<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 14, 2000
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO ________
COMMISSION FILE NUMBER 0-07477
THE ENSTAR GROUP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
GEORGIA 63-0590560
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
</TABLE>
401 MADISON AVENUE
MONTGOMERY, ALABAMA 36104
(Address of principal executive offices)
(334) 834-5483
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. YES [X] NO [ ]
The number of shares of Registrant's Common Stock, $.01 par value per
share, outstanding at November 14, 2000 was 5,265,753.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 2
THIS FORM 10-Q AND OTHER STATEMENTS ISSUED OR MADE FROM TIME TO TIME BY THE
ENSTAR GROUP, INC. OR MEMBERS OF ITS MANAGEMENT TEAM CONTAIN STATEMENTS WHICH
MAY CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE SECURITIES
ACT OF 1933, AND THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED BY THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995, 15 U.S.C.A. SECTIONS 77Z-2 AND 78U-5
(SUPP. 1996). THOSE STATEMENTS INCLUDE STATEMENTS REGARDING THE INTENT, BELIEF
OR CURRENT EXPECTATIONS OF THE ENSTAR GROUP, INC. AND MEMBERS OF ITS MANAGEMENT
TEAM, AS WELL AS THE ASSUMPTIONS ON WHICH SUCH STATEMENTS ARE BASED. PROSPECTIVE
INVESTORS ARE CAUTIONED THAT ANY SUCH FORWARD-LOOKING STATEMENTS ARE NOT
GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES, AND THAT
ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH
FORWARD-LOOKING STATEMENTS. IMPORTANT FACTORS CURRENTLY KNOWN TO MANAGEMENT THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN FORWARD-LOOKING
STATEMENTS ARE SET FORTH IN THE SAFE HARBOR COMPLIANCE STATEMENT FOR
FORWARD-LOOKING STATEMENTS INCLUDED AS EXHIBIT 99.1 TO THIS FORM 10-Q, AND ARE
HEREBY INCORPORATED BY REFERENCE. THE ENSTAR GROUP, INC. UNDERTAKES NO
OBLIGATION TO UPDATE OR REVISE FORWARD-LOOKING STATEMENTS TO REFLECT CHANGED
ASSUMPTIONS, THE OCCURRENCE OF UNANTICIPATED EVENTS OR CHANGES TO FUTURE
OPERATING RESULTS OVER TIME.
<PAGE> 3
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE ENSTAR GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 70,832 $ 64,265
Certificates of deposit..................................... 3,733 3,615
Other....................................................... 755 564
Partially owned equity affiliates........................... 11,644 911
Property and equipment, net................................. 65 58
-------- --------
Total assets...................................... $ 87,029 $ 69,413
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued liabilities.................... $ 633 $ 176
Deferred liabilities........................................ 322 260
Other....................................................... 392 383
-------- --------
Total liabilities................................. 1,347 819
-------- --------
Shareholders' equity:
Common stock ($.01 par value; 55,000,000 shares
authorized, 5,708,104 shares issued at September 30,
2000 and December 31, 1999............................. 57 57
Additional paid-in capital................................ 183,191 183,191
Note receivable, net of discount of $496 at December 31,
1999................................................... -- (14,504)
Accumulated deficit....................................... (91,756) (94,340)
Treasury stock, at cost (442,351 shares).................. (5,810) (5,810)
-------- --------
Total shareholders' equity........................ 85,682 68,594
-------- --------
Total liabilities and shareholders' equity........ $ 87,029 $ 69,413
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
1
<PAGE> 4
THE ENSTAR GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C> <C>
Interest income................................. $ 1,115 $ 1,129 $ 3,429 $ 3,277
Earnings of partially owned equity affiliates... 955 19 1,171 18
Litigation (expense) income, net................ (1) -- (5) 245
General and administrative expenses............. (604) (427) (1,830) (1,956)
Interest expense................................ (3) (3) (9) (9)
---------- ---------- ---------- ----------
Income before income taxes...................... 1,462 718 2,756 1,575
Income taxes.................................... (108) (37) (172) (84)
---------- ---------- ---------- ----------
Net income...................................... $ 1,354 $ 681 $ 2,584 $ 1,491
========== ========== ========== ==========
Weighted average shares outstanding............. 5,265,753 5,265,729 5,265,753 5,265,716
========== ========== ========== ==========
Weighted average shares outstanding -- assuming
dilution...................................... 5,355,212 5,342,337 5,339,789 5,333,915
========== ========== ========== ==========
Net income per common share..................... $ 0.26 $ 0.13 $ 0.49 $ 0.28
========== ========== ========== ==========
Net income per common share -- assuming
dilution...................................... $ 0.25 $ 0.13 $ 0.48 $ 0.28
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
