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 September 30, 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 November 13, 2009Common
      Stock
            
            3,441,531
      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 September 30, 2009 (Unaudited) and
      December 31, 2008
              1Consolidating
      Condensed Balance Sheets – Liabilities and Stockholders’ Equity as of
      September 30, 2009 (Unaudited) and December 31, 2008
              2Consolidating
      Condensed Statements of Operations (Unaudited) For the Three Months Ended
      September 30, 2009 and 2008
              3Consolidating
      Condensed Statements of Operations (Unaudited) For the Nine Months Ended
      September 30, 2009 and 2008
              4Consolidating
      Condensed Statements of Cash Flows – Operating Activities (Unaudited) For
      the Nine Months Ended September 30, 2009 and 2008
              5Consolidating
      Condensed Statements of Cash Flows – Investing & Financing Activities
      (Unaudited) For the Nine Months Ended September 30, 2009 and
      2008
              6Notes
      to Unaudited Consolidating Condensed Financial Statements
              7Item
      2.
              Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
              31Item 4T.
              Controls
      and Procedures
              46PART II.
              OTHER
      INFORMATIONItem
      1.
              Legal
      Proceedings
              47Item 1A.
              Risk
      Factors
              47Item
      3.
              Defaults
      Upon Senior Securities
              58Item
      5.
              Defaults
      Other Information
              58Item
      6.
              Exhibits
              59Signature
              
              61




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 BiltriteSeptember 30,
                2009
              
              
              December 31,
                2008
              
              
              September 30,
                2009
              
              
              December 31,
                2008
              
              
              September 30,
                2009
              
              
              December 31,
                2008
              
              
              September 30,
                2009
              
              
              December 31,
                2008(Unaudited)
              
              
              
              
              
              (Unaudited)
              
              
              
              
              
              (Unaudited)
              
              
              
              
              
              (Unaudited)AssetsCurrent
      Assets:Cash
      and cash equivalents
              
              $
              14,817
              
              
              $
              18,072
              
              
              
              
              
              
              
              
              $
              14,069
              
              
              $
              15,077
              
              
              $
              748
              
              
              $
              2,995Restricted
      cash
              
              
              30,770
              
              
              
              29,680
              
              
              
              
              
              
              
              
              
              30,770
              
              
              
              29,680Short-term
      investments
              
              
              2,400
              
              
              
              -
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,400
              
              
              
              -Accounts
      receivable, net
              
              
              41,014
              
              
              
              36,627
              
              
              $
              (454
              )
              
              $
              (367
              )
              
              
              16,078
              
              
              
              13,789
              
              
              
              25,390
              
              
              
              23,205Inventories
              
              
              59,843
              
              
              
              79,082
              
              
              
              (50
              )
              
              
              (89
              )
              
              
              24,503
              
              
              
              35,814
              
              
              
              35,390
              
              
              
              43,357Taxes
      receivable
              
              
              806
              
              
              
              1,334
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              806
              
              
              
              1,334Prepaid
      expense & other current assets
              
              
              6,804
              
              
              
              6,406
              
              
              
              
              
              
              
              
              
              
              
              3,570
              
              
              
              3,922
              
              
              
              3,234
              
              
              
              2,484Total
      current assets
              
              
              156,454
              
              
              
              171,201
              
              
              
              (504
              )
              
              
              (456
              )
              
              
              88,990
              
              
              
              98,282
              
              
              
              67,968
              
              
              
              73,375Property,
      plant & equipment, net
              
              
              82,854
              
              
              
              88,466
              
              
              
              
              
              
              
              
              
              
              
              51,205
              
              
              
              56,520
              
              
              
              31,649
              
              
              
              31,946Other
      assets:Insurance
      for asbestos-related liabilities
              
              
              13,509
              
              
              
              13,509
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              13,509
              
              
              
              13,509Other
      assets
              
              
              24,565
              
              
              
              21,825
              
              
              
              (109
              )
              
              
              (117
              )
              
              
              17,065
              
              
              
              17,065
              
              
              
              7,609
              
              
              
              4,87738,074
              
              
              
              35,334
              
              
              
              (109
              )
              
              
              (117
              )
              
              
              17,065
              
              
              
              17,065
              
              
              
              21,118
              
              
              
              18,386Total
      assets
              
              $
              277,382
              
              
              $
              295,001
              
              
              $
              (613
              )
              
              $
              (573
              )
              
              $
              157,260
              
              
              $
              171,867
              
              
              $
              120,735
              
              
              $
              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 BiltriteSeptember 30,
                2009
              
              
              December 31,2008
              
              
              September 30,
                2009
              
              
              December 31,2008
              
              
              September 30,
                2009
              
              
              December 31,2008
              
              
              September 30,
                2009
              
              
              December 31,2008(Unaudited)
              
              
              
              
              
              (Unaudited)
              
              
              
              
              
              (Unaudited)
              
              
              
              
              
              (Unaudited)LiabilitiesCurrent
      liabilities:Accounts
      payable
              
              $
              15,034
              
              
              $
              16,298
              
              
              $
              (454
              )
              
              $
              (366
              )
              
              $
              6,277
              
              
              $
              7,472
              
              
              $
              9,211
              
              
              $
              9,192Accrued
      expenses
              
              
              31,736
              
              
              
              31,880
              
              
              
              
              
              
              
              
              
              
              
              14,709
              
              
              
              16,897
              
              
              
              17,027
              
              
              
              14,983Asbestos-related
      liabilities
              
              
              44,792
              
              
              
              50,022
              
              
              
              
              
              
              
              
              
              
              
              44,792
              
              
              
              50,022Deferred
      income taxes
              
              
              6,533
              
              
              
              6,533
              
              
              
              
              
              
              
              
              
              
              
              6,533
              
              
              
              6,533Notes
      payable
              
              
              25,427
              
              
              
              32,747
              
              
              
              
              
              
              
              
              
              
              
              12,442
              
              
              
              13,994
              
              
              
              12,985
              
              
              
              18,753Current
      portion of long-term debt
              
              
              1,447
              
              
              
              5,611
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,447
              
              
              
              5,611Liabilities
      subject to compromise
              
              
              4,997
              
              
              
              4,997
              
              
              
              
              
              
              
              
              
              
              
              4,997
              
              
              
              4,997Total
      current liabilities
              
              
              129,966
              
              
              
              148,088
              
              
              
              (454
              )
              
              
              (366
              )
              
              
              89,750
              
              
              
              99,915
              
              
              
              40,670
              
              
              
              48,539Long-term
      debt, less current portion
              
              
              7,378
              
              
              
              1,112
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              7,378
              
              
              
              1,112Asbestos-related
      liabilities
              
              
              13,563
              
              
              
              13,563
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              13,563
              
              
              
              13,563Other
      liabilities
              
              
              17,543
              
              
              
              16,801
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              17,543
              
              
              
              16,801Liabilities
      subject to compromise
              
              
              163,924
              
              
              
              161,386
              
              
              
              (109
              )
              
              
              (117
              )
              
              
              164,033
              
              
              
              161,503Total
      liabilities
              
              
              332,374
              
              
              
              340,950
              
              
              
              (563
              )
              
              
              (483
              )
              
              
              253,783
              
              
              
              261,418
              
              
              
              79,154
              
              
              
              80,015EquityCommon
      stock
              
              
              46
              
              
              
              46
              
              
              
              (94
              )
              
              
              (93
              )
              
              
              94
              
              
              
              93
              
              
              
              46
              
              
              
              46Additional
      paid-in capital
              
              
              19,899
              
              
              
              19,749
              
              
              
              (49,393
              )
              
              
              (49,386
              )
              
              
              49,393
              
              
              
              49,386
              
              
              
              19,899
              
              
              
              19,749Less
      treasury shares
              
              
              (15,132
              )
              
              
              (15,132
              )
              
              
              7,813
              
              
              
              7,813
              
              
              
              (7,813
              )
              
              
              (7,813
              )
              
              
              (15,132
              )
              
              
              (15,132
              )Accumulated
      other comprehensive loss
              
              
              (51,060
              )
              
              
              (53,250
              )
              
              
              6,111
              
              
              
              6,110
              
              
              
              (51,179
              )
              
              
              (51,179
              )
              
              
              (5,992
              )
              
              
              (8,181
              )(Deficit)
      retained earnings
              
              
              (6,519
              )
              
              
              1,803
              
              
              
              38,651
              
              
              
              35,466
              
              
              
              (87,018
              )
              
              
              (80,038
              )
              
              
              41,848
              
              
              
              46,375Total stockholders’
      (deficit) equity of controlling interests
              
              
              (52,766
              )
              
              
              (46,784
              )
              
              
              3,088
              
              
              
              (90
              )
              
              
              (96,523
              )
              
              
              (89,551
              )
              
              
              40,669
              
              
              
              42,857Noncontrolling
      interests
              
              
              (2,226
              )
              
              
              835
              
              
              
              (3,138
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              912
              
              
              
              835Total
      (deficit) equity
              
              
              (54,992
              )
              
              
              (45,949
              )
              
              
              (50
              )
              
              
              (90
              )
              
              
              (96,523
              )
              
              
              (89,551
              )
              
              
              41,581
              
              
              
              43,692Total
      liabilities and equity
              
              $
              277,382
              
              
              $
              295,001
              
              
              $
              (613
              )
              
              $
              (573
              )
              
              $
              157,260
              
              
              $
              171,867
              
              
              $
              120,735
              
              
              $
              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 September 30, 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
              
              $
              83,883
              
              
              $
              97,351
              
              
              $
              -
              
              
              $
              -
              
              
              $
              37,359
              
              
              $
              46,085
              
              
              $
              46,524
              
              
              $
              51,266Cost
      of products sold
              
              
              65,234
              
              
              
              75,330
              
              
              
              (310
              )
              
              
              (377
              )
              
              
              31,871
              
              
              
              37,765
              
              
              
              33,673
              
              
              
              37,942Selling,
      general & administrative expenses
              
              
              19,602
              
              
              
              21,269
              
              
              
              
              
              
              
              
              
              
              
              7,208
              
              
              
              7,768
              
              
              
              12,394
              
              
              
              13,501Asbestos-related
      reorganization charges
              
              
              -
              
              
              
              11,491
              
              
              
              
              
              
              
              
              
              
              
              -
              
              
              
              11,491(Loss)
      income from operations
              
              
              (953
              )
              
              
              (10,739
              )
              
              
              310
              
              
              
              377
              
              
              
              (1,720
              )
              
              
              (10,939
              )
              
              
              457
              
              
              
              (177
              )Other
      income (expense)Interest
      income
              
              
              11
              
              
              
              64
              
              
              
              
              
              
              
              
              
              
              
              8
              
              
              
              49
              
              
              
              3
              
              
              
              15Interest
      expense
              
              
              (292
              )
              
              
              (360
              )
              
              
              
              
              
              
              
              
              
              
              -
              
              
              
              (43
              )
              
              
              (292
              )
              
              
              (317
              )Other
      income (expense)
              
              
              139
              
              
              
              (945
              )
              
              
              (300
              )
              
              
              (360
              )
              
              
              (182
              )
              
              
              (377
              )
              
              
              621
              
              
              
              (208
              )(142
              )
              
              
              (1,241
              )
              
              
              (300
              )
              
              
              (360
              )
              
              
              (174
              )
              
              
              (371
              )
              
              
              332
              
              
              
              (510
              )(Loss)
      income before taxes
              
              
              (1,095
              )
              
              
              (11,980
              )
              
              
              10
              
              
              
              17
              
              
              
              (1,894
              )
              
              
              (11,310
              )
              
              
              789
              
              
              
              (687
              )Provision
      for (benefit from) income taxes
              
              
              324
              
              
              
              (1,631
              )
              
              
              
              
              
              
              
              
              
              
              35
              
              
              
              (1,185
              )
              
              
              289
              
              
              
              (446
              )Net
      (loss) income
              
              
              (1,419
              )
              
              
              (10,349
              )
              
              
              10
              
              
              
              17
              
              
              
              (1,929
              )
              
              
              (10,125
              )
              
              
              500
              
              
              
              (241
              )Noncontrolling
      interests
              
              
              743
              
              
              
              (17
              )
              
              
              867
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (124
              )
              
              
              (17
              )(Loss)
      income from continuing operations
              
              
              (676
              )
              
              
              (10,366
              )
              
              
              877
              
              
              
              17
              
              
              
              (1,929
              )
              
              
              (10,125
              )
              
              
              376
              
              
              
              (258
              )Discontinued
      operation
              
              
              -
              
              
              
