##### Table of Contents









UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549




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FORM 10-K





(Mark One)



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

OF THE SECURITIES EXCHANGE ACT OF 1934


For the fiscal year ended December 31,
2002

OR



| |   |                                                  
| | - | -------------------------------------------------
| | o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934


For the transition period
from  to  .

Commission File Number 333-62989



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CDRJ Investments (Lux) S.A.

(Exact name of Registrant as specified in its
charter)




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

174 Route de Longwy


L-1941 Luxembourg


Luxembourg


(352) 226027


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


registrants principal executive
offices)


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

None


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

None


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

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.     þ

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Rule 12b-2 of the Act).
Yes o          No þ

The registrant does not have a class of equity
securities registered pursuant to Section 12 of the
Securities Exchange Act of 1934 and there is no public market
for voting stock of the registrant.

As of March 7, 2003, the registrant had
outstanding 831,888 shares of common stock, par value $2.00 per
share.

Documents incorporated by reference

None




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TABLE OF CONTENTS



|               |                                                                                              |  |  |  |  |  |  | 
|-------------- | -------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I        
|               | Item 1.Business                                                                             
|               | Item 2.Properties                                                                           
|               | Item 3.Legal Proceedings                                                                    
|               | Item 4.Submission of Matters to a Vote of Security Holders                                  
|PART II       
|               | Item 5.Market for Registrants Common Equity and Related Stockholder Matters                
|               | Item 6.Selected Financial Data                                                              
|               | Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operations
|               | Item 7A. Quantitative and Qualitative Disclosures About Market Risk                         
|               | Item 8.Financial Statements and Supplementary Data                                          
|               | Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
|PART III      
|               | Item 10.Directors, Executive Officers and Significant Employees of the Company              
|               | Item 11.Executive Compensation                                                              
|               | Item 12.Security Ownership of Certain Beneficial Owners and Management                      
|               | Item 13.Certain Relationships and Related Transactions                                      
|               | Item 14.Controls and Procedures                                                             
|PART IV       
|               | Item 15.Exhibits, Financial Statement Schedules and Reports on Form 8-K                     
|SIGNATURES    
|CERTIFICATIONS
|EXHIBIT INDEX 
|EXHIBIT 21.1  



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##### Table of Contents



CDRJ INVESTMENTS (LUX) S.A. AND
SUBSIDIARIES

TABLE OF CONTENTS

|            |     |      |  |                                                                                           |  |  |     | 
|----------- | --- | ---- |  | ----------------------------------------------------------------------------------------- |  |  | --- | 
|Item        |     |      |  |                                                                                          
|            |     |      |  |                                                                                          
|           
|Description
|           
|            |     | Page
|            |     |     
|PART I     
|            | 1.  |      |  | Business                                                                                  |  |  | 1   | 
|            | 2.  |      |  | Properties                                                                                |  |  | 8   | 
|            | 3.  |      |  | Legal Proceedings                                                                         |  |  | 8   | 
|            | 4.  |      |  | Submission of Matters to a Vote of Security
    Holders                                   |  |  | 8   | 
|           
|PART II    
|            | 5.  |      |  | Market for Registrants Common Equity and
    Related Stockholder Matters                 |  |  | 9   | 
|            | 6.  |      |  | Selected Financial Data                                                                   |  |  | 10  | 
|            | 7.  |      |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations |  |  | 12  | 
|            | 7A. |      |  | Quantitative and Qualitative Disclosures About
    Market Risk                            |  |  | 29  | 
|            | 8.  |      |  | Financial Statements and Supplementary Data                                               |  |  | 34  | 
|            | 9.  |      |  | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure  |  |  | 108 | 
|           
|PART III   
|            | 10. |      |  | Directors, Executive Officers and Significant
    Employees of the Company                |  |  | 109 | 
|            | 11. |      |  | Executive Compensation                                                                    |  |  | 112 | 
|            | 12. |      |  | Security Ownership of Certain Beneficial Owners
    and Management                        |  |  | 114 | 
|            | 13. |      |  | Certain Relationships and Related Transactions                                            |  |  | 116 | 
|            | 14. |      |  | Controls and Procedures                                                                   |  |  | 117 | 
|           
|PART IV    
|            | 15. |      |  | Exhibits, Financial Statement Schedules and
    Reports on Form 8-K                       |  |  | 118 | 
|            |     |      |  | Signatures                                                                                |  |  | 125 | 
|            |     |      |  | Certifications                                                                            |  |  | 126 | 

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##### Table of Contents






PART I




Item 1. Business

General

CDRJ Investments (Lux) S.A., a Luxembourg
société anonyme(Parent) is a
holding company that conducts all of its operations through its
subsidiaries. Prior to the consummation of the acquisition (the
Acquisition) by the Parent of the Jafra Business (as
defined) from The Gillette Company (Gillette) in
1998, the terms Company and Jafra refer
to the various subsidiaries and divisions of Gillette conducting
the worldwide Jafra cosmetics business (the Jafra
Business), and, following the consummation of the
Acquisition, collectively to the Parent and its subsidiaries.

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

The Jafra Business was started 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 the Company from Gillette. The
Parent was organized to effect the Acquisition. The Acquisition
was sponsored by Clayton, Dubilier & Rice Fund V
Limited Partnership (CD&R Fund V), a Cayman
Islands exempted limited partnership managed by Clayton,
Dubilier & Rice, Inc. (CD&R), a private
investment firm specializing in acquisitions that involve
management participation.

Strategy

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

Continue to Grow Consultant Base and Sales in
Core Markets.The Companys
market position and distribution network of approximately
269,000 consultants in Mexico positions the Company to continue
to grow the business by capturing additional market share. The
Company intends to continue to pursue the divisional strategy
initiated in late 2000 in which operations in the United States
were bifurcated to focus on the Hispanic population and the
non-Hispanic population. The establishment of two distinct
divisions (the Hispanic Division and the General Division) in
the United States has allowed the Company to tailor distinct
marketing strategies for those demographics as well as provide
U.S. Spanish and non-Spanish speaking consultants with
specialized recruiting programs, training, and product offerings
tailored to the specific demographic. In the General Division
the Company will continue to leverage e-commerce capabilities.
In the Hispanic Division the Company will continue to leverage
its market position in Mexico in areas of training, recruitment
and marketing.

Continue to Provide Support to
Consultants.The Company will continue
its operational and cultural focus on providing consultants with
superior customer service and effective marketing tools,
including catalogues, sales brochures, new product
demonstrations and training sessions, to grow their businesses.
Additionally, the Company intends to continue to stimulate sales
and new consultant recruitment efforts through recognition
events, incentives, gifts and free travel for consultants.

Develop New and Enhanced
Products.The Company intends to focus
on the development of new and innovative products that
capitalize on the face-to-face interaction between consultants
and their clients. New product introductions are fundamental to
the Companys direct selling business model in that they
serve to motivate consultants and give them new and exciting
products to demonstrate and market to their clients. The Company
employs a fast follower product development strategy
that minimizes research costs and focuses development efforts on
products that have proven successful in the marketplace.

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Leverage Economies of
Scale.Since the acquisition in 1998,
the Company increased gross profit and reduced selling, general
and administrative expenses, primarily by reducing manufacturing
and overhead costs, streamlining marketing efforts and improving
inventory and working capital management. The Company believes
that its direct selling business model will continue to generate
significant organic growth and that the resulting scale will
afford it increasing opportunities to leverage its fixed cost
base and increase efficiencies in its purchasing, manufacturing,
marketing, training and technology functions.

Exit Secondary
Markets.Due to the challenging
macroeconomic environment that has affected results in the
non-core markets in which the Company currently operates, it has
adopted a strategic plan to focus on the strengths of the core
U.S. and Mexican markets. The Company may consider plans to
exit certain non-core markets in some or all of South America,
Thailand and Europe through either a sale or discontinuation of
their operations.

Products

The Company 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 2002, the Company
launched 29 new products, excluding limited life products.
In connection with the new color line, the Company launched
289 new products during 2001 and 2002. Research and
development is conducted at the Jafra Skin, Body and Color
Laboratory, located in the Westlake Village, California
facility. Amounts incurred on research activities relating to
the development of new products and improvement of existing
products were $ 1.5 million in 2002, $1.8 million in
2001 and $1.9 million in 2000.

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

The following table sets forth the sales of the
Companys principal product lines for the three years ended
December 31, 2002, 2001 and 2000:

|                                         |                                                              |                 |       |            |       |                 |      |            |   |                 |       |            |       |  |      |       |   |   |       |       |       |  |      |       |   | 
|---------------------------------------- | ------------------------------------------------------------ | --------------- | ----- | ---------- | ----- | --------------- | ---- | ---------- | - | --------------- | ----- | ---------- | ----- |  | ---- | ----- | - | - | ----- | ----- | ----- |  | ---- | ----- | - | 
|                                         |                                                              |                 |       |            |       |                
|                                         |                                                              | 2002            |       | 2001       |       | 2000           
|                                         |                                                              |                 |       |            |       |                
|                                         |                                                              | Sales by        |       | Percentage |       | Sales by        |      | Percentage |   | Sales by        |       | Percentage
|                                         |                                                              | Product Line    |       | of Total   |       | Product Line    |      | of Total   |   | Product Line    |       | of Total  
|                                         |                                                              | ($ in millions) |       | Sales      |       | ($ in millions) |      | Sales      |   | ($ in millions) |       | Sales     
|                                         |                                                              |                 |       |            |       |                 |      |            |   |                 |       |           
|Skin care                                |                                                              | $               | 68.8  |            |       |                 | 18.2 | %          |   | $               | 69.4  |            |       |  | 19.0 | %     |   | $ | 65.8  |       |       |  | 21.0 | %    
|Color cosmetics                          |                                                              |                 | 99.5  |            |       |                 | 26.2 |            |   |                 | 94.3  |            |       |  | 25.8 |       |   |   | 82.4  |       |       |  | 26.2 |      
|Fragrances                               |                                                              |                 | 126.6 |            |       |                 | 33.4 |            |   |                 | 125.4 |            |       |  | 34.3 |       |   |   | 103.7 |       |       |  | 33.0 |      
|Body care and personal care              |                                                              |                 | 42.1  |            |       |                 | 11.1 |            |   |                 | 37.0  |            |       |  | 10.1 |       |   |   | 29.6  |       |       |  | 9.4  |      
|Other(1)                                 |                                                              |                 | 42.0  |            |       |                 | 11.1 |            |   |                 | 39.3  |            |       |  | 10.8 |       |   |   | 32.6  |       |       |  | 10.4 |      
|                                         |                                                              |                 |       |            |       |                 |      |            |   |                 |       |            |       |  |      |       |   |   |       |       |       |  |      |      
|                                         | Subtotal before shipping and other fees less
    commissions |                 |       | 379.0      |       |                 |      | 100.0      | % |                 |       | 365.4      |       |  |      | 100.0 | % |   |       | 314.1 |       |  |      | 100.0 | %
|                                         |                                                              |                 |       |            |       |                 |      |            |   |                 |       |            |       |  |      |       |   |   |       |       |       |  |      |      
|Shipping and other fees less commissions |                                                              |                 | 12.0  |            |       |                 |      |            |   |                 | 10.8  |            |       |  |      |       |   |   | 7.1   |       |       |  |      |      
|                                         |                                                              |                 |       |            |       |                 |      |            |   |                 |       |            |       |  |      |       |   |   |       |       |       |  |      |      
|                                         |                                                              | Total           |       | $          | 391.0 |                 |      |            |   |                 |       | $          | 376.2 |  |      |       |   |   |       | $     | 321.2 |  |      |       |   | 
|                                         |                                                              |                 |       |            |       |                 |      |            |   |                 |       |            |       |  |      |       |   |   |       |       |       |  |      |      




|    |                                                                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes sales aids (e.g., party hostess gifts,
    demonstration products, etc.) and promotional materials, which
    typically do not qualify for commissions or overrides.

Skin Care.The
Company sells personalized skin programs in a free matrix
skincare system that allows individuals to select a regiment to
meet individual needs. Skin care products include cleansers,
masks, skin fresheners and moisturizers for day and night. In
addition to basic skin care products, The Company offers
specialty products to enhance skin texture and encourage cell
revitalization, including its premier product, Royal Jelly Milk
Balm Moisture Lotion, and products for maturing skin (Time
Protector and Time

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Corrector) , eye care
(Optimeyes)and elasticity (Elasticity Recovery
Hydrogel). The Company seeks to use the most recent advances
in ingredient technology. The Company is committed to
maintaining contemporary formulas and routinely evaluating and
updating its product offerings. During 2002, the Company
continued to promote the skin care line and added a new staple
skin care product, Makeup Remover for Eyes and Lips. Royal
Jelly Vitaminswere re-launched to promote health and beauty
through internal wellness. Also, the Company had continued
success with Intensive Retinol Treatment, capsules that
release measured doses of retinol into the skin. In 2003, the
Company plans to launch new products that address skin
pigmentation problems.


Color.The
Companys range of color cosmetics for the face, eyes,
lips, cheeks and nails contribute significantly to its results.
The Company internally develops lipstick formulas, foundations
and mascaras. In 1999, the Company implemented a new color
palette strategy by introducing seasonal color products, through
innovative fashion color statements in the spring and fall shade
product offerings. This has been a consistent strategy for 2000,
2001 and 2002, and has continued to drive the sales of color
products. In 2001, the Company undertook a major restage of its
entire color line. The new line consists of 31 new products,
including 13 new formulas. In total, the restage involved
the repackaging of approximately 280 items. The new color
line was launched in Mexico during the fourth quarter of 2001
and globally in the second quarter of 2002.

Fragrance.In 1996,
the Company introduced Adorisse, a contemporary
womens fragrance, and Fm Force Magnetique, a
prestige mens fragrance. The Company further extended its
fragrance line in 1997 with Le Moiréfor women and
Legend for Men. In 1998, the Company launched the
following fragrances for women: Sensations, a youthful
fragrance, Joie de Vivre, a lifestyle fragrance, and
Reflections, a signature fragrance. The following
fragrances were also launched for men in 1998, Epic, an
aspirational fragrance, and JF9 Green, a sub-brand of the
existing JF9. In 1999, The Company 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. The Company has
a continued strategy of introducing new fragrances each year. In
2001, Spherawas introduced for women and Victuswas introduced for men. In 2002, multiple new fragrances
were launched. Navigowas launched as a master brand and
two fragrances were launched simultaneously for men and women.
JF9 Black, a sub brand of JF9was launched for a
limited time.

Body Care and Personal Care.The Company markets a broad selection
of body, bath, sun and personal care products, including
deodorants and shampoos. The Company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, revitalizing sprays, and bath
products. While the Company varies its product offerings and
continues to develop new products, Royal Almondand
Precious Proteinproducts remain popular sellers. In
2002, the Company leveraged the success of the Royal Almondbrand by introducing Royal Ginger, a scent extension
to the body care family. Also, the Company launched the
Define Your Bodyline of four products, a complete line
of technologically advanced body treatment products. The Company
continued to build on the success of the Jafra Spaline
with the launches of the Spa fragrances and the Scalp Massage
and Hair Treatment. The Tender MomentsBaby line was
enhanced with the launch of pediatrician-tested Baby Bottom
Balm, formulated with soothing ingredients. In a
collaborative effort with Kevin Charles, founder of the Kevin
Charles Salon Spa, the Company launched a new hair care line of
salon quality products. Developed by the Company, tested by
Kevin Charles in his salon, these products cleanse, nourish,
protect and style hair. In 2003, the Company will continue to
promote body and personal care products with fragrance-driven
line extensions.

Other Products.The
Company is considering expanding its product line to include
nutritional and wellness products. Any decision to offer such
products will include consideration of the attendant risks,
including potential product liability.

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Marketing

Strategy and Product Positioning.The Company positions its products to
appeal to a relatively wide range of market categories,
demographic groups and lifestyles. The Company products
generally price at the higher end of the mass market category,
but slightly below prestige brands.

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

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

Independent Sales Force

Jafras self-employed sales force is
composed of approximately 416,000 consultants worldwide as of
December 31, 2002. Approximately 80,000 of these
consultants are in the United States and the Dominican Republic,
269,000 are in Mexico and 67,000 are in other markets. These
consultants are not agents or employees of the Company; they are
independent contractors or dealers. They purchase products
directly from the Company and sell them directly to their
customers.

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

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

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

Recruiting.The
Company believes that the lower start-up costs and policy of
providing retail discounts to consultants even on small orders
helps recruit consultants. 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 a commitment to
consultants personal and professional training, thereby
building consultants management and entrepreneurial skills.

Consultant Management and Training.To become a manager, a consultant must
sponsor a specified number of recruits and meet certain minimum
sales levels. Once a consultant becomes a manager, she is

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eligible to earn commissions on her personal
sales plus overrides on the sales of her downline consultants. A
manager continues to gain seniority in the Jafra sales force by
meeting the prescribed recruitment and sales requirements at
each level of management. At more senior levels, managers may
have several junior managers who in turn sponsor and manage
other managers and consultants. The most successful managers
have many such downline managers and consultants, and earn
commissions on their personal sales plus overrides on their
downline groups sales.


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

Income Opportunities and Recognition.Consultants earn income by purchasing
products from the Company at retail discounts and selling to
consumers at suggested retail prices. Once a consultant becomes
a manager, her compensation also includes overrides on the
wholesale value of paid sales made by herself and her recruits.
The overrides are paid to motivate and compensate the managers
to train, recruit and develop downline consultants.
Additionally, managers often perform collection efforts on the
Companys behalf as the overrides paid on a
consultants downline productivity are paid only upon the
collection of payment for the underlying product sale.

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

International Operations

The Company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.

Due to the challenging macroeconomic environment
that has effected the Companys results in the non-core
markets in which the Company operates, the Company recently
adopted a strategic plan to focus on the strengths of the core
U.S. and Mexican markets. The Company may consider plans to exit
certain non-core markets, including some or all of South
America, Thailand and Europe through either a sale or
discontinuation of their operations.

The most important markets to date are Mexico and
the United States, which represented approximately 64% and 24%,
respectively, of total 2002 consolidated sales. See Note 11
of the consolidated financial statements appearing in Item 8.
Financial Statements and Supplementary Date. The
Company has entered into foreign currency contracts to help
mitigate the risk that a potential currency devaluation in
Mexico would have on operations and liquidity. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations  Quantitative and
Qualitative Disclosures About Market Risk  Foreign
Currency Risk.

Manufacturing

The Company has a manufacturing facility in
Naucalpan, Mexico, which is near Mexico City. This facility
produces color cosmetics and most of the Companys
fragrances. Until June of 1999, the Company produced skin care
and personal use products at the Westlake Village, California
manufacturing facility. In June of 1999, the Company outsourced
the U.S. product manufacturing functions to a third-party
contractor.

The Company and the third-party contractor (the
contractor) entered into a manufacturing agreement,
dated as of June 10, 1999. 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

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an initial term of five years expiring in 2004.
Following the expiration of the initial five-year term, the
manufacturing agreement will be automatically extended for
additional one-year terms unless terminated by six months
prior written notice by either party. The manufacturing
agreement provides for price renegotiations by the contractor if
the Companys quarterly or annual purchase volume falls
below specified minimums. The manufacturing agreement requires
the contractor to maintain insurance to cover costs associated
with any product liability or product recall caused by the acts
or omissions of the contractor. In addition, the Company is
obligated to purchase materials acquired by the contractor based
upon product forecasts provided by the Company if the contractor
is unable to sell such materials to a third-party. The
contractor is solely responsible for obtaining the inventories,
manufacturing the inventories at its current location in Chino,
California, complying with applicable laws and regulations, and
performing quality assurance functions.


Beginning in 2001, the Company began
manufacturing, through a third-party, a limited number of items
in Brazil, for sale in South America.

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 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 the Companys specifications
from more than one potential supplier.

Distribution

As of December 31, 2002, the Company uses
three distribution centers in the United States and Mexico and
various other distribution centers globally. The U.S. warehouses
in Bridgeport, New Jersey and Westlake Village, California
currently stock the entire Jafra product line. In Mexico, the
Company has historically outsourced virtually all of its
distribution to third-parties. However, in January 2002, the
Company opened a distribution center in Mexico and terminated
the third-party distribution function. This distribution center
services all consultants in Mexico. Management believes that its
facilities are adequate to meet demand in its existing markets
for the foreseeable future.

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

Competition

The Company 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. Several direct sales companies compete
with the Company in sales of cosmetic products, and at least two
such competitors, Mary Kay and Avon, are substantially larger
than the Company in terms of total independent salespersons,
sales volume and resources. In addition, the Company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 the Company in terms of sales and have substantially
more resources. The Company also faces competition in recruiting
independent salespersons from other direct selling organizations
whose product lines may or may not compete with the
Companys products.

The Company believes that its senior management
team with a strong direct selling track record, motivated 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

The Companys operations do not depend to
any significant extent upon any single trademark other than the
Jafratrademark and one of its most significant line of
products, Royal Jelly, is not protected by any registered
trademark. Some of the trademarks Jafra uses, however, are
identified with and important to the

6



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##### Table of Contents



sale of its products. Some of the more important
trademarks are: Adorisse(a contemporary womens
fragrance), Eau DAromes(revitalizing fragrance
spray), JF9(a mens prestige fragrance), Legend
for Men(a mens premium fragrance), Le Moiré(a contemporary womens fragrance), and Optimeyes(eye treatment lotion). The Companys operations do not
depend to any significant extent on any single or related group
of patents, although the Company has have applied for or
received patent protection in its major markets for certain skin
creams, dispensers and product containers, nor does it rely upon
any single or related group of licenses, franchises or
concessions. The Company 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 the Company 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
relevant documentation relating to the transfer of these
trademarks to the Company has been completed. The Company has
filed the documents obtained from this former employee in those
jurisdictions in which the documentation will be accepted in
order to secure the abandonment and cancellation of this
employees applications and registrations. If the Company
is not able to secure cancellation or abandonment of the
applications and registrations in these jurisdictions, it may be
prohibited from distributing its products in these jurisdictions.

Management Information Systems

During 2001, the Company redefined its Internet
strategy and continued to develop and implement an expanded
e-commerce system. The expanded e-commerce platform became
operational in the United States during June 2001, with the
consultant adoption rate averaging 24% of order volume by year
end 2002. In Mexico, an e-commerce platform was launched during
the second half of 2001. The Company also selected a new
platform to run its core operations in the United States. The
U.S. business will replace the order entry, fulfillment,
commission and override processing and financial system software
with Enterprise Resource Planning (ERP) software from JD
Edwards. Wave one of this implementation of the financial
systems was implemented in April of 2002. Waves two and three,
which relate to the order entry and remaining commercial
systems, will be implemented in the second quarter of 2003. The
Company anticipates that this new system may be leveraged to
improve computer operations in Mexico, Puerto Rico and the
Dominican Republic during 2004.

Seasonality

The Companys net sales, as measured in
local currencies, during the fourth quarter of the year are
typically slightly higher than in the other three quarters of
the year due to seasonal holiday purchases.

Environmental Matters

The Companys operations are subject to
various federal, state, local and foreign laws or regulations
governing environmental, health and safety matters. Some of its
operations require environmental permits and controls and these
permits are subject to modification, renewal and revocation by
issuing authorities. Violations of or liabilities under
environmental laws could result in fines or penalties,
obligations to clean up contaminated properties or claims for
property damage or personal injury. The Company believes that it
is in material compliance with all such laws, regulations and
permits, and under present conditions, it does not foresee that
such laws and regulations will have a material adverse effect on
its capital expenditures, earnings or competitive position.

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Employees

As of December 31, 2002, the Company had
1,016 full-time employees, of which 267 were employed in the
United States and 749 in other countries. The Company also had
427 outside contract employees.




Item 2. Properties

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




Item 3. Legal
Proceedings

The Company is subject from time to time to
various litigation and claims arising in the ordinary course of
its business. The Company does not believe that any known
litigation or claims pending against it would, if determined in
a manner adverse to it, have a material adverse effect on its
business, financial condition or results of operations.




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

No matters were submitted to a vote of the
security holders of the Company during the fourth quarter of
2002.

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##### Table of Contents






PART II




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

There is no established public trading market for
Parent common stock (the Common Stock). The number
of holders of record of the Companys Common Stock on
March 7, 2003 was 32. On July 11, 2000, a member of
management purchased 316 shares of Common Stock for a
purchase price of $150 per share, or a total of $47,400; on
July 27, 2000, a former member of management exercised
options to purchase 158 shares of Common Stock for a
purchase price of $100 per share, or a total of $15,800, and
then sold a total of 632 shares of Common Stock back to the
Company at $210 per share, or a total of $132,720; on
August 9, 2000, certain members of management purchased an
aggregate of 4,108 shares of Common Stock for a purchase
price of $210 per share, or a total of $862,860; on
November 6, 2000, a former member of management sold
316 shares of Common Stock back to the Company at $210 per
share, or a total of $66,360; on February 10, 2001, certain
members of management purchased an aggregate of 474 shares
of Common Stock for a purchase price of $210 per share, or a
total of $99,540; on June 14, 2001, a former member of
management and a former director, sold an aggregate total of
2,563 shares of Common Stock back to the Company at $250
per share, or a total of $640,750; on September 19, 2001, a
former member of management exercised options to purchase
210 shares of Common Stock for a purchase price of $150 per
share, or a total of $31,500, and then sold a total of
526 shares of Common Stock back to the Company at $250 per
share, or a total of $131,500. All of these transactions were
exempt from the registration requirements of the Securities Act
of 1933, as amended, as either offerings to accredited investors
under Regulation D or offerings to employees under
Rule 701. See Item 12. Security Ownership of
Certain Beneficial Owners and Management. The parent has
not paid in the past, and does not expect to pay for the
foreseeable future, regular dividends on shares of its Common
Stock. The declaration and payment of future dividends, if any,
will be at the sole discretion of the Board of Directors of the
Parent, subject to the restrictions set forth in the senior
credit agreement and the Indenture for its senior subordinated
notes (the Indenture), which currently restrict the
payment of cash dividends to stockholders, and restrictions, if
any, imposed by other indebtedness outstanding from time to
time. See Item 7. Managements Discussion and
Analysis of Financial Conditions and Results of
Operations  Liquidity and Capital Resources.

9



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##### Table of Contents






Item 6. Selected Financial
Data

The following is a summary of selected financial
data of the Company (amounts in millions except for consultant
and consultant productivity data). The selected financial data
as of December 31, 2002 and 2001 and for the years ended
December 31, 2002, 2001 and 2000 are derived from the
audited financial statements which appear in Item 8.
Financial Statements and Supplementary Data. The
related selected financial data should be read in conjunction
with such financial statements and notes thereto and
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations. All other
financial data presented has been derived from audited financial
statements of the Company which are not included herein. The
financial data for the four months ended April 30, 1998
reflects the Jafra Business prior to the Acquisition and are
referred to as the Predecessor operations.

|                                                                                                                    |                                |                          |       |              |   |           |       |       |   |      |       |             |   |   |       |       |   |   |       |       |   |   |      |     | 
|------------------------------------------------------------------------------------------------------------------- | ------------------------------ | ------------------------ | ----- | ------------ | - | --------- | ----- | ----- | - | ---- | ----- | ----------- | - | - | ----- | ----- | - | - | ----- | ----- | - | - | ---- | --- | 
|                                                                                                                    |                                |                          |       |              |   |           |       |       |   |      |       | Predecessor
|                                                                                                                    |                                |                          |       |              |   |           |       |       |   |      |       |            
|                                                                                                                    |                                |                          |       |              |   |           |       |       |   |      |       | Four       
|                                                                                                                    |                                |                          |       | Eight Months |   | Months   
|                                                                                                                    |                                | Years Ended December 31, |       | Ended        |   | Ended    
|                                                                                                                    |                                |                          |       | December 31, |   | April 30,
|                                                                                                                    |                                | 2002                     |       | 2001         |   | 2000      |       | 1999  |   | 1998 |       | 1998       
|                                                                                                                    |                                |                          |       |              |   |           |       |       |   |      |       |            
|Statement of Operations Data:                                                                                       |                                |                          |       |              |   |           |       |       |   |      |       |             |   |   |       |       |   |   |       |       |   |   |      |    
|Net sales(a)                                                                                                        |                                | $                        | 391.0 |              |   | $         | 376.2 |       |   | $    | 321.2 |             |   | $ | 296.4 |       |   | $ | 174.5 |       |   | $ | 79.2 |    
|Cost of sales(b)                                                                                                    |                                |                          | 92.4  |              |   |           | 87.0  |       |   |      | 79.5  |             |   |   | 82.3  |       |   |   | 56.3  |       |   |   | 22.7 |    
|                                                                                                                    |                                |                          |       |              |   |           |       |       |   |      |       |             |   |   |       |       |   |   |       |       |   |   |      |    
|Gross profit                                                                                                        |                                |                          | 298.6 |              |   |           | 289.2 |       |   |      | 241.7 |             |   |   | 214.1 |       |   |   | 118.2 |       |   |   | 56.5 |    
|Selling, general and administrative expenses(a)                                                                     |                                |                          | 240.9 |              |   |           | 232.9 |       |   |      | 196.6 |             |   |   | 180.7 |       |   |   | 110.9 |       |   |   | 51.1 |    
|Restructuring and impairment charges(c)                                                                             |                                |                          |      |              |   |           |      |       |   |      | 2.6   |             |   |   | 4.8   |       |   |   |      |       |   |   |     |    
|Loss (gain) on sale of assets                                                                                       |                                |                          | (0.1  | )            |   |           | 0.1   |       |   |      | 0.1   |             |   |   | (1.0  | )     |   |   | 0.2   |       |   |   |     |    
|                                                                                                                    |                                |                          |       |              |   |           |       |       |   |      |       |             |   |   |       |       |   |   |       |       |   |   |      |    
|Income from operations                                                                                              |                                |                          | 57.8  |              |   |           | 56.2  |       |   |      | 42.4  |             |   |   | 29.6  |       |   |   | 7.1   |       |   |   | 5.4  |    
|Other income (expense):                                                                                             |                                |                          |       |              |   |           |       |       |   |      |       |             |   |   |       |       |   |   |       |       |   |   |      |    
|                                                                                                                    | Exchange (loss) gain, net      |                          |       | (11.2        | ) |           |       | (9.7  | ) |      |       | (11.7       | ) |   |       | 3.3   |   |   |       | (1.8  | ) |   |      | 1.4 | 
|                                                                                                                    | Interest (expense) income, net |                          |       | (11.4        | ) |           |       | (13.3 | ) |      |       | (15.7       | ) |   |       | (16.9 | ) |   |       | (11.5 | ) |   |      | 0.1 | 
|                                                                                                                    | Other income (expense), net    |                          |       | 0.1          |   |           |       | (0.1  | ) |      |       | 1.6         |   |   |       | 0.1   |   |   |       | (0.1  | ) |   |      | 0.1 | 
|                                                                                                                    |                                |                          |       |              |   |           |       |       |   |      |       |             |   |   |       |       |   |   |       |       |   |   |      |    
|Income (loss) before income taxes,
    extraordinary item and cumulative effect of accounting change                |                                |                          | 35.3  |              |   |           | 33.1  |       |   |      | 16.6  |             |   |   | 16.1  |       |   |   | (6.3  | )     |   |   | 7.0  |    
|Income tax expense                                                                                                  |                                |                          | 16.3  |              |   |           | 17.4  |       |   |      | 10.0  |             |   |   | 10.9  |       |   |   | 1.7   |       |   |   | 2.9  |    
|                                                                                                                    |                                |                          |       |              |   |           |       |       |   |      |       |             |   |   |       |       |   |   |       |       |   |   |      |    
|Income (loss) before extraordinary item and
    cumulative effect of accounting change                              |                                |                          | 19.0  |              |   |           | 15.7  |       |   |      | 6.6   |             |   |   | 5.2   |       |   |   | (8.0  | )     |   |   | 4.1  |    
|Extraordinary loss on early extinguishment of
    debt, net of income tax benefit of $0.2 in 2000 and $0.2 in 1999. |                                |                          |      |              |   |           |      |       |   |      | 0.3   |             |   |   | 0.6   |       |   |   |      |       |   |   |     |    
|                                                                                                                    |                                |                          |       |              |   |           |       |       |   |      |       |             |   |   |       |       |   |   |       |       |   |   |      |    
|Income (loss) before cumulative effect of
    accounting change                                                     |                                |                          | 19.0  |              |   |           | 15.7  |       |   |      | 6.3   |             |   |   | 4.6   |       |   |   | (8.0  | )     |   |   | 4.1  |    
|Cumulative effect of accounting change, net of
    income tax expense of $0 in 2002 and $0.1 in 2001(e)             |                                |                          | (0.2  | )            |   |           | 0.1   |       |   |      |      |             |   |   |      |       |   |   |      |       |   |   |     |    
|                                                                                                                    |                                |                          |       |              |   |           |       |       |   |      |       |             |   |   |       |       |   |   |       |       |   |   |      |    
|Net income (loss)                                                                                                   |                                | $                        | 18.8  |              |   | $         | 15.8  |       |   | $    | 6.3   |             |   | $ | 4.6   |       |   | $ | (8.0  | )     |   | $ | 4.1  |    
|                                                                                                                    |                                |                          |       |              |   |           |       |       |   |      |       |             |   |   |       |       |   |   |       |       |   |   |      |    
|Balance Sheet Data (at end of
    period):                                                                          |                                |                          |       |              |   |           |       |       |   |      |       |             |   |   |       |       |   |   |       |       |   |   |      |    
|Cash and cash equivalents                                                                                           |                                | $                        | 27.2  |              |   | $         | 6.7   |       |   | $    | 5.8   |             |   | $ | 4.9   |       |   | $ | 18.4  |       |   |   |      |    
|Working capital                                                                                                     |                                |                          | 31.9  |              |   |           | 14.2  |       |   |      | 19.2  |             |   |   | 34.2  |       |   |   | 22.9  |       |   |   |      |    
|Property and equipment, net                                                                                         |                                |                          | 60.7  |              |   |           | 59.6  |       |   |      | 51.4  |             |   |   | 50.6  |       |   |   | 56.2  |       |   |   |      |    
|Total assets                                                                                                        |                                |                          | 288.3 |              |   |           | 291.1 |       |   |      | 276.9 |             |   |   | 278.4 |       |   |   | 288.6 |       |   |   |      |    
|Total debt(d)                                                                                                       |                                |                          | 84.4  |              |   |           | 93.1  |       |   |      | 109.0 |             |   |   | 133.5 |       |   |   | 141.5 |       |   |   |      |    
|Stockholders equity                                                                                                |                                | $                        | 108.5 |              |   | $         | 96.0  |       |   | $    | 81.2  |             |   | $ | 75.8  |       |   | $ | 75.4  |       |   |   |      |    

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|                                                        |  |                          |         |              |  |           |         |      |  |      |         |             |  |   |         |   |  |   |         |   |  |   |         |  
|------------------------------------------------------- |  | ------------------------ | ------- | ------------ |  | --------- | ------- | ---- |  | ---- | ------- | ----------- |  | - | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                                        |  |                          |         |              |  |           |         |      |  |      |         | Predecessor
|                                                        |  |                          |         |              |  |           |         |      |  |      |         |            
|                                                        |  |                          |         |              |  |           |         |      |  |      |         | Four       
|                                                        |  |                          |         | Eight Months |  | Months   
|                                                        |  | Years Ended December 31, |         | Ended        |  | Ended    
|                                                        |  |                          |         | December 31, |  | April 30,
|                                                        |  | 2002                     |         | 2001         |  | 2000      |         | 1999 |  | 1998 |         | 1998       
|                                                        |  |                          |         |              |  |           |         |      |  |      |         |            
|Other Financial Data:                                   |  |                          |         |              |  |           |         |      |  |      |         |             |  |   |         |   |  |   |         |   |  |   |         |  
|Net cash provided by (used in) operating
    activities |  |                          | 43.1    |              |  |           | 30.1    |      |  |      | 32.5    |             |  |   | (1.6    | ) |  |   | 18.1    |   |  |   | (8.0    | )
|Net cash provided by (used in) investing
    activities |  |                          | (11.3   | )            |  |           | (11.7   | )    |  |      | (7.2    | )           |  |   | (3.1    | ) |  |   | (211.1  | ) |  |   | 2.6     |  
|Net cash provided by (used in) financing
    activities |  |                          | (8.7    | )            |  |           | (16.6   | )    |  |      | (23.5   | )           |  |   | (7.4    | ) |  |   | 211.7   |   |  |   | (8.8    | )
|Depreciation and amortization                           |  |                          | 5.6     |              |  |           | 7.7     |      |  |      | 7.6     |             |  |   | 7.1     |   |  |   | 5.1     |   |  |   | 1.4     |  
|Amortization of deferred financing fees                 |  |                          | 1.4     |              |  |           | 1.4     |      |  |      | 1.4     |             |  |   | 1.8     |   |  |   | 1.4     |   |  |   |        |  
|Capital expenditures                                    |  | $                        | 11.0    |              |  | $         | 11.4    |      |  | $    | 7.1     |             |  | $ | 5.8     |   |  | $ | 6.4     |   |  | $ | 6.1     |  
|Total ending consultants                                |  |                          | 416,000 |              |  |           | 369,000 |      |  |      | 310,000 |             |  |   | 292,000 |   |  |   | 247,600 |   |  |   | 220,000 |  
|Average ending consultants(f)                           |  |                          | 394,000 |              |  |           | 362,000 |      |  |      | 307,000 |             |  |   | 275,000 |   |  |   | 238,000 |   |  |   | 215,000 |  
|Consultant productivity(f)                              |  | $                        | 992     |              |  | $         | 1,039   |      |  | $    | 1,046   |             |  | $ | 1,078   |   |  | $ | 1,103   |   |  | $ | 1,103   |  




|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | In connection with the adoption of Emerging
    Issues Task Force Issue No. 01-9, Accounting for
    Consideration Given by a Vendor to a Customer or a Reseller of
    the Vendors Products, on January 1, 2002,
    reclassifications have been made to all periods ending prior to
    that date to reflect commissions on personal sales paid to
    consultants, previously reported as selling, general and
    administrative expenses, as a reduction of net sales and
    selling, general and administrative expenses. The amounts that
    have been reclassified as a reduction to net sales and selling,
    general and administrative expenses are $3.9 million,
    $3.4 million, $3.2 million, $1.9 million and
    $0.8 million for the years ended December 31, 2001,
    2000 and 1999, the eight- months ended December 31, 1998,
    the four-months ended April 30, 1998, respectively.
|   
|(b) | Cost of sales for the eight months ended
    December 31, 1998 includes a $2.7 million charge
    relating to the sale of certain inventories that were revalued
    to fair value in conjunction with the Acquisition.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|(c) | Restructuring and impairment charges include the
    following: for 2000, approximately $1.6 million of
    restructuring charges and approximately $1.0 million of asset
    impairment charges and for 1999, approximately $3.7 million of
    restructuring charges and approximately $1.1 million of
    asset impairment charges.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|(d) | Total debt consists of borrowings under the
    subordinated notes, term loan, revolving loan and unsecured
    foreign bank loan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|(e) | In connection with the adoption of Statement of
    Financial Accounting Standards (SFAS) No. 142,
    Goodwill and other Intangible Assets, on
    January 1, 2002, the Company recorded a net loss of
    $0.2 million (net of a tax effect of $0) as a cumulative
    transition adjustment to earnings. In connection with the
    adoption of SFAS No. 133, Accounting for Derivative
    Instruments and Hedging Activities, on January 1,
    2001, the Company recorded a net gain of $0.1 million (net
    of a tax effect of $0.1 million) as a cumulative transition
    adjustment to earnings.                                                                                                                                                                                                                                                                                                



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(f) | The average consultant base is calculated based
    on the total ending consultant base for each of the prior twelve
    months. A consultant is included in the total ending consultant
    base if she places an order within the past four months.
    Consultant productivity is defined as net sales in U.S. dollars
    divided by the annual average number of consultants. Full year
    1998 consultant productivity is shown for comparability.

11



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##### Table of Contents






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

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

Results of Operations

The following table represents selected
components of the Companys results of operations, in
millions of dollars and as percentages of net sales. The table
reflects the operations of the Company for the years ended
December 31, 2002, 2001 and 2000.

|                                                                                                              |  |                          |       |      |  |      |       |   |  |   |       |   |  |  |       |   |  |   |       |   |  |  |       |  
|------------------------------------------------------------------------------------------------------------- |  | ------------------------ | ----- | ---- |  | ---- | ----- | - |  | - | ----- | - |  |  | ----- | - |  | - | ----- | - |  |  | ----- | -
|                                                                                                              |  |                         
|                                                                                                              |  | Years Ended December 31,
|                                                                                                              |  |                         
|                                                                                                              |  |                          |       |      |  |     
|                                                                                                              |  | 2002                     |       | 2001 |  | 2000
|                                                                                                              |  |                          |       |      |  |     
|                                                                                                              |  |                          |       |      |  |      |       |   |  |  
|                                                                                                              |  |                          |       |      |  |      |       |   |  |  
|                                                                                                              |  |                         
|                                                                                                              |  | ($ in millions)         
|Net sales(1)                                                                                                  |  | $                        | 391.0 |      |  |      | 100.0 | % |  | $ | 376.2 |   |  |  | 100.0 | % |  | $ | 321.2 |   |  |  | 100.0 | %
|Cost of sales                                                                                                 |  |                          | 92.4  |      |  |      | 23.6  |   |  |   | 87.0  |   |  |  | 23.1  |   |  |   | 79.5  |   |  |  | 24.8  |  
|                                                                                                              |  |                          |       |      |  |      |       |   |  |   |       |   |  |  |       |   |  |   |       |   |  |  |       |  
|Gross profit                                                                                                  |  |                          | 298.6 |      |  |      | 76.4  |   |  |   | 289.2 |   |  |  | 76.9  |   |  |   | 241.7 |   |  |  | 75.2  |  
|Selling, general and administrative expenses(1)                                                               |  |                          | 240.9 |      |  |      | 61.6  |   |  |   | 232.9 |   |  |  | 62.0  |   |  |   | 196.6 |   |  |  | 61.2  |  
|Restructuring and impairment charges                                                                          |  |                          |      |      |  |      |      |   |  |   |      |   |  |  |      |   |  |   | 2.6   |   |  |  | 0.8   |  
|Loss (gain) on sale of assets                                                                                 |  |                          | (0.1  | )    |  |      | 0.0   |   |  |   | 0.1   |   |  |  | 0.0   |   |  |   | 0.1   |   |  |  | 0.0   |  
|                                                                                                              |  |                          |       |      |  |      |       |   |  |   |       |   |  |  |       |   |  |   |       |   |  |  |       |  
|Income from operations                                                                                        |  |                          | 57.8  |      |  |      | 14.8  |   |  |   | 56.2  |   |  |  | 14.9  |   |  |   | 42.4  |   |  |  | 13.2  |  
|Exchange loss, net                                                                                            |  |                          | (11.2 | )    |  |      | (2.9  | ) |  |   | (9.7  | ) |  |  | (2.6  | ) |  |   | (11.7 | ) |  |  | (3.6  | )
|Interest expense, net                                                                                         |  |                          | (11.4 | )    |  |      | (2.9  | ) |  |   | (13.3 | ) |  |  | (3.5  | ) |  |   | (15.7 | ) |  |  | (4.9  | )
|Other income (expense), net                                                                                   |  |                          | 0.1   |      |  |      | 0.0   |   |  |   | (0.1  | ) |  |  | 0.0   |   |  |   | 1.6   |   |  |  | 0.5   |  
|                                                                                                              |  |                          |       |      |  |      |       |   |  |   |       |   |  |  |       |   |  |   |       |   |  |  |       |  
|Income before income taxes, extraordinary item
    and cumulative effect of accounting change                 |  |                          | 35.3  |      |  |      | 9.0   |   |  |   | 33.1  |   |  |  | 8.8   |   |  |   | 16.6  |   |  |  | 5.2   |  
|Income tax expense                                                                                            |  |                          | 16.3  |      |  |      | 4.1   |   |  |   | 17.4  |   |  |  | 4.6   |   |  |   | 10.0  |   |  |  | 3.1   |  
|                                                                                                              |  |                          |       |      |  |      |       |   |  |   |       |   |  |  |       |   |  |   |       |   |  |  |       |  
|Income before extraordinary item and cumulative
    effect of accounting change                               |  |                          | 19.0  |      |  |      | 4.9   |   |  |   | 15.7  |   |  |  | 4.2   |   |  |   | 6.6   |   |  |  | 2.1   |  
|Extraordinary loss on early extinguishment of
    debt, net of income tax benefit of $0.2 million             |  |                          |      |      |  |      |      |   |  |   |      |   |  |  |      |   |  |   | 0.3   |   |  |  | 0.1   |  
|                                                                                                              |  |                          |       |      |  |      |       |   |  |   |       |   |  |  |       |   |  |   |       |   |  |  |       |  
|Income before cumulative effect of accounting
    change                                                      |  |                          | 19.0  |      |  |      | 4.9   |   |  |   | 15.7  |   |  |  | 4.2   |   |  |   | 6.3   |   |  |  | 2.0   |  
|Cumulative effect of accounting change, net of
    income tax expense of $0 in 2002 and $0.1 million in 2001. |  |                          | (0.2  | )    |  |      | (0.1  | ) |  |   | 0.1   |   |  |  | 0.0   |   |  |   |      |   |  |  |      |  
|                                                                                                              |  |                          |       |      |  |      |       |   |  |   |       |   |  |  |       |   |  |   |       |   |  |  |       |  
|Net income                                                                                                    |  | $                        | 18.8  |      |  |      | 4.8   | % |  | $ | 15.8  |   |  |  | 4.2   | % |  | $ | 6.3   |   |  |  | 2.0   | %
|                                                                                                              |  |                          |       |      |  |      |       |   |  |   |       |   |  |  |       |   |  |   |       |   |  |  |       |  




|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In connection with the adoption of Emerging
    Issues Task Force Issue No. 01-9, Accounting for
    Consideration Given by a Vendor to a Customer or a Reseller of
    the Vendors Products, on January 1, 2002,
    reclassifications have been made to periods ending prior to that
    date to reflect commissions on personal sales paid to
    consultants, previously reported as selling, general and
    administrative expenses, as a reduction of net sales and
    selling, general and administrative expenses. The amounts that
    have been reclassified as a reduction of net sales and selling,
    general and administrative expenses are $3.9 million and
    $3.4 million, for the years ended December 31, 2001
    and 2000, respectively.

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##### Table of Contents



The following tables represent selected
components of the consolidated results of operations by market.
Management evaluates market performance based on segment
operating income, excluding reorganization and restructuring
charges, unusual gains and losses, and amortization of goodwill
and other intangible assets. Results for subsidiaries in South
America, the Dominican Republic, and Thailand are combined and
included in the following tables under the caption All
Others. Corporate expenses, reorganization and
restructuring charges, unusual gains and losses and amortization
of goodwill and other intangible assets are included under the
caption Corporate, Unallocated and Other.

|                                             |  |                       |       |        |  |        |      |            |  |          |      |             |  |              |      |   |  |   |       |   |  |   |       |   |  |   |       |  
|-------------------------------------------- |  | --------------------- | ----- | ------ |  | ------ | ---- | ---------- |  | -------- | ---- | ----------- |  | ------------ | ---- | - |  | - | ----- | - |  | - | ----- | - |  | - | ----- | -
|                                             |  |                       |       |        |  |        |      |            |  |          |      | Corporate,  |  |             
|                                             |  |                       |       | United |  |        |      |            |  | Total    |      | Unallocated |  | Consolidated
|                                             |  | Mexico                |       | States |  | Europe |      | All Others |  | Segments |      | and Other   |  | Total       
|                                             |  |                       |       |        |  |        |      |            |  |          |      |             |  |             
|                                             |  |                      
|                                             |  | (Dollars in millions)
|Year Ended December 31, 2002                 |  |                       |       |        |  |        |      |            |  |          |      |             |  |              |      |   |  |   |       |   |  |   |       |   |  |   |       |  
|Net sales                                    |  | $                     | 251.6 |        |  | $      | 92.1 |            |  | $        | 26.9 |             |  | $            | 20.4 |   |  | $ | 391.0 |   |  | $ |      |   |  | $ | 391.0 |  
|Cost of sales                                |  |                       | 60.6  |        |  |        | 21.2 |            |  |          | 6.3  |             |  |              | 6.2  |   |  |   | 94.3  |   |  |   | (1.9  | ) |  |   | 92.4  |  
|                                             |  |                       |       |        |  |        |      |            |  |          |      |             |  |              |      |   |  |   |       |   |  |   |       |   |  |   |       |  
|Gross profit                                 |  |                       | 191.0 |        |  |        | 70.9 |            |  |          | 20.6 |             |  |              | 14.2 |   |  |   | 296.7 |   |  |   | 1.9   |   |  |   | 298.6 |  
|Selling, general and administrative expenses |  |                       | 124.8 |        |  |        | 55.3 |            |  |          | 19.4 |             |  |              | 20.3 |   |  |   | 219.8 |   |  |   | 21.1  |   |  |   | 240.9 |  
|Gain on sale of assets                       |  |                       | (0.1  | )      |  |        |     |            |  |          |     |             |  |              |     |   |  |   | (0.1  | ) |  |   |      |   |  |   | (0.1  | )
|                                             |  |                       |       |        |  |        |      |            |  |          |      |             |  |              |      |   |  |   |       |   |  |   |       |   |  |   |       |  
|Income (loss) from operations                |  | $                     | 66.3  |        |  | $      | 15.6 |            |  | $        | 1.2  |             |  | $            | (6.1 | ) |  | $ | 77.0  |   |  | $ | (19.2 | ) |  | $ | 57.8  |  
|                                             |  |                       |       |        |  |        |      |            |  |          |      |             |  |              |      |   |  |   |       |   |  |   |       |   |  |   |       |  
|Year Ended December 31, 2001                 |  |                       |       |        |  |        |      |            |  |          |      |             |  |              |      |   |  |   |       |   |  |   |       |   |  |   |       |  
|Net sales                                    |  | $                     | 247.5 |        |  | $      | 79.6 |            |  | $        | 26.4 |             |  | $            | 22.7 |   |  | $ | 376.2 |   |  | $ |      |   |  | $ | 376.2 |  
|Cost of sales                                |  |                       | 59.4  |        |  |        | 18.3 |            |  |          | 5.5  |             |  |              | 6.4  |   |  |   | 89.6  |   |  |   | (2.6  | ) |  |   | 87.0  |  
|                                             |  |                       |       |        |  |        |      |            |  |          |      |             |  |              |      |   |  |   |       |   |  |   |       |   |  |   |       |  
|Gross profit                                 |  |                       | 188.1 |        |  |        | 61.3 |            |  |          | 20.9 |             |  |              | 16.3 |   |  |   | 286.6 |   |  |   | 2.6   |   |  |   | 289.2 |  
|Selling, general and administrative expenses |  |                       | 116.8 |        |  |        | 49.7 |            |  |          | 19.1 |             |  |              | 22.2 |   |  |   | 207.8 |   |  |   | 25.1  |   |  |   | 232.9 |  
|Loss on sale of assets                       |  |                       |      |        |  |        | 0.1  |            |  |          |     |             |  |              |     |   |  |   | 0.1   |   |  |   |      |   |  |   | 0.1   |  
|                                             |  |                       |       |        |  |        |      |            |  |          |      |             |  |              |      |   |  |   |       |   |  |   |       |   |  |   |       |  
|Income (loss) from operations                |  | $                     | 71.3  |        |  | $      | 11.5 |            |  | $        | 1.8  |             |  | $            | (5.9 | ) |  | $ | 78.7  |   |  | $ | (22.5 | ) |  | $ | 56.2  |  
|                                             |  |                       |       |        |  |        |      |            |  |          |      |             |  |              |      |   |  |   |       |   |  |   |       |   |  |   |       |  
|Year Ended December 31, 2000                 |  |                       |       |        |  |        |      |            |  |          |      |             |  |              |      |   |  |   |       |   |  |   |       |   |  |   |       |  
|Net sales                                    |  | $                     | 199.8 |        |  | $      | 74.1 |            |  | $        | 26.9 |             |  | $            | 20.4 |   |  | $ | 321.2 |   |  | $ |      |   |  | $ | 321.2 |  
|Cost of sales                                |  |                       | 48.8  |        |  |        | 16.5 |            |  |          | 6.3  |             |  |              | 6.9  |   |  |   | 78.5  |   |  |   | 1.0   |   |  |   | 79.5  |  
|                                             |  |                       |       |        |  |        |      |            |  |          |      |             |  |              |      |   |  |   |       |   |  |   |       |   |  |   |       |  
|Gross profit                                 |  |                       | 151.0 |        |  |        | 57.6 |            |  |          | 20.6 |             |  |              | 13.5 |   |  |   | 242.7 |   |  |   | (1.0  | ) |  |   | 241.7 |  
|Selling, general and administrative expenses |  |                       | 86.6  |        |  |        | 46.9 |            |  |          | 20.3 |             |  |              | 19.5 |   |  |   | 173.3 |   |  |   | 23.3  |   |  |   | 196.6 |  
|Restructuring and impairment charges         |  |                       |      |        |  |        |     |            |  |          |     |             |  |              |     |   |  |   |      |   |  |   | 2.6   |   |  |   | 2.6   |  
|Loss on sale of assets                       |  |                       |      |        |  |        |     |            |  |          | 0.1  |             |  |              |     |   |  |   | 0.1   |   |  |   |      |   |  |   | 0.1   |  
|                                             |  |                       |       |        |  |        |      |            |  |          |      |             |  |              |      |   |  |   |       |   |  |   |       |   |  |   |       |  
|Income (loss) from operations                |  | $                     | 64.4  |        |  | $      | 10.7 |            |  | $        | 0.2  |             |  | $            | (6.0 | ) |  | $ | 69.3  |   |  | $ | (26.9 | ) |  | $ | 42.4  |  
|                                             |  |                       |       |        |  |        |      |            |  |          |      |             |  |              |      |   |  |   |       |   |  |   |       |   |  |   |       |  

Year Ended December 31, 2002 Compared
to Year Ended December 31, 2001

Net Sales.Net sales
for 2002 increased to $391.0 million from
$376.2 million in 2001, an increase of $14.8 million,
or 3.9%. In local currencies, net sales increased 7.6% in 2002
compared to 2001. The average number of ending consultants
worldwide increased 8.8% to approximately 394,000 consultants in
2002, an increase of 32,000 consultants over the 2001 average
number of consultants. A consultant is included in the total
ending consultant base if she places an order within the four
months immediately preceding the period end date. The average
consultant base is calculated based on the total ending number
of consultants for each of the prior twelve months. Consultant
activity decreased approximately 1.6%, with 49.0% of all
consultants considered active in 2002, compared to 49.7% in
2001. In general, consultants are considered to be active
ordering consultants if they place an order within the month.
Consultant productivity decreased 4.5% in 2002 compared to 2001,
due primarily to weaker local currencies, partially offset by
increased productivity in the

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United States subsidiary due to planned program
changes. The Company defines consultant productivity as net
sales in U.S. dollars divided by the annual average number of
consultants.


In Mexico, net sales, excluding intersegment
sales, for 2002 increased to $251.6 million from
$247.5 million in 2001, an increase of $4.1 million,
or 1.7%. In local currency, net sales in Mexico increased 5.5%
over net sales during 2001. The year-to-year increase was due to
an increase in the average number of consultants, partially
offset by reduced productivity. The reduction in productivity
was partially due to weaker average exchange rates of the
Mexican peso. In Mexico, the average number of consultants in
2002 increased to approximately 252,000, 9.9% over the 2001
average number of consultants. Consultant productivity decreased
7.5% in 2002 compared to 2001.

In the United States, net sales, excluding
intersegment sales, for 2002 increased to $92.1 million
from $79.6 million in 2001, an increase of
$12.5 million, or 15.7%. The U.S. selling market has
established two distinct selling divisions to focus on the
individual characteristics of the Hispanic Division and the
General Division. The establishment of two distinct selling
divisions allows the Company to focus on independent marketing
strategies and to provide specialized recruiting, training and
product offerings, which has contributed to the increased net
sales. Sales in the Hispanic Division increased 19.7% to
$61.2 million and sales in the General Division increased
8.6% to $30.9 million during 2002 compared to net sales in
2001. In the Hispanic Division, the year-to-year increase was
driven by increases in the number of consultants, the number of
active consultants and consultant productivity. In the General
Division, the year-to-year increase was driven by an increase in
consultant productivity, partially offset by a smaller
consultant base. In the United States, the increased
productivity was due to certain productivity-related changes in
the program during the second quarter of 2002. In the Hispanic
Division, the average number of consultants increased 12.1% to
39,000 compared to the 2001 average. Hispanic Division
consultant productivity increased 6.8% in 2002 compared to 2001
productivity. Additionally, in 2002, consultant activity
increased 6.3% in the Hispanic Division compared to 2001, with
60.7% of all consultants considered to be active in 2002. The
Hispanic Division also reported increases in the number of
leaders. A leader is defined as a consultant who sponsors a
specified number of recruits and meets certain minimum sales
levels. In the General Division, consultant productivity
increased 16.5% and the average number of consultants decreased
6.8% to approximately 29,000 consultants in 2002.