2
<PAGE> 5
THE ENSTAR GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
2000 1999
------- -------
(DOLLARS IN
THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 2,584 $ 1,491
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation........................................... 14 10
Amortization of goodwill............................... 60 70
Accretion of discount on note receivable............... (85) (354)
Reversal of discount on note receivable................ (411) --
Earnings of partially owned equity affiliates.......... (1,171) (18)
Changes in assets and liabilities:
Accounts payable and accrued liabilities............... 457 (438)
Other.................................................. (121) 318
------- -------
Net cash provided by operating activities......... 1,327 1,079
------- -------
Cash flows from investing activities:
Investment in B.H. Acquisition Limited.................... (9,621) --
Purchases of certificates of deposit...................... (4,313) (3,595)
Maturities of certificates of deposit..................... 4,195 53,424
Purchase of property and equipment........................ (21) (11)
------- -------
Net cash (used in) provided by investing
activities....................................... (9,760) 49,818
------- -------
Cash flows from financing activities:
Repayment of note receivable.............................. 15,000 --
Common stock issuance costs............................... -- (10)
------- -------
Net cash provided by (used in) financing
activities....................................... 15,000 (10)
------- -------
Increase in cash and cash equivalents....................... 6,567 50,887
Cash and cash equivalents at the beginning of the period.... 64,265 12,826
------- -------
Cash and cash equivalents at the end of the period.......... $70,832 $63,713
======= =======
Supplemental disclosures of cash flow information:
Income taxes paid......................................... $ 100 $ 58
======= =======
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
3
<PAGE> 6
THE ENSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1: GENERAL
The consolidated financial statements of The Enstar Group, Inc. (the
"Company") are unaudited and, in the opinion of management, include all
adjustments consisting solely of normal recurring adjustments necessary to
fairly state the Company's financial condition and results of operations for the
interim period. The results of operations for the three and nine months ended
September 30, 2000 are not necessarily indicative of the results to be expected
for the full year. These statements should be read in conjunction with the
financial statements and notes thereto for the year ended December 31, 1999
included in the Company's Form 10-K as filed with the Securities and Exchange
Commission on March 22, 2000 under the Securities Exchange Act of 1934, as
amended. Certain prior year amounts have been reclassified in the financial
statements to conform with the current year presentation.
NOTE 2: PARTIALLY OWNED EQUITY AFFILIATES
B-LINE
In November 1998, the Company purchased membership units of B-Line LLC
("B-Line") for $965,000 including expenses. Based in Seattle, Washington, B-Line
provides services to credit card issuers and other holders of similar
receivables. B-Line also purchases credit card receivables and recovers payments
on these accounts.
At the time of the purchase, the Company's membership units represented
approximately 8.77% of the outstanding units of B-Line. The Company also
purchased a one-year warrant to acquire additional B-Line units, with an
aggregate exercise price of $950,000. Other investors also purchased membership
units and warrants in B-Line. In November 1999, the Company's warrants expired
unexercised while certain other warrant holders exercised their warrants. As a
result, the Company's ownership percentage decreased to approximately 7.99%.
The Company's B-Line membership units are accounted for under the equity
method. Approximately $803,000 of the original $950,000 investment was recorded
as goodwill and is being amortized over a period of 10 years. The operations of
B-Line are reported by the Company three months in arrears.
B.H. ACQUISITION
On July 3, 2000, the Company, through B.H. Acquisition Limited ("B.H.
Acquisition"), a joint venture, acquired two reinsurance companies of Petrofina
S.A., a subsidiary of TotalFina Elf S.A. The reinsurance companies, Brittany
Insurance Company Ltd. ("Brittany") and Compagnie Europeenne d'Assurances
Industrielles S.A. ("CEAI") were purchased by B.H. Acquisition for $28.5
million. Brittany and CEAI are principally engaged in the active management of
books of reinsurance business from international markets. In exchange for a
capital contribution of approximately $9.6 million, the Company received 50% of
the voting stock and a 33% economic interest in B.H. Acquisition, a newly formed
company. The Company's ownership in B.H. Acquisition is accounted for using the
equity method of accounting.
