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, 2009Common
      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
      INFORMATIONItem
      1.
            Financial
      Statements:Consolidating
      Condensed Balance Sheets – Assets as of March 31, 2009 (Unaudited) and
      December 31, 2008
            1Consolidating
      Condensed Balance Sheets – Liabilities and Stockholders’ Equity as of
      March 31, 2009 (Unaudited) and December 31, 2008
            2Consolidating
      Condensed Statements of Operations (Unaudited) For the Three Months Ended
      March 31, 2009 and 2008
            3Consolidating
      Condensed Statements of Cash Flows (Unaudited) For the Three Months Ended
      March 31, 2009 and 2008
            4Notes
      to Unaudited Consolidating Condensed Financial Statements
            5Item
      2.
            Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
            26Item
      4T.
            Controls
      and Procedures
            40PART
      II.
            OTHER
      INFORMATIONItem
      1.
            Legal
      Proceedings
            41Item
      1A.
            Risk
      Factors
            41Item
      3.
            Defaults
      Upon Senior Securities
            52Item
      5.
            Other
      Information
            52Item
      6.
            Exhibits
            54Signature
            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
      BiltriteMarch
      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)AssetsCurrent
      Assets:Cash
      and cash equivalents
                
                $
                9,357
                
                
                $
                18,072
                
                
                
                
                
                
                
                
                $
                7,679
                
                
                $
                15,077
                
                
                $
                1,678
                
                
                $
                2,995Restricted
      cash
                
                
                29,708
                
                
                
                29,680
                
                
                
                
                
                
                
                
                
                29,708
                
                
                
                29,680Short-term
      investments
                
                
                1,000
                
                
                
                -
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                1,000
                
                
                
                -Accounts
      receivable, net
                
                
                37,722
                
                
                
                36,627
                
                
                $
                (274
                )
                
                $
                (367
                )
                
                
                15,848
                
                
                
                13,789
                
                
                
                22,148
                
                
                
                23,205Inventories
                
                
                77,992
                
                
                
                79,082
                
                
                
                (73
                )
                
                
                (89
                )
                
                
                38,142
                
                
                
                35,814
                
                
                
                39,923
                
                
                
                43,357Taxes
      receivable
                
                
                1,002
                
                
                
                1,334
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                1,002
                
                
                
                1,334Prepaid
      expense & other current assets
                
                
                5,920
                
                
                
                6,406
                
                
                
                
                
                
                
                
                
                
                
                3,366
                
                
                
                3,922
                
                
                
                2,554
                
                
                
                2,484Total
      current assets
                
                
                162,701
                
                
                
                171,201
                
                
                
                (347
                )
                
                
                (456
                )
                
                
                94,743
                
                
                
                98,282
                
                
                
                68,305
                
                
                
                73,375Property,
      plant & equipment, net
                
                
                86,091
                
                
                
                88,466
                
                
                
                
                
                
                
                
                
                
                
                54,947
                
                
                
                56,520
                
                
                
                31,144
                
                
                
                31,946Other
      assets:Insurance
      for asbestos-related liabilities
                
                
                13,509
                
                
                
                13,509
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                13,509
                
                
                
                13,509Other
      assets
                
                
                21,897
                
                
                
                21,825
                
                
                
                (117
                )
                
                
                (117
                )
                
                
                17,065
                
                
                
                17,065
                
                
                
                4,949
                
                
                
                4,87735,406
                
                
                
                35,334
                
                
                
                (117
                )
                
                
                (117
                )
                
                
                17,065
                
                
                
                17,065
                
                
                
                18,458
                
                
                
                18,386Total
      assets
                
                $
                284,198
                
                
                $
                295,001
                
                
                $
                (464
                )
                
                $
                (573
                )
                
                $
                166,755
                
                
                $
                171,867
                
                
                $
                117,907
                
                
                $
                123,707





See
accompanying notes to consolidating condensed financial
statements.


1


AMERICAN
BILTRITE INC. AND SUBSIDIARIES


CONSOLIDATING
CONDENSED BALANCE SHEETS – LIABILITIES AND STOCKHOLDERS’ EQUITY


(In
thousands of dollars)





ABI
      Consolidated
                  
                  
                  Eliminations
                  
                  
                  Congoleum
                  
                  
                  American
      BiltriteMarch
      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)LiabilitiesCurrent
      liabilities:Accounts
      payable
                  
                  $
                  13,869
                  
                  
                  $
                  16,298
                  
                  
                  $
                  (274
                  )
                  
                  $
                  (366
                  )
                  
                  $
                  6,698
                  
                  
                  $
                  7,472
                  
                  
                  $
                  7,445
                  
                  
                  $
                  9,192Accrued
      expenses
                  
                  
                  28,431
                  
                  
                  
                  31,880
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  14,237
                  
                  
                  
                  16,897
                  
                  
                  
                  14,194
                  
                  
                  
                  14,983Asbestos-related
      liabilities
                  
                  
                  48,759
                  
                  
                  
                  50,022
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  48,759
                  
                  
                  
                  50,022Deferred
      income taxes
                  
                  
                  6,533
                  
                  
                  
                  6,533
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  6,533
                  
                  
                  
                  6,533Notes
      payable
                  
                  
                  36,509
                  
                  
                  
                  32,747
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  16,966
                  
                  
                  
                  13,994
                  
                  
                  
                  19,543
                  
                  
                  
                  18,753Current
      portion of long-term debt
                  
                  
                  5,106
                  
                  
                  
                  5,611
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  5,106
                  
                  
                  
                  5,611Liabilities
      subject to compromise
                  
                  
                  4,997
                  
                  
                  
                  4,997
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  4,997
                  
                  
                  
                  4,997Total
      current liabilities
                  
                  
                  144,204
                  
                  
                  
                  148,088
                  
                  
                  
                  (274
                  )
                  
                  
                  (366
                  )
                  
                  
                  98,190
                  
                  
                  
                  99,915
                  
                  
                  
                  46,288
                  
                  
                  
                  48,539Long-term
      debt, less current portion
                  
                  
                  1,033
                  
                  
                  
                  1,112
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  1,033
                  
                  
                  
                  1,112Asbestos-related
      liabilities
                  
                  
                  13,563
                  
                  
                  
                  13,563
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  13,563
                  
                  
                  
                  13,563Other
      liabilities
                  
                  
                  16,767
                  
                  
                  
                  16,801
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  16,767
                  
                  
                  
                  16,801Liabilities
      subject to compromise
                  
                  
                  162,103
                  
                  
                  
                  161,386
                  
                  
                  
                  (117
                  )
                  
                  
                  (117
                  )
                  
                  
                  162,220
                  
                  
                  
                  161,503Total
      liabilities
                  
                  
                  337,670
                  
                  
                  
                  340,950
                  
                  
                  
                  (391
                  )
                  
                  
                  (483
                  )
                  
                  
                  260,410
                  
                  
                  
                  261,418
                  
                  
                  
                  77,651
                  
                  
                  
                  80,015EquityCommon
      stock
                  
                  
                  46
                  
                  
                  
                  46
                  
                  
                  
                  (93
                  )
                  
                  
                  (93
                  )
                  
                  
                  93
                  
                  
                  
                  93
                  
                  
                  
                  46
                  
                  
                  
                  46Additional
      paid-in capital
                  
                  
                  19,799
                  
                  
                  
                  19,749
                  
                  
                  
                  (49,389
                  )
                  
                  
                  (49,386
                  )
                  
                  
                  49,389
                  
                  
                  
                  49,386
                  
                  
                  
                  19,799
                  
                  
                  
                  19,749Less
      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
                  
                  
                  
                  46,375Total
      stockholders’ (deficit) equity of controlling interests
                  
                  
                  (52,412
                  )
                  
                  
                  (46,784
                  )
                  
                  
                  1,774
                  
                  
                  
                  (90
                  )
                  
                  
                  (93,655
                  )
                  
                  
                  (89,551
                  )
                  
                  
                  39,469
                  
                  
                  
                  42,857Noncontrolling
      interests
                  
                  
                  (1,060
                  )
                  
                  
                  835
                  
                  
                  
                  (1,847
                  )
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  787
                  
                  
                  
                  835Total
      (deficit) equity
                  
                  
                  (53,472
                  )
                  
                  
                  (45,949
                  )
                  
                  
                  (73
                  )
                  
                  
                  (90
                  )
                  
                  
                  (93,655
                  )
                  
                  
                  (89,551
                  )
                  
                  
                  40,256
                  
                  
                  
                  43,692Total
      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.


2


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
      Biltrite2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Net
      sales
                  
                  $
                  70,061
                  
                  
                  $
                  95,757
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  30,106
                  
                  
                  $
                  47,697
                  
                  
                  $
                  39,955
                  
                  
                  $
                  48,060Cost
      of products sold
                  
                  
                  56,161
                  
                  
                  
                  72,593
                  
                  
                  $
                  (309
                  )
                  
                  $
                  (300
                  )
                  
                  
                  25,960
                  
                  
                  
                  36,824
                  
                  
                  
                  30,510
                  
                  
                  
                  36,069Selling,
      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
                  
                  
                  
                  23Interest
      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
                  
                  
                  
                  40Net
      (loss) income attributable to controlling interests
                  
                  $
                  (5,497
                  )
                  
                  $
                  972
                  
                  
                  $
                  1,863
                  
                  
                  $
                  8
                  
                  
                  $
                  (4,107
                  )
                  
                  $
                  1,679
                  
                  
                  $
                  (3,253
                  )
                  
                  $
                  (715
                  )
  2009
                              
                              
                              2008Net
      (loss) income attributable to American Biltrite Inc. per
    shareBasic
                              
                              $
                              (1.60
                              )
                              
                              $
                              0.28Diluted
                              
                              
                              (1.60
                              )
                              
                              
                              0.28Weighted
      average number of common and equivalent shares outstandingBasic
                              
                              
                              3,441,551
                              
                              
                              
                              3,441,551Diluted
                              
                              
                              3,441,551
                              
                              
                              
                              3,441,551





See
accompanying notes to consolidating condensed financial
statements.