In Europe, net sales, excluding intersegment
sales, for 2002 increased to $26.9 million from
$26.4 million in 2001, an increase of $0.5 million, or
1.9%. Measured in local currencies, net sales in 2002 decreased
3.6% compared to net sales in 2001. The increase in net sales
measured in U.S. dollars was the result of the strengthening of
the euro and Swiss Franc compared to the U.S. dollar, partially
offset by a decrease in the average number of consultants, and
reduced consultant productivity in local currencies. In Europe,
the average number consultants decreased 2.6% to approximately
16,000 consultants. Consultant productivity increased 5.0% in
2002, compared to 2001, due to the strengthening of local
currencies compared to the U.S. dollar. Measured in local
currencies, consultant productivity decreased 1.1% in 2002
compared to 2001 productivity.

Gross Profit.Gross
profit in 2002 increased to $298.6 million from
$289.2 million in 2001, an increase of $9.4 million,
or 3.3%. Gross profit as a percentage of net sales (gross
margin) decreased to 76.4% from 76.9%.

In Mexico, gross margin decreased nominally to
75.9% in 2002 compared to 76.0% in 2001 due primarily to
incrementally greater charges related to the reserve for slow
moving inventory in 2002 (excluding Mexico manufacturing
operations), the weakening of the peso compared to the U.S.
dollar, partially offset by a more favorable product mix.
Excluding charges for the reserve for slow moving inventory in
2002, gross margin would have been approximately 76.3% in 2002,
compared to 76.1% in 2001. The percentage of resale sales
compared to total sales remained constant at 91.2%.

In the United States, gross margin remained
constant at 77.0% between 2002 and 2001. In 2002, sales of new
products contributed a greater gross margin compared to 2001.
This was offset by a lower gross margin contribution from
non-resale sale products. Charges for the reserve for slow
moving inventory were relatively constant between 2002 and 2001.

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In Europe, gross margin in 2002 decreased to
approximately 76.6% compared to 79.2% in 2001 primarily due to a
more aggressive product mix implemented in an effort to generate
sales.

Selling, General and Administrative Expenses.SG&A expenses in 2002 increased to
$240.9 million from $232.9 million in 2001, an
increase of $8.0 million, or 3.4%. SG&A expenses, as a
percentage of net sales, decreased to 61.6% in 2002 from 62.0%
in 2001, primarily due to the discontinuation of amortization of
goodwill and trademarks pursuant to SFAS No. 142 (See
New Accounting Pronouncements). In 2001, the Company
recorded $3.5 million of charges related to amortization of
intangible assets.

In Mexico, SG&A expenses increased to
$124.8 million in 2002, from $116.8 million in 2001.
As a percentage of net sales, SG&A expenses increased to
49.6% in 2002 compared to 47.2% in 2001. The primary factors for
the increase in SG&A expenses as a percentage of net sales
were selling expenses, variable freight expenses and
administrative expenses. Selling expenses increased due
primarily to an increase in the number of regional sales
managers. As a percentage of sales, variable freight expenses
increased 1.1% due to increased orders and higher average
packaging costs. Administrative expenses increased primarily due
an additional $3.4 million of bad debt expense in 2002,
compared to 2001, due to declining consultant liquidity as a
result of the general economic condition. Excluding the charges
for bad debt expense, administrative expense was relatively
constant as a percentage of sales in 2002 and 2001.

In the United States, SG&A expenses increased
to $55.3 million in 2002 from $49.7 million in 2001,
an increase of $5.6 million, or 11.3%. However, as a
percentage of net sales, SG&A expenses decreased to 60.0%
from 62.4% primarily due to decreases in sales promotional
expenses and administrative expenses. Sales promotional expenses
decreased as a percentage of net sales due to the mix of events.
Administrative expenses decreased as a percentage of net sales
due to an increase in net sales as most of these expenses are
fixed in nature. However, administrative expenses were
relatively constant in total. Certain other variable expenses,
such as period distribution and freight out, increased in total,
but were relatively constant as a percentage of net sales.

In Europe, SG&A expenses increased to
$19.4 million in 2002 from $19.1 million in 2001, an
increase of $0.3 million. As a percentage of net sales,
SG&A expenses decreased to 72.1% in 2002 from 72.3% in 2001.
Administrative expenses increased as a percentage of net sales
and in total due to larger charges related to the reserve for
uncollectible accounts in Italy and incrementally higher
information technology expenses in Germany in 2002 compared to
2001. The increase in administrative expenses, as a percentage
of net sales, was offset by reduced sales promotional and
override expenses, in 2002 compared to 2001.

SG&A expenses in the other selling markets
(South America, Dominican Republic and Thailand) decreased to
$20.3 million in 2002, compared to $22.2 million in
2001, primarily due to the favorable impact on expenses of
currency devaluation of the South American currencies compared
to the U.S. dollar, and decreased incremental charges related to
the reserve for uncollectible accounts in the Companys
Brazilian subsidiary in 2002 compared to 2001. SG&A expenses
in the corporate, unallocated and other categories decreased
$4.0 million in 2002, compared to 2001, primarily due to
the discontinuation of intangible amortization pursuant to SFAS
No. 142 and administrative cost savings in the
Companys corporate headquarters.

Exchange Loss.The
Companys net foreign exchange loss in 2002 was
$11.2 million compared to $9.7 million in 2001, an
increase in exchange losses of $1.5 million, or 15.5%. The
Companys foreign exchange gains and losses primarily
result from the Companys operations in Mexico and South
America. The net exchange loss has three primary elements: gains
or losses on forward currency and option contracts, unrealized
and realized gains or losses on the remeasurement of U.S.
dollar-denominated debt, and gains or losses on transactions
denominated in foreign currencies.

In 2002, the Company continued to use forward
contracts to protect against potential devaluation of the
Mexican peso by selling Mexican pesos and buying U.S. dollars.
Additionally, during 2002, the Company modified its hedging
program to include the use of foreign currency option contracts
(option contracts or options) to hedge
foreign currency exposures to the Mexican peso. In order to
execute the option contracts and to offset the current
outstanding forward contracts to sell Mexican pesos, the Company
entered into

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##### Table of Contents



forward contracts to buy Mexican pesos. The
Company purchases exchange rate put options which gives it the
right, but not the obligation, to sell Mexican pesos at a
specified U.S. dollar exchange rate (strike rate).
The option contracts provide protection in the event the Mexican
peso weakens beyond the option strike rate. In conjunction with
the put options, and as part of a zero-cost option collar
structure, the Company sold Mexican peso call options, which
give the courterparty the right, but not the obligation, to buy
Mexican pesos from the Company at a specified strike rate. The
effect of these contracts would be to limit the benefit the
Company would otherwise derive from the strengthening of the
Mexican peso beyond the strike rate.


During the year ended December 31, 2002, the
Company recognized $2.6 million of exchange losses related
to forward contracts and $0.9 million of exchange gains
related to option contracts (including the reclassification of
other comprehensive loss into exchange loss). As the Company
utilizes hedge accounting pursuant to SFAS No. 133 for
forward and option contracts to hedge certain forecasted
transactions, certain losses and gains are deferred as a
separate component of other comprehensive loss and are
recognized in income at the same time that the underlying hedged
exposure is recognized in income. As of December 31, 2001,
the Company had deferred losses of $3.7 million as a
component of other comprehensive loss. During 2002, the Company
deferred an additional $1.8 million of losses on forward
exchange contracts and $1.3 million of exchange gains on
option contracts as a component of other comprehensive loss.
During the year ended December 31, 2002, the Company
reclassified $1.6 million of losses on forward contracts
and $0.5 million of exchange gains on option contracts from
other comprehensive loss into exchange loss on the consolidated
statement of income. Additionally, during the year ended
December 31, 2002, the Company reclassified
$3.1 million of losses on forward contracts and
$0.4 million of exchange gains on option contracts from
other comprehensive loss into cost of sales in the consolidated
statements of income.

During the year ended December 31, 2002, the
Mexican peso devalued 13.5%, which resulted in a
$5.2 million loss on the remeasurement of U.S.
dollar-denominated debt, most of which was unrealized. The
Company recognized $4.3 million of other exchange losses on
other foreign currency transactions, most of which was
unrealized, primarily due to the weakening of the South American
currencies.

During 2001, the Company recognized a total of
$12.2 million of exchange losses related to forward
contracts (including the reclassification of other comprehensive
loss into exchange loss). During 2001, the Company deferred
$5.5 million of losses as a component of other
comprehensive loss, pursuant to SFAS No. 133. Of this
$5.5 million, $0.8 million was recognized as a
component of exchange loss and $1.0 million was recognized
as cost of sales, in the consolidated statements of income,
resulting in $3.7 million of exchange losses deferred as a
component of other comprehensive loss at December 31, 2001.
As the Mexican peso strengthened in 2001, the Company recognized
$2.8 million of exchange gains on the remeasurement of U.S.
dollar-denominated debt in 2001. Additionally, the Company
recognized $0.3 million of net exchange losses on other
transactions denominated in foreign currencies.

Interest Expense.Interest expense decreased to
$11.4 million in 2002 from $13.3 million in 2001, a
decrease of $1.9 million, or 14.3%. The decrease was due to
a lower debt balance, as total debt decreased approximately
$8.7 million in 2002 from 2001, and lower average interest
rates. Interest rates on Libor based borrowings decreased from
3.6% at December 31, 2001 to 3.1% at December 31, 2002.

Income Tax Expense.Income tax expense decreased to
$16.3 million in 2002 from $17.4 million in 2001, a
decrease of $1.1 million, or 6.3%. The Companys
effective income tax rate decreased to 46.4% in 2002 from 52.5%
in 2001. The reduced effective income tax rate was primarily the
result of the release of valuation allowances against certain
deferred income tax assets in the United States and the impact
of the enactment of changes in Mexicos future corporate
statutory rates on net deferred income tax liabilities partially
offset by valuation allowances against certain pretax expenses
in the United States. Excluding the impact of the release of the
valuation allowance of $2.3 million and the impact of the
enactment of changes in the Mexico rate of $1.2 million,
the effective tax rate would have been 56.4% in 2002.

Net Income.Net
income increased to $18.8 million in 2002 from $15.8
million in 2001, an increase of $3.0 million, or 19.0%. The
increase was due to a $9.4 million increase in gross
profit, a $0.2 million favorable change in loss
(gain) on sale of assets, a $1.9 million decrease in
interest expense, a $0.2 million favorable change in other
income (expense), a $1.1 million decrease in tax expense,
offset by a $8.0 million increase in

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selling, general and administrative expenses, a
$1.5 million increase in exchange loss and a
$0.2 million loss on the cumulative effect of accounting
change, compared to a $0.1 million gain on the cumulative
effect of accounting change in the prior year.


Year Ended December 31, 2001 Compared
to Year Ended December 31, 2000

Net Sales.Net sales
for 2001 increased to $376.2 million from
$321.2 million in 2000, an increase of $55.0 million,
or 17.1%. The Companys average ending number of
consultants worldwide increased 17.9% to approximately 362,000
consultants in 2001, an increase of 55,000 consultants over the
2000 average. The Companys consultant productivity
decreased 0.6% between 2001 and 2000. Consultant productivity in
Mexico increased 3.5%.

In Mexico, net sales, excluding intersegment
sales, for 2001 increased to $247.5 million from
$199.8 million in 2000, an increase of $47.7 million,
or 23.9%. Sales in Mexico in local currency increased by 22.3%
over 2000 net sales. The year-to-year increase was driven by an
increase in the average number of consultants, an increase in
consultant productivity and an increase in average consultant
branches, or leaders. Mexico defines a branch or leader as a
consultant with twelve or more active consultants in her
downline. The average number of leaders in 2001 increased 20.4%
compared to the 2000 average. In Mexico, the average number of
consultants in 2001 increased to approximately 229,000, or 19.6%
over the 2000 average.

In the United States, net sales, excluding
intersegment sales, for 2001 increased to $79.6 million
from $74.1 million in 2000, an increase of
$5.5 million, or 7.4%. During the later part of 2000, the
U.S. established two distinct selling divisions to focus on the
individual characteristics of the Hispanic Division and the
General Division. The focus on the distinct needs of the
consultants in each of the selling divisions contributed to the
overall sales increase. Net sales in the Hispanic Division
increased 8.1% and net sales in the General Division increased
6.4% compared to 2000 sales. The year-to-year increase was also
driven by an overall increase in the number of consultants and
an increase in the percentage of active consultants, partially
offset by a decrease in productivity. In the U.S., the average
number of consultants in 2001 increased to approximately 66,000,
or 7.8% above the 2000 average. The percent of ordering
consultants increased to 53.5% of all consultants, as compared
to 49.6% in 2000. Consultant productivity decreased 6.1% over
consultant productivity in 2000.

In Europe, net sales, excluding intersegment
sales, for 2001 decreased to $26.4 million from
$26.9 million in 2000, a decrease of $0.5 million, or
1.9%. The decline in net sales was primarily attributed to
unfavorable exchange rates due to the weakening of local
currency compared to the U.S. dollar. If exchange rates remained
constant between 2000 and 2001, net sales would have increased
nominally. In Europe, the average number of consultants was
relatively constant at an average of 17,000 consultants each
year.

Gross Profit.Gross
profit in 2001 increased to $289.2 million from
$241.7 million in 2000, an increase of $47.5 million,
or 19.7%. Gross profit as a percentage of sales (gross margin)
increased to 76.9% in 2001 from 75.2% in 2000.

In Mexico, gross margin improved primarily due to
reduced product costs, while prices increased in line with
inflation. During 2001, the peso strengthened 5.2% compared to
the U.S. dollar in 2000. The strengthening of the peso resulted
in reduced product costs as the Company benefited from foreign
currency gains as some inventory and components are purchased in
U.S. dollar-denominated transactions. These gains were partially
offset by derivative losses on forward contracts used to
purchase inventory and accounted for using hedge accounting.
Mexicos fourth quarter 2000 gross margin included certain
adjustments related to changes in cost accounting estimates,
totaling $3 million. These changes resulted in increased
margins of 76.3% in the fourth quarter of 2001 compared to 67.3%
in the fourth quarter of 2000 and 76.0% for the year ended
December 31, 2001 compared to 75.6% for the year ended
December 31, 2000.

In the United States, the gross margin decreased
as a result of a more aggressive promotional mix. In 2001, the
U.S. sold less regular resale items and more promotional and
non-resale items. In 2001, 53.3% of resale items sold were
promotional products, compared to 45.0% in 2000. Regular resale
items typically contribute a greater margin than promotional or
non-resale items.

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In Europe, gross margin in 2001 increased to
approximately 79.2% compared to 76.6% in 2000 primarily due to
the favorable impact of exchange rates on product costs.

Selling, General and Administrative Expenses.SG&A expenses in 2001 increased to
$232.9 million from $196.6 million in 2000, an
increase of $36.3 million, or 18.5%. SG&A expenses as a
percentage of net sales increased in 2001 to 62.0% from 61.2% in
2000.

In Mexico, SG&A expenses as a percentage of
net sales increased to 47.2% for 2001 compared to 43.3% in 2000.
The primary factors for the increase in SG&A expenses as a
percentage of net sales were sales promotional expenses,
distribution costs and administrative expenses. Sales
promotional expenses increased because there was additional
promotional activity in 2001 in an effort to generate sales.
Distribution costs increased proportionally more than sales due
to the shipment of more small packages. Administrative expense
increased primarily due to additional expenses related to
reserves for uncollectible accounts receivable. Due to declining
consultant liquidity, Mexico charged $7.7 million to bad
debt expense during 2001, of which $3.8 million was charged
during the fourth quarter.

In the United States, SG&A, as a percentage
of net sales, decreased to 62.4% from 63.3%. Selling expenses
increased proportionally more than sales due to the
implementation of the expanded e-commerce platform in 2001. In
2001, there was approximately $1.2 million of increased
incremental e-commerce related expenses. The percentage increase
in selling expenses is partially offset by a decrease in sales
promotional expense and administrative expense, as a percentage
of net sales. Expenditures on major events were scaled back,
which resulted in a decrease in sales promotional expenses, and
cost savings measures were employed in 2001 in an effort to
reduce administrative expense.

In Europe, SG&A expenses in 2001 decreased to
72.3% of net sales compared to 75.5% in 2000, primarily as a
result of the Companys repositioning and restructuring
activities in Europe in the second half of 2000.

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

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

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

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

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qualify for hedge accounting and the resulting
fair value is recorded as a component of exchange loss. Under
SFAS No. 133, the Companys use of forward contracts
and option contracts to hedge certain forecasted transactions
qualified for hedge accounting as of January 2001. Unrealized
gains and losses from such derivative instruments are deferred
as a separate component of other comprehensive income, and are
recognized in income at the same time that the underlying hedged
exposure is recognized in income. This accounting treatment
results in the matching of gains and losses from certain forward
exchange contracts with the corresponding gains and losses
generated by the underlying hedged transaction.


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

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

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

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

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

Net Income.Net
income increased to $15.8 million in 2001 from
$6.3 million in 2000, an increase of $9.5 million, or
150.8%. The increase was due to a $47.5 million increase in
gross profit, a $2.6 million decrease in restructuring and
impairment charges, a $2.0 million decrease in exchange
loss, a $2.4 million decrease in interest expense, a
$0.3 million decrease in extraordinary loss on early
extinguishment of debt, net of tax, and a $0.1 million gain
on the cumulative effect of accounting change, net of tax,
partially offset by a $36.3 million increase in selling,
general and administrative expenses, a $1.7 million
decrease in other income (expense), and a $7.4 million
increase in income tax expense.

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New Accounting Pronouncements

In June 2001, the Financial Accounting Standards
Board (FASB) approved two new statements:
SFAS No. 141, Business Combinations and
SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 141 requires combinations
entered into after June 30, 2001 to be accounted for using
the purchase method of accounting. SFAS No. 142
requires that goodwill not be amortized, but be tested for
impairment at least annually. SFAS No. 142 was
effective for fiscal years beginning after December 15,
2001 to all goodwill and other intangible assets recognized in
an entitys statement of financial position at that date,
regardless of when those assets were initially recognized. The
Company adopted SFAS No. 142 on January 1, 2002.
In accordance with such adoption, the Company identified all
reporting units in conjunction with the provisions of
SFAS No. 142 and allocated all goodwill accordingly.
Prior to June 30, 2002, the Company completed the
transitional goodwill impairment test required by
SFAS No. 142. Due to general market uncertainty in
Colombia, the Company revised its projections and recorded an
impairment loss of $0.2 million associated with its
Colombia reporting unit. The impairment loss has been recorded
as a cumulative effect of accounting change in the accompanying
consolidated statements of income. No other impairment was
identified in connection with the annual impairment test. The
changes in the carrying amount of goodwill for the year ended
December 31, 2002 were as follows (in millions):

|                                |  |        |      |        |  |        |      |        |  |              |      |   |  |   |      |   |  |   |      |  
|------------------------------- |  | ------ | ---- | ------ |  | ------ | ---- | ------ |  | ------------ | ---- | - |  | - | ---- | - |  | - | ---- | -
|                                |  | United |      |        |  |        |      | All    |  | Consolidated
|Goodwill                        |  | States |      | Mexico |  | Europe |      | Others |  | Total       
|                                |  |        |      |        |  |        |      |        |  |             
|Balance as of December 31, 2001 |  | $      | 32.2 |        |  | $      | 32.4 |        |  | $            | 5.9  |   |  | $ | 0.6  |   |  | $ | 71.1 |  
|Translation effect              |  |        |     |        |  |        | (3.9 | )      |  |              | (0.6 | ) |  |   | (0.1 | ) |  |   | (4.6 | )
|Impairment losses               |  |        |     |        |  |        |     |        |  |              |     |   |  |   | (0.2 | ) |  |   | (0.2 | )
|                                |  |        |      |        |  |        |      |        |  |              |      |   |  |   |      |   |  |   |      |  
|Balance as of December 31, 2002 |  | $      | 32.2 |        |  | $      | 28.5 |        |  | $            | 5.3  |   |  | $ | 0.3  |   |  | $ | 66.3 |  
|                                |  |        |      |        |  |        |      |        |  |              |      |   |  |   |      |   |  |   |      |  

The Companys other intangible assets
consist of trademarks. During the year ended December 31,
2002, the Company determined trademarks to have an indefinite
life and performed the transitional impairment test as required
under SFAS No. 142. Based upon the transitional and
annual test, the Company determined that there was no impairment
of trademarks. The carrying value of trademarks was
$44.6 million as of December 31, 2002.

In accordance with SFAS No. 142, the
Company discontinued amortization of goodwill and other
intangible assets with an indefinite life. A reconciliation of
previously reported net income to amounts adjusted for the
exclusion of goodwill and trademark amortization, net of the
related income tax effects, where applicable, is as follows (in
millions):

|                                   |  |                          |      |      |  |      |      |  |  |   |     | 
|---------------------------------- |  | ------------------------ | ---- | ---- |  | ---- | ---- |  |  | - | --- | 
|                                   |  |                         
|                                   |  | Years Ended December 31,
|                                   |  |                         
|                                   |  | 2002                     |      | 2001 |  | 2000
|                                   |  |                          |      |      |  |     
|Net income                         |  | $                        | 18.8 |      |  | $    | 15.8 |  |  | $ | 6.3 | 
|Goodwill amortization, net of tax  |  |                          |     |      |  |      | 1.8  |  |  |   | 1.9 | 
|Trademark amortization, net of tax |  |                          |     |      |  |      | 0.8  |  |  |   | 0.9 | 
|                                   |  |                          |      |      |  |      |      |  |  |   |     | 
|Adjusted net income                |  | $                        | 18.8 |      |  | $    | 18.4 |  |  | $ | 9.1 | 
|                                   |  |                          |      |      |  |      |      |  |  |   |     | 

In November 2001, the Emerging Issues Task Force
(EITF) issued EITF Issue No. 01-9,
Accounting for Consideration Given by a Vendor to a
Customer or a Reseller of the Vendors Products. This
new guidance provides that consideration from a vendor to a
reseller is generally presumed to be a reduction of the selling
prices of the vendors products, and, therefore, should be
characterized as a reduction of revenue when recognized in the
vendors income statement. On January 1, 2002, the
Company adopted EITF Issue No. 01-9 and reclassified
commissions paid to consultants of $3.9 million and
$3.4 million on their personal sales, previously reported
as a component of selling, general and administrative expenses,
as a reduction in net sales and selling, general and
administrative expenses for the years ended December 31,
2001 and 2000, respectively.

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On January 1, 2002, the Company adopted
SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. SFAS No. 144
supersedes SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of. SFAS No. 144 retains substantially
all of the requirements of SFAS No. 121, while
resolving certain implementation issues and addressing the
accounting for a component of a business accounted for as a
discontinued operation. SFAS No. 144 was adopted with
no significant impact on the Companys financial position
or results of operations.

In April 2002, the FASB issued SFAS No. 145,
Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical
Corrections. This Statement rescinds or modifies existing
authoritative pronouncements including FASB Statement No. 4
Reporting Gains and Losses from Extinguishment of
Debt. As a result of the issuance of
SFAS No. 145, gains and losses from extinguishment of
debt should be classified as extraordinary items only if they
meet the criteria in Accounting Principles Board
(APB) Opinion No. 30, Reporting the
Results of Operations-Reporting the Effects of Disposal of a
Segment of a business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions. Applying
the provisions of APB Opinion No. 30 will distinguish
transactions that are part of an entitys recurring
operations from those that are unusual or infrequent or that
meet the criteria for classification as an extraordinary item.
The provisions of this Statement related to the rescission of
SFAS No. 4 shall be applied in fiscal years beginning
after May 15, 2002. Any gain or loss on extinguishment of
debt that was classified as an extraordinary item in prior
periods presented that does not meet the criteria in APB Opinion
No. 30 for classification as an extraordinary item shall be
reclassified. The Company is currently evaluating the impact
that this statement may have on any potential future
extinguishments of debt. Upon adoption of
SFAS No. 145, the Company will reclassify items
previously reported as extraordinary items as a component of
operating income on the accompanying consolidated statements of
income.

In June 2002, the FASB approved
SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. This statement addresses
financial accounting and reporting for costs associated with
exit or disposal activities and nullifies EITF Issue
No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity.
The provisions of this statement are effective for exit or
disposal activities that are initiated after December 31,
2002, with early application encouraged. The Company is
currently evaluating the impact that this statement may have on
any potential future exit or disposal activities.

During 2002, the FASB issued
SFAS No. 148, Accounting for Stock Based
Compensation  Transaction and Disclosure, an
amendment to FASB Statement No. 123. This Statement
requires more extensive disclosure, including interim
disclosure, related to stock based compensation for all
companies and permits additional transition methods for
companies that elect to use the fair value method for employee
stock compensation. This statement is effective for fiscal years
ending after December 15, 2002. The Company adopted the
disclosure requirements of SFAS No. 148.

Critical Accounting Policies and
Estimates

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

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

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

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

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

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

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

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

Impairment of Long-Lived Assets and
Goodwill.Long-lived assets 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 is not recoverable, the Company will recognize an
impairment loss, measured by the future discounted cash flow
method. Goodwill is evaluated for impairment based on
SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 142 requires that goodwill not
be amortized, but be tested for impairment annually.

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Liquidity and Capital Resources

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

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

Borrowings under the senior credit agreement are
payable in quarterly installments of principal and interest
through April 30, 2004. Scheduled term loan principal
payments under the term loan facility will be approximately
$5.9 million and $2.5 million for each of the years
from 2003 through 2004, respectively. Borrowings under the
revolving credit facility (zero as of December 31, 2002)
mature on April 30, 2004. Borrowings under the senior
credit agreement currently bear interest at an annual rate of
LIBOR plus a margin of 1.625% or an alternate base rate (the
higher of the prime rate or federal funds rate plus 0.5%, plus
an applicable margin of 0.625%). The interest rate in effect at
December 31, 2002 was approximately 3.1% for the
LIBOR-based borrowings. At December 31, 2002, the Company
did not have any prime-based borrowings. If the Company had
prime-based borrowings at December 31, 2002, the rate would
have been approximately 4.9%. Borrowings under the senior credit
agreement are secured by substantially all of the assets of JCI
and Jafra S.A. Interest expense in 2002 was $11.4 million,
including approximately $1.4 million of non-cash
amortization of deferred financing fees. During 2002, cash paid
for interest was approximately $10.2 million.

Both 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. At December 31, 2002, the Company was in
compliance with all covenants. As of December 31, 2002, the
Company had irrevocable standby letters of credit outstanding
totaling $2.8 million.

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

Consents and waivers, dated June 30, 2001
and November 19, 1999, to the senior credit agreement allow
the Company to repurchase the notes in the open market from time
to time, with the aggregate purchase prices for all such notes
repurchased not to exceed $50.0 million. Aggregate
repurchases as of December 31, 2002 were $24.8 million.

As of December 31, 2002, the Company had
outstanding $84.4 million of debt, consisting of
approximately $75.2 million (face amount) of notes,
$8.4 million of term loans due under the credit agreement,
and $0.8 million of foreign bank borrowings.

During the year ended December 31, 2001,
Jafra S.A. repaid the balance remaining under a one-year term
originally due on August 16, 2001, and entered into an
unsecured foreign bank loan agreement. Under this agreement,
Jafra S.A. had the peso equivalent of $0.8 million at a
weighted average fixed interest rate of 18.5% outstanding at
December 31, 2002. Principal and interest payments are due
monthly through January 25, 2005.

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The following schedule details the payment
schedule for debt and lease obligations as of December 31,
2002:

Payments Due by Period

As of December 31, 2002


|                                           |  |                        |        |      |  |             |       |             |  |            |       |  |  |   |       |  |  |   |        | 
|------------------------------------------ |  | ---------------------- | ------ | ---- |  | ----------- | ----- | ----------- |  | ---------- | ----- |  |  | - | ----- |  |  | - | ------ | 
|Contractual Obligations                    |  | Total                  |        | 2003 |  | 2004 - 2005 |       | 2006 - 2007 |  | Thereafter
|                                           |  |                        |        |      |  |             |       |             |  |           
|                                           |  |                       
|                                           |  | (Dollars in thousands)
|11 3/4% senior subordinated notes due 2008 |  | $                      | 75,180 |      |  | $           |      |             |  | $          |      |  |  | $ |      |  |  | $ | 75,180 | 
|Term loan                                  |  |                        | 8,375  |      |  |             | 5,875 |             |  |            | 2,500 |  |  |   |      |  |  |   |       | 
|Unsecured foreign bank loan agreement      |  |                        | 828    |      |  |             | 614   |             |  |            | 214   |  |  |   |      |  |  |   |       | 
|Lease obligations                          |  | $                      | 18,848 |      |  | $           | 3,481 |             |  | $          | 7,663 |  |  | $ | 7,177 |  |  | $ | 167    | 

The Company believes, but no assurance can be
given, that its existing cash, cash flow from operations and
availability under the senior credit agreement will provide
sufficient liquidity to meet the Companys cash
requirements and working capital needs over the next year. The
Company has experienced reduced consultant liquidity in certain
foreign subsidiaries. Reduced consultant liquidity could result
in future reduced cash flows from operations, which may require
the Company to use available funds under the Senior Credit
Agreement.

Outsourcing of Manufacturing
Functions

The Company entered into a manufacturing
agreement, dated as of June 10, 1999, with a third-party
contractor (the contractor). 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 expiring in 2004. Following the expiration of the
initial five-year term, the manufacturing agreement will be
automatically extended for additional one-year terms unless
terminated by six months prior written notice by either
party. The manufacturing agreement provides for price
renegotiations by the contractor if the Companys quarterly
or annual purchase volume falls below specified minimums. The
manufacturing agreement requires the contractor to maintain
insurance to cover costs associated with any product liability
or product recall caused by the acts or omissions of the
contractor. In addition, the Company is obligated to purchase
materials acquired by the contractor based upon product
forecasts provided by the Company if the contractor is unable to
sell such materials to a third party. There have been no such
repurchases to date. The contractor is solely responsible for
obtaining the inventories, manufacturing the inventories at its
current location in Chino, California, complying with applicable
laws and regulations, and performing quality assurance functions.

During the fourth quarter of 2000, the contractor
obtained $1.0 million of advances from the Company in
exchange for an unsecured promissory note. The note bears
interest at an annual rate of 9% and is payable in monthly
installments commencing on February 15, 2001. On
April 15, 2002, the unsecured promissory note was amended
to advance an additional $0.3 million to the contractor. At
December 31, 2002, approximately $0.1 million of the
note was outstanding and was included in receivables in the
accompanying consolidated balance sheets.

Restructuring Activities

During 2001, the Company paid out approximately
$1.0 million in charges related to year 2000 repositioning
activities in Europe consisting primarily of severance costs.
During 2002, the remaining $0.2 million was paid out
against the remaining accrual.

Cash Flows

Net cash provided by operating activities was
$43.1 million in 2002, consisting of $48.0 million
provided by net income adjusted for depreciation, and other
non-cash items included in net income, less $4.9 million
used in changes in operating assets and liabilities. The
significant elements of the net cash used in changes in

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operating assets and liabilities were a
$14.3 million increase in accounts receivable, partially
offset by $5.7 million increase in prepaid expenses and
other current assets, and $1.8 million increase in other
non current assets. Net cash provided by operating activities
was $30.1 million in 2001, consisting of $36.8 million
provided by net income adjusted for depreciation, amortization,
and other non-cash items included in net income, less
$6.7 million used in changes in operating assets and
liabilities. The significant elements of the net cash used in
changes in operating assets and liabilities in 2001 were a
$15.8 million increase in accounts receivable and a
$1.0 million decrease in accounts payable and accrued
liabilities, partially offset by a reduction of
$2.8 million in prepaid expenses and other current assets
and a $7.4 million increase in income tax payable/prepaid.


Net cash used in investing activities was
$11.3 million in 2002, compared to $11.7 million in
2001, a decrease of $0.4 million. In 2002, investing
activities consisted primarily of capital expenditures of
$11.0 million, primarily in the Companys United
States and Mexico subsidiaries. A significant portion of the
2002 capital expenditures related to information technology and
production equipment. In 2001, investing activities consisted
primarily of capital expenditures of $4.5 million in the
Companys U.S. subsidiary, $6.0 million in the
Companys Mexico subsidiaries, and $0.9 million in
other subsidiaries.

Capital expenditures in 2003 are expected to be
approximately $13.0 million, comprised of approximately
$4.5 million of information technology expenditures and
$5.9 million of production equipment expenditures. These
capital expenditures will be funded by cash from operations or
borrowings under the revolving credit facility.

Net cash used in financing activities was
$8.7 million in 2002 compared to $16.6 million in
2001, a decrease of $7.9 million. In 2002, the Company made
net repayments of $6.1 million under the term loan
facility, $1.8 million under the revolving credit facility
and $0.8 million repayment of the foreign bank debt. In
2001, the Company made net repayments of $12.7 million
under the existing revolving credit facility and
$4.5 million under the existing term loan facility and paid
$0.8 million for the repurchase of common stock. In 2001,
the cash used in financing activities was partially offset by
net proceeds of $1.3 million from an unsecured foreign bank
loan agreement at Jafra S.A.

The effect of exchange rate changes on cash was
$2.6 million in 2002 compared to $1.0 million for 2001
relating to fluctuations in the exchange rate of the Mexican
peso and South American currencies, primarily the Brazilian real
and the Argentine peso.

Foreign Operations

Net sales outside of the United States aggregated
76%, 79% and 77% of the Companys total net sales for the
fiscal years 2002, 2001 and 2000, respectively. In addition, as
of December 31, 2002, international subsidiaries comprised
approximately 71% of the Companys consolidated total
assets. Accordingly, the Company has experienced and continues
to be exposed to foreign exchange risk. The Company has
implemented a hedging program to protect against potential
devaluation of the Mexican peso. See Item 7A.
Quantitative and Qualitative Disclosures About Market
Risk.

The Companys subsidiary in Mexico, Jafra
S.A. generated approximately 64% of the Companys net sales
for 2002 compared to 66% for 2001, substantially all of which
was denominated in Mexican pesos. During 2002, the peso weakened
against the U.S. dollar. Net sales in Mexico for 2002 would
have increased $9.4 million, or 3.7%, from the reported
amounts if average exchange rates in 2002 remained the same as
in 2001.

Mexico has experienced periods of high inflation
in the past and has been considered a hyperinflationary economy.
As of January 1, 1999, the Company has accounted for its
Mexican operations using the peso as its functional currency.
Because the functional currency in Mexico is the Mexican peso,
gains and losses of remeasuring debt to the U.S. dollar
from the peso are included as a component of net income. In
2002, the remeasurement of U.S. dollar-denominated debt
resulted in an exchange loss of $5.2 million, most of which
was unrealized. Jafra S.A. had $32.4 million of
U.S. dollar-denominated third-party debt and
$21.9 million of U.S. dollar-denominated intercompany
current payables as of December 31, 2002.

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The Company is also exposed to foreign exchange
risk due to its operations in South America. During 2002, most
South American currencies devalued against the U.S. dollar.
Measured in U.S. dollars, South America sales decreased 11% in
2002 compared to 2001. If currencies remained stable between
2002 and 2001, South America net sales would have increased 16%.

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 date. The euro traded on currency
exchanges and was available for non-cash transactions during the
transition period between January 1, 1999 and
January 1, 2002. During this transition period, the
existing currencies remained legal tender in the participating
countries as denominations of the euro and public and private
parties paid for goods and services using either the euro or the
participating countries existing currencies.

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

Business Trends and Initiatives

The Company has experienced sales growth in
Mexico, due primarily to increases in the number of consultants.
Additionally, the Mexico subsidiary contributes a significant
portion of the Companys consolidated net sales. In 2002,
the Companys Mexican subsidiary generated 64% of the
Companys consolidated net sales, compared to 66% in 2001
and 62% in 2000. In local currency, net sales growth was 5% in
2002, compared to 22% in 2001. The Mexico peso devalued 13%
between December 31, 2001 and December 31, 2002. The
weakening of the Mexico peso during 2002 resulted in 2% net
sales growth measured in US dollars compared to 5% sales growth
measured in local currency in 2002.

The Companys U.S. subsidiary has
experienced significant sales growth in the past two years. In
2000, the U.S. subsidiary employed a strategy to bifurcate
its operations into two distinct divisions, the Hispanic
Division and the General Division. The two distinct divisions
allow management to tailor programs and product offerings to
meet the needs of each division. In 2002, the
U.S. subsidiary also initiated certain program changes to
focus on consultant productivity. The U.S. subsidiary
contributed 24% to total 2002 net sales. U.S. net sales
increased 16% in 2002, compared to 7% in 2001 and 1% in 2000.

Due to the favorable exchange rate impact, net
sales in Europe for 2002 increased 2% compared to net sales in
2001. In local currencies, European net sales decreased in 2002
compared to 2001. Except for the favorable impact of exchange in
2002, European net sales have declined over the past three
years. Europe has also experienced declines in both the number
and productivity of consultants (except for the favorable impact
of exchange on 2002 productivity). European sales have declined
from approximately 11% of the Companys business in 1999 to
approximately 7% of the Companys business in 2002. The
Company is also considering certain plans to minimize losses in
the European markets, which may include exiting some or all of
the European markets through sale or discontinuation of
operations.

Since 1999, the Company has made significant
investments in new markets in South America. During 2002, South
American countries in which the Company operates faced
challenging macroeconomic environments. The South American
operations were unfavorably impacted by exchange rates in 2002
compared to

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2001. Net sales in South America decreased 11%
measured in U.S. dollars, but increased 16% measured in
local currencies in 2002 compared to 2001. The Companys
Brazilian subsidiarys net sales measured in
U.S. dollars increased 11% and measured in local currency
increased 40% in 2002 compared to 2001. The Company is
considering certain plans to minimize losses in the South
American markets, which may include exiting some or all of the
South American markets through sale or discontinuation of
operations.


Information Concerning Forward-Looking
Statements

This Form 10-K may contain forward-looking
statements which include assumptions about future market
conditions, operations and results. These statements are based
on current expectations and are subject to risks and
uncertainties. They are made pursuant to safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. Among
those forward-looking statements, are, without limitation,
(i) the statements in Business 
Strategy concerning (a) the Companys belief
that its market position and distribution network of
approximately 269,000 consultants in Mexico positions the
Company to continue to grow the business by capturing additional
market share, (b) the Companys belief that in the
General Division the Company will to continue to leverage
e-commerce capabilities, (c) the Companys belief that
in the Hispanic Division the Company will continue to leverage
its market position in Mexico in areas of training, recruitment
and marketing, (d) the Companys intent to continue to
stimulate sales and new consultant recruitment efforts through
recognition events, incentives, gifts and free travel for
consultants, (e) the Companys belief that new product
introductions are fundamental to the Companys direct
selling business model in that they serve to motivate
consultants and give them new and exciting products to
demonstrate and market to their clients (f) the
Companys belief that its direct selling business model
will continue to generate significant organic growth,
(g) the Company may consider plans to exit certain non-core
markets, in Thailand, and some or all of South America and
Europe through either a sale or discontinuation of their
operations; (ii) the statements in
Business  Products concerning
(a) the Companys plan to launch new products that
address skin pigmentation in 2003, (b) the Companys
consideration of expanding its product line to include
nutritional and wellness products (iii) the statements in
Business  Independent Sales Force that
the Company believes that public recognition of sales
accomplishments serves the dual purpose of identifying
successful role models and boosting consultant morale,
(iv) the statements in Business 
International Operations that the Company may consider
plans to exit certain non-core markets, including Thailand and
some or all of South America and Europe through either a sale or
discontinuation of their operations; (v) the statement in
Business  Manufacturing that finished
goods and raw materials used in the Companys products
generally are available or can be obtained to Company
specifications from more than one potential supplier;
(vi) the statement in Business 
Distribution that management believes its facilities are
adequate to meet demand in its existing markets for the
foreseeable future; (vi) the statements in
Business  Competition that the Company
believes that the senior management team with a strong direct
selling track record, motivated 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; (vii)
Business  Management Information Systems
concerning (a) the Companys expectation that waves
two and three, which relate to the order entry and remaining
commercial systems, will be implemented in the second quarter of
2003, (b) the Companys anticipation that this new
system may be leveraged to improve computer operations in
Mexico, Puerto Rico and the Dominican Republic during 2004;
(viii) 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; (ix) other statements as to
managements or the Companys expectations, intentions
and beliefs presented in Business; (x) the
statement in Properties that the Companys
properties are suitable to meet its anticipated requirements;
(xi) 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; (xii) the statement in
 Market for Registrants Common Equity and
Related Stockholder Matters that the Parent does not
expect to pay for the foreseeable future, regular dividends on
shares of its Common Stock; (xiii) the statement in
 Critical

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Accounting Policies and Estimates
concerning; (a) managements belief that the
application of accounting policies, and estimates inherently
required therein, are reasonable; (b) managements
belief that the accruals for contingencies are adequate;
(c) managements belief that it is more likely than
not that the net carrying value of the income tax carryforwards
will be realized; (xiv) the statement in
 Liquidity and Capital Resources
(a) that the Company believes that it will have sufficient
liquidity to meet its cash requirements and working capital
needs over the next year; (b) reduced consultant liquidity
could result in future reduced cash flows from operations, which
may require the Company to use available funds under the Senior
Credit Agreement; (xv) the statement in
 Cash Flows that the Company expects
capital expenditures in 2003 to be approximately
$13.0 million, (xvi) the statements in
 Business Trends and Initiatives
(a) that the Company is considering certain plans to
minimize losses in the European markets, which may include
exiting some or all of the European markets through sale or
discontinuation of operations and (b) that the Company is
considering certain plans to minimize losses in the South
American markets, which may include exiting some or all of the
South American markets through sale or discontinuation of
operations; (xvii) other statements as to managements
or the Companys expectations or beliefs presented in this
Managements Discussion and Analysis of Financial
Condition and Results of Operations.


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



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

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

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




Item 7A.     Quantitative
and Qualitative Disclosures About Market Risk

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

Interest Rate Risk

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

29



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


Debt Obligation Information at
December 31, 2002

(Amounts in U.S. dollars in
000s)


|                                                                                                 |                       |                           |   |              |   |      |   |       |   |      |   |            |  |       |   |         |  |  |   |   |  |  |   |        |   |  |   |        |  |  |   |        | 
|------------------------------------------------------------------------------------------------ | --------------------- | ------------------------- | - | ------------ | - | ---- | - | ----- | - | ---- | - | ---------- |  | ----- | - | ------- |  |  | - | - |  |  | - | ------ | - |  | - | ------ |  |  | - | ------ | 
|                                                                                                 |                       |                           |   |             
|                                                                                                 |                       | Expected Year of Maturity |   | Fair Value  
|                                                                                                 |                       |                           |   | December 31,
|                                                                                                 |                       | 2003                      |   | 2004         |   | 2005 |   | 2006  |   | 2007 |   | Thereafter |  | Total |   | 2002(1)
|                                                                                                 |                       |                           |   |              |   |      |   |       |   |      |   |            |  |       |   |        
|Senior subordinated notes, term loan, revolving
    credit facility
    and unsecured bank debt, |                       |                           |   |              |   |      |   |       |   |      |   |            |  |       |   |         |  |  |   |   |  |  |   |        |   |  |   |        |  |  |   |       
|                                                                                                 | Fixed rate (US$)      |                           | $ | 614          |   |      | $ | 214   |   |      | $ |           |  |       | $ |        |  |  | $ |  |  |  | $ | 75,180 |   |  | $ | 76,008 |  |  | $ | 77,888 | 
|                                                                                                 | Average Interest Rate |                           |   | 18.47        | % |      |   | 18.47 | % |      |   |           |  |       |   |        |  |  |   |  |  |  |   | 11.75  | % |  |   |        |  |  |   |        | 
|                                                                                                 | Variable Rate (US$)   |                           | $ | 5,875        |   |      | $ | 2,500 |   |      | $ |           |  |       | $ |        |  |  | $ |  |  |  | $ |       |   |  | $ | 8,375  |  |  | $ | 8,375  | 
|                                                                                                 | Average Interest Rate |                           |   | 3.1          | % |      |   | 3.1   | % |      |   |           |  |       |   |        |  |  |   |  |  |  |   |       |   |  |   |        |  |  |   |        | 

Debt Obligation Information at
December 31, 2001

(Amounts in U.S. dollars in
000s)


|                                                                                            |                       |                           |   |              |   |      |   |       |   |      |   |            |   |       |   |         |  |  |   |   |  |  |   |        |   |  |   |        |  |  |   |        | 
|------------------------------------------------------------------------------------------- | --------------------- | ------------------------- | - | ------------ | - | ---- | - | ----- | - | ---- | - | ---------- | - | ----- | - | ------- |  |  | - | - |  |  | - | ------ | - |  | - | ------ |  |  | - | ------ | 
|                                                                                            |                       |                           |   |             
|                                                                                            |                       | Expected Year of Maturity |   | Fair Value  
|                                                                                            |                       |                           |   | December 31,
|                                                                                            |                       | 2002                      |   | 2003         |   | 2004 |   | 2005  |   | 2006 |   | Thereafter |   | Total |   | 2001(1)
|                                                                                            |                       |                           |   |              |   |      |   |       |   |      |   |            |   |       |   |        
|Senior subordinated notes, term loan, revolving
    credit facility and unsecured bank debt |                       |                           |   |              |   |      |   |       |   |      |   |            |   |       |   |         |  |  |   |   |  |  |   |        |   |  |   |        |  |  |   |       
|                                                                                            | Fixed Rate (US$)      |                           | $ | 688          |   |      | $ | 688   |   |      | $ | 233        |   |       | $ |        |  |  | $ |  |  |  | $ | 75,180 |   |  | $ | 76,789 |  |  | $ | 82,052 | 
|                                                                                            | Average Interest Rate |                           |   | 18.66        | % |      |   | 18.66 | % |      |   | 18.66      | % |       |   |        |  |  |   |  |  |  |   | 11.75  | % |  |   |        |  |  |   |        | 
|                                                                                            | Variable Rate (US$)   |                           | $ | 5,500        |   |      | $ | 6,500 |   |      | $ | 4,300      |   |       | $ |        |  |  | $ |  |  |  | $ |       |   |  | $ | 16,300 |  |  | $ | 16,300 | 
|                                                                                            | Average Interest Rate |                           |   | 4.25         | % |      |   | 4.25  | % |      |   | 4.72       | % |       |   |        |  |  |   |  |  |  |   |       |   |  |   |        |  |  |   |        | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The Companys estimate of the fair value of
    its senior subordinated notes was based on discussions with one
    of the Companys largest bondholders, and an analysis of
    current market interest rates and the Companys credit
    rating. The Companys revolving credit facilities and the
    term loan are variable rate debt, and the interest rate spread
    paid by the Company is adjusted for changes in certain financial
    ratios of the Company. The fair value of the revolving credit
    facilities, the term loan and the unsecured bank agreement
    approximated their carrying amounts at December 31, 2002
    and 2001.

As of December 31, 2002, the Company had
$8.4 million of variable interest rate debt outstanding. If
variable interest rates had increased by 10%, the Company would
have incurred $0.1 million of additional interest expense
during 2002.

Foreign Currency Risk

The Company operates globally, with manufacturing
facilities in Mexico and distribution facilities in various
locations around the world. With the exception of most
intercompany product sales between European subsidiaries, all
intercompany product sales are denominated in U.S. dollars, as
are some expenses, including interest payments with respect to
almost all of its outstanding indebtedness. In addition, 76% of
the Companys 2002 revenue was generated in countries with
a functional currency other than the U.S. dollar. As a
result, the Companys earnings and cash flows are exposed
to fluctuations in foreign currency exchange rates.

As part of its overall strategy to reduce the
risk of adverse exchange rate fluctuations in Mexico, the
Company entered into foreign currency exchange contracts. Prior
to March 2002, the Company purchased forward exchange contracts
(forward contracts or forwards) to hedge
its foreign currency exposures to the Mexican peso. In March
2002, in accordance with previously approved policies, the
Company modified its hedging program to include the use of
foreign currency option contracts (option contracts
or options). In order to offset its current
outstanding forward contracts to sell Mexican pesos, the Company
entered into forward contracts to buy Mexican pesos. Also, on
that date, the Company entered into a series of U.S. dollar

30



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option contracts. The exchange rate at which the
option contracts may be exercised is based upon the market rate
at the time the contracts are placed. The Company purchased
exchange rate put options, which gives the Company the right,
but not the obligation, to sell Mexican pesos at a specified
U.S. dollar exchange rate (strike rate). These
contracts provide protection in the event the Mexican peso
weakens beyond the option strike rate. In conjunction with the
put options, and as part of a zero-cost option collar structure,
the Company sold Mexican peso call options, which gives the
counterparty the right, but not the obligation, to buy Mexican
pesos from the Company at a specified strike rate. The effect of
these call options would be to limit the benefit the Company
would otherwise derive from the strengthening of the Mexican
peso beyond the strike rate. As the volatility of the
U.S. dollar/ Mexican peso exchange rate increased
throughout 2002, the scope of the companys unhedged
currency risk has been increasing. Currently, the hedging
contracts the Company is acquiring, which expire in early 2004,
protect it only against 27% or greater devaluation in the
Mexican peso, a range that tends to expand with increased
volatility in the U.S. dollar/ Mexican peso rate such as
has occurred during 2002. Consequently, the existing zero-cost
collars will not protect the Company against
(i) fluctuations in exchange rates within this expanding
range or (ii) against a prolonged, gradual decline in the
value of the Mexican peso against the U.S. dollar.


The Company places forward contracts and option
contracts based on forecasted U.S. dollar cash outflows
from Jafra S.A. over a rolling twelve-month period and does not
hedge transactions that are not included in the twelve-month
forecast on the date the forward contract is initiated. As a
matter of policy, the Company does not hold or issue forward
contracts or option contracts for trading or speculative
purposes, nor does it enter into contracts or agreements
containing embedded derivative features nor is the
Company a party to leveraged derivatives. The Company regularly
monitors its foreign currency exposures and ensures that
contract amounts do not exceed the amounts of the underlying
exposures. In addition, as the Company generally purchases
hedging instruments on a rolling twelve-month basis, there can
be no assurance that instruments protecting it to the same or a
similar extent will be available in the future on reasonable
terms, if at all. Unprotected declines in the value of the
Mexican peso against the U.S. dollar will adversely affect
the Companys ability to pay its dollar-denominated
expenses.

Prior to adoption of SFAS No. 133, the
forward contracts the Company utilized did not qualify for hedge
accounting under the applicable accounting standards, and
accordingly such instruments were marked-to-market with gains
and losses included as a component of exchange loss in the
statements of income for the year ended December 31, 2000.
However, under SFAS No. 133, the Companys use of
forward and option contracts to hedge certain forecasted
transactions does qualify for hedge accounting. Gains and losses
from such derivative instruments arising subsequent to
January 1, 2001 are deferred as a separate component of
other comprehensive loss, and are recognized in income at the
same time that the underlying hedged exposure is recognized in
income. This accounting treatment results in the matching of
gains and losses from such forward and option contracts with the
corresponding gains and losses generated by the underlying
hedged transactions. Under SFAS No. 133, certain of
the Companys forward and option contracts do not qualify
for hedge accounting and, therefore, are remeasured based on
fair value, with gains and losses included as a component of net
income. As of December 31, 2002, the Company had no
outstanding forward contracts. As of December 31, 2002, the
fair value of the option contracts is included in other
receivables in current assets in the accompanying consolidated
balance sheets.

The outstanding foreign currency option contracts
had a notional value denominated in Mexican pesos of
$523,000,000 in put and call positions at December 31, 2002
and mature at various dates through December 31, 2003. The
outstanding foreign currency forward contracts had notional
values denominated in Mexican pesos of $688,873,000 at
December 31, 2001 and matured in 2002. Notional amounts do
not quantify the Companys market or credit exposure or
represent the Companys assets or liabilities, but are used
in the calculation of cash settlements under the contracts.

31



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The following table provides information about
the details of the Companys option contracts as of
December 31, 2002 (in thousands):

|                                                   |  |             |         |                |  |                 |             |               |  |   |      |   |  |  |                | 
|-------------------------------------------------- |  | ----------- | ------- | -------------- |  | --------------- | ----------- | ------------- |  | - | ---- | - |  |  | -------------- | 
|                                                   |  | Coverage in |         |                |  |                 |             |              
|                                                   |  | Mexican     |         | Average Strike |  | Fair Value in   |             |              
|Foreign Currency                                   |  | Pesos       |         | Price          |  | U.S. Dollars(1) |             | Maturity Date
|                                                   |  |             |         |                |  |                 |             |              
|At December, 2002:                                 |  |             |         |                |  |                 |             |               |  |   |      |   |  |  |                | 
|Purchased puts (Company may sell peso/buy USD)     |  |             |         |                |  |                 |             |               |  |   |      |   |  |  |                | 
|Mexican peso                                       |  | $           | 149,000 |                |  |                 | 10.31-10.48 |               |  | $ | (113 | ) |  |  | Jan.-Mar. 2003 | 
|Mexican peso                                       |  |             | 100,000 |                |  |                 | 11.05-12.19 |               |  |   | 77   |   |  |  | Apr.-June 2003 | 
|Mexican peso                                       |  |             | 150,000 |                |  |                 | 11.76-12.79 |               |  |   | 131  |   |  |  | July-Aug 2003  | 
|Mexican peso                                       |  |             | 124,000 |                |  |                 | 12.51-12.91 |               |  |   | 21   |   |  |  | Oct.-Dec. 2003 | 
|                                                   |  |             |         |                |  |                 |             |               |  |   |      |   |  |  |                | 
|                                                   |  | $           | 523,000 |                |  |                 |             |               |  | $ | 116  |   |  |  |                | 
|                                                   |  |             |         |                |  |                 |             |               |  |   |      |   |  |  |                | 
|Written calls (Counterparty may buy peso/sell USD) |  |             |         |                |  |                 |             |               |  |   |      |   |  |  |                | 
|Mexican peso                                       |  | $           | 149,000 |                |  |                 | 9.01-9.02   |               |  | $ | (207 | ) |  |  | Jan.-Mar. 2003 | 
|Mexican peso                                       |  |             | 100,000 |                |  |                 | 9.50-9.84   |               |  |   | (144 | ) |  |  | Apr.-June 2003 | 
|Mexican peso                                       |  |             | 150,000 |                |  |                 | 9.69-10.19  |               |  |   | (112 | ) |  |  | July-Aug 2003  | 
|Mexican peso                                       |  |             | 124,000 |                |  |                 | 10.15-10.19 |               |  |   | (55  | ) |  |  | Oct.-Dec. 2003 | 
|                                                   |  |             |         |                |  |                 |             |               |  |   |      |   |  |  |                | 
|                                                   |  | $           | 523,000 |                |  |                 |             |               |  | $ | (518 | ) |  |  |                | 
|                                                   |  |             |         |                |  |                 |             |               |  |   |      |   |  |  |                | 




|    |                                                                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The Fair Value of the option contracts presented
    above, an unrealized loss of $402,000 at December 31, 2002,
    represents the carrying value and was recorded in other
    receivables in the consolidated balance sheets.

