of
a series of investment funds, including CD&R Fund V.
CD&R generally assists in structuring, arranging financing
for and negotiating the transactions in which the funds it
manages invest. After the consummation of such transactions,
CD&R generally provides advisory, management consulting and
monitoring services to the companies in which its investment
funds have invested during the period of such funds
investment.

Pursuant to a consulting agreement entered into
at the closing of the Acquisition, until the tenth anniversary
of the Acquisition or the date on which CD&R Fund V no
longer has an investment in the Company or until the termination
by either party with 30 days notice, CD&R will receive
an annual fee (and reimbursement of out-of-pocket expenses) for
providing advisory, management consulting and monitoring
services to the Company. Effective January 1, 1999, the
annual fee was $400,000. Such services include, among others,
helping the Company to establish effective banking, legal and
other business relationships and assisting management in
developing and implementing strategies for improving the
operational, marketing and financial performance of the Company.
Based on an amendment to the consulting agreement, effective
January 1, 2001, the annual fee was increased to
$1,000,000, for ongoing services provided to the Company. As
required by the terms of the Companys lending
arrangements, such fees were determined by arms-length
negotiation and are believed by the Company to be reasonable.

In addition, the amendment adds to
CD&Rs services under the agreement financial advisory,
investment banking and similar services with respect to future
proposals for an acquisition, merger, recapitalization, or other
similar transaction directly or indirectly involving the Company
or any of its subsidiaries. The fee for such additional services
in connection with future transactions would be an amount equal
to 1% of the transaction value for the transaction to which such
fee relates. Such transaction fees may be increased upon
approval of a majority of the members of the Companys
Board of Directors who are not employees of the Company,
CD&R or any affiliate of CD&R.

The amendment also provides that if any employee
of CD&R is appointed to an executive management position (or
a position of comparable responsibility) in the Company or any
of its subsidiaries, the annual fee will be increased by an
amount to be determined by CD&R, the amount of such increase
not to exceed 100% of the existing annual fee in effect at that
time.

CD&R, CD&R Fund V and Parent entered into
an indemnification agreement, pursuant to which Parent has
agreed to indemnify the members of its board of directors, as
well as CD&R, CD&R Fund V, Associates V, Investment
Associates II and certain of their members, partners,
associates and affiliates (the Indemnitees) to the
fullest extent allowable under applicable law and to indemnify
the Indemnitees against any suits, claims, damages or expenses
which may be made against or incurred by them under applicable
securities laws in connection with offerings of securities of
the Company, liabilities to third parties arising out of any
action or failure to act by the Company, and, except in cases of
gross negligence or intentional misconduct, the provision by
CD&R of advisory, management consulting and monitoring
services.

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During 1999, the Company engaged Guidance
Solutions Inc. (Guidance), a corporation in which an
investment fund managed by CD&R has an investment, to
develop its e-commerce business. Under the agreement entered
into by both parties, the Company agreed to pay fees of
approximately $2.0 million to Guidance in connection with
the planning, defining, designing and consulting services
performed related to the Companys e-commerce initiative.
During 2000 and 1999, the Company paid fees to Guidance of
$1,798,000 and $389,000, respectively. The Company terminated
its agreement with Guidance and executed a settlement and mutual
release agreement effective September 30, 2000. Upon
execution of this settlement and mutual release agreement in
October of 2000, Guidance paid the Company $25,000 and agreed to
pay the Company an aggregate additional sum of $475,000, payable
in quarterly installments, plus interest at 9.5% per annum,
beginning in January 2001 through October 2005. At
December 31, 2001, the unpaid balance was $397,000.

The Company has entered into employment
agreements with various members of management, including each of
the Named Executive Officers. See Executive
Compensation  Employment Agreements. The
employment agreements of Messrs. Clark and Rubio provide
that each will be a director of Parent during the term of his
employment.

Under certain circumstances, stockholders can
require the Company to purchase their shares of Common Stock.
Management stockholders are subject to a holding period of at
least seven months from the date such shares were acquired. In
June 2001, a former member of management and a director both
requested that the Company purchase their entire balance of
Common Stock, consisting of an aggregate of 2,563 shares. In
September 2001, a former member of management exercised options
to purchase 210 shares of Common Stock, and then requested that
the Company purchase his entire balance of Common Stock,
consisting of 526 shares. In July 2000, a former member of
management exercised options to purchase 158 shares of Common
Stock, and then requested that the Company purchase his entire
balance of Common Stock, consisting of 632 shares. In
November 2000, a former member of management requested that the
Company purchase his entire balance of Common Stock, consisting
of 316 shares. The Company repurchased the shares in 2001
at a total cost of $772,000, or $250 per share, and the
shares in 2000 at a total cost of $199,000, or $210 per share,
which represented the respective estimated fair values at the
time of the purchases.

Certain members of management, including Named
Executive Officers, financed a portion of the cash purchase
price of the shares of Common Stock they acquired through loans
from the Chase Manhattan Bank on market terms. In July 2000, a
member of management purchased 316 shares of Common Stock at a
purchase price of $150 per share, which was below the estimated
fair value at the time of purchase of $210 per share. The
Company recognized compensation expense of approximately $19,000
at the time of the purchase. In August 2000, certain members of
management purchased an aggregate of 4,108 shares of the Common
Stock at a purchase price of $210 per share, which represented
the estimated fair value at the time of the purchase. During
2000, certain members of management were also granted options to
purchase an aggregate of 8,848 shares of Common Stock. In
February 2001, certain members of management purchased an
aggregate of 474 shares of the Common Stock at a purchase
price of $210 per share, which represented the estimated
fair value at the time of the purchase. In September 2001, a
former member of management purchased 210 shares of Common
Stock at a purchase price of $150 per share, which was
below the estimated fair value at the time of the purchase of
$250 per share. The Company recognized compensation expense of
approximately $21,000 at the time of the purchase. During 2001,
certain members of management were also granted options to
purchase an aggregate of 948 shares of Common Stock. To help
members of management obtain such terms for such financing, the
Company fully and unconditionally guaranteed up to 75% of the
purchase price for the shares of Common Stock purchased by each
such member of management. The Company guaranteed loans for
$687,300, $687,300, $545,100, $225,000 and $230,000 extended to
Messrs. Clark, Rubio, Mason, Guirao, and DiGregorio,
respectively, portions of which remain outstanding.

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PART IV

Item 14. Exhibits, Financial Statement
Schedules and Reports on Form 8-K

(a)(1) Financial Statements.Reference is
made to the Index to Financial Statements and Schedules of the
Company on page 28 of this Annual Report on Form 10-K.

(a)(2) Financial Statement Schedules.Reference is made to the Index to Financial Statements and
Financial Statement Schedules of the Company on page 31 of
this Annual Report on Form 10-K. See also the following
financial statement schedules which should be read in
conjunction with the financial statements included in
Item 8 of this Annual Report on Form 10-K.

|                                              |                                                                                                       |               |  |    | 
|--------------------------------------------- | ----------------------------------------------------------------------------------------------------- | ------------- |  | -- | 
|                                              |                                                                                                       | Pages in this
|                                              |                                                                                                       | Annual Report
|                                              |                                                                                                       | On Form 10-K 
|                                              |                                                                                                       |              
|Jafra Cosmetics International, Inc.:          |                                                                                                       |               |  |   
|                                              | Independent Auditors Report                                                                          |               |  | 58 | 
|                                              | Consolidated Balance Sheets as of
	December 31, 2001 and 2000                                         |               |  | 59 | 
|                                              | Consolidated Statements of Operations for the
	years ended December 31, 2001, 2000 and 1999           |               |  | 60 | 
|                                              | Consolidated Statements of Stockholders
	Equity for the years ended December 31, 2001, 2000 and 1999 |               |  | 61 | 
|                                              | Consolidated Statements of Cash Flows for the
	years ended December 31, 2001, 2000 and 1999           |               |  | 62 | 
|                                              | Notes to Consolidated Financial Statements                                                            |               |  | 63 | 
|Jafra Cosmetics International, S.A. de
	C.V.: |                                                                                                       |               |  |   
|                                              | Independent Auditors Report                                                                          |               |  | 80 | 
|                                              | Consolidated Balance Sheets as of
	December 31, 2001 and 2000                                         |               |  | 81 | 
|                                              | Consolidated Statements of Operations for the
	years ended December 31, 2001, 2000 and 1999           |               |  | 82 | 
|                                              | Consolidated Statements of Stockholders
	Equity for the years ended December 31, 2001, 2000 and 1999 |               |  | 83 | 
|                                              | Consolidated Statements of Cash Flows for the
	years ended December 31, 2001, 2000 and 1999           |               |  | 84 | 
|                                              | Notes to Consolidated Financial Statements                                                            |               |  | 85 | 
|                                              | Schedule II  Valuation and Qualifying
	Accounts                                                      |               |  | 99 | 

