UNITED STATES


SECURITIES AND EXCHANGE
COMMISSION


Washington,D.C.20549





FORM 10-K





ANNUAL REPORT PURSUANT TO SECTION 13 or
15(d) OF


THE SECURITIES EXCHANGE ACT OF
1934





For the fiscal year ended December 31,
2007





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
            (IRS Employer Identification
      No.)Incorporation or
      Organization)








57 River Street


Wellesley Hills,MA02481-2097


(Address of Principal Executive
Offices)


(781) 237-6655


(Registrant’s telephone number,
including area code)








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





Name
      of Exchange onTitle
      of Each Class
            Which
      RegisteredCommon
      Stock, $.01 Par Value
            American
      Stock Exchange








Securities registered pursuant to
Section 12(g) of the Act: NONE








Indicate by check mark if the Registrant
is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act.  YESoNOx





Indicate by check mark if the Registrant
is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act.  YESoNOx





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
and  (2) has been subject to such filing requirements for the past 90
days.  YESxNOo





Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form
10-K.o





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 o   Accelerated
filer o   Non-accelerated
filer o  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 oNO x





The aggregate market value of the
registrant's common stock held by non-affiliates as of June29, 2007was $13.5 million.





The number of shares of the registrant's
common stock, par value $.01 per share, outstanding as of March 14, 2008was 3,441,551.





Documents
Incorporated byReference–Portionsof the proxy statement for the annual
meeting of stockholders to be held on May 6, 2008, which will be filed by the
registrant within 120 days after December 31, 2007, are incorporated by
reference into Part III of this Annual Report on Form 10-K.





Factors That
May Affect Future Results–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 forward-looking statements are
based on the registrant's expectations, as of the date of this report, of future
events.  Except as required by applicable law, the registrant
undertakes no obligation to update any of these forward-looking
statements.  Although the registrant believes that its 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.  Factors that
could cause or contribute to the registrant's actual results differing from its
expectations include those factors discussed elsewhere in this report, including
in Item 1A (Risk Factors).





PART
I





ITEM 1.  BUSINESS





General Development of
Business





American Biltrite Inc. (together with,
unless the context otherwise indicates, its wholly-owned subsidiaries and
K&M Associates L.P., "ABI" or the "Company") was organized in 1908 and is aDelawarecorporation.  ABI's major
operations include its Tape Division, a controlling interest in K&M
Associates L.P., aRhode
Islandlimited partnership
("K&M"), and ownership of a Canadian subsidiary, American Biltrite
(Canada) Ltd. ("AB Canada").  ABI
also presently owns 55.4% of the outstanding common stock of Congoleum
Corporation, aDelawarecorporation
("Congoleum").  Congoleum filed a voluntary petition with the
United States Bankruptcy Court for the District of New Jersey (the “Bankruptcy
Court”) (Case No. 03-51524) seeking relief under Chapter 11 of the United States
Bankruptcy Code (the "Bankruptcy Code") in 2003.  ABI expects its ownership interest in
Congoleum to beeliminatedpursuant to the terms oftheplan of reorganizationforCongoleum pending in the Bankruptcy
Court.





The Tape Division produces
adhesive-coated, pressure-sensitive papers and films used to protect material
during handling or storage or to serve as a carrier for transferring decals or
die-cut lettering.  The Tape Division also produces pressure sensitive
tapes and adhesive products used for applications in the heating, ventilating
and air conditioning (HVAC), footwear, automotive, electrical and electronic
industries.





In 1995, ABI acquired a controlling
interest in K&M, a designer, supplier, distributor and servicer of a wide
variety of adult, children's and specialty items of fashion jewelry and related
accessories throughout theU.S.andCanada.  ABI, through wholly-owned
subsidiaries, owns an aggregate 95.5% interest (7% as sole general partner and
88.5% in limited partner interests) in K&M.  K&M wholesales
its products to mass merchandisers, specialty stores and department
stores.





Congoleum is a leading manufacturer of
resilient sheet and tile flooring.  In 1993, ABI acquired an ownership
position in Congoleum in exchange for itsU.S.tile business (the "Tile
Division").  In 1995, ABI acquired voting control of Congoleum when
Congoleum sold a new issue of shares of its Class A common stock to the public
which had one vote per share and used the proceeds to redeem most of the
two-vote-per-share Class B shares held by the then majority
shareholder.  ABI's interest has increased further since then as a
result of Congoleum's repurchases of its common stock combined with open market
purchases of Congoleum common stock by ABI.  As of December 31, 2007,
ABI's ownership of 151,100 shares of Congoleum's Class A common stock and
4,395,605 shares of Congoleum's Class B common stock represented 69.4% of the
outstanding equity voting interests of Congoleum.





1


Congoleum
is a defendant in a large number of asbestos-related lawsuits.  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 (the “ACC”), the Future Claimants’ Representative (the
“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 (the “Bondholders’ Committee”) (representing
holders of Congoleum’s 8 5/8% Senior Notes due August 1, 2008 (the “Senior
Notes”)) also filed a plan of reorganization.  In May 2006, the
Bankruptcy Court ordered the principal parties in interest in Congoleum’s
reorganization proceedings to participate in reorganization plan mediation
discussions.  Several mediation sessions took place during 2006,
culminating in two competing plans, one which Congoleum filed jointly with the
ACC in September 2006 (the “Tenth Plan”) and the other filed by CNA, both of
which the Bankruptcy Court subsequently ruled were not confirmable as a matter
of law.    In March 2007, Congoleum resumed global plan
mediation discussions with the various parties seeking to resolve the issues
raised in the Bankruptcy Court’s ruling with respect to the Tenth
Plan.  In July 2007, the FCR filed a plan of reorganization and
proposed disclosure statement.   After extensive further
mediation sessions, on February 5, 2008, the FCR, the ACC, the Bondholders’
Committee and Congoleum jointly filed a plan of reorganization (the “Joint
Plan”).  The Bankruptcy Court approved the disclosure statement for
the Joint Plan in February 2008, and a confirmation hearing is scheduled for
June 26, 2008.  Under the terms of the 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.See Notes 1 and 9 of the Notes to
Consolidated Financial Statements set forth in Item 8 of this Annual Report on
Form 10-K.





Outside theUnited States, the Tape Division operates production
facilities inBelgium,ItalyandSingapore, where bulk tape products are converted
into various sizes.  Sales offices at theSingaporeandItalylocations and sales representative
offices inShanghai,China,BangkokThailandandSeoul,South Koreaenable quicker response to customer
demands in the European and Asian markets.  The Company’s wholly-owned
Canadian subsidiary, American Biltrite (Canada) Ltd., produces resilient floor
tile, rubber tiles and rolled rubber flooring and industrial products (including
conveyor belting, truck and trailer splash guards and sheet rubber material) and
imports certain rubber and tile products from China for
resale.  K&M maintains a purchasing office inChina, from which it sources the majority of
the products it sells.





ABI owns 50% of Compania Hulera Sula,
S.A. de C.V. ("Hulera Sula"), a Honduran corporation, which produces soles,
heels, sandals and other footwear products under license from
ABI.  Hulera Sula in turn owns 100% ofHulera Sacatepequez,S.A., a Guatemalan corporation which
manufactures products inGuatemalasimilar to those of Hulera
Sula.  Hulera Sula also owns 60% ofFomtex,S.A., a Guatemalan corporation, which
manufactures foam mattresses, beds and other foam
products.


2


In October 2003, ABI discontinued the
operations of its wholly owned subsidiary Janus Flooring Corporation (“Janus
Flooring”), which manufactured pre-finished hardwood flooring inCanada.  Results from Janus
Flooring, including charges resulting from the shutdown, are reported as a
discontinued operation in the Company's consolidated financial statement set
forth in Item 8 of this Annual Report on Form 10-K.  During 2006, the
remaining assets of Janus Flooring were sold, and the discontinued operation was
effectively dissolved.As of December 31, 2006, the Company
merged Janus Flooring with and into American Biltrite (Canada) Ltd.





For financial reporting purposes, ABI
operates in four industry segments:  flooring products, the Tape
Division, jewelry and the Canadian division, which produces flooring and rubber
products.  See Note 14 of the Notes to Consolidated Financial
Statements set forth in Item 8 of this Annual Report on Form
10-K.








Narrative Description of
Business





Marketing,
Distribution and SalesThe Tape Division's
protective papers and films are sold domestically and throughout the world,
principally through distributors, but also directly to certain
manufacturers.  Other tape products are marketed through the Tape
Division's own sales force and by third-party sales representatives and
distributors throughout the world.  ABI's Belgian, Italian andSingaporefacilities sell these products
throughout Europe and theFar East.





The products of K&M are sold
domestically and inCanadathrough its own direct sales force and
through third-party sales representatives.  K&M's business and
operations experience seasonal variations.  In general, fashion
jewelry supply, distribution and service businesses respond to the seasonal
demands of mass merchandisers and other major retailers, which typically peak in
preparation for end-of-year holiday shopping.  Accordingly, K&M's
working capital needs tend to be greatest in the second and third fiscal
quarters as it increases inventories in advance of its peak selling season,
while its revenues tend to be greater toward the end of each fiscal year,
especially in the latter part of the third quarter and the first half of the
fourth quarter.





AB Canada's floor tile, rubber products
and industrial products are marketed principally through
distributors.  Seasonal variations in the sales and working capital
requirements of this division are not significant.





Congoleum currently sells its products
through approximately 13 distributors providing approximately 51 distribution
points in theUnited
StatesandCanada, as well as directly to a limited
number of mass market retailers.  Congoleum considers its distribution
network to be very important to maintaining a competitive
position.  Although Congoleum has more than one distributor in some of
its distribution territories and actively manages its credit exposure to its
customers, the loss of a major customer could have a materially adverse impact
on Congoleum's business, results of operations and financial condition, at least
until a suitable replacement is in place.  The sales pattern for
Congoleum's products is seasonal, with peaks in retail sales typically occurring
during March/April/May and September/October.  Orders are generally
shipped as soon as a truckload quantity has been accumulated, and backorders can
be canceled without penalty.





3


Hulera Sula's footwear and foam products
are marketed and distributed in certain Central American
countries.





Financial information about products
that contributed more than 10% of the Company's consolidated revenue during the
last two fiscal years is included in Note 14 of the Notes to the Consolidated
Financial Statements set forth in Item 8 of this Annual Report on Form
10-K.





Working
Capital and Cash FlowIn general, ABI's working capital
requirements are not affected by accelerated delivery requirements of major
customers or by obtaining a continuous allotment of raw material from
suppliers.  ABI does not provide special rights for customers to
return merchandise and does not provide special seasonal or extended terms to
its customers.  K&M does provide pre-approved allowances in the
form of markdowns and return authorizations as required.





Congoleum produces goods for inventory
and sells on credit to customers.  Generally, Congoleum's distributors
carry inventory as needed to meet local or rapid delivery
requirements.  Congoleum’s typical credit terms generally require
payment on invoices within 31 days, with a discount available for earlier
payment.  These practices are typical within the
industry.





During
2007, Congoleum paid $13.1 million in fees and expenses (net of recoveries)
related to implementation of its planned reorganization under Chapter 11 and
litigation with certain insurance companies. Congoleum expects to spend an
additional $24.7 million in 2008 on these matters. At December 31, 2007,
Congoleum had incurred but not paid approximately $9.0 million in additional
fees and expenses for services rendered through that date with respect to these
matters.  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 2008 while under Chapter 11 protection.  There can 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 (as extended) will
be renewed prior to its expiration if a plan of reorganization is not confirmed
before that time.  For a plan of reorganization to be confirmed, Congoleum
will need to obtain and demonstrate the sufficiency of financing needed to
effectuate the plan and emerge from its Chapter 11 case.  Congoleum cannot
presently determine the terms of any such financing it might obtain, nor can
there be any assurances of its success obtaining it.





In connection with Congoleum’s plan of
reorganization, ABI expects to spend $400 thousand in 2008, which is not
expected to have a material adverse effect on ABI’s working capital or cash
flow.  ABI and Congoleum have separate credit facilities which are
governed by independent credit agreements, and ABI is generally not otherwise
liable for the separate obligations of Congoleum.





See
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations – Liquidity and Capital Resources – ABI and Non-Debtor Subsidiaries”
and “Management’s Discussion and Analysis of Financial Condition and Results of
Operations – Liquidity and Capital Resources – Congoleum” in Item 7 of this
Annual Report on Form 10-K.





4


Raw
MaterialsABI
generally designs and engineers its own products.  Most of the raw
materials required by ABI for its manufacturing operations are available from
multiple sources; however, ABI 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 ABI's cost of
materials, require product reformulation or require qualification of new
suppliers, any one or more of which could materially adversely affect the
business, operations or financial condition of ABI.  Congoleum does
not have readily available alternative sources of supply for specific designs of
transfer print film, which are produced utilizing print cylinders engraved to
Congoleum's specifications.  Although no loss of this source of supply
is anticipated, replacement could take a considerable period of time and
interrupt production of certain products.  Congoleum maintains a raw
material inventory and has an ongoing program to develop new sources, which is
designed to provide continuity of supply for its raw material
requirements.  Although the Company and Congoleum have generally not
had difficulty in obtaining their requirements for these materials, they have
occasionally experienced significant price increases for some of these
materials.Although the Company and Congoleum have been able
to obtain sufficient supplies of specialty resin and other raw materials, there
can be no assurances that they may not experience difficulty obtaining supplies
and raw materials in the future, particularly if global supply conditions
deteriorate, which could have a material adverse effect on profit
margins.





CompetitionAll businesses in which ABI
is engaged are highly competitive, principally based upon pricing of the
product, the quality of the product and service to the
customer.  ABI’s tape products compete with products of some of the
largest fully integrated rubber and plastic companies, as well as those of
smaller producers.  Included among its competitors are 3M, Nitto
Permacel, Ivex/Novasol and R-Tape.  AB Canada's flooring products
compete with those of other manufacturers of rubber and resilient floor tiles
and with all other types of floor covering.  AB Canada also competes
with Armstrong World Industries, Inc., Flexco/Roppe, Nora and Mondo and with
other manufacturers of alternate floor covering products.  In the
rubber products category, AB Canada has several competitors, principally among
them being GRT Division of Enpro and WARCO/Biltrite.





The market for Congoleum's products is
highly competitive.  Resilient sheet and tile compete for both
residential and commercial customers primarily with carpeting, hardwood,
melamine laminate and ceramic tile.  In residential applications, both
tile and sheet products are used primarily in kitchens, bathrooms, laundry rooms
and foyers and, to a lesser extent, in playrooms and
basements.  Ceramic tile is used primarily in kitchens, bathrooms and
foyers.  Carpeting is used primarily in bedrooms, family rooms and
living rooms.  Hardwood flooring and melamine laminate are used
primarily in family rooms, foyers and kitchens.  Commercial grade
resilient flooring faces substantial competition from carpeting, ceramic tile,
rubber tile, hardwood flooring and stone in commercial
applications.  Congoleum believes, based upon its market research,
that purchase decisions are influenced primarily by fashion elements such as
design, color and style, durability, ease of maintenance, price and ease of
installation.  Both tile and sheet resilient flooring are easy to
replace for repair and redecoration and, in Congoleum's view, have advantages
over other floor covering products in terms of both price and ease of
installation and maintenance.





5


Congoleum encounters competition from
three other manufacturers inNorth Americaand, to a lesser extent, foreign
manufacturers.  In the resilient category, Armstrong World Industries,
Inc. has the largest market share.  Some of Congoleum's competitors
have substantially greater financial and other resources and access to capital
than Congoleum.





K&M competes with other companies
that make similar products on the basis of product pricing and the effectiveness
of merchandising services offered.  In assessing K&M’s products
and services, K&M's customers tend to focus on margin dollars realized from
the customers’ sales of product and return on inventory investment needed to be
made by the customer in order to generate sales.  In its business of
supplying and servicing fashion jewelry and accessory products, K&M competes
with a variety of competitors, among them are Liz Claiborne Inc., Jones Apparel
Group and a number of other companies offering similar products and/or
services.  K&M also competes with numerous importers and overseas
suppliers of similar items.





Patents and
TrademarksABI
and its subsidiaries own many trademarks, including the Congoleum brand name,
the AB® logo, TransferRite® and Ideal® at the Tape Division, Estrie®, AB Colors
Plus® Dura-Shield® and Transseal® at AB Canada, and Amtico®, which is used
solely in the Canadian  market.  K&M also licenses for
jewelry the Panama Jack®, Guess?®, Bratz® Rocawear®, Its Happy Bunny®, Peanuts®
and MUDD® trademarks as well as certain others.  These trademarks are
important for the Company in maintaining its competitive
position.The licensing agreements are subject to expiration
dates and other termination provisions, and the licensor or the Company may
choose not to extend or renew certain agreements.  The Company has an
ongoing program seeking additional or replacement licenses.The Company also believes
that patents and know-how play an important role in maintaining competitive
position.





Research and
DevelopmentResearch and development
efforts at the Company concentrate on new product development, increasing
efficiencies of the various manufacturing processes, and improving the features
and performance of existing products.  Expenditures for research and
development were $6.2 million, on a consolidated basis, for each of the years
2007 and 2006.





Key
CustomersFor
the year ended December 31, 2007, two customers of Congoleum accounted for over
10% of ABI's consolidated net sales.  The two customers together
accounted for 66% of Congoleum’s net sales of $204.3million.  These customers are
Congoleum’s distributor to the manufactured housing market, LaSalle-Bristol, and
its largest retail distributor, Mohawk Industries, Inc.  No other
customer accounted for more than 10% of ABI’s consolidated
sales.





K&M’s top four customers in terms of
net sales in 2007 together accounted for 58% of K&M’s net
sales.  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.





Sales to five unaffiliated customers of
the Tape Division together constitute approximately 20% of the net sales for the
Tape Division.  The loss of the largest of these unaffiliated
customers and/or two or more of the other four unaffiliated customers could have
a material adverse effect on the Tape Division's business, results of operations
and financial condition.





6


AB Canada’s sales to Congoleum accounted
for approximately 8% of AB Canada’s net sales in 2007.  The loss of
Congoleum’s business would have a significant, adverse affect on AB Canada’s
revenue.  These intercompany sales are eliminated from the Company’s
consolidated financial statements, in accordance with generally accepted
accounting principles.  See Note 14 of the Notes to Consolidated
Financial Statements set forth in Item 8 of this Annual Report on Form
10-K.





BacklogThe dollar amount of backlog
of orders believed to be firm as of December 31, 2007 and 2006 was $16.3 million
and $15.4 million, respectively.  It is anticipated that all of the
backlog as of December 31, 2007 will be filled within the current fiscal
year.  There are no seasonal or other significant aspects of the
backlog.  In the opinion of management, backlog is not significant to
the business of ABI.





Environmental
ComplianceBecause of the nature of the
operations conducted by ABI and Congoleum, each company’s 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 owned or leased facilities and off-site
disposal locations.





ABI and its subsidiaries, including
Congoleum, have historically expended substantial amounts for compliance with
existing environmental laws and regulations, including those matters described
in Item 3 (Legal Proceedings) and Note 8 to the Notes to the Consolidated
Financial Statements set forth in Item 8 of this Annual Report on Form
10-K.  ABI and Congoleum will continue to be required to expend
amounts in the future, due to the nature of past activities at their facilities,
to comply with existing environmental laws, and those amounts may be
substantial.  Because environmental requirements have grown
increasingly strict, however, ABI is unable to determine the ultimate cost of
compliance with environmental laws and enforcement policies.  The
Company has established accruals for matters for which management considers a
loss to be probable and reasonably estimable.  ABI and Congoleum
believe that compliance with existing federal, state, local and foreign
provisions will not have a material adverse effect upon their financial
positions nor do ABI and Congoleum expect to incur material recurring costs or
capital expenditures relating to environmental matters, except as disclosed in
Item 3 (Legal Proceedings) and Note 8 to the Notes to Consolidated Financial
Statements set forth in Item 8 of this Annual Report on Form
10-K.  However, there can be no assurances that the ultimate liability
concerning these matters will not have a material adverse effect on the
Company’s business, results of operations and financial
condition.





EmployeesAs of December 31, 2007, ABI
and its subsidiaries employed approximately 1,500 people.  Substantially all of the
Company’s employees are employed on a full time basis.





7


Financial Information About Foreign and
Domestic Operations and Export Sales





Financial information concerning foreign
and domestic operations is in Note 14 of the Notes to the Consolidated Financial
Statements set forth in Item 8 of this Annual Report on Form
10-K.  The Company’s consolidated export sales from theUnited Stateswere $28.8 million in 2007 and $28.3
million in 2006.








Available
Information





The
Company is subject to the reporting and other information requirements of the
Securities Exchange Act of 1934, as amended, and files annual, quarterly, and
current reports, proxy statements and other documents with the Securities and
Exchange Commission pursuant to those requirements.  The public may
read and copy any materials that the Company files with the Securities and
Exchange Commission at the Securities and Exchange Commission's Public Reference
Room at 100 F Street, NE, Washington, DC 20549.  The public may obtain
information on the operation of the Public Reference Room by calling the
Securities and Exchange Commission at 1-800-SEC-0330.  Also, the
Securities and Exchange Commission maintains an Internet website that contains
reports, proxy and information statements, and other information regarding
issuers, including the Company, that file electronically with the Securities and
Exchange Commission.  The public can obtain any documents that the
Company files with the Securities and Exchange Commission at
http://www.sec.gov.





Congoleum
is also subject to the reporting and other information requirements of the
Securities Exchange Act of 1934, as amended, and files annual, quarterly and
current reports, proxy statements and other information with the Securities and
Exchange Commission pursuant to those requirements.  Such reports,
proxy statements and other information filed by or in connection with Congoleum
with the Securities and Exchange Commission (the "Congoleum Reports") are
available from the Securities and Exchange Commission in a similar manner as are
the reports, proxy statements and other information filed by the Company with
the Securities and Exchange Commission.  The Company is providing this
information regarding the availability of Congoleum Reports for informational
purposes only.  The Congoleum Reports are expressly not incorporated
into or made a part of this report or any other reports, statements or other
information filed by the Company with the Securities and Exchange Commission or
otherwise made available by the Company.  The Company expressly
disclaims any liability for information disclosed or omitted in the Congoleum
Reports and, except as required by the federal securities laws, expressly
disclaims any obligation to update or correct any information included in the
Congoleum Reports.





8


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.  Congoleum’s 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 1, 8 and 9 of the Notes to Consolidated Financial
Statements set forth in Item 8 of this Annual Report on Form 10-K, 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.  A joint plan of
reorganization for Congoleum proposed by the FCR, the ACC, the Bondholders’
Committee and Congoleum is pending in the Bankruptcy Court, which plan is
referred to elsewhere in this Annual Report on Form 10-K as the "Joint
Plan."  Under the terms of the 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 Joint
Plan and any other plan of reorganization for Congoleum will be subject to
numerous conditions, approvals and other requirements, including the receipt of
necessary creditor, claimant and court approvals.  Certain insurers
are contesting the Joint Plan in the bankruptcy court and Congoleum is involved
in ongoing litigation against its insurers in a state court coverage
action.  If the insurers are successful in contesting the Joint Plan
or in denying coverage under the insurance policies, the Joint Plan may not
receive necessary court approval or may not become
effective.  Further, even if the insurers are not successful in
contesting the Joint Plan or in denying coverage under the insurance policies,
Congoleum may be required to incur significant time and expense litigating
against the insurers, which could further delay any confirmation or
effectiveness of the Joint Plan.  In order to obtain confirmation of
the Joint Plan, Congoleum will need sufficient funds to pay for the continued
litigation with these insurers as well the bankruptcy proceedings
generally.





Under the
terms of the 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, will be deemed rejected and disallowed
upon the effective date of the Joint Plan, and therefore
eliminated.  The Joint Plan's rejection and disallowance of the joint
venture agreement and ABI’s claims thereunder 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 have
been entitled to assert after the Joint Plan becomes effective.


9


In
addition, in view of ABI’s relationships with Congoleum, ABI will be affected by
Congoleum's negotiations regarding, and its pursuit of, the Joint Plan or any
alternative 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.





