##### 









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





FORM 10-K/A


(Amendment No. 1)


ANNUAL REPORT PURSUANT TO SECTION 13 OR


15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the Fiscal Year Ended December 31, 2005


Commission File Number 0-07477


THE ENSTAR GROUP, INC.


(Exact name of registrant as specified in its charter)


|                                                                                   |  |                                         
|---------------------------------------------------------------------------------- |  | ----------------------------------------
|Georgia                                                                            |  | 63-0590560                              
|(State or other jurisdiction of
    incorporation or organization)                 |  | (I.R.S. Employer
    Identification No.)
|401 Madison Avenue
    Montgomery, Alabama(Address of principal executive offices) |  | 36104(Zip Code)                         

(334) 834-5483




Securities registered pursuant to Section 12(b) of the
Act:


|                    |  |                         
|------------------- |  | ------------------------
|                    |  | Name of Each Exchange on
|Title of Each Class |  | Which Registered        
|                    |  |                         
|Not applicable      |  | Not applicable          





Common Stock, $.01 par value




o x


o x


x o


S-K 10-K 10-K. x


12b-2


o x o


12b-2 o x






DOCUMENTS INCORPORATED BY REFERENCE













---



##### 



EXPLANATORY NOTE








---



##### 



TABLE OF CONTENTS


|         |  |                                                                                                                      |  |  |      |  |  | 
|-------- |  | -------------------------------------------------------------------------------------------------------------------- |  |  | ---- |  |  | 
|Item     |  |                                                                                                                      |  |  | Page | 
|         |  |                                                                                                                      |  |  |      | 
|PART I  
|1.       |  | Business                                                                                                             |  |  | 1    | 
|1A.      |  | Risk Factors                                                                                                         |  |  | 5    | 
|1B.      |  | Unresolved Staff Comments                                                                                            |  |  | 11   | 
|2.       |  | Properties                                                                                                           |  |  | 11   | 
|3.       |  | Legal Proceedings                                                                                                    |  |  | 11   | 
|4.       |  | Submission of Matters to a Vote of Security
    Holders                                                              |  |  | 11   | 
|        
|PART II 
|5.       |  | Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities |  |  | 12   | 
|6.       |  | Selected Financial Data                                                                                              |  |  | 13   | 
|7.       |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                            |  |  | 15   | 
|7A.      |  | Quantitative and Qualitative Disclosures
    About Market Risk                                                       |  |  | 27   | 
|8.       |  | Financial Statements and Supplementary
    Data                                                                      |  |  | 28   | 
|9.       |  | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure                             |  |  | 59   | 
|9A.      |  | Controls and Procedures                                                                                              |  |  | 59   | 
|9B.      |  | Other Information                                                                                                    |  |  | 60   | 
|        
|PART III
|10.      |  | Directors and Executive Officers of the
    Registrant                                                               |  |  | 60   | 
|11.      |  | Executive Compensation                                                                                               |  |  | 60   | 
|12.      |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters                   |  |  | 60   | 
|13.      |  | Certain Relationships and Related
    Transactions                                                                   |  |  | 60   | 
|14.      |  | Principal Accountant Fees and Services                                                                               |  |  | 60   | 
|        
|PART IV 
|15.      |  | Exhibits and Financial Statement
    Schedules                                                                       |  |  | 60   | 

THIS
FORM 10-K/A 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.
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. THERE ARE A NUMBER OF IMPORTANT
FACTORS THAT COULD CAUSE OUR ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE INDICATED BY SUCH FORWARD-LOOKING STATEMENTS. THESE
FACTORS INCLUDE, WITHOUT LIMITATION, THOSE SET FORTH IN ITEM 1A.
RISK FACTORS. 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







|        |         
|------- | --------
|Item 1. | Business

General








Activities Related to the Reinsurance Industry




| |                 
| | ----------------
| | B.H. Acquisition





| |                    
| | -------------------
| | Castlewood Holdings







1



---



##### 











1 3










2



---



##### 



run-off,


Other Activities




| |           
| | ----------
| | B-Line LLC





| |                 
| | ----------------
| | JCF CFN Entities









3



---



##### 





| |                           
| | --------------------------
| | Affirmative Investment LLC







| |                    
| | -------------------
| | New NIB Partners LP





Organizational Structure




Subsidiaries




4



---



##### 





Strategy for Business Acquisitions






Competition






Where You Can Find More Information


10-K, 10-Q, 8-K





Item 1A.     Risk
Factors




5



---



##### 





Risks Related to the Companys Business




| |                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company has made, and expects to continue to make,
    strategic acquisitions and investments, and these activities may
    not be financially beneficial to the Company or its
    shareholders.

10-K/A.






| |                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Acquisitions are a component of the Companys growth
    strategy, and its failure to complete future acquisitions
    successfully could reduce its earnings and slow its
    growth.





| |                                                                                           
| | ------------------------------------------------------------------------------------------
| | The Company is dependent on its executive officers,
    directors and other key personnel.





6



---



##### 





| |                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------
| | The Companys stock price may experience volatility,
    thereby causing a potential loss of value to its
    investors.





| |   |                                                            
| | - | -----------------------------------------------------------
| |  | announcements with respect to an acquisition or investment;
|
| |  | changes in the value of the Companys assets;              
|
| |  | quarterly operating results of the Company;                
|
| |  | changes in general conditions in the economy;              
|
| |  | the financial markets; and                                 
|
| |  | adverse press or news announcements.                       





| |                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------
| | Significant fluctuation in the market price of the
    Companys common stock could result in securities class
    action claims against it.





| |                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------
| | Future actual or potential stock sales by the
    Companys major stockholders could cause its stock price to
    fall.





| |                                                                                                   
| | --------------------------------------------------------------------------------------------------
| | The Companys lack of industry diversification makes
    it more vulnerable to economic downturns.





| |                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Provisions in the Companys articles of incorporation
    and bylaws and Georgia Law may inhibit a takeover, which could
    adversely affect the value of the Companys common
    stock.



7



---



##### 









| |                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------
| | Conflicts of interest might prevent the Company from
    pursuing desirable investment and business opportunities.





| |                                                                                                  
| | -------------------------------------------------------------------------------------------------
| | Regulatory challenges to the Companys tax filing
    positions could result in additional taxes.





| |                                                                                      
| | -------------------------------------------------------------------------------------
| | Fluctuations in currency exchange rates may cause the
    Group to experience losses.





Risks Related to the Reinsurance Industry






| |                                                                                                     
| | ----------------------------------------------------------------------------------------------------
| | Fluctuations in the reinsurance industry could cause the
    Groups operating results to fluctuate.





| |   |                                                                                                                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | fluctuations in interest rates, inflationary pressures and other
    changes in the investment environment, which affect returns on
    invested capital and may impact the ultimate payout of loss
    amounts and the costs of administering books of reinsurance
    business;

8



---



##### 





| |   |                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | volatile and unpredictable developments and catastrophic events
    which could adversely affect the recoverability of reinsurance
    from the Groups reinsurers;                  
|
| |  | changes in reserves resulting from different types of claims
    that may arise and the development of judicial interpretations
    relating to the scope of insurers liability; and
|
| |  | the overall level of economic activity and the competitive
    environment in the industry.                                                                                          



| |                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If the Reinsurance Subsidiaries loss reserves are
    inadequate to cover their actual losses, the Reinsurance
    Subsidiaries net income would be reduced or they could
    incur a loss.





9



---



##### 







| |                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The value of the Reinsurance Subsidiaries investment
    portfolios and the investment income they receive from those
    portfolios could decline as a result of market fluctuations and
    economic conditions.





| |                                                                                        
| | ---------------------------------------------------------------------------------------
| | The Reinsurance Subsidiaries reinsurers may not
    satisfy their obligations to them.





| |                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------
| | The reinsurance industry is highly competitive and the
    Group may not be able to compete successfully in the
    future.





| |                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Insurance laws and regulations restrict the Groups
    ability to operate and any failure to comply with those laws and
    regulations could have a material adverse effect on the
    Groups business.



10



---



##### 







| |                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If the Group fails to comply with applicable insurance
    laws, rules and regulations, the Group could be subject to
    disciplinary actions, damages, penalties or restrictions that
    could have a material adverse effect on the Groups
    business.






Item 1B.Unresolved
Staff Comments









|        |           
|------- | ----------
|Item 2. | Properties

month-to







|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings








|        |                                                    
|------- | ---------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security Holders



11



---



##### 






PART II







|        |                                                                                                                     
|------- | --------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity, Related
    Stockholder Matters and Issuer Purchases of Equity
    Securities



|               |  |      |       |  |      |  |       |      |  |  |       |  |  |  |       | 
|-------------- |  | ---- | ----- |  | ---- |  | ----- | ---- |  |  | ----- |  |  |  | ----- | 
|               |  | 2005 |       |  | 2004 | 
|               |  |      |       |  |      | 
|               |  | High |       |  | Low  |  |       | High |  |  | Low   | 
|               |  |      |       |  |      |  |       |      |  |  |       | 
|First Quarter  |  |      | 64.97 |  |      |  | 56.12 |      |  |  | 48.40 |  |  |  | 40.61 | 
|Second Quarter |  |      | 67.85 |  |      |  | 49.03 |      |  |  | 53.98 |  |  |  | 39.82 | 
|Third Quarter  |  |      | 69.94 |  |      |  | 63.40 |      |  |  | 53.00 |  |  |  | 44.56 | 
|Fourth Quarter |  |      | 72.85 |  |      |  | 60.19 |      |  |  | 63.00 |  |  |  | 49.25 | 







12



---



##### 








|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data



|                                                                                                             |                      |                                               |           |         |      |   |           |         |  |   |           |         |  |      |           |         |  |   |           |        | 
|------------------------------------------------------------------------------------------------------------ | -------------------- | --------------------------------------------- | --------- | ------- | ---- | - | --------- | ------- |  | - | --------- | ------- |  | ---- | --------- | ------- |  | - | --------- | ------ | 
|                                                                                                             |                      | Year Ended December 31,                       |          
|                                                                                                             |                      |                                               |          
|                                                                                                             |                      | 2005                                          |           |         | 2004 |   |           | 2003    |  |   | 2002      |         |  | 2001 |          
|                                                                                                             |                      |                                               |           |         |      |   |           |         |  |   |           |         |  |      |          
|                                                                                                             |                      | (Dollars in thousands, except per share data) |          
|Income before extraordinary gain and cumulative effect of a
    change in accounting principle               |                      | $                                             | 19,045    |         |      | $ | 5,977     |         |  | $ | 13,226    |         |  | $    | 21,526    |         |  | $ | 1,574     |       
|Extraordinary gain, net of income taxes                                                                      |                      |                                               |          |         |      |   | 4,415     |         |  |   |          |         |  |      |          |         |  |   |          |       
|Cumulative effect of a change in accounting principle, net of
    income taxes                               |                      |                                               |          |         |      |   |          |         |  |   |          |         |  |      | 967       |         |  |   |          |       
|                                                                                                             |                      |                                               |           |         |      |   |           |         |  |   |           |         |  |      |          
|Net income                                                                                                   |                      | $                                             | 19,045    |         |      | $ | 10,392    |         |  | $ | 13,226    |         |  | $    | 22,493    |         |  | $ | 1,574     |       
|                                                                                                             |                      |                                               |           |         |      |   |           |         |  |   |           |         |  |      |          
|Income per common share before extraordinary gain and change in
    accounting principle  basic             |                      | $                                             | 3.45      |         |      | $ | 1.09      |         |  | $ | 2.42      |         |  | $    | 3.94      |         |  | $ | .30       |       
|Extraordinary gain  basic                                                                                   |                      |                                               |          |         |      |   | .80       |         |  |   |          |         |  |      |          |         |  |   |          |       
|Cumulative effect of a change in accounting
    principle  basic                                            |                      |                                               |          |         |      |   |          |         |  |   |          |         |  |      | .18       |         |  |   |          |       
|                                                                                                             |                      |                                               |           |         |      |   |           |         |  |   |           |         |  |      |          
|Net income per common share  basic                                                                          |                      | $                                             | 3.45      |         |      | $ | 1.89      |         |  | $ | 2.42      |         |  | $    | 4.12      |         |  | $ | .30       |       
|                                                                                                             |                      |                                               |           |         |      |   |           |         |  |   |           |         |  |      |          
|Weighted average shares outstanding  basic                                                                  |                      |                                               | 5,517,909 |         |      |   | 5,496,819 |         |  |   | 5,465,753 |         |  |      | 5,465,753 |         |  |   | 5,277,808 |       
|                                                                                                             |                      |                                               |           |         |      |   |           |         |  |   |           |         |  |      |          
|Income per common share before extraordinary gain and change in
    accounting principle  assuming dilution |                      | $                                             | 3.25      |         |      | $ | 1.03      |         |  | $ | 2.25      |         |  | $    | 3.74      |         |  | $ | .29       |       
|Extraordinary gain  assuming dilution                                                                       |                      |                                               |          |         |      |   | .76       |         |  |   |          |         |  |      |          |         |  |   |          |       
|Cumulative effect of a change in accounting
    principle  assuming dilution                                |                      |                                               |          |         |      |   |          |         |  |   |          |         |  |      | 0.17      |         |  |   |          |       
|                                                                                                             |                      |                                               |           |         |      |   |           |         |  |   |           |         |  |      |          
|Net income per common share  assuming dilution                                                              |                      | $                                             | 3.25      |         |      | $ | 1.79      |         |  | $ | 2.25      |         |  | $    | 3.91      |         |  | $ | .29       |       
|                                                                                                             |                      |                                               |           |         |      |   |           |         |  |   |           |         |  |      |          
|Weighted average shares outstanding  assuming dilution                                                      |                      |                                               | 5,856,144 |         |      |   | 5,800,993 |         |  |   | 5,881,410 |         |  |      | 5,753,553 |         |  |   | 5,449,627 |       
|                                                                                                             |                      |                                               |           |         |      |   |           |         |  |   |           |         |  |      |          
|Balance sheet data:                                                                                          |                      |                                               |           |         |      |   |           |         |  |   |           |         |  |      |           |         |  |   |           |       
|                                                                                                             | Total assets         |                                               | $         | 185,220 |      |   | $         | 158,977 |  |   | $         | 152,620 |  |      | $         | 128,609 |  |   | $         | 99,621 | 
|                                                                                                             | Total liabilities    |                                               |           | 20,097  |      |   |           | 12,803  |  |   |           | 6,688   |  |      |           | 8,360   |  |   |           | 1,964  | 
|                                                                                                             | Minority interest    |                                               |           |        |      |   |           |        |  |   |           | 11,449  |  |      |           |        |  |   |           |       | 
|                                                                                                             | Shareholders equity |                                               |           | 165,123 |      |   |           | 146,174 |  |   |           | 134,483 |  |      |           | 120,249 |  |   |           | 97,657 | 

13



---



##### 





B.H.
Acquisition:


|                                                                        |  |                         |         |  |      |   |         |      |  |   |         |  |  |      |         |  |  |   |         | 
|----------------------------------------------------------------------- |  | ----------------------- | ------- |  | ---- | - | ------- | ---- |  | - | ------- |  |  | ---- | ------- |  |  | - | ------- | 
|                                                                        |  | Year Ended December 31, |        
|                                                                        |  |                         |        
|                                                                        |  | 2005                    |         |  | 2004 |   |         | 2003 |  |   | 2002    |  |  | 2001 |        
|                                                                        |  |                         |         |  |      |   |         |      |  |   |         |  |  |      |        
|                                                                        |  | (Dollars in thousands)  |        
|Income before cumulative effect of a change in accounting
    principle |  | $                       | 179     |  |      | $ | 359     |      |  | $ | 888     |  |  | $    | 22,398  |  |  | $ | 4,798   | 
|Net income                                                              |  |                         | 179     |  |      |   | 359     |      |  |   | 888     |  |  |      | 25,367  |  |  |   | 4,798   | 
|Total assets                                                            |  |                         | 105,578 |  |      |   | 110,414 |      |  |   | 120,474 |  |  |      | 125,428 |  |  |   | 136,085 | 
|Total liabilities                                                       |  |                         | 66,733  |  |      |   | 71,748  |      |  |   | 82,167  |  |  |      | 88,009  |  |  |   | 114,033 | 
|Total equity                                                            |  |                         | 38,845  |  |      |   | 38,666  |      |  |   | 38,307  |  |  |      | 37,419  |  |  |   | 22,052  | 



Castlewood
Holdings:


|                                        |  |                         |           |  |      |   |           |      |  |   |         |  |  |      |         |  |  |   |         |  
|--------------------------------------- |  | ----------------------- | --------- |  | ---- | - | --------- | ---- |  | - | ------- |  |  | ---- | ------- |  |  | - | ------- | -
|                                        |  | Year Ended December 31, |          
|                                        |  |                         |          
|                                        |  | 2005                    |           |  | 2004 |   |           | 2003 |  |   | 2002    |  |  | 2001 |        
|                                        |  |                         |           |  |      |   |           |      |  |   |         |  |  |      |        
|                                        |  | (Dollars in thousands)  |          
|Income (loss) before extraordinary gain |  | $                       | 80,710    |  |      | $ | 16,535    |      |  | $ | 30,592  |  |  | $    | 60,619  |  |  | $ | (407    | )
|Net income (loss)                       |  |                         | 80,710    |  |      |   | 38,294    |      |  |   | 30,592  |  |  |      | 60,619  |  |  |   | (407    | )
|Total assets                            |  |                         | 1,199,963 |  |      |   | 1,347,853 |      |  |   | 632,347 |  |  |      | 514,597 |  |  |   | 527,845 |  
|Total liabilities                       |  |                         | 898,513   |  |      |   | 1,139,123 |      |  |   | 456,436 |  |  |      | 347,124 |  |  |   | 464,149 |  
|Minority interest                       |  |                         | 40,544    |  |      |   | 31,392    |      |  |   | 28,295  |  |  |      |        |  |  |   |        |  
|Total equity                            |  |                         | 260,906   |  |      |   | 177,338   |      |  |   | 147,616 |  |  |      | 167,473 |  |  |   | 63,696  |  



Green
Tree:


|                  |  |                         |        |  |      |   |           | 
|----------------- |  | ----------------------- | ------ |  | ---- | - | --------- | 
|                  |  | Year Ended December 31, |       
|                  |  |                         |       
|                  |  | 2004                    |        |  | 2003 |  
|                  |  |                         |        |  |      |  
|                  |  | (Dollars in thousands)  |       
|Net income        |  | $                       | 99,114 |  |      | $ | 96,318    | 
|Total assets      |  |                         |       |  |      |   | 1,020,514 | 
|Total liabilities |  |                         |       |  |      |   | 399,457   | 
|Total equity      |  |                         |       |  |      |   | 621,057   | 



14



---



##### 



Affirmative
Investment:


|                  |  |              |        | 
|----------------- |  | ------------ | ------ | 
|                  |  | Year Ended   |       
|                  |  | December 31, |       
|                  |  | 2005         |       
|                  |  |              |       
|                  |  | (Dollars in  |       
|                  |  | thousands)   |       
|Net income        |  | $            | 856    | 
|Total assets      |  |              | 60,199 | 
|Total liabilities |  |              |       | 
|Total equity      |  |              | 60,199 | 








|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations



Overview






Restatement of Financial Statements


10-K/A


Recent Accounting Pronouncements




15



---



##### 











Critical Accounting Policies




| |       
| | ------
| | Enstar



Income Tax Valuation Allowance




| |                                         
| | ----------------------------------------
| | Castlewood Holdings and B.H. Acquisition



16



---



##### 



Loss and Loss Adjustment Expenses


Reinsurance Balances Receivable


Goodwill






Recent Developments




17



---



##### 











Liquidity and Capital Resources














18



---



##### 



Contractual Obligations and Commitments


month-to








Results of Operations




| |                      
| | ---------------------
| | 2005 Compared to 2004







19



---



##### 

















| |                      
| | ---------------------
| | 2004 Compared to 2003



B-Line B-Line


20



---



##### 





B-Line










Results of Operations  Partially Owned Equity
Affiliates






| |                    
| | -------------------
| | Castlewood Holdings



| |                      
| | ---------------------
| | 2005 Compared to 2004



21



---



##### 











(non-U.S.)










