ENSTAR GROUP INC - 10-Q Quarterly Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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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 SEPTEMBER 30, 2003

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 0-07477

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THE ENSTAR GROUP, INC.
(Exact name of registrant as specified in its charter)

GEORGIA 63-0590560
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

401 MADISON AVENUE
MONTGOMERY, ALABAMA 36104
(Address of principal executive offices)
(334) 834-5483
(Registrant's telephone number, including area code)

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

Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [X] No [ ]

Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes [X] No [ ]

The number of shares of Registrant's Common Stock, $.01 par value per
share, outstanding at November 14, 2003 was 5,465,753.
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THIS FORM 10-Q AND OTHER STATEMENTS ISSUED OR MADE FROM TIME TO TIME BY THE
ENSTAR GROUP, INC. OR MEMBERS OF ITS MANAGEMENT TEAM CONTAIN STATEMENTS WHICH
MAY CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE SECURITIES
ACT OF 1933, AND THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED BY THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995, 15 U.S.C.A. SECTIONS 77Z-2 AND 78U-5
(SUPP. 1996). THOSE STATEMENTS INCLUDE STATEMENTS REGARDING THE INTENT, BELIEF
OR CURRENT EXPECTATIONS OF THE ENSTAR GROUP, INC. AND MEMBERS OF ITS MANAGEMENT
TEAM, AS WELL AS THE ASSUMPTIONS ON WHICH SUCH STATEMENTS ARE BASED. PROSPECTIVE
INVESTORS ARE CAUTIONED THAT ANY SUCH FORWARD-LOOKING STATEMENTS ARE NOT
GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES, AND THAT
ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD-
LOOKING STATEMENTS. IMPORTANT FACTORS CURRENTLY KNOWN TO MANAGEMENT THAT COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN FORWARD-LOOKING
STATEMENTS ARE SET FORTH IN THE SAFE HARBOR COMPLIANCE STATEMENT FOR
FORWARD-LOOKING STATEMENTS INCLUDED AS EXHIBIT 99.1 TO THE ENSTAR GROUP, INC.
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002, AND ARE
HEREBY INCORPORATED BY REFERENCE. THE ENSTAR GROUP, INC. UNDERTAKES NO
OBLIGATION TO UPDATE OR REVISE FORWARD-LOOKING STATEMENTS TO REFLECT CHANGED
ASSUMPTIONS, THE OCCURRENCE OF UNANTICIPATED EVENTS OR CHANGES TO FUTURE
OPERATING RESULTS OVER TIME.
i

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

THE ENSTAR GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of the condensed consolidated
financial statements.
1

THE ENSTAR GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

The accompanying notes are an integral part of the condensed consolidated
financial statements.
2

THE ENSTAR GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

The accompanying notes are an integral part of the condensed consolidated
financial statements.
3

THE ENSTAR GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

The accompanying notes are an integral part of the condensed consolidated
financial statements.
4

THE ENSTAR GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 1: GENERAL

The Enstar Group, Inc. and Subsidiaries, (collectively, the "Company"), is
a publicly traded company engaged in the operation of several equity affiliates
in the financial services industry. Enstar also continues its active search for
one or more additional operating businesses which meet its acquisition criteria.

The condensed consolidated financial statements of the Company are
unaudited and, in the opinion of management, include all adjustments consisting
solely of normal recurring adjustments necessary to fairly state the Company's
financial condition, results of operations and cash flows for the interim
period. The results of operations for the three and nine months ended September
30, 2003 are not necessarily indicative of the results to be expected for the
full year. These statements should be read in conjunction with the consolidated
financial statements and notes thereto for the year ended December 31, 2002
included in the Company's Form 10-K as filed with the Securities and Exchange
Commission on March 31, 2003 under the Securities Exchange Act of 1934, as
amended.

In January 2003, the Company announced a $10 million commitment to JCF CFN
LLC and related entities (collectively, the "JCF CFN Entities"). The JCF CFN
Entities are controlled by JCF Associates I LLC, the managing member of which is
J. Christopher Flowers, a member of the Company's board of directors and the
Company's largest shareholder. Approximately $3 million of the Company's
commitment was funded in January 2003 from cash on hand. In June 2003, the
Company increased its commitment to $15.3 million, resulting in the Company
holding a 60% interest in the JCF CFN Entities. In addition, in June, 2003
Castlewood Holdings Limited ("Castlewood Holdings") became a member of the JCF
CFN Entities and made a $10.2 million commitment, in exchange for a 40%
interest. Both the Company and Castlewood Holdings have fully funded their
commitments to the JCF CFN Entities.

In January 2003, the Financial Accounting Standards Board issued
Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities."
FIN 46 requires consolidation by a business enterprise of variable interest
entities ("VIE") if the enterprise is determined to be the primary beneficiary.
The Company believes that each of the JCF CFN Entities qualifies as a VIE and
that the Company is the primary beneficiary of each such entity. As such, the
JCF CFN Entities are included in the accompanying condensed consolidated
financial statements, with Castlewood Holdings' 40% interest reflected as
minority interest.

NOTE 2: SIGNIFICANT ACCOUNTING POLICIES

(a) Use of Estimates -- The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates. The estimates susceptible to significant change are
those related to the valuation allowance for deferred tax assets and loss and
loss adjustment expenses included in earnings of partially owned equity
affiliates.

(b) Cash Equivalents -- Cash equivalents consist of short term, highly
liquid investments with original purchased maturities of three months or less.