The
Company has its own direct asbestos liability as well.  The Company's
strategy remains to vigorously 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.  If, however, the Company were not able to
receive such coverage from its insurers for the Company's asbestos liabilities
and expenses, that would likely have a material adverse effect on the Company's
financial position.  In addition, certain of the excess liability
insurance policies that the Company purchased were underwritten by companies
that are now insolvent, which may limit the amount of funds available to pay for
any future claims covered by these policies.  It is also 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.





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 1, 8 and 9 of the Notes to
Consolidated Financial Statements set forth in Item 8 of this Annual Report on
Form 10-K.





10


Elimination
of the Company’s 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
Joint Plan, ABI's ownership interest in Congoleum would be
eliminated.  Pursuant to the terms of the Joint Plan, the plan trust
established upon effectiveness of the Joint Plan will own 50.1% of reorganized
Congoleum's outstanding common stock and Congoleum’s bondholders will own the
remaining 49.9% of reorganized Congoleum's outstanding common stock, with the
plan trust’s share of reorganized Congoleum’s outstanding common stock being
subject to a put/call agreement that ABI expects will result in the plan trust’s
divestiture of its 50.1% share of reorganized Congoleum’s outstanding common
stock following the effective date of the Joint Plan.  There can be no
assurances how this and any other change in ownership and control may affect
reorganized Congoleum’s business, operations and financial condition, or its
future relationships with ABI.





ABI
provides management services to Congoleum, sells and purchases products to and
from Congoleum, and receives royalties from Congoleum.  Agreements for
these current intercompany arrangements expire on the earlier of the effective
date of the Joint Plan or September 30, 2008.  It is not known whether
ABI, Congoleum and the other parties in interest would agree to extend the term
of these arrangements if the Joint Plan has not become effective by September
30, 2008, and if so, for how long any extension would last or what the terms of
any such extension and related intercompany arrangements would
be.  The terms of the Joint Plan provide for certain intercompany
arrangements continuing for a two year period ending on the second anniversary
of the effective date of the Joint Plan pursuant to a new agreement to be
entered into by ABI and reorganized Congoleum on the effective date of the Joint
Plan.  The Joint Plan provides that the new agreement will be in form
and substance mutually agreeable to the FCR, the Bondholders' Committee, the ACC
and ABI.  Pursuant to that new agreement, ABI's current chief
executive officer would serve as a director and the chief executive officer of
reorganized Congoleum and ABI would have to make available to reorganized
Congoleum substantially all of his time during normal working hours on 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 could have a material adverse impact on the business relationships
between ABI and Congoleum, and ABI’s business, operations and financial
condition.





11


The
Company 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.





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.  Most recently, on
March 12, 2008, American Biltrite Inc. and its subsidiaries, K&M and AB
Canada, entered into an amendment, effective as of December 31, 2007, to the
credit agreement with Bank of America, National Association and Bank of America,
National Association acting through its Canada branch, each in their respective
capacities as lenders and administrative agents under that credit
agreement.  That credit agreement, as amended and restated, governs
ABI's primary source of borrowings.  The March 12, 2008 amendment
removed the financial covenant that required the Company not to have any
consecutive quarterly net losses from continuing operations (reporting Congoleum
on the equity method of accounting).  In addition, for purposes of
determining the Company's compliance with the financial covenant requiring its
Consolidated Adjusted EBITDA to exceed 100% of the Company's Consolidated Fixed
Charges (in each case, as determined under the credit agreement), the amendment
permits the Company to add certain amounts to its Consolidated Adjusted EBITDA
to the extent those amounts are deducted in determining the Company's
Consolidated Net Income (as determined under the credit
agreement).  On May 14, 2007, the same parties entered into an
amendment, effective as of March 31, 2007, to the Credit Agreement to revise a
financial covenant to provide that for each of the two consecutive fiscal
quarters of the Company ending December 31, 2006 and March 31, 2007, the Company
may not have a quarterly net loss from continuing operations in excess of $400
thousand.  On September 25, 2006, the Company entered into an
amendment and restatement to the credit agreement it has with Bank of America,
National Association and Bank of America, National Association acting through
its Canada branch.  In connection with that amendment and restatement,
certain financial covenants were amended under the credit agreement to enable
the Company to comply with those covenants.  Although the Company does
not anticipate that it will need to further amend the credit agreement to avoid
being in default at some future date, there can be no assurances in that
regard.  If the Company were to violate one of those covenants and not
amend the agreement to address or obtain a waiver of the violation, it could
breach the agreement, resulting in a default of the agreement.  If
such a default were to occur, the lenders could 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 its rights over the
collateral (most of the Company’s and its domestic subsidiaries’ (excluding
Congoleum) assets) 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 most of its domestic subsidiaries have already granted security interests in
most of their assets, the Company's ability to obtain any additional debt
financing may be limited.





12


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 historicallyexpended substantial
amounts for compliance withexisting environmental
laws or regulations, including environmental remediation costs at both
third-party sites and Company and Congoleum-owned sites.  The Company
and Congoleum will continue to be required to expend amounts in the future
because of the nature of their prior activities at their facilities, in order to
comply with existing environmental laws, and those amounts may be
substantial.  Although the Company and Congoleum believe that those
amounts should not have a material adverse effect on their respective financial
positions, there is no certainty that these amounts will not have a material
adverse effect on their respective financial positions because, as a result of
environmental requirements becoming increasingly strict, neither the Company nor
Congoleum is able to determine the ultimate cost of compliance with
environmental laws and enforcement policies.





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





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.





13


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
asignificant,
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.





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, one of Congoleum’s major competitors has
successfully confirmed a plan of reorganization under Chapter 11 of the
Bankruptcy Code.  Having shed much of its pre-filing asbestos and
other liabilities, that competitor may have a competitive cost 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.





14


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





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





The
Company and its majority-owned subsidiary Congoleum are subject to the effects
of general economic conditions.  A sustained general economic slowdown
could have serious negative consequences for the Company's business, results of
operations and financial condition.  Moreover, their businesses are
affected by the economic factors that affect their respective
industries.  The slowdown in the housing industry has resulted in
reduced demand for the Company’s and Congoleum’s products.  These
conditions could be exacerbated by contraction of the sub-prime mortgage
industry.





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 realizean unexpected,
significant and prolonged disruption of its operations at any of its facilities,
including disruptions in its manufacturing operations, it could result in
shipment delays of its products, depletion of its inventory as a result of
reduced production and increased production costs as a result of taking actions
in an attempt to cure the disruption or carry on its business while the
disruption remains.  Any resulting delay, depletion or increased
production cost could result in increased costs, lower revenues and damaged
customer and product end user relations, which could have a material adverse
effect on the Company's business, results of operations or financial
condition.





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





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





15


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, 2007 and 22% of its net sales for the year ended December 31,
2006.  The loss of the largest unaffiliated customer and/or two or
more of the other four unaffiliated customers could 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 could have
a materially adverse impact on the Company's business, results of operations, or
financial condition.  Congoleum derives a significant percentage of
its sales from two of its distributors.  These two distributors
accounted for approximately 66% and 67% of Congoleum's net sales for the years
ended December 31, 2007 and 2006, respectively.





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.  Four of K&M's customers accounted for
approximately 58% of its net sales for the year ended December 31, 2007 and 60%
of its net sales for the year ended December 31, 2006.The loss of the largest of these
customers would have a material adverse effect on K&M’s business, results of
operations and financial condition and would likely have a material adverse
effect on the Company’s business, results of operations or financial
condition.





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





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








Item 1B.  UNRESOLVED STAFF
COMMENTS





Not applicable.


16


ITEM
2.  PROPERTIES





At December 31, 2007, ABI and its
subsidiaries ownedtenmanufacturing plants and a jewelry
distribution center (located in Providence, Rhode Island) and leased office and
warehousing space as follows:





Location
            Square
      Feet
            Owned
              Or
              Leased
            Industry
      Segment
              For
      Which
              Properties
      UsedTrenton,NJ
            1,050,000
            Owned
            Flooring
      productsMarcus Hook,
    PA
            1,000,000
            Owned
            Flooring
      productsTrenton,NJ
            282,000
            Owned
            Flooring
      productsFinksburg,MD
            107,000
            Owned
            Flooring
      productsMercerville,NJ
            56,000
            Leased
            Flooring
      productsSherbrooke,Quebec
            379,000
            Owned
            Canadian
      divisionMoorestown,NJ
            226,000
            Owned
            Tape
    productsLowell,MA
            57,000
            Owned
            Tape
    productsBillerica,MA
            30,000
            Leased
            Tape
    productsRenaix,Belgium
            84,000
            Owned
            Tape
    productsSingapore
            32,000
            Owned
            Tape
    productsProvidence,RI
            103,000
            Owned
            Jewelry
      productsNew York,NY,Qingdao,China,Orlando,FLandBentonville,AK
            27,200
            Leased
            Jewelry
      products





ABI knows of no material defect in the
titles to any such properties or material encumbrances thereon other than
mortgages on the owned properties in Renaix, Belgium, and Singapore securing
outstanding debt in amounts equal to approximately 5% and 48% of the original
cost of the property, respectively, and under the terms of the Company's
principal debt agreement, pursuant to which the Company has granted a security
interest in the properties in Moorestown, NJ, Lowell, MA and Providence,
RI.  ABI believes that all of its and its subsidiaries' properties are
in good condition and have been well maintained.





It is estimated that during 2007, ABI's
and its subsidiaries' plants for the manufacture of floor covering products
operated at approximately 58% of aggregate capacity, its plants for the
manufacture of tape products operated at approximately 71% of aggregate capacity
and the Canadian division operated at approximately 59% of aggregate
capacity.  All estimates of aggregate capacity have been made on the
basis of a five-day, three-shift operation.


17


ITEM 3.LEGAL PROCEEDINGS





ABI has been named by the Environmental
Protection Agency as a Potentially Responsible Party (“PRP”) within the meaning
of the federal Comprehensive Environmental Response, Compensation and Liability
Act, as amended, as tosixsites infiveseparate
states.    In addition, ABI has been named a PRP by the
State ofMaine’s Department of Environmental
Protection with regard to two sites inMaine.See Note 8 oftheNotes to the Consolidated Financial
Statements included in Item 8 of this Annual Report on Form 10-K for additional
information about these matters.





In accordance with SFAS No. 5,Accounting for
Contingencies, ABI has
recorded a reserve of approximately $3.8million, which represents a probable
and reasonably estimable amount to cover the anticipated remediation costs at
all sites, net of recoveries, based on facts and circumstances known to the
Company at the present time.





ABI is a co-defendant with many other
manufacturers and distributors of asbestos-containing products in approximately
1,360 pending claims involving approximately 1,946 individuals as ofDecember 31,
2007.  These
claims relate to products of the Company’s former Tile Division, whichABI contributed to
Congoleum.  The
claimants allege personal injury from exposure to asbestos or
asbestos-containing products.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 claims 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.  The
Company believes that costs for claims that might be brought after that period
are not reasonably estimable.





The
estimated range of liability for settlement of current claims pending and claims
anticipated to be filed through 2013 was $12.6 million to $41.4 million as of
December 31, 2007.  The Company believes no amount within this range
is more likely than any other and, accordingly, has recorded a liability of
$12.6 million in its financial statements, which represents the minimum 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 $11.1 million at
December 31, 2007, which has been included in other assets.  The
estimated amount of insurance that is probable of recovery depends on the
liability estimate as well as a number of additional factors, including the
financial viability of some of the insurance companies, the method in which
losses will be allocated to the various insurance policies and the years covered
by those policies, how legal and other loss handling costs will be covered by
the insurance policies, and interpretation of the effect on coverage of various
policy terms and limits and their interrelationships.  The recorded
liability and related insurance asset do not include any related defense
costs.  Defense costs are typically paid in addition to the indemnity
limits under the primary layer insurance policies, while certain excess layer
policies pay them within policy limits and other excess layer policies pay them
in addition to policy limits.  Defense costs historically paid by
ABI’s carriers have been approximately 156% of the related indemnity
costs.


18


The recorded amounts were based
onfactscurrently knownby ABIand 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, the allocation of claims to specific insurance policies, 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 actual asbestos-related settlement and defense costs will not exceed
its accrued asbestos liabilities, or thatit will receive the insurance
recoveries which it has accrued.  It is reasonably possible
that the Company will incur charges for resolution of asbestos claims in the
future, which could exceed the Company’s existing reserves.  The
Company’s strategy
remainsto vigorously
defendagainst and
strategically settle its asbestos claims on a case-by-case basis.  The
Companybelieves it has
substantial insurance coverage to mitigate future costs related to this
matter.





See Note 8 of the Notes to the
Consolidated Financial Statements set forth in Item 8 of this Annual Report on
Form 10-K for additional information about these claims.





Congoleum
is a defendant in a large number of asbestos-related lawsuits.  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 ACC, the
FCR and other asbestos claimant representatives.  In addition, an
insurance company, CNA, filed a plan of reorganization and the Bondholders’
Committee also filed a plan of reorganization.  In May 2006, the
Bankruptcy Court ordered the principal parties in interest in Congoleum’s
reorganization proceedings to participate in 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 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
a confirmation hearing is scheduled for June 26, 2008.  Under the
terms of the 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.See Notes 1 and 9 of
the Notes to Consolidated Financial Statements set forth in Item 8 of this
Annual Report on Form 10-K.


19


There can be no assurance that theJoint Plan or any other
planwill receive the
acceptances necessary for confirmation, thatthe Joint Plan will not be modified further,that the conditions to the
Joint Plan or any other plan will be satisfied or waived,thatthe Joint Plan or anyotherplan willtimelyreceive necessary court approvals from
the Bankruptcy Court and theUnited StatesDistrict Courtfor the District of New Jersey (the
“District Court”), thatthe Joint Plan oranyotherplan will be confirmed, thatthe Joint Plan oranyotherplan, if confirmed, will become
effective, or thatCongoleumwillhavesufficient funds to pay for continued
litigation over any plan of reorganizationand 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 Joint Plan.





Congoleum, pursuant to administrative
consent orders signed in 1986 and in connection with a prior restructuring, is
in the process of implementing cleanup measures at itsTrentonsheet facility.  ABI had also
signed a similar consent order with regard to its formerTrentontile facility.  Congoleum
agreed to be financially responsible for the clean-up of theTrentontile facility as part ofABI’s contribution to Congoleum of
ABI’sformer Tile
Division.  See Note 8 oftheNotes to Consolidated Financial
Statements included in Item 8 of this Annual Report on Form 10-K for additional
information about these matters.





Together with a large number (in most
cases, hundreds) of other companies, Congoleum is named as a PRP in pending
proceedings under CERCLA and similar state laws.  See Note 8 oftheNotes to the Consolidated Financial
Statements included in Item 8 of this Annual Report on Form 10-K for additional
information about these matters.





Congoleum also accrues remediation costs
for certain of its owned facilities on an undiscounted
basis.  Estimated total cleanup costs, including capital outlays and
future maintenance costs for soil and groundwater remediation are primarily
based on engineering studies.  In the ordinary course of its business,
ABI and its consolidated entities become involved in lawsuits, administrative
proceedings, product liability 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.





Notes 1, 8 and 9 oftheNotes to Consolidated Financial
Statements set forth in Item 8 of this Annual Report on Form 10-K, to the extent
addressing matters reportable under this Item 3, are incorporated by reference
herein.





ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS





Not applicable.


20


PART II





ITEM 5.
            MARKET FOR THE REGISTRANT'S COMMON
      STOCK ANDRELATED SECURITY HOLDER
      MATTERS





American Biltrite Inc.'s Common Stock is
traded on the American Stock Exchange (ticker symbol: ABL).  At the
close of business on March 14, 2008, the closing price of ABI's
Common Stock was $6.50per share and the approximate number of
record holders was266.High and lowsalesprices forABI’s Common Stock foreach quarter over the last two years
were:





SalePrices of Common
      Shares2007
            
            
            2006Quarter
    Ended
            
            High
            
            
            Low
            
            
            High
            
            
            LowMarch 31
            
            $
            9.75
            
            
            $
            7.98
            
            
            $
            11.60
            
            
            $
            9.08June 30
            
            
            9.89
            
            
            
            8.07
            
            
            
            11.72
            
            
            
            9.25September
30
            
            
            8.82
            
            
            
            5.75
            
            
            
            11.00
            
            
            
            9.41December 31
            
            
            7.25
            
            
            
            4.05
            
            
            
            10.99
            
            
            
            8.01





No
dividends on the Common Stock were declared during 2007 or 2006.  The
Company’s debt agreement restricts the ability of the Company to declare and pay
dividends.  See “Management’s Discussion and Analysis of Financial
Condition and Results of Operations – Liquidity and Capital Resources – ABI and
Non-Debtor Subsidiaries” set forth in Item 7 of this Annual Report on Form
10-K.


21


EQUITY
COMPENSATION PLAN INFORMATION





The
following table sets forth information regarding the Company's equity
compensation plans as of December 31, 2007.




Plan
      Category
            
            Number
      of Securities to Be Issued Upon Exercise of Outstanding Options, Warrants
      and Rights
            
            Weighted-Average
      Exercise Price of Outstanding Options, Warrants and Rights
            
            Number
      of Securities Remaining Available for Future Issuance Under Equity
      Compensation Plans (excluding securities reflected in Column
      (a))(a)
            
            
            
            (b)
            
            
            
            (c)Equity
      Compensation Plans Approved by Security Holders
            
            
            266,500
            
            
            $
            10.06
            
            
            
            266,520Equity
      Compensation Plans Not Approved by Security Holders
            
            
            35,500
            
            
            
            12.19
            
            
            
            14,500Total
            
            
            302,000
            
            
            
            10.31
            
            
            
            281,020(1)





(1)
            Includes
      266,520 shares of Common Stock available for issuance under the Company's
      1993 Stock Award and Incentive Plan, as amended and restated as of March
      4, 1997.  In addition to stock options, awards under the
      Company's 1993 Stock Award and Incentive Plan, as amended and restated as
      of March 4, 1997, may take the form of stock appreciation rights (SARs),
      limited SARs, restricted stock, restricted stock units and other stock
      awards specified in the Plan.  If such awards are granted, they
      will reduce the number of shares of Common Stock available for issuance
      pursuant to future stock option
awards.





On July
1, 1999 the Company established its 1999 Stock Option Plan for Non-Employee
Directors (as amended, the "1999 Plan"), under which non-employee directors may
be granted non-qualified options (the "Options") to purchase shares of Common
Stock.  The maximum number of shares of Common Stock that may be
issued pursuant to the 1999 Plan is 50,000 shares.  The 1999 Plan was
not submitted to stockholders for approval.  Under the 1999 Plan, each
new non-employee member of the Board who has not previously been a non-employee
member of the Board during the term of the 1999 Plan will be granted on the date
he or she is elected to the Board during the term of the 1999 Plan an Option to
purchase 1,000 shares of Common Stock.  In addition, under the 1999
Plan, each non-employee member of the board receives each year on July 1 an
Option to purchase 500 shares of Common Stock.  The options granted
under the 1999 Plan have ten-year terms and fully vest 6 months from the grant
date.  The exercise price for each Option is 100% of the fair market
value on the date of the grant.  No Options may be granted under the
1999 Plan on or after July 1, 2009.  As of December 31, 2007 an
aggregate of 31,500 shares of common stock were issuable upon the exercise of
vested and outstanding Options.  An additional 4,000 options vested on
January 1, 2008.





Congoleum
maintains separate equity compensation plans.


22


ITEM 6.
            SELECTED FINANCIAL
      DATA





Not
      applicable.








ITEM 7.
            MANAGEMENT'S DISCUSSION AND
      ANALYSIS OFFINANCIAL CONDITION
      AND RESULTS OF OPERATIONS





American
Biltrite’s consolidated financial statements include its majority-owned
subsidiary, Congoleum.  However, under the terms of the Joint Plan,
ABI’sownership interest in
Congoleumwould be
eliminated.ABI expects its ownership interest in
Congoleum to be eliminated under any alternate plan or outcome in Congoleum’s
Chapter 11 case.On December 31, 2003, Congoleum filed a
voluntary petition with the Bankruptcy Court seeking relief under Chapter 11 of
the Bankruptcy Code as a means to resolve claims asserted against it related to
the use of asbestos in its products decades ago.  During 2003,
Congoleum had obtained the requisite votes of asbestos personal injury claimants
necessary to seek approval of a proposed, pre-packaged Chapter 11 plan of
reorganization.  In January 2004, Congoleum filed its proposed joint
plan of reorganization and disclosure statement with the Bankruptcy
Court.  From that filing through 2007, several subsequent plans were
negotiated with representatives of the ACC, the FCR and other asbestos claimant
representatives.  In addition, an insurance company, CNA, filed a plan
of reorganization and the Bondholders’ Committee also filed a plan of
reorganization.  In May 2006, the Bankruptcy Court ordered the
principal parties in interest in Congoleum’s reorganization proceedings to
participate in 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 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 a confirmation
hearing is scheduled for June 26, 2008.





There can
be no assurance that the Joint Plan or any other plan will receive the
acceptances necessary for confirmation, that the Joint Plan will not be modified
further, that the conditions to the Joint Plan or any other plan will be
satisfied or waived, that the Joint Plan or any other plan will timely receive
necessary court approvals from the Bankruptcy Court and the District Court, that
the Joint Plan or any other plan will be confirmed, that the Joint Plan or any
other plan, if confirmed, will become effective, or that Congoleum will have
sufficient funds to pay for continued litigation over any plan of reorganization
and the state court coverage litigation.  Any other plan of
reorganization that may be proposed for Congoleum may contain terms
substantially different from those contained in the Joint Plan.





23


ABI
estimates that it will spend an additional $400 thousand for legal fees in 2008,
which it has accrued, in connection with Congoleum’s reorganization
plan.  Actual costs for pursuing and implementing the Joint Plan or
any plan of reorganization could be materially higher, and Congoleum and the
Company may record significant additional charges should the minimum estimated
cost increase.





In
addition, ABI is also a defendant in a number of asbestos-related lawsuits in
addition to those brought against Congoleum.  See Note 8 of the Notes
to Consolidated Financial Statements set forth in Item 8 of this Annual Report
on Form 10-K, which is incorporated herein by reference.  These
matters could have a material adverse impact on the Company's financial position
and results of operations.





During
2003, the Company decided to discontinue the operations of its Janus Flooring
Corporation subsidiary, a manufacturer of pre-finished hardwood flooring, and
sell the related assets.  Results of Janus Flooring, including charges
resulting from the shutdown, are being reported as a discontinued
operation.  During 2006, the remaining assets of Janus Flooring were
sold, and the discontinued operation was effectively dissolved.  As of
December 31, 2006, the Company merged Janus Flooring with and into American
Biltrite (Canada) Ltd.





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.





Results
of Operations





ABI and Non-Debtor
Subsidiaries





2007
            
            
            
            
            
            2006(In
      thousands of dollars)Net
      sales
            
            $
            216,463
            
            
            
            
            
            $
            216,063Cost
      of sales
            
            
            160,034
            
            
            
            
            
            
            159,009Gross
      profit
            
            
            56,429
            
            
            
            26.1
            %
            
            
            57,054
            
            
            
            26.4
            %Selling,
      general & administrative expenses
            
            
            57,820
            
            
            
            26.7
            %
            
            
            54,873
            
            
            
            25.4
            %Operating
      (loss) income
            
            
            (1,391
            )
            
            
            
            
            
            
            2,181Interest
      expense, net
            
            
            (2,297
            )
            
            
            
            
            
            
            (2,324
            )Other
      income, net
            
            
            1,380
            
            
            
            
            
            
            
            426(Loss)
      income before taxes and other items
            
            
            (2,308
            )
            
            
            
            
            
            
            283(Benefit
      from) provision for income taxes
            
            
            (1,033
            )
            
            
            
            
            
            
            235Noncontrolling
      interests
            
            
            (57
            )
            
            
            
            
            
            
            (47
            )(Loss)
      income from continuing operations
            
            $
            (1,332
            )
            
            
            
            
            
            $
            1





24


Net sales
for the year ended December 31, 2007 were $216.5 million, an increase of $400
thousand from sales of $216.1 million in 2006.  Tape segment sales
decreased $5.1 million or 4.9% due to lower sales volume, partly offset by $1.2
million in selling price increases.  In 2007, a large automotive film
customer switched their business to a competitor, and a large HVAC tape customer
produced for itself certain tapes previously supplied by the Tape division;
these two matters accounted for the majority of the lower sales
volume.  Canadian segment sales increased $1.4 million or 2.4% due to
the result of foreign currency translation, as well as increased sales of luxury
tile and cured rubber products.  Jewelry segment sales improved $3.4
million or 5.6% due to higher sales to mass merchandisers.





