Edgar Filing: AMERICAN BILTRITE INC

eps3415.htm

FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Quarterly Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

For Quarter Ended March 31, 2009

Commission File Number 1-4773

AMERICAN BILTRITE INC.

(Exact name of registrant as specified in its charter)

Delaware	04-1701350
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

57 River Street

Wellesley Hills, Massachusetts 02481-2097

(Address of Principal Executive Offices)

(781) 237-6655

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ ] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ] (Do not check if a smaller reporting company) Smaller reporting company [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Class		Outstanding at May 12, 2009

Common Stock		3,441,551 shares

FORWARD LOOKING STATEMENTS

Some of the information presented in or incorporated by reference in this report constitutes "forward-looking statements," within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks, uncertainties and assumptions. These statements can be identified by the use of words such as "anticipate," "believe," "estimate," "expect," "intend," "plan," "project" and other words of similar meaning. In particular, these include statements relating to intentions, beliefs or current expectations concerning, among other things, future performance, results of operations, the outcome of contingencies, such as bankruptcy and other legal proceedings, and financial conditions. These statements do not relate strictly to historical or current facts. These forward-looking statements are based on American Biltrite Inc.’s expectations and American Biltrite Inc.’s understanding of its majority-owned subsidiary Congoleum Corporation’s expectations, as of the date of this report, of future events, and American Biltrite Inc. undertakes no obligation to update any of these forward-looking statements, except as required by federal securities laws. Although American Biltrite Inc. believes that these expectations are based on reasonable assumptions, within the bounds of its knowledge of its business and operations, there can be no assurance that actual results will not differ materially from its expectations. Readers are cautioned not to place undue reliance on any forward-looking statements. Any or all of these statements may turn out to be incorrect. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Any forward-looking statements made in this report speak only as of the date of this report unless the statement indicates that another date applies. It is not possible to predict or identify all factors that could potentially cause actual results to differ materially from expected and historical results. Factors that could cause or contribute to American Biltrite Inc.’s actual results differing from its expectations include those factors discussed in Item 1A of Part II of this Quarterly Report on Form 10-Q and in American Biltrite Inc.’s other filings with the Securities and Exchange Commission.

AMERICAN BILTRITE INC.

INDEX

PART I.	FINANCIAL INFORMATION

	Item 1.	Financial Statements:

		Consolidating Condensed Balance Sheets – Assets as of March 31, 2009 (Unaudited) and December 31, 2008	1

		Consolidating Condensed Balance Sheets – Liabilities and Stockholders’ Equity as of March 31, 2009 (Unaudited) and December 31, 2008	2

		Consolidating Condensed Statements of Operations (Unaudited) For the Three Months Ended March 31, 2009 and 2008	3

		Consolidating Condensed Statements of Cash Flows (Unaudited) For the Three Months Ended March 31, 2009 and 2008	4

		Notes to Unaudited Consolidating Condensed Financial Statements	5

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	26

	Item 4T.	Controls and Procedures	40

PART II.	OTHER INFORMATION

	Item 1.	Legal Proceedings	41

	Item 1A.	Risk Factors	41

	Item 3.	Defaults Upon Senior Securities	52

	Item 5.	Other Information	52

	Item 6.	Exhibits	54

	Signature		55

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

AMERICAN BILTRITE INC. AND SUBSIDIARIES

CONSOLIDATING CONDENSED BALANCE SHEETS – ASSETS

(In thousands of dollars)

	ABI Consolidated				Eliminations						Congoleum				American Biltrite
	March 31, 2009		December 31, 2008		March 31, 2009			December 31, 2008			March 31, 2009		December 31, 2008		March 31, 2009		December 31, 2008
	(Unaudited)				(Unaudited)						(Unaudited)				(Unaudited)
Assets
Current Assets:
Cash and cash equivalents	$	9,357	$	18,072							$	7,679	$	15,077	$	1,678	$	2,995
Restricted cash		29,708		29,680								29,708		29,680
Short-term investments		1,000		-												1,000		-
Accounts receivable, net		37,722		36,627	$	(274	)	$	(367	)		15,848		13,789		22,148		23,205
Inventories		77,992		79,082		(73	)		(89	)		38,142		35,814		39,923		43,357
Taxes receivable		1,002		1,334												1,002		1,334
Prepaid expense & other current assets		5,920		6,406								3,366		3,922		2,554		2,484
Total current assets		162,701		171,201		(347	)		(456	)		94,743		98,282		68,305		73,375

Property, plant & equipment, net		86,091		88,466								54,947		56,520		31,144		31,946

Other assets:
Insurance for asbestos-related liabilities		13,509		13,509												13,509		13,509
Other assets		21,897		21,825		(117	)		(117	)		17,065		17,065		4,949		4,877
		35,406		35,334		(117	)		(117	)		17,065		17,065		18,458		18,386

Total assets	$	284,198	$	295,001	$	(464	)	$	(573	)	$	166,755	$	171,867	$	117,907	$	123,707

See accompanying notes to consolidating condensed financial statements.

AMERICAN BILTRITE INC. AND SUBSIDIARIES

CONSOLIDATING CONDENSED BALANCE SHEETS – LIABILITIES AND STOCKHOLDERS’ EQUITY

(In thousands of dollars)

	ABI Consolidated						Eliminations						Congoleum						American Biltrite
	March 31, 2009			December 31, 2008			March 31, 2009			December 31, 2008			March 31, 2009			December 31, 2008			March 31, 2009			December 31, 2008
	(Unaudited)						(Unaudited)						(Unaudited)						(Unaudited)
Liabilities
Current liabilities:
Accounts payable	$	13,869		$	16,298		$	(274	)	$	(366	)	$	6,698		$	7,472		$	7,445		$	9,192
Accrued expenses		28,431			31,880									14,237			16,897			14,194			14,983
Asbestos-related liabilities		48,759			50,022									48,759			50,022
Deferred income taxes		6,533			6,533									6,533			6,533
Notes payable		36,509			32,747									16,966			13,994			19,543			18,753
Current portion of long-term debt		5,106			5,611															5,106			5,611
Liabilities subject to compromise		4,997			4,997									4,997			4,997
Total current liabilities		144,204			148,088			(274	)		(366	)		98,190			99,915			46,288			48,539

Long-term debt, less current portion		1,033			1,112															1,033			1,112
Asbestos-related liabilities		13,563			13,563															13,563			13,563
Other liabilities		16,767			16,801															16,767			16,801
Liabilities subject to compromise		162,103			161,386			(117	)		(117	)		162,220			161,503
Total liabilities		337,670			340,950			(391	)		(483	)		260,410			261,418			77,651			80,015

Equity
Common stock		46			46			(93	)		(93	)		93			93			46			46
Additional paid-in capital		19,799			19,749			(49,389	)		(49,386	)		49,389			49,386			19,799			19,749
Less treasury shares		(15,132	)		(15,132	)		7,813			7,813			(7,813	)		(7,813	)		(15,132	)		(15,132	)
Accumulated other comprehensive loss		(53,434	)		(53,250	)		6,111			6,110			(51,179	)		(51,179	)		(8,366	)		(8,181	)
(Deficit) retained earnings		(3,691	)		1,803			37,332			35,466			(84,145	)		(80,038	)		43,122			46,375
Total stockholders’ (deficit) equity of controlling interests		(52,412	)		(46,784	)		1,774			(90	)		(93,655	)		(89,551	)		39,469			42,857
Noncontrolling interests		(1,060	)		835			(1,847	)											787			835
Total (deficit) equity		(53,472	)		(45,949	)		(73	)		(90	)		(93,655	)		(89,551	)		40,256			43,692
Total liabilities and equity	$	284,198		$	295,001		$	(464	)	$	(573	)	$	166,755		$	171,867		$	117,907		$	123,707

See accompanying notes to consolidating condensed financial statements.