(c) Partially Owned Equity Affiliates -- Partially owned equity affiliates
are accounted for under the equity method of accounting. Equity method
investments are recorded at cost and are adjusted periodically to recognize the
Company's proportionate share of the investee's income or loss, additional
contributions made and dividends and capital distributions received. In the
event any of the partially owned equity affiliates were to incur a loss and the
Company's cumulative proportionate share of the loss exceeded the carrying
amount of the equity method investment, application of the equity method would
be suspended and the Company's proportionate share of further losses would not
be recognized until the Company committed to provide further
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THE ENSTAR GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

financial support to the investee. The Company would resume application of the
equity method once the investee becomes profitable and the Company's
proportionate share of the investee's earnings equals it cumulative
proportionate share of losses that were not recognized during the period the
application of the equity method was suspended.

(d) Comprehensive Income -- The Company reports comprehensive income in
accordance with Statement of Financial Accounting Standards ("SFAS") 130,
"Reporting Comprehensive Income" which defines comprehensive income as certain
changes in equity from non-owner sources. The Company recorded other
comprehensive income from some of its partially owned equity affiliates, which
arose from unrealized holding gains and losses from debt and equity securities
that are classified as available-for-sale and are carried at fair value,
unrealized gains on hedge assets and currency translation adjustments resulting
from the translations of financial information of subsidiaries into U.S.
dollars.

(e) Revenue Recognition -- Revenue includes interest income earned from
cash, cash equivalents and certificates of deposit and the Company's
proportionate share of earnings from partially owned equity affiliates. Interest
income is recorded when earned. The Company's proportionate share of earnings
from partially owned equity affiliates is recorded as such earnings are
recognized by the partially owned equity affiliate with the exception of B-Line
LLC ("B-Line") which is recorded three months in arrears.

(f) Stock-Based Compensation -- For the three and nine months ended
September 30, 2003 and 2002, the Company utilized various stock-based
compensation plans for the benefit of non-employee directors and certain
officers. In 1997, the Company adopted the Deferred Compensation and Stock Plan
for Non-Employee Directors and a long-term incentive program made up of three
stock option/incentive plans. Additionally, in 2001, the Company adopted the
2001 Outside Directors' Stock Option Plan (the "2001 Directors' Plan") and
amended certain provisions of the 1997 Amended Omnibus Incentive Plan (the
"Incentive Plan"). The Incentive Plan was further amended by shareholder
approval at the Annual Meeting of Shareholders in May 2003. The Company accounts
for these plans under the intrinsic value recognition and measurement principles
of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25") and related interpretations. Compensation
expense for the Deferred Compensation and Stock Plan for Non-Employee Directors
is recognized at the first of every quarter for retainer fees and upon the
occurrence of various Board of Director and committee meetings. There is no
compensation expense recognized in net earnings for stock option/incentive plans
that had an exercise price equal to the market value of the Company's underlying
common stock on the date of grant. In connection with options granted in
November 2001, the market value of the Company's common stock on the date of
grant exceeded the exercise price, resulting in a charge to earnings for that
year. In addition, compensation expense is being recognized over the vesting
life of these options through June 2004. Had compensation costs for grants under
the Company's stock option/incentive plans been determined based on the fair
value recognition provision of SFAS 123, "Accounting for Stock-Based
Compensation," the Company's pro forma net income

6

THE ENSTAR GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

and net income per share for the three and nine months ended September 30, 2003
and 2002 would have been as follows:

(g) Reclassifications -- Certain prior period amounts have been
reclassified in the financial statements to conform to the current period
presentation.

NOTE 3: PARTIALLY OWNED EQUITY AFFILIATES

B-LINE

In November 1998, the Company purchased membership units of B-Line for
$965,000 including $15,000 in expenses. Based in Seattle, Washington, B-Line
provides services to credit card issuers and other holders of similar
receivables. B-Line also purchases credit card receivables and recovers payments
on these accounts. At September 30, 2003, the Company's ownership percentage was
approximately 8.34%.

The Company's B-Line membership units are accounted for under the equity
method. The operations of B-Line are reported by the Company three months in
arrears. Approximately $803,000 of the original $950,000 paid was recorded as
goodwill and was being amortized over a period of 10 years. Since the adoption
by the Company of SFAS 142, "Goodwill and Other Intangible Assets," in January
2002, goodwill is no longer being amortized. At September 30, 2003 and December
31, 2002 the Company had approximately $552,000 of unamortized goodwill.

B.H. ACQUISITION

In July 2000, the Company, through B.H. Acquisition Limited ("B.H.
Acquisition"), a joint venture with Castlewood Limited ("Castlewood") and an
entity controlled by Trident II, L.P. ("Trident"), acquired as an operating
business two reinsurance companies of Petrofina S.A., a subsidiary of TotalFina
Elf S.A. The reinsurance companies, Brittany Insurance Company Ltd. ("Brittany")
and Compagnie Europeenne d'Assurances Industrielles S.A. ("CEAI") were purchased
by B.H. Acquisition for $28.5 million and were accounted for by B.H. Acquisition
using the purchase method of accounting. Brittany and CEAI are principally
engaged in the active management of books of reinsurance business from
international markets. In exchange for a capital contribution of approximately
$9.6 million, the Company received 50% of the voting

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THE ENSTAR GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

stock and a 33% economic interest in B.H. Acquisition. As part of the
transaction, Castlewood received 33% of the voting stock and a 45% economic
interest in B.H. Acquisition. In May 2002, the Company received $3.3 million
from B.H. Acquisition representing the Company's proportionate share of a
dividend from B.H. Acquisition. The Company's ownership in B.H. Acquisition is
accounted for using the equity method of accounting.

B.H. Acquisition had negative goodwill of approximately $3.0 million
recorded on its financial statements as of December 31, 2001. In accordance with
SFAS 142, B.H. Acquisition reversed this negative goodwill into earnings upon
adoption of SFAS 142 and presented it as a cumulative effect of a change in
accounting principle. The Company's proportionate share of this reversal was
$967,000, net of income taxes, and has been presented as a cumulative effect of
a change in accounting principle in the consolidated statement of income for the
nine months ended September 30, 2002.

