<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 June 30, 2000
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)
4 Boulevard Royal
L-2449 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 [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 August 11, 2000
830,501 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 and Six Months Ended June 30, 2000
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
<S> <C> <C>
Item 1. Financial Statements (Unaudited): Page No.
--------
Consolidated Balance Sheets 3
Consolidated Statements of Operations 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 13
Item 3. Quantitative and Qualitative Disclosures about Market Risk 22
</TABLE>
PART II - OTHER INFORMATION
<TABLE>
<CAPTION>
<S> <C> <C>
Item 1. Legal Proceedings 24
Item 2. Changes in Securities and Use of Proceeds 24
Item 3. Defaults Upon Senior Securities 24
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 24
Signature 25
Exhibits 26
</TABLE>
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>
June 30, December 31,
2000 1999
------------ ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,020 $ 4,906
Receivables, less allowances for doubtful accounts of
$2,967 in 2000 and $3,087 in 1999 30,668 31,277
Inventories 35,601 30,290
Prepaid income taxes 10,381 13,875
Prepaid expenses and other current assets (including value-added tax
receivables of $5,002 in 2000 and $6,053 in 1999) 8,865 8,608
------------ -----------
Total current assets 90,535 88,956
Property and equipment, net 49,900 50,607
Other assets:
Goodwill, net of accumulated amortization of $4,145 in 2000
and $3,160 in 1999 72,881 75,323
Trademarks, net of accumulated amortization of $2,998 in 2000
and $2,303 in 1999 49,051 51,605
Deferred financing fees and other, net of accumulated
amortization of $3,320 in 2000 and $2,887 in 1999 11,110 11,886
------------ -----------
Total $ 273,477 $ 278,377
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 2,965 $ -
Current portion of long-term debt 4,000 3,500
Accounts payable 13,450 15,005
Accrued liabilities 31,825 33,424
Income taxes payable 4,532 276
Deferred income taxes 2,495 2,587
------------ -----------
Total current liabilities 59,267 54,792
Long-term debt 123,330 130,000
Deferred income taxes 15,170 15,731
Other long-term liabilities 2,349 2,060
------------ -----------
Total liabilities 200,116 202,583
------------ -----------
Commitments and contingencies - -
Stockholders' equity:
Common stock, par value $2.00; authorized, 1,020,000 shares;
issued and outstanding, 830,659 shares in 2000 and 1999 1,661 1,661
Additional paid-in capital 81,381 81,381
Accumulated deficit (3,423) (3,393)
Accumulated other comprehensive income (6,258) (3,855)
------------ -----------
Total stockholders' equity 73,361 75,794
------------ -----------
Total $ 273,477 $ 278,377
============ ===========
</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 Six Months Ended
------------------------------ ----------------------------
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
----------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Net sales $ 76,863 $ 71,630 $ 148,579 $ 139,590
Cost of sales 17,867 20,565 34,213 41,377
----------- ----------- ---------- ---------
Gross profit 58,996 51,065 114,366 98,213
Selling, general and administrative 48,331 44,383 95,472 84,874
expenses
Restructuring and impairment charges 1,108 2,719 1,108 3,135
----------- ----------- ---------- ---------
Income from operations 9,557 3,963 17,786 10,204
Other income (expense):
Exchange gain (loss) (1,731) 682 (5,349) 3,446
Interest, net (4,024) (4,320) (8,020) (8,222)
Other, net 563 71 1,231 89
----------- ----------- ---------- ---------
Income before income taxes and
extraordinary item 4,365 396 5,648 5,517
Income tax expense 3,336 2,558 5,363 7,379
----------- ----------- ---------- ---------
Income (loss) before extraordinary item 1,029 (2,162) 285 (1,862)
Extraordinary loss on early extinguishment
of debt, net of income tax benefit
of $195 - - (315) -
----------- ----------- ---------- ---------
Net income (loss) $ 1,029 $ (2,162) $ (30) $ (1,862)
=========== =========== ========== =========
</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>
Six Months Ended
-------------------------
June 30, June 30,
2000 1999
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (30) $ (1,862)
Extraordinary loss on early extinguishment of debt, net of taxes 315 -
---------- ----------
Income (loss) before extraordinary item 285 (1,862)
Adjustments to reconcile income (loss) before extraordinary item
to net cash provided by (used in) operating activities:
Depreciation and amortization 3,646 3,680
Amortization of deferred financing fees 719 798
Unrealized foreign exchange loss (gain) 3,066 (3,361)
Deferred income taxes - 2,961
Changes in operating assets and liabilities:
Receivables, net (224) (1,239)
Inventories (5,921) 5,207
Prepaid expenses and other current assets (666) 2,240
Other assets (823) 367
Accounts payable and accrued liabilities (3,056) (6,497)
Income taxes payable/prepaid 7,817 (2,938)
Other long-term liabilities 288 (159)
---------- ----------
Net cash provided by (used in) operating activities 5,131 (803)
---------- ----------
Cash flows from investing activities:
Payments of previously accrued Acquisition fees - (1,784)
Purchases of property and equipment (2,811) (2,759)
---------- ----------
Net cash used in investing activities (2,811) (4,543)
---------- ----------
Cash flows from financing activities:
Repurchase of subordinated debt (10,597) -
Repayments under term loan facility (1,750) (1,250)
Net borrowings under revolving credit facility 6,400 2,200
Net proceeds from short-term bank debt 2,965 -
---------- ----------
Net cash provided by (used in) financing activities (2,982) 950
---------- ----------
Effect of exchange rate changes on cash 776 (1,431)
---------- ----------
Net increase (decrease) in cash and cash equivalents 114 (5,827)
Cash and cash equivalents at beginning of period 4,906 18,358
---------- ----------
Cash and cash equivalents at end of period $ 5,020 $ 12,531
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
CDRJ 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") and subsidiaries 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 June 30, 2000 and for all the
interim periods presented.
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 its operations through its subsidiaries. The
Parent and its subsidiaries are collectively referred to as the "Company."
The accompanying consolidated financial statements as of and for the three
and six months ended June 30, 2000 and 1999 reflect the operations of the Parent
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation. Certain sales promotional and other
expenses which were previously reported as selling, general and administrative
expenses have been reclassified to cost of sales to conform to the current
period presentation. Total amounts that have been reclassified are $790,000 and
$2,775,000 for the three and six months ended June 30, 1999, respectively. In
addition, charges of $416,000, which were previously included in selling,
general and administrative expenses, have been reclassified as restructuring
charges in the accompanying consolidated statements of operations for the six
months ended June 30, 1999.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities", which was amended by SFAS No.
137 and SFAS No. 138, and is effective for fiscal years beginning after June 15,
2000. SFAS No. 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. This standard requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. The Company has
not yet performed an analysis to determine the impact of adopting this standard
and is, therefore, unable to disclose the impact that adopting the standard will
have on its financial position and results of operations when such statement is
adopted.
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101 ("SAB 101"), which provides the Staff's view in
applying generally accepted accounting principles to selected revenue
recognition issues. SAB 101, as amended, is required to be implemented during
the quarter ended December 31, 2000. The Company is analyzing the impact, if
any, SAB 101 may have on its financial statements.
(2) Inventories
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
--------- --------
<S> <C> <C>
Raw materials and supplies $ 6,910 $ 7,905
Finished goods 28,691 22,385
--------- --------
Total inventories $ 35,601 $ 30,290
========= ========
</TABLE>
6
<PAGE>
CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(3) Property and Equipment
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------- -----------
<S> <C> <C>
Land $ 17,017 $ 17,418
Buildings 16,677 16,777
Machinery and equipment 22,998 21,511
----------- -----------
56,692 55,706
Less accumulated depreciation 6,792 5,099
----------- -----------
Property and equipment, net $ 49,900 $ 50,607
=========== ===========
</TABLE>
(4) Debt
In the first quarter of 2000, the Company repurchased and retired a
portion of the 11.75% Subordinated Notes due 2008 (the "Notes") of JCI and Jafra
S.A., with a face value of $6.5 million and $4.3 million, respectively. In
connection with the repurchase of the Notes, the related portion of the
unamortized deferred financing costs of $733,000 was written off and included in
the determination of the extraordinary loss on early extinguishment of debt. The
repurchase of the Notes resulted in an extraordinary loss of $315,000, which is
net of an income tax benefit of $195,000.