3


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
      Biltrite2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Operating
      activitiesNet
      (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
                  
                  
                  
                  1,318Stock
      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
                  
                  
                  
                  100Inventories
                  
                  
                  727
                  
                  
                  
                  (5,832
                  )
                  
                  
                  (16
                  )
                  
                  
                  (8
                  )
                  
                  
                  (2,328
                  )
                  
                  
                  (5,646
                  )
                  
                  
                  3,071
                  
                  
                  
                  (178
                  )Prepaid
      expenses and other assets
                  
                  
                  449
                  
                  
                  
                  1,403
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  556
                  
                  
                  
                  843
                  
                  
                  
                  (107
                  )
                  
                  
                  560Proceeds
      from legal fees disgorgement
                  
                  
                  -
                  
                  
                  
                  9,168
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  -
                  
                  
                  
                  9,168Accounts
      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
      activitiesInvestments
      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
      activitiesNet
      short-term borrowings
                  
                  
                  3,776
                  
                  
                  
                  2,312
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  2,972
                  
                  
                  
                  2,121
                  
                  
                  
                  804
                  
                  
                  
                  191Payments
      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
                  
                  
                  
                  149Effect
      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
                  
                  
                  
                  3,858Cash
      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.


4


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





5


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








6


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).





7


Note B -
Inventories







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







March
      31,
                              2009
                            
                            
                            December 31,
                              2008Finished
      goods
                            
                            $
                            54,686
                            
                            
                            $
                            56,262Work-in-process
                            
                            
                            12,096
                            
                            
                            
                            10,847Raw
      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,
                              2008Accrued
      advertising and sales promotions
                            
                            $
                            14,155
                            
                            
                            $
                            17,625Employee
      compensation and related benefits
                            
                            
                            7,502
                            
                            
                            
                            7,124Interest
                            
                            
                            25
                            
                            
                            
                            -Environmental
      matters
                            
                            
                            949
                            
                            
                            
                            815Royalties
                            
                            
                            1,008
                            
                            
                            
                            959Income
      taxes
                            
                            
                            337
                            
                            
                            
                            371Other
                            
                            
                            4,455
                            
                            
                            
                            4,986$
                            28,431
                            
                            
                            $
                            31,880





See
Note F for Liabilities Subject to Compromise.





8


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








9


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,
                            2008Pension
      benefits
                          
                          $
                          8,350
                          
                          
                          $
                          8,185Environmental
      remediation and product related liabilities
                          
                          
                          4,454
                          
                          
                          
                          4,454Income
      taxes payable
                          
                          
                          -
                          
                          
                          
                          394Deferred
      income taxes
                          
                          
                          131
                          
                          
                          
                          131Other
                          
                          
                          3,832
                          
                          
                          
                          3,637$
                          16,767
                          
                          
                          $
                          16,801





See
Note F for Liabilities Subject to Compromise.





10


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,
                            2008Current
      liabilityPre-petition
      other payables and accrued interest
                          
                          $
                          4,997
                          
                          
                          $
                          4,997Non-currentDebt
      (at face value)
                          
                          
                          100,000
                          
                          
                          
                          100,000Pension
      liability
                          
                          
                          37,631
                          
                          
                          
                          37,022Other
      post-retirement benefit obligation
                          
                          
                          11,063
                          
                          
                          
                          10,938Pre-petition
      other liabilities
                          
                          
                          13,526
                          
                          
                          
                          13,543162,220
                          
                          
                          
                          161,503Elimination
      – Payable to American Biltrite
                          
                          
                          (117
                          )
                          
                          
                          (117
                          )Total
      non-current liability
                          
                          
                          162,103
                          
                          
                          
                          161,386Total
      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.





11


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
              
              
              2008Pension
              
              
              Other
      Benefits
              
              
              Pension
              
              
              Other
      BenefitsService
      cost
              
              $
              494
              
              
              $
              57
              
              
              $
              642
              
              
              $
              56Interest
      cost
              
              
              1,646
              
              
              
              161
              
              
              
              1,652
              
              
              
              144Expected
      return on plan assets
              
              
              (1,192
              )
              
              
              -
              
              
              
              (1,719
              )
              
              
              -Recognized
      net actuarial loss
              
              
              1,102
              
              
              
              16
              
              
              
              384
              
              
              
              15Amortization
      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
              
              2008Pension
              
              Other
                Benefits
              
              Pension
              
              Other
                BenefitsDiscount
      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%
              
              —





12


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.





13


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 involvingapproximately 1,836individuals 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,
                          2008Beginning
      claims
                        
                        
                        1,269
                        
                        
                        
                        1,360New
      claims
                        
                        
                        50
                        
                        
                        
                        356Settlements
                        
                        
                        (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.





14


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











15


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.





16


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.





17


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.





18


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,





19


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.






20





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.


21


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.





22


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
                
                
                2008Net
      (loss) income attributable to ABI
                
                $
                (5,497
                )
                
                $
                972Foreign
      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.





23


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
                  
                  
                  2008Net
      sales to external customers:Flooring
      products
                  
                  $
                  30,106
                  
                  
                  $
                  47,697Tape
      products
                  
                  
                  16,469
                  
                  
                  
                  22,443Jewelry
                  
                  
                  11,565
                  
                  
                  
                  11,747Canadian
      division
                  
                  
                  11,921
                  
                  
                  
                  13,870Total
      net sales to external customers
                  
                  
                  70,061
                  
                  
                  
                  95,757Intersegment
      net sales:Flooring
      products
                  
                  
                  —
                  
                  
                  
                  —Tape
      products
                  
                  
                  —
                  
                  
                  
                  —Jewelry
                  
                  
                  —
                  
                  
                  
                  —Canadian
      division
                  
                  
                  800
                  
                  
                  
                  1,221Total
      intersegment net sales
                  
                  
                  800
                  
                  
                  
                  1,221Reconciling
      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
                  
                  
                  2008Segment
      profit (loss)Flooring
      products
                  
                  $
                  (4,092
                  )
                  
                  $
                  2,608Tape
      products
                  
                  
                  (2,533
                  )
                  
                  
                  411Jewelry
                  
                  
                  (838
                  )
                  
                  
                  (1,331
                  )Canadian
      division
                  
                  
                  75
                  
                  
                  
                  102Total
      segment profit
                  
                  
                  (7,388
                  )
                  
                  
                  1,790Reconciling
      itemsCorporate
      expenses
                  
                  
                  (75
                  )
                  
                  
                  (347
                  )Intercompany
      profit
                  
                  
                  16
                  
                  
                  
                  8Total
      consolidated (loss) income before income taxes and other
    items
                  
                  $
                  (7,447
                  )
                  
                  $
                  1,451





24


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,
                            2008Segment
      assetsFlooring
      products
                          
                          $
                          166,755
                          
                          
                          $
                          171,867Tape
      products
                          
                          
                          49,524
                          
                          
                          
                          48,115Jewelry
                          
                          
                          19,661
                          
                          
                          
                          24,038Canadian
      division
                          
                          
                          30,494
                          
                          
                          
                          29,866Total
      segment assets
                          
                          
                          266,434
                          
                          
                          
                          273,886Reconciling
      itemsCorporate
      items
                          
                          
                          33,767
                          
                          
                          
                          35,948Intersegment
      accounts receivable
                          
                          
                          (15,812
                          )
                          
                          
                          (14,626
                          )Intersegment
      profit in inventory
                          
                          
                          (74
                          )
                          
                          
                          (90
                          )Intersegment
      other asset
                          
                          
                          (117
                          )
                          
                          
                          (117
                          )Consolidated
      assets
                          
                          $
                          284,198
                          
                          
                          $
                          295,001


25


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
theAmended
JointPlan.  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


26


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.





27


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.





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


28


Plan's
rejection and disallowance of the joint venture agreement and ABI’s claims
thereunder included any unfunded indemnification claims ABI may have had
prepetition and during the pendency of Congoleum's Chapter 11 case as well as
any such claims ABI might otherwise have been entitled to assert after the
Amended Joint Plan became effective.  If the appeal of the Order of
Dismissal were not successful, it is uncertain what would become of ABI’s and
its nondebtor subsidiaries’ claims against and relationships with Congoleum,
although ABI expects that those claims and relationships could be adversely
affected and could even be rendered worthless.  In addition, there can
be no assurance that ABI, Congoleum and other applicable Congoleum
constituencies will be able to reach agreement on the terms of any management
services proposed to be provided by ABI to reorganized Congoleum or any other
proposed business relationships among ABI and its affiliates and reorganized
Congoleum.  Any plan of reorganization for Congoleum that may be
confirmed may have terms that differ significantly from the terms contemplated
by the Amended Joint Plan, including with respect to any management services
that may be provided by ABI to reorganized Congoleum and ABI's claims and
interests and other business relationships with reorganized
Congoleum.





ABI
estimates that it will spend $300 thousand for legal fees in 2009, which it has
accrued, in connection with Congoleum’s reorganization plan.  Actual
costs for pursuing and implementing any plan of reorganization could be
materially higher, and Congoleum and the Company may record significant
additional charges should the applicable minimum estimated cost
increase.





Due
to Congoleum’s reorganization and separate capital structure, as well as the
anticipated elimination of ABI’s ownership interest in Congoleum, the Company
believes that presenting the results of operations of ABI and its non-debtor
subsidiaries separately from those of Congoleum is the most meaningful way to
discuss and analyze its financial condition and results of
operations.





Please
refer to "Risk Factors – The Company and its majority-owned subsidiary Congoleum
have significant asbestos liability and funding exposure, and the Company’s and
Congoleum’s strategies for resolving this exposure may not be
successful.  Any plan of reorganization for Congoleum is expected to
result in elimination of the interests of Congoleum's equity holders, including
the Company" and "Elimination of the Company’s equity interests in Congoleum
could have a material adverse impact on the business relationships between ABI
and Congoleum, and ABI’s business, operations and financial condition" included
in Part II, Item 1A of this Quarterly Report on Form 10-Q for a discussion of
certain factors that could cause actual results to differ from the Company’s and
Congoleum’s goals for resolving their asbestos liabilities.