(a)(3) Exhibits.The following
documents are exhibits to this Annual Report on Form 10-K.

|        |     |                         |  |                                                                                                                                                                                                                                                                                                                         
|------- | --- | ----------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |     |                        
|Number  |     | Description of Document
|        |     |                        
|        | 3.1 |                         |  | Articles of Association (Statuts Coordonnes) of
	CDRJ Investments (Lux) S.A., as restated on September 30,
	1998; previously filed as Exhibit 3.1 to Amendment 2
	to Registration Statement No. 333-62989 under the
	Securities Act of 1933, as amended, filed December 23,
	1998, and incorporated herein by reference.
|        | 3.2 |                         |  | Certificate of Incorporation of CDRJ Acquisition
	Corporation, dated March 31, 1998; previously filed as
	Exhibit 3.2 to Registration Statement No. 333-62989
	under the Securities Act of 1933, as amended, filed
	September 4, 1998, and incorporated herein by reference.                                            
|        | 3.3 |                         |  | Certificate of Merger of Jafra Cosmetics
	International, Inc. into CDRJ Acquisition Corporation, dated
	April 30, 1998; previously filed as Exhibit 3.3 to
	Registration Statement No. 333-62989 under the Securities
	Act of 1933, as amended, filed September 4, 1998, and
	incorporated herein by reference.         

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|        |      |                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|------- | ---- | ----------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |                        
|Number  |      | Description of Document
|        |      |                        
|        | 3.4  |                         |  | Amended and Restated By-laws of Jafra Cosmetics
	International, Inc. (formerly CDRJ Acquisition Corporation), as
	adopted on July 21, 1998; previously filed as
	Exhibit 3.4 to Registration Statement No. 333-62989
	under the Securities Act of 1933, as amended, filed
	September 4, 1998, and incorporated herein by reference.                                                                                                                                                                                                  
|        | 3.5  |                         |  | Deed of Incorporation (acta constitutiva),
	including all amendments thereto, and current by-laws (estatutos
	sociales) of Jafra Cosmetics International, S.A. de C.V.,
	together with a unofficial summary thereof in English;
	previously filed as Exhibit 3.5 to Registration Statement
	No. 333-62989 under the Securities Act of 1933, as amended,
	filed September 4, 1998, and incorporated herein by
	reference.                                                                                                             
|        | 3.6  |                         |  | Deed of Incorporation (acta constitutiva),
	including all amendments thereto, and current by-laws (estatutos
	sociales) of Dirsamex, S.A. de C.V., together with a unofficial
	summary thereof in English; previously filed as Exhibit 3.7
	to Amendment No. 1 to Registration Statement
	No. 333-62989 under the Securities Act of 1933, as amended,
	filed October 27, 1998, and incorporated herein by
	reference.                                                                                                                
|        | 3.7  |                         |  | Deed of Incorporation (acta constitutiva),
	including all amendments thereto, and current by-laws (estatutos
	sociales) of Jafra Cosmetics S.A. de C.V., formerly known as
	Jafra Cosmetics S. de R.L. de C.V., together with a unofficial
	summary thereof in English; previously filed as Exhibit 3.9
	to Amendment No. 1 to Registration Statement
	No. 333-62989 under the Securities Act of 1933, as amended,
	filed October 27, 1998, and incorporated herein by
	reference.                                                   
|        | 3.8  |                         |  | Deed of Incorporation (acta constitutiva),
	including all amendments thereto, and current by-laws (estatutos
	sociales) of Qualifax, S.A. de C.V., together with a unofficial
	summary thereof in English; previously filed as
	Exhibit 3.10 to Amendment No. 1 to Registration
	Statement No. 333-62989 under the Securities Act of 1933,
	as amended, filed October 27, 1998, and incorporated herein
	by reference.                                                                                                               
|        | 3.9  |                         |  | Deed of Incorporation (acta constitutiva),
	including all amendments thereto, and current by-laws (estatutos
	sociales) of Reday, S.A. de C.V., together with a unofficial
	summary thereof in English; previously filed as
	Exhibit 3.11 to Amendment No. 1 to Registration
	Statement No. 333-62989 under the Securities Act of 1933,
	as amended, filed October 27, 1998, and incorporated herein
	by reference.                                                                                                                  
|        | 3.10 |                         |  | Deed of Incorporation (acta constitutiva),
	including all amendments thereto, and current by-laws (estatutos
	sociales) of Cosmeticos Y Fragrancias, S.A. de C.V., together
	with an unofficial summary thereof in English; previously filed
	as exhibit 3.10 to the Companys Annual Report on
	Form 10-K for the fiscal year ended 2000, filed on
	April 2, 2001, and incorporated herein by reference.                                                                                                                            
|        | 3.11 |                         |  | Notarial Deed and Resolutions, together with an
	unofficial summary thereof in English, for the transformation of
	Jafra Cosmetics S. de R.L. de C.V. into Jafra Cosmetics S.A. de
	C.V.; previously filed as Exhibit 3.12 to the
	Companys Annual Report on Form 10-K for the fiscal
	year ended 1999, filed on March 30, 2000, and incorporated
	herein by reference.                                                                                                                                                             
|        | 3.12 |                         |  | Approval, dated as of April 17, 2000, by the
	Public Registry of Commerce of the United Mexican States of the
	merger of Consultoria Jafra S.A. de C.V. and Distribuidora
	Venus, S.A. de C.V. with and into Reday, S.A. de C.V., together
	with supporting shareholders resolutions and the
	unofficial English translation thereof; previously filed as
	Exhibit 3.1 to the Companys Quarterly Report on
	Form 10-Q for the second quarter ended June 30, 2000,
	filed on August 14, 2000, and incorporated herein by
	reference.
|        | 3.13 |                         |  | Notarial Deed and Resolutions, together with an
	unofficial summary thereof in English, for the changing of the
	corporate name from Reday, S.A. de C.V. to Distribuidora Venus,
	S.A. de C.V. as a consequence of the merger of Distribuidora
	Venus, S.A. de C.V. into Reday, S.A. de C.V.; previously filed
	as Exhibit 3.11 to the Companys Annual Report on
	Form 10-K for the fiscal year ended 2000, filed on
	April 2, 2001, and incorporated herein by reference.                                                          

