UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

For the transition period from                                to                               

Commission File Number 333-106666

JAFRA WORLDWIDE HOLDINGS (Lux) S.àR.L.
(Exact name of Registrant as specified in its charter)

174 Route de Longwy
L-1940 Luxembourg
Luxembourg
(Address, including zip code, of registrant’s principal executive offices)

(352) 226027
(Registrant’s telephone number, including area code)

     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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange 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.

APPLICABLE ONLY TO CORPORATE ISSUERS

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

     Common stock, par value $100 per share, outstanding at November 11, 2004  150 shares.

JAFRA WORLDWIDE HOLDINGS (Lux) S.àR.L. AND SUBSIDIARIES

Index to Financial Statements and Exhibits
Filed with the Quarterly Report of the Company on Form 10-Q
For the Three and Nine Months Ended September 30, 2004

PART I — FINANCIAL INFORMATION

*  Jafra Worldwide Holdings (Lux) S.àr.l. (the “Parent”) is the parent company of Distribuidora Comercial Jafra, S.A. de C.V. (“Jafra Distribution”) and Jafra Cosmetics International, Inc. (“JCI”), which severally issued $120 million and $80 million, respectively, of 10¾% Subordinated Notes (the “New Notes”). The Parent has fully and unconditionally guaranteed the New Notes on a senior subordinated basis. Jafra Distribution and JCI have fully and unconditionally guaranteed the obligations of the other under the Notes on a senior subordinated basis, subject to a 30-day standstill period prior to enforcement of such guarantees. Jafra Cosmetics International, S.A. de C.V. and its subsidiaries (“Jafra Cosmetics S.A.”), additional indirect subsidiaries of the Parent, have fully and unconditionally guaranteed the obligations of Jafra Distribution under the New Notes. As such, the Parent is filing separate financial statements of JCI, Jafra Distribution and Jafra Cosmetics S.A. in addition to its own financial statements, in its Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2004.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

JAFRA WORLDWIDE HOLDINGS (LUX) S.àR.L. AND SUBSIDIARIES

See accompanying notes to consolidated financial statements

4

JAFRA WORLDWIDE HOLDINGS (LUX) S.àR.L. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)

See accompanying notes to consolidated financial statements

5

JAFRA WORLDWIDE HOLDINGS (LUX) S.àR.L. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

See accompanying notes to consolidated financial statements

6

JAFRA WORLDWIDE HOLDINGS (LUX) S.àR.L. AND SUBSIDIARIES

(1) Basis of Presentation

     Jafra Worldwide Holdings (Lux) S.àr.l, a Luxembourg société à responsabilité limitée (the “Parent”) is a wholly-owned subsidiary of Jafra S.A. (formerly known as CDRJ North Atlantic (Lux) S.àr.l.). Jafra S.A., a Luxembourg société anonyme (“Jafra S.A.”), was a wholly-owned subsidiary of CDRJ Investments (Lux) S.A., a Luxembourg société anonyme (“CDRJ”).

     On May 27, 2004, Vorwerk & Co. eins GmbH (“Vorwerk”) acquired substantially all of the issued and outstanding capital stock of Jafra S.A. (the “Acquisition”). As a result of the Acquisition, 100% of the voting securities of the Parent are held indirectly by Vorwerk, which is an indirect wholly-owned subsidiary of Vorwerk & Co. KG, a family-owned company based in Wuppertal, Germany. The purchase transaction has not been pushed down to the Company due to the outstanding registered debt.