In June 2000, Jafra S. A. entered into a short-term bank loan of $3.0
million in connection with the settlement of foreign currency forward contracts.
The interest rate on the loan was 22.4% per annum and the loan was repaid in
July 2000.
(5) 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 and six months ended June 30, 2000 due to certain
valuation allowances in Europe, South America and the U.S. in 1999 and 2000, and
an effective tax rate in the Mexico entity, Jafra S.A., that exceeds the U.S.
federal tax rate due to certain inflation-related income tax adjustments.
(6) Comprehensive Income (Loss)
Comprehensive income (loss) is summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------------- ------------------------------
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Net income (loss) $ 1,029 $ (2,162) $ (30) $ (1,862)
Foreign currency translation adjustment (3,831) (197) (2,403) (1,860)
---------- ---------- --------- ---------
Comprehensive loss $ (2,802) $ (2,359) $ (2,433) $ (3,722)
========== ========== ========= =========
</TABLE>
7
<PAGE>
CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(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 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. The Nonguarantor entities
are the Parent's indirect European subsidiaries in Germany, the Netherlands,
Switzerland, Italy, Austria and Poland, its indirect South American subsidiaries
in Colombia, Argentina, Chile, Venezuela and Brazil, and its indirect subsidiary
in the Dominican Republic, which started operations in the second quarter of
2000. The Company's subsidiary in Chile did not begin operations until the
third quarter of 1999.
The accounting policies of the business segments 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, 1999 on Form 10-K, except that the disaggregated financial results
have been prepared using a management approach, which is consistent with the
basis and manner in which the Company's management internally disaggregates
financial information for the purposes of assisting in making internal operating
decisions. The Company evaluates performance based on stand alone business
segment operating results, including allocations of corporate expenses based
upon revenues, which differs from the legal and statutory allocations. However,
the income tax provision reflects the income tax rates and valuation allowances
in the countries where such corporate expenses are expensed for income tax
purposes. Management reallocated certain 1999 product costs between entities
based on usage to conform to the current allocation basis. Additionally, the
Company accounts for intersegment sales as inventory transfers.
Consolidating condensed statements of operations data for the three months
ended June 30, 2000 and 1999 is summarized as follows (in thousands):
<TABLE>
<CAPTION>
Three months ended June 30, 2000
--------------------------------------------------------------------------------------
Guarantor Entities Nonguarantor Entities
---------------------------------- ---------------------
JCI Jafra S.A Total
(U.S.) (Mexico) Total Europe Other Eliminations Consolidated
--------- --------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 18,402 $ 46,742 $ 65,144 $ 6,781 $ 4,938 $ - $ 76,863
Cost of sales 3,886 10,702 14,588 1,585 1,811 (117) 17,867
--------- --------- --------- --------- --------- --------- ---------
Gross profit 14,516 36,040 50,556 5,196 3,127 117 58,996
Selling, general and administrative expenses
Business segment 11,965 21,650 33,615 5,549 4,486 - 43,650
Allocated corporate expenses 1,122 2,845 3,967 412 302 - 4,681
Restructuring and impairment charges - - - 1,108 - - 1,108
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from operations 1,429 11,545 12,974 (1,873) (1,661) 117 9,557
Other expense(income):
Interest, net 1,552 2,055 3,607 356 61 - 4,024
Royalty (3,466) 3,449 (17) 17 - - -
Other, net - 967 967 148 53 - 1,168
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income taxes 3,343 5,074 8,417 (2,394) (1,775) 117 4,365
Income tax expense (benefit) 777 2,552 3,329 (1) 8 - 3,336
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) $ 2,566 $ 2,522 $ 5,088 $ (2,393) $ (1,783) $ 117 $ 1,029
========= ========= ========= ========= ========= ========= =========
</TABLE>
In the second quarter of 2000, JCI charged Jafra S.A a royalty fee of $3.7
million in connection with Jafra S.A's use of the marketing and distribution
systems and other know-how owned by JCI, and Jafra S.A. charged JCI $0.2 million
for use of the Jafra trademark. These charges are included in royalty expense
(income).
8
<PAGE>
CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended June 30, 1999
--------------------------------------------------------------------------------------
Guarantor Entities Nonguarantor Entities
---------------------------------- ---------------------
JCI Jafra S.A Total
(U.S.) (Mexico) Total Europe Other Eliminations Consolidated
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 17,764 $ 41,390 $ 59,154 $ 8,203 $ 4,273 $ - $ 71,630
Cost of sales 4,711 12,264 16,975 2,163 1,427 - 20,565
--------- --------- --------- --------- --------- --------- ---------
Gross profit 13,053 29,126 42,179 6,040 2,846 - 51,065
Selling, general and administrative expenses:
Business segment 11,194 19,070 30,264 6,320 3,276 - 39,860
Allocated corporate expenses 1,121 2,614 3,735 518 270 - 4,523
Restructuring and impairment charges 2,719 - 2,719 - - - 2,719
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from operations (1,981) 7,442 5,461 (798) (700) - 3,963
Other expense(income):
Interest, net 2,350 1,662 4,012 359 (51) - 4,320
Other, net 92 (782) (690) (95) 32 - (753)
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income taxes (4,423) 6,562 2,139 (1,062) (681) - 396
Income tax expense 1 2,532 2,533 17 8 - 2,558
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) $ (4,424) $ 4,030 $ (394) $ (1,079) $ (689) $ - $ (2,162)
========= ========= ========= ========= ========= ========= =========
</TABLE>
Consolidating condensed statement of operations data for the six months
ended June 30, 2000 and 1999 is summarized as follows (in thousands):
<TABLE>
<CAPTION>
Six months ended June 30, 2000
--------------------------------------------------------------------------------------
Guarantor Entities Nonguarantor Entities
---------------------------------- ---------------------
JCI Jafra S.A Total
(U.S.) (Mexico) Total Europe Other Eliminations Consolidated
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 35,138 $ 91,138 $ 126,276 $ 13,313 $ 8,990 $ - $ 148,579
Cost of sales 7,410 20,619 28,029 3,147 3,037 - 34,213
--------- --------- --------- --------- --------- --------- ---------
Gross profit 27,728 70,519 98,247 10,166 5,953 - 114,366
Selling, general and administrative expenses:
Business segment 25,203 41,711 66,914 11,048 8,255 - 86,217
Allocated corporate expenses 2,189 5,677 7,866 829 560 - 9,255
Restructuring and impairment charges - - - 1,108 - - 1,108
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from operations 336 23,131 23,467 (2,819) (2,862) - 17,786
Other expense(income):
Interest, net 2,999 4,233 7,232 699 89 - 8,020
Royalty (6,767) 6,732 (35) 35 - - -
Other, net 3 4,022 4,025 124 (31) - 4,118
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income taxes and 4,101 8,144 12,245 (3,677) (2,920) - 5,648
extraordinary item
Income tax expense (benefit) 897 4,498 5,395 23 (55) - 5,363
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before extraordinary item 3,204 3,646 6,850 (3,700) (2,865) - 285
Extraordinary loss on early extinguishment
of debt, net of income tax benefit of
$195 (205) (110) (315) - - - (315)
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) $ 2,999 $ 3,536 $ 6,535 $ (3,700) $ (2,865) $ - $ (30)
========= ========= ========= ========= ========= ========= =========
</TABLE>
In the six months ended June 30, 2000, JCI charged Jafra S.A. a royalty fee
of $7.3 million in connection with Jafra S.A.'s use of the marketing and
distribution systems and other know-how owned by JCI, and Jafra S.A. charged JCI
$0.5 million for use of the Jafra trademark. These charges are included in
royalty expense (income).