Gross
profit was 26.1% of net sales in 2007 compared to 26.4% in 2006.  Tape
segment gross margins improved by 0.5 percentage points of net sales primarily
due to the impact of $1.2 million in costs incurred for a product recall
necessitated by defective material from a supplier on 2006 gross
margins.  Excluding the impact of the product recall, margins
decreased by 0.6 percentage points of net sales as the impact of lower
production volumes more than offset the benefit of manufacturing efficiency
improvements.  Canadian division gross margins declined by 0.6
percentage points of net sales due to the strengthening of the Canadian dollar
relative to the US dollar during the year.  Although the Canadian
division’s US dollar sales and purchases are approximately the same, the
Canadian division uses a first-in, first-out method of costing inventory, and as
a result, exchange rate fluctuations are reflected in sales more quickly than in
cost of sales.  Jewelry segment margins decreased by 1.3 percentage
points of net sales due to higher costs for goods and freight, partly offset by
lower royalty costs.





The
Company includes the cost of purchasing and finished goods inspection in
selling, general and administrative 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 years ended December
31, 2007 and 2006 would have been 25.6% and 26.0%, respectively.





Selling,
general and administrative expenses for the year ended December 31, 2007 were
$57.8 million, up from $54.9 million in 2006.  Selling, general and
administrative expenses increased at Canadian division due to the impact of
foreign currency exchange on these expenses and increased at the Tape division
due to additional selling expenses.  Canadian division segment
selling, general and administrative expenses also benefitted from receipt of a
$0.6 million class action settlement in 2006.  Jewelry segment
selling, general and administrative expenses decreased by $0.7 million from 2006
to 2007 due to cost reduction programs.  During 2007, ABI increased
the estimate of its share of the environmental remediation costs for a
previously owned property and recorded a $1.4 million charge, which also
contributed to the increase in selling, general and administrative expenses over
2006.





Net
interest expense of $2.3 million for 2007 was approximately the same compared to
2006.





Other
income increased from $0.4 million in 2006 to $1.4 million in 2007 as a result
of a charge of $860 thousand in other expense in 2006 for prepayment costs in
connection with refinancing a note.





25


The
effective tax rates of 45% and 83% for 2007 and 2006, respectively, are due
primarily to the effect of combining various segments with differing statutory
rates applied to pretax losses in certain locations and pretax income in other
locations.  American Biltrite’s U.S. operations and foreign branches
incurred a pretax loss of $1.2 million for 2007 and $0.4 million in
2006.  The tax benefits recorded for the losses were $358 thousand
(30%) and $74 thousand (16%) for 2007 and 2006, respectively.  The
Company’s Canadian operation had a pretax loss of $1.1 million for 2007 and
pretax income of $0.7 million for 2006.  A benefit of $675 thousand
(61%) and a provision of $309 thousand (42%) were recorded by the Canadian
operations for 2007 and 2006, respectively.  During 2007, the Canadian
operations recognized a benefit as a result of a change in valuation allowance
against net operating loss carryforwards from Janus.  The combined
pretax loss of $2.3 million and net tax benefit of $1.0 million for 2007
resulted in an effective tax rate of 45%.  The combined pretax income
and net tax provision of $283 thousand and $235 thousand, respectively, resulted
in an effective rate of 83% for 2006.





The
Company incurred a loss of $1.3 million from continuing operations for 2007
compared with income of $0.1 million in 2006 as a result of the lower income
from operations in 2007 versus 2006, partly offset by the increase in other
income and the tax benefit recognized in 2007.





Congoleum





2007
            
            
            
            
            
            2006(In
      thousands of dollars)Net
      sales
            
            $
            204,262
            
            
            
            
            
            $
            219,474Cost
      of sales
            
            
            153,809
            
            
            
            
            
            
            169,023Gross
      profit
            
            
            50,453
            
            
            
            24.7
            %
            
            
            50,451
            
            
            
            23.0
            %Selling,
      general & administrative expenses
            
            
            37,469
            
            
            
            18.3
            %
            
            
            39,906
            
            
            
            18.2
            %Asbestos-related
      reorganization expenses
            
            
            41,315
            
            
            
            
            
            
            
            -Operating
      (loss) income
            
            
            (28,331
            )
            
            
            
            
            
            
            10,545Bond
      interest reversal (expense)
            
            
            29,603
            
            
            
            
            
            
            
            (10,612
            )Interest
      income (expense), net
            
            
            197
            
            
            
            
            
            
            
            (260
            )Other
      (expense) income, net
            
            
            (447
            )
            
            
            
            
            
            
            162Income
      (loss) before taxes
            
            
            1,022
            
            
            
            
            
            
            
            (165
            )Provision
      for (benefit from) income taxes
            
            
            1,713
            
            
            
            
            
            
            
            (844
            )Net
      (loss) income
            
            $
            (691
            )
            
            
            
            
            
            $
            679





Net sales
for the year ended December 31, 2007 totaled $204.3 million as compared to
$219.5 million for the year ended December 31, 2006, a decrease of $15.2 million
or 6.9%. The decrease in sales was primarily attributable to declines in new
home construction, softness in the remodeling market and lower production of
homes in the manufactured housing segment. The impact of these sales decreases
were partially mitigated by continued sales growth in the Duraproduct category
and the impact of price increases instituted in mid-2007.





26


Gross
profit for the year ended December 31, 2007 totaled $50.5 million, or 24.7% of
net sales, compared to $50.5 million or 23.0% of net sales for the year ended
December 31, 2006. Gross profit for the year was essentially the same year over
year, as raw material costs and the unfavorable impact of unabsorbed
manufacturing overhead due to lower volumes were offset by price increases and
manufacturing cost reduction programs.





Selling,
general and administrative expenses were $37.5 million for the year ended
December 31, 2007 as compared to $39.9 million for the year ended December 31,
2006, a decrease of $2.4 million. The decrease in selling, general and
administrative expenses reflects cost reduction programs, including headcount
reductions, instituted in early 2007.  As a percent of net sales,
selling, general and administrative expenses were 18.3% and 18.2% for the years
ended December 2007 and 2006, respectively.





Given the
terms of the proposed 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 will not be collected by Congoleum under the terms of the Joint
Plan if it is confirmed and effective, and $26.4 million was an additional
provision for estimated costs for the reorganization proceedings and coverage
litigation.  In the fourth quarter of 2007 Congoleum also recorded a
$41.0 million interest expense credit to reverse post-petition interest accrued
on its 8 5/8% Senior Notes.





Income
from operations, excluding the special charge above, was $13.0 million for the
year ended December 31, 2007 compared to $10.5 million for the same period in
the prior year, an increase of $2.4 million. This increase in operating income
primarily reflects the reduction in operating expenses.  Operating
income for the year ended December 31, 2006 included a $1.3 million gain,
included in selling, general and administrative expenses, on the replacement of
a damaged production line that was covered by insurance.





Interest
income was $1.2 million and $.5 million in 2007 and 2006, respectively, with the
increase of $.07 million versus the prior year reflecting interest earned on
federal income tax refunds and higher cash balances.   Interest
expense, excluding interest on the Senior Notes, for 2007 was $1.0 million as
compared to interest expense of $0.8 million for 2006.  Bond interest
reversal on the Senior Notes in 2007 was $29.6 million as compared to interest
expense on Senior Notes in 2006 of $10.6 million.





Congoleum
recorded a provision for income taxes of $1.7 million in 2007, reflecting an
increase in non-deductible expenses for tax return purposes.  For
2006, Congoleum recorded a benefit of $0.8 million, reflecting the reversal of
previously established reserves in connection with a closing agreement with the
Internal Revenue Service for tax return years 2000 to 2003.





27


Liquidity
and Capital Resources – ABI and Non-Debtor Subsidiaries





Cash and
cash equivalents, including short term investments, increased by $1.3 million to
$3.9 million at December 31, 2007 as compared to December 31,
2006.  Working capital at December 31, 2007 was $31.9 million,
compared with $29.6 million at December 31, 2006.  The ratio of
current assets to current liabilities at December 31, 2007 was 1.63 compared to
1.62 at December 31, 2006, consistent with the increased amount of working
capital at December 31, 2006.





Net cash
provided by operating activities of continuing operations for the year ended
December 31, 2007 was $6.7 million compared with $2.5 million for the year ended
December 31, 2006.  This increase was due to a $5.9 million reduction
in inventory during 2007 compared with an increase in inventory of $3.4 million
in 2006, as well as less cash used to settle payables and accrued liabilities in
2007 versus 2006.  These factors were partly offset by lower net
income and a greater increase in accounts receivable in 2007 versus
2006.





Capital
expenditures for 2007 were $1.7 million compared to $1.8 million for
2006.  During the second quarter of 2006, the Company completed the
sale of a building and land owned by the Company’s former subsidiary, Janus
Flooring, a discontinued operation, for $5.0 million Canadian
dollars.  The Company received net cash proceeds of $800 thousand
(Canadian), which was used to reduce borrowings, and a note for $4.0 million
(Canadian).  Payment of the note is due within 60 days of receipt of
an environmental certification on the land sold, which the Company received on
March 20, 2008.





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 liabilities is reasonable, that most of such amounts will be
paid over a period of one to ten years and that the Company expects to have
sufficient resources to fund such amounts, the actual timing and amount of such
payments may differ significantly from the Company's
assumptions.  Although the effect of future government regulation
could have a significant effect on the Company's costs, the Company is not aware
of any pending legislation or regulation relating to these matters that would
have a material adverse effect on its consolidated results of operations or
financial position.  There can be no assurances that any such costs
could be passed along to its customers.





American
Biltrite Inc.’s primary source of borrowings are the revolving credit facility
(the “Revolver”) and the term loan (“Term Loan”) it has with Bank of America,
National Association (“BofA”) and BofA acting through its Canada branch (the
“Canadian Lender”) pursuant to an amended and restated credit agreement (the
“Credit Agreement”).  The Credit Agreement provides American Biltrite
Inc. and its subsidiary K&M with (i) a $30.0 million commitment under the
Revolver with a $12.0 million borrowing sublimit (the “Canadian Revolver”) for
American Biltrite Inc.’s subsidiary AB Canada and (ii) a $10.0 million Term
Loan.  The Credit Agreement also provides for domestic and Canadian
letter of credit facilities with availability of up to $5.0 million and $1.0
million, respectively, subject to availability under the Revolver and the
Canadian Revolver, respectively.





28


In
September 2006, American Biltrite Inc. entered into an amendment and restatement
to the Credit Agreement with BofA and the Canadian Lender.  Pursuant
to the amendment and restatement, the Term Loan was added to the Credit
Agreement and the amount of the Revolver was increased by $10.0 million to its
current $30.0 million amount.  In addition, the availability for
domestic letters of credit issued under the Credit Agreement was increased from
$4.0 million to $5.0 million.  In connection with that amendment and
restatement, American Biltrite Inc. used approximately $17.0 million of new
borrowings from the proceeds of the Term Loan, which was fully drawn, and under
the Revolver to fully prepay $16.0 million of aggregate outstanding principal
amount of the Company’s senior notes, all of which were held by The Prudential
Insurance Company of America, together with approximately $1.0 million in
interest and yield maintenance fees in connection with those notes and
prepayment.  A charge of approximately $860 thousand for early
extinguishment of debt was recorded in connection with this prepayment, which is
included in other expense.





The
amount of borrowings available from time to time for American Biltrite Inc. and
K&M under the Revolver may not exceed the lesser of (a) $30.0 million less
the then outstanding amount of borrowings by AB Canada under the Canadian
Revolver less any outstanding borrowings under the domestic letter of credit
facility and (b) the applicable borrowing base.  The formula used for
determining the domestic borrowing base is based upon inventory, receivables and
fixed assets of the Company and certain of its subsidiaries (not including,
among others, AB Canada and Congoleum), reduced by amounts outstanding under the
Term Loan.





The
amount of borrowings available from time to time for AB Canada under the
Canadian Revolver is limited to the lesser of (a) $12 million less any
outstanding borrowings under the Canadian letter of credit facility, (b) AB
Canada's borrowing base amount, which is based upon AB Canada's accounts
receivable, inventory and fixed assets, and (c) $30.0 million less the amount of
domestic borrowings outstanding under the Revolver on behalf of the Company and
K&M.  AB Canada may borrow amounts under the Canadian Revolver in
United States or Canadian dollar denominations; however, solely for purposes of
determining amounts outstanding and borrowing availability under the Revolver,
all Canadian dollar denominated amounts will be converted into United States
dollars in the manner provided in the Credit Agreement.





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





Interest
is payable quarterly on revolving loans under the Canadian Revolver at rates
which vary depending on the applicable interest rate in effect and are generally
determined based upon: (a) if a LIBOR based rate is in effect, at a rate between
a LIBOR based rate plus 1.0% to a LIBOR based rate plus 2.75%, depending on the
Company's leverage ratio, as determined under the Credit


29


Agreement,
and (b) if a LIBOR based rate is not in effect, for outstanding revolving loans
denominated in Canadian dollars, the higher of (i) 0.50% plus the applicable
30-day average bankers' acceptance rate as quoted on Reuters CDOR page and (ii)
the Canadian Lender's applicable prime rate for loans made in Canadian dollars
to Canadian customers, and for outstanding revolving loans denominated in United
States dollars, the higher of (i) 0.50% plus the federal funds rate as
calculated under the Credit Agreement and (ii) the applicable rate announced by
the Canadian Lender as its reference rate for commercial loans denominated in
United States dollars made to a person in Canada.  Under the Credit
Agreement, AB Canada may generally determine whether interest on Canadian
revolving loans will be calculated based on a LIBOR based rate.





American
Biltrite Inc. has entered into interest rate swap agreements that effectively
fix the LIBOR rate component of the Term Loan and $6.0 million of the Revolver
at 5.18% and 5.15% respectively.





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





The
Credit Agreement contains certain covenants that the Company must
satisfy.  The covenants included in the Credit Agreement include
certain financial tests, restrictions on the ability of the Company to incur
additional indebtedness or to grant liens on its assets and restrictions on the
ability of the Company to pay dividends on its capital stock.  The
financial tests are required to be calculated based on the Company accounting
for its majority-owned subsidiary Congoleum on the equity method and include a
maximum ratio of total liabilities to tangible net worth, a minimum ratio of
earnings before interest, taxes, depreciation and amortization (“EBITDA”) less
certain cash payments for taxes, debt service, and dividends to interest
expense, a minimum level of tangible net worth, and a maximum level of capital
spending.  Pursuant to the amendment and restatement to the Credit
Agreement entered into on September 25, 2006, certain of the financial covenants
under the Credit Agreement were amended to, among other things, (i) increase the
permitted ratio of the Company's consolidated total liabilities to consolidated
tangible net worth to 200%, (ii) to provide for a higher threshold for
satisfying the consolidated tangible net worth test and (iii) to provide a
higher permitted aggregate amount for capital expenditures in any fiscal
year.  The Credit Agreement also requires, for each fiscal quarter
ending on and after September 30, 2006, the Company's consolidated adjusted
EBITDA for the four consecutive fiscal quarters then ending to exceed 100% of
the Company's consolidated fixed charges for the 12-month period ending on such
date, as determined under the Credit Agreement.





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





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. At March 31, 2007, the
Company was not in compliance with the financial covenant under the Credit
Agreement that there be no consecutive quarterly net losses from
continuing


30


operations.  On
May 14, 2007, American Biltrite Inc. and its subsidiaries, K&M and AB
Canada, entered into an amendment, effective as of March 31, 2007, to the Credit
Agreement with BofA and BofA acting through its Canada branch, each in their
respective capacities as lenders and administrative agents under the Credit
Agreement. The amendment revised that financial covenant to provide that for
each of the two consecutive fiscal quarters of the Company ending December 31,
2006 and March 31, 2007, the Company may not have a quarterly net loss from
continuing operations in excess of $400 thousand. The Company was in compliance
with the financial covenants of its debt agreements at June 30 and September 30,
2007.  At December 31, 2007, the Company was not in compliance with
the financial covenant under the Credit Agreement that requires a ratio of
Adjusted EBITDA to Consolidated Interest Expense (as such terms are defined in
the Credit Agreement) to exceed 1.0 and that there be no consecutive quarterly
net losses from continuing operations.  On March 12, 2008, American
Biltrite Inc. and its subsidiaries, K&M and AB Canada, entered into an
amendment, effective as of December 31, 2007, to the Credit Agreement with BofA
and BofA acting through its Canada branch, each in their respective capacities
as lenders and administrative agents under the Credit Agreement.  The
amendment removed the financial covenant that required the Company not to have
any consecutive quarterly net losses from continuing operations.  In
addition, for purposes of determining the Company's compliance with the
financial covenant requiring its Consolidated Adjusted EBITDA to exceed 100% of
the Company's Consolidated Fixed Charges (in each case, as determined under the
Credit Agreement), the amendment permits the Company to add certain amounts to
its Consolidated Adjusted EBITDA to the extent those amounts are deducted in
determining the Company's Consolidated Net Income (as determined under the
Credit Agreement).  Further, under that amendment, the lenders waived
defaults that may have otherwise existed as of December 31, 2007 with respect to
the financial covenants that were amended by the amendment.  As of
December 31, 2007, American Biltrite was in compliance with the financial
covenants of the Credit Agreement as amended by the May 14, 2007
amendment.  ABI paid BofA a fee of $50 thousand in connection with
this amendment.





While the
Company does not currently anticipate that it will need to further amend its
existing debt agreements to avoid being in default at some future date, there
can be no assurances in that regard, and any required amendments, if obtained,
could result in significant cost to the Company. If a default were to occur and
the Company was unable to obtain a waiver from BofA, the Company would be
required to repay all amounts outstanding under the Credit Agreement and the
Company would need to obtain funding from another source. Otherwise, the Company
would likely be unable to repay those outstanding amounts, in which case, BofA
might exercise its rights over the collateral. Any default by the Company of the
Credit Agreement that resulted in the Company being required to immediately
repay outstanding amounts under the Credit Agreements, and for which suitable
replacement financing were not timely obtained, would have a material adverse
effect on the Company's business, results of operations and financial
condition.





Under the
terms of the 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





31


ABI’s
business, operations and financial condition.  In connection with
Congoleum’s plan of reorganization, ABI expects to spend $400 thousand in 2008,
which is not expected to have a material adverse effect on ABI’s working capital
or cash flow.





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





Liquidity
and Capital Resources – Congoleum





The
consolidated financial statements of Congoleum, which are reflected in the
Company's consolidated financial statements set forth in Item 8 of this Annual
Report on Form 10-K, have been prepared on a going concern basis.  A
going concern basis contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business.  Accordingly, the
consolidated financial statements of Congoleum do not include any adjustments
that might be necessary should Congoleum be unable to continue as a going
concern.  As described more fully in the Notes to Consolidated
Financial Statements set forth in Item 8 of this Annual Report on Form 10-K,
there is substantial doubt about Congoleum's ability to continue as a going
concern unless it obtains relief from its substantial asbestos liabilities
through a successful reorganization under Chapter 11 of the Bankruptcy
Code.





On
December 31, 2003, Congoleum filed a voluntary petition with the Bankruptcy
Court (Case No. 03-51524) seeking relief under the Bankruptcy
Code.  See Notes 1 and 9 of the Notes to the Consolidated Financial
Statements, which are set forth in Item 8 of this Annual Report on Form 10-K,
for a discussion of Congoleum’s bankruptcy proceedings.  These matters
continue to have a material adverse impact on Congoleum’s liquidity and capital
resources.  During 2007, Congoleum paid $13.1 million in fees and
expenses (net of recoveries) related to reorganization proceedings under Chapter
11 and litigation with certain insurance companies.  Congoleum expects
to spend an additional $24.7 million in 2008 on these matters. At December 31,
2007 Congoleum had incurred but not paid approximately $9 million in additional
fees and expenses for services rendered through that date.





Given the
terms of the Joint Plan, 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 prior years.  Given the terms of the proposed 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 will not be collected under
the terms of the Joint Plan if it is confirmed and effective, and $26.4 million
was an additional provision for estimated costs for the reorganization
proceedings and coverage litigation.  In the fourth quarter of 2007,
Congoleum also recorded a $41.0 million interest expense credit to reverse
post-petition interest accrued on its Senior Notes.  Terms of previous
reorganization plans had provided, among other things, for the payment of
post-petition interest on the Senior Notes and therefore Congoleum had continued
to accrue such interest.  Under the terms of the Joint Plan, the
holders of the Senior Notes will not receive any post-petition
interest.


32


In
February 2006, the Bankruptcy Court ordered Congoleum's former counsel, Gilbert,
Heintz & Randolph LLP (currently known as Gilbert Randolph LLP) ("GHR") to
disgorge all fees and certain expenses it was paid by Congoleum.  The
amount of the disgorgement is approximately $9.6 million.  In October
2006, Congoleum and GHR entered into a settlement agreement under which GHR is
to pay Congoleum approximately $9.2 million plus accruing interest in full
satisfaction of the disgorgement order.  The payment is secured by
assets of GHR and is to be made over time according to a formula based on GHR’s
earnings.  The Bankruptcy Court approved that settlement agreement in
April 2007.  Payments received by Congoleum pursuant to that
settlement agreement in 2007 were not significant.





Unrestricted
cash and cash equivalents, including short-term investments at December 31,
2007, were $26.3 million, an increase of $7.7 million from December 31,
2006.  Under the terms of its revolving credit agreement, payments on
Congoleum’s accounts receivable are deposited in an account assigned by
Congoleum to its lender and the funds in that account are used by the lender to
pay down any loan balance.  Funds deposited in this account but not
yet applied to the loan balance, which amounted to $0.0 million and $3.6 million
at December 31, 2007 and December 31, 2006, respectively, are recorded as
restricted cash.  Additionally, $6.5 million remaining from a $14.5
million settlement received in August 2004 from an insurance carrier, which is
subject to a court order, is included as restricted cash at December 31,
2007.  Congoleum expects to contribute these funds, less any amounts
withheld pursuant to reimbursement arrangements, to the plan trust to be
established following confirmation of the Joint Plan.  Working capital
was $9.4 million at December 31, 2007, down from $11.5 million one year
earlier.  The ratio of current assets to current liabilities was 1.1
at December 31, 2007 compared to 1.2 at December 31, 2006.  Net cash
provided by operations during the year ended December 31, 2007 was $11.3
million, as compared to net used in operations of $8.2 million in
2006.





Capital
expenditures in 2007 totaled $4.5 million.  Congoleum is currently
planning capital expenditures of approximately $6.5 million in 2008 and between
$5.0 million and $7.0 million in 2009, 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 (i)
the earlier of June 30, 2007 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
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”).  It 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 in compliance with these covenants at December 31, 2007.
Borrowings under this facility are collateralized by inventory and
receivables.  At December 31, 2007, based on the level of receivables
and inventory, $14.2 million was available under the facility, of which $2.2
million was utilized for outstanding letters of credit and $10.5 million was
utilized by the revolving loan.  Congoleum anticipates that its
debtor-in-possession financing facility (including anticipated extensions
thereof) together with cash from operations, will


33


provide
it with sufficient liquidity to operate during 2008 while under Chapter 11
protection.  There can 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 (as extended) will be renewed prior to its
expiration if a plan of reorganization is not confirmed before that time.
 For a plan of reorganization to be confirmed, Congoleum will need to
obtain and demonstrate the sufficiency of financing needed to effectuate the
plan and emerge from its Chapter 11 case.  Congoleum cannot presently
determine the terms of any such financing it might obtain, 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 8 of
the Notes to Consolidated Financial Statements set forth in Item 8 of this
Annual Report on Form 10-K). These actions include possible obligations to
remove or mitigate the effects on the environment of wastes deposited at various
sites, including Superfund sites and certain of Congoleum’s owned and previously
owned facilities.  The contingencies also include claims for personal
injury and/or property damage.  The exact amount of such future cost
and timing of payments are indeterminable due to such unknown factors as the
magnitude of cleanup costs, the timing and extent of the remedial actions that
may be required, the determination of Congoleum’s liability in proportion to
other potentially responsible parties, and the extent to which costs may be
recoverable from insurance.  Congoleum has recorded provisions in its
financial statements for the estimated probable loss associated with all known
general and environmental contingencies. While Congoleum believes its estimate
of the future amount of these liabilities is reasonable, and that they will be
paid over a period of five to ten years, the timing and amount of such payments
may differ significantly from Congoleum’s assumptions.  Although the
effect of future government regulation could have a significant effect on
Congoleum’s costs, Congoleum is not aware of any pending legislation which would
reasonably have such an effect.  There can be no assurances that the
costs of any future government regulations could be passed along by Congoleum 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.