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|        |      |                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|------- | ---- | ----------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |                        
|Number  |      | Description of Document
|        |      |                        
|        | 3.14 |                         |  | Notarial Deed and Resolutions, together with an
	unofficial summary thereof in English, for the renaming of
	Qualifax, S.A. de C.V. as Serviday S.A. de C.V.; previously
	filed as Exhibit 3.1 to the Companys Quarterly Report
	on Form 10-Q for the second quarter ended June 30,
	2001, filed on August 14, 2001, and incorporated herein by
	reference.                                                                                                                                                                                                                                                        
|        | 4.1  |                         |  | Indenture, dated April 30, 1998, among CDRJ
	Acquisition Corporation, Jafra Cosmetics International, S.A. de
	C.V., CDRJ Investments (Lux) S.A., and State Street Bank and
	Trust Company; previously filed as Exhibit 4.1 to
	Registration Statement No. 333-62989 under the Securities
	Act of 1933, as amended, filed September 4, 1998, and
	incorporated herein by reference.                                                                                                                                                                                                                                  
|        | 4.2  |                         |  | First Supplemental Indenture, dated
	April 30, 1998, among Consultoria Jafra, S.A. de C.V.,
	Distribuidora Venus, S.A. de C.V., Dirsamex, S.A. de C.V.,
	Reday, S.A. de C.V., Qualifax S.A. de C.V., and Jafra Cosmetics
	S.R.L., CDRJ Acquisition Corporation and Jafra Cosmetics
	International, S.A. de C.V. and State Street Bank and Trust
	Company; previously filed as Exhibit 4.2 to Registration
	Statement No. 333-62989 under the Securities Act of 1933,
	as amended, filed September 4, 1998, and incorporated
	herein by reference.                                                                   
|        | 4.3  |                         |  | Purchase Agreement, dated April 28, 1998,
	between Credit Suisse First Boston Corporation, Chase Securities
	Inc., CDRJ Acquisition Corporation, Jafra Cosmetics
	International, S.A. de C.V., and CDRJ Investments (Lux) S.A.;
	previously filed as Exhibit 4.3 to Registration Statement
	No. 333-62989 under the Securities Act of 1933, as amended,
	filed September 4, 1998, and incorporated herein by
	reference.                                                                                                                                                                                            
|        | 4.4  |                         |  | Purchase Agreement Amendment, dated
	April 30, 1998, executed on behalf of each of Reday, S.A.
	de C.V., Distribuidora Venus, S.A. de C.V., Dirsamex, S.A. de
	C.V., Qualifax, S.A. de C.V., Jafra Cosmetics, S.R.L.,
	Consultoria Jafra, S.A. de C.V., Credit Suisse First Boston
	Corporation, and Chase Securities Inc.; previously filed as
	Exhibit 4.4 to Registration Statement No. 333-62989
	under the Securities Act of 1933, as amended, filed
	September 4, 1998, and incorporated herein by reference.                                                                                                 
|        | 4.5  |                         |  | Registration Rights Agreement, dated
	April 30, 1998, among CDRJ Acquisition Corporation, Jafra
	Cosmetics International, Inc., Jafra Cosmetics International,
	S.A. de C.V., CDRJ Investments (Lux) S.A., Reday, S.A. de C.V.,
	Distribuidora, S.A. de C.V., Dirsamex, S.A. de C.V., Qualifax,
	S.A. de C.V., Jafra Cosmetics, S.A. de C.V., Consultoria Jafra,
	S.A. de C.V., and Credit Suisse First Boston Corporation;
	previously filed as Exhibit 4.5 to Registration Statement
	No. 333-62989 under the Securities Act of 1933, as amended,
	filed September 4, 1998, and incorporated herein by
	reference.
|        | 4.6  |                         |  | Credit Agreement, dated April 30, 1998,
	among CDRJ Acquisition Corporation, Jafra Cosmetics
	International, S.A. de C.V., CDRJ Investments (Lux) S.A., as
	Guarantor and Parent of the Borrowers, the Lenders named therein
	and Credit Suisse First Boston, as Administrative Agent;
	previously filed as Exhibit 4.6 to Registration Statement
	No. 333-62989 under the Securities Act of 1933, as amended,
	filed September 4, 1998, and incorporated herein by
	reference.                                                                                                                                     
|        | 4.7  |                         |  | Amendment No. 1 to the Credit Agreement,
	dated August 26, 1998; previously filed as Exhibit 4.7
	to Registration Statement No. 333-62989 under the
	Securities Act of 1933, as amended, filed September 4,
	1998, and incorporated herein by reference.                                                                                                                                                                                                                                                                                                                                                            
|        | 4.8  |                         |  | Indemnity, Subrogation and Contribution
	Agreement, dated April 30, 1998, among Jafra Cosmetics
	International, S.A. de C.V. (JCISA), each Subsidiary
	of JCSI listed on Schedule I thereto and Credit Suisse
	First Boston; previously filed as Exhibit 4.8 to
	Registration Statement No. 333-62989 under the Securities
	Act of 1933, as amended, filed September 4, 1998, and
	incorporated herein by reference.                                                                                                                                                                                              

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|        |      |                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|------- | ---- | ----------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |                        
|Number  |      | Description of Document
|        |      |                        
|        | 4.9  |                         |  | JCI Guarantee Agreement, dated April 30,
	1998, between CDRJ Acquisition Corporation and Credit Suisse
	First Boston; previously filed as Exhibit 4.9 to
	Registration Statement No. 333-62989 under the Securities
	Act of 1933, as amended, filed September 4, 1998, and
	incorporated herein by reference.                                                                                                                                                                                                                                                                                
|        | 4.10 |                         |  | JCISA Guarantee Agreement, dated April 30,
	1998, between Jafra Cosmetics International, S.A. de C.V. and
	Credit Suisse First Boston; previously filed as
	Exhibit 4.10 to Registration Statement No. 333-62989
	under the Securities Act of 1933, as amended, filed
	September 4, 1998, and incorporated herein by reference.                                                                                                                                                                                                                                                              
|        | 4.11 |                         |  | JCISA Subsidiary Guarantee Agreement, dated
	April 30, 1998, among each of the subsidiaries of Jafra
	Cosmetics International, S.A. de C.V. listed on Schedule I
	thereto, and Credit Suisse First Boston; previously filed as
	Exhibit 4.11 to Registration Statement No. 333-62989
	under the Securities Act of 1933, as amended, filed
	September 4, 1998, and incorporated herein by reference.                                                                                                                                                                                          
|        | 4.12 |                         |  | Parent Guarantee Agreement, dated April 30,
	1998, between CDRJ Investments (Lux) S.A. and Credit Suisse
	First Boston; previously filed as Exhibit 4.12 to
	Registration Statement No. 333-62989 under the Securities
	Act of 1933, as amended, filed September 4, 1998, and
	incorporated herein by reference.                                                                                                                                                                                                                                                                             
|        | 4.13 |                         |  | Pledge Agreement, dated April 30, 1998 among
	CDRJ Investments (Lux) S.A., CDRJ North Atlantic Sarl, CDRJ
	Latin America Holding Company B.V., Latin Cosmetics Holdings
	B.V., Regional Cosmetics Holding B.V., Southern Cosmetics
	Holdings B.V., and CDRJ Mexico Holding Company B.V., CDRJ
	Acquisition Corporation, Jafra Cosmetics International, S.A. de
	C.V. and Credit Suisse First Boston; previously filed as
	Exhibit 4.13 to Registration Statement No. 333-62989
	under the Securities Act of 1933, as amended, filed
	September 4, 1998, and incorporated herein by reference.
|        | 4.14 |                         |  | Security Agreement, dated April 30, 1998,
	among CDRJ Acquisition Corporation (JCI), each
	subsidiary of JCI listed on Schedule I thereto and Credit
	Suisse First Boston; previously filed as Exhibit 4.14 to
	Registration Statement No. 333-62989 under the Securities
	Act of 1933, as amended, filed September 4, 1998, and
	incorporated herein by reference.                                                                                                                                                                                                                        
|        | 4.15 |                         |  | Deed of Trust, with Assignment of Leases and
	Rents, Fixture Filing and Security Agreement, dated
	April 30, 1998, by Jafra Cosmetics International, Inc. to
	TitleServ Agency of New York City, Inc., as trustee for the
	Benefit of Credit Suisse First Boston; previously filed as
	Exhibit 4.15 to Registration Statement No. 333-62989
	under the Securities Act of 1933, as amended, filed
	September 4, 1998, and incorporated herein by reference.                                                                                                                                   
|        | 4.16 |                         |  | Acknowledgment of Obligations and Mortgage, dated
	April 30, 1998, granted by Reday, S.A. de C.V. in favor of
	Credit Suisse First Boston, together with an unofficial English
	translation thereof; previously filed as Exhibit 4.16 to
	Registration Statement No. 333-62989 under the Securities
	Act of 1933, as amended, filed September 4, 1998, and
	incorporated herein by reference.                                                                                                                                                                                                
|        | 4.17 |                         |  | Notarial Deed of Pledge, dated April 30,
	1998, with respect to the pledge to Credit Suisse First Boston
	of (i) 24 ordinary shares of the capital stock of CDRJ
	Europe Holding Company B.V. by Jafra Cosmetics International,
	Inc., and (ii) 40 ordinary shares of the capital stock of
	CDRJ Latin America Holding B.V. by CDRJ North Atlantic (Lux)
	Sarl; previously filed as Exhibit 4.17 to Registration
	Statement No. 333-62989 under the Securities Act of 1933,
	as amended, filed September 4, 1998, and incorporated
	herein by reference.                                     