9
<PAGE>
CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended June 30, 1999
---------------------------------------------------------------------------------------
Guarantor Entities Nonguarantor Entities
---------------------------------- ---------------------
JCI Jafra S.A. Total
(U.S.) (Mexico) Total Europe Other Eliminations Consolidated
--------- ----------- --------- -------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 35,053 $ 80,655 $ 115,708 $ 16,420 $ 7,462 $ - $ 139,590
Cost of sales 10,171 24,650 34,821 4,123 2,433 - 41,377
--------- ----------- -------- ------- --------- ------------- ----------
Gross profit 24,882 56,005 80,887 12,297 5,029 - 98,213
Selling, general and administrative
expenses:
Business segment 20,856 35,732 56,588 13,390 6,322 - 76,300
Allocated corporate expenses 2,153 4,954 7,107 1,006 461 - 8,574
Restructuring and impairment charges 2,773 172 2,945 190 - - 3,135
--------- ----------- -------- ------- --------- ------------- -----------
Income (loss) from operations (900) 15,147 14,247 (2,289) (1,754) - 10,204
Other expense (income):
Interest, net 4,511 3,146 7,657 717 (152) - 8,222
Other, net (18) (3,853) (3,871) 322 14 - (3,535)
--------- ----------- -------- ------- --------- ------------- ----------
Income (loss) before income taxes (5,393) 15,854 10,461 (3,328) (1,616) - 5,517
Income tax expense 46 7,280 7,326 28 25 - 7,379
--------- ----------- -------- ------- --------- ------------- ----------
Net income (loss) $ (5,439) $ 8,574 $ 3,135 $ (3,356) $ (1,641) $ - $ (1,862)
========= =========== ======== ======= ========= ============= ==========
</TABLE>
Consolidating condensed balance sheet data as of June 30, 2000 is
summarized as follows (in thousands):
<TABLE>
<CAPTION>
As of June 30, 2000
---------------------------------------------------------------------------------------------
Guarantor Entities Nonguarantor Entities
------------------------------------------- ---------------------
JCI Jafra S.A. Total
ASSETS (U.S.) (Mexico) Parent Total Europe Other Eliminations Consolidated
--------- ---------- ------- -------- -------- ------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Current assets:
Receivables $ 3,446 $ 22,502 $ - $ 25,948 $ 2,345 $ 2,375 $ - $ 30,668
Inventories 5,164 24,021 - 29,185 2,638 3,901 (123) 35,601
Other current assets 17,486 17,878 156 35,520 3,149 2,349 (16,752) 24,266
--------- ---------- ------- -------- -------- ------- --------- ------------
Total current assets 26,096 64,401 156 90,653 8,132 8,625 (16,875) 90,535
Property and equipment, net 18,808 28,864 - 47,672 1,408 820 - 49,900
Other assets:
Goodwill, net 33,517 31,372 184 65,073 6,726 1,082 - 72,881
Trademarks, net - 48,808 189 48,997 185 245 (376) 49,051
Other (1) 45,575 4,085 74,020 123,680 4,382 2,258 (119,210) 11,110
--------- ---------- ------- -------- -------- ------- --------- ------------
Total $ 123,996 $ 177,530 $74,549 $376,075 $ 20,833 $13,030 $(136,461) $ 273,477
========= ========== ======= ======== ======== ======= ========= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and
accrued expenses $ 13,072 $ 24,491 $ 47 $ 37,610 $ 5,708 $ 2,198 $ (241) $ 45,275
Other current liabilities 4,597 19,061 10 23,668 2,918 3,327 (15,921) 13,992
--------- --------- ------- -------- -------- ------- ---------- -----------
Total current liabilities 17,669 43,552 57 61,278 8,626 5,525 (16,162) 59,267
Total long term debt 86,758 36,572 - 123,330 - - - 123,330
Other liabilities 1,012 43,539 - 44,551 19,423 5,909 (52,364) 17,519
--------- --------- ------- -------- -------- ------- ---------- -----------
Total liabilities 105,439 123,663 57 229,159 28,049 11,434 (68,526) 200,116
Stockholders' equity 18,557 53,867 74,492 146,916 (7,216) 1,596 (67,935) 73,361
--------- --------- ------- -------- -------- ------- ---------- -----------
Total $ 123,996 $ 177,530 $ 74,549 $376,075 $ 20,833 $13,030 $ (136,461) $ 273,477
========= ========= ======== ======== ======== ======= ========== ===========
</TABLE>
_______________
(1) Other assets include long-term intercompany notes receivable, JCI's and
Parent's investment in subsidiaries, and other miscellaneous assets.
10
<PAGE>
CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Consolidating condensed statement of cash flows data for the six months ended
June 30, 2000 and 1999 is summarized as follows (in thousands):
<TABLE>
<CAPTION>
Six months ended June 30, 2000
----------------------------------------------------------------------------------------------
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 $ (4,299) $ 15,239 $ (235) $ 10,705 $(3,296) $ (2,278) $ - $ 5,131
Investing activities (2,151) (342) - (2,493) (15) (303) - (2,811)
Financing activities 7,671 (15,162) 4 (7,487) 1,343 3,162 - (2,982)
Effect of exchange rate changes
on cash - 262 - 262 779 (265) - 776
Cash at beginning of period 73 3 378 454 3,012 1,440 - 4,906
-------- ---------- -------- -------- --------- -------- ---------- ----------
Cash at end of period $ 1,294 $ 0 $ 147 $ 1,441 $ 1,823 $ 1,756 $ - $ 5,020
======== ========== ======== ======== ========= ======== ========== ==========
Six months ended June 30, 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 $ (2,826) $ 3,489 $ - $ 663 $(2,080) $ 614 $ - $ (803)
Investing activities (2,468) (1,323) - (3,791) (176) (576) - (4,543)
Financing activities 5,950 (5,000) - 950 - - - 950
Effect of exchange rate changes
on cash - (1,046) - (1,046) 194 (579)
- (1,431)
Cash at beginning of period 353 12,045 10 12,408 3,924 2,026 - 18,358
-------- ---------- -------- -------- --------- -------- ------------ -----------
Cash at end of period $ 1,009 $ 8,165 $ 10 $ 9,184 $ 1,862 $ 1,485 $ - $ 12,531
======== ========== ======== ======== ========= ======== ============ ===========
</TABLE>
(8) Restructuring and Impairment Charges and Related Accruals
In the second quarter of 2000, the Company recorded to approximately $1.1
million of restructuring and impairment charges related to repositioning
activities in Europe. These charges included approximately $0.7 million of
severance costs and $0.4 million of costs primarily relating to closure and/or
consolidation of certain facilities and related fixed asset impairments. The
Company anticipates that substantially all of these costs will be paid by the
first quarter of 2001. In 1999, the Company recorded approximately $3.7 million
of restructuring charges, of which $2.7 million and $3.1 million were charged to
income from operations in the accompanying consolidated statements of operations
for the three and six months ended June 30, 1999, respectively. During the three
and six months ended June 30, 2000, payments of approximately $0.7 and $0.9
million have been charged against this accrual, respectively. As of June 30,
2000, the total liability relating to 1999 and 2000 restructuring activities was
$0.5 million.
(9) Foreign Currency Forward Contracts
The Company has entered into foreign exchange forward contracts in Mexican
pesos to reduce the effect of adverse exchange rate fluctuations in Mexico. The
outstanding foreign currency forward contracts at June 30, 2000 had a notional
value of $95,488,000 and mature at various dates through May 2001. 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. The table below describes the forward contracts that were
outstanding at June 30, 2000 (dollar amounts in thousands):
11
<PAGE>
CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
Forward Weighted
Position in Maturity Average Fair
Foreign Currency US Dollars (1) Date Contract Rate Value (1)
--------------------------------- ---------------- -------------- -------------- -----------
<S> <C> <C> <C> <C>
Buy US Dollar/sell Mexican Peso 6,315 7/31/00 10.13 6,186
Buy US Dollar/sell Mexican Peso 8,354 8/31/00 10.17 8,241
Buy US Dollar/sell Mexican Peso 12,384 9/29/00 10.26 12,233
Buy US Dollar/sell Mexican Peso 7,275 10/31/00 10.45 7,141
Buy US Dollar/sell Mexican Peso 10,534 11/30/00 10.54 10,348
Buy US Dollar/sell Mexican Peso 19,874 12/29/00 10.67 19,447
Buy US Dollar/sell Mexican Peso 6,980 1/26/01 10.12 7,210
Buy US Dollar/sell Mexican Peso 7,500 2/26/01 10.20 7,754
Buy US Dollar/sell Mexican Peso 7,529 3/30/01 10.36 7,702
Buy US Dollar/sell Mexican Peso 5,915 4/30/01 10.48 6,037
Buy US Dollar/sell Mexican Peso 2,828 5/31/01 10.61 2,881
---------------- -----------
$ 95,488 $ 95,180
================ ===========
</TABLE>
--------------------
(1) The "Forward Position in US Dollars" and the "Fair Value" presented above
represent notional amounts. The net of these two amounts, $308,000,
represents the fair value of the forward contracts, as well as the
unrealized losses on such contracts, and has been recorded as an accrued
liability in the accompanying consolidated balance sheet as of June 30,
2000.