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

December 31, 2001:

|                                |  |                  |         |          |  |               |          |                 |  |  |       |  |  |   |       |  
|------------------------------- |  | ---------------- | ------- | -------- |  | ------------- | -------- | --------------- |  |  | ----- |  |  | - | ----- | -
|                                |  | Forward Position |         |          |  | Weighted      |          |                
|                                |  | In Mexican       |         | Maturity |  | Average       |          | Fair Value in  
|Foreign Currency                |  | Pesos(1)         |         | Date     |  | Contract Rate |          | U.S. Dollars(1)
|                                |  |                  |         |          |  |               |          |                
|Buy US dollar/sell Mexican peso |  | $                | 108,715 |          |  |               | 1/31/02  |                 |  |  | 10.19 |  |  | $ | 1,128 |  
|Sell Mexican peso/buy US dollar |  |                  | (20,000 | )        |  |               | 1/31/02  |                 |  |  | 9.35  |  |  |   | (34   | )
|Buy US dollar/sell Mexican peso |  |                  | 71,787  |          |  |               | 2/28/02  |                 |  |  | 10.26 |  |  |   | 756   |  
|Sell Mexican peso/buy US dollar |  |                  | (20,000 | )        |  |               | 2/28/02  |                 |  |  | 9.47  |  |  |   | (48   | )
|Buy US dollar/sell Mexican peso |  |                  | 94,371  |          |  |               | 3/27/02  |                 |  |  | 10.46 |  |  |   | 1,102 |  
|Sell Mexican peso/buy US dollar |  |                  | (40,000 | )        |  |               | 3/27/02  |                 |  |  | 9.48  |  |  |   | (80   | )
|Buy US dollar/sell Mexican peso |  |                  | 85,000  |          |  |               | 4/30/02  |                 |  |  | 10.23 |  |  |   | 748   |  
|Sell Mexican peso/buy US dollar |  |                  | (30,000 | )        |  |               | 4/30/02  |                 |  |  | 9.62  |  |  |   | (84   | )
|Buy US dollar/sell Mexican peso |  |                  | 81,000  |          |  |               | 5/31/02  |                 |  |  | 10.11 |  |  |   | 559   |  
|Sell Mexican peso/buy US dollar |  |                  | (25,000 | )        |  |               | 5/31/02  |                 |  |  | 9.71  |  |  |   | (75   | )
|Buy US dollar/sell Mexican peso |  |                  | 80,000  |          |  |               | 6/28/02  |                 |  |  | 9.95  |  |  |   | 375   |  
|Sell Mexican peso/buy US dollar |  |                  | (30,000 | )        |  |               | 6/28/02  |                 |  |  | 9.78  |  |  |   | (88   | )
|Buy US dollar/sell Mexican peso |  |                  | 48,000  |          |  |               | 7/31/02  |                 |  |  | 10.07 |  |  |   | 242   |  
|Buy US dollar/sell Mexican peso |  |                  | 100,000 |          |  |               | 8/30/02  |                 |  |  | 10.05 |  |  |   | 410   |  
|Buy US dollar/sell Mexican peso |  |                  | 45,000  |          |  |               | 9/30/02  |                 |  |  | 10.09 |  |  |   | 169   |  
|Buy US dollar/sell Mexican peso |  |                  | 110,000 |          |  |               | 10/31/02 |                 |  |  | 10.09 |  |  |   | 338   |  
|Buy US dollar/sell Mexican peso |  |                  | 30,000  |          |  |               | 11/29/02 |                 |  |  | 10.27 |  |  |   | 122   |  
|                                |  |                  |         |          |  |               |          |                 |  |  |       |  |  |   |       |  
|                                |  | $                | 688,873 |          |  |               |          |                 |  |  |       |  |  | $ | 5,540 |  
|                                |  |                  |         |          |  |               |          |                 |  |  |       |  |  |   |       |  




|    |                                                                                                                                                                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The Fair Value of the forward positions presented
    above, an unrealized loss of $5,540,000 at December 31,
    2001 represents the carrying value of the forward contracts and
    was recorded in accrued liabilities in the accompanying
    consolidated balance sheets.

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##### Table of Contents



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

Based upon the outstanding option contracts at
December 31, 2002, if the peso to U.S. dollar exchange
rate strengthened by 10%, a $2.5 million foreign currency
loss on the settlement of option contracts would result.
However, gains would be realized on the Companys
underlying hedged transactions.

The Companys Mexican subsidiary, Jafra S.A.
had U.S. dollar-denominated debt of $32.4 million and
$35.6 million at December 31, 2002 and 2001,
respectively. During 2002, the value of the peso to the
U.S. dollar decreased by 13.5%, and Jafra S.A.
incurred a $5.2 million foreign currency transaction loss
related to the remeasurement and repayment of
U.S. dollar-denominated debt.

Based upon the $32.4 million of outstanding
debt at December 31, 2002, a 10% decline in the peso to
U.S. dollar exchange rate would result in a $3.2 million
foreign currency exchange loss.

33



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##### Table of Contents






Item 8. Financial Statements and
Supplementary Data

INDEX TO FINANCIAL STATEMENTS AND FINANCIAL
STATEMENT SCHEDULES*

|                                                                                                         |                                                                                                                |      |     |    | 
|-------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------- | ---- | --- | -- | 
|                                                                                                         |                                                                                                                | Page
|                                                                                                         |                                                                                                                |     
|Consolidated Financial Statements 
    CDRJ Investments (Lux) S.A. and Subsidiaries                     |                                                                                                                |      |     |   
|                                                                                                         | Independent Auditors Reports                                                                                  |      |     | 35 | 
|                                                                                                         | Consolidated Balance Sheets  As of
    December 31, 2002 and 2001                                             |      |     | 37 | 
|                                                                                                         | Consolidated Statements of Income  For
    the years ended December 31, 2002 , 2001 and 2000                  |      |     | 38 | 
|                                                                                                         | Consolidated Statements of Stockholders
    Equity  For the years ended December 31, 2002,
    2001 and 2000 |      |     | 39 | 
|                                                                                                         | Consolidated Statements of Cash Flows 
    For the years ended December 31, 2002, 2001 and 2000               |      |     | 40 | 
|                                                                                                         | Notes to Consolidated Financial Statements                                                                     |      |     | 41 | 
|                                                                                                        
|Consolidated Financial Statements 
    Jafra Cosmetics International, Inc. and Subsidiaries             |                                                                                                                |      |     |   
|                                                                                                         | Independent Auditors Reports                                                                                  |      |     | 63 | 
|                                                                                                         | Consolidated Balance Sheets  As of
    December 31, 2002 and 2001                                             |      |     | 65 | 
|                                                                                                         | Consolidated Statements of Income  For
    the years ended December 31, 2002, 2001 and 2000                   |      |     | 66 | 
|                                                                                                         | Consolidated Statements of Stockholders
    Equity  For the years ended December 31, 2002,
    2001 and 2000 |      |     | 67 | 
|                                                                                                         | Consolidated Statements of Cash Flows 
    For the years ended December 31, 2002, 2001 and 2000               |      |     | 68 | 
|                                                                                                         | Notes to Consolidated Financial Statements                                                                     |      |     | 69 | 
|                                                                                                        
|Consolidated Financial Statements 
    Jafra Cosmetics International, S.A. de C.V. and
    Subsidiaries |                                                                                                                |      |     |   
|                                                                                                         | Independent Auditors Reports                                                                                  |      |     | 86 | 
|                                                                                                         | Consolidated Balance Sheets  As of
    December 31, 2002 and 2001                                             |      |     | 88 | 
|                                                                                                         | Consolidated Statements of Income  For
    the years ended December 31, 2002, 2001 and 2000                   |      |     | 89 | 
|                                                                                                         | Consolidated Statements of Stockholders
    Equity  For the years ended December 31, 2002,
    2001 and 2000 |      |     | 90 | 
|                                                                                                         | Consolidated Statements of Cash Flows 
    For the years ended December 31, 2002, 2001 and 2000               |      |     | 91 | 
|                                                                                                         | Notes to Consolidated Financial Statements                                                                     |      |     | 92 | 
|Schedule II  Valuation and
    Qualifying Accounts                                                      |                                                                                                                |      | 107 |   



---



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

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##### Table of Contents



INDEPENDENT AUDITORS REPORT

To the Board of Directors and Stockholders of

CDRJ Investments (Lux) S.A.


Luxembourg


We have audited the accompanying consolidated
balance sheet of CDRJ Investments (Lux) S.A. and subsidiaries
(the Company) as of December 31, 2001, and the
related consolidated statements of income, stockholders
equity, and cash flows for each of the two years in the period
ended December 31, 2001. These financial statements and the
financial statement schedule are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements and the financial
statement schedule based on our audits.

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

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

DELOITTE & TOUCHE, LLP

Los Angeles, California

March 6, 2002 (February 24, 2003, as

 to paragraphs 21 and 22 of Note 2)


35



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##### Table of Contents



INDEPENDENT AUDITORS REPORT

To the Board of Directors and Stockholders of

CDRJ Investments (Lux) S.A.


Luxembourg


We have audited the accompanying consolidated
balance sheets of CDRJ Investments (Lux) S.A. and subsidiaries
(the Company) as of December 31, 2002, and the
related consolidated statement of income, stockholders
equity, and cash flows for the year then ended. Our audit also
included the financial statement schedule for the year ended
December 31, 2002 listed at Item 15(a)(2). These
financial statements and schedule are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements and schedule based on our
audit.

We conducted our audit in accordance with
auditing standards generally accepted in the United States.
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, such consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of CDRJ Investments (Lux) S.A.
and subsidiaries as of December 31, 2002, and the results
of their operations and their cash flows for the year then
ended, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related
financial statement schedule for the year ended
December 31, 2002, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.

As discussed in Note 2 to the consolidated
financial statements, effective January 1, 2002, the
Company adopted Statement of Financial Accounting Standards
No. 142.



| |                       
| | ----------------------
| | /s/ Ernst & Young, LLP

Los Angeles, California

February 21, 2003


36



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##### Table of Contents



CDRJ INVESTMENTS (LUX) S.A. AND
SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)


ASSETS

|                                     |                                                                                                                              |                            |        |              |         |  |        |        |         | 
|------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------ | ------------ | ------- |  | ------ | ------ | ------- | 
|                                     |                                                                                                                              | December 31,               |        | December 31,
|                                     |                                                                                                                              | 2002                       |        | 2001        
|                                     |                                                                                                                              |                            |        |             
|Current assets:                      |                                                                                                                              |                            |        |              |         |  |        |       
|                                     | Cash and cash equivalents                                                                                                    |                            | $      | 27,206       |         |  | $      | 6,748  |        
|                                     | Receivables, less allowances for doubtful
    accounts of $8,396 in 2002 and $7,267 in 2001                                  |                            |        | 41,126       |         |  |        | 43,898 |        
|                                     | Inventories                                                                                                                  |                            |        | 35,286       |         |  |        | 40,515 |        
|                                     | Prepaid income taxes                                                                                                         |                            |        | 258          |         |  |        |       |        
|                                     | Prepaid expenses and other current assets                                                                                    |                            |        | 4,977        |         |  |        | 7,851  |        
|                                     | Deferred income taxes                                                                                                        |                            |        |             |         |  |        | 55     |        
|                                     |                                                                                                                              |                            |        |              |         |  |        |       
|                                     |                                                                                                                              | Total current assets       |        |              | 108,853 |  |        |        | 99,067  | 
|Property and equipment, net          |                                                                                                                              |                            | 60,722 |              |         |  | 59,598 |       
|Other assets:                        |                                                                                                                              |                            |        |              |         |  |        |       
|                                     | Goodwill                                                                                                                     |                            |        | 66,305       |         |  |        | 71,148 |        
|                                     | Trademarks                                                                                                                   |                            |        | 44,570       |         |  |        | 50,560 |        
|                                     | Deferred financing fees and other, net                                                                                       |                            |        | 7,840        |         |  |        | 10,763 |        
|                                     |                                                                                                                              |                            |        |              |         |  |        |       
|                                     |                                                                                                                              | Total                      |        | $            | 288,290 |  |        | $      | 291,136 | 
|                                     |                                                                                                                              |                            |        |              |         |  |        |       
|LIABILITIES AND STOCKHOLDERS EQUITY
|Current liabilities:                 |                                                                                                                              |                            |        |              |         |  |        |       
|                                     | Current portion of long-term debt                                                                                            |                            | $      | 6,489        |         |  | $      | 6,188  |        
|                                     | Accounts payable                                                                                                             |                            |        | 18,636       |         |  |        | 26,516 |        
|                                     | Accrued liabilities                                                                                                          |                            |        | 44,824       |         |  |        | 40,916 |        
|                                     | Income taxes payable                                                                                                         |                            |        | 4,939        |         |  |        | 7,130  |        
|                                     | Deferred income taxes                                                                                                        |                            |        | 2,073        |         |  |        | 4,094  |        
|                                     |                                                                                                                              |                            |        |              |         |  |        |       
|                                     |                                                                                                                              | Total current liabilities  |        |              | 76,961  |  |        |        | 84,844  | 
|Long-term debt                       |                                                                                                                              |                            | 77,894 |              |         |  | 86,901 |       
|Deferred income taxes                |                                                                                                                              |                            | 21,186 |              |         |  | 20,311 |       
|Other long-term liabilities          |                                                                                                                              |                            | 3,787  |              |         |  | 3,088  |       
|                                     |                                                                                                                              |                            |        |              |         |  |        |       
|                                     |                                                                                                                              | Total liabilities          |        |              | 179,828 |  |        |        | 195,144 | 
|                                     |                                                                                                                              |                            |        |              |         |  |        |       
|Commitments and contingencies        |                                                                                                                              |                            |       |              |         |  |       |       
|Stockholders equity:                |                                                                                                                              |                            |        |              |         |  |        |       
|                                     | Common stock, par value $2.00; authorized,
    1,020,000 shares; issued and outstanding,
    831,888 shares in 2002 and 2001 |                            |        | 1,664        |         |  |        | 1,664  |        
|                                     | Additional paid-in capital                                                                                                   |                            |        | 81,921       |         |  |        | 81,921 |        
|                                     | Retained earnings                                                                                                            |                            |        | 37,145       |         |  |        | 18,373 |        
|                                     | Accumulated other comprehensive loss                                                                                         |                            |        | (12,268      | )       |  |        | (5,966 | )      
|                                     |                                                                                                                              |                            |        |              |         |  |        |       
|                                     |                                                                                                                              | Total stockholders equity |        |              | 108,462 |  |        |        | 95,992  | 
|                                     |                                                                                                                              |                            |        |              |         |  |        |       
|                                     |                                                                                                                              | Total                      |        | $            | 288,290 |  |        | $      | 291,136 | 
|                                     |                                                                                                                              |                            |        |              |         |  |        |       

See accompanying notes to consolidated financial
statements.

37



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##### Table of Contents



CDRJ INVESTMENTS (LUX) S.A. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In thousands)


|                                                                                                    |                       |                          |         |         |         |      |         |         |         |   |         |         |         | 
|--------------------------------------------------------------------------------------------------- | --------------------- | ------------------------ | ------- | ------- | ------- | ---- | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                                                                                                    |                       |                         
|                                                                                                    |                       | Years Ended December 31,
|                                                                                                    |                       |                         
|                                                                                                    |                       | 2002                     |         | 2001    |         | 2000
|                                                                                                    |                       |                          |         |         |         |     
|Net sales                                                                                           |                       | $                        | 390,978 |         |         | $    | 376,153 |         |         | $ | 321,228 |        
|Cost of sales                                                                                       |                       |                          | 92,434  |         |         |      | 86,996  |         |         |   | 79,559  |        
|                                                                                                    |                       |                          |         |         |         |      |         |         |         |   |         |        
|                                                                                                    |                       | Gross profit             |         |         | 298,544 |      |         |         | 289,157 |   |         |         | 241,669 | 
|Selling, general and administrative expenses                                                        |                       |                          | 240,869 |         |         |      | 232,865 |         |         |   | 196,561 |        
|Restructuring and impairment charges                                                                |                       |                          |        |         |         |      |        |         |         |   | 2,626   |        
|Loss (gain) on sale of assets                                                                       |                       |                          | (76     | )       |         |      | 69      |         |         |   | 150     |        
|                                                                                                    |                       |                          |         |         |         |      |         |         |         |   |         |        
|                                                                                                    |                       | Income from operations   |         |         | 57,751  |      |         |         | 56,223  |   |         |         | 42,332  | 
|Other income (expense):                                                                             |                       |                          |         |         |         |      |         |         |         |   |         |        
|                                                                                                    | Exchange loss, net    |                          |         | (11,148 | )       |      |         | (9,658  | )       |   |         | (11,652 | )      
|                                                                                                    | Interest expense, net |                          |         | (11,437 | )       |      |         | (13,308 | )       |   |         | (15,659 | )      
|                                                                                                    | Other, net            |                          |         | 119     |         |      |         | (123    | )       |   |         | 1,563   |        
|                                                                                                    |                       |                          |         |         |         |      |         |         |         |   |         |        
|Income before income taxes, extraordinary item
    and cumulative effect of accounting change       |                       |                          | 35,285  |         |         |      | 33,134  |         |         |   | 16,584  |        
|Income tax expense                                                                                  |                       |                          | 16,269  |         |         |      | 17,420  |         |         |   | 9,934   |        
|                                                                                                    |                       |                          |         |         |         |      |         |         |         |   |         |        
|Income before extraordinary item and cumulative
    effect of accounting change                     |                       |                          | 19,016  |         |         |      | 15,714  |         |         |   | 6,650   |        
|Extraordinary loss on early extinguishment of
    debt, net of income tax benefit of $195           |                       |                          |        |         |         |      |        |         |         |   | 315     |        
|                                                                                                    |                       |                          |         |         |         |      |         |         |         |   |         |        
|Income before cumulative effect of accounting
    change                                            |                       |                          | 19,016  |         |         |      | 15,714  |         |         |   | 6,335   |        
|Cumulative effect of accounting change, net of
    income tax expense of $0 in 2002 and $82 in 2001 |                       |                          | (244    | )       |         |      | 126     |         |         |   |        |        
|                                                                                                    |                       |                          |         |         |         |      |         |         |         |   |         |        
|Net income                                                                                          |                       | $                        | 18,772  |         |         | $    | 15,840  |         |         | $ | 6,335   |        
|                                                                                                    |                       |                          |         |         |         |      |         |         |         |   |         |        

See accompanying notes to consolidated financial
statements.

38



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##### Table of Contents



CDRJ INVESTMENTS (LUX) S.A. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY

(In thousands, except for shares)


|                                          |                                                                           |                            |  |         |         |        |   |         |         |        |  |         |         |  |   |        |        |  |  |         |         |  |   |        |        | 
|----------------------------------------- | ------------------------------------------------------------------------- | -------------------------- |  | ------- | ------- | ------ | - | ------- | ------- | ------ |  | ------- | ------- |  | - | ------ | ------ |  |  | ------- | ------- |  | - | ------ | ------ | 
|                                          |                                                                           |                           
|                                          |                                                                           | Years Ended December 31,  
|                                          |                                                                           |                           
|                                          |                                                                           |                            |  |         |         |       
|                                          |                                                                           | 2002                       |  | 2001    |         | 2000  
|                                          |                                                                           |                            |  |         |         |       
|                                          |                                                                           | Shares                     |  | Amount  |         | Shares |   | Amount  |         | Shares |  | Amount 
|                                          |                                                                           |                            |  |         |         |        |   |         |         |        |  |        
|Common Stock:                             |                                                                           |                            |  |         |         |        |   |         |         |        |  |         |         |  |   |        |        |  |  |         |         |  |   |       
|                                          | Balance, beginning of year                                                |                            |  | 831,888 |         |        | $ | 1,664   |         |        |  | 834,293 |         |  | $ | 1,669  |        |  |  | 830,659 |         |  | $ | 1,661  |       
|                                          | Issuance of common stock                                                  |                            |  |        |         |        |   |        |         |        |  | 474     |         |  |   | 1      |        |  |  | 4,424   |         |  |   | 9      |       
|                                          | Exercise of stock options                                                 |                            |  |        |         |        |   |        |         |        |  | 210     |         |  |   |       |        |  |  | 158     |         |  |   | 1      |       
|                                          | Repurchase of common stock                                                |                            |  |        |         |        |   |        |         |        |  | (3,089  | )       |  |   | (6     | )      |  |  | (948    | )       |  |   | (2     | )     
|                                          |                                                                           |                            |  |         |         |        |   |         |         |        |  |         |         |  |   |        |        |  |  |         |         |  |   |       
|                                          | Balance, end of year                                                      |                            |  | 831,888 |         |        |   | 1,664   |         |        |  | 831,888 |         |  |   | 1,664  |        |  |  | 834,293 |         |  |   | 1,669  |       
|                                          |                                                                           |                            |  |         |         |        |   |         |         |        |  |         |         |  |   |        |        |  |  |         |         |  |   |       
|Additional Paid-in Capital:               |                                                                           |                            |  |         |         |        |   |         |         |        |  |         |         |  |   |        |        |  |  |         |         |  |   |       
|                                          | Balance, beginning of year                                                |                            |  |         |         |        |   | 81,921  |         |        |  |         |         |  |   | 82,128 |        |  |  |         |         |  |   | 81,381 |       
|                                          | Issuance of common stock                                                  |                            |  |         |         |        |   |        |         |        |  |         |         |  |   | 99     |        |  |  |         |         |  |   | 912    |       
|                                          | Exercise of stock options                                                 |                            |  |         |         |        |   |        |         |        |  |         |         |  |   | 52     |        |  |  |         |         |  |   | 32     |       
|                                          | Repurchase of common stock                                                |                            |  |         |         |        |   |        |         |        |  |         |         |  |   | (358   | )      |  |  |         |         |  |   | (197   | )     
|                                          |                                                                           |                            |  |         |         |        |   |         |         |        |  |         |         |  |   |        |        |  |  |         |         |  |   |       
|                                          | Balance, end of year                                                      |                            |  |         |         |        |   | 81,921  |         |        |  |         |         |  |   | 81,921 |        |  |  |         |         |  |   | 82,128 |       
|                                          |                                                                           |                            |  |         |         |        |   |         |         |        |  |         |         |  |   |        |        |  |  |         |         |  |   |       
|Retained Earnings:                        |                                                                           |                            |  |         |         |        |   |         |         |        |  |         |         |  |   |        |        |  |  |         |         |  |   |       
|                                          | Balance, beginning of year                                                |                            |  |         |         |        |   | 18,373  |         |        |  |         |         |  |   | 2,942  |        |  |  |         |         |  |   | (3,393 | )     
|                                          | Net income                                                                |                            |  |         |         |        |   | 18,772  |         |        |  |         |         |  |   | 15,840 |        |  |  |         |         |  |   | 6,335  |       
|                                          | Repurchase of common stock                                                |                            |  |         |         |        |   |        |         |        |  |         |         |  |   | (409   | )      |  |  |         |         |  |   |       |       
|                                          |                                                                           |                            |  |         |         |        |   |         |         |        |  |         |         |  |   |        |        |  |  |         |         |  |   |       
|                                          | Balance, end of year                                                      |                            |  |         |         |        |   | 37,145  |         |        |  |         |         |  |   | 18,373 |        |  |  |         |         |  |   | 2,942  |       
|                                          |                                                                           |                            |  |         |         |        |   |         |         |        |  |         |         |  |   |        |        |  |  |         |         |  |   |       
|Accumulated Other Comprehensive
    Loss: |                                                                           |                            |  |         |         |        |   |         |         |        |  |         |         |  |   |        |        |  |  |         |         |  |   |       
|                                          | Balance, beginning of year                                                |                            |  |         |         |        |   | (5,966  | )       |        |  |         |         |  |   | (5,572 | )      |  |  |         |         |  |   | (3,855 | )     
|                                          | Net unrealized and deferred realized losses on
    derivatives            |                            |  |         |         |        |   | (264    | )       |        |  |         |         |  |   | (3,746 | )      |  |  |         |         |  |   |       |       
|                                          | Tax benefit on unrealized and deferred realized
    losses on derivatives |                            |  |         |         |        |   | 92      |         |        |  |         |         |  |   | 1,311  |        |  |  |         |         |  |   |       |       
|                                          | Currency translation adjustments                                          |                            |  |         |         |        |   | (6,130  | )       |        |  |         |         |  |   | 2,041  |        |  |  |         |         |  |   | (1,717 | )     
|                                          |                                                                           |                            |  |         |         |        |   |         |         |        |  |         |         |  |   |        |        |  |  |         |         |  |   |       
|                                          | Balance, end of year                                                      |                            |  |         |         |        |   | (12,268 | )       |        |  |         |         |  |   | (5,966 | )      |  |  |         |         |  |   | (5,572 | )     
|                                          |                                                                           |                            |  |         |         |        |   |         |         |        |  |         |         |  |   |        |        |  |  |         |         |  |   |       
|                                          |                                                                           | Total Stockholders Equity |  |         | 831,888 |        |   | $       | 108,462 |        |  |         | 831,888 |  |   | $      | 95,992 |  |  |         | 834,293 |  |   | $      | 81,167 | 
|                                          |                                                                           |                            |  |         |         |        |   |         |         |        |  |         |         |  |   |        |        |  |  |         |         |  |   |       
|Comprehensive Income:                     |                                                                           |                            |  |         |         |        |   |         |         |        |  |         |         |  |   |        |        |  |  |         |         |  |   |       
|                                          | Net income                                                                |                            |  |         |         |        | $ | 18,772  |         |        |  |         |         |  | $ | 15,840 |        |  |  |         |         |  | $ | 6,335  |       
|                                          | Unrealized and deferred realized losses on
    derivatives                |                            |  |         |         |        |   | (4,192  | )       |        |  |         |         |  |   | (5,504 | )      |  |  |         |         |  |   |       |       
|                                          | Reclassified to exchange loss                                             |                            |  |         |         |        |   | 1,167   |         |        |  |         |         |  |   | 797    |        |  |  |         |         |  |   |       |       
|                                          | Reclassified to cost of sales                                             |                            |  |         |         |        |   | 2,761   |         |        |  |         |         |  |   | 961    |        |  |  |         |         |  |   |       |       
|                                          | Tax benefit on unrealized and deferred realized
    losses on derivatives |                            |  |         |         |        |   | 92      |         |        |  |         |         |  |   | 1,311  |        |  |  |         |         |  |   |       |       
|                                          | Currency translation adjustments                                          |                            |  |         |         |        |   | (6,130  | )       |        |  |         |         |  |   | 2,041  |        |  |  |         |         |  |   | (1,717 | )     
|                                          |                                                                           |                            |  |         |         |        |   |         |         |        |  |         |         |  |   |        |        |  |  |         |         |  |   |       
|                                          |                                                                           | Total Comprehensive Income |  |         |         |        |   | $       | 12,470  |        |  |         |         |  |   | $      | 15,446 |  |  |         |         |  |   | $      | 4,618  | 
|                                          |                                                                           |                            |  |         |         |        |   |         |         |        |  |         |         |  |   |        |        |  |  |         |         |  |   |       

See accompanying notes to consolidated financial
statements.

39



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##### Table of Contents



CDRJ INVESTMENTS (LUX) S.A. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

(In thousands)


|                                                     |                                                                                                                                                            |                                                                      |                                           |                                           |        |         |         |         |       |         |         |         |       |         |         |  
|---------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------- | ----------------------------------------- | ----------------------------------------- | ------ | ------- | ------- | ------- | ----- | ------- | ------- | ------- | ----- | ------- | ------- | -
|                                                     |                                                                                                                                                            |                                                                     
|                                                     |                                                                                                                                                            | Years Ended December 31,                                            
|                                                     |                                                                                                                                                            |                                                                     
|                                                     |                                                                                                                                                            | 2002                                                                 |                                           | 2001                                      |        | 2000   
|                                                     |                                                                                                                                                            |                                                                      |                                           |                                           |        |        
|Cash flows from operating
    activities:            |                                                                                                                                                            |                                                                      |                                           |                                           |        |         |         |         |       |         |         |        
|                                                     | Net income                                                                                                                                                 |                                                                      | $                                         | 18,772                                    |        |         | $       | 15,840  |       |         | $       | 6,335   |      
|                                                     |                                                                                                                                                            | Extraordinary loss on early extinguishment of
    debt, net of taxes |                                           |                                           |       |         |         |         |      |         |         |         | 315   |        
|                                                     |                                                                                                                                                            | Cumulative effect of accounting change, net of
    taxes             |                                           |                                           | 244    |         |         |         | (126  | )       |         |         |      |        
|                                                     |                                                                                                                                                            |                                                                      |                                           |                                           |        |         |         |         |       |         |         |        
|                                                     | Income before extraordinary item and cumulative
    effect of accounting change                                                                            |                                                                      |                                           | 19,016                                    |        |         |         | 15,714  |       |         |         | 6,650   |      
|                                                     | Adjustments to reconcile income before
    extraordinary item and cumulative effect of accounting change to
    net cash provided by operating activities: |                                                                      |                                           |                                           |        |         |         |         |       |         |         |         |      
|                                                     |                                                                                                                                                            | Loss (gain) on sale of property and equipment                        |                                           |                                           | (76    | )       |         |         | 69    |         |         |         | 150   |        
|                                                     |                                                                                                                                                            | Depreciation and amortization                                        |                                           |                                           | 5,611  |         |         |         | 7,749 |         |         |         | 7,632 |        
|                                                     |                                                                                                                                                            | Provision for uncollectible accounts receivable                      |                                           |                                           | 12,376 |         |         |         | 9,464 |         |         |         | 5,958 |        
|                                                     |                                                                                                                                                            | Amortization of deferred financing fees                              |                                           |                                           | 1,405  |         |         |         | 1,434 |         |         |         | 1,430 |        
|                                                     |                                                                                                                                                            | Asset impairment charge                                              |                                           |                                           |       |         |         |         |      |         |         |         | 1,019 |        
|                                                     |                                                                                                                                                            | Unrealized foreign exchange and derivative losses
    (gains)        |                                           |                                           | 8,857  |         |         |         | (683  | )       |         |         | 2,918 |        
|                                                     |                                                                                                                                                            | Deferred realized foreign exchange gains (losses)                    |                                           |                                           | 181    |         |         |         | (827  | )       |         |         |      |        
|                                                     |                                                                                                                                                            | Deferred income taxes                                                |                                           |                                           | 587    |         |         |         | 3,913 |         |         |         | 3,430 |        
|                                                     |                                                                                                                                                            | Changes in operating assets and liabilities:                         |                                           |                                           |        |         |         |         |       |         |         |         |       |        
|                                                     |                                                                                                                                                            |                                                                      | Receivables                               |                                           |        | (14,296 | )       |         |       | (15,839 | )       |         |       | (10,536 | )      
|                                                     |                                                                                                                                                            |                                                                      | Inventories                               |                                           |        | 720     |         |         |       | (917    | )       |         |       | (7,856  | )      
|                                                     |                                                                                                                                                            |                                                                      | Prepaid expenses and other current assets |                                           |        | 5,688   |         |         |       | 2,795   |         |         |       | (1,688  | )      
|                                                     |                                                                                                                                                            |                                                                      | Other assets                              |                                           |        | 1,787   |         |         |       | 192     |         |         |       | (927    | )      
|                                                     |                                                                                                                                                            |                                                                      | Accounts payable and accrued liabilities  |                                           |        | 1,716   |         |         |       | (1,033  | )       |         |       | 12,065  |        
|                                                     |                                                                                                                                                            |                                                                      | Income taxes payable/prepaid              |                                           |        | (1,141  | )       |         |       | 7,376   |         |         |       | 12,156  |        
|                                                     |                                                                                                                                                            |                                                                      | Other long-term liabilities               |                                           |        | 699     |         |         |       | 722     |         |         |       | 57      |        
|                                                     |                                                                                                                                                            |                                                                      |                                           |                                           |        |         |         |         |       |         |         |        
|                                                     |                                                                                                                                                            |                                                                      |                                           | Net cash provided by operating activities |        |         | 43,130  |         |       |         | 30,129  |         |       |         | 32,458  |  
|                                                     |                                                                                                                                                            |                                                                      |                                           |                                           |        |         |         |         |       |         |         |        
|Cash flows from investing
    activities:            |                                                                                                                                                            |                                                                      |                                           |                                           |        |         |         |         |       |         |         |        
|                                                     | Proceeds from sale of property and equipment                                                                                                               |                                                                      |                                           | 225                                       |        |         |         | 93      |       |         |         | 675     |      
|                                                     | Purchases of property and equipment                                                                                                                        |                                                                      |                                           | (11,011                                   | )      |         |         | (11,372 | )     |         |         | (7,105  | )    
|                                                     | Other                                                                                                                                                      |                                                                      |                                           | (531                                      | )      |         |         | (408    | )     |         |         | (760    | )    
|                                                     |                                                                                                                                                            |                                                                      |                                           |                                           |        |         |         |         |       |         |         |        
|                                                     |                                                                                                                                                            |                                                                      |                                           | Net cash used in investing activities     |        |         | (11,317 | )       |       |         | (11,687 | )       |       |         | (7,190  | )
|                                                     |                                                                                                                                                            |                                                                      |                                           |                                           |        |         |         |         |       |         |         |        
|Cash flows from financing
    activities:            |                                                                                                                                                            |                                                                      |                                           |                                           |        |         |         |         |       |         |         |        
|                                                     | Repurchase of subordinated notes                                                                                                                           |                                                                      |                                           |                                          |        |         |         |        |       |         |         | (10,597 | )    
|                                                     | Repayments under term loan facility                                                                                                                        |                                                                      |                                           | (6,125                                    | )      |         |         | (4,500  | )     |         |         | (3,500  | )    
|                                                     | Net repayments under revolving credit facility                                                                                                             |                                                                      |                                           | (1,800                                    | )      |         |         | (12,700 | )     |         |         | (10,500 | )    
|                                                     | Net (repayments) borrowings of bank debt                                                                                                                   |                                                                      |                                           | (781                                      | )      |         |         | 1,263   |       |         |         | 346     |      
|                                                     | Net issuance of common stock                                                                                                                               |                                                                      |                                           |                                          |        |         |         | 152     |       |         |         | 954     |      
|                                                     | Repurchase of common stock                                                                                                                                 |                                                                      |                                           |                                          |        |         |         | (773    | )     |         |         | (199    | )    
|                                                     |                                                                                                                                                            |                                                                      |                                           |                                           |        |         |         |         |       |         |         |        
|                                                     |                                                                                                                                                            |                                                                      |                                           | Net cash used in financing activities     |        |         | (8,706  | )       |       |         | (16,558 | )       |       |         | (23,496 | )
|                                                     |                                                                                                                                                            |                                                                      |                                           |                                           |        |         |         |         |       |         |         |        
|                                                     | Effect of exchange rate changes on cash                                                                                                                    |                                                                      |                                           | (2,649                                    | )      |         |         | (974    | )     |         |         | (840    | )    
|                                                     |                                                                                                                                                            |                                                                      |                                           |                                           |        |         |         |         |       |         |         |        
|                                                     | Net increase in cash and cash equivalents                                                                                                                  |                                                                      |                                           | 20,458                                    |        |         |         | 910     |       |         |         | 932     |      
|                                                     | Cash and cash equivalents at beginning of year                                                                                                             |                                                                      |                                           | 6,748                                     |        |         |         | 5,838   |       |         |         | 4,906   |      
|                                                     |                                                                                                                                                            |                                                                      |                                           |                                           |        |         |         |         |       |         |         |        
|                                                     | Cash and cash equivalents at end of year                                                                                                                   |                                                                      | $                                         | 27,206                                    |        |         | $       | 6,748   |       |         | $       | 5,838   |      
|                                                     |                                                                                                                                                            |                                                                      |                                           |                                           |        |         |         |         |       |         |         |        
|Supplemental disclosure of cash flow
    information |                                                                                                                                                            |                                                                      |                                           |                                           |        |         |         |         |       |         |         |        
|                                                     | Cash paid (received) during the year for:                                                                                                                  |                                                                      |                                           |                                           |        |         |         |         |       |         |         |         |      
|                                                     | Interest                                                                                                                                                   |                                                                      | $                                         | 10,173                                    |        |         | $       | 11,538  |       |         | $       | 15,027  |      
|                                                     | Income Taxes                                                                                                                                               |                                                                      |                                           | 8,327                                     |        |         |         | 5,319   |       |         |         | (5,652  | )    

At December 31, 2002, the Company had
deferred net gains of $0.4 million on foreign currency
option contracts recorded as other comprehensive loss and other
receivables. At December 31, 2001, the Company had deferred
losses of $2.9 million on foreign currency forward
contracts recorded in accrued liabilities and other
comprehensive income. Additionally, the related deferred income
tax benefit of $1.3 million related to the deferred losses
was recorded as a component of the net deferred income tax
liability and other comprehensive income.

See accompanying notes to consolidated financial
statements.

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##### Table of Contents



CDRJ INVESTMENTS (LUX) S.A. AND
SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



|    |                                                      
|--- | -----------------------------------------------------
|(1) | Basis of Presentation and Description of
    Business

Basis of Presentation

CDRJ Investments (Lux) S.A., a Luxembourg
société anonyme(the Parent), Jafra
Cosmetics International, Inc., a Delaware corporation
(JCI), Jafra Cosmetics International, S.A. de C.V.,
a sociedad anonima de capital 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. The Acquisition was
completed on April 30, 1998.

The accompanying consolidated financial
statements for the years ended December 31, 2002, 2001 and
2000 reflect the operations of the Parent and its subsidiaries.
All significant intercompany accounts and transactions have been
eliminated in consolidation.

Description of Business

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



|    |                                               
|--- | ----------------------------------------------
|(2) | Summary of Significant Accounting
    Policies

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

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

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

Property and Equipment.Property and equipment are stated at
cost. Depreciation of property and equipment is provided for
over the estimated useful lives of the respective assets using
the straight-line method. Estimated useful lives are 20 or
40 years for buildings, the lesser of 20 or 40 years
or the term of the lease for improvements, 5 to 15 years
for machinery and equipment and 3 to 8 years for hardware
and software. 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. On January 1, 2002, the Company
adopted Statement of Financial Accounting Standards
(SFAS) No. 142, Goodwill and other
Intangible Assets which requires the Company to not
amortize goodwill and certain other indefinite life intangible
assets, but to test those intangible assets for impairment at
least annually. Prior to adoption of SFAS No. 142, goodwill
and other intangible assets were amortized using the
straight-line method over a period of 40 years. Goodwill of
$77.9 million and trademarks of $53.8 million,
resulted from the Companys

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CDRJ INVESTMENTS (LUX) S.A. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

acquisition of the Jafra Business from Gillette.
The book value of goodwill and trademarks was $66,305,000 and
$44,570,000 at December 31, 2002, respectively. (See
New Accounting Standards).

Deferred Financing Costs.In connection with the acquisition of
the Jafra Business, the Company incurred approximately
$12.0 million of costs related to the 11.75% Senior
Subordinated Notes due 2008 (the Notes), the
revolving credit facility and the term loan facility (see
Note 6). Such costs are being amortized on a basis that
approximates the interest method over the expected term of the
related debt. Accumulated amortization at December 31, 2002
and 2001 was $6,554,000 and $5,566,000, respectively.

Impairment of Long-Lived Assets and Goodwill.Long-lived assets 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 is not
recoverable, the Company will recognize an impairment loss,
measured by the future discounted cash flow method. Goodwill is
tested for impairment annually, or whenever events or changes in
circumstances indicate that the carrying amount of goodwill may
not be recoverable based on the provisions of SFAS No. 142.
(see New Accounting Standards).

Foreign Currency Forward and Option Contracts.During 2002 and 2001, the Company
entered into foreign currency forward contracts. In 2002, the
Company entered into forward currency option contracts. The
Company enters into these contracts to reduce the effect of
potentially adverse exchange rate fluctuations in the exchange
rate of the Mexican peso to the U.S. dollar. Effective
January 1, 2001, the Company adopted SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities. SFAS No. 133, as amended and interpreted,
establishes accounting and reporting standards for derivative
instruments and hedging activities and requires that all
derivative instruments be recorded based on fair value. In
connection with the adoption of SFAS No. 133, at
January 1, 2001, the Company recorded a net gain of
$126,000 (net of a tax effect of $82,000) as a cumulative
transition adjustment to earnings. This adjustment relates to
derivatives not designated as hedges prior to adoption of SFAS
No. 133, and represents the difference between the carrying
value and the fair value of such instruments.

As a matter of policy, the Company does not hold
or issue foreign currency forward contracts or foreign currency
option contracts for trading or speculative purposes. The
forward contracts utilized by the Company did not qualify for
hedge accounting under the applicable accounting standards prior
to adoption of SFAS No. 133 on January 1, 2001, and
accordingly such instruments were marked-to-market each month
based upon the change in the spot rate from the date of contract
inception to the balance sheet date. The premium on such
contracts was amortized to expense over the life of the
contracts. However, under SFAS No. 133, the Companys
use of forward contracts and option contracts to hedge certain
forecasted transactions qualifies for hedge accounting. Gains
and losses from qualifying hedged derivative instruments are
deferred as a separate component of other comprehensive loss,
and are recognized in income at the same time that the
underlying hedged exposure is recognized in income. This
accounting treatment results in the matching of gains and losses
from such forward contracts and option contracts with the
corresponding gains and losses generated by the underlying
hedged transactions. Under SFAS No. 133, certain of the
Companys foreign currency forward contracts and option
contracts do not qualify for hedge accounting and therefore, are
remeasured based on fair value, with gains and losses included
as a component of net income. At December 31, 2001, the
carrying value of the forward contracts was $5,540,000 and was
included in accrued liabilities in the accompanying consolidated
balance sheets. At December 31, 2002, the carrying value of
the option contracts was $402,000 and was included in other
receivables in the accompanying consolidated balance sheets.

Fair Value of Financial Instruments.The carrying amounts of cash and cash
equivalents, accounts receivable, and accounts payable
approximate fair value because of the short-term maturities of
these instruments. The fair value of the Notes and other fixed
rate long-term debt at December 31, 2002 and 2001 was
$77,888,000 and $82,052,000, respectively, based upon
discussions with one of the Companys largest bondholders
and an analysis of current market interest rates and the
Companys credit rating. As the

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CDRJ INVESTMENTS (LUX) S.A. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

Companys revolving credit facility 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
facility and the term loan approximated their carrying amounts
at December 31, 2002 and 2001.

Revenue Recognition.The Company recognizes revenue when
title passes at shipment in accordance with its shipping terms.
Amounts billed to consultants for shipping and handling costs
are included in net sales. Sales are reduced by commissions paid
to consultants on their personal sales.

Shipping and Handling Costs.Shipping and handling costs of
$32,119,000, $28,736,000 and $24,716,000 for the years ended
December 31, 2002, 2001 and 2000, respectively, are
included in selling, general and administrative expenses.

Research and Development.Research and development costs are
expensed as incurred. Total research and development expense
aggregated $1,469,000, $1,842,000 and $1,901,000 for the years
ended December 31, 2002, 2001 and 2000, respectively.

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

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

Approximately 76%, 79% and 77% of the
Companys net sales for the years ended December 31,
2002, 2001 and 2000, respectively, were generated by operations
located outside of the United States. Mexico is the
Companys largest foreign operation, accounting for 64%,
66% and 62% of the Companys net sales for the years ended
December 31, 2002, 2001 and 2000, respectively. As such,
the Companys results of operations are subject to
fluctuations in the exchange rate of the Mexican peso to the
U.S. dollar.

Additionally, Jafra S.A. had outstanding
U.S. dollar-denominated debt of $32,447,000 and $35,572,000
at December 31, 2002 and 2001, respectively. This debt is
remeasured at each reporting date, subjecting the Company to
additional foreign exchange risk.

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

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CDRJ INVESTMENTS (LUX) S.A. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

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

In June 2001, the Financial Accounting Standards
Board (FASB) approved two new statements: SFAS
No. 141, Business Combinations and SFAS
No. 142, Goodwill and Other Intangible Assets.
SFAS No. 141 requires business combinations entered into
after June 30, 2001 to be accounted for using the purchase
method of accounting. SFAS No. 142 requires that goodwill
not be amortized, but be tested for impairment at least
annually. SFAS No. 142 was effective for fiscal years
beginning after December 15, 2001 to all goodwill and other
intangible assets recognized in an entitys statement of
financial position at that date, regardless of when those assets
were initially recognized. The Company adopted SFAS No. 142
on January 1, 2002. In accordance with such adoption, the
Company identified all reporting units in conjunction with the
provisions of SFAS No. 142 and allocated all goodwill
accordingly. Prior to June 30, 2002, the Company completed
the transitional goodwill impairment test required by SFAS
No. 142. Due to general market uncertainty in Colombia, the
Company revised its projections and recorded an impairment loss
of $244,000 associated with its Colombia reporting unit. The
impairment loss has been recorded as a cumulative effect of
accounting change in the accompanying consolidated statements of
income. No other impairment was identified in connection with
the annual impairment test. The changes in the carrying amount
of goodwill for the year ended December 31, 2002 are as
follows (in thousands):

|                                |  |        |        |        |  |        |        |        |  |              |       |   |  |   |      |   |  |   |        |  
|------------------------------- |  | ------ | ------ | ------ |  | ------ | ------ | ------ |  | ------------ | ----- | - |  | - | ---- | - |  | - | ------ | -
|                                |  | United |        |        |  |        |        | All    |  | Consolidated
|Goodwill                        |  | States |        | Mexico |  | Europe |        | Others |  | Total       
|                                |  |        |        |        |  |        |        |        |  |             
|Balance as of December 31, 2001 |  | $      | 32,188 |        |  | $      | 32,401 |        |  | $            | 5,937 |   |  | $ | 622  |   |  | $ | 71,148 |  
|Translation effect              |  |        |       |        |  |        | (3,853 | )      |  |              | (637  | ) |  |   | (109 | ) |  |   | (4,599 | )
|Impairment losses               |  |        |       |        |  |        |       |        |  |              |      |   |  |   | (244 | ) |  |   | (244   | )
|                                |  |        |        |        |  |        |        |        |  |              |       |   |  |   |      |   |  |   |        |  
|Balance as of December 31, 2002 |  | $      | 32,188 |        |  | $      | 28,548 |        |  | $            | 5,300 |   |  | $ | 269  |   |  | $ | 66,305 |  
|                                |  |        |        |        |  |        |        |        |  |              |       |   |  |   |      |   |  |   |        |  

The Companys other intangible assets
consist of trademarks. During the year ended December 31,
2002, the Company determined trademarks to have an indefinite
life and performed the transitional and annual impairment test
as required under SFAS No. 142. Based upon the transitional
and annual test, the Company determined that there was no
impairment of trademarks. The carrying value of trademarks was
$44,570,000 as of December 31, 2002.

In accordance with SFAS No. 142, the Company
discontinued amortization of goodwill and other intangible
assets with an indefinite life. A reconciliation of previously
reported net income to amounts adjusted for the exclusion of
goodwill and trademark amortization, net of the related income
tax effects, where applicable, is as follows (in thousands):

|                                   |  |                          |        |      |  |      |        |  |  |   |       | 
|---------------------------------- |  | ------------------------ | ------ | ---- |  | ---- | ------ |  |  | - | ----- | 
|                                   |  |                         
|                                   |  | Years Ended December 31,
|                                   |  |                         
|                                   |  | 2002                     |        | 2001 |  | 2000
|                                   |  |                          |        |      |  |     
|Net income                         |  | $                        | 18,772 |      |  | $    | 15,840 |  |  | $ | 6,335 | 
|Goodwill amortization, net of tax  |  |                          |       |      |  |      | 1,717  |  |  |   | 1,876 | 
|Trademark amortization, net of tax |  |                          |       |      |  |      | 822    |  |  |   | 882   | 
|                                   |  |                          |        |      |  |      |        |  |  |   |       | 
|Adjusted net income                |  | $                        | 18,772 |      |  | $    | 18,379 |  |  | $ | 9,093 | 
|                                   |  |                          |        |      |  |      |        |  |  |   |       | 

In November 2001, the Emerging Issues Task Force
(EITF) issued EITF Issue No. 01-9,
Accounting for Consideration Given by a Vendor to a
Customer or a Reseller of the Vendors Products. This
new guidance provides that consideration from a vendor to a
reseller is generally presumed to be a reduction of the selling
prices of the vendors products, and, therefore, should be
characterized as a reduction of revenue when recognized in the
vendors income statement. On January 1, 2002, the
Company adopted EITF Issue No. 01-9 and reclassified
commissions paid to consultants of $3,928,000 and $3,460,000 on
their personal sales,

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CDRJ INVESTMENTS (LUX) S.A. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

previously reported as a component of selling,
general and administrative expenses, as a reduction in net sales
and selling, general and administrative expenses for the years
ended December 31, 2001 and 2000, respectively.

On January 1, 2002, the Company adopted SFAS
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. SFAS No. 144 supersedes SFAS
No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of. SFAS
No. 144 retains substantially all of the requirements of
SFAS No. 121, while resolving certain implementation issues
and addressing the accounting for a component of a business
accounted for as a discontinued operation. SFAS No. 144 was
adopted with no significant impact on the financial position or
results of operations of the Company.

In April 2002, the FASB issued SFAS No. 145,
Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical
Corrections. This Statement rescinds or modifies existing
authoritative pronouncements including SFAS No. 4
Reporting Gains and Losses from Extinguishment of
Debt. As a result of the issuance of SFAS No. 145,
gains and losses from extinguishment of debt should be
classified as extraordinary items only if they meet the criteria
in Accounting Principles Board (APB)
Opinion 30, Reporting the Results of
Operations-Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions. Applying the provisions of APB
Opinion 30 will distinguish transactions that are part of
an entitys recurring operations from those that are
unusual or infrequent or that meet the criteria for
classification as an extraordinary item. The provisions of this
Statement related to the rescission of SFAS No. 4 shall be
applied in fiscal years beginning after May 15, 2002. Any
gain or loss on extinguishment of debt that was classified as an
extraordinary item in prior periods presented that does not meet
the criteria in APB Opinion 30 for classification as an
extraordinary item shall be reclassified. The Company is
currently evaluating the impact that this statement may have on
any potential future extinguishments of debt. Upon adoption of
SFAS No. 145, the Company will reclassify items previously
reported as extraordinary items as a component of operating
income in the accompanying statements of income.

In June 2002, the FASB approved SFAS
No. 146, Accounting for Costs Associated with Exit or
Disposal Activities. This statement addresses financial
accounting and reporting for costs associated with exit or
disposal activities and nullifies EITF Issue No. 94-3,
Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity. The
provisions of this statement are effective for exit or disposal
activities that are initiated after December 31, 2002, with
early application encouraged. The Company is currently
evaluating the impact that this statement may have on any
potential future exit or disposal activities.

During 2002, the FASB issued SFAS No. 148,
Accounting for Stock Based Compensation 
Transaction and Disclosure, an amendment to FASB Statement
No. 123. This Statement requires more extensive
disclosure, including interim disclosure, related to stock based
compensation for all companies and permits additional transition
methods for companies that elect to use the fair value method
for employee stock compensation. This statement is effective for
fiscal years ending after December 15, 2002, with early
adoption regarding annual disclosures encouraged. The Company
adopted the disclosure requirements of SFAS No. 148. (See
Note 13).

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

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CDRJ INVESTMENTS (LUX) S.A. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

(3) Inventories

Inventories consist of the following at
December 31, 2002 and 2001 (in thousands):

|                           |                   |      |        |        |  |   |        |        | 
|-------------------------- | ----------------- | ---- | ------ | ------ |  | - | ------ | ------ | 
|                           |                   | 2002 |        | 2001  
|                           |                   |      |        |       
|Raw materials and supplies |                   | $    | 5,239  |        |  | $ | 5,923  |       
|Finished goods             |                   |      | 30,047 |        |  |   | 34,592 |       
|                           |                   |      |        |        |  |   |        |       
|                           | Total inventories |      | $      | 35,286 |  |   | $      | 40,515 | 
|                           |                   |      |        |        |  |   |        |       

(4) Property and Equipment

Property and equipment consist of the following
at December 31, 2002 and 2001 (in thousands):

|                              |  |      |        |      |  |   |        | 
|----------------------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                              |  | 2002 |        | 2001
|                              |  |      |        |     
|Land                          |  | $    | 16,448 |      |  | $ | 17,833 | 
|Buildings and improvements    |  |      | 17,452 |      |  |   | 18,523 | 
|Machinery equipment and other |  |      | 42,153 |      |  |   | 34,640 | 
|                              |  |      |        |      |  |   |        | 
|                              |  |      | 76,053 |      |  |   | 70,996 | 
|Less accumulated depreciation |  |      | 15,331 |      |  |   | 11,398 | 
|                              |  |      |        |      |  |   |        | 
|Property and equipment, net   |  | $    | 60,722 |      |  | $ | 59,598 | 
|                              |  |      |        |      |  |   |        | 

(5) Accrued Liabilities

Accrued liabilities consist of the following at
December 31, 2002 and 2001 (in thousands):

|                                            |  |      |        |      |  |   |        | 
|------------------------------------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                                            |  | 2002 |        | 2001
|                                            |  |      |        |     
|Sales promotions, commissions and overrides |  | $    | 15,104 |      |  | $ | 14,230 | 
|Accrued restructuring charges (Note 10)     |  |      |       |      |  |   | 201    | 
|Accrued interest                            |  |      | 1,498  |      |  |   | 1,549  | 
|Compensation and other benefit accruals     |  |      | 8,633  |      |  |   | 8,311  | 
|State and local sales taxes and other taxes |  |      | 12,644 |      |  |   | 4,912  | 
|Unrealized losses on forward contracts      |  |      |       |      |  |   | 5,540  | 
|Other                                       |  |      | 6,945  |      |  |   | 6,173  | 
|                                            |  |      |        |      |  |   |        | 
|Total accrued liabilities                   |  | $    | 44,824 |      |  | $ | 40,916 | 
|                                            |  |      |        |      |  |   |        | 

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CDRJ INVESTMENTS (LUX) S.A. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

(6) Debt

Debt consists of the following at
December 31, 2002 and 2001 (in thousands):

|                                                                                                                                                                                                                               |            |      |        |        |  |   |        |        | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ---------- | ---- | ------ | ------ |  | - | ------ | ------ | 
|                                                                                                                                                                                                                               |            | 2002 |        | 2001  
|                                                                                                                                                                                                                               |            |      |        |       
|Subordinated Notes, unsecured, interest payable
    semi-annually at 11.75% due in 2008                                                                                                                                        |            | $    | 75,180 |        |  | $ | 75,180 |       
|Term loan, secured, principal and interest due in
    quarterly installments through April 30, 2004, interest
    rates at 3.1% and 4.3% at December 31, 2002 and 2001,
    respectively                                       |            |      | 8,375  |        |  |   | 14,500 |       
|Revolving loan, secured, due April 30, 2004,
    weighted average interest rates of 5.4% at December 31, 2001                                                                                                                  |            |      |       |        |  |   | 1,800  |       
|Unsecured foreign bank loan agreement, principal
    and interest due in monthly installments through
    January 25, 2005, weighted average interest rates of 18.5%
    and 18.7% at December 31, 2002 and 2001, respectively |            |      | 828    |        |  |   | 1,609  |       
|                                                                                                                                                                                                                               |            |      |        |        |  |   |        |       
|                                                                                                                                                                                                                               | Total debt |      |        | 84,383 |  |   |        | 93,089 | 
|Less current maturities                                                                                                                                                                                                        |            |      | 6,489  |        |  |   | 6,188  |       
|                                                                                                                                                                                                                               |            |      |        |        |  |   |        |       
|Long-term debt                                                                                                                                                                                                                 |            | $    | 77,894 |        |  | $ | 86,901 |       
|                                                                                                                                                                                                                               |            |      |        |        |  |   |        |       

The Companys long-term debt matures as
follows (in thousands): $6,489 in 2003, $2,714 in 2004, $0 in
2005, 2006 and 2007, and $75,180 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 unconditionally guaranteed the Notes on a senior
subordinated basis. JCI currently has no U.S. subsidiaries. Each
acquired or organized U.S. subsidiary of JCI will also be
required to fully and unconditionally guarantee the Notes
jointly and severally, on a senior subordinated basis. Each
existing subsidiary of Jafra S.A. fully and unconditionally
guarantees the Notes jointly and severally, on a senior
subordinated basis, and each subsequently acquired or organized
subsidiary of Jafra S.A. will fully and unconditionally
guarantee the Notes jointly and severally, on a senior
subordinated basis. The nonguarantor entities are the
Parents indirect European subsidiaries in Austria,
Germany, Italy, the Netherlands, Poland, and Switzerland; its
indirect South American subsidiaries in Argentina, Brazil,
Chile, Colombia, Peru, and Venezuela; and its indirect
subsidiaries in the Dominican Republic and Thailand. All
guarantor and nonguarantor entities are either direct or
indirect wholly owned subsidiaries of the Parent. The Notes were
registered in a registered exchange offer, effective as of
January 25, 1999, under the Securities Act of 1933, as
amended.

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

Consents and waivers, dated June 30, 2001
and November 19, 1999, to the senior credit agreement, as
described below, allow the Company to repurchase the Notes in
the open market from time to time, with the aggregate purchase
price for all such Notes repurchased not to exceed
$50 million. Aggregate repurchases as of December 31,
2002 were $24.8 million. During 2000, the Company retired
Notes of JCI and Jafra S.A.,

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CDRJ INVESTMENTS (LUX) S.A. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

prior to maturity, with a face value of
$6.5 million and $4.3 million, respectively. The debt
repurchases in 2000 resulted in an extraordinary loss of
$315,000, net of an income tax benefit of $195,000. In
connection with the early retirement of the Notes as described
above, a portion of the unamortized deferred financing costs was
written off and included in the determination of the
extraordinary loss on early extinguishment of debt. In 2000,
$733,000 of the unamortized deferred financing fees were written
off.