              -
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              -
              
              
              
              -Net
      (loss) income attributable to controlling interests
              
              $
              (676
              )
              
              $
              (10,366
              )
              
              $
              877
              
              
              $
              17
              
              
              $
              (1,929
              )
              
              $
              (10,125
              )
              
              $
              376
              
              
              $
              (258
              )
 
 Basic
      and Diluted2009
              
              
              2008Loss
      from continuing operations per common share
              
              $
              (0.20
              )
              
              $
              (3.01
              )Discontinued
      operation
              
              
              -
              
              
              
              -Net
      loss attributable to controlling interests per common
share
              
              $
              (0.20
              )
              
              $
              (3.01
              )Weighted
      average number of common and equivalent shares outstanding
              
              
              3,441,551
              
              
              
              3,441,551
 
 See
accompanying notes to consolidating condensed financial
statements.
  3
  AMERICAN
BILTRITE INC. AND SUBSIDIARIES
 CONSOLIDATING
CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
 For
the Nine Months Ended September 30, 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
              
              $
              235,266
              
              
              $
              294,347
              
              
              $
              -
              
              
              $
              -
              
              
              $
              106,815
              
              
              $
              140,948
              
              
              $
              128,451
              
              
              $
              153,399Cost
      of products sold
              
              
              186,338
              
              
              
              225,600
              
              
              
              (813
              )
              
              
              (1,077
              )
              
              
              90,690
              
              
              
              111,866
              
              
              
              96,461
              
              
              
              114,811Selling,
      general & administrative expenses
              
              
              59,223
              
              
              
              67,234
              
              
              
              
              
              
              
              
              
              
              
              22,907
              
              
              
              26,138
              
              
              
              36,316
              
              
              
              41,096Asbestos-related
      reorganization charges
              
              
              -
              
              
              
              11,491
              
              
              
              
              
              
              
              
              
              
              
              -
              
              
              
              11,491(Loss)
      income from operations
              
              
              (10,295
              )
              
              
              (9,978
              )
              
              
              813
              
              
              
              1,077
              
              
              
              (6,782
              )
              
              
              (8,547
              )
              
              
              (4,326
              )
              
              
              (2,508
              )Other
      income (expense)Interest
      income
              
              
              16
              
              
              
              1,427
              
              
              
              
              
              
              
              
              
              
              
              3
              
              
              
              1,241
              
              
              
              13
              
              
              
              186Interest
      expense
              
              
              (945
              )
              
              
              (1,679
              )
              
              
              
              
              
              
              
              
              
              
              (200
              )
              
              
              (240
              )
              
              
              (745
              )
              
              
              (1,439
              )Other
      (expense) income
              
              
              125
              
              
              
              (858
              )
              
              
              (774
              )
              
              
              (1,059
              )
              
              
              49
              
              
              
              (791
              )
              
              
              850
              
              
              
              992(804
              )
              
              
              (1,110
              )
              
              
              (774
              )
              
              
              (1,059
              )
              
              
              (148
              )
              
              
              210
              
              
              
              118
              
              
              
              (261
              )(Loss)
      income before taxes
              
              
              (11,099
              )
              
              
              (11,088
              )
              
              
              39
              
              
              
              18
              
              
              
              (6,930
              )
              
              
              (8,337
              )
              
              
              (4,208
              )
              
              
              (2,769
              )Provision
      for (benefit from) income taxes
              
              
              292
              
              
              
              (549
              )
              
              
              
              
              
              
              
              
              
              
              50
              
              
              
              (103
              )
              
              
              242
              
              
              
              (446
              )Net
      (loss) income
              
              
              (11,391
              )
              
              
              (10,539
              )
              
              
              39
              
              
              
              18
              
              
              
              (6,980
              )
              
              
              (8,234
              )
              
              
              (4,450
              )
              
              
              (2,323
              )Noncontrolling
      interests
              
              
              3,061
              
              
              
              50
              
              
              
              3,138
              
              
              
              -
              
              
              
              
              
              
              
              
              
              
              
              (77
              )
              
              
              50(Loss)
      income from continuing operations
              
              
              (8,330
              )
              
              
              (10,489
              )
              
              
              3,177
              
              
              
              18
              
              
              
              (6,980
              )
              
              
              (8,234
              )
              
              
              (4,527
              )
              
              
              (2,273
              )Discontinued
      operation
              
              
              -
              
              
              
              1,025
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              -
              
              
              
              1,025Net
      (loss) income attributable to controlling interests
              
              $
              (8,330
              )
              
              $
              (9,464
              )
              
              $
              3,177
              
              
              $
              18
              
              
              $
              (6,980
              )
              
              $
              (8,234
              )
              
              $
              (4,527
              )
              
              $
              (1,248
              )
 
 Basic
      and Diluted2009
              
              
              2008Loss
      from continuing operations per common share
              
              $
              (2.42
              )
              
              $
              (3.05
              )Discontinued
      operation
              
              
              -
              
              
              
              0.30Net
      loss attributable to controlling interests per common
share
              
              $
              (2.42
              )
              
              $
              (2.75
              )Weighted
      average number of common and equivalent shares outstanding
              
              
              3,441,551
              
              
              
              3,441,551
 
 See
accompanying notes to consolidating condensed financial
statements.
  4
  AMERICAN
BILTRITE INC. AND SUBSIDIARIES
 CONSOLIDATING
CONDENSED STATEMENTS OF CASH FLOWS – OPERATING ACTIVITIES
(Unaudited)
 For
the Nine Months Ended September 30, 2009 and 2008
 (In
thousands of dollars)
 
 ABI Consolidated
              
              
              Eliminations
              
              
              Congoleum
              
              
              American Biltrite2009
              
              
              2008
              
              
              2009
              
              
              2008
              
              
              2009
              
              
              2008
              
              
              2009
              
              
              2008Operating
      activitiesNet
      (loss) income
              
              $
              (11,391
              )
              
              $
              (9,514
              )
              
              $
              39
              
              
              $
              18
              
              
              $
              (6,980
              )
              
              $
              (8,234
              )
              
              $
              (4,450
              )
              
              $
              (1,298
              )Net
      income from discontinued operation
              
              
              -
              
              
              
              (1,025
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              -
              
              
              
              (1,025
              )(Loss)
      income from continuing operations
              
              
              (11,391
              )
              
              
              (10,539
              )
              
              
              39
              
              
              
              18
              
              
              
              (6,980
              )
              
              
              (8,234
              )
              
              
              (4,450
              )
              
              
              (2,323
              )Adjustments
      to reconcile net (loss) income to net cash provided (used) by operating
      activities:Depreciation
      and amortization
              
              
              10,453
              
              
              
              11,686
              
              
              
              
              
              
              
              
              
              
              
              7,242
              
              
              
              7,781
              
              
              
              3,211
              
              
              
              3,905Asbestos-related
      reorganization charges
              
              
              -
              
              
              
              11,491
              
              
              
              
              
              
              
              
              
              
              
              -
              
              
              
              11,491Stock
      compensation expense
              
              
              157
              
              
              
              107
              
              
              
              
              
              
              
              
              
              
              
              7
              
              
              
              14
              
              
              
              150
              
              
              
              93Change
      in operating assets and liabilities:Accounts
      and notes receivable
              
              
              (3,782
              )
              
              
              34
              
              
              
              80
              
              
              
              247
              
              
              
              (2,289
              )
              
              
              (1,809
              )
              
              
              (1,573
              )
              
              
              1,596Inventories
              
              
              21,353
              
              
              
              (4,447
              )
              
              
              (39
              )
              
              
              (18
              )
              
              
              11,311
              
              
              
              (1,548
              )
              
              
              10,081
              
              
              
              (2,881
              )Prepaid
      expenses and other assets
              
              
              438
              
              
              
              (1,499
              )
              
              
              
              
              
              
              
              
              
              
              353
              
              
              
              (946
              )
              
              
              85
              
              
              
              (553
              )Proceeds
      from legal fees disgorgement
              
              
              -
              
              
              
              9,168
              
              
              
              
              
              
              
              
              
              
              
              -
              
              
              
              9,168Accounts
      payable and accrued expenses
              
              
              (608
              )
              
              
              (4,318
              )
              
              
              (80
              )
              
              
              (247
              )
              
              
              (2,244
              )
              
              
              (5,209
              )
              
              
              1,716
              
              
              
              1,138Asbestos-related
      expenses
              
              
              (6,317
              )
              
              
              (12,519
              )
              
              
              
              
              
              
              
              
              
              
              (6,317
              )
              
              
              (12,519
              )Other
              
              
              2,225
              
              
              
              (358
              )
              
              
              
              
              
              
              
              
              
              
              2,478
              
              
              
              (137
              )
              
              
              (253
              )
              
              
              (221
              )Net
      cash provided (used) by operating activities of continuing
      operations
              
              $
              12,528
              
              
              $
              (1,194
              )
              
              $
              -
              
              
              $
              -
              
              
              $
              3,561
              
              
              $
              (1,948
              )
              
              $
              8,967
              
              
              $
              754
 
 See
accompanying notes to consolidating condensed financial
statements.
  5
  AMERICAN
BILTRITE INC. AND SUBSIDIARIES
 CONSOLIDATING
CONDENSED STATEMENTS OF CASH FLOWS – INVESTING & FINANCING ACTIVITIES
(Unaudited)
 For
the Nine Months Ended September 30, 2009 and 2008
 (In
thousands of dollars)
 
 ABI Consolidated
              
              
              Eliminations
              
              
              Congoleum
              
              
              American Biltrite2009
              
              
              2008
              
              
              2009
              
              
              2008
              
              
              2009
              
              
              2008
              
              
              2009
              
              
              2008Investing
      activitiesInvestments
      in property, plant and equipment
              
              $
              (3,427
              )
              
              $
              (3,749
              )
              
              $
              -
              
              
              $
              -
              
              
              $
              (1,927
              )
              
              $
              (2,746
              )
              
              $
              (1,500
              )
              
              $
              (1,003
              )Purchase
      of short-term investments
              
              
              (3,400
              )
              
              
              -
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (3,400
              )
              
              
              -Proceeds
      from sale of short-term investments
              
              
              1,000
              
              
              
              -
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,000
              
              
              
              -Net
      cash used by investing activities
              
              
              (5,827
              )
              
              
              (3,749
              )
              
              
              -
              
              
              
              -
              
              
              
              (1,927
              )
              
              
              (2,746
              )
              
              
              (3,900
              )
              
              
              (1,003
              )Financing
      activitiesNet
      short-term borrowings (repayments)
              
              
              (7,676
              )
              
              
              (2,162
              )
              
              
              
              
              
              
              
              
              
              
              (1,552
              )
              
              
              2,086
              
              
              
              (6,124
              )
              
              
              (4,248
              )Payments
      on long-term debt
              
              
              (5,898
              )
              
              
              (1,320
              ))
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (5,898
              )
              
              
              (1,320
              )Proceeds
      from borrowings on long-term debt
              
              
              8,000
              
              
              
              -
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              8,000
              
              
              
              -Refinancing
      costs
              
              
              (2,110
              )
              
              
              -
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (2,110
              )
              
              
              -Funding
      of letters of credit
              
              
              (714
              )
              
              
              -
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (714
              )
              
              
              -Collection
      on Janus note receivable
              
              
              -
              
              
              
              4,034
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              -
              
              
              
              4,034Net
      change in restricted cash
              
              
              (1,090
              )
              
              
              38
              
              
              
              
              
              
              
              
              
              
              
              (1,090
              )
              
              
              38Net
      cash (used) provided by financing activities
              
              
              (9,488
              )
              
              
              590
              
              
              
              -
              
              
              
              -
              
              
              
              (2,642
              )
              
              
              2,124
              
              
              
              (6,846
              )
              
              
              (1,534
              )Effect
      of foreign exchange rate changes on cash
              
              
              (468
              )
              
              
              800
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (468
              )
              
              
              800Net decrease
      in cash
              
              
              (3,255
              )
              
              
              (3,553
              )
              
              
              -
              
              
              
              -
              
              
              
              (1,008
              )
              
              
              (2,570
              )
              
              
              (2,247
              )
              
              
              (983
              )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
              
              $
              14,817
              
              
              $
              26,632
              
              
              $
              -
              
              
              $
              -
              
              
              $
              14,069
              
              
              $
              23,757
              
              
              $
              748
              
              
              $
              2,575
 
 See
accompanying notes to consolidating condensed financial statements.
 