AMERICAN BILTRITE INC. AND SUBSIDIARIES

CONSOLIDATING CONDENSED STATEMENTS OF OPERATIONS (Unaudited)

For the Three Months Ended March 31, 2009 and 2008

(In thousands of dollars, except share and per share amounts)

	ABI Consolidated						Eliminations						Congoleum						American Biltrite
	2009			2008			2009			2008			2009			2008			2009			2008

Net sales	$	70,061		$	95,757								$	30,106		$	47,697		$	39,955		$	48,060

Cost of products sold		56,161			72,593		$	(309	)	$	(300	)		25,960			36,824			30,510			36,069
Selling, general & administrative expenses		20,510			22,389									8,250			9,132			12,260			13,257
(Loss) income from operations		(6,610	)		775			309			300			(4,104	)		1,741			(2,815	)		(1,266	)
Other income (expense)
Interest income		7			1,151									2			1,128			5			23
Interest expense		(345	)		(708	)								(108	)		(197	)		(237	)		(511	)
Other (expense) income		(499	)		233			(293	)		(292	)		118			(64	)		(324	)		589
		(837	)		676			(293	)		(292	)		12			867			(556	)		101
(Loss) income before income taxes		(7,447	)		1,451			16			8			(4,092	)		2,608			(3,371	)		(1,165	)
(Benefit from) provision for income taxes		(53	)		519									15			929			(68	)		(410	)
Net (loss) income		(7,394	)		932			16			8			(4,107	)		1,679			(3,303	)		(755	)
Noncontrolling interests		1,897			40			1,847			-									50			40
Net (loss) income attributable to controlling interests	$	(5,497	)	$	972		$	1,863		$	8		$	(4,107	)	$	1,679		$	(3,253	)	$	(715	)

	2009			2008
Net (loss) income attributable to American Biltrite Inc. per share
Basic	$	(1.60	)	$	0.28
Diluted		(1.60	)		0.28
Weighted average number of common and equivalent shares outstanding
Basic		3,441,551			3,441,551
Diluted		3,441,551			3,441,551

See accompanying notes to consolidating condensed financial statements.

AMERICAN BILTRITE INC. AND SUBSIDIARIES

CONSOLIDATING CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)

For the Three Months Ended March 31, 2009 and 2008

(In thousands of dollars)

	ABI Consolidated						Eliminations						Congoleum						American Biltrite
	2009			2008			2009			2008			2009			2008			2009			2008
Operating activities
Net (loss) income attributable to controlling interests	$	(5,497	)	$	972		$	1,863		$	8		$	(4,107	)	$	1,679		$	(3,253	)	$	( 715	)
Adjustments to reconcile net (loss) income to net cash (used) provided by operating activities:
Depreciation and amortization		3,443			3,991									2,432			2,673			1,011			1,318
Stock compensation expense		52			5									2			5			50			—
Noncontrolling interests		(1,897	)		(160	)		(1,847	)											(50	)		(160	)
Change in operating assets and liabilities:
Accounts and notes receivable		(1,275	)		(2,744	)		(92	)		347			(2,059	)		(3,191	)		876			100
Inventories		727			(5,832	)		(16	)		(8	)		(2,328	)		(5,646	)		3,071			(178	)
Prepaid expenses and other assets		449			1,403									556			843			(107	)		560
Proceeds from legal fees disgorgement		-			9,168									-			9,168
Accounts payable and accrued expenses		(5,349	)		(3,889	)		92			(347	)		(3,369	)		(1,906	)		(2,072	)		(1,636	)
Asbestos-related expenses		(1,292	)		(3,575	)								(1,292	)		(3,575	)
Other		558			1,390									682			1,586			(124	)		(196	)

Net cash (used) provided by operating activities		(10,081	)		729			—			—			(9,483	)		1,636			(598	)		(907	)
Investing activities
Investments in property, plant and equipment		(1,177	)		(1,024	)		—			—			(859	)		(468	)		(318	)		(556	)
Purchase of short-term investments		(1,000	)		—															(1,000	)		—

Net cash used by investing activities		(2,177	)		(1,024	)		—			—			(859	)		(468	)		(1,318	)		(556	)
Financing activities
Net short-term borrowings		3,776			2,312									2,972			2,121			804			191
Payments on long-term debt		(584	)		(42	)														(584	)		(42	)
Net change in restricted cash		(28	)		(56	)								(28	)		(56	)

Net cash provided by financing activities		3,164			2,214			—			—			2,944			2,065			220			149
Effect of foreign exchange rate changes on cash		379			(518	)														379			(518	)
Net (decrease) increase in cash		(8,715	)		1,401			—			—			(7,398	)		3,233			(1,317	)		(1,832	)
Cash and cash equivalents at beginning of period		18,072			30,185									15,077			26,327			2,995			3,858

Cash and cash equivalents at end of period	$	9,357		$	31,586		$	—		$	—		$	7,679		$	29,560		$	1,678		$	2,026

See accompanying notes to consolidating condensed financial statements.

AMERICAN BILTRITE INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATING CONDENSED

FINANCIAL STATEMENTS

March 31, 2009

(Unaudited)

Note A - Basis of Presentation

The accompanying unaudited consolidating condensed financial statements which include the accounts of American Biltrite Inc. and its wholly owned subsidiaries (and including, unless the context otherwise indicates, its majority-owned subsidiary K&M Associates L.P., are referred to herein as "ABI", "American Biltrite" or the "Company") as well as entities over which it has voting control have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information, the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments and provisions to effect a plan of reorganization under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code") of Congoleum Corporation ("Congoleum"), a majority-owned subsidiary of the Company, to settle asbestos liabilities) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2009 are not necessarily indicative of the results that may be expected for future periods, including the year ending December 31, 2009. For further information, refer to the consolidating financial statements and the notes to those financial statements included in American Biltrite Inc.'s Annual Report on Form 10-K for the year ended December 31, 2008.

The consolidating condensed balance sheet at December 31, 2008 has been derived from the audited financial statements as of that date but does not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements.

As discussed more fully below and elsewhere in these notes to consolidating condensed financial statements, the Company's subsidiary Congoleum filed for bankruptcy protection on December 31, 2003 in the United States Bankruptcy Court for the District of New Jersey (the "Bankruptcy Court"). The accompanying consolidated financial statements include the results for Congoleum for all periods presented. Congoleum’s results include losses (including other comprehensive losses) of $91.8 million and $89.6 million in excess of the value of ABI’s investment in Congoleum at March 31, 2009 and December 31, 2008, respectively. ABI owns a majority of the voting stock of Congoleum, and expects to continue doing so until Congoleum’s reorganization proceedings are concluded. Upon effectiveness of any plan of reorganization for Congoleum, ABI expects that its ownership interests in Congoleum will be cancelled, at which time ABI would no longer include Congoleum's results in the consolidated results of the Company. The Company has elected to continue to consolidate the financial statements of Congoleum in its consolidated results because it believes that is the appropriate presentation given its current voting control of

Note A - Basis of Presentation

Congoleum. However, the accompanying financial statements also present the details of consolidation to separately show the financial condition, operating results and cash flows of ABI (including its non-debtor subsidiaries) and Congoleum (and its debtor subsidiaries), which may be more meaningful for certain analyses.

For more information regarding Congoleum’s asbestos liability and plan for resolving that liability, please refer to Note I.

The American Institute of Certified Public Accountants Statement of Position 90-7, Financial Reporting by Entities in Reorganization Under the Bankruptcy Code ("SOP 90-7"), provides financial reporting guidance for entities that are reorganizing under the Bankruptcy Code. Congoleum has implemented this guidance in its consolidated financial statements for periods commencing after December 31, 2003. Pursuant to SOP 90-7, companies in reorganization under the Bankruptcy Code are required to segregate pre-petition liabilities that are subject to compromise and report them separately on the balance sheet. Liabilities that may be affected by a plan of reorganization are recorded at the amount of the expected allowed claims, even if they may be settled for lesser amounts. Liabilities for asbestos claims are recorded based upon the minimum amount Congoleum expects to spend for its contribution to, and costs to settle asbestos liabilities through, the Plan Trust (as described in Note I). Obligations arising post-petition and pre-petition obligations that are secured or that the Bankruptcy Court has authorized Congoleum to pay, are not classified as liabilities subject to compromise. Other pre-petition claims (which would be classified as liabilities subject to compromise) may arise due to the rejection by Congoleum of executory contracts or unexpired leases pursuant to the Bankruptcy Code or as a result of the allowance by the Bankruptcy Court of contingent or disputed claims related to pre-petition matters.

