<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to ________
Commission File Number 333-62989
CDRJ INVESTMENTS (LUX) S.A.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Luxembourg 98-0185444
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
10, rue Antoine Jans
L-1820 Luxembourg
Luxembourg
(Address, including zip code, of registrant's principal executive offices)
(352) 476-867-1
(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 [X] NO [_]
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 10, 1999 829,940
shares
================================================================================
<PAGE>
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, 1999
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements: Page No.
--------
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities and Use of Proceeds 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
Signature 20
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 7,985 $ 18,358
Receivables, net of allowances of 28,554 24,449
$2,391 in 1999 and $2,284 in 1998
Inventories 28,934 33,195
Prepaid taxes 2,906 5,835
Prepaid expenses and other current assets 6,485 5,648
-------- --------
Total current assets 74,864 87,485
Property, net 57,778 56,238
Other assets:
Goodwill, net of accumulated amortization of
$1,839 in 1999 and $1,161 in 1998 77,318 74,895
Trademarks, net of accumulated amortization of
$1,371 in 1999 and $929 in 1998 53,600 53,234
Deferred financing fees and other, net of
accumulated amortization of $1,730 in 1999
and $1,407 in 1998 11,724 16,782
-------- --------
Total $275,284 $288,634
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 2,750 $ 2,500
Accounts payable 18,480 25,905
Accrued liabilities 32,168 34,183
Deferred income taxes - 953
Income taxes payable 140 1,017
-------- --------
Total current liabilities 53,538 64,558
Long-term debt 135,475 139,000
Deferred income taxes 10,935 8,202
Other long-term liabilities 1,258 1,433
-------- --------
Total liabilities 201,206 213,193
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, par value $2.00; authorized,
1,020,000 shares; issued and outstanding,
829,940 shares 1,660 1,660
Additional paid-in capital 81,275 81,275
Accumulated deficit (7,741) (8,041)
Other comprehensive income - cumulative foreign
currency translation adjustment (1,116) 547
-------- --------
Total stockholders' equity 74,078 75,441
-------- --------
TOTAL $275,284 $288,634
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
Predecessor
------------
1999 1998
------------ ------------
<S> <C> <C>
Net sales $67,960 $57,022
Cost of sales 18,827 15,742
------- -------
Gross profit 49,133 41,280
Selling, general and administrative expenses 42,892 36,340
------- -------
Income from operations 6,241 4,940
Other income (expense):
Exchange gain 2,764 1,270
Interest, net (3,902) 113
Other, net 18 46
------- -------
Income before income taxes 5,121 6,369
Income tax expense 4,821 2,635
------- -------
Net income $ 300 $ 3,734
======= =======
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
Predecessor
-----------
1999 1998
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 300 $ 3,734
Adjustments to reconcile net income to net
cash used in operating activities:
Loss on disposal of property and equipment 16 -
Depreciation and amortization 2,015 1,020
Amortization of deferred financing fees 323 -
Deferred income taxes 1,780 4,352
Changes in assets and liabilities:
Accounts receivable, net (4,105) (4,414)
Inventories 4,261 657
Prepaid expenses and other current assets (837) (98)
Other assets 121 151
Accounts payable and accrued liabilities (7,069) (4,825)
Income taxes payable (prepaid) 2,458 (4,101)
Other long-term liabilities (175) (524)
-------- -------
Net cash used in operating activities (912) (4,048)
-------- -------
Cash flows from investing activities:
Payments of previously accrued Acquisition costs (387) -
Proceeds from sales of property and equipment - 1,620
Purchases of property and equipment (1,475) (2,273)
-------- -------
Net cash used in investing activities (1,862) (653)
-------- -------
Cash flows from financing activities:
Transactions with Gillette - (3,004)
Net repayment under revolving credit facility (2,900) -
Principal repayments under term loan facility (375) -
-------- -------
Net cash used in financing activities (3,275) (3,004)
-------- -------
Effect of exchange rate changes on cash (4,324) (126)
Effect of accounting calendar change on cash - 6,276
-------- -------
Net decrease in cash and cash equivalents (10,373) (1,555)
Cash and cash equivalents at beginning of period 18,358 10,231
-------- -------
Cash and cash equivalents at end of period $ 7,985 $ 8,676
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
CDJR INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Basis of Presentation
The unaudited interim consolidated financial statements of CDRJ Investments
(Lux) S.A. (the "Parent" or the "Company") and subsidiaries and Jafra Cosmetics
International (the "Predecessor") 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 interim financial statements contain all
adjustments, consisting of normal recurring adjustments, necessary to present
fairly the Company's financial statements as of March 31, 1999 and for the three
month period ended March 31, 1999 and the Predecessor's financial statements for
the three month period ended March 31, 1998.
The Parent, a Luxembourg societe 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") 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 of its operations through its subsidiaries.
The Parent and its subsidiaries are collectively referred to as the "Company."
On April 30, 1998, pursuant to an acquisition agreement (the "Acquisition
Agreement") between the Parent, certain of its subsidiaries and Gillette, (i)
Jafra Cosmetics International Inc., a California corporation, merged with and
into JCI, with JCI as the surviving entity, (ii) Jafra S.A. acquired the stock
of Grupo Jafra, S.A. de C.V., a Mexican Company ("Grupo Jafra"), which merged
with and into Jafra S.A. following the consummation of the Acquisition, with
Jafra S.A. as the surviving entity, (iii) indirect subsidiaries of the Parent
purchased the stock of Gillette subsidiaries conducting the Jafra Business in
Germany, Italy, the Netherlands and Switzerland; and (iv) indirect subsidiaries
of the Parent acquired from various Gillette subsidiaries certain assets used in
the Jafra Business in Austria, Argentina, Colombia and Venezuela.
The accompanying consolidated financial statements as of and for the three
months ended March 31, 1999 reflect the operations of the Parent and its
subsidiaries. The accompanying combined financial statements as of and for the
three months ended March 31, 1998 reflect the operations of the Jafra Business
prior to the Acquisition and are referred to as the "Predecessor" operations.
All significant intercompany or interdivisional accounts and transactions
between entities comprising the Jafra Business have been eliminated in
consolidation and combination.
The combined financial statements of the Predecessor included the following
subsidiaries and divisions of Gillette: Jafra Cosmetics International, Inc., a
California corporation; Jafra Cosmetics GmbH, a German company; Jafra Cosmetics
International B.V., a Netherlands company; Jafra Cosmetics S.p.A., an Italian
company; Jafra Cosmetics A.G., a Swiss company; Grupo Jafra S.A. de C.V., a
Mexican company, and its subsidiaries, together with certain operating assets
and the related operating profit of Gillette Braun used in the Jafra business in
Mexico (the "Braun Assets"); the Jafra-related operations of Gillette affiliates
in Austria, Argentina, Colombia and Venezuela; and the assets related to the
Jafra intellectual property, formerly held by Gillette, that are used in the
Jafra Business.
Because of the debt financing incurred in connection with the Acquisition,
the exclusion of certain assets and liabilities not acquired, and the
adjustments made to allocate the excess of the aggregate purchase price over the
historical value of the net assets acquired, the accompanying consolidated
financial statements of the Company are not directly comparable to those of the
Predecessor.
The purchase price of the Jafra business was $212.3 million (consisting of
the $202.5 million cash purchase price and $9.8 million of Acquisition fees). In
the first quarter of 1999, the final amount of fees related to the Acquisition
and the concurrent issuance of debt was determined to be $21.5 million. $9.8
million of such fees were allocated as Acquisition fees, and were accounted for
as goodwill in the purchase price allocation. $11.7
6
<PAGE>
CDJR INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
million of such fees were capitalized as deferred financing fees, which are
being amortized over the term of the related debt.
In 1998, the Predecessor changed the reporting period for its foreign
operations from a fiscal year ending November 30 to a calendar year ending
December 31. The line item denoted "Effect of accounting calendar change on
cash" in the combined statements of cash flows represents the change in the
cash balance of the Predecessor's foreign operations from November 30, 1997 to
December 31, 1997.
The following unaudited pro forma financial information for the Company
gives effect to the Acquisition, including its impact upon depreciation and
amortization expense, CD&R management fees, executive compensation, insurance
expense, interest expense on acquisition debt, and the related income tax effect
of the foregoing adjustments as if the transaction had occurred as of January 1,
1998 (in thousands):
<TABLE>
<CAPTION>
Three Months
Ended
March 31,
1998
------------
<S> <C>
Net sales $57,022
Net income 184
</TABLE>
The pro forma results have been prepared for comparative purposes only and
do not purport to represent what the Company's actual results of operations
would have been had the transaction occurred as of the beginning of the periods
presented and are not intended to be a projection of future results or trends.