29


Application
of Critical Accounting Policies and Estimates





The
discussion and analysis of the Company’s financial condition and results of
operations are based upon the Company’s consolidating financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States.  The preparation of these financial
statements requires the Company to make estimates and assumptions that affect
the reported amounts of assets and liabilities, and disclosure of contingent
assets and liabilities as of the date of the Company’s financial statements and
the reported amounts of revenues and expenses during the reporting period. The
Company’s actual results may differ from these estimates under different
assumptions or conditions.





Critical
accounting policies are defined as those that reflect significant judgments and
uncertainties, and could potentially result in materially different results
under different assumptions and conditions.  The Company believes that
its most critical accounting policies, upon which its financial condition
depends and which involve the most complex or subjective decisions or
assessments, are those described in the Company’s Annual Report on Form 10-K for
the fiscal year ended December 31, 2008, filed with the Securities and Exchange
Commission.





There
have been no material changes in what the Company considers to be its critical
accounting policies or the applicability of the disclosure the Company provided
regarding those policies in that Form 10-K.





Results
of Operations





ABI
and Non-Debtor Subsidiaries





Three
      Months Ended March 312009
                  
                  
                  
                  
                  
                  2008(In
      thousands of dollars)Net
      sales
                  
                  $
                  39,955
                  
                  
                  
                  
                  
                  $
                  48,060Cost
      of sales
                  
                  
                  30,510
                  
                  
                  
                  
                  
                  
                  36,069Gross
      profit
                  
                  
                  9,445
                  
                  
                  23.6%
                  
                  
                  
                  11,991
                  
                  
                  25.0%Selling,
      general & administrative expenses
                  
                  
                  12,260
                  
                  
                  30.7%
                  
                  
                  
                  13,257
                  
                  
                  27.6%Operating
      loss
                  
                  
                  (2,815
                  )
                  
                  
                  
                  
                  
                  (1,266
                  )Interest
      expense, net
                  
                  
                  (232
                  )
                  
                  
                  
                  
                  
                  (488
                  )Other
      (expense) income, net
                  
                  
                  (324
                  )
                  
                  
                  
                  
                  
                  589Loss
      before taxes and other items
                  
                  
                  (3,371
                  )
                  
                  
                  
                  
                  
                  (1,165
                  )Benefit
      from income taxes
                  
                  
                  (68
                  )
                  
                  
                  
                  
                  
                  (410
                  )Noncontrolling
      interests
                  
                  
                  50
                  
                  
                  
                  
                  
                  
                  40Net
      loss
                  
                  $
                  (3,253
                  )
                  
                  
                  
                  
                  $
                  (715
                  )





30


Net
sales in the first quarter of 2009 were $40.0 million compared to $48.1 million
in the first quarter of 2008, a decrease of $8.1 million or
16.9%.  Tape division sales declined by $6.0 million or 26.6% as
economic conditions adversely affected all Tape division product lines globally,
with the greatest percentage decreases in sales of transfer paper used in the
sign and graphics industry and protective film used on consumer
durables.  Canadian division sales declined $1.9 million or 14.1% from
the first quarter of 2008 to the first quarter of 2009 primarily due to the
currency translation effect of the lower value of the Canadian dollar in the
first quarter of 2009.  Jewelry sales declined $0.2 million or 1.5%
compared to sales during the first quarter of 2008 due to lower sales through
department store and mid-tier retailers, partly offset by increased sales
through mass merchandisers and discount outlets.





Gross
profit margin percentage decreased from 25.0% of net sales for the first quarter
of 2008 to 23.6% of net sales for the first quarter of 2009.  Gross
margins as a percent of net sales in the Tape business declined by 1.6
percentage points due to lower production volume available to absorb fixed
factory overhead, partly offset by selling price increases.  Canadian
gross margins improved by 0.6 percentage points as the effect of price increases
and foreign currency exchange more than offset the effect of lower production
volumes.  Jewelry gross margins declined by 3.7 percentage points due
to product and sales channel mix as well as pricing pressure from
retailers.





The
Company includes the cost of purchasing and finished goods inspection in
selling, general and administrative (“SG&A”) expenses.  Some
companies also record such costs in operating expenses while others record them
in cost of goods sold.  Consequently, the Company’s gross profit
margins may not be comparable to other companies.  Had the Company
recorded these expenses in cost of sales, the gross profit margins for the
quarter ended March 31, 2009 and 2008 would have been 22.9% and 24.4%,
respectively.





SG&A
expenses in the first quarter of 2009 decreased by $997 thousand or 7.5%
compared to the first quarter of 2008.  SG&A expenses in the first
quarter of 2008 included a $1.2 million insurance recovery.  Excluding
this recovery, SG&A expenses decreased by $2.2 million or 15.3%, primarily
as a result of headcount and expense reductions at all locations, partly offset
by increases in pension expense resulting from market value declines in pension
fund assets and use of a lower discount rate on projected
liabilities.





Net
interest expense for the first quarter of 2009 was lower than the first quarter
of 2008 primarily due to a lower weighted average effective interest rate on the
Company’s borrowings, as well as lower average borrowings
outstanding.





The
effective tax rate was 2% in the first quarter of 2009 compared to 35% in the
first quarter of 2008.  Substantially all of the Company’s losses were
not benefited due to uncertainty in the Company’s ability to generate sufficient
taxable income in future periods to realize tax benefits from current year
losses.





The
change in other (expense) income from the first quarter of 2008 to the first
quarter of 2009 of $0.9 million was due to a $1.1 million unfavorable change in
the effect of currency translation at the Tape operation.





31


Congoleum





Three
      Months Ended March 312009
              
              
              
              
              
              2008(In
      thousands of dollars)Net
      sales
              
              $
              30,106
              
              
              
              
              
              $
              47,697Cost
      of sales
              
              
              25,960
              
              
              
              
              
              
              36,824Gross
      profit
              
              
              4,146
              
              
              
              13.8%
              
              
              
              10,873
              
              
              
              22.8%Selling,
      general & administrative expenses
              
              
              8,250
              
              
              
              27.4%
              
              
              
              9,132
              
              
              
              19.1%Operating
      income
              
              
              (4,104
              )
              
              
              
              
              
              
              1,741Interest
      (expense) income, net
              
              
              (106
              )
              
              
              
              
              
              
              931Other
      income (expense), net
              
              
              118
              
              
              
              
              
              
              
              (64
              )Income
      (loss) before taxes
              
              
              (4,092
              )
              
              
              
              
              
              
              2,608Provision
      for income taxes
              
              
              15
              
              
              
              
              
              
              
              929Net
      (loss) income
              
              $
              (4,107
              )
              
              
              
              
              
              $
              1,679





Net
sales for the three months ended March 31, 2009 totaled $30.1 million as
compared to $47.7 million for the three months ended March 31, 2008, down $17.6
million or 36.8%. This decrease in sales can be attributed to lower sales to the
manufactured housing and recreational vehicle industry, continued weakness in
product sales to the builder market and a weak retail sales environment for
professionally installed products, partially offset by price increases
instituted in the second half of 2008.





Gross
profit for the three months ended March 31, 2009 totaled $4.1 million, or 13.8%
of net sales, compared to $10.9 million or 22.8% of net sales for the three
months ended March 31, 2008. The unfavorable impact of lower production volumes
over which to spread fixed factory overhead costs accounted for most of the
decline, partially offset by cost reduction measures instituted in plant
spending.





Selling,
general and administrative expenses were $8.3 million for the three months ended
March 31, 2009 compared to $9.1 million for the three months ended March 31,
2008, a decrease of $0.8 million. Lower compensation and benefit costs
reflecting workforce reductions, coupled with reduced sales support and
merchandising costs resulted in the decrease. A severance charge of $0.5 million
for workforce reductions enacted in the quarter is included in 2009 first
quarter expenses.





Loss
from operations was $4.1 million for the three months ended March 31, 2009
compared to income from operations of $1.7 million for the three months ended
March 31, 2008, reflecting the lower sales and gross margin during the first
quarter of 2009 compared with the first quarter of 2008, partially offset by
lower selling, general and administrative expenses.





32


Interest
expense, net was $106 thousand expense for the three months ended March 31, 2009
compared with $931 thousand net interest income for the same period in
2008.  Interest income (expense), net for the three months ended March
31, 2008 includes $1.0 million in interest income received as part of a
disgorgement fee settlement for legal expenses.





The
provision for income taxes was $15 thousand for the quarter ending March 31,
2009, and $929 thousand for the quarter ending March 31, 2008.  The
full year effective tax rate is expected to be negligible.





Liquidity
and Capital Resources





ABI
& Non-Debtor Subsidiaries





Cash
and cash equivalents decreased $1.3 million in the three months ended March 31,
2009 to $1.7 million. Working capital at March 31, 2009 was $22.0 million
compared to $24.8 million at December 31, 2008.  The ratio of current
assets to current liabilities at March 31, 2009 was 1.48 compared to 1.51 at
December 31, 2008.  Net cash used by operating activities was $598
thousand for the three months ended March 31, 2009, compared to cash used by
operating activities of $907 thousand for the three months ended March 31,
2008.





Capital
expenditures in the first three months of 2009 were $318 thousand compared to
$556 thousand for the first three months of 2008.  It is anticipated
that capital spending for the full year 2009 will be approximately $2.0
million.





The
Company has recorded provisions which it believes are adequate for environmental
remediation, including provisions for testing and potential remediation of
conditions at its own facilities, and non-asbestos product-related
liabilities.  While the Company believes its estimate of the future
amount of these environmental liabilities is reasonable, that most of such
amounts will be paid over a period of five to ten years and that the Company
expects to have sufficient resources to fund such amounts, the actual timing and
amount of such payments may differ significantly from the Company's
assumptions.  Although the effect of future government regulation
could have a significant effect on the Company's costs, the Company is not aware
of any pending legislation or regulation relating to these matters that would
have a material adverse effect on its consolidated results of operations or
financial position.  There can be no assurances that any such costs
could be passed along to its customers.





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 originally provided
American Biltrite Inc. and its subsidiary 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. (“AB Canada”) and (ii) the $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.