In addition, JCI and Jafra S.A. entered into a
senior credit agreement that provides for senior secured credit
facilities in an aggregate principal amount of $90 million,
consisting of a multicurrency revolving credit facility of
$65 million and a term loan facility of $25 million.
Borrowings under the term loan facility are payable in quarterly
installments of principal and interest over six years through
April 30, 2004. Borrowings under the revolving credit
facility mature on April 30, 2004. Borrowings under the
senior credit agreement currently bear interest at an annual
rate of LIBOR plus a margin of 1.625% or an alternate base rate
(the higher of the prime rate or federal funds rate plus 0.5%,
plus an applicable margin of 0.625%). The interest rate in
effect at December 31, 2002 was approximately 3.1% for the
LIBOR-based borrowings. Borrowings under the senior credit
agreement are secured by substantially all of the assets of JCI
and Jafra S.A. No amounts were outstanding under the revolving
credit facility at December 31, 2002.

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

During the year ended December 31, 2001,
Jafra S.A. repaid the balance remaining under a one-year term
loan originally due on August 16, 2001, and entered into an
unsecured foreign bank loan agreement. Under this agreement,
Jafra S.A. had the peso equivalent of $828,000 outstanding at
December 31, 2002 at a weighted average fixed interest rate
of 18.5%. Principal and interest payments are due monthly
through January 25, 2005.

As of December 31, 2002, the Company had
irrevocable standby letters of credit outstanding totaling
$2.8 million. These letters of credit, expiring on various
dates through February 17, 2003, collateralize the
Companys obligation to a third-party in connection with
certain lease agreements.

(7) Income Taxes

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

|                                                                                               |  |                          |        |      |  |      |        |  |  |   |        | 
|---------------------------------------------------------------------------------------------- |  | ------------------------ | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                                                                                               |  |                         
|                                                                                               |  | Years Ended December 31,
|                                                                                               |  |                         
|                                                                                               |  | 2002                     |        | 2001 |  | 2000
|                                                                                               |  |                          |        |      |  |     
|Income before income taxes, extraordinary item
    and cumulative effect of accounting change: |  |                          |        |      |  |      |        |  |  |   |        | 
|United States                                                                                  |  | $                        | 12,859 |      |  | $    | 13,530 |  |  | $ | 9,741  | 
|Foreign                                                                                        |  |                          | 22,426 |      |  |      | 19,604 |  |  |   | 6,843  | 
|                                                                                               |  |                          |        |      |  |      |        |  |  |   |        | 
|                                                                                               |  | $                        | 35,285 |      |  | $    | 33,134 |  |  | $ | 16,584 | 
|                                                                                               |  |                          |        |      |  |      |        |  |  |   |        | 

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CDRJ INVESTMENTS (LUX) S.A. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

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

|                                                                       |  |                          |        |      |  |      |        |   |  |   |        |  
|---------------------------------------------------------------------- |  | ------------------------ | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                                                       |  |                         
|                                                                       |  | Years Ended December 31,
|                                                                       |  |                         
|                                                                       |  | 2002                     |        | 2001 |  | 2000
|                                                                       |  |                          |        |      |  |     
|Provision for income taxes at federal statutory
    rate               |  | $                        | 12,350 |      |  | $    | 11,597 |   |  | $ | 5,804  |  
|Foreign income subject to tax other than at
    federal statutory rate |  |                          | 3,461  |      |  |      | 4,270  |   |  |   | 2,339  |  
|Foreign tax and other credits                                          |  |                          | (2,312 | )    |  |      | (3,230 | ) |  |   | (1,724 | )
|State income taxes                                                     |  |                          | 548    |      |  |      | 544    |   |  |   | 243    |  
|Valuation allowance  domestic                                         |  |                          | 19     |      |  |      | 944    |   |  |   | (616   | )
|Valuation allowance  foreign                                          |  |                          | 2,270  |      |  |      | 2,939  |   |  |   | 3,794  |  
|Other                                                                  |  |                          | (67    | )    |  |      | 356    |   |  |   | 94     |  
|                                                                       |  |                          |        |      |  |      |        |   |  |   |        |  
|Income tax expense                                                     |  | $                        | 16,269 |      |  | $    | 17,420 |   |  | $ | 9,934  |  
|                                                                       |  |                          |        |      |  |      |        |   |  |   |        |  

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

|                                                                 |          |                          |                                                                                                                     |      |        |        |        |     |        |        |       |     |       |       | 
|---------------------------------------------------------------- | -------- | ------------------------ | ------------------------------------------------------------------------------------------------------------------- | ---- | ------ | ------ | ------ | --- | ------ | ------ | ----- | --- | ----- | ----- | 
|                                                                 |          |                         
|                                                                 |          | Years Ended December 31,
|                                                                 |          |                         
|                                                                 |          | 2002                     |                                                                                                                     | 2001 |        | 2000  
|                                                                 |          |                          |                                                                                                                     |      |        |       
|Current:                                                         |          |                          |                                                                                                                     |      |        |        |        |     |        |        |       |    
|                                                                 | Federal  |                          | $                                                                                                                   | 178  |        |        | $      | 140 |        |        | $     | 72  |      
|                                                                 |          |                          |                                                                                                                     |      |        |        |        |     |        |        |       |    
|                                                                 | Foreign: |                          |                                                                                                                     |      |        |        |        |     |        |        |       |     |      
|                                                                 |          | Mexico                   |                                                                                                                     |      | 15,177 |        |        |     | 13,303 |        |       |     | 6,086 |      
|                                                                 |          | Europe                   |                                                                                                                     |      | (297   | )      |        |     | 641    |        |       |     | 49    |      
|                                                                 |          | Other                    |                                                                                                                     |      | 76     |        |        |     | 190    |        |       |     | 54    |      
|                                                                 |          |                          |                                                                                                                     |      |        |        |        |     |        |        |       |    
|                                                                 |          |                          | 14,956                                                                                                              |      |        |        | 14,134 |     |        |        | 6,189 |    
|                                                                 | State    |                          |                                                                                                                     | 548  |        |        |        | 544 |        |        |       | 243 |      
|                                                                 |          |                          |                                                                                                                     |      |        |        |        |     |        |        |       |    
|                                                                 |          |                          | Total current                                                                                                       |      |        | 15,682 |        |     |        | 14,818 |       |     |       | 6,504 | 
|Deferred  foreign                                               |          |                          | (646                                                                                                                | )    |        |        | 1,506  |     |        |        | 2,539 |    
|Deferred  domestic                                              |          |                          | 2,016                                                                                                               |      |        |        | 2,407  |     |        |        | 891   |    
|Foreign deferred allocated to other comprehensive
    income     |          |                          | (783                                                                                                                | )    |        |        | (1,311 | )   |        |        |      |    
|                                                                 |          |                          |                                                                                                                     |      |        |        |        |     |        |        |       |    
|                                                                 |          |                          | Total deferred                                                                                                      |      |        | 587    |        |     |        | 2,602  |       |     |       | 3,430 | 
|                                                                 |          |                          | Total income taxes on income before income taxes,
    extraordinary item and cumulative effect of accounting change |      |        | 16,269 |        |     |        | 17,420 |       |     |       | 9,934 | 
|Income tax benefit on early extinguishment of debt               |          |                          |                                                                                                                    |      |        |        |       |     |        |        | (195  | )  
|Income tax expense on cumulative effect of
    accounting change |          |                          |                                                                                                                    |      |        |        | 82     |     |        |        |      |    
|                                                                 |          |                          |                                                                                                                     |      |        |        |        |     |        |        |       |    
|                                                                 |          |                          | Total income tax expense                                                                                            |      | $      | 16,269 |        |     | $      | 17,502 |       |     | $     | 9,739 | 
|                                                                 |          |                          |                                                                                                                     |      |        |        |        |     |        |        |       |    

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CDRJ INVESTMENTS (LUX) S.A. AND
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

The components of deferred income tax assets and
deferred income tax liabilities at December 31, 2002 and
2001 are as follows (in thousands):

|                                 |                                            |                                       |   |         |         |   |   |         |         |  
|-------------------------------- | ------------------------------------------ | ------------------------------------- | - | ------- | ------- | - | - | ------- | ------- | -
|                                 |                                            | 2002                                  |   | 2001   
|                                 |                                            |                                       |   |        
|Deferred income tax assets:      |                                            |                                       |   |         |         |   |   |        
|                                 | Accounts receivable                        |                                       | $ | 2,454   |         |   | $ | 1,733   |        
|                                 | Net operating loss carryforward            |                                       |   | 15,112  |         |   |   | 13,457  |        
|                                 | Disallowed interest expense                |                                       |   |        |         |   |   | 26      |        
|                                 | Accrued bonuses                            |                                       |   | 33      |         |   |   | 301     |        
|                                 | Foreign tax and other credit carryforwards |                                       |   | 2,193   |         |   |   | 5,333   |        
|                                 | Accrued sales promotions                   |                                       |   | 1,977   |         |   |   | 2,273   |        
|                                 | Other accrued liabilities                  |                                       |   | 5,233   |         |   |   | 1,963   |        
|                                 | Other                                      |                                       |   | 1,738   |         |   |   | 4,776   |        
|                                 |                                            |                                       |   |         |         |   |   |        
|                                 |                                            | Total deferred income tax assets      |   |         | 28,740  |   |   |         | 29,862  |  
|                                 | Less valuation allowance                   |                                       |   | (17,578 | )       |   |   | (15,289 | )      
|                                 |                                            |                                       |   |         |         |   |   |        
|                                 |                                            | Net deferred income tax assets        |   |         | 11,162  |   |   |         | 14,573  |  
|Deferred income tax liabilities: |                                            |                                       |   |         |         |   |   |        
|                                 | Transaction and deferred financing costs   |                                       |   | (235    | )       |   |   | (494    | )      
|                                 | Property and equipment                     |                                       |   | (4,406  | )       |   |   | (4,194  | )      
|                                 | Trademark and goodwill                     |                                       |   | (18,129 | )       |   |   | (20,272 | )      
|                                 | Inventories                                |                                       |   | (7,914  | )       |   |   | (13,399 | )      
|                                 | Other                                      |                                       |   | (3,737  | )       |   |   | (564    | )      
|                                 |                                            |                                       |   |         |         |   |   |        
|                                 |                                            | Total deferred income tax liabilities |   |         | (34,421 | ) |   |         | (38,923 | )
|                                 |                                            |                                       |   |         |         |   |   |        
|                                 |                                            | Net deferred income tax liabilities   |   | $       | (23,259 | ) |   | $       | (24,350 | )
|                                 |                                            |                                       |   |         |         |   |   |        

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, 2002 and 2001 were
based upon the Companys estimates of the future
realization of deferred income tax assets. Valuation allowances
at December 31, 2002 and 2001 were provided principally to
offset operating loss carryforwards and foreign tax credit
carryforwards of the Companys U.S., European and South
American subsidiaries. Valuation allowances at December 31,
2002 were also provided to offset certain pretax expenses at the
companys U.S. subsidiary.

At December 31, 2002, the Companys
deferred income tax assets for carryforwards totaled $17,305,000
comprised of foreign asset and other credit carryforwards of
$2,193,000 and net operating loss carryforwards of $15,112,000.
At December 31, 2001, the Companys deferred income
tax assets for carryforwards totaled $18,790,000, comprised of
U.S. foreign and foreign asset tax credits of $4,775,000,
alternative minimum tax and research and development credits of
$558,000 and tax loss carryforwards of certain foreign
subsidiaries of $13,457,000. These deferred income tax assets
were reduced by a valuation allowance of $17,578,000 and
$15,289,000 as December 31, 2002 and 2001, respectively.
The tax loss and certain credit carryforwards expire in varying
amounts between 2003 and 2012. 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.

Income tax expense for the year ended
December 31, 2002 was reduced by $1,169,000 as the result
of as the result of the enactment of changes in the Mexico
corporate statutory tax rate and the related impact on Jafra
S.A.s net deferred income tax liabilities. The enactment
in Mexico will reduce the Mexico corporate income tax rate
annually in one-percent increments from 35% to 32% beginning
January 1, 2003 through 2005

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CDRJ INVESTMENTS (LUX) S.A. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

(8) Benefit Plans

Certain employees of the Companys German
subsidiary participate in a defined benefit pension plan
covering key employees (the Germany Plan). Benefits
are based on age, years of service and the level of compensation
during the final years of employment. The Companys funding
policy is to contribute annually to the Germany Plan the amount
necessary to meet the minimum funding standards. The Company
recognized pension expense of $48,000 and $278,000 for the years
ended December 31, 2002 and 2001, respectively, and
recognized pension income of $18,000 for the year ended
December 31, 2000 due to the departure of certain employees.

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 $1,222,000, $995,000 and $345,000 for
the years ended December 31, 2002, 2001 and 2000,
respectively. The total liability was approximately $1,724,000
and $1,010,000 at December 31, 2002 and 2001, respectively,
and is classified as a noncurrent liability in the accompanying
consolidated balance sheets.

The Companys U.S. subsidiary has an
employee savings plan which permits participants to make
voluntary contributions by salary deferrals pursuant to
section 401(k) of the Internal Revenue Code, which allows
employees to defer up to 20% of their total compensation,
subject to statutory limitations. Employee contributions of up
to 10% of compensation are matched by the Company at the rate of
50 cents per dollar. Employees do not vest in the Company
contribution until they have reached two years of service, at
which time they become fully vested. The Companys expense
under this program was $618,000, $600,000 and $620,000 for the
years ended December 31, 2002, 2001 and 2000, respectively.

The Companys U.S. subsidiary also has a
supplemental excess benefit savings plan, which permits
participants to make unlimited voluntary contributions. Employee
contributions are matched on the same basis as under the
employee savings plan, and the vesting provisions are the same.
The Companys expense under this program was $207,000,
$177,000 and $213,000 for the years ended December 31,
2002, 2001 and 2000, respectively. Employee and employer
contributions under such plan are placed into a
rabbi trust exclusively for the uses and purposes of
plan participants and general creditors of the Company. The
Company has recorded an asset and the related liability in the
accompanying consolidated balance sheets of $2,411,000 and
$1,880,000 at December 31, 2002 and 2001, respectively.

(9) Related Party Transactions

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

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SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

the annual fee will be increased by an amount to
be determined by CD&R, the amount of such increase not to
exceed 100% of the existing annual fee in effect at that time.
The CD&R fees incurred during the years ended
December 31, 2002, 2001 and 2000 were $1,000,000,
$1,000,000 and $400,000, respectively. In addition, certain
officers and directors of CD&R or its affiliates serve as
directors of the Company.

Prior to 2000, the Company engaged Guidance
Solutions (Guidance), a corporation in which an
investment fund managed by CD&R has an investment, to
develop its e-commerce systems. Under the agreement entered into
by the Company and Guidance, the Company agreed to pay fees of
approximately $2.0 million to Guidance in connection with
planning, defining, designing and consulting services performed
related to the Companys e-commerce initiative. During the
year ended December 31, 2000, the Company paid fees to
Guidance of $1,798,000. The Company terminated its agreement
with Guidance and executed a settlement and mutual release
agreement effective September 30, 2000. Upon execution of
this agreement in October of 2000, Guidance paid the Company
$25,000 and agreed to pay the Company an aggregate additional
sum of $475,000, payable in quarterly installments plus interest
at 9.5% per annum, beginning in January 2001 through October
2005. At December 31, 2002, the balance was paid in full.

Members of management financed a portion of the
cash purchase price of the shares of Company common stock they
acquired through loans from the Chase Manhattan Bank on market
terms. To help members of management obtain such terms for such
financing, the Company fully and unconditionally guaranteed up
to 75% of the purchase price for the shares of Company common
stock purchased by each such member of management in 1998 and
2000. As of December 31, 2002, the outstanding guarantee
was $2,145,000.

(10) Restructuring and Impairment Charges
and Related Accruals

Prior Years Restructuring and Impairment
Charges.During 2001, the Company
wrote-off $0.2 million of intangible assets as the Company
determined that the undiscounted cash flows were less than the
carrying amount of the assets due to a downturn in the political
and economic environment in Argentina. The amount was classified
in selling, general and administration in the accompanying
consolidated statements of income. In 2000, the Company recorded
approximately $1.6 million of restructuring charges and
approximately $1.0 million of asset impairment charges. The
restructuring charges of approximately $1.6 million related
to the Companys repositioning activities in Europe,
primarily severance costs, of which $1.4 million was paid
in 2000 and 2001 and the remaining $0.2 million was paid in
2002. The asset impairment charges of $1.0 million
consisted of approximately $0.3 million related to the
Companys repositioning activities in Europe and
approximately $0.7 million relating to the write-down of
certain capitalized computer software costs in the United States.

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

|                               |             |                          |   |      |   |  |   |       |       | 
|------------------------------ | ----------- | ------------------------ | - | ---- | - |  | - | ----- | ----- | 
|                               |             |                         
|                               |             | Years Ended December 31,
|                               |             |                         
|                               |             | 2001                     |   | 2000
|                               |             |                          |   |     
|Additions  charges to income: |             |                          |   |      |   |  |   |      
|                               | Severance   |                          | $ | (84  | ) |  | $ | 1,210 |      
|                               | Lease costs |                          |   | 80   |   |  |   | 295   |      
|                               | Other       |                          |   | 4    |   |  |   | 102   |      
|                               |             |                          |   |      |   |  |   |      
|                               |             | Total additions          |   |      |  |  |   |       | 1,607 | 

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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):

|                         |  |                          |      |      |  |      |      |   |  |   |        |  
|------------------------ |  | ------------------------ | ---- | ---- |  | ---- | ---- | - |  | - | ------ | -
|                         |  |                         
|                         |  | Years Ended December 31,
|                         |  |                         
|                         |  | 2002                     |      | 2001 |  | 2000
|                         |  |                          |      |      |  |     
|Opening balance          |  | $                        | 201  |      |  | $    | 699  |   |  | $ | 1,105  |  
|Additions                |  |                          |     |      |  |      |     |   |  |   | 1,607  |  
|Charges against reserves |  |                          | (201 | )    |  |      | (498 | ) |  |   | (2,013 | )
|                         |  |                          |      |      |  |      |      |   |  |   |        |  
|Ending balance           |  | $                        |     |      |  | $    | 201  |   |  | $ | 699    |  
|                         |  |                          |      |      |  |      |      |   |  |   |        |  

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

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

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

|                                   |  |                          |     |        |  |           |      |        |  |  |     |   |  |   |        |  
|---------------------------------- |  | ------------------------ | --- | ------ |  | --------- | ---- | ------ |  |  | --- | - |  | - | ------ | -
|                                   |  |                         
|                                   |  | Years Ended December 31,
|                                   |  |                         
|                                   |  |                          |     |       
|                                   |  | 2001                     |     | 2000  
|                                   |  |                          |     |       
|                                   |  | # of                     |     |        |  | # of      |      |       
|                                   |  | Employees                |     | Amount |  | Employees |      | Amount
|                                   |  |                          |     |        |  |           |      |       
|Opening balance                    |  |                          | 16  |        |  | $         | 385  |        |  |  | 43  |   |  | $ | 1,105  |  
|Planned terminations               |  |                          |    |        |  |           |     |        |  |  | 35  |   |  |   | 1,210  |  
|Adjustment to planned terminations |  |                          |    |        |  |           | (84  | )      |  |  |    |   |  |   |       |  
|Actual terminations                |  |                          | (16 | )      |  |           | (301 | )      |  |  | (62 | ) |  |   | (1,930 | )
|                                   |  |                          |     |        |  |           |      |        |  |  |     |   |  |   |        |  
|Ending balance                     |  |                          |    |        |  | $         |     |        |  |  | 16  |   |  | $ | 385    |  
|                                   |  |                          |     |        |  |           |      |        |  |  |     |   |  |   |        |  

(11) Financial Reporting for Business
Segments

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

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

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

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CDRJ INVESTMENTS (LUX) S.A. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

operating segments. The effects of intersegment
sales (net sales and related gross profit) are excluded from the
computation of segment operating income.

|                              |  |        |         |        |  |                        |        |        |  |          |        |             |  |              |        |   |  |   |         |  |  |   |         |   |  |   |         | 
|----------------------------- |  | ------ | ------- | ------ |  | ---------------------- | ------ | ------ |  | -------- | ------ | ----------- |  | ------------ | ------ | - |  | - | ------- |  |  | - | ------- | - |  | - | ------- | 
|                              |  |        |         |        |  |                        |        |        |  |          |        | Corporate,  |  |             
|                              |  |        |         | United |  |                        |        | All    |  | Total    |        | Unallocated |  | Consolidated
|                              |  | Mexico |         | States |  | Europe                 |        | Others |  | Segments |        | and Other   |  | Total       
|                              |  |        |         |        |  |                        |        |        |  |          |        |             |  |             
|                              |  |        |         |        |  |                        |        |        |  |         
|                              |  |        |         |        |  | (Dollars in thousands) |        |        |  |         
|Year ended December 31, 2002  |  |        |         |        |  |                        |        |        |  |          |        |             |  |              |        |   |  |   |         |  |  |   |         |   |  |   |         | 
|Net sales                     |  | $      | 251,546 |        |  | $                      | 92,143 |        |  | $        | 26,932 |             |  | $            | 20,357 |   |  | $ | 390,978 |  |  | $ |        |   |  | $ | 390,978 | 
|Operating profit (loss)       |  |        | 66,245  |        |  |                        | 15,620 |        |  |          | 1,224  |             |  |              | (6,148 | ) |  |   | 76,941  |  |  |   | (19,190 | ) |  |   | 57,751  | 
|Depreciation and amortization |  |        | 2,121   |        |  |                        | 2,631  |        |  |          | 411    |             |  |              | 448    |   |  |   | 5,611   |  |  |   |        |   |  |   | 5,611   | 
|Capital expenditures          |  |        | 4,124   |        |  |                        | 6,298  |        |  |          | 174    |             |  |              | 415    |   |  |   | 11,011  |  |  |   |        |   |  |   | 11,011  | 
|Segment assets                |  |        | 178,629 |        |  |                        | 82,532 |        |  |          | 18,673 |             |  |              | 9,890  |   |  |   | 289,724 |  |  |   | (1,434  | ) |  |   | 288,290 | 
|Goodwill                      |  |        | 28,548  |        |  |                        | 32,188 |        |  |          | 5,300  |             |  |              | 269    |   |  |   | 66,305  |  |  |   |        |   |  |   | 66,305  | 
|Year ended December 31, 2001  |  |        |         |        |  |                        |        |        |  |          |        |             |  |              |        |   |  |   |         |  |  |   |         |   |  |   |         | 
|Net sales                     |  |        | 247,514 |        |  |                        | 79,611 |        |  |          | 26,329 |             |  |              | 22,699 |   |  |   | 376,153 |  |  |   |        |   |  |   | 376,153 | 
|Operating profit (loss)       |  |        | 71,289  |        |  |                        | 11,580 |        |  |          | 1,795  |             |  |              | (5,931 | ) |  |   | 78,733  |  |  |   | (22,510 | ) |  |   | 56,223  | 
|Depreciation and amortization |  |        | 3,908   |        |  |                        | 2,709  |        |  |          | 610    |             |  |              | 406    |   |  |   | 7,633   |  |  |   | 116     |   |  |   | 7,749   | 
|Capital expenditures          |  |        | 6,024   |        |  |                        | 4,529  |        |  |          | 230    |             |  |              | 589    |   |  |   | 11,372  |  |  |   |        |   |  |   | 11,372  | 
|Segment assets                |  |        | 193,379 |        |  |                        | 67,792 |        |  |          | 17,788 |             |  |              | 13,313 |   |  |   | 292,272 |  |  |   | (1,136  | ) |  |   | 291,136 | 
|Year ended December 31, 2000  |  |        |         |        |  |                        |        |        |  |          |        |             |  |              |        |   |  |   |         |  |  |   |         |   |  |   |         | 
|Net sales                     |  |        | 199,777 |        |  |                        | 74,137 |        |  |          | 26,882 |             |  |              | 20,432 |   |  |   | 321,228 |  |  |   |        |   |  |   | 321,228 | 
|Operating profit (loss)       |  |        | 64,364  |        |  |                        | 10,709 |        |  |          | 247    |             |  |              | (6,044 | ) |  |   | 69,276  |  |  |   | (26,944 | ) |  |   | 42,332  | 
|Depreciation and amortization |  |        | 4,231   |        |  |                        | 2,111  |        |  |          | 905    |             |  |              | 385    |   |  |   | 7,632   |  |  |   |        |   |  |   | 7,632   | 
|Capital expenditures          |  |        | 2,262   |        |  |                        | 3,662  |        |  |          | 109    |             |  |              | 1,072  |   |  |   | 7,105   |  |  |   |        |   |  |   | 7,105   | 
|Segment assets                |  | $      | 177,086 |        |  | $                      | 68,843 |        |  | $        | 18,254 |             |  | $            | 13,165 |   |  | $ | 277,348 |  |  | $ | (404    | ) |  | $ | 276,944 | 

Additional business segment information regarding
product lines is as follows:

|                                         |                                                              |                 |       |            |       |                 |      |            |   |                 |       |            |       |  |      |       |   |   |       |       |       |  |      |       |   | 
|---------------------------------------- | ------------------------------------------------------------ | --------------- | ----- | ---------- | ----- | --------------- | ---- | ---------- | - | --------------- | ----- | ---------- | ----- |  | ---- | ----- | - | - | ----- | ----- | ----- |  | ---- | ----- | - | 
|                                         |                                                              |                 |       |            |       |                
|                                         |                                                              | 2002            |       | 2001       |       | 2000           
|                                         |                                                              |                 |       |            |       |                
|                                         |                                                              | Sales by        |       | Percentage |       | Sales by        |      | Percentage |   | Sales by        |       | Percentage
|                                         |                                                              | Product Line    |       | of Total   |       | Product Line    |      | of Total   |   | Product Line    |       | of Total  
|                                         |                                                              | ($ in millions) |       | Sales      |       | ($ in millions) |      | Sales      |   | ($ in millions) |       | Sales     
|                                         |                                                              |                 |       |            |       |                 |      |            |   |                 |       |           
|Skin care                                |                                                              | $               | 68.8  |            |       |                 | 18.2 | %          |   | $               | 69.4  |            |       |  | 19.0 | %     |   | $ | 65.8  |       |       |  | 21.0 | %    
|Color cosmetics                          |                                                              |                 | 99.5  |            |       |                 | 26.2 |            |   |                 | 94.3  |            |       |  | 25.8 |       |   |   | 82.4  |       |       |  | 26.2 |      
|Fragrances                               |                                                              |                 | 126.6 |            |       |                 | 33.4 |            |   |                 | 125.4 |            |       |  | 34.3 |       |   |   | 103.7 |       |       |  | 33.0 |      
|Body care and personal care              |                                                              |                 | 42.1  |            |       |                 | 11.1 |            |   |                 | 37.0  |            |       |  | 10.1 |       |   |   | 29.6  |       |       |  | 9.4  |      
|Other(1)                                 |                                                              |                 | 42.0  |            |       |                 | 11.1 |            |   |                 | 39.3  |            |       |  | 10.8 |       |   |   | 32.6  |       |       |  | 10.4 |      
|                                         |                                                              |                 |       |            |       |                 |      |            |   |                 |       |            |       |  |      |       |   |   |       |       |       |  |      |      
|                                         | Subtotal before shipping and other fees less
    commissions |                 |       | 379.0      |       |                 |      | 100.0      | % |                 |       | 365.4      |       |  |      | 100.0 | % |   |       | 314.1 |       |  |      | 100.0 | %
|                                         |                                                              |                 |       |            |       |                 |      |            |   |                 |       |            |       |  |      |       |   |   |       |       |       |  |      |      
|Shipping and other fees less commissions |                                                              |                 | 12.0  |            |       |                 |      |            |   |                 | 10.8  |            |       |  |      |       |   |   | 7.1   |       |       |  |      |      
|                                         |                                                              |                 |       |            |       |                 |      |            |   |                 |       |            |       |  |      |       |   |   |       |       |       |  |      |      
|                                         |                                                              | Total           |       | $          | 391.0 |                 |      |            |   |                 |       | $          | 376.2 |  |      |       |   |   |       | $     | 321.2 |  |      |       |   | 
|                                         |                                                              |                 |       |            |       |                 |      |            |   |                 |       |            |       |  |      |       |   |   |       |       |       |  |      |      



---

|    |                                                                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes sales aids (e.g., party hostess gifts,
    demonstration products, etc.) and promotional materials, which
    typically do not qualify for commissions or overrides.

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CDRJ INVESTMENTS (LUX) S.A. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

(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 2008. The leases contain certain renewal
options and require payment of property taxes, utilities, common
area maintenance and insurance and contain rent escalation
clauses based on consumer price indices. Future minimum lease
payments under noncancelable operating leases as of
December 31, 2002 are (in thousands):

|     |  |   |        | 
|---- |  | - | ------ | 
|2003 |  | $ | 3,841  | 
|2004 |  |   | 3,879  | 
|2005 |  |   | 3,784  | 
|2006 |  |   | 3,592  | 
|2007 |  |   | 3,585  | 
|2008 |  |   | 167    | 
|     |  |   |        | 
|     |  | $ | 18,848 | 
|     |  |   |        | 

Rental expense was $3,781,000, $3,473,000 and
$5,953,000 for the years ended December 31, 2002, 2001 and
2000, respectively.

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

During 2002, the Company initiated product
replacement for a certain product sold in 2001 and 2002. The
total cost of the product replacement is approximately $400,000.
However, management believes that the majority of the cost will
be recovered pursuant to contractual obligations with the
third-party manufacturer. (See Note 14).

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

In accordance with FASB Statement No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets, the Company recorded impairment losses on
long-lived assets used in operations when events and
circumstances indicate that long-lived assets might be impaired
and undiscounted cash flows estimated to be generated by those
assets are less than the carrying amounts of those assets.
Subsequent to December 31, 2002, the Company is considering
strategic decisions to exit certain non-core markets in South
America, Thailand and some or all of Europe through sale or
discontinuance of these operations. As of December 31,
2002, no decision had been made on these non-core markets and
the undiscounted cash flows indicated that such carrying amounts
were expected to be recovered. Given certain strategic decisions
made, it is reasonably possible that the estimate of
undiscounted cash flows may change in the near term resulting in
a need to write down those assets to fair value. In accordance
with FASB 142, Goodwill and Other Intangible Assets, the
transitional and annual impairment test indicated that fair
value of the reporting units associated with the non-core
markets exceeded the carrying value, including goodwill, at
December 31, 2002.

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.

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##### Table of Contents



CDRJ INVESTMENTS (LUX) S.A. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

(13) Management Incentive
Arrangements

Company Plan

Effective 1998, the Company adopted a stock
incentive plan (the Stock Incentive Plan), which
provides for the sale to members of senior management of up to
52,141 shares of common stock of the Parent and the
issuance of options to purchase up to 104,282 additional shares
of common stock. The Company reserved 156,423 shares for
issuance under the Stock Incentive Plan, and as of
December 31, 2002, 42,121 shares and 84,242 options
were outstanding. A summary of the status and activity of shares
purchased under the Stock Incentive Plan is as follows:

|                                        |  |           |        |           |  |   |     | 
|--------------------------------------- |  | --------- | ------ | --------- |  | - | --- | 
|                                        |  | Number    |        | Price Per
|                                        |  | of Shares |        | Share    
|                                        |  |           |        |          
|Shares outstanding at December 31, 1999 |  |           | 38,392 |           |  |   |     | 
|Shares issued in 2000                   |  |           | 4,424  |           |  |   | 206 | 
|Options exercised in 2000               |  |           | 158    |           |  |   | 100 | 
|Shares repurchased in 2000              |  |           | (948   | )         |  | $ | 210 | 
|                                        |  |           |        |           |  |   |     | 
|Shares outstanding at December 31, 2000 |  |           | 42,026 |           |  |   |     | 
|Shares issued in 2001                   |  |           | 474    |           |  |   | 210 | 
|Options exercised in 2001               |  |           | 210    |           |  |   | 150 | 
|Shares repurchased in 2001              |  |           | (589   | )         |  | $ | 250 | 
|                                        |  |           |        |           |  |   |     | 
|Shares outstanding at December 31, 2001 |  |           | 42,121 |           |  |   |     | 
|Shares issued in 2002                   |  |           |       |           |  |   |    | 
|Options exercised in 2002               |  |           |       |           |  |   |    | 
|Shares repurchased in 2002              |  |           |       |           |  |   |    | 
|                                        |  |           |        |           |  |   |     | 
|Shares outstanding at December 31, 2002 |  |           | 42,121 |           |  |   |     | 
|                                        |  |           |        |           |  |   |     | 

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

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

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CDRJ INVESTMENTS (LUX) S.A. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

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

|                                 |  |        |        |                  |  |        |        |                  |  |        |        |                  |  |   |        |  |  |  |        |   |  |   |        | 
|-------------------------------- |  | ------ | ------ | ---------------- |  | ------ | ------ | ---------------- |  | ------ | ------ | ---------------- |  | - | ------ |  |  |  | ------ | - |  | - | ------ | 
|                                 |  |        |        |                  |  |       
|                                 |  | 2002   |        | 2001             |  | 2000  
|                                 |  |        |        |                  |  |       
|                                 |  |        |        | Weighted Average |  |        |        | Weighted Average |  |        |        | Weighted Average
|                                 |  | Shares |        | Exercise Price   |  | Shares |        | Exercise Price   |  | Shares |        | Exercise Price  
|                                 |  |        |        |                  |  |        |        |                  |  |        |        |                 
|Outstanding at beginning of year |  |        | 84,242 |                  |  | $      | 112.36 |                  |  |        | 84,052 |                  |  | $ | 111.69 |  |  |  | 76,784 |   |  | $ | 101.03 | 
|Granted                          |  |        |       |                  |  |        |       |                  |  |        | 948    |                  |  |   | 210.00 |  |  |  | 8,848  |   |  |   | 205.71 | 
|Exercised                        |  |        |       |                  |  |        |       |                  |  |        | (210   | )                |  |   | 150.00 |  |  |  | (158   | ) |  |   | 100.00 | 
|Canceled                         |  |        |       |                  |  |        |       |                  |  |        | (548   | )                |  |   | 163.80 |  |  |  | (1,422 | ) |  |   | 122.22 | 
|                                 |  |        |        |                  |  |        |        |                  |  |        |        |                  |  |   |        |  |  |  |        |   |  |   |        | 
|Outstanding at year-end          |  |        | 84,242 |                  |  | $      | 112.36 |                  |  |        | 84,242 |                  |  | $ | 112.36 |  |  |  | 84,052 |   |  | $ | 111.69 | 
|                                 |  |        |        |                  |  |        |        |                  |  |        |        |                  |  |   |        |  |  |  |        |   |  |   |        | 
|Options exercisable at year-end  |  |        | 66,615 |                  |  | $      | 109.92 |                  |  |        | 63,528 |                  |  | $ | 105.32 |  |  |  | 37,655 |   |  | $ | 100.70 | 
|Options available for grant      |  |        | 19,093 |                  |  |        |       |                  |  |        | 19,093 |                  |  |   |       |  |  |  | 19,493 |   |  |   |       | 

The following table summarizes information about
options outstanding as of December 31, 2002:

|         |  |             |        |                       |  |                  |      |            |  |                  |        |  |  |  |        |  |  |   |        | 
|-------- |  | ----------- | ------ | --------------------- |  | ---------------- | ---- | ---------- |  | ---------------- | ------ |  |  |  | ------ |  |  | - | ------ | 
|         |  |             |        |                      
|         |  | Outstanding |        | Exercisable          
|         |  |             |        |                      
|         |  |             |        | Weighted Average      |  |                  |      |           
|Exercise |  | Number      |        | Remaining Contractual |  | Weighted Average |      | Number     |  | Weighted Average
|Price    |  | of Options  |        | Life (Yrs.)           |  | Exercise Price   |      | of Options |  | Exercise Price  
|         |  |             |        |                       |  |                  |      |            |  |                 
|$100.00  |  |             | 74,256 |                       |  |                  | 5.75 |            |  | $                | 100.00 |  |  |  | 60,117 |  |  | $ | 100.00 | 
|$150.00  |  |             | 948    |                       |  |                  | 6.92 |            |  |                  | 150.00 |  |  |  | 902    |  |  |   | 150.00 | 
|$210.00  |  |             | 9,038  |                       |  |                  | 7.63 |            |  |                  | 210.00 |  |  |  | 5,596  |  |  |   | 210.00 | 
|         |  |             |        |                       |  |                  |      |            |  |                  |        |  |  |  |        |  |  |   |        | 
|         |  |             | 84,242 |                       |  |                  | 5.96 |            |  | $                | 112.36 |  |  |  | 66,615 |  |  | $ | 109.92 | 
|         |  |             |        |                       |  |                  |      |            |  |                  |        |  |  |  |        |  |  |   |        | 

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

|                                       |  |        |       |        |  |        |       |        |  |   |       |   |  |   |       |  
|-------------------------------------- |  | ------ | ----- | ------ |  | ------ | ----- | ------ |  | - | ----- | - |  | - | ----- | -
|                                       |  |        |       |       
|                                       |  | 2001   |       | 2000  
|                                       |  |        |       |       
|                                       |  | Option |       | Option |  | Option |       | Option
|                                       |  | Type 1 |       | Type 2 |  | Type 1 |       | Type 2
|                                       |  |        |       |        |  |        |       |       
|Risk-free interest rate                |  |        | 5.80  | %      |  |        | 5.80  | %      |  |   | 6.30  | % |  |   | 6.30  | %
|Expected option life (in years)        |  |        | 5.0   |        |  |        | 7.0   |        |  |   | 5.0   |   |  |   | 7.0   |  
|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 |  | $      | 52.20 |        |  | $      | 69.28 |        |  | $ | 56.00 |   |  | $ | 73.97 |  

57



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##### Table of Contents



CDRJ INVESTMENTS (LUX) S.A. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

Pro Forma Compensation Cost

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

|                            |  |                          |        |      |  |      |        |  |  |   |       | 
|--------------------------- |  | ------------------------ | ------ | ---- |  | ---- | ------ |  |  | - | ----- | 
|                            |  |                         
|                            |  | Years Ended December 31,
|                            |  |                         
|                            |  | 2002                     |        | 2001 |  | 2000
|                            |  |                          |        |      |  |     
|Net income, as reported     |  | $                        | 18,772 |      |  | $    | 15,840 |  |  | $ | 6,335 | 
|Pro forma compensation cost |  |                          | 92     |      |  |      | 348    |  |  |   | 680   | 
|                            |  |                          |        |      |  |      |        |  |  |   |       | 
|Pro forma net income        |  | $                        | 18,680 |      |  | $    | 15,492 |  |  | $ | 5,655 | 
|                            |  |                          |        |      |  |      |        |  |  |   |       | 

Employment Agreements

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

The Company has a bonus plan for U.S. based
employees which provides that 50% of the bonus earned by any
Vice President or Director shall be deferred and shall vest in
three equal annual installments. As of December 31, 2002
and 2001, $415,000 and $372,000 of bonuses were deferred,
respectively. The Company recognizes compensation expense as the
vesting requirements are met.

(14) Manufacturing Agreement

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

During the fourth quarter of 2000, the Contractor
obtained $1,000,000 of advances from the Company in exchange for
an unsecured promissory note. The note bears interest at an
annual rate of 9% and is payable in monthly installments
commencing on February 15, 2001. On April 15, 2002,
the unsecured promissory note was amended to advance an
additional $320,000 to the contractor. At December 31, 2002
and 2001, approximately $101,000 and $349,000, of the note was
outstanding and was included in receivables in the accompanying
consolidated balance sheets, respectively.



|     |                                                  
|---- | -------------------------------------------------
|(15) | Foreign Currency Forward and Option
    Contracts

The Company is exposed to currency risk relating
to its forecasted U.S. dollar-denominated expenditures at
Jafra S.A. As part of its overall strategy to reduce the risk of
adverse potential exchange rate fluctuations in Mexico, the
Company enters into foreign currency exchange contracts. Prior
to March 2002, the Company purchased forward exchange contracts
(forward contracts or forwards) to hedge
its foreign currency

58



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##### Table of Contents



CDRJ INVESTMENTS (LUX) S.A. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

exposures to the Mexican peso. In March 2002, in
accordance with previously approved policies, the Company
modified its hedging program to include the use of foreign
currency option contracts (option contracts). The
Company places forward contracts or option contracts based on
its forecasted U.S. dollar cash outflows from Jafra S.A.
over a rolling 12 month period and does not hedge
transactions that are not included in the 12 month forecast
on the date the forward contract is initiated. As a matter of
policy, the Company does not hold or issue forward contracts for
trading or speculative purposes nor does it enter into contracts
or agreements containing embedded derivative
features. Prior to entering into forward contracts or option
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.

Effective January 1, 2001, the Company
adopted SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133, as
amended and interpreted, establishes accounting and reporting
standards for derivative instruments and hedging activities and
requires that all derivative instruments be recorded based on
fair value. In connection with the adoption of SFAS
No. 133, at January 1, 2001, the Company recorded a
net gain of $126,000 (net of a tax effect of $82,000) as a
cumulative transition adjustment to earnings. This adjustment
relates to derivatives not designated as hedges prior to
adoption of SFAS No. 133, and represents the difference
between the carrying value and the fair value of such
instruments. Under SFAS No. 133, the Companys use of
forward contracts or option contracts to hedge certain
forecasted transactions does qualify for hedge accounting. Gains
and losses from such derivatives are deferred as a separate
component of other comprehensive loss, and are recognized in
income at the same time that the underlying hedged exposure is
recognized in income. This accounting treatment results in the
matching of gains and losses from such forward contracts or
option contracts with the corresponding gains and losses
generated by the underlying hedged transactions. Contracts that
do not qualify for hedge accounting under SFAS No. 133 are
remeasured based on fair value and the gains and losses are
included as a component of net income.

The forward contracts utilized by the Company did
not qualify for hedge accounting under the applicable accounting
standards prior to adoption of SFAS No. 133 on
January 1, 2001, and accordingly such instruments were
marked-to-market with gains and losses included as a component
of exchange loss in the statements of income for the year ended
December 31, 2000.

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

During the year ended December 31, 2002, the
Company recognized losses of approximately $2,605,000 on forward
contracts and gains of approximately $886,000 on option
contracts (including reclassification of

59



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##### Table of Contents



CDRJ INVESTMENTS (LUX) S.A. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

other comprehensive loss) as a component of
exchange loss in the accompanying consolidated statements of
income. During the year ended December 31, 2001, the
Company recognized approximately $12,188,000 of losses on
forward contracts as a component of exchange loss in the
accompanying consolidated statements of income. During the year
ended December 31, 2000, the Company recognized
approximately $10,050,000 of losses as a component of exchange
loss on forward contracts that did not qualify for hedge
accounting under accounting standards prior to the adoption of
SFAS No. 133.

Additionally, during the year ended
December 31, 2001, the Company deferred as a component of
other comprehensive loss $5,504,000 of losses on forward
contracts qualifying for hedge accounting under SFAS
No. 133. Of this amount, approximately $797,000 was
reclassified as exchange loss and $961,000 was reclassified as
cost of sales upon recognition of the underlying hedged exposure
prior to December 31, 2001. As of December 31, 2001,
the Company had deferred as a component of other comprehensive
income (loss) $3,746,000 of losses on forward contracts.

During the year ended December 31, 2002, the
Company deferred approximately an additional $1,782,000 of
losses on forward contracts qualifying for hedge accounting
under SFAS No. 133. Of the total amount deferred, during
the year ended December 31, 2002, approximately $1,650,000
of other comprehensive loss was reclassified into exchange loss
and approximately $3,139,000 was reclassified into cost of sales
upon the recognition of the underlying hedged exposure. The
Company expects that substantially all of the remaining loss of
$739,000, deferred as a component of other comprehensive loss,
will be recognized into income within the next twelve months.

During the year ended December 31, 2002, the
Company deferred as a component of other comprehensive loss
$1,336,000 of gains on option contracts qualifying for hedge
accounting under SFAS No. 133. Of this amount,
approximately $483,000 of other comprehensive loss was
reclassified to exchange loss and approximately $378,000 was
reclassified as a cost of sales offset upon the recognition of
the underlying hedged exposure. The Company expects
substantially all of the remaining gain of approximately
$475,000, deferred as a component of other comprehensive loss,
to be recognized into income within the next twelve months.

The fair value of the forward contacts at
December 31, 2001 represented an unrealized loss of
$5,540,000 consisting of $2,920,000 of unrealized losses
recorded as a component of other comprehensive loss for
qualifying hedges and $2,620,000 of unrealized losses recorded
as a component of exchange loss for non-qualifying hedges under
SFAS No. 133. As of December 31, 2002, the Company had
no outstanding forward contracts. The fair value of the option
contracts at December 31, 2002 represented an unrealized
gain of approximately $402,000, consisting of $382,000 of
unrealized gains recorded as a component of other comprehensive
loss for qualifying hedges and $21,000 of unrealized gains for
non-qualifying hedges under SFAS No. 133.

During the year ended December 31, 2002, the
ineffectiveness generated by the Companys forward
contracts and option contracts designated as hedges was
insignificant. Certain hedged forecasted transactions do not
appear probable of occurring due to timing differences between
the original and current forecasts, and accordingly $164,000 of
gains were reclassified into earnings.

The outstanding option contracts had a notional
value denominated in Mexican pesos of $523,000,000 in put and
call positions at December 31, 2002 and mature at various
dates through December 31, 2003. The outstanding forward
contracts had notional values denominated in Mexican pesos of
$688,873,000 at December 31, 2001 and matured in 2002.
Notional amounts do not quantify market or credit exposure or
represent assets or liabilities of the Company, but are used in
the calculation of cash settlements under the contracts.

60



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##### Table of Contents



CDRJ INVESTMENTS (LUX) S.A. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

The following table provides information about
the details of the Companys option contracts as of
December 31, 2002 (in thousands):

At December 31, 2002:

|                                                   |  |               |         |                      |  |                 |             |               |  |   |      |   |  |  |                | 
|-------------------------------------------------- |  | ------------- | ------- | -------------------- |  | --------------- | ----------- | ------------- |  | - | ---- | - |  |  | -------------- | 
|                                                   |  | Coverage in   |         |                      |  | Fair Value in   |             |              
|Foreign Currency                                   |  | Mexican Pesos |         | Average Strike Price |  | U.S. Dollars(1) |             | Maturity Date
|                                                   |  |               |         |                      |  |                 |             |              
|Purchased Puts (Company may sell Peso/buy USD)     |  |               |         |                      |  |                 |             |               |  |   |      |   |  |  |                | 
|Mexican Peso                                       |  | $             | 149,000 |                      |  |                 | 10.31-10.48 |               |  | $ | (113 | ) |  |  | Jan.-Mar. 2003 | 
|Mexican Peso                                       |  |               | 100,000 |                      |  |                 | 11.05-12.19 |               |  |   | 77   |   |  |  | Apr.-June 2003 | 
|Mexican Peso                                       |  |               | 150,000 |                      |  |                 | 11.76-12.79 |               |  |   | 131  |   |  |  | July-Aug 2003  | 
|Mexican Peso                                       |  |               | 124,000 |                      |  |                 | 12.51-12.91 |               |  |   | 21   |   |  |  | Oct.-Dec. 2003 | 
|                                                   |  |               |         |                      |  |                 |             |               |  |   |      |   |  |  |                | 
|                                                   |  | $             | 523,000 |                      |  |                 |             |               |  | $ | 116  |   |  |  |                | 
|                                                   |  |               |         |                      |  |                 |             |               |  |   |      |   |  |  |                | 
|Written Calls (Counterparty may buy Peso/sell USD) |  |               |         |                      |  |                 |             |               |  |   |      |   |  |  |                | 
|Mexican Peso                                       |  | $             | 149,000 |                      |  |                 | 9.01-9.02   |               |  | $ | (207 | ) |  |  | Jan.-Mar. 2003 | 
|Mexican Peso                                       |  |               | 100,000 |                      |  |                 | 9.50-9.84   |               |  |   | (144 | ) |  |  | Apr.-June 2003 | 
|Mexican Peso                                       |  |               | 150,000 |                      |  |                 | 9.69-10.19  |               |  |   | (112 | ) |  |  | July-Aug 2003  | 
|Mexican Peso                                       |  |               | 124,000 |                      |  |                 | 10.15-10.19 |               |  |   | (55  | ) |  |  | Oct.-Dec. 2003 | 
|                                                   |  |               |         |                      |  |                 |             |               |  |   |      |   |  |  |                | 
|                                                   |  | $             | 523,000 |                      |  |                 |             |               |  | $ | (518 | ) |  |  |                | 
|                                                   |  |               |         |                      |  |                 |             |               |  |   |      |   |  |  |                | 




|    |                                                                                                                                                                                                                                                   
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The fair value of the option contracts presented
    above, an unrealized gain of $402,000 at December 31, 2002,
    represents the carrying value and has been recorded in other
    receivables in the accompanying consolidated balance sheets.

61



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##### Table of Contents



CDRJ INVESTMENTS (LUX) S.A. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

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

December 31, 2001:

|                                |  |                  |         |          |  |                  |          |                 |  |  |       |  |  |   |       |    
|------------------------------- |  | ---------------- | ------- | -------- |  | ---------------- | -------- | --------------- |  |  | ----- |  |  | - | ----- | ---
|                                |  | Forward Position |         |          |  |                  |          |                
|                                |  | In Mexican       |         | Maturity |  | Weighted Average |          | Fair Value in  
|Foreign Currency                |  | Pesos(1)         |         | Date     |  | Contract Rate    |          | U.S. Dollars(1)
|                                |  |                  |         |          |  |                  |          |                
|Buy US Dollar/sell Mexican Peso |  | $                | 108,715 |          |  |                  | 1/31/02  |                 |  |  | 10.19 |  |  | $ | 1,128 |    
|Sell Mexican Peso/buy US Dollar |  |                  | (20,000 | )        |  |                  | 1/31/02  |                 |  |  | 9.35  |  |  |   | (34   | )  
|Buy US Dollar/sell Mexican Peso |  |                  | 71,787  |          |  |                  | 2/28/02  |                 |  |  | 10.26 |  |  |   | 756   |    
|Sell Mexican Peso/buy US Dollar |  |                  | (20,000 | )        |  |                  | 2/28/02  |                 |  |  | 9.47  |  |  |   | (48   | )  
|Buy US Dollar/sell Mexican Peso |  |                  | 94,371  |          |  |                  | 3/27/02  |                 |  |  | 10.46 |  |  |   | 1,102 |    
|Sell Mexican Peso/buy US Dollar |  |                  | (40,000 | )        |  |                  | 3/27/02  |                 |  |  | 9.48  |  |  |   | (80   | )  
|Buy US Dollar/sell Mexican Peso |  |                  | 85,000  |          |  |                  | 4/30/02  |                 |  |  | 10.23 |  |  |   | 748   |    
|Sell Mexican Peso/buy US Dollar |  |                  | (30,000 | )        |  |                  | 4/30/02  |                 |  |  | 9.62  |  |  |   | (84   | )  
|Buy US Dollar/sell Mexican Peso |  |                  | 81,000  |          |  |                  | 5/31/02  |                 |  |  | 10.11 |  |  |   | 559   |    
|Sell Mexican Peso/buy US Dollar |  |                  | (25,000 | )        |  |                  | 5/31/02  |                 |  |  | 9.71  |  |  |   | (75   | )  
|Buy US Dollar/sell Mexican Peso |  |                  | 80,000  |          |  |                  | 6/28/02  |                 |  |  | 9.95  |  |  |   | 375   |    
|Sell Mexican Peso/buy US Dollar |  |                  | (30,000 | )        |  |                  | 6/28/02  |                 |  |  | 9.78  |  |  |   | (88   | )  
|Buy US Dollar/sell Mexican Peso |  |                  | 48,000  |          |  |                  | 7/31/02  |                 |  |  | 10.07 |  |  |   | 242   |    
|Buy US Dollar/sell Mexican Peso |  |                  | 100,000 |          |  |                  | 8/30/02  |                 |  |  | 10.05 |  |  |   | 410   |    
|Buy US Dollar/sell Mexican Peso |  |                  | 45,000  |          |  |                  | 9/30/02  |                 |  |  | 10.09 |  |  |   | 169   |    
|Buy US Dollar/sell Mexican Peso |  |                  | 110,000 |          |  |                  | 10/31/02 |                 |  |  | 10.09 |  |  |   | 338   |    
|Buy US Dollar/sell Mexican Peso |  |                  | 30,000  |          |  |                  | 11/29/02 |                 |  |  | 10.27 |  |  |   | 122   |    
|                                |  |                  |         |          |  |                  |          |                 |  |  |       |  |  |   |       |    
|                                |  | $                | 688,873 |          |  |                  |          |                 |  |  |       |  |  | $ | 5,540 | (1)
|                                |  |                  |         |          |  |                  |          |                 |  |  |       |  |  |   |       |    




|    |                                                                                                                                                                                                                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The Fair Value of the forward positions presented
    above, an unrealized loss of $5,540,000 at December 31,
    2001, represents the carrying value of the forward contracts and
    has been recorded in accrued liabilities in the accompanying
    consolidated balance sheets.



|     |                           
|---- | --------------------------
|(16) | Fourth Quarter Adjustments

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

62



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##### Table of Contents



INDEPENDENT AUDITORS REPORT

To the Board of Directors and Stockholder of

Jafra Cosmetics International, Inc.


Westlake Village, California


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

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

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

DELOITTE & TOUCHE, LLP

Los Angeles, California

March 6, 2002 (February 24, 2003, as

 to paragraphs 16 and 17 of Note 2)


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INDEPENDENT AUDITORS REPORT

To the Board of Directors and Stockholder of

Jafra Cosmetics International, Inc.


Westlake Village, California


We have audited the accompanying consolidated
balance sheet of Jafra Cosmetics International, Inc. and
subsidiaries (the Company), an indirect, wholly
owned subsidiary of CDRJ Investments (Lux) S.A., as of
December 31, 2002, and the related consolidated statement
of income, stockholders equity, and cash flows for the
year then ended. Our audit also included the financial statement
schedule for the year ended December 31, 2002 listed at
Item 15(a)(2). These financial statements and schedule are
the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our audit in accordance with
auditing standards generally accepted in the United States.
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, such consolidated financial
statements present fairly, in all material respects, the
financial position of Jafra Cosmetics International, Inc. and
subsidiaries as of December 31, 2002, and the results of
their operations and their cash flows for the year then ended,
in conformity with accounting principles generally accepted in
the United States. Also, in our opinion, the related financial
statement schedule for the year ended December 31, 2002,
when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the
information set forth therein.