12
<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. 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 11.75%
Senior Subordinated Notes due 2008 ("Notes") were issued and the Company entered
into a credit agreement (the "Senior Credit Agreement") with certain lenders.
The Senior Credit Agreement provides for senior secured credit facilities,
including a $25.0 million term loan facility (the "Term Loan Facility"), all of
which was drawn at the closing of the Acquisition, and a $65.0 million revolving
credit facility (the "Revolving Credit Facility"). The purchase price for the
Jafra Business was approximately $212.4 million (excluding $12.0 million of
financing fees and expenses), consisting of $202.5 million in cash and $9.9
million of Acquisition fees.
General
The following discussion of the results of operations, financial condition and
liquidity of the Company should be read in conjunction with the accompanying
unaudited consolidated financial statements and notes thereto and with the
Company's audited consolidated financial statements as of and for the year ended
December 31, 1999, included in the Company's Annual Report on Form 10-K. The
results of operations for the three and six months ended June 30, 2000 are not
necessarily indicative of results that may be expected for future periods.
Results of Operations
The following table represents selected components of the Company's results of
operations, expressed in millions of dollars and as percentages of net sales.
The table reflects the operations of the Company for the three and six months
ended June 30, 2000 and 1999, respectively.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------------- -----------------------------------------
2000 1999 2000 1999
---------------- ----------------- ---------------- -------------------
(in millions) (in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 76.9 100.0% $ 71.6 100.0% $ 148.6 100.0% $ 139.6 100.0%
Cost of sales 17.9 23.3 20.6 28.8 34.2 23.0 41.4 29.7
--------- ------ ---------- ------ ----------- ----- --------- ------
Gross profit 59.0 76.7 51.0 71.2 114.4 77.0 98.2 70.3
Selling, general &
administrative expenses 48.3 62.8 44.3 61.9 95.5 64.3 84.9 60.8
Restructuring and impairment charges 1.1 1.4 2.7 3.8 1.1 0.7 3.1 2.2
---------- ------ ---------- ----- ---------- ----- -------- ------
Income from operations 9.6 12.5 4.0 5.5 17.8 12.0 10.2 7.3
Exchange gain (loss) (1.7) (2.2) 0.7 1.0 (5.3) (3.6) 3.4 2.4
Interest, net (4.0) (5.2) (4.3) (6.0) (8.0) (5.4) (8.2) (5.9)
Other income (expense), net 0.5 0.7 - - 1.2 0.8 0.1 0.1
---------- ------ ---------- ----- ---------- ----- -------- ------
Income before income taxes and
extraordinary item 4.4 5.8 0.4 0.5 5.7 3.8 5.5 3.9
Income tax expense 3.4 4.4 2.6 3.6 5.4 3.6 7.4 5.3
---------- ------ --------- ----- --------- ----- -------- ------
Net income (loss)
before extraordinary item 1.0 1.4 (2.2) (3.1) 0.3 0.2 (1.9) (1.4)
Extraordinary loss on early
extinguishment of debt, net of
income tax benefit of $0.2 - - - - (0.3) (0.2) - -
---------- ------ --------- ------ --------- ----- -------- -----
Net income (loss) $ 1.0 1.4% $ (2.2) (3.1)% $ (0.0) 0.0% $ (1.9) (1.4)%
========== ====== ========= ====== ========= ===== ======== =====
</TABLE>
----------------
(1) Certain sales promotional and other expenses which were previously reported
as selling, general and administrative expenses have been reclassified to cost
of sales to conform to the current period presentation. Total
13
<PAGE>
amounts that have been reclassified are $0.8 million and $2.8 million for the
three and six months ended June 30, 1999, respectively. In addition, charges of
$0.4 million, which were previously included in selling, general and
administrative expenses, have been reclassified to restructuring charges in the
accompanying unaudited consolidated statements of operations for the six months
ended June 30, 1999.
Three months ended June 30, 2000 compared to the three months ended June 30,
1999
Net sales. Net sales in the second quarter of 2000 increased to $76.9
million from $71.6 million in the second quarter of 1999, an increase of $5.3
million, or 7.4%. Net sales in local currencies in the second quarter of 2000
increased by 8.7% over the comparable prior year period. The sales increase in
local currencies was higher than the increase measured in U.S. dollars,
primarily as a result of the weakening of currencies in Europe. The Company's
average number of consultants (who perform the duties of sales representatives)
worldwide in the second quarter increased to approximately 309,000, or 9.9% over
the 1999 average.
In Mexico, net sales in the second quarter of 2000 increased to $46.7 million
from $41.4 million in the second quarter of 1999, an increase of $5.3 million,
or 12.8%. The impact of Mexican peso exchange rate fluctuations on net sales in
the quarter was not material. The year to year increase was primarily the
result of an increased consultant base, greater productivity of consultants and
price increases. In Mexico, the average number of consultants for the second
quarter of 2000 increased to approximately 190,000, or 3.2% over the 1999
average, while consultant productivity increased 15.2% in the second quarter of
2000. The Company defines consultant productivity as resale sales (sales to
consultants for resale to the ultimate consumers) in U.S. dollars per active
consultant. In general, consultants are considered to be active if they place
one order within four months.
In the U.S., net sales increased to $18.4 million in the second quarter of
2000 from $17.8 million in the second quarter of 1999, an increase of $0.6
million, or 3.4%. U.S. net sales in the second quarter of 1999 included
approximately $0.4 million of low margin sales to a third party manufacturer.
Excluding the impact of these sales, net sales in the U.S. in the second quarter
of 2000 increased 5.7%, due primarily to an increased consultant base and
greater activity (ordering) level, partially offset by lower consultant
productivity. In the U.S., the average number of consultants in the second
quarter of 2000 increased to 66,000, or 11.1% over the 1999 average. The U.S.
consultant base as of June 30, 2000 was at its highest level in the last twelve
years. Consultant productivity decreased, primarily due to a change in the
commission structure that stimulated ordering activity, but at lower order
sizes.
In Europe, net sales decreased to $6.8 million in the second quarter of 2000
from $8.2 million in the second quarter of 1999, a decrease of $1.4 million, or
17.1%. Contributing to the sales decline was an unfavorable exchange rate
impact on sales of $0.8 million. Excluding the exchange rate impact, net sales
decreased 7.3%, due primarily to a decrease in the number of consultants. In
Europe, the average number of consultants in the second quarter of 2000
decreased to approximately 17,000, or 8.6% below the 1999 average.
Gross profit. Gross profit in the second quarter of 2000 increased to $59.0
million from $51.0 million in the comparable prior year period, an increase of
$8.0 million, or 15.7%. Gross profit as a percentage of sales (gross margin)
increased to 76.7% from 71.2%.
In Mexico, gross profit in the second quarter of 2000 increased to $36.0
million from $29.1 million in 1999, an increase of $6.9 million, or 23.7%.
Gross margin increased to 77.1% from 70.4%, due to sales price increases, a more
favorable product mix, reduced product costs, and manufacturing cost
efficiencies related to increased volume. The more favorable product mix
consisted of a higher percentage of regular products (non-promotional) as
compared to promotional products. The reduced product costs included foreign
exchange gains from inventory and components purchased in dollar-denominated
transactions when the peso was stronger against the U.S. dollar, as well as
cost reductions on skin and body products that were not achieved until the
beginning of the third quarter of 1999, after the U.S. manufacturing of these
products was outsourced.