     On May 20, 2003, the Parent, Jafra Cosmetics International, Inc. (“JCI”) and Distribuidora Comercial Jafra S.A. de C.V. (“Jafra Distribution” and together with JCI, the “Issuers”) completed a recapitalization of their operations by entering into $90 million of new senior secured credit facilities, consisting of a $50 million senior secured term loan facility and a $40 million senior secured revolving credit facility and issuing $200 million of 10¾% Senior Subordinated Notes due 2011 (the “New Notes” and such transactions collectively, the “Recapitalization”). The proceeds from the Recapitalization were used to redeem the 11¾% Senior Subordinated Notes due 2008 (the “Old Notes”) of JCI and Jafra Cosmetics International, S.A. de C.V. (“Jafra Cosmetics S.A.”), to repay all amounts outstanding under the existing credit facilities of JCI and Jafra Cosmetics S.A. and to make certain payments to CDRJ and employees of JCI and Jafra Cosmetics S.A. The stockholders of CDRJ then resolved that CDRJ be liquidated and appointed the Parent to act as its liquidator. Thereafter, CDRJ made liquidating distributions of such proceeds to its stockholders. In connection with the liquidation of CDRJ, Jafra S.A. transferred all of its assets and liabilities, including its direct and indirect holdings of JCI, Jafra Cosmetics S.A. and Jafra Distribution, to the Parent in exchange for additional shares of common stock of the Parent. Jafra Cosmetics S.A. and Jafra Distribution are collectively referred to as “Jafra Mexico.”

     Jafra Distribution was organized in February 2003 to conduct the distribution functions of the Parent’s Mexican operations. The Parent was organized in February 2003 as a holding company to conduct the worldwide Jafra cosmetics business through its subsidiaries. CDRJ was a holding company that, until the Recapitalization, conducted the Jafra cosmetics business through its subsidiaries. Since the commencement of the liquidation, CDRJ has conducted no operations other than those incident to winding up its activities. The liquidation of CDRJ occurred during the second quarter of 2004.

     The accompanying unaudited interim consolidated financial statements as of and for the three and nine months ended September 30, 2004 and 2003 and the accompanying audited consolidated balance sheet as of December 31, 2003 reflect the operations of the Parent and its subsidiaries and are referred to collectively as “the Company.”

     The unaudited interim consolidated financial statements have been prepared in accordance with Article 10 of the Securities and Exchange Commission’s Regulation S-X. In the opinion of management, the accompanying unaudited interim financial statements contain all adjustments, including normal recurring adjustments, necessary to present fairly the Company’s consolidated financial statements as of September 30, 2004 and for the interim periods presented. All significant intercompany accounts and transactions have been eliminated in consolidation.

     The functional currency of certain of the Company’s foreign subsidiaries generally consists of currencies other than the U.S. dollar. 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.

7

JAFRA WORLDWIDE HOLDINGS (LUX) S.àR.L. AND SUBSIDIARIES

     Management Incentive Arrangements. The Company applied Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock issued to Employees” and related Interpretations in accounting for the issuance of stock options under the Stock Incentive Plan. As part of the Acquisition, the Management Incentive Plan was terminated. No options were granted during 2004 prior to the termination of the plan. Had the Company recorded compensation cost based on the fair value of options granted at the grant date, as prescribed by Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock Based Compensation,” the compensation expense for the nine months ended September 30, 2004 and the three and nine months ended September 30, 2003 would be immaterial to the consolidated statements of operations.

     New Accounting Pronouncements. In January 2003, the Financial Accounting Standards Board (“FASB”) issued Interpretation (“FIN”) No. 46, “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51, Consolidated Financial Statements.” FIN 46 requires the consolidation of variable interest entities by the party considered to be the primary beneficiary of that entity. The FASB amended FIN 46 in December of 2003. The revised provisions of FIN 46 were effective for the Company in the first quarter of 2004. The adoption of FIN 46 did not have an impact on the Company’s financial position or results of operations as the Company had no variable interest entities.

(2) Inventories

     Inventories consist of the following (in thousands):

(3) Property and Equipment

     Property and equipment consist of the following (in thousands):

8

JAFRA WORLDWIDE HOLDINGS (LUX) S.àR.L. AND SUBSIDIARIES

(4) Goodwill and Other Intangible Assets.

     The Company’s intangible assets consist of trademarks and goodwill. The Company has determined trademarks — principally the Jafra name resulting from the acquisition of the Jafra business from Gillette — to have an indefinite life. The carrying value of trademarks was $40,585,000 as of September 30, 2004. The changes in the carrying amount of goodwill for the year ended December 31, 2003 and for the nine months ended September 30, 2004 are as follows (in thousands):

     In connection with the implementation of SFAS No. 142, “Goodwill and Other Intangible Assets,” the Company identified all reporting units and allocated all goodwill accordingly. During the year ended December 31, 2003, the Company identified impairment indicators regarding the Venezuelan operations given the Company’s decision to exit this market. The Company recorded an impairment loss of $137,000 for goodwill originally allocated to the Venezuelan reporting unit.