CASTLEWOOD HOLDINGS LIMITED

In November 2001, the Company, together with Trident and the shareholders
and senior management of Castlewood (the "Castlewood Principals"), completed the
formation of a new venture, Castlewood Holdings, to acquire and manage insurance
and reinsurance companies, including companies in "run-off" (insurance and
reinsurance companies that have ceased the underwriting of new policies), and to
provide management, consulting and other services to the insurance and
reinsurance industry (the "Castlewood Holdings Transaction"). The Castlewood
Principals contributed at closing all the shares of Castlewood to Castlewood
Holdings and received in exchange a 33 1/3% economic interest in the newly
incorporated Castlewood Holdings, plus notes and cash totaling $4.275 million.
As part of the transaction, the Company and Trident made capital commitments of
$39.5 million each, totaling $79 million, in exchange for their 33 1/3% economic
interests in Castlewood Holdings. The Company received 50% of the voting stock
of Castlewood Holdings and the Castlewood Principals and Trident each received
25% of Castlewood Holdings' voting stock. Castlewood is a private Bermuda-based
firm, experienced in managing and acquiring reinsurance operations.

As a result of the contribution of Castlewood's outstanding stock to
Castlewood Holdings, the Company's 33% direct economic interest in B.H.
Acquisition increased by an additional 15% indirect economic interest through
Castlewood Holdings. The Company's combined voting interest in B.H. Acquisition
is limited to 50%. The Company's ownership in Castlewood Holdings is accounted
for using the equity method of accounting.

Immediately following the closing of the Castlewood Holdings Transaction,
the Company and Trident each contributed $12.5 million to Castlewood Holdings.
The Company's capital contribution to Castlewood Holdings was derived from cash
on hand. In August 2002, the Company funded an additional $21 million to
Castlewood Holdings, which also was derived from cash on hand. The funds were
used, in part, to capitalize Fitzwilliam (SAC) Insurance Limited
("Fitzwilliam"), a wholly owned subsidiary of Castlewood Holdings. Fitzwilliam,
based in Bermuda, offers specialized reinsurance protections to related
companies, clients of Castlewood Holdings and other third-party companies. The
remaining commitment of approximately $7.2 million (which included $6.0 million
of the original commitment amount plus an amount increasing annually at 5% on
the unfunded portion of the original commitment amount) was funded in March 2003
from cash on hand. The funds were used for the purchase of The Toa-Re Insurance
Company (UK) Limited ("Toa-UK"), a London-based subsidiary of The Toa
Reinsurance Company, Limited (described below).

In conjunction with the closing of the Castlewood Holdings Transaction, the
Company also transferred its shares in Revir Limited ("Revir"), a newly formed
Bermuda holding company, at cost to Castlewood Holdings. Revir then completed
the acquisition of two reinsurance companies, River Thames Insurance Company
Limited ("River Thames"), based in London, England, and Overseas Reinsurance
Corporation Limited ("Overseas Reinsurance"), based in Bermuda, from Rivers
Group Limited and Sedgwick Group Limited. The total purchase price of River
Thames and Overseas Reinsurance was approximately $15.2 mil-

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THE ENSTAR GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

lion. The acquisition of the two reinsurance companies has been accounted for by
Revir using the purchase method of accounting.

In August 2002, Castlewood Holdings purchased Hudson Reinsurance Company
Limited, a Bermuda-based subsidiary of Amphion Holdings Inc. for approximately
$4.1 million.

In March 2003, the Company received a cash dividend of approximately $20.8
million from Castlewood Holdings.

In March 2003, Castlewood Holdings and Shinsei Bank, Limited ("Shinsei")
completed the acquisition of all of the outstanding capital stock of Toa-UK, a
London-based subsidiary of The Toa Reinsurance Company, Limited, for
approximately $46 million. Toa-UK underwrote reinsurance business throughout the
world between 1980 and 1994, when it stopped writing new business and is
currently operating in run-off. The acquisition was effected through Hillcot
Holdings Ltd. ("Hillcot"), a newly formed Bermuda company, in which Castlewood
Holdings and Shinsei have a 50.1% and 49.9% economic and voting interest,
respectively. Upon completion of the transaction, Toa-UK's name was changed to
Hillcot Re Limited. Castlewood Holdings' share of the transaction was funded
from cash on hand. Hillcot is included in Castlewood Holdings' consolidated
financial statements, with Shinsei's 49.9% interest reflected as minority
interest. J. Christopher Flowers, a member of the board of directors of the
Company and the Company's largest shareholder, is a director of Shinsei.

PARTIALLY OWNED EQUITY AFFILIATES OF JCF CFN

The JCF CFN Entities have invested in Green Tree Investment Holdings LLC
(formerly known as CFN Investment Holdings LLC) and related entities
(collectively, "Green Tree"), together with affiliates of J.C. Flowers I LP,
affiliates of Fortress Investment Group LLC and affiliates of Cerberus Capital
Management, L.P. In June 2003, the JCF CFN Entities invested approximately $25.1
million in exchange for a 3.995% interest in Green Tree. Green Tree completed
the purchase of certain assets of Conseco Finance Corp. ("Conseco Finance") for
approximately $630 million in cash plus certain assumed liabilities. The assets
consist primarily of a portfolio of home equity and manufactured housing loan
securities as well as the associated servicing businesses. The JCF CFN Entities
also invested in FPS DIP LLC, a second limited liability company formed by the
members of Green Tree to provide, together with one of Conseco Finance's
existing lenders, up to $125 million of debtor-in-possession financing to
Conseco Finance. J.C. Flowers I LP is a private investment fund, the general
partner of which is JCF Associates I LLC. The managing member of JCF Associates
I LLC is J. Christopher Flowers, a member of the Company's board of directors
and the Company's largest shareholder. The JCF CFN Entities account for these
investments under the equity method of accounting.