In the U.S., gross profit in the second quarter of 2000 increased to $14.5
million from $13.1 million in 1999, an increase of $1.4 million, or 10.7%. Low
margin third party sales in 1999 were $0.4 million. Gross margin, excluding the
impact of third party sales in 1999, increased to 78.9% from 75.0%, due to price
increases, a more favorable product mix and reduced product costs. The margin
on non-resale items improved significantly from prior year due to price
increases and the reconfiguration of cases sold to first-time consultants. The
reduced
14
<PAGE>
product costs in the U.S. included cost reductions on skin and body products
that were not achieved until the beginning of the third quarter of 1999, after
the U.S. manufacturing of these products was outsourced.
In Europe, gross profit in the second quarter of 2000 decreased to $5.2
million from $6.0 million in 1999, a decrease of $0.8 million, or 13.3%. Gross
margin increased to 76.6% from 73.6%, due to a change in the product mix.
Selling, general and administrative expenses. SG&A expenses in the second
quarter of 2000 increased to $48.3 million from $44.3 million in the second
quarter of 1999, an increase of $4.0 million, or 9.0%. SG&A as a percentage of
net sales increased in the second quarter of 2000 to 62.8% from 61.9% for the
same period in 1999.
In Mexico, SG&A expenses in the second quarter of 2000 increased to $21.7
million from $19.1 million in the comparable prior year period, an increase of
$2.6 million, or 13.6%. The increased SG&A in Mexico related primarily to
commissions and administrative expenses incurred to support growing sales. In
the U.S., SG&A expenses in the second quarter of 2000 increased to $12.0 million
from $11.2 million in the comparable prior year period, an increase of $0.8
million, or 7.1%, due primarily to incremental sales promotional expenses.
In Europe, SG&A expenses in the second quarter of 2000 decreased to $5.5 million
from $6.3 million in the comparable prior year period, a decrease of $0.8
million, or 12.7%, as a result of expense containment measures, primarily in
Germany. Corporate expenses in the second quarter of 2000 increased to $4.7
million from $4.5 million, an increase of $0.2 million, or 4.4%, primarily as a
result of costs incurred in connection with the development of the Company's e-
commerce business.
Restructuring and impairment charges. In the second quarter of 2000, the
Company recorded approximately $1.1 million of restructuring and impairment
charges related to repositioning activities in Europe. These charges included
approximately $0.7 million of severance costs and $0.4 million of costs
primarily relating to closure and/or consolidation of certain facilities and
related fixed asset impairments. In June 1999, the Company incurred
approximately $2.7 million of costs related to the outsourcing of the Company's
U.S. product manufacturing functions. Substantially all of the charges related
to severance costs.
Interest expense. Net interest expense (including amortization of deferred
financing fees) in the second quarter of 2000 decreased to $4.0 million from
$4.3 million in 1999, a decrease of $0.3 million, or 7.0%. During the latter
part of 1999 and the first quarter of 2000, the Company repurchased and retired
$24.8 million of its Notes and replaced them with debt under the Revolving
Credit Facility which currently has a lower effective interest rate. These
debt-restructuring activities resulted in interest savings of approximately $0.4
million for the quarter, which was offset by a $0.1 million decrease in interest
income due to lower average cash balances and lower interest rates in Mexico.
Other income (expense). Other income (expense) in the second quarter of 2000
was $0.5 million, which consisted primarily of income related to a recovery of
the effect of inflation upon an account receivable due from the Mexican
government. Other income (expense) in the second quarter of 1999 was nominal.
Exchange gain (loss). The Company's foreign exchange loss was $1.7 million
in the second quarter of 2000, compared to a foreign exchange gain of $0.7
million in the comparable prior year period, a net change of $2.4 million. The
net foreign exchange loss in the second quarter of 2000 has three elements:
gains or losses on forward contracts, unrealized losses on the remeasurement of
U.S. dollar-denominated debt as the peso weakened against the dollar, and
realized gains or losses on transactions denominated in foreign currencies.
During the latter part of 1999, the Company initiated a hedging program to
protect against potential devaluation of the Mexican peso, and established
forward contracts selling Mexican pesos and buying U.S. dollars based upon
forward exchange rates. These contracts are marked-to-market each month and the
fair value of the contracts is included in current assets and liabilities, with
the offsetting gain and loss included in exchange gain (loss) in the
accompanying consolidated statements of operations. For the three months ended
June 30, 2000, the net gain on forward contracts was $3.4 million. The
remeasurement of U.S. dollar-denominated debt resulted in an unrealized exchange
loss of $4.7 million, and net realized losses on other foreign currency
transactions were $0.4 million. During the second quarter of 1999, there were
no forward contracts in place and the $0.7 million gain was primarily the result
of remeasuring U.S. dollar-denominated debt.
Income tax expense. Income tax expense increased to $3.4 million in the
second quarter of 2000 from $2.6 million in the comparable 1999 period, an
increase of $0.8 million. 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 months ended June 30, 2000
and 1999 due to certain valuation allowances in Europe, South
15
<PAGE>
America and the U.S. in 1999 and 2000, and an effective tax rate in the Mexico
entity, Jafra S.A., that exceeds the U.S. federal tax rate due to certain
inflation-related income tax adjustments. The increased income tax expense is
primarily the result of withholding taxes paid by the Company's Mexican
subsidiary.
Net income (loss). Net income increased $3.2 million to a net income of $1.0
million in the second quarter of 2000, compared to a net loss of $2.2 million in
1999. The change was primarily due to a $8.0 million increase in gross profit,
a $1.6 million decrease in restructuring and impairment charges, a $0.3 million
decrease in interest expense and a $0.5 million increase in other income,
partially offset by a $4.0 million increase in SG&A expenses, a $2.4 million
negative fluctuation in foreign exchange gain (loss), and a $0.8 million
increase in income tax expense.
Six months ended June 30, 2000 compared to the six months ended June 30, 1999
Net sales. Net sales for the six months ended June 30, 2000 increased to
$148.6 million from $139.6 million in the comparable prior year period, an
increase of $9.0 million, or 6.4%. Net sales in local currencies in the six
months ended June 30, 2000 increased by 6.6% over the comparable prior year
period. The sales increase in local currencies was higher than the increase
measured in U.S. dollars due to the weakening of currencies in Europe and South
American markets, substantially offset by the strengthening of the Mexican peso
when measured against the U.S. dollar in 2000 relative to 1999. The Company's
average number of consultants worldwide for the six months ended June 30, 2000
increased to approximately 303,000, or 12.9% over the 1999 average. The
Company's consultant productivity increased 2.5% in the six months ended June
30, 2000, but the percentage of ordering consultants decreased by 2.4%.
In Mexico, net sales for the six months ended June 30, 2000 increased to $91.1
million from $80.7 million in the comparable prior year period, an increase of
$10.4 million, or 12.9%. Sales in Mexico in local currency increased by 10.3%
over the comparable 1999 period. The year-to-year increase was primarily the
result of an increased consultant base, greater productivity of consultants and
price increases, partially offset by a lower activity (ordering) level. In
Mexico, the average number of consultants for the six months ended June 30, 2000
increased to approximately 192,000, or 10.4% over the 1999 average.
In the U.S., net sales were $35.1 million for both the six months ended June
30, 2000 and 1999. U.S. net sales in the six months ended June 30, 1999 included
approximately $1.2 million of certain low margin sales to a third party
manufacturer. Excluding the impact of these sales, net sales in the U.S. for the
six months ended June 30, 2000 increased $1.2 million or 3.4%, due primarily to
an increased consultant base and greater activity level, partially offset by
lower consultant productivity. In the U.S., the average number of consultants
for the six months ended June 30, 2000 increased to 61,000, or 6.6% over the
1999 average, but consultant productivity decreased primarily due to a change in
the commission structure that stimulated ordering activity, but at lower order
sizes.