22



---



##### 







| |                      
| | ---------------------
| | 2004 Compared to 2003











(non-U.S.)






23



---



##### 













| |                 
| | ----------------
| | B.H. Acquisition



| |                      
| | ---------------------
| | 2005 Compared to 2004







(non-U.S.)






24



---



##### 





| |                      
| | ---------------------
| | 2004 Compared to 2003







(non-U.S.)






Related Party Transactions




Toa-UK, Toa-UKs


25



---



##### 





















26



---



##### 







Forward-Looking Statements











|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures About Market
    Risk







(non-U.S.)




27



---



##### 








|        |                                            
|------- | -------------------------------------------
|Item 8. | Financial Statements and Supplementary Data

MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING






| |   |                                                                                                                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Pertain to the maintenance of records that in reasonable detail
    accurately and fairly reflect the transactions and dispositions
    of the assets of the Company;                                                                                                                                                                                          
|
| |  | Provide reasonable assurance that transactions are recorded as
    necessary to permit preparation of financial statements in
    accordance with generally accepted accounting principles, and
    that receipts and expenditures of the Company are being made
    only in accordance with authorizations of management and
    directors of the Company; and
|
| |  | Provide reasonable assurance regarding prevention or timely
    detection of unauthorized acquisition, use or disposition of the
    Companys assets that could have a material effect on the
    financial statements.                                                                                                                                       

Internal Control  Integrated Framework,




|                                                                                                                          |  |                                                                                                               
|------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------
|/s/ Nimrod T. Frazer
    Nimrod T. FrazerChairman of the Board of Directors
    and Chief Executive OfficerMarch 16, 2006 |  | /s/ Cheryl D. Davis
    Cheryl D. DavisChief Financial Officer, Vice President and
    SecretaryMarch 16, 2006

28



---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM






Internal Control  Integrated Framework








Internal
Control  Integrated Framework Internal Control  Integrated
Framework










29



---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM












Internal Control 
Integrated Framework









30



---



##### 



REPORT OF INDEPENDENT AUDITORS

















31



---



##### 



REPORT OF INDEPENDENT AUDITORS


















32



---



##### 



THE ENSTAR GROUP, INC. AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS


(Dollars in thousands)


|                                       |                                                                                                                           |                                            |                           |         |         |         |        |         |         |         | 
|-------------------------------------- | ------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------------------------- | ------- | ------- | ------- | ------ | ------- | ------- | ------- | 
|                                       |                                                                                                                           | December 31,                               |                          
|                                       |                                                                                                                           |                                            |                          
|                                       |                                                                                                                           | 2005                                       |                           |         | 2004    |        
|                                       |                                                                                                                           |                                            |                           |         |         |        
|ASSETS                                
|Current assets:                        |                                                                                                                           |                                            |                           |         |         |         |        |        
|                                       | Cash and cash equivalents                                                                                                 |                                            | $                         | 54,032  |         |         | $      | 81,675  |        
|                                       | Certificates of deposit                                                                                                   |                                            |                           | 19,686  |         |         |        | 4,058   |        
|                                       | Other current assets                                                                                                      |                                            |                           | 129     |         |         |        | 132     |        
|                                       |                                                                                                                           |                                            |                           |         |         |        
|                                       |                                                                                                                           |                                            | Total current assets      |         |         | 73,847  |        |         |         | 85,865  | 
|Partially owned equity affiliates      |                                                                                                                           |                                            | 107,329                   |         |         |         | 72,618 |        
|Other investments                      |                                                                                                                           |                                            | 3,542                     |         |         |         |       |        
|Other assets                           |                                                                                                                           |                                            | 502                       |         |         |         | 494    |        
|                                       |                                                                                                                           |                                            |                           |         |         |        
|                                       |                                                                                                                           |                                            | Total assets              |         | $       | 185,220 |        |         | $       | 158,977 | 
|                                       |                                                                                                                           |                                            |                           |         |         |        
|                                      
|LIABILITIES AND SHAREHOLDERS EQUITY  
|Current liabilities:                   |                                                                                                                           |                                            |                           |         |         |         |        |        
|                                       | Accounts payable and accrued liabilities                                                                                  |                                            | $                         | 595     |         |         | $      | 345     |        
|                                       | Accounts payable to affiliates                                                                                            |                                            |                           |        |         |         |        | 358     |        
|                                       | Income taxes payable                                                                                                      |                                            |                           | 5,467   |         |         |        | 639     |        
|                                       |                                                                                                                           |                                            |                           |         |         |        
|                                       |                                                                                                                           |                                            | Total current liabilities |         |         | 6,062   |        |         |         | 1,342   | 
|Deferred income tax liabilities        |                                                                                                                           |                                            | 10,401                    |         |         |         | 7,730  |        
|Accrued taxes                          |                                                                                                                           |                                            | 2,325                     |         |         |         | 2,625  |        
|Deferred compensation                  |                                                                                                                           |                                            | 853                       |         |         |         | 662    |        
|Other liabilities                      |                                                                                                                           |                                            | 456                       |         |         |         | 444    |        
|                                       |                                                                                                                           |                                            |                           |         |         |        
|                                       |                                                                                                                           |                                            | Total liabilities         |         |         | 20,097  |        |         |         | 12,803  | 
|                                       |                                                                                                                           |                                            |                           |         |         |        
|Commitments and contingencies (Note 7) |                                                                                                                           |                                            |                           |         |         |         |        |        
|Shareholders equity:                  |                                                                                                                           |                                            |                           |         |         |         |        |        
|                                       | Common stock ($.01 par value; 55,000,000 shares
    authorized, 5,960,260 shares issued at December 31,
    2005 and 2004 |                                            |                           | 60      |         |         |        | 60      |        
|                                       | Additional paid-in capital                                                                                                |                                            |                           | 190,008 |         |         |        | 190,008 |        
|                                       | Deferred compensation of partially owned equity affiliate                                                                 |                                            |                           | (40     | )       |         |        | (125    | )      
|                                       | Accumulated other comprehensive income from partially owned
    equity affiliates, net                                    |                                            |                           | 210     |         |         |        | 391     |        
|                                       | Accumulated deficit                                                                                                       |                                            |                           | (19,305 | )       |         |        | (38,350 | )      
|                                       | Treasury stock, at cost (442,351 shares)                                                                                  |                                            |                           | (5,810  | )       |         |        | (5,810  | )      
|                                       |                                                                                                                           |                                            |                           |         |         |        
|                                       |                                                                                                                           | Total shareholders equity                 |                           |         | 165,123 |         |        |         | 146,174 |        
|                                       |                                                                                                                           |                                            |                           |         |         |        
|                                       |                                                                                                                           | Total liabilities and shareholders equity |                           | $       | 185,220 |         |        | $       | 158,977 |        
|                                       |                                                                                                                           |                                            |                           |         |         |        



33



---



##### 



THE ENSTAR GROUP, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF INCOME


(Dollars in thousands, except per share data)


|                                                                                 |  |                         |           |   |      |   |           |      |  |   |           |  
|-------------------------------------------------------------------------------- |  | ----------------------- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | -
|                                                                                 |  | Year Ended December 31, |          
|                                                                                 |  |                         |          
|                                                                                 |  | 2005                    |           |   | 2004 |   |           | 2003 | 
|                                                                                 |  |                         |           |   |      |   |           |      | 
|Interest income                                                                  |  | $                       | 2,333     |   |      | $ | 983       |      |  | $ | 821       |  
|Other investment income                                                          |  |                         | 1,824     |   |      |   |          |      |  |   |          |  
|Earnings of partially owned equity affiliates                                    |  |                         | 26,513    |   |      |   | 8,348     |      |  |   | 15,860    |  
|Gain on sale of partially owned equity affiliates                                |  |                         |          |   |      |   | 6,911     |      |  |   | 3,256     |  
|Other income (includes related party income of $400 for 2005,
    2004 and 2003) |  |                         | 402       |   |      |   | 498       |      |  |   | 484       |  
|General and administrative expenses                                              |  |                         | (3,110    | ) |      |   | (2,981    | )    |  |   | (3,105    | )
|                                                                                 |  |                         |           |   |      |   |           |      | 
|Income before income taxes, minority interest and extraordinary
    gain         |  |                         | 27,962    |   |      |   | 13,759    |      |  |   | 17,316    |  
|Income taxes                                                                     |  |                         | (8,917    | ) |      |   | (4,809    | )    |  |   | (2,987    | )
|                                                                                 |  |                         |           |   |      |   |           |      | 
|Income before minority interest and extraordinary gain                           |  |                         | 19,045    |   |      |   | 8,950     |      |  |   | 14,329    |  
|Minority interest                                                                |  |                         |          |   |      |   | (2,973    | )    |  |   | (1,103    | )
|                                                                                 |  |                         |           |   |      |   |           |      | 
|Income before extraordinary gain                                                 |  |                         | 19,045    |   |      |   | 5,977     |      |  |   | 13,226    |  
|Extraordinary gain, net of income taxes of $2,741                                |  |                         |          |   |      |   | 4,415     |      |  |   |          |  
|                                                                                 |  |                         |           |   |      |   |           |      | 
|Net income                                                                       |  | $                       | 19,045    |   |      | $ | 10,392    |      |  | $ | 13,226    |  
|                                                                                 |  |                         |           |   |      |   |           |      | 
|Weighted average shares outstanding  basic                                      |  |                         | 5,517,909 |   |      |   | 5,496,819 |      |  |   | 5,465,753 |  
|                                                                                 |  |                         |           |   |      |   |           |      | 
|Weighted average shares outstanding  assuming dilution                          |  |                         | 5,856,144 |   |      |   | 5,800,993 |      |  |   | 5,881,410 |  
|                                                                                 |  |                         |           |   |      |   |           |      | 
|Income per common share before extraordinary gain 
    basic                    |  | $                       | 3.45      |   |      | $ | 1.09      |      |  | $ | 2.42      |  
|Extraordinary gain, net of income taxes  basic                                  |  |                         |          |   |      |   | .80       |      |  |   |          |  
|                                                                                 |  |                         |           |   |      |   |           |      | 
|Net income per common share  basic                                              |  | $                       | 3.45      |   |      | $ | 1.89      |      |  | $ | 2.42      |  
|                                                                                 |  |                         |           |   |      |   |           |      | 
|Income per common share before extraordinary gain 
    assuming dilution        |  | $                       | 3.25      |   |      | $ | 1.03      |      |  | $ | 2.25      |  
|Extraordinary gain, net of income taxes  assuming
    dilution                  |  |                         |          |   |      |   | .76       |      |  |   |          |  
|                                                                                 |  |                         |           |   |      |   |           |      | 
|Net income per common share  assuming dilution                                  |  | $                       | 3.25      |   |      | $ | 1.79      |      |  | $ | 2.25      |  
|                                                                                 |  |                         |           |   |      |   |           |      | 



34



---



##### 



THE ENSTAR GROUP, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


(Dollars in thousands)


|                                   |                                                                                                                                               |                         |        |        |      |   |        |      |   |   |        |      |  
|---------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------- | ------ | ------ | ---- | - | ------ | ---- | - | - | ------ | ---- | -
|                                   |                                                                                                                                               | Year Ended December 31, |       
|                                   |                                                                                                                                               |                         |       
|                                   |                                                                                                                                               | 2005                    |        |        | 2004 |   |        | 2003 |  
|                                   |                                                                                                                                               |                         |        |        |      |   |        |      |  
|Net income                         |                                                                                                                                               | $                       | 19,045 |        |      | $ | 10,392 |      |   | $ | 13,226 |     
|Other comprehensive income (loss): |                                                                                                                                               |                         |        |        |      |   |        |      |   |   |        |     
|                                   | Unrealized holding gains (losses) on investments, net of income
    tax expense (benefit) of $761, $0 and $(364)                              |                         |        | 1,226  |      |   |        |     |   |   |        | (586 | )
|                                   | Reclassification adjustment for (gains) losses included in
    net income, net of income tax (expense) benefit of $(761),
    $(199) and $548 |                         |        | (1,226 | )    |   |        | (321 | ) |   |        | 882  |  
|                                   | Unrealized gain (loss) on cash flow hedge, net of income tax
    (benefit) expense of $(41) and $41                                           |                         |        |       |      |   |        | (66  | ) |   |        | 66   |  
|                                   | Currency translation adjustment, net of income tax (benefit)
    expense of $(112), $68 and $112                                              |                         |        | (181   | )    |   |        | 109  |   |   |        | 181  |  
|                                   |                                                                                                                                               |                         |        |        |      |   |        |      |  
|Other comprehensive income (loss)  |                                                                                                                                               |                         | (181   | )      |      |   | (278   | )    |   |   | 543    |     
|                                   |                                                                                                                                               |                         |        |        |      |   |        |      |  
|Comprehensive income               |                                                                                                                                               | $                       | 18,864 |        |      | $ | 10,114 |      |   | $ | 13,769 |     
|                                   |                                                                                                                                               |                         |        |        |      |   |        |      |  



35



---



##### 



THE ENSTAR GROUP, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY


(Dollars in thousands)


|                             |                                                                                                       |        |    |            |         |              |              |               |           |           |              |     |  |             |     |        |          |   |         |        |  |   |        |   |  |   |         |        |  
|---------------------------- | ----------------------------------------------------------------------------------------------------- | ------ | -- | ---------- | ------- | ------------ | ------------ | ------------- | --------- | --------- | ------------ | --- |  | ----------- | --- | ------ | -------- | - | ------- | ------ |  | - | ------ | - |  | - | ------- | ------ | -
|                             |                                                                                                       |        |    |            |         |              |              | Accumulated   |           |           |              |     |  |             |    
|                             |                                                                                                       |        |    |            |         |              |              | Other         |           |           |              |     |  |             |    
|                             |                                                                                                       |        |    |            |         |              |              | Comprehensive |           |           |              |     |  |             |    
|                             |                                                                                                       |        |    |            |         | Deferred     |              |               | Income    |           |              |     |  |             |     |       
|                             |                                                                                                       |        |    |            |         | Compensation |              |               | (Loss) of |           |              |     |  |             |     |       
|                             |                                                                                                       |        |    | Additional |         |              | of Partially |               |           | Partially |              |     |  |             |     |        |         
|                             |                                                                                                       | Common |    |            | Paid-In |              |              | Owned Equity  |           |           | Owned Equity |     |  | Accumulated |     |        | Treasury |   |         |       
|                             |                                                                                                       | Stock  |    |            | Capital |              |              | Affiliates    |           |           | Affiliates   |     |  | Deficit     |     |        | Stock    |   |         | Total  | 
|                             |                                                                                                       |        |    |            |         |              |              |               |           |           |              |     |  |             |     |        |          |   |         |        | 
|Balance at January 1, 2003   |                                                                                                       | $      | 59 |            |         | $            | 188,425      |               |           | $         | (583         | )   |  | $           | 126 |        |          | $ | (61,968 | )      |  | $ | (5,810 | ) |  | $ | 120,249 |       
|                             | Net income                                                                                            |        |    |            |         |              |              |               |           |           |              |     |  |             |     |        |          |   |         | 13,226 |  |   |        |   |  |   |         | 13,226 |  
|                             | Amortization of deferred compensation                                                                 |        |    |            |         |              |              |               |           |           |              | 299 |  |             |     |        |          |   |         |        |  |   |        |   |  |   |         | 299    |  
|                             | Unrealized holding losses on investments                                                              |        |    |            |         |              |              |               |           |           |              |     |  |             |     | (586   | )        |   |         |        |  |   |        |   |  |   |         | (586   | )
|                             | Reclassification adjustment for losses included in net income                                         |        |    |            |         |              |              |               |           |           |              |     |  |             |     | 882    |          |   |         |        |  |   |        |   |  |   |         | 882    |  
|                             | Unrealized gain on hedge assets                                                                       |        |    |            |         |              |              |               |           |           |              |     |  |             |     | 66     |          |   |         |        |  |   |        |   |  |   |         | 66     |  
|                             | Currency translation adjustment                                                                       |        |    |            |         |              |              |               |           |           |              |     |  |             |     | 181    |          |   |         |        |  |   |        |   |  |   |         | 181    |  
|                             | Issuance of officers stock options                                                                   |        |    |            |         |              |              | 166           |           |           |              |     |  |             |     |        |          |   |         |        |  |   |        |   |  |   |         | 166    |  
|                             |                                                                                                       |        |    |            |         |              |              |               |           |           |              |     |  |             |     |        |          |   |         |        | 
|Balance at December 31, 2003 |                                                                                                       |        | 59 |            |         |              | 188,591      |               |           |           | (284         | )   |  |             | 669 |        |          |   | (48,742 | )      |  |   | (5,810 | ) |  |   | 134,483 |       
|                             | Net income                                                                                            |        |    |            |         |              |              |               |           |           |              |     |  |             |     |        |          |   |         | 10,392 |  |   |        |   |  |   |         | 10,392 |  
|                             | Amortization of deferred compensation                                                                 |        |    |            |         |              |              |               |           |           |              | 159 |  |             |     |        |          |   |         |        |  |   |        |   |  |   |         | 159    |  
|                             | Reclassification adjustment for gains included in net income                                          |        |    |            |         |              |              |               |           |           |              |     |  |             |     | (321   | )        |   |         |        |  |   |        |   |  |   |         | (321   | )
|                             | Unrealized loss on hedge assets                                                                       |        |    |            |         |              |              |               |           |           |              |     |  |             |     | (66    | )        |   |         |        |  |   |        |   |  |   |         | (66    | )
|                             | Currency translation adjustment                                                                       |        |    |            |         |              |              |               |           |           |              |     |  |             |     | 109    |          |   |         |        |  |   |        |   |  |   |         | 109    |  
|                             | Exercise of stock options                                                                             |        |    | 1          |         |              |              | 554           |           |           |              |     |  |             |     |        |          |   |         |        |  |   |        |   |  |   |         | 555    |  
|                             | Issuance of shares from deferred compensation plan                                                    |        |    |            |         |              |              | 224           |           |           |              |     |  |             |     |        |          |   |         |        |  |   |        |   |  |   |         | 224    |  
|                             | Tax benefit from exercise of stock options and issuance of
    shares from deferred compensation plan |        |    |            |         |              |              | 606           |           |           |              |     |  |             |     |        |          |   |         |        |  |   |        |   |  |   |         | 606    |  
|                             | Issuance of officers stock options                                                                   |        |    |            |         |              |              | 33            |           |           |              |     |  |             |     |        |          |   |         |        |  |   |        |   |  |   |         | 33     |  
|                             |                                                                                                       |        |    |            |         |              |              |               |           |           |              |     |  |             |     |        |          |   |         |        | 
|Balance at December 31, 2004 |                                                                                                       |        | 60 |            |         |              | 190,008      |               |           |           | (125         | )   |  |             | 391 |        |          |   | (38,350 | )      |  |   | (5,810 | ) |  |   | 146,174 |       
|                             | Net income                                                                                            |        |    |            |         |              |              |               |           |           |              |     |  |             |     |        |          |   |         | 19,045 |  |   |        |   |  |   |         | 19,045 |  
|                             | Amortization of deferred compensation                                                                 |        |    |            |         |              |              |               |           |           |              | 85  |  |             |     |        |          |   |         |        |  |   |        |   |  |   |         | 85     |  
|                             | Unrealized holding gains on investments                                                               |        |    |            |         |              |              |               |           |           |              |     |  |             |     | 1,226  |          |   |         |        |  |   |        |   |  |   |         | 1,226  |  
|                             | Reclassification adjustment for gains included in net income                                          |        |    |            |         |              |              |               |           |           |              |     |  |             |     | (1,226 | )        |   |         |        |  |   |        |   |  |   |         | (1,226 | )
|                             | Currency translation adjustment                                                                       |        |    |            |         |              |              |               |           |           |              |     |  |             |     | (181   | )        |   |         |        |  |   |        |   |  |   |         | (181   | )
|                             |                                                                                                       |        |    |            |         |              |              |               |           |           |              |     |  |             |     |        |          |   |         |        | 
|Balance at December 31, 2005 |                                                                                                       | $      | 60 |            |         | $            | 190,008      |               |           | $         | (40          | )   |  | $           | 210 |        |          | $ | (19,305 | )      |  | $ | (5,810 | ) |  | $ | 165,123 |       
|                             |                                                                                                       |        |    |            |         |              |              |               |           |           |              |     |  |             |     |        |          |   |         |        | 



