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                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                               ----------------

                                   FORM 10-K
(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, 1999

                                      OR

[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
   EXCHANGE ACT OF 1934

                    For the transition period from to  to

                       Commission File Number 333-62989

                               ----------------

                          CDRJ Investments (Lux) S.A.
            (Exact name of Registrant as specified in its charter)

                               ----------------

<TABLE>
   <S>                                       <C>
                  Luxembourg                                98-0185444
       (State or other jurisdiction of                   (I.R.S. Employer
        Incorporation or organization)                 Identification Number)
</TABLE>

                               4 Boulevard Royal
                               L-2449 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 [_]

  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 10, 2000, the registrant had outstanding 830,659 shares of
common stock, par value $2.00 per share.

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                  CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
 Item                             Description                             Page
 ----                             -----------                             ----

 <C>  <S>                                                                 <C>
                                    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

  7A. Quantitative and Qualitative Disclosures About Market Risk........   23

  8.  Financial Statements and Supplementary Data.......................   26

  9.  Changes in and Disagreements with Accountants on Accounting and
       Financial Disclosure.............................................   63


                                    PART III

 10.  Directors, Executive Officers and Significant Employees of the
       Company..........................................................   63

 11.  Executive Compensation............................................   66

 12.  Security Ownership of Certain Beneficial Owners and Management....   68

 13.  Certain Relationships and Related Transactions....................   69


                                    PART IV

 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K...   71

      Signatures........................................................   77
</TABLE>

                                       i
<PAGE>

                                    PART I

ITEM 1. BUSINESS

General

  CDRJ Investments (Lux) S.A., a Luxembourg societe 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 of Jafra,
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 salespersons (known as "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 pretax income from
operations by geographic area in Note 11 to the financial statements included
herein.

  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, Inc.
("CD&R"), a private investment firm specializing in acquisitions that involve
management participation. As part of the financing for the Acquisition,
Clayton, Dubilier & Rice Fund V Limited Partnership ("CD&R Fund V"), certain
members of new management, certain new directors and other persons made an
equity investment in the Parent of approximately $82.9 million in cash. In
addition, $100.0 million of 11 3/4% Senior Subordinated Notes due 2008
("Notes") were issued and the Company entered into a credit agreement (the
"Senior Credit Agreement") with certain lenders. The Senior Credit Agreement
provides for senior secured credit facilities, including a $25.0 million term
loan facility (the "Term Loan Facility"), all of which was drawn at the
closing of the Acquisition, and a $65.0 million revolving credit facility (the
"Revolving Credit Facility").

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 20 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 dynamic leadership required to attract new sales
representatives and managerial talent, inspire new and existing sales
representatives to greater productivity, and execute the Company's new market
development strategy.

  Grow Sales Representative Base in Existing Markets. Jafra plans to expand
its sales representative base in existing markets by (i) targeting expansion
into new geographic areas and demographic groups within the U.S. and Mexico,
(ii) ensuring that the commission and compensation structure remain
competitive while rewarding those who sponsor new sales representatives, (iii)
providing more training meetings and marketing communications materials for
sales representative managers, and (iv) initiating enhanced recognition
programs to motivate current as well as former or inactive sales
representatives.

  Increase Sales Representative Productivity. The Company plans to continue to
focus on increasing the productivity, as measured by net resale sales per
active sales representative, of its existing sales representatives by (i)
revitalizing and upgrading the Company's product lines, (ii) offering an
improved "product selling

                                       1
<PAGE>

proposition" that generates excitement by linking Company products to the
latest fashion trends and (iii) initiating improved marketing activities at
the point of sale, by providing sales representatives with enhanced product
training and promotional materials that emphasize the product selling
proposition.

  Expand Internationally. The Company believes that its existing distribution
and manufacturing capabilities provide a strong platform for expansion into
new markets, which will allow it to diversify its revenue base. During 1999,
the Company began distributing products in Brazil and Chile. The Company
presently has operations in 12 countries outside the U.S. and in a number of
additional countries through distributors, although approximately 83% of the
Company's sales in 1999 were in the United States and Mexico. The Company
expects that it will be able to implement its new market development strategy
with limited additional capital expenditures and without diverting focus from
the Company's core markets. The Company intends to focus its expansion efforts
on markets that the Company believes (i) do not require high start-up costs,
such as markets contiguous to the Company's existing markets, (ii) have proven
to be receptive to direct selling techniques, (iii) demonstrate promising
economic demographics, including population size, growth of gross domestic
product and an expanding middle class, and (iv) evidence demand for quality
cosmetic products. The Company intends to expand into one market in the Asia
Pacific region in the latter half of 2000.

  Utilize the Internet and Electronic Commerce to Augment Sales. The Company
plans to enhance its use of the Internet as a communications and order
fulfillment tool for its sales representatives. The Company believes that use
of the Internet as an order fulfillment tool by sales representatives will
result in better service to both the sales representatives and their customers
at a lower cost to the Company. Sales representatives will be able to submit
orders electronically, which reduces the potential for errors that may occur
when Company personnel enter orders manually. In addition, the Company intends
to provide potential new Jafra customers with the opportunity of placing
orders directly through its World Wide Web site, while still maintaining the
integrity of the sales representative lineage structure.

  Improve Operating Efficiency. The Company continues 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
management expects to result in additional operating efficiencies.

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 1999, the Company launched
52 new products and revised the formulas of seven existing products. 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 $2.1 million in 1999, $3.1 million in 1998, and $2.9
million in 1997.

  Employees in the Research and Development Department formulate products and
analyze them for chemical purity and microbial integrity. A separate pilot
plant allows testing via small batch production 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. In
addition, during 1999, the Company changed its corporate logo to build better
brand awareness and a fresh image and the packaging of the products was
updated accordingly. 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.

                                       2
<PAGE>

  The following table sets forth the sales of the Company's principal product
lines for the three years ended December 31, 1999, 1998 and 1997:

<TABLE>
<CAPTION>
                                    1999                       1998                       1997
                         -------------------------- -------------------------- --------------------------
                            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
                         --------------- ---------- --------------- ---------- --------------- ----------
<S>                      <C>             <C>        <C>             <C>        <C>             <C>
Color Cosmetics ........     $ 81.3         28.0%       $ 70.9         28.6%       $ 66.9         29.1%
Fragrances .............       76.4         26.3          47.3         19.0          40.8         17.8
Skin Care ..............       60.9         21.0          58.4         23.5          57.8         25.2
Personal Care ..........       35.6         12.3          46.5         18.7          34.9         15.2
Other (1) ..............       36.3         12.4          25.2         10.2          29.1         12.7
                             ------        -----        ------        -----        ------        -----
  Total ................     $290.5        100.0%       $248.3        100.0%       $229.5        100.0%
                             ======        =====        ======        =====        ======        =====
</TABLE>
--------
(1) Includes sales aids (party hostess gifts, demonstration products, etc.)
    and promotional materials.

  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 1997, Jafra
launched its Always Color lipstick line, which competes with products
featuring the latest technology in long-wearing, transfer-resistant formulas
and has helped to revitalize the color line. Time Protector lipsticks,
launched in early 1998, feature contemporary colors with skin care benefits,
including sunscreen and antioxidants, as well as moisturizers and
conditioners. In 1999, the Company implemented a new color palette strategy
based increasingly on local, rather than global, color preferences.

  Skin Care. Jafra sells personalized skin programs including cleansers,
masks, skin fresheners and moisturizers for day and night. In addition to
basic skin care products, Jafra offers a range of special care products for
special needs, including its premier product, Royal Jelly Milk Balm Moisture
Lotion, an Alpha Hydroxy complex (Rediscover) 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.

  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 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 Moire for
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.

  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 Almond and Precious Protein lines
have been top sellers for nearly forty years.

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 in line with Mary
Kay, but higher than Avon, which targets the lower to middle mass market.

                                       3
<PAGE>

  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 believes it is on the cutting edge in
development of skin care formulations and in identification of fashion trends.
In formulation of color cosmetics, the Company employs a "fast follower"
product strategy which focuses the Company's development efforts on products
that have proven successful in the marketplace.

  Marketing Material & Corporate Image. The Company generally does not
advertise, but supports its identity and corporate image through its energetic
network of sales representatives and favorable word-of-mouth that the Company
believes its products generate. The Company uses a sophisticated and
integrated promotional approach that includes meetings, marketing literature,
and the Internet to create strong corporate imagery and support the corporate
identity. In mid-1999, the Company revised its creative approach, achieving a
more contemporary look and further enhancing its brand personality. The
Company believes that its marketing expenses are far below those of its retail
competitors.

Independent Sales Force

  Jafra's self-employed sales force comprised approximately 292,000 sales
representatives worldwide as of December 31, 1999, 55,000, 192,000, and 45,000
of which are in the U.S., Mexico, and Europe and South America combined,
respectively. These sales representatives 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 sales representatives, who have experience managing
their own sales representative networks, recruit and train the Company's field
level organization. Jafra sells substantially all of its products directly to
its sales representatives. Each sales representative 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 sales representative 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 sales representatives
to arrange sales parties at customers' homes. Sales parties permit a more
efficient use of a sales representative's time, allowing the sales
representative 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 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 sales representatives to maintain any inventory. The
Company believes that the inventory requirements of other leading direct
sellers are often onerous to sales representatives. Instead, Jafra sales
representatives can wait to purchase products from the Company until they have
a firm customer order to fill. Sales representatives generally personally
deliver orders to their customers within one week of placement of an order. By
delivering products directly to the customer, the Jafra sales representative
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 sales representatives 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 sales
representatives' personal and professional training, thereby building sales
representatives' management and entrepreneurial skills.

                                       4
<PAGE>

  Sales Representative Management and Training. To become a manager, a sales
representative must sponsor a specified number of recruits and meet certain
minimum sales levels. The manager signs a manager's contract, and earns
commissions on her personal sales plus commissions on the sales of her
downline sales representatives. 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 sales
representatives. The most successful managers have many such downline managers
and sales representatives, and earn commissions on their personal sales plus
commissions on their downline group's sales.

  Training for new sales representatives 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 sales representative managers. Managers train their downline sales
representatives 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 sales representatives to
higher sales levels.

  Income Opportunities and Recognition. Sales representatives earn income by
purchasing products from Jafra at retail discounts and selling to consumers at
suggested retail prices. Once a sales representative becomes a manager, her
compensation also includes commissions on the wholesale value of paid sales
made by herself and her recruits. Commissions vary among markets. Jafra pays
commissions directly to managers on receipt of payment for the underlying
product sale. While this commission-based incentive system diminishes the
Company's profit margin on individual product sales, it results in increased
numbers of sales representatives selling Jafra products, which ultimately
earns greater profits for the Company.

  The Company believes that public recognition of sales accomplishments serves
the dual purpose of identifying successful role models and boosting sales
representative morale. Each year Jafra sponsors major events in each of its
national markets to recognize and reward sales and recruiting achievements and
strengthen the bond between the independent sales force and the Company. Sales
representatives and managers must meet certain minimum levels of sales and new
sales representative 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.

  Jafra's international operations are conducted primarily through
subsidiaries in 12 countries outside the United States and in a number of
additional countries through distributors. The Company's most important
markets to date have been Mexico, the United States, and Europe, which
represented approximately 59%, 24% and 11%, respectively, of total 1999 sales.
The Company intends to increase the number of markets in which it participates
and grow revenues in those markets in order to diversify its revenue base and
to minimize any adverse impact that a downturn in the Mexican economy would
have on the Company given the increasingly large percentage of sales
attributable to the Mexican market. The Company has entered into foreign
currency forward exchange contracts to mitigate the risk of potential currency
devaluation in Mexico. See "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 fragrances. 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").

                                       5
<PAGE>

  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. 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

  The Company uses twelve distribution centers around the world, seven of
which are operated by Company personnel and five 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
outsourced virtually all of its distribution to third parties. Management
believes that its facilities are adequate to meet global demand for the
foreseeable future.

  Typically, owned or leased distribution centers are located in an area that
allows for direct delivery to sales representatives 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 Jafra trademark. Some of the trademarks used by
Jafra, however, are identified with and important to the sale of Jafra's
products. Jafra's most important trademarks are: Adorisse (a contemporary
women's fragrance), Chosen (a

                                       6
<PAGE>

premium women's fragrance), Eau D'Aromes (revitalizing fragrance spray), Fm
Force Magnetique (a men's prestige fragrance), Legend for Men (a men's premium
fragrance), Le Moire (a contemporary women's fragrance), Optimascara
(mascara), Optimeyes (eye treatment lotion), Rediscover (skin cream with Alpha
Hydroxy), Royal Jelly Body Complex (body lotion), Royal Jelly Milk Balm
Moisture Lotion (moisturizing lotion), Time Corrector (skin cream) and Time
Protector (skin cream). 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 is in the process of filing the documents obtained
by Gillette to cause the abandonment of this former employee's applications
and the cancellation of this former employee's registrations in those
jurisdictions in which the Gillette documentation will be accepted. Jafra is
attempting to secure the abandonment and cancellation of all of the
applications and registrations in jurisdictions where such applications and
registrations will not expire without action on the part of Jafra. If Jafra is
not able to secure cancellations or abandonment of the applications and
registrations in these jurisdictions, Jafra may be prohibited from
distributing its products in such jurisdictions, or may face significant costs
in establishing its right to do so.

Management Information Systems

  Historically, each marketing region within Jafra handled its own computing
systems, staffing and development, leading to the development of disparate
functionality and standards. Previous plans to replace the commercial systems
in Jafra's key markets during 1999 were deferred until the latter part of 2000
and 2001 so the Company could devote the necessary resources to the ensure
that Year 2000 compliance and other business initiatives were achieved. During
1999, the Company redefined its Internet strategy and began to develop and
implement an e-commerce system that is expected to be operational by the
middle of 2000. During the latter part of 2000 and throughout 2001, the
Company intends to equip each of its major markets with a local integrated
marketing system, a global Distributed Resource Planning (DRP) system, and a
new commercial system that is tailored to comply with local regulatory demands
as well as unique aspects of each market.

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 29% of total net sales
in both 1999 and 1998. Excluding net non-recurring charges of approximately
$0.7 million in 1999, consisting of restructuring and impairment charges of
approximately $1.7 million offset by a gain of approximately $1.0 million on
the sale of assets, fourth quarter operating profit was 41 percent and 31
percent of total operating profit in 1999 and 1998, 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.

                                       7
<PAGE>

Employees

  As of December 31, 1999, the Company had 762 full-time employees, of which
228 were employed in the U.S. and 534 in other countries. On a functional
basis, 106 were in manufacturing, warehousing, distribution and technical
operations, 455 were in sales and marketing, and 201 were in administration.
The Company also had 295 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. 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 operation.

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 1999.

                                       8
<PAGE>

                                    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"). Prior to September 30, 1998, the only holders of the Common
Stock were CD&R Fund V and Messrs. Clark, Rubio, and Ralph S. Mason, III. On
September 30, 1998, certain members of management, certain directors and other
persons purchased an aggregate of 40,437 shares of the Common Stock in a
transaction exempt from the registration requirements of the Securities Act of
1933, as amended. On October 1, 1999, a former member of management exercised
579 options to purchase Common Stock, 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 the Common
Stock. All of these transactions were exempt from the registration
requirements of the Securities Act of 1933, as amended. See "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 "Management's Discussion and Analysis of
Financial Conditions and Results of Operations--Liquidity and Capital
Resources."

                                       9
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

  The following is a summary of selected financial data of the Company, as
described in Note 1 of the consolidated financial statements appearing
elsewhere herein (amounts in millions except for sales representative data).
The audited financial statements for the year ended December 31, 1999, the
eight months ended December 31, 1998, the four months ended April 30, 1998,
and the year ended December 31, 1997 and as of December 31, 1999 and 1998
appear elsewhere herein, and the related selected financial data should be
read in conjunction with such statements and notes thereto and "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.

<TABLE>
<CAPTION>
                                                                 Predecessor
                                                    ----------------------------------------
                                       Eight Months Four Months
                           Year Ended     Ended        Ended     Year Ended December 31,
                          December 31, December 31,  April 30,  ----------------------------
                              1999         1998        1998       1997      1996      1995
                          ------------ ------------ ----------- --------  --------  --------
                                                  ($ in millions)
<S>                       <C>          <C>          <C>         <C>       <C>       <C>
Statement of Operations
 Data:
Net sales...............    $  290.5     $  171.0    $   77.3   $  229.5  $  224.5  $  218.4
Cost of sales(a)........        82.3         56.3        22.7       68.6      58.2      54.3
                            --------     --------    --------   --------  --------  --------
Gross profit............       208.2        114.7        54.6      160.9     166.3     164.1
Selling, general and
 administrative
 expenses(a) ...........       174.8        107.4        49.2      140.5     150.5     145.0
Restructuring and other
 non-recurring
 charges(b).............         4.8          --          --         0.4       6.1       9.6
Loss (gain) on sale of
 assets.................        (1.0)         0.2         --        (0.1)      --        --
                            --------     --------    --------   --------  --------  --------
Income from operations..        29.6          7.1         5.4       20.1       9.7       9.5
Other income (expense):
  Exchange gain (loss)..         3.3         (1.8)        1.4        0.3       --       25.5(c)
  Interest income
   (expense), net.......       (16.9)       (11.5)        0.1        0.3       0.8       4.3
  Other, net............         0.1         (0.1)        0.1       (0.5)     (0.5)     (0.4)
                            --------     --------    --------   --------  --------  --------
Income (loss) before
 income taxes...........        16.1         (6.3)        7.0       20.2      10.0      38.9
Income taxes............        10.9          1.7         2.9        4.8       2.6       6.1
                            --------     --------    --------   --------  --------  --------
Net income (loss) before
 extraordinary item.....         5.2         (8.0)        4.1       15.4       7.4      32.8
Extraordinary loss on
 early extinguishment of
 debt, net of income tax
 benefit of $0.2........         0.6          --          --         --        --        --
                            --------     --------    --------   --------  --------  --------
Net income (loss).......    $    4.6     $   (8.0)   $    4.1   $   15.4  $    7.4  $   32.8
                            ========     ========    ========   ========  ========  ========
Balance Sheet Data (at
 end of period):
Cash and cash
 equivalents............    $    4.9     $   18.4               $   10.2  $    8.7  $    7.5
Total working capital...        34.2         22.9                   22.6      24.4      49.4
Property and equipment,
 net....................        50.6         56.2                   43.7      41.8      43.7
Total assets............       278.4        288.6                  175.2     164.5     203.1
Total debt..............       133.5        141.5                    8.5       --        --
Stockholders' equity....    $   75.8     $   75.4               $   77.3  $   78.6  $  108.7

Other Financial Data:
EBITDA(d)...............    $   36.8     $   12.1    $    6.9   $   24.0  $   12.5  $   11.9
Net cash provided by
 (used in) operating
 activities.............        (1.6)        18.1        (8.0)      26.7       2.8      27.5
Net cash provided by
 (used in) investing
 activities.............        (3.1)      (211.1)        2.5       (5.8)     (4.5)    (13.9)
Net cash provided by
 (used in) financing
 activities.............        (7.4)       211.7        (8.8)     (19.0)      5.0     (13.4)
Depreciation and
 amortization...........         7.1          5.1         1.4        4.4       3.3       2.8
Amortization of deferred
 financing fees.........         1.8          1.4         --         --        --        --
Capital expenditures....         5.8          6.4         6.1        8.9      10.3      20.3
Total sales
 representatives........     292,000      247,600     220,000    220,800   208,500   216,700
Active sales
 representatives........     137,000      116,000     109,000    104,000   102,000    98,000
Sales representative
 productivity(e)........    $  1,891     $  1,928    $  1,928   $  1,966  $  1,056  $  1,008
</TABLE>


                                      10
<PAGE>

--------
(a) 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. Certain sales
    promotional and manufacturing expenses which were previously reported as
    selling, general and administrative expenses have been reclassified to
    cost of sales to conform to the current period presentation. Total amounts
    that have been reclassified are $5.5 million, $2.4 million and $9.5
    million for 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) Restructuring and other non-recurring charges include the following: 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;
    for 1996, a $5.4 million non-cash charge for the write-off of certain
    computer systems and related costs, and net reorganization charges of $0.7
    million; and for 1995, net reorganization charges of $9.6 million.

(c) Exchange gain (loss) for 1995 includes a $25.5 foreign exchange gain in
    Jafra S.A. resulting from having had U.S. dollar denominated intercompany
    receivables from affiliates at the time of the December 1994 peso
    devaluation.

(d) EBITDA is defined as income or loss before income taxes, net interest
    expense, exchange gains and losses, depreciation and amortization, and
    extraordinary items. 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 the generally
    accepted accounting principles 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) For the years 1996 and 1995, the Company defined sales representative
    productivity as net sales in U.S. dollars per average sales
    representative. For the years 1999, 1998 and 1997, the Company defines
    sales representative productivity as resale sales in U.S. dollars per
    active sales representative. In general, sales representatives are
    considered to be active if they place at least one order within four
    months. Full year 1998 sales representative productivity is shown for
    comparability purposes.

                                      11
<PAGE>

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 elsewhere in this Form 10-K. These statements have been
prepared in conformity with generally accepted accounting principles 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 year ended December 31,
1999, the combined operations of the Predecessor and the Company for the year
ended December 31, 1998, and the operations of the Predecessor for 1997.