Throughout 1998, Jafra S.A.'s functional currency was the U.S. dollar
because Mexico was considered to be a hyperinflationary economy. As of January
1, 1999, Mexico is no longer considered a hyperinflationary economy, and the
Company now accounts for its Mexican operations using the peso as its functional
currency. Approximately $2.0 million of deferred income tax liabilities
associated with temporary income tax differences that arose from the change in
functional currency have been reflected as an adjustment to the cumulative
translation component of stockholders' equity.
In June 1998, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities."
This statement establishes accounting and reporting standards for derivative
instruments and for hedging activities and will be effective January 1, 2000.
The Company has not yet analyzed the impact of adopting this statement.
(2) Inventories
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------- ------------
(Unaudited)
<S> <C> <C>
Raw materials and supplies $ 6,642 $ 7,553
Finished goods 22,292 25,642
------- -------
Total inventories $28,934 $33,195
======= =======
</TABLE>
(3) Property and Equipment
7
<PAGE>
CDJR INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------- ----------
(Unaudited)
<S> <C> <C>
Land $20,601 $20,126
Buildings 17,039 16,608
Machinery and equipment 23,578 22,256
------- ----------
61,218 58,990
Less accumulated depreciation 3,440 2,752
------- ----------
Property and equipment, net $57,778 $56,238
======= =========
</TABLE>
(4) Income Taxes
The actual income tax rate differs from the "expected" income tax rate
(computed by applying the U.S. federal corporate rate of 35% to income before
income taxes) for the three month period ended March 31, 1999 principally as a
result of valuation allowances applied to losses of JCI and certain foreign
subsidiaries, and a higher effective tax rate at Jafra S.A. due to certain
inflation-related income tax adjustments.
(5) Comprehensive Income
Comprehensive income is summarized as follows (in thousands):
<TABLE>
<CAPTION>
Predecessor
------------
Three Months Three Months
Ended Ended
March 31, March 31,
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
Net income as reported $ 300 $3,734
Foreign currency translation adjustment (1,663) (270)
------- ------
Comprehensive income (loss) $(1,363) $3,464
======= ======
</TABLE>
(6) Commitments and Contingencies
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.
(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: the U.S. (JCI), Mexico (Jafra S.A.), and Europe.
JCI and Jafra S.A. have each guaranteed the obligations under the 11 3/4%
Subordinated Notes due 2008 (the "Notes") which were issued in conjunction with
the Acquisition on April 30, 1998. The following consolidating financial
statement data segregate between those entities that guarantee the Notes
("Guarantor entities") and those entities that do not guarantee the Notes
("Nonguarantor entities"); in addition, European business segment information is
separately disclosed in accordance with SFAS 131. Prior to the Acquisition, JCI
and Jafra S.A. were Jafra Cosmetics International, Inc., a California
corporation, and Grupo Jafra, respectively, as defined below. The Nonguarantor
entities are the Parent's indirect European subsidiaries in Germany, the
Netherlands,
8
<PAGE>
CDJR INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Switzerland, Italy, and Austria and its indirect South American subsidiaries in
Colombia, Argentina and Venezuela.
Consolidating condensed statement of operations data for the three months
ended March 31, 1999 and combining condensed statement of operations data for
the three months ended March 31, 1998 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
Three months ended March 31, 1999
-----------------------------------------------------------------------------
Guarantor Entities Nonguarantor Total
--------------------------- Entities Eliminations Consolidated
JCI Jafra S.A. ------------------ ------------ ------------
(U.S.) (Mexico) Total Europe Other
------- ---------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $17,289 $39,265 $56,554 $ 8,202 $ 3,204 $ - $67,960
Cost of sales 5,787 10,232 16,019 1,843 965 - 18,827
------- ------- ------- ------- ------- -------- --------
Gross profit 11,502 29,033 40,535 6,359 2,239 - 49,133
Selling, general and administrative expenses 12,111 19,682 31,793 7,612 3,487 - 42,892
------- ------- ------- -------- ------- -------- -------
Income (loss) from operations (609) 9,351 8,742 (1,253) (1,248) - 6,241
Other expense (income) 2,051 (1,587) 464 775 (119) - 1,120
------- ------- ------- -------- ------- -------- -------
Income (loss) before income taxes (2,660) 10,938 8,278 (2,028) (1,129) - 5,121
Income taxes 45 4,748 4,793 11 17 - 4,821
------- ------- ------- -------- ------- -------- -------
Net income (loss) $(2,705) $ 6,190 $ 3,485 $ (2,039) $(1,146) $ - $ 300
======= ======= ======= ======== ======= ======== =======
<CAPTION>
Three months ended March 31, 1998
--------------------------------------------------------------------------------
Guarantor Entities
---------------------------------- Nonguarantor
JCI Grupo Jafra Entities Other Total
(U.S.) (Mexico) Total (Europe) Regions Eliminations Combined
---------- ---------- ---------- ---------- ---------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $16,931 $26,960 $43,891 $ 9,635 $ 3,496 $ - $57,022
Cost of sales 4,930 8,032 12,962 2,303 853 (376) 15,742
------- ------- ------- -------- ------- -------- -------
Gross profit 12,001 18,928 30,929 7,332 2,643 376 41,280
Selling, general and administrative expenses 11,906 14,245 26,151 7,555 2,634 - 36,340
------- ------- ------- -------- ------- -------- -------
Income (loss) from operations 95 4,683 4,778 (223) 9 376 4,940
Other expense (income) 184 (1,652) (1,468) 39 - - (1,429)
------- ------- ------- -------- ------- -------- -------
Income (loss) before income taxes (89) 6,335 6,246 (262) 9 376 6,369
Income taxes - 1,920 1,920 715 - - 2,635
------- ------- ------- -------- ------- -------- -------
Net income (loss) $ (89) $ 4,415 $ 4,326 $ (977) $ 9 $ 376 $ 3,734
======= ======= ======= ======= ======= ======== =======
</TABLE>
9
<PAGE>
CDJR INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Consolidating condensed balance sheet data as of March 31, 1999 is summarized
as follows (in thousands):
<TABLE>
<CAPTION>
As of March 31, 1999
---------------------------------------------------------------------------------------------------
Guarantor Entities
---------------------------------------------- Nonguarantor Entities
JCI Jafra S.A. --------------------- Total
(U.S.) (Mexico) Parent Total Europe Other Eliminations Consolidated
-------- ---------- ------- -------- ------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Current assets:
Receivables $ 3,683 $ 19,939 $ - $ 23,622 $ 3,159 $ 1,773 $ - $ 28,554
Inventories 8,824 12,495 21,319 4,364 3,853 (602) 28,934
Other current assets 31,429 12,030 14 43,473 4,451 7,596 (38,144) 17,376
-------- -------- ------- -------- ------- ------- --------- --------
Total current assets 43,936 44,464 14 88,414 11,974 13,222 (38,746) 74,864
Property and equipment 25,162 29,892 - 55,054 2,345 379 - 57,778
Other assets:
Goodwill, net 34,196 33,936 300 68,432 8,058 828 - 77,318
Trademarks 20,519 27,553 195 48,267 5,065 268 - 53,600
Other 8,199 4,411 74,317 86,927 1,148 95 (76,446) 11,724
-------- -------- ------- -------- ------- ------- --------- --------
Total $132,012 $140,256 $74,826 $347,094 $28,590 $14,792 $(115,192) $275,284
======== ======== ======= ======== ======= ======= ========= ========
Liabilities and Stockholders'
Equity
Current liabilities:
Accounts payable and
accrued expenses $ 19,126 $ 23,045 $ 45 $ 42,216 $ 6,571 $ 2,403 $ (542) $ 50,648
Other current liabilities 2,587 13,469 101 16,157 18,586 5,749 (37,602) 2,890
-------- -------- ------- -------- ------- ------- --------- --------
Total current liabilities 21,713 36,514 146 58,373 25,157 8,152 (38,144) 53,538
Total long term debt 86,850 48,625 - 135,475 - - - 135,475
Other liabilities - 10,935 - 10,935 1,258 - - 12,193
-------- -------- ------- -------- ------- ------- --------- --------
Total liabilities 108,563 96,074 146 204,783 26,415 8,152 (38,144) 201,206
Stockholders' equity 23,449 44,182 74,680 142,311 2,175 6,640 (77,048) 74,078
-------- -------- ------- -------- ------- ------- --------- --------
Total $132,012 $140,256 $74,826 $347,094 $28,590 $14,792 $(115,192) $275,284
======== ======== ======= ======== ======= ======= ========= ========
</TABLE>
Consolidating condensed statement of cash flows data for the three months
ended March 31, 1999, and combining condensed statement of cash flows data for
the three months ended March 31, 1998 is summarized as follows (in thousands):
<TABLE>
<CAPTION>
Three months ended March 31, 1999
-----------------------------------------------------------------------------------------
Guarantor Entities Nonguarantor
------------------------------------- Entities
JCI Jafra S.A. ------------------- Total
(U.S.) (Mexico) Parent Total Europe Other Eliminations Consolidated
------ ---------- ------ -------- -------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net cash provided by (used in)
Operating activities $ (627) $ 1,320 $ - $ 693 $(1,541) $ (64) $ - $ (912)
Investing activities (832) (693) - (1,525) (74) (263) - (1,862)
Financing activities 1,975 (5,250) - (3,275) - - - (3,275)
Effect of exchange rate changes on cash - (4,247) - (4,247) 11 (88) - (4,324)
Cash at beginning of period 353 12,045 10 12,408 3,924 2,026 - 18,358
------ ------- ---- ------- ------- ------ ------ -------
Cash at end of period $ 869 $ 3,175 $ 10 $ 4,054 $ 2,320 $1,611 $ - $ 7,985
====== ======= ==== ======= ======= ====== ====== =======
<CAPTION>
Three months ended March 31, 1998
----------------------------------------------------------------------------------------
Guarantor Entities
-------------------------------- Nonguarantor
JCI Grupo Jafra Entities Other Total
(U.S.) (Mexico) Total (Europe) Regions Eliminations Combined
------- ----------- -------- ------------ ------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net cash provided by (used in)
Operating activities $ 2,205 $ 400 $ 2,605 $(6,992) $ 339 $ - $(4,048)
Investing activities (244) (317) (561) (92) - - (653)
Financing activities (97) (8,588) (8,685) 6,402 (721) - (3,004)
Effect of exchange rate changes on cash - - - (163) 37 - (126)
Effect of accounting calendar change
on cash (Note 1) - 6,358 6,358 (82) - - 6,276
Cash at beginning of period 759 7,458 8,217 1,370 644 - 10,231
-------- ------- ------- ------- ----- ----- -------
Cash at end of period $ 2,623 $ 5,311 $ 7,934 $ 443 $ 299 $ - $ 8,676
======= ======= ======= ======= ===== ===== =======
</TABLE>
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
CDRJ Investments (Lux) S.A., a Luxembourg societe anonyme ("Parent") is a
holding company that conducts all of its operations through its subsidiaries.