(5) Income Taxes

     The actual income tax rate of the Company differs from the “expected” tax rate, computed by applying the federal corporate rate to income(loss) before income taxes for the three and nine months ended September 30, 2003 and 2004. During the three and nine months ended September 30, 2004, the Company’s United States subsidiary reported an effective tax rate different than the statutory rate primarily due to (i) permanent differences, including non-deductible expenses and (ii) state income taxes. During the three and nine months ended September 30, 2004, Jafra Mexico reported an effective tax rate different than the statutory rate primarily due to the reversal of certain valuation allowances against certain net operating losses and other temporary differences. The effective rate during the three and nine months ended September 30, 2004 was also effected by increases of valuation allowances against certain pretax losses in other subsidiaries. During the three months ended September 30, 2003 Jafra Mexico reported a pretax loss and an income tax benefit. This was partially offset by pretax income and income tax expense in the United States. During the nine months ended September 30, 2003, Jafra Mexico reported pretax income and income tax expense. The income tax expense was partially offset by an income tax benefit in the United States based on pretax net losses. Additionally, during the three and nine months ended September 30, 2003, the Company recorded valuation allowances against certain pretax losses in other subsidiaries.

(6) Debt and Distribution to Former Shareholders

     On May 20, 2003, the Issuers issued $200 million aggregate principal amount of 10¾% Subordinated Notes (the “New Notes”) due 2011 pursuant to an Indenture dated May 20, 2003 (the “Indenture”) and entered into a $90 million senior credit agreement (the “Senior Credit Agreement”). The New Notes represent the several obligations of JCI and Jafra Distribution in the original amount of $80 million and $120 million, respectively. The New Notes mature in 2011 and bear interest at a fixed rate of 10¾% payable semi-annually.

9

JAFRA WORLDWIDE HOLDINGS (LUX) S.àR.L. AND SUBSIDIARIES

     JCI is a direct wholly-owned subsidiary of the Parent and Jafra Distribution is an indirect wholly-owned subsidiary of the Parent. The Parent has fully and unconditionally guaranteed the obligations under the New Notes on a senior subordinated basis on the terms provided in the Indenture governing the New Notes. Each Issuer has fully and unconditionally guaranteed the obligations of the other under the New Notes on a senior subordinated basis, subject to a 30-day standstill period prior to enforcement of such guarantees. Each existing and subsequently acquired or organized U.S. subsidiary of JCI is required to fully and unconditionally guarantee the U.S. portion of New Notes jointly and severally, on a senior subordinated basis. Each acquired or organized Mexican subsidiary of Jafra Distribution is also required to fully and unconditionally guarantee the Mexican portion of the New Notes jointly and severally, on a senior subordinated basis. Jafra Cosmetics S.A. has also fully and unconditionally guaranteed the obligations of Jafra Distribution under the New Notes. Each existing and subsequently acquired or organized subsidiary of Jafra Cosmetics S.A. is also required to fully and unconditionally guarantee the Mexican portion of the New Notes jointly and severally, on a senior subordinated basis.

     The New Notes are unsecured and are generally not redeemable for four years from their issue date. Thereafter, the New Notes will be redeemable on a pro rata basis at premiums declining to par in the sixth year. Prior to May 16, 2006, the Issuers at their option may concurrently redeem the New Notes in an aggregate principal amount such that at least 65% of the original aggregate principal amount of the New Notes is outstanding, with funds in an aggregate amount not exceeding the aggregate cash proceeds of one or more equity offerings, at a redemption price of 110.75% plus accrued interest. In connection with the Acquisition, holders of $500,000 principal amount of the New Notes redeemed such notes and as a result, $199.5 million principal amount of New Notes was outstanding at September 30, 2004.