  6




AMERICAN
BILTRITE INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONSOLIDATING CONDENSED


FINANCIAL
STATEMENTS


September
30, 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 (“U.S. GAAP”) for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by U.S. GAAP 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 nine months ended September 30, 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 U.S. GAAP for complete financial
statements.





During
2003, the Company decided to discontinue the operations of its Janus Flooring
Corporation subsidiary ("Janus"), a manufacturer of pre-finished hardwood
flooring, and sell the related assets. Historical financial results were
restated to reflect the classification of Janus as a discontinued operation.
Results of Janus, including charges resulting from the shutdown, are being
reported as a discontinued operation. In April 2006, the Company completed the
sale of Janus’ remaining building and land (see Note N). As a result of the sale
of property, the discontinued operation was effectively dissolved during 2006.
As of December 31, 2006, the Company merged Janus with and into American
Biltrite Inc.’s subsidiary, American Biltrite (Canada) Ltd. ("AB Canada"),
primarily for the purposes of utilizing Janus’ prior years’ net operating losses
against future taxable income.








7





Note A - Basis of
Presentation (continued)





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"), and on august 17, 2009,
the United States District Court for the District of New Jersey (the “District
Court”) withdrew Congoleum’s chapter 11 case from the Bankruptcy Court and
assumed authority over the proceedings. The accompanying consolidated financial
statements include the results for Congoleum for all periods presented.
Congoleum’s results include losses (including other comprehensive losses) of
$93.4 million and $89.6 million in excess of the value of ABI’s investment in
Congoleum at September 30, 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 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 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. 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 trust that would be created on or after the
date the District Court confirms a plan of reorganization containing terms
currently proposed and by the effective date of that plan (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 District
Court of contingent or disputed claims related to pre-petition
matters.








8





Note A - Basis of
Presentation (continued)





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.
At December 31, 2008, there was substantial doubt about American Biltrite’s
ability to continue as a going concern unless it was successful in obtaining
replacement financing. As described in Note D, the Company was successful in
obtaining replacement financing in June 2009. 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





In
June 2009, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles—a
replacement of FASB Statement No. 162. On the effective date, the FASB
Accounting Standards Codification became the source of authoritative U.S.
accounting and reporting standards for nongovernmental entities, in addition to
guidance issued by the Securities and Exchange Commission. This statement became
effective for financial statements issued for interim and annual periods ending
after September 15, 2009.





In
May 2009, the FASB issued new accounting guidance that establishes general
standards of accounting for, and disclosure of, events that occur after the
balance sheet date but before financial statements are issued or are available
to be issued. The new accounting guidance was effective for interim and annual
periods ending after June 15, 2009. In particular, the new accounting guidance
established (i) the period after the balance sheet date during which management
of a reporting entity should evaluate events or transactions that may occur for
potential recognition or disclosure in the financial statements, (ii) the
circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements and (iii) the
disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. The adoption of the new accounting
guidance did not have a material effect on the Company’s financial condition or
results of operations. There were no events subsequent to September 30, 2009 and
through our financial statement issuance date of November 13, 2009 requiring
disclosure.








9





Note A - Basis of
Presentation (continued)





On
January 1, 2009, the Company adopted the FASB’s new accounting standards for the
accounting and reporting of noncontrolling interests. The new accounting
guidance 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 a
previously controlling interest, the interest sold, as well as any interest
retained, will be measured at fair value, with the gain or loss recognized in
earnings. The new standard has been applied prospectively as of January 1, 2009,
except for the presentation and disclosure requirements, which have been applied
retrospectively for prior periods presented (see Note J).





Note B -
Inventories







Inventories
at September 30, 2009 and December 31, 2008 consisted of the following (in thousands):







September 30,
              2009
            
            
            December 31,
              2008Finished
      goods
            
            $
            39,774
            
            
            $
            56,262Work-in-process
            
            
            10,789
            
            
            
            10,847Raw
      materials and supplies
            
            
            9,280
            
            
            
            11,973$
            59,843
            
            
            $
            79,082








10





Note C – Accrued
Expenses





Accrued
expenses at September 30, 2009 and December 31, 2008 consisted of the following
(in
thousands):





September 30,
              2009
            
            
            December 31,
              2008Accrued
      advertising and sales promotions
            
            $
            15,401
            
            
            $
            17,625Employee
      compensation and related benefits
            
            
            7,099
            
            
            
            7,124Environmental
      matters
            
            
            1,140
            
            
            
            815Royalties
            
            
            614
            
            
            
            959Income
      taxes
            
            
            99
            
            
            
            371Other
            
            
            7,383
            
            
            
            4,986$
            31,736
            
            
            $
            31,880





See
Note F for Liabilities Subject to Compromise.





Note D – Financing
Arrangements





American
Biltrite Inc.’s primary source of borrowings are the revolving credit facility
(the "Revolver") and the term loan ("Term Loan") it has with Wachovia Bank,
National Association ("Wachovia") pursuant to a loan and security agreement (the
"Credit Agreement"). The Credit Agreement was entered into on June 30, 2009, and
initial borrowings on the Credit Agreement were used to pay off borrowings from
another financial institution and to pay fees and expenses in connection with
the refinancing.





The
Credit Agreement provides American Biltrite Inc. and its subsidiaries with (i) a
$30.0 million commitment under the Revolver (including a $12 million Canadian
revolving credit facility sublimit) and (ii) an $8.0 million Term Loan. The
Credit Agreement also provides letter of credit facilities with availability of
up to $6.0 million (including a $3 million Canadian letter of credit facility
sublimit) subject to availability under the Revolver. The Revolver expires on
June 30, 2012. The Term Loan principal is payable in 72 monthly installments of
$111 thousand beginning August 1, 2009 and ending on July 1, 2015. The maximum
amount available for revolving debt borrowings is reduced to the amount of the
borrowing base if that amount is lower. The borrowing base is based upon
eligible assets of the Company, including accounts receivables and inventory.
The Company's obligations under the Credit Agreement are secured by assets of
the Company and its subsidiaries. At September 30, 2009, the Company had $12.4
million and $7.7 million outstanding on its Revolver and Term Loan,
respectively, and $7.5 million of availability under the Revolver.








11





Note D – Financing
Arrangements (continued)





Interest
is payable monthly on borrowings under the Credit Agreement at rates based on a
base interest rate plus an applicable margin for each type of loan, which varies
depending on whether the loan is based on U.S., Canadian, or Eurodollar rate
loans and which ranges from an applicable rate of two hundred basis points over
U.S. and Canadian base rates to four hundred basis points over Eurodollar base
rates for revolving debt loans and three hundred basis points over U.S. base
rates and five hundred basis points over Eurodollar base rates for the Term
Loan. The Credit Agreement charges the Company a monthly unused borrowing line
fee, at a rate equal to five-eighths of one percent (0.625%) per annum. In
addition, the Credit Agreement imposes a monthly letter of credit fee equal to
four percent (4%) per annum for unused letter of credit
availability.





The
Credit Agreement contains customary bank covenants, including limitations on
incurrence of debt and liens or other encumbrances on assets or properties, sale
of assets, making of loans or investments, including paying dividends and
redemptions of capital stock, the formation or acquisition of subsidiaries and
transactions with affiliates. The Credit Agreement requires the Company and the
other borrowers and the guarantors to maintain, on a consolidated basis, a
minimum fixed charge coverage ratio that increases from 0.8:1.0 to 1.0:1.0 over
the term of the Credit Agreement. The Credit Agreement also requires that the
Company and the other borrowers and the guarantors to maintain, on a
consolidated basis, a minimum amount of earnings before interest, taxes,
depreciation, and amortization, as determined under, and for the periods
specified in, the Credit Agreement. The Company currently anticipates it will be
able to comply with these covenants. However, the Company had to receive
covenant waivers on several occasions under its prior credit agreement or enter
amendments to that agreement to address failures to satisfy covenants under that
prior credit agreement, and it is possible that, in the future, the Company may
need to obtain waivers for failures to satisfy its covenants under the Credit
Agreement or enter amendments to the Credit Agreement to address any such
failures or obtain replacement financing as a result. There can be no assurance
the Company would be successful in obtaining any such waiver, entering any such
amendment or obtaining any such replacement financing.





Any
waivers, 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 exercised, which
would likely have a material adverse effect on the Company’s business, results
of operations or financial condition.








12





Note D – Financing
Arrangements (continued)





On
June 30, 2009, the Company also entered into accounts receivable financing
agreements (the “FGI Financing Agreements”) with Faunus Group International
(“FGI”). Under the terms of the FGI Financing Agreements, the Company may offer
to sell certain of its foreign accounts receivable to FGI during the term of the
FGI Financing Agreements, up to a maximum amount outstanding at any time of $4.0
million in net amounts funded based upon an 80% advance rate. The Company will
pay FGI a monthly collateral management fee equal to 0.66% of the average
monthly balance of accounts purchased by FGI. In addition, FGI will charge the
Company interest on the daily net funds employed at a rate equal to the greater
of (i) 7.0% or (ii) 2.5% above FGI’s prime rate. The Company is
obligated to maintain an average balance of net funded amounts of $1.2 million
(or pay fees based on such a minimum), and FGI has the right to decline to
purchase any accounts.




The
FGI Financing Agreements are for a term of 36 months and automatically renew for
additional one year terms unless either party gives notice of non-renewal. In
addition, FGI may terminate the agreements upon a default by the Company. The
Company may terminate the agreements at any time by paying a $120 thousand
termination fee. The termination fee is not payable upon a termination by FGI or
upon non-renewal.





The
accounts receivable factored under the FGI Financing Agreements are factored
with recourse. Accordingly, the factored receivables are included in accounts
receivable on the balance sheet until invoice payment from the customer has been
received, and the Company accounts for the transfer of these financial assets as
secured borrowings. At September 30, 2009, the Company had $542 thousand payable
to FGI, which has been recorded in notes payable.





Note E – Other
Liabilities





Other
Liabilities at September 30, 2009 and December 31, 2008 consisted of the
following (in
thousands):





September 30,
              2009
            
            
            December 31,
              2008Pension
      benefits
            
            $
            8,667
            
            
            $
            8,185Environmental
      remediation and product related liabilities
            
            
            5,722
            
            
            
            4,454Income
      taxes payable
            
            
            394
            
            
            
            394Deferred
      income taxes
            
            
            131
            
            
            
            131Other
            
            
            2,629
            
            
            
            3,637$
            17,543
            
            
            $
            16,801





See
Note F for Liabilities Subject to Compromise.








13





Note F – Liabilities Subject
to Compromise





As
a result of Congoleum’s Chapter 11 filing (see Notes A and I), 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. Prior to the fourth
quarter of 2007, Congoleum’s accrued interest expense on its 8 5/8% Senior Notes
due August 1, 2008 was also recorded in liabilities subject to compromise. 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 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 Second Amended Joint Plan, the
Senior Note holders will not receive any post-petition interest.





Liabilities
subject to compromise at September 30, 2009 and December 31, 2008 and included
in ABI’s consolidated balance sheet at each such date were as follows (in thousands):





September 30,
              2009
            
            
            December 31,
              2008Current
      liabilityPre-petition
      other payables and accrued interest
            
            $
            4,997
            
            
            $
            4,997Non-currentDebt
      (at face value)
            
            
            100,000
            
            
            
            100,000Pension
      liability
            
            
            39,335
            
            
            
            37,022Other
      post-retirement benefit obligation
            
            
            11,339
            
            
            
            10,938Pre-petition
      other liabilities
            
            
            13,359
            
            
            
            13,543164,033
            
            
            
            161,503Elimination
      – Payable to American Biltrite
            
            
            (109
            )
            
            
            (117
            )Total
      non-current liability
            
            
            163,924
            
            
            
            161,386Total
      liabilities subject to compromise
            
            $
            168,921
            
            
            $
            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 District Court of contingent or disputed claims.