The acquisition of the two reinsurance companies has been accounted for by
B.H. Acquisition using the purchase method of accounting. The excess of the fair
value of net assets acquired over the purchase price is being amortized using
the straight-line method over 5 years.
4
<PAGE> 7
THE ENSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following unaudited pro forma information of the Company for the three
months and nine months ended September 30, 2000 and 1999 gives effect to B.H.
Acquisition's purchase of Brittany and CEAI and the Company's ownership in B.H.
Acquisition as if they had occurred on January 1, 1999:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -----------------
2000 1999 2000 1999
------- -------- ------ -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C> <C>
Interest income................................. $1,115 $ 1,006 $3,160 $ 2,922
Earnings of partially owned equity affiliates... 835 (5,206) 344 (1,605)
Income before income taxes...................... 1,342 (4,630) 1,660 (403)
Net income...................................... 1,234 (4,667) 1,488 (487)
Net income per common share..................... 0.23 (0.89) 0.28 (0.09)
Net income per common share - assuming
dilution...................................... 0.23 (0.87) 0.28 (0.09)
</TABLE>
The pro forma amounts for the equity in earnings of B.H. Acquisition
include adjustments to amortize the excess of the fair value of net assets
acquired over the purchase price, to amortize the costs accrued at the date of
acquisition related to the payment of future claims, and to eliminate income
effects attributable to assets of Brittany that were not acquired by B.H.
Acquisition. The pro forma amounts also include adjustments to interest income
to eliminate the income effects attributable to assets of the Company that were
used to purchase B.H. Acquisition.
The pro forma consolidated information is not necessarily indicative of the
results that would have been reported had such acquisitions occurred on such
dates, nor is it indicative of the Company's future operations.
SUMMARIZED FINANCIAL INFORMATION
Summarized financial information for B-Line and B.H. Acquisition is as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Total assets................................................ $184,150 $23,528
Total liabilities........................................... 145,057 21,430
Total equity................................................ 39,093 2,098
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
2000 1999 2000 1999
------- ------- ------- ------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenue.......................................... $4,083 $1,078 $10,666 $2,314
Operating income................................. 2,915 189 5,561 80
Net income....................................... 4,358 189 7,004 80
</TABLE>
This summarized financial information reflects the results of B-Line and
B.H. Acquisition from their respective dates of ownership and also reflects, for
B.H. Acquisition, its purchase of Brittany and CEAI in accordance with
Accounting Principles Board Opinion No. 16, "Business Combinations."
NOTE 3: SHAREHOLDERS' EQUITY
(a) Common Stock -- In January 1999, the Company issued 160 shares of its
common stock to qualified former shareholders in accordance with the terms of
its reorganization plan. It was determined by the
5
<PAGE> 8
THE ENSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company that these former shareholders had submitted a complete Certification of
Ownership in a timely manner.
(b) Additional Paid-in Capital -- In February 1999, additional legal fees
of $10,000 were incurred by the Company in relation to the sale of 1,158,860
newly issued shares of the Company's common stock to J. Christopher Flowers in
December 1998. These fees were charged to equity in the first quarter of 1999.
(c) Note Receivable -- In March 2000, J. Christopher Flowers, Vice Chairman
of the Board of Directors of the Company, repaid his $15 million note with
accrued interest to the Company. This note receivable, net of discount, had been
classified as a reduction of equity. The note had a due date of December 18,
2000, and resulted from the Company's sale of 1,158,860 newly issued shares of
common stock to Mr. Flowers on December 18, 1998. In connection with the early
repayment of the note receivable, the Company reversed the unamortized portion
of the discount recorded on the note receivable. This reversal resulted in a
decrease of approximately $411,000 to general and administrative expenses in
March 2000.
NOTE 4: LEGAL PROCEEDINGS
On February 11, 1997, fifteen former shareholders of the Company filed a
lawsuit (the "Zachary Litigation") against the Company. The complaint, which
deals with actions occurring prior to the Company's filing for bankruptcy in
1991, alleges that the Company along with its then principal officers and others
defrauded the plaintiffs in violation of the Alabama Securities Act and other
Alabama statutory provisions. The plaintiffs seek compensatory damages in the
amount of their alleged losses of approximately $2.0 million and unspecified
punitive damages. The Company filed a motion to dismiss and/or for summary
judgement on March 17, 1997. The motion filed by the Company contends that the
claims asserted are barred by the applicable statutes of limitations. See Note
5.