As discussed in Note 2 to the consolidated
financial statements, effective January 1, 2002, the
Company adopted Statement of Financial Accounting Standards
No. 142.



| |                       
| | ----------------------
| | /s/ ERNST & YOUNG, LLP

Los Angeles, California

February 21, 2003


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JAFRA COSMETICS INTERNATIONAL, INC. AND
SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)


|                                     |                                                                                                      |                            |        |        |         |  |        |        |         | 
|------------------------------------ | ---------------------------------------------------------------------------------------------------- | -------------------------- | ------ | ------ | ------- |  | ------ | ------ | ------- | 
|                                     |                                                                                                      |                           
|                                     |                                                                                                      | December 31,              
|                                     |                                                                                                      |                           
|                                     |                                                                                                      | 2002                       |        | 2001  
|                                     |                                                                                                      |                            |        |       
|ASSETS                              
|Current assets:                      |                                                                                                      |                            |        |        |         |  |        |       
|                                     | Cash and cash equivalents                                                                            |                            | $      | 13,088 |         |  | $      | 4,081  |        
|                                     | Receivables, less allowances for doubtful
    accounts of $613 in 2002 and $523 in 2001.             |                            |        | 5,713  |         |  |        | 6,447  |        
|                                     | Inventories                                                                                          |                            |        | 11,974 |         |  |        | 8,677  |        
|                                     | Receivables from affiliates                                                                          |                            |        | 25,608 |         |  |        | 23,633 |        
|                                     | Prepaids and other current assets                                                                    |                            |        | 2,554  |         |  |        | 1,665  |        
|                                     | Deferred income taxes                                                                                |                            |        |       |         |  |        | 55     |        
|                                     |                                                                                                      |                            |        |        |         |  |        |       
|                                     |                                                                                                      | Total current assets       |        |        | 58,937  |  |        |        | 44,558  | 
|Property and equipment, net          |                                                                                                      |                            | 26,357 |        |         |  | 22,742 |       
|Other assets:                        |                                                                                                      |                            |        |        |         |  |        |       
|                                     | Goodwill                                                                                             |                            |        | 37,488 |         |  |        | 38,125 |        
|                                     | Notes receivable from affiliates                                                                     |                            |        | 10,694 |         |  |        | 3,902  |        
|                                     | Deferred financing fees, net                                                                         |                            |        | 2,375  |         |  |        | 3,004  |        
|                                     | Other                                                                                                |                            |        | 3,938  |         |  |        | 3,716  |        
|                                     |                                                                                                      |                            |        |        |         |  |        |       
|                                     |                                                                                                      | Total                      |        | $      | 139,789 |  |        | $      | 116,047 | 
|                                     |                                                                                                      |                            |        |        |         |  |        |       
|                                    
|LIABILITIES AND STOCKHOLDERS EQUITY
|Current liabilities:                 |                                                                                                      |                            |        |        |         |  |        |       
|                                     | Current portion of long-term debt                                                                    |                            | $      | 4,000  |         |  | $      | 3,000  |        
|                                     | Accounts payable                                                                                     |                            |        | 5,944  |         |  |        | 5,591  |        
|                                     | Accrued liabilities                                                                                  |                            |        | 12,230 |         |  |        | 12,709 |        
|                                     | Income taxes payable                                                                                 |                            |        | 815    |         |  |        | 965    |        
|                                     | Deferred income taxes                                                                                |                            |        | 643    |         |  |        |       |        
|                                     | Payables to affiliates                                                                               |                            |        | 20,435 |         |  |        | 2,639  |        
|                                     |                                                                                                      |                            |        |        |         |  |        |       
|                                     |                                                                                                      | Total current liabilities  |        |        | 44,067  |  |        |        | 24,904  | 
|Long-term debt                       |                                                                                                      |                            | 47,108 |        |         |  | 52,908 |       
|Deferred income taxes                |                                                                                                      |                            | 4,671  |        |         |  | 3,353  |       
|Other long-term liabilities          |                                                                                                      |                            | 3,787  |        |         |  | 3,088  |       
|                                     |                                                                                                      |                            |        |        |         |  |        |       
|                                     |                                                                                                      | Total liabilities          |        |        | 99,633  |  |        |        | 84,253  | 
|                                     |                                                                                                      |                            |        |        |         |  |        |       
|Commitments and contingencies        |                                                                                                      |                            |       |        |         |  |       |       
|Stockholders equity:                |                                                                                                      |                            |        |        |         |  |        |       
|                                     | Common stock, par value $.01; authorized, issued
    and outstanding, 1,000 shares in 2002 and 2001. |                            |        |       |         |  |        |       |        
|                                     | Additional paid-in capital                                                                           |                            |        | 39,649 |         |  |        | 39,649 |        
|                                     | Retained earnings (deficit)                                                                          |                            |        | 3,249  |         |  |        | (5,376 | )      
|                                     | Accumulated other comprehensive loss                                                                 |                            |        | (2,742 | )       |  |        | (2,479 | )      
|                                     |                                                                                                      |                            |        |        |         |  |        |       
|                                     |                                                                                                      | Total stockholders equity |        |        | 40,156  |  |        |        | 31,794  | 
|                                     |                                                                                                      |                            |        |        |         |  |        |       
|                                     |                                                                                                      | Total                      |        | $      | 139,789 |  |        | $      | 116,047 | 
|                                     |                                                                                                      |                            |        |        |         |  |        |       

See accompanying notes to consolidated financial
statements.

65



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JAFRA COSMETICS INTERNATIONAL, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In thousands)


|                                                                                           |                           |                          |         |        |   |      |         |        |   |   |         |        |  
|------------------------------------------------------------------------------------------ | ------------------------- | ------------------------ | ------- | ------ | - | ---- | ------- | ------ | - | - | ------- | ------ | -
|                                                                                           |                           |                         
|                                                                                           |                           | Years Ended December 31,
|                                                                                           |                           |                         
|                                                                                           |                           | 2002                     |         | 2001   |   | 2000
|                                                                                           |                           |                          |         |        |   |     
|Net sales to third parties                                                                 |                           | $                        | 125,199 |        |   | $    | 110,227 |        |   | $ | 102,267 |       
|Sales to affiliates                                                                        |                           |                          | 15,817  |        |   |      | 13,442  |        |   |   | 14,297  |       
|                                                                                           |                           |                          |         |        |   |      |         |        |   |   |         |       
|Net sales                                                                                  |                           |                          | 141,016 |        |   |      | 123,669 |        |   |   | 116,564 |       
|Cost of sales                                                                              |                           |                          | 43,778  |        |   |      | 37,383  |        |   |   | 36,063  |       
|                                                                                           |                           |                          |         |        |   |      |         |        |   |   |         |       
|                                                                                           | Gross profit              |                          |         | 97,238 |   |      |         | 86,286 |   |   |         | 80,501 |  
|Selling, general and administrative expenses                                               |                           |                          | 100,316 |        |   |      | 95,022  |        |   |   | 87,496  |       
|Management fee income from affiliates                                                      |                           |                          | (7,225  | )      |   |      | (8,504  | )      |   |   | (8,141  | )     
|Restructuring and impairment charges                                                       |                           |                          |        |        |   |      |        |        |   |   | 2,392   |       
|                                                                                           | Loss on sale of assets    |                          |         | 1      |   |      |         | 92     |   |   |         | 147    |  
|Royalty income from affiliates, net                                                        |                           |                          | (19,775 | )      |   |      | (20,098 | )      |   |   | (14,620 | )     
|Market subsidy expense                                                                     |                           |                          | 5,121   |        |   |      |        |        |   |   |        |       
|                                                                                           |                           |                          |         |        |   |      |         |        |   |   |         |       
|                                                                                           | Income from operations    |                          |         | 18,800 |   |      |         | 19,774 |   |   |         | 13,227 |  
|Other income (expense):                                                                    |                           |                          |         |        |   |      |         |        |   |   |         |       
|                                                                                           | Exchange gain (loss), net |                          |         | 406    |   |      |         | (225   | ) |   |         | (178   | )
|                                                                                           | Interest expense, net     |                          |         | (6,134 | ) |      |         | (6,794 | ) |   |         | (7,564 | )
|                                                                                           | Other, net                |                          |         | 281    |   |      |         | (189   | ) |   |         | 9      |  
|                                                                                           |                           |                          |         |        |   |      |         |        |   |   |         |       
|Income before income taxes and extraordinary item                                          |                           |                          | 13,353  |        |   |      | 12,566  |        |   |   | 5,494   |       
|Income tax expense                                                                         |                           |                          | 4,728   |        |   |      | 6,054   |        |   |   | 3,075   |       
|                                                                                           |                           |                          |         |        |   |      |         |        |   |   |         |       
|Income before extraordinary item                                                           |                           |                          | 8,625   |        |   |      | 6,512   |        |   |   | 2,419   |       
|Extraordinary loss on early extinguishment of
    debt, net of income tax benefit of $120. |                           |                          |        |        |   |      |        |        |   |   | 205     |       
|                                                                                           |                           |                          |         |        |   |      |         |        |   |   |         |       
|Net income                                                                                 |                           | $                        | 8,625   |        |   | $    | 6,512   |        |   | $ | 2,214   |       
|                                                                                           |                           |                          |         |        |   |      |         |        |   |   |         |       

See accompanying notes to consolidated financial
statements.

66



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JAFRA COSMETICS INTERNATIONAL, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY

(In thousands, except for shares)


|                                |                                  |                            |  |        |       |        |   |        |        |        |  |        |       |  |   |         |        |  |  |       |       |  |   |         |        | 
|------------------------------- | -------------------------------- | -------------------------- |  | ------ | ----- | ------ | - | ------ | ------ | ------ |  | ------ | ----- |  | - | ------- | ------ |  |  | ----- | ----- |  | - | ------- | ------ | 
|                                |                                  |                           
|                                |                                  | Years Ended December 31,  
|                                |                                  |                           
|                                |                                  |                            |  |        |       |       
|                                |                                  | 2002                       |  | 2001   |       | 2000  
|                                |                                  |                            |  |        |       |       
|                                |                                  | Shares                     |  | Amount |       | Shares |   | Amount |        | Shares |  | Amount
|                                |                                  |                            |  |        |       |        |   |        |        |        |  |       
|Capital Stock:                  |                                  |                            |  |        |       |        |   |        |        |        |  |        |       |  |   |         |        |  |  |       |       |  |   |        
|                                | Balance, beginning of year       |                            |  | 1,000  |       |        | $ |       |        |        |  | 1,000  |       |  | $ |        |        |  |  | 1,000 |       |  | $ |        |       
|                                |                                  |                            |  |        |       |        |   |        |        |        |  |        |       |  |   |         |        |  |  |       |       |  |   |        
|                                | Balance, end of year             |                            |  | 1,000  |       |        |   |       |        |        |  | 1,000  |       |  |   |        |        |  |  | 1,000 |       |  |   |        |       
|Additional Paid-in Capital:     |                                  |                            |  |        |       |        |   |        |        |        |  |        |       |  |   |         |        |  |  |       |       |  |   |        
|                                | Balance, beginning of year       |                            |  |        |       |        |   | 39,649 |        |        |  |        |       |  |   | 39,649  |        |  |  |       |       |  |   | 38,749  |       
|                                | Capital contributions by parent  |                            |  |        |       |        |   |       |        |        |  |        |       |  |   |        |        |  |  |       |       |  |   | 900     |       
|                                |                                  |                            |  |        |       |        |   |        |        |        |  |        |       |  |   |         |        |  |  |       |       |  |   |        
|                                | Balance, end of year             |                            |  |        |       |        |   | 39,649 |        |        |  |        |       |  |   | 39,649  |        |  |  |       |       |  |   | 39,649  |       
|Retained Earnings (Deficit):    |                                  |                            |  |        |       |        |   |        |        |        |  |        |       |  |   |         |        |  |  |       |       |  |   |        
|                                | Balance, beginning of year       |                            |  |        |       |        |   | (5,376 | )      |        |  |        |       |  |   | (11,888 | )      |  |  |       |       |  |   | (14,102 | )     
|                                | Net income                       |                            |  |        |       |        |   | 8,625  |        |        |  |        |       |  |   | 6,512   |        |  |  |       |       |  |   | 2,214   |       
|                                |                                  |                            |  |        |       |        |   |        |        |        |  |        |       |  |   |         |        |  |  |       |       |  |   |        
|                                | Balance, end of year             |                            |  |        |       |        |   | 3,249  |        |        |  |        |       |  |   | (5,376  | )      |  |  |       |       |  |   | (11,888 | )     
|Accumulated Other Comprehensive |                                  |                            |  |        |       |        |   |        |        |        |  |        |       |  |   |         |        |  |  |       |       |  |   |        
|                                | Loss:                            |                            |  |        |       |        |   |        |        |        |  |        |       |  |   |         |        |  |  |       |       |  |   |         |       
|                                | Balance, beginning of year       |                            |  |        |       |        |   | (2,479 | )      |        |  |        |       |  |   | (2,223  | )      |  |  |       |       |  |   | (2,319  | )     
|                                | Currency translation adjustments |                            |  |        |       |        |   | (263   | )      |        |  |        |       |  |   | (256    | )      |  |  |       |       |  |   | 96      |       
|                                |                                  |                            |  |        |       |        |   |        |        |        |  |        |       |  |   |         |        |  |  |       |       |  |   |        
|                                | Balance, end of year             |                            |  |        |       |        |   | (2,742 | )      |        |  |        |       |  |   | (2,479  | )      |  |  |       |       |  |   | (2,223  | )     
|                                |                                  |                            |  |        |       |        |   |        |        |        |  |        |       |  |   |         |        |  |  |       |       |  |   |        
|                                |                                  | Total Stockholders Equity |  |        | 1,000 |        |   | $      | 40,156 |        |  |        | 1,000 |  |   | $       | 31,794 |  |  |       | 1,000 |  |   | $       | 25,538 | 
|                                |                                  |                            |  |        |       |        |   |        |        |        |  |        |       |  |   |         |        |  |  |       |       |  |   |        
|Comprehensive Income:           |                                  |                            |  |        |       |        |   |        |        |        |  |        |       |  |   |         |        |  |  |       |       |  |   |        
|                                | Net income                       |                            |  |        |       |        | $ | 8,625  |        |        |  |        |       |  | $ | 6,512   |        |  |  |       |       |  | $ | 2,214   |       
|                                | Currency translation adjustments |                            |  |        |       |        |   | (263   | )      |        |  |        |       |  |   | (256    | )      |  |  |       |       |  |   | 96      |       
|                                |                                  |                            |  |        |       |        |   |        |        |        |  |        |       |  |   |         |        |  |  |       |       |  |   |        
|                                |                                  | Total Comprehensive Income |  |        |       |        |   | $      | 8,362  |        |  |        |       |  |   | $       | 6,256  |  |  |       |       |  |   | $       | 2,310  | 
|                                |                                  |                            |  |        |       |        |   |        |        |        |  |        |       |  |   |         |        |  |  |       |       |  |   |        

See accompanying notes to consolidated financial
statements.

67



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JAFRA COSMETICS INTERNATIONAL, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                     |                                                                                                                           |                                                 |                                           |                                                         |       |        |         |         |       |         |        |         |       |        |        |  
|---------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------- | ----------------------------------------- | ------------------------------------------------------- | ----- | ------ | ------- | ------- | ----- | ------- | ------ | ------- | ----- | ------ | ------ | -
|                                                     |                                                                                                                           |                                                
|                                                     |                                                                                                                           | Years Ended December 31,                       
|                                                     |                                                                                                                           |                                                
|                                                     |                                                                                                                           | 2002                                            |                                           | 2001                                                    |       | 2000  
|                                                     |                                                                                                                           |                                                 |                                           |                                                         |       |       
|                                                     |                                                                                                                           |                                                
|                                                     |                                                                                                                           | (In thousands)                                 
|Cash flows from operating
    activities:            |                                                                                                                           |                                                 |                                           |                                                         |       |        |         |         |       |         |        |        
|                                                     | Net income                                                                                                                |                                                 | $                                         | 8,625                                                   |       |        | $       | 6,512   |       |         | $      | 2,214   |      
|                                                     | Extraordinary loss on early extinguishment of
    debt, net of taxes                                                      |                                                 |                                           |                                                        |       |        |         |        |       |         |        | 205     |      
|                                                     |                                                                                                                           |                                                 |                                           |                                                         |       |        |         |         |       |         |        |        
|                                                     | Income before extraordinary item                                                                                          |                                                 |                                           | 8,625                                                   |       |        |         | 6,512   |       |         |        | 2,419   |      
|                                                     | Adjustments to reconcile income before
    extraordinary item to net cash provided by (used in) operating
    activities: |                                                 |                                           |                                                         |       |        |         |         |       |         |        |         |      
|                                                     |                                                                                                                           | Loss on sale of property and equipment          |                                           |                                                         |      |        |         |         | 92    |         |        |         | 147   |       
|                                                     |                                                                                                                           | Depreciation and amortization                   |                                           |                                                         | 3,231 |        |         |         | 3,484 |         |        |         | 3,014 |       
|                                                     |                                                                                                                           | Provision for uncollectible accounts receivable |                                           |                                                         | 680   |        |         |         | 559   |         |        |         | 898   |       
|                                                     |                                                                                                                           | Amortization of deferred financing fees         |                                           |                                                         | 629   |        |         |         | 628   |         |        |         | 633   |       
|                                                     |                                                                                                                           | Asset impairment charge                         |                                           |                                                         |      |        |         |         |      |         |        |         | 1,019 |       
|                                                     |                                                                                                                           | Unrealized foreign exchange (gain) loss         |                                           |                                                         | (99   | )      |         |         | 208   |         |        |         | 249   |       
|                                                     |                                                                                                                           | Deferred income taxes                           |                                           |                                                         | 2,016 |        |         |         | 2,407 |         |        |         | 891   |       
|                                                     |                                                                                                                           | Changes in operating assets and liabilities:    |                                           |                                                         |       |        |         |         |       |         |        |         |       |       
|                                                     |                                                                                                                           |                                                 | Receivables                               |                                                         |       | 54     |         |         |       | (276    | )      |         |       | 346    |       
|                                                     |                                                                                                                           |                                                 | Inventories                               |                                                         |       | (3,297 | )       |         |       | 778     |        |         |       | (2,287 | )     
|                                                     |                                                                                                                           |                                                 | Prepaid expenses and other current assets |                                                         |       | (889   | )       |         |       | 733     |        |         |       | (422   | )     
|                                                     |                                                                                                                           |                                                 | Affiliate receivables and payables        |                                                         |       | 15,920 |         |         |       | (18,221 | )      |         |       | 1,936  |       
|                                                     |                                                                                                                           |                                                 | Other assets                              |                                                         |       | 309    |         |         |       | 254     |        |         |       | 841    |       
|                                                     |                                                                                                                           |                                                 | Accounts payable and accrued liabilities  |                                                         |       | (126   | )       |         |       | (240    | )      |         |       | (1,999 | )     
|                                                     |                                                                                                                           |                                                 | Income taxes payable/prepaid              |                                                         |       | (150   | )       |         |       | 572     |        |         |       | 272    |       
|                                                     |                                                                                                                           |                                                 | Other long-term liabilities               |                                                         |       | 699    |         |         |       | 721     |        |         |       | (341   | )     
|                                                     |                                                                                                                           |                                                 |                                           |                                                         |       |        |         |         |       |         |        |        
|                                                     |                                                                                                                           |                                                 |                                           | Net cash provided by (used in) operating
    activities |       |        | 27,602  |         |       |         | (1,789 | )       |       |        | 7,616  |  
|                                                     |                                                                                                                           |                                                 |                                           |                                                         |       |        |         |         |       |         |        |        
|Cash flows from investing
    activities:            |                                                                                                                           |                                                 |                                           |                                                         |       |        |         |         |       |         |        |        
|                                                     | Proceeds from sale of property and equipment                                                                              |                                                 |                                           |                                                        |       |        |         |        |       |         |        | 92      |      
|                                                     | Purchases of property and equipment                                                                                       |                                                 |                                           | (6,669                                                  | )     |        |         | (5,091  | )     |         |        | (4,418  | )    
|                                                     | Other                                                                                                                     |                                                 |                                           | (531                                                    | )     |        |         | (408    | )     |         |        | (760    | )    
|                                                     |                                                                                                                           |                                                 |                                           |                                                         |       |        |         |         |       |         |        |        
|                                                     |                                                                                                                           |                                                 |                                           | Net cash used in investing activities                   |       |        | (7,200  | )       |       |         | (5,499 | )       |       |        | (5,086 | )
|                                                     |                                                                                                                           |                                                 |                                           |                                                         |       |        |         |         |       |         |        |        
|Cash flows from financing
    activities:            |                                                                                                                           |                                                 |                                           |                                                         |       |        |         |         |       |         |        |        
|                                                     | Repurchase of subordinated notes                                                                                          |                                                 |                                           |                                                        |       |        |         |        |       |         |        | (6,358  | )    
|                                                     | Repayments under term loan facility                                                                                       |                                                 |                                           | (3,000                                                  | )     |        |         | (2,500  | )     |         |        | (2,000  | )    
|                                                     | Net repayments under revolving credit facility                                                                            |                                                 |                                           | (1,800                                                  | )     |        |         | (12,700 | )     |         |        | (10,000 | )    
|                                                     | Capital contributions by Parent                                                                                           |                                                 |                                           |                                                        |       |        |         |        |       |         |        | 900     |      
|                                                     | Net transactions with affiliates                                                                                          |                                                 |                                           | (6,792                                                  | )     |        |         | 23,280  |       |         |        | 14,788  |      
|                                                     |                                                                                                                           |                                                 |                                           |                                                         |       |        |         |         |       |         |        |        
|                                                     |                                                                                                                           |                                                 |                                           | Net cash (used in) provided by financing
    activities |       |        | (11,592 | )       |       |         | 8,080  |         |       |        | (2,670 | )
|                                                     |                                                                                                                           |                                                 |                                           |                                                         |       |        |         |         |       |         |        |        
|Effect of exchange rate changes on cash              |                                                                                                                           |                                                 | 197                                       |                                                         |       |        | (93     | )       |       |         | 496    |        
|                                                     |                                                                                                                           |                                                 |                                           |                                                         |       |        |         |         |       |         |        |        
|                                                     |                                                                                                                           |                                                 |                                           | Net increase in cash and cash equivalents               |       |        | 9,007   |         |       |         | 699    |         |       |        | 356    |  
|Cash and cash equivalents at beginning of year       |                                                                                                                           |                                                 | 4,081                                     |                                                         |       |        | 3,382   |         |       |         | 3,026  |        
|                                                     |                                                                                                                           |                                                 |                                           |                                                         |       |        |         |         |       |         |        |        
|Cash and cash equivalents at end of year             |                                                                                                                           | $                                               | 13,088                                    |                                                         |       | $      | 4,081   |         |       | $       | 3,382  |        
|                                                     |                                                                                                                           |                                                 |                                           |                                                         |       |        |         |         |       |         |        |        
|Supplemental disclosure of cash flow
    information |                                                                                                                           |                                                 |                                           |                                                         |       |        |         |         |       |         |        |        
|                                                     | Cash paid during the year for:                                                                                            |                                                 |                                           |                                                         |       |        |         |         |       |         |        |         |      
|                                                     |                                                                                                                           | Interest                                        |                                           | $                                                       | 5,847 |        |         | $       | 6,748 |         |        | $       | 9,669 |       
|                                                     |                                                                                                                           | Income Taxes                                    |                                           |                                                         | 1,051 |        |         |         | 2,586 |         |        |         | 2,154 |       

See accompanying notes to consolidated financial
statements.

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JAFRA COSMETICS INTERNATIONAL, INC. AND
SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

(1) Basis of Presentation and Description
of Business

Basis of Presentation

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

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

In connection with the Acquisition, JCI and an
affiliated company, Jafra Cosmetics International, S.A. de C.V.
(Jafra S.A.) (the indirect, wholly owned Mexican
subsidiary of the Parent) issued $100 million aggregate
principal amount of 11.75% Subordinated Notes due 2008 (the
Notes). See Note 6. The Notes represent several
obligations of JCI and Jafra S.A., with each participating on a
pro rata basis upon redemption. JCI and Jafra S.A. have fully
and unconditionally guaranteed the obligations under the Notes
of the other on a senior subordinated basis, subject to a 30-day
standstill period prior to enforcement of such guarantees. As
the cross-guarantee of JCI and Jafra S.A. is subject to a 30-day
standstill period, the Parent is filing these separate financial
statements of JCI as a schedule to its Annual Report on
Form 10-K for the year ended December 31, 2002.

Description of Business

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

(2) Summary of Significant Accounting
Policies

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

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

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

Property and Equipment.Property and equipment are stated at
cost. Depreciation of property and equipment is provided for
over the estimated useful lives of the respective assets using
the straight-line method. Estimated useful lives are
40 years for buildings, the lesser of 40 years or the
term of the lease for improvements, 5 to 15 years for
machinery and equipment and 5 to 8 years for hardware and
software.

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JAFRA COSMETICS INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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. On January 1, 2002, JCI adopted
Statement of Financial Accounting Standards (SFAS)
No. 142, Goodwill and other Intangible Assets
which requires JCI to not amortize goodwill and certain other
intangible assets, but to test those intangible assets for
impairment at least annually. Prior to adoption of
SFAS No. 142, goodwill and other intangible assets
were amortized using the straight-line method over a period of
40 years. Goodwill and trademarks resulted from the
Parents acquisition of the Jafra Business. The book value
of goodwill and trademarks was $37,488,000 and $237,000 at
December 31, 2002, respectively. (See New Accounting
Standards).

Deferred Financing Costs.In connection with the acquisition of
the Jafra Business, JCI incurred approximately $7.2 million
of costs related to the 11.75% Senior Subordinated Notes due
2008 (the Notes), the revolving credit facility and
the term loan facility (see Note 6). Such costs are being
amortized on a basis that approximates the interest method over
the expected term of the related debt. Accumulated amortization
at December 31, 2002 and 2001 was $3,129,000 and
$2,500,000, respectively.

Impairment of Long-Lived Assets and Goodwill.Long-lived assets 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 is not
recoverable, JCI will recognize an impairment loss, measured by
the future discounted cash flow method. Goodwill is tested for
impairment annually, or whenever events or changes in
circumstances indicate that the carrying amount of goodwill may
not be recoverable based on the provisions of
SFAS No. 142. (see New Accounting
Standards and Note 10)

Fair Value of Financial Instruments.The carrying amounts of cash and cash
equivalents, accounts receivable, and accounts payable
approximate fair value because of the short-term maturities of
these instruments. The fair value of the Notes at
December 31, 2002 and 2001 was $46,236,000 and $48,266,000,
respectively, based on discussions with one of JCIs
largest bondholders and an analysis of current market interest
rates and the Parents credit rating. As JCIs
revolving credit facility and the term loan are variable rate
debt, and the interest rate spread paid by JCI is adjusted for
changes in certain financial ratios of the Parent, the fair
value of the revolving credit facility and the term loan
approximated their carrying amounts at December 31, 2002
and 2001.

Revenue Recognition.JCI recognizes revenue when title
passes at shipment in accordance with its shipping terms.
Amounts billed to consultants for shipping and handling costs
are included in net sales. Sales are reduced by commissions paid
to consultants on their personal sales.

Shipping and handling costs.Shipping and handling costs of
$12,706,000, $11,265,000 and $12,170,000 for the years ended
December 31, 2002, 2001 and 2000, respectively, are
included in selling, general and administrative expenses.

Research and Development.Research and development costs are
expensed as incurred. Total research and development expense
aggregated $1,469,000, $1,842,000 and $1,901,000 for the years
ended December 31, 2002, 2001 and 2000, respectively. The
portion of the above-identified research and development
expenses incurred by the JCI and charged to Jafra S.A. as part
of the JCIs management fee income (see Note 9) aggregated
$1,081,000, $864,000 and $978,000, for the years ended
December 31, 2002, 2001 and 2000, respectively.

Income Taxes.JCI
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

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JAFRA COSMETICS INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

have been recognized in JCIs financial
statements or income tax returns. Management provides a
valuation allowance for deferred income tax assets when it is
more likely than not that a portion of such deferred income tax
assets will not be realized. Income tax expense of JCI is
computed on a separate-company basis.

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

New Accounting Standards.In June 2001, the Financial Accounting
Standards Board (FASB) approved two new statements:
SFAS No. 141, Business Combinations and
SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 141 requires business
combinations entered into after June 30, 2001 to be
accounted for using the purchase method of accounting.
SFAS No. 142 requires that goodwill not be amortized,
but be tested for impairment at least annually.
SFAS No. 142 was effective for fiscal years beginning
after December 15, 2001 to all goodwill and other
intangible assets recognized in an entitys statement of
financial position at that date, regardless of when those assets
were initially recognized. JCI adopted SFAS No. 142 on
January 1, 2002. In accordance with such adoption, JCI
identified all reporting units in conjunction with the
provisions of SFAS No. 142 and allocated all goodwill
accordingly. Prior to June 30, 2002, JCI completed the
transitional goodwill impairment test required by
SFAS No. 142. Based on the transitional and annual
impairment test, JCI determined that there was no impairment to
goodwill. During the year ended December 31, 2002, no
impairment was identified. The changes in the carrying amount of
goodwill for the year ended December 31, 2002 are as
follows:

|                                |  |        |        |        |  |              |       |   |  |   |        |  
|------------------------------- |  | ------ | ------ | ------ |  | ------------ | ----- | - |  | - | ------ | -
|                                |  | United |        |        |  | Consolidated
|Goodwill                        |  | States |        | Europe |  | Total       
|                                |  |        |        |        |  |             
|Balance as of December 31, 2001 |  | $      | 32,188 |        |  | $            | 5,937 |   |  | $ | 38,125 |  
|Translation effect              |  |        |       |        |  |              | (637  | ) |  |   | (637   | )
|                                |  |        |        |        |  |              |       |   |  |   |        |  
|Balance as of December 31, 2002 |  | $      | 32,188 |        |  | $            | 5,300 |   |  | $ | 37,488 |  
|                                |  |        |        |        |  |              |       |   |  |   |        |  

JCIs other intangible assets consist of
trademarks. During the year ended December 31, 2002, JCI
determined trademarks to have an indefinite life and performed
the transitional impairment test as required under
SFAS No. 142. Based upon the transitional and annual
test, JCI determined that there was no impairment of trademarks.
The carrying value of trademarks was $237,000 at
December 31, 2002 and is included in other assets in the
accompanying consolidated balance sheets.

In accordance with SFAS No. 142, JCI
discontinued amortization of goodwill and other intangible
assets with an indefinite life. A reconciliation of previously
reported net income to amounts adjusted for the exclusion of
goodwill and trademark amortization, net of the related income
tax effects, where applicable, is as follows (in thousands):

|                                   |  |                          |       |      |  |      |       |  |  |   |       | 
|---------------------------------- |  | ------------------------ | ----- | ---- |  | ---- | ----- |  |  | - | ----- | 
|                                   |  |                         
|                                   |  | Years Ended December 31,
|                                   |  |                         
|                                   |  | 2002                     |       | 2001 |  | 2000
|                                   |  |                          |       |      |  |     
|Net income                         |  | $                        | 8,625 |      |  | $    | 6,512 |  |  | $ | 2,214 | 
|Goodwill amortization, net of tax  |  |                          |      |      |  |      | 725   |  |  |   | 863   | 
|Trademark amortization, net of tax |  |                          |      |      |  |      | 26    |  |  |   | 54    | 
|                                   |  |                          |       |      |  |      |       |  |  |   |       | 
|Adjusted net income                |  | $                        | 8,625 |      |  | $    | 7,263 |  |  | $ | 3,131 | 
|                                   |  |                          |       |      |  |      |       |  |  |   |       | 

In November 2001, the Emerging Issues Task Force
(EITF) issued EITF Issue No. 01-9,
Accounting for Consideration Given by a Vendor to a
Customer or a Reseller of the Vendors Products. This
new guidance provides that consideration from a vendor to a
reseller is generally presumed to be a reduction of the selling
prices of the vendors products, and, therefore, should be
characterized as a reduction of revenue when

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JAFRA COSMETICS INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

recognized in the vendors income statement.
On January 1, 2002, JCI adopted EITF Issue No. 01-9
and reclassified commissions paid to consultants of $1,417,000
and $1,254,000 on their personal sales, previously reported as a
component of selling, general and administrative expenses, as a
reduction in net sales and selling, general and administrative
expenses for the years ended December 31, 2001 and 2000,
respectively.

On January 1, 2002, JCI adopted SFAS
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. SFAS No. 144 supersedes
SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed
of. SFAS No. 144 retains substantially all of
the requirements of SFAS No. 121, while resolving
certain implementation issues and addressing the accounting for
a component of a business accounted for as a discontinued
operation. SFAS No. 144 was adopted with no
significant impact on the financial position or results of
operations of JCI.

In April 2002, the FASB issued SFAS No. 145,
Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical
Corrections. This Statement rescinds or modifies existing
authoritative pronouncements including SFAS No. 4
Reporting Gains and Losses from Extinguishment of
Debt. As a result of the issuance of
SFAS No. 145, gains and losses from extinguishment of
debt should be classified as extraordinary items only if they
meet the criteria in Accounting Principles Board
(APB) Opinion 30, Reporting the Results
of Operations-Reporting the Effects of Disposal of a Segment of
a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions. Applying the provisions
of APB Opinion 30 will distinguish transactions that are
part of an entitys recurring operations from those that
are unusual or infrequent or that meet the criteria for
classification as an extraordinary item. The provisions of this
Statement related to the rescission of SFAS No. 4
shall be applied in fiscal years beginning after May 15,
2002. Any gain or loss on extinguishment of debt that was
classified as an extraordinary item in prior periods presented
that does not meet the criteria in APB Opinion 30 for
classification as an extraordinary item shall be reclassified.
JCI is currently evaluating the impact that this statement may
have on any potential future extinguishments of debt. Upon
adoption of SFAS No. 145, JCI will reclassify items
previously reported as extraordinary items as a component of
operating income on the accompanying statements of income.

In June 2002, the FASB approved
SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. This statement addresses
financial accounting and reporting for costs associated with
exit or disposal activities and nullifies EITF Issue
No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity.
The provisions of this statement are effective for exit or
disposal activities that are initiated after December 31,
2002, with early application encouraged. JCI is currently
evaluating the impact that this statement may have on any
potential future exit or disposal activities.

During 2002, the FASB issued
SFAS No. 148, Accounting for Stock Based
Compensation  Transaction and Disclosure, an
amendment to FASB Statement No. 123. This Statement
requires more extensive interim disclosure related to stock
based compensation for all companies and permits additional
transition methods for companies that elect to use the fair
value method for employee stock compensation. This statement is
effective for fiscal years ending after December 15, 2002,
with early adoption regarding annual disclosure encouraged. JCI
adopted the disclosure requirements of SFAS No. 148.
(See note 13).

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

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JAFRA COSMETICS INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(3) Inventories

Inventories consist of the following at
December 31, 2002 and 2001 (in thousands):

|                           |  |      |        |      |  |   |       | 
|-------------------------- |  | ---- | ------ | ---- |  | - | ----- | 
|                           |  | 2002 |        | 2001
|                           |  |      |        |     
|Raw materials and supplies |  | $    | 243    |      |  | $ |      | 
|Finished goods             |  |      | 11,731 |      |  |   | 8,677 | 
|                           |  |      |        |      |  |   |       | 
|Total inventories          |  | $    | 11,974 |      |  | $ | 8,677 | 
|                           |  |      |        |      |  |   |       | 

(4) Property and Equipment

Property and equipment consist of the following
at December 31, 2002 and 2001 (in thousands):

|                               |  |      |        |      |  |   |        | 
|------------------------------ |  | ---- | ------ | ---- |  | - | ------ | 
|                               |  | 2002 |        | 2001
|                               |  |      |        |     
|Land                           |  | $    | 6,188  |      |  | $ | 6,188  | 
|Buildings and improvements     |  |      | 7,099  |      |  |   | 6,763  | 
|Machinery, equipment and other |  |      | 22,460 |      |  |   | 15,971 | 
|                               |  |      |        |      |  |   |        | 
|                               |  |      | 35,747 |      |  |   | 28,922 | 
|Less accumulated depreciation  |  |      | 9,390  |      |  |   | 6,180  | 
|                               |  |      |        |      |  |   |        | 
|Property and equipment, net    |  | $    | 26,357 |      |  | $ | 22,742 | 
|                               |  |      |        |      |  |   |        | 

(5) Accrued Liabilities

Accrued liabilities consist of the following at
December 31, 2002 and 2001 (in thousands):

|                                            |  |      |        |      |  |   |        | 
|------------------------------------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                                            |  | 2002 |        | 2001
|                                            |  |      |        |     
|Sales promotions, commissions and overrides |  | $    | 2,965  |      |  | $ | 3,182  | 
|Accrued restructuring charges (Note 10)     |  |      |       |      |  |   | 128    | 
|Accrued interest                            |  |      | 880    |      |  |   | 931    | 
|Compensation and other benefit accruals     |  |      | 4,832  |      |  |   | 4,291  | 
|State and local sales taxes and other taxes |  |      | 1,180  |      |  |   | 1,282  | 
|Other                                       |  |      | 2,373  |      |  |   | 2,895  | 
|                                            |  |      |        |      |  |   |        | 
|Total accrued liabilities                   |  | $    | 12,230 |      |  | $ | 12,709 | 
|                                            |  |      |        |      |  |   |        | 

(6) Debt

Debt consists of the following at
December 31, 2002 and 2001 (in thousands):

|                                                                                                                                                                                         |  |      |        |      |  |   |        | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                                                                                                                                                                                         |  | 2002 |        | 2001
|                                                                                                                                                                                         |  |      |        |     
|Subordinated Notes, unsecured, interest payable
    semi-annually at 11.75% due in 2008.                                                                                                 |  | $    | 45,108 |      |  | $ | 45,108 | 
|Term loan, secured, principal and interest due in
    quarterly installments through April 30, 2004, interest
    rates at 3.1% and 4.3% at December 31, 2002 and 2001,
    respectively |  |      | 6,000  |      |  |   | 9,000  | 
|Revolving loan, secured, due April 30, 2004,
    weighted average interest rates of 5.4% at December 31, 2001                                                                            |  |      |       |      |  |   | 1,800  | 
|                                                                                                                                                                                         |  |      |        |      |  |   |        | 
|Total debt                                                                                                                                                                               |  |      | 51,108 |      |  |   | 55,908 | 
|Less current maturities                                                                                                                                                                  |  |      | 4,000  |      |  |   | 3,000  | 
|                                                                                                                                                                                         |  |      |        |      |  |   |        | 
|Long-term debt                                                                                                                                                                           |  | $    | 47,108 |      |  | $ | 52,908 | 
|                                                                                                                                                                                         |  |      |        |      |  |   |        | 

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JAFRA COSMETICS INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

JCIs long-term debt matures as follows (in
thousands): $4,000 in 2003, $2,000 in 2004, $0 in 2005, 2006 and
2007 and $45,108 thereafter.

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

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

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

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

Consents and waivers, dated June 30, 2001
and November 19, 1999, to the senior credit agreement, as
described below, allow JCI and Jafra S.A. to repurchase the
Notes in the open market from time to time, with the aggregate
purchase price for all such Notes repurchased not to exceed
$50 million. Aggregate repurchases as of December 31,
2002 were $24.8 million. During 2000, JCI retired notes,
prior to maturity, with a face value of $6.5 million. The
debt repurchases in 2000 resulted in an extraordinary loss of
$205,000, net of an income tax benefit of $120,000. In
connection with the early retirement of the Notes as described
above, a portion of the unamortized deferred financing costs was
written off and included in the determination of the
extraordinary loss on early extinguishment of debt. In 2000,
$459,000 of the unamortized deferred financing fees were written
off.

In addition, JCI and Jafra S.A. entered into a
senior credit agreement that provides for senior secured credit
facilities in an aggregate principal amount of $90 million,
consisting of a multicurrency revolving credit facility of
$65 million and a term loan facility of $25 million.
Borrowings under the term loan facility are payable in quarterly
installments of principal and interest over six years through
April 30, 2004. Borrowings under the revolving credit
facility mature on April 30, 2004. Borrowings under the
senior credit agreement currently bear interest at an annual
rate of LIBOR plus a margin of 1.625% or an alternate base rate
(the higher of the prime rate or federal funds rate plus 0.5%,
plus an applicable margin of 0.625%). The interest rate in
effect at December 31, 2002 was approximately 3.1% for the
LIBOR-based borrowings. Borrowings under the senior credit
agreement are secured by substantially all of the assets of JCI
and Jafra S.A. No amounts were outstanding under the revolving
credit facility at December 31, 2002.

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

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JAFRA COSMETICS INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(7) Income Taxes

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

|                                                   |               |                          |        |        |  |      |        |        |   |   |       |        |  
|-------------------------------------------------- | ------------- | ------------------------ | ------ | ------ |  | ---- | ------ | ------ | - | - | ----- | ------ | -
|                                                   |               |                         
|                                                   |               | Years Ended December 31,
|                                                   |               |                         
|                                                   |               | 2002                     |        | 2001   |  | 2000
|                                                   |               |                          |        |        |  |     
|Income before income taxes and extraordinary item: |               |                          |        |        |  |      |        |        |   |   |       |       
|                                                   | United States |                          | $      | 12,859 |  |      | $      | 13,530 |   |   | $     | 9,741  |  
|                                                   | Foreign       |                          |        | 494    |  |      |        | (964   | ) |   |       | (4,247 | )
|                                                   |               |                          |        |        |  |      |        |        |   |   |       |       
|                                                   |               | $                        | 13,353 |        |  | $    | 12,566 |        |   | $ | 5,494 |       
|                                                   |               |                          |        |        |  |      |        |        |   |   |       |       

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

|                                                                                                      |  |                          |        |      |  |      |        |   |  |   |        |  
|----------------------------------------------------------------------------------------------------- |  | ------------------------ | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                                                                                      |  |                         
|                                                                                                      |  | Years Ended December 31,
|                                                                                                      |  |                         
|                                                                                                      |  | 2002                     |        | 2001 |  | 2000
|                                                                                                      |  |                          |        |      |  |     
|Provision for income taxes at federal statutory
    rate                                              |  | $                        | 4,674  |      |  | $    | 4,398  |   |  | $ | 1,922  |  
|Foreign income subject to tax other than at
    federal statutory rate, principally withholding taxes |  |                          | 1,886  |      |  |      | 2,532  |   |  |   | 1,298  |  
|Foreign tax and other credits                                                                         |  |                          | (2,312 | )    |  |      | (3,230 | ) |  |   | (1,724 | )
|State income taxes                                                                                    |  |                          | 548    |      |  |      | 544    |   |  |   | 243    |  
|Valuation allowance  domestic                                                                        |  |                          | 19     |      |  |      | 944    |   |  |   | (616   | )
|Valuation allowance  foreign                                                                         |  |                          | 23     |      |  |      | 674    |   |  |   | 1,911  |  
|Other                                                                                                 |  |                          | (110   | )    |  |      | 192    |   |  |   | 41     |  
|                                                                                                      |  |                          |        |      |  |      |        |   |  |   |        |  
|Income tax expense                                                                                    |  | $                        | 4,728  |      |  | $    | 6,054  |   |  | $ | 3,075  |  
|                                                                                                      |  |                          |        |      |  |      |        |   |  |   |        |  

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

|                                                                            |          |                           |                          |      |       |       |       |     |       |       |       |     |       |       | 
|--------------------------------------------------------------------------- | -------- | ------------------------- | ------------------------ | ---- | ----- | ----- | ----- | --- | ----- | ----- | ----- | --- | ----- | ----- | 
|                                                                            |          |                          
|                                                                            |          | Years Ended December 31, 
|                                                                            |          |                          
|                                                                            |          | 2002                      |                          | 2001 |       | 2000 
|                                                                            |          |                           |                          |      |       |      
|Current:                                                                    |          |                           |                          |      |       |       |       |     |       |       |       |    
|                                                                            | Federal  |                           | $                        | 178  |       |       | $     | 140 |       |       | $     | 72  |      
|                                                                            | Foreign: |                           |                          |      |       |       |       |     |       |       |       |     |      
|                                                                            |          | Foreign withholding taxes |                          |      | 2,250 |       |       |     | 2,296 |       |       |     | 1,820 |      
|                                                                            |          | Europe                    |                          |      | (297  | )     |       |     | 641   |       |       |     | 49    |      
|                                                                            |          | Other                     |                          |      | 33    |       |       |     | 26    |       |       |     |      |      
|                                                                            |          |                           |                          |      |       |       |       |     |       |       |       |    
|                                                                            |          |                           | 1,986                    |      |       |       | 2,963 |     |       |       | 1,869 |    
|                                                                            | State    |                           |                          | 548  |       |       |       | 544 |       |       |       | 243 |      
|                                                                            |          |                           |                          |      |       |       |       |     |       |       |       |    
|                                                                            |          |                           | Total current            |      |       | 2,712 |       |     |       | 3,647 |       |     |       | 2,184 | 
|Deferred  foreign                                                          |          |                           |                         |      |       |       |      |     |       |       |      |    
|Deferred  domestic                                                         |          |                           | 2,016                    |      |       |       | 2,407 |     |       |       | 891   |    
|                                                                            |          |                           |                          |      |       |       |       |     |       |       |       |    
|                                                                            |          |                           | Total deferred           |      |       | 2,016 |       |     |       | 2,407 |       |     |       | 891   | 
|Total income taxes on income before income taxes
    and extraordinary item |          |                           | 4,728                    |      |       |       | 6,054 |     |       |       | 3,075 |    
|Income tax benefit on early extinguishment of debt                          |          |                           |                         |      |       |       |      |     |       |       | (120  | )  
|                                                                            |          |                           |                          |      |       |       |       |     |       |       |       |    
|                                                                            |          |                           | Total income tax expense |      | $     | 4,728 |       |     | $     | 6,054 |       |     | $     | 2,955 | 
|                                                                            |          |                           |                          |      |       |       |       |     |       |       |       |    

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JAFRA COSMETICS INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The components of deferred income tax assets and
deferred income tax liabilities at December 31, 2002 and
2001 are as follows (in thousands):

|                                 |                                           |                                       |   |        |        |   |   |        |        |  
|-------------------------------- | ----------------------------------------- | ------------------------------------- | - | ------ | ------ | - | - | ------ | ------ | -
|                                 |                                           | 2002                                  |   | 2001  
|                                 |                                           |                                       |   |       
|Deferred income tax assets:      |                                           |                                       |   |        |        |   |   |       
|                                 | Net operating loss carryforward           |                                       | $ | 6,857  |        |   | $ | 6,834  |       
|                                 | Disallowed interest expense               |                                       |   |       |        |   |   | 26     |       
|                                 | Foreign tax and other credit carryforward |                                       |   | 2,071  |        |   |   | 2,646  |       
|                                 | Other accrued liabilities                 |                                       |   | 180    |        |   |   | 331    |       
|                                 | Other                                     |                                       |   | 1,409  |        |   |   | 1,927  |       
|                                 |                                           |                                       |   |        |        |   |   |       
|                                 |                                           | Total deferred income tax assets      |   |        | 10,517 |   |   |        | 11,764 |  
|                                 | Less valuation allowance                  |                                       |   | (9,522 | )      |   |   | (9,480 | )     
|                                 |                                           |                                       |   |        |        |   |   |       
|                                 |                                           | Net deferred income tax assets        |   |        | 995    |   |   |        | 2,284  |  
|Deferred income tax liabilities: |                                           |                                       |   |        |        |   |   |       
|                                 | Property and equipment                    |                                       |   | (2,007 | )      |   |   | (1,602 | )     
|                                 | Trademark and goodwill                    |                                       |   | (3,474 | )      |   |   | (2,631 | )     
|                                 | Inventories                               |                                       |   | (261   | )      |   |   | (930   | )     
|                                 | Other                                     |                                       |   | (567   | )      |   |   | (419   | )     
|                                 |                                           |                                       |   |        |        |   |   |       
|                                 |                                           | Total deferred income tax liabilities |   |        | (6,309 | ) |   |        | (5,582 | )
|                                 |                                           |                                       |   |        |        |   |   |       
|                                 |                                           | Net deferred income tax liabilities   |   | $      | (5,314 | ) |   | $      | (3,298 | )
|                                 |                                           |                                       |   |        |        |   |   |       

JCI 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, 2002 and 2001 were
based upon JCIs estimates of the future realization of
deferred income tax assets. Valuation allowances at
December 31, 2002 were provided to offset foreign operating
loss carryforwards of $6,857,000 and foreign tax, other credit
carryforwards of $2,071,000 and certain other pretax expenses.
These amounts were reduced by a valuation allowance of
$10,517,000. Valuation allowances at December 31, 2001 were
provided to offset foreign operating loss carryforwards of
$6,834,000 and foreign tax and other credit carryforwards of
$2,646,000 resulting from JCIs U.S. and European
subsidiaries. These deferred income tax assets were reduced by a
valuation allowance of $9,522,000 and $9,480,000 as
December 31, 2002 and 2001, respectively. The tax loss
carryforwards expire in varying amounts between 2003 and 2012.
Realization of the income tax carryforwards is dependent on
generating sufficient taxable income prior to expiration of the
carryforwards.

(8) Benefit Plans

Certain employees of the JCIs German
subsidiary participate in a defined benefit pension plan
covering key employees (the Germany Plan). Benefits
are based on age, years of service and the level of compensation
during the final years of employment. JCIs funding policy
is to contribute annually to the Germany Plan the amount
necessary to meet the minimum funding standards. JCI recognized
pension expense of $48,000 and $278,000 for the years ended
December 31, 2002 and 2001, respectively and recognized
pension income of $18,000 for the year ended December 31,
2000 due to the departure of certain employees.

JCI has an employee savings plan which permits
participants to make voluntary contributions by salary deferrals
pursuant to section 401(k) of the Internal Revenue Code,
which allows employees to defer up to 20% of their total
compensation, subject to statutory limitations. Employee
contributions of up to 10% of compensation are matched by JCI at
the rate of 50 cents per dollar. Employees do not vest in
JCIs contribution until they have reached two years of
service, at which time they become fully vested. The JCIs

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SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

expense under this program was $618,000, $600,000
and $620,000 for the years ended December 31, 2002, 2001
and 2000, respectively.

JCI also has a supplemental excess benefit
savings plan, which permits participants to make unlimited
voluntary contributions. Employee contributions are matched on
the same basis as under the employee savings plan, and the
vesting provisions are the same. JCIs expense under this
program was $207,000, $177,000 and $213,000 for the years ended
December 31, 2002, 2001 and 2000, respectively. Employee
and employer contributions under such plan are placed into a
rabbi trust exclusively for the uses and purposes of
plan participants and general creditors of JCI. The JCI has
recorded an asset and the related liability in the accompanying
consolidated balance sheets of $2,411,000 and $1,880,000 at
December 31, 2002 and 2001, respectively.

(9) Related Party Transactions

JCI distributes skin and body products to other
subsidiaries of the Parent (affiliates). Sales to
affiliates, primarily in Mexico and South America, were
$15,817,000, $13,442,000 and $14,297,000 for the years ended
December 31, 2002, 2001 and 2000, respectively. These sales
were made at cost plus a markup ranging from 0 to 11%. JCI also
purchases color and fragrance products from the Parents
Mexico affiliate (Jafra S.A.) totaling $13,592,000,
$9,849,000 and $8,856,000 for the years ended December 31,
2002, 2001 and 2000, respectively.

In addition, JCI provides certain management
services, such as legal, accounting and treasury, management
oversight, and other administrative functions to affiliates. The
cost of these services is included in selling, general and
administrative expenses in the accompanying consolidated
statements of income. JCI charges out a portion of these
management expenses to its affiliates based upon charges
identified to specific affiliates and upon a formula using the
percentage of revenues of each affiliate to the total
consolidated revenues of the Parent. JCI believes the amounts
and methods of allocations are reasonable and approximate the
cost of the actual services provided. The management fee income,
which consists of amounts billed to affiliates in Mexico and
South America, was $7,225,000, $8,504,000 and $8,141,000 for the
years ended December 31, 2002, 2001 and 2000, respectively.

During 1999, JCI sold U.S. trademarks and
German trademarks to Jafra S.A. As a result of these sales,
Jafra S.A. charges JCI a fee for the right to use the Jafra
trademark in the United States and Europe. The total royalty
expense charged by Jafra S.A. to JCI was $2,443,000, $1,639,000
and $1,126,000 for the years ended December 31, 2002, 2001
and 2000, respectively, and is offset against royalty income
from affiliates in the accompanying consolidated statements of
income.

JCI owns the worldwide rights to its multi-level
sales know-how (referred to as the Jafra Way). The
Jafra Way was initially developed in the United States for
lineage, training, and compensation of consultants. JCI charges
Jafra S.A. a royalty for the use of the Jafra Way. The royalty
fees charged by JCI were $22,218,000, $21,737,000 and
$15,746,000 for the years ended December 31, 2002, 2001 and
2000, respectively, and were based upon a percentage of Jafra
S.A.s sales.

JCI has granted loans to certain affiliates at
annual interest rates ranging from 6% to 9%. Such loans are due
to be repaid five years from the date of grant, with no
prepayment penalty. Notes receivable from affiliates at
December 31, 2002 and 2001 consists primarily of loans JCI
has made to subsidiaries of the Parent to fund certain of their
operations in South America. Net interest income from
affiliates, was $351,000, $703,000 and $2,126,000 the years
ended December 31, 2002, 2001 and 2000, respectively.

JCI reimburses certain foreign affiliates for the
expenses that they incur in establishing a direct selling,
multilevel distribution system and customer base in new markets.
Such subsidies amounted to $5,121,000 in 2002 and $0 in 2001 and
2000.

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JAFRA COSMETICS INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Pursuant to a consulting agreement entered into
following the Acquisition, until the 10th anniversary of the
Acquisition or the date on which CD&R Fund V no longer
has an investment in the Parent or until the termination by
either party with 30 days notice, CD&R will receive an
annual fee (and reimbursement of out-of-pocket expenses) for
providing advisory, management consulting and monitoring
services to the Parent. On January 1, 2000, the annual fee
was $400,000. As of January 1, 2001, the annual fee was
increased to $1,000,000. As required by the terms of the
Parents lending arrangements, such fees are determined by
arms-length negotiation and are believed by the Parent to
be reasonable. The amendment, effective January 1, 2001,
adds to CD&Rs services under the agreement financial
advisory, investment banking and similar services with respect
to future proposals for an acquisition, merger,
recapitalization, or other similar transaction directly or
indirectly involving the Parent or any of its subsidiaries. The
fee for such additional services in connection with future
transactions would be an amount equal to 1% of the transaction
value for the transaction to which such fee relates. Such
transaction fees may be increased upon approval of a majority of
the members of the Parents Board of Directors who are not
employees of the Parent, CD&R or any affiliate of CD&R.
The amendment also provides that if any employee of CD&R is
appointed to an executive management position (or a position of
comparable responsibility) in the Parent or any of its
subsidiaries, the annual fee will be increased by an amount to
be determined by CD&R, the amount of such increase not to
exceed 100% of the existing annual fee in effect at that time.
The CD&R fees incurred during the years ended
December 31, 2002, 2001 and 2000 were $1,000,000,
$1,000,000 and $400,000, respectively. These fees were recorded
as selling, general, and administrative expenses in the
accompanying consolidated statements of income, and a portion of
the fees was allocated to affiliates as part of JCIs
management fee income from affiliates. Certain officers and
directors of CD&R or its affiliates serve as directors of
the Parent.

Prior to 2000, JCI engaged Guidance Solutions
(Guidance), a corporation in which an investment
fund managed by CD&R has an investment, to develop its
e-commerce systems. Under the agreement entered into by both
parties, JCI agreed to pay fees of approximately
$2.0 million to Guidance in connection with planning,
defining, designing and consulting services performed related to
its e-commerce initiative. During the years ended
December 31, 2000, JCI paid fees to Guidance of $1,798,000.
A portion of these amounts was allocated to JCIs
affiliates. JCI terminated its agreement with Guidance and
executed a settlement and mutual release agreement effective
September 30, 2000. Upon execution of this agreement in
October of 2000, Guidance paid JCI $25,000 and agreed to pay the
JCI an aggregate additional sum of $475,000, payable in
quarterly installments plus interest at 9.5% per annum,
beginning in January 2001 through October 2005. As of
December 31, 2002, the balance was paid in full.

(10) Restructuring and Impairment Charges
and Related Accruals

Prior Years Restructuring and Impairment
Charges.In 2000, JCI recorded
approximately $1.4 million of restructuring charges and
approximately $1.0 million of asset impairment charges. The
restructuring charges of approximately $1.4 million related
to the JCIs repositioning activities in Europe, primarily
severance, of which $1.3 million was paid in 2000 and 2001
and the remaining $0.1 million was paid in 2002. The asset
impairment charges of $1.0 million consisted of
approximately $0.3 million related to JCIs
repositioning activities in Europe and approximately
$0.7 million related to the write-down of certain
capitalized computer software costs in the United States.