14





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 and
nine months ended September 30, 2009 and 2008 (in thousands):





Three
      Months Ended September 30,2009
            
            
            2008Pension
            
            
            Other
              Benefits
            
            
            Pension
            
            
            Other
              BenefitsService
      cost
            
            $
            499
            
            
            $
            57
            
            
            $
            642
            
            
            $
            56Interest
      cost
            
            
            1,658
            
            
            
            161
            
            
            
            1,652
            
            
            
            144Expected
      return on plan assets
            
            
            (1,204
            )
            
            
            -
            
            
            
            (1,719
            )
            
            
            -Recognized
      net actuarial loss
            
            
            1,101
            
            
            
            16
            
            
            
            384
            
            
            
            15Amortization
      of prior service cost
            
            
            28
            
            
            
            -
            
            
            
            31
            
            
            
            -Net
      periodic benefit cost
            
            $
            2,082
            
            
            $
            234
            
            
            $
            990
            
            
            $
            215





Nine
      Months Ended September 30,2009
            
            
            2008Pension
            
            
            Other
              Benefits
            
            
            Pension
            
            
            Other
              BenefitsService
      cost
            
            $
            1,497
            
            
            $
            171
            
            
            $
            1,926
            
            
            $
            168Interest
      cost
            
            
            4,973
            
            
            
            483
            
            
            
            4,956
            
            
            
            432Expected
      return on plan assets
            
            
            (3,611
            )
            
            
            -
            
            
            
            (5,157
            )
            
            
            -Recognized
      net actuarial loss
            
            
            3,302
            
            
            
            48
            
            
            
            1,152
            
            
            
            45Amortization
      of prior service cost
            
            
            84
            
            
            
            -
            
            
            
            93
            
            
            
            -Net
      periodic benefit cost
            
            $
            6,245
            
            
            $
            702
            
            
            $
            2,970
            
            
            $
            645








15





Note G – Pension Plans
(continued)





The
weighted average assumptions used to determine net periodic benefit cost for the
three and nine months ended September 30, 2009 and 2008 were as
follows:





2009
            
            2008Pension
            
            Other
              Benefits
            
            Pension
            
            Other
              BenefitsDiscount
      rate
            5.75%
      - 7.50%
            
            5.75%
            
            5.50%
      - 6.00%
            
            6.00%Expected
      long-term return on plan assets
            7.00%
            
            —
            
            7.00%
      - 7.50%
            
            —Rate
      of compensation increase
            3.00%
      - 4.00%
            
            —
            
            4.00%
      - 5.00%
            
            —





Note H - Commitments and
Contingencies





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





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








16





Note H - Commitments and
Contingencies (continued)





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.





American
Biltrite Inc.





ABI is a co-defendant with many other manufacturers and
distributors of asbestos containing products in approximately 1,218 pending
claims involvingapproximately 1,773individuals as of September 30, 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:





Nine
      Months
              Ended
              September 30,
              2009
            
            
            Year
      Ended
              December 31,
              2008Beginning
      claims
            
            
            1,269
            
            
            
            1,360New
      claims
            
            
            171
            
            
            
            356Settlements
            
            
            (20
            )
            
            
            (13
            )Dismissals
            
            
            (202
            )
            
            
            (434
            )Ending
      claims
            
            
            1,218
            
            
            
            1,269





The
total indemnity costs incurred to settle claims during the nine months ended
September 30, 2009 and the year ended December 31, 2008 were $5.1 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 costs 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.








17





Note H - Commitments and
Contingencies (continued)





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.





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. 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
as of September 30, 2009 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 as of
September 30, 2009, which has





18





Note H - Commitments and
Contingencies (continued)





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 liability insurance 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 facts currently known 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 its asbestos
liabilities.





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 nine month period ended on September 30,
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 had been identified at March 31, 2009 of which ABI’s estimated share
would be approximately $163 thousand. In addition, Olin provided the Company
with an update on the expected future costs for site remediation, monitoring,
maintenance and oversight. ABI’s estimated share of the increase in costs over
the June 30, 2009 estimate is approximately $700 thousand. As a result, in the
revised estimates of current oversight costs and of future remediation,
monitoring, maintenance and oversight costs, the environmental reserve was
increased to reflect these changes in estimates. ABI now estimates its potential
liability to Olin to be in the range of $4.8 million to $10.4 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 25 years.





19





Note H - Commitments and
Contingencies (continued)





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 had been revised as of March 31, 2009 by an
environmental consultant to be between $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.





The
Company entered into an administrative consent order with the New Jersey
Department of Environmental Protection (the NJDEP”) in 1993 under which the
Company agreed to provide a remediation funding source for an environmental
matter at a Company plant in New Jersey. Congoleum subsequently assumed that
liability for the clean-up of the site as part of the Joint Venture Agreement
between American Biltrite and Congoleum in 1993 but the NJDEP still holds the
Company primarily liable. The Company in prior years was able to provide a self
guarantee to the NJDEP. In 2009, the Company was not able to qualify for a
self-guarantee and thus the Company entered into a Remediation Trust Fund
Agreement with Wells Fargo Bank whereby the Company funded the trust
contemplated by that agreement with $348 thousand as financial assurance to the
NJDEP to complete the remediation in the event that Congoleum and American
Biltrite fail to perform the remediation at that site. As of September 30, 2009,
the funded amount was included in other non-current assets.





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 nine month period ended September 30, 2009.





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, and on August 17, 2009, the District Court withdrew Congoleum’s
chapter 11 case from the Bankruptcy Court and assumed authority over the
proceedings. See Note I.





Congoleum
is named, together with a large number (in most cases, hundreds) of other
companies, as a Potentially Responsible Party (“PRP”) within the meaning of the
federal Comprehensive Environmental Response, Compensation and Liability Act, as
amended (“CERCLA”) 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








20





Note H - Commitments and
Contingencies (continued)





depends
on many factors, including the volume of material contributed to the site by
Congoleum, the number of other PRPs 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. In August 2006, the Bankruptcy Court issued
an order authorizing and approving the consent decree and related settlement
agreements for the Galaxy/Spectron Superfund Site, including authorization for
Liberty Mutual Insurance Company and Congoleum to make certain payments that had
been invoiced to Congoleum with respect to the consent decree and related
settlement agreements.





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 NJDEP 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
September 30, 2009 and December 31, 2008.





21





Note H - Commitments and
Contingencies (continued)





At
September 30, 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 September 30, 2009
and December 31, 2008, such estimated insurance recoveries are approximately
$2.1 million. Receivables for expected insurance recoveries are recorded if the
related carriers are solvent and paying claims under a reservation of rights or
under an obligation pursuant to coverage in place or a settlement agreement.
Substantially all of Congoleum’s recorded insurance assets for environmental
matters are collectible from a single carrier.





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




Other





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





Note I – Congoleum Asbestos
Liabilities and Reorganization





On
December 31, 2003, Congoleum filed a voluntary petition with the Bankruptcy
Court seeking relief under Chapter 11 of the Bankruptcy Code as a means to
resolve claims asserted against it related to the use of asbestos in its
products decades ago. During 2003, Congoleum had obtained the requisite votes of
asbestos personal injury claimants necessary to seek approval of a proposed,
pre-packaged Chapter 11 plan of reorganization. In January 2004, Congoleum filed
its proposed plan of reorganization and disclosure statement with the Bankruptcy
Court. From that filing through 2007, several subsequent plans were negotiated
with representatives of the Asbestos Claimants’ Committee (“ACC”), the Future
Claimants’ Representative (“FCR”) and other asbestos claimant representatives.
In addition, an insurance company, Continental Casualty Company, and its
affiliate, Continental Insurance Company (collectively, “CNA”), filed a plan of
reorganization and the Official Committee of Bondholders (“Bondholders’
Committee”) (representing holders of Congoleum’s 8 5/8% Senior Notes due August
1, 2008) 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








22





Note I – Congoleum Asbestos
Liabilities and Reorganization (continued)





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, 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 District Court. 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. On August 17,
2009, the District Court issued an opinion and order reversing the Order of
Dismissal. With respect to the plan of reorganization, the District Court ruled
that a settlement with certain asbestos claimants was not an impediment to
confirmation while another plan provision would require modification. The
decision also provided specific guidance about the plan and directed the parties
in the case to provide briefings in preparation








23





Note I – Congoleum Asbestos
Liabilities and Reorganization (continued)





for a confirmation hearing. In addition, the District
Court assumed jurisdiction over the proceedings from the Bankruptcy Court.Certain insurers have filed notices of appeal with respect to the
District Court’s ruling with the United States Court of appeals for the Third
Circuit. The Debtors, the Bondholders’ Committee and the ACC have moved to
dismiss the appeals, and such motion is pending.





Following
additional negotiations, on October 22, 2009, the ACC, the Bondholders’
Committee and Congoleum jointly filed the Second Amended Joint Plan with the
District Court. The District Court has scheduled a hearing to consider the
adequacy of the disclosure statement for the Second Amended Joint Plan for
November 19, 2009.





Under
the terms of the Second 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 Second 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 50.1% of the newly issued common stock
of reorganized Congoleum when the plan takes effect.





Under the proposed terms of the Second Amended
Joint Plan, holders of Congoleum’s $100 million in 8 5/8% Senior Notes due in
August 2008 would receive on a pro rata basis $33 million in new 9% senior
secured notes (the “New Senior Notes”) maturing December 31, 2017. The New
Senior Notes would not accrue or earn interest for the first six months after
the effective date of the Second Amended Joint Plan, after which they would
accrue interest at the rate of 9% per annum payable semi-annually in cash.
During the period beginning with the interest payment due 12 months after the
effective date of the Second Amended Joint Plan to and including the interest
payment due 30 months after the effective date of the Second Amended Joint Plan,
at Congoleum’s option, interest may be paid in kind by the issuance of
additional New Senior Notes in the aggregate amount of the interest then due and
payable on each such payment date, in which case the interest rate applicable
during the period for which the payment applies would be 11%.





The
indenture governing the New Senior Notes also will provide for the annual
issuance of additional New Senior Notes ("Additional Notes"), with the amount of
Additional Notes to be issued being determined as of the end of reorganized
Congoleum’s fiscal year ending December 31, 2011, and on an annual basis at the
end of each of the succeeding five years (each such date, a "Determination
Date"), according to the following procedure. As soon as practicable after each
Determination Date, the average EBITDA for reorganized Congoleum for the
two-year period ending on the Determination Date shall be calculated. An assumed
net debt capacity ("Net Debt Capacity") shall then be determined as of each such
Determination Date by





24





Note I – Congoleum Asbestos
Liabilities and Reorganization (continued)





multiplying
this two-year average annual EBITDA by four. Additional Notes shall be issuable
to holders of New Senior Notes with respect to a Determination Date to the
extent that the Net Debt Capacity as of such Determination Date, plus any cash
amount on reorganized Congoleum's balance sheet as of such Determination Date,
exceeds the sum of (i) the amount of the balance of reorganized Congoleum's
working capital loan (determined as the daily average of such loan for the year
ending on such Determination Date); (ii) the $33 million of New Senior Notes to
be issued on the effective date of the Second Amended Joint Plan; (iii) the
amount of Additional Notes issued with respect to all prior Determination Dates;
and (iv) the amount of other interest-bearing debt of reorganized Congoleum
outstanding as of such Determination Date. The calculation of the amount of
Additional Notes to be issued shall take place within three months after each
Determination Date, and the issuance of such Additional Notes shall be deemed to
have occurred as of the first day of the fiscal year following the Determination
Date. The indenture governing the New Senior Notes will provide that in no event
will the cumulative amount of Additional Notes issued under the procedures
described in this paragraph exceed $37 million.





The
New Senior Notes would be subordinated to the working capital facility providing
reorganized Congoleum’s financing upon exiting bankruptcy reorganization. In
addition, holders of the $100 million in 8 5/8% Senior Notes due August 1, 2008
would receive 49.9% of the common stock in reorganized Congoleum. Congoleum’s
obligations for the $100 million in 8 5/8% Senior Notes due August 1, 2008,
including accrued pre-petition interest (which amounted to $3.6 million) would
be satisfied by the New Senior Notes and the 49.9% common stock issued if the
Second Amended Joint Plan becomes effective.





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





The
Second Amended Joint Plan also includes terms that would govern an intercompany
settlement and ongoing intercompany arrangements among ABI and its subsidiaries
and reorganized Congoleum. 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 ABI in form and substance mutually agreeable to the
Bondholders’ Committee, the ACC and ABI. The existing intercompany arrangements
providing for management services by ABI to reorganized Congoleum and other
business relationships expire on the earlier of (a) the effective date of a plan
of reorganization for Congoleum, following a final order of confirmation, or (b)
March 31, 2010, unless renewed. Although there can be no assurances, ABI
currently expects that the terms of any new intercompany agreement would be
substantially similar to the form of that agreement that was included in
previous proposed plans of reorganization for Congoleum and would provide for
the provision of management services by ABI to reorganized Congoleum and other
business relationships substantially consistent with their traditional
relationships. Expiration or termination of these existing arrangements, failure
to reach definitive agreement on





25





Note I – Congoleum Asbestos
Liabilities and Reorganization (continued)





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 Second Amended Joint Plan or any other plan will
receive the acceptances necessary for confirmation, that the Second Amended
Joint Plan will not be modified further, that the conditions to the Second
Amended Joint Plan or any other plan will be satisfied or waived, that the
Second Amended Joint Plan or any other plan will timely receive necessary court
approvals from the District Court, that the Second Amended Joint Plan or any
other plan will be confirmed, that the Second 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 Second 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 Second Amended Joint
Plan.