NOTE 5: SUBSEQUENT EVENTS
On October 6, 2000, the Company received $3.9 million representing the
Company's proportionate share of an $11.9 million capital distribution from B.H.
Acquisition. Proceeds for this distribution were obtained by B.H. Acquisition
through a loan from Brittany.
On November 2, 2000, the Circuit Court of Montgomery County, Alabama
granted the Company's motion and dismissed the plaintiffs' claims in the Zachary
Litigation. The Company does not know whether the plaintiffs will appeal the
Circuit Court's decision. See Note 4.
NOTE 6: RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities". This statement (as amended by
SFAS No.'s 137 and 138) is effective January 2001. SFAS 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities.
It requires that an entity realize all derivatives as either assets or
liabilities in the balance sheet measured at fair value. Under SFAS 133, certain
contracts that were not formerly considered derivatives may now meet the
definition of a derivative. The Company intends to adopt SFAS 133 effective
January 1, 2001. Management does not expect the adoption of SFAS 133 to have a
significant impact on the financial position or results of operations of the
Company because the Company does not have significant derivative activity.
6
<PAGE> 9
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Shareholders of
The Enstar Group, Inc.
Montgomery, Alabama
We have reviewed the accompanying consolidated balance sheet of The Enstar
Group, Inc. and subsidiary ("Enstar") as of September 30, 2000, and the related
consolidated statements of income and cash flows for the three-month and
nine-month periods ended September 30, 2000 and 1999. These financial statements
are the responsibility of Enstar's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and of making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States of
America, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our review, we are not aware of any material modifications that
should be made to such consolidated financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of
Enstar as of December 31, 1999 and the related consolidated statements of
income, comprehensive income, shareholders' equity, and cash flows for the year
then ended (not presented herein); and in our report dated February 4, 2000
(March 7, 2000 as to Note 12), we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying consolidated balance sheet as of December 31, 1999 is fairly
stated, in all material respects, in relation to the consolidated balance sheet
from which it has been derived.
/s/ DELOITTE & TOUCHE LLP
Atlanta, Georgia
November 10, 2000
7
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Liquidity and Capital Resources
The Company's assets, aggregating approximately $87.0 million at September
30, 2000, consisted primarily of approximately $74.6 million in cash, cash
equivalents and certificates of deposit and approximately $11.6 million in
partially owned equity affiliates.
The Company is currently engaged in the active search for one or more
operating businesses. This search occupies substantially all of the time of the
Company's senior officers. The Company's officers and directors have identified
one such suitable acquisition and the Company, together with co-investors, has
acquired two reinsurance companies. See Other Item. With the exception of
various expenses incurred in connection with the Company's search for a suitable
acquisition, its only needs are to fund normal operating expenses.
Financial Condition
The Company had total assets of $87.0 million at September 30, 2000
compared to $69.4 million at December 31, 1999. The increase in total assets was
due primarily to the early repayment of a $15 million note receivable by J.
Christopher Flowers, Vice Chairman of the Board of Directors of the Company.
Mr. Flowers repaid his $15 million note with accrued interest to the
Company on March 3, 2000. The note had a due date of December 18, 2000, and
resulted from the Company's sale of 1,158,860 newly issued shares of common
stock to Mr. Flowers on December 18, 1998 (the "Flowers Transaction"). In
connection with the repayment, the Company reversed the unamortized discount on
the note of approximately $411,000.
Results of Operations
The Company reported net income of approximately $1.4 million and $2.6
million for the three and nine month periods ended September 30, 2000,
respectively, compared to net income of $681,000 and approximately $1.5 million
for the same periods in the prior year. The increase in net income for the three
month period ended September 30, 2000 compared to the same period in 1999
resulted primarily from an increase in earnings of partially owned equity
affiliates, partially offset by an increase in general and administrative
expenses. The increase in net income for the nine month period ended September
30, 2000 compared to the same period in the prior year is primarily a result of
an increase in earnings of partially owned equity affiliates and a decrease in
general and administrative expenses, partially offset by the lack of litigation
income in 2000.
Interest income was approximately $1.1 million and $3.4 million for the
three and nine months periods ended September 30, 2000, respectively, compared
to approximately $1.1 million and $3.3 million for the same periods in the prior
year.