<TABLE>
<CAPTION>
                                          Year Ended December 31,
                                  ---------------------------------------------
                                                                  Predecessor
                                                                  -------------
                                      1999        1998(1)(2)        1997(2)
                                  -------------  --------------   -------------
                                              ($ in millions)
<S>                               <C>     <C>    <C>      <C>     <C>     <C>
Net sales.......................  $290.5  100.0% $ 248.3  100.0%  $229.5  100.0%
Cost of sales...................    82.3   28.3     79.0   31.8     68.6   29.9
                                  ------  -----  -------  -----   ------  -----
Gross profit....................   208.2   71.7    169.3   68.2    160.9   70.1
Selling, general and
 administrative expenses........   174.8   60.2    156.6   63.1    140.5   61.2
Restructuring and impairment
 charges........................     4.8    1.7      --     0.0      0.4    0.2
Loss (gain) on sale of assets...    (1.0)  (0.4)     0.2    0.1     (0.1)  (0.1)
                                  ------  -----  -------  -----   ------  -----
Income from operations..........    29.6   10.2     12.5    5.0     20.1    8.8
Exchange gain (loss)............     3.3    1.1     (0.4)  (0.1)     0.3    0.1
Interest income (expense), net..   (16.9)  (5.8)   (11.4)  (4.6)     0.3    0.1
Other income (expense), net.....     0.1    0.0      --     0.0     (0.5)  (0.2)
                                  ------  -----  -------  -----   ------  -----
Income before income taxes......    16.1    5.5      0.7    0.3     20.2    8.8
Income tax expense..............    10.9    3.7      4.6    1.9      4.8    2.1
                                  ------  -----  -------  -----   ------  -----
Net income (loss) before
 extraordinary item.............     5.2    1.8     (3.9)  (1.6)    15.4    6.7
Extraordinary loss on early
 extinguishment of debt, net of
 income tax benefit of $0.2.....     0.6    0.2      --     0.0      --     0.0
                                  ------  -----  -------  -----   ------  -----
Net income (loss)...............  $  4.6    1.6% $  (3.9)  (1.6)% $ 15.4    6.7%
                                  ======  =====  =======  =====   ======  =====
Statement of Cash Flows Data:
Net cash provided by (used in)
 operating activities...........  $ (1.6)        $  10.1          $ 26.7
Net cash used in investing
 activities.....................    (3.1)         (208.6)           (5.8)
Net cash (used in) provided by
 financing activities...........    (7.4)          202.9           (19.0)
Effect of exchange rate changes
 on cash........................    (1.4)           (0.9)           (0.3)
Effect of accounting calendar
 change on cash.................     --              6.3             --
                                  ------         -------          ------
Net increase (decrease) in
 cash...........................  $(13.5)        $   9.8          $  1.6
                                  ======         =======          ======
</TABLE>
-------
(1) Pursuant to the terms of the Acquisition, the Company was acquired by
    Parent on April 30, 1998. Accordingly, for purposes of Management's
    Discussion and Analysis of Financial Condition and Results of Operations,
    the results of operations and cash flows for the year ended December 31,
    1998 are a combination of the historic results of the Predecessor for the
    four months ended April 30, 1998 and the Company's results of operations
    for the eight months ended December 31, 1998.

(2) Certain sales promotional and manufacturing expenses which were previously
    reported as selling, general and administrative expenses have been
    reclassified to cost of sales to conform to the current period
    presentation. Total amounts that have been reclassified are $7.9 million
    and $9.5 million for the years ended December 31, 1998 and 1997,
    respectively. In addition, restructuring charges and loss (gain) on sale
    of assets, which were previously included in selling, general and
    administrative expenses and other income (expense), respectively, have
    been separately disclosed in the accompanying consolidated statements of
    operations for the eight months ended December 31, 1998 and the year ended
    December 31, 1997 to conform to current period presentation.

                                      12
<PAGE>

Year ended December 31, 1999 compared to the year ended December 31, 1998

  Net sales. Net sales for 1999 increased to $290.5 million from $248.3
million in 1998, an increase of $42.2 million, or 17.0%. Sales in local
currencies for 1999 increased by 23.6% over 1998. The sales in local
currencies were higher than the increase measured in U.S. dollars, primarily
as a result of a weaker average exchange rate for the Mexican peso when
measured against the U.S. dollar in 1999 as compared to 1998. The Company's
1999 average number of sales representatives worldwide increased to
approximately 275,000, or 19.6%, over the 1998 average. The Company defines
sales representative productivity as resale sales in U.S. dollars per active
sales representative. In general, sales representatives are considered to be
active if they place one order within four months. The Company's sales
representative productivity decreased 1.9% in 1999.

  In Mexico, net sales for 1999 increased to $171.5 million from $118.6
million in 1998, an increase of $52.9 million, or 44.6%. Sales in Mexico in
local currency increased by 53.7% over 1998. The significant year to year
increase was driven by the larger sales representative base, product price
increases, the introduction of new products and increased productivity of
sales representatives. In Mexico, the 1999 average number of sales
representatives increased to approximately 180,000, or 32.7% over the 1998
average. Sales representative productivity in Mexico increased 7.3% in 1999.

  In the U.S., net sales for 1999 decreased to $70.7 million from $74.3
million in 1998, a decrease of $3.6 million, or 4.8%. Low margin sales to a
third party manufacturer in 1999 and 1998 were $1.2 million and $3.1 million,
respectively. Excluding the impact of these sales, net sales in the U.S. for
1999 decreased 2.4%, primarily due to small decreases in the number and
productivity of sales representatives. In the U.S., the 1999 average number of
sales representatives decreased to approximately 56,000, or 2.1% below the
1998 average. Sales representative productivity in the U.S. decreased 0.7% in
1999.

  In Europe, net sales for 1999 decreased to $32.5 million from $40.2 million
in 1998, a decrease of $7.7 million, or 19.2%. Contributing to the sales
decline was an unfavorable exchange rate impact on sales of $1.3 million.
Excluding the exchange rate impact, net sales decreased 15.9%, also due in
part to decreases in the number and productivity of sales representatives. In
Europe, the 1999 average number of sales representatives decreased to
approximately 18,000, or 8.7% under the 1998 average. Sales representative
productivity in Europe decreased 5.6% in 1999.

  Gross profit. Gross profit in 1999 increased to $208.2 million from $169.3
million in 1998, an increase of $38.9 million, or 23.0%. Gross profit as a
percentage of sales (gross margin) increased to 71.7% from 68.2%. Cost of
sales for 1998 included a $2.7 million charge related to the sale of certain
inventories, primarily in Mexico, that were revalued in conjunction with the
Acquisition. Additionally, low margin third party sales in the U.S. in 1999
and 1998 were $1.2 million and $3.1 million, respectively. Excluding the
effects of these items, adjusted gross margin was 72.0% and 70.1% for 1999 and
1998, respectively.

  In Mexico, the increased margin was due to a combination of product price
increases, manufacturing efficiencies related to increased volume, cost
control measures and the management of product mix. In the U.S., the margin
improvement was due primarily to a combination of lower discounting on
promotional sales, product price increases, and a more favorable sales mix
which included fewer low margin third party sales. Additionally, the cost
efficiencies gained in the second half of 1999 as a result of the outsourcing
of the manufacturing facility increased the U.S. gross margin for the year by
approximately 100 basis points (one percent of sales). In Europe, margins
improved due to product cost reductions and a more favorable sales mix in
1999.

  Selling, general and administrative expenses. SG&A expenses in 1999
increased to $174.8 million from $156.6 million in 1998, an increase of $18.2
million, or 11.6%. SG&A as a percentage of net sales decreased in 1999 to
60.2% from 63.1% for 1998.

  In Mexico, SG&A expenses increased to $75.1 million from $56.3 million in
1998, an increase of $18.8 million, or 33.4%. The increased SG&A in Mexico
related primarily to sales promotions, commissions

                                      13
<PAGE>

and administrative expenses incurred to support growing sales. In addition,
Mexico incurred $0.7 million of incremental expenses for amortization of
goodwill and trademarks as a result of the Acquisition, representing a full
year of amortization in 1999 versus eight months in 1998. In the U.S., SG&A
expenses in 1999 increased to $42.9 million from $42.6 million in 1998, an
increase of $0.3 million, or 0.7%. The U.S. incurred $0.5 million of
incremental expenses for amortization of goodwill and trademarks in 1999 as a
result of the Acquisition, representing a full year of amortization in 1999
versus eight months in 1998. Excluding those expenses, the SG&A spending in
the U.S. actually declined by $0.2 million in 1999. In Europe, SG&A expenses
in 1999 decreased to $25.8 million from $30.5 million in 1998, a decrease of
$4.7 million, or 15.4%, due to a combination of lower variable expenses
related to lower sales levels, and expense controls. Corporate expenses in
1999 increased to $17.4 million from $14.0 million, an increase of $3.4
million, or 24.3%, primarily as a result of increased personnel costs of the
post-Acquisition management team.

  Restructuring and impairment charges. 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.

  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 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.

  Loss (gain) on sale of assets. Gain on sale of assets increased to $1.0
million in 1999 from a loss of $0.2 million in 1998, an increase of $1.2
million. The increase was primarily due to the $1.0 million gain on sales of a
parcel of property and an office building in the U.S. in the fourth quarter of
1999.

  Exchange gain (loss). The Company's foreign exchange gain in 1999 increased
to $3.3 million from an exchange loss of $0.4 million in 1998. The 1999
exchange gain was primarily due to $3.7 million of exchange gains generated by
Mexico, partially offset by exchange losses in Europe of $0.4 million. In
Mexico, exchange gains during 1999 related primarily to the remeasurements and
repayments of U.S. dollar-denominated debt as the peso strengthened against
the dollar. During 1998, the U.S. dollar strengthened substantially against
the Mexican peso. This would normally have resulted in an exchange loss for
the Company due to the large amount of U.S. dollar-denominated debt at Jafra
S.A. However, as Mexico was considered to be a hyperinflationary economy
during 1998, the U.S. dollar was the functional currency of the Mexican
subsidiary. Accordingly, gains and losses on the remeasurement of such debt
were not included as a component of net income in 1998.

  Interest expense. During 1999, the Company incurred $16.9 million of
interest expense (including amortization of certain deferred financing fees)
related to the debt incurred in conjunction with the Acquisition. Prior to the
Acquisition, the Company was not leveraged, and accordingly, the 1998 expense
included only eight months of Acquisition-related interest expense. During
1999, the Company obtained a Consent and Waiver to the Senior Credit Agreement
that allowed the Company to repurchase the Notes in the open market from time
to time, up to an aggregate amount of $25.0 million, and the Company
repurchased a portion of its Notes with a face value of $14.0 million prior to
maturity. In the first quarter of year 2000 the Company repurchased and
retired additional Notes with a face value of $10.3 million prior to maturity.
The repurchased Notes were replaced with lower cost debt under the Revolving
Credit Facility. The Company expects to save approximately $1.0 million in
interest expense in 2000 as a result of these debt restructuring activities.


                                      14
<PAGE>

  Income tax expense. Income tax expense increased to $10.9 million in 1999
from $4.6 million in 1998, an increase of $6.3 million. The increased income
tax expense for 1999 is primarily the result of higher taxable income
generated by the Company's Mexican subsidiary in 1999 as compared to 1998. In
1999, the Company's effective tax rate was 67.7%, while in 1998, the Company
had a 657% effective tax rate due to valuation allowances recorded against
operating losses in the U.S. and Europe. In 1999, the Company was able to
utilize a portion of operating losses previously recorded in the U.S., and the
Company expects its effective tax rate to decrease in year 2000 due to the
ability to utilize additional net operating losses in the U.S.

  Net income (loss). Net income increased to $4.6 million in 1999 from a net
loss of $3.9 million in 1998, an increase of $8.5 million. The increase was
primarily due to a $38.9 million increase in gross profit, a $3.7 million
increase in exchange gains, and a $1.2 million increase in loss (gain) on sale
of assets, partially offset by a $18.2 million increase in SG&A expenses, the
$4.8 million restructuring and impairment charges incurred in 1999, a $5.5
million increase in interest expense resulting from the Acquisition, a $6.3
million increase in income tax expense, and a $0.6 million extraordinary loss,
net of tax, on early extinguishment of debt.

Year ended December 31, 1998 compared to the year ended December 31, 1997

  Reclassification. Certain sales promotional and manufacturing expenses which
were previously reported as selling, general and administrative expenses have
been reclassified to cost of sales to conform to the current period
presentation. Total amounts that have been reclassified are $7.9 million and
$9.5 million for the years ended December 31, 1998 and 1997, respectively. In
addition, restructuring charges and loss (gain) on sale of assets, which were
previously included in selling, general and administrative expenses and other
income (expenses), respectively, have been separately disclosed in the
accompanying consolidated statements of operations for the eight months ended
December 31, 1998 and the year ended December 31, 1997 to conform to current
period presentation.

  Net sales. Net sales for 1998 increased to $248.3 million from $229.5
million in 1997, an increase of $18.8 million, or 8.2%. The Company's average
number of sales representatives worldwide increased to approximately 230,000,
or 11.9%, over the 1997 average. Productivity, defined as resale sales in U.S.
dollars per active sales representative, declined 1.9% on a worldwide basis,
principally due to weak sales in Europe and the impact of the decline in the
peso to U.S. dollar exchange rate. In the U.S., net sales increased 5.2% to
$74.3 million in 1998 from $70.6 million in 1997, while the average number of
sales representatives increased to approximately 57,000 or 11.9% over the 1997
average. Approximately $2.5 million of the U.S. sales increase consisted of
low-margin sales to a former affiliated third party manufacturer during the
transition period following the Acquisition, while the remainder of the
increase was due to growth in the sales representative base. In Latin America,
net sales increased to $133.8 million in 1998 from $112.1 million in 1997, an
increase of $21.7 million, or 19.4%, while the number of sales representatives
increased to approximately 172,900, or 17.9%. The majority of the increase in
Latin American sales came from Mexico, where net sales increased $21.0
million, or 21.5%, and the average sales representative base increased to
approximately 135,000, or 17.3% over the 1997 average. Sales in Mexico in
local currency increased by 42.5% over the prior year due to the larger sales
representative base, product price increases, the Company's successful annual
convention and the introduction of new products. Sales in Europe declined
14.1% to $40.2 million in 1998 from $46.8 million in 1997, due primarily to
the decline in the average number of sales representatives in Europe to
approximately 19,000, down 9.7% from 1997.

  Gross profit. Gross profit in 1998 increased to $169.3 million from $160.9
million in 1997, an increase of $8.4 million, or 5.2%. Gross profit as a
percentage of sales (gross margin) decreased to 68.2% from 70.1%. The decrease
in gross margin was due principally to the effects of accounting for the
Acquisition and low-margin sales to a formerly affiliated third-party
manufacturer during the transition period following the Acquisition. Cost of
sales for 1998 included a $2.7 million charge relating to the sale of certain
inventories that were revalued in conjunction with the Acquisition. In
addition, $2.5 million of incremental sales in 1998 were made to a former
Gillette affiliate that assisted in the production process and sold certain
products to the Company's Mexican

                                      15
<PAGE>

subsidiary. These U.S. sales were made subsequent to the Acquisition on a
cost-recovery basis with no profit. Excluding the effects of these items,
adjusted gross margin for 1998 was 70.0%, virtually unchanged from the prior
year.

  Selling, general & administrative expenses. SG&A expenses in 1998 increased
to $156.6 million from $140.5 million in 1997, an increase of $16.1 million,
or 11.5%. SG&A as a percentage of net sales increased in 1998 to 63.1% from
61.2% for 1997. The primary reason for the increase in SG&A was a $8.6 million
increase in promotional expense, relating primarily to markets which have
experienced sales growth. Additionally, as a result of the Acquisition, 1998
SG&A expenses included $2.1 million of amortization of goodwill and
trademarks. Excluding the acquisition-related amortization from 1998, SG&A as
a percentage of sales for 1998 was 62.2%.

  Restructuring and impairment charges. Restructuring and impairment charges
in 1997 of $0.4 million were comprised of reorganization costs of $3.5
million, that were partially offset by recovery through litigation of $2.3
million of costs in the U.S. relating to an improper installation of certain
proprietary computer systems, and a gain of $0.8 million in Mexico on the sale
of a facility which had previously been written off.

  Exchange gain (loss). The Company's foreign exchange loss in 1998 was $0.4
million compared to a gain of $0.3 million in 1997, a decrease of $0.7
million, primarily due to foreign currency transaction losses in Mexico.
During 1998, the U.S. dollar strengthened substantially against the Mexican
peso. This would normally have resulted in an exchange loss for the Company
due to the large amount of U.S. dollar-denominated debt at Jafra S.A. However,
as Mexico was considered to be a hyperinflationary economy during 1998, the
U.S. dollar was the functional currency of the Mexican subsidiary.
Accordingly, gains and losses on the remeasurement of such debt were not
included as a component of net income in 1998.

  Interest expense. During 1998, the Company incurred $11.4 million of
interest expense (including amortization of certain financing costs) related
to the debt incurred in conjunction with the Acquisition. Prior to the
Acquisition, the Company was not leveraged.

  Other income (expense). Other income (expense) in 1998 was zero compared to
an expense of $0.5 million in 1997. Other expense in 1997 consisted of
miscellaneous non-operating items.

  Income tax expense. Income tax expense decreased $0.2 million to $4.6
million in 1998 from $4.8 million in 1997. In 1998, the Company provided
valuation allowances against net operating losses in the U.S. and Europe which
had the impact of significantly increasing the effective tax rate. In
addition, the 1997 effective tax rate in Mexico was abnormally low due to
favorable permanent differences relating to the tax treatment of certain peso-
denominated inflationary items.

  Net income (loss). Net income (loss) decreased $19.3 million to a $3.9
million loss in 1998 from $15.4 million of income in 1997. This decrease was
due principally to $11.7 million of increased net interest expense in 1998 as
a result of the new debt structure, the $2.7 million increase in cost of sales
resulting from the revaluation of inventories in connection with the
Acquisition, the absence of margin on $2.5 million of incremental sales made
in 1998 to a former Gillette affiliate who assisted in the production process
and sold certain products to the Company's Mexican subsidiary, and $2.1
million in increased goodwill and trademark amortization In addition, the
Company's effective tax rate increased significantly due to valuation
allowances provided against net operating losses in the U.S. and Europe.

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 $16.1 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

                                      16
<PAGE>

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.

  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 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 over six years through April 30, 2004.
Scheduled term loan principal payments under the Term Loan Facility will be
approximately $3.5 million, $4.5 million, $5.5 million, $6.5 million, and $2.5
million for each of the years from 2000 through 2004, respectively. Borrowings
under the Revolving Credit Facility ($25.0 million as of December 31, 1999)
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 2.625% or an
alternate base rate (the higher of the prime rate or federal funds rate plus
1%, plus an applicable margin not to exceed 1.625%). The interest rates in
effect at December 31, 1999 ranged from approximately 8.0% to approximately
8.9% for the LIBOR-based borrowings, and the rate for the prime-based
borrowings was approximately 9.9%. Borrowings under the Senior Credit
Agreement are secured by substantially all of the assets of JCI and Jafra S.A.
Interest expense in 1999 was $16.9 million, including approximately $1.8
million of non-cash amortization of deferred financing fees. During 1999, cash
paid for interest was approximately $16.7 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. The Company has one letter of credit
outstanding as of December 31, 1999 under the Revolving Credit Facility, in
the amount of $1.1 million.

  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. Prior to May 1, 2001, JCI and Jafra S.A. at their option may
concurrently redeem the Notes on a pro rata basis in an aggregate principal
amount equal to up to 35% of the original aggregate principal amount of the
Notes not exceeding the aggregate cash proceeds of one or more equity
offerings, at a redemption price of 111.75% plus accrued interest; provided,
however, that an aggregate principal amount of the Notes equal to at least 65%
of the original aggregate principal amount of the Notes must remain
outstanding after each such redemption.

  A Consent and Waiver, dated November 19, 1999, to the Senior Credit
Agreement allows 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 $25.0 million. During the fourth quarter of 1999,
the Company repurchased and retired Notes with a face value of $14.0 million
prior to maturity. In the first quarter of year 2000, the Company repurchased
and retired additional Notes with a face value of $10.3 million prior to
maturity. The repurchased debt was replaced with lower cost debt under the
Revolving Credit Facility. The Company expects to save approximately $1.0
million in interest expense in 2000 as a result of these debt restructuring
activities.

  During the fourth quarter of 1999, the Company sold a parcel of real
property and an office building in the U.S., receiving net sales proceeds of
$5.6 million, with a resulting gain from the transactions of approximately
$1.0 million.

  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.

                                      17
<PAGE>

Outsourcing of Manufacturing Functions

  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 (the "Contractor") and the termination of certain employees.

  In June 1999, the Company announced certain employee terminations related to
outsourcing the U.S. product manufacturing functions. The related estimated
cost of approximately $2.7 million was charged to income from operations in
the accompanying consolidated statements of operations. At December 31, 1999,
the remaining liability for such charges was approximately $0.6 million. The
majority of the remaining costs have been paid out in cash during the first
quarter of 2000, although certain individuals will receive severance payments
that will extend until the second or third quarter of 2000.