As discussed in Note D, American Biltrite’s revolving credit facility expires on September 30, 2009. In addition, the Company entered into a limited waiver and modification agreement to its credit agreement governing that credit facility with its lenders, which granted the Company a temporary waiver through June 30, 2009 of the Company's default under the credit agreement for failure to comply with one of its financial covenants as of March 31, 2009. The temporary waiver expires on June 30, 2009 (subject to possible earlier termination or expiration upon the occurrence of certain specified events) and requires the Company to deliver by May 22, 2009 to the lenders an executed commitment letter from another financial institution reasonably acceptable to the lenders which contemplates payment in full in cash of all amounts owed to the Company’s lenders under the credit agreement on or prior to June 29, 2009. The limited waiver and modification agreement contemplates the Company repaying the lenders all amounts owed to them under the existing credit agreement by June 29, 2009. The Company believes it will be successful in obtaining replacement financing for the term loan and credit facility under the credit agreement by June 29, 2009, and that the replacement facility contemplated would provide the Company with sufficient financing on commercially reasonable terms for an extended period of time. It is possible, however, that the Company may not be successful in obtaining the replacement

Note A - Basis of Presentation

financing it is currently seeking and it may not be able to obtain financing from other alternative sources or under a different arrangement with its existing lenders, particularly in light of the recent substantial disruption in the global credit markets which has resulted in credit becoming more expensive and difficult to obtain. Failure to obtain adequate financing on commercially reasonable terms would have a material adverse effect on the Company's business, results of operations and financial condition.

The consolidated financial statements of American Biltrite Inc. have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Accordingly, the financial statements do not include any adjustments that might be necessary should American Biltrite or Congoleum be unable to continue as a going concern. In light of American Biltrite’s need to refinance its credit facility (see Note D), there is substantial doubt about American Biltrite’s ability to continue as a going concern unless it is successful in obtaining replacement financing. In light of Congoleum’s substantial asbestos liabilities (see Note I), there is substantial doubt about Congoleum’s ability to continue as a going concern unless it timely obtains relief from those liabilities through a successful reorganization under Chapter 11 of the Bankruptcy Code.

Recently Issued Accounting Principles

On January 1, 2009, the Company adopted Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 (“SFAS No. 160”). The new standard changed the accounting and reporting of noncontrolling interests. SFAS No. 160 requires that noncontrolling interests be presented in the consolidated balance sheets within equity, but separate from the Company’s stockholders’ equity, and that the amount of consolidated net income (loss) attributable to American Biltrite Inc. and to the noncontrolling interests be clearly identified and presented in the consolidated statement of operations. Any losses in excess of the noncontrolling interests’ equity interests will continue to be allocated to the noncontrolling interests. Purchases or sales of equity interests that do not result in a change of control will be accounted for as equity transactions. Upon a sale of equity interests that results in a loss of control of previously controlling interest, the interest sold, as well as any interest retained, will be measured at fair value, with the gain or loss recognized in earnings. The new standard has been applied prospectively as of January 1, 2009, except for the presentation and disclosure requirements, which have been applied retrospectively for prior periods presented (see Note J).

Note B - Inventories

Inventories at March 31, 2009 and December 31, 2008 consisted of the following (in thousands):

	March 31, 2009		December 31, 2008

Finished goods	$	54,686	$	56,262
Work-in-process		12,096		10,847
Raw materials and supplies		11,210		11,973

	$	77,992	$	79,082

Note C – Accrued Expenses

Accrued expenses at March 31, 2009 and December 31, 2008 consisted of the following (in thousands):

	March 31, 2009		December 31, 2008

Accrued advertising and sales promotions	$	14,155	$	17,625
Employee compensation and related benefits		7,502		7,124
Interest		25		-
Environmental matters		949		815
Royalties		1,008		959
Income taxes		337		371
Other		4,455		4,986

	$	28,431	$	31,880

See Note F for Liabilities Subject to Compromise.

Note D – Financing Arrangements

American Biltrite Inc.’s primary source of borrowings are the revolving credit facility (the "Revolver") and the term loan ("Term Loan") it has with Bank of America, National Association ("BofA") and BofA acting through its Canada branch (the "Canadian Lender") pursuant to an amended and restated credit agreement (the "Credit Agreement"). The Credit Agreement provides American Biltrite Inc. and its subsidiary K&M Associates L.P. ("K&M") with (i) a $30.0 million commitment under the Revolver with a $12.0 million borrowing sublimit (the "Canadian Revolver") for American Biltrite Inc.’s subsidiary American Biltrite (Canada) Ltd. and (ii) a $10.0 million Term Loan. The Credit Agreement also provides for domestic and Canadian letter of credit facilities with availability of up to $5.0 million and $1.5 million, respectively, subject to availability under the Revolver and the Canadian Revolver, respectively. The Revolver expires on September 30, 2009. At March 31, 2009, the Company had $19.5 million and $5.0 million outstanding on its Revolver and Term Loan, respectively.

The Company has had to receive waivers from BofA and amend the Credit Agreement several times in the past to avoid defaulting under that agreement due to failing to satisfy certain financial covenants contained in that agreement. Most recently, on May 15, 2009, the Company entered into a limited waiver and modification agreement (the “Waiver”) to the Credit Agreement with BofA, pursuant to which BofA granted the Company a temporary waiver through June 30, 2009 of the Company’s default of the Credit Agreement due to the Company’s failure to satisfy as of March 31, 2009 the financial covenant requiring that the Company’s Consolidated Adjusted EBITDA exceed 100% of its Consolidated Fixed Charges for the 12 month period ending March 31, 2009, as determined under the Credit Agreement. The temporary waiver granted by BofA pursuant to the Waiver expires on June 30, 2009 (subject to possible earlier termination or expiration upon the occurrence of certain specified events) and requires the Company to deliver by May 22, 2009 to BofA an executed commitment letter from another financial institution reasonably acceptable to BofA, which contemplates payment in full in cash of all amounts owed to BofA under the Credit Agreement on or prior to June 29, 2009. The Waiver also reduced the maximum borrowing limit under the Revolver from $30 million to $24 million. In connection with the Waiver, the Company paid BofA a fee of $5 thousand and is obligated to pay BofA an additional fee of $20 thousand upon termination or expiration of the temporary waiver granted by BofA pursuant to the Waiver, unless BofA is repaid all amounts owed to BofA under the Credit Agreement by June 29, 2009, in which case, the Company would not be required to pay the additional $20 thousand fee. The Waiver contemplates the Company repaying BofA all amounts owed to BofA under the Credit Agreement by June 29, 2009. The Company is currently working with a replacement lender that is conducting due diligence in connection with providing a possible new $30 million revolving credit facility and $8 million term loan to replace the Credit Agreement, including the Term Loan and the Revolver. The Company believes it will be successful in obtaining replacement financing for the Term Loan and Revolver by June 29, 2009 and that the replacement facility contemplated would provide the Company with sufficient financing on commercially reasonable terms for an extended period of time. It is possible, however, that the Company may not be successful in obtaining the replacement financing it is currently seeking and it may not be able to obtain financing from

Note D – Financing Arrangements (continued)

other alternative sources or under a different arrangement with its existing lenders, particularly in light of the recent substantial disruption in the global credit markets which has resulted in credit becoming more expensive and difficult to obtain. Failure to obtain adequate financing on commercially reasonable terms would have a material adverse effect on the Company's business, results of operations and financial condition.