SUMMARIZED FINANCIAL INFORMATION

In accordance with APB No. 18, "The Equity Method of Accounting for
Investments in Common Stock", the Company prepared summarized financial
information for B-Line, B.H. Acquisition and Castlewood Holdings as of September
30, 2003 and December 31, 2002 and for the three and nine months ended September
30, 2003 and 2002, respectively. The Company accounts for its investment in
B-Line three months in arrears. This summarized financial information reflects
the results of B-Line, B.H. Acquisition and Castlewood Holdings for all periods
presented.

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THE ENSTAR GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 4: INCOME TAXES

Income tax expense was $634,000 and approximately $1.9 million for the
three and nine months ended September 30, 2003, respectively. Income tax
expense, including $13,000 recorded as a result of the cumulative effect of a
change in accounting principle in the first quarter of 2002, was $51,000 and
$421,000 for the three and nine months ended September 30, 2002. The Company's
effective tax rate for 2003 differs from

10

THE ENSTAR GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the statutory rate primarily due to changes in the valuation allowance and state
income taxes. For 2002, the effective tax rate differs from the statutory rate
primarily due to the utilization of net operating loss carryforwards.

The Company recognizes deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. The effect of temporary differences on the financial
statements includes undistributed earnings/losses from foreign operations and
tax credit carryforwards. The Company has established a valuation allowance for
the uncertainty of the realization of these net deferred tax assets. The
valuation allowance at September 30, 2003 and December 31, 2002 was
approximately $10.1 million and approximately $10.0 million, respectively.
Utilization of the remaining deferred tax assets at September 30, 2003 is based
on management's assessment of the Company's earnings history, expectations of
future taxable income, and other relevant considerations.

NOTE 5: SEGMENT INFORMATION

The Company separately evaluates the performance of each of its partially
owned equity affiliates based on the different services provided by each of the
entities, and such evaluation is based on 100% of the entities' results of
operations. The Company also reviews separate financial results for the JCF CFN
Entities and Enstar's corporate activity.

B-Line provides services to credit card issuers and other holders of
similar receivables. B-Line also purchases credit card receivables and recovers
payments on these accounts. B.H. Acquisition, through its wholly owned
subsidiaries, Brittany and CEAI, is principally engaged in the active management
of books of reinsurance business from international markets. Castlewood Holdings
acquires and manages insurance and reinsurance companies, including companies in
"run-off," and provides management, consulting and other services to the
insurance and reinsurance industry. The JCF CFN Entities were formed to serve as
a member of Green Tree which, in turn, was formed to effect the acquisition of a
portfolio of home equity and manufactured housing loan securities from Conseco
Finance.

The Company accounts for its investment in B-Line three months in arrears.
A reconciliation of the consolidated financial information by segment to the
Company's consolidated financial statements as of September 30, 2003 and
December 31, 2002 and for the three and nine months ended September 30, 2003 and
2002, respectively, is as follows:

11

THE ENSTAR GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company's ownership percentage in the JCF CFN Entities changed from
100% to 60% in June 2003 when Castlewood Holdings became a 40% member. A
minority interest for Castlewood Holdings' portion of earnings from the JCF CFN
Entities is reported in the Corporate column.

12

THE ENSTAR GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The income tax amount of $421,000 included in the corporate segment for the
nine months ended September 30, 2002 includes $13,000 which is netted against
the Company's proportionate share of a cumulative effect of a change in
accounting principle in the Company's consolidated statement of income.
13

THE ENSTAR GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 6: STOCK COMPENSATION

In May 2003, the Company's shareholders approved certain amendments to the
Company's Incentive Plan. The amendments increased the total number of shares of
common stock available to be granted under the plan from 322,500 to 522,500, and
increased the aggregate number of shares of common stock that may be granted to
any individual participant from 200,000 to 300,000.

In August 2003, under the Incentive Plan, the Company granted 60,000
options to Nimrod T. Frazer, the Company's Chairman and Chief Executive Officer,
100,000 options to John J. Oros, the Company's President and Chief Operating
Officer and 5,000 options to Gregory L. Curl, the Company's recently elected
director. The options granted to Messrs. Frazer and Oros vest in four equal
annual installments starting January 1, 2005. The options granted to Mr. Curl
vest on August 19, 2004. All options have an exercise price of $40.00, the
closing market price on the date of grant, and expire on August 18, 2013.

As of September 30, 2003, a total of 465,000 options have been issued or
reserved for issuance under the Incentive Plan.

NOTE 7: INCOME PER SHARE

The table below illustrates the reconciliation between net income per
common share -- basic and net income per common share -- assuming dilution for
the three and nine months ended September 30, 2003 and 2002. Net income per
common share -- basic is computed by dividing net income by the weighted average
shares outstanding. Net income per common share -- assuming dilution is computed
by dividing net income by the sum of the weighted average shares outstanding and
common share equivalents. Common share equivalents consist of stock units
deferred under the Deferred Compensation and Stock Plan for Non-Employee
Directors and stock options granted under the Company's stock option/incentive
plans.

14

THE ENSTAR GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

15

INDEPENDENT ACCOUNTANTS' REPORT

Board of Directors and Shareholders of
The Enstar Group, Inc.
Montgomery, Alabama

We have reviewed the accompanying condensed consolidated balance sheet of
The Enstar Group, Inc. and Subsidiaries ("Enstar") as of September 30, 2003, and
the related condensed consolidated statements of income and comprehensive income
for the three-month and nine-month periods ended September 30, 2003 and 2002,
and of cash flows for the nine months ended September 30, 2003 and 2002. These
financial statements are the responsibility of Enstar's management.

We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures and
making inquiries of persons responsible for financial and accounting matters. It
is substantially less in scope than an audit conducted in accordance with
auditing standards generally accepted in the United States of America, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that
should be made to such condensed consolidated financial statements for them to
be in conformity with accounting principles generally accepted in the United
States of America.