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JAFRA COSMETICS INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

|                               |             |                 |   |      |   |  |   |       |       | 
|------------------------------ | ----------- | --------------- | - | ---- | - |  | - | ----- | ----- | 
|                               |             |                
|                               |             | Years Ended    
|                               |             | December 31,   
|                               |             |                
|                               |             | 2001            |   | 2000
|                               |             |                 |   |     
|Additions  charges to income: |             |                 |   |      |   |  |   |      
|                               | Severance   |                 | $ | (84  | ) |  | $ | 1,170 |      
|                               | Lease costs |                 |   | 80   |   |  |   | 170   |      
|                               | Other       |                 |   | 4    |   |  |   | 84    |      
|                               |             |                 |   |      |   |  |   |      
|                               |             | Total additions |   | $    |  |  |   | $     | 1,424 | 
|                               |             |                 |   |      |   |  |   |      

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

|                         |                |                          |      |      |  |      |      |     |  |   |        |     | 
|------------------------ | -------------- | ------------------------ | ---- | ---- |  | ---- | ---- | --- |  | - | ------ | --- | 
|                         |                |                         
|                         |                | Years Ended December 31,
|                         |                |                         
|                         |                | 2002                     |      | 2001 |  | 2000
|                         |                |                          |      |      |  |     
|Opening balance          |                | $                        | 128  |      |  | $    | 516  |     |  | $ | 1,105  |    
|Additions                |                |                          |     |      |  |      |     |     |  |   | 1,424  |    
|Charges against reserves |                |                          | (128 | )    |  |      | (388 | )   |  |   | (2,013 | )  
|                         |                |                          |      |      |  |      |      |     |  |   |        |    
|                         | Ending balance |                          | $    |     |  |      | $    | 128 |  |   | $      | 516 | 
|                         |                |                          |      |      |  |      |      |     |  |   |        |    

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

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

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

|                                   |                |                          |     |        |  |           |      |        |  |  |     |    |  |   |        |     | 
|---------------------------------- | -------------- | ------------------------ | --- | ------ |  | --------- | ---- | ------ |  |  | --- | -- |  | - | ------ | --- | 
|                                   |                |                         
|                                   |                | Years Ended December 31,
|                                   |                |                         
|                                   |                |                          |     |       
|                                   |                | 2001                     |     | 2000  
|                                   |                |                          |     |       
|                                   |                | Number of                |     |        |  | Number of |      |       
|                                   |                | Employees                |     | Amount |  | Employees |      | Amount
|                                   |                |                          |     |        |  |           |      |       
|Opening balance                    |                |                          | 10  |        |  | $         | 346  |        |  |  | 43  |    |  | $ | 1,105  |    
|Planned terminations               |                |                          |    |        |  |           |     |        |  |  | 29  |    |  |   | 1,170  |    
|Adjustment to planned terminations |                |                          |    |        |  |           | (84  | )      |  |  |    |    |  |   |       |    
|Actual terminations                |                |                          | (10 | )      |  |           | (262 | )      |  |  | (62 | )  |  |   | (1,929 | )  
|                                   |                |                          |     |        |  |           |      |        |  |  |     |    |  |   |        |    
|                                   | Ending balance |                          |     |       |  |           | $    |       |  |  |     | 10 |  |   | $      | 346 | 
|                                   |                |                          |     |        |  |           |      |        |  |  |     |    |  |   |        |    

(11) Financial Reporting for Business
Segments

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

JCIs business is comprised of one industry
segment, direct selling, with worldwide operations, principally
in the United States and Europe. JCI is organized into
geographical business units that each sell the full line

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SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

of Jafra cosmetics, skin care, body care,
fragrances, and other products. JCI has two reportable business
segments: the United States and Europe. Business results for
subsidiaries in the Dominican Republic and Thailand are combined
and included in the following table under the caption All
Others.

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

|                              |  |        |        |           |  |        |        |          |  |             |       |              |  |   |         |  |  |   |        |  |  |   |         | 
|----------------------------- |  | ------ | ------ | --------- |  | ------ | ------ | -------- |  | ----------- | ----- | ------------ |  | - | ------- |  |  | - | ------ |  |  | - | ------- | 
|                              |  |        |        |           |  |        |        |          |  | Corporate,  |       |             
|                              |  | United |        |           |  | All    |        | Total    |  | Unallocated |       | Consolidated
|Dollars in thousands          |  | States |        | Europe(1) |  | Others |        | Segments |  | and Other   |       | Total       
|                              |  |        |        |           |  |        |        |          |  |             |       |             
|Year ended December 31, 2002  |  |        |        |           |  |        |        |          |  |             |       |              |  |   |         |  |  |   |        |  |  |   |         | 
|Net sales                     |  | $      | 92,143 |           |  | $      | 26,932 |          |  | $           | 6,124 |              |  | $ | 125,199 |  |  | $ | 15,817 |  |  | $ | 141,016 | 
|Operating profit (loss)       |  |        | 15,620 |           |  |        | 1,224  |          |  |             | (89   | )            |  |   | 16,755  |  |  |   | 2,045  |  |  |   | 18,800  | 
|Depreciation and amortization |  |        | 2,631  |           |  |        | 382    |          |  |             | 218   |              |  |   | 3,231   |  |  |   |       |  |  |   | 3,231   | 
|Capital expenditures          |  |        | 6,298  |           |  |        | 174    |          |  |             | 197   |              |  |   | 6,669   |  |  |   |       |  |  |   | 6,669   | 
|Segment assets                |  |        | 82,532 |           |  |        | 18,414 |          |  |             | 2,541 |              |  |   | 103,487 |  |  |   | 36,302 |  |  |   | 139,789 | 
|Goodwill                      |  |        | 32,188 |           |  |        | 5,300  |          |  |             |      |              |  |   | 37,488  |  |  |   |       |  |  |   | 37,488  | 
|Year ended December 31, 2001  |  |        |        |           |  |        |        |          |  |             |       |              |  |   |         |  |  |   |        |  |  |   |         | 
|Net sales                     |  |        | 79,611 |           |  |        | 26,295 |          |  |             | 4,321 |              |  |   | 110,227 |  |  |   | 13,442 |  |  |   | 123,669 | 
|Operating profit (loss)       |  |        | 11,580 |           |  |        | 2,143  |          |  |             | (768  | )            |  |   | 12,955  |  |  |   | 6,819  |  |  |   | 19,774  | 
|Depreciation and amortization |  |        | 2,709  |           |  |        | 601    |          |  |             | 174   |              |  |   | 3,484   |  |  |   |       |  |  |   | 3,484   | 
|Capital expenditures          |  |        | 4,529  |           |  |        | 230    |          |  |             | 332   |              |  |   | 5,091   |  |  |   |       |  |  |   | 5,091   | 
|Segment assets                |  |        | 67,792 |           |  |        | 17,522 |          |  |             | 3,198 |              |  |   | 88,512  |  |  |   | 27,535 |  |  |   | 116,047 | 
|Year ended December 31, 2000  |  |        |        |           |  |        |        |          |  |             |       |              |  |   |         |  |  |   |        |  |  |   |         | 
|Net sales                     |  |        | 74,137 |           |  |        | 26,680 |          |  |             | 1,450 |              |  |   | 102,267 |  |  |   | 14,297 |  |  |   | 116,564 | 
|Operating profit (loss)       |  |        | 10,709 |           |  |        | 876    |          |  |             | (790  | )            |  |   | 10,795  |  |  |   | 2,432  |  |  |   | 13,227  | 
|Depreciation and amortization |  |        | 2,111  |           |  |        | 883    |          |  |             | 20    |              |  |   | 3,014   |  |  |   |       |  |  |   | 3,014   | 
|Capital expenditures          |  |        | 3,662  |           |  |        | 90     |          |  |             | 666   |              |  |   | 4,418   |  |  |   |       |  |  |   | 4,418   | 
|Segment assets                |  | $      | 68,843 |           |  | $      | 17,650 |          |  | $           | 2,102 |              |  | $ | 88,595  |  |  | $ | 32,547 |  |  | $ | 121,142 | 



---

|    |                                                                                             
|--- | --------------------------------------------------------------------------------------------
|(1) | excludes Poland, an indirect wholly-owned
    subsidiary of the Parent, an affiliate of JCI.

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JAFRA COSMETICS INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Additional business segment information regarding
product lines is as follows:

|                                          |                                                                                    |               |      |            |       |               |      |            |   |               |      |            |       |  |      |       |   |   |      |      |       |  |      |       |   | 
|----------------------------------------- | ---------------------------------------------------------------------------------- | ------------- | ---- | ---------- | ----- | ------------- | ---- | ---------- | - | ------------- | ---- | ---------- | ----- |  | ---- | ----- | - | - | ---- | ---- | ----- |  | ---- | ----- | - | 
|                                          |                                                                                    |               |      |            |       |              
|                                          |                                                                                    | 2002          |      | 2001       |       | 2000         
|                                          |                                                                                    |               |      |            |       |              
|                                          |                                                                                    | Sales by      |      | Percentage |       | Sales by      |      | Percentage |   | Sales by      |      | Percentage
|                                          |                                                                                    | Product       |      | of Total   |       | Product       |      | of Total   |   | Product       |      | of Total  
|                                          |                                                                                    | Line          |      | Sales      |       | Line          |      | Sales      |   | Line          |      | Sales     
|                                          |                                                                                    |               |      |            |       |               |      |            |   |               |      |           
|                                          |                                                                                    | (in millions) |      |            |       | (in millions) |      |            |   | (in millions) |      |           
|Skin care                                 |                                                                                    | $             | 35.2 |            |       |               | 29.4 | %          |   | $             | 36.2 |            |       |  | 34.3 | %     |   | $ | 34.3 |      |       |  | 34.9 | %    
|Color cosmetics                           |                                                                                    |               | 21.6 |            |       |               | 18.0 |            |   |               | 18.7 |            |       |  | 17.7 |       |   |   | 17.9 |      |       |  | 18.2 |      
|Fragrances                                |                                                                                    |               | 26.2 |            |       |               | 21.9 |            |   |               | 22.1 |            |       |  | 21.0 |       |   |   | 20.5 |      |       |  | 20.9 |      
|Body care and personal care               |                                                                                    |               | 18.0 |            |       |               | 15.0 |            |   |               | 12.5 |            |       |  | 11.9 |       |   |   | 12.0 |      |       |  | 12.2 |      
|Other(1)                                  |                                                                                    |               | 18.8 |            |       |               | 15.7 |            |   |               | 15.9 |            |       |  | 15.1 |       |   |   | 13.6 |      |       |  | 13.8 |      
|                                          |                                                                                    |               |      |            |       |               |      |            |   |               |      |            |       |  |      |       |   |   |      |      |       |  |      |      
|                                          | Subtotal before shipping, other fees and sales to
    affiliates, less commissions |               |      | 119.8      |       |               |      | 100.0      | % |               |      | 105.4      |       |  |      | 100.0 | % |   |      | 98.3 |       |  |      | 100.0 | %
|                                          |                                                                                    |               |      |            |       |               |      |            |   |               |      |            |       |  |      |       |   |   |      |      |       |  |      |      
|Shipping and other fees, less commissions |                                                                                    |               | 5.4  |            |       |               |      |            |   |               | 4.8  |            |       |  |      |       |   |   | 4.0  |      |       |  |      |      
|Sales to affiliates                       |                                                                                    |               | 15.8 |            |       |               |      |            |   |               | 13.5 |            |       |  |      |       |   |   | 14.3 |      |       |  |      |      
|                                          |                                                                                    |               |      |            |       |               |      |            |   |               |      |            |       |  |      |       |   |   |      |      |       |  |      |      
|                                          |                                                                                    | Total         |      | $          | 141.0 |               |      |            |   |               |      | $          | 123.7 |  |      |       |   |   |      | $    | 116.6 |  |      |       |   | 
|                                          |                                                                                    |               |      |            |       |               |      |            |   |               |      |            |       |  |      |       |   |   |      |      |       |  |      |      



---

|    |                                                                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes sales aids (e.g.; party hostess gifts,
    demonstration products, etc.) and promotional materials, which
    typically do not qualify for commissions or overrides.

(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 2007. The leases contain certain renewal
options and require payment of property taxes, utilities, common
area maintenance and insurance and rent escalation clauses based
upon consumer price indices. Future minimum lease payments under
noncancelable operating leases as of December 31, 2002 are
(in thousands):

|     |  |   |       | 
|---- |  | - | ----- | 
|2003 |  | $ | 1,186 | 
|2004 |  |   | 1,127 | 
|2005 |  |   | 967   | 
|2006 |  |   | 712   | 
|2007 |  |   | 601   | 
|     |  |   |       | 
|     |  | $ | 4,593 | 
|     |  |   |       | 

Rental expense was $1,058,000, $1,453,000 and
$1,617,000 for the years ended December 31, 2002, 2001 and
2000, respectively.

In connection with the issuance of the
Parents Common Stock, the Parent has guaranteed loans for
some members of JCIs management. As of December 31,
2002, approximately $2,145,000 of loans were outstanding and
guaranteed by the Parent.

During 2002, JCI initiated product replacement
for a certain product sold in 2001 and 2002. The total cost of
the product replacement is approximately $400,000. However,
management believes that the majority the cost will be recovered
pursuant to contractual obligations with the third-party
manufacturer. (See Note 14).

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JAFRA COSMETICS INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In accordance with FASB Statement No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets, JCI recorded impairment losses on long-lived
assets used in operations when events and circumstances indicate
that long-lived assets might be impaired and undiscounted cash
flows estimated to be generated by those assets are less than
the carrying amounts of those assets. Subsequent to
December 31, 2002, JCI is considering strategic decisions
to exit certain non-core markets in Thailand and some or all of
Europe through sale or discontinuance of these operations. As of
December 31, 2002, no decision had been made on these
non-core markets and the undiscounted cash flows indicated that
such carrying amounts were expected to be recovered. It is
reasonably possible that the estimate of undiscounted cash flows
may change in the near term resulting in a need to write down
those assets to fair value. In accordance with FASB 142,
Goodwill and Other Intangible Assets, the transitional and
annual impairment test indicated that fair value of the
reporting units associated with the non-core markets exceeded
the carrying value, including goodwill, at December 31,
2002.

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

(13) Management Incentive
Arrangements

Company Plan

Effective 1998, the Parent adopted a stock
incentive plan (the Stock Incentive Plan), which
provides for the sale to members of senior management of up to
52,141 shares of common stock of the Parent and the
issuance of options to purchase up to 104,282 additional shares
of common stock. The Parent reserved 156,423 shares for
issuance under the Stock Incentive Plan, and as of
December 31, 2002, 42,121 shares and 84,242 options were
outstanding. A summary of the status and activity of shares
purchased under the Stock Incentive Plan is as follows:

|                                        |  |           |        |           |  |   |     | 
|--------------------------------------- |  | --------- | ------ | --------- |  | - | --- | 
|                                        |  | Number of |        | Price Per
|                                        |  | Shares    |        | Share    
|                                        |  |           |        |          
|Shares outstanding at December 31, 1999 |  |           | 38,392 |           |  |   |     | 
|Shares issued in 2000                   |  |           | 4,424  |           |  |   | 206 | 
|Options exercised in 2000               |  |           | 158    |           |  |   | 100 | 
|Shares repurchased in 2000              |  |           | (948   | )         |  | $ | 210 | 
|                                        |  |           |        |           |  |   |     | 
|Shares outstanding at December 31, 2000 |  |           | 42,026 |           |  |   |     | 
|Shares issued in 2001                   |  |           | 474    |           |  |   | 210 | 
|Options exercised in 2001               |  |           | 210    |           |  |   | 150 | 
|Shares repurchased in 2001              |  |           | (589   | )         |  | $ | 250 | 
|                                        |  |           |        |           |  |   |     | 
|Shares outstanding at December 31, 2001 |  |           | 42,121 |           |  |   |     | 
|Shares issued in 2002                   |  |           |       |           |  |   |    | 
|Options exercised in 2002               |  |           |       |           |  |   |    | 
|Shares repurchased in 2002              |  |           |       |           |  |   |    | 
|                                        |  |           |        |           |  |   |     | 
|Shares outstanding at December 31, 2002 |  |           | 42,121 |           |  |   |     | 
|                                        |  |           |        |           |  |   |     | 

The purchase price of shares issued in 2000 and
2001 and options exercised in 2000 and 2001 represented the
estimated fair value at the respective dates of issuance and
exercise, except as discussed below. In 2000, 316 shares were
issued at a price below fair value, and the Parent recognized
compensation expense of approximately $19,000. In 2001, 210
shares were issued at a price below fair value, and the Company
recognized compensation expense of approximately $21,000. Under
certain circumstances, the management

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JAFRA COSMETICS INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

stockholders can require the Parent to repurchase
their shares, subject to a holding period of at least seven
months from the date such shares were acquired, for an amount
not to exceed fair value.

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

|                                 |  |        |        |          |  |        |        |          |  |        |        |          |  |   |        |  |  |  |        |   |  |   |        | 
|-------------------------------- |  | ------ | ------ | -------- |  | ------ | ------ | -------- |  | ------ | ------ | -------- |  | - | ------ |  |  |  | ------ | - |  | - | ------ | 
|                                 |  |        |        |          |  |       
|                                 |  | 2002   |        | 2001     |  | 2000  
|                                 |  |        |        |          |  |       
|                                 |  |        |        | Weighted |  |        |        | Weighted |  |        |        | Weighted
|                                 |  |        |        | Average  |  |        |        | Average  |  |        |        | Average 
|                                 |  |        |        | Exercise |  |        |        | Exercise |  |        |        | Exercise
|                                 |  | Shares |        | Price    |  | Shares |        | Price    |  | Shares |        | Price   
|                                 |  |        |        |          |  |        |        |          |  |        |        |         
|Outstanding at beginning of year |  |        | 84,242 |          |  | $      | 112.36 |          |  |        | 84,052 |          |  | $ | 111.69 |  |  |  | 76,784 |   |  | $ | 101.03 | 
|Granted                          |  |        |       |          |  |        |       |          |  |        | 948    |          |  |   | 210.00 |  |  |  | 8,848  |   |  |   | 205.71 | 
|Exercised                        |  |        |       |          |  |        |       |          |  |        | (210   | )        |  |   | 150.00 |  |  |  | (158   | ) |  |   | 100.00 | 
|Canceled                         |  |        |       |          |  |        |       |          |  |        | (548   | )        |  |   | 163.80 |  |  |  | (1,422 | ) |  |   | 122.22 | 
|                                 |  |        |        |          |  |        |        |          |  |        |        |          |  |   |        |  |  |  |        |   |  |   |        | 
|Outstanding at year-end          |  |        | 84,242 |          |  | $      | 112.36 |          |  |        | 84,242 |          |  | $ | 112.36 |  |  |  | 84,052 |   |  | $ | 111.69 | 
|                                 |  |        |        |          |  |        |        |          |  |        |        |          |  |   |        |  |  |  |        |   |  |   |        | 
|Options exercisable at year-end  |  |        | 66,615 |          |  | $      | 109.92 |          |  |        | 63,528 |          |  | $ | 105.32 |  |  |  | 37,655 |   |  | $ | 100.70 | 
|Options available for grant      |  |        | 19,093 |          |  |        |       |          |  |        | 19,093 |          |  |   |       |  |  |  | 19,493 |   |  |   |       | 

The following table summarizes information about
options outstanding as of December 31, 2002:

|         |        |             |  |             |        |          |  |            |      |          |  |   |        |  |  |  |        |  |  |   |        | 
|-------- | ------ | ----------- |  | ----------- | ------ | -------- |  | ---------- | ---- | -------- |  | - | ------ |  |  |  | ------ |  |  | - | ------ | 
|         |        |             |  |            
|         |        | Outstanding |  | Exercisable
|         |        |             |  |            
|         |        |             |  | Weighted    |        |          |  |           
|         |        |             |  | Average     |        | Weighted |  |            |      | Weighted
|         |        |             |  | Remaining   |        | Average  |  |            |      | Average 
|Exercise |        | Number      |  | Contractual |        | Exercise |  | Number     |      | Exercise
|Price    |        | of Options  |  | Life (Yrs.) |        | Price    |  | of Options |      | Price   
|         |        |             |  |             |        |          |  |            |      |         
|$        | 100.00 |             |  |             | 74,256 |          |  |            | 5.75 |          |  | $ | 100.00 |  |  |  | 60,117 |  |  | $ | 100.00 | 
|$        | 150.00 |             |  |             | 948    |          |  |            | 6.92 |          |  |   | 150.00 |  |  |  | 902    |  |  |   | 150.00 | 
|$        | 210.00 |             |  |             | 9,038  |          |  |            | 7.63 |          |  |   | 210.00 |  |  |  | 5,596  |  |  |   | 210.00 | 
|         |        |             |  |             |        |          |  |            |      |          |  |   |        |  |  |  |        |  |  |   |        | 
|         |        |             |  |             | 84,242 |          |  |            | 5.96 |          |  | $ | 112.36 |  |  |  | 66,615 |  |  | $ | 109.92 | 
|         |        |             |  |             |        |          |  |            |      |          |  |   |        |  |  |  |        |  |  |   |        | 

JCI applies Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to
Employees, and related Interpretations in accounting for
these options. As the options were granted with exercise prices
equal to the fair value at the date of grant, no compensation
cost was recognized by JCI upon issuance of such options. The
fair value of each option granted by JCI was estimated using the
minimum value option pricing

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JAFRA COSMETICS INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

model. The assumptions used in this pricing model
and the weighted average fair value of options granted during
2001 and 2000 are summarized as follows:

|                                       |  |        |       |        |  |        |       |        |  |   |       |   |  |   |       |  
|-------------------------------------- |  | ------ | ----- | ------ |  | ------ | ----- | ------ |  | - | ----- | - |  | - | ----- | -
|                                       |  |        |       |       
|                                       |  | 2001   |       | 2000  
|                                       |  |        |       |       
|                                       |  | Option |       | Option |  | Option |       | Option
|                                       |  | Type 1 |       | Type 2 |  | Type 1 |       | Type 2
|                                       |  |        |       |        |  |        |       |       
|Risk-free interest rate                |  |        | 5.80  | %      |  |        | 5.80  | %      |  |   | 6.30  | % |  |   | 6.30  | %
|Expected option life (in years)        |  |        | 5.0   |        |  |        | 7.0   |        |  |   | 5.0   |   |  |   | 7.0   |  
|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 |  | $      | 52.20 |        |  | $      | 69.28 |        |  | $ | 56.00 |   |  | $ | 73.97 |  

Pro Forma Compensation Cost

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

|                            |  |                          |       |      |  |      |       |  |  |   |       | 
|--------------------------- |  | ------------------------ | ----- | ---- |  | ---- | ----- |  |  | - | ----- | 
|                            |  |                         
|                            |  | Years Ended December 31,
|                            |  |                         
|                            |  | 2002                     |       | 2001 |  | 2000
|                            |  |                          |       |      |  |     
|Net income, as reported     |  | $                        | 8,625 |      |  | $    | 6,512 |  |  | $ | 2,214 | 
|Pro forma compensation cost |  |                          | 83    |      |  |      | 319   |  |  |   | 609   | 
|                            |  |                          |       |      |  |      |       |  |  |   |       | 
|Pro forma net income        |  | $                        | 8,542 |      |  | $    | 6,193 |  |  | $ | 1,605 | 
|                            |  |                          |       |      |  |      |       |  |  |   |       | 

Employment Agreements

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

JCI has a bonus plan for U.S. based employees
which provides that 50% of the bonus earned by any Vice
President or Director shall be deferred and shall vest in three
equal annual installments. As of December 31, 2002 and
2001, $415,000 and $372,000 of bonuses were deferred,
respectively. JCI recognizes compensation expense as the vesting
requirements are met.

(14) Manufacturing Agreement

JCI and a third-party contractor (the
Contractor) entered into a manufacturing agreement,
dated June 10, 1999, (the Manufacturing
Agreement). Subject to the terms and conditions of the
Manufacturing Agreement, the Contractor has agreed to
manufacture all of the JCI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
JCIs quarterly or annual purchase volume falls below
specified minimums. The Manufacturing Agreement requires the
Contractor to maintain insurance to cover costs associated with
any product liability or product recall caused by the acts or
omissions of the Contractor. In addition, JCI is obligated to
purchase materials acquired by the Contractor based upon product
forecasts provided by JCI 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.

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JAFRA COSMETICS INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

During the fourth quarter of 2000, the Contractor
obtained $1,000,000 of advances from JCI in exchange for an
unsecured promissory note. The note bears interest at an annual
rate of 9% and is payable in monthly installments commencing on
February 15, 2001. On April 15, 2002, the unsecured
promissory note was amended to advance an additional $320,000 to
the contractor. At December 31, 2002 and 2001,
approximately $101,000 and $349,000, of the note was outstanding
and was included in receivables in the accompanying consolidated
balance sheets, respectively.

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INDEPENDENT AUDITORS REPORT

To the Board of Directors and Stockholders of

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


Mexico City, Mexico D.F.


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

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

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

DELOITTE & TOUCHE, LLP

Mexico City, Mexico

March 6, 2002 (February 24, 2003, as to

 paragraphs 19 and 20 of Note 2)


86



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##### Table of Contents



INDEPENDENT AUDITORS REPORT

To the Board of Directors and Stockholders of

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


Mexico City, Mexico D.F.


We have audited the accompanying consolidated
balance sheets of Jafra Cosmetics International, S.A. de C.V.
and subsidiaries (the Company), an indirect, wholly
owned subsidiary of CDRJ Investments (Lux) S.A., as of
December 31, 2002, and the related consolidated statement
of income, stockholders equity, and cash flows for the
year then ended. Our audit also included the financial statement
schedule for the year ended December 31, 2002 listed at
Item 15(a)(2). These financial statements and schedule are
the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements and schedule based on our audit.

We conducted our audits in accordance with
auditing standards generally accepted in the United States.
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, such consolidated financial
statements present fairly, in all material respects, the
financial position of Jafra Cosmetics International, S.A. de
C.V. and subsidiaries as of December 31, 2002, and the
results of their operations and their cash flows for the year
then ended, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related
financial statement schedule for the year ended
December 31, 2002, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.

As discussed in Note 2 to the consolidated
financial statements, effective January 1, 2002, the
Company adopted Statement of Financial Accounting Standards
No. 142.



| |                       
| | ----------------------
| | /S/ ERNST & YOUNG, LLP

Mexico City, Mexico

February 21, 2003


87



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

CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)


ASSETS

|                                     |                                                                                                               |                            |        |        |         |  |        |        |         | 
|------------------------------------ | ------------------------------------------------------------------------------------------------------------- | -------------------------- | ------ | ------ | ------- |  | ------ | ------ | ------- | 
|                                     |                                                                                                               |                           
|                                     |                                                                                                               | December 31,              
|                                     |                                                                                                               |                           
|                                     |                                                                                                               | 2002                       |        | 2001  
|                                     |                                                                                                               |                            |        |       
|Current assets:                      |                                                                                                               |                            |        |        |         |  |        |       
|                                     | Cash and cash equivalents                                                                                     |                            | $      | 13,394 |         |  | $      | 920    |        
|                                     | Receivables, less allowances for doubtful
    accounts of $7,161 in 2002 and
    $4,952 in 2001.              |                            |        | 33,518 |         |  |        | 34,430 |        
|                                     | Inventories                                                                                                   |                            |        | 21,200 |         |  |        | 29,622 |        
|                                     | Receivables from affiliates                                                                                   |                            |        | 17,675 |         |  |        | 5,938  |        
|                                     | Prepaid expenses and other current assets                                                                     |                            |        | 2,130  |         |  |        | 5,514  |        
|                                     |                                                                                                               |                            |        |        |         |  |        |       
|                                     |                                                                                                               | Total current assets       |        |        | 87,917  |  |        |        | 76,424  | 
|Property and equipment, net          |                                                                                                               |                            | 33,809 |        |         |  | 36,121 |       
|Other assets:                        |                                                                                                               |                            |        |        |         |  |        |       
|                                     | Goodwill                                                                                                      |                            |        | 28,548 |         |  |        | 32,401 |        
|                                     | Trademarks                                                                                                    |                            |        | 44,408 |         |  |        | 50,402 |        
|                                     | Deferred financing fees, net                                                                                  |                            |        | 395    |         |  |        | 1,270  |        
|                                     | Other                                                                                                         |                            |        | 1,227  |         |  |        | 2,699  |        
|                                     |                                                                                                               |                            |        |        |         |  |        |       
|                                     |                                                                                                               | Total                      |        | $      | 196,304 |  |        | $      | 199,317 | 
|                                     |                                                                                                               |                            |        |        |         |  |        |       
|LIABILITIES AND STOCKHOLDERS EQUITY
|Current liabilities:                 |                                                                                                               |                            |        |        |         |  |        |       
|                                     | Current portion of long-term debt                                                                             |                            | $      | 2,489  |         |  | $      | 3,188  |        
|                                     | Accounts payable                                                                                              |                            |        | 11,966 |         |  |        | 20,205 |        
|                                     | Accrued liabilities                                                                                           |                            |        | 31,469 |         |  |        | 27,299 |        
|                                     | Income taxes payable                                                                                          |                            |        | 4,097  |         |  |        | 6,122  |        
|                                     | Payables to affiliates                                                                                        |                            |        | 21,894 |         |  |        | 21,373 |        
|                                     | Deferred income taxes                                                                                         |                            |        | 1,430  |         |  |        | 4,094  |        
|                                     |                                                                                                               |                            |        |        |         |  |        |       
|                                     |                                                                                                               | Total current liabilities  |        |        | 73,345  |  |        |        | 82,281  | 
|Long-term debt                       |                                                                                                               |                            | 30,786 |        |         |  | 33,993 |       
|Deferred income taxes                |                                                                                                               |                            | 16,515 |        |         |  | 16,958 |       
|                                     |                                                                                                               |                            |        |        |         |  |        |       
|                                     |                                                                                                               | Total liabilities          |        |        | 120,646 |  |        |        | 133,232 | 
|                                     |                                                                                                               |                            |        |        |         |  |        |       
|Commitments and contingencies        |                                                                                                               |                            |       |        |         |  |       |       
|Stockholders equity:                |                                                                                                               |                            |        |        |         |  |        |       
|                                     | Series B common stock, no par value;
    authorized, issued and outstanding, 151 shares in 2002 and
    2001. |                            |        |       |         |  |        |       |        
|                                     | Additional paid-in capital                                                                                    |                            |        | 34,184 |         |  |        | 34,184 |        
|                                     | Retained earnings                                                                                             |                            |        | 49,046 |         |  |        | 32,194 |        
|                                     | Accumulated other comprehensive loss                                                                          |                            |        | (7,572 | )       |  |        | (293   | )      
|                                     |                                                                                                               |                            |        |        |         |  |        |       
|                                     |                                                                                                               | Total stockholders equity |        |        | 75,658  |  |        |        | 66,085  | 
|                                     |                                                                                                               |                            |        |        |         |  |        |       
|                                     |                                                                                                               | Total                      |        | $      | 196,304 |  |        | $      | 199,317 | 
|                                     |                                                                                                               |                            |        |        |         |  |        |       

See accompanying notes to consolidated financial
statements.

88



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

CONSOLIDATED STATEMENTS OF INCOME

(In thousands)


|                                                                                              |                                    |                          |         |         |   |      |         |         |   |   |         |         |  
|--------------------------------------------------------------------------------------------- | ---------------------------------- | ------------------------ | ------- | ------- | - | ---- | ------- | ------- | - | - | ------- | ------- | -
|                                                                                              |                                    |                         
|                                                                                              |                                    | Years Ended December 31,
|                                                                                              |                                    |                         
|                                                                                              |                                    | 2002                     |         | 2001    |   | 2000
|                                                                                              |                                    |                          |         |         |   |     
|Net sales to third parties                                                                    |                                    | $                        | 251,545 |         |   | $    | 247,514 |         |   | $ | 199,777 |        
|Sales to affiliates                                                                           |                                    |                          | 14,994  |         |   |      | 11,583  |         |   |   | 10,538  |        
|                                                                                              |                                    |                          |         |         |   |      |         |         |   |   |         |        
|                                                                                              | Net sales                          |                          |         | 266,539 |   |      |         | 259,097 |   |   |         | 210,315 |  
|Cost of sales                                                                                 |                                    |                          | 74,542  |         |   |      | 68,654  |         |   |   | 61,208  |        
|                                                                                              |                                    |                          |         |         |   |      |         |         |   |   |         |        
|                                                                                              | Gross profit                       |                          |         | 191,997 |   |      |         | 190,443 |   |   |         | 149,107 |  
|Selling, general and administrative expenses                                                  |                                    |                          | 124,535 |         |   |      | 119,490 |         |   |   | 90,951  |        
|Management fee expense to affiliate                                                           |                                    |                          | 7,224   |         |   |      | 8,498   |         |   |   | 8,164   |        
|Gain on sale of assets                                                                        |                                    |                          | (77     | )       |   |      |        |         |   |   |        |        
|                                                                                              | Royalty expense to affiliates, net |                          |         | 19,775  |   |      |         | 20,098  |   |   |         | 14,811  |  
|                                                                                              |                                    |                          |         |         |   |      |         |         |   |   |         |        
|                                                                                              | Income from operations             |                          |         | 40,540  |   |      |         | 42,357  |   |   |         | 35,181  |  
|Other income (expense):                                                                       |                                    |                          |         |         |   |      |         |         |   |   |         |        
|                                                                                              | Exchange loss, net                 |                          |         | (7,184  | ) |      |         | (9,183  | ) |   |         | (11,295 | )
|                                                                                              | Interest expense, net              |                          |         | (4,883  | ) |      |         | (6,111  | ) |   |         | (7,789  | )
|                                                                                              | Other, net                         |                          |         | (123    | ) |      |         | (23     | ) |   |         | 1,586   |  
|                                                                                              |                                    |                          |         |         |   |      |         |         |   |   |         |        
|Income before income taxes, extraordinary item
    and cumulative effect of accounting change |                                    |                          | 28,350  |         |   |      | 27,040  |         |   |   | 17,683  |        
|Income tax expense                                                                            |                                    |                          | 11,498  |         |   |      | 11,202  |         |   |   | 6,805   |        
|                                                                                              |                                    |                          |         |         |   |      |         |         |   |   |         |        
|Income before extraordinary item and cumulative
    effect of accounting change               |                                    |                          | 16,852  |         |   |      | 15,838  |         |   |   | 10,878  |        
|Extraordinary loss on early extinguishment of
    debt, net of income tax benefit of $75.     |                                    |                          |        |         |   |      |        |         |   |   | 110     |        
|                                                                                              |                                    |                          |         |         |   |      |         |         |   |   |         |        
|Income before cumulative effect of accounting
    change                                      |                                    |                          | 16,852  |         |   |      | 15,838  |         |   |   | 10,768  |        
|Cumulative effect of accounting change, net of
    income tax expense of $82.                 |                                    |                          |        |         |   |      | 126     |         |   |   |        |        
|                                                                                              |                                    |                          |         |         |   |      |         |         |   |   |         |        
|Net income                                                                                    |                                    | $                        | 16,852  |         |   | $    | 15,964  |         |   | $ | 10,768  |        
|                                                                                              |                                    |                          |         |         |   |      |         |         |   |   |         |        

See accompanying notes to consolidated financial
statements.

89



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##### Table of Contents



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

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY

(In thousands, except for shares)


|                                          |                                                                           |                            |  |        |     |        |        |        |        |        |  |        |     |  |        |         |        |  |  |     |     |  |        |        |        | 
|----------------------------------------- | ------------------------------------------------------------------------- | -------------------------- |  | ------ | --- | ------ | ------ | ------ | ------ | ------ |  | ------ | --- |  | ------ | ------- | ------ |  |  | --- | --- |  | ------ | ------ | ------ | 
|                                          |                                                                           |                           
|                                          |                                                                           | Years Ended December 31,  
|                                          |                                                                           |                           
|                                          |                                                                           |                            |  |        |     |       
|                                          |                                                                           | 2002                       |  | 2001   |     | 2000  
|                                          |                                                                           |                            |  |        |     |       
|                                          |                                                                           | Shares                     |  | Amount |     | Shares |        | Amount |        | Shares |  | Amount
|                                          |                                                                           |                            |  |        |     |        |        |        |        |        |  |       
|Capital Stock:                            |                                                                           |                            |  |        |     |        |        |        |        |        |  |        |     |  |        |         |        |  |  |     |     |  |        |       
|                                          | Balance, beginning of year                                                |                            |  | 151    |     |        |        |       |        |        |  | 151    |     |  |        |        |        |  |  | 151 |     |  |        |       |       
|                                          |                                                                           |                            |  |        |     |        |        |        |        |        |  |        |     |  |        |         |        |  |  |     |     |  |        |       
|                                          | Balance, end of year                                                      |                            |  | 151    |     |        |        |       |        |        |  | 151    |     |  |        |        |        |  |  | 151 |     |  |        |       |       
|                                          |                                                                           |                            |  |        |     |        |        |        |        |        |  |        |     |  |        |         |        |  |  |     |     |  |        |       
|Additional Paid-in Capital:               |                                                                           |                            |  |        |     |        |        |        |        |        |  |        |     |  |        |         |        |  |  |     |     |  |        |       
|                                          | Balance, beginning of year                                                |                            |  |        |     |        | $      | 34,184 |        |        |  |        |     |  | $      | 34,184  |        |  |  |     |     |  | $      | 34,184 |       
|                                          |                                                                           |                            |  |        |     |        |        |        |        |        |  |        |     |  |        |         |        |  |  |     |     |  |        |       
|                                          | Balance, end of year                                                      |                            |  |        |     |        |        | 34,184 |        |        |  |        |     |  |        | 34,184  |        |  |  |     |     |  |        | 34,184 |       
|                                          |                                                                           |                            |  |        |     |        |        |        |        |        |  |        |     |  |        |         |        |  |  |     |     |  |        |       
|Retained Earnings:                        |                                                                           |                            |  |        |     |        |        |        |        |        |  |        |     |  |        |         |        |  |  |     |     |  |        |       
|Balance, beginning of year                |                                                                           |                            |  |        |     |        | 32,194 |        |        |        |  |        |     |  | 27,030 |         |        |  |  |     |     |  | 16,262 |       
|                                          | Net income                                                                |                            |  |        |     |        |        | 16,852 |        |        |  |        |     |  |        | 15,964  |        |  |  |     |     |  |        | 10,768 |       
|                                          | Dividends paid to parent                                                  |                            |  |        |     |        |        |       |        |        |  |        |     |  |        | (10,800 | )      |  |  |     |     |  |        |       |       
|                                          |                                                                           |                            |  |        |     |        |        |        |        |        |  |        |     |  |        |         |        |  |  |     |     |  |        |       
|                                          | Balance, end of year                                                      |                            |  |        |     |        |        | 49,046 |        |        |  |        |     |  |        | 32,194  |        |  |  |     |     |  |        | 27,030 |       
|                                          |                                                                           |                            |  |        |     |        |        |        |        |        |  |        |     |  |        |         |        |  |  |     |     |  |        |       
|Accumulated Other Comprehensive
    Loss: |                                                                           |                            |  |        |     |        |        |        |        |        |  |        |     |  |        |         |        |  |  |     |     |  |        |       
|                                          | Balance, beginning of year                                                |                            |  |        |     |        |        | (293   | )      |        |  |        |     |  |        | (1,458  | )      |  |  |     |     |  |        | (309   | )     
|                                          | Net unrealized and deferred realized losses on
    derivatives            |                            |  |        |     |        |        | (264   | )      |        |  |        |     |  |        | (3,746  | )      |  |  |     |     |  |        |       |       
|                                          | Tax benefit on unrealized and deferred realized
    losses on derivatives |                            |  |        |     |        |        | 92     |        |        |  |        |     |  |        | 1,311   |        |  |  |     |     |  |        |       |       
|                                          | Currency translation adjustments                                          |                            |  |        |     |        |        | (7,107 | )      |        |  |        |     |  |        | 3,600   |        |  |  |     |     |  |        | (1,149 | )     
|                                          |                                                                           |                            |  |        |     |        |        |        |        |        |  |        |     |  |        |         |        |  |  |     |     |  |        |       
|                                          | Balance, end of year                                                      |                            |  |        |     |        |        | (7,572 | )      |        |  |        |     |  |        | (293    | )      |  |  |     |     |  |        | (1,458 | )     
|                                          |                                                                           |                            |  |        |     |        |        |        |        |        |  |        |     |  |        |         |        |  |  |     |     |  |        |       
|                                          |                                                                           | Total Stockholders Equity |  |        | 151 |        |        | $      | 75,658 |        |  |        | 151 |  |        | $       | 66,085 |  |  |     | 151 |  |        | $      | 59,756 | 
|                                          |                                                                           |                            |  |        |     |        |        |        |        |        |  |        |     |  |        |         |        |  |  |     |     |  |        |       
|Comprehensive Income:                     |                                                                           |                            |  |        |     |        |        |        |        |        |  |        |     |  |        |         |        |  |  |     |     |  |        |       
|                                          | Net income                                                                |                            |  |        |     |        | $      | 16,852 |        |        |  |        |     |  | $      | 15,964  |        |  |  |     |     |  | $      | 10,768 |       
|                                          | Unrealized and deferred realized losses on
    derivatives                |                            |  |        |     |        |        | (4,192 | )      |        |  |        |     |  |        | (5,504  | )      |  |  |     |     |  |        |       |       
|                                          | Reclassified to exchange loss                                             |                            |  |        |     |        |        | 1,167  |        |        |  |        |     |  |        | 797     |        |  |  |     |     |  |        |       |       
|                                          | Reclassified to cost of sales                                             |                            |  |        |     |        |        | 2,761  |        |        |  |        |     |  |        | 961     |        |  |  |     |     |  |        |       |       
|                                          | Tax benefit on unrealized and deferred realized
    losses on derivatives |                            |  |        |     |        |        | 92     |        |        |  |        |     |  |        | 1,311   |        |  |  |     |     |  |        |       |       
|                                          | Currency translation adjustments                                          |                            |  |        |     |        |        | (7,107 | )      |        |  |        |     |  |        | 3,600   |        |  |  |     |     |  |        | (1,149 | )     
|                                          |                                                                           |                            |  |        |     |        |        |        |        |        |  |        |     |  |        |         |        |  |  |     |     |  |        |       
|                                          |                                                                           | Total Comprehensive Income |  |        |     |        |        | $      | 9,573  |        |  |        |     |  |        | $       | 17,129 |  |  |     |     |  |        | $      | 9,619  | 
|                                          |                                                                           |                            |  |        |     |        |        |        |        |        |  |        |     |  |        |         |        |  |  |     |     |  |        |       

See accompanying notes to consolidated financial
statements.

90



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##### Table of Contents



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

CONSOLIDATED STATEMENTS OF CASH
FLOWS

(In thousands)


|                                                     |                                                                                                                                                            |                                                   |                                           |                                           |        |         |        |         |       |         |         |         |       |         |         |  
|---------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------- | ----------------------------------------- | ----------------------------------------- | ------ | ------- | ------ | ------- | ----- | ------- | ------- | ------- | ----- | ------- | ------- | -
|                                                     |                                                                                                                                                            |                                                  
|                                                     |                                                                                                                                                            | Years Ended December 31,                         
|                                                     |                                                                                                                                                            |                                                  
|                                                     |                                                                                                                                                            | 2002                                              |                                           | 2001                                      |        | 2000   
|                                                     |                                                                                                                                                            |                                                   |                                           |                                           |        |        
|Cash flows from operating
    activities:            |                                                                                                                                                            |                                                   |                                           |                                           |        |         |        |         |       |         |         |        
|                                                     | Net income                                                                                                                                                 |                                                   | $                                         | 16,852                                    |        |         | $      | 15,964  |       |         | $       | 10,768  |      
|                                                     | Extraordinary loss on early extinguishment of
    debt, net of taxes                                                                                       |                                                   |                                           |                                          |        |         |        |        |       |         |         | 110     |      
|                                                     | Cumulative effect of accounting change, net of
    taxes                                                                                                   |                                                   |                                           |                                          |        |         |        | (126    | )     |         |         |        |      
|                                                     |                                                                                                                                                            |                                                   |                                           |                                           |        |         |        |         |       |         |         |        
|                                                     | Income before extraordinary item and cumulative
    effect of accounting change                                                                            |                                                   |                                           | 16,852                                    |        |         |        | 15,838  |       |         |         | 10,878  |      
|                                                     | Adjustments to reconcile income before
    extraordinary item and cumulative effect of accounting change to
    net cash provided by operating activities: |                                                   |                                           |                                           |        |         |        |         |       |         |         |         |      
|                                                     |                                                                                                                                                            | Gain on sale of property and equipment            |                                           |                                           | (77    | )       |        |         | (24   | )       |         |         |      |        
|                                                     |                                                                                                                                                            | Depreciation and amortization                     |                                           |                                           | 2,121  |         |        |         | 3,908 |         |         |         | 4,231 |        
|                                                     |                                                                                                                                                            | Amortization of deferred financing fees           |                                           |                                           | 776    |         |        |         | 805   |         |         |         | 797   |        
|                                                     |                                                                                                                                                            | Provision for uncollectible accounts receivable   |                                           |                                           | 11,033 |         |        |         | 7,681 |         |         |         | 4,956 |        
|                                                     |                                                                                                                                                            | Unrealized foreign exchange and derivative losses |                                           |                                           | 4,667  |         |        |         | (994  | )       |         |         | 2,669 |        
|                                                     |                                                                                                                                                            | Deferred realized derivative losses               |                                           |                                           | 181    |         |        |         | (827  | )       |         |         |      |        
|                                                     |                                                                                                                                                            | Deferred income taxes                             |                                           |                                           | (1,429 | )       |        |         | 1,506 |         |         |         | 2,539 |        
|                                                     |                                                                                                                                                            | Changes in operating assets and liabilities:      |                                           |                                           |        |         |        |         |       |         |         |         |       |        
|                                                     |                                                                                                                                                            |                                                   | Receivables                               |                                           |        | (14,010 | )      |         |       | (13,795 | )       |         |       | (10,655 | )      
|                                                     |                                                                                                                                                            |                                                   | Inventories                               |                                           |        | 5,249   |        |         |       | (3,021  | )       |         |       | (6,047  | )      
|                                                     |                                                                                                                                                            |                                                   | Prepaid expenses and other current assets |                                           |        | 744     |        |         |       | (1,126  | )       |         |       | (1,108  | )      
|                                                     |                                                                                                                                                            |                                                   | Value-added tax receivables and payables  |                                           |        | 5,890   |        |         |       | 3,057   |         |         |       | 103     |        
|                                                     |                                                                                                                                                            |                                                   | Intercompany receivables and payables     |                                           |        | (11,628 | )      |         |       | 17,980  |         |         |       | 15      |        
|                                                     |                                                                                                                                                            |                                                   | Other assets                              |                                           |        | 1,232   |        |         |       | 154     |         |         |       | (1,728  | )      
|                                                     |                                                                                                                                                            |                                                   | Accounts payable and accrued liabilities  |                                           |        | 1,107   |        |         |       | 330     |         |         |       | 13,581  |        
|                                                     |                                                                                                                                                            |                                                   | Income taxes payable/prepaid              |                                           |        | (960    | )      |         |       | 6,688   |         |         |       | 11,667  |        
|                                                     |                                                                                                                                                            |                                                   |                                           |                                           |        |         |        |         |       |         |         |        
|                                                     |                                                                                                                                                            |                                                   |                                           | Net cash provided by operating activities |        |         | 21,748 |         |       |         | 38,160  |         |       |         | 31,898  |  
|                                                     |                                                                                                                                                            |                                                   |                                           |                                           |        |         |        |         |       |         |         |        
|Cash flows from investing
    activities:            |                                                                                                                                                            |                                                   |                                           |                                           |        |         |        |         |       |         |         |        
|                                                     | Proceeds from sale of property and equipment                                                                                                               |                                                   |                                           | 225                                       |        |         |        | 93      |       |         |         |        |      
|                                                     | Purchases of property and equipment                                                                                                                        |                                                   |                                           | (4,124                                    | )      |         |        | (6,024  | )     |         |         | (2,262  | )    
|                                                     |                                                                                                                                                            |                                                   |                                           |                                           |        |         |        |         |       |         |         |        
|                                                     |                                                                                                                                                            |                                                   |                                           | Net cash used in investing activities     |        |         | (3,899 | )       |       |         | (5,931  | )       |       |         | (2,262  | )
|                                                     |                                                                                                                                                            |                                                   |                                           |                                           |        |         |        |         |       |         |         |        
|Cash flows from financing
    activities:            |                                                                                                                                                            |                                                   |                                           |                                           |        |         |        |         |       |         |         |        
|                                                     | Repurchase of subordinated debt                                                                                                                            |                                                   |                                           |                                          |        |         |        |        |       |         |         | (4,239  | )    
|                                                     | Repayments under term loan facility                                                                                                                        |                                                   |                                           | (3,125                                    | )      |         |        | (2,000  | )     |         |         | (1,500  | )    
|                                                     | Net borrowings under revolving credit facility                                                                                                             |                                                   |                                           |                                          |        |         |        |        |       |         |         | (500    | )    
|                                                     | Net (repayments) borrowings under bank debt                                                                                                                |                                                   |                                           | (781                                      | )      |         |        | 1,263   |       |         |         | 346     |      
|                                                     | Payment of note payable to affiliate                                                                                                                       |                                                   |                                           |                                          |        |         |        | (20,756 | )     |         |         | (22,946 | )    
|                                                     | Payment of dividends                                                                                                                                       |                                                   |                                           |                                          |        |         |        | (10,800 | )     |         |         |        |      
|                                                     |                                                                                                                                                            |                                                   |                                           |                                           |        |         |        |         |       |         |         |        
|                                                     |                                                                                                                                                            |                                                   |                                           | Net cash used in financing activities     |        |         | (3,906 | )       |       |         | (32,293 | )       |       |         | (28,839 | )
|                                                     |                                                                                                                                                            |                                                   |                                           |                                           |        |         |        |         |       |         |         |        
|Effect of exchange rate changes on cash              |                                                                                                                                                            |                                                   | (1,469                                    | )                                         |        |         | 423    |         |       |         | (239    | )      
|                                                     |                                                                                                                                                            |                                                   |                                           |                                           |        |         |        |         |       |         |         |        
|Net increase in cash and cash equivalents            |                                                                                                                                                            |                                                   | 12,474                                    |                                           |        |         | 359    |         |       |         | 558     |        
|Cash and cash equivalents at beginning of year       |                                                                                                                                                            |                                                   | 920                                       |                                           |        |         | 561    |         |       |         | 3       |        
|                                                     |                                                                                                                                                            |                                                   |                                           |                                           |        |         |        |         |       |         |         |        
|Cash and cash equivalents at end of year             |                                                                                                                                                            | $                                                 | 13,394                                    |                                           |        | $       | 920    |         |       | $       | 561     |        
|                                                     |                                                                                                                                                            |                                                   |                                           |                                           |        |         |        |         |       |         |         |        
|Supplemental disclosure of cash flow
    information |                                                                                                                                                            |                                                   |                                           |                                           |        |         |        |         |       |         |         |        
|                                                     | Cash paid (received) during the year for:                                                                                                                  |                                                   |                                           |                                           |        |         |        |         |       |         |         |         |      
|                                                     |                                                                                                                                                            |                                                   |                                           | Interest                                  |        | $       | 4,305  |         |       | $       | 4,786   |         |       | $       | 5,652   |  
|                                                     |                                                                                                                                                            |                                                   |                                           | Income Taxes                              |        |         | 7,213  |         |       |         | 2,734   |         |       |         | (7,401  | )

At December 31, 2002, Jafra S.A. had
deferred net gains of $0.4 million on foreign currency
option contracts recorded as other comprehensive loss and other
receivables. At December 31, 2001, Jafra S.A. had deferred
losses of $2.9 million on foreign currency forward contracts
recorded in accrued liabilities and other comprehensive income.
Additionally, the related deferred income tax benefit of
$1.3 million related to the deferred losses was recorded as
a component of net deferred tax liability and other
comprehensive income.

See accompanying notes to consolidated financial
statements.

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

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

(1) Basis of Presentation and Description
of Business

Basis of Presentation

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

The accompanying consolidated financial
statements for the years ended December 31, 2002, 2001 and
2000 reflect the operations of Jafra S.A. and its subsidiaries
(collectively, Jafra S.A.). All significant
intercompany accounts and transactions between entities have
been eliminated in consolidation.

In connection with the Acquisition,
Jafra S.A. and an affiliated company, Jafra Cosmetics
International, Inc. (JCI) (the indirect, wholly
owned United States subsidiary of the Parent) issued
$100 million aggregate principal amount of 11.75%
Subordinated Notes due 2008 (the Notes). See
Note 6. The Notes represent several obligations of
Jafra S.A. and JCI, with each participating on a pro rata
basis upon redemption. Jafra S.A. and JCI have fully and
unconditionally guaranteed the obligations under the Notes of
the other on a senior subordinated basis, subject to a 30-day
standstill period prior to enforcement of such guarantees. As
the cross-guarantee of Jafra S.A. and JCI is subject to a
30-day standstill period, the Parent is filing these separate
financial statements of Jafra S.A. as a schedule to its
Annual Report on Form 10-K for the year ended
December 31, 2002.

Description of Business

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

(2) Summary of Significant Accounting
Policies

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

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

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

Property and Equipment.Property and equipment are stated at
cost. Depreciation of property and equipment is provided for
over the estimated useful lives of the respective assets using
the straight-line method. Estimated useful lives are
20 years for buildings, the lesser of 20 years or the
term of the lease for improvements, 5 to 10 years for
machinery and equipment and 3 years for hardware and
software. Maintenance and repairs, including cost of minor
replacements, are charged to operations as incurred. Costs of

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


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

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. On January 1, 2002,
Jafra S.A. adopted Statement of Financial Accounting
Standards (SFAS) No. 142, Goodwill and
other Intangible Assets which requires the Company to not
amortize goodwill and other intangible assets, but to test those
intangible assets for impairment at least annually. Prior to
adoption of SFAS No. 142, goodwill and other intangible
assets were amortized using the straight-line method over a
period of 40 years. The book value of goodwill and
trademarks was $28,548,000 and $44,408,000 at December 31,
2002, respectively. (See New Accounting Standards).

Deferred Financing Costs.In connection with the acquisition of
the Jafra Business, Jafra S.A. incurred approximately
$4.8 million of costs related to the 11.75% Senior
Subordinated Notes due 2008 (the Notes), the
revolving credit facility and the term loan facility (see
Note 6). Such costs are being amortized on a basis that
approximates the interest method over the expected term of the
related debt. Accumulated amortization at December 31, 2002
and 2001 was $3,425,000 and $3,066,000, respectively.

Impairment of Long-Lived Assets and Goodwill.Long-lived assets 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-live assets is not
recoverable, Jafra S.A. will recognize an impairment loss,
measured by the future discounted cash flow method. Goodwill is
tested for impairment annually, or whenever events or changes in
circumstances indicate that the carrying amount of goodwill may
not be recoverable based on the provisions of SFAS No. 142
(see new Accounting Standards).

Foreign Currency Forward and Option Contracts.During 2002 and 2001, Jafra S.A.
entered into foreign currency forward contracts, In 2002,
Jafra S.A. entered into forward currency option contracts.
Jafra S.A. enters into these contracts to reduce the effect of
potentially adverse exchange rate fluctuations in the exchange
rate of the Mexican peso to the U.S. dollar. Effective
January 1, 2001, Jafra S.A. adopted
SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133, as
amended and interpreted, establishes accounting and reporting
standards for derivative instruments and hedging activities and
requires that all derivative instruments be recorded based on
fair value. In connection with the adoption of SFAS
No. 133, at January 1, 2001, Jafra S.A. recorded
a net gain of $126,000 (net of a tax effect of $82,000) as a
cumulative transition adjustment to earnings. This adjustment
relates to derivatives not designated as hedges prior to
adoption of SFAS No. 133, and represents the difference
between the carrying value and the fair value of such
instruments.

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

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


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

balance sheets, At December 31, 2002, the
carrying value of the option contracts was $402,000 and was
included in other receivables in the accompanying consolidated
balance sheets.

Fair Value of Financial Instruments.The carrying amounts of cash and cash
equivalents, accounts receivable, and accounts payable
approximate fair value because of the short-term maturities of
these instruments. The fair value of the Notes and other fixed
rate long-term debt at December 31, 2002 and 2001 was
$31,652,000 and $33,786,000, respectively, based upon
discussions with one of Jafra S.A.s largest
bondholders and an analysis of current market interest rates and
the Companys credit rating. As Jafra S.A.s
Revolving Credit Facility and the Term Loan are variable rate
debt, and the interest rate spread paid by Jafra S.A. is
adjusted for changes in certain financial ratios of the Parent,
the fair value of the Revolving Credit Facility and the Term
Loan approximated their carrying amounts at December 31,
2002 and 2001.

Revenue Recognition.Jafra S.A. recognizes revenue
when title passes at shipment in accordance with its shipping
terms. Amounts billed to consultants for shipping and handling
costs are included in net sales. Sales are reduced by
commissions paid to consultants on their personal sales.

Shipping and Handling Costs.Shipping and handling costs of
$17,442,000, $15,182,000 and $10,651,000 for the years ended
December 31, 2002, 2001 and 2000, respectively, are
included in selling, general and administrative expenses.

Income Taxes.Jafra
S.A. 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 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
Jafra S.A. is the Mexican peso. For presentation purposes,
assets and liabilities are translated into U.S. dollars at
current exchange rates, and related revenues and expenses are
translated at average exchange rates in effect during the
period. Resulting translation adjustments are recorded as a
component of other comprehensive loss.