  The fixed assets and inventories were sold to the Contractor in exchange for
secured promissory notes. The promissory note for the fixed assets of
approximately $1.5 million bears interest at an annual rate of 8%, and is
payable in monthly installments over three years, commencing January 1, 2000.
The promissory note for inventories of approximately $2.2 million is non-
interest bearing, and is payable in monthly installments over one year,
commencing October 1, 1999. At December 31, 1999, approximately $2.1 million
of notes from the Contractor (reflected at fair value, net of discount), as
well as approximately $0.5 million of unsecured accounts receivable, were
included in receivables and approximately $1.0 million of notes, representing
the non-current portion of the fixed asset notes from the Contractor, were
included in other assets in the accompanying consolidated balance sheets.

  In addition, 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. 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.

Cash Flows

  Net cash used in operating activities was $1.6 million in 1999, compared to
cash provided by operating activities of $10.1 million in 1998 and $26.7
million in 1997. The $11.7 million decrease in cash flow from operations in
1999 compared to 1998 is attributable to a decrease in the change of working
capital items of $21.8 million, partially offset by a $10.1 million increase
in net income adjusted for depreciation, amortization and other non-cash items
included in net income. The $16.6 million decrease in cash flow from
operations in 1998 compared to 1997 is attributable to a $8.5 million decrease
in the change in working capital items, and a $8.1 million decrease in net
income adjusted for depreciation, amortization and other non-cash items
included in net income.

  Net cash used in investing activities was $3.1 million in 1999, consisting
of capital expenditures of $5.8 million, payments of previously accrued
Acquisition fees of $1.8 million and miscellaneous items totaling $1.0
million, partially offset by proceeds from the sales of a parcel of property
and an office building of $5.6 million. Capital expenditures in 2000 are
expected to be approximately $12.0 million, comprised of $6.7 million for
information technology, $2.9 million for production equipment, $1.6 million
for space and facilities and $0.8 million for miscellaneous items.

                                      18
<PAGE>

  Net cash used in financing activities was $7.4 million in 1999, consisting
primarily of $13.5 million for the repurchase of subordinated debt with a face
value of $14.0 million and $2.5 million for principal repayments under the
term loan facility, partially offset by net borrowings under the revolving
credit facility of $8.5 million.

  The effect of exchange rate changes on cash was $1.4 million for 1999,
relating primarily to fluctuations in the exchange rate of the peso.

Foreign Operations

  Sales outside of the United States aggregated 76%, 70%, and 69% of the
Company's total net sales for the fiscal years 1999, 1998, and 1997,
respectively. In addition, as of December 31, 1999, international subsidiaries
comprised approximately 75% of the Company's consolidated total assets.
Accordingly, the Company has experienced and continues to be exposed to
foreign exchange risk. In December 1999, the Company entered into foreign
currency forward contracts in Mexican pesos to reduce the effect of
potentially adverse exchange rate fluctuations in Mexico. However, for
virtually the entire 1999 year, the Company's operating results were impacted
by foreign currency fluctuations, and during 1998, the stronger U.S. dollar
negatively impacted revenues and operating income of the Company's operations
in Mexico and Europe. Net sales for 1999 would have increased by an additional
$14.7 million, or 5.9%, over reported amounts if average exchange rates in
1999 remained the same as in 1998.

  The Company's subsidiary in Mexico, Jafra S.A., generated approximately
59.1% of the Company's net sales for 1999, compared to 47.7% for 1998,
substantially all of which were denominated in Mexican pesos. Mexico has
experienced periods of high inflation in the past. During 1997 and 1998, Jafra
S.A.'s functional currency was the U.S. dollar because Mexico was considered
to be a hyperinflationary economy during these periods. As of January 1, 1999,
Mexico is no longer considered a hyperinflationary economy, and the Company
now accounts for its Mexican operations using the peso as its functional
currency. Jafra S.A. had $43.9 million of U.S. dollar denominated third party
debt and $41.0 million of U.S. dollar-denominated intercompany debt as of
December 31, 1999. Because the functional currency in Mexico is no longer the
U.S. dollar, gains and losses of remeasuring such debt to the U.S. dollar from
the peso are now included as a component of net income. Jafra S.A. recognized
an unrealized exchange gain of approximately $2.4 million and a realized
exchange gain on repayments of debt of approximately $0.4 million for 1999.

Year 2000 Issue

  The Company established a Year 2000 compliance methodology which encompassed
six phases: discovery, planning, resolution, testing, implementation and
certification. The scope of the Company's compliance program included
information technology (computer systems, hardware and operating systems),
facilities (phone systems, plant machinery, elevators and security systems),
embedded software in production equipment and major suppliers of raw materials
and finished goods. The Company has completed all phases with respect to both
its information technology systems and non-information technology systems. The
Company has upgraded its main operating systems to a Year 2000 compliant
version in all of the markets in which it conducts business.

  As part of its investigation conducted in the discovery phase, the Company
prepared a questionnaire that was distributed to its major suppliers, which
supply (either directly or indirectly through the Company's contract
manufacturer) 75% of the raw materials and finished goods purchased by the
Company from third party suppliers. The Company received written responses
from substantially all of these suppliers. Confirming each such supplier's
responses, the Company did not experience any dating problems associated with
the Year 2000. The Company developed contingency plans on a country by country
basis. These contingency plans primarily involved the use of additional
temporary labor and manual procedures to process and ship orders in case
specific mission-critical systems failed on Year 2000 related dates.

  The Company believes that it has successfully rendered its products,
internal management and other administrative systems, and external information
systems year 2000 compliant. Since January 1, 2000 the Company has experienced
no disruptions in its business operations as a result of Year 2000 compliance
problems

                                      19
<PAGE>

and has received no reports of any Year 2000 compliance problems with its
products. The Company is continuing to monitor third-party vendors for
additional recommended Year 2000 compliance. The Company has spent
approximately $1.6 million to date to render both information technology and
non-information technology systems Year 2000 compliant.

  Nonetheless, some problems related to Year 2000 risks may not appear until
several months after January 1, 2000. Year 2000 issues could include problems
with Company products, with third-party products or technologies that are used
by the Company, or with which its products exchange data. Any problems that
are not identified and corrected successfully and completely could adversely
affect the business of the Company. However, the Company expects that any
additional cost to fix any Year 2000 problems that may be identified will
involve internal labor-hours and will not be material.

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 will trade on currency exchanges
and be available for non-cash transactions during the transition period
between January 1, 1999 and January 1, 2002. During this transition period,
the existing currencies are scheduled to remain legal tender in the
participating countries as denominations of the euro and public and private
parties may pay for goods and services using either the euro or the
participating countries' existing currencies.

  During the transition period, the Company will continue to utilize the
respective country's existing currency as the functional currency. Use of the
euro by the Company or its sales representatives is not expected to be
significant and will be converted and recorded in the Company's accounting
records to the existing functional currency.

  The Company intends to adopt the euro as its functional currency when the
majority of its transactions in the member countries are conducted in the
euro. The Company is currently identifying the impact the euro will have on
its information systems throughout Europe. The Company has identified that its
European commercial system will not support the euro, and is looking into
various alternatives either to update or replace the system. The Company has
budgeted sufficient funds in 2000 to commence the transition to a Euro
compliant system portfolio in Europe. The Company does not expect the
introduction of the euro to materially adversely affect its business,
financial condition, or results of operations.

Business Trends and Initiatives

  The Company has experienced significant sales growth in Mexico over the last
two years, due in large part to an increase in the number of sales
representatives. The Company's Mexican subsidiary generated 59.1% of the
Company's consolidated net sales for 1999, compared to 47.7% for 1998. The
sales growth in Mexico for 1999 was 44.6% in U.S. dollars and 53.7% in local
currency. Given a continued stable economic environment, the Company expects
to continue to grow its revenues and representative base in Mexico, but no
assurance can be given that sales in Mexico will continue to increase at these
rates.

  The U.S. market plans to implement a number of strategies during 2000 which,
along with the initiation of doing business via e-commerce and an increased
focus on sponsoring new representatives through enhanced training programs,
are intended to stimulate sales growth in the range of 10-15% over 1999
levels.

  Net sales in Europe for 1999 declined at a rate of approximately 19.2% from
the comparable period of the prior year, primarily due to declines in both the
number and productivity of sales representatives, along with an unfavorable
exchange rate impact. The Company expects to show single digit sales growth in
2000 over the 1999 levels. The Company continues to evaluate opportunities to
streamline its operations to enhance the profitability achieved by these
markets.

                                      20
<PAGE>

  As a result of these differential growth rates, the Company expects, but no
assurance can be given, that its percentage of net sales in Mexico will
increase slightly, and its percentage of net sales in Europe will decrease
slightly for the near term.

  The Company has made plans to develop new business in 2000 through expansion
into new markets, particularly one in Asia, and by utilizing the Internet and
electronic commerce to increase its revenue base in existing markets.

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 dynamic leadership required to
attract new sales representatives and managerial talent, inspire new and
existing sales representatives to greater productivity and execute the
Company's new market development strategy; (b) the Company's plans to expand
its sales representative base in existing markets and to increase sales
representative productivity; (c) the Company's belief that its existing
distribution and manufacturing capabilities provide a strong platform for the
Company to expand into new markets and thereby diversify its revenue base; (d)
the Company's expectation that it will be able to implement its new market
development strategy with limited additional capital expenditures and without
diverting focus from the Company's core markets; and (e) the Company's belief
that use of the Internet by its sales representatives will result in better
service to customers at a lower cost; (ii) the statement in "Business--
International Operations" that the Company intends to increase the number of
markets in which it participates and grow revenues in those markets in order
to diversify its revenue base and to minimize any adverse impact that a
downturn in the Mexican economy could have on the Company; (iii) the statement
in "Business--Manufacturing" that 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; (iv) the statement in
"Business--Distribution" that management believes its facilities are adequate
to meet global demand for the foreseeable future; (v) the statements in
"Business--Management Information Systems" concerning the Company's
expectations that (a) its e-commerce system is expected to be operational by
mid-2000 and (b) each of its major markets will be equipped during the latter
part of 2000 or 2001 with a local integrated marketing system, a global
Distributed Resource Planning system, and a new commercial system; (vi) 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; (vii) other
statements as to management's or the Company's expectations, intentions and
beliefs presented in "Business"; (viii) the statement in "Properties" that the
Company's properties are suitable to meets its anticipated requirements; (ix)
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; (x) the statements in "--Liquidity and Capital
Resources" concerning (a) the Company's expectation that it expects to save
approximately $1.0 million in interest expense in 2000 as a result of debt
restructuring activities; and (b) the Company's belief that it will have
sufficient liquidity to meet its cash requirements and working capital needs
over the next twelve months; (xi) the statements in "--Year 2000 Issue" that
(a) the Company believes it has successfully rendered its products, internal
management and external information systems Year 2000 compliant; and (b) that
the cost to fix any Year 2000 problems that may be identified will involve
internal labor-hours and will not be material; (xii) the statements in "--
European Economic and Monetary Union" concerning the Company's expectations
that (a) use of the euro by the Company or its sales representatives will not
be significant and (b) the introduction of the euro will not materially
adversely affect its business, financial condition or results of operations;
(xiii) the statements in "--Business Trends and Initiatives" that (a) given a
continued stable economic environment, the Company expects to continue to grow
its revenues and representative base in Mexico, but not at historical growth
rates, (b) the Company expects to grow its year 2000 sales in the U.S. market
10-15% due to new strategies and the initiation of e-commerce business; (c)
the Company's expectation that sales in Europe will show single digit sales
growth in 2000, and (d) the Company's expectation that its

                                      21
<PAGE>

percentage of net sales in Mexico will increase and its percentage of net
sales in Europe will decrease for the near term; and (xiv) 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," "--Liquidity and
Capital Resources," "--Foreign Operations," "--Year 2000 Issue," "--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
     implement successfully its business strategy. The components of 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

                                      22
<PAGE>

     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 sale of cosmetics and other personal care products correlates
     strongly to the level of consumer spending generally, and thus is
     significantly affected by the general state of the economy and the
     ability and willingness of consumers to spend on discretionary items.
     Reduced consumer confidence and spending generally may result in reduced
     demand for the Company's products and limitations on the ability of the
     Company to maintain or increase prices. A decline in general economic
     conditions or general consumer spending in any of the Company's major
     markets could have a material adverse effect on the Company's business,
     financial condition and results of operations.

  .  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 sales
     representatives, (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.

                                      23
<PAGE>

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 table below presents principal cash flows and related
interest rates by fiscal year of maturity:

               Debt Obligation Information at December 31, 1999
                      (Amounts in U.S. dollars in 000's)

<TABLE>
<CAPTION>
                                       Expected Year of Maturity                      Fair Value
                         ----------------------------------------------------------- December 31,
                          2000    2001    2002    2003    2004    Thereafter  Total    1999(1)
                         ------  ------  ------  ------  -------  ---------- ------- ------------
<S>                      <C>     <C>     <C>     <C>     <C>      <C>        <C>     <C>
Senior Subordinated
 Notes, Term Loan, and
 Revolving Credit
 Facility
  Fixed Rate (US$) .....                                           $86,000   $86,000   $83,850
  Average Interest Rate
   .....................                                             11.75%
  Variable Rate (US$)
   ..................... $3,500  $4,500  $5,500  $6,500  $27,500       --     47,500    47,500
  Average Interest Rate
   .....................   8.89%   8.89%   8.89%   8.89%    8.89%     8.89%
</TABLE>

               Debt Obligation Information at December 31, 1998
                      (Amounts in U.S. dollars in 000's)

<TABLE>
<CAPTION>
                                       Expected Year of Maturity                      Fair Value
                         ----------------------------------------------------------- December 31,
                          1999    2000    2001    2002    2003   Thereafter  Total     1998(1)
                         ------  ------  ------  ------  ------  ---------- -------- ------------
<S>                      <C>     <C>     <C>     <C>     <C>     <C>        <C>      <C>
Senior Subordinated
 Notes, Term Loan, and
 Revolving Credit
 Facility
  Fixed Rate (US$) .....                                          $100,000  $100,000   $88,000
  Average Interest Rate
   .....................                                             11.75%
  Variable Rate (US$)
   ..................... $2,500  $3,500  $4,500  $5,500  $6,500     19,000    41,500    41,500
  Average Interest Rate
   .....................   8.04%   8.04%   8.04%   8.04%   8.04%      8.04%
</TABLE>
--------
(1) The Company's estimate of the fair value of its Senior Subordinated Notes
    at December 31, 1999 was based upon quoted market prices. The Company's
    estimate of the fair value of its Senior Subordinated Notes at December
    31, 1998 was based upon information provided by a broker dealer that makes
    a market in the Company's Senior Subordinated Notes. 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, 1999 and 1998.

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, 76%
of the Company's 1999 revenue was generated in countries with a functional
currency other than the U.S. dollar. As a result, the Company's 1999 earnings
and cash flows are exposed to fluctuations in foreign currency exchange rates.

  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 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 Company does not use derivative financial
instruments for trading or speculative purposes, nor is the Company a party to
leveraged derivatives.

                                      24
<PAGE>

  The table below describes the forward contracts that were outstanding at
December 31, 1999 (dollar amounts in thousands). These foreign currency
forward contracts do not qualify as hedging transactions under the current
accounting definitions and, accordingly, have been marked to market through
income.

<TABLE>
<CAPTION>
                                         Forward
                             Contract  Position in  Maturity Contract   Fair
      Foreign Currency         Date   US Dollars(1)   Date     Rate   Value(1)
      ----------------       -------- ------------- -------- -------- --------
<S>                          <C>      <C>           <C>      <C>      <C>
Buy US Dollar/sell Mexican
 Peso....................... 12/22/99    $ 3,722     3/31/00   9.671  $ 3,690
Buy US Dollar/sell Mexican
 Peso....................... 12/22/99      3,890     4/28/00   9.770    3,856
Buy US Dollar/sell Mexican
 Peso....................... 12/22/99      2,929     5/31/00   9.900    2,907
Buy US Dollar/sell Mexican
 Peso....................... 12/22/99      3,997     6/30/00  10.008    3,967
Buy US Dollar/sell Mexican
 Peso....................... 12/22/99      1,977     7/31/00  10.118    1,962
Buy US Dollar/sell Mexican
 Peso....................... 12/22/99      3,032     8/31/00  10.223    3,010
Buy US Dollar/sell Mexican
 Peso....................... 12/22/99      3,874     9/29/00  10.326    3,846
Buy US Dollar/sell Mexican
 Peso....................... 12/22/99      3,641    10/31/00  10.438    3,617
Buy US Dollar/sell Mexican
 Peso....................... 12/22/99      2,844    11/30/00  10.548    2,829
                                         -------                      -------
                                         $29,906                      $29,684
                                         =======                      =======
</TABLE>
--------
(1) The "Forward Position in U.S. Dollars" and the "Fair Value" presented
    above represent notional amounts. The net of these two amounts, $222,000,
    represents the fair value of the forward contracts and has been recorded
    as an asset in the accompanying consolidated balance sheet as of December
    31, 1999.

  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 Company's Mexican subsidiary, Jafra S.A., had U.S. dollar denominated
debt of $84.9 million and $55.0 million at December 31, 1999 and 1998,
respectively. During 1998, there were no gains or losses on remeasuring U.S.
dollar denominated debt because the functional currency of Mexico was
considered to be the U.S. dollar in 1998. Effective January 1, 1999, the
Company began accounting for its Mexican operations using the peso as the
functional currency. Accordingly, gains and loss on remeasuring such debt to
the U.S. dollar are now included in income. From January 1, 1999 to December
31, 1999, the value of the peso to the U.S. dollar increased by 5.0%, 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 $84.9 million of outstanding debt at December 31, 1999, a 10%
decline in the peso to U.S. dollar exchange rate would result in a $8.5
million foreign currency transaction loss.

                                      25
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                  INDEX TO FINANCIAL STATEMENTS AND FINANCIAL
                               STATEMENT SCHEDULE

<TABLE>
<CAPTION>
                                                                           Page
                                                                           ----
<S>                                                                        <C>
Independent Auditors' Report for the year ended December 31, 1999, the
 eight-month period ended December 31, 1998 and the four-month period
 ended April 30, 1998.....................................................  27

Independent Auditors' Report for the year ended December 31, 1997.........  28

Consolidated Balance Sheets--As of December 31, 1999 and 1998.............  29

Consolidated Statements of Operations--For the year ended December 31,
 1999, the eight-month period ended December 31, 1998, the four-month
 period ended April 30, 1998, and the year ended December 31, 1997........  30

Consolidated Statements of Stockholders' Equity--For the year ended
 December 31, 1999, the eight-month period ended December 31, 1998, the
 four-month period ended April 30, 1998, and the year ended December 31,
 1997.....................................................................  31

Consolidated Statements of Cash Flows--For the year ended December 31,
 1999, the eight-month period ended December 31, 1998, the four-month
 period ended April 30, 1998, and the year ended December 31, 1997........  32

Notes to Consolidated Financial Statements................................  34

Schedule II--Valuation and Qualifying Accounts............................  62
</TABLE>


                                       26
<PAGE>

                         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 as of December 31, 1999 and 1998, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for the year ended December 31, 1999 and the eight-month period
ended December 31, 1998 and the combined statements of operations, divisional
equity, and cash flows of Jafra Cosmetics International (the "Predecessor")
for the four-month period ended April 30, 1998. 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, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of CDRJ
Investments (Lux) S.A. and subsidiaries as of December 31, 1999 and 1998, and
the results of their operations and their cash flows for the year ended
December 31, 1999 and the eight-month period ended December 31, 1998 and the
combined results of operations and cash flows of the Predecessor for the four-
month period ended April 30, 1998 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 financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.

Deloitte & Touche LLP

March 2, 2000
Los Angeles, California

                                      27
<PAGE>

                         INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders
CDRJ Investments (Lux) S.A.:

  We have audited the accompanying combined statements of operations,
divisional equity, and cash flows of Jafra Cosmetics International (the
"Predecessor Company") for the year ended December 31, 1997. These combined
financial statements are the responsibility of the Predecessor Company's
management. Our responsibility is to express an opinion on these combined
financial statements based on our audit. Our audit also included the financial
statement schedule listed in the Index at Item 14(a)(2). These financial
statements and financial statement schedule are the responsibility of the
Predecessor Company's management. Our responsibility is to express an opinion
on these financial statements and financial statement schedule based on our
audit.

  We conducted our audit in accordance with generally accepted auditing
standards. 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 audit provides a reasonable basis
for our opinion.

  In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
Jafra Cosmetics International for the year ended December 31, 1997 in
conformity with generally accepted accounting principles. Also, in our
opinion, the financial statement schedule referred to above, when considered
in relation to the basic financial statements taken as a whole, presents
fairly in all material respects the information set forth therein.