36



---



##### 



THE ENSTAR GROUP, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOWS


(Dollars in thousands)


|                                                                         |                                                                                       |                                                                                                       |                                                     |         |         |         |        |         |        |         |        |         |         |         |  
|------------------------------------------------------------------------ | ------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------- | --------------------------------------------------- | ------- | ------- | ------- | ------ | ------- | ------ | ------- | ------ | ------- | ------- | ------- | -
|                                                                         |                                                                                       | Year Ended December 31,                                                                               |                                                    
|                                                                         |                                                                                       |                                                                                                       |                                                    
|                                                                         |                                                                                       | 2005                                                                                                  |                                                     |         | 2004    |         |        | 2003    |       
|                                                                         |                                                                                       |                                                                                                       |                                                     |         |         |         |        |         |       
|Cash flows from operating activities:                                    |                                                                                       |                                                                                                       |                                                     |         |         |         |        |         |        |         |        |        
|                                                                         | Net income                                                                            |                                                                                                       | $                                                   | 19,045  |         |         | $      | 10,392  |        |         | $      | 13,226  |        
|                                                                         | Adjustments to reconcile net income to net cash provided by
    operating activities: |                                                                                                       |                                                     |         |         |         |        |         |        |         |        |         |        
|                                                                         |                                                                                       | Earnings of partially owned equity affiliates                                                         |                                                     |         | (26,513 | )       |        |         | (8,348 | )       |        |         | (15,860 | )      
|                                                                         |                                                                                       | Dividends and distributions received from partially owned equity
    affiliates                       |                                                     |         | 11      |         |        |         | 10,216 |         |        |         | 20,826  |        
|                                                                         |                                                                                       | Minority interest in earnings of JCF CFN                                                              |                                                     |         |        |         |        |         | 2,973  |         |        |         | 1,103   |        
|                                                                         |                                                                                       | Gain on sale of marketable securities                                                                 |                                                     |         | (1,768  | )       |        |         |       |         |        |         |        |        
|                                                                         |                                                                                       | Gain on sale of partially owned equity affiliates                                                     |                                                     |         |        |         |        |         | (6,911 | )       |        |         | (3,256  | )      
|                                                                         |                                                                                       | Extraordinary gain, net of income taxes                                                               |                                                     |         |        |         |        |         | (4,415 | )       |        |         |        |        
|                                                                         |                                                                                       | Noncash compensation expense                                                                          |                                                     |         |        |         |        |         | 33     |         |        |         | 166     |        
|                                                                         |                                                                                       | Deferred income taxes                                                                                 |                                                     |         | 2,482   |         |        |         | 5,395  |         |        |         | 688     |        
|                                                                         |                                                                                       | Tax benefit from exercise of stock options and issuance of
    shares from deferred compensation plan |                                                     |         |        |         |        |         | 606    |         |        |         |        |        
|                                                                         | Changes in assets and liabilities:                                                    |                                                                                                       |                                                     |         |         |         |        |         |        |         |        |         |        
|                                                                         |                                                                                       | Accounts payable and accrued expenses                                                                 |                                                     |         | 4,708   |         |        |         | (1,594 | )       |        |         | (3,014  | )      
|                                                                         |                                                                                       | Other, net                                                                                            |                                                     |         | 23      |         |        |         | 270    |         |        |         | 705     |        
|                                                                         |                                                                                       |                                                                                                       |                                                     |         |         |         |        |         |       
|                                                                         |                                                                                       |                                                                                                       | Net cash (used in) provided by operating activities |         |         | (2,012  | )      |         |        | 8,617   |        |         |         | 14,584  |  
|                                                                         |                                                                                       |                                                                                                       |                                                     |         |         |         |        |         |       
|Cash flows from investing activities:                                    |                                                                                       |                                                                                                       |                                                     |         |         |         |        |         |        |         |        |        
|                                                                         | Purchase of marketable securities                                                     |                                                                                                       |                                                     | (9,460  | )       |         |        |        |        |         |        |        |        
|                                                                         | Proceeds from sale of marketable securities                                           |                                                                                                       |                                                     | 11,228  |         |         |        |        |        |         |        |        |        
|                                                                         | Proceeds from sale of partially owned equity affiliates                               |                                                                                                       |                                                     |        |         |         |        | 32,831  |        |         |        | 7,766   |        
|                                                                         | Capital contribution to Affirmative Investment LLC                                    |                                                                                                       |                                                     | (8,406  | )       |         |        |        |        |         |        |        |        
|                                                                         | Investment in NIB Partners                                                            |                                                                                                       |                                                     | (3,542  | )       |         |        |        |        |         |        |        |        
|                                                                         | Capital contribution to Castlewood Holdings Limited                                   |                                                                                                       |                                                     |        |         |         |        |        |        |         |        | (7,169  | )      
|                                                                         | Investment of JCF CFN in Green Tree                                                   |                                                                                                       |                                                     |        |         |         |        |        |        |         |        | (24,744 | )      
|                                                                         | Purchase of certificates of deposit                                                   |                                                                                                       |                                                     | (22,097 | )       |         |        | (8,120  | )      |         |        | (10,213 | )      
|                                                                         | Maturities of certificates of deposit                                                 |                                                                                                       |                                                     | 6,646   |         |         |        | 8,145   |        |         |        | 10,162  |        
|                                                                         |                                                                                       |                                                                                                       |                                                     |         |         |         |        |         |       
|                                                                         |                                                                                       |                                                                                                       | Net cash (used in) provided by investing activities |         |         | (25,631 | )      |         |        | 32,856  |        |         |         | (24,198 | )
|                                                                         |                                                                                       |                                                                                                       |                                                     |         |         |         |        |         |       
|Cash flows from financing activities:                                    |                                                                                       |                                                                                                       |                                                     |         |         |         |        |         |        |         |        |        
|                                                                         | Minority interests capital contribution in JCF CFN, net                              |                                                                                                       |                                                     |        |         |         |        |        |        |         |        | 10,006  |        
|                                                                         | Distributions to minority interest                                                    |                                                                                                       |                                                     |        |         |         |        | (16,120 | )      |         |        |        |        
|                                                                         | Proceeds from exercise of stock options                                               |                                                                                                       |                                                     |        |         |         |        | 555     |        |         |        |        |        
|                                                                         |                                                                                       |                                                                                                       |                                                     |         |         |         |        |         |       
|                                                                         |                                                                                       |                                                                                                       | Net cash (used in) provided by financing activities |         |         |        |        |         |        | (15,565 | )      |         |         | 10,006  |  
|                                                                         |                                                                                       |                                                                                                       |                                                     |         |         |         |        |         |       
|Increase (decrease) in cash and cash equivalents                         |                                                                                       |                                                                                                       | (27,643                                             | )       |         |         | 25,908 |         |        |         | 392    |        
|Cash and cash equivalents at the beginning of the year                   |                                                                                       |                                                                                                       | 81,675                                              |         |         |         | 55,767 |         |        |         | 55,375 |        
|                                                                         |                                                                                       |                                                                                                       |                                                     |         |         |         |        |         |       
|Cash and cash equivalents at the end of the year                         |                                                                                       | $                                                                                                     | 54,032                                              |         |         | $       | 81,675 |         |        | $       | 55,767 |        
|                                                                         |                                                                                       |                                                                                                       |                                                     |         |         |         |        |         |       
|Supplemental disclosures of cash flow information: Income taxes
    paid |                                                                                       | $                                                                                                     | 1,606                                               |         |         | $       | 731    |         |        | $       | 5,332  |        
|                                                                         |                                                                                       |                                                                                                       |                                                     |         |         |         |        |         |       



37



---



##### 



THE ENSTAR GROUP, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




|        |                   
|------- | ------------------
|Note 1: | Nature of Business









|        |                                    
|------- | -----------------------------------
|Note 2: | Restatement of Financial Statements







|        |                                
|------- | -------------------------------
|Note 3: | Significant Accounting Policies

(a) Principles of Consolidation


(b) Use of Estimates


38



---



##### 



THE ENSTAR GROUP, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




(c) Cash Equivalents


(d) Partially Owned Equity Affiliates


(e) Property and Equipment


(f) Financial Instruments


(g) Income Taxes


(h) Comprehensive Income




|                                                                                |  |              |     |  |      |   |     | 
|------------------------------------------------------------------------------- |  | ------------ | --- |  | ---- | - | --- | 
|                                                                                |  | December 31, |    
|                                                                                |  |              |    
|                                                                                |  | 2005         |     |  | 2004 |  
|                                                                                |  |              |     |  |      |  
|Currency translation adjustment, net of income tax expense of
    $130 and $243 |  | $            | 210 |  |      | $ | 391 | 
|                                                                                |  |              |     |  |      |  

(i) Deferred Compensation of Partially Owned Equity
Affiliates


39



---



##### 



THE ENSTAR GROUP, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




(j) Recent Accounting Pronouncements








(k) Revenue Recognition B-Line (B-Line). B-Line B-Line


(l) Stock-Based Compensation non-employee Non-Employee


40



---



##### 



THE ENSTAR GROUP, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Non-Employee


|                                                                                                                                             |                                 |                        |        |      |      |   |        |      |  |   |        |      | 
|-------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------- | ---------------------- | ------ | ---- | ---- | - | ------ | ---- |  | - | ------ | ---- | 
|                                                                                                                                             |                                 | 2005                   |        |      | 2004 |   |        | 2003 | 
|                                                                                                                                             |                                 |                        |        |      |      |   |        |      | 
|                                                                                                                                             |                                 | (Dollars in thousands, |       
|                                                                                                                                             |                                 | except per share data) |       
|Net income, as reported                                                                                                                      |                                 | $                      | 19,045 |      |      | $ | 10,392 |      |  | $ | 13,226 |     
|Add: Stock-based employee compensation expense included in
    reported net income, net of income taxes                                      |                                 |                        | 118    |      |      |   | 138    |      |  |   | 102    |     
|Deduct: Total stock-based employee compensation expense
    determined under fair value based method for all awards, net of
    income taxes |                                 |                        | (365   | )    |      |   | (555   | )    |  |   | (361   | )   
|                                                                                                                                             |                                 |                        |        |      |      |   |        |      | 
|Pro forma net income                                                                                                                         |                                 | $                      | 18,798 |      |      | $ | 9,975  |      |  | $ | 12,967 |     
|                                                                                                                                             |                                 |                        |        |      |      |   |        |      | 
|Income per common share:                                                                                                                     |                                 |                        |        |      |      |   |        |      |  |   |        |     
|                                                                                                                                             | Basic  as reported             |                        | $      | 3.45 |      |   | $      | 1.89 |  |   | $      | 2.42 | 
|                                                                                                                                             |                                 |                        |        |      |      |   |        |      | 
|                                                                                                                                             | Basic  pro forma               |                        | $      | 3.41 |      |   | $      | 1.81 |  |   | $      | 2.37 | 
|                                                                                                                                             |                                 |                        |        |      |      |   |        |      | 
|                                                                                                                                             | Assuming dilution  as reported |                        | $      | 3.25 |      |   | $      | 1.79 |  |   | $      | 2.25 | 
|                                                                                                                                             |                                 |                        |        |      |      |   |        |      | 
|                                                                                                                                             | Assuming dilution  pro forma   |                        | $      | 3.21 |      |   | $      | 1.72 |  |   | $      | 2.20 | 
|                                                                                                                                             |                                 |                        |        |      |      |   |        |      | 

00-23,




|                        |  |      |       |   |      |  |       |      |  |  |       |  
|----------------------- |  | ---- | ----- | - | ---- |  | ----- | ---- |  |  | ----- | -
|                        |  | 2005 |       |   | 2004 |  |       | 2003 | 
|                        |  |      |       |   |      |  |       |      | 
|Risk-free interest rate |  |      | 3.03  | % |      |  | 3.08  | %    |  |  | 3.88  | %
|Dividend yield          |  |      | 0.00  | % |      |  | 0.00  | %    |  |  | 0.00  | %
|Expected volatility     |  |      | 21.74 | % |      |  | 20.46 | %    |  |  | 22.58 | %
|Expected life, in years |  |      | 4.37  |   |      |  | 2.12  |      |  |  | 2.35  |  



(m) Other Income


41



---



##### 



THE ENSTAR GROUP, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(n) Currency Translation Adjustment (non-U.S.)




|        |                      
|------- | ---------------------
|Note 4: | Marketable Securities





|        |                                  
|------- | ---------------------------------
|Note 5: | Partially Owned Equity Affiliates

(a) B.H. Acquisition


(b) Castlewood Holdings Limited run-off








42



---



##### 



THE ENSTAR GROUP, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Toa-Re (Toa-UK), Toa-UK Toa-UKs Toa-UK


1 3










43



---



##### 



THE ENSTAR GROUP, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




(c) B-Line


(d) Green Tree






(e) Affirmative Investment LLC




44



---



##### 



THE ENSTAR GROUP, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




(f) Summarized Financial Information B-Line B-Line B-Line B-Line


|                  |  |                        |         |  |            |   |           |             |  |   |        | 
|----------------- |  | ---------------------- | ------- |  | ---------- | - | --------- | ----------- |  | - | ------ | 
|                  |  | December 31, 2005      |        
|                  |  |                        |        
|                  |  | B.H.                   |         |  | Castlewood |   |           | Affirmative | 
|                  |  | Acquisition            |         |  | Holdings   |   |           | Investment  | 
|                  |  |                        |         |  |            |   |           |             | 
|                  |  | (Dollars in thousands) |        
|Total assets      |  | $                      | 105,578 |  |            | $ | 1,199,963 |             |  | $ | 60,199 | 
|Total liabilities |  |                        | 66,733  |  |            |   | 898,513   |             |  |   |       | 
|Minority interest |  |                        |        |  |            |   | 40,544    |             |  |   |       | 
|Total equity      |  |                        | 38,845  |  |            |   | 260,906   |             |  |   | 60,199 | 

|                  |  |                        |         |  |            |   |           | 
|----------------- |  | ---------------------- | ------- |  | ---------- | - | --------- | 
|                  |  | December 31, 2004      |        
|                  |  |                        |        
|                  |  | B.H.                   |         |  | Castlewood |  
|                  |  | Acquisition            |         |  | Holdings   |  
|                  |  |                        |         |  |            |  
|                  |  | (Dollars in thousands) |        
|Total assets      |  | $                      | 110,414 |  |            | $ | 1,347,853 | 
|Total liabilities |  |                        | 71,748  |  |            |   | 1,139,123 | 
|Minority interest |  |                        |        |  |            |   | 31,392    | 
|Total equity      |  |                        | 38,666  |  |            |   | 177,338   | 

45



---



##### 



THE ENSTAR GROUP, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                 |  |                              |     |  |            |   |        |             |  |   |       | 
|---------------- |  | ---------------------------- | --- |  | ---------- | - | ------ | ----------- |  | - | ----- | 
|                 |  | Year Ended December 31, 2005 |    
|                 |  |                              |    
|                 |  | B.H.                         |     |  | Castlewood |   |        | Affirmative | 
|                 |  | Acquisition                  |     |  | Holdings   |   |        | Investment  | 
|                 |  |                              |     |  |            |   |        |             | 
|                 |  | (Restated)                   |     |  | (Restated) |   |        |            
|                 |  | (Dollars in thousands)       |    
|Revenue          |  |                              |     |  |            | $ | 22,006 |             |  |   |       | 
|Operating income |  | $                            | 179 |  |            |   | 91,132 |             |  | $ | 2,246 | 
|Net income       |  |                              | 179 |  |            |   | 80,710 |             |  |   | 856   | 

|                 |  |                              |     |  |            |   |        |            |  |   |         | 
|---------------- |  | ---------------------------- | --- |  | ---------- | - | ------ | ---------- |  | - | ------- | 
|                 |  | Year Ended December 31, 2004 |    
|                 |  |                              |    
|                 |  | B.H.                         |     |  | Castlewood |   |        |           
|                 |  | Acquisition                  |     |  | Holdings   |   |        | Green Tree | 
|                 |  |                              |     |  |            |   |        |            | 
|                 |  | (Restated)                   |     |  | (Restated) |   |        |           
|                 |  | (Dollars in thousands)       |    
|Revenue          |  |                              |     |  |            | $ | 23,703 |            |  | $ | 262,327 | 
|Operating income |  | $                            | 359 |  |            |   | 14,675 |            |  |   | 123,842 | 
|Net income       |  |                              | 359 |  |            |   | 38,294 |            |  |   | 99,114  | 

|                 |  |                              |        |            |             |   |            |          |  |   |            |  |  |   |         | 
|---------------- |  | ---------------------------- | ------ | ---------- | ----------- | - | ---------- | -------- |  | - | ---------- |  |  | - | ------- | 
|                 |  | Year Ended December 31, 2003 |       
|                 |  |                              |       
|                 |  |                              |        | B.H.       |             |   | Castlewood |          |  |  
|                 |  | B-Line                       |        |            | Acquisition |   |            | Holdings |  |   | Green Tree | 
|                 |  |                              |        |            |             |   |            |          |  |   |            | 
|                 |  |                              |        | (Restated) |             |   | (Restated) |          |  |  
|                 |  | (Dollars in thousands)       |       
|Revenue          |  | $                            | 67,958 |            |             |   |            |          |  | $ | 24,746     |  |  | $ | 244,758 | 
|Operating income |  |                              | 20,215 |            |             | $ | 888        |          |  |   | 35,570     |  |  |   | 100,699 | 
|Net income       |  |                              | 20,215 |            |             |   | 888        |          |  |   | 30,592     |  |  |   | 96,318  | 





|        |                  
|------- | -----------------
|Note 6: | Other Investments







|        |                              
|------- | -----------------------------
|Note 7: | Commitments and Contingencies

month-to


46



---



##### 



THE ENSTAR GROUP, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










|        |             
|------- | ------------
|Note 8: | Income Taxes



|                              |  |                        |       |  |      |   |       |      |  |   |       | 
|----------------------------- |  | ---------------------- | ----- |  | ---- | - | ----- | ---- |  | - | ----- | 
|                              |  | 2005                   |       |  | 2004 |   |       | 2003 | 
|                              |  |                        |       |  |      |   |       |      | 
|                              |  | (Dollars in thousands) |      
|Current tax expense (benefit) |  | $                      | 6,134 |  |      | $ | (586  | )    |  | $ | 2,299 | 
|Deferred taxes                |  |                        | 2,783 |  |      |   | 5,395 |      |  |   | 688   | 
|                              |  |                        |       |  |      |   |       |      | 
|                              |  | $                      | 8,917 |  |      | $ | 4,809 |      |  | $ | 2,987 | 
|                              |  |                        |       |  |      |   |       |      | 



|                                           |  |                        |       |   |      |   |        |      |  |   |        |  
|------------------------------------------ |  | ---------------------- | ----- | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                           |  | 2005                   |       |   | 2004 |   |        | 2003 | 
|                                           |  |                        |       |   |      |   |        |      | 
|                                           |  | (Dollars in thousands) |      
|Federal income taxes at statutory rate     |  | $                      | 9,507 |   |      | $ | 4,678  |      |  | $ | 5,887  |  
|State income taxes, net of federal benefit |  |                        | (86   | ) |      |   | 502    |      |  |   | 291    |  
|Minority interest                          |  |                        |      |   |      |   | (1,011 | )    |  |   | (375   | )
|Change in valuation allowance              |  |                        | (189  | ) |      |   | 640    |      |  |   | (2,818 | )
|Other                                      |  |                        | (315  | ) |      |   |       |      |  |   | 2      |  
|                                           |  |                        |       |   |      |   |        |      | 
|                                           |  | $                      | 8,917 |   |      | $ | 4,809  |      |  | $ | 2,987  |  
|                                           |  |                        |       |   |      |   |        |      | 