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|                                                                                                                                                                                                         |      |                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---- | ----------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit                                                                                                                                                                                                  |      |                        
|Number                                                                                                                                                                                                   |      | Description of Document
|                                                                                                                                                                                                         |      |                        
|                                                                                                                                                                                                         | 4.18 |                         |  | Consent and Waiver, dated as of November 19,
	1999, to the Credit Agreement dated as of April 30, 1998,
	as amended by Amendment No. 1 thereto dated as of
	August 26, 1998, among Jafra Cosmetics International Inc.,
	Jafra Cosmetics International S.A. de C.V., CDRJ Investments
	(Lux) S.A., the several banks and financial institutions party
	to the Credit Agreement, the Issuing Bank and Credit Suisse
	First Boston, as Administrative Agent; previously filed as
	Exhibit 4.18 to the Companys Annual Report on
	Form 10-K for the fiscal year ended 1999, filed on
	March 30, 2000, and incorporated herein by reference.
|                                                                                                                                                                                                         | 4.19 |                         |  | Substitution of Trustee and Partial Reconveyance
	of Deed of Trust, Assignment of Leases and Rents, Fixture Filing
	and Security Agreement, and Release of Financing Statement,
	dated November 29, 1999, which amends the Deed of Trust
	filed as Exhibit 4.15 above; previously filed as
	Exhibit 4.19 to the Companys Annual Report on
	Form 10-K for the fiscal year ended 1999, filed on
	March 30, 2000, and incorporated herein by reference.                                                                                                                                                                                   
|                                                                                                                                                                                                         | 4.20 |                         |  | Partial Reconveyance of Deed of Trust, Assignment
	of Leases and Rents, Fixture Filing and Security Agreement and
	Release of Financing Statement, dated November 29, 1999,
	which amends the Deed of Trust filed as Exhibit 4.15 above;
	previously filed as Exhibit 4.20 to the Companys
	Annual Report on Form 10-K for the fiscal year ended 1999,
	filed on March 30, 2000, and incorporated herein by
	reference.                                                                                                                                                                                                                
|                                                                                                                                                                                                         | 4.21 |                         |  | Consent and Waiver, dated as of June 30,
	2001, to the Credit Agreement dated as of April 30, 1998,
	as amended by Amendment No. 1 thereto dated as of
	August 26, 1998, among Jafra Cosmetics International Inc.,
	Jafra Cosmetics International S.A. de C.V., CDRJ Investments
	(Lux) S.A., the several banks and financial institutions party
	to the Credit Agreement, the Issuing Bank and Credit Suisse
	First Boston, as Administrative Agent.                                                                                                                                                                                   
|Items in this Section 10 constitute
	management contracts or compensatory plans or arrangements with
	the exception of Exhibits 10.1, 10.7, 10,12, 10.13, 10.14,
	10.15, 10.16, 10.17, 10.18, and 10.19.
|                                                                                                                                                                                                         | 10.1 |                         |  | Indemnification Agreement, dated April 30,
	1998, among CDRJ Investments (Lux) S.A., CDRJ Acquisition
	Corporation, Jafra Cosmetics International, S.A. de C.V.,
	Clayton, Dubilier & Rice, Inc., Clayton, Dubilier & Rice
	Fund V Limited Partnership; previously filed as
	Exhibit 10.1 to Registration Statement No. 333-62989
	under the Securities Act of 1933, as amended, filed
	September 4, 1998, and incorporated herein by reference.                                                                                                                                                                                        
|                                                                                                                                                                                                         | 10.2 |                         |  | Consulting Agreement, dated April 30, 1998,
	by and among CDRJ Investments (Lux) S.A., Jafra Cosmetics
	International, Inc. and Jafra Cosmetics, S.A. de C.V., and
	Clayton, Dubilier & Rice, Inc.; previously filed as
	Exhibit 10.2 to Registration Statement No. 333-62989
	under the Securities Act of 1933, as amended, filed
	September 4, 1998, and incorporated herein by reference.                                                                                                                                                                                                                                            
|                                                                                                                                                                                                         | 10.3 |                         |  | Form of Employment Agreement for
	Messrs. Clark, Rubio, Mason, Guirao and DiGregorio;
	previously filed as Exhibit 10.3 to Registration Statement
	No. 333-62989 under the Securities Act of 1933, as amended,
	filed September 4, 1998, and incorporated herein by
	reference.                                                                                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                         | 10.4 |                         |  | Amended and Restated Jafra Cosmetics
	International, Inc. Stock Incentive Plan, as adopted
	September 3, 1998; previously filed as Exhibit 10.4 to
	Amendment No. 1 to Registration Statement
	No. 333-62989 under the Securities Act of 1933, as amended,
	filed October 27, 1998, and incorporated herein by
	reference.                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                         | 10.5 |                         |  | CDRJ Investments (Lux) S.A. Form of Management
	Stock Option Agreement; previously filed as Exhibit 10.5 to
	Amendment No. 1 to Registration Statement
	No. 333-62989 under the Securities Act of 1933, as amended,
	filed October 27, 1998, and incorporated herein by
	reference.                                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                         | 10.6 |                         |  | Amended and Restated Stock Purchase Warrant,
	dated September 30, 1998, by and between CDRJ Investments
	(Lux) S.A. and Jafra Cosmetics International, Inc.; previously
	filed as Exhibit 10.6 to Amendment No. 1 to
	Registration Statement No. 333-62989 under the Securities
	Act of 1933, as amended, filed October 27, 1998, and
	incorporated herein by reference.                                                                                                                                                                                                                                                                

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|        |       |                         |  |                                                                                                                                                                                                                                                                                                                                                                                     
|------- | ----- | ----------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |                        
|Number  |       | Description of Document
|        |       |                        
|        | 10.7  |                         |  | Registration and Participation Agreement, dated
	April 30, 1998, among CDRJ Investments (Lux) S.A. and
	Clayton, Dubilier & Rice Fund V Limited Partnership and the
	other parties thereto; previously filed as Exhibit 10.7 to
	Registration Statement No. 333-62989 under the Securities
	Act of 1933, as amended, filed September 4, 1998, and
	incorporated herein by reference.
|        | 10.8  |                         |  | CDRJ Investments (Lux) S.A. Form of Management
	Stock Subscription Agreement; previously filed as
	Exhibit 10.8 to Amendment No. 1 to Registration
	Statement No. 333-62989 under the Securities Act of 1933,
	as amended, filed October 27, 1998, and incorporated herein
	by reference.                                                                                           
|        | 10.9  |                         |  | CDRJ Investments (Lux) S.A. Form of Individual
	Investor Stock Subscription Agreement; previously filed as
	Exhibit 10.9 to Amendment No. 1 to Registration
	Statement No. 333-62989 under the Securities Act of 1933,
	as amended, filed October 27, 1998, and incorporated herein
	by reference.                                                                                  
|        | 10.10 |                         |  | Jafra Cosmetics International, Inc. Supplemental
	Savings Plan, dated October 27, 1998; previously filed as
	Exhibit 10.1 to the Companys Quarterly Report on
	Form 10-Q for the first quarter ended March 31, 1999,
	filed May 17, 1999, and incorporated herein by reference.                                                                                                    
|        | 10.11 |                         |  | Jafra Cosmetics International, Inc. Special
	Supplemental Savings Plan for Non-United States-Source Income,
	dated January 20, 1999; previously filed as
	Exhibit 10.2 to the Companys Quarterly Report on
	Form 10-Q for the first quarter ended March 31, 1999,
	filed May 17, 1999, and incorporated herein by reference.                                                       
|        | 10.12 |                         |  | Asset Purchase Agreement, dated as of
	June 10, 1999, as amended by Amendment No. 1, dated as
	of June 10, 1999; by and between the Company and the
	Contractor, previously filed as Exhibit 10.1 to
	Form 8-K, filed on June 10, 1999, and incorporated
	herein by reference (portions of which were filed under a
	confidentiality request).                                      
|        | 10.13 |                         |  | Amendment No. 1 to Asset Purchase Agreement,
	dated as of June 10, 1999; previously filed as
	Exhibit 10.2 to Form 8-K, filed on June 10, 1999,
	and incorporated herein by reference (portions of which were
	filed under a confidentiality request).                                                                                                                              
|        | 10.14 |                         |  | Manufacturing Agreement, dated as of
	June 10, 1999, by and between the Company and the
	Contractor, as amended by Amendment No. 1, dated as of
	June 22, 1999; previously filed as Exhibit 10.3 to
	Form 8-K, filed on June 10, 1999, and incorporated
	herein by reference (portions of which were filed under a
	confidentiality request).                                       
|        | 10.15 |                         |  | Form of Amendment No. 1 to Manufacturing
	Agreement, dated as of June 10, 1999; previously filed as
	Exhibit 10.4 to Form 8-K, filed on June 10, 1999
	and incorporated herein by reference (portions of which were
	filed under a confidentiality request).                                                                                                                        
|        | 10.16 |                         |  | Form of Secured Note for the Assets, dated
	June 10, 1999, made by the Contractor in favor of the
	Company; previously filed as Exhibit 10.5 to Form 8-K,
	filed on June 10, 1999 and incorporated herein by reference
	(portions of which were filed under a confidentiality request).                                                                                             
|        | 10.17 |                         |  | Form of Secured Note for the Inventory, dated
	June 10, 1999, made by the Contractor in favor of the
	Company; previously filed as Exhibit 10.6 to Form 8-K,
	filed on June 10, 1999 and incorporated herein by reference
	(portions of which were filed under a confidentiality request).                                                                                          
|        | 10.18 |                         |  | Sale Agreement, dated as of September 29,
	1999, between the Company and Townsgate Road LLC; previously
	filed as Exhibit 10.1 to the Companys Quarterly
	Report on Form 10-Q for the third quarter ended
	September 30, 1999, filed November 12, 1999, and
	incorporated herein by reference.                                                                                     
|        | 10.19 |                         |  | Sale Agreement, dated as of October 15,
	1999, between the Company and Selvin Properties; previously
	filed as Exhibit 10.2 to the Companys Quarterly
	Report on Form 10-Q for the third quarter ended
	September 30, 1999, filed November 12, 1999, and
	incorporated herein by reference.                                                                                        
|        | 10.20 |                         |  | Trust Agreement dated May 26, 1999 by and
	between Jafra Cosmetics International, Inc. and Scudder Trust
	Company; previously filed as Exhibit 10.20 to the
	Companys Annual Report on Form 10-K for the fiscal
	year ended 1999, filed on March 30, 2000, and incorporated
	herein by reference.                                                                                  