33


The
amount of borrowings available from time to time for American Biltrite Inc. and
K&M under the Revolver may not exceed the lesser of (a) $24.0 million less
the then outstanding amount of borrowings by AB Canada under the Canadian
Revolver less any outstanding borrowings under the letter of credit facilities
and (b) the applicable borrowing base.  The formula used for
determining the domestic borrowing base is based upon inventory, receivables and
fixed assets of the Company and certain of its subsidiaries (not including,
among others, AB Canada and Congoleum), reduced by amounts outstanding under the
Term Loan.





The
amount of borrowings available from time to time for AB Canada under the
Canadian Revolver is limited to the lesser of (a) $12 million less any
outstanding borrowings under the Canadian letter of credit facility, (b) AB
Canada's borrowing base amount, which is based upon AB Canada's accounts
receivable, inventory and fixed assets, and (c) $24.0 million less the amount of
domestic borrowings outstanding under the Revolver on behalf of the Company and
K&M.  AB Canada may borrow amounts under the Canadian Revolver in
United States or Canadian dollar denominations; however, solely for purposes of
determining amounts outstanding and borrowing availability under the Revolver,
all Canadian dollar denominated amounts will be converted into United States
dollars in the manner provided in the Credit Agreement.





Interest
is payable quarterly on the Term Loan and Revolver borrowings by American
Biltrite Inc. and K&M under the Credit Agreement at rates which vary
depending on the applicable interest rate in effect and are generally determined
based upon: (a) if a LIBOR based rate is in effect, at a rate between a LIBOR
based rate plus 1.0% to a LIBOR based rate plus 2.75%, depending on the
Company's leverage ratio, as determined under the Credit Agreement, (b) if a
fixed rate is in effect, at a rate between the fixed rate plus 1.0% to a fixed
rate plus 2.75%, depending on the Company's leverage ratio, as determined under
the Credit Agreement, and (c) for loans not based on a LIBOR or fixed rate, the
higher of (i) BofA's applicable prime rate and (ii) 0.50% plus the federal funds
rate, as determined under the Credit Agreement.  Under the Credit
Agreement, American Biltrite Inc. and K&M may generally determine whether
interest on domestic revolving loans will be calculated based on a LIBOR based
rate, and if BofA elects to make a fixed rate option available, whether interest
on revolving loans will be calculated based on a fixed rate.





Interest
is payable quarterly on revolving loans under the Canadian Revolver at rates
which vary depending on the applicable interest rate in effect and are generally
determined based upon: (a) if a LIBOR based rate is in effect, at a rate between
a LIBOR based rate plus 1.0% to a LIBOR based rate plus 2.75%, depending on the
Company's leverage ratio, as determined under the Credit Agreement, and (b) if a
LIBOR based rate is not in effect, for outstanding revolving loans denominated
in Canadian dollars, the higher of (i) 0.50% plus the applicable 30-day average
bankers' acceptance rate as quoted on Reuters CDOR page and (ii) the Canadian
Lender's applicable prime rate for loans made in Canadian dollars to Canadian
customers, and for outstanding revolving loans denominated in United States
dollars, the higher of (i) 0.50% plus the federal funds rate as calculated under
the Credit Agreement and (ii) the applicable rate announced by the Canadian
Lender as its reference rate for commercial loans denominated in United States
dollars made to a person in Canada.  Under the Credit Agreement, AB
Canada may generally determine whether interest on Canadian revolving loans will
be calculated based on a LIBOR based rate.





34


The
Term Loan principal is payable in 20 quarterly installments of $500 thousand
beginning December 31, 2006 and ending on September 30, 2011.  All
indebtedness under the Credit Agreement, other than the Term Loan, matures on
September 30, 2009.





The
Credit Agreement contains certain covenants that the Company must
satisfy.  The covenants included in the Credit Agreement include
certain financial tests, restrictions on the ability of the Company to incur
additional indebtedness or to grant liens on its assets and restrictions on the
ability of the Company to pay dividends on its capital stock.  The
financial tests are required to be calculated based on the Company accounting
for its majority-owned subsidiary Congoleum Corporation on the equity method and
include a maximum ratio of total liabilities to tangible net worth, a minimum
ratio of earnings before interest, taxes, depreciation and amortization
(“EBITDA”) less certain cash payments for taxes, debt service, and dividends to
interest expense, a minimum level of tangible net worth, and a maximum level of
capital spending  The Credit Agreement also requires the Company's
Consolidated Adjusted EBITDA for the four consecutive fiscal quarters then
ending to exceed 100% of the Company's Consolidated Fixed Charges for the
12-month period ending on such date, as determined under the Credit Agreement
(the “Fixed Charge Covenant”).





Pursuant
to the Credit Agreement, the Company and certain of its subsidiaries previously
granted BofA and the Canadian Lender a security interest in most of the
Company's and its subsidiaries' assets.  The security interest granted
does not include the shares of capital stock of Congoleum or the assets of
Congoleum.  In addition, pursuant to the Credit Agreement, certain of
the Company’s subsidiaries have agreed to guarantee the Company's obligations
(excluding AB Canada's obligations) under the Credit Agreement.





The
Company has had to receive waivers from BofA and amend the Credit Agreement
several times in the past to avoid defaulting 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 Fixed Charge
Covenant.  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 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,


35


including
the Term Loan and the Revolver. The Company believes it will be successful in
obtaining replacement financing 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 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.





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 that its ownership interest in Congoleum will
likely be eliminated under any alternate plan or outcome in Congoleum’s Chapter
11 case.  While the Company does not believe the loss of the value of
its equity interest in Congoleum would have a direct material adverse effect on
ABI’s liquidity, the loss of a controlling interest could have a material
adverse impact on the business relationships between ABI and Congoleum, which in
turn could have a material adverse impact on ABI’s business, operations and
financial condition.  In connection with Congoleum’s plan of
reorganization, ABI expects to spend $300 thousand for legal fees in 2009, which
is not expected to have a material adverse effect on ABI’s working capital or
cash flow.





The
Company has not declared a dividend subsequent to the third quarter of
2003.  Future dividends, if any, will be determined by the Company's
Board of Directors based upon the financial performance and capital requirements
of the Company, among other considerations.  Under the Credit
Agreement, aggregate dividend payments (since June 30, 2003) are generally
limited to 50% of cumulative consolidated net income (computed treating
Congoleum under the equity method of accounting), as determined under the Credit
Agreement, earned from June 30, 2003.





36


Congoleum





The
consolidated financial statements of Congoleum 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,
Congoleum’s consolidated financial statements do not include any adjustments
that might be necessary should Congoleum be unable to continue as a going
concern.  In light of Congoleum’s substantial asbestos liabilities,
which are further described in the Notes to Unaudited Consolidating Condensed
Financial Statements contained in Part I, Item 1 of this Quarterly Report on
Form 10-Q, there is substantial doubt about Congoleum's ability to continue as a
going concern unless it obtains relief from those liabilities through a
successful reorganization under Chapter 11 of the Bankruptcy Code.





On
December 31, 2003, Congoleum filed a voluntary petition with the Bankruptcy
Court (Case No. 03-51524) seeking relief under the Bankruptcy
Code.  See Notes A and I of the Notes to Unaudited Consolidating
Condensed Financial Statements contained in Part I, Item 1 of this Quarterly
Report on Form 10-Q, for a discussion of Congoleum’s bankruptcy
proceedings.  These matters continue to have a material adverse impact
on Congoleum’s liquidity and capital resources.  During the first
quarter of 2009, Congoleum paid $1.3 million in fees and expenses related to
reorganization proceedings under the Bankruptcy Code and the state court
insurance coverage action.  Furthermore, at March 31, 2009, Congoleum
had incurred but not paid approximately $9.7 million in additional fees and
expenses for services rendered through that date in connection with these
matters.





Based
on its reorganization plans, Congoleum has made provision in its financial
statements for the minimum estimated cost to effect its plan to settle asbestos
liabilities through confirmation of a plan that complies with section 524(g) of
the Bankruptcy Code.  Congoleum recorded charges aggregating
approximately $51.3 million in years prior to 2007.  Based on the
terms of the Joint Plan, in the fourth quarter of 2007 Congoleum recorded an
additional $41.3 million charge.  Of this charge, $14.9 million
related to the write-off of certain insurance litigation costs receivable that
would not have been collected under the terms of the Joint Plan and are not
expected to be collected under any future plan, including the Amended Joint
Plan, and $26.4 million was an additional provision for estimated costs for the
reorganization proceedings and the Coverage Action.  In the fourth
quarter of 2007 Congoleum also recorded a $41.0 million interest expense credit
to reverse post-petition interest accrued on its Senior Notes.  Terms
of previous reorganization plans had provided, among other things, for the
payment of post-petition interest on the Senior Notes and therefore Congoleum
had continued to accrue such interest.  Under the terms of the Joint
Plan, and the expected terms of any future plan, including the Amended Joint
Plan, the Senior Note holders would not have received any post-petition
interest.  Following the ruling that the Joint Plan was unconfirmable
and based on the anticipated terms and timing of effectiveness of the Amended
Joint Plan, Congoleum recorded an additional charge of $11.5 million in the
third quarter of 2008 for costs to effect its reorganization.





37


In
February 2006, the Bankruptcy Court ordered Congoleum’s former counsel, Gilbert,
Heintz & Randolph LLP (currently known as Gilbert Oshinsky LLP) (“GHR”) to
disgorge all fees and certain expenses it was paid by Congoleum.  In
October 2006, Congoleum and GHR entered into a settlement agreement under which
GHR was to pay Congoleum approximately $9.2 million plus accrued interest in
full satisfaction of the disgorgement order.  The obligation was
secured by assets of GHR and was to be made over time according to a formula
based on GHR’s earnings.  The Bankruptcy Court approved that
settlement agreement in April 2007.  Congoleum received $9.2 million
plus $1.0 million of accrued interest in full satisfaction of that settlement
agreement in March 2008.