Prior to the consummation of the acquisition (the "Acquisition") by the Parent
of the Jafra Business (as defined) from The Gillette Company ("Gillette"), the
terms "Company" and "Jafra" refer to the various subsidiaries and divisions of
Gillette conducting the worldwide Jafra cosmetics business (the "Jafra
Business"), and, following the consummation of the Acquisition of Jafra,
collectively to the Parent and its subsidiaries. On April 30, 1998, the Parent
completed the Acquisition of Jafra from Gillette. The Parent was organized to
effect the Acquisition. The Acquisition was sponsored by Clayton, Dubilier &
Rice, Inc. ("CD&R"), a private investment firm specializing in acquisitions that
involve management participation. As part of the financing for the Acquisition,
Clayton, Dubilier & Rice Fund V Limited Partnership ("CD&R Fund V"), certain
members of new management, certain new directors and other persons made an
equity investment in the Parent of approximately $82.9 million in cash. In
addition, $100.0 million of 11 3/4% Senior Subordinated Notes due 2008 (the
"Notes") were issued and the Company entered into a credit agreement (the
"Senior Credit Agreement") with certain lenders. The Senior Credit Agreement
provides for senior secured credit facilities, including a $25.0 million term
loan facility (the "Term Loan Facility"), all of which was drawn at the closing
of the Acquisition, and a $65.0 million revolving credit facility (the
"Revolving Credit Facility"). The purchase price for the Jafra Business was
approximately $212.3 million (excluding $11.7 million of financing fees and
expenses), consisting of $202.5 million in cash and $9.8 million of direct
costs.
General
The following discussion of the results of operations, financial condition
and liquidity of the Company should be read in conjunction with the accompanying
consolidated financial statements and notes thereto and with the Company's
audited consolidated financial statements as of and for the period ended
December 31, 1998, included in the Company's Annual Report on Form 10-K. The
results of operations for the three months ended March 31, 1999 are not
necessarily indicative of results that may be expected for future periods.
Business Trends and Initiatives
The markets in which the Company competes are highly competitive. Price,
quality, and a broad range of product offerings are the dominant competitive
factors in the cosmetics direct selling industry. The Company intends to
respond to competitive pressures in each major geographic marketplace in which
it participates. The timing of these responses, which may occur sooner in
certain geographies and later in others, may impact future quarterly results.
The Company has experienced significant sales growth in Mexico over the
last five quarters, due in large part to an increase in the number of sales
consultants. The year to year sales growth for the first quarter of 1999 was
approximately 46% in U.S. dollars and 71% in local currency. The Company expects
to continue to grow its revenues and consultant base in Mexico, but at a
decreasing rate. Sales in the U.S. have been relatively flat due to a reduction
in the amount of promotional activities in the early part of the year. The U.S.
business unit intends to implement a change in the compensation structure for
its sales consultants during the second quarter of 1999 which is expected to
generate modest growth in the latter part of the year. The Company's European
sales declined at a rate of approximately 15% over the comparable period of the
prior year. The Company expects to continue to show comparative period declines
in sales in Europe for the remainder of the year, although promotional programs
planned for the summer are expected to reduce the rate of decline for the
remainder of 1999.
11
<PAGE>
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 consolidated operations of the Company for the three month period
ended March 31, 1999 and operations of the Predecessor for the three month
period ended March 31, 1998.
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------------
Predecessor
----------------
1999 1998
--------------- ----------------
(in millions)
<S> <C> <C> <C> <C>
Net sales $ 68.0 100.0 % $57.0 100.0 %
Cost of sales 18.9 27.8 15.7 27.6
------ ----- ----- -----
Gross profit 49.1 72.2 41.3 72.4
Selling, general &
administrative expenses 42.9 63.1 36.3 63.6
------ ----- ----- -----
Income from operations 6.2 9.1 5.0 8.8
Exchange gain (loss) 2.8 4.1 1.3 2.2
Interest income (expense), net (3.9) (5.7) 0.1 0.2
------ ----- ----- -----
Income before income taxes 5.1 7.5 6.4 11.2
Income tax expense 4.8 7.1 2.7 4.7
------ ----- ----- -----
Net income $ 0.3 0.4 % $ 3.7 6.5 %
====== ===== ===== ======
Statement of Cash Flows Data:
Net cash used in operating
activities $(0.9) $(4.1)
Net cash used in investing activities (1.9) (0.7)
Net cash used in financing activities (3.3) (3.0)
Effect of exchange rate changes on cash (4.3) (0.1)
Effect of accounting calendar change
on cash - 6.3
------ -----
Net decrease in cash $(10.4) $(1.6)
====== =====
</TABLE>
Three months ended March 31, 1999 compared to the three months ended March 31,
1998
Net sales. Net sales for the first quarter of 1999 increased to $68.0
million from $57.0 million in the first quarter of 1998, an increase of $11.0
million, or 19.3%. The Company's number of sales consultants worldwide
increased to approximately 262,800, or 23.2%, over the March 31, 1998 total.
In Latin America, net sales increased to $42.5 million for the first
quarter 1999 from $30.5 million for the first quarter of 1998, an increase of
$12.0 million, or 39.3%, while the number of sales consultants increased to
approximately 187,900, or 34.2%. The increase in Latin American sales came from
Mexico, where net sales increased $12.3 million, or 45.6%, and the sales
consultant base increased to approximately 172,100, or 38.9%, over first quarter
1998. Sales in Mexico in local currency increased by 71.2% over the prior year.
The significant year to year increase was driven by the larger sales consultant
base, product price increases, and the introduction of new products.
In the U.S., net sales increased to $17.3 million for the first quarter of
1999 from $16.9 million in the first quarter of 1998, an increase of $0.4
million, or 2.4%. The first quarter 1999 U.S. net sales total includes $0.8
million of low-margin sales to a formerly affiliated manufacturing entity which
enabled the Company to utilize excess production capacity. There were no similar
sales during the comparable 1998 period. Excluding the impact of these sales,
net sales in the U.S. decreased by $0.4 million, or 2.4%, despite an increase in
the number of sales consultants to approximately 56,500, or 5.6%, over March
1998. The decrease in net sales and productivity of sales consultants is due
primarily to a reduction in the number of promotional programs in the first
quarter of 1999 as compared to 1998. Net sales related to promotional
activities, which tend to increase the productivity of sales consultants,
decreased by $0.8 million from period to period.