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|        |       |                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                    
|------- | ----- | ----------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |                        
|Number  |       | Description of Document
|        |       |                        
|        | 10.21 |                         |  | Amendment No. 1 to Consulting Agreement,
	dated as of March 15, 2000, by and among CDRJ Investments
	(Lux) S.A., Jafra Cosmetics International, Inc., Jafra Cosmetics
	International, S.A. de C.V., and Clayton, Dubilier & Rice,
	Inc.; previously filed as Exhibit 10.21 to the
	Companys Annual Report on Form 10-K for the fiscal
	year ended 1999, filed on March 30, 2000, and incorporated
	herein by reference.           
|        | 10.22 |                         |  | First Amendment to Amended and Restated Jafra
	Cosmetics International, Inc. Stock Incentive Plan; previously
	filed as exhibit 10.22 to the Companys Annual Report on
	Form 10-K for the fiscal year ended 2000, filed on
	April 2, 2001, and incorporated herein by reference.                                                                                                                                                  
|        | 10.23 |                         |  | CDRJ Investments (Lux) S.A. Form of Management
	Stock Subscription Agreement, as amended; previously filed as
	exhibit 3.10 to the Companys Annual Report on
	Form 10-K for the fiscal year ended 2000, filed on
	April 2, 2001, and incorporated herein by reference.                                                                                                                                                            
|        | 10.24 |                         |  | Amended and Restated Consulting Agreement, dated
	as of January 1, 2001, by and among CDRJ Investments (Lux)
	S.A., Jafra Cosmetics International, Inc., Jafra Cosmetics
	International, S.A. de C.V., and Clayton, Dubilier & Rice,
	Inc; previously filed as Exhibit 10.1 to the Companys
	Quarterly Report on Form 10-Q for the first quarter ended
	March 31, 2001, filed May 15, 2001, and incorporated
	herein by reference.
|        | 21.1  |                         |  | Subsidiaries of the registrant.                                                                                                                                                                                                                                                                                                                                                                                                    

(b) Reports on Form 8-K

During the quarter ended December 31, 2001,
the Company filed no reports on Form 8-K.

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SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the Registrant
has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.



| |                            
| | ---------------------------
| | CDRJ Investments (Lux) S.A.



| |     |                    
| | --- | -------------------
| | By: | /s/ RONALD B. CLARK

| |                      
| | ---------------------
| |                      
| | Name: Ronald B. Clark

| |        |                                        
| | ------ | ---------------------------------------
| | Title: | Chief Executive Officer of the Advisory

| |                       
| | ----------------------
| | Committee and Director

Date April 1, 2002

Pursuant to the requirements of the Securities
Exchange Act of 1934, this Report has been signed below by the
following persons on behalf of Registrant and in the capacities
and on the dates indicated.

|                                               |  |                                                                                                                                           |  |              
|---------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------- |  | -------------
|Signature                                      |  | Title                                                                                                                                     |  | Date         
|                                               |  |                                                                                                                                           |  |              
|/s/ RONALD B. CLARKRonald B. Clark             |  | Chief Executive Officer of the
	Advisory Committee and Director
	(Principal executive officer)                                            |  | April 1, 2002
|                                              
|/s/ MICHAEL A. DIGREGORIOMichael A. DiGregorio |  | Senior Vice President and Chief Financial Officer
	of the Advisory Committee (Principal financial officer,
	Principal accounting officer) |  | April 1, 2002
|                                              
|/s/ RALPH S. MASON, IIIRalph S. Mason, III     |  | Secretary and Executive Vice President
	of the Advisory Committee
	(Representative in the U.S.)                                           |  | April 1, 2002
|                                              
|/s/ DONALD J. GOGELDonald J. Gogel             |  | Director                                                                                                                                  |  | April 1, 2002
|                                              
|/s/ STEVEN D. GOLDSTEINSteven D. Goldstein     |  | Director                                                                                                                                  |  | April 1, 2002
|                                              
|/s/ THOMAS E. IRELANDThomas E. Ireland         |  | Director                                                                                                                                  |  | April 1, 2002
|                                              
|/s/ SIRI MARSHALLSiri Marshall                 |  | Director                                                                                                                                  |  | April 1, 2002
|                                              
|/s/ DAVID A. NOVAKDavid A. Novak               |  | Director                                                                                                                                  |  | April 1, 2002
|                                              
|/s/ ANN REESEAnn Reese                         |  | Director                                                                                                                                  |  | April 1, 2002
|                                              
|/s/ EDWARD H. RENSIEdward H. Rensi             |  | Director                                                                                                                                  |  | April 1, 2002

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|                                    |  |          |  |              
|----------------------------------- |  | -------- |  | -------------
|Signature                           |  | Title    |  | Date         
|                                    |  |          |  |              
|                                   
|/s/ GONZALO RUBIOGonzalo Rubio      |  | Director |  | April 1, 2002
|                                   
|/s/ KENNETH TAYLORKenneth D. Taylor |  | Director |  | April 1, 2002

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Supplemental Information to be Furnished with
Reports Filed Pursuant to Section 15(d) of the Act by
Registrants Which Have Not Registered Securities Pursuant to
Section 12 of the Act.

No annual report or proxy material has been sent
to security holders.




EXHIBIT INDEX

|        |     |                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|------- | --- | ----------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |     |                        
|Number  |     | Description of Document
|        |     |                        
|        | 3.1 |                         |  | Articles of Association (Statuts Coordonnes) of
	CDRJ Investments (Lux) S.A., as restated on September 30,
	1998; previously filed as Exhibit 3.1 to Amendment 2 to
	Registration Statement No. 333-62989 under the Securities
	Act of 1933, as amended, filed December 23, 1998, and
	incorporated herein by reference.                                                                                                                                                          
|        | 3.2 |                         |  | Certificate of Incorporation of CDRJ Acquisition
	Corporation, dated March 31, 1998; previously filed as
	Exhibit 3.2 to Registration Statement No. 333-62989
	under the Securities Act of 1933, as amended, filed
	September 4, 1998, and incorporated herein by reference.                                                                                                                                                                                                      
|        | 3.3 |                         |  | Certificate of Merger of Jafra Cosmetics
	International, Inc. into CDRJ Acquisition Corporation, dated
	April 30, 1998; previously filed as Exhibit 3.3 to
	Registration Statement No. 333-62989 under the Securities
	Act of 1933, as amended, filed September 4, 1998, and
	incorporated herein by reference.                                                                                                                                                                   
|        | 3.4 |                         |  | Amended and Restated By-laws of Jafra Cosmetics
	International, Inc. (formerly CDRJ Acquisition Corporation), as
	adopted on July 21, 1998; previously filed as Exhibit 3.4
	to Registration Statement No. 333-62989 under the
	Securities Act of 1933, as amended, filed September 4,
	1998, and incorporated herein by reference.                                                                                                                                               
|        | 3.5 |                         |  | Deed of Incorporation (acta constitutiva),
	including all amendments thereto, and current by-laws (estatutos
	sociales) of Jafra Cosmetics International, S.A. de C.V.,
	together with a unofficial summary thereof in English;
	previously filed as Exhibit 3.5 to Registration Statement
	No. 333-62989 under the Securities Act of 1933, as amended,
	filed September 4, 1998, and incorporated herein by
	reference.                                                          
|        | 3.6 |                         |  | Deed of Incorporation (acta constitutiva),
	including all amendments thereto, and current by-laws (estatutos
	sociales) of Dirsamex, S.A. de C.V., together with a unofficial
	summary thereof in English; previously filed as Exhibit 3.7
	to Amendment No. 1 to Registration Statement
	No. 333-62989 under the Securities Act of 1933, as amended,
	filed October 27, 1998, and incorporated herein by
	reference.                                                             
|        | 3.7 |                         |  | Deed of Incorporation (acta constitutiva),
	including all amendments thereto, and current by-laws (estatutos
	sociales) of Jafra Cosmetics S.A. de C.V., formerly known as
	Jafra Cosmetics S. de R.L. de C.V., together with a unofficial
	summary thereof in English; previously filed as Exhibit 3.9
	to Amendment No. 1 to Registration Statement
	No. 333-62989 under the Securities Act of 1933, as amended,
	filed October 27, 1998, and incorporated herein by
	reference.
|        | 3.8 |                         |  | Deed of Incorporation (acta constitutiva),
	including all amendments thereto, and current by-laws (estatutos
	sociales) of Qualifax, S.A. de C.V., together with a unofficial
	summary thereof in English; previously filed as
	Exhibit 3.10 to Amendment No. 1 to Registration
	Statement No. 333-62989 under the Securities Act of 1933,
	as amended, filed October 27, 1998, and incorporated herein
	by reference.                                                            
|        | 3.9 |                         |  | Deed of Incorporation (acta constitutiva),
	including all amendments thereto, and current by-laws (estatutos
	sociales) of Reday, S.A. de C.V., together with a unofficial
	summary thereof in English; previously filed as
	Exhibit 3.11 to Amendment No. 1 to Registration
	Statement No. 333-62989 under the Securities Act of 1933,
	as amended, filed October 27, 1998, and incorporated herein
	by reference.                                                               