As discussed in Note 3 to the condensed consolidated financial statements,
effective January 1, 2002 Enstar changed its method of accounting for goodwill
pursuant to Statement of Financial Accounting Standards No. 142.

We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of
Enstar as of December 31, 2002 and the related consolidated statements of
income, comprehensive income, shareholders' equity and cash flows for the year
then ended (not presented herein); and in our report dated March 25, 2003, we
expressed an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of December 31, 2002 is fairly stated, in all
material respects, in relation to the consolidated balance sheet from which it
has been derived.

/s/ DELOITTE & TOUCHE LLP

Atlanta, Georgia
November 13, 2003

16

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

Through the operations of the Company's partially owned equity affiliates,
Castlewood Holdings and B.H. Acquisition, and their subsidiaries, the Company
has acquired and manages books of reinsurance business from the international
markets. In general, reinsurance is an arrangement in which the reinsurer agrees
to indemnify an insurance or reinsurance company against all or a portion of the
risks underwritten by such insurance or reinsurance company under one or more
insurance or reinsurance contracts. For a discussion of certain risks and
uncertainties relating to the Company's participation in the reinsurance
industry see "Safe Harbor Compliance Statement for Forward-Looking Statements"
included as Exhibit 99.1 to The Enstar Group, Inc. Annual Report on Form 10-K
for the fiscal year ended December 31, 2002, which is hereby incorporated by
reference.

The Company is also actively engaged in the search for one or more
additional operating businesses which meet the Company's acquisition criteria.

RECENT ACQUISITIONS

In January 2003, the Company announced a $10 million commitment to JCF CFN
LLC and related entities (collectively, the "JCF CFN Entities"). Each of the JCF
CFN Entities is controlled by JCF Associates I LLC, the managing member of which
is J. Christopher Flowers, a member of the Company's board of directors and the
Company's largest shareholder. Approximately $3 million was funded by the
Company in January 2003 from cash on hand. In June 2003, the Company increased
its total commitment to $15.3 million, resulting in the Company holding a 60%
interest in the JCF CFN Entities. In addition, in June 2003, Castlewood Holdings
became a member of the JCF CFN Entities and made a $10.2 million commitment, in
exchange for a 40% interest. Both the Company and Castlewood Holdings have fully
funded their commitments to the JCF CFN Entities.

The JCF CFN Entities have invested in Green Tree Investment Holdings LLC
(formerly known as CFN Investment Holdings LLC) and related entities
(collectively, "Green Tree"), together with affiliates of J.C. Flowers I LP,
affiliates of Fortress Investment Group LLC and affiliates of Cerberus Capital
Management, L.P. In June 2003, the JCF CFN Entities invested approximately $25.1
million in exchange for a 3.995% interest in Green Tree. Green Tree completed
the purchase of certain assets of Conseco Finance Corp. ("Conseco Finance") for
approximately $630 million in cash plus certain assumed liabilities. The assets
consist primarily of a portfolio of home equity and manufactured housing loan
securities as well as the associated servicing businesses. The JCF CFN Entities
also invested in FPS DIP LLC, a second limited liability company formed by the
members of Green Tree to provide, together with one of Conseco Finance's
existing lenders, up to $125 million of debtor-in-possession financing to
Conseco Finance. J.C. Flowers I LP is a private investment fund, the general
partner of which is JCF Associates I LLC. The managing member of JCF Associates
I LLC is J. Christopher Flowers, a member of the Company's board of directors
and the Company's largest shareholder. The accompanying condensed consolidated
financial statements reflect the Company's consolidation of the JCF CFN Entities
in accordance with FIN 46.

In March 2003, Castlewood Holdings and Shinsei completed the acquisition of
all of the outstanding capital stock of Toa-UK, a London-based subsidiary of The
Toa Reinsurance Company, Limited, for approximately $46 million. Toa-UK
underwrote reinsurance business throughout the world between 1980 and 1994, when
it stopped writing new business and is currently operating in run-off. The
acquisition was effected through Hillcot Holdings Ltd., a newly formed Bermuda
company, in which Castlewood Holdings and Shinsei have a 50.1% and 49.9%
economic and voting interest, respectively. Castlewood Holdings' share of the
transaction was funded from cash on hand. In connection with the acquisition of
Toa-UK, the Company funded its remaining capital commitment to Castlewood
Holdings of approximately $7.2 million (which included $6.0 million of the
original commitment amount plus an amount increasing annually at 5% on the
unfunded portion of the original commitment amount) from cash on hand. J.
Christopher Flowers is a director of Shinsei.

17

LIQUIDITY AND CAPITAL RESOURCES

The Company's assets, aggregating approximately $142.6 million at September
30, 2003, consist primarily of approximately $51.1 million in cash and cash
equivalents, approximately $4.1 million in certificates of deposit, and
approximately $86.5 million in partially owned equity affiliates, including
approximately $27.0 million of partially owned equity affiliates of JCF CFN
(Green Tree). Total assets at December 31, 2002 were approximately $128.6
million.

The Company's total liabilities were approximately $8.0 million at
September 30, 2003 compared to approximately $8.4 million at December 31, 2002.
The decrease in total liabilities was primarily due to the payments of income
tax of approximately $2.4 million, partially offset by an increase in deferred
income taxes recorded for the nine months ended September 30, 2003.

In March 2003, the Company received a cash dividend of approximately $20.8
million from Castlewood Holdings.

In June 2003, the Company funded approximately $12.3 million in exchange
for a 60% interest in each of the JCF CFN Entities.