     In addition, in May 2003, the Issuers entered into the Senior Credit Agreement, which provided for senior secured credit facilities in an aggregate principal amount of up to $90 million, consisting of a $50 million senior secured term loan facility and a $40 million senior secured revolving credit facility. The Senior Credit Agreement was allocated 40% to JCI and 60% to Jafra Distribution. On May 23, 2003, with proceeds from the issuance of the New Notes and borrowings under the Senior Credit Agreement, JCI and Jafra Cosmetics S.A. redeemed the Old Notes in the aggregate outstanding principal amount of $75,180,000 at a premium of approximately $4,417,000. Additionally, JCI and Jafra Cosmetics S.A. repaid $7,375,000 under its then existing credit agreement (the “Old Credit Agreement”) and terminated the Old Credit Agreement. In connection with the redemption of the Old Notes and the termination of the Old Credit Agreement, the Company wrote off approximately $2,203,000 of capitalized deferred financing fees. Total costs related to the redemption of the Old Notes and the repayment of amounts outstanding under the Old Credit Agreement were $6,620,000 and were recorded as loss on extinguishment of debt on the accompanying consolidated statements of operations during the nine months ended September 30, 2003.

     After the redemption of the Old Notes and repayment of all outstanding amounts under the Old Credit Agreement, the shareholders of CDRJ resolved to liquidate CDRJ. As a result, CDRJ made liquidating distributions of $159,014,000 to its shareholders of record at May 20, 2003. JCI also made a special payment to the holders of CDRJ options and certain members of management and non-employee directors.

10

JAFRA WORLDWIDE HOLDINGS (LUX) S.àR.L. AND SUBSIDIARIES

     The Company capitalized $14,647,000 of costs related to the issuance of the New Notes and the Senior Credit Agreement as deferred financing fees.

     In connection with closing the Acquisition, the Issuers, the Company and the requisite lenders under the Issuers’ Senior Credit Agreement entered into an amendment to the Senior Credit Agreement which provided that for a period of 90 days following the closing of the Acquisition, the Acquisition would not constitute an event of default under the Credit Agreement. On August 16, 2004, prior to the expiration of the 90 day period, the Company entered into a Restated Senior Credit Agreement (the “Restated Credit Agreement”) which provides for a revolving credit facility of up to an aggregate of $60 million at any one time outstanding, which can be increased by the Company to $90 million under certain circumstances. The Restated Credit Agreement matures on August 16, 2008. JCI can borrow up to 100% and Jafra Distribution can borrow up to 60% of the total Restated Credit Agreement. On August 16, 2004, JCI borrowed $16,750,000 and Jafra Distribution borrowed $26,750,000 of the loans. Borrowings under the Restated Credit Agreement bear interest at an annual rate of Libor plus 2.625%. As of September 30, 2004, the applicable interest rate was 4.3%, subject to periodic adjustment based on certain levels of financial performance. Borrowings under the Restated Credit Agreement are secured by substantially all of the assets of JCI and Jafra Distribution.

     The Company also entered into a Loan Contract (the “Loan Contract”) in August, 2004 to borrow up to $20,000,000 from Vorwerk at an annual interest rate of Libor plus 2.625%. The Loan Contract was allocated 100% to JCI and will expire on December 20, 2004. On August 12, 2004, the Company borrowed the full amount under the Loan Contract.

     With the borrowings from the Restated Credit Agreement and the Loan Contract, the Company paid in full all existing amounts under the Senior Credit Agreement. In connection with the full repayment of the Senior Credit Agreement and the purchase of $500,000 of the outstanding New Notes, the Company wrote off approximately $4,464,000 of capitalized deferred financing fees and recorded the write off as loss on extinguishment of debt on the accompanying consolidated statements of operations during the three and nine months ended September 30, 2004.

     The Company capitalized approximately $737,000 of costs related to the Restated Credit Agreement. As of September 30, 2004, approximately $7,918,000 of unamortized deferred financing fees (excluding translation effects) were reported as a noncurrent asset in the accompanying consolidated balance sheets. These deferred financing fees are being amortized on a basis that approximates the interest method over the term of the New Notes and the Restated Credit Agreement.

     Both the Indenture and the Restated 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. These covenants apply to the Parent and certain of its subsidiaries, including without limitation, JCI, Jafra Distribution and Jafra Cosmetics S.A. As of September 30, 2004, the Company was in compliance with all covenants.