On
July 30, 2009, certain insurers filed summary judgment motions in the ongoing
New Jersey state court coverage litigation seeking declarations that Congoleum
has materially breached its insurance policies and that the insurers have no
coverage obligation for the underlying asbestos claims that are the subject of
the Claimant Agreement (which agreement is described in the next paragraph), the
Joint Plan, the Amended Joint Plan or any other agreement for which the
insurers’ consent was not procured. The insurers take the position that their
motions impact all present and future asbestos claims. Congoleum opposed these
motions, and on October 30, 2009, the New Jersey state court denied these
motions. The Phase 2 trial is scheduled to begin on February 12, 2010. The
precise scope of the Phase 2 trial is in dispute. The parties have submitted
competing case management orders to define the scope of the Phase 2 trial, but
no case management order has been entered by the Court.





In
anticipation of Congoleum's commencement of the Chapter 11 cases, Congoleum
entered into a Claimant Agreement, which provides for the settlement of certain
pre-petition 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.





26





Note J – Stockholders’
(Deficit) Equity





The
following table reconciles stockholders’ (deficit) equity for the nine months
ended September 30, 2009 (in
thousands):





Stockholders’
              (Deficit) Equity
              of Controlling
              Interests
            
            
            Non-
              Controlling
              Interests
            
            
            Total
              EquityDecember
      31, 2008
            
            $
            (46,784
            )
            
            $
            835
            
            
            $
            (45,949
            )Net
      loss for the nine months ended September 30, 2009
            
            
            (8,330
            )
            
            
            (3,061
            )
            
            
            (11,391
            )Stock
      compensation expense
            
            
            158
            
            
            
            —
            
            
            
            158Foreign
      currency translation adjustments
            
            
            2,190
            
            
            
            —
            
            
            
            2,190September
      30, 2009
            
            $
            (52,766
            )
            
            $
            (2,226
            )
            
            $
            (54,992
            )





American
Biltrite Inc. owns 55% of Congoleum’s outstanding shares of Class A and Class B
common stock as of September 30, 2009. The majority of the noncontrolling
interests recorded in American Biltrite’s consolidated financial statements
represent the 45% of the outstanding shares of Congoleum Class A and Class B
common stock not owned by American Biltrite Inc. Prior to January 1, 2009,
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 U.S. GAAP, 45% 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 the FASB’s new standard on
January 1, 2009 (see Note A), the pro forma consolidated net loss reported by
American Biltrite Inc. and the consolidated loss per share for the nine months
ended September 30, 2009 would have been $11.5 million and $3.33 per share
(basic and diluted), respectively. The pro forma consolidated stockholders’
deficit would have been $58.1 million as of September 30, 2009.





27





Note K - Comprehensive
Income (Loss)





The
following table presents total comprehensive income for the three and nine
months ended September 30, 2009 and 2008 (in thousands):





Three
      Months Ended
              September
      30,
            
            
            Nine
      Months Ended
              September
      30,2009
            
            
            2008
            
            
            2009
            
            
            2008Net
      loss
            
            $
            (676
            )
            
            $
            (10,366
            )
            
            $
            (8,330
            )
            
            $
            (9,464
            )Foreign
      currency translation adjustments
            
            
            1,284
            
            
            
            110
            
            
            
            2,190
            
            
            
            (130
            )Total
      comprehensive income (loss)
            
            $
            608
            
            
            $
            (10,256
            )
            
            $
            (6,140
            )
            
            $
            (9,594
            )





Note L - Earnings (Loss) Per
Share





Basic
earnings per share is based on the weighted-average number of common shares
outstanding, and diluted earnings per share 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.





28





Note M - Industry Segments
(continued)





Net
sales by segment for the three and nine months ended September 30, 2009 and 2008
were as follows (in
thousands):





Three Months Ended
              September
      30,
            
            
            Nine Months Ended
              September
      30,2009
            
            
            2008
            
            
            2009
            
            
            2008Net
      sales to external customers:Flooring
      products
            
            $
            37,359
            
            
            $
            46,085
            
            
            $
            106,815
            
            
            $
            140,948Tape
      products
            
            
            20,094
            
            
            
            21,835
            
            
            
            55,827
            
            
            
            70,320Jewelry
            
            
            14,619
            
            
            
            14,587
            
            
            
            37,618
            
            
            
            39,043Canadian
      division
            
            
            11,811
            
            
            
            14,844
            
            
            
            35,006
            
            
            
            44,036Total
      net sales to external customers
            
            
            83,883
            
            
            
            97,351
            
            
            
            235,266
            
            
            
            294,347Intersegment
      net sales:Flooring
      products
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Tape
      products
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Jewelry
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Canadian
      division
            
            
            784
            
            
            
            954
            
            
            
            2,048
            
            
            
            3,170Total
      intersegment net sales
            
            
            784
            
            
            
            954
            
            
            
            2,048
            
            
            
            3,170Reconciling
      items
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Intersegment
      net sales
            
            
            (784
            )
            
            
            (954
            )
            
            
            (2,048
            )
            
            
            (3,170
            )Total
      consolidated net sales
            
            $
            83,883
            
            
            $
            97,351
            
            
            $
            235,266
            
            
            $
            294,347





Segment
profit or loss is before income tax expense or benefit and noncontrolling
interests.  Profit (loss) by segment for the three and nine months
ended September 30, 2009 and 2008 was as follows (in thousands):





Three Months Ended
              September
      30,
            
            
            Nine Months Ended
              September
      30,2009
            
            
            2008
            
            
            2009
            
            
            2008Segment
      profit (loss)Flooring
      products
            
            $
            (1,894
            )
            
            $
            (11,310
            )
            
            $
            (6,930
            )
            
            $
            (8,337
            )Tape
      products
            
            
            (590
            )
            
            
            (1,875
            )
            
            
            (4,276
            )
            
            
            (2,106
            )Jewelry
            
            
            1,271
            
            
            
            320
            
            
            
            538
            
            
            
            (1,636
            )Canadian
      division
            
            
            407
            
            
            
            380
            
            
            
            358
            
            
            
            936Total
      segment loss
            
            
            (806
            )
            
            
            (12,485
            )
            
            
            (10,310
            )
            
            
            (11,143
            )Reconciling
      itemsCorporate
      expenses
            
            
            (299
            )
            
            
            489
            
            
            
            (828
            )
            
            
            37Intercompany
      profit
            
            
            10
            
            
            
            16
            
            
            
            39
            
            
            
            18Total
      consolidated loss before income taxes and other items
            
            $
            (1,095
            )
            
            $
            (11,980
            )
            
            $
            (11,099
            )
            
            $
            (11,088
            )





29





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):





September 30,
              2009
            
            
            December
      31,
              2008Segment
      assetsFlooring
      products
            
            $
            157,260
            
            
            $
            171,867Tape
      products
            
            
            50,985
            
            
            
            48,115Jewelry
            
            
            22,377
            
            
            
            24,038Canadian
      division
            
            
            29,308
            
            
            
            29,866Total
      segment assets
            
            
            259,930
            
            
            
            273,886Reconciling
      itemsCorporate
      items
            
            
            27,184
            
            
            
            35,948Intersegment
      accounts receivable
            
            
            (9,572
            )
            
            
            (14,626
            )Intersegment
      profit in inventory
            
            
            (51
            )
            
            
            (90
            )Intersegment
      other asset
            
            
            (109
            )
            
            
            (117
            )Consolidated
      assets
            
            $
            277,382
            
            
            $
            295,001





Note N – Sale of
Property





In
April 2006, the Company completed the sale of a building and land owned by the
Company’s former subsidiary Janus Flooring Corporation, a discontinued
operation.  The building and land were sold for $5.0 million Canadian
dollars ("C$").  The Company received C$1.0 million in cash and a
C$4.0 million note.  The note was paid in full in May 2008, and the
Company recognized a gain of approximately C$1.0 million on the sale of the
building and land during the second quarter of 2008.  The gain has
been recorded as a gain from a discontinued operation.





30





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





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.
Although the U.S. economy may have grown during the third quarter of 2009, it is
unclear the extent to which any such growth may be sustainable, how long any
possible improvement in economic conditions may last, and whether and the extent
to which the conditions in the particular industries in which the Company and
Congoleum conduct business may improve and whether any such improvement would be
sustainable.





In
addition, raw material and energy costs have been volatile and, although below
their peak levels in 2008, remain at historically high levels and have recently
increased. The volatile and high raw material and energy costs have negatively
impacted the Company's and Congoleum's businesses and operating results. The
Company and Congoleum may be unable to pass increased raw material and energy
costs on to their respective customers, particularly in light of the recent
difficult economic conditions in the United States and the industries in which
the Company and Congoleum conduct business.





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 Second Amended Joint
Plan, ABI’s ownership interest in Congoleum would
be eliminated, and ABI expects its ownership interest in Congoleum would 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 and
its affiliate (together referred to as “CNA”), filed a plan of reorganization
and the Bondholders’ Committee also filed a plan of reorganization. In May 2006,
the Bankruptcy Court ordered the principal parties in interest in Congoleum’s
reorganization proceedings to participate in global mediation discussions.
Numerous mediation sessions took place during 2006, culminating in two competing
plans, one which Congoleum filed jointly with the ACC in





31





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 District Court. 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. On August 17, 2009, the
District Court issued an opinion and order reversing the Order of Dismissal.
With respect to the plan of reorganization, the District Court ruled that a
settlement with certain asbestos claimants was not an impediment to confirmation
while another plan provision would require a modification. The decision also
provided specific guidance about the plan and directed the parties in the case
to provide briefings in preparation for a confirmation hearing. In addition, the
District Court assumed jurisdiction over the proceedings from the Bankruptcy
Court.Certain insurers have filed notices of appeal with respect to the
District Court’s ruling with the United States Court of Appeals for the Third
Circuit. The Debtors, the Bondholders’ Committee and the ACC have moved to
dismiss the appeals, and such motion is pending.





32





Following
additional negotiations, on October 22, 2009, the ACC, the Bondholders’
Committee and Congoleum jointly filed the Second Amended Joint Plan with the
District Court. The District Court has scheduled a hearing to consider the
adequacy of the disclosure statement for the Second Amended Joint Plan for
December 7, 2009.





Under
the terms of the Second 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.





The
Second Amended Joint Plan would govern an intercompany settlement and ongoing
intercompany arrangements among ABI and its subsidiaries and reorganized
Congoleum. 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 ABI in form and substance mutually agreeable to the
Bondholders’ Committee, the ACC and the Company. The existing intercompany
arrangements providing for management services by ABI to reorganized Congoleum
and other business relationships expire on the earlier of (a) the effective date
of a plan of reorganization for Congoleum, following a final order of
confirmation, or (b) March 31, 2010, unless renewed. Although there can be no
assurances, ABI currently expects that the terms of any new intercompany
agreement would be substantially similar to the form of that agreement that was
included in previous proposed plans of reorganization for Congoleum and would
provide for the provision of management services by ABI to reorganized Congoleum
and other business relationships substantially consistent with their traditional
relationships. The prior form of new intercompany agreement contemplated the
agreement becoming effective on the date the plan became effective and having a
term of two years. In addition, consistent with the terms of previous plans of
reorganization proposed for Congoleum, under the terms of the Second 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 be deemed rejected and disallowed upon the effective
date of the Second Amended Joint Plan, and therefore eliminated. The Second
Amended Joint Plan’s rejection and disallowance of the joint venture agreement
and ABI’s claims thereunder would include 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 be entitled to assert after
the Second Amended Joint Plan becomes effective. 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 by the District Court and
become effective may have terms that differ significantly from the terms
contemplated by the Second Amended Joint Plan or otherwise described in this
report, 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.








33





There
can be no assurance that the Second Amended Joint Plan or any other plan will
receive the acceptances necessary for confirmation, that the Second Amended
Joint Plan will not be modified further, that the conditions to the Second
Amended Joint Plan or any other plan will be satisfied or waived, that the
Second 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 Second Amended Joint Plan or any other plan
will be confirmed, that the Second 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 Second
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 Second Amended Joint Plan.