12
<PAGE>
In Europe, net sales declined to $8.2 million in the first quarter of 1999
from $9.6 million in the first quarter of 1998, a decrease of $1.4 million, or
14.6%. The decrease in net sales is primarily due to a decline in both the
number and productivity of sales consultants. The number of sales
consultants in Europe decreased to approximately 18,400, or 6.7%, from March
1998, and the promotional activities which occurred during the first quarter of
1999 did not achieve expected sales levels. The Company's European management
team has planned certain new promotional activities for the second quarter of
1999 that are intended to increase the net sales level and sponsoring of new
sales consultants.
Gross profit. Gross profit in the first quarter of 1999 increased to $49.1
million from $41.3 million in the comparable prior year period, an increase of
$7.8 million, or 18.9%. Gross profit as a percentage of sales (gross margin)
decreased to 72.2% from 72.4%. Excluding the impact of the low margin sales to
the formerly affiliated manufacturing entity as described above, adjusted gross
margin for the first quarter of 1999 was 73.0% compared to 72.4% for the
comparable prior year period. The increased sales volumes in Mexico during the
first quarter of 1999 enabled the Company to take advantage of manufacturing
efficiencies, which more than offset a less favorable product mix consisting of
higher promotional sales than in the comparable period of 1998. In the U.S., the
reduced level of promotional sales in the first quarter of 1999 and higher skin
care sales resulted in a more favorable sales mix than in the comparable period
of 1998, offset by unfavorable production volume variances, due to sales
activity that was lower than planned. European margins improved slightly due to
implementation of certain processes to manage margins.
Selling, general and administrative expenses. SG&A expenses in the first
quarter of 1999 increased to $42.9 million from $36.3 million for the first
quarter of 1998, an increase of $6.6 million, or 18.2%. SG&A as a percentage of
net sales decreased in the first quarter of 1999 to 63.1% from 63.6% for the
same period in 1998. The increased SG&A expenses related primarily to sales
promotions, commissions, and administrative expenses in Latin America, in
conjunction with growing sales in that region. In the U.S., administrative costs
increased proportionately more than sales as a result of personnel costs related
to the new post-Acquisition management team. Additionally, as a result of the
Acquisition, first quarter 1999 SG&A expenses included $1.1 million of
amortization of goodwill and trademarks that were not incurred by the
Predecessor.
Interest expense. During the first quarter of 1999, the Company incurred
$3.9 million of net interest expense (including amortization of certain
financing costs) related to the debt incurred in connection with the
Acquisition. No similar costs were incurred by the Predecessor.
Exchange gain. The Company's foreign exchange gain for the first quarter
of 1999 increased $1.5 million to $2.8 million from $1.3 million in the
comparable prior year period. The first quarter 1999 gain relates primarily to
the remeasurement of dollar-denominated debt by Mexico as the peso strengthened
against the dollar. The first quarter 1998 gain related to Mexico's
remeasurement of peso-denominated assets and liabilities, as the functional
currency of Jafra S.A. in 1998 was the U.S. dollar.
Income tax expense. Income tax expense increased $2.1 million to $4.8
million in 1999 from $2.7 million in 1998. The effective tax rate for the first
quarter of 1999 was 94.1%, compared to 42.2% for the comparable period of the
prior year. In 1999, the Company provided valuation allowances against net
operating losses in the U.S. and Europe which had the impact of significantly
increasing the effective tax rate. The effective tax rate in Mexico was
approximately 43.4% due to unfavorable permanent differences relating to the tax
treatment of certain inflationary items. During 1998, the effective tax rate in
Mexico of approximately 30.3% was abnormally low due to favorable permanent
differences relating to the tax treatment of certain inflationary items, while
the effective tax rate in Europe was unusually high due to valuation allowances
and adjustments to deferred income taxes.
Net income. Income from operations for the first quarter of 1999 was $6.2
million, a $1.2 million increase from the comparable 1998 period. The increase
resulted from increased net sales of $9.0 million and resulting increase in
gross profit of $7.8 million, partially offset by a $6.6 million increase in
SG&A expenses (including $1.1 million of amortization expense resulting from the
Acquisition). Net income decreased to $0.3 million in the first quarter of 1999
from $3.7 million in the comparable 1998 period, as the $1.2 million increase in
income from operations was offset by a $4.0 million increase in net interest
expense resulting from the Acquisition, and a $2.1 million increase in income
taxes, partially offset by a $1.5 million increase in exchange gains.
13
<PAGE>
Liquidity and Capital Resources
Prior to the Acquisition, working capital needed to finance the
Predecessor's operations and growth was principally provided by cash flows from
operations and intercompany transactions with Gillette. On April 30, 1998, the
Acquisition was completed. As part of the financing for the Acquisition, $100.0
million of Notes were issued, $41.1 million of borrowings were initially drawn
down under the Senior Credit Agreement ($25.0 million under the Term Loan
Facility and $16.1 million under the Revolving Credit Facility), and $82.9
million of cash was contributed as an equity investment by CD&R Fund V, certain
members of management, certain directors and other persons. The purchase price
for the Jafra Business was approximately $212.3 million (excluding $11.7 million
of financing fees and expenses), consisting of $202.5 million in cash and $9.8
million of direct costs. The $11.7 million of financing fees and expenses are
being amortized over the term of the related debt, while the $9.8 million of
direct costs were reflected as additional goodwill.
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 the several obligations of Jafra Cosmetics
International, Inc. ("JCI") and Jafra Cosmetics International, S.A. de C.V.
("Jafra S.A.") in the amount of $60 million and $40 million, respectively, with
each participating on a pro rata basis upon redemption. The Notes mature in 2008
and bear a fixed interest rate of 11.75% payable semi-annually.
Borrowings under the Senior Credit Agreement are payable in quarterly
installments of principal and interest over 6 years. Scheduled term loan
principal payments under the Term Loan Facility will be approximately $2.5
million, $3.5 million, $4.5 million, $5.5 million, $6.5 million, and $2.5
million for each of the years 1999 through 2004, respectively. Borrowings under
the Revolving Credit Facility mature on April 30, 2004. Borrowings under the
Senior Credit Agreement bear interest at an annual rate of LIBOR plus a margin
not to exceed 2.625% or an alternate base rate (the higher of the prime rate or
federal funds rate plus 1%, plus an applicable margin not to exceed 1.625%). The
interest rates in effect at March 31, 1999 were approximately 7.6% for the
LIBOR-based borrowings, and the rate for the prime-based borrowings was
approximately 9.4%. Interest expense in 1999 is expected to be approximately
$16.0 to $17.0 million, including approximately $1.3 million of non-cash
amortization of deferred debt issuance costs. During the first quarter of 1999,
cash paid for interest was approximately $1.4 million.
Both the Indenture, dated as of April 30, 1998, under which the Notes were
issued (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. At March 31, 1999, the Company was in compliance with the financial
covenants in the Indenture and Senior Credit Agreement. The Company has one
letter of credit outstanding under the Revolving Credit Facility in the amount
of $0.3 million.
The Company believes, but no assurance can be given, that its existing
cash, cash flow from operations and availability under the Senior Credit
Agreement will provide sufficient liquidity to meet the Company's cash
requirements and working capital needs until the maturity of the Revolving
Credit Facility.
Cash Flows
Net cash used in operating activities was $0.9 million for the first
quarter of 1999. Net income after adding back depreciation and other non-cash
items provided operating cash flow of $4.4 million, which was more than offset
by an increase in working capital items of $5.3 million. The increased working
capital was primarily due to a $7.1 million reduction in accounts payable and
accrued liabilities and a $4.1 million increase in accounts receivable,
partially offset by reductions in inventories of $4.3 million and prepaid income
taxes of $2.5 million.
Net cash used in investing activities was $1.9 million for the first
quarter of 1999. Capital expenditures for the first quarter of 1999 were $1.5
million, consisting primarily of information systems upgrades and manufacturing
equipment. Total capital spending for 1999 is budgeted at approximately $5.0
million, and is
14
<PAGE>
expected to increase to $8.0 million in 2000 due to planned modifications to
information systems. In addition, the Company paid $0.4 million of previously
accrued costs relating to the Acquisition.
Net cash used in financing activities was $3.3 million for the first
quarter of 1999, consisting of a net repayment under the Revolving Credit
Facility of $2.9 million and $0.4 million in principal repayments under the
Term Loan Facility.
The effect of exchange rates on cash was $4.3 million for the first quarter
of 1999, and relates primarily to fluctuations in the exchange rate of the peso
and the deutschemark.
Foreign Operations
Sales outside of the United States aggregated approximately 75% of the
Company's total net sales for first quarter of 1999, compared to approximately
70% for the comparable prior year period. In addition, as of March 31, 1999,
international subsidiaries comprised approximately 64% (excluding intercompany
balances) of the Company's consolidated total assets. Accordingly, the Company
has experienced and continues to be exposed to foreign exchange risk. Although
the Company historically has not entered into foreign currency hedging contracts
to mitigate this risk, it may do so in the future. Foreign currency fluctuations
can also impact operating results. Had average exchange rates in the first
quarter of 1999 remained the same as in the comparable 1998 period, 1999 net
sales would have been approximately $6.9 million higher than reported.