     The Restated Credit Agreement contains provisions whereby (i) the default by the Parent, or any default by JCI, Jafra Distribution or any of their respective subsidiaries, in any payment under debt obligations in an aggregate principal amount of $5.0 million or more beyond any applicable grace period, or (ii) any default by the Parent, or any default by JCI, Jafra Distribution or any of their respective subsidiaries, in the observance or performance of any other agreement or condition under such other debt obligations that allows the holder(s) of such debt obligations to accelerate the maturity of such obligations after the expiration of any grace period or the provision of notice, and such grace period has expired or notice has been given, will allow the lenders under the Restated Credit Agreement to terminate their commitments to lend thereunder and/or declare any amounts outstanding thereunder to be

11

JAFRA WORLDWIDE HOLDINGS (LUX) S.àR.L. AND SUBSIDIARIES

immediately due and payable. The Indenture contains similar provisions that apply upon the failure by the Parent, or the failure by JCI, Jafra Distribution or any of their significant subsidiaries (as defined in the Indenture), to pay any indebtedness for borrowed money when due, or on the acceleration of any other debt obligations exceeding $10.0 million. The Indenture also contains provisions that, under certain circumstances, permit the holders of certain senior indebtedness (including the loans made under the Restated Credit Agreement) to block payments on the New Notes during the continuance of certain defaults that would allow the holders of such senior indebtedness to accelerate the relevant senior indebtedness.

     The terms of the Indenture significantly restrict the Parent and its other subsidiaries from paying dividends and otherwise transferring assets to Jafra S.A. The ability of the Parent to make such restricted payments or transfers is generally limited to an amount determined by a formula based on 50% of its consolidated net income (which, as defined in the Indenture, excludes goodwill impairment charges and any after-tax extraordinary, unusual or nonrecurring gains and losses) accruing from October 1, 2002, plus specified other amounts. In addition, as a condition to making such payments to Jafra S.A. based on such formula, the Parent must have a consolidated coverage ratio (as defined in the Indenture) of at least 2.25 to 1 after giving effect to any such payments. Notwithstanding such restrictions, the Indenture permits an (i) aggregate of $5.0 million of such payments and (ii) payments for certain specific uses, such as the payment of consolidated taxes or holding company expenses, to be made whether or not there is availability under the formula or the conditions to its use are met. The terms of the Restated Credit Agreement contain similar restrictions. The Restated Credit Agreement generally limits dividends by the Parent to dividends necessary to fund specified costs and expenses, but permits the Parent to pay dividends of up to 50% of consolidated net income (as defined in the Restated Credit Agreement), accruing from July 1, 2004, plus up to $5.0 million so long as the consolidated leverage ratio (as defined in the Restated Credit Agreement) does not exceed 3 to 1 after giving effect to such payment and the sum of unused borrowing availability under the Restated Credit Agreement plus cash is not less than $5 million.

(7) Non-Cash Equity Contribution

     During the nine months ended September 30, 2004, the former primary shareholder of Jafra S.A. paid certain members of management and non-employee board of director members a special bonus of $4,922,000. As this amount was paid directly to the recipients from the former primary shareholder, Jafra S.A. recorded $4,922,000 as deemed contributed capital and as a non-cash transaction expense representing compensation. Jafra S.A. then contributed $4,922,000 to the Company. This contribution was partially offset by a cash distribution of $626,000 to Jafra S.A.

(8) Transaction Related Expense

     During the three and nine months ended September 30, 2004, the Company incurred $139,000 and $29,662,000, respectively, of transaction fees related to the Acquisition and to certain other transactions contemplated but subsequently terminated. Included in these amounts was $20,282,000 of compensation expense for the buyback and cancellation of options to purchase shares of Jafra S.A. and $4,922,000 of special bonus payments paid directly by the former shareholder. During the three and nine months ended September 30, 2003, the Company recorded $422,000 and $15,546,000, respectively, of transaction expenses related to the Recapitalization and to other transactions contemplated but subsequently terminated. In connection with the Recapitalization, the Board of Directors authorized CDRJ to reprice all then existing outstanding stock options. In order to compensate option holders for any diminished value of the outstanding options, the Board of Directors further authorized $10,391,000 in bonus payments to current option holders during the nine months ended September 30, 2003. Additionally, the Company authorized a special bonus of $2,715,000 to certain members of management and to non-employee directors for contributions to completing the Recapitalization of CDRJ.