Any further required amendments and/or replacement financing, if obtained, could result in significant cost to the Company. If an event of default under the Credit Agreement were to occur, the lenders could cease to make borrowings available under the Revolver and require the Company to repay all amounts outstanding under the Credit Agreement. If the Company were unable to repay those amounts due, the lenders could have their rights over the collateral (most of the Company’s and its subsidiaries’ (excluding Congoleum) assets, as applicable) exercised, which would likely have a material adverse effect on the Company’s business, results of operations or financial condition.

Note E – Other Liabilities

Other Liabilities at March 31, 2009 and December 31, 2008 consisted of the following (in thousands):

	March 31, 2009		December 31, 2008

Pension benefits	$	8,350	$	8,185
Environmental remediation and product related liabilities		4,454		4,454
Income taxes payable		-		394
Deferred income taxes		131		131
Other		3,832		3,637

	$	16,767	$	16,801

See Note F for Liabilities Subject to Compromise.

Note F – Liabilities Subject to Compromise

As a result of Congoleum’s Chapter 11 filing (see Notes A and I), pursuant to SOP 90-7, Congoleum is required to segregate pre-petition liabilities that are subject to compromise and report them separately on the consolidated balance sheet. Liabilities that may be affected by a plan of reorganization are recorded at the amount of the expected allowed claims, even if they may be settled for lesser amounts. Substantially all of Congoleum’s pre-petition debt is recorded at face value and is classified within liabilities subject to compromise.

Liabilities subject to compromise at March 31, 2009 and December 31, 2008 and included in ABI’s consolidated balance sheet at each such date were as follows (in thousands):

	March 31, 2009			December 31, 2008
Current liability
Pre-petition other payables and accrued interest	$	4,997		$	4,997
Non-current
Debt (at face value)		100,000			100,000
Pension liability		37,631			37,022
Other post-retirement benefit obligation		11,063			10,938
Pre-petition other liabilities		13,526			13,543
		162,220			161,503
Elimination – Payable to American Biltrite		(117	)		(117	)
Total non-current liability		162,103			161,386

Total liabilities subject to compromise	$	167,100		$	166,383

Additional pre-petition claims (which would be classified as liabilities subject to compromise) may arise due to the rejection by Congoleum of executory contracts or unexpired leases pursuant to the Bankruptcy Code, or as a result of the allowance by the Bankruptcy Court of contingent or disputed claims.

Note G – Pension Plans

The Company and Congoleum sponsor several noncontributory defined benefit pension plans covering most of their employees. Benefits under the plans are based on years of service and employee compensation. Amounts funded annually by the Company and Congoleum are actuarially determined using the projected unit credit and unit credit methods and are equal to or exceed the minimum required by government regulations. Congoleum also maintains health and life insurance programs for retirees (reflected in the table below under the columns entitled "Other Benefits").

The table below summarizes the components of the net periodic benefit cost for the Company's and Congoleum's pension and other benefit plans during the three months ended March 31, 2009 and 2008 (in thousands):

	Three Months Ended March 31,
	2009					2008
	Pension			Other Benefits		Pension			Other Benefits
Service cost	$	494		$	57	$	642		$	56
Interest cost		1,646			161		1,652			144
Expected return on plan assets		(1,192	)		-		(1,719	)		-
Recognized net actuarial loss		1,102			16		384			15
Amortization of prior service cost		27			-		31			-

Net periodic benefit cost	$	2,077		$	234	$	990		$	215

The weighted average assumptions used to determine net periodic benefit cost for the three months ended March 31, 2009 and 2008 were as follows:

	2009		2008
	Pension	Other Benefits	Pension	Other Benefits

Discount rate	5.75% - 7.50%	6.00%	5.50% - 6.00%	6.00%
Expected long-term return on plan assets	7.00%	—	7.00% - 7.50%	—
Rate of compensation increase	3.00% - 4.00%	—	4.00% - 5.00%	—

Note H - Commitments and Contingencies

The Company and Congoleum are subject to federal, state and local environmental laws and regulations, and certain legal and administrative claims are pending or have been asserted against the Company and Congoleum. Among these claims, the Company and Congoleum are separately a named party in several actions associated with waste disposal sites. These actions include possible obligations to remove or mitigate the effects on the environment of wastes deposited at various sites, including Superfund sites and certain of the Company’s and Congoleum’s owned and previously owned facilities. The contingencies also include claims for personal injury and/or property damage. The exact amount of such future cost and timing of payments are indeterminable due to such unknown factors as the magnitude of cleanup costs, the timing and extent of the remedial actions that may be required, the determination of the Company’s and Congoleum’s liability in proportion to other potentially responsible parties, the financial viability of other potentially responsible parties, and the extent to which costs may be recoverable from insurance. Provisions in the financial statements have been recorded for the estimated probable loss associated with all known general and environmental contingencies for the Company and Congoleum. While the Company and Congoleum believe their estimate of the future amount of these liabilities is reasonable, and that they will be paid over a period of five to ten years, the timing and amount of such payments may differ significantly from the Company’s and Congoleum’s assumptions. Although the effect of future government regulation could have a significant effect on the Company’s and Congoleum’s costs, the Company and Congoleum are not aware of any pending legislation that would have such an effect. There can be no assurances that the costs of any future government regulations could be passed along to their customers. Estimated insurance recoveries related to these liabilities are reflected in other non-current assets.

The Company and Congoleum record a liability for environmental remediation claims when it becomes probable that the Company or Congoleum, as applicable, will incur costs relating to a clean-up program or will have to make claim payments, and the costs or payments can be reasonably estimated. As assessments are revised and clean-up programs progress, these liabilities are adjusted as appropriate to reflect such revisions and progress.

Liabilities of Congoleum comprise the substantial majority of the environmental and other liabilities reported on the Company’s consolidated balance sheet. Due to the relative magnitude and wide range of estimates of these liabilities and the fact that recourse related to these liabilities is generally limited to Congoleum, these matters are discussed separately following matters for which ABI has actual or potential liability. However, since ABI includes Congoleum in ABI’s consolidating financial statements, to the extent that Congoleum incurs a liability or expense, it will be reflected in ABI's consolidating financial statements.

Note H - Commitments and Contingencies (continued)

American Biltrite Inc.

ABI is a co-defendant with many other manufacturers and distributors of asbestos containing products in approximately 1,281 pending claims involving approximately 1,836 individuals as of March 31, 2009. The claimants allege personal injury or death from exposure to asbestos or asbestos-containing products. Activity related to ABI's asbestos claims is as follows:

	Three Months Ended March 31, 2009			Year Ended December 31, 2008

Beginning claims		1,269			1,360
New claims		50			356
Settlements		(1	)		(13	)
Dismissals		(37	)		(434	)

Ending claims		1,281			1,269

The total indemnity costs incurred to settle claims during the three months ended March 31, 2009 and the year ended December 31, 2008 were $0.3 million and $0.9 million, respectively, all of which were paid by ABI's insurance carriers, as were the related defense costs. ABI has first-layer excess umbrella policies with several insurers, which include coverage for the Company’s asbestos related liabilities (the “Umbrella Coverage”).

In addition to coverage available under the Umbrella Coverage, ABI has additional excess liability insurance policies that should provide further coverage if and when limits of certain policies within the Umbrella Coverage exhaust. While ABI expects the Umbrella Coverage will result in the substantial majority of defense and indemnity for asbestos claims against ABI being paid by its insurance carriers for the foreseeable future, ABI may incur uninsured costs related to asbestos claims, and those costs could be material. If ABI were to incur significant uninsured costs for asbestos claims, or its insurance carriers failed to fund insured costs for asbestos claims, such costs could have a material adverse impact on its liquidity, financial condition and results of operations.

In general, governmental authorities have determined that asbestos-containing sheet and tile products are nonfriable (i.e., cannot be crumbled by hand pressure) because the asbestos was encapsulated in the products during the manufacturing process. Thus, governmental authorities have concluded that these products do not pose a health risk when they are properly maintained in place or properly removed so that they remain nonfriable. The Company has issued warnings not to remove asbestos-containing flooring by sanding or other methods that may cause the product to become friable.