On
July 30, 2009, certain insurers filed summary judgment motions in the ongoing
New Jersey state court coverage litigation seeking declarations that Congoleum
has materially breached its insurance policies and that the insurers have no
coverage obligation for the underlying asbestos claims that are the subject of
the Claimant Agreement, the Joint Plan, the Amended Joint Plan or any other
agreement for which the insurers’ consent was not procured. The insurers take
the position that their motions impact all present and future asbestos claims.
Congoleum opposed these motions, and on October 30, 2009, the New Jersey state
court denied these motions. The Phase 2 trial is scheduled to begin on February
12, 2010. The precise scope of the Phase 2 trial is in dispute. The parties have
submitted competing case management orders to define the scope of the Phase 2
trial, but no case management order has been entered by the Court.





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.








34





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 U.S. GAAP. 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 September 30
            
            
            Nine Months Ended September 302009
            
            
            2008
            
            
            2009
            
            
            2008(In
      thousands)Net
      sales
            
            $
            46,524
            
            
            
            
            
            $
            51,266
            
            
            
            
            $
            128,451
            
            
            
            
            
            $
            153,399Cost
      of sales
            
            
            33,673
            
            
            
            
            
            
            37,942
            
            
            
            
            
            96,461
            
            
            
            
            
            
            114,811Gross
      profit
            
            
            12,851
            
            
            27.6
            %
            
            
            13,324
            
            
            26.0
            %
            
            
            31,990
            
            
            24.9
            %
            
            
            38,588
            
            
            25.2
            %Selling,
      general & administrative expenses
            
            
            12,394
            
            
            26.6
            %
            
            
            13,501
            
            
            26.3
            %
            
            
            36,316
            
            
            28.3
            %
            
            
            41,096
            
            
            26.8
            %Operating
      income (loss)
            
            
            457
            
            
            
            
            
            
            (177
            )
            
            
            
            
            
            (4,326
            )
            
            
            
            
            
            (2,508
            )Interest
      expense, net
            
            
            (289
            )
            
            
            
            
            
            (302
            )
            
            
            
            
            
            (732
            )
            
            
            
            
            
            (1,253
            )Other
      income, net
            
            
            621
            
            
            
            
            
            
            (208
            )
            
            
            
            
            
            850
            
            
            
            
            
            
            992Income
      (loss) before taxes and other items
            
            
            789
            
            
            
            
            
            
            (687
            )
            
            
            
            
            
            (4,208
            )
            
            
            
            
            
            (2,769
            )Provision
      for (benefit from) income taxes
            
            
            289
            
            
            
            
            
            
            (446
            )
            
            
            
            
            
            242
            
            
            
            
            
            
            (446
            )Noncontrolling
      interests
            
            
            (124
            )
            
            
            
            
            
            (17
            )
            
            
            
            
            
            (77
            )
            
            
            
            
            
            50Income
      (loss) from continuing operations
            
            $
            376
            
            
            
            
            
            $
            (258
            )
            
            
            
            
            $
            (4,527
            )
            
            
            
            
            $
            (2,273
            )





35





Net
sales in the third quarter of 2009 were $46.5 million compared to $51.3 million
in the third quarter of 2008, a decrease of $4.7 million or 9.2%. Canadian
division sales decreased by $3.2 million or 20.3% due to lower sales of
industrial rubber products resulting from reduced demand in both the US and
Canada. Tape division sales decreased $1.7 million or 8.0%, reflecting lower
sales of automotive, electrical and graphics products out of the division’s
Belgium operation. Jewelry sales were essentially level with year earlier levels
(up 0.2%).





Net
sales for the nine months ended September 30, 2009 were $128.5 million compared
to $153.4 million for the same period in 2008, a decrease of $24.9 million or
16.3%. Tape division sales decreased $14.5 million or 20.6% primarily due to
reduced global demand for the division’s graphics, electrical, film and shoe
product lines. Canadian division sales decreased $10.2 million or 21.5% due to
the reduced sales of industrial rubber products and the effect of currency
translation. Jewelry sales decreased $1.4 million or 3.6% due to lower sales
through department stores versus the year earlier period.





Gross
profit margin percentage increased from 26.0% of net sales for the third quarter
of 2008 to 27.6% of net sales for the third quarter of 2009. Tape division gross
profit margin improved from 21.6% of net sales to 23.3% of net sales due to the
impact of costs for a product recall in the third quarter of 2008, partly offset
by the negative impact of lower production volumes in the third quarter of 2009.
Canadian division gross profit margins improved from 25.3% to 27.0% due to the
impact of selling price increases and a more profitable mix of flooring sales.
Jewelry segment gross margins improved from 31.0% of net sales in the third
quarter of 2008 to 32.2%, as product costs and licensing expenses declined but
were partly offset by lower selling prices.





Gross
profit margin percentage for the nine months ended September 30, 2009 was 24.9%
of net sales compared to 25.2% for the first nine months of 2008. Tape division
gross profit margins decreased from 22.1% of net sales to 21.2% due to the
impact of lower production volumes over which to spread fixed manufacturing
overhead costs. Canadian division gross margins improved from 23.1% to 23.6% due
to improved gross profit margin on flooring sales, which more than offset lower
gross profit margins on industrial product sales. Jewelry gross margins as a
percent of net sales decreased from 30.6% to 29.9% due to slightly higher
allowances for returns and markdowns for the first nine months of 2009 versus
the corresponding period for 2008.





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 September 30, 2009 and
2008 would have been 27.0% and 25.3%, respectively. The gross profit margins for
the nine months ended September 30, 2009 and 2008 would have been 24.3% and
24.5%, respectively.





SG&A
expenses in the third quarter of 2009 decreased by $1.1 million or 8.2% compared
to the third quarter of 2008 primarily as a result of headcount and expense
reductions at all locations, as well as lower freight and other
sales-volume-related expenses, 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 and an increase in the expense provision
for legacy environmental matters. For the nine months ended September 30, 2009,
SG&A expenses decreased by $4.8 million or 11.6% from the year earlier
period. SG&A expenses in the first quarter of 2008 included a $1.2 million
insurance recovery. Excluding this recovery, SG&A expenses decreased by $6.0
million or 14.1% in the first nine months of 2009 compared to 2008, for the same
reasons as the decrease in the third quarter of 2009 from the third quarter of
2008.








36





Net
interest expense for the three and nine months ended September 30, 2009 was
lower than the comparable periods of 2008 primarily due to a lower weighted
average effective interest rate on the Company’s borrowings, as well as lower
average borrowings outstanding.





Other
income for the third quarter of 2009 was $621 thousand compared to other expense
of $208 thousand for the third quarter of 2008. This change is primarily
attributed to realized foreign exchange gains at the Tape division’s Belgian
operations during the third quarter of 2009 compared to realized foreign
exchange losses in the third quarter of 2008. Other income for the nine months
ended September 30, 2009 and 2008 was $850 thousand and $992 thousand,
respectively.





During
the third quarter of 2009, the Company recognized income tax expense for foreign
income tax expense and state income tax expense. During the third quarter of
2008, the Company recorded a tax benefit it expected to recover from carrying
back 2008 losses against a prior year’s taxable income, and also recorded a
benefit of approximately $200 thousand for a change in valuation allowance
against foreign tax credits.





Congoleum





Three Months Ended September 30
            
            
            Nine months Ended September 302009
            
            
            2008
            
            
            2009
            
            
            2008(In
      thousands)Net
      sales
            
            $
            37,359
            
            
            
            
            
            $
            46,085
            
            
            
            
            
            $
            106,815
            
            
            
            
            
            $
            140,948Cost
      of sales
            
            
            31,871
            
            
            
            
            
            
            37,765
            
            
            
            
            
            
            90,690
            
            
            
            
            
            
            111,866Gross
      profit
            
            
            5,488
            
            
            14.7
            %
            
            
            8,320
            
            
            18.1
            %
            
            
            16,125
            
            
            15.1
            %
            
            
            29,082
            
            
            20.6
            %Selling,
      general & administrative expenses
            
            
            7,208
            
            
            19.3
            %
            
            
            7,768
            
            
            16.9
            %
            
            
            22,907
            
            
            21.4
            %
            
            
            26,138
            
            
            18.5
            %Asbestos-related
      reorganization costs
            
            
            -
            
            
            
            
            
            
            11,491
            
            
            
            
            
            
            -
            
            
            
            
            
            
            11,491Operating
      loss
            
            
            (1,720
            )
            
            
            
            
            
            (10,939
            )
            
            
            
            
            
            (6,782
            )
            
            
            
            
            
            (8,547
            )Interest
      income (expense), net
            
            
            8
            
            
            
            
            
            
            6
            
            
            
            
            
            
            (197
            )
            
            
            
            
            
            1,001Other
      income (expense), net
            
            
            (182
            )
            
            
            
            
            
            (377
            )
            
            
            
            
            
            49
            
            
            
            
            
            
            (791
            )Loss
      before taxes
            
            
            (1,894
            )
            
            
            
            
            
            (11,310
            )
            
            
            
            
            
            (6,930
            )
            
            
            
            
            
            (8,337
            )Provision
      for (benefit from) income taxes
            
            
            35
            
            
            
            
            
            
            (1,185
            )
            
            
            
            
            
            50
            
            
            
            
            
            
            (103
            )Net
      loss
            
            $
            (1,929
            )
            
            
            
            
            $
            (10,125
            )
            
            
            
            
            $
            (6,980
            )
            
            
            
            
            $
            (8,234
            )








37





Net
sales for the three months ended September 30, 2009 were $37.4 million as
compared to $46.1 million for the three months ended September 30, 2008, a
decrease of $8.7 million or 18.9% on net sales. The sales decline was primarily
a result of significantly lower sales to the manufactured housing industry as
well as continuing weakness in the residential new construction and remodeling
categories.





Net
sales for the nine months ended September 30, 2009 were $106.8 million as
compared to $140.9 million for the nine months ended September 30, 2008, a
decrease of $34.1 million or 24.2%. The year-to-date sales shortfall reflects
lower sales to the manufactured housing industry as a result of sharp reductions
in manufactured and RV home production during 2009, coupled with declines in new
residential construction and remodeling activity demand.





Gross
profit for the three months ended September 30, 2009 totaled $5.5 million, or
14.7% of net sales, compared to $8.3 million, or 18.1% of net sales, for the
same period last year. The decrease in gross profit dollars resulted from the
lower sales levels while the reduced gross profit margin percentage reflects the
impact of lower production volumes (resulting from both lower and demand and
inventory reductions) over which to spread fixed manufacturing overhead,
partially mitigated by cost reductions enacted earlier in the year.





Gross
profit for the nine months ended September 30, 2009 totaled $16.1 million, or
15.1% of net sales, compared to $29.1 million, or 20.6% of net sales, for the
same period last year. The decrease in gross profit dollars resulted from the
lower sales levels and the impact of unabsorbed fixed overhead spending, with
the decline in gross profit margins reflecting lower production volume over
which to spread fixed manufacturing overhead, partially offset by manufacturing
costs reductions, including workforce reductions.





Selling,
general and administrative expenses were $7.2 million for the three months ended
September 30, 2009 as compared to $7.8 million for the three months ended
September 30, 2008. The decrease reflects cost reductions measures enacted
during the first quarter of 2009, including headcount and expense reductions,
partially offset by increased pension expense of $0.9 million.





Selling,
general and administrative expenses were $22.9 million for the nine months ended
September 30, 2009 or 21.4% of net sales, compared to $26.1 million or 18.5% of
net sales for the nine months ended September 30, 2008. Cost reduction measures
instituted during the first quarter of 2009 accounted for most of the decrease,
partially offset by a severance charge of $0.5 million and incremental pension
expense of $2.7 million.





The
loss from operations was $1.7 million for the three months ended September 30,
2009 compared to a loss of $10.1 million for three months ended September 30,
2008. The three months ending September 30, 2008 included an $11.5 million
charge to increase the reorganization related reserve. The loss from operations
for the nine months ended September 30, 2009 was $6.8 million compared to a loss
from operations of $8.5 million for the same period last year, which included a
charge of $11.5 million to increase the reorganization reserve.








38





Due
to the inability to recognize any tax benefits associated with operating losses,
Congoleum expects its effective tax rate for 2009 will be negligible. Congoleum
recorded a provision of $35 thousand for income taxes for the three months ended
September 30, 2009. For the nine months ended September 30, 2009 Congoleum has
recorded $50 thousand as a provision for income taxes. Congoleum recorded a tax
benefit of $1.2 million during the third quarter of 2008 primarily related to
the deferred federal tax impact (net of valuation) of $11.5 million in
additional asbestos reserves recorded in the third quarter of 2008.