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.
Jafra S.A. had outstanding U.S. dollar-denominated debt of
$32,447,000 and $35,572,000 at December 31, 2002 and 2001,
respectively. This debt is remeasured at each reporting date,
subjecting Jafra S.A. to additional foreign exchange risk.

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

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


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

In June 2001, the Financial Accounting Standards
Board (FASB) approved two new statements: SFAS
No. 141, Business Combinations and SFAS
No. 142, Goodwill and Other Intangible Assets.
SFAS No. 141 requires business combinations entered into
after June 30, 2001 to be accounted for using the purchase
method of accounting. SFAS No. 142 requires that goodwill
not be amortized, but be tested for impairment at least
annually. SFAS No. 142 was effective for fiscal years
beginning after December 15, 2001 to all goodwill and other
intangible assets recognized in an entitys statement of
financial position at that date, regardless of when those assets
were initially recognized. Jafra S.A. adopted SFAS No. 142
on January 1, 2002. In accordance with such adoption, the
Company identified all reporting units in conjunction with the
provisions of SFAS No. 142 and allocated all goodwill
accordingly. During the year ended December 31, 2002,
Jafra S.A. completed the transitional goodwill impairment
test required by SFAS No. 142. Based on the transitional
and annual impairment test, Jafra S.A. determined that
there was no impairment to goodwill. There were no changes,
except for translation effects, to the carrying amount of
goodwill for the year ended December 31, 2002.

Jafra S.A.s other intangible assets
consist of trademarks. During the year ended December 31,
2002, Jafra S.A. determined trademarks to have an
indefinite life and performed the transitional impairment test
as required under SFAS No. 142. Based upon the transitional
and annual test, Jafra S.A. determined that there was no
impairment of trademarks. The carrying value of trademarks was
$44,408,000 at December 31, 2002 on the accompanying
consolidated balance sheets.

In accordance with SFAS No. 142,
Jafra S.A. discontinued amortization of goodwill and other
intangible assets with an indefinite life. A reconciliation of
previously reported net income to amounts adjusted for the
exclusion of goodwill and trademark amortization, net of the
related income tax effects, where applicable, is as follows (in
thousands):

|                                   |  |                          |        |      |  |      |        |  |  |   |        | 
|---------------------------------- |  | ------------------------ | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                                   |  |                         
|                                   |  | Years Ended December 31,
|                                   |  |                         
|                                   |  | 2002                     |        | 2001 |  | 2000
|                                   |  |                          |        |      |  |     
|Net income                         |  | $                        | 16,852 |      |  | $    | 15,964 |  |  | $ | 10,768 | 
|Goodwill amortization              |  |                          |       |      |  |      | 870    |  |  |   | 859    | 
|Trademark amortization, net of tax |  |                          |       |      |  |      | 796    |  |  |   | 825    | 
|                                   |  |                          |        |      |  |      |        |  |  |   |        | 
|Adjusted net income                |  | $                        | 16,852 |      |  | $    | 17,630 |  |  | $ | 12,452 | 
|                                   |  |                          |        |      |  |      |        |  |  |   |        | 

In November 2001, the Emerging Issues Task Force
(EITF) issued EITF Issue No. 01-9,
Accounting for Consideration Given by a Vendor to a
Customer or a Reseller of the Vendors Products. This
new guidance provides that consideration from a vendor to a
reseller is generally presumed to be a reduction of the selling
prices of the vendors products, and, therefore, should be
characterized as a reduction of revenue when recognized in the
vendors income statement. On January 1, 2002,
Jafra S.A. adopted EITF Issue No. 01-9 and
reclassified commissions paid to consultants of $2,260,000 and
$1,948,000 on their personal sales, previously as a component of
selling, general and administrative expenses, as a reduction in
net sales and selling, general and administrative expenses for
the years ended December 31, 2001 and 2000, respectively.

On January 1, 2002, the Jafra S.A.
adopted SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets. SFAS No. 144
supersedes SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of. SFAS No. 144 retains substantially all
of the requirements of SFAS No. 121, while resolving
certain implementation issues and addressing the accounting for
a component of a business accounted for as a discontinued
operation. SFAS No. 144 was adopted with no significant
impact on the financial position or results of operations of
Jafra S.A.

In April 2002, the FASB issued SFAS No. 145,
Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical
Corrections. This Statement rescinds or modifies existing
authoritative pronouncements including SFAS No. 4
Reporting Gains and Losses from Extinguish-

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


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

ment of Debt. As a result of the issuance
of SFAS No. 145, gains and losses from extinguishment of
debt should be classified as extraordinary items only if they
meet the criteria in Accounting Principles Board
(APB) Opinion 30. Reporting the Results
of Operations-Reporting the Effects of Disposal of a Segment of
a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions.Applying the provisions
of APB Opinion 30 will distinguish transactions that are
part of an entitys recurring operations from those that
are unusual or infrequent or that meet the criteria for
classification as an extraordinary item. The provisions of this
Statement related to the rescission of SFAS No. 4 shall be
applied in fiscal years beginning after May 15, 2002. Any
gain or loss on extinguishment of debt that was classified as an
extraordinary item in prior periods presented that does not meet
the criteria in APB Opinion 30 for classification as an
extraordinary item shall be reclassified. Jafra S.A. is
currently evaluating the impact that this statement may have on
any potential future extinguishments of debt. Upon adoption of
SFAS No. 145, Jafra S.A. will reclassify items
previously reported as extraordinary items as a component of
operating income on the accompanying statements of income.

In June 2002, the FASB approved SFAS
No. 146, Accounting for Costs Associated with Exit or
Disposal Activities. This statement addresses financial
accounting and reporting for costs associated with exit or
disposal activities and nullifies EITF Issue No. 94-3,
Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity. The
provisions of this statement are effective for exit or disposal
activities that are initiated after December 31, 2002, with
early application encouraged. Jafra S.A. is currently
evaluating the impact that this statement may have on any
potential future exit or disposal activities.

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

(3) Inventories

Inventories consist of the following at
December 31, 2002 and 2001 (in thousands):

|                           |  |      |        |      |  |   |        | 
|-------------------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                           |  | 2002 |        | 2001
|                           |  |      |        |     
|Raw materials and supplies |  | $    | 4,858  |      |  | $ | 5,717  | 
|Finished goods             |  |      | 16,342 |      |  |   | 23,905 | 
|                           |  |      |        |      |  |   |        | 
|Total inventories          |  | $    | 21,200 |      |  | $ | 29,622 | 
|                           |  |      |        |      |  |   |        | 

(4) Property and Equipment

Property and equipment consist of the following
at December 31, 2002 and 2001 (in thousands):

|                               |  |      |        |      |  |   |        | 
|------------------------------ |  | ---- | ------ | ---- |  | - | ------ | 
|                               |  | 2002 |        | 2001
|                               |  |      |        |     
|Land                           |  | $    | 10,260 |      |  | $ | 11,645 | 
|Buildings and improvements     |  |      | 10,311 |      |  |   | 11,703 | 
|Machinery, equipment and other |  |      | 18,726 |      |  |   | 17,532 | 
|                               |  |      |        |      |  |   |        | 
|                               |  |      | 39,297 |      |  |   | 40,880 | 
|Less accumulated depreciation  |  |      | 5,488  |      |  |   | 4,759  | 
|                               |  |      |        |      |  |   |        | 
|Property and equipment, net    |  | $    | 33,809 |      |  | $ | 36,121 | 
|                               |  |      |        |      |  |   |        | 

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


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

(5) Accrued Liabilities

Accrued liabilities consist of the following at
December 31, 2002 and 2001 (in thousands):

|                                            |  |      |        |      |  |   |        | 
|------------------------------------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                                            |  | 2002 |        | 2001
|                                            |  |      |        |     
|Sales promotions, commissions and overrides |  | $    | 12,048 |      |  | $ | 10,936 | 
|Accrued interest                            |  |      | 618    |      |  |   | 618    | 
|Compensation and other benefit accruals     |  |      | 3,503  |      |  |   | 3,755  | 
|State and local sales taxes and other taxes |  |      | 11,407 |      |  |   | 3,399  | 
|Unrealized losses on forward contracts      |  |      |       |      |  |   | 5,540  | 
|Other                                       |  |      | 3,893  |      |  |   | 3,051  | 
|                                            |  |      |        |      |  |   |        | 
|Total accrued liabilities                   |  | $    | 31,469 |      |  | $ | 27,299 | 
|                                            |  |      |        |      |  |   |        | 

(6) Debt

Debt consists of the following at
December 31, 2002 and 2001 (in thousands):

|                                                                                                                                                                                                                       |  |      |        |      |  |   |        | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                                                                                                                                                                                                                       |  | 2002 |        | 2001
|                                                                                                                                                                                                                       |  |      |        |     
|Subordinated Notes, U.S. dollar-denominated,
    unsecured, interest payable semi-annually at 11.75% due in 2008                                                                                                       |  | $    | 30,072 |      |  | $ | 30,072 | 
|Term loan, secured, U.S. dollar-denominated,
    principal and interest due in quarterly installments through
    April 30, 2004, interest rates at 3.1% and 4.3% at
    December 31, 2002 and 2001, respectively      |  |      | 2,375  |      |  |   | 5,500  | 
|Unsecured bank loan agreement, principal and
    interest due in monthly installments through January 25,
    2005, weighted average interest rates of 18.5% and 18.7% at
    December 31, 2002 and 2001, respectively |  |      | 828    |      |  |   | 1,609  | 
|                                                                                                                                                                                                                       |  |      |        |      |  |   |        | 
|Total debt                                                                                                                                                                                                             |  |      | 33,275 |      |  |   | 37,181 | 
|Less current maturities                                                                                                                                                                                                |  |      | 2,489  |      |  |   | 3,188  | 
|                                                                                                                                                                                                                       |  |      |        |      |  |   |        | 
|Long-term debt                                                                                                                                                                                                         |  | $    | 30,786 |      |  | $ | 33,993 | 
|                                                                                                                                                                                                                       |  |      |        |      |  |   |        | 

Jafra S.A.s long-term debt matures as
follows (in thousands): $2,489 in 2003, $714 in 2004, $0 in
2005, 2006 and 2007, and $30,072 thereafter.

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

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

Jafra S.A. and JCI are indirect, wholly
owned subsidiaries of the Parent and have fully and
unconditionally guaranteed the obligations under the Notes of
the other on a senior subordinated basis, subject to a 30-day
standstill period prior to enforcement of such guarantees. In
addition, the Parent has fully and unconditionally guaranteed
the Notes on a senior subordinated basis. Each existing
subsidiary of Jafra S.A. fully and unconditionally
guarantees the Notes jointly and severally, on a senior
subordinated basis, and each subsequently acquired or organized
subsidiary of Jafra S.A. will fully and unconditionally
guarantee the Notes jointly and severally, on a senior
subordinated basis. JCI currently has no U.S. subsidiaries. Each
acquired or organized U.S. subsidiary of JCI will also be
required to fully and unconditionally guarantee the Notes
jointly and severally, on a senior subordinated basis. The
nonguarantor entities are the Parents indirect European
subsidiaries in Austria, Germany, Italy, the Netherlands,
Poland, and Switzerland; its indirect South

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


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

American subsidiaries in Argentina, Brazil,
Chile, Colombia, Peru, and Venezuela; and its indirect
subsidiaries in the Dominican Republic and Thailand. All
guarantor and nonguarantor entities are either direct or
indirect wholly owned subsidiaries of the Parent. The Notes were
registered in a registered exchange offer, effective as of
January 25, 1999, under the Securities Act of 1933, as
amended.

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

Consents and waivers, dated June 30, 2001
and November 19, 1999, to the senior credit agreement, as
described below, allow Jafra S.A. and JCI to repurchase the
Notes in the open market from time to time, with the aggregate
purchase price for all such Notes repurchased not to exceed
$50 million. Aggregate repurchases as of December 31,
2002 were $24.8 million. During 2000, Jafra S.A.
retired notes, prior to maturity, with a face value of
$4.3 million. The debt repurchases in 2000 resulted in an
extraordinary loss of $110,000, net of an income tax benefit of
$75,000. In connection with the early retirement of the Notes as
described above, a portion of the unamortized deferred financing
costs was written off and included in the determination of the
extraordinary loss on early extinguishment of debt. In 2000,
$274,000 of the unamortized deferred financing fees were written
off.

In addition, Jafra S.A. and JCI entered into
a senior credit agreement that provides for senior secured
credit facilities in an aggregate principal amount of
$90 million, consisting of a multicurrency revolving credit
facility of $65 million and a term loan facility of
$25 million. Borrowings under the term loan facility are
payable in quarterly installments of principal and interest over
6 years through April 30, 2004. Borrowings under the
revolving credit facility mature on April 30, 2004.
Borrowings under the senior credit agreement currently bear
interest at an annual rate of LIBOR plus a margin of 1.625% or
an alternate base rate (the higher of the prime rate or federal
funds rate plus 0.5%, plus an applicable margin of 0.625%). The
interest rate in effect at December 31, 2002 was
approximately 3.1% for the LIBOR-based borrowings. Borrowings
under the senior credit agreement are secured by substantially
all of the assets of Jafra S.A. and JCI. No amounts were
outstanding under the revolving credit facility at
December 31, 2002.

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

During the year ended December 31, 2001,
Jafra S.A. repaid the balance remaining under a one-year term
loan originally due on August 16, 2001, and entered into an
unsecured bank loan agreement. Under this agreement,
Jafra S.A. had the peso equivalent of $828,000 outstanding
at December 31, 2002 at a weighted average fixed interest
rate of 18.5%. Principal and interest payments are due monthly
through January 25, 2005.

As of December 31, 2002, Jafra S.A. has
irrevocable standby letters of credit outstanding, totaling
$2.8 million. These letters of credit, expiring on
February 17, 2003 collateralize the Companys
obligation to a third-party in connection with certain lease
agreements.

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


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

(7) Income Taxes

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

|                                                                                                                |  |                          |        |      |  |      |        |  |  |   |       | 
|--------------------------------------------------------------------------------------------------------------- |  | ------------------------ | ------ | ---- |  | ---- | ------ |  |  | - | ----- | 
|                                                                                                                |  |                         
|                                                                                                                |  | Years Ended December 31,
|                                                                                                                |  |                         
|                                                                                                                |  | 2002                     |        | 2001 |  | 2000
|                                                                                                                |  |                          |        |      |  |     
|Provision for income taxes at statutory rate                                                                    |  | $                        | 9,923  |      |  | $    | 9,464  |  |  | $ | 6,189 | 
|Permanent differences, principally effect of
    inflation upon taxable income                                  |  |                          | 829    |      |  |      | 1,116  |  |  |   | 616   | 
|Change in net deferred income tax liabilities due
    to enactment of changes of Mexicos future statutory rate |  |                          | (1,169 | )    |  |      |       |  |  |   |      | 
|Other                                                                                                           |  |                          | 1,915  |      |  |      | 622    |  |  |   |      | 
|                                                                                                                |  |                          |        |      |  |      |        |  |  |   |       | 
|Income tax expense                                                                                              |  | $                        | 11,498 |      |  | $    | 11,202 |  |  | $ | 6,805 | 
|                                                                                                                |  |                          |        |      |  |      |        |  |  |   |       | 

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

|                                                                                               |                |                          |        |        |        |      |        |     |        |   |       |       |       | 
|---------------------------------------------------------------------------------------------- | -------------- | ------------------------ | ------ | ------ | ------ | ---- | ------ | --- | ------ | - | ----- | ----- | ----- | 
|                                                                                               |                |                         
|                                                                                               |                | Years Ended December 31,
|                                                                                               |                |                         
|                                                                                               |                | 2002                     |        | 2001   |        | 2000
|                                                                                               |                |                          |        |        |        |     
|Current                                                                                        |                | $                        | 14,605 |        |        | $    | 11,007 |     |        | $ | 4,266 |      
|Deferred                                                                                       |                |                          | (4,326 | )      |        |      | 1,506  |     |        |   | 2,539 |      
|Deferred allocated to other comprehensive income                                               |                |                          | 1,219  |        |        |      | (1,311 | )   |        |   |      |      
|                                                                                               |                |                          |        |        |        |      |        |     |        |   |       |      
|                                                                                               | Total deferred |                          |        | (3,107 | )      |      |        | 195 |        |   |       | 2,539 |      
|                                                                                               |                |                          |        |        |        |      |        |     |        |   |       |      
|Total income taxes on income before income taxes,
    extraordinary item and cumulative effect |                |                          | 11,498 |        |        |      | 11,202 |     |        |   | 6,805 |      
|Income tax benefit on early extinguishment of debt                                             |                |                          |       |        |        |      |       |     |        |   | (75   | )    
|Income tax expense on cumulative effect of
    accounting change                               |                |                          |       |        |        |      | 82     |     |        |   |      |      
|                                                                                               |                |                          |        |        |        |      |        |     |        |   |       |      
|                                                                                               |                | Total income tax expense |        | $      | 11,498 |      |        | $   | 11,284 |   |       | $     | 6,730 | 
|                                                                                               |                |                          |        |        |        |      |        |     |        |   |       |      

The components of deferred income tax assets and
deferred income tax liabilities at December 31, 2002 and
2001 are as follows (in thousands):

|                            |                                                 |                                  |   |       |        |  |   |       |        | 
|--------------------------- | ----------------------------------------------- | -------------------------------- | - | ----- | ------ |  | - | ----- | ------ | 
|                            |                                                 | 2002                             |   | 2001 
|                            |                                                 |                                  |   |      
|Deferred income tax assets: |                                                 |                                  |   |       |        |  |   |      
|                            | Accounts receivable                             |                                  | $ | 2,435 |        |  | $ | 1,733 |       
|                            | Net operating loss carryforward of subsidiaries |                                  |   | 199   |        |  |   | 814   |       
|                            | Asset tax credit carryforward                   |                                  |   | 122   |        |  |   | 2,687 |       
|                            | Accrued bonuses                                 |                                  |   | 33    |        |  |   | 301   |       
|                            | Accrued sales promotions                        |                                  |   | 1,977 |        |  |   | 2,273 |       
|                            | Other accrued liabilities                       |                                  |   | 5,053 |        |  |   | 1,632 |       
|                            | Other                                           |                                  |   | 348   |        |  |   | 2,849 |       
|                            |                                                 |                                  |   |       |        |  |   |      
|                            |                                                 | Total deferred income tax assets |   |       | 10,167 |  |   |       | 12,289 | 

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


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

|                                 |                                          |                                       |  |         |         |   |  |         |         |  
|-------------------------------- | ---------------------------------------- | ------------------------------------- |  | ------- | ------- | - |  | ------- | ------- | -
|                                 |                                          | 2002                                  |  | 2001   
|                                 |                                          |                                       |  |        
|Deferred income tax liabilities: |                                          |                                       |  |         |         |   |  |        
|                                 | Transaction and deferred financing costs |                                       |  | (130    | )       |   |  | (445    | )      
|                                 | Property and equipment                   |                                       |  | (2,399  | )       |   |  | (2,592  | )      
|                                 | Trademark and goodwill                   |                                       |  | (14,655 | )       |   |  | (17,641 | )      
|                                 | Inventories                              |                                       |  | (7,653  | )       |   |  | (12,469 | )      
|                                 | Prepaid purchases and expenses           |                                       |  | (3,163  | )       |   |  |        |        
|                                 | Other                                    |                                       |  | (112    | )       |   |  | (194    | )      
|                                 |                                          |                                       |  |         |         |   |  |        
|                                 |                                          | Total deferred income tax liabilities |  |         | (28,112 | ) |  |         | (33,341 | )
|                                 |                                          |                                       |  |         |         |   |  |        
|                                 |                                          | Net deferred income tax liabilities   |  | $       | (17,945 | ) |  | $       | (21,052 | )
|                                 |                                          |                                       |  |         |         |   |  |        

At December 31, 2002 and 2001, Jafra
S.A.s deferred income tax assets included $199,000 and
$814,000, respectively, for operating loss carryforwards. The
tax loss and asset credit carryforwards expire in varying
amounts through 2012. Although realization is not assured,
management believes it is more likely than not that the net
carrying value of the income tax loss and credit carryforwards
will be realized.

Income tax expense for the year ended
December 31, 2002 was reduced by $1,169,000 as the result
of the enactment of changes in the Mexico corporate statutory
tax rate and the related impact on Jafra S.A.s net
deferred income tax liabilities. The enactment in Mexico will
reduce the Mexico corporate income tax rate annually in
one-percent increments from 35% to 32% beginning January 1,
2003 through 2005

(8) Benefit Plans

Under Mexican labor laws, employees of
Jafra S.A. and its subsidiaries are entitled to a payment
when they leave Jafra S.A. if they have fifteen or more years of
service. In addition, Jafra S.A. 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 $1,222,000, $995,000 and
$345,000 for the years ended December 31, 2002, 2001 and
2000, respectively. The total liability was approximately
$1,724,000 and $1,010,000 at December 31, 2002 and 20001
respectively, and is classified as a noncurrent liability in the
accompanying consolidated balance sheets.

(9) Related Party Transactions

Jafra S.A. manufactures and distributes
color cosmetics and fragrance products to other subsidiaries of
the Parent (affiliates). Sales to affiliates,
primarily in the United States and Germany, were $14,994,000,
$11,538,000 and $10,538,000 for the years ended
December 31, 2002, 2001 and 2000, respectively. These sales
were made at cost plus a markup ranging from 0 to 11%.
Jafra S.A. also purchases skin and body products from the
Parents United States affiliate. Purchases were
$14,483,000, $12,044,000 and $12,331,000 for the years ended
December 31, 2002, 2001 and 2000, respectively.

In addition, Jafra S.A. is provided with certain
management services, such as legal, accounting and treasury,
management oversight, and other administrative functions from an
affiliate. The cost of these services is included in management
fee expense to affiliate in the accompanying consolidated
statements of income. JCI charges out a portion of these
management expenses to its affiliates based principally upon a
formula using the percentage of revenues of each affiliate to
the total consolidated revenues of the Parent. Jafra S.A.
believes the amounts and methods of allocations are reasonable
and approximate the cost of the actual services received. The
management fee expense charged by JCI to Jafra S.A. was
$7,224,000, $8,498,000 and $8,164,000, for the years ended
December 31, 2002, 2001 and 2000 respectively.

During 1999, Jafra S.A. purchased U.S. and German
trademarks from JCI. Jafra S.A. charges JCI a royalty for
the right to use the Jafra trademark in the United States and
Europe. The total royalty income

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


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

charged by Jafra S.A. to JCI was $2,443,000,
$1,639,000 and $1,126,000 for the years ended December 31,
2002, 2001 and 2000, respectively, and is offset against royalty
expense to affiliates in the accompanying consolidated
statements of income.

JCI owns the worldwide rights to its multi-level
sales know-how (referred to as the Jafra Way). The
Jafra Way was initially developed in the United States for
lineage, training, and compensation of consultants. JCI charges
Jafra S.A. a royalty for the use of the Jafra Way. The
royalty fees charged by JCI were $22,218,000, $21,737,000, and
$15,746,000 for the years ended December 31, 2002, 2001 and
2000, and were based on a percentage of Jafra S.A.s
sales.

In prior years, Jafra S.A. obtained loans
from certain affiliates at annual interest rates ranging from 6%
to 9%. Such loans are due to be repaid five years from the date
of grant, with no prepayment penalty. At December 31, 2002
and 2001, Jafra S.A. did not have any notes payable to
affiliates outstanding. Additionally, in 2002, Jafra S.A.
began charging interest to affiliates on aging payables. Net
interest income from affiliates was $9,000 for the year ended
December 31, 2002 and net interest expense to affiliates,
primarily JCI, was $257,000 and $1,780,000 for the years ended
December 31, 2001 and 2000, respectively. Interest income
and expense relating to affiliates is included in interest
expense, net, in the accompanying consolidated statements of
income.

(10) Financial Reporting for Business
Segments

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

|                               |                                                                             |               |      |            |       |               |      |            |   |               |      |            |       |  |      |       |   |   |      |       |       |  |      |       |   | 
|------------------------------ | --------------------------------------------------------------------------- | ------------- | ---- | ---------- | ----- | ------------- | ---- | ---------- | - | ------------- | ---- | ---------- | ----- |  | ---- | ----- | - | - | ---- | ----- | ----- |  | ---- | ----- | - | 
|                               |                                                                             |               |      |            |       |              
|                               |                                                                             | 2002          |      | 2001       |       | 2000         
|                               |                                                                             |               |      |            |       |              
|                               |                                                                             | Sales by      |      | Percentage |       | Sales by      |      | Percentage |   | Sales by      |      | Percentage
|                               |                                                                             | Product       |      | of Total   |       | Product       |      | of Total   |   | Product       |      | of Total  
|                               |                                                                             | Line          |      | Sales      |       | Line          |      | Sales      |   | Line          |      | Sales     
|                               |                                                                             |               |      |            |       |               |      |            |   |               |      |           
|                               |                                                                             | (in millions) |      |            |       | (in millions) |      |            |   | (in millions) |      |           
|Skin care                      |                                                                             | $             | 29.5 |            |       |               | 12.0 | %          |   | $             | 27.7 |            |       |  | 11.5 | %     |   | $ | 25.7 |       |       |  | 13.0 | %    
|Color cosmetics                |                                                                             |               | 75.3 |            |       |               | 30.8 |            |   |               | 72.1 |            |       |  | 29.8 |       |   |   | 60.8 |       |       |  | 30.9 |      
|Fragrances                     |                                                                             |               | 96.4 |            |       |               | 39.4 |            |   |               | 99.3 |            |       |  | 41.1 |       |   |   | 79.6 |       |       |  | 40.4 |      
|Body care and personal care    |                                                                             |               | 21.8 |            |       |               | 8.9  |            |   |               | 21.4 |            |       |  | 8.9  |       |   |   | 14.7 |       |       |  | 7.5  |      
|Other(1)                       |                                                                             |               | 21.8 |            |       |               | 8.9  |            |   |               | 21.0 |            |       |  | 8.7  |       |   |   | 16.1 |       |       |  | 8.2  |      
|                               |                                                                             |               |      |            |       |               |      |            |   |               |      |            |       |  |      |       |   |   |      |       |       |  |      |      
|                               | Subtotal before shipping fees, and sales to
    affiliates less commissions |               |      | 244.8      |       |               |      | 100.0      | % |               |      | 241.5      |       |  |      | 100.0 | % |   |      | 196.9 |       |  |      | 100.0 | %
|                               |                                                                             |               |      |            |       |               |      |            |   |               |      |            |       |  |      |       |   |   |      |       |       |  |      |      
|Shipping fees less commissions |                                                                             |               | 6.7  |            |       |               |      |            |   |               | 6.0  |            |       |  |      |       |   |   | 2.9  |       |       |  |      |      
|Sales to affiliates            |                                                                             |               | 15.0 |            |       |               |      |            |   |               | 11.6 |            |       |  |      |       |   |   | 10.5 |       |       |  |      |      
|                               |                                                                             |               |      |            |       |               |      |            |   |               |      |            |       |  |      |       |   |   |      |       |       |  |      |      
|                               |                                                                             | Total         |      | $          | 266.5 |               |      |            |   |               |      | $          | 259.1 |  |      |       |   |   |      | $     | 210.3 |  |      |       |   | 
|                               |                                                                             |               |      |            |       |               |      |            |   |               |      |            |       |  |      |       |   |   |      |       |       |  |      |      




|    |                                                                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes sales aids (e.g., party hostess gifts,
    demonstration products, etc.) and promotional materials, which
    typically do not qualify for commissions or overrides.

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


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

(11) Commitments and
Contingencies

Jafra S.A. leases office and warehouse facilities
as well as manufacturing, transportation and data processing
equipment under operating leases which expire at various dates
through 2008. The leases contain certain renewal options and
require payment of property taxes, utilities, common area
maintenance and insurance and contain rent escalation clauses
based upon consumer price indices. Future minimum lease payments
under noncancelable operating leases as of December 31,
2002 are (in thousands):

|     |  |   |        | 
|---- |  | - | ------ | 
|2003 |  | $ | 2,037  | 
|2004 |  |   | 2,108  | 
|2005 |  |   | 2,176  | 
|2006 |  |   | 2,243  | 
|2007 |  |   | 2,310  | 
|2008 |  |   | 167    | 
|     |  |   |        | 
|     |  | $ | 11,041 | 
|     |  |   |        | 

Rental expense was $1,939,000, $1,507,000 and
$3,624,000 for the years ended December 31, 2002, 2001 and
2000, respectively.

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

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

(12) Management Incentive
Arrangements

Effective as of the closing of the Acquisition,
the Parent adopted a stock incentive plan (the Stock
Incentive Plan), which provides for the sale of up to
52,141 shares of common stock of the Parent and the issuance of
options to purchase up to 104,282 additional shares of common
stock to members of senior management of certain of the
Parents subsidiaries. Four employees of Jafra S.A.
participate in the Stock Incentive Plan. These employees
currently hold 3,761 shares of the Parents stock, and
hold options to purchase an additional 7,522 shares. The
activity related to these employees holdings under the
Stock Incentive Plan is not significant to Jafra S.A.
Jafra S.A. applies Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to
Employees and related interpretations in accounting for
these options. As the options were granted with exercise prices
equal to the fair value at the date of grant, no compensation
expense was recognized by Jafra S.A. upon issuance of such
options.

Certain senior executive officers have employment
agreements which provide for annual bonuses if Jafra S.A.
and the Parent achieve the performance goals established under
its annual incentive plan for executives.

(13) Foreign Currency Forward and Option
Contracts

Jafra S.A. is exposed to currency risk relating
to its forecasted U.S. dollar-denominated expenditures. As
part of its overall strategy to reduce the risk of adverse
potential exchange rate fluctuations, Jafra S.A. enters
into foreign currency exchange contracts. Prior to March 2002,
Jafra S.A. purchased forward exchange contracts
(forward contracts or forwards) to hedge
its foreign currency exposures to the Mexican peso. In March
2002, in accordance with previously approved policies,
Jafra S.A. modified its hedging program to include the use
of foreign currency option contracts (option
contracts). Jafra S.A. places forward contracts or
option contracts based on its forecasted U.S. dollar cash
outflows over a rolling 12 month period and does

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


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

not hedge transactions that are not included in
the 12 month forecast on the date the forward contract is
initiated. As a matter of policy, Jafra S.A. does not hold
or issue forward contracts for trading or speculative purposes
nor does it enter into contracts or agreements containing
embedded derivative features. Prior to entering into
forward contracts or option contracts, Jafra S.A. 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.
Jafra S.A. does not currently anticipate non-performance by
such counter parties.

Effective January 1, 2001, Jafra S.A.
adopted SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133, as
amended and interpreted, establishes accounting and reporting
standards for derivative instruments and hedging activities and
requires that all derivative instruments be recorded based on
fair value. In connection with the adoption of SFAS
No. 133, at January 1, 2001, the Company recorded a
net gain of $126,000 (net of a tax effect of $82,000) as a
cumulative transition adjustment to earnings. This adjustment
relates to derivatives not designated as hedges prior to
adoption of SFAS No. 133, and represents the difference
between the carrying value and the fair value of such
instruments. Under SFAS No. 133, Jafra S.A.s use of
forward contracts or option contracts to hedge certain
forecasted transactions does qualify for hedge accounting. Gains
and losses from such derivatives are deferred as a separate
component of other comprehensive loss, and are recognized in
income at the same time that the underlying hedged exposure is
recognized in income. This accounting treatment results in the
matching of gains and losses from such forward contracts or
option contracts with the corresponding gains and losses
generated by the underlying hedged transactions. Contracts that
do not qualify for hedge accounting under SFAS No. 133 are
remeasured based on fair value and the gains and losses are
included as a component of net income.

The forward contracts utilized by Jafra S.A. did
not qualify for hedge accounting under the applicable accounting
standards prior to adoption of SFAS No. 133 on
January 1, 2001, and accordingly such instruments were
marked-to-market with gains and losses included as a component
of exchange loss in the accompanying consolidated statements of
income for the year ended December 31, 2000.

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

During the year ended December 31, 2002,
Jafra S.A. recognized losses of approximately $2,605,000 on
forward contracts and gains of approximately $886,000 on option
contracts (including reclassification of other comprehensive
loss) as a component of exchange loss in the accompanying
consolidated statements of income. During the year ended
December 31, 2001, Jafra S.A. recognized approximately
$12,188,000 of losses on forward contracts as a component of
exchange loss in the accompanying consolidated statements of
income. During the year ended December 31, 2000, the
Company recognized approximately $10,050,000 of

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


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

losses as a component of exchange loss on forward
contracts that did not qualify for hedge accounting under
accounting standards prior to the adoption of SFAS No. 133.

Additionally, during the year ended
December 31, 2001, Jafra S.A. deferred as a component of
other comprehensive loss $5,504,000 of losses on forward
contracts qualifying for hedge accounting under SFAS
No. 133. Of this amount, approximately $797,000 was
reclassified as exchange loss and $961,000 was reclassified as
cost of sales upon recognition of the underlying hedged exposure
prior to December 31, 2001. As of December 31, 2001,
Jafra S.A. had deferred as a component of other comprehensive
loss $3,746,000 of losses on forward contracts.

During the year ended December 31, 2002,
Jafra S.A. deferred approximately an additional $1,782,000 of
losses on forward contracts qualifying for hedge accounting
under SFAS No. 133, Of the total amount deferred, during
the year ended December 31, 2002, approximately $1,650,000
of other comprehensive loss was reclassified into exchange loss
and approximately $3,139,000 was reclassified into cost of sales
upon the recognition of the underlying hedged exposure. Jafra
S.A. expects that substantially all of the remaining loss of
$739,000, deferred as a component of other comprehensive loss,
will be recognized into income within the next twelve months.

During the year ended December 31, 2002,
Jafra S.A. deferred as a component of other comprehensive loss
$1,336,000 of gains on option contracts qualifying for hedge
accounting under SFAS No. 133. Of this amount,
approximately $483,000 was reclassified to exchange loss and
approximately $378,000 was reclassified as an offset to cost of
sales upon the recognition of the underlying hedged exposure.
Jafra S.A. expects substantially all of the remaining gain of
approximately $475,000, deferred as a component of other
comprehensive loss, to be recognized into income within the next
twelve months.

The fair value of the forward contacts at
December 31, 2001 represented an unrealized loss of
$5,540,000 consisting of $2,920,000 of unrealized losses
recorded as a component of other comprehensive loss for
qualifying hedges and $2,620,000 of unrealized losses recorded
as a component of exchange loss for non-qualifying hedges under
SFAS No. 133. As of December 31, 2002, Jafra S.A. had
no outstanding forward contracts. The fair value of the option
contracts at December 31, 2002 represented an unrealized
gain of approximately $402,000, consisting of $382,000 of
unrealized gains of recorded as a component of other
comprehensive loss for qualifying hedges and $21,000 of
unrealized gains for non-qualifying hedges under SFAS
No. 133.

During the year ended December 31, 2002, the
ineffectiveness generated by the Jafra S.A.s forward
contracts and option contracts designated as hedges was
insignificant. Certain hedged forecasted transactions do not
appear probable of occurring due to timing differences between
the original and current forecasts, and accordingly $164,000 of
gains were reclassified into earnings.

The outstanding option contracts had a notional
value denominated in Mexican pesos of $523,000,000 in put and
call positions at December 31, 2002 and mature at various
dates through December 31, 2003. The outstanding forward
contracts had notional values denominated in Mexican pesos of
$688,873,000 at December 31, 2001 and matured in 2002.
Notional amounts do not quantify market or credit exposure or
represent assets or liabilities of the Company, but are used in
the calculation of cash settlements under the contracts.

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


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

The following table provides information about
the details of Jafra S.A.s option contracts as of
December 31, 2002 (in thousands):

At December 31, 2002:

|                                                                    |  |             |         |              |  |                 |             |               |  |   |      |   |  |  |                | 
|------------------------------------------------------------------- |  | ----------- | ------- | ------------ |  | --------------- | ----------- | ------------- |  | - | ---- | - |  |  | -------------- | 
|                                                                    |  | Coverage in |         |              |  |                 |             |              
|                                                                    |  | Mexican     |         | Average      |  | Fair Value in   |             |              
|Foreign Currency                                                    |  | Pesos       |         | Strike Price |  | U.S. Dollars(1) |             | Maturity Date
|                                                                    |  |             |         |              |  |                 |             |              
|Purchased Puts (Company may sell Peso/buy USD)
    Mexican Peso     |  | $           | 149,000 |              |  |                 | 10.31-10.48 |               |  | $ | (113 | ) |  |  | Jan.-Mar. 2003 | 
|Mexican Peso                                                        |  |             | 100,000 |              |  |                 | 11.05-12.19 |               |  |   | 77   |   |  |  | Apr.-June 2003 | 
|Mexican Peso                                                        |  |             | 150,000 |              |  |                 | 11.76-12.79 |               |  |   | 131  |   |  |  | July-Aug 2003  | 
|Mexican Peso                                                        |  |             | 124,000 |              |  |                 | 12.51-12.91 |               |  |   | 21   |   |  |  | Oct.-Dec. 2003 | 
|                                                                    |  |             |         |              |  |                 |             |               |  |   |      |   |  |  |                | 
|                                                                    |  | $           | 523,000 |              |  |                 |             |               |  | $ | 116  |   |  |  |                | 
|                                                                    |  |             |         |              |  |                 |             |               |  |   |      |   |  |  |                | 
|Written Calls (Counterparty may buy Peso/sell
    USD) Mexican Peso |  | $           | 149,000 |              |  |                 | 9.01-9.02   |               |  | $ | (207 | ) |  |  | Jan.-Mar. 2003 | 
|Mexican Peso                                                        |  |             | 100,000 |              |  |                 | 9.50-9.84   |               |  |   | (144 | ) |  |  | Apr.-June 2003 | 
|Mexican Peso                                                        |  |             | 150,000 |              |  |                 | 9.69-10.19  |               |  |   | (112 | ) |  |  | July-Aug 2003  | 
|Mexican Peso                                                        |  |             | 124,000 |              |  |                 | 10.15-10.19 |               |  |   | (55  | ) |  |  | Oct.-Dec. 2003 | 
|                                                                    |  |             |         |              |  |                 |             |               |  |   |      |   |  |  |                | 
|                                                                    |  | $           | 523,000 |              |  |                 |             |               |  | $ | (518 | ) |  |  |                | 
|                                                                    |  |             |         |              |  |                 |             |               |  |   |      |   |  |  |                | 



---



|    |                                                                                                                                                                                                                                                   
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The fair value of the option contracts presented
    above, an unrealized gain of $402,000 at December 31, 2002,
    represents the carrying value and has been recorded in other
    receivables in the accompanying consolidated balance sheets.

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


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

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

December 31, 2001:

|                                |  |                  |         |          |  |          |          |                 |  |  |       |  |  |   |       |    
|------------------------------- |  | ---------------- | ------- | -------- |  | -------- | -------- | --------------- |  |  | ----- |  |  | - | ----- | ---
|                                |  |                  |         |          |  | Weighted |          |                
|                                |  | Forward          |         |          |  | Average  |          | Fair           
|                                |  | Position In      |         | Maturity |  | Contract |          | Value in       
|Foreign Currency                |  | Mexican Pesos(1) |         | Date     |  | Rate     |          | U.S. Dollars(1)
|                                |  |                  |         |          |  |          |          |                
|Buy US Dollar/sell Mexican Peso |  | $                | 108,715 |          |  |          | 1/31/02  |                 |  |  | 10.19 |  |  | $ | 1,128 |    
|Sell Mexican Peso/buy US Dollar |  |                  | (20,000 | )        |  |          | 1/31/02  |                 |  |  | 9.35  |  |  |   | (34   | )  
|Buy US Dollar/sell Mexican Peso |  |                  | 71,787  |          |  |          | 2/28/02  |                 |  |  | 10.26 |  |  |   | 756   |    
|Sell Mexican Peso/buy US Dollar |  |                  | (20,000 | )        |  |          | 2/28/02  |                 |  |  | 9.47  |  |  |   | (48   | )  
|Buy US Dollar/sell Mexican Peso |  |                  | 94,371  |          |  |          | 3/27/02  |                 |  |  | 10.46 |  |  |   | 1,102 |    
|Sell Mexican Peso/buy US Dollar |  |                  | (40,000 | )        |  |          | 3/27/02  |                 |  |  | 9.48  |  |  |   | (80   | )  
|Buy US Dollar/sell Mexican Peso |  |                  | 85,000  |          |  |          | 4/30/02  |                 |  |  | 10.23 |  |  |   | 748   |    
|Sell Mexican Peso/buy US Dollar |  |                  | (30,000 | )        |  |          | 4/30/02  |                 |  |  | 9.62  |  |  |   | (84   | )  
|Buy US Dollar/sell Mexican Peso |  |                  | 81,000  |          |  |          | 5/31/02  |                 |  |  | 10.11 |  |  |   | 559   |    
|Sell Mexican Peso/buy US Dollar |  |                  | (25,000 | )        |  |          | 5/31/02  |                 |  |  | 9.71  |  |  |   | (75   | )  
|Buy US Dollar/sell Mexican Peso |  |                  | 80,000  |          |  |          | 6/28/02  |                 |  |  | 9.95  |  |  |   | 375   |    
|Sell Mexican Peso/buy US Dollar |  |                  | (30,000 | )        |  |          | 6/28/02  |                 |  |  | 9.78  |  |  |   | (88   | )  
|Buy US Dollar/sell Mexican Peso |  |                  | 48,000  |          |  |          | 7/31/02  |                 |  |  | 10.07 |  |  |   | 242   |    
|Buy US Dollar/sell Mexican Peso |  |                  | 100,000 |          |  |          | 8/30/02  |                 |  |  | 10.05 |  |  |   | 410   |    
|Buy US Dollar/sell Mexican Peso |  |                  | 45,000  |          |  |          | 9/30/02  |                 |  |  | 10.09 |  |  |   | 169   |    
|Buy US Dollar/sell Mexican Peso |  |                  | 110,000 |          |  |          | 10/31/02 |                 |  |  | 10.09 |  |  |   | 338   |    
|Buy US Dollar/sell Mexican Peso |  |                  | 30,000  |          |  |          | 11/29/02 |                 |  |  | 10.27 |  |  |   | 122   |    
|                                |  |                  |         |          |  |          |          |                 |  |  |       |  |  |   |       |    
|                                |  | $                | 688,873 |          |  |          |          |                 |  |  |       |  |  | $ | 5,540 | (1)
|                                |  |                  |         |          |  |          |          |                 |  |  |       |  |  |   |       |    




|    |                                                                                                                                                                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The Fair Value of the forward positions presented
    above, an unrealized loss of $5,540,000 at December 31,
    2001 represents the carrying value of the forward contracts and
    has been recorded in accrued liabilities in the accompanying
    consolidated balance sheets.

(14) Fourth Quarter Adjustments

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

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SCHEDULE II  VALUATION AND QUALIFYING
ACCOUNTS

(in thousands)


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

|                     |      |              |   |           |  |             |   |           |  |  |   |        |  |  |   |       | 
|-------------------- | ---- | ------------ | - | --------- |  | ----------- | - | --------- |  |  | - | ------ |  |  | - | ----- | 
|                     |      |              |   | Charged   |  |             |   |          
|                     |      | Balance      |   | to        |  |             |   | Balance  
|                     |      | at beginning |   | costs and |  | Deductions- |   | at end   
|Descriptions         |      | of period    |   | expenses  |  | recoveries  |   | of period
|                     |      |              |   |           |  |             |   |          
|Accounts Receivable: |      |              |   |           |  |             |   |           |  |  |   |        |  |  |   |      
|                     | 2002 |              | $ | 7,267     |  |             | $ | 12,376    |  |  | $ | 11,247 |  |  | $ | 8,396 | 
|                     | 2001 |              |   | 3,553     |  |             |   | 9,464     |  |  |   | 5,750  |  |  |   | 7,267 | 
|                     | 2000 |              |   | 3,087     |  |             |   | 5,958     |  |  |   | 5,492  |  |  |   | 3,553 | 
|Inventories:         |      |              |   |           |  |             |   |           |  |  |   |        |  |  |   |      
|                     | 2002 |              |   | 2,821     |  |             |   | 2,635     |  |  |   | 2,807  |  |  |   | 2,649 | 
|                     | 2001 |              |   | 2,462     |  |             |   | 1,879     |  |  |   | 1,520  |  |  |   | 2,821 | 
|                     | 2000 |              | $ | 2,442     |  |             | $ | 1,973     |  |  | $ | 1,953  |  |  | $ | 2,462 | 

Jafra Cosmetics International, Inc. and
Subsidiaries:

|                     |      |              |   |           |  |             |   |           |  |  |   |       |  |  |   |       | 
|-------------------- | ---- | ------------ | - | --------- |  | ----------- | - | --------- |  |  | - | ----- |  |  | - | ----- | 
|                     |      |              |   | Charged   |  |             |   |          
|                     |      | Balance      |   | to        |  |             |   | Balance  
|                     |      | at beginning |   | costs and |  | Deductions- |   | at end   
|Descriptions         |      | of period    |   | expenses  |  | Recoveries  |   | of period
|                     |      |              |   |           |  |             |   |          
|Accounts Receivable: |      |              |   |           |  |             |   |           |  |  |   |       |  |  |   |      
|                     | 2002 |              | $ | 523       |  |             | $ | 680       |  |  | $ | 590   |  |  | $ | 613   | 
|                     | 2001 |              |   | 536       |  |             |   | 559       |  |  |   | 572   |  |  |   | 523   | 
|                     | 2000 |              |   | 800       |  |             |   | 898       |  |  |   | 1,162 |  |  |   | 536   | 
|Inventories:         |      |              |   |           |  |             |   |           |  |  |   |       |  |  |   |      
|                     | 2002 |              |   | 1,479     |  |             |   | 1,108     |  |  |   | 887   |  |  |   | 1,700 | 
|                     | 2001 |              |   | 1,404     |  |             |   | 692       |  |  |   | 617   |  |  |   | 1,479 | 
|                     | 2000 |              | $ | 2,084     |  |             | $ | 532       |  |  | $ | 1,212 |  |  | $ | 1,404 | 

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

|                     |      |              |   |           |  |             |   |           |  |  |   |       |  |  |   |       | 
|-------------------- | ---- | ------------ | - | --------- |  | ----------- | - | --------- |  |  | - | ----- |  |  | - | ----- | 
|                     |      |              |   | Charged   |  |             |   |          
|                     |      | Balance      |   | to        |  |             |   | Balance  
|                     |      | at beginning |   | costs and |  | Deductions- |   | at end   
|Descriptions         |      | of period    |   | expenses  |  | Recoveries  |   | of period
|                     |      |              |   |           |  |             |   |          
|Accounts Receivable: |      |              |   |           |  |             |   |           |  |  |   |       |  |  |   |      
|                     | 2002 |              | $ | 4,952     |  |             | $ | 11,033    |  |  | $ | 8,824 |  |  | $ | 7,161 | 
|                     | 2001 |              |   | 2,117     |  |             |   | 7,681     |  |  |   | 4,846 |  |  |   | 4,952 | 
|                     | 2000 |              |   | 1,956     |  |             |   | 4,956     |  |  |   | 4,795 |  |  |   | 2,117 | 
|Inventories:         |      |              |   |           |  |             |   |           |  |  |   |       |  |  |   |      
|                     | 2002 |              |   | 1,057     |  |             |   | 1,502     |  |  |   | 1,705 |  |  |   | 854   | 
|                     | 2001 |              |   | 894       |  |             |   | 1,035     |  |  |   | 872   |  |  |   | 1,057 | 
|                     | 2000 |              | $ | 269       |  |             | $ | 1,337     |  |  | $ | 712   |  |  | $ | 894   | 

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

On June 25, 2002, Deloitte & Touche LLP
(Deloitte) advised the Company that, because of an
independence issue between Deloitte and Riverwood Holding, Inc.,
an entity in which the Companys majority shareholder holds
an approximately 29.7% common stock interest, Deloitte no longer
considered itself independent with respect to the Company. In
light of this determination by Deloitte, at a meeting held on
July 10, 2002, upon the recommendation of the Audit
Committee, the Board of Directors of the Company determined to
dismiss Deloitte as the Companys auditors, subject to the
approval of the Companys shareholders. On July 15,
2002, the Audit Committee, pursuant to the authorization of the
Board of Directors, recommended that the Company appoint Ernst
& Young LLP (Ernst & Young) as the
Companys independent auditor for the fiscal year ending
December 31, 2002 and for each fiscal year thereafter
through the fiscal year ending December 31, 2007. On
July 30, 2002, a majority of the Companys
shareholders approved the dismissal of Deloitte and the
selection of Ernst & Young, as the Companys
independent auditor.

Deloittes determination with respect to its
independence does not affect its reports on the Companys
consolidated financial statements for any past fiscal year or
its reviews of the Companys interim condensed consolidated
financial statements for any previous quarterly period.
Deloittes report on the Companys consolidated
financial statements for each of the past two fiscal years did
not contain an adverse opinion or disclaimer of opinion, and was
not qualified or modified as to uncertainty, audit scope or
accounting principles.

During each of the Companys two most recent
fiscal years and the subsequent interim period through
July 10, 2002, (i) there was no disagreement with
Deloitte on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure,
which disagreement, if not resolved to the satisfaction of
Deloitte, would have caused Deloitte to make reference to the
subject matter of the disagreement in connection with its
reports on the Companys consolidated financial statements
for such years; (ii) the Company did not consult Ernst &
Young regarding the application of accounting principles to a
specified transaction, either completed or proposed, or the type
of audit opinion that might be rendered on the Companys
consolidated financial statements, or any other matter or
reportable event as set forth in Items 304(a)(2)(i) and
(ii) of Regulation S-K; and (iii) no reportable
event as defined in Item 304(a)(1)(v) of
Regulation S-K.

108



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PART III




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

The names, ages and positions of the executive
officers, significant employees and directors of the Company as
of March 15, 2003 are set forth below.

|                      |  |     |    |          |  |                                                                         
|--------------------- |  | --- | -- | -------- |  | ------------------------------------------------------------------------
|Name                  |  | Age |    | Position
|                      |  |     |    |         
|Ronald B. Clark       |  |     | 67 |          |  | Chairman and Chief Executive Officer; Director                          
|Gonzalo R. Rubio      |  |     | 59 |          |  | President and Chief Operating Officer; Director                         
|Ralph S. Mason, III   |  |     | 51 |          |  | Vice Chairman, Executive Vice President and
    General Counsel         
|Michael A. DiGregorio |  |     | 48 |          |  | Senior Vice President and Chief Financial Officer                       
|Alan Fearnley         |  |     | 52 |          |  | Senior Vice President of Strategic Planning and
    Business Development
|Jaime Lopez Guirao    |  |     | 55 |          |  | President of Global Operations                                          
|Eugenio Lopez Barrios |  |     | 61 |          |  | President of Mexican Operations                                         
|Jose Luis Peco        |  |     | 57 |          |  | President of European Operations                                        
|Ademar Serodio        |  |     | 58 |          |  | President of South American Operations                                  
|Beatriz Gutai         |  |     | 42 |          |  | General Manager of U.S. Operations 
    Hispanic Division              
|Dyan Lucero           |  |     | 53 |          |  | General Manager of
    U.S. Operations  General Division               
|Donald J. Gogel       |  |     | 54 |          |  | Director                                                                
|Steven D. Goldstein   |  |     | 51 |          |  | Director                                                                
|Thomas E. Ireland     |  |     | 53 |          |  | Director                                                                
|Siri Marshall         |  |     | 54 |          |  | Director                                                                
|David A. Novak        |  |     | 34 |          |  | Director                                                                
|Ann Reese             |  |     | 49 |          |  | Director                                                                
|Edward H. Rensi       |  |     | 58 |          |  | Director                                                                
|Kenneth D. Taylor     |  |     | 68 |          |  | Director                                                                

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

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

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

Ralph S. Mason, IIIhas served as the Companys 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 A. DiGregoriohas served as Senior Vice President
and Chief Financial Officer of the Company since June of 1999.
In his eight years with the Company, his previous
responsibilities included Financial

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Director and General Manager of the Mexico
operations and President of U.S. Operations. In addition,
Mr. DiGregorio has been the CFO of two other public
companies, and spent a total of fourteen years with the
Gillette Company.


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

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

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

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

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

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

Dyan Lucerohas
served as General Manager of the General Division of United
States Operations since September of 2000. Prior to that time,
Ms. Lucero served as Vice President of Sales for the
General Division and in various positions in sales management
and business development since joining the Company in 1972.

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

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

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

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


Siri Marshallhas
been a director of the Company since July 1999.
Ms. Marshall has been employed by General Mills since prior
to 1997 and currently serves as its Senior Vice President,
Corporate Affairs and General Counsel and Secretary. She is also
a director of Snack Ventures Europe, a joint venture between
General Mills and PepsiCo.

David A. Novakhas
been a director of the Company since January 1998.
Mr. Novak is a principal of CD&R, a limited partner of
Associates V, and a shareholder of Investment
Associates II. Prior to joining CD&R in 1997,
Mr. Novak worked in the Private Equity 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 Italtel
Holdings.

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

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

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

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

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Item 11. Executive
Compensation

Compensation Of Executive Officers

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

Summary Compensation Table

|                            |                                    |      |      |           |  |          |         |              |  |              |         |         |  |  |  |       |  |   |        |        | 
|--------------------------- | ---------------------------------- | ---- | ---- | --------- |  | -------- | ------- | ------------ |  | ------------ | ------- | ------- |  |  |  | ----- |  | - | ------ | ------ | 
|                            |                                    |      |      |           |  |          |         | Long-Term    |  |             
|                            |                                    |      |      |           |  |          |         | Compensation |  |             
|                            |                                    |      |      |           |  |          |         | Securities   |  | All Other   
|                            |                                    |      |      |           |  |          |         | Underlying   |  | Compensation
|Name and Principal Position |                                    | Year |      | Salary($) |  | Bonus($) |         | Options(#)   |  | ($)(1)      
|                            |                                    |      |      |           |  |          |         |              |  |             
|Ronald B. Clark             |                                    |      | 2002 |           |  | $        | 674,848 |              |  | $            | 370,319 |         |  |  |  |       |  | $ | 53,184 |       
|                            | Chairman and Chief                 |      |      | 2001      |  |          |         | 648,729      |  |              |         | 391,872 |  |  |  |       |  |   |        | 43,691 | 
|                            | Executive Officer                  |      |      | 2000      |  |          |         | 626,218      |  |              |         | 227,610 |  |  |  |       |  |   |        | 56,811 | 
|Gonzalo R. Rubio            |                                    |      | 2002 |           |  |          | 562,358 |              |  |              | 308,591 |         |  |  |  |       |  |   | 44,446 |       
|                            | President and Chief                |      |      | 2001      |  |          |         | 540,555      |  |              |         | 326,550 |  |  |  |       |  |   |        | 36,408 | 
|                            | Operating Officer                  |      |      | 2000      |  |          |         | 521,832      |  |              |         | 189,666 |  |  |  |       |  |   |        | 47,341 | 
|Ralph S. Mason, III         |                                    |      | 2002 |           |  |          | 506,148 |              |  |              | 277,746 |         |  |  |  |       |  |   | 6,616  |       
|                            | Vice Chairman, Executive           |      |      | 2001      |  |          |         | 486,557      |  |              |         | 293,910 |  |  |  |       |  |   |        | 6,554  | 
|                            | Vice President and General Counsel |      |      | 2000      |  |          |         | 469,672      |  |              |         | 170,712 |  |  |  |       |  |   |        | 8,517  | 
|Jaime Lopez Guirao          |                                    |      | 2002 |           |  |          | 505,135 |              |  |              | 277,190 |         |  |  |  |       |  |   | 64,757 |       
|                            | President of Global Operations     |      |      | 2001      |  |          |         | 484,202      |  |              |         | 293,322 |  |  |  |       |  |   |        | 56,434 | 
|                            |                                    |      | 2000 |           |  |          | 467,518 |              |  |              | 170,360 |         |  |  |  |       |  |   | 42,476 |       
|Michael A. DiGregorio       |                                    |      | 2002 |           |  |          | 337,465 |              |  |              | 185,182 |         |  |  |  |       |  |   | 35,714 |       
|                            | Senior Vice President and Chief    |      |      | 2001      |  |          |         | 323,877      |  |              |         | 163,300 |  |  |  |       |  |   |        | 27,432 | 
|                            | Financial Officer                  |      |      | 2000      |  |          |         | 312,664      |  |              |         | 94,845  |  |  |  | 1,264 |  |   |        | 18,048 | 




|    |                                                                                                                                                                                               
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Amounts shown in this column constitute the
    Companys contributions under its 401(k) and Supplemental
    Savings Plan and automobile expense for Mr. Lopez Guirao
    and Mr. DiGregorio.