Note H - Commitments and Contingencies (continued)

The Company estimates its liability for indemnity to resolve current and reasonably anticipated future asbestos-related claims (not including claims asserted against Congoleum), based upon a strategy to actively defend against and strategically settle those claims on a case-by-case basis.1 Factors such as recent and historical settlement and trial results, the court dismissal rate of claims, the incidence of past and recent claims, the number of cases pending against it and asbestos litigation developments that may impact the exposure of the Company were considered in performing these estimates. Changes in these factors could have a material impact on the Company’s liability. For example, it is estimated that a 1 percentage point increase in the Company’s acceptance rate of mesothelioma claims results in a 21% increase in mesothelioma liability assuming all other variables remained constant.

The Company utilizes an actuarial study to assist it in developing estimates of the Company’s potential liability for resolving present and possible future asbestos claims. Projecting future asbestos claim costs requires estimating numerous variables that are extremely difficult to predict, including the incidence of claims, the disease that may be alleged by future claimants, future settlement and trial results, future court dismissal rates for claims, and possible asbestos legislation developments. Furthermore, any predictions with respect to these variables are subject to even greater uncertainty as the projection period lengthens. In light of these inherent uncertainties, the Company believes that six years is the most reasonable period over which to include future claims that may be brought against the Company for recognizing a reserve for future costs. Due to the numerous variables and uncertainties, including the effect of Congoleum’s Chapter 11 case and any proposed plan of reorganization on the Company’s liabilities, the Company does not believe that reasonable estimates can be developed of liabilities for claims beyond a six year horizon. The Company will continue to evaluate its range of future exposure, and the related insurance coverage available, and when appropriate, record future adjustments to those estimates, which could be material.

The estimated range of liability for settlement of current claims pending and claims anticipated to be filed through 2014 was $13.6 million to $44.0 million as of December 31, 2008. The Company believes no amount within this range is more likely than any other, and accordingly has recorded a liability of $13.6 million in its financial statements which represents a probable and reasonably estimable amount for the future liability at the present time. The Company also believes that based on this liability estimate, the corresponding amount of insurance probable of recovery is $13.5 million at December 31, 2008, which has been included in other assets. The same factors that affect developing forecasts of potential indemnity costs for asbestos-related liabilities also affect estimates of the total amount of insurance that is probable of recovery, as do a number of additional factors. These additional factors include terms of the Umbrella Coverage and additional excess policies, the allocation of costs to those policies as applicable, and the financial viability of some of the insurance companies. These amounts were based on currently

Note H - Commitments and Contingencies (continued)

known facts by ABI and a number of assumptions. However, projecting future events, such as the number of new claims to be filed each year, the average cost of disposing of each such claim, and the continuing solvency of various insurance companies, as well as numerous uncertainties surrounding asbestos legislation in the United States, could cause the actual liability and insurance recoveries for the Company to be higher or lower than those projected or recorded.

There can be no assurance that the Company’s accrued asbestos liabilities will approximate its actual asbestos-related settlement costs, or that it will receive the insurance recoveries which it has accrued. The Company believes that it is reasonably possible that it will incur charges for resolution of asbestos claims in the future, which could exceed the Company’s existing reserves. The Company’s strategy remains to actively defend against and strategically settle its asbestos claims on a case-by-case basis. The Company believes it has substantial insurance coverage to mitigate future costs related to this matter.

In the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008, the Company disclosed various legal proceedings. Material developments relating to those matters during the three month period ended on March 31, 2009 include those mentioned in the immediately following paragraphs.

Additional potential remediation costs have been identified related to the Olin Corporation site in Wilmington, Massachusetts (the “Olin Site”) and the Parcel A site owned by Miller Industries, Inc., in Lisbon Falls, Maine (the “Lisbon Falls Site”). At the Olin Site, potential additional remediation costs of approximately $750 thousand have been identified of which ABI’s estimated share would be approximately $163 thousand. As of March 31, 2009, ABI has estimated its potential liability to Olin to be in the range of $4.1 million to $10.9 million after allocation for the annual reimbursement of $100 thousand for Olin’s internal costs and before any recovery from insurance and The Biltrite Corporation ("TBC"). Under a preexisting agreement between ABI and TBC, TBC is liable for 37.5% of these costs incurred by ABI. These costs are expected to be paid out over approximately ten years.

At the Lisbon Falls Site, the cost of site investigation, remediation, maintenance and monitoring was estimated at December 31, 2008 to be between $1.3 million and $2.3 million. The estimate has been revised by an environmental consultant to $2.0 million to $3.0 million because additional remediation may be necessary. Pursuant to ABI’s pre-existing agreement with TBC, TBC is liable for 37.5% of costs ABI incurs in connection with the Lisbon Falls Site. Because there are other parties potentially responsible for the remediation costs and no cost allocation has been agreed upon, ABI’s estimated liability with regard to the Lisbon Falls Site is subject to future negotiation with the current owner of the property.

There have been no other material developments relating to the environmental sites or the other environmental matters described in ABI's Annual Report on Form 10-K during the three month period ended March 31, 2009.

Note H - Commitments and Contingencies (continued)

Congoleum

Congoleum is a defendant in a large number of asbestos-related lawsuits and on December 31, 2003, filed a petition commencing a voluntary reorganization case under Chapter 11 of the Bankruptcy Code for purposes of resolving its asbestos-related liabilities. See Note I.

Congoleum is named, together with a large number (in most cases, hundreds) of other companies, as a PRP in pending proceedings under CERCLA and similar state laws. In addition, in four other instances, although not named as a PRP, Congoleum has received a request for information. The pending proceedings in which Congoleum is a named PRP currently relate to eight disposal sites in New Jersey, Pennsylvania and Maryland in which recovery from generators of hazardous substances is sought for the cost of cleaning up the contaminated waste sites. Congoleum’s ultimate liability and funding obligations in connection with those other sites depends on many factors, including the volume of material contributed to the site by Congoleum, the number of other PRP’s and their financial viability, the remediation methods and technology to be used and the extent to which costs may be recoverable by Congoleum from relevant insurance policies. However, under CERCLA and certain other laws, Congoleum, as a PRP, can be held jointly and severally liable for all environmental costs associated with a site.

The most significant exposure for which Congoleum has been named a PRP relates to a recycling facility site in Elkton, Maryland (the "Galaxy/Spectron Superfund Site"). The PRP group at this site is made up of 81 companies, substantially all of which are large, financially solvent entities. Two removal actions were substantially complete as of December 31, 1998, and a groundwater treatment system was installed thereafter. The United States Environmental Protection Agency has selected a remedy for the soil and shallow groundwater (Operable Unit 1 or OU-1); however, the remedial investigation/feasibility study related to the deep groundwater (Operational Unit 2 or OU-2) has not been completed. The PRP group, of which Congoleum is a part, has entered into a consent decree to perform the remedy for OU-1 and resolve natural resource damage claims. The consent decree also requires the PRP group to perform the OU-2 remedy, assuming that the estimated cost of the remedy is not more than $10.0 million. If the estimated cost of the OU-2 remedy is more than $10.0 million, the PRP group may decline to perform it or they may elect to perform it anyway. Cost estimates for the OU-1 and OU-2 work combined (including natural resource damages) range between $22 million and $34 million, with Congoleum’s share ranging between approximately $1.0 million and $1.6 million. This assumes that all parties participate and that none cash-out and pay a premium; those two factors may account for some fluctuation in Congoleum’s share of the costs. Fifty percent (50%) of Congoleum’s share of the costs is presently being paid by one of its insurance carriers, Liberty Mutual Insurance Company, whose remaining policy limits for this claim are expected to cover approximately $300 thousand in additional costs. Congoleum expects to fund the balance to the extent further insurance coverage is not available.

Note H - Commitments and Contingencies (continued)

Congoleum filed a motion before the Bankruptcy Court seeking authorization and approval of the consent decree and related settlement agreements for the Galaxy/Spectron Superfund Site, as well as authorization for Liberty Mutual Insurance Company and Congoleum to make certain payments that have been invoiced to Congoleum with respect to the consent decree and related settlement agreements. An order authorizing and approving the consent decree and settlement agreements was issued by the Bankruptcy Court in August 2006.