Unrestricted
cash and cash equivalents, including short-term investments at March 31, 2009,
were $7.7 million, a decrease of $7.4 million from December 31,
2008.  Under the terms of its revolving credit agreement, payments on
Congoleum’s accounts receivable are deposited in an account assigned by
Congoleum to its lender and the funds in that account are used by the lender to
pay down any loan balance.  There were no funds deposited in this
account at March 31, 2009 or December 31, 2008.  Additionally, $6.5
million remaining from a $14.5 million settlement received in August 2004 from
an insurance carrier, disposition of which balance is subject to a court order,
is included as restricted cash at December 31, 2008.  In the second
quarter of 2008 Congoleum received an additional $22.7 million from other
insurance carriers which is also included in restricted
cash.  Congoleum expects to contribute these funds, less any amounts
withheld pursuant to reimbursement arrangements, to the Plan Trust should the
Bankruptcy Court confirm a plan pursuant to section 524(g) of the Bankruptcy
Code.  Net working capital was a negative $3.4 million at March 31,
2009, down from $1.6 million at December 31, 2008.  The ratio of
current assets to current liabilities was 1.0 to 1.0 at March 31, 2009 and
December 31, 2008.  Net cash used in operations during the three
months ended March 31, 2009 was $9.5 million, as compared to net cash provided
by operations of $1.6 million during the three months ended March 31,
2008.





Capital
expenditures for the three months ended March 31, 2009 totaled $0.9
million.  Congoleum is currently planning capital expenditures of
approximately $3.5 million in 2009 and between $3 million and $5 million in
2010, primarily for maintenance and improvement of plants and equipment, which
it expects to fund with cash from operations and credit facilities.





In
January 2004, the Bankruptcy Court authorized entry of a final order approving
Congoleum’s debtor-in-possession financing, which replaced its pre-petition
credit facility on substantially similar terms.  The
debtor-in-possession financing agreement (as amended and approved by the
Bankruptcy Court to date) provides a revolving credit facility expiring on the
earlier of (i) June 30, 2009 and (ii) the date the plan of reorganization in
Congoleum's bankruptcy cases as confirmed by the Bankruptcy Court becomes
effective.  Total borrowing under the facility may not exceed $30.0
million.  Interest is based on 0.25% above the prime
rate.  This financing agreement contains certain covenants, which
include the maintenance of minimum earnings before interest, taxes, depreciation
and amortization (“Congoleum EBITDA”).  In connection with the
amendment and extension of the agreement during 2008, the minimum level of
Congoleum EBITDA that Congoleum must maintain was reduced for quarters ending
after June 30, 2008.  Congoleum paid a fee of $25 thousand for such
amendment, plus an amendment fee in the amount of $15 thousand per
month.  The financing agreement also includes restrictions
on


38


the
incurrence of additional debt and limitations on capital
expenditures.  The covenants and conditions under this financing
agreement must be met in order for Congoleum to borrow from the facility.
Congoleum was not in compliance with the minimum Congoleum EBITDA covenant under
its credit facility for the period ended December 31, 2008, and obtained a
waiver of that covenant as well as an amendment of the covenant levels for the
remaining term of the facility to make them less restrictive.  The
interest rate was increased to 1.75% above the prime rate and a fee of $30
thousand was paid in connection with the waiver and
amendment.  Borrowings under this facility are collateralized by
inventory and receivables.  At March 31, 2009, based on the level of
receivables and inventory, $26.3 million was available under the facility, of
which $2.0 million was utilized for outstanding letters of credit and $16.9
million was utilized by the revolving loan.  The existing financing
facility expires June 30, 2009.  Congoleum believes that it will be
able to obtain an extension of the credit facility through the end of 2009;
however, given the current business conditions and uncertainty in the credit
markets, there can be no assurances that an extension or refinancing will be
available.  There can also be no assurances that Congoleum will
continue to be in compliance with the required covenants under this facility or
that the debtor-in-possession facility will be renewed prior to its expiration
if a plan of reorganization is not confirmed before that time.  Congoleum
was in compliance with the terms of the debtor-in-possession financing at March
31, 2009, as the excess borrowing availability it maintained under the revolving
line of credit, exceeded the threshold required to test Congoleum
EBITDA.  Congoleum anticipates that its debtor-in-possession financing
facility (including anticipated extensions thereof) together with cash from
operations will provide it with sufficient liquidity to operate during 2009
while under Chapter 11 protection.  For a plan of reorganization to be
confirmed, Congoleum will need to obtain and demonstrate the sufficiency of exit
financing.  Congoleum cannot presently determine the terms of such
financing, nor can there be any assurances of its success obtaining
it.





In
addition to the provision for asbestos litigation discussed previously,
Congoleum has also recorded what it believes are adequate provisions for
environmental remediation and product-related liabilities (other than
asbestos-related claims), including provisions for testing for potential
remediation of conditions at its own facilities.  Congoleum is subject
to federal, state and local environmental laws and regulations and certain legal
and administrative claims are pending or have been asserted against
Congoleum.  Among these claims, Congoleum is a named party in several
actions associated with waste disposal sites (more fully discussed in Note 16 to
the Consolidated Financial Statements contained in Item 8 of this Annual Report
on Form 10-K). 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 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 Congoleum’s liability in proportion to
other potentially responsible parties, and the extent to which costs may be
recoverable from insurance.  Congoleum has recorded provisions in its
financial statements for the estimated probable loss associated with all known
general and environmental contingencies. While Congoleum believes its 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 Congoleum’s assumptions.  Although the
effect of future government regulation could have a significant effect on
Congoleum’s costs, Congoleum is not aware of any pending legislation which would
reasonably have such an effect.  There can be no assurances that the
costs of any future government regulations could be passed along to its
customers.  Estimated insurance recoveries related to these
liabilities are reflected in other non-current assets.





39


The
outcome of these environmental matters could result in significant expenses
incurred by or judgments assessed against Congoleum.





Congoleum's
principal sources of capital are net cash provided by operating activities and
borrowings under its financing agreement. Congoleum believes that its existing
cash (including restricted cash), cash generated from operations, and
debtor-in-possession credit arrangements (including anticipated extensions
thereof) should be sufficient to provide adequate working capital for operations
during 2009.  Congoleum’s ability to emerge from Chapter 11 will
depend on obtaining sufficient exit financing to settle administrative expenses
of the reorganization and any other related obligations, and to provide adequate
future liquidity.





Item
4T.  Controls and Procedures





a)
            Evaluation
      of Disclosure Controls and Procedures.  The Company's
      management, with the participation of the Company's Chief Executive
      Officer and Chief Financial Officer, has evaluated the effectiveness of
      the Company's disclosure controls and procedures (as such term is defined
      in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
      1934, as amended (the "Exchange Act")), as of the end of the period
      covered by this report.  Based on such evaluation, the Company's
      Chief Executive Officer and Chief Financial Officer have concluded that,
      as of the end of such period, the Company’s disclosure controls and
      procedures were effective, in that they provide reasonable assurance that
      information required to be disclosed by the Company in the reports that it
      files or submits under the Exchange Act is recorded, processed,
      summarized, and reported within the time periods specified in the
      Securities and Exchange Commission's rules and forms, and is accumulated
      and communicated to the Company’s management, including the Company’s
      Chief Executive Officer and Chief Financial Officer, as appropriate to
      allow timely decisions regarding required
  disclosure.





(b)
            Changes
      in Internal Control Over Financial Reporting.  There have not
      been any changes in the Company's internal control over financial
      reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under
      the Exchange Act) during the fiscal quarter to which this report relates
      that have materially affected, or are reasonably likely to materially
      affect, the Company’s internal control over financial
      reporting.








40


PART
II.   OTHER INFORMATION





Item
1.  Legal Proceedings





The
information contained in Note H "Commitments and Contingencies" and Note I
"Congoleum Asbestos Liabilities and Reorganization" of the Notes to Unaudited
Consolidating Condensed Financial Statements included in Part I, Item 1 of this
Quarterly Report on Form 10-Q, in "Management’s Discussion and Analysis of
Financial Condition and Results of Operations" included in Part I, Item 2 of
this Quarterly Report on Form 10-Q, and in "Risk Factors – The Company and its
majority-owned subsidiary Congoleum have significant asbestos liability and
funding exposure, and the Company's and Congoleum's strategies for resolving
this exposure may not be successful.  Any plan of reorganization for
Congoleum is expected to result in elimination of the interests of Congoleum’s
equity holders, including the Company" and "Elimination of the Company’s equity
interests in Congoleum could have a material adverse impact on the business
relationships between ABI and Congoleum, and ABI’s business, operations and
financial condition" included in Part II, Item 1A of this Quarterly Report on
Form 10-Q, to the extent addressing matters reportable under this Part II, Item
1, are incorporated herein by reference.





Item
1A.  Risk Factors





The
Company’s independent registered public accountant has included a going concern
paragraph in its opinion on the Company’s 2008 consolidated financial
statements.





The
Company’s independent registered public accountant has issued an opinion on the
Company’s 2008 consolidated financial statements that states that the
consolidated financial statements were prepared assuming the Company will
continue as a going concern and further states that the Company’s need to
refinance its credit facility raises substantial doubt about its ability to
continue as a going concern.  The revolving debt portion of the
Company’s existing principal credit facility expires on September 30, 2009, and
the Company has entered into a limited waiver and modification agreement to its
credit agreement with its lenders, which provided the Company with a temporary
waiver through June 30, 2009 (subject to possible earlier termination or
expiration) of the Company’s default of the credit agreement governing that
credit facility due to the Company’s failure to comply with one of its financial
covenants as of March 31, 2009 and contemplates the Company repaying all amounts
the Company owes under the credit agreement, including the term loan and
outstanding borrowings under the credit facility by June 29, 2009.  As
discussed elsewhere in this Quarterly Report on Form 10-Q, the Company is
currently working with a replacement lender to obtain replacement
financing.  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.





41


The
Company relies on its revolving credit facility to fund its business, operations
and working capital needs.  That revolving credit facility expires on
September 30, 2009 and the Company may not be able to renew or replace that
facility on satisfactory terms.