In Europe, net sales decreased to $13.3 million for the six months ended June
30, 2000 from $16.4 million in the comparable 1999 period, a decrease of $3.1
million, or 18.9%. Contributing to the sales decline was an unfavorable
exchange rate impact on sales of $1.8 million. Excluding the exchange rate
impact, net sales decreased 7.9%, due primarily to decreases in the number of
consultants. In Europe, the average number of consultants for the six months
ended June 30, 2000 decreased to approximately 17,000, or 8.5% below the 1999
average.
Gross profit. Gross profit for the six months ended June 30, 2000 increased
to $114.4 million from $98.2 million in the comparable prior year period, an
increase of $16.2 million, or 16.5%. Gross profit as a percentage of sales
(gross margin) increased to 77.0% from 70.3%.
In Mexico, gross profit for the six months ended June 30, 2000 increased to
$70.5 million from $56.0 million in 1999, an increase of $14.5 million, or
25.9%. Gross margin increased to 77.4% from 69.4%, due to sales price
increases, a more favorable product mix, reduced product costs, and
manufacturing cost efficiencies related to increased volume. The more favorable
product mix consisted of a higher percentage of regular products (non-
promotional) as compared to promotional products, and among the promotional
products, there was a lower level of discounting compared to the prior year.
The reduced product costs included foreign exchange gains from inventory and
components purchased in dollar-denominated transactions when the peso was
stronger against the
16
<PAGE>
U.S. dollar, as well as cost reductions on skin and body products that were
not achieved until the beginning of the third quarter of 1999, after the U.S.
manufacturing of these products was outsourced.
In the U.S., gross profit for the six months ended June 30, 2000 increased to
$27.7 million from $24.9 million in 1999, an increase of $2.8 million, or 11.2%.
Low margin third party sales in 1999 were $1.2 million. Gross margin, excluding
the impact of third party sales in 1999, increased to 78.9% from 73.4%, due to
price increases and reduced product costs. The margin on non-resale items
improved significantly from prior year due to price increases and the
reconfiguration of cases sold to first-time consultants. The reduced product
costs in the U.S. included cost reductions on skin and body products that were
not achieved until the beginning of the third quarter of 1999, after the U.S.
manufacturing of these products was outsourced.
In Europe, gross profit for the six months ended June 30, 2000 decreased to
$10.2 million from $12.3 million in 1999, a decrease of $2.1 million, or 17.1%.
Gross margin increased to 76.4% from 74.9%, due primarily to a change in the
product mix.
Selling, general and administrative expenses. SG&A expenses for the six
months ended June 30, 2000 increased to $95.5 million from $84.9 million in the
comparable prior year period, an increase of $10.6 million, or 12.5%. SG&A as a
percentage of net sales for the six months ended June 30, 2000 increased to
64.3% from 60.8% for the same period in 1999, due primarily to increased
commissions, sales promotional expenses and administrative expenses incurred
to support growing sales.
In Mexico, SG&A expenses in the six months ended June 30, 2000 increased to
$41.7 million from $35.7 million in the comparable prior year period, an
increase of $6.0 million, or 16.8%. The increased SG&A in Mexico related
primarily to commissions and administrative expenses incurred to support growing
sales. In the U.S., SG&A expenses in the six months ended June 30, 2000
increased to $25.2 million from $20.9 million in the comparable prior year
period, an increase of $4.3 million, or 20.6%. The U.S. incurred additional
sales promotional expenses in 2000 primarily as a result of the Company's
commitment to expand business in the market, and holding an additional major
promotional event in the first quarter to launch a new skin care line. In
addition, the U.S. made a change in the lineage program which resulted in higher
commissions. In Europe, SG&A expenses in the six months ended June 30, 2000
decreased to $11.0 million from $13.4 million in the comparable prior year
period, a decrease of $2.4 million, or 17.9%, due primarily to expense
containment measures, primarily in Germany. Corporate expenses in the six months
ended June 30, 2000 increased to $9.3 million from $8.6 million, an increase of
$0.7 million, or 8.1%, primarily as a result of expenses incurred in connection
with the development of the Company's e-commerce business.
Restructuring and impairment charges. In the second quarter of 2000, the
Company recorded approximately $1.1 million of restructuring charges relating to
repositioning activities in Europe. These charges included approximately
$0.7 million of severance costs and $0.4 million of costs primarily relating to
closure and/or consolidation of certain facilities and related fixed asset
impairments. In 1999, the restructuring charges of $3.1 million included
approximately $2.7 million of charges related to the outsourcing of the
Company's U.S. product manufacturing functions, and approximately $0.4 million
of other charges related to certain restructuring activities in the U.S., Europe
and Mexico. Substantially all of those charges related to severance costs.
Interest expense. Net interest expense (including amortization of deferred
financing fees) for the six months ended June 30, 2000 decreased to $8.0 million
from $8.2 million in 1999, a decrease of $0.2 million, or 2.4%. During the
latter part of 1999 and the first quarter of 2000, the Company repurchased and
retired $24.8 million of its Notes and replaced them with debt under the
Revolving Credit Facility which currently has a lower effective interest rate.
These debt-restructuring activities resulted in interest savings of
approximately $0.5 million for the six months ended June 30, 2000, which were
offset by a $0.3 million decrease in interest income due to lower average cash
balances and lower interest rates in Mexico.
Other income (expense). Other income for the six months ended June 30, 2000
was $1.2 million, which consisted primarily of income related to a recovery of
the effect of inflation upon an account receivable due from the Mexican
government. Other income (expense) in the six months ended June 30, 1999 was
nominal.
Exchange gain (loss). The Company's foreign exchange loss was $5.3 million
for the six months ended June 30, 2000, compared to a foreign exchange gain of
$3.4 million in the prior year, a net change of $8.7 million. The net foreign
exchange loss for 2000 has three elements: gains or losses on forward contracts,
unrealized losses on
17
<PAGE>
the remeasurement of U.S. dollar-denominated debt as the peso weakened against
the dollar, and realized gains or losses on transactions denominated in foreign
currencies. During the latter part of 1999, the Company initiated a hedging
program to protect against potential devaluation of the Mexican peso, and
established forward contracts selling Mexican pesos and buying U.S. dollars
based upon forward exchange rates. These contracts are marked-to-market each
month and the fair value of the contracts is included in current assets and
liabilities, with the offsetting gain and loss included in exchange gain (loss)
in the accompanying consolidated statements of operations. For the six months
ended June 30, 2000, the net loss on forward contracts was $2.1 million. The
remeasurement of U.S. dollar-denominated debt resulted in an unrealized exchange
loss of $2.5 million, and net realized losses on other foreign currency
transactions were $0.7 million. During the first six months of 1999, there were
no forward contracts in place and the $3.4 million gain was primarily the result
of remeasurement of U.S. dollar-denominated debt.
Income tax expense. Income tax expense decreased to $5.4 million for the
six months ended June 30, 2000 from $7.4 million in the comparable 1999 period,
a decrease of $2.0 million. The decrease is due to lower taxable income
generated by the Company's Mexican subsidiary in 2000 as compared to 1999. 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 six months ended June 30, 2000 and 1999 due to certain valuation
allowances in Europe, South America and the U.S. in 1999 and 2000, and an
effective tax rate in the Mexico entity, Jafra S.A. that exceeds the U.S.
federal tax rate, due to certain inflation-related income tax adjustments.
Net income (loss). Net loss decreased $1.9 million to zero for the six months
ended June 30, 2000, compared to a net loss of $1.9 million in 1999. The change
was primarily due to a $16.2 million increase in gross profit, a $2.0 million
decrease in restructuring and impairment charges, a $0.2 million decrease in net
interest expense, a $1.1 million increase in other income and a $2.0 million
decrease in income tax expense, partially offset by a $10.6 million increase in
SG&A expenses, a $8.7 million negative fluctuation in foreign exchange gain
(loss), and a $0.3 million extraordinary loss, net of tax, on early
extinguishment of debt.