Congoleum also accrues remediation costs for certain of Congoleum’s owned facilities on an undiscounted basis. Congoleum has entered into an administrative consent order with the New Jersey Department of Environmental Protection and has established a remediation trust fund of $100 thousand as financial assurance for certain remediation funding obligations. Estimated total clean-up costs of $1.3 million for Congoleum’s expected portion of those remediation funding obligations, including capital outlays and future maintenance costs for soil and groundwater remediation, are primarily based on engineering studies. Of this amount, $300 thousand was included in current liabilities subject to compromise and $1.0 million was included in non-current liabilities subject to compromise in ABI’s consolidated balance sheet as of March 31, 2009 and December 31, 2008.

At March 31, 2009 and December 31, 2008, Congoleum recorded a total of $4.4 million for estimated environmental liabilities, which liabilities were not reduced by the amount of expected insurance recoveries. At March 31, 2009 and December 31, 2008, such estimated insurance recoveries are approximately $2.1 million. Receivables for expected insurance recoveries are recorded if the related carriers are solvent and paying claims under a reservation of rights or under an obligation pursuant to coverage in place or a settlement agreement. Substantially all of Congoleum’s recorded insurance assets for environmental matters are collectible from a single carrier.

Congoleum anticipates that these matters will be resolved over a period of years, and that after application of expected insurance recoveries, funding of the costs by Congoleum will not have a material adverse impact on Congoleum’s liquidity or financial position. However, unfavorable developments in these matters could result in significant expenses or judgments that could have a material adverse effect on Congoleum’s and the Company’s business, results of operations or financial condition.

Other

In addition to the matters referenced above and in Note I, in the ordinary course of their businesses, the Company and Congoleum become involved in lawsuits and administrative proceedings in connection with product liability claims (in addition to asbestos related claims) and other matters. In some of these proceedings, plaintiffs may seek to recover large and sometimes unspecified amounts, and the matters may remain unresolved for several years.

Note I – Congoleum Asbestos Liabilities and Reorganization

On December 31, 2003, Congoleum filed a voluntary petition with the Bankruptcy Court seeking relief under Chapter 11 of the Bankruptcy Code as a means to resolve claims asserted against it related to the use of asbestos in its products decades ago. During 2003, Congoleum had obtained the requisite votes of asbestos personal injury claimants necessary to seek approval of a proposed, pre-packaged Chapter 11 plan of reorganization. In January 2004, Congoleum filed its proposed plan of reorganization and disclosure statement with the Bankruptcy Court. From that filing through 2007, several subsequent plans were negotiated with representatives of the Asbestos Claimants’ Committee (“ACC”), the Future Claimants’ Representative (“FCR”) and other asbestos claimant representatives. In addition, an insurance company, Continental Casualty Company, and its affiliate, Continental Insurance Company (collectively, “CNA”), filed a plan of reorganization and the Official Committee of Bondholders (“Bondholders’ Committee”) (representing holders of Congoleum’s 8 5/8% Senior Notes due August 1, 2008 (the “Senior Notes”)) also filed a plan of reorganization. In May 2006, the Bankruptcy Court ordered the principal parties in interest in Congoleum’s reorganization proceedings to participate in reorganization plan mediation discussions. Several mediation sessions took place during 2006, culminating in two competing plans, one which Congoleum filed jointly with the ACC in September 2006 (the “Tenth Plan”) and the other filed by CNA, both of which the Bankruptcy Court subsequently ruled were not confirmable as a matter of law. In March 2007, Congoleum resumed global plan mediation discussions with the various parties seeking to resolve the issues raised in the Bankruptcy Court’s ruling with respect to the Tenth Plan. In July 2007, the FCR filed a plan of reorganization and proposed disclosure statement. After extensive further mediation sessions, on February 5, 2008, the FCR, the ACC, the Bondholders’ Committee and Congoleum jointly filed a joint plan of reorganization (the “Joint Plan”). The Bankruptcy Court approved the disclosure statement for the Joint Plan in February 2008, and the Joint Plan was solicited in accordance with court-approved voting procedures. Various objections to the Joint Plan were filed, and on May 12, 2008 the Bankruptcy Court heard oral argument on summary judgment motions relating to certain of those objections. On June 6, 2008, the Bankruptcy Court issued a ruling that the Joint Plan was not legally confirmable, and issued an Order to Show Cause why the case should not be converted or dismissed pursuant to 11 U.S.C. § 1112. Following a further hearing on June 26, 2008, the Bankruptcy Court issued an opinion that vacated the Order to Show Cause and instructed the parties to submit a confirmable plan by the end of calendar year 2008. Following further negotiations, the Bondholders’ Committee, the ACC, the FCR, representatives of holders of pre-petition settlements and Congoleum reached an agreement in principle which the Company understands that Congoleum believed addressed the issues raised by the Bankruptcy Court in the ruling on the Joint Plan and in the court's prior decisions. A term sheet describing the proposed material terms of a contemplated new plan of reorganization and a settlement of avoidance litigation with respect to pre-petition claim settlements (the “Litigation Settlement”) was entered into by those parties and was filed with the Bankruptcy Court on August 14, 2008. Certain insurers and a large bondholder have filed objections to the Litigation Settlement and/or reserved their rights to object to confirmation of the contemplated new plan of reorganization. The Bankruptcy Court approved the Litigation Settlement following a hearing on October 20, 2008, but the court reserved certain issues,

Note I – Congoleum Asbestos Liabilities and Reorganization (continued)

including whether any plan of reorganization embodying the settlement meets the standards required for confirmation of a plan of reorganization. On November 14, 2008, Congoleum, the ACC and the Bondholders’ Committee filed an amended joint plan of reorganization for Congoleum, et al. with the Bankruptcy Court (the “Amended Joint Plan”). In January 2009, an insurer filed a motion for summary judgment seeking denial of confirmation of the Amended Joint Plan, and a hearing was held on February 5, 2009. On February 26, 2009, the Bankruptcy Court rendered an opinion denying confirmation of the Amended Joint Plan. Pursuant to the opinion, the Bankruptcy Court entered the Order of Dismissal dismissing Congoleum’s bankruptcy case (the “Order of Dismissal”). On February 27, 2009, Congoleum and the Bondholders’ Committee appealed the Order of Dismissal to the U.S. District Court for the District of New Jersey, which appeal remains pending. On March 3, 2009, an order was entered by the Bankruptcy Court granting a stay of the Bankruptcy Court’s Order of Dismissal pending a final non-appealable decision affirming the Order of Dismissal. Under the terms of the Amended Joint Plan, ABI's ownership interest in Congoleum would be eliminated. ABI expects its ownership interest in Congoleum would be eliminated under any alternate plan or outcome in Congoleum’s Chapter 11 case.

Under the terms of the Amended Joint Plan, a trust would be created that would assume the liability for Congoleum’s current and future asbestos claims (the “Plan Trust”). That trust would receive the proceeds of various settlements Congoleum has reached with a number of insurance carriers and would be assigned Congoleum’s rights under its remaining policies covering asbestos product liability. The trust would also receive 70% of the newly issued common stock of reorganized Congoleum when the plan takes effect and $5 million in new 9.75% senior secured notes that mature five years from issuance.

Holders of Congoleum’s Senior Notes would receive on a pro rata basis $70 million in new 9.75% senior secured notes that mature five years from issuance. The new senior secured notes would be subordinated to the working capital facility that provides Congoleum’s financing upon exiting reorganization. In addition, holders of the Senior Notes would receive 30% of the newly issued common stock of reorganized Congoleum. Congoleum’s obligations for the Senior Notes, including interest accrued as of the date of the bankruptcy filing of $3.6 million, would be satisfied by the new senior secured notes and the common stock issued when the Joint Plan took effect.

Under the terms of the Amended Joint Plan, existing Class A and Class B common stock of Congoleum would be cancelled when the plan took effect and holders of those shares, including ABI, would not receive anything on account of their cancelled shares.