The
Company relies on borrowings under its revolving credit facility which is
governed by its principal credit agreement to fund its business and
operations.  If the Company is not able to generate sufficient cash
flows from its operations as a result of the current recession in the United
States or otherwise, it may have greater reliance on the availability of
borrowings under its credit facility.  The Company's revolving credit
facility is scheduled to expire on September 30, 2009, and the Company has
entered into a temporary waiver and modification agreement to its credit
agreement with its lenders, pursuant to which the lenders granted the Company a
temporary waiver through June 30, 2009 of the Company’s default of the agreement
governing that credit facility due to the Company’s failure to comply with one
of its financial covenants as of March 31, 2009 and reduced the amount available
for borrowing under the credit facility from $30 million to $24
million.  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 its
lenders an executed commitment letter from another financial institution
reasonably acceptable to the Company’s current lenders, which contemplates
payment in full in cash of all amounts owed to the lenders under the credit
agreement on or prior to 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 Company’s existing credit agreement, including
the term loan and the revolving credit facility under that agreement. The
Company believes it will be successful in obtaining replacement financing 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 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.





In
addition, similar to the terms of the Company’s existing principal credit
agreement, any alternative financing the Company may obtain is expected to limit
the Company's ability to obtain additional debt financing.  Moreover, since
the Company and most of its subsidiaries are expected to grant security
interests in most of their assets as collateral for borrowings under any
alternative financing the Company may obtain, the Company's ability to obtain
any additional debt financing beyond that alternative financing will be
limited.





42


The
Company and its majority-owned subsidiary Congoleum have significant asbestos
liability and funding exposure, and the Company's and Congoleum's strategies for
resolving this exposure may not be successful.  Any plan of
reorganization for Congoleum is expected to result in elimination of the
interests of Congoleum's equity holders, including the Company.





As
more fully set forth in Notes A and I of the Notes to Consolidated Financial
Statements set forth in Part I, Item 1 of this Quarterly Report on Form 10-Q,
the Company and Congoleum have significant liability and funding exposure for
asbestos personal injury claims.  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.  An
amended joint plan of reorganization for Congoleum proposed by the Asbestos
Claimants’ Committee, the Bondholders’ Committee and Congoleum was filed in the
Bankruptcy Court, which plan is referred to elsewhere in this Quarterly Report
on Form 10-Q as the "Amended Joint Plan."  While Congoleum believed
that the Amended Joint Plan had sufficient creditor support to be confirmed, the
Bankruptcy Court recently issued an opinion denying confirmation of the Amended
Joint Plan and ordering Congoleum’s bankruptcy case be dismissed (which is
referred to elsewhere in this Quarterly Report on Form 10-Q as the "Order of
Dismissal").  That order is being appealed with the United States
District Court for the District of New Jersey and the Bankruptcy Court has
granted a stay of its Order of Dismissal pending a final non-appealable decision
affirming the Order of Dismissal.  There can be no assurance that the
appeal of the Order of Dismissal to by 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.





Under
the terms of the Amended Joint Plan, ABI's ownership interest in Congoleum would
be eliminated.  ABI expects that its ownership interest in Congoleum
would be eliminated under any alternate plan or outcome in Congoleum’s Chapter
11 case.





43


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 official asbestos
claimants' committee 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 Plan's rejection and disallowance of
the joint venture agreement and ABI’s claims thereunder included any unfunded
indemnification claims ABI may have had prepetition and during the pendency of
Congoleum's Chapter 11 case as well as any such claims ABI might otherwise have
been entitled to assert after the Amended Joint Plan became
effective.  If the appeal of the Order of Dismissal were denied, it is
uncertain what would become of ABI’s and its nondebtor subsidiaries’ claims
against and relationships with Congoleum, although ABI expects that those claims
and relationships could be adversely affected and could even be rendered
worthless.  In addition, there can be no assurance that ABI, Congoleum
and other applicable Congoleum constituencies will be able to reach agreement on
the terms of any management services proposed to be provided by ABI to
reorganized Congoleum or any other proposed business relationships among ABI and
its affiliates and reorganized Congoleum.  Any plan of reorganization
for Congoleum that may be confirmed may have terms that differ significantly
from the terms contemplated by the Amended Joint Plan, including with respect to
any management services that may be provided by ABI to reorganized Congoleum and
ABI's claims and interests and other business relationships with reorganized
Congoleum.





In
addition, in view of ABI’s relationships with Congoleum, ABI will be affected by
Congoleum's negotiations regarding, and its pursuit of, any plan of
reorganization, and there can be no assurance as to what that impact, positive
or negative, might be.  In any event, the failure of Congoleum to
obtain confirmation and consummation of a Chapter 11 plan of reorganization
would have a material adverse effect on Congoleum's business, results of
operations or financial condition and could have a material adverse effect on
ABI’s business, results of operations or financial condition.





44


Any
plan of reorganization for Congoleum, if proposed, will be subject to numerous
conditions, approvals and other requirements, including the receipt of necessary
creditor, claimant and court approvals.  Certain insurers have
contested the reorganization plans previously filed by Congoleum in the
Bankruptcy Court and Congoleum is involved in ongoing litigation against its
insurers in a state court coverage action.  If the insurers are
successful in contesting the appeal of the Order of Dismissal, any future
reorganization plan or in denying coverage under the insurance policies, such
reorganization plan may not become effective.  Further, even if the
insurers are not successful in contesting the appeal of the Order of Dismissal,
any future plan that may be proposed or in denying coverage under the insurance
policies, Congoleum may be required to incur significant time and expense
litigating against the insurers, which could further delay any confirmation or
effectiveness of any reorganization plan.  In order to obtain
confirmation of any reorganization plan, Congoleum will need sufficient funds to
pay for the continued litigation with these insurers as well as the bankruptcy
proceedings generally.  In addition, for a plan of reorganization to
be confirmed, Congoleum will need to obtain and demonstrate the sufficiency of
exit financing.  Congoleum cannot presently determine the terms of
such financing, nor can there be any assurances of its success obtaining it,
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.  Moreover, the failure of any lender under any credit facility
Congoleum may have or obtain to fund requests for borrowings by Congoleum could
negatively impact Congoleum's business, results of operations or financial
condition and its chances of obtaining confirmation of any plan of
reorganization.





The
Company has its own direct asbestos liability as well.  The Company's
strategy remains to actively defend against and strategically settle its
asbestos claims on a case-by-case basis.  To date, the Company's
insurers have funded substantially all of the Company's liabilities and expenses
related to its asbestos liability under the Company's applicable insurance
policies.  The Company expects its insurance carriers will continue to
defend and indemnify it for a substantial amount of its asbestos liabilities for
the foreseeable future pursuant to an umbrella/first-layer excess policies
arrangement between the Company and the applicable insurance
carriers.  It is possible that asbestos claims may be asserted against
the Company alleging exposure allocable solely to years in which the Company’s
insurance policies excluded coverage for asbestos, that the policies providing
coverage under the umbrella/first-layer excess policies arrangement will
exhaust, or that the carriers responsible for such policies may at some future
date be unwilling or unable to meet their obligations under the policies or that
arrangement.  If ABI were to incur significant additional asbestos
liabilities for which it did not have insurance coverage or was not able to
receive recoveries under its insurance policies due to the carriers which
underwrote those policies being insolvent or otherwise, ABI may have to fund
such liabilities, which could have a material adverse effect on ABI's business,
results of operations or financial condition.





As
a result of Congoleum's significant liability and funding exposure for asbestos
claims, there can be no assurance that if Congoleum were to incur any
unforecasted or unexpected liability or disruption to its business or operations
it would be able to withstand that liability or disruption and continue as an
operating company.  Any significant increase of the Company's asbestos
liability and funding exposure would likely have a material adverse effect on
the Company's business, operations and financial condition and possibly its
ability to continue as a going concern.


45


In
the past, federal legislation has been proposed which would establish a national
trust to provide compensation to victims of asbestos-related injuries and
channel all current and future asbestos-related personal injury claims to that
trust.  In light of the numerous uncertainties surrounding this and
other possible asbestos legislation in the United States, ABI does not know what
effects any such legislation, if adopted, may have upon its or Congoleum's
businesses, results of operations or financial conditions, or upon any plan of
reorganization for Congoleum.





For
further information regarding the Company's and Congoleum's asbestos liability,
insurance coverage and strategies to resolve that asbestos liability, please see
Notes A, H and I of the Notes to Unaudited Consolidating Condensed Financial
Statements and "Management’s Discussion and Analysis of Financial Condition and
Results of Operations," which are included in Part I, Item 1 and Part I, Item 2,
respectively, of this Quarterly Report on Form 10-Q.





Elimination
of the Company’s equity interests in Congoleum could have a material adverse
impact on the business relationships between ABI and Congoleum and ABI’s
business, operations and financial condition.





ABI
expects that its ownership interest in Congoleum will be eliminated under any
plan or outcome in Congoleum’s Chapter 11 case.  There can be no
assurances as to the ownership structure under the terms of any new
reorganization plan for Congoleum that may be proposed or how such structure and
any other change in ownership and control may affect reorganized Congoleum’s
business, operations and financial condition, or its future relationships with
ABI.





ABI
provides management services to Congoleum, sells and purchases products to and
from Congoleum, and receives royalties from Congoleum.  Agreements for
these current intercompany arrangements expire on June 30, 2009, or upon the
effectiveness of a plan of reorganization for Congoleum, whichever comes
first.  It is not known whether ABI, Congoleum and the other parties
in interest will agree to extend the term of these arrangements, and if so, for
how long any extension would last or what the terms of any such extension and
related intercompany arrangements would be.  The terms of the Amended
Joint Plan provided for certain intercompany arrangements continuing for a two
year period ending on the second anniversary of the effective date of the
Amended Joint Plan pursuant to a new agreement to be entered into by ABI and
reorganized Congoleum on the effective date of the Amended Joint
Plan.  The Amended Joint Plan provided that the new agreement would be
in form and substance mutually agreeable to the Bondholders' Committee, the
Asbestos Claimants’ Committee and ABI.  Pursuant to that new
agreement, ABI's current chief executive officer would serve as a director and
the chief executive officer of reorganized Congoleum and ABI would have to make
available to reorganized Congoleum substantially all of his time during normal
working hours on an annual basis, ABI would have to make available to
reorganized Congoleum approximately 25% of the time of ABI's current president
and chief operating officer during normal working hours and on an annual basis,
and ABI's current chief financial officer would serve as the chief financial
officer of reorganized Congoleum and ABI would have to make available to
reorganized Congoleum approximately 50% of his time during normal working hours
and on an annual basis.  Expiration or termination of such
intercompany arrangements, failure to reach definitive agreement on final terms
of future arrangements between ABI and reorganized Congoleum, or failure to
consummate such arrangements in connection with the effectiveness of a plan of
reorganization for Congoleum or otherwise could have a material adverse impact
on the business relationships between ABI and Congoleum, and ABI’s business,
operations and financial condition.