47



---



##### 



THE ENSTAR GROUP, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                 |                                                             |                              |         |         |        |  |         |         |       | 
|-------------------------------- | ----------------------------------------------------------- | ---------------------------- | ------- | ------- | ------ |  | ------- | ------- | ----- | 
|                                 |                                                             | 2005                         |         |         | 2004   | 
|                                 |                                                             |                              |         |         |        | 
|                                 |                                                             | (Dollars in thousands)       |        
|Deferred income tax assets:      |                                                             |                              |         |         |        |  |         |        
|                                 | Alternative minimum tax credit carryforwards                |                              | $       | 631     |        |  | $       | 4,850   |      
|                                 | Losses of partially owned equity affiliates                 |                              |         | 6,172   |        |  |         | 5,171   |      
|                                 | Other                                                       |                              |         | 1,262   |        |  |         | 992     |      
|                                 |                                                             |                              |         |         |        | 
|                                 | Deferred tax assets                                         |                              |         | 8,065   |        |  |         | 11,013  |      
|                                 | Valuation allowance                                         |                              |         | (5,624  | )      |  |         | (5,813  | )    
|                                 |                                                             |                              |         |         |        | 
|                                 |                                                             |                              | 2,441   |         |        |  | 5,200   |        
|                                 |                                                             |                              |         |         |        | 
|Deferred income tax liabilities: |                                                             |                              |         |         |        |  |         |        
|                                 | Undistributed earnings of partially owned equity affiliates |                              |         | (12,712 | )      |  |         | (12,687 | )    
|                                 | Other                                                       |                              |         | (130    | )      |  |         | (243    | )    
|                                 |                                                             |                              |         |         |        | 
|                                 |                                                             |                              | (12,842 | )       |        |  | (12,930 | )      
|                                 |                                                             |                              |         |         |        | 
|                                 |                                                             | Net deferred tax liabilities |         | $       | 10,401 |  |         | $       | 7,730 | 
|                                 |                                                             |                              |         |         |        | 







|        |                     
|------- | --------------------
|Note 9: | Shareholders Equity

(a) Share Purchase Rights Plan




Distribution Triggering Events.


48



---



##### 



THE ENSTAR GROUP, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




(b) Treasury Stock


(c) Deferred Compensation of Partially Owned Equity
Affiliates




|         |                   
|-------- | ------------------
|Note 10: | Stock Compensation

(a) Deferred Compensation and Stock Plan for
Non-Employee Directors


(b) Long-Term Incentive Program






49



---



##### 



THE ENSTAR GROUP, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)
















50



---



##### 



THE ENSTAR GROUP, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                            |                           |      |         |       |      |  |         |       |  |  |         |       | 
|------------------------------------------- | ------------------------- | ---- | ------- | ----- | ---- |  | ------- | ----- |  |  | ------- | ----- | 
|                                            |                           | 2005 |         |       | 2004 |  |         | 2003  | 
|                                            |                           |      |         |       |      |  |         |       | 
|Under option, January 1                     |                           |      | 720,000 |       |      |  | 760,000 |       |  |  | 595,000 |      
|Granted                                     |                           |      | 5,000   |       |      |  |        |       |  |  | 165,000 |      
|Exercised                                   |                           |      |        |       |      |  | (40,000 | )     |  |  |        |      
|                                            |                           |      |         |       |      |  |         |       | 
|Under option, December 31                   |                           |      | 725,000 |       |      |  | 720,000 |       |  |  | 760,000 |      
|                                            |                           |      |         |       |      |  |         |       | 
|Exercisable, December 31                    |                           |      | 600,000 |       |      |  | 560,000 |       |  |  | 540,000 |      
|                                            |                           |      |         |       |      |  |         |       | 
|Available to be granted, December 31        |                           |      | 52,500  |       |      |  | 57,500  |       |  |  | 57,500  |      
|                                            |                           |      |         |       |      |  |         |       | 
|Weighted average exercise prices per share: |                           |      |         |       |      |  |         |       |  |  |         |      
|                                            | Under option, January 1   |      | $       | 20.21 |      |  | $       | 19.88 |  |  | $       | 14.30 | 
|                                            | Granted                   |      |         | 57.81 |      |  |         |      |  |  |         | 40.00 | 
|                                            | Exercised                 |      |         |      |      |  |         | 13.85 |  |  |         |      | 
|                                            | Under option, December 31 |      |         | 20.47 |      |  |         | 20.21 |  |  |         | 19.88 | 
|                                            | Exercisable, December 31  |      |         | 16.25 |      |  |         | 14.56 |  |  |         | 13.85 | 



|            |          |  |                  |  |         |                  |  |   |                  |  |  |           |           |  |                  |  |         |  |  |  |        | 
|----------- | -------- |  | ---------------- |  | ------- | ---------------- |  | - | ---------------- |  |  | --------- | --------- |  | ---------------- |  | ------- |  |  |  | ------ | 
|Outstanding |          |  | Exercisable      | 
|            |          |  |                  | 
|Ranges of   |          |  | Weighted Average |  |         |                 
|Exercise    |          |  | Number of        |  |         | Weighted Average |  |   | Remaining        |  |  | Number of |           |  | Weighted Average | 
|Prices      |          |  | Options          |  |         | Exercise Price   |  |   | Contractual Life |  |  | Options   |           |  | Exercise Price   | 
|            |          |  |                  |  |         |                  |  |   |                  |  |  |           |           |  |                  | 
|            | $10  20 |  |                  |  | 555,000 |                  |  | $ | 14.33            |  |  |           | 3.5 years |  |                  |  | 555,000 |  |  |  | $14.33 | 
|            | 40  60  |  |                  |  | 170,000 |                  |  |   | 40.52            |  |  |           | 7.7 years |  |                  |  | 45,000  |  |  |  | $40.00 | 



|         |                 
|-------- | ----------------
|Note 11: | Income per Share



51



---



##### 



THE ENSTAR GROUP, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                          |  |                        |           |  |      |   |           |      |  |   |           | 
|------------------------------------------------------------------------- |  | ---------------------- | --------- |  | ---- | - | --------- | ---- |  | - | --------- | 
|                                                                          |  | 2005                   |           |  | 2004 |   |           | 2003 | 
|                                                                          |  |                        |           |  |      |   |           |      | 
|                                                                          |  | (Dollars in thousands, |          
|                                                                          |  | except per share data) |          
|Income before extraordinary gain                                          |  | $                      | 19,045    |  |      | $ | 5,977     |      |  | $ | 13,226    | 
|Extraordinary gain, net of income taxes                                   |  |                        |          |  |      |   | 4,415     |      |  |   |          | 
|                                                                          |  |                        |           |  |      |   |           |      | 
|Net income                                                                |  | $                      | 19,045    |  |      | $ | 10,392    |      |  | $ | 13,226    | 
|                                                                          |  |                        |           |  |      |   |           |      | 
|Income per common share before extraordinary gain 
    basic             |  | $                      | 3.45      |  |      | $ | 1.09      |      |  | $ | 2.42      | 
|Extraordinary gain, net of income taxes  basic                           |  |                        |          |  |      |   | .80       |      |  |   |          | 
|                                                                          |  |                        |           |  |      |   |           |      | 
|Net income per common share  basic                                       |  | $                      | 3.45      |  |      | $ | 1.89      |      |  | $ | 2.42      | 
|                                                                          |  |                        |           |  |      |   |           |      | 
|Income per common share before extraordinary gain 
    assuming dilution |  | $                      | 3.25      |  |      | $ | 1.03      |      |  | $ | 2.25      | 
|Extraordinary gain, net of income taxes  assuming
    dilution           |  |                        |          |  |      |   | .76       |      |  |   |          | 
|                                                                          |  |                        |           |  |      |   |           |      | 
|Net income per common share  assuming dilution                           |  | $                      | 3.252     |  |      | $ | 1.79      |      |  | $ | 2.25      | 
|                                                                          |  |                        |           |  |      |   |           |      | 
|Weighted average shares outstanding  basic                               |  |                        | 5,517,909 |  |      |   | 5,496,819 |      |  |   | 5,465,753 | 
|Common share equivalents                                                  |  |                        | 338,235   |  |      |   | 304,174   |      |  |   | 415,657   | 
|                                                                          |  |                        |           |  |      |   |           |      | 
|Weighted average shares outstanding  assuming dilution                   |  |                        | 5,856,144 |  |      |   | 5,800,993 |      |  |   | 5,881,410 | 
|                                                                          |  |                        |           |  |      |   |           |      | 





|         |                    
|-------- | -------------------
|Note 12: | Segment Information





52



---



##### 



THE ENSTAR GROUP, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


B-Line


|                                 |                                   |                        |   |        |             |  |            |          |        |             |            |        |        |       |   |       |       |  |   |         |         | 
|-------------------------------- | --------------------------------- | ---------------------- | - | ------ | ----------- |  | ---------- | -------- | ------ | ----------- | ---------- | ------ | ------ | ----- | - | ----- | ----- |  | - | ------- | ------- | 
|                                 |                                   | December 31, 2005      |  
|                                 |                                   |                        |  
|                                 |                                   |                        |   | B.H.   |             |  | Castlewood |          |        | Affirmative |            |        |       
|                                 |                                   | Corporate              |   |        | Acquisition |  |            | Holdings |        |             | Investment |        |        | Total |  
|                                 |                                   |                        |   |        |             |  |            |          |        |             |            |        |        |       |  
|                                 |                                   | (Dollars in thousands) |  
|Total reportable segment assets: |                                   |                        |   |        |             |  |            |          |        |             |            |        |        |       |   |       |       |  |   |        
|                                 | Partially owned equity affiliates |                        |   |        |             |  | $          | 12,906   |        |             | $          | 85,908 |        |       | $ | 8,515 |       |  | $ | 107,329 |        
|                                 | Corporate assets                  |                        | $ | 77,891 |             |  |            |          |        |             |            |        |        |       |   |       |       |  |   | 77,891  |        
|                                 |                                   |                        |   |        |             |  |            |          |        |             |            |        |        |       |  
|                                 |                                   | Total                  |   | $      | 77,891      |  |            | $        | 12,906 |             |            | $      | 85,908 |       |   | $     | 8,515 |  |   | $       | 185,220 | 
|                                 |                                   |                        |   |        |             |  |            |          |        |             |            |        |        |       |  

|                                 |                                   |                        |   |        |             |  |            |          |        |  |       |        |        |  |   |        |         | 
|-------------------------------- | --------------------------------- | ---------------------- | - | ------ | ----------- |  | ---------- | -------- | ------ |  | ----- | ------ | ------ |  | - | ------ | ------- | 
|                                 |                                   | December 31, 2004      |  
|                                 |                                   |                        |  
|                                 |                                   |                        |   | B.H.   |             |  | Castlewood |          |        | 
|                                 |                                   | Corporate              |   |        | Acquisition |  |            | Holdings |        |  | Total |       
|                                 |                                   |                        |   |        |             |  |            |          |        |  |       |       
|                                 |                                   | (Dollars in thousands) |  
|Total reportable segment assets: |                                   |                        |   |        |             |  |            |          |        |  |       |        |        |  |   |       
|                                 | Partially owned equity affiliates |                        |   |        |             |  | $          | 12,843   |        |  | $     | 59,775 |        |  | $ | 72,618 |        
|                                 | Corporate assets                  |                        | $ | 86,359 |             |  |            |          |        |  |       |        |        |  |   | 86,359 |        
|                                 |                                   |                        |   |        |             |  |            |          |        |  |       |       
|                                 |                                   | Total                  |   | $      | 86,359      |  |            | $        | 12,843 |  |       | $      | 59,775 |  |   | $      | 158,977 | 
|                                 |                                   |                        |   |        |             |  |            |          |        |  |       |       

53



---



##### 



THE ENSTAR GROUP, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                                                                             |  |                              |        |            |             |   |            |          |  |             |            |   |  |       |        |   |  |   |        | 
|---------------------------------------------------------------------------- |  | ---------------------------- | ------ | ---------- | ----------- | - | ---------- | -------- |  | ----------- | ---------- | - |  | ----- | ------ | - |  | - | ------ | 
|                                                                             |  | Year Ended December 31, 2005 |       
|                                                                             |  |                              |       
|                                                                             |  |                              |        | B.H.       |             |   | Castlewood |          |  | Affirmative |            |   | 
|                                                                             |  | Corporate                    |        |            | Acquisition |   |            | Holdings |  |             | Investment |   |  | Total |       
|                                                                             |  |                              |        |            |             |   |            |          |  |             |            |   |  |       |       
|                                                                             |  |                              |        | (Restated) |             |   | (Restated) |          |  |             |            |  
|                                                                             |  | (Dollars in thousands)       |       
|Revenue                                                                      |  |                              |        |            |             |   |            |          |  | $           | 22,006     |   |  |       |        |   |  |   |        | 
|Net investment income                                                        |  | $                            | 1,824  |            |             | $ | 2,406      |          |  |             | 29,504     |   |  | $     | (1,390 | ) |  |   |        | 
|Interest income                                                              |  |                              | 2,333  |            |             |   |            |          |  |             |            |   |  |       | 1      |   |  |   |        | 
|Net (increase) reduction in loss and loss adjustment expense
    liabilities |  |                              |        |            |             |   | (552       | )        |  |             | 96,007     |   |  |       |        |   |  |   |        | 
|General and administrative expenses                                          |  |                              | (3,110 | )          |             |   | (2,275     | )        |  |             | (51,783    | ) |  |       |        |   |  |   |        | 
|Amortization of run-off provision                                            |  |                              |        |            |             |   | 667        |          |  |             |            |   |  |       |        |   |  |   |        | 
|Other income                                                                 |  |                              | 402    |            |             |   |            |          |  |             |            |   |  |       |        |   |  |   |        | 
|Foreign exchange loss                                                        |  |                              |        |            |             |   | (67        | )        |  |             | (4,602     | ) |  |       |        |   |  |   |        | 
|Share of net income of partly-owned companies                                |  |                              |        |            |             |   |            |          |  |             | 192        |   |  |       | 2,245  |   |  |   |        | 
|                                                                             |  |                              |        |            |             |   |            |          |  |             |            |   |  |       |       
|Income before income taxes                                                   |  |                              | 1,449  |            |             |   | 179        |          |  |             | 91,324     |   |  |       | 856    |   |  |   |        | 
|Income taxes                                                                 |  |                              | (8,917 | )          |             |   |            |          |  |             | (914       | ) |  |       |        |   |  |   |        | 
|Minority interest                                                            |  |                              |        |            |             |   |            |          |  |             | (9,700     | ) |  |       |        |   |  |   |        | 
|                                                                             |  |                              |        |            |             |   |            |          |  |             |            |   |  |       |       
|Net income (loss)                                                            |  | $                            | (7,468 | )          |             | $ | 179        |          |  | $           | 80,710     |   |  | $     | 856    |   |  |   |        | 
|                                                                             |  |                              |        |            |             |   |            |          |  |             |            |   |  |       |       
|Companys economic ownership %                                               |  |                              |        |            |             |   | 33         | %        |  |             | 32.63      | % |  |       | 14     | % |  |   |        | 
|                                                                             |  |                              |        |            |             |   |            |          |  |             |            |   |  |       |       
|Earnings of partially owned equity affiliates                                |  |                              |        |            |             | $ | 59         |          |  | $           | 26,334     |   |  | $     | 120    |   |  | $ | 26,513 | 
|                                                                             |  |                              |        |            |             |   |            |          |  |             |            |   |  |       |       



