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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

For the quarterly period ended March 31, 2003

OR

For the transition period from           to

Commission File Number 333-62989

CDRJ INVESTMENTS (LUX) S.A.

174 Route de Longwy
L-1941 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 3 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 x

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES o NO x

     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 $2.00 per share, outstanding at May 2, 2003 831,888 shares

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CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES

Index to Financial Statements and Exhibits

Filed with the Quarterly Report of the Company on Form 10-Q

For the Three Months Ended March 31, 2003

*  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 such, the Parent is filing separate financial statements of JCI and Jafra S.A. in its Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2003.

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)

See accompanying notes to consolidated financial statements

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CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands)
(Unaudited)

See accompanying notes to consolidated financial statements

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CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES

See accompanying notes to consolidated financial statements

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CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES

(1) Basis of Presentation

     The unaudited interim consolidated financial statements of CDRJ Investments (Lux) S.A., a Luxembourg société anonyme, (the “Parent”) and subsidiaries (together with the Parent, the “Company”) as of March 31, 2003 and for the three months ended March 31, 2003 and 2002 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 March 31, 2003 and for the interim periods presented. All significant intercompany accounts and transactions have been eliminated in consolidation.

     The Parent, a Luxembourg société anonyme, 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”). 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 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.

     Management Incentive Arrangements. The Company applies Accounting principles Board Opinion No. 25, “Accounting for Stock issued to Employees” and related Interpretations in accounting for the issuance of stock options under the Company’s Stock Incentive Plan. No options were granted during the three months ended March 31, 2003. 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 three months ended March 31, 2003 and 2002 would be immaterial to the consolidated statements of income.

     New Accounting Pronouncements. The Company adopted SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections” on January 1, 2003. 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 are 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 distinguishes 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. Based on the adoption of this principle, the Company will reclassify 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.

     The Company adopted SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” on January 1, 2003 which did not result in any material impact to the Company’s consolidated statements of income. 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.”

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CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
(Unaudited)

(2) Inventories

     Inventories consist of the following (in thousands):

(3) Property and Equipment

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

(4)

Goodwill and Other Intangible Assets.

     The Company’s intangible assets consist of trademarks and goodwill. The Company has determined trademarks to have an indefinite life. The carrying value of trademarks was $42,963,000 as of March 31, 2003. The changes in the carrying amount of goodwill for the three months ended March 31, 2003 are as follows (in thousands):

(5) Income Taxes

     The actual income tax rate of the Company differs from the “expected” tax rate, computed by applying the U.S. federal corporate rate of 35% to income before income taxes, for the three months ended March 31, 2003 principally as the result of (i) state income tax, (ii) valuation allowances against certain operating losses in South America and Europe and (iii) a higher effective tax rate in the Company’s Mexico subsidiary. The actual income tax rate of the Company differs from the “expected” tax rate for the three months ended March 31, 2002, principally as a result of (i) a lower effective tax rate in the Mexico entity, Jafra S.A., as the result of the enactment of changes in Mexico’s future corporate statutory tax rates and the related impact on Jafra S.A.’s net deferred income tax liabilities of $1,167,000 and (ii) the release of valuation allowances of $1,250,000 against certain foreign tax credits in the United States. These were offset by state income taxes in the United States and valuation allowances provided against certain operating losses in South America and Europe. The enactment in Mexico reduced the Mexico corporate income tax rate annually in one-percent increments from 35% in 2002 to 32% in 2005.

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CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
(Unaudited)

(6) Comprehensive Income (Loss)

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

(7) 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, 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 included in the Company’s audited consolidated financial statements as of and for the year ended December 31, 2002 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, unusual gains and losses, and amortization of goodwill and intangibles. Consistent with the information reviewed by the Company’s chief operating decision makers, corporate costs, foreign exchange gains and losses, interest expense, other nonoperating income or expense, and income taxes are not allocated to operating segments for purposes of this presentation. The effects of intersegment sales (net sales and related gross profit) are excluded from the related captions below and from the computation of segment operating income.

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CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
(Unaudited)

(8) Restructuring and Impairment Charges

     During the three months ended March 31, 2003, the Company recorded $565,000 of restructuring and impairment charges relating to its restructuring activities in South America and Thailand. Approximately $251,000 of impairment charges were recorded for certain fixed assets in Thailand. The carrying value of the fixed assets does not appear to be recoverable based on undiscounted cash flows. The Company recorded an impairment charge for the difference between the carrying value of the assets and the fair market value. The remaining charges related to severance expenses. All amounts were paid out during the three months ended March 31, 2003.