Note I – Congoleum Asbestos Liabilities and Reorganization (continued)

The Amended Joint Plan also includes certain terms that would govern an intercompany settlement and ongoing intercompany arrangements among American Biltrite and its subsidiaries and reorganized Congoleum which would be effective when the Amended Joint Plan takes effect and would have a term of two years. Those intercompany arrangements include the provision of management services by American Biltrite to reorganized Congoleum and other business relationships substantially consistent with their traditional relationships. The Amended Joint Plan provides that the final terms of the intercompany arrangements among American Biltrite and its subsidiaries and reorganized Congoleum would be memorialized in a new agreement to be entered into by reorganized Congoleum and American Biltrite in form and substance mutually agreeable to the Bondholders’ Committee, the ACC and American Biltrite. Expiration or termination of these existing arrangements, failure to reach definitive agreement on final terms of future arrangements, or failure to consummate such arrangements in connection with the effectiveness of a plan of reorganization for Congoleum could have a material adverse impact on the business relationships between ABI and Congoleum, and ABI’s business, operations and financial condition.

There can be no assurance that the appeal of the Order of Dismissal to the United States District Court for the District of New Jersey or any other court which may be appealed to will be successful or that the Bankruptcy Court will not subsequently vacate its grant of a stay of its Order of Dismissal. If the appeal is not successful, Congoleum’s bankruptcy case could be dismissed, resulting in Congoleum no longer benefiting from the protection from creditor claims currently afforded to it by the Chapter 11 case and the Bankruptcy Code. Further, as indicated in the Order of Dismissal, Congoleum’s ability to refile another bankruptcy petition may be limited, which could result in Congoleum having to attempt to conduct its business and operations outside of the protections of the Bankruptcy Code, including attempting to defend against, satisfy or defray its creditor claims, such as its substantial asbestos liabilities and its Senior Notes, and continued litigation against its insurers to attempt to obtain insurance coverage for Congoleum’s asbestos liabilities. It is unclear what effect the Order of Dismissal, the stay of the Bankruptcy Court’s Order of Dismissal pending a final non-appealable decision affirming the Order of Dismissal and the continued litigation may have on Congoleum’s business and operations, including with regard to its relationships with its vendors, suppliers, customers, lenders and other constituencies.

Even if the appeal of the Order of Dismissal is successful for Congoleum, there can be no assurance that the Amended Joint Plan or any other plan will receive the acceptances necessary for confirmation, that the Amended Joint Plan will not be modified further, that the conditions to the Amended Joint Plan or any other plan will be satisfied or waived, that the Amended Joint Plan or any other plan will timely receive necessary court approvals from the Bankruptcy Court and the United States District Court for the District of New Jersey, that the Amended Joint Plan or any other plan will be confirmed, that the Amended Joint Plan or any other plan, if confirmed, will become effective, or that Congoleum will have sufficient funds to pay for completion of the appellate process with respect to the Amended Joint Plan, continued litigation over any plan of reorganization and the state court insurance coverage litigation. Any other plan of reorganization that may be proposed for Congoleum may contain terms substantially different from those contained in the Amended Joint Plan.

Note I – Congoleum Asbestos Liabilities and Reorganization (continued)

In anticipation of Congoleum's commencement of the Chapter 11 cases, Congoleum entered into a Claimant Agreement, which provides for the settlement of certain prepetition asbestos claims against Congoleum and provides for an aggregate settlement value of at least $466 million as well as an additional number of individually negotiated trial listed settlements with an aggregate value of approximately $25 million, for total settlements in excess of $491 million. Participants in the Claimant Agreement signed releases limiting their recourse against Congoleum to what they would receive from the Plan Trust and Congoleum has therefore estimated its liability under the Claimant Agreement as the cost of effecting the settlement through confirmation of a plan of reorganization. In addition, as a result of tabulating ballots on a previous proposed plan of reorganization, Congoleum is also aware of claims by claimants whose claims were not determined under the Claimant Agreement but who have submitted claims with a value of approximately $512 million based on the settlement values applicable in the previous proposed plan of reorganization. It is also likely that additional new claims may be asserted in connection with any solicitation of acceptances of any future plan. Congoleum does not believe it can reasonably estimate the liability associated with claims that may be pending.

Note J – Noncontrolling Interests

American Biltrite Inc. owns 55.04% of Congoleum’s Class A common stock. The majority of the noncontrolling interests recorded in American Biltrite’s consolidated financial statements represent the 44.96% of Congoleum’s stockholders other than American Biltrite Inc. Prior to January 1, 2009, in accordance with Accounting Research Bulletin 51, Consolidated Financial Statements, American Biltrite Inc. reported in its consolidated results 100% of Congoleum’s losses from the period Congoleum incurred a deficit in earnings during 2002 through December 31, 2008. Under SFAS No. 160, 44.96% of Congoleum’s income or loss is attributed to the noncontrolling interests even if the attribution of a loss results in a negative balance. The effect of the change in attributing earnings or losses has a significant impact on the consolidated results reported by American Biltrite Inc. Had the Company not adopted SFAS 160 on January 1, 2009, the pro forma consolidated net loss reported by American Biltrite Inc. and the consolidated loss per share for the three months ended March 31, 2009 would have been $7.3 million and $2.13 per share (basic and diluted), respectively. The pro forma consolidated stockholders’ deficit would have been $54.3 million as of March 31, 2009.

Note K - Comprehensive Income (Loss)

The following table presents total comprehensive income for the three months ended March 31, 2009 and 2008 (in thousands):

	Three Months Ended March 31,
	2009			2008

Net (loss) income attributable to ABI	$	(5,497	)	$	972
Foreign currency translation adjustments		(184	)		(483	)
Total comprehensive (loss) income attributable to ABI	$	(5,681	)	$	489

Note L - Earnings (Loss) Per Share

Basic and diluted earnings per share are computed in accordance with FASB Statement No. 128, Earnings per Share ("SFAS 128"). SFAS 128 requires both basic earnings per share, which is based on the weighted-average number of common shares outstanding, and diluted earnings per share, which is based on the weighted-average number of common shares outstanding and all dilutive potential common share equivalents outstanding. The dilutive effect of options is determined under the treasury stock method using the average market price for the period. Common equivalent shares are included in the per share calculations when the effect of their inclusion would be dilutive.

Note M - Industry Segments

Description of Products and Services

The Company has four segments for financial reporting purposes: flooring products, tape division, jewelry and a Canadian division. The flooring products segment consists of Congoleum, a manufacturer of resilient floor coverings, which are sold primarily through floor covering distributors to retailers and contractors for residential use. The tape division segment manufactures paper, film, HVAC, electrical, shoe and other tape products for use in industrial and automotive markets in two production facilities in the United States, and in finishing and sales facilities in Belgium and Singapore. The jewelry segment consists of the Company's majority-owned subsidiary K&M Associates L.P., a national costume jewelry supplier to mass merchandisers and department stores. The Company's Canadian division produces flooring, rubber and other industrial products.