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|        |      |                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|------- | ---- | ----------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |                        
|Number  |      | Description of Document
|        |      |                        
|        | 3.10 |                         |  | Deed of Incorporation (acta constitutiva),
	including all amendments thereto, and current by-laws (estatutos
	sociales) of Cosmeticos Y Fragrancias, S.A. de C.V., together
	with an unofficial summary thereof in English; previously filed
	as exhibit 3.10 to the Companys Annual Report on
	Form 10-K for the fiscal year ended 2000, filed on
	April 2, 2001, and incorporated herein by reference.                                                                                                                                        
|        | 3.11 |                         |  | Notarial Deed and Resolutions, together with an
	unofficial summary thereof in English, for the transformation of
	Jafra Cosmetics S. de R.L. de C.V. into Jafra Cosmetics S.A. de
	C.V.; previously filed as Exhibit 3.12 to the
	Companys Annual Report on Form 10-K for the fiscal
	year ended 1999, filed on March 30, 2000, and incorporated
	herein by reference.                                                                                                                                                                         
|        | 3.12 |                         |  | Approval, dated as of April 17, 2000, by the
	Public Registry of Commerce of the United Mexican States of the
	merger of Consultoria Jafra S.A. de C.V. and Distribuidora
	Venus, S.A. de C.V. with and into Reday, S.A. de C.V., together
	with supporting shareholders resolutions and the
	unofficial English translation thereof; previously filed as
	Exhibit 3.1 to the Companys Quarterly Report on
	Form 10-Q for the second quarter ended June 30, 2000,
	filed on August 14, 2000, and incorporated herein by
	reference.            
|        | 3.13 |                         |  | Notarial Deed and Resolutions, together with an
	unofficial summary thereof in English, for the changing of the
	corporate name from Reday, S.A. de C.V. to Distribuidora Venus,
	S.A. de C.V. as a consequence of the merger of Distribuidora
	Venus, S.A. de C.V. into Reday, S.A. de C.V.; previously filed
	as Exhibit 3.11 to the Companys Annual Report on
	Form 10-K for the fiscal year ended 2000, filed on
	April 2, 2001, and incorporated herein by reference.                                                                      
|        | 3.14 |                         |  | Notarial Deed and Resolutions, together with an
	unofficial summary thereof in English, for the renaming of
	Qualifax, S.A. de C.V. as Serviday S.A. de C.V.; previously
	filed as Exhibit 3.1 to the Companys Quarterly Report
	on Form 10-Q for the second quarter ended June, 30, 2001,
	filed on August 14, 2001, and incorporated herein by
	reference.                                                                                                                                                                                    
|        | 4.1  |                         |  | Indenture, dated April 30, 1998, among CDRJ
	Acquisition Corporation, Jafra Cosmetics International, S.A. de
	C.V., CDRJ Investments (Lux) S.A., and State Street Bank and
	Trust Company; previously filed as Exhibit 4.1 to
	Registration Statement No. 333-62989 under the Securities Act of
	1933, as amended, filed September 4, 1998, and incorporated
	herein by reference.                                                                                                                                                               
|        | 4.2  |                         |  | First Supplemental Indenture, dated
	April 30, 1998, among Consultoria Jafra, S.A. de C.V.,
	Distribuidora Venus, S.A. de C.V., Dirsamex, S.A. de C.V.,
	Reday, S.A. de C.V., Qualifax S.A. de C.V., and Jafra Cosmetics
	S.R.L., CDRJ Acquisition Corporation and Jafra Cosmetics
	International, S.A. de C.V. and State Street Bank and Trust
	Company; previously filed as Exhibit 4.2 to Registration
	Statement No. 333-62989 under the Securities Act of 1933,
	as amended, filed September 4, 1998, and incorporated
	herein by reference.
|        | 4.3  |                         |  | Purchase Agreement, dated April 28, 1998,
	between Credit Suisse First Boston Corporation, Chase Securities
	Inc., CDRJ Acquisition Corporation, Jafra Cosmetics
	International, S.A. de C.V., and CDRJ Investments (Lux) S.A.;
	previously filed as Exhibit 4.3 to Registration Statement
	No. 333-62989 under the Securities Act of 1933, as amended,
	filed September 4, 1998, and incorporated herein by
	reference.                                                                                                                         
|        | 4.4  |                         |  | Purchase Agreement Amendment, dated
	April 30, 1998, executed on behalf of each of Reday, S.A.
	de C.V., Distribuidora Venus, S.A. de C.V., Dirsamex, S.A. de
	C.V., Qualifax, S.A. de C.V., Jafra Cosmetics, S.R.L.,
	Consultoria Jafra, S.A. de C.V., Credit Suisse First Boston
	Corporation, and Chase Securities Inc.; previously filed as
	Exhibit 4.4 to Registration Statement No. 333-62989
	under the Securities Act of 1933, as amended, filed
	September 4, 1998, and incorporated herein by reference.                              