54



---



##### 



THE ENSTAR GROUP, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                                                              |  |                              |        |            |             |   |            |          |  |   |         |   |  |       |       |  |  |   |       | 
|------------------------------------------------------------- |  | ---------------------------- | ------ | ---------- | ----------- | - | ---------- | -------- |  | - | ------- | - |  | ----- | ----- |  |  | - | ----- | 
|                                                              |  | Year Ended December 31, 2004 |       
|                                                              |  |                              |       
|                                                              |  |                              |        | B.H.       |             |   | Castlewood |          |  |  
|                                                              |  | Corporate                    |        |            | Acquisition |   |            | Holdings |  |   | JCF CFN |   |  | Total |      
|                                                              |  |                              |        |            |             |   |            |          |  |   |         |   |  |       |      
|                                                              |  |                              |        | (Restated) |             |   | (Restated) |          |  |   |         |  
|                                                              |  | (Dollars in thousands)       |       
|Revenue                                                       |  |                              |        |            |             |   |            |          |  | $ | 23,703  |   |  |       |       |  |  |   |       | 
|Net investment income                                         |  |                              |        |            |             | $ | 1,489      |          |  |   | 10,502  |   |  |       |       |  |  |   |       | 
|Interest income                                               |  | $                            | 983    |            |             |   |            |          |  |   |         |   |  |       |       |  |  |   |       | 
|Net reduction in loss and loss adjustment expense liabilities |  |                              |        |            |             |   | 428        |          |  |   | 13,706  |   |  |       |       |  |  |   |       | 
|General and administrative expenses                           |  |                              | (2,981 | )          |             |   | (2,839     | )        |  |   | (36,967 | ) |  |       |       |  |  |   |       | 
|Amortization of run-off provision                             |  |                              |        |            |             |   | 1,333      |          |  |   |         |   |  |       |       |  |  |   |       | 
|Gain on sale of Green Tree                                    |  |                              | 6,911  |            |             |   |            |          |  |   |         |   |  |       |       |  |  |   |       | 
|Other income                                                  |  |                              | 498    |            |             |   | 90         |          |  |   |         |   |  |       |       |  |  |   |       | 
|Foreign exchange gain (loss)                                  |  |                              |        |            |             |   | (142       | )        |  |   | 3,731   |   |  |       |       |  |  |   |       | 
|Share of net income of partly-owned companies                 |  |                              |        |            |             |   |            |          |  |   | 6,881   |   |  | $     | 4,255 |  |  |   |       | 
|                                                              |  |                              |        |            |             |   |            |          |  |   |         |   |  |       |      
|Income before income taxes                                    |  |                              | 5,411  |            |             |   | 359        |          |  |   | 21,556  |   |  |       | 4,255 |  |  |   |       | 
|Income taxes                                                  |  |                              | (7,550 | )          |             |   |            |          |  |   | (1,924  | ) |  |       |       |  |  |   |       | 
|Minority interest                                             |  |                              | (2,973 | )          |             |   |            |          |  |   | (3,097  | ) |  |       |       |  |  |   |       | 
|                                                              |  |                              |        |            |             |   |            |          |  |   |         |   |  |       |      
|Income (loss) before extraordinary gain                       |  |                              | (5,112 | )          |             |   | 359        |          |  |   | 16,535  |   |  |       | 4,255 |  |  |   |       | 
|Extraordinary gain                                            |  |                              |        |            |             |   |            |          |  |   | 21,759  |   |  |       |       |  |  |   |       | 
|                                                              |  |                              |        |            |             |   |            |          |  |   |         |   |  |       |      
|Net income (loss)                                             |  | $                            | (5,112 | )          |             | $ | 359        |          |  | $ | 38,294  |   |  | $     | 4,255 |  |  |   |       | 
|                                                              |  |                              |        |            |             |   |            |          |  |   |         |   |  |       |      
|Companys economic ownership %                                |  |                              |        |            |             |   | 33         | %        |  |   | 32.95   | % |  |       |       |  |  |   |       | 
|                                                              |  |                              |        |            |             |   |            |          |  |   |         |   |  |       |      
|                                                              |  |                              |        |            |             |   |            |          |  |   | 12,618  |   |  |       |       |  |  |   |       | 
|Companys portion of earnings from JCF CFN                    |  |                              |        |            |             |   |            |          |  |   | (1,487  | ) |  |       |       |  |  |   |       | 
|Companys portion of pre-tax extraordinary gain               |  |                              |        |            |             |   |            |          |  |   | (7,156  | ) |  |       |       |  |  |   |       | 
|                                                              |  |                              |        |            |             |   |            |          |  |   |         |   |  |       |      
|Earnings of partially owned equity affiliates                 |  |                              |        |            |             | $ | 118        |          |  | $ | 3,975   |   |  | $     | 4,255 |  |  | $ | 8,348 | 
|                                                              |  |                              |        |            |             |   |            |          |  |   |         |   |  |       |      

1 3


55



---



##### 



THE ENSTAR GROUP, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                                                                             |  |                              |        |      |        |            |            |             |            |   |          |   |  |         |         |   |       |   |       |  |  |   |        | 
|---------------------------------------------------------------------------- |  | ---------------------------- | ------ | ---- | ------ | ---------- | ---------- | ----------- | ---------- | - | -------- | - |  | ------- | ------- | - | ----- | - | ----- |  |  | - | ------ | 
|                                                                             |  | Year Ended December 31, 2003 |       
|                                                                             |  |                              |       
|                                                                             |  |                              |        | B.H. |        |            | Castlewood |             |            |  
|                                                                             |  | Corporate                    |        |      | B-Line |            |            | Acquisition |            |   | Holdings |   |  | JCF CFN |         |   | Total |  
|                                                                             |  |                              |        |      |        |            |            |             |            |   |          |   |  |         |         |   |       |  
|                                                                             |  |                              |        |      |        | (Restated) |            |             | (Restated) |   |          |   |  |        
|                                                                             |  | (Dollars in thousands)       |       
|Revenue                                                                      |  |                              |        |      |        | $          | 67,958     |             |            |   |          |   |  | $       | 24,746  |   |       |   |       |  |  |   |        | 
|Net investment income                                                        |  |                              |        |      |        |            |            |             |            | $ | 1,331    |   |  |         | 7,072   |   |       |   |       |  |  |   |        | 
|Interest income                                                              |  | $                            | 821    |      |        |            |            |             |            |   |          |   |  |         |         |   |       |   |       |  |  |   |        | 
|Net (increase) reduction in loss and loss adjustment expense
    liabilities |  |                              |        |      |        |            |            |             |            |   | (230     | ) |  |         | 24,044  |   |       |   |       |  |  |   |        | 
|General and administrative
    expenses                                      |  |                              | (3,105 | )    |        |            | (38,890    | )           |            |   | (1,648   | ) |  |         | (22,654 | ) |       |   |       |  |  |   |        | 
|Amortization of run-off provision                                            |  |                              |        |      |        |            |            |             |            |   | 500      |   |  |         |         |   |       |   |       |  |  |   |        | 
|Interest expense                                                             |  |                              |        |      |        |            | (8,853     | )           |            |   |          |   |  |         |         |   |       |   |       |  |  |   |        | 
|Gain on sale of B-Line                                                       |  |                              | 3,256  |      |        |            |            |             |            |   |          |   |  |         |         |   |       |   |       |  |  |   |        | 
|Other income                                                                 |  |                              | 484    |      |        |            |            |             |            |   | 8        |   |  |         |         |   |       |   |       |  |  |   |        | 
|Foreign exchange gain                                                        |  |                              |        |      |        |            |            |             |            |   | 927      |   |  |         | 2,362   |   |       |   |       |  |  |   |        | 
|Share of net income of partly-owned companies                                |  |                              |        |      |        |            |            |             |            |   |          |   |  |         | 1,623   |   |       | $ | 4,236 |  |  |   |        | 
|                                                                             |  |                              |        |      |        |            |            |             |            |   |          |   |  |         |         |   |       |  
|Income before income taxes                                                   |  |                              | 1,456  |      |        |            | 20,215     |             |            |   | 888      |   |  |         | 37,193  |   |       |   | 4,236 |  |  |   |        | 
|Income taxes                                                                 |  |                              | (2,987 | )    |        |            |            |             |            |   |          |   |  |         | (1,490  | ) |       |   |       |  |  |   |        | 
|Minority interest                                                            |  |                              | (1,103 | )    |        |            |            |             |            |   |          |   |  |         | (5,111  | ) |       |   |       |  |  |   |        | 
|                                                                             |  |                              |        |      |        |            |            |             |            |   |          |   |  |         |         |   |       |  
|Net income (loss)                                                            |  | $                            | (2,634 | )    |        | $          | 20,215     |             |            | $ | 888      |   |  | $       | 30,592  |   |       | $ | 4,236 |  |  |   |        | 
|                                                                             |  |                              |        |      |        |            |            |             |            |   |          |   |  |         |         |   |       |  
|Companys economic ownership %                                               |  |                              |        |      |        |            | 8.34       | %           |            |   | 33       | % |  |         | 331/3   | % |       |   |       |  |  |   |        | 
|                                                                             |  |                              |        |      |        |            |            |             |            |   |          |   |  |         |         |   |       |  
|                                                                             |  |                              |        |      |        |            |            |             |            |   |          |   |  |         | 10,197  |   |       |   |       |  |  |   |        | 
|Companys portion of earnings from JCF CFN                                   |  |                              |        |      |        |            |            |             |            |   |          |   |  |         | (552    | ) |       |   |       |  |  |   |        | 
|                                                                             |  |                              |        |      |        |            |            |             |            |   |          |   |  |         |         |   |       |  
|Earnings of partially owned equity affiliates                                |  |                              |        |      |        | $          | 1,686      |             |            | $ | 293      |   |  | $       | 9,645   |   |       | $ | 4,236 |  |  | $ | 15,860 | 
|                                                                             |  |                              |        |      |        |            |            |             |            |   |          |   |  |         |         |   |       |  



56



---



##### 



THE ENSTAR GROUP, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|         |                                          
|-------- | -----------------------------------------
|Note 13: | Unaudited Quarterly Financial Information



|                                                                          |  |                                               |       |   |        |   |       |       |  |   |        |   |  |   |        |  
|------------------------------------------------------------------------- |  | --------------------------------------------- | ----- | - | ------ | - | ----- | ----- |  | - | ------ | - |  | - | ------ | -
|                                                                          |  | Quarter                                       |      
|                                                                          |  |                                               |      
|                                                                          |  | First                                         |       |   | Second |   |       | Third |  |   | Fourth |  
|                                                                          |  |                                               |       |   |        |   |       |       |  |   |        |  
|                                                                          |  | (Dollars in thousands, except per share data) |      
|                                                                          |  | (Unaudited)                                   |      
|Year ended December 31, 2005:                                             |  |                                               |       |   |        |   |       |       |  |   |        |   |  |   |        |  
|Interest income                                                           |  | $                                             | 482   |   |        | $ | 561   |       |  | $ | 608    |   |  | $ | 682    |  
|Other investment income                                                   |  |                                               |       |   |        |   | 604   |       |  |   | 487    |   |  |   | 733    |  
|Earnings of partially owned equity affiliates                             |  |                                               | 265   |   |        |   | 1,046 |       |  |   | 1,186  |   |  |   | 24,016 |  
|Other income                                                              |  |                                               | 100   |   |        |   | 101   |       |  |   | 100    |   |  |   | 101    |  
|General and administrative expenses                                       |  |                                               | (780  | ) |        |   | (861  | )     |  |   | (617   | ) |  |   | (852   | )
|                                                                          |  |                                               |       |   |        |   |       |       |  |   |        |  
|Income before income taxes                                                |  |                                               | 67    |   |        |   | 1,451 |       |  |   | 1,764  |   |  |   | 24,680 |  
|Income taxes                                                              |  |                                               | (28   | ) |        |   | (655  | )     |  |   | (794   | ) |  |   | (7,440 | )
|                                                                          |  |                                               |       |   |        |   |       |       |  |   |        |  
|Net income                                                                |  | $                                             | 39    |   |        | $ | 796   |       |  | $ | 970    |   |  | $ | 17,240 |  
|                                                                          |  |                                               |       |   |        |   |       |       |  |   |        |  
|Net income per common share  basic                                       |  | $                                             | 0.01  |   |        | $ | 0.14  |       |  | $ | 0.18   |   |  | $ | 3.12   |  
|                                                                          |  |                                               |       |   |        |   |       |       |  |   |        |  
|Net income per common share  assuming dilution                           |  | $                                             | 0.01  |   |        | $ | 0.14  |       |  | $ | 0.17   |   |  | $ | 2.93   |  
|                                                                          |  |                                               |       |   |        |   |       |       |  |   |        |  
|Year ended December 31, 2004:                                             |  |                                               |       |   |        |   |       |       |  |   |        |   |  |   |        |  
|Interest income                                                           |  | $                                             | 177   |   |        | $ | 201   |       |  | $ | 259    |   |  | $ | 346    |  
|Earnings of partially owned equity affiliates                             |  |                                               | 3,000 |   |        |   | 1,980 |       |  |   | (237   | ) |  |   | 3,605  |  
|Gain on sale of Green Tree                                                |  |                                               |       |   |        |   |       |       |  |   | 6,911  |   |  |   |        |  
|Other income                                                              |  |                                               | 100   |   |        |   | 198   |       |  |   | 100    |   |  |   | 100    |  
|General and administrative expenses                                       |  |                                               | (727  | ) |        |   | (780  | )     |  |   | (610   | ) |  |   | (864   | )
|                                                                          |  |                                               |       |   |        |   |       |       |  |   |        |  
|Income before income taxes, minority interest and extraordinary
    gain  |  |                                               | 2,550 |   |        |   | 1,599 |       |  |   | 6,423  |   |  |   | 3,187  |  
|Income taxes                                                              |  |                                               | (829  | ) |        |   | (450  | )     |  |   | (2,093 | ) |  |   | (1,437 | )
|                                                                          |  |                                               |       |   |        |   |       |       |  |   |        |  
|Income before minority interest and extraordinary gain                    |  |                                               | 1,721 |   |        |   | 1,149 |       |  |   | 4,330  |   |  |   | 1,750  |  
|Minority interest                                                         |  |                                               | (623  | ) |        |   | (446  | )     |  |   | (1,904 | ) |  |   |        |  
|                                                                          |  |                                               |       |   |        |   |       |       |  |   |        |  
|Income before extraordinary gain                                          |  |                                               | 1,098 |   |        |   | 703   |       |  |   | 2,426  |   |  |   | 1,750  |  
|Extraordinary gain, net of income taxes                                   |  |                                               |       |   |        |   |       |       |  |   |        |   |  |   | 4,415  |  
|                                                                          |  |                                               |       |   |        |   |       |       |  |   |        |  
|Net income                                                                |  | $                                             | 1,098 |   |        | $ | 703   |       |  | $ | 2,426  |   |  | $ | 6,165  |  
|                                                                          |  |                                               |       |   |        |   |       |       |  |   |        |  
|Income per common share before extraordinary gain 
    basic             |  | $                                             | 0.20  |   |        | $ | 0.13  |       |  | $ | 0.44   |   |  | $ | 0.32   |  
|Extraordinary gain, net of income taxes  basic                           |  |                                               |       |   |        |   |       |       |  |   |        |   |  |   | 0.80   |  
|                                                                          |  |                                               |       |   |        |   |       |       |  |   |        |  
|Net income per common share  basic                                       |  | $                                             | 0.20  |   |        | $ | 0.13  |       |  | $ | 0.44   |   |  | $ | 1.12   |  
|                                                                          |  |                                               |       |   |        |   |       |       |  |   |        |  
|Income per common share before extraordinary gain 
    assuming dilution |  | $                                             | 0.19  |   |        | $ | 0.12  |       |  | $ | 0.42   |   |  | $ | 0.30   |  
|Extraordinary gain, net of income taxes  assuming
    dilution           |  |                                               |       |   |        |   |       |       |  |   |        |   |  |   | 0.76   |  
|                                                                          |  |                                               |       |   |        |   |       |       |  |   |        |  
|Net income per common share  assuming dilution                           |  | $                                             | 0.19  |   |        | $ | 0.12  |       |  | $ | 0.42   |   |  | $ | 1.06   |  
|                                                                          |  |                                               |       |   |        |   |       |       |  |   |        |  

57



---



##### 



THE ENSTAR GROUP, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)












|         |                  
|-------- | -----------------
|Note 14: | Subsequent Events









58



---



##### 








|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure








|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures



10-K/A 10-K 10-Q/A


10-K/A,






59



---



##### 






Item 9B. Other Information







PART III







|         |                                                   
|-------- | --------------------------------------------------
|Item 10. | Directors and Executive Officers of the Registrant



Code of Ethics









|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation








|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
    Management and Related Stockholder Matters








|         |                                               
|-------- | ----------------------------------------------
|Item 13. | Certain Relationships and Related Transactions








|         |                                       
|-------- | --------------------------------------
|Item 14. | Principal Accountant Fees and Services






PART IV







|         |                                           
|-------- | ------------------------------------------
|Item 15. | Exhibits and Financial Statement Schedules





| |                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------
| | The following financial statements are set forth under
    Item 8 of this Annual Report and are for the fiscal period
    ended December 31, 2005.



60



---



##### 























|                                                                                                                    |  |      |     | 
|------------------------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                                                    |  | Page |    
|                                                                                                                    |  |      |    
|Report of Independent Registered Public Accounting Firm                                                             |  |      | F-2 | 
|Consolidated Balance Sheets as of December 31, 2005 and 2004                                                        |  |      | F-3 | 
|Consolidated Statements of Earnings (As Restated) for the years
    ended December 31, 2005, 2004 and 2003          |  |      | F-4 | 
|Consolidated Statements of Comprehensive Income for the years
    ended December 31, 2005, 2004 and 2003            |  |      | F-5 | 
|Consolidated Statements of Changes in Shareholders Equity
    for the years ended December 31, 2005, 2004 and 2003 |  |      | F-6 | 
|Consolidated Statements of Cash Flows for the years ended
    December 31, 2005, 2004 and 2003                      |  |      | F-7 | 
|Notes to the Consolidated Financial Statements                                                                      |  |      | F-8 | 



|                                                                                                                                     |  |      |      | 
|------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | ---- | 
|                                                                                                                                     |  | Page |     
|                                                                                                                                     |  |      |     
|Report of Independent Registered Public Accounting Firm                                                                              |  |      | F-31 | 
|Consolidated Balance Sheets as of December 31, 2005 and 2004                                                                         |  |      | F-32 | 
|Consolidated Statements of Earnings and Retained Earnings (As
    Restated) for the years ended December 31, 2005, 2004 and
    2003 |  |      | F-33 | 
|Consolidated Statements of Cash Flows for the years ended
    December 31, 2005, 2004 and 2003                                       |  |      | F-34 | 
|Notes to the Consolidated Financial Statements                                                                                       |  |      | F-35 | 

61



---



##### 





| |            
| | -----------
| | 3. Exhibits

|          |      |                         |  |                                                                                                                                                                                                                                                                                                                                                                                                      
|--------- | ---- | ----------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Reference |      |                        
|Number    |      | Description of Exhibits
|          |      |                        
|          | 2.1  |                         |  | Shareholders Agreement, dated as of July 3, 2000, among
    B.H. Acquisition Limited, the Company and the other parties
    thereto (incorporated by reference to Exhibit 2.1 to the
    Current Report on Form 8-K, dated July 18, 2000).                                                                                                                                                           
|          | 2.2  |                         |  | Investment Agreement, dated as of July 3, 2000, among B.H.
    Acquisition Limited, the Company and the other parties thereto
    (incorporated by reference to Exhibit 2.2 to the Current
    Report on Form 8-K, dated July 18, 2000).                                                                                                                                                             
|          | 2.3  |                         |  | Share Sale and Purchase Agreement, dated as of March 31,
    2000, between PetroFina S.A. and B.H. Acquisition Limited
    (incorporated by reference to Exhibit 2.3 to the Current
    Report on Form 8-K, dated July 18, 2000).                                                                                                                                                                    
|          | 2.4  |                         |  | Share Sale and Purchase Agreement, dated as of March 31,
    2000, between PetroFina S.A., Brittany Holdings Limited and B.H.
    Acquisition Limited (incorporated by reference to
    Exhibit 2.4 to the Current Report on Form 8-K, dated
    July 18, 2000).                                                                                                                                     
|          | 2.5  |                         |  | Share Purchase and Capital Commitment Agreement, dated as of
    October 1, 2001, between the Company, Castlewood Holdings,
    Trident, Marsh & McLennan Capital Professionals Fund,
    L.P., Marsh & McLennan Employees Securities
    Company, L.P. and the other parties thereto (incorporated by
    reference to Exhibit 2.1 to the Current Report on
    Form 8-K, dated December 13, 2001).
|          | 2.6  |                         |  | Amendment No. 1 and Waiver of Certain Closing Conditions to
    the Share Purchase and Capital Commitment Agreement, dated as of
    November 29, 2001 (incorporated by reference to
    Exhibit 2.2 to the Current Report on Form 8-K, dated
    December 13, 2001).                                                                                                                                
|          | 2.7  |                         |  | Purchase and Sale Agreement, dated March 10, 2004, by and
    among J.C. Flowers I L.P., JCF CFN LLC, JCF CFN II LLC, JCF
    AIV II LP, JCF AIV III LP, JCF Associates I LLC and
    FIT CFN Holdings LLC (incorporated by reference to
    Exhibit 99.2 to the Current Report on Form 8-K, dated
    March 23, 2004).                                                                              
|          | 2.8  |                         |  | Purchase and Sale Agreement, dated October 29, 2004, by and
    among Zurich Insurance Company, Harper Holding Sarl and Kenmare
    Holdings Limited (incorporated by reference to Exhibit 99.2
    to the Current Report on Form 8-K, dated November 4,
    2004).                                                                                                                                  
|          | 2.9  |                         |  | Sale and Purchase Agreement, dated October 29, 2004, by and
    among Zurich Insurance Company, Harper Holding Sarl, and Kenmare
    Holdings Limited (incorporated by reference to Exhibit 99.2
    to the Current Report on Form 8-K/A dated November 12,
    2004).                                                                                                                               
|          | 3.1  |                         |  | Articles of Incorporation of the Company, as amended on
    June 10, 1998 (incorporated by reference to
    Exhibit 3.1 to the Quarterly Report on Form 10-Q,
    dated August 4, 1998).                                                                                                                                                                                                             
|          | 3.2  |                         |  | Bylaws of the Company, as amended on May 20, 1999
    (incorporated by reference to Exhibit 3.2 to the Quarterly
    Report on Form 10-Q, dated August 6, 1999).                                                                                                                                                                                                                                     
|          | 4.1  |                         |  | Rights Agreement between the Company and American Stock
    Transfer & Trust Company, as Rights Agent, dated as of
    January 20, 1997 (incorporated by reference to
    Exhibit 4.1 to Amendment No. 2 to the Registration
    Statement on Form 10, dated March 27, 1997).                                                                                                                        
|          | 4.2  |                         |  | Amendment Agreement, dated as of October 20, 1998, to the
    Rights Agreement, dated as of January 20, 1997, between the
    Company and American Stock Transfer & Trust Company
    (incorporated by reference to Exhibit 10.2 to the Current
    Report on Form 8-K dated October 20, 1998).                                                                                                      
|          | 10.1 |                         |  | 1997 Amended CEO Stock Option Plan (incorporated by reference to
    Appendix A to the Proxy Statement for the Annual Meeting of
    Shareholders, dated May 23, 1997).*                                                                                                                                                                                                                             
|          | 10.2 |                         |  | 1997 Amended Outside Directors Stock Option Plan
    (incorporated by reference to Appendix B to the Proxy Statement
    for the Annual Meeting of Shareholders, dated May 23,
    1997).*                                                                                                                                                                                                          