12

JAFRA WORLDWIDE HOLDINGS (LUX) S.àR.L. AND SUBSIDIARIES

(9) Restructuring and Asset Impairment Charges

     During the three and nine months ended September 30, 2004 the Company recorded a total of $2,244,000 and $5,017,000, respectively, of restructuring and asset impairment charges. Of these charges, approximately $65,000 and $2,838,000 was recorded during the three and nine months ended September 30, 2004, respectively, and was primarily related to the transfer of substantially all of its skin and body care manufacturing operations to its facilities in Mexico. The transfer of these operations was substantially complete during the second quarter of 2004. Of these charges in the nine months ended September 30, 2004, approximately $488,000 was for the impairment of assets not transferred and the remaining amount was primarily termination benefits. Additionally, during the three and nine months ended September 30, 2004, the Company recorded $2,179,000 of severance related charges related to the resignation of five members of management subsequent to the Acquisition. A rollforward of the activity of the restructuring accruals is summarized as follows (in thousands):

     The Company does not expect to incur any additional significant charges in connection with the transfer of these manufacturing operations to Mexico or in relation to the resignation of certain members of management.

(10) Comprehensive Income (Loss)

     Comprehensive income (loss) is summarized as follows (in thousands):

(11) Financial Reporting for Business Segments

     The Company’s business is comprised of one industry segment, direct selling, with worldwide operations. The Company is organized into geographical business units that each sell the full line of Jafra cosmetics, skin care, body care, fragrances, and other products. Jafra has three reportable business segments: Mexico, the United States including the Dominican Republic, and Europe. Business results for subsidiaries in South America and Thailand are combined and included in the following table under the caption “All Others.” As of the beginning of 2004, the Company includes the results of the Dominican Republic with the results of the United States as they are under common management and the Company’s chief operating decision makers evaluate the results of the Dominican Republic with the results of the United States. All prior period results have been reclassified to be consistent with the 2004 presentation.

13

JAFRA WORLDWIDE HOLDINGS (LUX) S.àR.L. AND SUBSIDIARIES

     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 included in the Company’s audited consolidated financial statements as of and for the year ended December 31, 2003 included in the Company’s Annual Report on Form 10-K. The Company evaluates performance based on segment operating income, excluding restructuring and impairment charges and unusual gains and losses. Consistent with the information reviewed by the Company’s chief operating decision makers, corporate costs, foreign exchange gains and losses, interest expense, other nonoperating income or expense, and income taxes are not allocated to operating segments for purposes of this presentation. The effects of intersegment sales (net sales and related gross profit) are excluded from the computation of segment net sales and segment income (loss) from operations. The elimination of intercompany profit from inventory within segment assets is included in “Corporate, Unallocated and Other.”

14

JAFRA WORLDWIDE HOLDINGS (LUX) S.àR.L. AND SUBSIDIARIES

     Corporate, unallocated and other includes (in thousands):

(12) Foreign Currency Option Contracts

     The Company is exposed to currency risk relating to its forecasted U.S. dollar-denominated expenditures at Jafra Mexico. As part of its overall strategy to reduce the risk of potential adverse exchange rate fluctuations in Mexico, the Company entered into foreign currency option contracts (“option contracts” or “options”). The Company places option contracts based on its rolling forecasted cash outflows from Jafra Mexico and hedges transactions included in the forecast on the date the option 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.

     The Company currently designates certain of its option contracts as cash flow hedges of forecasted U.S. dollar-denominated inventory purchases, forecasted U.S. dollar-denominated intercompany charges from JCI to Jafra Mexico, forecasted management fee charges from JCI to Jafra Mexico, and U.S. dollar-denominated interest payments. 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 (loss) 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 paid by Jafra Mexico.