Congoleum's
principal sources of capital are net cash provided by operating activities and
borrowings under its financing agreement. Congoleum cannot presently determine
the amount of fees, expenses, and trust contributions it may incur in connection
with obtaining confirmation of its plan of reorganization.  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
2008.  Congoleum’s ability to emerge from Chapter 11 will depend on
obtaining sufficient exit financing to settle administrative expenses of the
reorganization and any other related obligations, and to provide adequate future
liquidity.





34


Contingencies





ABI has recorded what it believes are
adequate provisions for environmental remediation and product-related
liabilities, including provisions for testing for potential remediation of
conditions at its own facilities.  While ABI believes its estimate of
the future amount of these liabilities is reasonable and that they will be paid
for the most part over a period of one to ten years, the timing and amount of
such payments may differ significantly from ABI's
assumptions.  Although the effect of future government regulation
could have a significant effect on ABI's costs, ABI is not aware of any pending
legislation which could significantly affect the liabilities ABI has established
for these matters.  There can be no assurances that the costs of any
future government regulations could be passed along by ABI to its
customers.





Certain legal and administrative claims
are pending or have been asserted against ABI.  Among these claims,
ABI is a named party in several actions associated with waste disposal sites and
asbestos-related claims.  These actions include possible obligations
to remove or mitigate the effects on the environment of wastes deposited at
various sites, including Superfund sites.  The exact amount of such
future costs to ABI is 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 ABI's liability in proportion to other
potentially responsible parties and the extent to which costs may be recoverable
from insurance.  ABI has recorded provisions in its consolidated
financial statements for the estimated probable loss associated with all known
environmental and asbestos-related contingencies.  The contingencies
also include claims for personal injury and/or property damage.  (See
Notes 1, 8 and 9 oftheNotes to Consolidated
Financial Statements set forth in Item 8 of this Annual Report on Form
10-K.)








Application
of Critical Accounting Policies and Estimates





The
discussion and analysis of the Company's financial condition and results of
operations are based upon its consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States.  The preparation of these financial statements requires
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period.  Actual results and conditions may differ from
these estimates and assumptions.





Critical
accounting policies are defined as those that entail 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 below.  For a discussion on the
application of these and other accounting policies, see Note 1 in the Notes to
Consolidated Financial Statements set forthin Item 8 of this
Annual Report on Form 10-K.





Asbestos Liabilities – As
discussed previously, the Company is party to a significant number of lawsuits
stemming from their previous manufacture of asbestos-containing
products.  ABI has recorded in its consolidated balance sheet a
liability and corresponding insurance receivable based on its estimates of the
future costs and related insurance recoveries to settle asbestos litigation
and


35


pay for
related legal and loss handling costs.  These estimates are based on a
number of subjective assumptions, including the anticipated costs to settle
claims, the claims dismissal rate, the cost to litigate claims, the number of
claims expected to be received, and the applicability and allocation of
insurance coverage to these costs.  Additionally, due to the numerous
uncertainties related to future asbestos litigation trends and costs, the
Company does not believe reasonable estimates can be developed for claim
developments beyond a six year horizon.  Accordingly, the Company’s
estimated liability is based on claims currently filed as well as claims
anticipated to be filed over the next six years.  A change in
assumptions could have a material effect on the Company’s estimated
liability.  For example, it is estimated that a 1% decrease in the
Company’s dismissal rate would result in a 26% increase in liability assuming
all other variables remained constant.





Due to
the highly subjective nature of these assumptions, the Company has estimated a
wide range of potential future costs and insurance recoveries and, because
management believes that no amount within the range is more likely than any
other, has recorded a liability and insurance receivable based on the low end of
the range in accordance with accounting principles generally accepted in the
United States.  As such, the selection of a different amount within
the range could have a material effect on the Company's consolidated financial
statements, as could future developments, which may differ from those assumed in
developing the Company's estimates.  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 the financial viability of some of the insurance
companies, the method in which losses will be allocated to the various insurance
policies and the years covered by those policies, how legal and other loss
handling costs will be covered by the insurance policies, and interpretation of
the effect on coverage of various policy terms and limits and their
interrelationships.  The Company analyzes these estimates on an annual
basis and reassesses the assumptions used as additional information becomes
available over the course of time.





Congoleum
is a party to a significant number of lawsuits stemming from its manufacture of
asbestos-containing products.  During 2007, Congoleum paid $13.1
million (net of recoveries) in fees and expenses related to implementation of
its planned reorganization under Chapter 11 of the Bankruptcy Code and
litigation with certain insurance companies.  Given the terms of the
proposed Joint Plan, 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 prior years.  Given the terms of the proposed 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 will not be
collected by Congoleum under the terms of the Joint Plan if it is confirmed and
effective, and $26.4 million was an additional provision for estimated costs for
the reorganization proceedings and coverage litigation.  In the fourth
quarter of 2007 Congoleum also recorded a $41.0 million interest expense credit
to reverse post-petition interest accrued on its Senior Notes.  Terms
of previous reorganization plans had provided, among other things, for the
payment of post-petition interest on the Senior Notes and therefore Congoleum
had continued to accrue such interest.  Under the terms of the Joint
Plan, the holders of the Senior Notes will not receive any post-petition
interest.





36


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





ABI
understands that Congoleum expects that insurance will provide the substantial
majority of the recovery available to claimants, due to the amount of insurance
coverage it purchased and the comparatively limited resources and value of
Congoleum itself.  Congoleum does not have the necessary financial
resources to litigate and/or settle asbestos claims in the ordinary course of
business.





While
Congoleum has provided for the anticipated costs to effect the Joint Plan, costs
for pursuing and implementing the Joint Plan and any plan of reorganization
could be materially higher than recorded amounts and previous
estimates.





Congoleum
will update its estimates, if appropriate, as additional information becomes
available during the reorganization process, which could result in potentially
material adjustments to Congoleum’s earnings in future periods.





Consolidation of Congoleum –
The Company's subsidiary Congoleum filed for bankruptcy protection on December
31, 2003.   The accompanying consolidated financial statements
include the results for Congoleum for all periods presented.  ABI
expects to continue to own a majority of the voting stock of Congoleum until
Congoleum’s reorganization proceedings are concluded, at which time ABI expects
it shares of Congoleum will be cancelled.  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, which may be more
meaningful for certain analyses.  ABI’s reported consolidated
financial condition, operating results and cash flows results would be
materially different if they did not include Congoleum.  The Company
anticipates its equity interest in Congoleum will be eliminated in connection
with the effectiveness of any future Congoleum plan of reorganization, at which
time it will no longer include Congoleum in the Company’s consolidated financial
statements.





37


Environmental Contingencies –
As discussed previously, the Company has incurred liabilities related to
environmental remediation costs at both third party sites and Company owned
sites.  The Company accrues for its estimate of future remediation
activities when it is probable that a liability has been incurred and the amount
can be reasonably estimated.  The most likely cost to be incurred is
accrued based on an evaluation of currently available facts with respect to each
individual site, including the extent of clean-up activities to be performed,
the methods employed in the clean-up activities, the Company's relative share in
costs at sites where other parties are involved, existing technology, current
laws and regulations and prior remediation experience.  Where no
amount within a range of estimates is more likely to occur than another, the
minimum is accrued.  For sites with multiple potentially responsible
parties, the Company considers its likely proportionate share of the anticipated
remediation costs and the ability of the other parties to fulfill their
obligations in establishing a provision for those costs.  When future
liabilities are determined to be reimbursable by insurance coverage or payment
from third parties, an accrual is recorded for the potential liability and a
receivable is recorded related to the expected recovery.  A receivable
reserve is recorded when recoveries are disputed or are not highly
probable.  These estimates are based on certain assumptions such as
the Company's relative share in costs at sites where other parties are involved,
and the ultimate insurance coverage available.  These projects tend to
be long-term in nature, and assumptions are subject to refinement as facts
change.  As such, it is possible that the Company may need to revise
its recorded liabilities and receivables for environmental costs in future
periods resulting in potentially material adjustments to the Company's earnings
in future periods.  The Company closely monitors existing and
potential environmental matters to consider the reasonableness of its estimates
and assumptions.





Valuation of Deferred Tax
Assets – The Company provides for valuation reserves against its deferred
tax assets in accordance with the requirements of SFAS 109.  In
evaluating the recovery of deferred tax assets, the Company makes certain
assumptions as to the future reversal of existing taxable temporary differences,
taxable income in prior carryback years, the feasibility of tax planning
strategies, and estimated future taxable income.  The valuation
allowance can be affected by changes to tax laws, changes to statutory tax rates
and changes to future taxable income estimates.  It is possible that
the facts underlying these assumptions may not materialize as anticipated in
future periods, which may require the Company to record additional deferred tax
valuation allowances, or to reduce previously recorded valuation
allowances.





Pension and Other Postretirement
Benefits – The Company sponsors several noncontributory defined benefit
pension plans covering most of the Company’s employees.  The Company
also maintains health and life insurance programs for
retirees.  Benefits under the plans are based on years of service and
employee compensation.  The costs and obligations associated with
these plans are dependent upon various actuarial assumptions used in calculating
such amounts.  These assumptions include the long-term rate of return
on plan assets, discount rates and other factors.  These assumptions
are evaluated and updated annually by management.  Other assumptions
used include employee demographic factors such as retirement patterns,
mortality, turnover and the rate of compensation increases.





38


To
determine the expected long-term rate of return on plan assets, the Company
considers the current and expected asset allocation, as well as historical and
expected returns on each plan asset class.  In 2007 and 2006, the
Company assumed that the expected long-term rate of return on plan assets will
be 7.0% - 7.5%.  The assumed long-term rate of return on assets is
applied to a calculated value of plan assets, which recognizes changes in the
fair value of plan assets in a systematic manner over four
years.  This produces the expected return on plan assets that is
included in pension expense.  The difference between this expected
return and the actual return on plan assets is deferred.  The net
deferral of past actuarial gains or losses affects the calculated value of plan
assets and, ultimately, future pension expense.





At the
end of each year, the Company determines the discount rate to be used to
calculate the present value of plan liabilities.  The discount rate is
used to determine expected future benefit payments as a present value on the
measurement date, reflecting the current rate at which the pension liabilities
could be effectively settled.  In estimating this rate, the Company
looks to rates of return on high-quality, fixed-income investments that receive
one of the two highest ratings given by a recognized ratings
agency.  At December 31, 2007, the Company determined this rate to be
6.0%.





Allowance for Doubtful
Accounts – The Company’s allowance for doubtful accounts is determined
based on a variety of factors that affect the potential collectibility of the
related receivables, including the length of time receivables are past due,
customer credit ratings, financial stability of customers, specific one-time
events and past customer history.  In addition, in circumstances where
the Company is made aware of a specific customer’s inability to meet its
financial obligations, a specific allowance is established.  The
majority of accounts are individually evaluated on a regular basis and
appropriate reserves are established as deemed appropriate based on the criteria
previously noted.  The remainder of the reserve is based on
management’s estimates and takes into consideration historical trends, market
conditions and the composition of the Company’s customer base.  The
risk associated with this estimate is that the Company would not become aware of
potential collectibility issues related to specific accounts and thereby become
exposed to potential unreserved losses.  Historically, the Company’s
estimates and assumptions around the allowance have been reasonably accurate and
the Company has processes and controls in place to closely monitor customers and
potential credit issues.





Inventory Allowances – The
Company maintains obsolescence and slow-moving allowances for
inventory.  Products and materials that are specifically identified as
obsolete are fully reserved.  The remainder of the allowance is based
on management’s estimates and fluctuates with market conditions, design cycles
and other economic factors.  Risks associated with this allowance
include unforeseen changes in business cycles that could affect the
marketability of certain products and an unforecasted decline in current
production.  Management closely monitors the market place and related
inventory levels and has historically maintained reasonably accurate allowance
levels.  In addition, the Company values certain inventories using the
last-in, first-out (“LIFO”) method.  Accordingly, a LIFO valuation
reserve is maintained to properly value these inventories.


39


ITEM
8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
 
 
 American
Biltrite Inc. and Subsidiaries
 
 Consolidated
Balance Sheets with Consolidating Details – Assets
 (In
thousands of dollars)
 
 December
      31
              
              
              Eliminations
              
              
              Congoleum
              
              
              American
      Biltrite2007
              
              
              2006
              
              
              2007
              
              
              2006
              
              
              2007
              
              
              2006
              
              
              2007
              
              
              2006AssetsCurrent
      assets:Cash
      and cash equivalents
              
              $
              30,185
              
              
              $
              21,180
              
              
              
              
              
              
              
              
              $
              26,327
              
              
              $
              18,591
              
              
              $
              3,858
              
              
              $
              2,589Restricted
      cash
              
              
              6,501
              
              
              
              9,656
              
              
              
              
              
              
              
              
              
              6,501
              
              
              
              9,656Accounts
      and notes receivable, less allowances for doubtful accounts and discounts
      of $2,917 in 2007 and $3,070 in 2006
              
              
              41,345
              
              
              
              40,791
              
              
              $
              (316
              )
              
              $
              (226
              )
              
              
              14,162
              
              
              
              17,598
              
              
              
              27,499
              
              
              
              23,419Inventories
              
              
              78,401
              
              
              
              80,471
              
              
              
              (125
              )
              
              
              (143
              )
              
              
              35,182
              
              
              
              34,220
              
              
              
              43,344
              
              
              
              46,394Deferred
      income taxes
              
              
              961
              
              
              
              1,818
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              961
              
              
              
              1,818Prepaid
      expenses & other current assets
              
              
              20,001
              
              
              
              28,406
              
              
              
              
              
              
              
              
              
              
              
              13,138
              
              
              
              25,610
              
              
              
              6,863
              
              
              
              2,796Total
      current assets
              
              
              177,394
              
              
              
              182,322
              
              
              
              (441
              )
              
              
              (369
              )
              
              
              95,310
              
              
              
              105,675
              
              
              
              82,525
              
              
              
              77,016Property,
      plant & equipment, net
              
              
              99,153
              
              
              
              106,380
              
              
              
              
              
              
              
              
              
              
              
              61,993
              
              
              
              67,757
              
              
              
              37,160
              
              
              
              38,623Other
      assets:Insurance
      for asbestos-related liabilities
              
              
              11,140
              
              
              
              9,320
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              11,140
              
              
              
              9,320Goodwill,
      net
              
              
              11,490
              
              
              
              11,475
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              11,490
              
              
              
              11,475Other
      assets
              
              
              22,622
              
              
              
              22,175
              
              
              
              (126
              )
              
              
              (135
              )
              
              
              15,402
              
              
              
              10,770
              
              
              
              7,346
              
              
              
              11,54045,252
              
              
              
              42,970
              
              
              
              (126
              )
              
              
              (135
              )
              
              
              15,402
              
              
              
              10,770
              
              
              
              29,976
              
              
              
              32,335Total
      assets
              
              $
              321,799
              
              
              $
              331,672
              
              
              $
              (567
              )
              
              $
              (504
              )
              
              $
              172,705
              
              
              $
              184,202
              
              
              $
              149,661
              
              
              $
              147,974
 
 See
accompanying notes.
  40
  American
Biltrite Inc. and Subsidiaries
 
 Consolidated
Balance Sheets with Consolidating Details – Liabilities and Stockholders’
Equity
 (In
thousands of dollars, except per share amounts)
 
 December
      31
              
              
              Eliminations
              
              
              Congoleum
              
              
              American
      Biltrite2007
              
              
              2006
              
              
              2007
              
              
              2006
              
              
              2007
              
              
              2006
              
              
              2007
              
              
              2006LiabilitiesCurrent
      liabilities:Accounts
      payable
              
              $
              22,570
              
              
              $
              21,769
              
              
              $
              (316
              )
              
              $
              (226
              )
              
              $
              10,715
              
              
              $
              10,654
              
              
              $
              12,171
              
              
              $
              11,341Accrued
      expenses
              
              
              37,035
              
              
              
              37,411
              
              
              
              
              
              
              
              
              
              
              
              20,742
              
              
              
              22,301
              
              
              
              16,293
              
              
              
              15,110Asbestos-related
      liabilities
              
              
              31,207
              
              
              
              13,950
              
              
              
              
              
              
              
              
              
              
              
              31,207
              
              
              
              13,950Deferred
      income taxes
              
              
              7,725
              
              
              
              -
              
              
              
              
              
              
              
              
              
              
              
              7,725
              
              
              
              -Notes
      payable
              
              
              30,309
              
              
              
              31,284
              
              
              
              
              
              
              
              
              
              
              
              10,551
              
              
              
              12,715
              
              
              
              19,758
              
              
              
              18,569Current
      portion of long-term debt
              
              
              2,376
              
              
              
              2,424
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,376
              
              
              
              2,424Liabilities
      subject to compromise
              
              
              4,997
              
              
              
              34,602
              
              
              
              
              
              
              
              
              
              
              
              4,997
              
              
              
              34,602Total
      current liabilities
              
              
              136,219
              
              
              
              141,440
              
              
              
              (316
              )
              
              
              (226
              )
              
              
              85,937
              
              
              
              94,222
              
              
              
              50,598
              
              
              
              47,444Long-term
      debt, less current portion
              
              
              6,725
              
              
              
              8,971
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              6,725
              
              
              
              8,971Asbestos-related
      liabilities
              
              
              12,600
              
              
              
              10,300
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              12,600
              
              
              
              10,300Other
      liabilities
              
              
              12,195
              
              
              
              15,441
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              12,195
              
              
              
              15,441Noncontrolling
      interests
              
              
              1,093
              
              
              
              1,087
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,093
              
              
              
              1,087Liabilities
      subject to compromise
              
              
              133,098
              
              
              
              136,398
              
              
              
              (126
              )
              
              
              (135
              )
              
              
              133,224
              
              
              
              136,533Total
      liabilities
              
              
              301,930
              
              
              
              313,637
              
              
              
              (442
              )
              
              
              (361
              )
              
              
              219,161
              
              
              
              230,755
              
              
              
              83,211
              
              
              
              83,243Stockholders’
      equityCommon
      stock, par value $.01, authorized 15,000,000 shares, issued 4,607,902
      shares
              
              
              46
              
              
              
              46
              
              
              
              (93
              )
              
              
              (93
              )
              
              
              93
              
              
              
              93
              
              
              
              46
              
              
              
              46Additional
      paid-in capital
              
              
              19,607
              
              
              
              19,591
              
              
              
              (49,368
              )
              
              
              (49,349
              )
              
              
              49,368
              
              
              
              49,349
              
              
              
              19,607
              
              
              
              19,591Retained
      earnings
              
              
              30,835
              
              
              
              32,821
              
              
              
              35,413
              
              
              
              35,376
              
              
              
              (65,417
              )
              
              
              (64,726
              )
              
              
              60,839
              
              
              
              62,171Accumulated
      other comprehensive loss
              
              
              (15,487
              )
              
              
              (19,291
              )
              
              
              6,110
              
              
              
              6,110
              
              
              
              (22,687
              )
              
              
              (23,456
              )
              
              
              1,090
              
              
              
              (1,945
              )Less
      cost of 1,166,351 shares of common stock in treasury
              
              
              (15,132
              )
              
              
              (15,132
              )
              
              
              7,813
              
              
              
              7,813
              
              
              
              (7,813
              )
              
              
              (7,813
              )
              
              
              (15,132
              )
              
              
              (15,132
              )Total
      stockholders’ equity
              
              
              19,869
              
              
              
              18,035
              
              
              
              (125
              )
              
              
              (143
              )
              
              
              (46,456
              )
              
              
              (46,553
              )
              
              
              66,450
              
              
              
              64,731Total
      liabilities and stockholders’ equity
              
              $
              321,799
              
              
              $
              331,672
              
              
              $
              (567
              )
              
              $
              (504
              )
              
              $
              172,705
              
              
              $
              184,202
              
              
              $
              149,661
              
              
              $
              147,974
 
 See
accompanying notes.
  41
  American
Biltrite Inc. and Subsidiaries
 
 Consolidated
Statements of Operations with Consolidating Details
 (In
thousands of dollars, except per share amounts)
 
 YearsEnded
      December31
              
              
              Eliminations
              
              
              Congoleum
              
              
              American
      Biltrite2007
              
              
              2006
              
              
              2007
              
              
              2006
              
              
              2007
              
              
              2006
              
              
              2007
              
              
              2006Net
      sales
              
              $
              420,725
              
              
              $
              435,537
              
              
              
              
              
              
              
              
              $
              204,262
              
              
              $
              219,474
              
              
              $
              216,463
              
              
              $
              216,063Cost
      of products sold
              
              
              312,814
              
              
              
              327,585
              
              
              $
              (1,029
              )
              
              $
              (447
              )
              
              
              153,809
              
              
              
              169,023
              
              
              
              160,034
              
              
              
              159,009Selling,
      general & administrative expenses
              
              
              95,289
              
              
              
              94,779
              
              
              
              -
              
              
              
              -
              
              
              
              37,469
              
              
              
              39,906
              
              
              
              57,820
              
              
              
              54,873Asbestos-related
      reorganization charges
              
              
              41,315
              
              
              
              -
              
              
              
              
              
              
              
              
              
              
              
              41,315
              
              
              
              -(Loss)
      income from operations
              
              
              (28,693
              )
              
              
              13,173
              
              
              
              1,029
              
              
              
              447
              
              
              
              (28,331
              )
              
              
              10,545
              
              
              
              (1,391
              )
              
              
              2,181Other
      income (expense)Interest
      income
              
              
              1,338
              
              
              
              869
              
              
              
              
              
              
              
              
              
              
              
              1,224
              
              
              
              515
              
              
              
              114
              
              
              
              354Bond
      interest reversal (expense)
              
              
              29,603
              
              
              
              (10,612
              )
              
              
              
              
              
              
              
              
              
              
              29,603
              
              
              
              (10,612
              )Other
      interest expense
              
              
              (3,438
              )
              
              
              (3,453
              )
              
              
              
              
              
              
              
              
              
              
              (1,027
              )
              
              
              (775
              )
              
              
              (2,411
              )
              
              
              (2,678
              )Other
      (expense) income, net
              
              
              (78
              )
              
              
              165
              
              
              
              (1,011
              )
              
              
              (423
              )
              
              
              (447
              )
              
              
              162
              
              
              
              1,380
              
              
              
              42627,425
              
              
              
              (13,031
              )
              
              
              (1,011
              )
              
              
              (423
              )
              
              
              29,353
              
              
              
              (10,710
              )
              
              
              (917
              )
              
              
              (1,898
              )(Loss)
      income before taxes and other items
              
              
              (1,268
              )
              
              
              142
              
              
              
              18
              
              
              
              24
              
              
              
              1,022
              
              
              
              (165
              )
              
              
              (2,308
              )
              
              
              283Provision
      for (benefit from) income taxes
              
              
              680
              
              
              
              (609
              )
              
              
              
              
              
              
              
              
              
              
              1,713
              
              
              
              (844
              )
              
              
              (1,033
              )
              
              
              235Noncontrolling
      interests
              
              
              (57
              )
              
              
              (47
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (57
              )
              
              
              (47
              )Net
      (loss) income from continuing operations
              
              
              (2,005
              )
              
              
              704
              
              
              
              18
              
              
              
              24
              
              
              
              (691
              )
              
              
              679
              
              
              
              (1,332
              )
              
              
              1Discontinued
      operation
              
              
              -
              
              
              
              (19
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              -
              
              
              
              (19
              )Net
      (loss) income
              
              $
              (2,005
              )
              