The Company's subsidiary in Mexico, Jafra Cosmetics International, S.A. de
C.V. ("Jafra S.A."), generated approximately 57.8% of the Company's net sales
for the first quarter of 1999, compared to 47.3% for the comparable 1998 period,
substantially all of which were denominated in Mexican pesos. The Company
manufactures its products in Mexico and the United States. This allows the
Company to have a significant portion of its Mexican manufacturing costs
denominated in pesos. Although Jafra S.A. buys products manufactured in the
United States in dollar denominated prices, it also sells a majority of its
manufactured product for export in dollar denominated prices. These dollar
denominated sales help to mitigate the currency exposure on dollar denominated
purchases.
Mexico has experienced periods of high inflation from time to time in the
past. Throughout 1998, Mexico's functional currency was the U.S. dollar because
Mexico was considered to be a hyperinflationary economy. As of January 1, 1999,
Mexico is no longer considered a hyperinflationary economy, and the Company now
accounts for its Mexican operations using the peso as its functional currency.
Jafra S.A. had $49.8 million of U.S. dollar denominated third party debt as of
March 31, 1999. Because the functional currency is no longer the U.S. dollar,
gains and losses of remeasuring such debt to the U.S. dollar from the peso are
now included as a component of net income, and resulted in the Company
recognizing a $2.4 million gain for the first quarter of 1999. Because of the
significant amount of U.S. dollar denominated debt owed by Jafra S.A.,
fluctuations in the peso-to-dollar exchange rate can have a material impact on
the Company's earnings.
Year 2000 Issue
Prior to the Acquisition, the Company established a year 2000 compliance
methodology and schedule based on the Gillette model. This methodology
encompassed six phases: discovery, planning, resolution, testing, implementation
and certification. The scope of the Company's compliance program includes
information technology (computer systems, hardware and operating systems),
facilities (phone systems, plant machinery, elevators and security systems),
embedded software in production equipment and major suppliers of raw materials
and finished goods. The Company has completed the discovery and planning phases
with respect to both its information technology systems and non-information
technology systems. Approximately 25% of the systems addressed were found to
require some level of remediation or replacement. The Company is currently in
the resolution phase with respect to such systems, in which all affected
hardware, software and equipment is being repaired, upgraded or replaced.
15
<PAGE>
The Company expects to complete the resolution phase for all systems
(information technology and non-information technology) by the end of July of
1999. The Company expects to have completed the testing phase for all systems by
the end of August of 1999 and the implementation and certification phases by the
end of the third quarter of 1999. As of May 1, 1999, the Company estimated that
its resolution and testing phase for information technology systems was
approximately 60% complete. The Company has upgraded its main operating systems
to a Year 2000 compliant version in Germany, the Netherlands, Austria, and
Colombia, and has also upgraded its financial systems in Italy and the
Netherlands. The Company expects to have the operating and financial systems
upgraded in Switzerland by the end of September 1999, Venezuela by the end of
June 1999, and Argentina by the end of May 1999. Operating systems are expected
to be upgraded in Italy by the end of July 1999 and financial systems in Germany
and Austria are expected to be upgraded by the end of September 1999. No
further testing will be required upon the completion of the upgrade.
The two most important information technology systems that are not Year
2000 compliant are the operating and financial systems that are installed in the
United States and Mexico. The Company is currently upgrading these systems and
expects to have the upgrades completed by the end of July 1999.
With respect to its non-information technology systems, the Company
estimates that its resolution and testing phases are virtually complete. Most
non-information technology systems were already Year 2000 compliant, but several
phone systems and one voice mail system required upgrades that are now
completed. The Company has spent approximately $950,000 to date on the
discovery, planning, and resolution phases for both information technology and
non-information technology systems.
The Company has budgeted $1,150,000 to complete the remaining Year 2000
compliance program, and believes it has sufficient cash, cash flow, and
borrowing availability to meet its cash needs. Costs incurred to modify existing
systems are being expensed as incurred.
As part of its investigation conducted in the discovery phase, the Company
prepared a questionnaire that it distributed to approximately 106 of its major
suppliers, which supply 75% of the raw materials and finished goods purchased by
the Company from third party suppliers. As of May 1, 1999 the Company has
received written responses from 80 of these suppliers. Of these, 77 have
informed the Company that they do not expect that the dating problems associated
with the year 2000 will have a material adverse effect on their ability to
continue to supply the Company in accordance with past practice. Based on these
replies, the Company does not believe that the inability of any of the suppliers
that have not yet responded or have responded unfavorably to the Company's
request for information to continue to supply the Company would have a material
adverse effect on the Company's business, financial condition or results of
operations. The Company intends to seek and identify alternate sources of supply
for the affected raw materials and finished products in the event it has not
received assurance by June 30, 1999 from the remaining companies that they will
be able to supply the Company without material disruption into the year 2000.
The Company currently believes there are alternative sources for all such
materials.
In the event the Company does not complete all phases of its year 2000
compliance program by December 31, 1999, the Company's most likely worst case
scenario would be that it would have to consider outsourcing its customer
service and order processing functions. No assurance can be given that the
Company will be able to outsource these functions or that the Company will not
incur significant additional expense in doing so. In the event the Company could
not outsource these functions, the Company would be unable to process orders in
a timely manner or respond to customer inquiries. This could lead to a loss of
revenue and customer satisfaction, which could have a material adverse effect on
the Company's results of operations, liquidity, and financial condition.
European Economic and Monetary Union
On January 1, 1999, eleven of the fifteen member countries of the European
Union established fixed conversion rates between their existing sovereign
currencies and the euro. The participating countries adopted the euro as their
common legal currency on that day. The euro will trade on currency exchanges and
be available for
16
<PAGE>
non-cash transactions during the transition period between January 1, 1999 and
January 1, 2002. During this transition period, the existing currencies are
scheduled to remain legal tender in the participating countries as denominations
of the euro and public and private parties may pay for goods and services using
either the euro or the participating countries' existing currencies.
During the transition period, the Company will continue to utilize the
respective country's existing currency as the functional currency. Use of the
euro by the Company or its sales consultants is not expected to be
significant and will be converted and recorded in the Company's accounting
records in the existing functional currency.
The Company intends to adopt the euro as its functional currency when the
majority of its transactions in the member countries are conducted in the euro.
The Company is currently identifying the impact the euro will have on its
information systems throughout Europe. The Company has identified that its
European commercial system will not support the euro, and is looking into
various alternatives either to update or replace the system. The Company does
not expect the introduction of the euro to materially adversely affect its
business, financial condition, or results of operations.
Information Concerning Forward-Looking Statements
Certain of the statements contained in this report (other than the
Company's consolidated financial statements and other statements of historical
fact) are forward-looking statements, including, without limitation, (i) the
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; (ii) the statements in "--Business Trends and Initiatives"
concerning (a) the Company's intent to respond to competitive pressures in each
major geographic marketplace in which it participates, (b) the Company's
expectation that it will grow its revenues and consultant base in Mexico, (c)
the U.S. business unit's expectation that it will implement a change in the
compensation structure for its sales consultants during the second quarter which
is expected to generate modest growth in the latter part of the year and (d) the
Company's expectation that it will continue to show comparative period declines
in sales in Europe for the remainder of the year as well as the expectation that
promotional programs planned for the 1999 summer will reduce the rate of decline
for the sales in Europe for the remainder of 1999; (iii) the statements in "--
Liquidity and Capital Resources" concerning the Company's expectation that
interest expense in 1999 will be approximately $16.0 to $17.0 million; and (b)
the Company's belief that it will have sufficient liquidity to meet its cash
requirements and working capital needs until the maturity of the Revolving
Credit Facility; (iv) the statement in "--Cash Flows" that total capital
spending for 1999 is budgeted at approximately $5.0 million, and is expected to
increase to $8.0 million in 2000 due to planned modifications to information
systems; (v) the statements in "--Foreign Operations" (a) that the Company may
enter into foreign currency hedging contracts in the future; and (b) that
fluctuations in the peso-to-dollar exchange rate can have a material impact on
the Company's earnings; (vi) the statements in "--Year 2000 Issue" concerning
(a) the Company's expectation that the resolution phase for all systems will be
complete by the end of the July of 1999; (b) the Company's expectation that it
will complete the testing phase for all systems by the end of August of 1999 and
the implementation and certification phases by the end of the third quarter of
1999; (c) the Company's expectation that its operating and financial systems
will be upgraded in Switzerland by the end of September 1999, Venezuela by the
end of June 1999 and Argentina by the end of May 1999; (d) the Company's
expectation that its operating systems will be upgraded in Italy by the end of
July 1999; (e) the Company's expectation that its financial systems in Germany
and Austria will be upgraded by the end of September 1999; (f) the Company's
expectation that its information technology upgrades in the United States and
Mexico will be completed by the end of July 1999; (g) the Company's belief that
it has sufficient cash, cash flow and borrowing availability to meet its cash
needs; (h) the Company's belief that the inability of its suppliers to continue
to supply the Company would not have a material adverse effect on the Company's
business, financial condition or results of operations; (i) the Company's belief
that there are alternative sources for potentially affected raw materials and
finished products; (j) the Company's identification of its most likely worst
case scenario; and (vii) the statements in "--European Economic and Monetary
Union" concerning the Company's expectations that (a) use of the euro by the
Company or its sales consultants will not be significant and (b) the
introduction of the euro will not materially adversely affect its business,
financial condition or results of operations; and (viii) 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."