     During the three and nine months ended September 30, 2004, the Company recognized $496,000 and $529,000 of losses, respectively, on option contracts and during the nine months ended September 30, 2003, the Company recognized $627,000 of gains on option contracts as a component of exchange gain (loss), net on the accompanying consolidated statements of operations.

     As of December 31, 2003, the Company had deferred as a component of other comprehensive loss $278,000 of gains on option contracts. During the nine months ended September 30, 2004, the Company deferred as a component of other comprehensive loss $329,000 of losses on option contracts qualifying for hedge accounting under SFAS No. 133. The Company expects that substantially all of the remaining loss of $51,000 deferred as a component of other comprehensive loss at September 30, 2004 will be recognized into net income (loss) within the next sixteen months.

     The fair value of the option contracts was $418,000 at September 30, 2004 and has been recorded in accrued liabilities in the consolidated balance sheets. The fair value of the option contracts was $440,000 at December 31, 2003, and was recorded in other receivables in the consolidated balance sheets.

15

JAFRA WORLDWIDE HOLDINGS (LUX) S.àR.L. AND SUBSIDIARIES

     During the three and nine months ended September 30, 2004 and 2003 the ineffectiveness generated by the Company’s 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 during the three and nine months ended September 30, 2004 and 2003, $0 and $230,000, respectively, of gains, were reclassified into earnings.

     The outstanding foreign currency option contracts had a notional value denominated in Mexican pesos of 657,000,000 and 831,000,000 in put and call positions at September 30, 2004 and December 31, 2003, respectively, and mature at various dates through January 31, 2006. 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.

(13) Discontinued Operations/Markets to be Exited

     During 2003, the Company discontinued its operations in Venezuela, Colombia, Chile and Peru. The Company has terminated sales in these markets and has liquidated a majority of the assets in 2003. As such, the results of the operations of these markets have been classified as discontinued operations in all periods presented in the statements of operations. The assets and liabilities from the discontinued operations have been segregated in the accompanying consolidated balance sheets.

     Net sales and loss on discontinued operations was as follows:

16

JAFRA WORLDWIDE HOLDINGS (LUX) S.àR.L. AND SUBSIDIARIES

     The components of assets and liabilities of the discontinued operations was as follows:

     In addition to the markets discontinued, the Company has ceased operating in Thailand and is in the process of liquidating all assets. The Company also plans to cease operating in Brazil during the fourth quarter of 2004. Subsequent to the end of the third quarter of 2004, the Company entered into a distributorship agreement with a third party in Brazil.

17

JAFRA COSMETICS INTERNATIONAL, INC. AND SUBSIDIARIES

See accompanying notes to consolidated financial statements

18

JAFRA COSMETICS INTERNATIONAL, INC. AND SUBSIDIARIES

See accompanying notes to consolidated financial statements

19

JAFRA COSMETICS INTERNATIONAL, INC. AND SUBSIDIARIES

See accompanying notes to consolidated financial statements

20

JAFRA COSMETICS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(1)  Basis of Presentation

     Jafra Cosmetics International, Inc. a Delaware corporation, is a direct wholly-owned subsidiary of Jafra Worldwide Holdings (Lux) S.àr.l., a Luxembourg société à responsabilité limitée (the “Parent”), which is a wholly-owned direct subsidiary of Jafra S.A. (formerly known as CDRJ North Atlantic (Lux) S.àr.l.), a Luxembourg société anonyme (“Jafra S.A.”). Jafra S.A. was a wholly-owned subsidiary of CDRJ Investments (Lux) S.A., a Luxembourg société anonyme (“CDRJ”).

     On May 27, 2004, Vorwerk & Co. eins GmbH acquired substantially all of the issued and outstanding capital stock of Jafra S.A. (the “Acquisition”). As a result of the Acquisition, 100% of the voting securities of the Parent are held indirectly by Vorwerk & Co. eins GmbH, which is an indirect wholly-owned subsidiary of Vorwerk & Co. KG, a family-owned company based in Wuppertal, Germany. The purchase transaction has not been pushed down to JCI due to the outstanding registered debt.