              $
              685
              
              
              $
              18
              
              
              $
              24
              
              
              $
              (691
              )
              
              $
              679
              
              
              $
              (1,332
              )
              
              $
              (18
              )
 
 Basic
              
              
              Diluted2007
              
              
              2006
              
              
              2007
              
              
              2006Net
      (loss) income per common share from continuing operations
              
              $
              (0.58
              )
              
              $
              0.20
              
              
              $
              (0.58
              )
              
              $
              0.20Discontinued
      operation
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Net
      (loss) income per common share
              
              $
              (0.58
              )
              
              $
              0.20
              
              
              $
              (0.58
              )
              
              $
              0.20Weighted
      average number of common and equivalent shares outstanding
              
              
              3,442
              
              
              
              3,442
              
              
              
              3,442
              
              
              
              3,457
 
 See
accompanying notes.
  42
  American
Biltrite Inc. and Subsidiaries
 
 Consolidated
Statements of Cash Flows with Consolidating Details – Operating
Activities
 (In
thousands of dollars)
 
 Years
      Ended December 31
              
              
              Eliminations
              
              
              Congoleum
              
              
              American
      Biltrite2007
              
              
              2006
              
              
              2007
              
              
              2006
              
              
              2007
              
              
              2006
              
              
              2007
              
              
              2006Operating
      activitiesNet
      (loss) income
              
              $
              (2,005
              )
              
              $
              685
              
              
              $
              18
              
              
              $
              24
              
              
              $
              (691
              )
              
              $
              679
              
              
              $
              (1,332
              )
              
              $
              (18
              )Net
      loss from discontinued operation
              
              
              -
              
              
              
              19
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              -
              
              
              
              19Net
      (loss) income from continuing operations
              
              
              (2,005
              )
              
              
              704
              
              
              
              18
              
              
              
              24
              
              
              
              (691
              )
              
              
              679
              
              
              
              (1,332
              )
              
              
              1Adjustments
      to reconcile net (loss) income to net cash provided (used) by operating
      activities:Depreciation
      and amortization
              
              
              16,185
              
              
              
              16,245
              
              
              
              
              
              
              
              
              
              
              
              10,690
              
              
              
              10,478
              
              
              
              5,495
              
              
              
              5,767Provision
      for doubtful accounts and discounts
              
              
              2,826
              
              
              
              3,627
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,826
              
              
              
              3,627Deferred
      income taxes
              
              
              (1,901
              )
              
              
              (2,856
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (1,901
              )
              
              
              (2,856
              )Asbestos-related
      charge
              
              
              41,315
              
              
              
              -
              
              
              
              
              
              
              
              
              
              
              
              41,315
              
              
              
              -Bond
      interest (reversal) expense
              
              
              (29,603
              )
              
              
              10,612
              
              
              
              
              
              
              
              
              
              
              
              (29,603
              )
              
              
              10,612Gain
      on replacement of property
              
              
              -
              
              
              
              (1,266
              )
              
              
              
              
              
              
              
              
              
              
              -
              
              
              
              (1,266
              )Charge
      for early extinguishment of debt
              
              
              -
              
              
              
              860
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              -
              
              
              
              860Stock
      compensation charge
              
              
              35
              
              
              
              244
              
              
              
              
              
              
              
              
              
              
              
              19
              
              
              
              223
              
              
              
              16
              
              
              
              21Change
      in operating assets and liabilities:Accounts
      and notes receivable
              
              
              (2,068
              )
              
              
              (2,617
              )
              
              
              216
              
              
              
              (376
              )
              
              
              3,436
              
              
              
              (506
              )
              
              
              (5,720
              )
              
              
              (1,735
              )Inventories
              
              
              4,876
              
              
              
              (3,038
              )
              
              
              (18
              )
              
              
              (24
              )
              
              
              (962
              )
              
              
              387
              
              
              
              5,856
              
              
              
              (3,401
              )Prepaid
      expenses & other current assets
              
              
              2,113
              
              
              
              843
              
              
              
              
              
              
              
              
              
              
              
              1,965
              
              
              
              (347
              )
              
              
              148
              
              
              
              1,190Accounts
      payable and accrued expenses
              
              
              (1,359
              )
              
              
              (8,885
              )
              
              
              (216
              )
              
              
              376
              
              
              
              (1,097
              )
              
              
              (4,950
              )
              
              
              (46
              )
              
              
              (4,311
              )Asbestos-related
      liabilities
              
              
              (13,048
              )
              
              
              (22,373
              )
              
              
              
              
              
              
              
              
              
              
              (13,048
              )
              
              
              (22,373
              )Asbestos-related
      reimbursement from insurance settlement
              
              
              1,498
              
              
              
              3,684
              
              
              
              
              
              
              
              
              
              
              
              1,498
              
              
              
              3,684Noncontrolling
      interests
              
              
              6
              
              
              
              (278
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              6
              
              
              
              (278
              )Other
              
              
              (901
              )
              
              
              (1,156
              )
              
              
              
              
              
              
              
              
              
              
              (2,236
              )
              
              
              (4,784
              )
              
              
              1,335
              
              
              
              3,628Net
      cash provided (used) by operating activities of continuing
      operations
              
              
              17,969
              
              
              
              (5,650
              )
              
              
              -
              
              
              
              -
              
              
              
              11,286
              
              
              
              (8,163
              )
              
              
              6,683
              
              
              
              2,513Net
      cash used by operating activities of discontinued
operation
              
              
              -
              
              
              
              (180
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              -
              
              
              
              (180
              )Net
      cash provided (used) by operating activities
              
              $
              17,969
              
              
              $
              (5,830
              )
              
              $
              -
              
              
              $
              -
              
              
              $
              11,286
              
              
              $
              (8,163
              )
              
              $
              6,683
              
              
              $
              2,333
 See
accompanying notes.
  43
  American
Biltrite Inc. and Subsidiaries
 
 Consolidated
Statements of Cash Flows with Consolidating Details – Investing & Financing
Activities
 (In
thousands of dollars)
 
 Years
      Ended December 31
              
              Eliminations
              
              Congoleum
              
              
              American
      Biltrite2007
              
              
              2006
              
              2007
              2006
              
              2007
              
              
              2006
              
              
              2007
              
              
              2006Investing
      activitiesInvestments
      in property, plant and equipment
              
              $
              (6,219
              )
              
              $
              (6,417
              )
              
              
              
              $
              (4,541
              )
              
              $
              (4,642
              )
              
              $
              (1,678
              )
              
              $
              (1,775
              )Insurance
      proceeds for oven line replacement
              
              
              -
              
              
              
              1,586
              
              
              
              
              
              -
              
              
              
              1,586Net
      cash used by investing activities of continuing operations
              
              
              (6,219
              )
              
              
              (4,831
              )
              
              
              
              
              (4,541
              )
              
              
              (3,056
              )
              
              
              (1,678
              )
              
              
              (1,775
              )Net
      cash provided by investing activities of discontinued
      operation
              
              
              -
              
              
              
              680
              
              
              
              
              
              
              
              
              
              
              
              
              
              -
              
              
              
              680Net
      cash used by investing activities
              
              
              (6,219
              )
              
              
              (4,151
              )
              
              
              
              
              (4,541
              )
              
              
              (3,056
              )
              
              
              (1,678
              )
              
              
              (1,095
              )Financing
      activitiesNet
      short-term (payments) borrowings
              
              
              (2,393
              )
              
              
              22,163
              
              
              
              
              
              (2,164
              )
              
              
              3,311
              
              
              
              (229
              )
              
              
              18,852Payments
      on long-term debt
              
              
              (2,301
              )
              
              
              (20,777
              )
              
              
              
              
              
              
              
              
              
              
              
              
              (2,301
              )
              
              
              (20,777
              )Net
      change in restricted cash
              
              
              3,155
              
              
              
              1,988
              
              
              
              
              
              3,155
              
              
              
              1,988Payment
      for early extinguishment of debt
              
              
              -
              
              
              
              (860
              )
              
              
              
              
              
              
              
              
              
              
              
              
              -
              
              
              
              (860
              )Net
      cash (used) provided by financing activities of continuing
      operations
              
              
              (1,539
              )
              
              
              2,514
              
              
              
              
              
              991
              
              
              
              5,299
              
              
              
              (2,530
              )
              
              
              (2,785
              )Net
      cash provided (used) by financing activities of discontinued
      operation
              
              
              -
              
              
              
              -
              
              
              
              
              
              
              
              
              
              
              
              
              
              -
              
              
              
              -Net
      cash (used) provided by financing activities
              
              
              (1,539
              )
              
              
              2,514
              
              
              
              
              
              991
              
              
              
              5,299
              
              
              
              (2,530
              )
              
              
              (2,785
              )Effect
      of foreign exchange rate changes on cash
              
              
              (1,206
              )
              
              
              (537
              )
              
              
              
              
              
              
              
              
              
              
              
              
              (1,206
              )
              
              
              (537
              )Net
      increase (decrease) in cash
              
              
              9,005
              
              
              
              (8,004
              )
              
              
              
              
              7,736
              
              
              
              (5,920
              )
              
              
              1,269
              
              
              
              (2,084
              )Cash
      and cash equivalents at beginning of year
              
              
              21,180
              
              
              
              29,184
              
              
              
              
              
              18,591
              
              
              
              24,511
              
              
              
              2,589
              
              
              
              4,673Cash
      and cash equivalents at end of year
              
              $
              30,185
              
              
              $
              21,180
              
              
              
              
              $
              26,327
              
              
              $
              18,591
              
              
              $
              3,858
              
              
              $
              2,589
 
 See
accompanying notes.
  44
  American
Biltrite Inc. and Subsidiaries
 
 Consolidated
Statements of Stockholders’ Equity
 (In
thousands of dollars)
 
 Common
                Stock
              
              
              Additional
                Paid-in
                Capital
              
              
              Retained
                Earnings
              
              
              Accumulated
                Other
                Comprehensive
                Loss
              
              
              Treasury
                Stock
              
              
              Total
                Stockholders’
                EquityBalance
      at December 31, 2005
              
              $
              46
              
              
              $
              19,570
              
              
              $
              31,913
              
              
              $
              (17,912
              )
              
              $
              (15,132
              )
              
              $
              18,485Comprehensive
      incomeNet
      income for 2006
              
              
              
              
              
              
              
              
              
              
              685
              
              
              
              
              
              
              
              
              
              
              
              685Foreign
      currency translation adjustments
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              41
              
              
              
              
              
              
              
              41Minimum
      pension liability adjustment
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,296
              
              
              
              
              
              
              
              1,296Total
      comprehensive income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,022SFAS
      158 cumulative adjustment, including taxes of $440
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (2,716
              )
              
              
              
              
              
              
              (2,716
              )Stock
      compensation
              
              
              
              
              
              
              21
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              21Effect
      of Congoleum stock compensation
              
              
              
              
              
              
              
              
              
              
              223
              
              
              
              
              
              
              
              
              
              
              
              223Balance
      at December 31, 2006
              
              
              46
              
              
              
              19,591
              
              
              
              32,821
              
              
              
              (19,291
              )
              
              
              (15,132
              )
              
              
              18,035Comprehensive
      incomeNet
      loss for 2007
              
              
              
              
              
              
              
              
              
              
              (2,005
              )
              
              
              
              
              
              
              
              
              
              
              (2,005
              )Foreign
      currency translation adjustments
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              3,927
              
              
              
              
              
              
              
              3,927Defined
      benefit plans adjustment, net of tax of $99
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (123
              )
              
              
              
              
              
              
              (123
              )Total
      comprehensive income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,799Stock
      compensation
              
              
              
              
              
              
              16
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              16Effect
      of Congoleum stock compensation
              
              
              
              
              
              
              
              
              
              
              19
              
              
              
              
              
              
              
              
              
              
              
              19Balance
      at December 31, 2007
              
              $
              46
              
              
              $
              19,607
              
              
              $
              30,835
              
              
              $
              (15,487
              )
              
              $
              (15,132
              )
              
              $
              19,869
 
 See
accompanying notes.
 
  45
  American Biltrite Inc. and
Subsidiaries
 
 Notes to Consolidated Financial
Statements
 
 December 31, 2007
 
 
 1.  Significant Accounting
Policies
 
 Principles of
Consolidation
 
 The consolidated financial statements
include the accounts of American Biltrite Inc. and its wholly-owned subsidiaries
(referred to as “ABI” or the “Company”), as well as entities over which it has
voting control.  In 1995, ABI gained voting control over Congoleum
Corporation ("Congoleum") and K&M Associates L.P.
("K&M").  Upon consolidation, intercompany accounts and
transactions, including transactions with associated companies that result in
intercompany profit, are eliminated.
 
 As
discussed more fully below and elsewhere in these notes to consolidated
financial statements, the Company's subsidiary Congoleum filed for bankruptcy
protection on December 31, 2003.  The accompanying consolidated
financial statements include the results for Congoleum for all periods
presented.  Congoleum’s results include losses (including other
comprehensive losses) of $46.5 million in excess of the value of ABI’s
investment in Congoleum at December 31, 2007.  ABI owns a majority of
the voting stock of Congoleum, and expects to continue doing so until
Congoleum’s reorganization proceedings are concluded, at which time ABI expects
its ownership interests in Congoleum will be cancelled.  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, which may be more
meaningful for certain analyses.
 
 For more
information regarding Congoleum's and ABI's asbestos liabilities and plans for
resolving those liabilities, please refer to Notes 8 and 9.
 
 AICPA Statement of Position 90-7,Financial Reporting
by Entities in Reorganization Under the Bankruptcy Code("SOP 90-7") provides financial
reporting guidance for entities that are reorganizing under the Bankruptcy
Code.  The Company implemented this guidance in its consolidated
financial statements for periods after December 31, 2003.
 
 Pursuant to SOP 90-7, companies 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.  Substantially all of Congoleum’s liabilities as of December
31, 2003 have been reclassified as liabilities subject to
compromise.  Obligations arising post-petition, and pre-petition
obligations that are secured, are not classified as liabilities subject to
compromise.
 
  46
 American
Biltrite Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements (continued)
  1.  Significant Accounting
Policies (continued)
 
 Additional pre-petition claims
(liabilities subject to compromise) may arise due to the rejection of executory
contracts or unexpired leases, or as a result of the allowance of contingent or
disputed claims.
 
 Use of Estimates and Critical Accounting
Policies
 
 The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, and disclosure of contingent liabilities,at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period.Some of the more significant estimates
include asbestos liabilities, environmental contingencies, valuation of deferred
tax assets, and actuarial assumptions for the pension plan and post-retirement
benefits.  Although the Company believes it uses reasonable and
appropriate estimates and assumptions in the preparation of its financial
statements and in the application of accounting policies, if business conditions
were different, or if the Company used different estimates and assumptions, it
is possible that actual results could differ from such estimates.
 
 Concentration of Credit
Risk
 
 The
Company performs periodic credit evaluations of its customers’ financial
condition and generally does not require collateral.  Credit losses in
previous years have generally been within management’s
expectations.  For the years ended December 31, 2007 and 2006, the
Company had two customers that accounted for 32% and 34% of net sales,
respectively.  At December 31, 2007 and 2006, one customer accounted
for 14% and 21% of trade receivables outstanding, respectively.
 
 Cash
 
 Cash equivalents represent highly liquid
investments with maturities of three months or less at the date of
purchase.  The carrying value of cash equivalents approximates fair
value.
 
  47
 American
Biltrite Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements (continued)
  1.  Significant Accounting
Policies (continued)
 
 Restricted Cash
 
 Under the terms of its revolving credit
agreement, payments on Congoleum’s accounts receivable are deposited in an
account assigned by Congoleum to its lender, and the funds in that account are
used by the lender to pay down any loan balance.  Funds deposited in
this account but not immediately applied to the loan balance are recorded as
restricted cash.  At December 31, 2007, none of Congoleum’s cash was
restricted under its financing agreement, and at December 31, 2006, cash of
approximately $3.6 million was restricted under the financing agreement.
Additionally, Congoleum’s restricted cashincludes certain insurance settlements
to be paid to the Plan Trust under the terms of Congoleum’s reorganization
plan.  The
remaining balances, including interest earned, were $6.5 million and $6.1
million at December 31, 2007 and 2006, respectively.
 
 Allowance for Doubtful
Accounts
 
 The Company’s allowance for doubtful
accounts is determined based on a variety of factors that affect the potential
collectibility of the related receivables, including length of time receivables
are past due, customer credit ratings, financial stability of customers,
specific one-time events and past customer history.  In addition, in
circumstances where the Company is made aware of a specific customer’s inability
to meet its financial obligations, a specific allowance is
established.  The majority of accounts are individually evaluated on a
regular basis and reserves are established as deemed appropriate based on the
criteria previously mentioned.  The remainder of the reserve is based
on management’s estimates and takes into consideration historical trends, market
conditions and the composition of the Company’s customer
base.
 
 Inventories
 
 Inventories are stated at the lower of
cost or market.  Cost is determined by the last-in, first-out (LIFO)
method for most of the Company’s domestic inventories.The use of LIFO results in a better
matching of costs and revenues.Cost is determined by the first-in,
first-out (FIFO) method for the Company’s foreign inventories.  The
Company records as a charge to cost of products sold any amounts required to
reduce the carrying value of inventories to net realizable
value.
 
 Inventory
costs include expenses that are directly or indirectly incurred in the
acquisition and production of merchandise and manufactured products for
sale.  Expenses include the cost of materials and supplies used in
production, direct labor costs and allocated overhead costs such as
depreciation, utilities, insurance, employee benefits, and indirect
labor.
  48
 American
Biltrite Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements (continued)
  1.  Significant Accounting
Policies (continued)
 
 Property, Plant and
Equipment
 
 Property, plant and equipment are
recorded at cost.  Expenditures for improvements that increase asset
values and extend useful lives are capitalized.  Depreciation, which
is determined using the straight-line method, is provided over the estimated
useful lives (thirty to forty years for buildings and building improvements, ten
to fifteen years for production equipment and heavy-duty vehicles, and three to
ten years for light-duty vehicles and office furnishings and
equipment).
 
 Debt Issue Costs
 
 Costs incurred in connection with the
issuance of debt have been capitalized and are being amortized over the life of
the related debt agreements.  Debt issue costs at December 31, 2007
and 2006 amounted to $282 thousand and $683 thousand, respectively, net of
accumulated amortization of $3.3 million and $2.8 million, respectively, and are
included in other noncurrent assets.
 
 Derivative
Instruments
 
 During
2006, in connection with its debt refinancing (see Notes 5 and 17), the Company
entered into two interest rate swap agreements to manage the Company’s exposure
to fluctuations in interest rates on its term loan and portions of its revolver
borrowings.  These derivative instruments are recorded at fair value
on the consolidated balance sheet.  The Company did not qualify for
hedge accounting treatment under SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities (“SFAS 133”) for these
instruments.  Changes in the fair value of the interest rate swap
agreements are recognized in Other income (expense) on the consolidated
statement of operations in accordance with SFAS 133.
 
 Goodwill
 
 Goodwill
represents the excess of acquisition costs over the estimated fair value of the
net assets acquired.  The Company evaluates the recoverability of
goodwill and indefinite-lived intangible assets annually in the fourth quarter,
or more frequently if events or changes in circumstances, such as a decline in
sales, earnings, or cash flows, or material adverse changes in the business
climate, indicate that the carrying value of an asset might be
impaired.  Goodwill is considered to be impaired when the net book
value of a reporting unit exceeds its estimated fair value.
 
  49
 American
Biltrite Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements (continued)
  1.  Significant Accounting
Policies (continued)
 
 Goodwill
includes $11.3 million recorded in connection with the Company’s acquisitions of
partnership interests in K&M, the majority of which occurred in
1995.  During the fourth quarter of 2005, the Company acquired certain
assets and assumed certain liabilities of the Jay Jewelry division, a Florida
distributor of costume jewelry of JayRam, Inc.  Goodwill of $426
thousand was recorded for this acquisition in October 2005.  During
2006, the purchase price was adjusted and goodwill was reduced by $251 thousand
(see Note 15).
 
 The
Company completed its annual impairment test in the fourth quarter of 2007 and
concluded that no adjustment was required to the carrying value of goodwill
based on the analysis performed.
 
 Impairment of Long-Lived
Assets
 
 The
Company assesses its long-lived assets other than goodwill and indefinite-lived
assets for impairment whenever facts and circumstances indicate that the
carrying amount may not be fully recoverable.  To analyze
recoverability, it projects undiscounted net future cash flows over the
remaining life of such assets. If these projected cash flows are less than the
carrying amount, an impairment would be recognized, resulting in a write-down of
the assets with a corresponding charge to earnings.  The impairment
loss is measured based upon the difference between the carrying amount and the
fair value of the assets.
 
 Product
Warranties
 
 The
Company provides product warranties for specific product lines and accrues for
estimated future warranty cost in the period in which the revenue is
recognized.  The following table sets forth activity in the Company’s
warranty reserves (in
thousands):
 
 2007
              
              
              2006Beginning
      balance
              
              $
              2,430
              
              
              $
              2,543Accruals
              
              
              4,031
              
              
              
              4,472Charges
              
              
              (4,602
              )
              
              
              (4,585
              )Ending
      balance
              
              $
              1,859
              
              
              $
              2,430
 
  50
 American
Biltrite Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements (continued)
  1.  Significant Accounting
Policies (continued)
 
 Environmental and Product
Liabilities
 
 The
Company accrues for costs associated with its environmental claims when it is
probable that a liability has been incurred and the amount can be reasonably
estimated.  The most likely cost to be incurred is accrued based on an
evaluation of currently available facts with respect to each individual site,
including the extent of clean-up activities to be performed, the methods
employed in the clean-up activities, the Company's relative share in costs at
sites where other parties are involved, existing technology, current laws and
regulations and prior remediation experience.  Where no amount within
a range of estimates is more likely to occur than another, the minimum is
accrued.  For sites with multiple potentially responsible parties, the
Company considers its likely proportionate share of the anticipated remediation
costs and the ability of the other parties to fulfill their obligations in
establishing a provision for those costs.  When future liabilities
have been recorded for a potential liability, a determination is made as to
whether such liabilities are reimbursable by insurance coverage or other source
of reimbursement, and a receivable is recorded related to the expected recovery
provided such recovery is undisputed and deemed highly
probable.  Legal fees associated with these claims are accrued when
the Company deems that their occurrence is probable and the fees are reasonably
estimable (see Notes 4, 6 and 8).
 
 Asbestos Liabilities
and Congoleum Plan of Reorganization
 
 The
Company is a party to a number of lawsuits stemming from its manufacture of
asbestos-containing products years ago.  The Company records a
liability and a corresponding insurance receivable based on its estimates of the
future costs and related insurance recoveries to settle asbestos
litigation.  In estimating the Company’s asbestos-related exposures,
the Company analyzes and considers the possibility of any uncertainties
including the anticipated costs to settle claims, the claims dismissal rate, the
number of claims expected to be received, the applicability and allocation of
insurance coverage to these costs, and the solvency of insurance
carriers.  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 the financial
viability of some of the insurance companies, the method in which losses will be
allocated to the various insurance policies and the years covered by those
policies, how legal and other loss handling costs will be covered by the
insurance policies, and interpretation of the effect on coverage of various
policy terms and limits and their interrelationships.
 
  51
 American
Biltrite Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements (continued)
  1.  Significant Accounting
Policies (continued)
 
 The
Company’s subsidiary Congoleum is a defendant in a large number of
asbestos-related lawsuits and has commenced proceedings under Chapter 11 of the
United States Bankruptcy Code as part of its strategy to resolve this liability
(see Notes 8 and 9).  The recorded liability for Congoleum’s
asbestos-related exposures is based on the minimum estimated cost to resolve
these liabilities through the confirmation of a plan of
reorganization.
 
 Accounting
for asbestos-related costs includes significant assumptions and estimates, and
actual results could differ materially from the estimates recorded.
 
 Revenue
Recognition
 
 Revenue
is recognized when products are shipped and title has passed to the
customer.  Net sales are comprised of the total sales billed during
the period less the sales value of estimated returns and sales incentives, which
consist primarily of trade discounts and customers’ allowances.  The
Company defers recognition of revenue for its estimate of potential sales
returns under right-of-return agreements with its customers until the
right-of-return period lapses.
 