The Company is currently engaged in the active search for one or more
additional operating businesses which meet the Company's acquisition criteria.
The Company primarily focuses on potential acquisitions in the financial
services industry in a global market which complement its current operating
businesses, investigating acquisition opportunities both within and outside the
United States when management believes that such opportunities might be
attractive. The Company may pay consideration in the form of cash, securities of
the Company or some combination of both. The Company may also borrow money in
connection with an acquisition.

With the exception of various expenses incurred in connection with the
Company's search for one or more suitable acquisitions, its only needs are to
fund normal operating expenses.

RESULTS OF OPERATIONS

The Company reported net income of $817,000 and approximately $3.0 million
for the three and nine months ended September 30, 2003, respectively, compared
to net income of approximately $1.6 million and approximately $14.1 million for
the same periods in the prior year. The change in net income from the nine month
period ended September 30, 2003 compared to the same period in the prior year is
primarily a result of a decrease in earnings from partially owned equity
affiliates, a decrease in interest income and an increase in income tax expense.

Interest income was $176,000 and $655,000 for the three and nine months
periods ended September 30, 2003, respectively, compared to $382,000 and
approximately $1.2 million for the same periods in the prior year. Interest
income was earned from cash, cash equivalents and certificates of deposit.
Interest income decreased due to a reduction of interest rates earned on the
Company's cash, cash equivalents and certificates of deposit combined with a
reduction of cash and cash equivalents resulting from capital contributions to
the Company's partially owned equity affiliates and subsidiaries.

Earnings of partially owned equity affiliates were approximately $2.5
million and approximately $6.9 million for the three and nine month periods
ended September 30, 2003, respectively, compared to approximately $2.0 million
and approximately $14.5 million for the same periods in the prior year. The
Company's equity in earnings from B-Line LLC ("B-Line") was $458,000 and
approximately $1.1 million for the three and nine month periods ended September
30, 2003, respectively, compared to $313,000 and $859,000 for the same periods
in 2002. The Company recorded equity in losses of $165,000 and $229,000 from
B.H. Acquisition for the three and nine month periods ended September 30, 2003,
respectively, compared to equity in earnings of $173,000 and approximately $6.8
million for the same periods in 2002. The Company recorded equity in earnings of
$651,000 and approximately $4.1 million from Castlewood Holdings for the three
and nine months ended September 30, 2003, respectively, compared to
approximately $1.5 million and approximately $6.8 million for the same periods
in 2002. The Company reported equity in earnings of

18

approximately $1.6 million and approximately $2.0 million from the partially
owned equity affiliates of the JCF CFN Entities for the three months ended
September 30, 2003 and from June 2003 (the date of acquisition) to September 30,
2003, respectively. In addition, the Company reported income of $967,000, net of
income taxes, as its proportionate share of a cumulative effect of a change in
accounting principle incurred by B.H. Acquisition associated with the
implementation of SFAS 142 in the first quarter of 2002. Income was reduced by
$631,000 and $750,000 for the three and nine months ended September 30, 2003 to
reflect Castlewood Holdings' 40% minority interest in the earnings of Green
Tree.

Other income consists primarily of investment management fees charged to
Castlewood Holdings, one of the Company's partially owned equity affiliates, and
commitment fees received in connection with standby purchase commitments
involving certain rights offerings. Other income was $100,000 and $383,000 for
the three and nine month periods ending September 30, 2003, respectively.

General and administrative expenses were $714,000 and approximately $2.3
million for the three and nine month periods ended September 30, 2003,
respectively, compared to $704,000 and approximately $2.1 million for the same
periods in 2002. General and administrative expenses include legal and
professional fees as well as travel expenses incurred in connection with the
Company's search for one or more additional operating companies. Most variances
in legal and professional fees and travel expenses can be attributed to the
number of potential acquisition candidates the Company locates as well as the
degree of interest the Company may have in such candidates. The stronger the
interest in a candidate, the more rigorous financial and legal due diligence the
Company will incur with respect to that candidate.

Income tax expense was $634,000 and approximately $1.9 million for the
three and nine months ended September 30, 2003. Income tax expense, including
$13,000 recorded as a result of the cumulative effect of a change in accounting
principle in the first quarter of 2002, was $51,000 and $421,000 for the three
and nine months ended September 30, 2002. The Company's effective tax rate for
2003 differs from the statutory rate primarily due to changes in the valuation
allowance and state income taxes. For 2002, the effective tax rate differs from
the statutory rate primarily due to the utilization of net operating loss
carryforwards.

RESULTS OF OPERATIONS -- PARTIALLY OWNED EQUITY AFFILIATES

Since a substantial portion of the Company's results of operations are
comprised of the results of operations of Castlewood Holdings and B.H.
Acquisition, the following additional summary information is provided with
respect to those companies' results of operations:

CASTLEWOOD HOLDINGS

Castlewood Holdings reported consolidated net earnings of approximately
$2.0 million and approximately $12.2 million for the three and nine months ended
September 30, 2003, respectively, compared to approximately $4.6 million and
approximately $20.4 million for the same periods in 2002. The reduction in
earnings of approximately $8.2 million for the nine months ended September 30,
2003 compared to the same period in 2002 was due primarily to the reduction in
earnings from partly-owned companies, partially offset by an increase in
consulting fees for the period.

Castlewood Holdings earned consulting fees of approximately $6.0 million
and approximately $19.9 million for the three and nine months ended September
30, 2003, respectively, compared to approximately $6.3 million and approximately
$15.2 million for the same periods in 2002. Castlewood Holdings generates its
consulting fees based on a combination of fixed and success based fee
arrangements. Consulting income will vary depending on the success and timing of
completion of success based fee arrangements. Included in these amounts were
$313,000 and $938,000 in consulting fees charged to B.H. Acquisition, a related
party, for each of the three and nine months ended September 30, 2003 and 2002,
respectively.