(9) 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 potential adverse exchange rate fluctuations in Mexico, the Company entered into foreign currency exchange contracts (“forward contracts”) during the first four months of 2002, and enters into foreign currency option contracts (“option contracts” or “options”) during 2002 and 2003. The Company places forward contracts or option contracts based on its rolling 12 month forecasted cash outflows from Jafra S.A. and hedges transactions included in the forecast on the date the forward contract or 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 forward contracts and 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 S.A., forecasted management fee charges from JCI to Jafra S.A., 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 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 S.A.

     During the three months ended March 31, 2003, the Company recognized gains of approximately $627,000 on option contracts and during the three months ended March 31, 2002, the Company recognized losses of approximately $355,000 on forward contracts (including reclassification of other comprehensive loss) as a component of exchange (loss) gain in the accompanying consolidated statements of income.

     As of December 31, 2001, the Company had deferred as a component of other comprehensive loss $3,746,000 of losses on forward contracts. During the three months ended March 31, 2002, the Company deferred as a component of other comprehensive loss an additional $2,244,000 of losses on forward contracts and $49,000 of gains on option contracts qualifying for hedge accounting under SFAS No. 133. During the three months ended March 31, 2002, approximately $135,000 was reclassified as exchange (loss) gain and $937,000 was reclassified as cost of sales upon recognition of the underlying hedged exposure.

     As of December 31, 2002, the Company had deferred as a component of other comprehensive loss $739,000 of losses on forward contracts and $475,000 of gains on option contracts. During the three months ended March 31, 2003, the company deferred as a component of other comprehensive loss an additional $355,000 of gains on option contracts qualifying for hedge accounting under SFAS No. 133. During the three months ended March 31, 2003, approximately $550,000 of gains were reclassified as exchange loss (gain) and approximately $678,000 of losses were reclassified as cost of sales upon the recognition of the underlying hedged exposure. The Company expects that substantially all of the remaining gain of $219,000 deferred as a component of other comprehensive loss at March 31, 2003 will be recognized into net loss within the next twelve months.

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CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
(Unaudited)

     The fair value of the option contracts was $196,000 at March 31, 2003 and has been recorded as other receivables in the consolidated balance sheets. The fair value of the forward contracts was $4,986,000 at March 31, 2002 and has been recorded in accrued liabilities in the consolidated balance sheets. The fair value of the option contacts was $49,000 at March 31, 2002, and has been recorded as an offset to accrued liabilities in the consolidated balance sheets.

     During the three months ended March 31, 2003 and 2002, the ineffectiveness generated by the Company’s forward 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 during the three months ended March 31, 2003 and 2002, $230,000 and $206,000, respectively, of gains were reclassified into earnings.

     The outstanding foreign currency option contracts had a notional value denominated in Mexican pesos of 374,000,000 in put and call positions at March 31, 2003. The outstanding foreign currency forward contracts had notional values denominated in Mexican pesos of 579,000,000 in equal offsetting buy and sell positions at March 31, 2002 and matured at various dates extending to November 2002. The outstanding foreign currency option contracts had a notional value denominated in Mexican pesos of 703,500,000 in put and call positions at March 31, 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. (See Item 3 “Quantitative and Qualitative Disclosures About Market Risk”).

(10) Subsequent Event

     In the second quarter of 2003, the Company initiated a $290 million recapitalization. The transaction is expected to include the issuance by JCI and its Mexican affiliate, Distribuidora Comercial Jafra, S.A. de C.V. (“Jafra Distribution (Mexico)”), of $200 million in unsecured interest-bearing senior subordinated notes at 10 3/4% due 2011 and the closing of new credit facilities for JCI and Jafra Distribution (Mexico), comprising a $50 million senior secured term debt facility and a $40 million senior secured term revolving debt facility. Jafra Distribution (Mexico) was formed during the first quarter of 2003 and is expected to assume from Jafra S.A. the assets used to conduct Jafra S.A.’s distribution business, as well as to issue the new notes and enter into the new credit agreement.

     Proceeds from the recapitalization are expected to be used principally to repay all outstanding amounts under the current credit facility of JCI and Jafra S.A., redeem the existing 11 3/4% Senior Subordinated Notes due 2008 of JCI and Jafra S.A and make a distribution to the registrant’s equity holders.

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JAFRA COSMETICS INTERNATIONAL, INC. AND SUBSIDIARIES

See accompanying notes to consolidated financial statements

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JAFRA COSMETICS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands)
(Unaudited)

See accompanying notes to consolidated financial statements

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JAFRA COSMETICS INTERNATIONAL, INC. AND SUBSIDIARIES