 Selling,
General and Administrative Expenses
 
 Selling,
general and administrative expenses are charged to income as
incurred.  Expenses incurred for promoting and selling products are
classified as selling expenses and include such items as advertising, sales
commissions and travel.  Advertising expense (including cooperative
advertising) amounted to $2.6 million and $2.1 million for 2007 and 2006,
respectively.  General and administrative expenses include such items
as officers’ salaries, office supplies, insurance and office
rental.  In addition, general and administrative expenses include
other operating items such as provision for doubtful accounts, professional
(accounting and legal) fees, and environmental remediation costs.  The
Company also records shipping, handling, purchasing and finished goods
inspection costs in general and administrative expenses.  Shipping and
handling costs for the years ended December 31, 2007 and 2006 were $7.2 million
and $6.9 million, respectively.  Purchasing and finished goods
inspection costs were $2.2 million for 2007 and $2.3 million for
2006.
 
 Income Taxes
 
 In accordance with SFAS No. 109,Accounting for
Income Taxes, the Company
recognizes deferred income taxes based on the expected future tax consequences
of differences between the financial statement basis and the tax basis of assets
and liabilities, calculated using enacted tax rates in effect for the year in
which the differences are expected to be reflected in the tax
return.
 
  52
 American
Biltrite Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements (continued)
  1.  Significant Accounting
Policies (continued)
 
 The Company reduces its deferred tax
assets by a valuation allowance if, based upon the weight of available evidence,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized.  Relevant evidence, both positive and negative,
is considered in determining the need for a valuation
allowance.  Information evaluated includes the Company’s financial
position and results of operations for the current and preceding years as well
as an evaluation of currently available information about future
years.
 
 The Company operates within multiple
taxing jurisdictions and could be subject to audit in these
jurisdictions.  These audits can involve complex issues, which may
require an extended period of time to resolve and may cover multiple
years.  In the Company’s opinion, adequate provisions for income taxes
have been made for all years subject to audit.
 
 Stock-Based
Compensation
 
 Effective
January 1, 2006, the Company adopted the provisions of SFAS
No. 123(R), Share-Based
Payment, and related interpretations (“SFAS 123(R)”) using the
modified prospective method and, accordingly, has not restated prior period
results.  SFAS 123(R) establishes the accounting for equity
instruments exchanged for employee services.  Under SFAS 123(R),
share-based compensation cost is measured at the grant date based on the
calculated fair value of the award.  The expense is recognized over
the employees’ requisite service period, generally the vesting period of the
award.  SFAS 123(R) also requires the related excess tax benefit
received upon exercise of stock options or vesting of restricted stock, if any,
to be reflected in the statement of cash flows as a financing activity rather
than an operating activity.
 
 The
Company has elected to continue to use the Black-Scholes option pricing model to
estimate the fair value of stock-based awards.  The use of a
Black-Scholes option pricing model requires the input of assumptions determined
by management of the Company at the measurement date.  These
assumptions include the risk-free interest rate, expected dividend yield,
volatility factor of the expected market price of the Company’s common stock and
the expected life of stock option grants.
 
 During
the years ended December 31, 2007 and 2006, the Company recognized compensation
expense related to the vesting of ABI and Congoleum options of $35 thousand and
$244 thousand, respectively.  At December 31, 2007, the unrecognized
compensation expense related to unvested options previously granted by Congoleum
was insignificant.  Options granted by ABI prior to the adoption of
FAS 123(R) were fully vested at the time of the adoption, and there was no
unrecognized compensation expense.
  53
 American
Biltrite Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements (continued)
  1.  Significant Accounting
Policies (continued)
 
 Research and Development
Costs
 
 Expenditures relating to the development
of new products are charged to operations as incurred and amounted to $6.2
million for each of the years ended December 31, 2007 and
2006.
 
 Foreign
Currency Translation
 
 The
functional currency for the Company’s foreign operations is the applicable local
currency. Balance sheet accounts of foreign subsidiaries are translated at the
current exchange rate, and income statement items are translated at the average
exchange rate for the period; resulting translation adjustments are made
directly to accumulated other comprehensive income (loss) in stockholders’
equity.  Realized exchange gains and losses (immaterial in amount) are
included in current operations.
 
 Issuances
of Stock by Subsidiaries
 
 The
Company accounts for issuances of stock by its subsidiaries as capital
transactions.
 
 Earnings
Per Share
 
 Basic earnings per share have been
computed based on the weighted-average number of common shares outstanding
during the period.  Diluted earnings per share have been computed
based upon the weighted-average number of common shares outstanding during the
year, adjusted for the dilutive effect of shares issuable upon the exercise ofstock options (common stock
equivalent) unless their inclusion would be antidilutive.  In
calculating diluted earnings per share, the dilutive effect of a stock option is
computed using the average market price for the period.
 
 Under its stock option plans, Congoleum
grants stock options to employees and non-employee
directors.  Congoleum’s outstanding stock options may have a dilutive
effect on American Biltrite’s earnings per share.  The dilutive effect
of Congoleum’s stock options is determined based on Congoleum’s diluted earnings
per share and the number of shares of Congoleum stock owned by American
Biltrite.
 
  54
 American
Biltrite Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements (continued)
  1.  Significant Accounting
Policies (continued)
 
 Recently Issued Accounting
Principles
 
 In
February 2007, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standard (“SFAS”) No. 159, The Fair Value Option for Financial
Assets and Liabilities, Including an Amendment of FASB Statement No. 115
(“SFAS 159”).  SFAS 159 permits companies to choose to measure certain
financial instruments and other items at fair value.  SFAS 159 is
effective as of the beginning of 2008.  The Company does not believe
that SFAS 159 will have a significant impact on its results of operations and
financial position upon adoption.
 
 In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements
(“SFAS 157”).  SFAS 157 provides a common fair value hierarchy for
companies to follow in determining fair value measurements in the preparation of
financial statements and expands disclosure requirements relating to how such
fair value measurements were developed.  SFAS 157 clarifies the
principle that fair value should be based on the assumptions that the
marketplace would use when pricing an asset or liability, rather than
company-specific data.  SFAS No. 157 is effective for fiscal years
beginning after November 15, 2007.  However, on February 12, 2008, the
FASB issued Staff Position 157-2, which delays the effective date of SFAS 157
for all non-financial assets and non-financial liabilities, except those that
are recognized or disclosed at fair value in the financial statements on a
recurring basis.  For items within its scope, this Staff Position
defers the effective date of SFAS 157 to fiscal years beginning after November
15, 2008.  The Company is currently evaluating the impact, if any,
that the adoption of SFAS 157 would have on its financial position or results of
operations.
 
 In July
2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income
Taxes – An Interpretation of FASB Statement No. 109("FIN
48").  FIN 48 clarifies the accounting for uncertainty in income taxes
recognized in financial statements in accordance with Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes
("SFAS 109").  This interpretation prescribes a recognition threshold
and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax
return.  FIN 48 also provides guidance on derecognition of tax
benefits, classification on the balance sheet, interest and penalties,
accounting in interim periods, disclosure and transition.  The Company
adopted FIN 48 effective January 1, 2007.  As a result of the
adoption, the Company determined that no cumulative effect adjustment was
necessary to the opening balance of retained earnings as of January 1,
2007.  The Company’s unrecognized tax benefits as of January 1, 2007
were immaterial, and recognition of such tax benefits is not expected to have a
material impact on the Company’s income tax provision in future
periods.
  55
 American
Biltrite Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements (continued)
  1.  Significant Accounting
Policies (continued)
 
 In
September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans (“SFAS 158”), which amends
SFAS No. 87, Employers
Accounting for Pensions (“SFAS 87”), SFAS No. 88, Employers’ Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits (“SFAS 88”), SFAS No. 106, Employers Accounting for
Postretirement Benefits Other Than Pensions (“SFAS 106”), and SFAS No.
132R, Employers’ Disclosures
about Pensions and Other Postretirement Benefits (revised 2003) (“SFAS
132R”).  SFAS 158 requires companies to recognize an asset or
liability for the overfunded or underfunded status of their benefit plans in
their financial statements.  SFAS 158 also requires the measurement
date for plan assets and liabilities to coincide with the sponsor’s year
end.  This standard provides two transition alternatives related to
the change in measurement date provisions.  The recognition of an
asset and liability related to the funded status provision is effective for
fiscal years ending after December 15, 2006, and the change in measurement date
provisions is effective for fiscal years ending after December 15, 2008 (see
Notes 7 and 11).
 
 Reclassifications
 
 Certain amounts in prior years have been
reclassified to permit comparison with 2007 classifications.  For the
current year comparative financial statements, the Company included in its 2006selling, general & administrative
expenses a $1.3 million gain on replacement of property (see Note 3) and a total
gain of $0.6 million from certain rubber chemicals antitrust
settlements.  Previously, these amounts were included inother income (expense) for
2006.
 
  56
 American
Biltrite Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements (continued)
  2.  Inventories
 
 Inventories at December 31 consisted of
the following(in
thousands):
 
 2007
              
              
              2006Finished
    goods
              
              $
              55,478
              
              
              $
              56,374Work-in-process
              
              
              10,327
              
              
              
              11,813Raw materials and
      supplies
              
              
              12,596
              
              
              
              12,284$
              78,401
              
              
              $
              80,471
 
 At December 31, 2007, domestic
inventories determined by the LIFO inventory method amounted to $45.6 million
($45.5 million at December 31, 2006).  If the FIFO inventory method,
which approximates replacement cost, had been used for theseinventories, they would have been $7.6 million and $5.4 million higher at
December 31, 2007 and 2006, respectively.  During 2007 and 2006,
certain inventory quantities were reduced, which resulted in liquidations of
LIFO inventory layers.  The liquidations decreased and increased cost
of sales by $7 thousand and $28 thousand for 2007 and 2006,
respectively.
 
 3.  Property, Plant and
Equipment
 
 A summary of the major components of
property, plant and equipment at December 31 is as follows(in
thousands):
 
 2007
              
              
              2006Land and
      improvements
              
              $
              5,527
              
              
              $
              5,611Buildings
              
              
              78,717
              
              
              
              76,176Machinery and
      equipment
              
              
              290,491
              
              
              
              275,547Construction-in-progress
              
              
              2,976
              
              
              
              4,788377,711
              
              
              
              362,122Less accumulated
      depreciation
              
              
              278,558
              
              
              
              255,742$
              99,153
              
              
              $
              106,380
 
 Depreciation expense amounted to $15.5
million in each of the years 2007 and 2006.
 
  57
 American
Biltrite Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements (continued)
  3.  Property, Plant and
Equipment (continued)
 
 In August
2006, an explosion caused extensive damage to components of a major production
line at Congoleum’s Marcus Hook, Pennsylvania facility.  Congoleum’s
insurance carrier paid substantially all excess costs, less a deductible, for
the replacement of the damaged equipment and expenses to replace production
capacity.  Fabrication and installation of replacement equipment was
completed by December 31, 2006.  The cost to replace equipment and
excess expenses incurred to meet production requirements totaled $10.1 million,
which was reimbursed to Congoleum by the insurer.  Congoleum
recognized a $1.3 million gain for the difference between the insurance proceeds
for the replacement of the production equipment ($1.5 million) and the net book
value of the equipment written off.  The gain was included in selling,
general and administrative expenses in the fourth quarter of 2006.
 
 4.  Accrued
Expenses
 
 Accrued expenses at December 31
consisted of the following(in
thousands):
 
 2007
              
              
              2006Accrued advertising and sales
      promotions
              
              $
              20,906
              
              
              $
              22,478Employee compensation and related
      benefits
              
              
              7,581
              
              
              
              7,084Environmental
      liabilities
              
              
              849
              
              
              
              632Royalties
              
              
              828
              
              
              
              837Income
taxes
              
              
              477
              
              
              
              838Other
              
              
              6,394
              
              
              
              5,542$
              37,035
              
              
              $
              37,411
 
 As
a result of Congoleum’s Chapter 11 bankruptcy filing and in accordance with SOP
90-7, certain liabilities are included in liabilities subject to compromise on
the balance sheet as of December 31, 2007 and 2006 (see Note
9).
 
  58
 American
Biltrite Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements (continued)
  5.  Financing
Arrangements
 
 Long-term debt and notes payable under
revolving credit facilities at December 31 were as follows(in
thousands):
 
 2007
              
              
              2006Notes payable
      (current)
              
              $
              30,309
              
              
              $
              31,284Term loan
              
              $
              7,500
              
              
              $
              9,500Other notes
              
              
              1,601
              
              
              
              1,8959,101
              
              
              
              11,395Less current
      portion
              
              
              2,376
              
              
              
              2,424$
              6,725
              
              
              $
              8,971
 
 American
Biltrite Inc.’s primary source of borrowings are the revolving credit facility
(the “Revolver”) and the term loan (“Term Loan”) it has with Bank of America,
National Association (“BofA”) and BofA acting through its Canada branch (the
“Canadian Lender”) pursuant to an amended and restated credit agreement (the
“Credit Agreement”).  The Credit Agreement provides American Biltrite
Inc. and its subsidiary K&M with (i) a $30.0 million commitment under the
Revolver with a $12.0 million borrowing sublimit (the “Canadian Revolver”) for
American Biltrite Inc.’s subsidiary American Biltrite (Canada) Ltd. (“AB
Canada”) and (ii) a $10.0 million Term Loan.  The Credit Agreement
also provides for domestic and Canadian letter of credit facilities with
availability of up to $5.0 million and $1.5 million, respectively, subject to
availability under the Revolver and the Canadian Revolver,
respectively.
 
 On March
12, 2008, American Biltrite Inc. and its subsidiaries, K&M and AB Canada,
entered into an amendment, effective as of December 31, 2007, to the Credit
Agreement with BofA and BofA acting through its Canada branch, each in their
respective capacities as lenders and administrative agents under the Credit
Agreement.  The amendment removed the financial covenant that required
the Company not to have any consecutive quarterly net losses from continuing
operations (reporting Congoleum on the equity method of
accounting).  In addition, for purposes of determining the Company's
compliance with the financial covenant requiring its Consolidated Adjusted
EBITDA to exceed 100% of the Company's Consolidated Fixed Charges (in each case,
as determined under the Credit Agreement), the amendment permits the Company to
add certain amounts to its Consolidated Adjusted EBITDA to the extent those
amounts are deducted in determining the Company's Consolidated Net Income (as
determined under the Credit Agreement).  Further, under the amendment,
the lenders waived defaults that may have otherwise existed as of December 31,
2007 with respect to the financial covenants that were amended by the
amendment.  ABI paid BofA a fee of $50 thousand in connection with
this
  59
 American Biltrite
Inc. and Subsidiaries
  Notes
to Consolidated Financial Statements
(continued)
  5.  Financing Arrangements
(continued)
 
 amendment.  On
May 14, 2007, the same parties entered into an amendment, effective as of March
31, 2007, to the Credit Agreement to revise a financial covenant to provide that
for each of the two consecutive fiscal quarters of the Company ending December
31, 2006 and March 31, 2007, the Company may not have a quarterly net loss from
continuing operations in excess of $400 thousand.  As a result of the
amendments, the Company was in compliance with the Credit Agreement as of each
quarter end for the years ended December 31, 2007 and 2006.
 
 On
September 25, 2006, American Biltrite Inc. entered into an amendment and
restatement to the Credit Agreement with BofA and the Canadian
Lender.  Pursuant to the amendment and restatement, the Term Loan was
added to the Credit Agreement and the amount of the Revolver was increased by
$10.0 million to its current $30.0 million amount.  In addition, the
availability for domestic letters of credit issued under the Credit Agreement
was increased from $4.0 million to $5.0 million.  In connection with
that amendment and restatement, American Biltrite Inc. used approximately $17.0
million of new borrowings from the proceeds of the Term Loan, which was fully
drawn, and under the Revolver to fully prepay $16.0 million of aggregate
outstanding principal amount of the Company’s senior notes, all of which were
held by The Prudential Insurance Company of America, together with approximately
$1.0 million in interest and yield maintenance fees in connection with those
notes and prepayment.  A charge of approximately $860 thousand for
early extinguishment of debt was recorded in connection with this prepayment,
which was included in other income (expense) during the third quarter of
2006.
 
 The
amount of borrowings available from time to time for American Biltrite Inc. and
K&M under the Revolver may not exceed the lesser of (a) $30.0 million less
the then outstanding amount of borrowings by AB Canada under the Canadian
Revolver less any outstanding borrowings under the domestic letter of credit
facility and (b) the applicable borrowing base.  The formula used for
determining the domestic borrowing base is based upon inventory, receivables and
fixed assets of the Company and certain of its subsidiaries (not including,
among others, AB Canada and Congoleum), reduced by amounts outstanding under the
Term Loan.
 
 The
amount of borrowings available from time to time for AB Canada under the
Canadian Revolver is limited to the lesser of (a) $12 million less any
outstanding borrowings under the Canadian letter of credit facility, (b) AB
Canada's borrowing base amount, which is based upon AB Canada's accounts
receivable, inventory and fixed assets, and (c) $30.0 million less the amount of
domestic borrowings outstanding under the Revolver on behalf of the Company and
K&M.  AB Canada may borrow amounts under the Canadian Revolver in
United States or Canadian dollar denominations; however, solely for purposes of
determining amounts outstanding and borrowing availability under the Revolver,
all Canadian dollar denominated amounts will be converted into United States
dollars in the manner provided in the Credit Agreement.
 
  60
 American
Biltrite
Inc. andSubsidiaries
 
 Notes to
Consolidated Financial Statements (continued)
  5.  Financing Arrangements
(continued)
 
 At
December 31, 2007 and 2006, $19.8 million and $18.6 million were outstanding
under the Revolver, respectively, and outstanding letters of credit totaled $1.7
million as of both year ends.  Unused borrowing availability under the
Revolver at December 31, 2007 and 2006 was $8.5 million and $9.7 million, of
which $2.7 million and $2.0 million, respectively, was available to AB
Canada.
 
 Interest
is payable quarterly on the Term Loan and Revolver borrowings by American
Biltrite Inc. and K&M under the Credit Agreement at rates which vary
depending on the applicable interest rate in effect and are generally determined
based upon: (a) if a LIBOR based rate is in effect, at a rate between a LIBOR
based rate plus 1.0% to a LIBOR based rate plus 2.75%, depending on the
Company's leverage ratio, as determined under the Credit Agreement, (b) if a
fixed rate is in effect, at a rate between the fixed rate plus 1.0% to a fixed
rate plus 2.75%, depending on the Company's leverage ratio, as determined under
the Credit Agreement, and (c) for loans not based on a LIBOR or fixed rate, the
higher of (i) BofA's applicable prime rate and (ii) 0.50% plus the federal funds
rate, as determined under the Credit Agreement.  Under the Credit
Agreement, American Biltrite Inc. and K&M may generally determine whether
interest on domestic revolving loans will be calculated based on a LIBOR based
rate, and if BofA elects to make a fixed rate option available, whether interest
on revolving loans will be calculated based on a fixed rate.
 
 Interest
is payable quarterly on revolving loans under the Canadian Revolver at rates
which vary depending on the applicable interest rate in effect and are generally
determined based upon: (a) if a LIBOR based rate is in effect, at a rate between
a LIBOR based rate plus 1.0% to a LIBOR based rate plus 2.75%, depending on the
Company's leverage ratio, as determined under the Credit Agreement, and (b) if a
LIBOR based rate is not in effect, for outstanding revolving loans denominated
in Canadian dollars, the higher of (i) 0.50% plus the applicable 30-day average
bankers' acceptance rate as quoted on Reuters CDOR page and (ii) the Canadian
Lender's applicable prime rate for loans made in Canadian dollars to Canadian
customers, and for outstanding revolving loans denominated in United States
dollars, the higher of (i) 0.50% plus the federal funds rate as calculated under
the Credit Agreement and (ii) the applicable rate announced by the Canadian
Lender as its reference rate for commercial loans denominated in United States
dollars made to a person in Canada.  Under the Credit Agreement, AB
Canada may generally determine whether interest on Canadian revolving loans will
be calculated based on a LIBOR based rate.
 
 American
Biltrite Inc. has entered into interest rate swap agreements that effectively
fix the LIBOR rate component of the Term Loan and $6.0 million of the Revolver
at 5.18% and 5.15% respectively (see Note 17).
 
  61
 American
Biltrite Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements (continued)
  5.  Financing Arrangements
(continued)
 
 The Term
Loan principal is payable in 20 quarterly installments of $500 thousand
beginning December 31, 2006 and ending on September 30, 2011.  All
indebtedness under the Credit Agreement, other than the Term Loan, is due on
September 30, 2009.
 
 The
Credit Agreement contains certain covenants that the Company must
satisfy.  The covenants included in the Credit Agreement include
certain financial tests, restrictions on the ability of the Company to incur
additional indebtedness or to grant liens on its assets and restrictions on the
ability of the Company to pay dividends on its capital stock.  The
financial tests are required to be calculated based on the Company accounting
for its majority-owned subsidiary Congoleum on the equity method and include a
maximum ratio of total liabilities to tangible net worth, a minimum ratio of
earnings before interest, taxes, depreciation and amortization (“EBITDA”) less
certain cash payments for taxes, debt service, and dividends to interest
expense, a minimum level of tangible net worth, and a maximum level of capital
spending.  Pursuant to the amendment and restatement to the Credit
Agreement entered into on September 25, 2006, certain of the financial covenants
under the Credit Agreement were amended to, among other things, (i) increase the
permitted ratio of the Company's consolidated total liabilities to consolidated
tangible net worth to 200%, (ii) to provide for a higher threshold for
satisfying the consolidated tangible net worth test and (iii) to provide a
higher permitted aggregate amount for capital expenditures in any fiscal year.
The Credit Agreement also requires, for each fiscal quarter ending on and after
September 30, 2006, the Company's consolidated adjusted EBITDA for the four
consecutive fiscal quarters then ending to exceed 100% of the Company's
consolidated fixed charges for the 12-month period ending on such date, as
determined under the Credit Agreement.
 
 Pursuant
to the Credit Agreement, the Company and certain of its subsidiaries previously
granted BofA and the Canadian Lender a security interest in most of the
Company's and its subsidiaries' assets.  The security interest granted
does not include the shares of capital stock of Congoleum or the assets of
Congoleum.  In addition, pursuant to the Credit Agreement, certain of
the Company’s subsidiaries have agreed to guarantee the Company's obligations
(excluding AB Canada's obligations) under the Credit Agreement.
 
 The terms of the Company’s Credit
Agreement include restrictions on incurring additional indebtedness,
restrictions on some types of payments including dividends, and limitations on
capital expenditures.  Retained earnings, which were unrestricted as
to such distributions, amounted to $728 thousand at December 31,
2007.
 
  62
 American
Biltrite Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements (continued)
  5.  Financing Arrangements
(continued)
 
 Other Notes
 
 In 1998, the Company obtained loans from
local banks in connection with the acquisition of buildings inBelgiumandSingapore.  The loans were for 25,000
Belgian francs (US $681 thousand at the foreign currency exchange rate in effect
when the loan was entered into) and 2,700Singaporedollars (US $1.5 million at the foreign
currency exchange rate in effect when the loan was obtained).  The
loans are payable in equal installments through 2008 and 2018,
respectively.  The interest rates on the loans are 5.6% for the
Belgian loan and 4.5% for theSingaporeloan.  The loans are secured
by the property acquired with the proceeds of the applicable
loan.
 
 In
connection with the acquisition of certain assets and assumption of certain
liabilities of a Florida distributor in October 2005, the Company issued a note
payable to the seller for $1.0 million.  The note was subsequently
reduced by $251 thousand as a result of a purchase price adjustment in April
2006.  At December 31, 2007 and 2006, the outstanding balance on the
note was $221 thousand and $474 thousand, respectively.  The note is
payable in equal monthly installments of $23 thousand through October 2008, with
interest at 6%.
 