46


The
Company and Congoleum sell their products on credit and their customers may fail
to pay, or they may extend the payment period, for products sold to them on
credit.





The
Company and Congoleum sell their products on credit.  Customers
purchasing goods on credit from the Company or Congoleum may default on their
obligations to pay, or they may extend the payment period, for products sold to
them on credit, which may result in an increased investment in accounts
receivable by the Company or Congoleum.  In light of the current
recession in the United States, the risk that the Company and Congoleum may
realize an increased investment in accounts receivable may be
greater.  To the extent the Company and Congoleum are unable to
collect receivables owed to them in a timely fashion, increased demands may be
placed on their respective working capital, which could have a material adverse
effect on their respective businesses, results of operations or financial
condition.





The
Company and its majority-owned subsidiary Congoleum may incur substantial
liability for environmental claims and compliance matters.





Due
to the nature of the Company's and its majority-owned subsidiary Congoleum's
businesses and certain of the substances which are or have been used, produced
or discharged by them, the Company's and Congoleum's operations and facilities
are subject to a broad range of federal, state, local and foreign legal and
regulatory provisions relating to the environment, including those regulating
the discharge of materials into the environment, the handling and disposal of
solid and hazardous substances and wastes and the remediation of contamination
associated with releases of hazardous substances at Company and Congoleum
facilities and off-site disposal locations.  The Company and Congoleum
have historically expended substantial amounts for compliance with existing
environmental laws or regulations, including environmental remediation costs at
both third-party sites and Company and Congoleum-owned sites.  The
Company and Congoleum will continue to be required to expend amounts in the
future because of the nature of their prior activities at their facilities, in
order to comply with existing environmental laws, and those amounts may be
substantial.  Although the Company and Congoleum believe that those
amounts should not have a material adverse effect on their respective financial
positions, there is no certainty that these amounts will not have a material
adverse effect on their respective financial positions because, as a result of
environmental requirements becoming increasingly strict, neither the Company nor
Congoleum is able to determine the ultimate cost of compliance with
environmental laws and enforcement policies.





Moreover,
in addition to potentially having to pay substantial amounts for compliance,
future environmental laws or regulations may require or cause the Company or
Congoleum to modify or curtail their operations, which could have a material
adverse effect on the Company's business, results of operations or financial
condition.





47


The
Company and its majority-owned subsidiary Congoleum, may incur substantial
liability for other product and general liability claims.





In
the ordinary course of their businesses, the Company and its majority-owned
subsidiary Congoleum become involved in lawsuits, administrative proceedings,
product liability 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.  These matters could have a material adverse effect on the
Company's business, results of operations or financial condition if the Company
or Congoleum, as applicable, is unable to successfully defend against or settle
these matters, and its insurance coverage is insufficient to satisfy any
judgments against it or settlements relating to these matters, or the Company or
Congoleum, as applicable, is unable to collect insurance proceeds relating to
these matters.





The
Company and its majority-owned subsidiary Congoleum are dependent upon a
continuous supply of raw materials from third party suppliers and would be
harmed if there were a significant, prolonged disruption in supply or increase
in its raw material costs.





The
Company and its majority-owned subsidiary Congoleum generally design and
engineer their own products.  Most of the raw materials required by
the Company for its manufacturing operations are available from multiple
sources; however, the Company does purchase some of its raw materials from a
single source or supplier.  Any significant delay in or disruption of
the supply of raw materials could substantially increase the Company's cost of
materials, require product reformulation or require qualification of new
suppliers, any one or more of which could materially adversely affect the
Company's business, results of operations or financial condition.  The
Company's majority-owned subsidiary Congoleum does not have readily available
alternative sources of supply for specific designs of transfer print paper,
which are produced utilizing print cylinders engraved to Congoleum's
specifications.  Although Congoleum does not anticipate any loss of
this source of supply, replacement could take a considerable period of time and
interrupt production of certain products, which could have a material adverse
affect on the Company's business, results of operations or financial
condition.  The Company and Congoleum have occasionally experienced
significant price increases for some of its raw materials.  Although
the Company has been able to obtain sufficient supplies of raw materials, there
can be no assurances that it may not experience difficulty in the future,
particularly if global supply conditions deteriorate, which could have a
material adverse effect on profit margins.  In addition, raw material
and energy costs increased sharply over the past year, particularly during the
first half of 2008, 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.





48


The
Company and its majority-owned subsidiary Congoleum operate in highly
competitive markets and some of their competitors have greater resources, and in
order to be successful, the Company and Congoleum must keep pace with and
anticipate changing customer preferences.





The
market for the Company's and its majority-owned subsidiary Congoleum's products
and services is highly competitive.  Some of their respective
competitors have greater financial and other resources and access to capital.
Furthermore, to the extent any of the Company's or Congoleum's competitors make
a filing under Chapter 11 of the Bankruptcy Code and emerge from bankruptcy as
continuing operating companies that have shed much of their pre-filing
liabilities, those competitors could have a cost competitive advantage over
Congoleum.  In addition, in order to maintain their competitive
positions, the Company and Congoleum may need to make substantial investments in
their businesses, including, as applicable, product development, manufacturing
facilities, distribution network and sales and marketing activities. Competitive
pressures may also result in decreased demand for their products and in the loss
of market share for their products. Moreover, due to the competitive nature of
their industries, they may be commercially restricted from raising or even
maintaining the sales prices of their products, which could result in the
incurrence of significant operating losses if their expenses were to increase or
otherwise represent an increased percentage of sales.





The
markets in which the Company and Congoleum compete are characterized by frequent
new product introductions and changing customer preferences. There can be no
assurance that the Company's and Congoleum's existing products and services will
be properly positioned in the market or that the Company and Congoleum will be
able to introduce new or enhanced products or services into their respective
markets on a timely basis, or at all, or that those new or enhanced products or
services will receive customer acceptance. The Company's and Congoleum's failure
to introduce new or enhanced products or services on a timely basis, keep pace
with industry or market changes or effectively manage the transitions to new
products, technologies or services could have a material adverse effect on the
Company's business, results of operations or financial condition.





The
Company and its majority-owned subsidiary Congoleum are subject to general
economic conditions and conditions specific to their respective
industries.





Global
and financial markets have recently been experiencing substantial
disruption.  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.





49


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.





The
Company and its majority-owned subsidiary Congoleum could realize shipment
delays, depletion of inventory and increased production costs resulting from
unexpected disruptions of operations at any of the Company's or Congoleum's
facilities.





The
Company's and its majority-owned subsidiary Congoleum's businesses depend upon
their ability to timely manufacture and deliver products that meet the needs of
their customers and the end users of their products.  If the Company
or Congoleum were to realize an unexpected, significant and prolonged disruption
of its operations at any of its facilities, including disruptions in its
manufacturing operations, it could result in shipment delays of its products,
depletion of its inventory as a result of reduced production and increased
production costs as a result of taking actions in an attempt to cure the
disruption or carry on its business while the disruption remains.  Any
resulting delay, depletion or increased production cost could result in
increased costs, lower revenues and damaged customer and product end user
relations, which could have a material adverse effect on the Company's business,
results of operations or financial condition.





The
Company and its majority-owned subsidiary Congoleum offer limited warranties on
their products which could result in the Company or Congoleum incurring
significant costs as a result of warranty claims.





The
Company and its majority-owned subsidiary Congoleum offer a limited warranty on
many of their products against manufacturing defects.  In addition, as
a part of its efforts to differentiate mid- and high-end products through color,
design and other attributes, Congoleum offers enhanced warranties with respect
to wear, moisture discoloration and other performance characteristics which
generally increase with the price of such products.  If the Company or
Congoleum were to incur a significant number of warranty claims, the resulting
warranty costs could be substantial.


50


The
Company and its majority-owned subsidiary Congoleum rely on a small number of
customers and distributors for a significant portion of their sales or to sell
their products.





The
Company's Tape Division principally sells its products through
distributors.  Sales to five unaffiliated customers accounted for
approximately 20% of the Company's Tape Division's net sales for the year ended
December 31, 2008.  The loss of the largest unaffiliated customer
and/or two or more of the other four unaffiliated customers would have a
material adverse effect on the Company's business, results of operations or
financial condition.





The
Company's Canadian Division sells its products through distributors and a direct
sales force. Sales to five unaffiliated customers accounted for approximately
22% of the Canadian Division's net sales for the year ended December 31,
2008.  The loss of the largest unaffiliated customer and/or two or
more of the other four unaffiliated customers would have a material adverse
effect on the Company's business, results of operations or financial
condition.





The
Company's majority-owned subsidiary Congoleum principally sells its products
through distributors.  Although Congoleum has more than one
distributor in some of its distribution territories and actively manages its
credit exposure to its distributors, the loss of a major distributor would have
a material adverse impact on the Company's business, results of operations, or
financial condition.  Congoleum derives a significant percentage of
its sales from two of its distributors.  These two distributors
accounted for approximately 63% of Congoleum's net sales for the year ended
December 31, 2008.





The
Company's subsidiary K&M sells its products through its own direct sales
force and, indirectly, through a wholly owned subsidiary and through third-party
sales representatives.  Three of K&M's customers accounted for
approximately 54% of its net sales for the year ended December 31, 2008. The
loss of the largest of these customers would have a material adverse effect on
K&M’s business, results of operations and financial condition and would
likely have a material adverse effect on the Company’s business, results of
operations or financial condition.