62



---



##### 



|          |       |                         |  |                                                                                                                                                                                                                                                                                                                               
|--------- | ----- | ----------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Reference |       |                        
|Number    |       | Description of Exhibits
|          |       |                        
|          | 10.3  |                         |  | 1997 Amended Omnibus Incentive Plan (incorporated by reference
    to Exhibit 10.1 to the Quarterly Report on Form 10-Q,
    dated August 14, 2001).*                                                                                                                                                                         
|          | 10.4  |                         |  | Amendment to 1997 Amended Omnibus Incentive Plan (incorporated
    by reference to Annex A to the Proxy Statement for the
    Annual Meeting of Shareholders, dated April 22, 2003).*                                                                                                                                         
|          | 10.5  |                         |  | 2001 Outside Directors Stock Option Plan (incorporated by
    reference to Annex B to the Proxy Statement for the Annual
    Meeting of Shareholders, dated May 8, 2001).*                                                                                                                                                   
|          | 10.6  |                         |  | Revolving Credit Note, dated July 31, 1997, made by the
    Company in favor of First Union National Bank (incorporated by
    reference to Exhibit 10.1 to the Quarterly Report on
    Form 10-Q, dated August 14, 1997).                                                                                                    
|          | 10.7  |                         |  | Stock Pledge Agreement between the Company and First Union
    National Bank, dated July 31, 1997 (incorporated by
    reference to Exhibit 10.2 to the Quarterly Report on
    Form 10-Q, dated August 14, 1997).                                                                                                            
|          | 10.8  |                         |  | Deferred Compensation and Stock Plan for Non-Employee Directors
    (incorporated by reference to Exhibit 99.1 to the Quarterly
    Report on Form 10-Q, dated October 30, 1997).*                                                                                                                                            
|          | 10.9  |                         |  | Investment Agreement, dated October 20, 1998, between the
    Company and J. Christopher Flowers, together with certain
    exhibits thereto (incorporated by reference to Exhibit 10.1
    to the Current Report on Form 8-K dated October 20,
    1998).                                                                    
|          | 10.10 |                         |  | Form of Severance Benefits Agreement between the Company and
    each of Nimrod T. Frazer, Cheryl D. Davis and Amy M. Dunaway,
    each dated May 21, 1998 (incorporated by reference to
    Exhibit 10.8 to the Annual Report on Form 10-K, dated
    March 29, 1999).*                                                      
|          | 10.11 |                         |  | Amended and Restated Employment Agreement between the Company
    and John Oros dated March 2, 2000 (incorporated by
    reference to Exhibit 10.9 to the Annual Report on
    Form 10-K, dated March 22, 2000).*                                                                                                             
|          | 10.12 |                         |  | Agreement Regarding Stock Purchase and Stock Options dated as of
    June 27, 2001 between the Company and Nimrod T. Frazer
    (incorporated by reference to Exhibit 10.1 to the Quarterly
    Report on Form 10-Q, dated November 14, 2001).*                                                                               
|          | 10.13 |                         |  | Agreement Regarding Stock Purchase and Stock Options dated as of
    June 27, 2001 between the Company and John Oros
    (incorporated by reference to Exhibit 10.2 to the Quarterly
    Report on Form 10-Q, dated November 14, 2001).*                                                                                      
|          | 10.14 |                         |  | Limited Liability Company Agreement of JCF CFN LLC, dated as of
    December 19, 2002, between JCF Associates I, LLC and
    the Company (incorporated by reference to Exhibit 10.13 to
    the Annual Report on Form 10-K, dated March 31, 2003).                                                                            
|          | 10.15 |                         |  | Agreement Relating to the Sale and Purchase of the Entire Issued
    Share Capital of Toa-UK, dated as of March 27, 2003,
    between The Toa Reinsurance Company, Limited, Hillcot,
    Castlewood Holdings and Shinsei (incorporated by reference to
    the Amended Current Report on Form 8-K/A, dated
    June 12, 2003).
|          | 10.16 |                         |  | Amendment No. 1, dated as of June 20, 2003, to the
    Limited Liability Company Agreement of JCF CFN LLC, dated as of
    December 19, 2002 (incorporated by reference to
    Exhibit 2.2 to the Current Report on Form 8-K, dated
    July 2, 2003).                                                                        
|          | 10.17 |                         |  | Limited Liability Company Agreement of JCF CFN II, LLC,
    dated as of June 20, 2003, between JCF Associates I,
    LLC, the Company and Castlewood Holdings Limited (incorporated
    by reference to Exhibit 2.3 to the Current Report on
    Form 8-K, dated July 2, 2003).                                               
|          | 10.18 |                         |  | Subscription Agreement, dated as of June 30, 2005, between
    Affirmative Investment LLC, J.C. Flowers I LP and the
    Company (incorporated by reference to Exhibit 10.1 to the
    Quarterly Report on Form 10-Q, dated August 9, 2005).                                                                                  

63



---



##### 



|          |       |                         |  |                                                                                                                                                                                                                                                                                            
|--------- | ----- | ----------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Reference |       |                        
|Number    |       | Description of Exhibits
|          |       |                        
|          | 10.19 |                         |  | Limited Liability Company Agreement of Affirmative Investment
    LLC, dated as of June 30, 2005, between Affirmative
    Associates LLC, J.C. Flowers I LP and the Company (incorporated
    by reference to Exhibit 10.2 to the Quarterly Report on
    Form 10-Q, dated August 9, 2005).
|          | 14    |                         |  | Code of Ethics (incorporated by reference to Exhibit 14 to
    the Annual Report on Form 10-K, dated March 15, 2004).                                                                                                                                                                      
|          | 21    |                         |  | Subsidiaries of The Enstar Group, Inc. as of March 16, 2006
    (incorporated by reference to Exhibit 21 to the Annual Report on
    Form 10-K, dated March 16, 2006).                                                                                                                     
|          | 31.1  |                         |  | Certification of Chief Executive Officer pursuant to
    Rule 13a-14(a) or Rule 15d-14(a) of the Securities
    Exchange Act of 1934 as adopted under Section 302 of the
    Sarbanes-Oxley Act of 2002.                                                                                   
|          | 31.2  |                         |  | Certification of Chief Financial Officer pursuant to
    Rule 13a-14(a) or Rule 15d-14(a) of the Securities
    Exchange Act of 1934 as adopted under Section 302 of the
    Sarbanes-Oxley Act of 2002.                                                                                   
|          | 32.1  |                         |  | Certification of Chief Executive Officer pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                 
|          | 32.2  |                         |  | Certification of Chief Financial Officer pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                 






|  |                                                                         
|- | ------------------------------------------------------------------------
|* | Indicates a management contract or compensatory plan or
    arrangement.

64



---



##### 



SIGNATURES






| |                       
| | ----------------------
| | THE ENSTAR GROUP, INC.



| |     |                     
| | --- | --------------------
| | By: | /s/ NIMROD T. FRAZER

| |                                   
| | ----------------------------------
| |                                   
| | Nimrod T. Frazer                  
| | Chairman of the Board of Director,
| | and Chief Executive Officer       





|                                                         |  |                                                                                                                           |  |                |  | 
|-------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------- |  | -------------- |  | 
|                                                        
|/s/ NIMROD T. FRAZERNimrod
    T. Frazer                 |  | Chairman of the Board of Directors and Chief Executive Officer
    (Principal Executive Officer)                          |  | March 16, 2006
|                                                        
|/s/ CHERYL D. DAVISCheryl
    D. Davis                   |  | Chief Financial Officer, Vice President of Corporate Taxes and
    Secretary (Principal Financial and Accounting Officer) |  | March 16, 2006
|/s/ JOHN J. OROSJohn
    J. Oros                         |  | President and Chief Operating Officer                                                                                     |  | March 16, 2006
|/s/ T. WHIT ARMSTRONGT.
    Whit Armstrong               |  | Director                                                                                                                  |  | March 16, 2006
|/s/ PAUL J. COLLINSPaul
    J. Collins                   |  | Director                                                                                                                  |  | March 16, 2006
|/s/ GREGORY L. CURLGregory
    L. Curl                   |  | Director                                                                                                                  |  | March 16, 2006
|/s/ T. WAYNE DAVIST.
    Wayne Davis                     |  | Director                                                                                                                  |  | March 16, 2006
|/s/ J. CHRISTOPHER
    FLOWERSJ.
    Christopher Flowers |  | Director                                                                                                                  |  | March 16, 2006

65



---



##### 



Castlewood Holdings Limited


Consolidated Financial Statements and Report of Independent
Registered Public Accounting Firm


For the years ended December 2005, 2004 and 2003


F-1



---



##### 



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM             
      F-2




---



##### 



CASTLEWOOD
    HOLDINGS LIMITED
 CONSOLIDATED
    BALANCE SHEETS
    as of December 31, 2005 and 2004  2005


2004(in thousands of U.S. dollars, except share and per
    share data)ASSETSShort-term investments, available
    for sale, at fair value (amortized cost: 2005 
    $216,624; 2004  $304,558)

$
216,624


$
304,558Fixed maturities, held to
    maturity, at amortized cost


296,584



228,232Trading securities, at fair value
    (cost: 2005  $Nil; 2004  $58,845)






58,845Other investments (cost:
    2005  $26,360; 2004  $Nil)


26,360



Total investments


539,568



591,635Cash and cash equivalents


280,212



301,969Restricted cash and cash
    equivalents


65,117



48,487Accrued interest receivable


2,805



2,861Accounts receivable


8,227



7,479Reinsurance balances receivable


250,229



341,627Investment in partly-owned
    companies


17,480



28,101Goodwill


21,222



21,222Other assets


15,103



4,472TOTAL ASSETS

$
1,199,963


$
1,347,853LIABILITIESLosses and loss adjustment expenses

$
806,559


$
1,047,313Reinsurance balances payable


30,844



62,396Accounts payable and accrued
    liabilities


35,337



23,349Income taxes payable


282



1,101Other liabilities


25,491



4,964TOTAL LIABILITIES


898,513



1,139,123MINORITY INTEREST


40,544



31,392SHAREHOLDERS EQUITYShare capitalAuthorized issued and fully paid,
    par value $1 each (Authorized 2005: 99,000,000; 2004:
    99,000,000)Ordinary shares (Issued 2005:
    18,540; 2004: 18,395)


19



18Ordinary non-voting redeemable
    shares(Issued 2005: 22,641,774;
    2004: 22,893,662)


22,642



22,894Additional paid-in capital


89,090



85,341Deferred compensation


(112
)


(371
)Accumulated other comprehensive
    income


1,010



1,909Retained earnings


148,257



67,547TOTAL SHAREHOLDERS EQUITY


260,906



177,338TOTAL LIABILITIES AND
    SHAREHOLDERS EQUITY

$
1,199,963


$
1,347,853   See accompanying notes to the consolidated financial
    statements.
 F-3




---



##### 



CASTLEWOOD
    HOLDINGS LIMITED
 CONSOLIDATED
    STATEMENTS OF EARNINGS  (AS RESTATED  SEE NOTE
    24)
    for the years ended December 31, 2005, 2004 and
    2003  2005


2004


2003(in thousands of U.S. dollars, except share and per
    share data)INCOMEConsulting fees

$
22,006


$
23,703


$
24,746Net investment income


28,236



11,102



8,032Net realized gains (losses)


1,268



(600
)


(960
)51,510



34,205



31,818EXPENSESNet reduction in loss and loss
    adjustment expense liabilities


(96,007
)


(13,706
)


(24,044
)Salaries and benefits


40,821



26,290



15,661General and administrative expenses


10,962



10,677



6,993Net foreign exchange loss (gain)


4,602



(3,731
)


(2,362
)(39,622
)


19,530



(3,752
)EARNINGS BEFORE INCOME TAXES,
    MINORITY INTEREST AND SHARE OF NET EARNINGS OF PARTLY-OWNED
    COMPANIES


91,132



14,675



35,570INCOME TAXES


(914
)


(1,924
)


(1,490
)MINORITY INTEREST


(9,700
)


(3,097
)


(5,111
)SHARE OF NET EARNINGS OF
    PARTLY-OWNED COMPANIES


192



6,881



1,623NET EARNINGS BEFORE EXTRAORDINARY
    GAIN


80,710



16,535



30,592EXTRAORDINARY GAIN 
    NEGATIVE GOODWILL






21,759



NET EARNINGS

$
80,710


$
38,294


$
30,592PER SHARE DATA:Basic earnings per share before
    extraordinary gain  basic

$
4,397.89


$
914.49


$
1,699.56Extraordinary gain per
    share  basic






1,203.42



Basic earnings per share

$
4,397.89


$
2,117.91


$
1,699.56Diluted earnings per share before
    extraordinary gain  diluted

$
4,304.30


$
906.13


$
1,699.56Extraordinary gain per
    share  diluted






1,192.40



Diluted earnings per share

$
4,304.30


$
2,098.53


$
1,699.56Weighted average ordinary shares
    outstanding  basic


18,352



18,081



18,000Weighted average ordinary shares
    outstanding  diluted


18,751



18,248



18,000   See accompanying notes to the consolidated financial
    statements.
 F-4




---



##### 



CASTLEWOOD
    HOLDINGS LIMITED
 CONSOLIDATED
    STATEMENTS OF COMPREHENSIVE INCOME
    for the years ended December 31, 2005, 2004 and
    2003  2005


2004


2003(in thousands of U.S. dollars)NET EARNINGS

$
80,710


$
38,294


$
30,592Other comprehensive income (loss):Unrealized holding gains (losses)
    on investments arising during the period


1,268



(609
)


(4,400
)Reclassification adjustment for
    net realized (gains) losses included in net earnings


(1,268
)


600



4,289Unrealized (losses) gains on
    investments of partially-owned equity affiliate arising during
    the year






(340
)


340Currency translation adjustment


(899
)


539



879Other comprehensive (loss) income


(899
)


190



1,108COMPREHENSIVE INCOME

$
79,811


$
38,484


$
31,700   See accompanying notes to the consolidated financial
    statements.
 F-5




---



##### 



CASTLEWOOD
    HOLDINGS LIMITED
 CONSOLIDATED
    STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
    for the years ended December 31, 2005, 2004 and
    2003  AccumulatedAdditional





OtherShare


Paid-in


Deferred


Comprehensive


RetainedCapital


Capital


Compensation


Income (Loss)


Earnings


Total(in thousands of U.S. dollars)Opening balance, January 1,
    2003

$
40,520


$
67,878


$
(1,748
)

$
611


$
60,212


$
167,473Redemption of Class E shares


(12,990
)


















(12,990
)Amortization of deferred
    compensation










896











896Contribution of capital






14,338















14,338Dividend paid


















(53,801
)


(53,801
)Net earnings


















30,592



30,592Other comprehensive income














1,108







1,108December 31, 2003


27,530



82,216



(852
)


1,719



37,003



147,616Redemption of Class E shares


(4,618
)


















(4,618
)Amortization of deferred
    compensation










481











481Grant of Class D shares






3,125















3,125Dividend paid


















(7,750
)


(7,750
)Net earnings


















38,294



38,294Other comprehensive income














190







190December 31, 2004


22,912



85,341



(371
)


1,909



67,547



177,338Redemption of Class E shares


(252
)


















(252
)Redemption of Class D shares






(30
)














(30
)Amortization of deferred
    compensation










259











259Grant of Class D shares


1



3,779















3,780Net earnings


















80,710



80,710Other comprehensive loss














(899
)






(899
)December 31, 2005

$
22,661


$
89,090


$
(112
)

$
1,010


$
148,257


$
260,906   See accompanying notes to the consolidated financial
    statements.
 F-6




---



##### 



CASTLEWOOD
    HOLDINGS LIMITED
 CONSOLIDATED
    STATEMENTS OF CASH FLOWS
    for the years ended December 31, 2005, 2004 and
    2003  2005


2004


2003(in thousands of U.S. dollars)OPERATING ACTIVITIES:Net earnings

$
80,710


$
38,294


$
30,592Adjustments to reconcile net
    earnings to net cash flows (used in) provided by operating
    activities:Minority interest


9,700



3,097



5,111Negative goodwill






(21,759
)


Share of net earnings of
    partly-owned companies


(192
)


(6,881
)


(1,623
)Depreciation and amortization


493



462



375Amortization of deferred
    compensation


259



481



896Amortization of bond premiums and
    discounts


564



304



581Net realized (gains) losses on sale
    of securities
    available-for-sale


(1,768
)


600



960Net realized loss on trading
    securities


500







Change in net unrealized holding
    losses on trading securities






471



Class D share stock
    compensation


3,780



3,125



Changes in assets and liabilities:Proceeds on sale of trading
    securities


76,695







Accrued interest receivable


56



1,275



3,531Accounts receivable


(1,397
)


1,536



(2,906
)Reinsurance balances receivable


116,887



33,349



13,030Other assets


(10,579
)


(1,088
)


(167
)Losses and loss adjustment expenses


(282,718
)


(56,084
)


(31,262
)Reinsurance balances payable


(31,552
)