Castlewood Holdings' net income from its partly-owned companies was
$298,000 and $211,000 for the three and nine months ended September 30, 2003,
respectively, compared to $237,000 and approximately $9.3 million for the same
periods in 2002. These amounts represent Castlewood Holdings' proportionate
share of equity in earnings of B.H. Acquisition and the JCF CFN Entities.

19

Net investment income, excluding unrealized gains and losses, was
approximately $1.2 million and approximately $6.0 million for the three and nine
months ended September 30, 2003, respectively, compared to approximately $1.8
million and approximately $6.4 million for the same periods in 2002. Investment
income includes interest income earned from cash, cash equivalents and debt
securities and, in 2003, a loss from a currency option of $945,000. During the
first quarter of 2003, Castlewood Holdings sold a currency option as an economic
hedge on Castlewood Holdings' portion of the purchase price of Toa-UK. The
weakening of the British pound from the sale date of the currency option to the
completion date of the Toa-UK transaction had an adverse effect on Castlewood
Holdings' hedge, resulting in the loss of $945,000.

Salaries and benefits were approximately $4.5 million and approximately
$8.8 million for the three and nine months ended September 30, 2003,
respectively, compared to approximately $3.5 million and approximately $11.2
million for the same periods in 2002. Castlewood Holdings is a service based
company and therefore employee salaries and benefits are its largest cost.
Additionally, Castlewood Holdings has a discretionary bonus plan included as a
part of its employee compensation. During the quarter ended June 30, 2003 the
bonus plan was amended, resulting in a decrease in bonus accruals and salaries
and benefits expense of approximately $2.6 million.

Other general and administrative expenses were approximately $1.2 million
and approximately $3.7 million for the three and nine months ended September 30,
2003, respectively, compared to approximately $1.2 million and approximately
$2.3 million for the same periods in 2002. General and administrative expenses
include rent and rent related costs, professional fees (legal, investment, audit
and actuarial) and travel expenses. Castlewood Holdings operates in both the UK
and Bermuda and staff travel frequently in connection with Castlewood Holdings'
search for acquisition opportunities and in the general management of the
business.

Castlewood Holdings, whose functional currency is the U.S. dollar, has
recorded foreign exchange gains of $179,000 and $990,000 for the three and nine
months ended September 30, 2003, respectively, compared to approximately $1.2
million and approximately $3.4 million for the same periods in 2002. Through its
subsidiaries, Castlewood Holdings conducts business in a variety of non-U.S.
currencies, the principal exposures being Euros and British pounds. At each
balance sheet date, recorded balances that are denominated in a currency other
than the functional currency of Castlewood Holdings are adjusted to reflect the
current exchange rate. Revenue and expense items are translated into U.S.
dollars at average rates of exchange for the periods. The resulting exchange
gains or losses are included in net earnings.

Income tax expense of $264,000 and $950,000 was recorded for the three and
nine months ended September 30, 2003, respectively, compared to $264,000 and
$430,000 for the same periods in 2002. Under current Bermuda law, Castlewood
Holdings and its Bermuda subsidiaries are not required to pay taxes in Bermuda
on either income or capital gains. Castlewood Holdings and its Bermuda
subsidiaries have received an undertaking from the Bermuda government that, in
the event of income or capital gains taxes being imposed, Castlewood Holdings
and its Bermuda subsidiaries will be exempted from such taxes until the year
2016. United Kingdom subsidiaries record income taxes based on their graduated
statutory rates, net of tax benefits arising from tax loss carryforwards.

Castlewood Holdings recorded a minority interest in subsidiary income
(losses) of $(254,000) and approximately $1.4 million, representing Shinsei's
proportionate share of losses and earnings from Hillcot for the three and nine
months ended September 30, 2003, respectively.

B.H. ACQUISITION

B.H. Acquisition reported net losses of $503,000 and $695,000 for the three
and nine months ended September 30, 2003, respectively, compared to net income
of $526,000 and approximately $23.7 million for the same periods in the prior
year. Included in income in 2002 was approximately $3.0 million resulting from
the cumulative effect of a change in accounting principle associated with the
implementation of SFAS 142 in the first quarter of 2002.

B.H. Acquisition had net underwriting losses of $341,000 and $744,000 for
the three and nine months ended September 30, 2003, respectively, compared to a
net underwriting loss of $201,000 and income of
20

approximately $19.4 million for the same periods in 2002. The underwriting
income for 2002 was due primarily to an actuarial determined reduction in
reserves in one of B.H. Acquisition's insurance subsidiaries.

Net investment income was $277,000 and approximately $1.2 million for the
three and nine month periods ended September 30, 2003, respectively, compared to
$364,000 and approximately $1.5 million for the same periods in 2002. The
principal source of net investment income was interest income earned from cash,
cash equivalents and bond funds.

General and administrative expenses, net of amortization of run-off
provision, were $508,000 and approximately $1.4 million for the three and nine
months ended September 30, 2003, respectively, compared to $254,000 and $449,000
for the same periods in 2002. General and administrative expenses include legal,
audit, management and actuarial expenses.

B.H. Acquisition recorded foreign exchange gains of $69,000 and $288,000
for the three and nine months ended September 30, 2003, respectively, compared
to $617,000 and $309,000 for the same periods in 2002. Through its subsidiaries,
BH Acquisition conducts business in a variety of foreign (non-U.S.) currencies,
the principal exposures being Euros and British pounds. At each balance sheet
date, recorded balances that are denominated in a currency other than the
functional currency of B.H. Acquisition are adjusted to reflect the current
exchange rate. Revenue and expense items are translated into U.S. dollars at
average rates of exchange for the years. The resulting exchange gains or losses
are included in net income.

CRITICAL ACCOUNTING POLICIES

ENSTAR

In the ordinary course of business, the Company has made a number of
estimates and assumptions relating to the reporting of results of operations and
financial condition in the preparation of its financial statements in conformity
with accounting principles generally accepted in the United States of America.
Actual results could differ significantly from those estimates under different
assumptions and conditions. The most significant accounting estimates inherent
in the preparation of the Company's consolidated financial statements include
estimates associated with its evaluation of income tax reserves.