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|        |      |                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|------- | ---- | ----------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |                        
|Number  |      | Description of Document
|        |      |                        
|        | 4.5  |                         |  | Registration Rights Agreement, dated
	April 30, 1998, among CDRJ Acquisition Corporation, Jafra
	Cosmetics International, Inc., Jafra Cosmetics International,
	S.A. de C.V., CDRJ Investments (Lux) S.A., Reday, S.A. de C.V.,
	Distribuidora, S.A. de C.V., Dirsamex, S.A. de C.V., Qualifax,
	S.A. de C.V., Jafra Cosmetics, S.A. de C.V., Consultoria Jafra,
	S.A. de C.V., and Credit Suisse First Boston Corporation;
	previously filed as Exhibit 4.5 to Registration Statement
	No. 333-62989 under the Securities Act of 1933, as amended,
	filed September 4, 1998, and incorporated herein by
	reference.
|        | 4.6  |                         |  | Credit Agreement, dated April 30, 1998,
	among CDRJ Acquisition Corporation, Jafra Cosmetics
	International, S.A. de C.V., CDRJ Investments (Lux) S.A., as
	Guarantor and Parent of the Borrowers, the Lenders named therein
	and Credit Suisse First Boston, as Administrative Agent;
	previously filed as Exhibit 4.6 to Registration Statement
	No. 333-62989 under the Securities Act of 1933, as amended,
	filed September 4, 1998, and incorporated herein by
	reference.                                                                                                                                     
|        | 4.7  |                         |  | Amendment No. 1 to the Credit Agreement,
	dated August 26, 1998; previously filed as Exhibit 4.7
	to Registration Statement No. 333-62989 under the Securities Act
	of 1933, as amended, filed September 4, 1998, and
	incorporated herein by reference.                                                                                                                                                                                                                                                                                                                                                            
|        | 4.8  |                         |  | Indemnity, Subrogation and Contribution
	Agreement, dated April 30, 1998, among Jafra Cosmetics
	International, S.A. de C.V. (JCISA), each Subsidiary
	of JCSI listed on Schedule I thereto and Credit Suisse
	First Boston; previously filed as Exhibit 4.8 to
	Registration Statement No. 333-62989 under the Securities
	Act of 1933, as amended, filed September 4, 1998, and
	incorporated herein by reference.                                                                                                                                                                                              
|        | 4.9  |                         |  | JCI Guarantee Agreement, dated April 30,
	1998, between CDRJ Acquisition Corporation and Credit Suisse
	First Boston; previously filed as Exhibit 4.9 to
	Registration Statement No. 333-62989 under the Securities
	Act of 1933, as amended, filed September 4, 1998, and
	incorporated herein by reference.                                                                                                                                                                                                                                                                                                       
|        | 4.10 |                         |  | JCISA Guarantee Agreement, dated April 30,
	1998, between Jafra Cosmetics International, S.A. de C.V. and
	Credit Suisse First Boston; previously filed as
	Exhibit 4.10 to Registration Statement No. 333-62989
	under the Securities Act of 1933, as amended, filed
	September 4, 1998, and incorporated herein by reference.                                                                                                                                                                                                                                                                                     
|        | 4.11 |                         |  | JCISA Subsidiary Guarantee Agreement, dated
	April 30, 1998, among each of the subsidiaries of Jafra
	Cosmetics International, S.A. de C.V. listed on Schedule I
	thereto, and Credit Suisse First Boston; previously filed as
	Exhibit 4.11 to Registration Statement No. 333-62989 under
	the Securities Act of 1933, as amended, filed September 4,
	1998, and incorporated herein by reference.                                                                                                                                                                                                                 
|        | 4.12 |                         |  | Parent Guarantee Agreement, dated April 30,
	1998, between CDRJ Investments (Lux) S.A. and Credit Suisse
	First Boston; previously filed as Exhibit 4.12 to
	Registration Statement No. 333-62989 under the Securities
	Act of 1933, as amended, filed September 4, 1998, and
	incorporated herein by reference.                                                                                                                                                                                                                                                                                                    
|        | 4.13 |                         |  | Pledge Agreement, dated April 30, 1998 among
	CDRJ Investments (Lux) S.A., CDRJ North Atlantic Sarl, CDRJ
	Latin America Holding Company B.V., Latin Cosmetics Holdings
	B.V., Regional Cosmetics Holding B.V., Southern Cosmetics
	Holdings B.V., and CDRJ Mexico Holding Company B.V., CDRJ
	Acquisition Corporation, Jafra Cosmetics International, S.A. de
	C.V. and Credit Suisse First Boston; previously filed as
	Exhibit 4.13 to Registration Statement No. 333-62989
	under the Securities Act of 1933, as amended, filed
	September 4, 1998, and incorporated herein by reference.                       
|        | 4.14 |                         |  | Security Agreement, dated April 30, 1998,
	among CDRJ Acquisition Corporation (JCI), each
	subsidiary of JCI listed on Schedule I thereto and Credit
	Suisse First Boston; previously filed as Exhibit 4.14 to
	Registration Statement No. 333-62989 under the Securities
	Act of 1933, as amended, filed September 4, 1998, and
	incorporated herein by reference.                                                                                                                                                                                                                                               

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|        |      |                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|------- | ---- | ----------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |                        
|Number  |      | Description of Document
|        |      |                        
|        | 4.15 |                         |  | Deed of Trust, with Assignment of Leases and
	Rents, Fixture Filing and Security Agreement, dated
	April 30, 1998, by Jafra Cosmetics International, Inc. to
	TitleServ Agency of New York City, Inc., as trustee for the
	Benefit of Credit Suisse First Boston; previously filed as
	Exhibit 4.15 to Registration Statement No. 333-62989
	under the Securities Act of 1933, as amended, filed
	September 4, 1998, and incorporated herein by reference.                                                                                                                                                                              
|        | 4.16 |                         |  | Acknowledgment of Obligations and Mortgage, dated
	April 30, 1998, granted by Reday, S.A. de C.V. in favor of
	Credit Suisse First Boston, together with an unofficial English
	translation thereof; previously filed as Exhibit 4.16 to
	Registration Statement No. 333-62989 under the Securities Act of
	1933, as amended, filed September 4, 1998, and incorporated
	herein by reference.                                                                                                                                                                                                                                           
|        | 4.17 |                         |  | Notarial Deed of Pledge, dated April 30,
	1998, with respect to the pledge to Credit Suisse First Boston
	of (i) 24 ordinary shares of the capital stock of CDRJ
	Europe Holding Company B.V. by Jafra Cosmetics International,
	Inc., and (ii) 40 ordinary shares of the capital stock of
	CDRJ Latin America Holding B.V. by CDRJ North Atlantic (Lux)
	Sarl; previously filed as Exhibit 4.17 to Registration
	Statement No. 333-62989 under the Securities Act of 1933,
	as amended, filed September 4, 1998, and incorporated
	herein by reference.                                                                                
|        | 4.18 |                         |  | Consent and Waiver, dated as of November 19,
	1999, to the Credit Agreement dated as of April 30, 1998,
	as amended by Amendment No. 1 thereto dated as of
	August 26, 1998, among Jafra Cosmetics International Inc.,
	Jafra Cosmetics International S.A. de C.V., CDRJ Investments
	(Lux) S.A., the several banks and financial institutions party
	to the Credit Agreement, the Issuing Bank and Credit Suisse
	First Boston, as Administrative Agent; previously filed as
	Exhibit 4.18 to the Companys Annual Report on
	Form 10-K for the fiscal year ended 1999, filed on
	March 30, 2000, and incorporated herein by reference.
|        | 4.19 |                         |  | Substitution of Trustee and Partial Reconveyance
	of Deed of Trust, Assignment of Leases and Rents, Fixture Filing
	and Security Agreement, and Release of Financing Statement,
	dated November 29, 1999, which amends the Deed of Trust
	filed as Exhibit 4.15 above; previously filed as
	Exhibit 4.19 to the Companys Annual Report on
	Form 10-K for the fiscal year ended 1999, filed on
	March 30, 2000, and incorporated herein by reference.                                                                                                                                                                                   
|        | 4.20 |                         |  | Partial Reconveyance of Deed of Trust, Assignment
	of Leases and Rents, Fixture Filing and Security Agreement and
	Release of Financing Statement, dated November 29, 1999,
	which amends the Deed of Trust filed as Exhibit 4.15 above;
	previously filed as Exhibit 4.20 to the Companys
	Annual Report on Form 10-K for the fiscal year ended 1999,
	filed on March 30, 2000, and incorporated herein by
	reference.                                                                                                                                                                                                                
|        | 4.21 |                         |  | Consent and Waiver, dated as of June 30,
	2001, to the Credit Agreement dated as of April 30, 1998,
	as amended by Amendment No. 1 thereto dated as of
	August 26, 1998, among Jafra Cosmetics International Inc.,
	Jafra Cosmetics International S.A. de C.V., CDRJ Investments
	(Lux) S.A., the several banks and financial institutions party
	to the Credit Agreement, the Issuing Bank and Credit Suisse
	First Boston, as Administrative Agent.                                                                                                                                                                                   

Items in this Section 10 constitute
management contracts or compensatory plans or arrangements with
the exception of Exhibits 10.1, 10.7, 10,12, 10.13, 10.14,
10.15, 10.16, 10.17, 10.18, and 10.19.

|        |      |                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|------- | ---- | ----------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |                        
|Number  |      | Description of Document
|        |      |                        
|        | 10.1 |                         |  | Indemnification Agreement, dated April 30,
	1998, among CDRJ Investments (Lux) S.A., CDRJ Acquisition
	Corporation, Jafra Cosmetics International, S.A. de C.V.,
	Clayton, Dubilier & Rice, Inc., Clayton, Dubilier & Rice
	Fund V Limited Partnership; previously filed as
	Exhibit 10.1 to Registration Statement No. 333-62989
	under the Securities Act of 1933, as amended, filed
	September 4, 1998, and incorporated herein by reference.