The
Company and its majority-owned subsidiary Congoleum depend on key executives to
run their businesses, and the loss of any of these executives would likely harm
the Company's business.





The
Company and its majority-owned subsidiary Congoleum depend on key executives to
run their businesses.  In particular, three of the persons that serve
as key executives at the Company also serve as key executives at
Congoleum.  The Company's future success will depend largely upon the
continued service of these key executives, all of whom have no employment
contract with the Company or Congoleum, as applicable, and may terminate their
employment at any time without notice.  Although certain key
executives of the Company and Congoleum are, directly or indirectly, large
shareholders of the Company or Congoleum, and thus are less likely to terminate
their employment, the loss of any key executive, or the failure by the key
executive to perform in his current position, could have a material adverse
effect on the Company's business, results of operations or financial
condition.





51


Item
3.  Defaults Upon Senior Securities





On
August 3, 1998, Congoleum issued $100 million of its 8.625% Senior Notes due in
August 2008 priced at 99.505% to yield 8.70%.  The Senior Notes are
redeemable at the option of Congoleum, in whole or in part, at any time on or
after August 1, 2003 at predetermined redemption prices (ranging from 104% to
100%), plus accrued and unpaid interest to the date of
redemption.  The indenture governing the Senior Notes includes certain
restrictions on additional indebtedness and uses of cash, including dividend
payments.  The commencement of Congoleum’s Chapter 11 proceedings
constituted an event of default under the indenture governing the Senior
Notes.  During 2003, Congoleum and the trustee under the indenture
governing the Senior Notes amended the indenture, and sufficient note holders
consented, to explicitly permit Congoleum to take steps in connection with
preparing and filing its prepackaged plan of reorganization under Chapter 11 of
the Bankruptcy Code.  The amount of accrued interest on the Senior
Notes that was not paid as of the bankruptcy filing on December 31, 2003 was
approximately $3.6 million.  The accrued pre-petition interest and the
principal amount of the Senior Notes are included in “Liabilities Subject to
Compromise” as of March 31, 2009 (see Note F of the Notes to the Unaudited
Consolidating Condensed Financial Statements contained in Part I, Item 1 of this
Quarterly Report on Form 10-Q).   During 2007, Congoleum reversed
all accrued post-petition interest on the Senior Notes to reflect the terms of
the Joint Plan.





Item
5.  Other Information





Entry into the Limited
Waiver and Modification Agreement





On
May 15, 2009, the Company and its subsidiaries, K&M Associates L.P. and
American Biltrite (Canada) Ltd., entered into a limited waiver and modification
agreement (the “Waiver”) to the Company’s credit agreement (the “Credit
Agreement”) with the Bank of America, N.A. (“BofA”) lenders under the Credit
Agreement, BofA as the domestic administrative agent and collateral agent, and
BofA, acting through its Canada branch, as the Canadian administrative
agent.  The Waiver is effective as of the same day it was entered
into.  The Company’s subsidiaries that serve as guarantors of the
Company’s obligations under the Credit Agreement also entered into the
Waiver.  The Company, K&M Associates L.P. and American Biltrite
(Canada) Ltd. are borrowers under the Credit Agreement.  The Credit
Agreement governs the credit facility that is the Company’s primary source of
borrowings.  References in this Part II, Item 5 of this Quarterly
Report on Form 10-Q to the Company with respect to the Waiver and the Credit
Agreement also include the other borrowers, and the guarantors of the
obligations, under the Credit Agreement, as applicable.





52


Pursuant
to the Waiver, BofA granted the Company a temporary waiver through June 30, 2009
of the Company’s default under the Credit Agreement for failure to comply as of
March 31, 2009 with the financial covenant requiring that the Company’s
Consolidated Adjusted EBITDA for the four consecutive fiscal quarters then
ending exceed 100% of the Company’s Consolidated Fixed Charges for the 12-month
period ending on that measurement date, as determined under the Credit
Agreement.  The temporary waiver expires on June 30, 2009, subject to
possible earlier termination or expiration upon the occurrence of certain
specified events.  The Waiver also reduced the maximum borrowing limit
under the revolving debt portion of the credit facility from $30 million to $24
million.  The Waiver 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 requires the Company to comply with various
covenants, including restrictions on:  incurring or granting liens;
entering into agreements that limit the Company’s ability to incur or grant
liens on its real property; incurring or assuming indebtedness; disposing of
assets other than the sale of inventory in the ordinary course of business;
making investments, loans or advances; making distributions; and paying
management, consulting or similar fees.  The Waiver also requires the
Company to deliver to BofA, by May 20, 2009, a mortgage covering certain of the
Company’s real property located in the State of New Jersey.  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
foregoing description of the Waiver is a summary and is qualified in its
entirety to the full terms and conditions of the Waiver.  A copy of
the Waiver is attached to this Quarterly Report on Form 10-Q as Exhibits 4.1 and
10.1 and is incorporated by reference herein.





Earnings Press
Release





On
May 15, 2009, the Company issued a press release announcing its financial
results for the three months ended March 31, 2009.  A copy of that
press release is being furnished to the Securities and Exchange Commission
pursuant to this Part II, Item 5 of Form 10-Q and is attached hereto as Exhibit
99.1.


53


Item
6.  Exhibits





Exhibit
      No.
            Description3.1    I
            Restated
      Certificate of Incorporation3.2    II
            By-Laws,
      amended and restated as of November 7, 20074.1
            Limited
      Waiver and Modification Agreement to Credit Agreement, dated as of May 15,
      2009, by and among American Biltrite Inc., K&M Associates L.P.,
      American Biltrite (Canada) Ltd., the lenders to the agreement, Bank of
      America, N.A., as the domestic administrative agent and collateral agent,
      and Bank of America, N.A., acting through its Canada branch, as the
      Canadian administrative agent10.1
            Limited
      Waiver and Modification Agreement to Credit Agreement, dated as of May 15,
      2009, by and among American Biltrite Inc., K&M Associates L.P.,
      American Biltrite (Canada) Ltd., the lenders to the agreement, Bank of
      America, N.A., as the domestic administrative agent and collateral agent,
      and Bank of America, N.A., acting through its Canada branch, as the
      Canadian administrative agent (a copy of which is filed as Exhibit
      4.1)10.2   III
            Amendment
      No. 11 to Ratification and Amendment Agreement and Amendment No. 13 to
      Loan and Security Agreement dated as of March 16, 200931.1
            Certification
      of the Principal Executive Officer of the Registrant Pursuant to Rule
      13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as
      amended31.2
            Certification
      of the Principal Financial Officer of the Registrant Pursuant to Rule
      13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as
      amended32
            Certification
      of the Chief Executive Officer and Chief Financial Officer of the
      Registrant pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
      Section 906 of the Sarbanes-Oxley Act of 200299.1
            Press
      release dated May 15, 2009


___________________________





I
            Incorporated
      by reference to the exhibits filed with the Company’s Annual Report on
      Form 10-K for the year ended December 31, 1996 and filed with the
      Securities and Exchange Commission on March 27, 1997
    (1-4773)II
            Incorporated
      by reference to the exhibits filed with the Company's Quarterly Report on
      Form 10-Q for the quarter ended September 30, 2007 and filed with the
      Securities and Exchange Commission on November 14, 2007III
            Incorporated
      by reference to the exhibits filed with the Company’s Annual Report on
      Form 10-K for the year ended December 31, 2008 and filed with the
      Securities and Exchange Commission on March 30,
  2009


54










SIGNATURE







Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.











AMERICAN BILTRITE
      INC.(Registrant)Date:   May
      15, 2009
            BY:
            /s/  Howard
      N. Feist IIIHoward
      N. Feist IIIVice
      President-Finance(Duly
      Authorized Officer andPrincipal
      Financial and ChiefAccounting
      Officer)





55


INDEX
OF EXHIBITS





Exhibit
      No.
            Description3.1    I
            Restated
      Certificate of Incorporation3.2    II
            By-Laws,
      amended and restated as of November 7, 20074.1
            Limited
      Waiver and Modification Agreement to Credit Agreement, dated as of May 15,
      2009, by and among American Biltrite Inc., K&M Associates L.P.,
      American Biltrite (Canada) Ltd., the lenders to the agreement, Bank of
      America, N.A., as the domestic administrative agent and collateral agent,
      and Bank of America, N.A., acting through its Canada branch, as the
      Canadian administrative agent10.1
            Limited
      Waiver and Modification Agreement to Credit Agreement, dated as of May 15,
      2009, by and among American Biltrite Inc., K&M Associates L.P.,
      American Biltrite (Canada) Ltd., the lenders to the agreement, Bank of
      America, N.A., as the domestic administrative agent and collateral agent,
      and Bank of America, N.A., acting through its Canada branch, as the
      Canadian administrative agent (a copy of which is filed as Exhibit
      4.1)10.2   III
            Amendment
      No. 11 to Ratification and Amendment Agreement and Amendment No. 13 to
      Loan and Security Agreement dated as of March 16, 200931.1
            Certification
      of the Principal Executive Officer of the Registrant Pursuant to Rule
      13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as
      amended31.2
            Certification
      of the Principal Financial Officer of the Registrant Pursuant to Rule
      13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as
      amended32
            Certification
      of the Chief Executive Officer and Chief Financial Officer of the
      Registrant pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
      Section 906 of the Sarbanes-Oxley Act of 200299.1
            Press
      release dated May 15, 2009


___________________________





I
            Incorporated
      by reference to the exhibits filed with the Company’s Annual Report on
      Form 10-K for the year ended December 31, 1996 and filed with the
      Securities and Exchange Commission on March 27, 1997
    (1-4773)II
            Incorporated
      by reference to the exhibits filed with the Company's Quarterly Report on
      Form 10-Q for the quarter ended September 30, 2007 and filed with the
      Securities and Exchange Commission on November 14, 2007III
            Incorporated
      by reference to the exhibits filed with the Company’s Annual Report on
      Form 10-K for the year ended December 31, 2008 and filed with the
      Securities and Exchange Commission on March 30,
  2009