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, 2002. No options were
exercised by such executive officers during the year ended
December 31, 2002.

|                      |  |                         |        |                            |  |             |       |               |  |   |           |  |  |   |         | 
|--------------------- |  | ----------------------- | ------ | -------------------------- |  | ----------- | ----- | ------------- |  | - | --------- |  |  | - | ------- | 
|                      |  |                         |        |                            |  |            
|                      |  | Number of               |        |                           
|                      |  | Securities Underlying   |        | Value of Unexercised      
|                      |  | Unexercised Options     |        | In-the-Money Options      
|                      |  | at December 31, 2002(#) |        | at December 31, 2002($)(1)
|                      |  |                         |        |                           
|Name                  |  | Exercisable             |        | Unexercisable              |  | Exercisable |       | Unexercisable
|                      |  |                         |        |                            |  |             |       |              
|Ronald B. Clark       |  |                         | 14,839 |                            |  |             | 3,489 |               |  | $ | 3,412,970 |  |  | $ | 802,470 | 
|Gonzalo R. Rubio      |  |                         | 14,839 |                            |  |             | 3,489 |               |  |   | 3,412,970 |  |  |   | 802,470 | 
|Ralph S. Mason, III   |  |                         | 11,769 |                            |  |             | 2,767 |               |  |   | 2,706,870 |  |  |   | 636,410 | 
|Jaime Lopez Guirao    |  |                         | 4,857  |                            |  |             | 1,143 |               |  |   | 1,117,110 |  |  |   | 262,890 | 
|Michael A. DiGregorio |  |                         | 3,596  |                            |  |             | 1,144 |               |  |   | 741,060   |  |  |   | 210,100 | 




|    |                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Calculated based on a per share price of Parent
    Common Stock of $330, the estimated fair market value, less the
    per share exercise price.

Compensation Of Directors

During 2002, 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.

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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 2002 anniversary dates, Messrs. Clark, Rubio,
Mason, Guirao and DiGregorio receive annual base salaries of
$686,000, $571,000, $514,000, $513,000 and $343,000,
respectively. In addition, each of Messrs. Clark, Rubio,
Mason and Guirao are eligible for a target annual bonus equal to
60%, and Mr. DiGregorio is eligible for a target annual
bonus equal to 50%, of such Named Executive Officers
annual base salary if the Company achieves the performance goals
established under its annual incentive plan for executives and
may receive a larger bonus if such goals are exceeded. The
employment agreements further provide that, in the event of a
termination of any such Named Executive Officers
employment by the Company without cause (as defined
in the employment agreement) or by such executive for good
reason (as so defined), such Named Executive Officer will
be entitled to continued payments of his base salary for the
remaining term of his employment agreement and to payment of a
pro rata annual bonus for the year of termination provided that
the Company achieves the performance objectives applicable for
such year and each year thereafter. Each of the employment
agreements also contains covenants regarding nondisclosure of
confidential information, noncompetition and nonsolicitation.

Compensation Committee Interlocks And Insider
Participation

The Board of Directors of the Company established
a Compensation Committee to review all compensation arrangements
for executive officers of the Company. During 2002, the
individuals serving on the Compensation Committee were Mr.
Taylor, Mr. Ireland and Ms. Marshall.

Pursuant to a consulting agreement entered into
following the Acquisition, CD&R receives a fee for advisory,
management consulting and monitoring services to the Company.
The annual fee received by CD&R was $400,000 for the year
ended December 31, 2000. As of January 1, 2001, the
annual fee was increased to $1,000,000 based on an amendment to
the consulting agreement. The annual fee received by CD&R
was $1,000,000 for the years ended December 31, 2001 and
2002. The amendment provides for an annual fee for ongoing
services provided to the Company. As required by the terms of
the Companys lending arrangements, such fees were
determined by arms-length negotiation and are believed by
the Company to be reasonable. In addition, the amendment adds to
CD&Rs services under the agreement financial advisory,
investment banking and similar services with respect to future
proposals for an acquisition, merger, recapitalization, or other
similar transaction directly or indirectly involving the Company
or any of its subsidiaries. The fee for such additional services
in connection with future transactions would be an amount equal
to 1% of the transaction value for the transaction to which such
fee relates. Such transaction fees may be increased upon
approval of a majority of the members of the Companys
Board of Directors who are not employees of the Company,
CD&R or any affiliate of CD&R. The amendment also
provides that if any employee of CD&R is appointed to an
executive management position (or a position of comparable
responsibility) in the Company or any of its subsidiaries, the
annual fee will be increased by an amount to be determined by
CD&R, the amount of such increase not to exceed 100% of the
existing annual fee in effect at that time. Parent has also
agreed to indemnify the members of the Board employed by
CD&R and CD&R against liabilities incurred under
securities laws, liabilities to third parties, and liabilities
relating to the provision by CD&R of advisory management,
consulting and monitoring services.

The Company also engaged an entity, in which
CD&R has an investment, to develop its e-commerce business.
During 2000, the Company paid such entity fees of $1,798,000.
The Company terminated this agreement and entered into a
settlement and release agreement with such entity in 2000,
pursuant to which such entity agreed to pay the Company $500,000
in quarterly installments, together with interest at 9.5% per
annum through October 2005. At December 31, 2002, the
balance was paid in full. See Certain Relationships and
Related Transactions.

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

Parent owns, indirectly, all of the outstanding
capital stock of JCI and Jafra S.A. The table below sets forth,
as of February 14, 2002, the owners of 5% or more of the
Parent Common Stock and the ownership of Parent Common Stock by
the directors and each Named Executive Officer, as well as by
all directors and Named Executive Officers of the Company as a
group.

|                                                                     |  |              |         |             |  |  |       | 
|-------------------------------------------------------------------- |  | ------------ | ------- | ----------- |  |  | ----- | 
|                                                                     |  | Number       |         | Percent    
|Name                                                                 |  | of Shares(1) |         | of Class(2)
|                                                                     |  |              |         |            
|Clayton, Dubilier & Rice Fund V
    Limited Partnership(3)           |  |              | 769,600 |             |  |  | 92.51 | 
|Donald J. Gogel(4)                                                   |  |              |        |             |  |  |      | 
|Steven D. Goldstein                                                  |  |              | 2,000   |             |  |  | *     | 
|Thomas E. Ireland(4)                                                 |  |              |        |             |  |  |      | 
|Siri Marshall                                                        |  |              | 1,667   |             |  |  | *     | 
|David A. Novak(4)                                                    |  |              |        |             |  |  |      | 
|Ann Reese                                                            |  |              | 2,500   |             |  |  | *     | 
|Edward H. Rensi                                                      |  |              | 2,500   |             |  |  | *     | 
|Kenneth D. Taylor                                                    |  |              | 500     |             |  |  | *     | 
|Ronald B. Clark(5)                                                   |  |              | 24,003  |             |  |  | 2.83  | 
|Gonzalo R. Rubio(6)                                                  |  |              | 24,003  |             |  |  | 2.83  | 
|Ralph S. Mason, III(7)                                               |  |              | 19,037  |             |  |  | 2.26  | 
|Jaime Lopez Guirao(8)                                                |  |              | 7,857   |             |  |  | *     | 
|Michael A. DiGregorio(9)                                             |  |              | 5,526   |             |  |  | *     | 
|All directors and Executive Officers as a group
    (14 persons)(10) |  |              | 115,715 |             |  |  | 12.85 | 




The symbol * denotes less than
1 percent.




|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents shares of common stock beneficially
    owned on December 31, 2002. Unless otherwise noted, each
    person has sole voting and investment power with respect to such
    shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|(2) | Based upon 831,888 shares of common stock
    outstanding as of December 31, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|(3) | Associates V is the general partner of
    CD&R Fund V and has the power to direct CD&R
    Fund V as to the voting and disposition of shares held by
    CD&R Fund V. Investment Associates II is the
    managing general partner of Associates V and has the power
    to direct Associates V as to its direction of CD&R
    Fund Vs voting and disposition of the shares held by
    CD&R Fund V. No person controls the voting and
    dispositive power of Investment Associates II with respect
    to the shares owned by CD&R Fund V. Each of
    Associates V and Investment Associates II expressly
    disclaims beneficial ownership of the shares owned by CD&R
    Fund V. The business address for each of CD&R
    Fund V, Associates V and Investment Associates II
    is c/o Investment Associates II, 1403 Foulk Road,
    Suite 106, Wilmington, Delaware 19803.
|   
|(4) | Does not include shares owned by CD&R
    Fund V.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|(5) | Includes 14,839 shares as to which Mr. Clark
    has a right to acquire through the exercise of stock options.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|(6) | Includes 14,839 shares as to which Mr. Rubio
    has a right to acquire through the exercise of stock options.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|(7) | Includes 11,769 shares as to which Mr. Mason
    has a right to acquire through the exercise of stock options.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|(8) | Includes 4,857 shares as to which Mr. Guirao
    has a right to acquire through the exercise of stock options.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|(9) | Includes 3,596 shares as to which
    Mr. DiGregorio has a right to acquire through the exercise
    of stock options, and excludes 440 shares held by the trustee of
    subtrusts established for the benefit of
    Mr. DiGregorios children.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       



|     |                                                                                                                                                                                                                                                                                                                                 
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Includes 65,594 shares which the executive
    officers as a group have a right to acquire through the exercise
    of stock options and excludes 440 shares held by trustee of
    subtrusts established for the benefit of Mr. DiGregorios
    children. On July 11, 2000, a member of management
    purchased 316 shares of

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Common Stock; on July 27, 2000, a former
    member of management exercised 158 options to purchase
    Common Stock, and then sold a total of 632 shares of Common
    Stock back to the Company; on August 9, 2000, certain
    members of management purchased an aggregate of 4,108 shares of
    Common Stock, and on November 6, 2000, a former member of
    management sold 316 shares of the Common Stock back to the
    Company; on February 10, 2001, certain members of
    management purchased an aggregate of 474 shares of Common
    Stock; on June 14, 2001, a former member of management and
    a former director, sold an aggregate total of 2,563 shares of
    Common Stock back to the Company; on September 19, 2001, a
    former member of management exercised options to purchase
    210 shares of Common Stock, and then sold a total of
    526 shares of Common Stock back to the Company in
    transactions exempt from the registration requirements of the
    Securities Act. Shares owned by CD&R Fund V are not included
    herein. Mr. Gogel is an officer, director and shareholder
    of Investment Associates II, Mr. Ireland is a director
    and shareholder of Investment Associates II, and
    Mr. Novak is a shareholder of Investment Associates II.

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|         |                                                   
|-------- | --------------------------------------------------
|Item 13. | Certain Relationships and Related
    Transactions

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

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

Pursuant to a consulting agreement entered into
at the closing of the Acquisition, until the tenth anniversary
of the Acquisition or the date on which CD&R Fund V no
longer has an investment in the Company or until the termination
by either party with 30 days notice, CD&R will receive
an annual fee (and reimbursement of out-of-pocket expenses) for
providing advisory, management consulting and monitoring
services to the Company. Effective January 1, 2000, the
annual fee was $400,000. Such services include, among others,
helping the Company to establish effective banking, legal and
other business relationships and assisting management in
developing and implementing strategies for improving the
operational, marketing and financial performance of the Company.
Based on an amendment to the consulting agreement, effective
January 1, 2001, the annual fee was increased to
$1,000,000, for ongoing services provided to the Company. As
required by the terms of the Companys lending
arrangements, such fees were determined by arms-length
negotiation and are believed by the Company to be reasonable.

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

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

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

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During 1999, the Company engaged Guidance
Solutions Inc. (Guidance), a corporation in which an
investment fund managed by CD&R has an investment, to
develop its e-commerce business. Under the agreement entered
into by both parties, the Company agreed to pay fees of
approximately $2.0 million to Guidance in connection with
the planning, defining, designing and consulting services
performed related to the Companys e-commerce initiative.
During 2000, the Company paid fees to Guidance of $1,798,000.
The Company terminated its agreement with Guidance and executed
a settlement and mutual release agreement effective
September 30, 2000. Upon execution of this settlement and
mutual release agreement in October of 2000, Guidance paid the
Company $25,000 and agreed to pay the Company an aggregate
additional sum of $475,000, payable in quarterly installments,
plus interest at 9.5% per annum, beginning in January 2001
through October 2005. At December 31, 2002, the balance was
paid in full.

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

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

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






|         |                        
|-------- | -----------------------
|Item 14. | Controls and Procedures

The Companys principal executive officer
and principal financial officer have evaluated the effectiveness
of the Companys disclosure controls and
procedures, as such term is defined in Rule 13a-14(c)
of the Securities Exchange Act of 1934, as amended, within
90 days of the filing date of this Annual Report on
Form 10-K. Based upon their evaluation, the principal
executive officer and principal financial officer concluded that
the Companys disclosure controls and procedures are
effective.

There have been no significant changes in the
Companys internal controls or in other factors that could
significantly affect these controls subsequent to the date the
Company performed the evaluation.

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PART IV






|         |                                                                    
|-------- | -------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules and
    Reports on Form 8-K

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

(a)(2) Financial Statement Schedules.Reference is made to the Index to Financial Statements and
Financial Statement Schedules of the Company on page 28 of
this Annual Report on Form 10-K. See also the following
financial statement schedules which should be read in
conjunction with the financial statements included in
Item 8 of this Annual Report on Form 10-K.

|                                                 |                                                                                                          |               |  |    | 
|------------------------------------------------ | -------------------------------------------------------------------------------------------------------- | ------------- |  | -- | 
|                                                 |                                                                                                          | Pages in this
|                                                 |                                                                                                          | Annual Report
|                                                 |                                                                                                          | On Form 10-K 
|                                                 |                                                                                                          |              
|Jafra Cosmetics International, Inc.:             |                                                                                                          |               |  |   
|                                                 | Independent Auditors Reports                                                                            |               |  | 58 | 
|                                                 | Consolidated Balance Sheets as of
    December 31, 2002 and 2001                                         |               |  | 59 | 
|                                                 | Consolidated Statements of Operations for the
    years ended December 31, 2002, 2001 and 2000           |               |  | 60 | 
|                                                 | Consolidated Statements of Stockholders
    Equity for the years ended December 31, 2002, 2001 and 2000 |               |  | 61 | 
|                                                 | Consolidated Statements of Cash Flows for the
    years ended December 31, 2002, 2001 and 2000           |               |  | 62 | 
|                                                 | Notes to Consolidated Financial Statements                                                               |               |  | 63 | 
|Jafra Cosmetics International, S.A. de
    C.V.: |                                                                                                          |               |  |   
|                                                 | Independent Auditors Reports                                                                            |               |  | 80 | 
|                                                 | Consolidated Balance Sheets as of
    December 31, 2002 and 2001                                         |               |  | 81 | 
|                                                 | Consolidated Statements of Operations for the
    years ended December 31, 2002, 2001 and 2000           |               |  | 82 | 
|                                                 | Consolidated Statements of Stockholders
    Equity for the years ended December 31, 2002, 2001 and 2000 |               |  | 83 | 
|                                                 | Consolidated Statements of Cash Flows for the
    years ended December 31, 2002, 2001 and 2000           |               |  | 84 | 
|                                                 | Notes to Consolidated Financial Statements                                                               |               |  | 85 | 
|                                                 | Schedule II  Valuation and Qualifying
    Accounts                                                      |               |  | 99 | 

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

|        |   |                         |  |                                                                                                                                                                                                                                                                                                                                        
|------- | - | ----------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |   |                        
|Number  |   | Description of Document
|        |   |                        
|        | 3 | .1                      |  | Articles of Association (Statuts Coordonnes) of
    CDRJ Investments (Lux) S.A., as restated on September 30,
    1998; previously filed as Exhibit 3.1 to Amendment 2
    to Registration Statement No. 333-62989 under the
    Securities Act of 1933, as amended, filed December 23,
    1998, and incorporated herein by reference.
|        | 3 | .2                      |  | Certificate of Incorporation of CDRJ Acquisition
    Corporation, dated March 31, 1998; previously filed as
    Exhibit 3.2 to Registration Statement No. 333-62989
    under the Securities Act of 1933, as amended, filed
    September 4, 1998, and incorporated herein by reference.                                               
|        | 3 | .3                      |  | Certificate of Merger of Jafra Cosmetics
    International, Inc. into CDRJ Acquisition Corporation, dated
    April 30, 1998; previously filed as Exhibit 3.3 to
    Registration Statement No. 333-62989 under the Securities
    Act of 1933, as amended, filed September 4, 1998, and
    incorporated herein by reference.         

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|        |   |                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|------- | - | ----------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |   |                        
|Number  |   | Description of Document
|        |   |                        
|        | 3 | .4                      |  | Amended and Restated By-laws of Jafra Cosmetics
    International, Inc. (formerly CDRJ Acquisition Corporation), as
    adopted on July 21, 1998; previously filed as
    Exhibit 3.4 to Registration Statement No. 333-62989
    under the Securities Act of 1933, as amended, filed
    September 4, 1998, and incorporated herein by reference.                                                                                                                                                                                                              
|        | 3 | .5                      |  | Deed of Incorporation (acta constitutiva),
    including all amendments thereto, and current by-laws (estatutos
    sociales) of Jafra Cosmetics International, S.A. de C.V.,
    together with a unofficial summary thereof in English;
    previously filed as Exhibit 3.5 to Registration Statement
    No. 333-62989 under the Securities Act of 1933, as amended,
    filed September 4, 1998, and incorporated herein by
    reference.                                                                                                                   
|        | 3 | .6                      |  | Deed of Incorporation (acta constitutiva),
    including all amendments thereto, and current by-laws (estatutos
    sociales) of Dirsamex, S.A. de C.V., together with a unofficial
    summary thereof in English; previously filed as Exhibit 3.7
    to Amendment No. 1 to Registration Statement
    No. 333-62989 under the Securities Act of 1933, as amended,
    filed October 27, 1998, and incorporated herein by
    reference.                                                                                                                      
|        | 3 | .7                      |  | Deed of Incorporation (acta constitutiva),
    including all amendments thereto, and current by-laws (estatutos
    sociales) of Jafra Cosmetics S.A. de C.V., formerly known as
    Jafra Cosmetics S. de R.L. de C.V., together with a unofficial
    summary thereof in English; previously filed as Exhibit 3.9
    to Amendment No. 1 to Registration Statement
    No. 333-62989 under the Securities Act of 1933, as amended,
    filed October 27, 1998, and incorporated herein by
    reference.                                                      
|        | 3 | .8                      |  | Deed of Incorporation (acta constitutiva),
    including all amendments thereto, and current by-laws (estatutos
    sociales) of Qualifax, S.A. de C.V., together with a unofficial
    summary thereof in English; previously filed as
    Exhibit 3.10 to Amendment No. 1 to Registration
    Statement No. 333-62989 under the Securities Act of 1933,
    as amended, filed October 27, 1998, and incorporated herein
    by reference.                                                                                                                     
|        | 3 | .9                      |  | Deed of Incorporation (acta constitutiva),
    including all amendments thereto, and current by-laws (estatutos
    sociales) of Reday, S.A. de C.V., together with a unofficial
    summary thereof in English; previously filed as
    Exhibit 3.11 to Amendment No. 1 to Registration
    Statement No. 333-62989 under the Securities Act of 1933,
    as amended, filed October 27, 1998, and incorporated herein
    by reference.                                                                                                                        
|        | 3 | .10                     |  | Deed of Incorporation (acta constitutiva),
    including all amendments thereto, and current by-laws (estatutos
    sociales) of Cosmeticos Y Fragrancias, S.A. de C.V., together
    with an unofficial summary thereof in English; previously filed
    as exhibit 3.10 to the Companys Annual Report on
    Form 10-K for the fiscal year ended 2000, filed on
    April 2, 2001, and incorporated herein by reference.                                                                                                                                     
|        | 3 | .11                     |  | Notarial Deed and Resolutions, together with an
    unofficial summary thereof in English, for the transformation of
    Jafra Cosmetics S. de R.L. de C.V. into Jafra Cosmetics S.A. de
    C.V.; previously filed as Exhibit 3.12 to the
    Companys Annual Report on Form 10-K for the fiscal
    year ended 1999, filed on March 30, 2000, and incorporated
    herein by reference.                                                                                                                                                                      
|        | 3 | .12                     |  | Approval, dated as of April 17, 2000, by the
    Public Registry of Commerce of the United Mexican States of the
    merger of Consultoria Jafra S.A. de C.V. and Distribuidora
    Venus, S.A. de C.V. with and into Reday, S.A. de C.V., together
    with supporting shareholders resolutions and the
    unofficial English translation thereof; previously filed as
    Exhibit 3.1 to the Companys Quarterly Report on
    Form 10-Q for the second quarter ended June 30, 2000,
    filed on August 14, 2000, and incorporated herein by
    reference.
|        | 3 | .13                     |  | Notarial Deed and Resolutions, together with an
    unofficial summary thereof in English, for the changing of the
    corporate name from Reday, S.A. de C.V. to Distribuidora Venus,
    S.A. de C.V. as a consequence of the merger of Distribuidora
    Venus, S.A. de C.V. into Reday, S.A. de C.V.; previously filed
    as Exhibit 3.11 to the Companys Annual Report on
    Form 10-K for the fiscal year ended 2000, filed on
    April 2, 2001, and incorporated herein by reference.                                                                

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|        |   |                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|------- | - | ----------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |   |                        
|Number  |   | Description of Document
|        |   |                        
|        | 3 | .14                     |  | Notarial Deed and Resolutions, together with an
    unofficial summary thereof in English, for the renaming of
    Qualifax, S.A. de C.V. as Serviday S.A. de C.V.; previously
    filed as Exhibit 3.1 to the Companys Quarterly Report
    on Form 10-Q for the second quarter ended June 30,
    2001, filed on August 14, 2001, and incorporated herein by
    reference.                                                                                                                                                                                                                                                                    
|        | 4 | .1                      |  | Indenture, dated April 30, 1998, among CDRJ
    Acquisition Corporation, Jafra Cosmetics International, S.A. de
    C.V., CDRJ Investments (Lux) S.A., and State Street Bank and
    Trust Company; previously filed as Exhibit 4.1 to
    Registration Statement No. 333-62989 under the Securities
    Act of 1933, as amended, filed September 4, 1998, and
    incorporated herein by reference.                                                                                                                                                                                                                                              
|        | 4 | .2                      |  | First Supplemental Indenture, dated
    April 30, 1998, among Consultoria Jafra, S.A. de C.V.,
    Distribuidora Venus, S.A. de C.V., Dirsamex, S.A. de C.V.,
    Reday, S.A. de C.V., Qualifax S.A. de C.V., and Jafra Cosmetics
    S.R.L., CDRJ Acquisition Corporation and Jafra Cosmetics
    International, S.A. de C.V. and State Street Bank and Trust
    Company; previously filed as Exhibit 4.2 to Registration
    Statement No. 333-62989 under the Securities Act of 1933,
    as amended, filed September 4, 1998, and incorporated
    herein by reference.                                                                      
|        | 4 | .3                      |  | Purchase Agreement, dated April 28, 1998,
    between Credit Suisse First Boston Corporation, Chase Securities
    Inc., CDRJ Acquisition Corporation, Jafra Cosmetics
    International, S.A. de C.V., and CDRJ Investments (Lux) S.A.;
    previously filed as Exhibit 4.3 to Registration Statement
    No. 333-62989 under the Securities Act of 1933, as amended,
    filed September 4, 1998, and incorporated herein by
    reference.                                                                                                                                                                                                     
|        | 4 | .4                      |  | Purchase Agreement Amendment, dated
    April 30, 1998, executed on behalf of each of Reday, S.A.
    de C.V., Distribuidora Venus, S.A. de C.V., Dirsamex, S.A. de
    C.V., Qualifax, S.A. de C.V., Jafra Cosmetics, S.R.L.,
    Consultoria Jafra, S.A. de C.V., Credit Suisse First Boston
    Corporation, and Chase Securities Inc.; previously filed as
    Exhibit 4.4 to Registration Statement No. 333-62989
    under the Securities Act of 1933, as amended, filed
    September 4, 1998, and incorporated herein by reference.                                                                                                       
|        | 4 | .5                      |  | Registration Rights Agreement, dated
    April 30, 1998, among CDRJ Acquisition Corporation, Jafra
    Cosmetics International, Inc., Jafra Cosmetics International,
    S.A. de C.V., CDRJ Investments (Lux) S.A., Reday, S.A. de C.V.,
    Distribuidora, S.A. de C.V., Dirsamex, S.A. de C.V., Qualifax,
    S.A. de C.V., Jafra Cosmetics, S.A. de C.V., Consultoria Jafra,
    S.A. de C.V., and Credit Suisse First Boston Corporation;
    previously filed as Exhibit 4.5 to Registration Statement
    No. 333-62989 under the Securities Act of 1933, as amended,
    filed September 4, 1998, and incorporated herein by
    reference.
|        | 4 | .6                      |  | Credit Agreement, dated April 30, 1998,
    among CDRJ Acquisition Corporation, Jafra Cosmetics
    International, S.A. de C.V., CDRJ Investments (Lux) S.A., as
    Guarantor and Parent of the Borrowers, the Lenders named therein
    and Credit Suisse First Boston, as Administrative Agent;
    previously filed as Exhibit 4.6 to Registration Statement
    No. 333-62989 under the Securities Act of 1933, as amended,
    filed September 4, 1998, and incorporated herein by
    reference.                                                                                                                                           
|        | 4 | .7                      |  | Amendment No. 1 to the Credit Agreement,
    dated August 26, 1998; previously filed as Exhibit 4.7
    to Registration Statement No. 333-62989 under the
    Securities Act of 1933, as amended, filed September 4,
    1998, and incorporated herein by reference.                                                                                                                                                                                                                                                                                                                                                                              
|        | 4 | .8                      |  | Indemnity, Subrogation and Contribution
    Agreement, dated April 30, 1998, among Jafra Cosmetics
    International, S.A. de C.V. (JCISA), each Subsidiary
    of JCSI listed on Schedule I thereto and Credit Suisse
    First Boston; previously filed as Exhibit 4.8 to
    Registration Statement No. 333-62989 under the Securities
    Act of 1933, as amended, filed September 4, 1998, and
    incorporated herein by reference.                                                                                                                                                                                                       

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|        |   |                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|------- | - | ----------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |   |                        
|Number  |   | Description of Document
|        |   |                        
|        | 4 | .9                      |  | JCI Guarantee Agreement, dated April 30,
    1998, between CDRJ Acquisition Corporation and Credit Suisse
    First Boston; previously filed as Exhibit 4.9 to
    Registration Statement No. 333-62989 under the Securities
    Act of 1933, as amended, filed September 4, 1998, and
    incorporated herein by reference.                                                                                                                                                                                                                                                                                            
|        | 4 | .10                     |  | JCISA Guarantee Agreement, dated April 30,
    1998, between Jafra Cosmetics International, S.A. de C.V. and
    Credit Suisse First Boston; previously filed as
    Exhibit 4.10 to Registration Statement No. 333-62989
    under the Securities Act of 1933, as amended, filed
    September 4, 1998, and incorporated herein by reference.                                                                                                                                                                                                                                                                          
|        | 4 | .11                     |  | JCISA Subsidiary Guarantee Agreement, dated
    April 30, 1998, among each of the subsidiaries of Jafra
    Cosmetics International, S.A. de C.V. listed on Schedule I
    thereto, and Credit Suisse First Boston; previously filed as
    Exhibit 4.11 to Registration Statement No. 333-62989
    under the Securities Act of 1933, as amended, filed
    September 4, 1998, and incorporated herein by reference.                                                                                                                                                                                                   
|        | 4 | .12                     |  | Parent Guarantee Agreement, dated April 30,
    1998, between CDRJ Investments (Lux) S.A. and Credit Suisse
    First Boston; previously filed as Exhibit 4.12 to
    Registration Statement No. 333-62989 under the Securities
    Act of 1933, as amended, filed September 4, 1998, and
    incorporated herein by reference.                                                                                                                                                                                                                                                                                         
|        | 4 | .13                     |  | Pledge Agreement, dated April 30, 1998 among
    CDRJ Investments (Lux) S.A., CDRJ North Atlantic Sarl, CDRJ
    Latin America Holding Company B.V., Latin Cosmetics Holdings
    B.V., Regional Cosmetics Holding B.V., Southern Cosmetics
    Holdings B.V., and CDRJ Mexico Holding Company B.V., CDRJ
    Acquisition Corporation, Jafra Cosmetics International, S.A. de
    C.V. and Credit Suisse First Boston; previously filed as
    Exhibit 4.13 to Registration Statement No. 333-62989
    under the Securities Act of 1933, as amended, filed
    September 4, 1998, and incorporated herein by reference.
|        | 4 | .14                     |  | Security Agreement, dated April 30, 1998,
    among CDRJ Acquisition Corporation (JCI), each
    subsidiary of JCI listed on Schedule I thereto and Credit
    Suisse First Boston; previously filed as Exhibit 4.14 to
    Registration Statement No. 333-62989 under the Securities
    Act of 1933, as amended, filed September 4, 1998, and
    incorporated herein by reference.                                                                                                                                                                                                                                 
|        | 4 | .15                     |  | Deed of Trust, with Assignment of Leases and
    Rents, Fixture Filing and Security Agreement, dated
    April 30, 1998, by Jafra Cosmetics International, Inc. to
    TitleServ Agency of New York City, Inc., as trustee for the
    Benefit of Credit Suisse First Boston; previously filed as
    Exhibit 4.15 to Registration Statement No. 333-62989
    under the Securities Act of 1933, as amended, filed
    September 4, 1998, and incorporated herein by reference.                                                                                                                                         
|        | 4 | .16                     |  | Acknowledgment of Obligations and Mortgage, dated
    April 30, 1998, granted by Reday, S.A. de C.V. in favor of
    Credit Suisse First Boston, together with an unofficial English
    translation thereof; previously filed as Exhibit 4.16 to
    Registration Statement No. 333-62989 under the Securities
    Act of 1933, as amended, filed September 4, 1998, and
    incorporated herein by reference.                                                                                                                                                                                                         
|        | 4 | .17                     |  | Notarial Deed of Pledge, dated April 30,
    1998, with respect to the pledge to Credit Suisse First Boston
    of (i) 24 ordinary shares of the capital stock of CDRJ
    Europe Holding Company B.V. by Jafra Cosmetics International,
    Inc., and (ii) 40 ordinary shares of the capital stock of
    CDRJ Latin America Holding B.V. by CDRJ North Atlantic (Lux)
    Sarl; previously filed as Exhibit 4.17 to Registration
    Statement No. 333-62989 under the Securities Act of 1933,
    as amended, filed September 4, 1998, and incorporated
    herein by reference.                                     

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|        |    |                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|------- | -- | ----------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                        
|Number  |    | Description of Document
|        |    |                        
|        | 4  | .18                     |  | Consent and Waiver, dated as of November 19,
    1999, to the Credit Agreement dated as of April 30, 1998,
    as amended by Amendment No. 1 thereto dated as of
    August 26, 1998, among Jafra Cosmetics International Inc.,
    Jafra Cosmetics International S.A. de C.V., CDRJ Investments
    (Lux) S.A., the several banks and financial institutions party
    to the Credit Agreement, the Issuing Bank and Credit Suisse
    First Boston, as Administrative Agent; previously filed as
    Exhibit 4.18 to the Companys Annual Report on
    Form 10-K for the fiscal year ended 1999, filed on
    March 30, 2000, and incorporated herein by reference.
|        | 4  | .19                     |  | Substitution of Trustee and Partial Reconveyance
    of Deed of Trust, Assignment of Leases and Rents, Fixture Filing
    and Security Agreement, and Release of Financing Statement,
    dated November 29, 1999, which amends the Deed of Trust
    filed as Exhibit 4.15 above; previously filed as
    Exhibit 4.19 to the Companys Annual Report on
    Form 10-K for the fiscal year ended 1999, filed on
    March 30, 2000, and incorporated herein by reference.                                                                                                                                                                                            
|        | 4  | .20                     |  | Partial Reconveyance of Deed of Trust, Assignment
    of Leases and Rents, Fixture Filing and Security Agreement and
    Release of Financing Statement, dated November 29, 1999,
    which amends the Deed of Trust filed as Exhibit 4.15 above;
    previously filed as Exhibit 4.20 to the Companys
    Annual Report on Form 10-K for the fiscal year ended 1999,
    filed on March 30, 2000, and incorporated herein by
    reference.                                                                                                                                                                                                                         
|        | 4  | .21                     |  | Consent and Waiver, dated as of June 30,
    2001, to the Credit Agreement dated as of April 30, 1998,
    as amended by Amendment No. 1 thereto dated as of
    August 26, 1998, among Jafra Cosmetics International Inc.,
    Jafra Cosmetics International S.A. de C.V., CDRJ Investments
    (Lux) S.A., the several banks and financial institutions party
    to the Credit Agreement, the Issuing Bank and Credit Suisse
    First Boston, as Administrative Agent, previously filed as
    Exhibit 4.21 to the Companys Annual Report of
    Form 10-K for the fiscal year ended 2001, filed on
    April 1, 2002, and incorporated herein by reference.     
|        | 10 | .1                      |  | Indemnification Agreement, dated April 30,
    1998, among CDRJ Investments (Lux) S.A., CDRJ Acquisition
    Corporation, Jafra Cosmetics International, S.A. de C.V.,
    Clayton, Dubilier & Rice, Inc., Clayton, Dubilier &
    Rice Fund V Limited Partnership; previously filed as
    Exhibit 10.1 to Registration Statement No. 333-62989
    under the Securities Act of 1933, as amended, filed
    September 4, 1998, and incorporated herein by reference.                                                                                                                                                                                                 
|        | 10 | .2                      |  | Consulting Agreement, dated April 30, 1998,
    by and among CDRJ Investments (Lux) S.A., Jafra Cosmetics
    International, Inc. and Jafra Cosmetics, S.A. de C.V., and
    Clayton, Dubilier & Rice, Inc.; previously filed as
    Exhibit 10.2 to Registration Statement No. 333-62989
    under the Securities Act of 1933, as amended, filed
    September 4, 1998, and incorporated herein by reference.                                                                                                                                                                                                                                                        
|        | 10 | .3                      |  | Form of Employment Agreement for
    Messrs. Clark, Rubio, Mason, Guirao and DiGregorio;
    previously filed as Exhibit 10.3 to Registration Statement
    No. 333-62989 under the Securities Act of 1933, as amended,
    filed September 4, 1998, and incorporated herein by
    reference.                                                                                                                                                                                                                                                                                                                                                                        
|        | 10 | .4                      |  | Amended and Restated Jafra Cosmetics
    International, Inc. Stock Incentive Plan, as adopted
    September 3, 1998; previously filed as Exhibit 10.4 to
    Amendment No. 1 to Registration Statement
    No. 333-62989 under the Securities Act of 1933, as amended,
    filed October 27, 1998, and incorporated herein by
    reference.                                                                                                                                                                                                                                                                                                                          
|        | 10 | .5                      |  | CDRJ Investments (Lux) S.A. Form of Management
    Stock Option Agreement; previously filed as Exhibit 10.5 to
    Amendment No. 1 to Registration Statement
    No. 333-62989 under the Securities Act of 1933, as amended,
    filed October 27, 1998, and incorporated herein by
    reference.                                                                                                                                                                                                                                                                                                                                                                    
|        | 10 | .6                      |  | Amended and Restated Stock Purchase Warrant,
    dated September 30, 1998, by and between CDRJ Investments
    (Lux) S.A. and Jafra Cosmetics International, Inc.; previously
    filed as Exhibit 10.6 to Amendment No. 1 to
    Registration Statement No. 333-62989 under the Securities
    Act of 1933, as amended, filed October 27, 1998, and
    incorporated herein by reference.                                                                                                                                                                                                                                                                            

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|        |    |                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                              
|------- | -- | ----------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                        
|Number  |    | Description of Document
|        |    |                        
|        | 10 | .7                      |  | Registration and Participation Agreement, dated
    April 30, 1998, among CDRJ Investments (Lux) S.A. and
    Clayton, Dubilier & Rice Fund V Limited
    Partnership and the other parties thereto; previously filed as
    Exhibit 10.7 to Registration Statement No. 333-62989
    under the Securities Act of 1933, as amended, filed
    September 4, 1998, and incorporated herein by reference.                                       
|        | 10 | .8                      |  | CDRJ Investments (Lux) S.A. Form of Management
    Stock Subscription Agreement; previously filed as
    Exhibit 10.8 to Amendment No. 1 to Registration
    Statement No. 333-62989 under the Securities Act of 1933,
    as amended, filed October 27, 1998, and incorporated herein
    by reference.                                                                                                                                     
|        | 10 | .9                      |  | CDRJ Investments (Lux) S.A. Form of Individual
    Investor Stock Subscription Agreement; previously filed as
    Exhibit 10.9 to Amendment No. 1 to Registration
    Statement No. 333-62989 under the Securities Act of 1933,
    as amended, filed October 27, 1998, and incorporated herein
    by reference.                                                                                                                            
|        | 10 | .10                     |  | Jafra Cosmetics International, Inc. Supplemental
    Savings Plan, dated October 27, 1998; previously filed as
    Exhibit 10.1 to the Companys Quarterly Report on
    Form 10-Q for the first quarter ended March 31, 1999,
    filed May 17, 1999, and incorporated herein by reference.                                                                                                                                                 
|        | 10 | .11                     |  | Jafra Cosmetics International, Inc. Special
    Supplemental Savings Plan for Non-United States-Source Income,
    dated January 20, 1999; previously filed as
    Exhibit 10.2 to the Companys Quarterly Report on
    Form 10-Q for the first quarter ended March 31, 1999,
    filed May 17, 1999, and incorporated herein by reference.                                                                                                 
|        | 10 | .12                     |  | Asset Purchase Agreement, dated as of
    June 10, 1999, as amended by Amendment No. 1, dated as
    of June 10, 1999; by and between the Company and the
    Contractor, previously filed as Exhibit 10.1 to
    Form 8-K, filed on June 10, 1999, and incorporated
    herein by reference (portions of which were filed under a
    confidentiality request).                                                                             
|        | 10 | .13                     |  | Amendment No. 1 to Asset Purchase Agreement,
    dated as of June 10, 1999; previously filed as
    Exhibit 10.2 to Form 8-K, filed on June 10, 1999,
    and incorporated herein by reference (portions of which were
    filed under a confidentiality request).                                                                                                                                                                           
|        | 10 | .14                     |  | Manufacturing Agreement, dated as of
    June 10, 1999, by and between the Company and the
    Contractor, as amended by Amendment No. 1, dated as of
    June 22, 1999; previously filed as Exhibit 10.3 to
    Form 8-K, filed on June 10, 1999, and incorporated
    herein by reference (portions of which were filed under a
    confidentiality request).                                                                              
|        | 10 | .15                     |  | Form of Amendment No. 1 to Manufacturing
    Agreement, dated as of June 10, 1999; previously filed as
    Exhibit 10.4 to Form 8-K, filed on June 10, 1999
    and incorporated herein by reference (portions of which were
    filed under a confidentiality request).                                                                                                                                                                     
|        | 10 | .16                     |  | Form of Secured Note for the Assets, dated
    June 10, 1999, made by the Contractor in favor of the
    Company; previously filed as Exhibit 10.5 to Form 8-K,
    filed on June 10, 1999 and incorporated herein by reference
    (portions of which were filed under a confidentiality request).                                                                                                                                          
|        | 10 | .17                     |  | Form of Secured Note for the Inventory, dated
    June 10, 1999, made by the Contractor in favor of the
    Company; previously filed as Exhibit 10.6 to Form 8-K,
    filed on June 10, 1999 and incorporated herein by reference
    (portions of which were filed under a confidentiality request).                                                                                                                                       
|        | 10 | .18                     |  | Trust Agreement dated May 20, 1999 by and
    between Jafra Cosmetics International, Inc. and Scudder Trust
    Company; previously filed as Exhibit 10.20 to the
    Companys Annual Report on Form 10-K for the fiscal
    year ended 1999, filed on March 30, 2000, and incorporated
    herein by reference.                                                                                                                            
|        | 10 | .19                     |  | Amendment No. 1 to Consulting Agreement,
    dated as of March 15, 2000, by and among CDRJ Investments
    (Lux) S.A., Jafra Cosmetics International, Inc., Jafra Cosmetics
    International, S.A. de C.V., and Clayton, Dubilier &
    Rice, Inc.; previously filed as Exhibit 10.21 to the
    Companys Annual Report on Form 10-K for the fiscal
    year ended 1999, filed on March 30, 2000, and incorporated
    herein by reference.

123



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|        |    |                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|------- | -- | ----------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                        
|Number  |    | Description of Document
|        |    |                        
|        | 10 | .20                     |  | First Amendment to Amended and Restated Jafra
    Cosmetics International, Inc. Stock Incentive Plan; previously
    filed as exhibit 10.22 to the Companys Annual Report
    on Form 10-K for the fiscal year ended 2000, filed on
    April 2, 2001, and incorporated herein by reference.                                                                                                                                                           
|        | 10 | .21                     |  | CDRJ Investments (Lux) S.A. Form of Management
    Stock Subscription Agreement, as amended; previously filed as
    exhibit 3.10 to the Companys Annual Report on
    Form 10-K for the fiscal year ended 2000, filed on
    April 2, 2001, and incorporated herein by reference.                                                                                                                                                                     
|        | 10 | .22                     |  | Amended and Restated Consulting Agreement, dated
    as of January 1, 2001, by and among CDRJ Investments (Lux)
    S.A., Jafra Cosmetics International, Inc., Jafra Cosmetics
    International, S.A. de C.V., and Clayton, Dubilier &
    Rice, Inc; previously filed as Exhibit 10.1 to the
    Companys Quarterly Report on Form 10-Q for the first
    quarter ended March 31, 2001, filed May 15, 2001, and
    incorporated herein by reference.
|        | 21 | .1                      |  | Subsidiaries of the registrant.                                                                                                                                                                                                                                                                                                                                                                                                                         



| |     |                    
| | --- | -------------------
| | (b) | Reports on Form 8-K

On November 13, 2002, the Company filed a
Current Report on form 8-K, dated November 13, 2002,
with the Securities and Exchange Commission regarding fair
disclosure, which information was reported under Item 7,
Financial Statements and Exhibits and Item 9,
Regulation FD Disclosure.

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SIGNATURES

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



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



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

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

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

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

Date March 18, 2003

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

|                                               |  |                                                                                                                                                     |  |               
|---------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------
|Signature                                      |  | Title                                                                                                                                               |  | Date          
|                                               |  |                                                                                                                                                     |  |               
|/s/ RONALD B. CLARKRonald B. Clark             |  | Chief Executive Officer of the
    Advisory Committee and Director
    (Principal executive officer)                                                |  | March 18, 2003
|                                              
|/s/ MICHAEL A. DIGREGORIOMichael A. DiGregorio |  | Senior Vice President and Chief Financial
    Officer of the Advisory Committee
    (Principal financial officer, Principal
    accounting officer) |  | March 18, 2003
|                                              
|/s/ RALPH S. MASON, IIIRalph S. Mason, III     |  | Secretary and Executive Vice President
    of the Advisory Committee
    (Representative in the U.S.)                                               |  | March 18, 2003
|                                              
|/s/ DONALD J. GOGELDonald J. Gogel             |  | Director                                                                                                                                            |  | March 18, 2003
|                                              
|/s/ STEVEN D. GOLDSTEINSteven D. Goldstein     |  | Director                                                                                                                                            |  | March 18, 2003
|                                              
|/s/ THOMAS E. IRELANDThomas E. Ireland         |  | Director                                                                                                                                            |  | March 18, 2003
|                                              
|/s/ SIRI MARSHALLSiri Marshall                 |  | Director                                                                                                                                            |  | March 18, 2003
|                                              
|/s/ DAVID A. NOVAKDavid A. Novak               |  | Director                                                                                                                                            |  | March 18, 2003
|                                              
|/s/ ANN REESEAnn Reese                         |  | Director                                                                                                                                            |  | March 18, 2003
|                                              
|/s/ EDWARD H. RENSIEdward H. Rensi             |  | Director                                                                                                                                            |  | March 18, 2003
|                                              
|/s/ GONZALO RUBIOGonzalo Rubio                 |  | Director                                                                                                                                            |  | March 18, 2003
|                                              
|/s/ KENNETH D. TAYLORKenneth D. Taylor         |  | Director                                                                                                                                            |  | March 18, 2003

125



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CERTIFICATIONS

I, Ronald B. Clark, certify that:

1.     I have reviewed
this annual report on Form 10-K of CDRJ Investments (Lux)
S.A.;

2.     Based on my
knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this annual
report;

3.     Based on my
knowledge, the financial statements, and other financial
information included in this annual report, fairly present in
all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this annual report:

4.     The
registrants other certifying officers and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and
15d-14) for the registrant and have:



| |                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this annual report is being prepared;
|
| | b) evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | c) presented in this annual report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                

5.     The
registrants other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrants auditors and the audit committee of
registrants board of directors (or persons performing the
equivalent functions):



| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the registrants ability to record, process,
    summarize and report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                    

6.     The
registrants other certifying officers and I have indicated
in this annual report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.



| |                                                                   
| | ------------------------------------------------------------------
| | /s/ RONALD B. CLARK                                               
| | Ronald B. Clark                                                   
| | Chief Executive Officer of the Advisory
    Committee and Director

Date March 18, 2003

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##### Table of Contents



I, Michael A. DiGregorio, certify that:

1.     I have reviewed
this annual report on Form 10-k of CDRJ Investments (Lux)
S.A.;

2.     Based on my
knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this annual
report;

3.     Based on my
knowledge, the financial statements, and other financial
information included in this annual report, fairly present in
all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this annual report:

4.     The
registrants other certifying officers and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and
15d-14) for the registrant and have:



| |                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this annual report is being prepared;
|
| | b) evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | c) presented in this annual report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                

5.     The
registrants other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrants auditors and the audit committee of
registrants board of directors (or persons performing the
equivalent functions):



| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the registrants ability to record, process,
    summarize and report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                    

6.     The
registrants other certifying officers and I have indicated
in this annual report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.



| |                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------
| | /s/ MICHAEL A. DIGREGORIO 
     _______________________________________ 
     Michael A. DiGregorio              
| | Senior Vice President and Chief Financial
    Officer of the Advisory Committee (Principal Financial
    Officer)

Date March 18, 2003

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##### Table of Contents



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.

128



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##### Table of Contents






EXHIBIT INDEX

|        |      |                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|------- | ---- | ----------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |                        
|Number  |      | Description of Document
|        |      |                        
|        | 3.1  |                         |  | Articles of Association (Statuts Coordonnes) of
    CDRJ Investments (Lux) S.A., as restated on September 30,
    1998; previously filed as Exhibit 3.1 to Amendment 2 to
    Registration Statement No. 333-62989 under the Securities
    Act of 1933, as amended, filed December 23, 1998, and
    incorporated herein by reference.                                                                                                                                                                   
|        | 3.2  |                         |  | Certificate of Incorporation of CDRJ Acquisition
    Corporation, dated March 31, 1998; previously filed as
    Exhibit 3.2 to Registration Statement No. 333-62989
    under the Securities Act of 1933, as amended, filed
    September 4, 1998, and incorporated herein by reference.                                                                                                                                                                                                                  
|        | 3.3  |                         |  | Certificate of Merger of Jafra Cosmetics
    International, Inc. into CDRJ Acquisition Corporation, dated
    April 30, 1998; previously filed as Exhibit 3.3 to
    Registration Statement No. 333-62989 under the Securities
    Act of 1933, as amended, filed September 4, 1998, and
    incorporated herein by reference.                                                                                                                                                                            
|        | 3.4  |                         |  | Amended and Restated By-laws of Jafra Cosmetics
    International, Inc. (formerly CDRJ Acquisition Corporation), as
    adopted on July 21, 1998; previously filed as
    Exhibit 3.4 to Registration Statement No. 333-62989
    under the Securities Act of 1933, as amended, filed
    September 4, 1998, and incorporated herein by reference.                                                                                                                                                        
|        | 3.5  |                         |  | Deed of Incorporation (acta constitutiva),
    including all amendments thereto, and current by-laws (estatutos
    sociales) of Jafra Cosmetics International, S.A. de C.V.,
    together with a unofficial summary thereof in English;
    previously filed as Exhibit 3.5 to Registration Statement
    No. 333-62989 under the Securities Act of 1933, as amended,
    filed September 4, 1998, and incorporated herein by
    reference.                                                             
|        | 3.6  |                         |  | Deed of Incorporation (acta constitutiva),
    including all amendments thereto, and current by-laws (estatutos
    sociales) of Dirsamex, S.A. de C.V., together with a unofficial
    summary thereof in English; previously filed as Exhibit 3.7
    to Amendment No. 1 to Registration Statement
    No. 333-62989 under the Securities Act of 1933, as amended,
    filed October 27, 1998, and incorporated herein by
    reference.                                                                
|        | 3.7  |                         |  | Deed of Incorporation (acta constitutiva),
    including all amendments thereto, and current by-laws (estatutos
    sociales) of Jafra Cosmetics S.A. de C.V., formerly known as
    Jafra Cosmetics S. de R.L. de C.V., together with a unofficial
    summary thereof in English; previously filed as Exhibit 3.9
    to Amendment No. 1 to Registration Statement
    No. 333-62989 under the Securities Act of 1933, as amended,
    filed October 27, 1998, and incorporated herein by
    reference.
|        | 3.8  |                         |  | Deed of Incorporation (acta constitutiva),
    including all amendments thereto, and current by-laws (estatutos
    sociales) of Qualifax, S.A. de C.V., together with a unofficial
    summary thereof in English; previously filed as
    Exhibit 3.10 to Amendment No. 1 to Registration
    Statement No. 333-62989 under the Securities Act of 1933,
    as amended, filed October 27, 1998, and incorporated herein
    by reference.                                                               
|        | 3.9  |                         |  | Deed of Incorporation (acta constitutiva),
    including all amendments thereto, and current by-laws (estatutos
    sociales) of Reday, S.A. de C.V., together with a unofficial
    summary thereof in English; previously filed as
    Exhibit 3.11 to Amendment No. 1 to Registration
    Statement No. 333-62989 under the Securities Act of 1933,
    as amended, filed October 27, 1998, and incorporated herein
    by reference.                                                                  
|        | 3.10 |                         |  | Deed of Incorporation (acta constitutiva),
    including all amendments thereto, and current by-laws (estatutos
    sociales) of Cosmeticos Y Fragrancias, S.A. de C.V., together
    with an unofficial summary thereof in English; previously filed
    as exhibit 3.10 to the Companys Annual Report on
    Form 10-K for the fiscal year ended 2000, filed on
    April 2, 2001, and incorporated herein by reference.                                                                               

129



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

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

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|        |      |                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|------- | ---- | ----------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |                        
|Number  |      | Description of Document
|        |      |                        
|        | 4.16 |                         |  | Acknowledgment of Obligations and Mortgage, dated
    April 30, 1998, granted by Reday, S.A. de C.V. in favor of
    Credit Suisse First Boston, together with an unofficial English
    translation thereof; previously filed as Exhibit 4.16 to
    Registration Statement No. 333-62989 under the Securities Act of
    1933, as amended, filed September 4, 1998, and incorporated
    herein by reference.                                                                                                                                                                                                                                                       
|        | 4.17 |                         |  | Notarial Deed of Pledge, dated April 30,
    1998, with respect to the pledge to Credit Suisse First Boston
    of (i) 24 ordinary shares of the capital stock of CDRJ
    Europe Holding Company B.V. by Jafra Cosmetics International,
    Inc., and (ii) 40 ordinary shares of the capital stock of
    CDRJ Latin America Holding B.V. by CDRJ North Atlantic (Lux)
    Sarl; previously filed as Exhibit 4.17 to Registration
    Statement No. 333-62989 under the Securities Act of 1933,
    as amended, filed September 4, 1998, and incorporated
    herein by reference.                                                                                   
|        | 4.18 |                         |  | Consent and Waiver, dated as of November 19,
    1999, to the Credit Agreement dated as of April 30, 1998,
    as amended by Amendment No. 1 thereto dated as of
    August 26, 1998, among Jafra Cosmetics International Inc.,
    Jafra Cosmetics International S.A. de C.V., CDRJ Investments
    (Lux) S.A., the several banks and financial institutions party
    to the Credit Agreement, the Issuing Bank and Credit Suisse
    First Boston, as Administrative Agent; previously filed as
    Exhibit 4.18 to the Companys Annual Report on
    Form 10-K for the fiscal year ended 1999, filed on
    March 30, 2000, and incorporated herein by reference.
|        | 4.19 |                         |  | Substitution of Trustee and Partial Reconveyance
    of Deed of Trust, Assignment of Leases and Rents, Fixture Filing
    and Security Agreement, and Release of Financing Statement,
    dated November 29, 1999, which amends the Deed of Trust
    filed as Exhibit 4.15 above; previously filed as
    Exhibit 4.19 to the Companys Annual Report on
    Form 10-K for the fiscal year ended 1999, filed on
    March 30, 2000, and incorporated herein by reference.                                                                                                                                                                                            
|        | 4.20 |                         |  | Partial Reconveyance of Deed of Trust, Assignment
    of Leases and Rents, Fixture Filing and Security Agreement and
    Release of Financing Statement, dated November 29, 1999,
    which amends the Deed of Trust filed as Exhibit 4.15 above;
    previously filed as Exhibit 4.20 to the Companys
    Annual Report on Form 10-K for the fiscal year ended 1999,
    filed on March 30, 2000, and incorporated herein by
    reference.                                                                                                                                                                                                                         
|        | 4.21 |                         |  | Consent and Waiver, dated as of June 30,
    2001, to the Credit Agreement dated as of April 30, 1998,
    as amended by Amendment No. 1 thereto dated as of
    August 26, 1998, among Jafra Cosmetics International Inc.,
    Jafra Cosmetics International S.A. de C.V., CDRJ Investments
    (Lux) S.A., the several banks and financial institutions party
    to the Credit Agreement, the Issuing Bank and Credit Suisse
    First Boston, as Administrative Agent, previously filed as
    Exhibit 4.21 to the Companys Annual Report of
    Form 10-K for the fiscal year ended 2001, filed on
    April 1, 2002, and incorporated herein by reference.     
|        | 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.                                                                                                                                                                                                                                                                                                                                                                        

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

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|        |       |                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|------- | ----- | ----------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |                        
|Number  |       | Description of Document
|        |       |                        
|        | 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 |                         |  | Trust Agreement dated May 20, 1999 by and
    between Jafra Cosmetics International, Inc. and Scudder Trust
    Company; previously filed as Exhibit 10.20 to the
    Companys Annual Report on Form 10-K for the fiscal
    year ended 1999, filed on March 30, 2000, and incorporated
    herein by reference.                                                                                                                                       
|        | 10.19 |                         |  | Amendment No. 1 to Consulting Agreement,
    dated as of March 15, 2000, by and among CDRJ Investments
    (Lux) S.A., Jafra Cosmetics International, Inc., Jafra Cosmetics
    International, S.A. de C.V., and Clayton, Dubilier & Rice,
    Inc.; previously filed as Exhibit 10.21 to the
    Companys Annual Report on Form 10-K for the fiscal
    year ended 1999, filed on March 30, 2000, and incorporated
    herein by reference.           
|        | 10.20 |                         |  | First Amendment to Amended and Restated Jafra
    Cosmetics International, Inc. Stock Incentive Plan; previously
    filed as exhibit 10.22 to the Companys Annual Report
    on Form 10-K for the fiscal year ended 2000, filed on
    April 2, 2001, and incorporated herein by reference.                                                                                                                                                           
|        | 10.21 |                         |  | CDRJ Investments (Lux) S.A. Form of Management
    Stock Subscription Agreement, as amended; previously filed as
    exhibit 3.10 to the Companys Annual Report on
    Form 10-K for the fiscal year ended 2000, filed on
    April 2, 2001, and incorporated herein by reference.                                                                                                                                                                     
|        | 10.22 |                         |  | Amended and Restated Consulting Agreement, dated
    as of January 1, 2001, by and among CDRJ Investments (Lux)
    S.A., Jafra Cosmetics International, Inc., Jafra Cosmetics
    International, S.A. de C.V., and Clayton, Dubilier & Rice,
    Inc; previously filed as Exhibit 10.1 to the Companys
    Quarterly Report on Form 10-Q for the first quarter ended
    March 31, 2001, filed May 15, 2001, and incorporated
    herein by reference.
|        | 21.1  |                         |  | Subsidiaries of the registrant.                                                                                                                                                                                                                                                                                                                                                                                                                         

134