 Congoleum Debt
 
 On August
3, 1998, Congoleum issued $100 million of the Senior Notes priced at 99.505% to
yield 8.70%.  The Senior Notes are redeemable at the option of
Congoleum, in whole or in part, at any time on or after August 1, 2003 at
predetermined redemption prices (ranging from 104% to 100%), plus accrued and
unpaid interest to the date of redemption.  The indenture governing
the Senior Notes includes certain restrictions on additional indebtedness and
uses of cash, including dividend payments.  The commencement of the
Chapter 11 proceedings constituted an event of default under the indenture
governing the Senior Notes.  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 interest along with the
principal amount of the Senior Notes, net of unamortized original issue
discount, was $99.9 million are included in “Liabilities Subject to Compromise”
(see Note 5) as of December 31, 2007.
 
 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 (i)
the earlier of June 30, 2008 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
million.  Interest is based on 0.25% above the prime
rate.  This financing agreement contains certain covenants, which
include the maintenance of minimum earnings
 
  63
 American
Biltrite Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements (continued)
  5.  Financing Arrangements
(continued)
 
 before
interest, taxes, depreciation and amortization (“EBITDA”).  It 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 in compliance with these covenants at
December 31, 2007.  Borrowings under this facility are collateralized
by inventory and receivables.  At December 31, 2007, based on the
level of receivables and inventory, $14.2 million was available under the
facility, of which $2.2 million was utilized for outstanding letters of credit
and $10.5 million was utilized by the revolving loan.  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 2008 while under Chapter 11
protection.  There can 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 (as extended) will be renewed prior to its
expiration if a plan of reorganization is not confirmed before that time.
 For a plan of reorganization to be confirmed, Congoleum will need to
obtain and demonstrate the sufficiency of financing needed to effectuate the
plan and emerge from its Chapter 11 case.  Congoleum cannot presently
determine the terms of any such financing it might obtain, nor can there be any
assurances of its success obtaining it.
 
 Interest
 
 Interest paid on all outstanding debt
amounted to $2.1 million in 2007 and $2.4 million in 2006.  As noted
above, in connection with its Chapter 11 bankruptcy proceedings, Congoleum did
not pay the interest due on its $100 million 8 5/8% Senior Notes during 2007 and
2006.
 
 Future Payments
 
 Principal payments on the Company’s
long-term debt obligations (other than Congoleum debt classified as liability
subject to compromise) due in each of the next five years are as follows(in
thousands):
 
 2008
              
              $
              2,3762009
              
              
              2,0992010
              
              
              2,1042011
              
              
              1,6072012
              
              
              1122013 and
      thereafter
              
              
              803
 
  64
 American
Biltrite Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements (continued)
  6.  Other
Liabilities
 
 Other liabilities at December 31
consisted of the following(in
thousands):
 
 2007
              
              
              2006Pension benefit obligations (less
      current portion)
              
              $
              2,817
              
              
              $
              2,970Environmental remediation and
      product related liabilities
              
              
              5,336
              
              
              
              5,860Deferred income
      taxes
              
              
              1,337
              
              
              
              4,095Other
              
              
              2,705
              
              
              
              2,516$
              12,195
              
              
              $
              15,441
 
 As a result of Congoleum’s Chapter 11
bankruptcy filing and in accordance with SOP 90-7, certain liabilities are
included in liabilities subject to compromise on the balance sheet as of
December 31, 2007 and 2006 (see Note 9).
 
 7.  Pension
Plans
 
 The
Company sponsors several noncontributory defined benefit pension plans covering
most of the Company’s employees. Benefits under the plan are based on years of
service and employee compensation.  Amounts funded annually by the
Company are actuarially determined using the projected unit credit and unit
credit methods and are equal to or exceed the minimum required by government
regulations.  The Company also maintains health and life insurance
programs for retirees (reflected in the table below under “Other
Benefits”).
 
 The
tables below summarize the change in the benefit obligation, the change in plan
assets, reconciliation to the amounts recognized in the balance sheets for the
pension benefits and other benefits plans, and the funded status of the
plans.  The measurement date for all items set forth below is the last
day of the fiscal year presented.
 
 Pension
      Benefits
              
              
              Other
      Benefits2007
              
              
              2006
              
              
              2007
              
              
              2006(In
      thousands)Change
      in Benefit Obligation:Benefit
      obligation at beginning of year
              
              $
              107,527
              
              
              $
              101,695
              
              
              $
              9,664
              
              
              $
              8,988Service
      cost
              
              
              2,275
              
              
              
              2,112
              
              
              
              213
              
              
              
              194Interest
      cost
              
              
              6,168
              
              
              
              5,976
              
              
              
              566
              
              
              
              537Plan
      participants contributions
              
              
              180
              
              
              
              181Actuarial
      (gain) loss
              
              
              (2,025
              )
              
              
              3,957
              
              
              
              (137
              )
              
              
              420Foreign
      currency exchange rate changes
              
              
              2,368
              
              
              
              51Benefits
      paid
              
              
              (5,832
              )
              
              
              (6,445
              )
              
              
              (380
              )
              
              
              (475
              )Benefit
      obligation at end of year
              
              $
              110,661
              
              
              $
              107,527
              
              
              $
              9,926
              
              
              $
              9,664
   65
 American
Biltrite Inc. and Subsidiaries
  Notes
to Consolidated Financial Statements (continued)
  7.  Pension Plans(continued)
 
 Pension
      Benefits2007
              
              
              2006(In
      thousands)Change
      in Plan Assets:Fair
      value of plan assets at beginning of year
              
              $
              90,371
              
              
              $
              79,612Actual
      return on plan assets
              
              
              3,262
              
              
              
              9,626Employer
      contribution
              
              
              7,685
              
              
              
              7,372Plan
      participants contribution
              
              
              180
              
              
              
              181Foreign
      currency exchange rate changes
              
              
              2,572
              
              
              
              25Benefits
      paid
              
              
              (5,832
              )
              
              
              (6,445
              )Fair
      value of plan assets at end of year
              
              $
              98,238
              
              
              $
              90,371
 
 The
weighted-average assumptions used to determine benefit obligation for the
pension benefits as of year-end were as follows:
  2007
              
              2006Discount
      rate
              5.50%
      - 6.00%
              
              5.20%
      - 6.00%Expected
      long-term return on plan assets
              7.00%
      - 7.50%
              
              7.00%
      - 7.50%Rate
      of compensation increase
              4.00%
      - 5.00%
              
              4.00%
      - 5.00%
 
 The
funded status of the plans and the unrecognized amounts included in accumulated
other comprehensive loss as of December 31, 2007 and 2006 were as follows (in thousands):
 
 Pension
      Benefits
              
              
              Other
      Benefits2007
              
              
              2006
              
              
              2007
              
              
              2006Unfunded
      status
              
              $
              (12,423
              )
              
              $
              (17,156
              )
              
              $
              (9,926
              )
              
              $
              (9,664
              )Unrecognized
      net actuarial loss
              
              
              
              
              
              
              20,270
              
              
              
              250
              
              
              
              458Unrecognized
      transition obligations
              
              
              
              
              
              
              (56
              )
              
              
              3
              
              
              
              13Unamortized
      prior service cost
              
              
              
              
              
              
              1,057Net
      amount recognized
              
              $
              (12,423
              )
              
              $
              4,115
              
              
              $
              (9,673
              )
              
              $
              (9,193
              )
 
 The
amounts recorded in the consolidated balance sheets as of December 31, 2007 and
2006 were as follows (in
thousands):
 
 Pension
      Benefits
              
              
              Other
      Benefits2007
              
              
              2006
              
              
              2007
              
              
              2006Other
      assets (noncurrent)
              
              $
              1,165
              
              
              $
              1,316Accrued
      benefit liability (noncurrent liabilities)
              
              
              (13,588
              )
              
              
              (18,472
              )
              
              $
              (9,926
              )
              
              $
              (9,664
              )Accumulated
      other comprehensive loss
              
              
              19,503
              
              
              
              19,162
              
              
              
              253
              
              
              
              471Net
      amount recorded
              
              $
              7,080
              
              
              $
              2,006
              
              
              $
              (9,673
              )
              
              $
              (9,193
              )
  66
 American
Biltrite Inc. and Subsidiaries
  Notes
to Consolidated Financial Statements (continued)
 7.  Pension Plans(continued)
 
 As a
result of the adoption of SFAS 158, the Company recorded an asset of $1.3
million for the overfunded status of its pension plans covering employees of AB
Canada.  The accrued benefit liability includes Congoleum’s pension
liability of $10.8 million and $15.5 million as of December 31, 2007 and 2006,
respectively.  The accrued benefit liability for other benefits is
Congoleum’s liability for post-retirement benefits.  Congoleum’s
pension and post-retirement benefit liabilities have been included in
liabilities subject to compromise as of December 31, 2007 and 2006 (see Note
9).
 
 At
December 31, 2007 and 2006, accumulated other comprehensive loss also included
the tax effect of minimum pension liabilities recorded ($929 thousand and $639
thousand, respectively) and the effect of including the non-controlling
interests’ portion of Congoleum’s minimum pension liability adjustments ($2.0
million and $2.7 million, respectively) during periods when Congoleum has a
deficit in retained earnings and stockholders’ equity (see Note
11).
 
 Some of
the Company’s pension plans have projected benefit obligations (PBO) and
accumulated benefit obligations (ABO) in excess of plan assets.  The
aggregate benefit obligations and fair value of plans assets for plans that were
overfunded and underfunded as of December 31, 2007 and 2006 are as follows (in
thousands):
 
 2007
              
              
              2006Underfunded
      plansPBO
              
              $
              94,723
              
              
              $
              94,162Fair
      value of plan assets
              
              
              81,135
              
              
              
              75,690Funded
      status
              
              
              (13,588
              )
              
              
              (18,472
              )ABO
              
              
              89,269
              
              
              
              88,471Overfunded
      plansPBO
              
              $
              15,938
              
              
              $
              13,365Fair
      value of plan assets
              
              
              17,103
              
              
              
              14,681Funded
      status
              
              
              1,165
              
              
              
              1,316ABO
              
              
              13,620
              
              
              
              11,479All
      plansPBO
              
              $
              110,661
              
              
              $
              107,527Fair
      value of plan assets
              
              
              98,238
              
              
              
              90,371Funded
      status
              
              
              (12,423
              )
              
              
              (17,156
              )ABO
              
              
              102,889
              
              
              
              99,950
 
  67
 American
Biltrite Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements (continued)
  7.  Pension Plans
(continued)
 
 The
components of net periodic benefit cost for the years ended December 31, 2007
and 2006 are as follows (in
thousands):
 
 Pension
      Benefits
              
              
              Other
      Benefits2007
              
              
              2006
              
              
              2007
              
              
              2006Service
      cost
              
              $
              2,368
              
              
              $
              2,112
              
              
              $
              213
              
              
              $
              194Interest
      cost
              
              
              6,168
              
              
              
              5,976
              
              
              
              566
              
              
              
              537Expected
      return on plan assets
              
              
              (6,574
              )
              
              
              (5,715
              )Recognized
      net actuarial loss
              
              
              1,235
              
              
              
              1,681
              
              
              
              71
              
              
              
              80Amortization
      of prior service cost
              
              
              167
              
              
              
              (111
              )
              
              
              10
              
              
              
              34Amortization
      of transition obligation
              
              
              (51
              )
              
              
              (49
              )Net
      periodic benefit cost
              
              $
              3,313
              
              
              $
              3,894
              
              
              $
              860
              
              
              $
              845
 
 The net actuarial loss recognized in
other comprehensive income for the year ended December 31, 2007 and 2006 were
$1.2 million and $0.6 million, respectively.  The prior service credit
recognized in other comprehensive income for the years ended December 31, 2007
and 2006 were $132 thousand and $245 thousand, respectively.
 
 For the Company’s pension plans, the
estimated net loss, prior service cost and transition asset to be amortized from
accumulated other comprehensive loss during 2007 is expected to be $1.3 million,
$136 thousand and $10 thousand respectively.  For the Company’s
post-retirement benefit plans, the estimated net loss and prior service cost to
be amortized from accumulated other comprehensive loss during 2007 is expected
to be $59 thousand and $3 thousand, respectively.
 
 The
weighted-average assumptions used to determine net periodic benefit cost related
to the pension benefits were as follows:
 
 2007
              
              2006Discount
      rate
              5.50%
      - 6.00%
              
              5.20%
      - 6.00%Expected
      long-term return on plan assets
              7.00%
      - 7.50%
              
              7.00%
      - 7.50%
 
 The
weighted-average discount rate used to determine net periodic benefit cost
related to the Other Benefits was 6.00% for 2007 and 2006.
 
  68
 American
Biltrite Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements (continued)
  7.  Pension Plans
(continued)
 
 In
developing the overall expected long-term return on plan assets assumption, a
building block approach was used in which rates of return in excess of inflation
were considered separately for equity securities, debt securities, and other
assets.  The excess returns were weighted by the representative target
allocation and added along with an appropriate rate of inflation to develop the
overall expected long-term return on plan assets assumption.
 
 Assumed healthcare cost trend rates as
of year-end were as follows:
 
 December
      312007
                2006Healthcare
      cost trend rate assumed for next year
                9.5%
                9.0%Ultimate
      healthcare cost trend rate
                5.0%
                5.0%Year
      that the assumed rate reaches the ultimate rate
                2012
                2011
 
 Assumed
healthcare cost trend rates have a significant effect on the amounts reported
for healthcare benefits.  A one-percentage point change in assumed
healthcare cost trend rates would have the following effects (in
thousands):
 
 1
      Percentage
                Point
      Increase
              
              1
      Percentage
                Point
      DecreaseEffect
      on total of service and interest cost components
              $  70
              
              $  62Effect
      on post-retirement benefit obligation
              734
              
              667
 
 For the
Company’s pension plans, the weighted-average asset allocation at December 31,
2007 and 2006, by asset category, were as follows:
 
 December
      312007
              2006Equity
      securities
              62%
              62%Debt
      securities
              37%
              35%Other
              1%
              3%Total
              100%
              100%
 
  69
 American
Biltrite Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements (continued)
  7.  Pension Plans
(continued)
 
 The Company has an investment strategy
for the pension plan that emphasizes total return; that is, the aggregate return
from capital appreciation and dividend and interest income.  The
primary investment management objective for the plan’s assets is long-term
capital appreciation primarily through investment in equity and debt
securitieswith an emphasis on consistent growth;
specifically, growth in a manner that protects the Plan’s assets from excessive
volatility in market value from year to year.  The investment policy
takes into consideration the benefit obligations, including timing of
distributions.  The Company selects professional money managers whose
investment policies are consistent with the Company's investment strategy and
monitors their performance against appropriate benchmarks.  The
Company's target asset allocation is consistent with the weighted-average
allocation at December 31, 2007.
 
 Contributions
 
 Congoleum expects to contribute $3.5
million to its pension plan and $0.6 million to its other postretirement plan in
2008.  American Biltrite expects
to contribute $0.1 million to its pension plan in 2008.
 
 Estimated Future Benefit
Payments
 
 The following benefit payments, which
reflect future service as appropriate, are expected to be paid.  The
benefit payments are based on the same assumptions used to measure the Company’s
benefit obligation at the end of fiscal 2007.
 
 Pension
      Benefits
              
              
              Other
      Benefits(In
      thousands)2008
              
              $
              6,600
              
              
              $
              6062009
              
              
              6,805
              
              
              
              6612010
              
              
              7,024
              
              
              
              7192011
              
              
              7,166
              
              
              
              7942012
              
              
              7,430
              
              
              
              8272013
      - 2017
              
              
              39,493
              
              
              
              4,765
 
  70
 American
Biltrite Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements (continued)
  7.  Pension Plans
(continued)
 
 Adoption of SFAS 158
  On
December 31, 2006, the Company adopted the recognition and disclosure provisions
of SFAS 158.  The effects of adopting SFAS 158 on the Company’s
balance sheet at December 31, 2006 have been included in the accompanying
consolidated financial statements.  SFAS 158 did not have an effect on
the Company’s consolidated financial statements in prior years.
 
 SFAS 158
required the Company to recognize the funded status (i.e., the difference
between the fair value of the plan assets and the project benefit obligations)
of its pension and other post-retirement plans in the December 31, 2006
consolidated balance sheet, with a corresponding adjustment to accumulated other
comprehensive income (loss), net of tax.  The adjustment to
accumulated other comprehensive income (loss) at adoption represents the net
unrecognized actuarial gains (losses) and unrecognized prior service costs
(income), all of which were previously netted against the plan’s funded status
on the Company’s consolidated balance sheet pursuant to the provisions of SFAS
87.  These amounts will be subsequently recognized as net periodic
pension cost pursuant to the Company’s historical accounting policy for
amortizing such amounts.  Further, actuarial gains and losses that
arise in subsequent periods and are not recognized as net periodic pension cost
in the same periods will be recognized as a component of other comprehensive
income (loss).  These amounts will be subsequently recognized as a
component of net periodic pension cost on the same basis as the amount
recognized in accumulated other comprehensive income (loss) at adoption of SFAS
158.
 
 The
incremental effects of adopting the provisions of SFAS 158 on the Company’s
consolidated balance sheet at December 31, 2006 are presented in the following
table.  The adoption of SFAS 158 had no effect on the Company’s
consolidated statement of income for the year ended December 31, 2006 or for any
prior period presented, and it will not affect the Company’s operating results
in future periods.
 
 Prior
      to
                Adopting
                SFAS
      158
              
              
              Effect
      of
                Adopting
                SFAS
      158
              
              
              As
      Reported(in
      thousands)Other
      assets, non-current
              
              $
              -
              
              
              $
              1,316
              
              
              $
              1,316Accrued
      benefit liability – other liabilities, non-current
              
              
              (3,169
              )
              
              
              199
              
              
              
              (2,970
              )Accrued
      benefit liability – liabilities subject to compromise
              
              
              (21,375
              )
              
              
              (3,791
              )
              
              
              (25,166
              )Deferred
      taxes
              
              
              (199
              )
              
              
              (440
              )
              
              
              (639
              )Accumulated
      other comprehensive loss
              
              
              16,917
              
              
              
              2,716
              
              
              
              19,633
 
  71
 American
Biltrite Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements (continued)
  7.  Pension Plans
(continued)
 
 Defined Contribution
Plans
 
 The Company also has three 401(k)
defined contribution retirement plans that cover substantially all
employees.  Eligible employees may contribute up to 15% to 20% of
compensation (subject to annual Internal Revenue Code limits) with the Company
partially matching contributions.  Defined contribution pension
expense for the Company was $918 thousand and $974 thousand for the years ended
December 31, 2007 and 2006, respectively.
 
 8.   Commitments and
Contingencies
 
 Leases
 
 The
Company occupies certain warehouse and office space and uses certain equipment
and motor vehicles under lease agreements expiring at various dates through
2010.  The leases generally require the Company to pay for utilities,
insurance, taxes and maintenance, and some contain renewal
options.  Total rent expense charged to operations was $5.2 million in
2007 and $5.1 million in 2006.
 
 Future minimum payments relating to
operating leases are as follows(in
thousands):
 
 2008
              
              $
              4,5072009
              
              
              4,2392010
              
              
              3,1192011
              
              
              6722012
              
              
              414Thereafter
              
              
              249$
              13,200
 
  72
 American
Biltrite Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements (continued)
  8.   Commitments and
Contingencies(continued)
 
 Royalty and Advertising
Commitments
 
 K&M maintains certain license
arrangements for branded jewelry products.  Under the terms of these
arrangements, K&M must make minimum royalty and advertising payments based
on defined percentages of net sales during the license terms.  These
arrangements also include guaranteed minimum yearly royalty and advertising
payments based either on minimum levels of net sales or fixed payment
amounts.  At December 31, 2007, the Company’s commitments for minimum
royalty and advertising payments were as follows(in
thousands):
 
 2008
              
              $
              1,8142009
              
              
              1,7752010
              
              
              1502011
              
              
              200$
              3,939
 
 Environmental and Other
Liabilities
 
 In the ordinary course of its business,
the Company becomes involved in lawsuits, administrative proceedings, product
liability and other matters, as more fully described elsewhere in this Note 8
and in Note 9.  In some of these proceedings, plaintiffs may seek to
recover large and sometimes unspecified amounts, and the matters may remain
unresolved for several years.
 
 The Company records a liability for
environmental remediation claims when it becomes probable that the Company 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 to
reflect such revisions and progress.
 
  73
 American
Biltrite Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements (continued)
  8.  Commitments and
Contingencies (continued)
 
 As of December 31, 2007 and 2006,
liabilities of Congoleum comprised the majority of the environmental and other
liabilities reported on the Company’s consolidated balance sheetsas of December 31, 2007 and 2006as shown in the
tablebelow.  As a result of Congoleum’s
Chapter 11 bankruptcy filing and in accordance with SOP 90-7, certain
liabilities are included in liabilities subject to compromise on the balance
sheet as of December 31, 2007 and 2006.  Due to the relative magnitude
and wide range of estimates of these liabilities and that recourse related to
these liabilities is generally limited to Congoleum, these matters are discussed
separately following the discussion of ABI liabilities.  However,
because Congoleum is included in ABI’s consolidated financial statements, to the
extent that Congoleum incurs a liability or expense, itwill be reflected in theaccompanying consolidated financial
statements.  Congoleum previously filed several amended plans of
reorganization under Chapter 11 of the United States Bankruptcy Code as part of
its efforts to resolve its asbestos-related liabilities.  See Notes 1
and 9 for a discussion of this subject.
 
 The following table summarizes American
Biltrite’s and Congoleum’s recorded assets and liabilities for environmental,
asbestos and other contingencies:
 
 December 312007
              
              
              2006Liability
              
              
              Receivable
              
              
              Liability
              
              
              Receivable(In
    thousands)American
      BiltriteEnvironmental
      liabilitiesAccrued
      expenses
              
              $
              639
              
              
              
              
              
              $
              632Other liabilities,
      non-current
              
              
              5,336
              
              
              
              
              
              
              5,860Other assets,
      non-current
              
              
              -
              
              
              $
              2,203
              
              
              
              -
              
              
              $
              2,3245,975
              
              
              
              2,203
              
              
              
              6,492
              
              
              
              2,324Asbestos product
      liabilityAsbestos-related liabilities,
      non-current
              
              
              12,600
              
              
              
              -
              
              
              
              10,300
              
              
              
              -Insurance for asbestos-related
      liabilities
              
              
              -
              
              
              
              11,140
              
              
              
              -
              
              
              
              9,32012,600
              
              
              
              11,140
              
              
              
              10,300
              
              
              
              9,320OtherOther liabilities,
      current
              
              
              211
              
              
              
              -Other liabilities,
      non-current
              
              
              1,039
              
              
              
              -1,250
              
              
              
              -
              
              
              
              -
              
              
              
              -$
              19,825
              
              
              $
              13,343
              
              
              $
              16,792
              
              
              $
              11,644
  74
 American
Biltrite Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements (continued)
  8.  Commitments and
Contingencies (continued)
 
 December 312007
              
              
              2006Liability
              
              
              Receivable
              
              
              Liability
              
              
              Receivable(In
    thousands)CongoleumEnvironmental
      liabilitiesLiabilities subject to compromise,
      current
              
              $
              640
              
              
              
              
              
              $
              640Liabilities subject to compromise,
      non-current
              
              
              3,802
              
              
              
              
              
              
              3,788Other assets,
      non-current
              
              
              -
              
              
              $
              2,113
              
              
              
              -
              
              
              $
              2,1504,442
              
              
              
              2,113
              
              
              
              4,428
              
              
              
              2,150Asbestos product
      liabilityAsbestos-related liabilities,
      current
              
              
              31,208
              
              
              
              -
              
              
              
              13,950
              
              
              
              -Other assets,
      current
              
              
              -
              
              
              
              10,490
              
              
              
              -
              
              
              
              21,81331,208
              
              
              
              10,490
              
              
              
              13,950
              
              
              
              21,813OtherLiabilities subject to compromise,
      current
              
              
              20
              
              
              
              -
              
              
              
              50
              
              
              
              -Liabilities subject to compromise,
      non-current
              
              
              854
              
              
              
              -
              
              
              
              886
              
              
              
              -Other assets,
      non-current
              
              
              -
              
              
              
              130
              
              
              
              -
              
              
              
              155874
              
              
              
              130
              
              
              
              936
              
              
              
              155$
              36,524
              
              
              $
              12,733
              
              
              $
              19,314
              
              
              $
              24,118ConsolidatedEnvironmental
      liabilitiesAccrued
      expenses
              
              $
              639
              
              
              
              
              
              
              $
              632Liabilities subject to compromise,
      current
              
              
              640
              
              
              
              
              
              
              
              640Liabilities subject to compromise,
      non-current
              
              
              3,802
              
              
              
              
              
              
              
              3,788Other liabilities,
      non-current
              
              
              5,336
              
              
              
              
              
              
              
              5,860Other assets,
      non-current
              
              
              -
              
              
              $
              4,316
              
              
              
              -
              
              
              $
              4,47410,417
              
              
              
              4,316
              
              
              
              10,920
              
              
              
              4,474Asbestos product
      liabilityAsbestos-related liabilities,
      current
              
              
              31,208
              
              
              
              -
              
              
              
              13,950
              
              
              
              -Asbestos-related liabilities,
      non-current
              
              
              12,600
              
              
              
              -
              
              
              
              10,300
              
              
              
              -Other assets,
      current
              
              
              -
              
              
              
              10,490
              
              
              
              -
              
              
              
              21,813Insurance for asbestos-related
      liabilities
              
              
              -
              
              
              
              11,140
              
              
              
              -
              
              
              
              9,32043,808
              
              
              
              21,630
              
              
              
              24,250
              
              
              
              31,133OtherLiabilities subject to compromise,
      current
              
              
              20
              
              
              
              -
              
              
              
              50
              
              
              
              -Liabilities subject to compromise,
      non-current
              
              
              854
              
              
              
              -
              
              
              
              886
              
              
              
              -Other liabilities,
      current
              
              
              211
              
              
              
              -Other liabilities,
      non-current
              
              
              1,039
              
              
              
              -Other assets,
      non-current
              
              
              -
              
              
              
              130
              
              
              
              -
              
              
              
              1552,124
              
              
              
              130
              
              
              
              936
              
              
              
              155$
              56,349
              
              
              $
              26,076
              
              
              $
              36,106
              
              
              $
              35,762
 
  75
 American
Biltrite Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements (continued)
  8.  Commitments and
Contingencies (continued)
 
 American Biltrite
Inc.
 