17
<PAGE>
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 factors
described in the Company's Annual Report on Form 10-K for the period ended
December 31, 1998 (including, without limitation, those discussed in "Business--
Strategy," "--International Operations," "--Distribution," "--Manufacturing,"
"--Patents and Trademarks," "--Management Information Systems," "--Environmental
Matters," "Properties," "Legal Proceedings" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Results of
Operations," "--Liquidity and Capital Resources," "--Foreign Operations," "--
Year 2000 Issue," and "European Economic and Monetary Union"), 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.
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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risks which arise during the normal course
of its business from changes in interest rates and foreign currency exchange
rates. The Company has not historically used derivative financial instruments to
manage or hedge these risks. See disclosures under Item 7a, "Quantitative and
Qualitative Disclosures About Market Risks" in the Company's Annual Report on
Form 10-K for the period ended December 31, 1998. No significant changes have
occurred during the first quarter of 1999.
18
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See discussion under "Legal Proceedings" in the Company's Annual Report on
Form 10-K for the period ended December 31, 1998 and in footnote six to the
Financial Statements included in Item 1 of this document.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
10.1 Jafra Cosmetics International, Inc. Supplemental Savings Plan, dated
October 27, 1998.
10.2 Jafra Cosmetics International, Inc. Special Supplemental Savings
Plan for Non-United States-Source Income, dated January 20, 1999.
27 Financial Data Schedule
(b) Reports on Form 8-K
-------------------
During the quarter ended March 31, 1999, the Company filed no reports on
Form 8-K.
19
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CDRJ Investments (Lux) S.A.
/s/ James Brill
---------------------------------------
James Brill
Chief Financial Officer of the Advisory
Committee (Principal Financial Officer)
May 17, 1999
20
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description
- ----------- -----------
10.1 Jafra Cosmetics International, Inc. Supplemental Savings Plan,
dated October 27, 1998.
10.2 Jafra Cosmetics International, Inc. Special Supplemental Savings
Plan for Non-United States-Source Income, dated January 20, 1999.
27 Financial Data Schedule
<PAGE>
EXHIBIT 10.1
JAFRA COSMETICS INTERNATIONAL, INC.
SUPPLEMENTAL SAVINGS PLAN
1. Purpose. The Jafra Cosmetics International, Inc. Supplemental Savings Plan
-------
(the "Plan") has been adopted by Jafra Cosmetics International, Inc. (the
"Company") to provide additional benefits to certain employees of the
Company and those of its affiliates selected by the Committee to be
participating employers hereunder (the "Participating Affiliates"), whose
benefits under the Jafra Cosmetics International 401(k) Savings Plan (the
"Savings Plan") have been limited by the provisions of the Internal Revenue
Code of 1986, as amended (the "Code").
The Plan is intended, to the extent possible, to constitute an "excess
benefit plan" within the meaning of Section 3(36) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and otherwise to
constitute an unfunded plan maintained primarily for the purpose of
providing deferred compensation for a select group of management or highly
compensated employees as described in Sections 201(2), 301(a) and 401(a)(1)
of ERISA.
2. Eligible Employees. Employees eligible to participate in this Plan for any
------------------
calendar year shall be those employees of the Company and Participating
Subsidiaries who are eligible to participate in the Savings Plan and (i)
whose Annual Additions, as defined in Section 415(c)(2) of the Code, are
limited as described in Sections 4(a) and 4(d) below, or (ii) who are
determined by the "Committee", as that term is defined below, to be
management or highly compensated employees for such year and whose
contributions or Compensation taken into account under the Savings Plan are
limited for such year by reason of another provision of the Code, based on
actual participation in the Savings Plan ("Participants"). The Committee may
establish guidelines to determine which employees are eligible to
participate in the Plan, or may make individual eligibility determinations
or both, as it shall decide in its sole discretion.
3. Participants. Participants are Eligible Employees who elect to participate
------------
in the Plan, at such time and in such manner as may be prescribed by the
Committee, by executing and delivering to the Company a participation and
salary deferral agreement, in such form and at such time as prescribed by
the Committee. Participation in the Plan may be discontinued only as
permitted by the Committee. Any individual who has previously participated
in the Plan shall be considered a Participant for the purposes of the Plan,
other than Section (4)(a) and (b) below, until final distribution is made of
amounts credited to the individual's accounts under the Plan.
4. Deferrals and Additional Credits.
---------------------------------
(a) Election to Defer. A Participant may elect to defer hereunder any
-----------------
portion of the Compensation from the Company which the Participant
would contribute to the Savings Plan for a calendar year, but which
cannot be contributed as a direct or indirect result of the application
of the limitations set forth in Section 4(d) below. The amount a
Participant has elected to defer hereunder (the "Participant's
Deferral") will be recorded in an account, entitled the "Supplemental
Savings Account," maintained for each Participant on the books of the
Company, and shall be subject to all the terms and conditions set forth
below. A Participant shall always have a fully vested right in amounts
credited to the Supplemental Savings Account maintained for such
Participant.
A deferral election shall apply to amounts which would constitute
either "tax-deferred" or "after-tax", as described in the Savings Plan.
However, all amounts contributed hereunder shall, to the extent
consistent with applicable Federal and state tax laws, rulings and
regulations as in effect from time to time, be treated by the Company
as not includable in the Participant's income for Federal income tax
purposes.
<PAGE>
(b) Company Matching Contribution. The Committee shall determine the
-----------------------------
amount of the Company Matching Contribution that would have been made
to the Savings Plan in respect of any Participant Deferral, and shall
be recorded by the Company in an account on its books, entitled the
"Supplemental Company Contribution Account," maintained for such
Participant. Amounts credited to a Participant's Supplemental Company
Contribution Account shall become vested at the same time the
Participant becomes vested in his Employer Matching Contributions under
the Savings Plan.
(c) Income, Gains and Losses.
------------------------
(i) Subject as provided in clause (ii) below, amounts recorded in a
Participant's Supplemental Savings Account and Supplemental
Company Contribution Account (collectively, the "Participant's
Investment Account") shall be credit with income, gains and losses
as follows:
(A) The Company may, but is not required to, establish a trust
(the "Trust"), with an independent trustee (the "Trustee"),
for the purpose of segregating and investing amounts deferred
hereunder, provided that any such Trust shall be structured
so that the assets of the Trust are treated as assets of the
Company for Federal income tax purposes. If a Trust is
created, the Trustee shall invest Trust assets in accordance
with the Participant elections as described below
(B) The Committee shall make one or more investment choices (the
"Investment Choices") available to Participants from time to
time. The Investment Choices shall reflect actual investments
available to the Trustee, if applicable, or otherwise be
available to the public for investment of like amounts.
(C) Participants shall be given the opportunity to have their
Investment Accounts treated as if invested in one or more of
these Investment Choices. The Committee will then increase or
decrease the Participant's Investment Account based on the
actual income, gains and losses reported with respect to the
Investment Choice or Choices a Participant has made
(determined without regard to applicable Federal, state or
local income taxes).
(ii) In the alternative, the Committee may adopt guidelines adding to
the provisions of clause (i) set forth above, and providing an
alternate method for determining the value of part or all of a
Participant's Investment Accounts; provided, the Committee shall
give Participants written notice of any such alternate investments
and shall make any guidelines available to Participants upon
request.
(d) Limitations. For the purposes of Section 4(a) above, the applicable
-----------
limitations set forth in the Code are (i) the limitations on Annual
Additions set forth in Section 415 of the Code, (ii) the limitation on
elective deferrals under Section 402(g) of the Code, (iii) the
limitation on Compensation set forth in Section 401(a)(17), and (iv) if
and to the extent determined by the Committee for a given year, the
limitations on contributions by and on behalf of Highly Compensated
Employees set forth in Sections 401(k) and 401(m) of the Code.