Earnings of partially owned equity affiliates was $955,000 and
approximately $1.2 million for the three and nine month periods ended September
30, 2000, compared to $19,000 and $18,000 for the same periods in the prior
year. Prior to the Company's purchase of stock in B.H. Acquisition on July 3,
2000 (see Other Item), earnings of partially owned equity affiliates consisted
entirely of earnings from the Company's investment in B-Line LLC. The Company
recorded equity in earnings from B.H. Acquisition of $800,000 for the three
month period ending September 30, 2000.
General and administrative expenses were $604,000 and approximately $1.8
million for the three and nine month periods ended September 30, 2000,
respectively, compared to $427,000 and approximately $2.0 million for the same
periods in 1999. In connection with the early repayment of the note in the
Flowers Transaction, the Company reversed the unamortized portion of the
discount recorded on the note. This reversal resulted in a decrease of
approximately $411,000 to general and administrative expenses in March 2000.
This decrease was partially offset by additional expense resulting from a new
shares tax imposed by the State of Alabama. In addition to these and other
normal operating expenses, general and administrative expenses include legal and
professional fees as well as travel expenses incurred in connection with the
Company's search for one or more operating companies. Most variances in legal
and professional fees and travel expenses can be attributed to the number of
potential acquisition candidates the Company locates as well as the degree of
interest the Company
8
<PAGE> 11
may have in such candidates. The stronger the interest in a candidate, the more
rigorous financial and legal due diligence the Company will incur with respect
to that candidate.
Other Item
On July 3, 2000, the Company, through B.H. Acquisition Limited ("B.H.
Acquisition"), a joint venture, acquired two reinsurance companies of Petrofina
S.A., a subsidiary of TotalFina Elf S.A. The companies, Brittany Insurance
Company, Ltd., incorporated under the laws of Bermuda ("Brittany"), and
Compagnie Europeenne d'Assurances Industrielles S.A., a Belgium corporation
("CEAI"), were purchased by B.H. Acquisition for approximately $28.5 million. In
exchange for a capital contribution of approximately $9.6 million, the Company
received 50% of the voting stock and a 33% economic interest in B.H.
Acquisition. The Company's capital contribution was derived from cash on hand.
Brittany and CEAI are principally engaged in the active management of books of
reinsurance business from the international markets.
Recent Development
On October 6, 2000, the Company received $3.9 million representing the
Company's proportionate share of an $11.9 million capital distribution from B.H.
Acquisition. Proceeds for this distribution were obtained by B.H. Acquisition
through a loan from Brittany.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to some market risk from changes in interest rates,
but the Company does not believe the risk is material. The Company had cash and
cash equivalents of approximately $70.8 million in interest bearing accounts
(interest at floating rates) and approximately $3.7 million of short-term
certificates of deposit (interest at fixed rates) at September 30, 2000.
Although interest rate changes would affect the fair value of the Company's
certificates of deposits, the weighted average original term of certificates
held by the Company at September 30, 2000 was approximately 8 months. The
short-term nature of these certificates limits the Company's risk of changes in
the fair value of these certificates.
PART II.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On February 11, 1997, fifteen former shareholders of the Company filed a
lawsuit against the Company in the Circuit Court of Montgomery County, Alabama
styled Peter N. Zachary, et al. v. The Enstar Group, Inc., Case No.
CV-97-257-Gr. The complaint, which deals with actions occurring prior to the
Company's filing for bankruptcy in 1991, alleges that the Company along with its
then principal officers and others defrauded the plaintiffs in violation of the
Alabama Securities Act and other Alabama statutory provisions. The plaintiffs
seek compensatory damages in the amount of their alleged losses of approximately
$2 million and unspecified punitive damages. The complaint is virtually
identical to a complaint brought by these plaintiffs against the Company's
former chairman, former president and others in December 1991, during the
pendency of the Company's bankruptcy case and prior to the confirmation of the
Company's Second Amended Plan of Reorganization, as modified (the
"Reorganization Plan"). The plaintiffs allege that the United States Bankruptcy
Court for the Middle District of Alabama (the "Bankruptcy Court") issued an
order on January 15, 1997, allowing them to litigate their claims against the
Company. The Bankruptcy Court's order actually held that the plaintiffs could
not bring a late claim against the Company in its bankruptcy case and then went
on to state that because of facts relating to these particular plaintiffs, they
were not bound by the provisions of the Reorganization Plan and their claims
were not subject to discharge under the Bankruptcy Code. On March 17, 1997, the
Company filed a motion to dismiss and/or for summary judgment in response to the
complaint on the basis that the claims asserted are barred by the applicable
statute of limitations. On November 2, 2000, the Circuit Court granted the
Company's motion and dismissed the plaintiffs' claims. The Company does not know
whether the plaintiffs will appeal the Circuit Court's decision.