Note M - Industry Segments (continued)

Net sales by segment for the three months ended March 31, 2009 and 2008 were as follows (in thousands):

	2009			2008
Net sales to external customers:
Flooring products	$	30,106		$	47,697
Tape products		16,469			22,443
Jewelry		11,565			11,747
Canadian division		11,921			13,870
Total net sales to external customers		70,061			95,757
Intersegment net sales:
Flooring products		—			—
Tape products		—			—
Jewelry		—			—
Canadian division		800			1,221
Total intersegment net sales		800			1,221
Reconciling items		—			—
Intersegment net sales		(800	)		(1,221	)

Total consolidated net sales	$	70,061		$	95,757

Segment profit or loss is before income tax expense or benefit and noncontrolling interests. Profit (loss) by segment for the three months ended March 31, 2009 and 2008 was as follows (in thousands):

	Three Months Ended March 31,
	2009			2008
Segment profit (loss)
Flooring products	$	(4,092	)	$	2,608
Tape products		(2,533	)		411
Jewelry		(838	)		(1,331	)
Canadian division		75			102
Total segment profit		(7,388	)		1,790
Reconciling items
Corporate expenses		(75	)		(347	)
Intercompany profit		16			8
Total consolidated (loss) income before income taxes and other items	$	(7,447	)	$	1,451

Note M - Industry Segments (continued)

Assets by segment as of the end of the quarter and the end of the prior year were as follows (in thousands):

	March 31, 2009			December 31, 2008
Segment assets
Flooring products	$	166,755		$	171,867
Tape products		49,524			48,115
Jewelry		19,661			24,038
Canadian division		30,494			29,866
Total segment assets		266,434			273,886
Reconciling items
Corporate items		33,767			35,948
Intersegment accounts receivable		(15,812	)		(14,626	)
Intersegment profit in inventory		(74	)		(90	)
Intersegment other asset		(117	)		(117	)

Consolidated assets	$	284,198		$	295,001

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Global and financial markets have recently been experiencing substantial disruption in the current recession. Economic conditions in the United States have been challenging, including in the industries in which the Company and Congoleum conduct business. The downturn in the housing industry has resulted in reduced demand for the Company's and Congoleum's products. The slowdown in manufacturing, including in the automotive and industrial sectors, has resulted in reduced demand for the Tape division's products. In addition, the decline in consumer and retailer, especially mid-tier retailer, spending has resulted in reduced demand for K&M's products. The Company expects the current and forecasted economic conditions to continue to negatively impact the Company's and Congoleum's businesses and operations and that the extent of that impact will depend on the duration and depth of the economic recession.

In addition, raw material and energy costs have been volatile and, although below their peak levels in 2008, remain at historically high levels, which has negatively impacted the Company's and Congoleum's businesses and operating results. Although raw material and energy costs have recently declined, it is not known whether raw material and energy prices will remain lower or will revert to increasing price levels. In light of the current and forecasted economic conditions in the United States and the industries in which the Company and Congoleum conduct business, the Company and Congoleum may be unable to pass increased raw material and energy costs on to their respective customers.

Although the Company and Congoleum intend to implement reductions in their expenses, there can be no assurance that they will be able to reduce their respective expenses, that any reductions they may implement will have any meaningful positive impact on their businesses, results of operations or financial condition, or that they will be able to sustain any expense reductions that they may implement.

American Biltrite’s consolidated financial statements include its majority-owned subsidiary, Congoleum. However, under the terms of the Joint Plan, ABI’s ownership interest in Congoleum would have been eliminated and would be eliminated under the terms of the Amended Joint Plan. ABI expects its ownership interest in Congoleum to be eliminated under any alternate plan or outcome in Congoleum’s Chapter 11 case. On December 31, 2003, Congoleum filed a voluntary petition with the Bankruptcy Court seeking relief under Chapter 11 of the Bankruptcy Code as a means to resolve claims asserted against it related to the use of asbestos in its products decades ago. During 2003, Congoleum had obtained the requisite votes of asbestos personal injury claimants necessary to seek approval of a proposed, pre-packaged Chapter 11 plan of reorganization. In January 2004, Congoleum filed its proposed joint plan of reorganization and disclosure statement with the Bankruptcy Court. From that filing through 2007, several subsequent plans were negotiated with representatives of the ACC, the FCR and other asbestos claimant representatives. In addition, an insurance company, CNA, filed a plan of reorganization and the Bondholders’ Committee also filed a plan of reorganization. In May 2006, the Bankruptcy Court ordered the principal parties in interest in Congoleum’s reorganization proceedings to participate in global mediation discussions. Numerous mediation sessions took place during 2006, culminating in two competing plans, one which Congoleum

filed jointly with the ACC in September 2006 and the other filed by CNA, both of which the Bankruptcy Court subsequently ruled were not confirmable as a matter of law. In March 2007, Congoleum resumed global plan mediation discussions with the various parties seeking to resolve the issues raised in the Bankruptcy Court’s ruling with respect to the Tenth Plan. In July 2007, the FCR filed a plan of reorganization and proposed disclosure statement. After extensive further mediation sessions, on February 5, 2008, the FCR, the ACC, the Bondholders’ Committee and Congoleum jointly filed the Joint Plan. The Bankruptcy Court approved the disclosure statement for the Joint Plan in February 2008, and the Joint Plan was solicited in accordance with court-approved voting procedures. Various objections to the Joint Plan were filed, and on May 12, 2008 the Bankruptcy Court heard oral argument on summary judgment motions relating to certain of those objections. On June 6, 2008, the Bankruptcy Court issued a ruling that the Joint Plan was not legally confirmable, and issued an Order to Show Cause why the case should not be converted or dismissed pursuant to 11 U.S.C. § 1112. Following a further hearing on June 26, 2008, the Bankruptcy Court issued an opinion that vacated the Order to Show Cause and instructed the parties to submit a confirmable plan by the end of calendar year 2008. Following further negotiations, the Bondholders’ Committee, the ACC, the FCR, representatives of holders of pre-petition settlements and Congoleum reached an agreement in principle which the Company understands that Congoleum believes addresses the issues raised by the Bankruptcy Court in the ruling on the Joint Plan and in the court's prior decisions. A term sheet describing the proposed material terms of a contemplated new plan of reorganization and a settlement of avoidance litigation with respect to pre-petition claim settlements (the “Litigation Settlement”) was entered into by those parties and was filed with the Bankruptcy Court on August 14, 2008.

Certain insurers and a large bondholder filed objections to the Litigation Settlement and/or reserved their rights to object to confirmation of the contemplated new plan of reorganization. The Bankruptcy Court approved the Litigation Settlement following a hearing on October 20, 2008, but the court reserved certain issues, including whether any plan of reorganization embodying the settlement meets the standards required for confirmation of a plan of reorganization. On November 14, 2008, Congoleum, the ACC and the Bondholders’ Committee filed the Amended Joint Plan. In January 2009, an insurer filed a motion for summary judgment seeking denial of confirmation of the Amended Joint Plan, and a hearing was held on February 5, 2009. On February 26, 2009, the Bankruptcy Court rendered an opinion denying confirmation of the Amended Joint Plan. Pursuant to the opinion, the Bankruptcy Court entered the Order of Dismissal dismissing Congoleum’s bankruptcy case. On February 27, 2009, Congoleum and the Bondholders’ Committee appealed the Order of Dismissal to the U.S. District Court for the District of New Jersey, which appeal remains pending. On March 3, 2009, an order was entered by the Bankruptcy Court granting a stay of the Bankruptcy Court’s Order of Dismissal pending a final non-appealable decision affirming the Order of Dismissal. Under the terms of the Amended Joint Plan, ABI's ownership interest in Congoleum would be eliminated. ABI expects its ownership interest in Congoleum would be eliminated under any alternate plan or outcome in Congoleum’s Chapter 11 case.

ABI has certain intercompany claims against and arrangements with Congoleum. The Amended Joint Plan would govern an intercompany settlement and ongoing intercompany arrangements among ABI and its subsidiaries and reorganized Congoleum, which would be effective when the Amended Joint Plan took effect and would have a term of two years. Those intercompany arrangements include the provision of management services by ABI to reorganized Congoleum and other business relationships substantially consistent with their traditional relationships. The Amended Joint Plan provides that the final terms of the intercompany arrangements among ABI and its subsidiaries and reorganized Congoleum would be memorialized in a new agreement to be entered into by reorganized Congoleum and American Biltrite in form and substance mutually agreeable to the Bondholders’ Committee, the ACC and ABI. The existing arrangements currently in effect among ABI and its non-debtor subsidiaries and Congoleum expire on June 30, 2009, unless renewed. In addition, under the terms of the Amended Joint Plan, ABI’s rights and claims to indemnification from Congoleum under the existing joint venture agreement between ABI and Congoleum that relate to ABI's contribution to Congoleum in 1993 of ABI's tile division, and the joint venture agreement itself, would have been deemed rejected and disallowed upon the effective date of the Amended Joint Plan, and therefore eliminated. The Amended Joint