5. Payments from Accounts.
----------------------
(a) Payment Generally. Except as otherwise provided in this Section, no
-----------------
amounts shall be payable under the Plan to any Participant while he is
employed by the Company or any Participating Affiliate. While employed,
a Participant may request a payment of amounts credited to the
Supplemental Savings Account maintained for such Participant on the
basis of an immediate and heavy financial hardship for which no other
resources are available to the Participant and following the
Participant's withdrawal of all amounts then available for withdrawal
from the Savings Plan. Such request shall be subject to the approval of
the Committee or its delegate. A hardship distribution shall be debited
against the Participants accounts in such manner as is prescribed by
the Committee. Unless an election is made in accordance with Section 5
(b) below or unless Section 5 (c) below applies, all vested amounts
credited to a Participant's accounts under the Plan shall be paid
within 30 days following termination of the Participant's employment.
The
<PAGE>
value of such accounts shall be determined, with respect to each
Investment Choice, the most recent valuation date on or prior to the
date the Participant's employment terminates.
(b) Installments. Notwithstanding Section 4(a) above, a Participant may
------------
elect to receive payment of his accounts under the Plan in the form of
annual installments of from two to ten years commencing in the calendar
year following the year of the Participant's termination of employment
with the Company and all Participating Subsidiaries, provided (i) the
Participant's termination of employment is on account of retirement or
total or permanent disability (such terms having the same meanings as
used under the Savings Plan), (ii) the value of the Participant's
vested account balance under the Plan as of the close of the date of
termination is at least $25,000, and (iii) the Participant's
installment payment election is made at least twelve months prior to
the date of such termination. The amount of each installment shall be
determined by multiplying (i) the aggregate value of the Participant's
accounts as of the day of the installment, determined in a manner
consistent with Section 5(a) above, by (ii) a fraction the numerator of
which is 1 and the denominator of which is the number of installments
remaining to be paid, inclusive of the installment being valued.
Pending final distribution, the remaining balance in the Participant's
accounts shall continue to be credited or debited with amounts as
described in Section 4 (c) above.
(c) Special Rule: Plan Termination. Upon the termination of this plan or
-------------------------------
the Savings Plan, all unvested accounts under this Plan shall vest and
all accounts shall be paid to Participants as provided under Section
4(a) as if the date of Plan termination constituted the date of
termination of employment.
(d) Reference to Savings Plan. All determinations of value of the
-------------------------
Participant's accounts under the Plan, and not disposed of under
Section 4( c) above, shall be made in accordance with the relevant
provisions of the Savings Plan.
(e) Tax Withholding. All payments under the Plan shall be subject to any
---------------
required withholding of Federal, state and local taxes.
6. Source of Payments. All amounts payable under the Plan shall be paid by the
------------------
Company and Participating Subsidiaries from general assets. Notwithstanding
the maintenance of records on its books as described in Section 4 above, no
Participant shall have any right or interest in any assets of the Company or
any Participating Affiliate other than as an unsecured general creditor, and
no separate fund shall be established in which any Participant has any right
or interest. The foregoing shall not prevent the Company or any
Participating Affiliate from establishing the Trust, or any other fund from
which to satisfy its payment obligations under the Plan.
7. Plan Amendment and Termination. The plan may be amended or terminated by
------------------------------
the Company at any time and in any manner, provided that no amendment or
termination shall adversely affect the rights and benefits of Participants
with respect to Compensation deferred or deducted pursuant to the Plan prior
to such action.
8. No Right of Employment. The adoption and operation of this Plan shall not
----------------------
create in any Participant a right of continued employment with the Company
or any Participating Affiliate.
9. Administration. The Plan shall be administered by the Savings Plan
--------------
Committee appointed by the Board of Directors of the Company (the
"Committee"), which shall have the discretionary power and authority to
construe and interpret the provisions of the Plan, to determine the
eligibility of employees to participate in the Plan and the amount and
timing of payment of any benefits due under the Plan, and to determine all
other matters in carrying out the intended purposes of the Plan. In
administering this Plan, including but not limited to considering appeals
from the denial of claims for benefits and issuing decisions thereon, rules
and procedures substantially similar to those set forth in the Savings Plan
shall govern.
10. No Assignment of Interest. The interest of any Participant under the Plan
-------------------------
may not be assigned, alienated, encumbered or otherwise transferred, and
shall not be subject to attachment, garnishment, execution or levy;
<PAGE>
and any attempted assignment, alienation, encumbrance, transfer, attachment,
garnishment, execution or levy shall be void and of no force or effect.
11. Securities Law Savings Provision. Nothing contained in this Plan or in the
--------------------------------
administration or operation thereof shall be interpreted or effectuated that
would cause interests in the Plan to be treated as "derivative securities"
under the Exchange Act and the rules and regulations promulgated thereunder.
12. Construction of Terms. Except as expressly provided in this Plan to the
---------------------
contrary, capitalized terms referenced, but not separately defined herein
shall have the same meanings as are applied to such terms in the Savings
Plan as in effect from time to time.
JAFRA COSMETICS INTERNATIONAL, INC.
Date: October 27, 1998 By: /S/ Ralph S. Mason, III
-------------------------------------------
Ralph S. Mason, III
Vice Chairman and General Counsel
<PAGE>
EXHIBIT 10.2
JAFRA COSMETICS INTERNATIONAL, INC.
SPECIAL SUPPLEMENTAL SAVINGS PLAN
FOR NON-UNITED-STATES-SOURCE INCOME
1. Purpose. The Jafra Cosmetics International, Inc. Special Supplemental
-------
Savings Plan for Non-US Source Income (the "Plan") has been adopted by Jafra
Cosmetics International, Inc. (the "Company") to provide additional benefits
to certain employees of the Company, and those of its affiliates selected by
the Committee to be participating employers hereunder (the "Participating
Affiliates"), whose benefits under the Jafra Cosmetics International 401(k)
Savings Plan (the "Savings Plan") and the Jafra Supplemental Savings Plan
(the "Supplemental Plan") have been limited by provisions within the Savings
Plan and the Supplemental Plan that exclude from the definition of
Compensation all income paid by the Company that is not subject to taxation
under the Internal Revenue Code of 1986, as amended (the "Code"). Income
from the Company that is not taxable under the Code shall be referred to as
"Non-US-Source Income" and the combination of Non-US-Source Income and
Compensation shall be referred to as "Annual Income". The Plan is intended
to constitute an unfunded plan maintained primarily for the purpose of
providing deferred compensation for a select group of management or highly
compensated employees as described in Sections 201(2), 301(a) and 401(a)(1)
of ERISA.
2. Eligible Employees. Employees eligible to participate in this Plan for any
------------------
calendar year shall be those employees of the Company and Participating
Subsidiaries who are eligible to participate in the Savings Plan and the
Supplemental Plan, and who are determined by the "Committee", as that term
is defined below, to be management or highly compensated employees for such
year and who have Non-US-Source Income that has not been included in
Compensation and whose contributions or Compensation taken into account
under the Savings Plan and the Supplemental Plan are limited for such year
by the Code, based on actual participation in the Savings Plan and the
Supplemental Plan ("Participants"). The Committee may establish guidelines
to determine which employees are eligible to participate in the Plan, or may
make individual eligibility determinations or both, as it shall decide in
its sole discretion.
Participants. Participants are Eligible Employees who elect to participate
------------
in the Plan, at such time and in such manner as may be prescribed by the
Committee, by executing and delivering to the Company a participation and
salary deferral agreement, in such form and at such time as prescribed by
the Committee. Participation in the Plan may be discontinued only as
permitted by the Committee. Any individual who has previously participated
in the Plan shall be considered a Participant for the purposes of the Plan,
other than Section (4)(a) and (b) below, until final distribution is made of
amounts credited to the individual's accounts under the Plan.
3. Deferrals and Additional Credits.
--------------------------------
(a) Election to Defer. A Participant may elect to defer hereunder any
-----------------
portion of the Total Income from the Company which the Participant would
contribute to the Savings Plan and the Supplemental Plan for a calendar year,
but which cannot be contributed as a direct or indirect result of the
application of the limitations set forth in the Savings Plan or the Supplemental
Plan. The amount a Participant has elected to defer hereunder (the
"Participant's Deferral") will be recorded in an account, entitled the "Special
Supplemental Savings Account," maintained for each Participant on the books of
the Company, and shall be subject to all the terms and conditions set forth
below. A Participant shall always have a fully vested right in amounts credited
to the Special Supplemental Savings Account maintained for such Participant.
A deferral election shall apply to amounts which would constitute
either "tax-deferred" or "after-tax", as described in the Savings Plan. However,
all amounts contributed hereunder shall, to the extent consistent with
applicable Federal and state tax laws, rulings and regulations as in effect from
time to time, be treated by the Company as not includable in the Participant's
income for Federal income tax purposes.