     The accompanying unaudited interim consolidated financial statements as of September 30, 2004 and for the three and nine months ended September 30, 2004 and 2003 reflect the operations of JCI and its subsidiaries (“JCI”) and have been prepared in accordance with Article 10 of the Securities and Exchange Commission’s Regulation S-X. In the opinion of management, the accompanying unaudited interim consolidated financial statements contain all adjustments, consisting of normal recurring adjustments, necessary to present fairly JCI’s consolidated financial statements as of September 30, 2004 and for the interim periods presented. All significant intercompany accounts and transactions between entities comprising JCI have been eliminated in consolidation.

     On May 20, 2003, the Parent, JCI and Distribuidora Comercial Jafra S.A. de C.V. (“Jafra Distribution” and together with JCI, the “Issuers”) completed a recapitalization of their operations by entering into $90 million of new senior secured credit facilities, consisting of a $50 million senior secured term loan facility and a $40 million senior secured revolving credit facility and issuing $200 million of 10¾% Senior Subordinated Notes due 2011 (the “New Notes” and such transactions collectively, the “Recapitalization”). The proceeds from the Recapitalization were used to redeem the 11¾% Senior Subordinated Notes due 2008 (the “Old Notes”) of JCI and Jafra Cosmetics International, S.A. de C.V. (“Jafra Cosmetics S.A.”), to repay all amounts outstanding under the existing credit facilities of JCI and Jafra Cosmetics S.A. and to make certain payments to CDRJ and employees of JCI and Jafra Cosmetics S.A. The stockholders of CDRJ then resolved that CDRJ be liquidated and appointed the Parent to act as its liquidator. Thereafter, CDRJ made liquidating distributions of such proceeds to its stockholders. In connection with the liquidation of CDRJ, Jafra S.A. transferred all of its assets and liabilities, including its direct and indirect holdings of JCI, Jafra Cosmetics S.A. and Jafra Distribution, to the Parent in exchange for additional shares of common stock of the Parent. Jafra Cosmetics S.A. and Jafra Distribution are collectively referred to as “Jafra Mexico.”

     The New Notes represent several obligations of JCI and Jafra Distribution. JCI and Jafra Distribution have fully and unconditionally guaranteed the obligations of the other under the New Notes on a senior subordinated basis, subject to a 30-day standstill period prior to enforcement of such guarantees. As the cross-guarantee of Jafra Distribution and JCI is subject to a 30-day standstill period, the Parent is filing these separate financial statements of JCI on its Report on Form 10-Q.

     The functional currency of certain of JCI’s subsidiaries consists of currencies other than the U.S. dollar. 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.

     Management Incentive Arrangements. JCI applied Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock issued to Employees” and related Interpretations in accounting for the issuance of stock options under the Parent’s Stock Incentive Plan. As part of the Acquisition, the Management Incentive Plan was terminated. No options were granted during 2004 prior to the termination of the plan. Had JCI recorded compensation cost based on the fair value of options granted at the grant date, as prescribed by Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock Based Compensation,” the compensation expense for the nine months ended September 30, 2004 and the three and nine months ended September 30, 2003 would be immaterial to the consolidated statements of operations.

21

JAFRA COSMETICS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

     New Accounting Pronouncements. In January 2003, the Financial Accounting Standards Board (“FASB”) issued Interpretation (“FIN”) No. 46, “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51, Consolidated Financial Statements.” FIN 46 requires the consolidation of variable interest entities by the party considered to be the primary beneficiary of that entity. The FASB amended FIN 46 in December of 2003. The revised provisions of FIN 46 were effective for JCI in the first quarter of 2004. The adoption of FIN 46 did not have an impact on JCI’s financial position or results of operations as JCI had no variable interest entities.

(2)  Property and Equipment

     Property and equipment consist of the following (in thousands):

(3)  Goodwill and Other Intangible Assets

     JCI’s intangible assets consist of trademarks and goodwill. JCI has determined trademarks, principally the Jafra name resulting from the acquisition of the Jafra business from Gillette, to have an indefinite life. The carrying value of trademarks was $275,000 as of September 30, 2004. The changes in the carrying amount of goodwill for the year ended December 31, 2003 and for the nine months ended September 30, 2004 are as follows (in thousands):