91



9,776Accounts payable and accrued
    liabilities


12,424



2,758



(5,560
)Income taxes payable


(802
)


(46
)


406Other liabilities


20,619



959



726Net cash flows (used in) provided
    by operating activities


(6,321
)


944



24,466INVESTING ACTIVITIES:Cash acquired on purchase of
    subsidiaries


18,006



109,149



25,734Cash used for purchase of
    subsidiaries


(1,445
)


(4,455
)


(46,426
)Cash used for investment in
    partly-owned companies






(9,147
)


(10,200
)Distributions from partly-owned
    companies


10,813



16,395



193Proceeds from sale of
    available-for-sale
    securities


201,712



184,973



234,565Purchase of
    available-for-sale
    securities


(112,010
)


(76,600
)


(211,013
)Maturity of
    available-for-sale
    securities






14,563



53,042Purchase of
    held-to-maturity
    securities


(133,492
)






Maturity of held-to-maturity
    securities


46,220







Purchase of other investments


(26,360
)






Movement in restricted
    cash & cash equivalents


(16,630
)


(37,279
)


(4,650
)Purchase of fixed assets


(887
)


(571
)


(441
)Net cash flows (used in) provided
    by investing activities


(14,073
)


197,028



40,804FINANCING ACTIVITIES:Contribution of capital










14,338Redemption of Class E shares


(252
)


(4,618
)


(12,990
)Redemption of Class D shares


(30
)






Dividend paid






(7,750
)


(53,801
)Dividend paid to minority interest


(548
)






Acquisition of shares and
    contribution to surplus of subsidiary by minority interest










23,184Net cash flows used in financing
    activities


(830
)


(12,368
)


(29,269
)TRANSLATION ADJUSTMENT


(533
)


345



661NET (DECREASE) INCREASE IN CASH AND
    CASH EQUIVALENTS


(21,757
)


185,949



36,662CASH AND CASH EQUIVALENTS,
    BEGINNING OF YEAR


301,969



116,020



79,358CASH AND CASH EQUIVALENTS, END OF
    YEAR

$
280,212


$
301,969


$
116,020Supplemental Cash Flow
    InformationIncome taxes paid

$
(1,733
)

$
(1,932
)

$
(978
)   See accompanying notes to the consolidated financial
    statements.
 F-7




---



##### 



CASTLEWOOD
    HOLDINGS LIMITED



NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2005, 2004 and 2003

(in thousands of U.S. dollars, except share and per
    share data) 1.
    DESCRIPTION
    OF BUSINESS    2.
    SIGNIFICANT
    ACCOUNTING POLICIES  Basis of preparation
  Basis of consolidation
  Cash and cash equivalents
  Investments
  Short Term Investments: available-for-sale
  Fixed Maturities: held-to-maturity
  available-for-sale
 F-8




---



##### 



CASTLEWOOD
    HOLDINGS LIMITED
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Trading Securities:
  Other Investments:
  Investment in partly-owned companies
  Losses and loss adjustment expenses
    Reinsurance balances receivable
  Consulting fee income
  Translation of foreign currencies
    Earnings per share
 F-9




---



##### 



CASTLEWOOD
    HOLDINGS LIMITED
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Derivative Instruments
  Acquisitions
  Stock Based Compensation
  New Accounting Pronouncements
  Issue 03-1 FAS 115-1, Other-Than-Temporary EITF 03-1, Other-Than-Temporary other-than-temporary, FAS 115-1 other-than-temporary other-than-temporary FAS 115-1,
 F-10




---



##### 



CASTLEWOOD
    HOLDINGS LIMITED
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   3.
    ACQUISITIONS  2003
    Purchase price

$
45,820Direct costs of acquisition


606Total purchase price

$
46,426Net assets acquired at fair value

$
46,426     Cash and investments

$
113,967Reinsurance balances receivable


65,184Losses and loss adjustment expenses


(128,384
)Accounts payable and accrued
    liabilities


(4,341
)Net assets acquired at fair value

$
46,426   2004
    Purchase price

$
3,581Direct costs of acquisition


874Total purchase price

$
4,455Net assets acquired at fair value

$
26,214Excess of net assets over purchase
    price (negative goodwill)

$
(21,759
)       Cash, investments and accrued
    interest

$
560,568Reinsurance balances receivable


200,243Losses and loss adjustment expenses


(732,779
)Accounts payable and accrued
    liabilities


(1,818
)Net assets acquired at fair value

$
26,214  F-11




---



##### 



CASTLEWOOD
    HOLDINGS LIMITED
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     2005
    Purchase price

$
1,403Direct costs of the acquisition


42Total purchase price

$
1,445Net assets acquired at fair value

$
1,445     Cash and investments

$
18,006Reinsurance balances receivable


25,489Losses and loss adjustment expenses


(41,965
)Accounts payable and accrued
    liabilities


(85
)Net assets acquired at fair value

$
1,445     4.
    RESTRICTED
    CASH AND CASH EQUIVALENTS    5.
    INVESTMENTS  Available-for-sale  available-for-sale
   F-12




---



##### 



CASTLEWOOD
    HOLDINGS LIMITED
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Held-to-maturity  held-to-maturity
  Gross Unrealized


Gross UnrealizedAs at December 31, 2005

Amortized Cost


Holding Gains


Holding Losses


Fair ValueU.S. Treasury securities

$
120,568


$



$
(2,075
)

$
118,493U.S. Agencies securities


98,409







(1,229
)


97,180Corporate debt securities


77,607







(2,010
)


75,597$
296,584


$



$
(5,314
)

$
291,270   Gross Unrealized


Gross UnrealizedAs at December 31, 2004

Amortized Cost


Holding Gains


Holding Losses


Fair ValueU.S. Treasury securities

$
151,436


$



$
(1,003
)

$
150,433U.S. Agencies securities


20,414







(135
)


20,279Corporate debt securities


56,382



3



(426
)


55,959$
228,232


$
3


$
(1,564
)

$
226,671   held-to-maturity
  2005


2004Due within one year

$
666


$
181After 1 through 5 years


3,674



991After 5 through 10 years


283



61After 10 years


691



331$
5,314


$
1,564     held-to-maturity
  Amortized Cost


Fair ValueDue within one year

$
81,552


$
80,886After 1 through 5 years


181,826



178,152After 5 through 10 years


15,170



14,887After 10 years


18,036



17,345$
296,584


$
291,270    F-13




---



##### 



CASTLEWOOD
    HOLDINGS LIMITED
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Trading 
  Fair ValueCorporate debt securities

$
41,718U.S. Agencies securities


17,127$
58,845   Other
    investments  The cost and estimated fair value of the other investments are
    as follows:
  FairAs at December 31, 2005

Cost


ValueNew NIB Partners LP

$
24,532


$
24,532GSC European Mezzanine Fund II, LP


1,828



1,828$
26,360


$
26,360   New NIB Partners LP 
  GSC European Mezzanine Fund II, LP 
    2005


2004


2003Interest from short-term
    investments

$
8,429


$
5,539


$
4,440Interest from fixed maturities


8,897



3,140



2,567Interest from trading securities


309







Interest on cash and cash
    equivalents


12,251



3,540



1,875Dividends from equity securities


39







Change in net unrealized holding
    loss on trading securities






(471
)


Amortization of bond premiums or
    discounts


(564
)


(304
)


(581
)Investment expenses (Note 16)


(1,125
)


(342
)


(269
)$
28,236


$
11,102


$
8,032   available-for-sale available-for-sale
 F-14




---



##### 



CASTLEWOOD
    HOLDINGS LIMITED
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   6.
    REINSURANCE
    BALANCES RECEIVABLE  2005


2004Recoverable from reinsurers on:Paid losses

$
36,830


$
30,974Outstanding losses


77,676



101,316Losses incurred but not reported


244,011



393,373Fair value adjustment


(108,288
)


(184,036
)$
250,229


$
341,627         7.
    INVESTMENT
    IN PARTLY-OWNED COMPANIES  2005


2004Investment in B.H. Acquisition
    Ltd.

$
17,480


$
17,400Investment in Cassandra Equity
    (Cayman) LP






10,701$
17,480


$
28,101   B.H.
    Acquisition Ltd. 
    2005


2004Balance at January 1

$
17,400


$
17,237Share of net earnings


80



163Balance at December 31

$
17,480


$
17,400  F-15




---



##### 



CASTLEWOOD
    HOLDINGS LIMITED
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Cassandra
    Equity (Cayman) LP 
      2005


2004Investment

$
10,701


$
9,147Share of net earnings


112



1,830Distributions


(10,813
)


(276
)Balance at December 31

$



$
10,701   JCF CFN
    Entities 
      2005


2004Balance at January 1

$



$
11,571Investment






Share of net earnings






4,888Share of other comprehensive income






(340
)Distributions






(16,119
)Balance at December 31

$



$
     8.
    LOSSES
    AND LOSS ADJUSTMENT EXPENSES  2005


2004Outstanding

$
433,722


$
564,183Incurred but not reported


645,969



821,555Fair value adjustment


(273,132
)


(338,425
)$
806,559


$
1,047,313      F-16




---



##### 



CASTLEWOOD
    HOLDINGS LIMITED
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      2005


2004


2003Balance as at January 1

$
1,047,313


$
381,531


$
284,409Less reinsurance recoverables


310,653



151,376



99,891736,660



230,155



184,518Effect of exchange rate movement


3,652



4,124



10,575Incurred related to prior years


(96,007
)


(13,706
)


(24,044
)Paid related to prior years


(69,007
)


(19,019
)


(4,094
)Acquired on purchase of
    subsidiaries


17,862



535,106



63,200Net balance as at December 31


593,160



736,660



230,155Plus reinsurance recoverables


213,399



310,653



151,376Balance as at December 31

$
806,559


$
1,047,313


$
381,531     2005


2004


2003Reduction (increase) in estimates
    of ultimate losses

$
65,307


$
(1,000
)

$
13,614Reduction in provisions for bad
    debts


20,200







Reduction in provisions for loss
    adjustment expenses


10,500



14,706



10,430Net reduction in loss and loss
    adjustment expense liabilities

$
96,007


$
13,706


$
24,044    F-17




---



##### 



CASTLEWOOD
    HOLDINGS LIMITED
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   9.
    REINSURANCE
    BALANCES PAYABLE    10.
    SHARE
    CAPITAL  Authorized
    shares of par value $1 each 
  2005


2004Class A ordinary voting shares


6,000



6,000Class B ordinary voting shares


6,000



6,000Class C ordinary voting shares


6,153



6,153Class D ordinary non-voting
    shares


741



744Class E ordinary non-voting
    redeemable shares


40,501,552



40,501,552Shares not allocated to a class


58,479,554



58,479,55199,000,000



99,000,000   Issued
    and fully paid shares of par value $1 each 
  2005


2004Class A ordinary voting shares

$
6


$
6Class B ordinary voting shares


6



6Class C ordinary voting shares


6



6Class D ordinary non-voting
    shares


1



Class E ordinary non-voting
    redeemable shares


22,642



22,894$
22,661


$
22,912          F-18




---



##### 



CASTLEWOOD
    HOLDINGS LIMITED
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   11.
    ADDITIONAL
    PAID-IN CAPITAL      12.
    ACCUMULATED
    OTHER COMPREHENSIVE INCOME    2005


2004


2003Cumulative translation adjustments

$
1,010


$
1,909


$
1,379Unrealized gains and losses on
    investments










340$
1,010


$
1,909


$
1,719   13.
    EMPLOYEE
    BENEFITS     F-19




---



##### 



CASTLEWOOD
    HOLDINGS LIMITED
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   14.
    EARNINGS
    PER SHARE    2005


2004


2003BASIC EARNINGS PER SHARENet earnings

$
80,710


$
38,294


$
30,592Weighted average shares
    outstanding  basic


18,352



18,081



18,000Basic earnings per share

$
4,397.89


$
2,117.91


$
1,699.56DILUTED EARNINGS PER SHARENet earnings

$
80,710


$
38,294


$
30,592Weighted average shares
    outstanding  basic


18,352



18,081



18,000Share equivalents:Unvested shares


399



167



Weighted average shares
    outstanding  diluted


18,751



18,248



18,000Diluted earnings per share

$
4,304.30


$
2,098.53


$
1,699.56   15.
    PENSIONS      16.
    RELATED
    PARTY TRANSACTIONS      
    On March 1, 2006, the Company approved a commitment to
    invest up to $75,000 to J.C. Flowers II L.P., a private
    investment fund formed by J.C. Flowers & Co. LLC
    (Flowers LLC). Mr. Flowers controls Flowers
    LLC. John J. Oros, a member of the Companys board of
    directors and President and Chief Operating Officer of Enstar,
    is a managing director of Flowers LLC.  
    In December 2005, JCF Re Holdings LP (JCF Re), a
    Cayman limited partnership, entered into a subscription and
    shareholders agreement with Fitzwilliam for the establishment of
    a segregated cell and F-20




---



##### 



CASTLEWOOD
    HOLDINGS LIMITED
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  paid $1,932 to Fitzwilliam as capital and contributed surplus.
    During the year, Fitzwilliam booked management fees of $40 from
    JCF Re.  
    In December 2005, the Company invested $24,532 in New NIB, which
    was formed to hold, together with certain related entities, 100%
    of the share capital of NIB Capital. Mr. Flowers serves on the
    supervisory board of NIB Capital. Several officers and directors
    of the Company made personal investments in New NIB.  
    In June 2005, the Company, through its subsidiary Castlewood
    (US) Inc., entered into a license agreement with Flowers LLC for
    the use of certain office space and administrative services from
    Flowers LLC for an annual payment of $50 running through 2014.
    In 2004, Hudson invested $9,147 in Cassandra for a 27% interest.
    JC Flowers I LP also owned a 27% interest in
    Cassandra. Mr. Flowers is the managing member of
    JCF Associates I LLC, which is the general partner of
    JC Flowers I LP.
    In 2003, the Company and Shinsei Bank, Limited, through their
    jointly owned company, Hillcot Holdings, completed the
    acquisition of Hillcot. Mr. Flowers is a director of
    Shinsei Bank, Limited.  
    During 2003, the Company invested $10,000 in the JCF CFN
    Entities. The JCF CFN Entities were controlled by JCF
    Associates I, LLC, the managing member of which was
    Mr. Flowers. In 2004, the holdings of the JCF CFN Entities
    were sold.          17.
    LITIGATION    18.
    TAXATION   F-21




---



##### 



CASTLEWOOD
    HOLDINGS LIMITED
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
             2005


2004Benefit of loss carry-forward

$
81,676


$
66,941Valuation allowance


(81,676
)


(66,941
)$



$
     2005


2004


2003Earnings before income taxes

$
81,624


$
40,218


$
32,082Expected tax rate


0.0
%


0.0
%


0.0
%Foreign taxes at local expected
    tax rates


0.7
%


4.8
%


4.6
%Other


0.4
%


0.0
%


0.0
%Effective tax rate


1.1
%


4.8
%


4.6
%   19.
    STATUTORY
    REQUIREMENTS   F-22




---



##### 



CASTLEWOOD
    HOLDINGS LIMITED
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Bermuda


UK


Switzerland2005


2004


2005


2004


2005


2004Required statutory capital and
    surplus

$
15,944


$
20,514


$
17,458


$
16,028


$
15,481


$
25,161Actual statutory capital and
    surplus

$
117,622


$
62,538


$
123,429


$
100,992


$
44,565


$
29,668   Bermuda


U.K.


SwitzerlandDecember 31,


December 31,


December 31,


December 31,


December 31,


December 31,2005


2004


2005


2004


2005


2004Statutory Income

$
59,276


$
111


$
28,894


$
(60,592
)

$
20,004


$
(55,929
)Maximum available to be
    distributed as dividends

$
101,678


$
42,024


$
26,075


$
5,699


$



$
     20.
    COMMITMENTS    2006

$
1,4202007


8802008


7192009


4452010


2292011 through 2015


955$
4,648     21.
    SEGMENT
    INFORMATION    F-23




---



##### 



CASTLEWOOD
    HOLDINGS LIMITED
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  2005

Consulting


Reinsurance


TotalConsulting fees

$
38,046


$
(16,040
)

$
22,006Net investment income


576



27,660



28,236Net realized gains






1,268



1,26838,622



12,888



51,510Net reduction in loss and loss
    adjustment expense liabilities






(96,007
)


(96,007
)Salaries and benefits


26,864



13,957



40,821General and administrative expenses


9,246



1,716



10,962Net foreign exchange loss


10



4,592



4,60236,120



(75,742
)


(39,622
)Earnings before income taxes,
    minority interest and share of net earnings of partly-owned
    companies


2,502



88,630



91,132Income taxes


(883
)


(31
)


(914
)Minority interest






(9,700
)


(9,700
)Share of net earnings of
    partly-owned companies






192



192NET EARNINGS

$
1,619


$
79,091


$
80,710   2004

Consulting


Reinsurance


TotalConsulting fees

$
32,992


$
(9,289
)

$
23,703Net investment income


460



10,642



11,102Net realized losses






(600
)


(600
)33,452



753



34,205Net reduction in loss and loss
    adjustment expense liabilities






(13,706
)


(13,706
)Salaries and benefits


20,312



5,978



26,290General and administrative expenses


6,874



3,803



10,677Net foreign exchange (gain)


(89
)


(3,642
)


(3,731
)27,097



(7,567
)


19,530Earnings before income taxes,
    minority interest and share of net earnings of partly-owned
    companies


6,355



8,320



14,675Income taxes


(1,939
)


15



(1,924
)Minority interest






(3,097
)


(3,097
)Share of net earnings of
    partly-owned companies






6,881



6,881Extraordinary gain






21,759



21,759NET EARNINGS

$
4,416


$
33,878


$
38,294   F-24




---



##### 



CASTLEWOOD
    HOLDINGS LIMITED
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  2003

Consulting


Reinsurance


TotalConsulting fees

$
31,112


$
(6,366
)

$
24,746Net investment income


265



7,767



8,032Net realized losses


(862
)


(98
)


(960
)30,515



1,303



31,818Net reduction in loss and loss
    adjustment expense liabilities






(24,044
)


(24,044
)Salaries and benefits


12,234



3,427



15,661General and administrative expenses


6,821



172



6,993Net foreign exchange (gain)


(219
)


(2,143
)


(2,362
)18,836



(22,588
)


(3,752
)Earnings before income taxes,
    minority interest and share of net earnings of partly-owned
    companies


11,679



23,891



35,570Income taxes


(1,490
)






(1,490
)Minority interest






(5,111
)


(5,111
)Share of net earnings of partly
    owned companies






1,623



1,623NET EARNINGS

$
10,189


$
20,403


$
30,592   22.
    CONDENSED
    UNAUDITED QUARTERLY FINANCIAL DATA  2005 Quarters EndedDecember 31


September 30


June 30


March 31Consulting fees

$
8,481


$
5,180


$
3,857


$
4,488Net investment income and net
    realized gains


8,355



7,866



8,255



5,02816,836



13,046



12,112



9,516Net reduction in loss and loss
    adjustment expense liabilities


(89,541
)


(1,043
)


(3,873
)


(1,550
)Salaries and benefits


22,292



6,133



7,522



4,874General and administrative expenses


1,583



3,239



3,457



2,683Net foreign exchange loss


2,184



223



1,138



1,057(63,482
)


8,552



8,244



7,064Income taxes


698



(285
)


(151
)


(1,176
)Minority interest


(8,269
)


(439
)


(612
)