                                          KPMG LLP

February 27, 1998
Los Angeles, California

                                      28
<PAGE>

                  CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                      (In thousands, except share amounts)

<TABLE>
<CAPTION>
                                                      December 31, December 31,
                                                          1999         1998
                                                      ------------ ------------
<S>                                                   <C>          <C>
                       ASSETS

Current assets:
  Cash and cash equivalents..........................   $  4,906     $ 18,358
  Receivables, less allowances for doubtful accounts
   of $3,087 in 1999 and $2,284 in 1998..............     31,277       24,449
  Inventories........................................     30,290       33,195
  Prepaid income taxes...............................     13,875        5,835
  Prepaid expenses and other current assets
   (including value-added tax receivables of $6,053
   in 1999 and $3,252 in 1998).......................      8,608        5,648
                                                        --------     --------
    Total current assets.............................     88,956       87,485
Property and equipment, net..........................     50,607       56,238
Other assets:
  Goodwill, net......................................     75,323       77,193
  Trademarks, net....................................     51,605       53,234
  Deferred financing fees and other, net.............     11,886       14,484
                                                        --------     --------
    Total............................................   $278,377     $288,634
                                                        ========     ========

        LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Current portion of long-term debt..................   $  3,500     $  2,500
  Accounts payable...................................     15,005       25,905
  Accrued liabilities................................     33,424       34,183
  Income taxes payable...............................        276        1,017
  Deferred income taxes..............................      2,587          953
                                                        --------     --------
    Total current liabilities........................     54,792       64,558
Long-term debt.......................................    130,000      139,000
Deferred income taxes................................     15,731        8,202
Other long-term liabilities..........................      2,060        1,433
                                                        --------     --------
    Total liabilities................................    202,583      213,193
                                                        --------     --------
Commitments and contingencies                                --           --
Stockholders' equity:
  Common stock, par value $2.00; authorized,
   1,020,000 shares; issued and outstanding, 830,659
   shares in 1999 and 829,940 shares in 1998.........      1,661        1,660
  Additional paid-in capital.........................     81,381       81,275
  Accumulated deficit................................     (3,393)      (8,041)
  Cumulative foreign currency translation
   adjustment........................................     (3,855)         547
                                                        --------     --------
    Total stockholders' equity.......................     75,794       75,441
                                                        --------     --------
    Total............................................   $278,377     $288,634
                                                        ========     ========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       29
<PAGE>

                  CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                             Predecessor
                                                       ------------------------
                                          Eight Months Four Months
                              Year Ended     Ended        Ended     Year Ended
                             December 31, December 31,  April 30,  December 31,
                                 1999         1998        1998         1997
                             ------------ ------------ ----------- ------------
<S>                          <C>          <C>          <C>         <C>
Net sales..................    $290,450     $171,019     $77,282     $229,524
Cost of sales..............      82,239       56,324      22,666       68,604
                               --------     --------     -------     --------
  Gross profit.............     208,211      114,695      54,616      160,920
Selling, general and
 administrative expenses...     174,834      107,452      49,175      140,459
Restructuring and
 impairment charges........       4,812          --          --           400
Loss (gain) on sale of
 assets....................      (1,043)         150         --          (126)
                               --------     --------     -------     --------
  Income from operations...      29,608        7,093       5,441       20,187
Other income (expense):
  Exchange gain (loss).....       3,330       (1,742)      1,376          312
  Interest, net............     (16,888)     (11,431)         78          306
  Other, net...............          24         (201)        104         (540)
                               --------     --------     -------     --------
Income (loss) before income
 taxes.....................      16,074       (6,281)      6,999       20,265
Income tax expense.........      10,874        1,760       2,899        4,816
                               --------     --------     -------     --------
Income (loss) before
 extraordinary item........       5,200       (8,041)      4,100       15,449
Extraordinary loss on early
 extinguishment of debt,
 net of income tax benefit
  of $177..................         552          --          --           --
                               --------     --------     -------     --------
Net income (loss)..........    $  4,648     $ (8,041)    $ 4,100     $ 15,449
                               ========     ========     =======     ========
</TABLE>


          See accompanying notes to consolidated financial statements.

                                       30
<PAGE>

                 CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                       (In thousands, except for shares)

<TABLE>
<CAPTION>
                                                        Cumulative
                           Common Stock(1)                foreign     Retained
                          -----------------  Additional  currency     earnings       Total
                          Number of           paid-in   translation (accumulated stockholders' Comprehensive
                           Shares   Amount   capital(1) adjustment    deficit)     equity(1)   income (loss)
                          --------- -------  ---------- ----------- ------------ ------------- -------------
<S>                       <C>       <C>      <C>        <C>         <C>          <C>           <C>
PREDECESSOR:
Balance at January 1,
 1997...................       --   $47,641   $ 4,564    $(53,983)    $80,419       $78,641
Net income..............       --       --        --          --       15,449        15,449       $15,449
Dividends paid to
 Gillette...............       --       --        --          --      (18,355)      (18,355)          --
Capital of new division
 included in combined
 group..................       --     1,926       --          --          --          1,926           --
Translation adjustment..       --       --        --         (357)        --           (357)         (357)
                                                                                                  -------
Total comprehensive
 income.................       --       --        --          --          --            --        $15,092
                           -------  -------   -------    --------     -------       -------       =======
Balance at December 31,
 1997...................       --    49,567     4,564     (54,340)     77,513        77,304
Net income for four
 months ended April 30,
 1998...................       --       --        --          --        4,100         4,100       $ 4,100
Net loss for foreign
 subsidiaries due to
 change in reporting
 period (unaudited).....       --       --        --          --       (1,197)       (1,197)          --
Dividends paid to
 Gillette...............       --       --        --          --      (20,990)      (20,990)          --
Capital contributions by
 Gillette...............       --       --        --          --       31,735        31,735           --
Translation adjustment..       --       --        --         (333)        --           (333)         (333)
                                                                                                  -------
Total comprehensive
 income.................       --       --        --          --          --            --        $ 3,767
                           -------  -------   -------    --------     -------       -------       =======
Balance at April 30,
 1998...................       --   $49,567   $ 4,564    $(54,673)    $91,161       $90,619
                           =======  =======   =======    ========     =======       =======

CDRJ INVESTMENTS (LUX)
 S.A. AND SUBSIDIARIES:
Common stock issued upon
 formation of CDRJ
 Investments (Lux) S.A.,
 April 30, 1998.........   789,503  $ 1,579   $77,371    $    --      $   --        $78,950
Issuance of common
 stock..................    40,437       81     3,904         --          --          3,985
Net loss for eight
 months ended December
 31, 1998...............       --       --        --          --       (8,041)       (8,041)      $(8,041)
Translation adjustment..       --       --        --          547         --            547           547
                                                                                                  -------
Total comprehensive
 loss...................       --       --        --          --          --            --        $(7,494)
                           -------  -------   -------    --------     -------       -------       =======
Balance at December 31,
 1998...................   829,940    1,660    81,275         547      (8,041)       75,441
Issuance of common
 stock..................     3,036        6       449         --          --            455
Repurchase of common
 stock..................    (2,317)      (5)     (343)        --          --           (348)
Net income..............       --       --        --          --        4,648         4,648       $ 4,648
Translation adjustment..       --       --        --       (4,402)        --         (4,402)       (4,402)
                                                                                                  -------
Total comprehensive
 income.................       --       --        --          --          --            --        $   246
                           -------  -------   -------    --------     -------       -------       =======
Balance at December 31,
 1999...................   830,659  $ 1,661   $81,381    $ (3,855)    $(3,393)      $75,794
                           =======  =======   =======    ========     =======       =======
</TABLE>
-------
(1) Predecessor common stock and additional paid-in capital represent
    subsidiary capital, and total stockholders' equity of the Predecessor
    represents divisional equity.

         See accompanying notes to consolidated financial statements.

                                      31
<PAGE>

                  CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                             Predecessor
                                                       ------------------------
                                          Eight Months Four Months
                              Year Ended     Ended        Ended     Year Ended
                             December 31, December 31,  April 30,  December 31,
                                 1999         1998        1998         1997
                             ------------ ------------ ----------- ------------
<S>                          <C>          <C>          <C>         <C>
Cash flows from operating
 activities:
 Net income (loss).........    $  4,648    $  (8,041)   $  4,100     $ 15,449
   Extraordinary loss on
    early extinguishment of
    debt, net of taxes.....         552          --          --           --
                               --------    ---------    --------     --------
 Income (loss) before
  extraordinary item.......       5,200       (8,041)      4,100       15,449
 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..............      (1,043)         150         --          (126)
   Depreciation and
    amortization...........       7,119        5,089       1,363        4,361
   Amortization of deferred
    financing fees.........       1,832        1,407         --           --
   Asset impairment
    charge.................       1,084          --          --           --
   Unrealized foreign
    exchange gain..........      (2,377)         --          --           --
   Deferred income taxes...       7,320        4,516         375       (2,596)
   Changes in operating
    assets and liabilities:
     Receivables, net......      (3,686)      (4,095)     (2,063)      (1,027)
     Inventories...........         613        5,260        (512)       7,113
     Prepaid expenses and
      other current
      assets...............      (2,960)      (2,313)     (7,457)        (657)
     Other assets..........      (1,182)        (760)      3,948        1,571
     Accounts payable and
      accrued liabilities..      (5,904)      19,699      (7,144)      (3,682)
     Income taxes
      payable/prepaid......      (8,198)      (2,878)       (247)       6,792
     Other long-term
      liabilities..........         627           80        (408)        (481)
                               --------    ---------    --------     --------
      Net cash provided by
       (used in) operating
       activities..........      (1,555)      18,114      (8,045)      26,717
                               --------    ---------    --------     --------
Cash flows from investing
 activities:
 Purchase of Jafra
  Business, net of cash
  received of $2,339.......         --      (187,226)        --           --
 Withholding taxes on
  purchase price...........         --       (12,929)        --           --
 Payments of previously
  accrued Acquisition
  fees.....................      (1,856)      (7,542)        --           --
 Proceeds from sale of
  property and equipment...       5,551        2,917       8,811        3,132
 Purchases of property and
  equipment................      (5,798)      (6,367)     (6,124)      (8,932)
 Other.....................        (991)         --          (97)         --
                               --------    ---------    --------     --------
      Net cash provided by
       (used in) investing
       activities..........      (3,094)    (211,147)      2,590       (5,800)
                               --------    ---------    --------     --------
Cash flows from financing
 activities:
 Gross issuance
  (repurchase) of
  subordinated debt........     (13,490)     100,000         --           --
 Gross borrowings
  (repayments) under term
  loan facility............      (2,500)      25,000         --           --
 Net borrowings
  (repayments) under
  revolving credit
  facility.................       8,500       16,500         --           --
 Net proceeds from bank
  debt.....................         --           --          --         8,513
 Capital contributions by
  Gillette.................         --           --        5,013        1,926
 Dividends paid to
  Gillette.................         --           --          --       (18,355)
 Transactions with Gillette
  and other divisions......         --           --      (13,792)     (11,075)
 Issuance of common stock..         455       82,707         --           --
 Repurchase of common
  stock....................        (348)         --          --           --
 Deferred financing fees...         --       (12,471)        --           --
                               --------    ---------    --------     --------
      Net cash provided by
       (used in) financing
       activities..........      (7,383)     211,736      (8,779)     (18,991)
                               --------    ---------    --------     --------
Effect of exchange rate
 changes on cash...........      (1,420)        (573)       (333)        (357)
Effect of accounting
 calendar change on cash...         --           --        6,276          --
                               --------    ---------    --------     --------
Net increase (decrease) in
 cash and cash
 equivalents...............     (13,452)      18,130      (8,291)       1,569
Cash and cash equivalents
 at beginning of period....      18,358          228      10,231        8,662
                               --------    ---------    --------     --------
Cash and cash equivalents
 at end of period..........    $  4,906    $  18,358    $  1,940     $ 10,231
                               ========    =========    ========     ========
</TABLE>

                                                        (continued on next page)

          See accompanying notes to consolidated financial statements

                                       32
<PAGE>

                  CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES

               CONSOLIDATED STATEMENTS OF CASH FLOWS--(Concluded)
                                 (In thousands)

<TABLE>
<CAPTION>
                                                             Predecessor
                                                       ------------------------
                                          Eight Months Four Months
                              Year Ended     Ended        Ended     Year Ended
                             December 31, December 31,  April 30,  December 31,
                                 1999         1998        1998         1997
                             ------------ ------------ ----------- ------------
<S>                          <C>          <C>          <C>         <C>
Supplemental disclosure of
 cash flow information:
 Cash paid during the year
  for:
   Interest.................   $16,656       $8,301     $    501      $2,811
   Income taxes.............    10,541        4,402        4,135       4,313
Supplemental schedule of
 non-cash investing and
 financing activities:
 As described in Note 9, in
  connection with the
  Acquisition at April 30,
  1998, certain
  intercompany balances
  between Gillette and the
  Predecessor were
  forgiven. These amounts
  were accounted for as
  direct contributions to
  (reductions from) equity.
   Intercompany accounts
    payable.................   $   --        $  --      $ 26,722      $  --
   Intercompany accounts
    receivable..............       --           --       (20,990)        --
</TABLE>

  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.


          See accompanying notes to consolidated financial statements

                                       33
<PAGE>

                 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 societe anonyme (the "Parent"),
Jafra Cosmetics International, Inc., a Delaware corporation ("JCI"), Jafra
Cosmetics International, S.A. de C.V., a sociedad anonima de capital variable
organized 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." On April 30, 1998,
pursuant to an acquisition agreement (the "Acquisition Agreement") between the
Parent, certain of its subsidiaries and Gillette, (i) Jafra Cosmetics
International Inc., a California corporation, merged with and into JCI, with
JCI as the surviving entity, (ii) Jafra S.A. acquired the stock of Grupo
Jafra, S.A. de C.V., a Mexican Company ("Grupo Jafra"), which merged with and
into Jafra S.A. following the consummation of the Acquisition, with Jafra S.A.
as the surviving entity, (iii) indirect subsidiaries of the Parent purchased
the stock of Gillette subsidiaries conducting the Jafra Business in Germany,
Italy, the Netherlands and Switzerland; and (iv) indirect subsidiaries of the
Parent acquired from various Gillette subsidiaries certain assets used in the
Jafra Business in Austria, Argentina, Colombia and Venezuela.

  The accompanying consolidated financial statements as of and for the year
and for the eight-month period ended December 31, 1999 and 1998, respectively,
reflect the operations of the Parent and its subsidiaries. The accompanying
combined financial statements for the four months ended April 30, 1998 and the
year ended December 31, 1997 reflect the operations of the Jafra Business
prior to the Acquisition and are referred to as the "Predecessor" operations.
All significant intercompany or interdivisional accounts and transactions
between entities comprising the Jafra Business have been eliminated in
consolidation and combination.

  The combined financial statements of the Predecessor included the following
subsidiaries and divisions of Gillette: Jafra Cosmetics International, Inc., a
California corporation; Jafra Cosmetics GmbH, a German company; Jafra
Cosmetics International B.V., a Netherlands company; Jafra Cosmetics S.p.A.,
an Italian company; Jafra Cosmetics A.G., a Swiss company; Grupo Jafra S.A. de
C.V., a Mexican company, and its subsidiaries, together with certain operating
assets and the related operating profit of Gillette Braun used in the Jafra
Business in Mexico (the "Braun Assets"); the divested operations of the
Predecessor, principally in Portugal, Spain, Brazil and the United Kingdom
(collectively the "Divested Markets"); the Jafra-related operations of
Gillette affiliates in Austria, Argentina, Colombia and Venezuela; and the
assets related to the Jafra intellectual property, formerly held by Gillette,
that are used in the Jafra Business. The Parent did not acquire the Divested
Markets as part of the Jafra Business.

  Because of the debt financing incurred in connection with the Acquisition,
the exclusion of certain assets and liabilities not acquired, and the
adjustments made to allocate the excess of the aggregate purchase price over
the historical value of the net assets acquired, the accompanying consolidated
financial statements of the Company are not directly comparable to those of
the Predecessor.

                                      34
<PAGE>

                 CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  The accompanying financial statements for the year ended December 31, 1997
include the operating results of the Predecessor's foreign subsidiaries for
the fiscal year ended November 30. In 1998, the Predecessor changed the
reporting period for the foreign operations from a fiscal year ending November
30 to a calendar year. The line item denoted "Effect of accounting calendar
change on cash" in the consolidated statements of cash flows represents the
change in the cash balance of the Predecessor's foreign operations from
November 30, 1997 to December 31, 1997. The unaudited results of operations
for the period from December 1 through December 31, 1997 were as follows (in
thousands):

<TABLE>
<CAPTION>
                                                                     (Unaudited)
     <S>                                                             <C>
     Net sales......................................................   $9,619
     Gross profit...................................................    7,201
     Loss from operations...........................................      727
     Income taxes...................................................      470
     Net loss.......................................................    1,197
</TABLE>

  The purchase price for the Jafra Business was approximately $212.4 million
(excluding $12.0 million of financing fees and expenses), consisting of $202.5
million in cash ($2.5 million of which was determined and paid subsequent to
the Acquisition date) and $9.9 million of Acquisition fees. The $202.5 million
cash purchase price included $187.1 million paid by the Company directly to
Gillette in cash at the closing date, (net of cash of $2.3 million received as
part of the Acquisition), and $12.9 million of withholding taxes paid by the
Company on behalf of Gillette subsequent to the closing date of the
Acquisition. In addition, on November 3, 1998, the Company paid Gillette an
additional $2.5 million (net of a receivable from Gillette of $5.1 million) as
a final adjustment of the purchase price. In 1999, the final amount of fees
related to the Acquisition and the concurrent issuance of debt was determined
to be $21.9 million. $9.9 million of such fees were allocated as Acquisition
fees, and were accounted for as goodwill in the purchase price allocation
below. The financing fees of $12.0 million were capitalized as deferred
financing fees, and are being amortized over the term of the related debt. The
Acquisition has been accounted for under the purchase method of accounting.
Accordingly, the purchase price has been allocated to the assets and
liabilities acquired based upon their respective fair values at the date of
Acquisition based on valuations and other studies. The following sets forth
the purchase price allocation (amounts in millions):

<TABLE>
     <S>                                                                <C>
     Net tangible assets acquired (net of liabilities assumed of $38.2
      million)........................................................  $ 69.0
     Allocation of excess purchase price:
       Property and equipment.........................................    18.4
       Accrued income taxes...........................................     0.9
       Deferred income tax liability..................................    (0.8)
       Accrual of restructuring/rationalization costs (Note 10).......    (4.4)
       Inventories....................................................    (2.4)
       Trademarks.....................................................    53.8
       Goodwill.......................................................    77.9
                                                                        ------
        Total.........................................................  $212.4
                                                                        ======
</TABLE>

                                      35
<PAGE>

                 CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  The following unaudited pro forma financial information for the Company
gives effect to the Acquisition, including its impact upon depreciation and
amortization expense, CD&R management fees, executive compensation, insurance
expense, interest expense on Acquisition debt, and the related income tax
effect of the foregoing adjustments as if the Transaction had occurred at the
beginning of the periods presented (in thousands):

<TABLE>
<CAPTION>
                                                        Year Ended   Year Ended
                                                       December 31, December 31,
                                                           1998         1997
                                                       ------------ ------------
     <S>                                               <C>          <C>
     Net sales........................................   $248,301     $229,524
     Net loss.........................................     (8,541)      (2,551)
</TABLE>

  The pro forma results have been prepared for comparative purposes only and
do not purport to represent what the Company's actual results of operations
would have been had the transaction occurred at the beginning of the periods
presented and are not intended to be a projection of future results or trends.

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 13 countries, 12
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 "sales representatives").

(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 40 years for buildings and 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 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, while the
Predecessor's goodwill was amortized generally over a period of 37.5 years.
Accumulated amortization of goodwill and trademarks at December 31, 1999 was
$3,160,000 and $2,303,000, respectively. Accumulated amortization of goodwill
and trademarks at December 31, 1998 was $1,161,000 and $929,000, respectively.

  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"),

                                      36
<PAGE>

                 CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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, 1999 and 1998 was $2,000,000 and $1,407,000, respectively. In
connection with the early retirement of the Notes as described in Note 6, 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. Total amounts that were written off during 1999 were
$1,239,000.

  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 Note 10).

  Foreign Currency Forward Contracts. In 1999, the Company entered into
foreign currency forward contracts in Mexican pesos to reduce the effect of
adverse exchange rate fluctuations in Mexico. As a matter of policy, the
Company does not hold or issue foreign currency forward contracts for trading
or speculative purposes. These contracts are marked-to-market each month and
the fair value of the contracts are included in current assets and
liabilities, with the offsetting gain or loss included in exchange gain (loss)
in the accompanying consolidated statements of operations.

  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, 1999 was $84 million, based on quoted market price.
The fair value of the Notes was $88 million at December 31, 1998, based upon
information provided by a broker-dealer that makes a market in the Company's
Notes. 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, 1999 and 1998. The fair value of the
Company's foreign currency forward contracts at December 31, 1999 was
$222,000, measured by quoted market price, and was recorded as a prepaid asset
in the accompanying consolidated balance sheets.

  Research and Development. Research and development costs are expensed as
incurred. Total research and development expense aggregated $2,130,000,
$1,902,000, $1,185,000, and $2,911,000 for the year ended December 31, 1999,
the eight months ended December 31, 1998, the four months ended April 30,
1998, and the year ended December 31, 1997, 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 most foreign
subsidiaries is 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. Financial results of foreign
subsidiaries in countries with highly inflationary economies are translated
using a combination of current and historical exchange rates and any
translation adjustments are included in net earnings, along with all
transaction gains and losses for the period.