9
<PAGE> 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
REFERENCE
NUMBER DESCRIPTION OF EXHIBITS
--------- -----------------------
<C> <C> <S>
2.1 -- Second Amended Plan of Reorganization of the Company,
effective as of June 1, 1992 (incorporated by reference to
Exhibit 2.1 to the Amendment No. 2 to Registration Statement
on Form 10, dated March 27, 1997).
2.2 -- Amended Modification to Second Amended Plan of
Reorganization of the Company, confirmed on August 24, 1993
(incorporated by reference to Exhibit 2.2 to the Amendment
No. 2 to Registration Statement on Form 10, dated March 27,
1997).
2.3 -- Agreement and Plan of Merger, dated as of December 31, 1996
(incorporated by reference to Exhibit 2.3 to the Amendment
No. 2 to Registration Statement on Form 10, dated March 27,
1997).
2.4 -- 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).
2.5 -- 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).
2.6 -- 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).
2.7 -- 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).
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 the Amendment No. 2 to 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).
27.1 -- Financial Data Schedule. (For SEC Use Only)
99.1 -- The Enstar Group, Inc. Private Securities Litigation Reform
Act of 1995 Safe Harbor Compliance Statement For
Forward-Looking Statements (incorporated by reference to
Exhibit 99.1 to the Quarterly Report on Form 10-Q, dated
August 14, 2000).
99.2 -- Notice of Pending Distribution of New Common Stock in The
Enstar Group, Inc. (incorporated by reference to Exhibit
99.1 to the Amendment No. 2 to Registration Statement on
Form 10, dated March 27, 1997).
99.3 -- Modified Order on Proposed Distribution to Equity Security
Holders by the United States Bankruptcy Court for the Middle
District of Alabama (incorporated by reference to Exhibit
99.2 to the Amendment No. 2 to Registration Statement on
Form 10, dated March 27, 1997).
99.4 -- Application for an Order Pursuant to Sections 6(c) and 6(e)
of the Investment Company Act of 1940 (incorporated by
reference to Application for an Order Pursuant to Sections
6(c) and 6(e) of the Investment Company Act of 1940, dated
March 19, 1998).
99.5 -- Amendment No. 1 to the Application for an Order Pursuant to
Sections 6(c) and 6(e) of the Investment Company Act of 1940
(incorporated by reference to Amendment No. 1 to the
Application for an Order Pursuant to Sections 6(c) and 6(e)
of the Investment Company Act of 1940, dated May 22, 1998).
</TABLE>
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(b) Reports on Form 8-K
(i) On July 18, 2000, the Company filed a Current Report on Form 8-K
pursuant to Item 2 -- Acquisition or Disposition of Assets, which was
subsequently amended by a Current Report on Form 8-K/A, filed
September 18, 2000, announcing that the Company, through B.H.
Acquisition, a joint venture, acquired two reinsurance companies of
Petrofina S.A., a subsidiary of TotalFina Elf S.A. The following
financial statements were included as part of the Current Report on
Form 8-K/A:
1. Audited Financial Statements of Brittany Insurance Company Ltd.
("Brittany") as of and for the years ended December 31, 1999 and
1998.
2. Audited Financial Statements of Brittany as of and for the six month
period ended June 30, 2000.
3. Audited Financial Statements of Compagnie Europeenne d'Assurances
Industrielles S.A. ("CEAI") as of and for the years ended December
31, 1999 and 1998.
4. Audited Financial Statements of CEAI as of and for the six month
period ended June 30, 2000.
5. Unaudited Pro Forma Consolidated Balance Sheet of the Company as of
June 30, 2000 and Unaudited Pro Forma Consolidated Statements of
Income for the year ended December 31, 1999 and for the six months
ended June 30, 2000.
11
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE ENSTAR GROUP, INC.
By: /s/ CHERYL D. DAVIS
------------------------------------
Cheryl D. Davis
Chief Financial Officer, Vice
President
of Corporate Taxes, Secretary
(Authorized Officer)
(Principal Financial Officer)
Date: November 14, 2000
12