Income Tax Valuation Reserve -- The Company recognizes deferred tax assets
and liabilities for the expected future tax consequences of events that have
been included in the financial statements or tax returns. The effect of
temporary differences on the financial statements includes undistributed
earnings/losses from foreign operations and tax credit carryforwards. The
Company has established a valuation allowance for the uncertainty of the
realization of these net deferred tax assets. Utilization of the remaining
deferred tax assets at September 30, 2003 is based on management's assessment of
the Company's earnings history, expectations of future taxable income, and other
relevant considerations.

CASTLEWOOD HOLDINGS AND B.H. ACQUISITION

Certain amounts in Castlewood Holdings' and B.H. Acquisition's consolidated
financial statements are the result of transactions that require the use of best
estimates and assumptions to determine reported values. These amounts could
ultimately be materially different than what has been provided for in their
consolidated financial statements. The assessment of loss reserves and
reinsurance recoverable are considered to be the values requiring the most
inherently subjective and complex estimates. As such, the accounting policies
for these amounts are of critical importance to their consolidated financial
statements.

Loss and Loss Adjustment Expenses -- Because a significant amount of time
can lapse between the assumption of risk, the occurrence of a loss event, the
reporting of the event to an insurance or reinsurance company and the ultimate
payment of the claim on the loss event, Castlewood Holdings' and B.H.
Acquisition's liability for unpaid losses and loss expenses is based largely
upon estimates. Castlewood Holdings' and B.H. Acquisition's management must use
considerable judgment in the process of developing these estimates. The
liability for unpaid losses and loss expenses for property and casualty business
includes amounts determined from loss reports on individual cases and amounts
for losses incurred but not reported. Such reserves are estimated by management
based upon reports received from ceding companies and

21

independent actuarial estimates of ultimate unpaid losses. These estimates are
continually reviewed and Castlewood Holdings' and B.H. Acquisition's ultimate
liability may be significantly greater than or less than the amount estimated,
with any adjustments in such estimates being reflected in the periods in which
they become known.

Reinsurance Balances Receivable -- One of the ways loss exposure is managed
is through the use of reinsurance. While reinsurance arrangements are designed
to limit losses and to permit recovery of a portion of direct unpaid losses,
reinsurance does not relieve Castlewood Holdings or B.H. Acquisition of their
liabilities to their insureds. Accordingly, loss reserves represent total gross
losses, and reinsurance recoverable represents anticipated recoveries of a
portion of those unpaid losses as well as amounts recoverable from reinsurers
with respect to claims, which have already been paid. These reinsurance balances
receivable are exposed to credit and other risks related to the reinsurance
entities.

Goodwill -- On January 1, 2002, Castlewood Holdings and B.H. Acquisition
adopted SFAS 142. This statement requires that goodwill be assessed for
impairment on at least an annual basis and that negative goodwill be reversed
immediately upon adoption. In assessing the recoverability of Castlewood
Holdings' goodwill, Castlewood Holdings must make assumptions regarding
estimated future cash flows to determine the fair value of the respective
assets. If these estimates or their related assumptions change in the future,
Castlewood Holdings may be required to record impairment charges for these
assets.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risk from changes in interest rates. The
Company had cash and cash equivalents of approximately $51.1 million in interest
bearing accounts (interest at floating rates) and approximately $4.1 million of
short-term certificates of deposit (interest at fixed rates) at September 30,
2003. Accordingly, each one percent change in market interest rates would change
interest income by approximately $552,000 per annum. However, any future
transactions affecting the Company's cash and cash equivalents and certificates
of deposit will change this estimate. Additionally, although interest rate
changes would affect the fair value of the Company's certificates of deposits,
the weighted average original term of certificates held by the Company at
September 30, 2003 was approximately six months. The short-term nature of these
certificates limits the Company's risk of changes in the fair value of these
certificates.

The Company is also exposed to foreign currency risk through its holdings
in partially owned equity affiliates and their subsidiaries. Foreign currency
risk is the risk that the Company will incur economic losses due to adverse
changes in foreign currency exchange rates. These entities conduct business in a
variety of foreign (non-U.S.) currencies, the principal exposures being in Euros
and British pounds. Assets and liabilities denominated in foreign currencies are
exposed to risk stemming from changes in currency exchange rates. Exchange rate
fluctuations impact the Company's and its partially owned equity affiliates'
reported consolidated financial condition, results of operations and cash flows
from year to year.

ITEM 4. CONTROLS AND PROCEDURES

As required by Securities and Exchange Commission rules, the Company's
management, with the participation of the Company's Chief Executive Officer and
Chief Financial Officer, has evaluated the effectiveness of the design and
operation of the Company's disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of
the end of the period covered by this quarterly report. Based on that
evaluation, the Company's Chief Executive Officer and Chief Financial Officer
have concluded that the design and operation of these disclosure controls and
procedures are effective. The Company's management, including the Chief
Executive Officer and Chief Financial Officer, also conducted an evaluation of
the Company's internal control over financial reporting to determine whether any
changes occurred during the quarter covered by this report that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting. Based on that evaluation, there has been no
such change during the quarter covered by this report.

22

PART II

OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

(b) Reports on Form 8-K

On July 3, 2003 the Company filed a Current Report on Form 8-K pursuant to
Item 2 -- Acquisition or Disposition of Assets.

24

SIGNATURES

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.

THE ENSTAR GROUP, INC.

BY: /s/ CHERYL D. DAVIS
------------------------------------
Cheryl D. Davis
Chief Financial Officer, Vice
President
of Corporate Taxes, Secretary
(Authorized Officer)
(Principal Financial Officer)

Date: November 14, 2003

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