                                      37
<PAGE>

                 CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  During 1997 and 1998, Jafra S.A.'s functional currency was the U.S. dollar
because Mexico was considered to be a hyperinflationary economy during these
periods. As of January 1, 1999, Mexico is no longer considered a
hyperinflationary economy, and the Company now accounts for its Mexican
operations using the peso as its functional currency.

  Approximately 76%, 70% and 69% of the Company's net sales for the years
ended December 31, 1999, 1998 and 1997, respectively, were generated by
operations located outside of the U.S. Mexico is the largest foreign
operation, accounting for 59%, 48% and 43% of the Company's net sales for the
years ended December 31, 1999, 1998 and 1997, 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. 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.

  New Accounting Standards. In June 1998, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No.
133, "Accounting for Derivative Instruments and Hedging Activities". This
statement, as amended, establishes accounting and reporting standards for
derivative instruments and for hedging activities and will be effective for
the Company on January 1, 2001. The Company is currently analyzing the impact
on the financial statements of adopting this standard.

  Reclassifications. Certain sales promotional and manufacturing expenses
which were previously reported as selling, general and administrative expenses
have been reclassified to cost of sales to conform to the current period
presentation. Total amounts that have been reclassified are $5,541,000,
$2,344,000 and $9,475,000 for the eight-month period ended December 31, 1998,
the four-month period ended April 30, 1998 and the year ended December 31,
1997, respectively. In addition, restructuring charges and loss (gain) on sale
of assets, which were previously included in selling, general and
administrative expenses and other income (expense), respectively, have been
separately disclosed in the accompanying consolidated statements of operations
for the eight months ended December 31, 1998 and the year ended December 31,
1997 to conform to current period presentation.

(3) Inventories

  Inventories consist of the following at December 31, 1999 and 1998 (in
thousands):

<TABLE>
<CAPTION>
                                                                 1999    1998
                                                                ------- -------
       <S>                                                      <C>     <C>
       Raw materials and supplies.............................. $ 7,905 $ 7,553
       Finished goods..........................................  22,385  25,642
                                                                ------- -------
       Total inventories....................................... $30,290 $33,195
                                                                ======= =======
</TABLE>

(4) Property and Equipment

  Property and equipment consist of the following at December 31, 1999 and
1998 (in thousands):

<TABLE>
<CAPTION>
                                                                 1999    1998
                                                                ------- -------
       <S>                                                      <C>     <C>
       Land.................................................... $17,418 $20,126
       Buildings...............................................  16,777  16,608
       Machinery and equipment.................................  21,511  22,256
                                                                ------- -------
                                                                 55,706  58,990
       Less accumulated depreciation...........................   5,099   2,752
                                                                ------- -------
       Property and equipment, net............................. $50,607 $56,238
                                                                ======= =======
</TABLE>

                                      38
<PAGE>

                 CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  In 1999, the Company sold a parcel of idle land and an idle building owned
by JCI for total consideration of $5.6 million. The sale resulted in a gain on
disposal of approximately $1.0 million, which was included in income from
continuing operations in the accompanying consolidated statements of
operations. The Company also sold certain equipment to a third party
manufacturer (see Note 14).

(5) Accrued Liabilities

  Accrued liabilities consist of the following at December 31, 1999 and 1998
(in thousands):

<TABLE>
<CAPTION>
                                                                1999    1998
                                                              -------- -------
       <S>                                                    <C>      <C>
       Sales promotion and commissions....................... $ 11,856 $12,509
       Accrued restructuring/rationalization costs (Note
        10)..................................................    1,105   3,162
       Accrued interest......................................    1,717   2,429
       Compensation and other benefit accruals...............    8,121   5,405
       State and local sales taxes and other taxes...........    3,262   1,197
       Accrued acquisition fees..............................      --    3,385
       Miscellaneous.........................................    7,363   6,096
                                                              -------- -------
                                                              $ 33,424 $34,183
                                                              ======== =======
</TABLE>

(6) Debt

  Debt consists of the following at December 31, 1999 and 1998 (in thousands):

<TABLE>
<CAPTION>
                                                              1999      1998
                                                            --------  --------
   <S>                                                      <C>       <C>
   Subordinated Notes, unsecured, interest payable semi-
    annually at 11.75%, due in 2008........................ $ 86,000  $100,000
   Term Loan, principal and interest due in quarterly
    installments through April 30, 2004, interest rates of
    8.6% and 7.8% at December 31, 1999 and 1998,
    respectively...........................................   22,500    25,000
   Revolving Loan, due April 30, 2004, weighted average
    interest rates of 9.1% and 8.4% at December 31, 1999
    and 1998, respectively.................................   25,000    16,500
                                                            --------  --------
   Total debt..............................................  133,500   141,500
   Less current maturities.................................   (3,500)   (2,500)
                                                            --------  --------
   Long-term debt.......................................... $130,000  $139,000
                                                            ========  ========
</TABLE>

  The Company's long-term debt matures as follows (in thousands): $3,500 in
2000, $4,500 in 2001, $5,500 in 2002, $6,500 in 2003, $27,500 in 2004 and
$86,000 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 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

                                      39
<PAGE>

                 CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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 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 Germany, the
Netherlands, Switzerland, Italy, Austria and Poland and its indirect South
American subsidiaries in Colombia, Argentina, Chile, Venezuela and Brazil. 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. Prior to May 1, 2001, JCI and Jafra S.A. at their option may
concurrently redeem the Notes on a pro rata basis in an aggregate principal
amount equal to up to 35% of the original aggregate principal amount of the
Notes not exceeding the aggregate cash proceeds of one or more equity
offerings, at a redemption price of 111.75% plus accrued interest; provided,
however, that an aggregate principal amount of the Notes equal to at least 65%
of the original aggregate principal amount of the Notes must remain
outstanding after each such redemption.

  A Consent and Waiver, dated November 19, 1999, to the Senior Credit
Agreement, as described below, allows 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 $25 million. 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 resulted in
an extraordinary loss of $552,000, net of an income tax benefit of $177,000.

  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
2.625% or an alternate base rate (the higher of the prime rate or federal
funds rate plus 1%, plus an applicable margin not to exceed 1.625%). The
interest rates in effect at December 31, 1999 ranged from approximately 8.0%
to approximately 8.9% for the LIBOR-based borrowings and the rate for the
prime-based borrowings was approximately 9.9%. 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
which limit the Company's ability to incur additional indebtedness, pay cash
dividends and make certain other payments. These debt 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.

  As of December 31, 1999, the Company had one irrevocable standby letter of
credit outstanding in the amount of $1.1 million. This letter of credit,
expiring on April 30, 2004, collateralizes the Company's obligation to a third
party in connection with certain lease agreements. The fair value of this
letter of credit approximates its contract value.

                                      40
<PAGE>

                 CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


(7) Income Taxes

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

<TABLE>
<CAPTION>
                                                              Predecessor
                                                        ------------------------
                                           Eight months Four months
                               Year Ended     Ended        Ended     Year Ended
                              December 31, December 31,  April 30,  December 31,
                                  1999         1998        1998         1997
                              ------------ ------------ ----------- ------------
     <S>                      <C>          <C>          <C>         <C>
     Income (loss) before
      income taxes:
       United States.........   $ 10,917     $(4,542)     $ (601)     $ 6,203
       Foreign...............      5,157      (1,739)      7,600       14,062
                                --------     -------      ------      -------
                                $ 16,074     $(6,281)     $6,999      $20,265
                                ========     =======      ======      =======
</TABLE>

  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:

<TABLE>
<CAPTION>
                                                              Predecessor
                                                        ------------------------
                                           Eight months Four months
                               Year Ended     Ended        Ended     Year Ended
                              December 31, December 31,  April 30,  December 31,
                                  1999         1998        1998         1997
                              ------------ ------------ ----------- ------------
     <S>                      <C>          <C>          <C>         <C>
     Provision for income
      taxes at federal
      statutory rate.........   $ 5,626      $(2,198)     $2,450      $ 7,093
     Foreign income subject
      to tax other than at
      federal statutory
      rate...................     2,475           36        (136)      (2,310)
     Foreign tax credits.....    (1,784)         --          --           --
     State income taxes......       171          --          --           --
     Valuation allowance--
      domestic...............       657        2,017         160         (507)
     Valuation allowance--
      foreign................     3,879        2,075         252          --
     Other...................      (150)        (170)        173          540
                                -------      -------      ------      -------
     Income tax expense......   $10,874      $ 1,760      $2,899      $ 4,816
                                =======      =======      ======      =======
</TABLE>

                                      41
<PAGE>

                  CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  The Predecessor's income was included in Gillette's consolidated U.S. income
tax return. For financial reporting purposes, the Predecessor has provided
income taxes on a separate-company basis. The components of the provision for
income taxes are as follows (in thousands):

<TABLE>
<CAPTION>
                                                               Predecessor
                                                         ------------------------
                                            Eight months Four months
                                Year Ended     Ended        Ended     Year Ended
                               December 31, December 31,  April 30,  December 31,
                                   1999         1998        1998         1997
                               ------------ ------------ ----------- ------------
     <S>                       <C>          <C>          <C>         <C>
     Current:
       Federal...............    $    60      $   --       $  --       $   222
                                 -------      -------      ------      -------
       Foreign:
         Mexico..............      3,275       (2,511)      2,524        4,717
         Europe..............         99         (245)        --         1,938
         Other...............         30          --          --           854
                                 -------      -------      ------      -------
                                   3,404       (2,756)      2,524        7,509
       State.................         90          --          --          (170)
                                 -------      -------      ------      -------
           Total current.....      3,554       (2,756)      2,524        7,561
     Deferred--foreign.......      7,320        4,516         375       (2,745)
                                 -------      -------      ------      -------
     Total income taxes on
      income (loss) before
      income taxes and
      extraordinary item.....     10,874        1,760       2,899        4,816
     Income tax benefit on
      early extinguishment of
      debt...................       (177)         --          --           --
                                 -------      -------      ------      -------
     Total income tax
      expense................    $10,697      $ 1,760      $2,899      $ 4,816
                                 =======      =======      ======      =======
</TABLE>

                                       42
<PAGE>

                 CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  The components of deferred income tax assets and deferred income tax
liabilities at December 31, 1999 and 1998 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                              1999      1998
                                                            --------  --------
     <S>                                                    <C>       <C>
     Deferred income tax assets:
       Accounts receivable................................. $    690  $    416
       Net operating loss carryforward.....................    8,326     7,056
       Disallowed interest expense.........................    2,279       --
       Accrued bonuses.....................................    1,933       --
       Foreign tax credit carryforward.....................      991       --
       AMT carryforward....................................       61       --
       Accrued sales promotion.............................    2,958     2,904
       Other accrued liabilities...........................      947       422
       Other...............................................    2,042       906
                                                            --------  --------
         Total deferred income tax assets..................   20,227    11,704
       Less valuation allowance............................   (8,880)   (4,344)
                                                            --------  --------
         Net deferred income tax assets....................   11,347     7,360

     Deferred income tax liabilities:
       Transaction and deferred financing costs............     (446)   (1,500)
       Property and equipment..............................   (2,228)   (1,824)
       Trademark and goodwill..............................  (19,193)   (8,436)
       Inventories.........................................   (7,585)   (4,755)
       Other...............................................     (213)        0
                                                            --------  --------
         Total deferred income tax liabilities.............  (29,665)  (16,515)
                                                            --------  --------
         Net deferred income tax liabilities............... $(18,318) $ (9,155)
                                                            ========  ========
</TABLE>

  As discussed in Note 2--Foreign Currency Translation, the Company's Mexican
subsidiary changed its functional currency from the U.S. dollar to the Mexican
peso effective January 1, 1999. As a result, approximately $2.0 million of
deferred income tax liabilities associated with temporary income tax
differences that arose from the change in functional currency were reflected
as an adjustment to the cumulative translation component of stockholders'
equity. In addition, during 1999, the Company's Mexican subsidiary recorded a
deferred income tax asset related to certain temporary differences incurred in
connection with the Acquisition. The resulting deferred income tax asset of
approximately $400,000 was reflected as an adjustment to goodwill.

  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, 1999 and 1998 are
based upon the Company's estimates of the future realization of deferred
income tax assets. Valuation allowances at December 31, 1999 and 1998 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, 1999, the Company's deferred income tax asset for U.S.
foreign tax credits ($991,000) and tax loss carryforwards of the U.S. and
certain foreign subsidiaries totaling $9,317,000 were reduced by a valuation
allowance of $8,880,000. The tax loss carryforwards expire in varying amounts
between 2000 and 2009. 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.

                                      43
<PAGE>

                 CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


(8) Benefit Plans

Predecessor Plans

  Prior to the Company's acquisition of the Jafra Business, the Predecessor
participated in The Gillette Company Retirement Plan (the "Plan") which was a
defined benefit pension plan covering substantially all of Gillette's domestic
employees. Benefits were based on age, years of service and the level of
compensation during the final years of employment. Gillette's funding policy
was to contribute annually to the Plan the amount necessary to meet the
minimum funding standards established by the Employee Retirement Income
Security Act.

  The components of Gillette's net pension expense for the Plan for the year
ended December 31, 1997 were as follows (in thousands):

<TABLE>
<CAPTION>
                                                                        1997
                                                                      ---------
     <S>                                                              <C>
     Service cost.................................................... $  29,892
     Interest cost on projected benefit obligation...................    60,245
     Actual return on Plan assets....................................  (184,649)
     Net amortization and deferral...................................   116,569
                                                                      ---------
       Pension expense............................................... $  22,057
                                                                      =========
</TABLE>

  The Predecessor's share of the above pension expense was $261,000 for the
four months ended April 30, 1998 and $970,000 in 1997. The Predecessor's share
of pension expense was based on the Predecessor's payroll covered by the Plan
as a percentage of total payroll covered by the Plan.

  The funded status of the Plan at December 31, 1997 was as follows (in
thousands):

<TABLE>
<CAPTION>
                                                                       1997
                                                                     --------
     <S>                                                             <C>
     Vested benefits................................................ $693,835
     Nonvested benefits.............................................   94,981
                                                                     --------
       Accumulated benefit obligation...............................  788,816
     Benefit obligation related to future compensation levels.......  170,642
                                                                     --------
       Projected benefit obligation.................................  959,458
     Fair value of Plan assets, invested primarily in equities and
      debt securities...............................................  990,026
                                                                     --------
       Projected benefit obligation in excess of Plan assets........   30,568
     Unrecognized transition obligation.............................    1,648
     Unrecognized prior service cost................................   11,478
     Unrecognized net loss..........................................    9,178
     Minimum liability adjustment...................................  (25,459)
                                                                     --------
     Gillette's prepaid pension cost................................ $ 27,413
                                                                     ========
</TABLE>
  The primary assumptions used in determining obligations of the Plan were as
follows:

<TABLE>
<CAPTION>
                                                                           1997
                                                                           ----
     <S>                                                                   <C>
     Discount rate........................................................ 7.00%
     Increase in compensation levels...................................... 5.00%
     Long-term rate of return on assets................................... 9.00%
</TABLE>

  The Predecessor also participated in Gillette's plans which provided certain
health care and life insurance benefits to retired employees. Substantially
all of the Predecessor's employees became eligible for these benefits upon
retirement. At the time of retirement, employees who elect to participate are
required to pay some portion of such medical costs if hired before July 1,
1990, or all of such costs if hired after that date. Gillette's employee stock
ownership plan (ESOP) was established to assist employees who retire after
January 1, 1992 to finance their retiree medical costs.

                                      44
<PAGE>

                 CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  The Predecessor recognized the cost of postretirement benefits other than
pensions during employees' active working lives. The components of Gillette's
net other postretirement benefit expense for the year ended December 31, 1997
were as follows (in thousands):

<TABLE>
<CAPTION>
                                                                         1997
                                                                        -------
     <S>                                                                <C>
     Interest cost..................................................... $17,008
     Service cost......................................................   4,758
     Actual return on assets...........................................  (6,010)
     Net amortization expense..........................................  (3,631)
                                                                        -------
       Other postretirement benefit expense............................ $12,125
                                                                        =======
</TABLE>

  The Predecessor's share of the above other postretirement benefit expense
was $37,000 for the four months ended April 30, 1998 and $128,000 in 1997. The
status of Gillette's plans and the amounts recognized in Gillette's balance
sheet was as follows (in thousands):

<TABLE>
<CAPTION>
                                                                          1997
                                                                        --------
     <S>                                                                <C>
     Retirees.......................................................... $162,739
     Fully eligible active employees...................................   18,356
     Other active employees............................................   66,735
                                                                        --------
       Accumulated postretirement benefit obligation...................  247,830
     Fair value of plan assets.........................................  (33,249)
     Unrecognized net gain.............................................   86,947
                                                                        --------
     Gillette's accrued postretirement liability....................... $301,528
                                                                        ========
</TABLE>

  The accumulated postretirement benefit obligation was determined using an
assumed discount rate of 7.00% in 1997. The assumed health care cost trend
rate was 9% in 1997, decreasing to 5% by the year 2001. A one percentage point
increase in the trend rate would have increased Gillette's accumulated
postretirement benefit obligation by 12% and interest and service cost by 14%
in 1997.

  ESOP shares allocated to participants reduce Gillette obligations over the
period of allocation. The account balance is assumed to have an annual yield
of 12%. In addition, Gillette established a retiree health benefits account
within its pension plan that will be used to partially fund health care
benefits for future retirees.

Company Plans

  Certain of the Company's Germany employees participate in the Germany Plan,
which is a defined benefit pension plan covering key employees. 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 total pension expense was $43,000 for the year ended December 31, 1999,
$11,000 for the eight months ended December 31, 1998, $129,000 for the four
months ended April 30, 1998 and $140,000 for the year ended December 31, 1997.

  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
$391,000 for the year ended December 31, 1999. No expense was incurred in
1998. The total liability was approximately $782,000 and $382,000 at December
31, 1999 and 1998, respectively, and is classified as a current liability in
the accompanying consolidated balance sheets.


                                      45
<PAGE>

                 CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  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. Employees may defer up to 15% 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 $628,000 for the year
ended December 31, 1999 and $420,000 for the eight months ended December 31,
1998.

  The Company's U.S. subsidiary also has supplemental excess benefit savings
plans which permit participants to make voluntary contributions of up to 15%
of their total compensation. 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 $179,000 for the year ended
December 31, 1999 and $17,000 for the eight months ended December 31, 1998.
Employee and employer contributions under such plan are placed into a 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 of $711,000 at December 31, 1999 in the accompanying consolidated
balance sheets.

(9) Related Party Transactions

  In 1998, CD&R received a fee of $2.7 million, half of which was recorded as
a direct acquisition cost and half of which was capitalized as deferred
financing fees, for providing services related to the structuring,
implementation and consummation of the Acquisition, in addition to the
reimbursement of out-of-pocket expenses. 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, CD&R will receive an annual fee originally of $500,000 and as of
January 1, 1999, of $400,000 (and reimbursement of out-of-pocket expenses) for
providing advisory, management consulting and monitoring services to the
Company. The CD&R fees incurred during 1999 and the eight months ended
December 31, 1998 were $400,000 and $333,000, respectively. In addition,
certain officers and directors of CD&R or its affiliates serve as directors of
the Company. In 1999 and 1998, certain directors and other persons purchased
an aggregate of 1,667 and 21,000 shares of Company common stock, respectively.
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 business. Under the agreement entered into by both
parties, the Company will pay a fee of approximately $2.0 million to Guidance
in connection with planning, defining, designing and consulting services
performed. Total fees charged by Guidance in 1999 for providing such services
were $389,000.

  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 April of 1998, the Predecessor sold land in Mexico to Gillette with a
book value of approximately $6 million for $12 million. The excess of the
sales price over the book value of the land, net of taxes, was recorded as a
contribution of capital from Gillette to the Predecessor. Prior to the closing
date of the Acquisition, intercompany accounts receivable and accounts payable
between Predecessor entities and Gillette were forgiven, and as such were
accounted for as direct reductions from (additions to) equity, respectively.

  Certain expenses were charged by Gillette to the Predecessor prior to the
Acquisition. The predecessor management believes the amounts and methods of
allocation were reasonable and approximated actual services provided. The
allocations were based principally upon a formula using the percentage of
revenues of the Predecessor to the total consolidated revenues of Gillette.
The predecessor management performed regular

                                      46
<PAGE>

                 CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

reviews of the allocated costs and determined that the cost of these services
to the Predecessor, as if it were a stand-alone entity, would be comparable to
the costs allocated to it by Gillette. Such services included legal, trademark
and patent support, internal audit, and other administrative costs. Total
related net charges were $748,000 for the four months ended April 30, 1998 and
$2,045,000 for 1997. Such charges are included in selling, general, and
administrative expenses in the accompanying consolidated statements of
operations. Such allocations ceased upon consummation of the Acquisition, and,
as such, no amounts are included for 1999 and the eight months ended December
31, 1998.

  Interest was charged and earned on intercompany receivables and payables
between Gillette and the Predecessor at the LIBOR rate prior to the
Acquisition. The total related interest was $152,000 for the four months ended
April 30, 1998 and $592,000 for 1997, and is included in interest, net, in the
accompanying consolidated statements of operations.

  The Predecessor recognized profit on the sale of inventory to Gillette of
$157,000 for the four months ended April 30, 1998.

  Gillette acted as a cash manager for the Predecessor prior to the
Acquisition. As such, balances due to/from Gillette and other divisions
consisted of amounts related to this and to the above transactions.