Liquidity and Capital Resources
The Acquisition was consummated on April 30, 1998. As part of the financing
for the Acquisition, $100.0 million of Notes were issued, $41.5 million of
borrowings were initially drawn down under the Senior Credit Agreement ($25.0
million under the Term Loan Facility and $16.5 million under the Revolving
Credit Facility), and $82.9 million of cash was contributed as an equity
investment by CD&R Fund V, certain members of management, certain directors and
other persons. The purchase price for the Jafra Business, after final
adjustments determined in 1999, was approximately $212.4 million (excluding
$12.0 million of financing fees and expenses), consisting of $202.5 million in
cash and $9.9 million of Acquisition fees.
The Company's liquidity needs arise primarily from principal and interest
payments under the Notes, the Term Loan Facility and the Revolving Credit
Facility. The Notes represent several obligations of JCI and Jafra S.A. in the
amount of $60 million and $40 million (subsequently reduced in 1999 and 2000 by
the repurchases described below), respectively, with each participating on a pro
rata basis upon redemption. The Notes mature in 2008 and bear a fixed interest
rate of 11.75% payable semi-annually.
Borrowings under the Senior Credit Agreement are payable in quarterly
installments of principal and interest over six years through April 30, 2004.
Scheduled term loan principal payments under the Term Loan Facility will be
approximately $3.5 million (half of which has been paid as of June 30, 2000),
$4.5 million, $5.5 million, $6.5 million, and $2.5 million for each of the years
from 2000 through 2004, respectively. Borrowings under the Revolving Credit
Facility ($31.4 million as of June 30, 2000) 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 1.875% or an alternate base rate (the higher
of the prime rate or federal funds rate plus 1%, plus an applicable margin not
to exceed 0.875%). The interest rate in effect at June 30, 2000 was
approximately 8.6% for the LIBOR-based borrowings, and the rate for the prime-
based borrowings was approximately 10.4%. Borrowings under the senior Credit
Agreement are secured by substantially all of the assets of JCI and Jafra S. A.
During the six months ended June 30, 2000, cash paid for interest was
approximately $7.3 million.
Both the indenture (the "Indenture"), dated as of April 30, 1998, under which
the Notes were issued, and the Senior Credit Agreement contain certain covenants
that limit the Company's ability to incur additional
18
<PAGE>
indebtedness, pay cash dividends and make certain other payments. The Indenture
and the Senior Credit Agreement also require the Company to maintain certain
financial ratios including a minimum EBITDA to cash interest expense coverage
ratio and a maximum debt to EBITDA ratio. The Company has one letter of credit
outstanding as of June 30, 2000 under the Revolving Credit Facility, in the
amount of approximately $1.6 million.
The Notes are unsecured and are generally non-callable for five years.
Thereafter, the Notes will be callable at premiums declining to par in the
eighth year. Prior to May 1, 2001, JCI and Jafra S.A. at their option may
concurrently redeem the Notes on a pro rata basis in an aggregate principal
amount equal to up to 35% of the original aggregate principal amount of the
Notes not exceeding the aggregate cash proceeds of one or more equity offerings,
at a redemption price of 111.75% plus accrued interest; provided, however, that
an aggregate principal amount of the Notes equal to at least 65% of the original
aggregate principal amount of the Notes must remain outstanding after each such
redemption.
A Consent and Waiver, dated November 19, 1999, to the Senior Credit Agreement
allows the Company to repurchase the Notes in the open market from time to time,
with the aggregate purchase price for all such Notes repurchased not to exceed
$25.0 million. During the first quarter of year 2000 the Company repurchased and
retired Notes with a face value of $10.8 million, and aggregate repurchases as
of June 30, 2000 were $24.8 million. The repurchased debt has been replaced
with debt under the Revolving Credit Facility, which currently has lower
effective interest rates.
In April 2000, Jafra S.A. received an income tax refund of $4.7 million from
the Mexican government.
In June 2000, Jafra S. A. entered into a short-term bank loan of $3.0 million
in connection with the settlement of foreign currency forward contracts. The
interest rate on the loan was 22.4% per annum and the loan was repaid in July
2000.
The Company believes, but no assurance can be given, that its existing cash,
cash flow from operations and availability under the Senior Credit Agreement
will provide sufficient liquidity to meet the Company's cash requirements and
working capital needs over the next twelve months.
Cash Flows
Net cash provided by operating activities was $5.1 million for the six months
ended June 30, 2000, compared to cash used in operating activities of $0.8
million for the comparable 1999 period. The $5.9 million increase in cash flow
from operations in 2000 compared to 1999 is primarily attributable to an
increase of $5.5 million in net income (loss) before extraordinary item adjusted
for depreciation, amortization and other non-cash items included in net income
(loss) before extraordinary item, and a $0.4 million decrease in the change of
working capital items. The changes in working capital items consisted of an
increase in inventory to achieve higher service levels, a reduction in accounts
payable and accrued liabilities, and a decrease in income tax payable/prepaid
due primarily to income tax refunds received by Jafra S.A. in 2000 and lower
estimated tax payments in Mexico.
Net cash used in investing activities was $2.8 million for the six months
ended June 30, 2000, which was used for capital expenditures, consisting
primarily of information system upgrades (including e-commerce systems),
facilities costs and production equipment. Capital expenditures in 2000 are
expected to be between $9.0 million and $10.0 million, mainly for information
system upgrades (including e-commerce systems).
Net cash used in financing activities was $3.0 million for the six months
ended June 30, 2000, consisting primarily of payments of $10.6 million for the
repurchase of subordinated debt with a face value of $10.8 million during 2000
and repayments of $1.8 million under term loan facilities, partially offset by
net borrowings under the revolving credit facility of $6.4 million and net
proceeds from short-term bank debt of $3.0 million.
The effect of exchange rate changes on cash was $0.8 million for the six
months ended June 30, 2000, relating primarily to fluctuations in the exchange
rates in Europe.
19
<PAGE>
Foreign Operations
Sales outside of the United States aggregated approximately 76% and 75% of the
Company's total net sales for the six months ended June 30, 2000 and 1999,
respectively. In addition, as of June 30, 2000, international subsidiaries
comprised approximately 75% of the Company's consolidated total assets.
Accordingly, the Company has experienced and continues to be exposed to foreign
exchange risk. In 2000, the Company entered into foreign currency forward
contracts in Mexican pesos to reduce the effect of potentially adverse exchange
rate fluctuations in Mexico.
The Company's subsidiary in Mexico, Jafra S.A., generated approximately 61.3%
of the Company's net sales for the six months ended June 30, 2000, compared to
57.8% for the comparable 1999 period, substantially all of which were
denominated in Mexican pesos. Jafra S.A. had $38.3 million of U.S. dollar-
denominated third party debt and $28.4 million of U.S. dollar-denominated
intercompany debt as of June 30, 2000. Gains and losses from remeasuring such
debt to the U.S. dollar from the peso are included as a component of net income.
During the six months ended June 30, 2000, Jafra S. A. recognized an unrealized
loss of $2.5 million on remeasurement of this U.S. dollar-denominated debt and a
net loss of $2.1 million on foreign currency forward contracts.
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 is traded on currency exchanges and
is available for non-cash transactions during the transition period between
January 1, 1999 and January 1, 2002. During this transition period, the existing
currencies are scheduled to remain legal tender in the participating countries
as denominations of the euro and public and private parties may pay for goods
and services using either the euro or the participating countries' existing
currencies.
During the transition period, the Company will continue to utilize the
respective country's existing currency as the functional currency. Use of the
euro by the Company or its 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.
Business Trends and Initiatives
The markets in which the Company competes are highly competitive. Price,
quality, sales consultants 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 geographic areas and later in others, may impact future
quarterly results.
The Company has experienced significant sales growth in Mexico from the fourth
quarter of 1998 through the fourth quarter of 1999, and has continued its growth
in the first two quarters of 2000, but at a slower rate. The Company's Mexican
subsidiary generated 61.3% of the Company's consolidated net sales for the six
months ended June 30, 2000, compared to 59.1% for the full year in 1999. The
year to year sales growth in Mexico for the six months ended June 30, 2000 was
12.9% in U.S. dollars and 10.3% in local currency. Assuming a continued stable
economic environment, the Company intends to continue to grow its revenues and
consultant base in Mexico, but no assurance can be given that sales in Mexico
will continue to increase.