Liquidity
and Capital Resources





ABI
& Non-Debtor Subsidiaries





Cash,
cash equivalents, and short-term investments (consisting of bank certificates of
deposit with original maturity greater than three months), increased $153
thousand in the nine months ended September 30, 2009 to $3.1 million. Cash
generated from improved working capital reductions (primarily inventory) and was
offset by the net loss and costs paid in connection with a debt refinancing.
Working capital at September 30, 2009 was $27.3 million compared to $24.8
million at December 31, 2008. The ratio of current assets to current liabilities
at September 30, 2009 was 1.67 compared to 1.51 at December 31, 2008. Net cash
provided by operating activities was $9.0 million for the nine months ended
September 30, 2009, compared to cash provided by operating activities of $754
thousand for the nine months ended September 30, 2008.





Capital
expenditures in the first nine months of 2009 were $1.5 million compared to $1.0
million for the first nine months of 2008. It is currently 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 Wachovia Bank ,
National Association ("Wachovia") pursuant to a loan and security agreement (the
"Credit Agreement"). The Credit Agreement was entered into on June 30, 2009, and
initial borrowings on the Credit Agreement were used to pay off borrowings from
another financial institution and to pay fees and expenses in connection with
the refinancing.








39





The
Credit Agreement provides American Biltrite Inc. and its subsidiaries with (i) a
$30.0 million commitment under the Revolver (including a $12 million Canadian
revolving credit facility sublimit) and (ii) an $8.0 million Term Loan. The
Credit Agreement also provides letter of credit facilities with availability of
up to $6.0 million (including a $3 million Canadian letters of credit facility
sublimit) subject to availability under the Revolver. The maximum amount
available for revolving debt borrowings is reduced to the amount of the
borrowing base if that amount is lower. The borrowing base is based upon
eligible assets of the Company, including accounts receivables and inventory.
The Company's obligations under the Credit Agreement are secured by assets of
the Company and its subsidiaries. At September 30, 2009, the Company had $12.4
million and $7.7 million outstanding on its Revolver and Term Loan,
respectively, and $7.5 million of availability under the Revolver.





The
Term Loan principal is payable in 72 monthly installments of $111 thousand
beginning August 1, 2009 and ending on July 1, 2015. All indebtedness under the
Credit Agreement, other than the Term Loan, matures on June 30,
2012.





Interest
is payable monthly on borrowings under the Credit Agreement at rates based on a
base interest rate plus an applicable margin for each type of loan, which varies
depending on whether the loan is based on U.S., Canadian, or Eurodollar rate
loans and which ranges from an applicable rate of two hundred basis points over
U.S. and Canadian base rates to four hundred basis points over Eurodollar base
rates for revolving debt loans and three hundred basis points over U.S. base
rates and five hundred basis points over Eurodollar base rates for the Term
Loan. The Credit Agreement charges the Company a monthly unused borrowing line
fee, at a rate equal to five-eighths of one percent (0.625%) per annum. In
addition, the Credit Agreement imposes a monthly letter of credit fee equal to
four percent (4%) per annum for unused letter of credit
availability.





Pursuant
to the Credit Agreement, payments on the Company's accounts receivable will be
deposited in accounts assigned by the Company and the other borrowers to
Wachovia and the funds in that account may used by Wachovia to pay down
outstanding borrowings under the Credit Agreement.





The
Credit Agreement contains customary bank covenants, including limitations on
incurrence of debt and liens or other encumbrances on assets or properties, sale
of assets, making of loans or investments, including paying dividends and
redemptions of capital stock, the formation or acquisition of subsidiaries and
transactions with affiliates. The Credit Agreement requires the Company and the
other borrowers and the guarantors to maintain, on a consolidated basis, a
minimum fixed charge coverage ratio that increases from 0.8:1.0 to 1.0:1.0 over
the term of the Credit Agreement. The Credit Agreement also requires that the
Company and the other borrowers and the guarantors to maintain, on a
consolidated basis, a minimum amount of earnings before interest, taxes,
depreciation, and amortization, as determined under, and for the periods
specified in, the Credit Agreement. The Company currently anticipates it will be
able to comply with these covenants. However, the Company had to receive
covenant waivers on several occasions under its prior credit agreement or enter
amendments to that agreement to address failures to satisfy covenants under that
prior credit agreement, and it is possible that, in the future, the Company may
need to obtain waivers for failures to satisfy its covenants under the Credit
Agreement or enter amendments to the Credit Agreement to address any such
failures or obtain replacement financing as a result. There can be no assurance
the Company would be successful in obtaining any such waiver, entering any such
amendment or obtaining any such replacement financing.








40





Any
waivers, 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 exercised, which
would likely have a material adverse effect on the Company’s business, results
of operations or financial condition.





On
June 30, 2009, the Company also entered into accounts receivable financing
agreements (the “FGI Financing Agreements”) with Faunus Group International
(“FGI”). Under the terms of the FGI Financing Agreements, the Company may offer
to sell certain of its foreign accounts receivable to FGI during the term of the
FGI Financing Agreements, up to a maximum amount outstanding at any time of $4.0
million in net amounts funded based upon an 80% advance rate. The Company will
pay FGI a monthly collateral management fee equal to 0.66% of the average
monthly balance of accounts purchased by FGI. In addition, FGI will charge the
Company interest on the daily net funds employed at a rate equal to the greater
of (i) 7.0% or (ii) 2.5% above FGI’s prime rate. The Company is obligated to
maintain an average balance of net funded amounts of $1.2 million (or pay fees
based on such a minimum), and FGI has the right to decline to purchase any
accounts.





The
FGI Financing Agreement is for a term of 36 months and automatically renews for
additional one year terms unless either party gives notice of non-renewal. In
addition, FGI may terminate the agreement upon a default by the Company. The
Company may terminate the agreement at any time by paying a $120 thousand
termination fee. The termination fee is not payable upon a termination by FGI or
upon non-renewal. At September 30, 2009, the Company had $542 thousand payable
to FGI.





Under
the terms of the Second 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. 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. The
Credit Agreement generally prohibits the Company from paying cash dividends to
its stockholders. Therefore, so long as the Credit Agreement remains
outstanding, the Company would need to obtain the consent of the lenders under
the Credit Agreement to pay dividends to its stockholders in the future. In
addition to this need for lender consent, any determination to pay future
dividends would be made by the Company's Board of Directors based upon, among
other considerations, the financial performance and capital requirements of the
Company, as well as market conditions.








41





The
Company has recorded what it believes are adequate provisions for environmental
remediation and product-related liabilities (including asbestos-related claims).
The Company is 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. Among these claims, the Company is a named party
in several actions associated with waste disposal sites (more fully discussed in
Note H to the Unaudited Consolidating Condensed Financial Statements contained
in Part I, Item 1 of this Quarterly Report on Form 10-Q). 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 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 liability in proportion to
other potentially responsible parties, and the extent to which costs may be
recoverable from insurance. The Company has recorded provisions in its financial
statements for the estimated probable loss associated with all known general and
environmental contingencies. While the Company believes its estimate of the
future amount of these liabilities is reasonable, and that they will be paid
over a period of five to twenty-five years, the timing and amount of such
payments may differ significantly from the Company’s assumptions. Although the
effect of future government regulations could have a significant effect on the
Company’s costs, the Company 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 the Company’s customers.
Estimated insurance and third party recoveries related to these liabilities are
reflected in other non-current assets.





The
outcome of these environmental and product liability matters could result in
significant expenses incurred by or judgments assessed against the
Company.





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.








42





On
December 31, 2003, Congoleum filed a voluntary petition with the Bankruptcy
Court (Case No. 03-51524) seeking relief under the Bankruptcy Code, and on
August 17, 2009, the District Court withdrew Congoleum’s chapter 11 case from
the Bankruptcy Court and assumed authority over the proceedings. 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 liquidity and capital resources. During the first
nine months of 2009, Congoleum paid $6.3 million in fees and expenses related to
reorganization proceedings under the Bankruptcy Code and the New Jersey state
court insurance coverage action Congoleum is litigating against certain of its
insurers (the “Coverage Action”). Furthermore, at September 30, 2009, Congoleum
had incurred but not paid approximately $8.6 million in additional fees and
expenses for services rendered through that date.





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 subsequent
plan, including the Second 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 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 terms of all subsequent plans, including the Second 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.





In
February 2006, the Bankruptcy Court ordered Congoleum’s former counsel, then
known as Gilbert Heintz & Randolph LLP (“GHR”) to disgorge all fees and
certain expenses it was paid by Congoleum. In October 2006, Congoleum and GHR
entered into the 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 the
settlement agreement in March 2008.





Unrestricted
cash and cash equivalents, including short-term investments at September 30,
2009, were $14.1 million, a decrease of $1.0 million from December 31, 2008.
Restricted cash of $30.8 million at September 30, 2009 consists of insurance
settlement proceeds, the disposition of which is subject to court order.
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 $0.8 million at September 30, 2009 and a negative $1.6
million at December 31, 2008.








43





The
ratio of current assets to current liabilities was 1.0 to 1.0 at September 30,
2009 and December 31, 2008. Net cash provided by operations during the nine
months ended September 30, 2009 was $3.6 million, as compared to net cashed used
in operations of $1.9 million during the nine months ended September 30,
2008.





Capital
expenditures for the nine months ended September 30, 2009 totaled $1.9 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) December 31,
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 (“EBITDA”). In connection with the amendment and extension of
the agreement during 2008, the minimum level of 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
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 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. in connection with this waiver and amendment, the interest rate was
increased to 1.75% above the prime rate. 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 September 30, 2009, based on the
level of receivables and inventory, $18.6 million was available under the
facility, of which $2.0 million was utilized for outstanding letters of credit
and $12.4 million was utilized by the revolving loan. During the second quarter
of 2009 Congoleum received an extension on the existing financing facility to
December 31, 2009. A covenant modification and extension fee of
$25 thousand was paid in connection with this extension, plus a monthly
extension fee of $15 thousand per month. In October 2009, Congoleum and the
lenders agreed to a further modification of the credit facility that would
extend the facility until June 30, 2010, provide Congoleum with an additional $5
million of availability under the revolver, and add certain real estate of
Congoleum as security for the obligations of Congoleum under the facility. The
$5 million loan availability against real estate reduces by $69 thousand per
month beginning December 1, 2009. In connection with the amendment, Congoleum
agreed to grant the lenders a first lien on its properties on East State Street
in Trenton, NJ and in Marcus Hook, PA. The amendment will be effective upon
approval by the District Court, which is pending. A $60 thousand amendment fee
will be payable at that time.








44





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 September 30, 2009, as the excess
borrowing availability it maintained under the revolving line of credit exceeded
the threshold at which it was required to meet minimum EBITDA levels. 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 and 2010 while its Chapter
11 case remains pending. 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 H to the Unaudited
Condensed Consolidating Financial Statements contained in Part I, Item 1 of this
Quarterly Report on Form 10-Q). 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.





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








45





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 should be sufficient to provide
adequate working capital for operations during 2009 and 2010. Congoleum’s
ability to emerge from its Chapter 11 case 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.











46





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 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 Unaudited Consolidating
Condensed 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." The Bankruptcy Court issued an opinion
denying confirmation of the Amended Joint Plan and ordered 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 was appealed with
the United States District Court for the District of New Jersey, and the
Bankruptcy Court granted a stay of its Order of Dismissal pending a final
non-appealable decision affirming the Order of Dismissal. On August 17, 2009, the District Court issued an opinion
and order reversing the Order of Dismissal. In addition, the District Court
assumed jurisdiction over the proceedings from the Bankruptcy Court.Certain insurers have filed notices of appeal with respect to the
District Court’s ruling with the United States Court of Appeals for the Third
Circuit. The Debtors, the Bondholders’ Committee and the ACC have moved to
dismiss the appeals, and such motion is pending.








47





Following
additional negotiations, on October 22, 2009, the ACC, the Bondholders’
Committee and Congoleum jointly filed the Second Amended Joint Plan with the
District Court. The District Court has scheduled a hearing to consider the
adequacy of the disclosure statement for the Second Amended Joint Plan for
December 7, 2009.





Under
the terms of the Second 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.