  During 1997, Jafra Cosmetics International, Inc. wrote off approximately
$3,200,000 of payables due from its affiliate in Canada, as a result of the
decision to close the market in Canada. The division in Canada recorded this
as a credit to earnings. Accordingly, these transactions offset in
combination.

(10) Restructuring and Impairment Charges and Related Accruals

  Current Year Restructuring and Impairment Charges. 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, 1999, payments of approximately $2.6
million have been made for these charges. The Company anticipates that
substantially all of the remaining restructuring costs of approximately $1.1
million will be paid in 2000.

  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 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.

                                      47
<PAGE>

                 CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  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 (the "Contractor") (see Note 14). The total finalized cost of the
Acquisition Accrual is 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):

<TABLE>
     <S>                                                                 <C>
     Disposal of fixed assets........................................... $2,336
     Severance..........................................................  1,724
     Lease termination costs............................................    197
     Other..............................................................    150
                                                                         ------
                                                                         $4,407
                                                                         ======
</TABLE>

  In the eight months ended December 31, 1998, approximately $0.7 million of
severance costs and $0.1 million of facilities closure costs were paid and
charged against the Acquisition Accrual. 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.

  Non-recurring Charges Prior to the Acquisition. In 1997, the Predecessor
Company incurred net non-recurring reorganization charges of $0.4 million,
comprised of reorganization costs of $3.5 million, which were offset by
recovery through litigation of $2.3 million of costs relating to an improper
installation of certain proprietary computer systems, and a gain of $0.8
million on the sale of a facility which had previously been written off. The
$3.5 million of reorganization costs, including $2.6 million of costs to
realign operations in Italy and South American markets, as well as $0.9
million of costs to close the Hungary and Canada markets, were comprised of
approximately $2.9 million of severance, $0.5 million of closure (lease costs)
and $0.1 million of other exit costs. These programs were adopted in early
1997 and the majority of payments associated with these programs were made
prior to the end of 1997. At the end of 1997, the remaining liability relating
to these reorganization activities was approximately $0.3 million.

  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):

<TABLE>
<CAPTION>
                                                                   Predecessor
                                                      Eight months ------------
                                          Year Ended     ended      Year Ended
                                         December 31, December 31, December 31,
                                             1999         1998         1997
                                         ------------ ------------ ------------
     <S>                                 <C>          <C>          <C>
     Additions--charges to income:
       Severance........................   $ 3,502       $  --        $2,860
       Lease costs......................        57          --           520
       Other............................       169          --           120
                                           -------       ------       ------
         Total additions................     3,728          --         3,500
     Acquisition Accrual:
       Severance........................    (1,176)       2,900          --
       Fixed asset disposals............     2,336           --          --
       Lease costs......................      (903)       1,100          --
       Other............................       150          --           --
                                           -------       ------       ------
         Acquisition Accrual, net.......       407        4,000          --
                                           -------       ------       ------
                                           $ 4,135       $4,000       $3,500
                                           =======       ======       ======
</TABLE>

                                      48
<PAGE>

                 CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


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

<TABLE>
<CAPTION>
                                                                   Predecessor
                                                      Eight months ------------
                                          Year Ended     ended      Year Ended
                                         December 31, December 31, December 31,
                                             1999         1998         1997
                                         ------------ ------------ ------------
     <S>                                 <C>          <C>          <C>
     Opening balance....................   $ 3,162       $  --       $   380
     Additions..........................     3,728        4,000        3,500
     Adjustment to goodwill balance.....       407          --           --
     Charges against reserves...........    (6,192)        (838)      (3,590)
                                           -------       ------      -------
     Ending balance.....................   $ 1,105       $3,162      $   290
                                           =======       ======      =======
</TABLE>

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

<TABLE>
<CAPTION>
                                                                    Predecessor
                                                                    ------------
                                          December 31, December 31, December 31,
                                              1999         1998         1997
                                          ------------ ------------ ------------
     <S>                                  <C>          <C>          <C>
     Severance...........................   $ 1,105       $2,154        $140
     Lease costs.........................       --         1,008         150
                                            -------       ------        ----
                                            $ 1,105       $3,162        $290
                                            =======       ======        ====
</TABLE>

  The remaining balance at the end of 1997 was paid in the first quarter of
1998.

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

<TABLE>
<CAPTION>
                                                                      Predecessor
                                                                   -----------------
                                                   Eight months
                                 Year ended       ended December      Year ended
                              December 31, 1999      31, 1998      December 31, 1997
                              -----------------  ----------------  -----------------
                                # of               # of              # of
                              Employees Amount   Employees Amount  Employees Amount
                              --------- -------  --------- ------  --------- -------
     <S>                      <C>       <C>      <C>       <C>     <C>       <C>
     Opening balance.........     47    $ 2,154     --     $  --       10    $   275
     Planned terminations....    104      3,502      85     2,900     145      2,860
     Adjustment to planned
      terminations...........    (39)    (1,176)    --        --      --         --
     Actual terminations.....    (69)    (3,375)    (38)     (746)   (147)    (2,995)
                                 ---    -------     ---    ------    ----    -------
     Ending balance..........     43    $ 1,105      47    $2,154       8    $   140
                                 ===    =======     ===    ======    ====    =======
</TABLE>

  The eight planned employee terminations as of December 31, 1997 occurred
during the four-month period ended April 30, 1998, at a total cost of
$140,000.

  The operations of the markets that were restructured or eliminated were not
material to the combined financial statements; accordingly, separate financial
information on these markets has not been provided.

(11) Financial Reporting for Business Segments

  In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 requires disclosure
of certain information regarding operating segments, products and services,
geographic areas of operations and major customers.

                                      49
<PAGE>

                 CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  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:
the U.S. (JCI), Mexico (Jafra S.A.), and Europe.

  JCI and Jafra S.A. have each guaranteed the obligations under the Notes
which were issued in conjunction with the Acquisition on April 30, 1998. The
following consolidating financial statement data segregate between those
entities that guarantee the Notes ("Guarantor entities") and those entities
that do not guarantee the Notes ("Nonguarantor entities"); in addition,
European business segment information is separately disclosed. Prior to the
Acquisition, JCI and Jafra S.A. were Jafra Cosmetics International, Inc., a
California corporation, and Grupo Jafra, respectively, as defined below. The
Nonguarantor entities are the Parent's indirect European subsidiaries in
Germany, the Netherlands, Switzerland, Italy, Austria and Poland and its
indirect South American subsidiaries in Colombia, Argentina, Chile, Venezuela
and Brazil. The Company's subsidiaries in Poland and Brazil did not begin
incurring costs until the third quarter of 1998 and did not begin sales until
the first quarter of 1999. The Company's subsidiary in Chile did not begin
incurring costs and did not begin sales until the third quarter of 1999.

  The combined financial statements of the Predecessor for the four months
ended April 30, 1998, and the year ended December 31, 1997 include the
accounts of the following subsidiaries of Gillette: Jafra Cosmetics
International, Inc., a California corporation (the Guarantor entity); Jafra
Cosmetics GmbH, a German company; Jafra Cosmetic International B.V., a
Netherlands company; Jafra Cosmetics S.p.A., an Italian company; Jafra
Cosmetics A.G., a Swiss company; the Jafra-related operations of a Gillette
affiliate in Austria; and the assets related to the Jafra intellectual
properties, held by Gillette, that are used in the Jafra Business
(collectively, the Nonguarantor entities). Additionally, the combined
financial statements of Grupo Jafra include the accounts of Grupo Jafra and
all of its subsidiaries together with certain operating assets and the related
operating profit of Gillette Braun used in the Jafra Business in Mexico and
the assets related to the Jafra intellectual properties held by Gillette.
Prior to the Acquisition, Jafra's operations in Argentina, Venezuela and
Colombia were not separate subsidiaries of the Company, but rather divisions
of Gillette subsidiaries that also conducted operations unrelated to the Jafra
Business. The accompanying financial statements include only the carved out
financial statements related to the Jafra Business of the South American
entities. As such, for the four months ended April 30, 1998 and the year ended
December 31, 1997, the results of operations and cash flows of the Jafra
Business in these countries and the immaterial results of operations and cash
flows of certain markets divested by Jafra prior to the Acquisition are
presented in the column denoted "Other Regions."

  The accounting policies of the business segments are the same as those
described in the summary of significant accounting policies except that the
disaggregated financial results have been prepared using a management
approach, which is consistent with the basis and manner in which the Company's
management internally disaggregates financial information for the purposes of
assisting in making internal operating decisions. The Company evaluates
performance based on stand alone business segment operating results, including
allocations of corporate expenses based upon revenues, which differs from the
legal and statutory allocations. Such differences in the allocation of
corporate expenses have not been tax effected. Additionally, the Company
accounts for intersegment sales as inventory transfers.


                                      50
<PAGE>

                 CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  Consolidating condensed statements of operations data for the year ended
December 31, 1999, the eight months ended December 31, 1998, the four months
ended April 30, 1998, and the year ended December 31, 1997 is summarized as
follows (in thousands):

<TABLE>
<CAPTION>
                                              Year ended December 31, 1999
                          -------------------------------------------------------------------------
                                                         Nonguarantor
                              Guarantor Entities           Entities
                          ----------------------------  ----------------
                                     Jafra
                            JCI       S.A.                                                Total
                           (U.S.)   (Mexico)   Total    Europe    Other   Eliminations Consolidated
                          --------  --------  --------  -------  -------  ------------ ------------
<S>                       <C>       <C>       <C>       <C>      <C>      <C>          <C>
Net sales...............  $ 70,686  $171,530  $242,216  $32,508  $15,726     $ --        $290,450
Cost of sales...........    19,540    49,505    69,045    8,113    5,270      (189)        82,239
                          --------  --------  --------  -------  -------     -----       --------
Gross profit............    51,146   122,025   173,171   24,395   10,456       189        208,211
Selling, general and
 administrative
 expenses:
  Business segment......    42,869    75,095   117,964   25,805   13,702       (75)       157,396
  Allocated corporate
   expenses.............     4,244    10,298    14,542    1,952      944       --          17,438
Restructuring and
 impairment charges.....     3,146       172     3,318    1,429       65       --           4,812
Gain on sales of
 assets.................    (1,043)      --     (1,043)     --       --        --          (1,043)
                          --------  --------  --------  -------  -------     -----       --------
Income (loss) from
 operations                  1,930    36,460    38,390   (4,791)  (4,255)      264         29,608
Other expense (income):
  Interest, net.........     8,873     6,803    15,676    1,448     (169)      (67)        16,888
  Royalty...............   (17,838)   17,965       127      --       --       (127)           --
  Other, net............       (22)   (3,801)   (3,823)     519      (50)      --          (3,354)
                          --------  --------  --------  -------  -------     -----       --------
Income (loss) before
 income taxes...........    10,917    15,493    26,410   (6,758)  (4,036)      458         16,074
Income tax expense......     2,009     8,736    10,745       99       30       --          10,874
                          --------  --------  --------  -------  -------     -----       --------
Income (loss) before
 extraordinary item.....     8,908     6,757    15,665   (6,857)  (4,066)      458          5,200
Extraordinary loss on
 early extinguishment of
 debt, net of income tax
 benefit of $177........       296       256       552      --       --        --             552
                          --------  --------  --------  -------  -------     -----       --------
Net income (loss).......  $  8,612  $  6,501  $ 15,113  $(6,857) $(4,066)    $ 458       $  4,648
                          ========  ========  ========  =======  =======     =====       ========
</TABLE>

  During 1999, JCI (U.S.) charged Jafra S.A. (Mexico) a royalty fee of $17.8
million in connection with Jafra S.A.'s use of the marketing and distribution
systems and other know-how owned by JCI (U.S.) since the Acquisition date.
This charge is included in other expense (income).

                                      51
<PAGE>

                  CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


<TABLE>
<CAPTION>
                                          Eight months ended December 31, 1998
                          -------------------------------------------------------------------------
                                                         Nonguarantor
                              Guarantor Entities           Entities
                          ----------------------------  ----------------
                            JCI    Jafra S.A.                                             Total
                          (U.S.)    (Mexico)   Total    Europe    Other   Eliminations Consolidated
                          -------  ---------- --------  -------  -------  ------------ ------------
<S>                       <C>      <C>        <C>       <C>      <C>      <C>          <C>
Net sales...............  $50,695   $82,837   $133,532  $27,178  $10,309     $ --        $171,019
Cost of sales...........   17,487    27,814     45,301    7,715    2,706       602         56,324
                          -------   -------   --------  -------  -------     -----       --------
Gross profit............   33,208    55,023     88,231   19,463    7,603      (602)       114,695
Selling, general and
 administrative
 expenses:
  Business segment......   28,809    38,432     67,241   20,752    9,408         4         97,405
  Allocated corporate
   expenses.............    2,978     4,866      7,844    1,597      606       --          10,047
Loss on sale of assets..      150       --         150      --       --        --             150
                          -------   -------   --------  -------  -------     -----       --------
Income (loss) from
 operations.............    1,271    11,725     12,996   (2,886)  (2,411)     (606)         7,093
Other expense (income):
  Interest, net.........    5,973     4,838     10,811      890     (270)      --          11,431
  Other, net............     (160)    2,149      1,989       22      (69)        1          1,943
                          -------   -------   --------  -------  -------     -----       --------
Income (loss) before
 income taxes...........   (4,542)    4,738        196   (3,798)  (2,072)     (607)        (6,281)
Income tax expense
 (benefit)..............      --      1,948      1,948     (245)      57       --           1,760
                          -------   -------   --------  -------  -------     -----       --------
Net income (loss).......  $(4,542)  $ 2,790   $ (1,752) $(3,553) $(2,129)    $(607)      $ (8,041)
                          =======   =======   ========  =======  =======     =====       ========
</TABLE>

<TABLE>
<CAPTION>
                                          Four months ended April 30, 1998
                         -----------------------------------------------------------------------
                            Guarantor Entities
                         --------------------------
                                   Grupo             Nonguarantor
                           JCI     Jafra               Entities    Other                 Total
                         (U.S.)   (Mexico)   Total     (Europe)   Regions  Eliminations Combined
                         -------  --------  -------  ------------ -------  ------------ --------
<S>                      <C>      <C>       <C>      <C>          <C>      <C>          <C>
Net sales............... $23,611  $35,722   $59,333    $13,047    $4,902      $ --      $77,282
Cost of sales...........   8,371   10,372    18,743      2,962     1,238       (277)     22,666
                         -------  -------   -------    -------    ------      -----     -------
Gross profit............  15,240   25,350    40,590     10,085     3,664        277      54,616
Selling, general and
 administrative
 expenses:
  Business segment......  13,771   17,888    31,659      9,779     3,792        --       45,230
  Allocated corporate
   expenses.............   1,206    1,823     3,029        666       250        --        3,945
                         -------  -------   -------    -------    ------      -----     -------
Income (loss) from
 operations.............     263    5,639     5,902       (360)     (378)       277       5,441
Other expense (income)       864   (2,791)   (1,927)       353        16        --       (1,558)
                         -------  -------   -------    -------    ------      -----     -------
Income (loss) before
 income taxes...........    (601)   8,430     7,829       (713)     (394)       277       6,999
Income tax expense......       1    2,524     2,525        374       --         --        2,899
                         -------  -------   -------    -------    ------      -----     -------
Net income (loss)....... $  (602) $ 5,906   $ 5,304    $(1,087)   $ (394)     $ 277     $ 4,100
                         =======  =======   =======    =======    ======      =====     =======
</TABLE>

                                       52
<PAGE>

                  CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


<TABLE>
<CAPTION>
                                               Year ended December 31, 1997
                          --------------------------------------------------------------------------
                               Guarantor Entities
                          -----------------------------  Nonguarantor
                            JCI    Grupo Jafra             Entities    Other                 Total
                          (U.S.)     (Mexico)   Total      (Europe)   Regions  Eliminations Combined
                          -------  ----------- --------  ------------ -------  ------------ --------
<S>                       <C>      <C>         <C>       <C>          <C>      <C>          <C>
Net sales...............  $70,637    $97,577   $168,214    $46,806    $14,504    $   --     $229,524
Cost of sales...........   26,679     28,439     55,118      9,638      3,848        --       68,604
                          -------    -------   --------    -------    -------    -------    --------
Gross profit............   43,958     69,138    113,096     37,168     10,656        --      160,920
Selling, general and
 administrative
 expenses:
  Business segment......   34,943     48,202     83,145     33,764      8,918      1,587     127,414
  Allocated corporate
   expenses.............    4,015      5,546      9,561      2,660        824        --       13,045
Restructuring and other
 non-recurring charges..   (2,300)      (800)    (3,100)       --       3,500        --          400
Gain on sale of assets..     (126)       --        (126)       --         --         --         (126)
                          -------    -------   --------    -------    -------    -------    --------
Income (loss) from
 operations.............    7,426     16,190     23,616        744     (2,586)    (1,587)     20,187
Other expense (income)..    1,223        591      1,814        170     (3,237)     1,175         (78)
                          -------    -------   --------    -------    -------    -------    --------
Income (loss) before
 income taxes...........    6,203     15,599     21,802        574        651     (2,762)     20,265
Income tax expense......       52      1,972      2,024      1,938        854        --        4,816
                          -------    -------   --------    -------    -------    -------    --------
Net income (loss).......  $ 6,151    $13,627   $ 19,778    $(1,364)   $  (203)   $(2,762)   $ 15,449
                          =======    =======   ========    =======    =======    =======    ========
</TABLE>

                                       53
<PAGE>

                 CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  Consolidating condensed balance sheet data as of December 31, 1999 and 1998
is summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                     As of December 31, 1999
                          -------------------------------------------------------------------------------
                                                                Nonguarantor
                                   Guarantor Entities             Entities
                          ------------------------------------ ----------------
                            JCI    Jafra S.A.                                                   Total
                           (U.S.)   (Mexico)  Parent   Total   Europe    Other  Eliminations Consolidated
                          -------- ---------- ------- -------- -------  ------- ------------ ------------
<S>                       <C>      <C>        <C>     <C>      <C>      <C>     <C>          <C>
ASSETS
Current assets:
  Receivables...........  $  5,485  $ 21,454  $   --  $ 26,939 $ 2,447  $ 1,891  $     --      $ 31,277
  Inventories...........     4,789    19,513      --    24,302   2,450    3,684       (146)      30,290
  Other current assets..     9,078    22,336      382   31,796   4,558    2,076    (11,041)      27,389
                          --------  --------  ------- -------- -------  -------  ---------     --------
   Total current
    assets..............    19,352    63,303      382   83,037   9,455    7,651    (11,187)      88,956
  Property and
   equipment, net.......    17,220    30,562      --    47,782   2,132      693        --        50,607
  Other assets:
   Goodwill, net........    33,960    32,960      187   67,107   7,155    1,061        --        75,323
   Trademarks, net......       --     51,280      192   51,472     248      261       (376)      51,605
   Other(1).............    57,916     4,100   76,096  138,112   4,455    1,858   (132,539)      11,886
                          --------  --------  ------- -------- -------  -------  ---------     --------
   Total................  $128,448  $182,205  $76,857 $387,510 $23,445  $11,524  $(144,102)    $278,377
                          ========  ========  ======= ======== =======  =======  =========     ========

LIABILITIES AND
 STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable and
   accrued expenses.....  $ 14,323  $ 26,350  $   --  $ 40,673 $ 6,407  $ 1,724  $    (375)    $ 48,429
  Other current
   liabilities..........     3,698     6,581      274   10,553   2,758    3,451    (10,399)       6,363
                          --------  --------  ------- -------- -------  -------  ---------     --------
   Total current
    liabilities.........    18,021    32,931      274   51,226   9,165    5,175    (10,774)      54,792
Total long term debt....    87,600    42,400      --   130,000     --       --         --       130,000
Other liabilities.......       711    56,737      --    57,448  17,999    2,506    (60,162)      17,791
                          --------  --------  ------- -------- -------  -------  ---------     --------
Total liabilities.......   106,332   132,068      274  238,674  27,164    7,681    (70,936)     202,583
Stockholders' equity....    22,116    50,137   76,583  148,836  (3,719)   3,843    (73,166)      75,794
                          --------  --------  ------- -------- -------  -------  ---------     --------
   Total................  $128,448  $182,205  $76,857 $387,510 $23,445  $11,524  $(144,102)    $278,377
                          ========  ========  ======= ======== =======  =======  =========     ========
</TABLE>

                                      54
<PAGE>

                 CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


<TABLE>
<CAPTION>
                                                     As of December 31, 1998
                          -------------------------------------------------------------------------------
                                                                 Nonguarantor
                                   Guarantor Entities              Entities
                          ------------------------------------- ---------------
                            JCI    Jafra S.A.                                                   Total
                           (U.S.)   (Mexico)  Parent    Total   Europe   Other  Eliminations Consolidated
                          -------- ---------- -------  -------- ------- ------- ------------ ------------
<S>                       <C>      <C>        <C>      <C>      <C>     <C>     <C>          <C>
ASSETS
Current assets:
  Receivables...........  $  6,601  $ 12,654  $   --   $ 19,255 $ 3,620 $ 1,574  $      --     $ 24,449
  Inventories...........    12,323    12,684      --     25,007   5,350   3,440       (602)      33,195
  Other current assets..    10,908    21,130       14    32,052   4,867   3,085    (10,163)      29,841
                          --------  --------  -------  -------- ------- -------  ---------     --------
     Total current
      assets............    29,832    46,468       14    76,314  13,837   8,099    (10,765)      87,485
  Property and
   equipment, net.......    25,075    28,380      --     53,455   2,640     143        --        56,238
  Other assets:
   Goodwill, net........    35,488    31,971      --     67,459   8,869     865        --        77,193
   Trademarks, net......    20,650    26,550      197    47,397   5,587     250        --        53,234
   Other(1).............    26,572     6,006   75,678   108,256   1,363   3,726    (98,861)      14,484
                          --------  --------  -------  -------- ------- -------  ---------     --------
     Total..............  $137,617  $139,375  $75,889  $352,881 $32,296 $13,083  $(109,626)    $288,634
                          ========  ========  =======  ======== ======= =======  =========     ========

LIABILITIES AND
 STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable and
   accrued expenses.....  $ 21,472  $ 27,931  $  (255) $ 49,148 $ 7,918 $ 3,992  $    (970)    $ 60,088
  Other current
   liabilities..........     1,500     7,631      101     9,232   3,801     630     (9,193)       4,470
                          --------  --------  -------  -------- ------- -------  ---------     --------
     Total current
      liabilities.......    22,972    35,562     (154)   58,380  11,719   4,622    (10,163)      64,558
Total long term debt....    85,000    54,000      --    139,000     --      --         --       139,000
Other liabilities.......       --     11,715      --     11,715  14,912     572    (17,564)       9,635
                          --------  --------  -------  -------- ------- -------  ---------     --------
Total liabilities.......   107,972   101,277     (154)  209,095  26,631   5,194    (27,727)     213,193
Stockholders' equity....    29,645    38,098   76,043   143,786   5,665   7,889    (81,899)      75,441
                          --------  --------  -------  -------- ------- -------  ---------     --------
     Total..............  $137,617  $139,375  $75,889  $352,881 $32,296 $13,083  $(109,626)    $288,634
                          ========  ========  =======  ======== ======= =======  =========     ========
</TABLE>
-------
(1) Other assets include long-term intercompany notes receivable, JCI's and
    Parent's investment in subsidiaries, and other miscellaneous assets.