(380
)Share of net earnings of
    partly-owned companies


49



63



32



48NET EARNINGS

$
72,796


$
3,833


$
3,137


$
944Net earnings per share 
    Basic

$
3,966.65


$
209.27


$
171.62


$
51.75Net earnings per share 
    Diluted

$
3,882.25


$
204.42


$
167.32


$
50.36Weighted average shares
    outstanding  Basic


18,352



18,316



18,279



18,242Weighted average shares
    outstanding  Diluted


18,751



18,751



18,749



18,744   F-25




---



##### 



CASTLEWOOD
    HOLDINGS LIMITED
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  2004 Quarters EndedDecember 31


September 30


June 30


March 31Consulting fees

$
8,226


$
4,809


$
6,290


$
4,378Net investment income and net
    realized gains


4,607



3,208



480



2,20712,833



8,017



6,770



6,585Net reduction in loss and loss
    adjustment expense liabilities


(7,654
)


(1,879
)


(2,333
)


(1,840
)Salaries and benefits


11,475



6,422



4,241



4,152General and administrative expenses


2,453



3,251



2,847



2,126Net foreign exchange (gain)/loss


(2,476
)


(282
)


104



(1,077
)3,798



7,512



4,859



3,361Income taxes


(1,179
)


(291
)


(188
)


(266
)Minority interest


(2,201
)


(484
)


44



(456
)Share of net earnings of
    partly-owned companies


4,048



1,807



342



684Extraordinary gain (Note 3)


21,759











NET EARNINGS

$
31,462


$
1,537


$
2,109


$
3,186Net earnings per share before
    extraordinary gains  Basic

$
536.64


$
85.29


$
117.17


$
177.00Extraordinary gain 
    Basic


1,203.42











Net earnings per share 
    Basic

$
1,740.06


$
85.29


$
117.17


$
177.00Earnings per share before
    extraordinary gains  Diluted

$
531.73


$
85.10


$
117.17


$
177.00Extraordinary gain 
    Diluted


1,192.40











Net earnings per share 
    Diluted

$
1,724.13


$
85.10


$
117.17


$
177.00Weighted average shares
    outstanding  Basic


18,081



18,020



18,000



18,000Weighted average shares
    outstanding  Diluted


18,248



18,062



18,000



18,000   23.
    SUBSEQUENT
    EVENTS   F-26




---



##### 



CASTLEWOOD
    HOLDINGS LIMITED
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Purchase price

$
108,885Direct costs of acquisition


337109,222Net assets acquired at fair value


117,898Excess of net assets over purchase
    price (negative goodwill)


(8,676
)Less: Minority interest share of
    negative goodwill


4,329$
(4,347
)       Cash, investments and accrued
    interest

$
322,383Accounts receivable


10,491Reinsurance balances payable


(6,728
)Losses and loss adjustment expenses


(208,248
)Net assets acquired at fair value

$
117,898            F-27




---



##### 



CASTLEWOOD
    HOLDINGS LIMITED
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
           30-day
       F-28




---



##### 



CASTLEWOOD
    HOLDINGS LIMITED
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   24.
    RESTATEMENT
    OF FINANCIAL STATEMENTS    2005


2004


2003As previously


As


As previously


As


As previously


Asreported


restated


reported


restated


reported


restatedTotal income

$
142,915


$
51,510


$
51,642


$
34,205


$
58,224


$
31,818Total expenses

$
51,783


$
(39,622
)

$
36,967


$
19,530


$
22,654


$
(3,752
)    F-29




---



##### 



B.H. Acquisition Ltd.


Consolidated Financial Statements and Report of Independent
Registered Public Accounting Firm


For the years ended December 31, 2005, 2004 and 2003


F-30



---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM






















F-31



---



##### 



B.H. ACQUISITION LTD.


CONSOLIDATED BALANCE SHEETS


as of December 31, 2005 and 2004


(expressed in thousands of U.S. dollars)


|                                                                                              |  |      |         |  |      |   |         | 
|--------------------------------------------------------------------------------------------- |  | ---- | ------- |  | ---- | - | ------- | 
|                                                                                              |  | 2005 |         |  | 2004 |  
|                                                                                              |  |      |         |  |      |  
|ASSETS                                                                                       
|Cash and cash equivalents                                                                     |  | $    | 22,219  |  |      | $ | 24,724  | 
|Restricted cash and cash equivalents                                                          |  |      | 11,321  |  |      |   | 9,388   | 
|Investments at fair value                                                                     |  |      | 66,462  |  |      |   | 45,077  | 
|Reinsurance balances receivable                                                               |  |      | 3,800   |  |      |   | 29,736  | 
|Funds withheld by ceding companies                                                            |  |      | 1,776   |  |      |   | 1,489   | 
|                                                                                              |  |      |         |  |      |  
|Total Assets                                                                                  |  | $    | 105,578 |  |      | $ | 110,414 | 
|                                                                                              |  |      |         |  |      |  
|                                                                                             
|LIABILITIES                                                                                  
|Losses and loss adjustment expenses                                                           |  | $    | 58,470  |  |      | $ | 62,349  | 
|Reinsurance balances payable                                                                  |  |      | 5,558   |  |      |   | 8,841   | 
|Accounts payable and accrued liabilities                                                      |  |      | 2,705   |  |      |   | 558     | 
|                                                                                              |  |      |         |  |      |  
|Total Liabilities                                                                             |  |      | 66,733  |  |      |   | 71,748  | 
|                                                                                              |  |      |         |  |      |  
|SHAREHOLDERS EQUITY                                                                         
|Share capital Authorized, issued and fully paid 12,000 common
    shares of par value $l each |  |      | 12      |  |      |   | 12      | 
|Additional paid-in capital                                                                    |  |      | 17,242  |  |      |   | 17,242  | 
|Retained earnings                                                                             |  |      | 21,591  |  |      |   | 21,412  | 
|                                                                                              |  |      |         |  |      |  
|Total Shareholders Equity                                                                    |  |      | 38,845  |  |      |   | 38,666  | 
|                                                                                              |  |      |         |  |      |  
|Total Liabilities and Shareholders Equity                                                    |  | $    | 105,578 |  |      | $ | 110,414 | 
|                                                                                              |  |      |         |  |      |  



F-32



---



##### 



B.H. ACQUISITION LTD.


CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS


for the years ended December 31, 2005, 2004 and 2003 (As
Restated  See Note 11)


(expressed in thousands of U.S. dollars)


|                                                                             |  |      |        |   |      |   |        |      |  |   |        |  
|---------------------------------------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                                             |  | 2005 |        |   | 2004 |   |        | 2003 | 
|                                                                             |  |      |        |   |      |   |        |      | 
|Income                                                                       |  |      |        |   |      |   |        |      |  |   |        |  
|Net investment income                                                        |  | $    | 2,406  |   |      | $ | 1,489  |      |  | $ | 1,331  |  
|Other income                                                                 |  |      |       |   |      |   | 90     |      |  |   | 8      |  
|                                                                             |  |      |        |   |      |   |        |      | 
|                                                                             |  |      | 2,406  |   |      |   | 1,579  |      |  |   | 1,339  |  
|                                                                             |  |      |        |   |      |   |        |      | 
|Expenses                                                                     |  |      |        |   |      |   |        |      |  |   |        |  
|Net increase (reduction) in loss and loss adjustment expense
    liabilities |  |      | 552    |   |      |   | (428   | )    |  |   | 230    |  
|General and administrative expenses                                          |  |      | 2,275  |   |      |   | 2,839  |      |  |   | 1,648  |  
|Foreign exchange loss (gain)                                                 |  |      | 67     |   |      |   | 142    |      |  |   | (927   | )
|Release of run-off provision                                                 |  |      | (667   | ) |      |   | (1,333 | )    |  |   | (500   | )
|                                                                             |  |      |        |   |      |   |        |      | 
|                                                                             |  |      | 2,227  |   |      |   | 1,220  |      |  |   | 451    |  
|                                                                             |  |      |        |   |      |   |        |      | 
|Net Earnings                                                                 |  |      | 179    |   |      |   | 359    |      |  |   | 888    |  
|Retained earnings, beginning of year                                         |  |      | 21,412 |   |      |   | 21,053 |      |  |   | 20,165 |  
|                                                                             |  |      |        |   |      |   |        |      | 
|Retained earnings, end of year                                               |  | $    | 21,591 |   |      | $ | 21,412 |      |  | $ | 21,053 |  
|                                                                             |  |      |        |   |      |   |        |      | 



F-33



---



##### 



B.H. ACQUISITION LTD.


CONSOLIDATED STATEMENTS OF CASH FLOWS


for the years ended December 31, 2005, 2004 and 2003


(expressed in thousands of U.S. dollars)


|                                             |                                                                                                                  |                                                  |                                             |        |         |      |        |      |         |        |         |       |         |         |  
|-------------------------------------------- | ---------------------------------------------------------------------------------------------------------------- | ------------------------------------------------ | ------------------------------------------- | ------ | ------- | ---- | ------ | ---- | ------- | ------ | ------- | ----- | ------- | ------- | -
|                                             |                                                                                                                  | 2005                                             |                                             |        | 2004    |      |        | 2003 |        
|                                             |                                                                                                                  |                                                  |                                             |        |         |      |        |      |        
|Operating Activities:                        |                                                                                                                  |                                                  |                                             |        |         |      |        |      |         |        |         |      
|                                             | Net earnings                                                                                                     |                                                  | $                                           | 179    |         |      | $      | 359  |         |        | $       | 888   |        
|                                             | Adjustments to reconcile net earnings to net cash flows used in
    operating activities:                        |                                                  |                                             |        |         |      |        |      |         |        |         |       |        
|                                             |                                                                                                                  | Amortization of run-off provision                |                                             |        | (667    | )    |        |      | (1,333  | )      |         |       | (500    | )      
|                                             |                                                                                                                  | Amortization of fair value adjustment            |                                             |        | 1,286   |      |        |      | 3,518   |        |         |       | 3,153   |        
|                                             |                                                                                                                  | Unrealized loss on holding of trading securities |                                             |        | 41      |      |        |      |        |        |         |       |        |        
|                                             | Changes in assets and liabilities:                                                                               |                                                  |                                             |        |         |      |        |      |         |        |         |       |        
|                                             |                                                                                                                  | Purchase of trading securities                   |                                             |        | (36,382 | )    |        |      | (12,666 | )      |         |       | (15,167 | )      
|                                             |                                                                                                                  | Proceeds on sale of trading securities           |                                             |        | 14,956  |      |        |      | 7,000   |        |         |       | 4,030   |        
|                                             |                                                                                                                  | Reinsurance balances receivable                  |                                             |        | 28,400  |      |        |      | 7,755   |        |         |       | 3,061   |        
|                                             |                                                                                                                  | Funds withheld by ceding companies               |                                             |        | (287    | )    |        |      | 952     |        |         |       | 353     |        
|                                             |                                                                                                                  | Losses and loss adjustment expenses              |                                             |        | (6,962  | )    |        |      | (12,191 | )      |         |       | (4,867  | )      
|                                             |                                                                                                                  | Reinsurance balances payable                     |                                             |        | (3,283  | )    |        |      | (1,391  | )      |         |       | (5,028  | )      
|                                             |                                                                                                                  | Accounts payable and accrued liabilities         |                                             |        | 2,147   |      |        |      | (160    | )      |         |       | 390     |        
|                                             |                                                                                                                  |                                                  |                                             |        |         |      |        |      |        
|                                             |                                                                                                                  |                                                  | Net cash flows used in operating activities |        |         | (572 | )      |      |         | (8,157 | )       |       |         | (13,687 | )
|                                             |                                                                                                                  |                                                  |                                             |        |         |      |        |      |        
|Investing Activity:                          |                                                                                                                  |                                                  |                                             |        |         |      |        |      |         |        |         |      
|                                             | Movement in restricted cash & cash equivalents, being
    net cash flow (used in) provided by investing activity |                                                  |                                             | (1,933 | )       |      |        | 764  |         |        |         | 1,516 |        
|                                             |                                                                                                                  |                                                  |                                             |        |         |      |        |      |        
|Net decrease in cash and cash equivalents    |                                                                                                                  |                                                  | (2,505                                      | )      |         |      | (7,393 | )    |         |        | (12,171 | )    
|Cash and cash equivalents, beginning of year |                                                                                                                  |                                                  | 24,724                                      |        |         |      | 32,117 |      |         |        | 44,288  |      
|                                             |                                                                                                                  |                                                  |                                             |        |         |      |        |      |        
|Cash and cash equivalents, end of year       |                                                                                                                  | $                                                | 22,219                                      |        |         | $    | 24,724 |      |         | $      | 32,117  |      
|                                             |                                                                                                                  |                                                  |                                             |        |         |      |        |      |        



F-34



---



##### 



B.H. ACQUISITION LTD.


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


December 31, 2005, 2004 and 2003


(expressed in thousands of U.S. dollars)




|   |                        
|-- | -----------------------
|1. | Description of Business









|   |                                
|-- | -------------------------------
|2. | Significant Accounting Policies

Basis of preparation




Basis of
consolidation




Cash and cash
equivalents




Investments




Premiums




F-35



---



##### 



B.H. ACQUISITION LTD.


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


Losses and loss adjustment
expenses






Translation of foreign
currencies






|   |                                   
|-- | ----------------------------------
|3. | Restricted Cash & Cash Equivalents





|   |            
|-- | -----------
|4. | Investments







|                                               |  |      |       |   |      |   |       |      |  |   |       |  
|---------------------------------------------- |  | ---- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | -
|                                               |  | 2005 |       |   | 2004 |   |       | 2003 | 
|                                               |  |      |       |   |      |   |       |      | 
|Interest from debt securities and mutual funds |  | $    | 1,983 |   |      | $ | 916   |      |  | $ | 624   |  
|Interest on cash and cash equivalents          |  |      | 499   |   |      |   | 631   |      |  |   | 881   |  
|Unrealized loss on holding of trading security |  |      | (41   | ) |      |   |      |      |  |   |      |  
|Investment expenses                            |  |      | (35   | ) |      |   | (58   | )    |  |   | (174  | )
|                                               |  |      |       |   |      |   |       |      | 
|                                               |  | $    | 2,406 |   |      | $ | 1,489 |      |  | $ | 1,331 |  
|                                               |  |      |       |   |      |   |       |      | 

F-36



---



##### 



B.H. ACQUISITION LTD.


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|   |                                
|-- | -------------------------------
|5. | Reinsurance Balances Receivable

|                                                |  |      |       |   |      |   |        |  
|----------------------------------------------- |  | ---- | ----- | - | ---- | - | ------ | -
|                                                |  | 2005 |       |   | 2004 |  
|                                                |  |      |       |   |      |  
|Paid losses recoverable                         |  | $    | 1,042 |   |      | $ | 6,219  |  
|Losses and loss adjustment expenses recoverable |  |      | 3,457 |   |      |   | 26,680 |  
|Fair value adjustment                           |  |      | (699  | ) |      |   | (3,163 | )
|                                                |  |      |       |   |      |  
|                                                |  | $    | 3,800 |   |      | $ | 29,736 |  
|                                                |  |      |       |   |      |  









|   |                                    
|-- | -----------------------------------
|6. | Losses and Loss Adjustment Expenses

|                          |  |      |         |   |      |   |         |  
|------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                          |  | 2005 |         |   | 2004 |  
|                          |  |      |         |   |      |  
|Outstanding               |  | $    | 33,394  |   |      | $ | 35,702  |  
|Incurred but not reported |  |      | 32,941  |   |      |   | 36,661  |  
|Run-off costs provision   |  |      | 3,496   |   |      |   | 4,367   |  
|Fair value adjustment     |  |      | (11,361 | ) |      |   | (14,381 | )
|                          |  |      |         |   |      |  
|                          |  | $    | 58,470  |   |      | $ | 62,349  |  
|                          |  |      |         |   |      |  

F-37



---



##### 



B.H. ACQUISITION LTD.


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|                                  |                               |      |        |       |      |   |        |        | 
|--------------------------------- | ----------------------------- | ---- | ------ | ----- | ---- | - | ------ | ------ | 
|                                  |                               | 2005 |        |       | 2004 |  
|                                  |                               |      |        |       |      |  
|Balance as at January 1           |                               | $    | 62,349 |       |      | $ | 71,217 |       
|Less reinsurance recoverables     |                               |      | 23,517 |       |      |   | 28,505 |       
|                                  |                               |      |        |       |      |  
|                                  |                               |      | 38,832 |       |      |   | 42,712 |       
|Effect of exchange rate movement  |                               |      | (2,344 | )     |      |   | 270    |       
|Incurred related to prior years   |                               |      | 552    |       |      |   | (428   | )     
|Paid related to prior years       |                               |      | 19,539 |       |      |   | (2,389 | )     
|Amortization of run-off provision |                               |      | (667   | )     |      |   | (1,333 | )     
|                                  |                               |      |        |       |      |  
|Net balance as at December 31     |                               |      | 55,712 |       |      |   | 38,832 |       
|                                  | Plus reinsurance recoverables |      |        | 2,758 |      |   |        | 23,517 | 
|                                  |                               |      |        |       |      |  
|Balance as at December 31         |                               | $    | 58,470 |       |      | $ | 62,349 |       
|                                  |                               |      |        |       |      |  











F-38



---



##### 



B.H. ACQUISITION LTD.


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|   |                           
|-- | --------------------------
|7. | Related Party Transactions







|   |           
|-- | ----------
|8. | Litigation







|   |         
|-- | --------
|9. | Taxation





|                              |  |      |        |   |      |   |        |  
|----------------------------- |  | ---- | ------ | - | ---- | - | ------ | -
|                              |  | 2005 |        |   | 2004 |  
|                              |  |      |        |   |      |  
|Benefit of loss carry-forward |  | $    | 3,625  |   |      | $ | 3,862  |  
|Valuation allowance           |  |      | (3,625 | ) |      |   | (3,862 | )
|                              |  |      |        |   |      |  
|                              |  | $    |       |   |      | $ |       |  
|                              |  |      |        |   |      |  



|    |                       
|--- | ----------------------
|10. | Statutory Requirements







F-39



---



##### 



B.H. ACQUISITION LTD.


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|    |            
|--- | -----------
|11. | Restatement



|               |  |            |       |  |          |   |       |            |  |   |          |    |  |            |       |  |          |   |       |  |  |   |       | 
|-------------- |  | ---------- | ----- |  | -------- | - | ----- | ---------- |  | - | -------- | -- |  | ---------- | ----- |  | -------- | - | ----- |  |  | - | ----- | 
|               |  | 2005       |       |  | 2004     |   |       | 2003       | 
|               |  |            |       |  |          |   |       |            | 
|               |  | As         |       |  |          |   | As    |            |  |   |          | As |  |            |      
|               |  | Previously |       |  | As       |   |       | Previously |  |   | As       |    |  | Previously |       |  | As       |  
|               |  | Reported   |       |  | Restated |   |       | Reported   |  |   | Restated |    |  | Reported   |       |  | Restated |  
|               |  |            |       |  |          |   |       |            |  |   |          |    |  |            |       |  |          |  
|Total income   |  | $          | 1,854 |  |          | $ | 2,406 |            |  | $ | 2,007    |    |  | $          | 1,579 |  |          | $ | 1,109 |  |  | $ | 1,339 | 
|Total expenses |  | $          | 1,675 |  |          | $ | 2,227 |            |  | $ | 1,648    |    |  | $          | 1,220 |  |          | $ | 221   |  |  | $ | 451   | 

F-40