The
Second Amended Joint Plan would govern an intercompany settlement and ongoing
intercompany arrangements among ABI and its subsidiaries and reorganized
Congoleum. 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 ABI in form and substance mutually agreeable to the
Bondholders’ Committee, the ACC and the Company. The existing intercompany
arrangements providing for management services by ABI to reorganized Congoleum
and other business relationships expire on the earlier of (a) the effective date
of a plan of reorganization for Congoleum, following a final order of
confirmation, or (b) March 31, 2010, unless renewed. Although there can be no
assurances, ABI currently expects that the terms of any new intercompany
agreement would be substantially similar to the form of that agreement that was
included in previous proposed plans of reorganization for Congoleum and would
provide for the provision of management services by ABI to reorganized Congoleum
and other business relationships substantially consistent with their traditional
relationships. The prior form of new intercompany agreement contemplated the
agreement becoming effective on the date the plan became effective and having a
term of two years. In addition, consistent with the terms of previous plans of
reorganization proposed for Congoleum, under the terms of the Second 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 be deemed rejected and disallowed upon the effective
date of the Second Amended Joint Plan, and therefore eliminated. The Second
Amended Joint Plan’s rejection and disallowance of the joint venture agreement
and ABI’s claims thereunder would include 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 be entitled to assert after
the Second Amended Joint Plan becomes effective. 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 Second 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.








48





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.





Any
plan of reorganization proposed for Congoleum 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 proposed by Congoleum, and Congoleum is involved
in ongoing litigation against its insurers in the Coverage Action. On July 30,
2009, certain insurers filed summary judgment motions in the ongoing New Jersey
state court coverage litigation seeking declarations that Congoleum has
materially breached its insurance policies and that the insurers have no
coverage obligation for the underlying asbestos claims that are the subject of
the Claimant Agreement, the Joint Plan, the Amended Joint Plan or any other
agreement for which the insurers’ consent was not procured. The insurers take
the position that their motions impact all present and future asbestos claims.
Congoleum opposed these motions, and on October 30, 2009, the New Jersey state
court denied these motions. The Phase 2 trial is scheduled to begin on February
12, 2010. The precise scope of the Phase 2 trial is in dispute. The parties have
submitted competing case management orders to define the scope of the Phase 2
trial, but no case management order has been entered by the Court. 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. If the insurers successfully avoid having to fund under the
applicable policies in connection with the Second Amended Joint Plan or other
plan of reorganization for Congoleum, significantly delay confirmation and
effectiveness of any such plan, or cause Congoleum to incur significant
additional costs in connection with pursuing confirmation and effectiveness of
any such plan, Congoleum may be unable to obtain confirmation and effectiveness
of the Second Amended Joint Plan or other plan of reorganization for
Congoleum.





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 difficult conditions in the
global credit markets, which if such conditions continued, may make it more
expensive and difficult for Congoleum to obtain that financing. 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.








49





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.





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.





Under
the Second Amended Joint Plan, ABI’s ownership would be eliminated, and ABI
expects that its ownership interest in Congoleum would 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 reorganization plan for Congoleum
that may be proposed, confirmed or effected, 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.








50





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 the earlier of (a) the effective
date of a plan of reorganization for Congoleum, following a final order of
confirmation, or (b) March 31, 2010, 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 if necessary, 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 Second Amended Joint Plan includes terms that would
govern an intercompany settlement and ongoing intercompany arrangements among
ABI and its subsidiaries and reorganized Congoleum. 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 ABI in form and substance
mutually agreeable to the Bondholders’ Committee, the ACC and ABI. Although
there can be no assurances, ABI currently expects that the terms of any new
intercompany agreement would be substantially similar to the form of that
agreement that was included in previous proposed plans of reorganization for
Congoleum and would provide for the provision of management services by ABI to
reorganized Congoleum and other business relationships substantially consistent
with their traditional relationships. The terms of the applicable prior plans
provided for certain intercompany arrangements continuing for a two year period
ending on the second anniversary of the effective date of the plan pursuant to a
new agreement to be entered into by ABI and reorganized Congoleum on the
effective date of the plan. Pursuant to that previously proposed 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.





The
Company relies on debt financing to fund its business, operations and working
capital needs, it has had to amend its debt agreements in the past in order to
avoid being in default of those agreements and may have to do so again in the
future, and the Company's ability to obtain additional financing may be
limited.





The
Company relies on debt financing to fund its business, operations and working
capital needs, including borrowings under its Credit Agreement, which agreement
is further discussed under "Management’s Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources" in Part
I, Item 2 of this Quarterly Report on Form 10-Q. If the Company is not able to
generate sufficient cash flows from its operations, it may have greater reliance
on the availability of borrowings under its credit
facilities.








51





The
Company's debt agreements contain financial and other covenants which the
Company must comply with. In the past, the Company has had to amend its debt
agreements in order to avoid being in default of those agreements as a result of
failing to satisfy certain financial covenants contained in those agreements.
Although the Company currently anticipates it will be able to comply with its
covenants under its debt agreements, due to economic or other conditions or
reasons, the Company may in the future fail to comply with its covenants. If
that were to occur, the Company would likely need to obtain a waiver of such
covenant breach from the lenders or enter into an amendment to the debt
agreement to address the covenant breach. There can be no assurance that the
Company would be successful in obtaining any such waiver or entering into any
such amendment.





If
an event of default under the Credit Agreement were to occur, the lenders could
cease to make borrowings available under the revolving credit facility 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 exercised, which would likely have a material
adverse effect on the Company’s business, results of operations or financial
condition.





In
addition, under the terms of the Credit Agreement, the Company's ability to
obtain additional debt financing is limited. Moreover, since the Company and its
subsidiaries have already granted security interests in most of their assets,
the Company's ability to obtain any additional debt financing may be limited.
Further, in light of the recent difficult conditions in the global credit
markets credit has been more expensive and difficult to obtain, which if such
conditions continue, would further limit the availability of any additional
financing for the Company.





If
a lender under the Company's credit facilities fails to fund a request by the
Company to borrow money under a credit facility, the Company's business, results
of operations or financial condition may be materially adversely
affected.





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 recent economic conditions 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.





52







The
Company may not be able to maintain its listing with the NYSE Amex
LLC.





On
May 28, 2009, the Company received written notice from the NYSE Amex LLC (the
"NYSE Amex") indicating that the Company does not meet certain of the continued
listing standards of the NYSE Amex. Specifically, the notice stated that the
Company is not in compliance with Section 1003(a)(i) of the NYSE Amex Company
Guide, with stockholders’ equity of less than $2,000,000 and losses from
continuing operations and/or net losses in two of its three most recent fiscal
years; and Section 1003(a)(ii) of the NYSE Amex Company Guide, with
stockholders' equity of less than $4,000,000 and losses from continuing
operations and/or net losses in three of its four most recent fiscal years. On
or about June 29, 2009, the Company submitted a plan for compliance with the
continued listing standards with the NYSE Amex, and on August 31, 2009, the
Company received a letter from the NYSE Amex indicating that the Amex had
accepted the plan submitted by American Biltrite to regain compliance with
certain continued listing standards, and would extend the deadline for meeting
those standards to November 29, 2010. American Biltrite’s listing on the Amex is
being continued pursuant to this extension. Although the Company was granted an
extension by the NYSE Amex until November 29, 2010 to comply with the applicable
Amex listing standards, the NYS Amex may still initiate delisting proceedings,
including if it believes that the Company fails to show sufficient progress
consistent with its plan for compliance or if the Company fails to comply with
other NYSE Amex listing standards. There can be no assurance that the Company
will be able to maintain its listing with the NYSE Amex. If the Company's common
stock is delisted, the market for the Company's common stock may be
significantly adversely affected, including as a result of possible less
liquidity which generally occurs for securities traded in the over-the-counter
market as compared with securities traded on a national securities exchange,
difficulty reselling shares at prices quoted in the market or at all, broader
market fluctuations, and depressed share price. In addition, a delisting may
make it difficult for the Company to issue additional securities for financing
or other purposes, or to otherwise arrange for any financing the Company may
need in the future.





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.








53





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.





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 have been volatile and, although below their peak levels in 2008, remain
at historically high levels and have recently increased. The volatile and high
raw material and energy costs have negatively impacted the Company’s and
Congoleum’s business and operating results. The Company and Congoleum may be
unable to pass increased raw material and energy costs on to their respective
customers, particularly in light of the recent difficult economic conditions in
the United States and the industries in which the Company and Congoleum conduct
business.








54





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.








55





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





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.
Although the U.S. economy may have grown during the third quarter of 2009, it is
unclear the extent to which any such growth may be sustainable, how long any
possible improvement in economic conditions may last, and whether and the extent
to which the conditions in the particular industries in which the Company and
Congoleum conduct business may improve and whether any such improvement would be
sustainable.





In
addition, raw material and energy costs have been volatile and, although below
their peak levels in 2008, remain at historically high levels and have recently
increased. The volatile and high raw material and energy costs have negatively
impacted the Company's and Congoleum's businesses and operating results. The
Company and Congoleum may be unable to pass increased raw material and energy
costs on to their respective customers, particularly in light of the recent
difficult economic conditions in the United States and the industries in which
the Company and Congoleum conduct business.





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.








56





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.





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 consolidated results of operations. 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.








57





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.





Item
3. Defaults Upon Senior Securities





On
August 3, 1998, Congoleum issued $100 million 8 5/8% Senior Notes due August 1,
2008 priced at 99.505% to yield 8.70%. 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 September
30, 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





On
November 11, 2009, the Company issued a press release announcing its financial
results for the three and nine months ended September 30, 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
99.3.








58





Item
6. Exhibits





Exhibit
      No.
            Description3.1   I
            Restated
      Certificate of Incorporation3.2   II
            By-Laws,
      amended and restated as of November 7, 200731.1
            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   III
            Opinion
      of the United States District Court for the District of New Jersey, dated
      August 17, 200999.2   IV
            Order
      of the United States District Court for the District of New Jersey, dated
      August 17, 200999.3
            Press
      release dated November 11, 200999.4   V
            Second
      Amended Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy
      Code of the Debtors, the Official Asbestos Claimants’ Committee and the
      Official Committee of Bondholders for Congoleum Corporation, et al., dated
      as of October 22, 200999.5   V
            Proposed
      Disclosure Statement with respect to the Second Amended Joint Plan of
      Reorganization Under Chapter 11 of the Bankruptcy Code of the Debtors, the
      Official Asbestos Claimants’ Committee and the Official Committee of
      Bondholders for Congoleum Corporation, et al., dated as of October 22,
      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,
      2007








59








III
            Incorporated
      by reference to the exhibits filed with the Company’s Current Report on
      Form 8-K filed with the Securities and Exchange Commission on August 21,
      2009IV
            Incorporated
      by reference to the exhibits filed with the Company’s Current Report on
      Form        8-K/A filed with the
      Securities and Exchange Commission on August 25, 2009V
            Incorporated
      by reference to the exhibits filed with the Company’s Current Report on
      Form 8-K filed with the Securities and Exchange Commission on October 22,
      2009





60














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:   November
      13, 2009
            BY:
            /s/  Howard
      N. Feist IIIHoward
      N. Feist IIIVice
      President-Finance(Duly
      Authorized Officer andPrincipal
      Financial and ChiefAccounting
      Officer)








61





INDEX
OF EXHIBITS





Exhibit
      No.
            Description3.1   I
            Restated
      Certificate of Incorporation3.2   II
            By-Laws,
      amended and restated as of November 7, 200731.1
            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   III
            Opinion
      of the United States District Court for the District of New Jersey, dated
      August 17, 200999.2   IV
            Order
      of the United States District Court for the District of New Jersey, dated
      August 17, 200999.3
            Press
      release dated November 11, 200999.4   V
            Second
      Amended Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy
      Code of the Debtors, the Official Asbestos Claimants’ Committee and the
      Official Committee of Bondholders for Congoleum Corporation, et al., dated
      as of October 22, 200999.5   V
            Proposed
      Disclosure Statement with respect to the Second Amended Joint Plan of
      Reorganization Under Chapter 11 of the Bankruptcy Code of the Debtors, the
      Official Asbestos Claimants’ Committee and the Official Committee of
      Bondholders for Congoleum Corporation, et al., dated as of October 22,
      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,
      2007





62








III
            Incorporated
      by reference to the exhibits filed with the Company’s Current Report on
      Form 8-K filed with the Securities and Exchange Commission on August 21,
      2009IV
            Incorporated
      by reference to the exhibits filed with the Company’s Current Report on
      Form 8-K/A filed with the Securities and Exchange Commission on August 25,
      2009V
            Incorporated
      by reference to the exhibits filed with the Company’s Current Report on
      Form 8-K filed with the Securities and Exchange Commission on October 22,
      2009





63