  Consolidating condensed statement of cash flows data for the year ended
December 31, 1999, the eight months ended December 31, 1998, the four months
ended April 30, 1998, and the year ended December 31, 1997 is summarized as
follows (in thousands):

<TABLE>
<CAPTION>
                                                 Year ended December 31, 1999
                         ---------------------------------------------------------------------------------
                                                                Nonguarantor
                                 Guarantor Entities               Entities
                         ------------------------------------  ----------------
                           JCI     Jafra S.A.                                                    Total
                          (U.S.)    (Mexico)  Parent  Total    Europe    Other   Eliminations Consolidated
                         --------  ---------- ------ --------  -------  -------  ------------ ------------
<S>                      <C>       <C>        <C>    <C>       <C>      <C>      <C>          <C>
Net cash provided by
 (used in)
  Operating activities.. $ 18,020   $(14,125)  $260  $  4,155  $(3,540) $(2,438)    $ 268       $(1,555)
  Investing activities..    1,146     (2,622)   --     (1,476)    (586)  (1,032)      --         (3,094)
  Financing activities..  (19,446)     4,866    108   (14,472)   3,674    3,415       --         (7,383)
Effect of exchange rate
 changes on cash........      --        (161)   --       (161)    (460)    (531)     (268)       (1,420)
Cash at beginning of
 period.................      353     12,045     10    12,408    3,924    2,026       --         18,358
                         --------   --------   ----  --------  -------  -------     -----       -------
Cash at end of period... $     73   $      3   $378  $    454  $ 3,012  $ 1,440     $ --        $ 4,906
                         ========   ========   ====  ========  =======  =======     =====       =======
</TABLE>

                                      55
<PAGE>

                  CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


<TABLE>
<CAPTION>
                                              Eight months ended December 31, 1998
                         ------------------------------------------------------------------------------------
                                                                   Nonguarantor
                                  Guarantor Entities                 Entities
                         --------------------------------------  -----------------
                           JCI     Jafra S.A.                                                       Total
                          (U.S.)    (Mexico)  Parent    Total     Europe    Other   Eliminations Consolidated
                         --------  ---------- ------  ---------  --------  -------  ------------ ------------
<S>                      <C>       <C>        <C>     <C>        <C>       <C>      <C>          <C>
Net cash provided by
 (used in)
  Operating activities.. $ (6,192)  $ 23,601  $(178)  $  17,231  $  2,517  $(1,634)     $ --      $  18,114
  Investing activities..  (90,366)   (95,814)   --     (186,180)  (19,324)  (5,643)       --       (211,147)
  Financing activities..   96,911     84,258    188     181,357    21,130    9,249        --        211,736
Effect of exchange rate
 changes on cash........      --         --     --          --       (575)       2        --           (573)
Cash at beginning of
 period.................      --         --     --          --        176       52        --            228
                         --------   --------  -----   ---------  --------  -------      ----      ---------
Cash at end of period... $    353   $ 12,045  $  10   $  12,408  $  3,924  $ 2,026      $ --      $  18,358
                         ========   ========  =====   =========  ========  =======      ====      =========
</TABLE>

<TABLE>
<CAPTION>
                                             Four months ended April 30, 1998
                          -------------------------------------------------------------------------
                              Guarantor Entities
                          ----------------------------  Nonguarantor
                            JCI    Grupo Jafra            Entities    Other                 Total
                          (U.S.)     (Mexico)   Total     (Europe)   Regions  Eliminations Combined
                          -------  ----------- -------  ------------ -------  ------------ --------
<S>                       <C>      <C>         <C>      <C>          <C>      <C>          <C>
Net cash provided by
 (used in)
  Operating activities..  $ 1,361    $(7,425)  $(6,064)   $(7,860)   $ 5,879      $ --     $(8,045)
  Investing activities..     (528)       546        18       (242)     2,814        --       2,590
  Financing activities..   (1,138)    (6,232)   (7,370)     7,276     (8,685)       --      (8,779)
Effect of exchange rate
 changes on cash........      --        (181)     (181)       364       (516)       --        (333)
Effect of Accounting
 Calendar change on cash
 (Note 1)...............      --       6,358     6,358        (82)       --         --       6,276
Cash at beginning of
 period.................      759      7,458     8,217      1,370        644        --      10,231
                          -------    -------   -------    -------    -------      ----     -------
Cash at end of period...  $   454    $   524   $   978    $   826    $   136      $ --     $ 1,940
                          =======    =======   =======    =======    =======      ====     =======
</TABLE>

<TABLE>
<CAPTION>
                                               Year ended December 31, 1997
                         ---------------------------------------------------------------------------
                              Guarantor Entities
                         ------------------------------  Nonguarantor
                           JCI     Grupo Jafra             Entities    Other                 Total
                          (U.S.)     (Mexico)   Total      (Europe)   Regions  Eliminations Combined
                         --------  ----------- --------  ------------ -------  ------------ --------
<S>                      <C>       <C>         <C>       <C>          <C>      <C>          <C>
Net cash provided by
 (used in)
  Operating activities.. $ 13,467   $ 11,534   $ 25,001    $(4,031)   $ 5,747      $ --     $ 26,717
  Investing activities..   (2,130)     4,162      2,032       (437)    (7,395)       --       (5,800)
  Financing activities..  (11,228)   (13,220)   (24,448)     4,347      1,110        --      (18,991)
Effect of exchange rate
 changes on cash........      158       (200)       (42)      (587)       272        --         (357)
Cash at beginning of
 period.................      492      5,182      5,674      2,021        967        --        8,662
                         --------   --------   --------    -------    -------      ----     --------
Cash at end of period... $    759   $  7,458   $  8,217    $ 1,313    $   701      $ --     $ 10,231
                         ========   ========   ========    =======    =======      ====     ========
</TABLE>

                                       56
<PAGE>

                  CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  Additional business segment information is as follows:

<TABLE>
<CAPTION>
                                      Year ended December 31, 1999
                          ----------------------------------------------------
                          United                                     Total
                          States Mexico Europe Other Eliminations Consolidated
                          ------ ------ ------ ----- ------------ ------------
<S>                       <C>    <C>    <C>    <C>   <C>          <C>
Year ended December 31,
 1999
Depreciation and
 amortization............ $2,569 $3,276 $1,022 $252      $ --        $7,119
Amortization of deferred
 financing fees..........    840    992    --   --         --         1,832
Capital expenditures.....  1,838  2,622    586  752        --         5,798

Eight months ended
 December 31, 1998
Depreciation and
 amortization............  2,556  1,810    672   51        --         5,089
Amortization of deferred
 financing fees..........    731    676    --   --         --         1,407
Capital expenditures.....  3,807  2,052    333  175        --         6,367

Four months ended April
 30, 1998
Depreciation and
 amortization............    740    275    236  112        --         1,363
Capital expenditures.....    528  5,354    242  --         --         6,124

Year ended December 31,
 1997
Depreciation and
 amortization............  2,030  1,719    612  --         --         4,361
Capital expenditures.....  2,718  5,019    788  407        --         8,932
</TABLE>

<TABLE>
<CAPTION>
                                    1999                       1998                       1997
                         -------------------------- -------------------------- --------------------------
                            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
                         --------------- ---------- --------------- ---------- --------------- ----------
<S>                      <C>             <C>        <C>             <C>        <C>             <C>
Color Cosmetics.........     $ 81.3         28.0%       $ 70.9         28.6%       $ 66.9         29.1%
Fragrances..............       76.4         26.3          47.3         19.0          40.8         17.8
Skin Care...............       60.9         21.0          58.4         23.5          57.8         25.2
Personal Care...........       35.6         12.3          46.5         18.7          34.9         15.2
Other(1)................       36.3         12.4          25.2         10.2          29.1         12.7
                             ------        -----        ------        -----        ------        -----
  Total.................     $290.5        100.0%       $248.3        100.0%       $229.5        100.0%
                             ======        =====        ======        =====        ======        =====
</TABLE>
--------
(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 2005. Future minimum lease payments under
noncancelable operating leases as of December 31, 1999 are (in thousands):

<TABLE>
       <S>                                                               <C>
       2000............................................................. $ 2,972
       2001.............................................................   2,877
       2002.............................................................   2,127
       2003.............................................................   1,150
       2004.............................................................     635
       Thereafter.......................................................     284
                                                                         -------
                                                                         $10,045
                                                                         =======
</TABLE>


                                       57
<PAGE>

                 CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

  Rental expense was $3,610,000, $1,973,000, $951,000 and $1,500,000 for the
year ended December 31, 1999, the eight months ended December 31, 1998, the
four months ended April 30, 1998, and the year ended December 31, 1997,
respectively.

  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 as of the closing of the Acquisition, 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 has reserved 156,423 shares for issuance under
the Stock Incentive Plan. In 1999 and 1998, 2,457 and 39,340 shares,
respectively, were purchased subject to the Stock Incentive Plan. The purchase
price of such shares was $150 and $100 per share for purchases in 1999 and
1998, respectively, and represents the estimated fair value at the date of
sale. In addition, during 1999, a former member of management exercised
options to purchase 579 shares of common stock of the Parent at an option
price of $100 per share. Under certain circumstances, the management
stockholders can require the Company to repurchase their shares for an amount
not to exceed fair value. In 1999, the Company repurchased 2,317 shares at a
purchase price of $150 per share. As of December 31, 1999, there were 76,784
options outstanding under the Stock Incentive Plan. As of December 31, 1999
and 1998, additional options available for grants were 27,498 and 25,602,
respectively.

  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. These options have a life of ten years
from the date of grant, and the average remaining lives as of December 31,
1999 and 1998 are 8.77 and 9.75 years, respectively. A summary of the status
and activity of the Company options is as follows:

<TABLE>
<CAPTION>
                                                     1999             1998
                                                ---------------- ---------------
                                                        Weighted        Weighted
                                                        Average         Average
                                                        Exercise        Exercise
                                                Shares   Price   Shares  Price
                                                ------  -------- ------ --------
     <S>                                        <C>     <C>      <C>    <C>
     Outstanding at beginning of year.......... 78,680  $100.00     --      --
     Granted...................................  1,580   150.00  78,680 $100.00
     Exercised.................................   (579)  100.00     --      --
     Canceled.................................. (2,897)  100.00     --      --
                                                ------           ------
     Outstanding at year-end................... 76,784   101.03  78,680  100.00
                                                ======           ======
     Options exercisable at year-end........... 12,534  $100.00     --
</TABLE>

  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

                                      58
<PAGE>

                 CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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 ninth anniversary of the date of grant ("Option Type 2").

  The Company applies APB Opinion No. 25 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 Black Scholes
option pricing model. The assumptions used in this pricing model and the
weighted average fair value of options granted during 1999 and 1998 were
summarized as follows:

<TABLE>
<CAPTION>
                                                    1999            1998
                                                --------------  --------------
                                                Option  Option  Option  Option
                                                Type 1  Type 2  Type 1  Type 2
                                                ------  ------  ------  ------
     <S>                                        <C>     <C>     <C>     <C>
     Risk-free interest rate...................    6.0%    6.0%    4.2%    4.2%
     Expected option life (in years)...........    5.0     9.0     5.0     9.0
     Expected volatility.......................    0.0%    0.0%    0.0%    0.0%
     Expected dividend yield...................    0.0%    0.0%    0.0%    0.0%
     Weighted average fair value per option.... $38.55  $62.12  $18.88  $31.39
</TABLE>

Predecessor Plan

  In 1997, certain key employees of the Predecessor were granted options to
purchase stock of Gillette. There were no options granted during the four
months ended April 30, 1998. The Predecessor applied APB Opinion No. 25 and
related Interpretations in accounting for these options. As the options were
granted with exercise prices equal to or greater than the fair value at the
date of grant, no compensation cost was allocated to the Predecessor. The fair
value of each option granted by Gillette was estimated using the Black Scholes
option pricing model, with the following assumptions used for grants in 1997:

<TABLE>
<CAPTION>
                                                                           1997
                                                                           ----
     <S>                                                                   <C>
     Risk-free interest rate..............................................  6.6%
     Expected option life (in years)......................................  4.6
     Expected volatility.................................................. 19.2%
     Expected dividend yield..............................................  0.9%
</TABLE>

  A summary of the activity of the Gillette Company options held by employees
of the Predecessor is as follows (thousands of shares):

<TABLE>
<CAPTION>
                                                                1997
                                                       -----------------------
                                                              Weighted Average
                                                       Shares  Exercise Price
                                                       ------ ----------------
     <S>                                               <C>    <C>
     Outstanding at beginning of year.................   612       $37.00
     Granted..........................................    98        93.00
     Exercised........................................  (128)       30.00
     Canceled.........................................    (2)       66.00
                                                        ----
     Outstanding at year-end..........................   580        54.00
     Option exercisable at year-end...................   464
     Weighted average fair value of options granted
      during the year.................................             $25.00
</TABLE>

                                      59
<PAGE>

                 CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Pro Forma Compensation Cost

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

<TABLE>
<CAPTION>
                                                                  Predecessor
                                                     Eight months ------------
                                         Year Ended     ended      Year Ended
                                        December 31, December 31, December 31,
                                            1999         1998         1997
                                        ------------ ------------ ------------
     <S>                                <C>          <C>          <C>
     Net income (loss), as reported....    $4,648      $(8,041)     $15,449
     Pro forma compensation cost.......       677          148        2,800
                                           ------      -------      -------
     Pro forma net income (loss).......    $3,971      $(8,189)     $12,649
                                           ======      =======      =======
</TABLE>

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.

(14) Outsourcing of the U.S. Product Manufacturing Functions

  In connection with the Company's restructuring plans with respect 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 of approximately $1.5 million bears interest at an annual
rate of 8%, and is payable in monthly installments over three years,
commencing January 1, 2000. The promissory note for inventories of
approximately $2.2 million is non-interest bearing, and is payable in monthly
installments over one year, commencing October 1, 1999. At December 31, 1999,
approximately $2.1 million of notes from the Contractor (reflected at fair
value, net of discount), as well as approximately $0.5 million of unsecured
accounts receivable, were included in receivables and approximately $1.0
million of notes, representing the non-current portion of the fixed asset
notes from the Contractor, were included in other assets in the accompanying
consolidated balance sheets.

  In addition, 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. 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.

(15) Foreign Currency Forward Contracts

  In 1999, the Company entered into foreign currency forward contracts in
Mexican pesos to reduce the effect of adverse exchange rate fluctuations in
Mexico. The outstanding foreign currency forward contracts at December 31,
1999 had a notional value of $29,906,000 and mature in 2000. Notional amounts
do not quantify

                                      60
<PAGE>

                 CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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
table below describes the forward contracts that were outstanding at December
31, 1999 (in thousands):

<TABLE>
<CAPTION>
                                         Forward
                             Contract  Position in  Maturity Contract   Fair
      Foreign Currency         Date   US Dollars(1)   Date     Rate   Value(1)
      ----------------       -------- ------------- -------- -------- --------
<S>                          <C>      <C>           <C>      <C>      <C>
Buy US Dollar/sell Mexican
 Peso....................... 12/22/99    $ 3,722     3/31/00   9.671  $ 3,690
Buy US Dollar/sell Mexican
 Peso....................... 12/22/99      3,890     4/28/00   9.770    3,856
Buy US Dollar/sell Mexican
 Peso....................... 12/22/99      2,929     5/31/00   9.900    2,907
Buy US Dollar/sell Mexican
 Peso....................... 12/22/99      3,997     6/30/00  10.008    3,967
Buy US Dollar/sell Mexican
 Peso....................... 12/22/99      1,977     7/31/00  10.118    1,962
Buy US Dollar/sell Mexican
 Peso....................... 12/22/99      3,032     8/31/00  10.223    3,010
Buy US Dollar/sell Mexican
 Peso....................... 12/22/99      3,874     9/29/00  10.326    3,846
Buy US Dollar/sell Mexican
 Peso....................... 12/22/99      3,641    10/31/00  10.438    3,617
Buy US Dollar/sell Mexican
 Peso....................... 12/22/99      2,844    11/30/00  10.548    2,829
                                         -------                      -------
                                         $29,906                      $29,684
                                         =======                      =======
</TABLE>
--------
(1) The "Forward Position in US Dollars" and the "Fair Value" presented above
    represent notional amounts. The net of these two amounts, $222,000,
    represents the fair value of the forward contracts and has been recorded
    as an asset in the accompanying consolidated balance sheet as of December
    31, 1999.

  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.

                                      61
<PAGE>

                  CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES

                 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
                                 (in thousands)

<TABLE>
<CAPTION>
                                           Additions
                                      -------------------
                           Balance    charged to charged               Balance
                         at beginning costs and  to other Deductions-  at end
      Descriptions        of period    expenses  accounts recoveries  of period
      ------------       ------------ ---------- -------- ----------- ---------
<S>                      <C>          <C>        <C>      <C>         <C>
Accounts Receivable:
  CDRJ Investments (Lux)
   S.A. and
   Subsidiaries:
    1999................    $2,284      $4,651     $ --     $3,848     $3,087
    May 1-December 31,
     1998...............     2,137       3,951       --      3,804      2,284
  Predecessor:
    January 1-April 30,
     1998...............     2,057       1,982       --      1,902      2,137
    1997................     1,919         158       --         20      2,057
Inventories:
  CDRJ Investments (Lux)
   S.A. and
   Subsidiaries:
    1999................     4,900       2,256       --      4,714      2,442
    May 1-December 31,
     1998...............     7,089(1)      922       --      3,111      4,900
  Predecessor:
    January 1-April 30,
     1998...............     1,628         733       --        220      2,141
    1997................     2,314         240       --        926      1,628
</TABLE>
--------
(1) Increase in inventory reserves of $4,948 over Predecessor's balance at
    April 30, 1998 represents certain purchase accounting entries recorded in
    connection with the Acquisition.

                                       62
<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE.

  None.

                                   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, 2000 are set forth
below.

<TABLE>
<CAPTION>
   Name                     Age                          Position
   ----                     ---                          --------
   <S>                      <C> <C>
   Ronald B. Clark.........  64 Chairman and Chief Executive Officer; Director

   Gonzalo R. Rubio........  56 President and Chief Operating Officer; Director

   Ralph S. Mason, III.....  48 Vice Chairman, Executive Vice President and General Counsel

   Michael DiGregorio......  45 Senior Vice President and Chief Financial Officer

   Jaime Lopez Guirao......  52 President of Global Operations

   Alan Fearnley...........  49 Senior Vice President of Global Marketing

   Joaquim Simoes..........  47 Vice President and Chief Information Officer

   Fabio Stillitano........  41 President of United States Operations

   Eugenio Lopez Barrios...  58 President of Mexican Operations

   Jose Luis Peco..........  54 President of European Operations

   Ademar Serodio..........  56 President of South American Operations (excluding Brazil)

   Donald J. Gogel.........  51 Director

   Steven D. Goldstein.....  48 Director

   Thomas E. Ireland.......  50 Director

   Siri Marshall...........  51 Director

   David A. Novak..........  31 Director

   Paul Orfalea............  52 Director

   Ann Reese...............  47 Director

   Edward H. Rensi.........  55 Director

   Kenneth D. Taylor.......  65 Director
</TABLE>

  Ronald B. Clark has served as a director and the Chairman and Chief
Executive Officer since joining the Company in May 1998. Mr. Clark served from
1996 to January 1998 as President, Richmont Europe (Mary Kay Holding Company).
From 1992 to 1995, he was President of Mary Kay Europe. Prior to that, he
served as 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. Rubio has served as a director and the President and Chief
Operating Officer since joining the Company in May 1998. Mr. Rubio served from
1993 to 1997 as Area Vice President and later President of the European
operations of Mary Kay Inc. From 1970 to 1993, 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.