<PAGE>
(b) Company Matching Contribution. The Committee shall determine the
-----------------------------
amount of the Company Matching Contribution that would have been made to the
Savings Plan and the Supplemental Plan in respect of any Participant Deferral,
and shall be recorded by the Company in an account on its books, entitled the
"Special Supplemental Company Contribution Account," maintained for such
Participant. So long as the Participant remains in employment with the Company
on such date, amounts credited to the Participant's Special Supplemental Company
Contribution Account shall become one hundred percent (100%) vested at the time
the Participant has completed two years of service with the Company.
Notwithstanding the foregoing, so long as the Participant is employed by the
Company on the date of his death or on the date he becomes physically or
mentally disabled such that he can no longer continue in the service of his
employer, as determined by the Committee on the basis of a written certificate
of a physician acceptable to it, his vested interest in his Special Supplemental
Company Contribution Account shall be one hundred percent (100%).
<PAGE>
(c) Income, Gains and Losses.
------------------------
(i) Subject as provided in clause (ii) below, amounts recorded in a
Participant's Special Supplemental Savings Account and Special Supplemental
Company Contribution Account (collectively, "the Participant's Investment
Account") shall be credited with income, gains and losses as follows:
(A) The Company may, but is not required to, establish a trust (the
"Trust"), with an independent trustee (the "Trustee"), for the purpose of
segregating and investing amounts deferred hereunder, provided that any such
Trust shall be structured so that the assets of the Trust are treated as assets
of the Company for Federal income tax purposes. If a Trust is created, the
Trustee shall invest Trust assets in accordance with the Participant elections
as described below.
(B) The Committee shall make one or more investment choices (the
"Investment Choices") available to Participants from time to time. The
Investment Choices shall reflect actual investments available to the Trustee, if
applicable, or otherwise be available to the public for investment of like
amounts.
(C) Participants shall be given the opportunity to have their
Investment Accounts treated as if invested in one or more of these Investment
Choices. The Committee will then increase or decrease the Participant's
Investment Account based on the actual income, gains and losses reported with
respect to the Investment Choice or Choices a Participant has made (determined
without regard to applicable Federal, state or local income taxes).
(ii) In the alternative, the Committee may adopt guidelines adding to
the provisions of clause (i) set forth above, and providing an alternate method
for determining the value of part or all of a Participant's Investment Accounts
provided. The Committee shall give Participants written notice of any such
alternate investments and shall make any guidelines available to Participants
upon request.
5. Payments from Accounts.
----------------------
(a) Payment Generally. Except as otherwise provided in this Section, no
-----------------
amounts shall be payable under the Plan to any Participant while he is employed
by the Company or any Participating Affiliate. While employed, a Participant
may request a payment of amounts credited to the Special Supplemental Savings
Account maintained for such Participant on the basis of an immediate and heavy
financial hardship for which no other resources are available to the Participant
and following the Participant's withdrawal of all amounts then available for
withdrawal from the Savings Plan and the Supplemental Plan. Such request shall
be subject to the approval of the Committee or its delegate. A hardship
distribution shall be debited against the Participants accounts in such manner
as is prescribed by the Committee. Unless an election is made in accordance
with Section 5 (b) below or unless Section 5(c) below applies, all vested
amounts credited to a Participant's accounts under the Plan shall be paid within
30 days following termination of the Participant's employment. The value of
such accounts shall be determined, with respect to each Investment Choice, the
most recent valuation date on or prior to the date the Participant's employment
terminates.
(b) Installments. Notwithstanding Section 5(a) above, a Participant may
------------
elect to receive payment of his accounts under the Plan in the form of annual
installments of from two to ten years commencing in the calendar year following
the year of the Participant's termination of employment with the Company and
all Participating Subsidiaries, provided (i) the Participant's termination of
employment is on account of retirement or total or permanent disability (such
terms having the same meanings as used under the Savings Plan), (ii) the value
of the Participant's vested account balance under the Plan as of the close of
the date of termination is at least $25,000, and (iii) the Participant's
installment payment election is made at least twelve months prior to the date of
such termination. The amount of each installment shall be determined by
multiplying (i) the aggregate value of the Participant's accounts as of the day
of the installment, determined in a manner consistent with Section 5(a) above,
by (ii) a fraction the numerator of which is 1 and the denominator of which is
the number of installments remaining to be paid, inclusive of the installment
being valued. Pending final distribution, the remaining balance
<PAGE>
in the Participant's accounts shall continue to be credited or debited with
amounts as described in Section 4(c) above.
(c) Special Rule: Plan Termination. Upon the termination of this Plan or
-------------------------------
the Savings Plan, all unvesteD accounts under this Plan shall vest and all
accounts shall be paid to Participants as provided under Section 5(a) as if the
date of Plan termination constituted the date of termination of employment.
(d) Reference to Savings Plan. All determinations of value of the
-------------------------
Participant's accounts under the Plan, and not disposed of under Section 4(c)
above, shall be made in accordance with the relevant provisions of the Savings
Plan.
(e) Tax Withholding. All payments under the Plan shall be subject to any
---------------
required withholding of Federal, state and local taxes.
6. Source of Payments. All amounts payable under the Plan shall be paid by the
------------------
Company and Participating Subsidiaries from general assets. Notwithstanding
the maintenance of records on its books as described in Section 4 above, no
Participant shall have any right or interest in any assets of the Company or
any Participating Affiliate other than as an unsecured general creditor, and
no separate fund shall be established in which any Participant has any right
or interest. The foregoing shall not prevent the Company or any
Participating Affiliate from establishing the Trust, or any other fund from
which to satisfy its payment obligations under the Plan.
7. Plan Amendment and Termination. The Plan may be amended or terminated by
------------------------------
the Company at any time and in any manner, provided that no amendment or
termination shall adversely affect the rights and benefits of Participants
with respect to Compensation deferred or deducted pursuant to the Plan prior
to such action.
8. No Right of Employment. The adoption and operation of this Plan shall not
----------------------
create in any Participant a right of continued employment with the Company
or any Participating Affiliate.
9. Administration. The Plan shall be administered by the Savings Plan
--------------
Committee appointed by the Board of Directors of the Company (the
"Committee"), which shall have the discretionary power and authority to
construe and interpret the provisions of the Plan, to determine the
eligibility of employees to participate in the Plan and the amount and
timing of payment of any benefits due under the Plan, and to determine all
other matters in carrying out the intended purposes of the Plan. In
administering this Plan, including but not limited to considering appeals
from the denial of claims for benefits and issuing decisions thereon, rules
and procedures substantially similar to those set forth in the Savings Plan
shall govern.
10. No Assignment of Interest. The interest of any Participant under the Plan
-------------------------
may not be assigned, alienated, encumbered or otherwise transferred, and
shall not be subject to attachment, garnishment, execution or levy; and any
attempted assignment, alienation, encumbrance, transfer, attachment,
garnishment, execution or levy shall be void and of no force or effect.
11. Securities Law Savings Provision. Nothing contained in this Plan or in the
--------------------------------
administration or operation thereof shall be interpreted or effectuated that
would cause interests in the Plan to be treated as "derivative securities"
under the Exchange Act and the rules and regulations promulgated thereunder.
12. Construction of Terms. Except as expressly provided in this Plan to the
---------------------
contrary, capitalized terms referenced, but not separately defined herein
shall have the same meanings as are applied to such terms in the Savings
Plan the Supplemental Plan as in effect from time to time.
<PAGE>
JAFRA COSMETICS INTERNATIONAL, INC.
Date: January 20, 1999 By: /S/ Ralph S. Mason, III
-------------------------------------
Ralph S. Mason, III
Vice Chairman and General Counsel
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CDRJ
INVESTMENTS (LUX) S.A. FINANCIAL STATEMENTS AS OF MARCH 31, 1999 AND 1998 AND
FOR THE THREE MONTHS THEN ENDED INCLUDED IN THE FORM 10-Q AS OF MARCH 31, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-END> MAR-31-1999 MAR-31-1998
<CASH> 7,985 0
<SECURITIES> 0 0
<RECEIVABLES> 30,945 0
<ALLOWANCES> 2,391 0
<INVENTORY> 28,934 0
<CURRENT-ASSETS> 74,864 0
<PP&E> 81,218 0
<DEPRECIATION> 3,440 0
<TOTAL-ASSETS> 275,284 0
<CURRENT-LIABILITIES> 53,538 0
<BONDS> 135,475 0
0 0
0 0
<COMMON> 1,660 0
<OTHER-SE> 72,418 0
<TOTAL-LIABILITY-AND-EQUITY> 275,284 0
<SALES> 67,960 57,022
<TOTAL-REVENUES> 67,960 57,022
<CGS> 18,827 15,742
<TOTAL-COSTS> 18,827 15,742
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 3,902 (113)
<INCOME-PRETAX> 5,121 6,369
<INCOME-TAX> 4,821 2,635
<INCOME-CONTINUING> 300 3,734
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 300 3,734
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