Excluding the impact of low margin sales to a third party manufacturer, net
sales in the U.S. for the six months ended June 30, 2000 increased 3.4% compared
to the prior year. The U.S. plans to implement a number
20
<PAGE>
of strategies in the remainder of 2000 which, along with the expected initiation
of its e-commerce business and an increased focus on sponsoring new consultants
through enhanced training programs, are intended to stimulate sales growth in
the range of 8-12% over 1999 levels.
Net sales in Europe have been on a downward trend for the last two years. For
the six months ended June 30, 2000, excluding the impact of exchange rates, net
sales decreased 7.9% from 1999, primarily due to a decline in the number of
consultants. Sales in Europe for the year 2000 are expected to be slightly
below 1999 levels. The Company continues to evaluate opportunities to streamline
its operations to enhance the profitability achieved by these markets.
The South American business has grown significantly over the last four
quarters. The number of ending consultants at June 30, 2000 increased by 93%
from June 30, 1999 and is projected to increase by approximately another 50% by
the end of the year. The Company has plans for further geographic expansion in
South America and believes it will become an increasingly important business
segment in the future.
As a result of these differential growth rates, the Company expects, but no
assurance can be given, that its percentage of net sales in Mexico will increase
slightly, and its percentage of net sales in Europe will decrease slightly for
the near term.
The Company has made plans to develop new business in 2000 through expansion
into new markets, including Thailand and Peru, and by utilizing the Internet and
electronic commerce to increase its revenue base in existing markets.
Information Concerning Forward-Looking Statements
Certain of the statements contained in this report (other than the Company's
consolidated financial statements and other statements of historical fact) are
forward-looking statements, including, without limitation, (i) the statements in
"--Liquidity and Capital Resources" concerning the Company's belief that it will
have sufficient liquidity to meet its cash requirements and working capital
needs over the next twelve months; (ii) the statement in "--Cash Flows" that
total capital expenditures in 2000 are expected to be between $9.0 million and
$10.0 million; (iii) the statements in "--European Economic and Monetary
Union" concerning the Company's expectations that (a) use of the euro by the
Company or its 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; (iv) the statements in "--Business Trends and
Initiatives" that (a) the Company intends to respond to competitive pressures in
each major geographic marketplace in which it participates; (b) the timing of
these responses, which may occur sooner in certain geographic areas and later in
others, may impact future quarterly results; (c) assuming a continued stable
economic environment, the Company intends that it will grow its revenues and
consultant base in Mexico; (d) the Company intends to grow its year 2000 sales
in the U.S. market 8-12% due to new strategies and the initiation of e-commerce
business; (e) the Company's expectation that sales in Europe for the year 2000
will be slightly below 1999 levels; (f) the Company's projection that the number
of ending consultants in South America will increase by approximately another
50% by the end of the year, and that South America will become an increasingly
important business segment in the future; and (g) the Company's expectation that
the percentage of net sales in Mexico will increase slightly, and that its
percentage of net sales in Europe will decrease slightly for the near term; and
(v) other statements as to management's or the Company's expectations or beliefs
presented in this "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Forward-looking statements are based upon management's current expectations
and beliefs concerning future developments and their potential effects upon the
Company. There can be no assurance that future developments will be in
accordance with management's expectations or that the effect of future
developments on the Company will be those anticipated by management. The
factors described in the Company's Annual Report on Form 10-K for the year ended
December 31, 1999 (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)
21
<PAGE>
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 certain market risks arising from transactions in
the normal course of its business, and from debt incurred in connection with the
Acquisition. Such risk is principally associated with interest rate and foreign
exchange fluctuations, as well as changes in the Company's credit standing. See
disclosures under Item 7a, "Quantitative and Qualitative Disclosures About
Market Risks" in the Company's annual report on Form 10-K for the year ended
December 31, 1999. No significant changes have occurred during the six months
ended June 30, 2000 in relation to the interest rate risk.
Foreign Currency Risk
The Company operates globally, with manufacturing facilities in Mexico and
distribution facilities in various locations around the world. All intercompany
product sales are denominated in U.S. dollars. In addition, 76% of the
Company's revenue for the six months ended June 30, 2000 was generated in
countries with a functional currency other than the U.S. dollar. As a result,
the Company's earnings and cash flows are exposed to fluctuations in foreign
currency exchange rates.
The Company may reduce its primary market exposures to fluctuations in foreign
exchange rates and hedge contractual foreign currency cash flows or obligations
(including third-party and intercompany foreign currency transactions) by
creating offsetting positions through the use of forward exchange contracts.
The Company regularly monitors its foreign currency exposures and ensures that
contract amounts do not exceed the amounts of the underlying exposures. The
Company does not use derivative financial instruments for trading or speculative
purposes, nor is the Company a party to leveraged derivatives.
The table below describes the forward contracts that were outstanding at June
30, 2000 (dollar amounts in thousands). These foreign currency forward
contracts do not qualify as hedging transactions under the current accounting
definitions and, accordingly, have been marked-to-market through income.
<TABLE>
<CAPTION>
Forward Weighted
Position in Maturity Average Fair
Foreign Currency US Dollars (1) Date Contract Rate Value (1)
----------------------------------------- ----------------- ------------ ---------------- ------------
<S> <C> <C> <C> <C>
Buy US Dollar/sell Mexican Peso 6,315 07/31/2000 10.13 6,186
Buy US Dollar/sell Mexican Peso 8,354 08/31/2000 10.17 8,241
Buy US Dollar/sell Mexican Peso 12,384 09/29/2000 10.26 12,233
Buy US Dollar/sell Mexican Peso 7,275 10/31/2000 10.45 7,141
Buy US Dollar/sell Mexican Peso 10,534 11/30/2000 10.54 10,348
Buy US Dollar/sell Mexican Peso 19,874 12/29/2000 10.67 19,447
Buy US Dollar/sell Mexican Peso 6,980 01/26/2001 10.12 7,210
Buy US Dollar/sell Mexican Peso 7,500 02/26/2001 10.20 7,754
Buy US Dollar/sell Mexican Peso 7,529 03/30/2001 10.36 7,702
Buy US Dollar/sell Mexican Peso 5,915 04/30/2001 10.48 6,037
Buy US Dollar/sell Mexican Peso 2,828 05/31/2001 10.61 2,881
---------------- ----------
$ 95,488 $ 95,180
================ ==========
</TABLE>
22
<PAGE>
-------------------
(1) The "Forward Position in US Dollars" and the "Fair Value" presented
above represent notional amounts. The net of these two amounts, $308,000,
represents the fair value of the forward contracts, as well as the unrealized
losses on such contracts, and has been recorded as an accrued liability in the
accompanying consolidated balance sheet as of June 30, 2000.
23
<PAGE>
(I) 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 year ended December 31, 1999.
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
On June 13, 2000, the stockholders of CDRJ Investments (Lux) S.A., at their
annual meeting, unanimously re-elected in their entirety the board of directors
of CDRJ Investments (Lux) S.A.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
The following exhibit is filed herewith or incorporated by reference:
3.1 Approval, dated as of April 17, 2000, by the Public Registry of
Commerce of the United Mexican States of the merger of Consultoria
Jafra S.A. de C.V. and Distribuidora Venus, S.A. de C.V. with and into
Reday, S.A. de C.V., together with supporting shareholders'
resolutions and the unofficial English translation thereof.
27 Financial Data Schedule
(b) Reports on Form 8-K
-------------------
During the quarter ended June 30, 2000, the Company filed no reports on
Form 8-K.
24
<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/ MICHAEL DIGREGORIO
-------------------------------------
Michael DiGregorio
Senior Vice President and Chief Financial
Officer of the Advisory Committee
(Principal Financial Officer)
August 14, 2000
25
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description
---------- -----------
3.1 Approval, dated as of April 17, 2000, by the Public
Registry of Commerce of the United Mexican States of the
merger of Consultoria Jafra S.A. de C.V. and
Distribuidora Venus, S.A. de C.V. with and into Reday,
S.A. de C.V., together with supporting shareholders'
resolutions and the unofficial English translation
thereof.
27 Financial Data Schedule
26