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|        |       |                         |  |                                                                                                                                                                                                                                                                                                                                                                                             
|------- | ----- | ----------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |                        
|Number  |       | Description of Document
|        |       |                        
|        | 10.2  |                         |  | Consulting Agreement, dated April 30, 1998,
	by and among CDRJ Investments (Lux) S.A., Jafra Cosmetics
	International, Inc. and Jafra Cosmetics, S.A. de C.V., and
	Clayton, Dubilier & Rice, Inc.; previously filed as
	Exhibit 10.2 to Registration Statement No. 333-62989
	under the Securities Act of 1933, as amended, filed
	September 4, 1998, and incorporated herein by reference.
|        | 10.3  |                         |  | Form of Employment Agreement for
	Messrs. Clark, Rubio, Mason, Guirao and DiGregorio;
	previously filed as Exhibit 10.3 to Registration Statement
	No. 333-62989 under the Securities Act of 1933, as amended,
	filed September 4, 1998, and incorporated herein by
	reference.                                                                                                             
|        | 10.4  |                         |  | Amended and Restated Jafra Cosmetics
	International, Inc. Stock Incentive Plan, as adopted
	September 3, 1998; previously filed as Exhibit 10.4 to
	Amendment No. 1 to Registration Statement
	No. 333-62989 under the Securities Act of 1933, as amended,
	filed October 27, 1998, and incorporated herein by
	reference.                                                                  
|        | 10.5  |                         |  | CDRJ Investments (Lux) S.A. Form of Management
	Stock Option Agreement; previously filed as Exhibit 10.5 to
	Amendment No. 1 to Registration Statement
	No. 333-62989 under the Securities Act of 1933, as amended,
	filed October 27, 1998, and incorporated herein by
	reference.                                                                                                         
|        | 10.6  |                         |  | Amended and Restated Stock Purchase Warrant,
	dated September 30, 1998, by and between CDRJ Investments
	(Lux) S.A. and Jafra Cosmetics International, Inc.; previously
	filed as Exhibit 10.6 to Amendment No. 1 to
	Registration Statement No. 333-62989 under the Securities
	Act of 1933, as amended, filed October 27, 1998, and
	incorporated herein by reference.                    
|        | 10.7  |                         |  | Registration and Participation Agreement, dated
	April 30, 1998, among CDRJ Investments (Lux) S.A. and
	Clayton, Dubilier & Rice Fund V Limited Partnership and the
	other parties thereto; previously filed as Exhibit 10.7 to
	Registration Statement No. 333-62989 under the Securities
	Act of 1933, as amended, filed September 4, 1998, and
	incorporated herein by reference.        
|        | 10.8  |                         |  | CDRJ Investments (Lux) S.A. Form of Management
	Stock Subscription Agreement; previously filed as
	Exhibit 10.8 to Amendment No. 1 to Registration
	Statement No. 333-62989 under the Securities Act of 1933,
	as amended, filed October 27, 1998, and incorporated herein
	by reference.                                                                                                   
|        | 10.9  |                         |  | CDRJ Investments (Lux) S.A. Form of Individual
	Investor Stock Subscription Agreement; previously filed as
	Exhibit 10.9 to Amendment No. 1 to Registration
	Statement No. 333-62989 under the Securities Act of 1933,
	as amended, filed October 27, 1998, and incorporated herein
	by reference.                                                                                          
|        | 10.10 |                         |  | Jafra Cosmetics International, Inc. Supplemental
	Savings Plan, dated October 27, 1998; previously filed as
	Exhibit 10.1 to the Companys Quarterly Report on
	Form 10-Q for the first quarter ended March 31, 1999,
	filed May 17, 1999, and incorporated herein by reference.                                                                                                            
|        | 10.11 |                         |  | Jafra Cosmetics International, Inc. Special
	Supplemental Savings Plan for Non-United States-Source Income,
	dated January 20, 1999; previously filed as
	Exhibit 10.2 to the Companys Quarterly Report on
	Form 10-Q for the first quarter ended March 31, 1999,
	filed May 17, 1999, and incorporated herein by reference.                                                               
|        | 10.12 |                         |  | Asset Purchase Agreement, dated as of
	June 10, 1999, as amended by Amendment No. 1, dated as
	of June 10, 1999; by and between the Company and the
	Contractor, previously filed as Exhibit 10.1 to
	Form 8-K, filed on June 10, 1999, and incorporated
	herein by reference (portions of which were filed under a
	confidentiality request).                                              
|        | 10.13 |                         |  | Amendment No. 1 to Asset Purchase Agreement,
	dated as of June 10, 1999; previously filed as
	Exhibit 10.2 to Form 8-K, filed on June 10, 1999, and
	incorporated herein by reference (portions of which were filed
	under a confidentiality request).                                                                                                                                      
|        | 10.14 |                         |  | Manufacturing Agreement, dated as of
	June 10, 1999, by and between the Company and the
	Contractor, as amended by Amendment No. 1, dated as of
	June 22, 1999; previously filed as Exhibit 10.3 to
	Form 8-K, filed on June 10, 1999, and incorporated
	herein by reference (portions of which were filed under a
	confidentiality request).                                               

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|        |       |                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                    
|------- | ----- | ----------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |                        
|Number  |       | Description of Document
|        |       |                        
|        | 10.15 |                         |  | Form of Amendment No. 1 to Manufacturing
	Agreement, dated as of June 10, 1999; previously filed as
	Exhibit 10.4 to Form 8-K, filed on June 10, 1999
	and incorporated herein by reference (portions of which were
	filed under a confidentiality request).                                                                                                                                                                       
|        | 10.16 |                         |  | Form of Secured Note for the Assets, dated
	June 10, 1999, made by the Contractor in favor of the
	Company; previously filed as Exhibit 10.5 to Form 8-K,
	filed on June 10, 1999 and incorporated herein by reference
	(portions of which were filed under a confidentiality request).                                                                                                                                            
|        | 10.17 |                         |  | Form of Secured Note for the Inventory, dated
	June 10, 1999, made by the Contractor in favor of the
	Company; previously filed as Exhibit 10.6 to Form 8-K,
	filed on June 10, 1999 and incorporated herein by reference
	(portions of which were filed under a confidentiality request).                                                                                                                                         
|        | 10.18 |                         |  | Sale Agreement, dated as of September 29,
	1999, between the Company and Townsgate Road LLC; previously
	filed as Exhibit 10.1 to the Companys Quarterly
	Report on Form 10-Q for the third quarter ended
	September 30, 1999, filed November 12, 1999, and
	incorporated herein by reference.                                                                                                                                    
|        | 10.19 |                         |  | Sale Agreement, dated as of October 15,
	1999, between the Company and Selvin Properties; previously
	filed as Exhibit 10.2 to the Companys Quarterly
	Report on Form 10-Q for the third quarter ended
	September 30, 1999, filed November 12, 1999, and
	incorporated herein by reference.                                                                                                                                       
|        | 10.20 |                         |  | Trust Agreement dated May 26, 1999 by and
	between Jafra Cosmetics International, Inc. and Scudder Trust
	Company; previously filed as Exhibit 10.20 to the
	Companys Annual Report on Form 10-K for the fiscal
	year ended 1999, filed on March 30, 2000, and incorporated
	herein by reference.                                                                                                                                 
|        | 10.21 |                         |  | Amendment No. 1 to Consulting Agreement,
	dated as of March 15, 2000, by and among CDRJ Investments
	(Lux) S.A., Jafra Cosmetics International, Inc., Jafra Cosmetics
	International, S.A. de C.V., and Clayton, Dubilier & Rice,
	Inc.; previously filed as Exhibit 10.21 to the Companys
	Annual Report on Form 10-K for the fiscal year ended 1999,
	filed on March 30, 2000, and incorporated herein by
	reference.           
|        | 10.22 |                         |  | First Amendment to Amended and Restated Jafra
	Cosmetics International, Inc. Stock Incentive Plan; previously
	filed as exhibit 10.22 to the Companys Annual Report on
	Form 10-K for the fiscal year ended 2000, filed on
	April 2, 2001, and incorporated herein by reference.                                                                                                                                                  
|        | 10.23 |                         |  | CDRJ Investments (Lux) S.A. Form of Management
	Stock Subscription Agreement, as amended; previously filed as
	exhibit 3.10 to the Companys Annual Report on
	Form 10-K for the fiscal year ended 2000, filed on
	April 2, 2001, and incorporated herein by reference.                                                                                                                                                            
|        | 10.24 |                         |  | Amended and Restated Consulting Agreement, dated
	as of January 1, 2001, by and among CDRJ Investments (Lux)
	S.A., Jafra Cosmetics International, Inc., Jafra Cosmetics
	International, S.A. de C.V., and Clayton, Dubilier & Rice,
	Inc; previously filed as Exhibit 10.1 to the Companys
	Quarterly Report on Form 10-Q for the first quarter ended
	March 31, 2001, filed May 15, 2001, and incorporated
	herein by reference.
|        | 21.1  |                         |  | Subsidiaries of the registrant.                                                                                                                                                                                                                                                                                                                                                                                                    

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