                                      63
<PAGE>

  Ralph S. Mason, III has 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.

  Michael DiGregorio currently serves as Senior Vice President and Chief
Financial Officer of the Company. From June 1998 to May 1999, Mr. DiGregorio
served as President of the United States Operations of the Company. From 1995
to June 1998, Mr. DiGregorio served as Financial Director and General Manager
of Jafra Mexico. From 1993 to 1995, Mr. DiGregorio served as Senior Vice
President, Finance and Chief Financial Officer of Atlantis Plastics, Inc.

  Jaime Lopez Guirao has 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.

  Alan Fearnley has served as Senior Vice President of Global Marketing since
joining the Company in June 1998. 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. From 1987 to 1995, Mr. Fearnley served as
Senior Vice President of Global Marketing of Jafra.

  Joaquim C. Simoes has served as Vice President and Chief Information Officer
since joining the Company in August 1999. Prior to joining the Company, Mr.
Simoes served as the Chief Information Officer, South American Theater, at
PricewaterhouseCoopers. From September 1997 to February 1998, Mr. Simoes
served as Senior Manager, Software & Systems at Pitney Bowes, Inc. From 1995
to 1997, Mr. Simoes owned and served as President of ExecuTrain of Rhode
Island. Prior to ExecuTrain, Mr. Simoes spent 16 years with Avon Products Inc.
in significant domestic and global positions within the Information Technology
area.

  Fabio Stillitano currently serves as President of United States Operations
of the Company. From August 1998 to January 2000, Mr. Stillitano served as the
General Manager of Jafra Italy. From January 1998 to August 1998, Mr.
Stillitano served as General Manager and President's Advisor of GTS-DIBI Group
in Italy and Spain. From 1994 to January 1998, Mr. Stillitano served as Vice
President of Sales for Avon Cosmetics in Italy.

  Eugenio Lopez Barrios has served as President of Mexican Operations since
joining the Company in June 1998. From 1993 to 1998, Mr. Barrios was President
of Mary Kay Mexico. Prior to that, Mr. Barrios was employed by Avon Products,
Inc. for over 30 years, where he oversaw Operations in Mexico, South America
and Central America.

  Jose Luis Peco has served as President of European Operations of the Company
since joining the Company in June 1998. From 1994 to 1998, Mr. Peco served as
Vice President of European Operations for Mary Kay Cosmetics and President of
Mary Kay Cosmetics--Iberia. Prior to that, Mr. Peco served as Controller and
Financial Director for various European Operations for Avon Products, Inc. for
over 20 years.

  Ademar Serodio joined the Company in January 2000 and currently serves as
President of South America Operations of the Company (excluding Brazil). 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.

  Donald J. Gogel has been a director of the Company since January 1998. Since
1998, Mr. Gogel has served as Chief Executive Officer of CD&R; since 1995 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 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,
Alliant Foodservice, Inc., and its parent, CDRF Holding,  Inc., corporations
in which an investment fund managed by CD&R has an investment, Global
Decisions Group, LLC,

                                      64
<PAGE>

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 Kinko's, Inc. and
Turbochef, Inc.

  Steven D. Goldstein has been a director of the Company since July 1998 and
has served as Chairman and Chief Executive Officer of Invenet, LLC since
December 1997. Prior to joining Invenet, LLC, Mr. Goldstein was employed as
President, Credit of Sears, Roebuck & Co. From 1982 to 1996, Mr. Goldstein was
employed by American Express Co., serving most recently as the Chairman and
Chief Executive Officer of American Express Bank.

  Thomas E. Ireland has 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 of
Investment Associates II. From 1988 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.

  Siri Marshall has been a director of the Company since July 1999. Ms.
Marshall has been employed by General Mills since 1994 and currently serves as
its Senior Vice President, Corporate Affairs and General Counsel. From 1979
until joining General Mills, Ms. Marshall was employed by Avon Products, Inc.,
serving most recently as Senior Vice President, General Counsel and Secretary.

  David A. Novak has 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.

  Paul Orfalea has been a director of the Company since July 1998 and is the
founder of Kinko's, Inc., a corporation in which Fund V has an investment. For
more than the prior five years, Mr. Orfalea has been employed by Kinko's,
Inc., serving as its Chairperson. Mr. Orfalea is also a director of DataProse,
Inc., Espresso Caffe Corp., Glendale Federal Bank and Kinko's, Inc., and
serves as a member of the compensation committee of the board of directors of
Glendale Federal Bank.

  Ann Reese has been a director of the Company since July 1998. Ms. Reese is a
professional employee of CD&R and joined that firm in 1999. From prior to 1995
to December 1995 Ms. Reese was Treasurer and from December 1995 to March 1998
Chief Financial Officer of ITT Corp., a company in the hotel and gaming
businesses and previously in insurance and manufacturing.

  Edward H. Rensi has been a director of the Company since July 1998. For more
than the prior five years, Mr. Rensi has been employed by McDonalds 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.

  Kenneth D. Taylor has been a director of the Company since July 1998 and has
been the Chairman of Global Public Affairs, Inc. since October 1994. From 1991
to 1994, Mr. Taylor served as the Chairman of Taylor & Ryan, Inc. Mr. Taylor
is a director of Devine Entertainment Corporation, Taylor Gas Liquids Fund,
McCarvill Corporation, William Resources Inc., AdvantEdge International Inc.,
Finsa Energeticos, Alberta Northeast Gas Limited, and J&H Marsh & McLennan
Limited.

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

                                      65
<PAGE>

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 two fiscal years.

                          Summary Compensation Table

<TABLE>
<CAPTION>
                                                                     Long-Term
                                    Annual Compensation             Compensation
                              ------------------------------------  ------------
                                                      Other Annual   Securities   All Other
   Name and Principal                       Bonus     Compensation   Underlying  Compensation
        Position         Year Salary ($)     ($)          ($)       Options (#)     ($)(1)
   ------------------    ---- ----------   -------    ------------  ------------ ------------
<S>                      <C>  <C>          <C>        <C>           <C>          <C>
Ronald B. Clark......... 1999  609,288     510,000          --            --        30,273
 Chairman and Chief      1998  406,154(2)  360,000          --         18,328       15,692
 Executive Officer

Gonzalo R. Rubio........ 1999  507,740     425,000          --            --        55,228
 President and Chief     1998  326,923(2)  300,000          --         18,328        1,344
 Operating Officer

Ralph S. Mason, III..... 1999  456,966     382,000      146,238(3)        --         1,771
 Vice Chairman,
  Executive              1998  304,616(2)  270,000      263,082(4)     14,536          --
 Vice President and
 General Counsel

Jaime Lopez Guirao...... 1999  455,597     382,000          --            --        47,910
 President of Global     1998  253,846(5)  870,000(6)       --          6,000        2,269
 Operations

Michael A. DiGregorio... 1999  304,352     212,000          --            --        22,718
 Senior Vice President
  and                    1998  190,385(5)  150,000       79,292(7)      3,476        5,192
 Chief Financial Officer
</TABLE>
--------
(1) Amounts shown in this column constitute contributions by the Company under
    the Company's 401(k) and Supplemental Savings Plans.

(2) Messrs. Clark, Rubio, and Mason joined the Company on May 1, 1998.

(3) Amount includes reimbursement for expenses of $140,000 incurred by Mr.
    Mason in order to relocate to Company headquarters.

(4) Amount includes reimbursement for expenses of $258,347 incurred by Mr.
    Mason in order to relocate to Company headquarters

(5) Messrs. Guirao and DiGregorio joined the Company on June 1, 1998.

(6) Amount includes a $600,000 incentive bonus accrued in connection with the
    hiring of Mr. Guirao.

(7) Amount includes reimbursement for expenses of $75,474 incurred by Mr.
    DiGregorio in order to relocate to Company headquarters.

                                      66
<PAGE>

Option Grants in 1999

  There were no stock options granted to the Named Executive Officers during
the year ended December 31, 1999.

                      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, 1999. No
options were exercised by such executive officers during the year ended
December 31, 1999.

<TABLE>
<CAPTION>
                                 Number of Securities
                                Underlying Unexercised   Value of Unexercised In-
                                    Options/SARs at        the-Money Options at
                               December 31, 1999 (#)(1)  December 31, 1999 ($)(2)
                               ------------------------- -------------------------
               Name            Exercisable Unexercisable Exercisable Unexercisable
               ----            ----------- ------------- ----------- -------------
     <S>                       <C>         <C>           <C>         <C>
     Ronald B. Clark.........     3,055       15,273      $152,750     $763,650
     Gonzalo R. Rubio........     3,055       15,273       152,750      763,650
     Ralph S. Mason, III.....     2,423       12,113       121,150      605,650
     Jaime Lopez Guirao......     1,000        5,000        50,000      250,000
     Michael A. DiGregorio...       579        2,897        28,950      144,850
</TABLE>
--------
(1) The Company has not granted any stock appreciation rights and its stock
    plan does not provide for the granting of such rights.

(2) Calculated based on a per share price of Parent Common Stock of $150, the
    estimated fair market value as of December 31, 1999, less the per share
    exercise price.

Compensation Of Directors

  During 1999, 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 1999 anniversary dates, Messrs. Clark,
Rubio, Mason, Guirao and DiGregorio receive annual base salaries of $614,000,
$512,000, $460,000, $459,000 and $307,000, 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.

                                      67
<PAGE>

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 during 1999 were Mr.
Taylor, Chairperson, Mr. Orfalea, and Mr. Gogel. Mr. Gogel is President, Chief
Executive Officer and a 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 1998, CD&R received a fee of $2.7 million for providing services
related to the structuring, implementation and consummation of the
Acquisition. CD&R currently charges the Company an annual fee of $400,000
(plus reimbursement of out-of-pocket expenses) for advisory, management
consulting and monitoring services to the Company. Parent has also agreed to
indemnify the members of the Board employed by CD&R and CD&R against
liabilities incurred under securities laws with respect to their services to
the Company.

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 10, 2000, 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.

<TABLE>
<CAPTION>
                                                              Number
                                                                of    Percent
                              Name                            Shares  of Class
                              ----                            ------- --------
   <S>                                                        <C>     <C>
   Clayton, Dubilier & Rice Fund V Limited Partnership(1).... 769,600  92.65
   Donald J. Gogel(2)........................................     --     --
   Steven D. Goldstein.......................................   2,000    *
   Thomas E. Ireland(2)......................................     --     --
   Siri Marshall.............................................   1,667    *
   David A. Novak(2).........................................     --     --
   Paul Orfalea..............................................   2,500    *
   Ann Reese.................................................   2,500    *
   Edward H. Rensi...........................................   2,500    *
   Kenneth D. Taylor.........................................     500    *
   Ronald B. Clark(3)........................................  12,219   1.47
   Gonzalo R. Rubio(4).......................................  12,219   1.47
   Ralph S. Mason, III(5)....................................   9,691   1.17
   Jaime Lopez Guirao(6).....................................   4,000    *
   Michael A. DiGregorio(7)..................................   2,317    *
   All directors and Named Executive Officers as a group (14
    persons)(8)..............................................  52,112   6.27
</TABLE>
--------
  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. CD&R Investment Associates II, Inc. ("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 3,055 shares as to which Mr. Clark has a right to acquire through
    the exercise of stock options.

                                      68
<PAGE>

(4) Includes 3,055 shares as to which Mr. Rubio has a right to acquire through
    the exercise of stock options.

(5) Includes 2,423 shares as to which Mr. Mason has a right to acquire through
    the exercise of stock options.

(6) Includes 1,000 shares as to which Mr. Guirao has a right to acquire
    through the exercise of stock options.

(7) Includes 579 shares as to which Mr. DiGregorio has a right to acquire
    through the exercise of stock options.

(8) Includes 10,112 shares which the directors and Named Executive Officers as
    a group have a right to acquire through the exercise of stock options.
    Messrs. Clark, Rubio and Mason purchased shares of Common Stock at the
    Closing. On September 30, 1998, certain members of management, certain
    directors and other persons purchased an aggregate of 40,437 shares of
    Common Stock, on October 1, 1999, a former member of management exercised
    579 options to purchase Common Stock, and on November 19, 1999, certain
    members of management and a director purchased an aggregate of 2,457
    shares of Common Stock 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 and Mr. Ireland and Mr. Novak are each
    shareholders of Investment Associates II.

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 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 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 are directors 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.

  CD&R received at Closing an initial transaction fee of $2.7 million for
providing services related to the structuring, implementation and consummation
of the Acquisition, in addition to the reimbursement of out-of-pocket
expenses. Pursuant to a consulting agreement entered into at the Closing,
until the tenth anniversary of the Acquisition or the date on which CD&R Fund
V no longer has an investment in the Company, CD&R will receive an annual fee
originally of $500,000 and as of January 1, 1999, of $400,000 (and
reimbursement of out-of-pocket expenses) for providing advisory, management
consulting and monitoring services to the Company. 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. 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.

  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

                                      69
<PAGE>

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.

  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 will pay a fee of approximately $2.0 million to Guidance
in connection with the planning, defining, designing and consulting services
performed. Total fees charged by Guidance in 1999 for providing such services
were $389,000.

  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.

  In July of 1999, a former member of management terminated his employment
with the Company. Under the terms of his employment agreement, he received
total compensation of approximately $509,000, consisting of a severance
payment of $240,000 in July 1999, a payment of approximately $29,000 in
October 1999 relating to the cashless exercise of 579 options of Common Stock,
and a severance payment of $240,000 in January 2000.

  Under certain circumstances, stockholders can require the Company to
purchase their shares of Common Stock. In October 1999, a former member of
management exercised 579 options to purchase Common Stock, then requested that
the Company purchase his entire balance of Common Stock, consisting of 2,317
shares. The Company repurchased these shares at a total cost of $348,000, or
$150 per share, which represented the estimated fair value at the time of
purchase.

  In November 1999, a director, Siri Marshall, and certain members of
management purchased 1,667 and 790 shares of Common Stock, respectively at a
purchase price of $150.00 per share. Certain members of management were also
granted options to purchase an aggregate of 1,580 shares of Common Stock.
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. 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 $131,500
extended to Messrs. Clark, Rubio, Mason, Guirao, and DiGregorio, respectively,
which remain outstanding.

                                      70
<PAGE>

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 26 of this Annual Report on
Form 10-K.

  (a)(2) Financial Statement Schedules. Reference is made to the Index to
Financial Statements and Schedules of the Company on page 26 of this Annual
Report on Form 10-K.

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

<TABLE>
<CAPTION>
      Exhibit
      Number                       Description of Document
      -------                      -----------------------
      <C>     <S>
        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
               Consultoria Jafra, S.A. de C.V., together with a unofficial
               summary thereof in English; previously filed as Exhibit 3.6 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.

        3.7   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.

        3.8   Deed of Incorporation (acta constitutiva), including all
               amendments thereto, and current by-laws (estatutos sociales) of
               Distribuidora Venus, S.A. de C.V., together with a unofficial
               summary thereof in English; previously filed as Exhibit 3.8 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.

        3.9   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.

</TABLE>


                                      71
<PAGE>

<TABLE>
<CAPTION>
      Exhibit
      Number                       Description of Document
      -------                      -----------------------
      <C>     <S>
        3.10  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.

        3.11  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.
        3.12  Notarial Deed and Resolutions, together with a 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.

        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.
               33-62989 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.
</TABLE>

                                       72
<PAGE>



<TABLE>
<CAPTION>
      Exhibit
      Number                       Description of Document
      -------                      -----------------------
      <C>     <S>
        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.

        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. 33-62989 under the Securities Act of 1933, as amended, filed
               September 4, 1998, and incorporated herein by reference.

</TABLE>


                                       73
<PAGE>

<TABLE>
<CAPTION>
      Exhibit
      Number                       Description of Document
      -------                      -----------------------
      <C>     <S>
        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.

        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.

        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.

       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.
</TABLE>


                                       74
<PAGE>

<TABLE>
<CAPTION>
      Exhibit
      Number                       Description of Document
      -------                      -----------------------
      <C>     <S>
       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 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 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 quarter
               ended September 30, 1999, filed November 12, 1999, and
               incorporated herein by reference.

</TABLE>


                                       75
<PAGE>

<TABLE>
<CAPTION>
      Exhibit
      Number                       Description of Document
      -------                      -----------------------
      <C>     <S>
       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 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.

       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.

       21.1   Subsidiaries of the registrant.

       27.1   Financial Data Schedule.
</TABLE>

(b) Reports on Form 8-K

  During the quarter ended December 31, 1999, the Company filed no reports on
Form 8-K.

                                       76
<PAGE>

                                  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.

                                                  /s/ Ronald B. Clark
                                          By: _________________________________

                                             Name: Ronald B. Clark
                                             Title: Chief Executive Officer of
                                                 the Advisory Committee and
                                                 Director

Date: March 30, 2000

  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.

<TABLE>
<CAPTION>
             Signature                           Title                  Date
             ---------                           -----                  ----
<S>                                  <C>                           <C>
      /s/ Ronald B. Clark            Chief Executive Officer of    March 30, 2000
____________________________________  the Advisory Committee and
          Ronald B. Clark             Director (Principal
                                      executive officer)
   /s/ Michael A. DiGregorio         Senior Vice President and     March 30, 2000
____________________________________  Chief Financial Officer of
       Michael A. DiGregorio          the Advisory Committee
                                      (Principal financial
                                      officer, Principal
                                      accounting officer)
    /s/ Ralph S. Mason, III          Secretary and Executive Vice  March 30, 2000
____________________________________  President of the Advisory
        Ralph S. Mason, III           Committee (Representative
                                      in the U.S.)
      /s/ Donald J. Gogel            Director                      March 30, 2000
____________________________________
          Donald J. Gogel
    /s/ Steven D. Goldstein          Director                      March 30, 2000
____________________________________
        Steven D. Goldstein
     /s/ Thomas E. Ireland           Director                      March 30, 2000
____________________________________
         Thomas E. Ireland
       /s/ Siri Marshall             Director                      March 30, 2000
____________________________________
           Siri Marshall
       /s/ David A. Novak            Director                      March 30, 2000
____________________________________
           David A. Novak
</TABLE>

                                      77
<PAGE>

<TABLE>
<CAPTION>
             Signature                           Title                  Date
             ---------                           -----                  ----
<S>                                  <C>                           <C>
        /s/ Paul Orfalea             Director                      March 30, 2000
____________________________________
            Paul Orfalea
         /s/ Ann Reese               Director                      March 30, 2000
____________________________________
             Ann Reese
      /s/ Edward H. Rensi            Director                      March 30, 2000
____________________________________
          Edward H. Rensi
       /s/ Gonzalo Rubio             Director                      March 30, 2000
____________________________________
           Gonzalo Rubio
                                     Director
____________________________________
         Kenneth D. Taylor
</TABLE>

  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.

                                      78
<PAGE>

                                    EXHIBITS

<TABLE>
<CAPTION>
 Exhibit
 Number                          Description of Document
 -------                         -----------------------
 <C>     <S>
  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 Consultoria
          Jafra, S.A. de C.V., together with a unofficial summary thereof in
          English; previously filed as Exhibit 3.6 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.

  3.7    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.

  3.8    Deed of Incorporation (acta constitutiva), including all amendments
          thereto, and current by-laws (estatutos sociales) of Distribuidora
          Venus, S.A. de C.V., together with a unofficial summary thereof in
          English; previously filed as Exhibit 3.8 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.

  3.9    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.

  3.10   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.
</TABLE>

                                       79
<PAGE>

<TABLE>
<CAPTION>
 Exhibit
 Number                          Description of Document
 -------                         -----------------------
 <C>     <S>
  3.11   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.

  3.12   Notarial Deed and Resolutions, together with a 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.

  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.

</TABLE>


                                       80
<PAGE>

<TABLE>
<CAPTION>
 Exhibit
 Number                          Description of Document
 -------                         -----------------------
 <C>     <S>
   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.

   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.

</TABLE>


                                       81
<PAGE>

<TABLE>
<CAPTION>
 Exhibit
 Number                          Description of Document
 -------                         -----------------------
 <C>     <S>
  4.19   Substitution of Trustee and Partial Reconveyance of Deed of Trust,
          Assignment of Leases and Rents, Fixture Filling and Security
          Agreement, and Release of Financing Statement, dated November 29,
          1999, which amends the Deed of Trust filed as Exhibit 4.15 above.

  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.

 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.

  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 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 quarter ended March 31, 1999, filed May 17, 1999,
          and incorporated herein by reference.

</TABLE>


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<PAGE>

<TABLE>
<CAPTION>
 Exhibit
 Number                          Description of Document
 -------                         -----------------------
 <C>     <S>
  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 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 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.

  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.

  21.1   Subsidiaries of the registrant.

  27.1   Financial Data Schedule.
</TABLE>

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