 ABI is a
co-defendant with many other manufacturers and distributors of asbestos
containing products in approximately 1,360 pending claims involving
approximately 1,946individuals as of
December 31, 2007.  These claims relate to products of ABI’s former
Tile Division, which ABI contributed to Congoleum in 1993.The claimants allege
personal injury or death from exposure to asbestos or asbestos-containing
products.  Activity related to asbestos claims during the years ended
December 31 was as follows:
 
 2007
              
              
              2006Claims
      at January 1
              
              
              1,332
              
              
              
              1,703New
      claims
              
              
              523
              
              
              
              625Settlements
              
              
              (20
              )
              
              
              (30
              )Dismissals
              
              
              (475
              )
              
              
              (966
              )Claims
      at December 31
              
              
              1,360
              
              
              
              1,332
 
 ABI has
primary and multiple excess layers of insurance coverage for asbestos claims.
The total indemnity costs incurred to settle claims were approximately $2.2
million in 2007 and $3.1 in 2006 all of which were paid by ABI's insurance
carriers pursuant to a February 1996 coverage-in-place agreement with ABI's
applicable primary layer insurance carriers, as were the related defense costs.
ABI will seek reimbursement for asbestos claims under its excess layer coverage
upon exhaustion of its primary insurance coverage. The amount of indemnity
coverage limits remaining at December 31, 2007 under ABI's primary insurance
coverage relating to policies underwritten from 1961 to 1985 ("Primary Layer")
was approximately $350 thousand to $1.4 million, depending on the interpretation
of the terms of the above-referenced coverage-in-place agreement. ABI is
negotiating with the three insurance carriers currently providing coverage under
the Primary Layer (the "Carrier Group") to determine the amount of coverage
remaining under that coverage-in-place agreement.  ABI expects its
first layer excess liability insurance will provide coverage for ABI's asbestos
claims after the Primary Layer has been exhausted. The same insurance companies
comprising the Carrier Group also underwrote ABI’s first layer excess coverage
during the period from 1964-1984 (the "Umbrella Coverage"). Coverage limits for
the Umbrella Coverage are $105 million to $155 million, with certain policies
providing defense costs within the coverage limits and other policies providing
defense costs in addition to coverage limits. ABI is negotiating with the
Carrier Group to reach agreement (the "Umbrella Agreement") on how the Umbrella
Coverage will apply to asbestos bodily injury claims. The Umbrella Agreement is
expected to address defense and indemnity obligations, allocation of claims to
specific policies, and other matters.
 
  76
 American
Biltrite Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements (continued)
  8.  Commitments and
Contingencies (continued)
 
 In
addition to the Umbrella Agreement, ABI has additional excess liability
insurance policies that should provide further coverage if and when the Umbrella
Coverage, taking into account any Umbrella Agreement, is exhausted. Depending on
the terms of any Umbrella Agreement, the terms of ABI's excess liability
insurance policies and the dates of asbestos exposure alleged in claims, ABI may
incur uninsured costs related to asbestos claims once the Primary Layer has been
exhausted. ABI does not expect these costs to have a material adverse impact on
its financial condition or results of operations, although there can be no
assurances in that regard.  If ABI were unable to obtain coverage for
asbestos claims from the Umbrella Coverage, that would have a material adverse
impact on ABI’s financial position, results of operations, and
liquidity.
 
 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 or
strategically seek settlement for those claims on a case-by-case basis in the
normal course of business.  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 factors could
have a material impact on the Company’s liability.  For example, it is
estimated that a 1% increase in the Company’s acceptance rate of claims would
result in a 26% increase in 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
 
 
  77
 American
Biltrite Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements (continued)
  8.  Commitments and
Contingencies (continued)
 
 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 2013 was $12.6 million to $41.4 million as of
December 31, 2007.  The Company believes no amount within this range
is more likely than any other, and accordingly has recorded a liability of $12.6
million in its financial statements which represents a probable and
reasonably estimable amount for the future liability at the present
time.  The Company also believes that based on this liability
estimate, the corresponding amount of insurance probable of recovery is $11.1
million at December 31, 2007, which has been included in other
assets.  The same factors that affect developing forecasts of
potential indemnity costs for asbestos-related liabilities also affect estimates
of the total amount of insurance that is probable of recovery, as do a number of
additional factors.  These additional factors include the financial
viability of some of the insurance companies, the method in which losses will be
allocated to the various insurance policies and the years covered by those
policies, how legal and other loss handling costs will be covered by the
insurance policies, and interpretation of the effect on coverage of various
policy terms and limits and their interrelationships.  These amounts were based on currently
knownby ABIand 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 itwill 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 remainsto vigorously defendagainst and strategically settle its
asbestos claims on a case-by-case basis.  The Companybelieves it has substantial insurance
coverage to mitigate future costs related to this matter.
 
 ABI has
been named as a Potentially Responsible Party ("PRP") within the meaning of the
Federal Comprehensive Environmental Response Compensation and Liability Act, as
amended ("CERCLA"), with respect to six sites located in five separate states
(the “CERCLA Sites”).  At one of the six sites, which is located in
Southington, Connecticut, (the "Southington Site"), an ABI subsidiary ("Ideal")
is also named as a PRP.  At the Southington Site, the currently
estimated aggregate future cost of remediation and monitoring, Environmental
Protection Agency (the "EPA") reimbursable costs and potential natural resources
damages are approximately $59 million, all subject to a final allocation among
the PRPs.  ABI's and Ideal's
  78
 American
Biltrite Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements (continued)
  8.  Commitments and
Contingencies (continued)
 
 aggregate
share of the future remediation costs, EPA’s past costs and natural resource
damages claim is currently estimated to be between $610 thousand and $760
thousand.  Under an agreement, Ideal will share a percentage of this
cost with the former owner of Ideal's assets.  Under an agreement
between ABI and The Biltrite Corporation ("TBC"), TBC is liable for 37.5% of the
remediation costs incurred by ABI with respect to the Southington
Site.
 
 At another site, ABI, together with a
number of other PRPs, signed a consent decree and site remediation agreement
(the "Agreements"), which, without admission of liability by the PRPs, requires
remediation of the ILCO Superfund site located in Leeds, Alabama (the "ILCO
Site").  The currently estimated aggregate future cost of remediation
and associated transactional costs at the ILCO Site ranges from $2.3 million to
$4.3 million.  Pursuant to a final allocation among consent decree
participants, ABI's share of the currently estimated future remediation costs
range from approximately $59 thousand to about $143 thousand.  These
estimates consider commitments from de minimis and de maximus settlors, the City
ofLeedsand its insurers, amounts currently
held in an escrow fund, a RCRA Closure Fund refund, and TBC's share, which by
agreement is 37.5% of the remediation costs incurred by ABI.  A
substantial share of ABI’s future remediation costs with respect to the ILCO
site will be payable over the next one to five years.
 
 ABI is involved in two EPA sites inGeorgia.  At one of the EPA sites,
ABI has been named along with seven other PRPs with respect toa sitein Atlanta, Georgiainvolving three neighborhoods (“Atlanta
Site”)where properties
within the boundaries of theAtlantaSite containslead in the surface soil in
concentrations that exceed the EPA’s residential lead screening
level.  The EPA has requested that ABI sign an Administrative Order on
Consent (“AOC”).  ABI has reviewed the EPA notification letter and the
AOC and is assessing itsresponsibility with respect to
theAtlantaSite and whether it is inABI’sinterest to sign the consent
order.  The former owners have signedan AOC and will remediate theAtlantasite and seek contribution from the
other PRPs.  At the other sitewhich isinFultonCounty(together with theAtlantaSite, the “Georgia Sites”), a former
smelting and refinery site, ABI has not entered into any negotiations with other
PRP's or the site owner.  ABI believes, based upon current information
available, that its liability at either site will not be
material.  Under an agreement between ABI and TBC, TBC is liable for
37.5% of the remediation costs, incurred by ABI at these Georgia
Sites.
 
 A lawsuit was brought by Olin
Corporation, the present owner of a former chemical plant site in Wilmington,
Massachusetts (the "Olin Site"), which alleged that ABI and three defendants
were liable for a portion of the site's soil and groundwater response and
remediation costs at the site.  Awholly-owned subsidiary of
ABI owned and operated the Wilmington plant from 1959 to 1964 and for
approximately one month during 1964, ABI held title to the property
directly.
 
  79
 American
Biltrite Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements (continued)
  8.  Commitments and
Contingencies (continued)
 
 In 2000, ABI and TBC entered into a
settlement agreement with Olin that resolved all claims and counterclaims among
the parties.  Under the terms of the agreement, ABI and TBC together
paid Olin $4.1 million in settlement of their share of Olin's $18.0 million of
alleged past response costs incurred throughDecember 31, 1998.  ABI and TBC also agreed to
reimburse Olin for 21.7% of Olin's response costs incurred at the site afterJanuary 1, 1999, plus an annual reimbursement of $100
thousand for Olin's internal costs.  Under an agreement between ABI
and TBC, TBC is liable for 37.5% of the costs that may be incurred by ABI in
connection with this lawsuit and 37.5% of the amounts due under the settlement
agreement with Olin.
 
 Additional expenditures, principally
consisting of remediation and oversight costs, will be required to remediate the
site.  Olin has estimated that the total response costs for 2008 will
be approximately $2.9 million.  ABI has estimated total costs,
includingfor2008, to be in the range of $17.6
million to $49.7 million.  As ofDecember 31, 2007, ABI has estimated its potential
liability for Olin to be in the range of $3.9 million to $11.8 million after
allocation for the annual reimbursement of $100 thousand for Olin's internal
costs and before any recoveries from insurance and TBC.  Costs are
expected to be paid over the next ten years.In January 2006, the EPA assumed the
responsibility for the oversight of the Olin Site from the Massachusetts
Department of Environmental Protection.
 
 The State
of Maine Department of Environmental Protection (“Maine DEP”) has put Miller
Industries, Inc, (“Miller”) the present owner of a former sheet vinyl plant in
Lisbon Falls, Maine, on notice to clean up a dumpsite where there is exposed
asbestos from sheet vinyl waste along with other hazardous
substances.  In September of 2005, a lawsuit was brought by Miller
against ABI, which alleged that ABI and one other named defendant were liable
for costs to clean up a dumpsite (“Parcel A”) and a second parcel of land
(“Parcel B”), which is alleged to contain polychlorinated biphenyls (“PCB’s”) in
the soil.  The lawsuit, captioned Miller Industries, Inc. v
American Biltrite Inc. et al, was filed on September 22, 2005 in the
Androscoggin Superior Court of Maine.  Miller was seeking
indemnification or contribution from ABI for the clean-up of both parcels of
land (together, the “Maine Sites”).  The lawsuit was dismissed by the
Superior Court of Maine on February 3, 2006 for lack of subject matter
jurisdiction and failure to state a claim upon which relief can be
granted.  In January 2006, ABI was notified by the Maine DEP that it
is a PRP as to both Parcel A and Parcel B.  Subsequently, Parcel B was
named an EPA site.
 
 Prior to
the commencement of the lawsuit by Miller, ABI had been investigating and
reviewing the condition of Parcel A and its potential liability for its share of
any clean-up costs.  ABI believes, at this time, that the cost of site
investigation, remediation, maintenance and monitoring at the site will be
between approximately $1.3 million and $2.2 million.  ABI has been
advised by Miller that the clean-up for Parcel B is basically completed under
budget.  ABI has been
 
 
  80
 American
Biltrite Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements (continued)
  8.  Commitments and
Contingencies (continued)
 
 assessing
the potential availability of insurance coverage for such costs.  ABI
is not at this time able to determine what its potential liability will be with
regard to the Maine Sites since ABI has neither accepted nor negotiated its
allocable share of the costs with Miller.  Under an agreement between
ABI and TBC, TBC is liable for 37.5% of costs incurred by ABI for the Maine
Sites.
 
 ABI has made demands against its
insurance carriers to provide defense and indemnity for ABI's liabilities at the
CERCLA Sites and the state­ supervised sites inMaineas well as the OlinSite with respect to the previous
supervision of that site by the Massachusetts Department of Environmental
Protection.  An agreement was executed by ABI and its carriers
regarding the payment of the defense costs for the Olin Site.  ABI has
reached agreements with four of its insurance carriers whereby the carriers have
reimbursed the Company $6.5 million for past and current environmental claims
and 37.5% of the amount of that reimbursement was shared with TBC pursuant to
the Company’s agreement with TBC.  Included in this insurance
reimbursement is a payment of $4.6 million by one carrier in December
2005.  Another carrier has agreed to reimburse the Company for 2.5% of
the Company’s liabilities regarding the future environmental expenses related to
the Olin Site, $100 thousand of which was reimbursed throughDecember 31, 2007 and 37.5% of the amount of that
reimbursement was shared with TBC pursuant to the Company’s agreement with
TBC.  ABI and one of its insurance carriers continue to discuss ABI’s
remaining demands for insurance coverage for these sites.
 
 ABI was notified of potential
claims against it on behalf of approximately seventeen (17) families living
(or formerly resident) in the Town of Wilmington, Massachusetts (the
“Town”).  The potential claimants either contracted cancer
or are family members of a person who contracted cancer and allege a
connection between such cancer and the Town water supply to which the
claimants were exposed.  The potential claimants further allege
thatthe Olin Site
isa source of the
contamination of the Town's water supply.  In order to avoid
significant litigation expenses, the Company settled all of the claims in 2007
for $2 million plus interest to be paid over 7 years.   Under an
agreement between ABI and TBC, TBC is liable for 37.5% of the costs that may be
incurred by ABI in connection with theseclaims.  The Company determined that
it does not have insurance coverage for these claims.
 
 In
connection with the transfer of ABI's Trenton, NJ tile plant to Congoleum in
1993, the Company signed an administrative consent order from the New Jersey
Department of Environmental Protection for any environmental remediation the
state may require at that location.  Pursuant to the contribution in
1993 of the Company's former tile division to Congoleum, Congoleum assumed
liability for the cost of cleaning up the site.  Congoleum has
established a remediation trust fund of $100 thousand as financial assurance for
certain remediation funding obligations.  The Company remains
contingently liable in the event that Congoleum fails to perform or fund any
required remediation relating to this site.
 
  81
 American
Biltrite Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements (continued)
  8.  Commitments and
Contingencies (continued)
 
 The
outcome of these matters could result in significant expenses incurred by, or
judgments assessed against, the Company, which could have a material adverse
effect on the business, results of operations and financial position of the
Company.
 
 In accordance with SFAS No. 5,Accounting for
Contingencies, as of
December 31, 2007 and
2006, ABIrecordeda reserve of $6.0 millionand $6.5 million,
respectively, which
represent probable and reasonably estimable amountsto cover the anticipated remediation
costs described above based on facts and circumstances known to the
Company.  The Company has also recorded a receivable of$2.2 millionand $2.3 million as of December 31,
2007 and 2006, respectively,for ABI's estimable and probable
recoveries for the contingencies described above.These projects tend to be long-term in
nature, and these assumptions are subject to refinement as facts
change.  As such, it is possible that the Company may need to revise
its recorded liabilities and receivables for environmental costs in future
periods resulting in potentially material adjustments to the Company's earnings
in future periods.  The Company closely monitors existing and
potential environmental matters to consider the reasonableness of its estimates
and assumptions.
 
 Congoleum
 
 Congoleum is a defendant in a large
number of asbestos-related lawsuits and has commenced proceedings under Chapter
11 of the United States Bankruptcy Code for purposes of resolving its
asbestos-related liabilities (see Note 9).
 
 Congoleum
records a liability for environmental remediation claims when a cleanup program
or claim payment becomes probable and the costs can be reasonably
estimated.  As assessments and cleanup programs progress, these
liabilities are adjusted based upon the progress in determining the timing and
extent of remedial actions and the related costs and damages. The recorded
liabilities, totaling $4.4 million at December 31, 2007 and $4.4 million at
December 31, 2006, are not reduced by the amount of insurance
recoveries.  Such estimated insurance recoveries approximated $2.1
million at December 31, 2007 and $2.2 million at December 31, 2006, and are
reflected in other non-current assets. 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 asset for environmental matters is collectible from a single
carrier.
 
  82
 American
Biltrite Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements (continued)
  8.  Commitments and
Contingencies (continued)
 
 Congoleum
is named, together with a large number (in most cases, hundreds) of other
companies, as a potentially responsible party ("PRP") in pending proceedings
under the federal Comprehensive Environmental Response, Compensation and
Liability Act, as amended ("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 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 sites depends on many factors,
including the volume of material contributed to the site, 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 from
insurance.  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 Environmental Protection Agency
(“EPA”) 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 (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 PRPs to perform the OU-2 remedy, assuming that the estimated
cost of the remedy is not more than $10 million.  If the estimated
cost of the OU-2 remedy is more than $10 million, the PRPs may decline to
perform it or they may elect to perform 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. 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.
 
  83
 American
Biltrite Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements (continued)
  8.  Commitments and
Contingencies (continued)
 
 Congoleum
filed a motion before the Bankruptcy Court seeking authorization and approval of
the Consent Decree and related settlement agreements for the Galaxy/Spectron
Superfund Site, as well authorization for Liberty Mutual Insurance Company and
Congoleum to make certain payments that have been invoiced to Congoleum with
respect to the Consent Decree and related settlement agreements.  An
order authorizing and approving the Consent Decree and related settlement
agreements was issued by the Bankruptcy Court in August 2006.
 
 Congoleum
also accrues remediation costs for certain of Congoleum’s owned facilities on an
undiscounted basis. Congoleum has entered into an administrative consent order
with the New Jersey Department of Environmental Protection and has established a
remediation trust fund of $100 thousand as financial assurance for certain
remediation funding obligations.  Estimated total cleanup costs of
$1.3 million, including capital outlays and future maintenance costs for soil
and groundwater remediation, are primarily based on engineering studies. 
Of this amount, $300 thousand is included in current liabilities subject to
compromise and $1.0 million is included in non-current liabilities subject to
compromise.
 
 Congoleum
anticipates that these matters will be resolved over a period of years and that
after application of expected insurance recoveries, funding the costs will not
have a material adverse impact on Congoleum’s financial
position.  However, unfavorable developments in these matters could
result in significant expenses or judgments that could have a material adverse
effect on the financial position of Congoleum.
 
 Other
 
 In the ordinary course of its business,
ABI and Congoleum become involved in lawsuits, administrative proceedings,
product liability 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.
  84
 American
Biltrite Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements (continued)
  9.  Congoleum Asbestos
Liabilities and Planned 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 ACC, the
FCR and other asbestos claimant representatives.  In addition, an
insurance company, CNA, filed a plan of reorganization and the Bondholders’
Committee also filed a plan of reorganization.  In May 2006, the
Bankruptcy Court ordered the principal parties in interest in Congoleum’s
reorganization proceedings to participate in 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 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
a confirmation hearing is scheduled for June 26, 2008.  Under the
terms of the 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 Joint Plan, a trust will be created that will assume the liability
for Congoleum’s current and future asbestos claims (the “Plan
Trust”).  That trust will receive the proceeds of various settlements
Congoleum has reached with a number of insurance carriers, and will be assigned
Congoleum’s rights under its remaining policies covering asbestos product
liability.  The trust will also receive 50.1% of the newly issued
common stock of reorganized Congoleum when the plan takes effect (the “Trust
Shares”), which Trust Shares will be subject to the Put/Call Agreement described
below.
 
 Holders
of Congoleum’s $100 million in 8.625% Senior Notes due in August 2008 will
receive on a pro rata basis $80 million in new 9.75% senior secured notes that
mature five years from issuance.  The new senior secured notes will be
subordinated to the working capital facility that provides Congoleum’s financing
upon exiting reorganization.  In addition, holders of the $100 million
in 8.625% Senior Notes due in August 2008 will receive 49.9% of the newly issued
common stock of reorganized Congoleum.  Congoleum’s obligations for
the $100 million in 8.625% senior notes due in August 2008, including accrued
interest (which amounted to $44.6 million at December 31, 2007) will be
satisfied by the new senior secured notes and the common stock issued when the
Joint Plan takes effect.
  85
 American
Biltrite Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements (continued)
  9.  Congoleum Asbestos
Liabilities and Planned Reorganization(continued)
 
 Under the
terms of the Joint Plan, existing Class A and Class B common shares of Congoleum
will be cancelled when the plan takes effect and holders of those shares,
including ABI, will not receive anything on account of their cancelled
shares.
 
 In
connection with the Joint Plan, Congoleum and certain parties have entered into
an agreement (the “Put/Call Agreement”).  Pursuant to the Put/Call
Agreement, for the first 60 days after the date the Joint Plan is effective (the
“Effective Date”), the Plan Trust may, at its sole option, elect to cause
participating holders of Senior Notes (the “Backstop Participants”) to purchase
all, but not less than all, of the Trust Shares for an aggregate purchase price
equal to $5.25 million. Similarly, for the first 90 days after the Effective
Date, the Backstop Participants will have the right to cause the Plan Trust to
sell all, but not less than all, of the Trust Shares to the Backstop
Participants for an aggregate purchase price equal to $7.5 million.
 
 The Joint
Plan also includes certain terms that would govern an intercompany settlement
and ongoing intercompany arrangements among American Biltrite and its
subsidiaries and reorganized Congoleum which would be effective when the Joint
Plan takes effect and would have a term of two years.  Those
intercompany arrangements include the provision of management services by
American Biltrite to reorganized Congoleum and other business relationships
substantially consistent with their traditional relationships.  The
Joint Plan provides that the final terms of the intercompany arrangements among
American Biltrite and its subsidiaries and reorganized Congoleum will be
memorialized in a new agreement to be entered into by reorganized Congoleum and
American Biltrite in form and substance mutually agreeable to the future
claimants' representative, the official committee of bondholders, the official
asbestos claimants' committee and American Biltrite. Expiration or termination
of these existing arrangements, failure to reach definitive agreement on final
terms of future arrangements, or failure to consummate such arrangements in
connection with the effectiveness of a plan of reorganization for Congoleum
could have a material adverse impact on the business relationships between ABI
and Congoleum, and ABI’s business, operations and financial
condition.
 
 There can be no assurance that theJoint Plan or any other
planwill receive the
acceptances necessary for confirmation, thatthe Joint Plan will not be modified further,that the conditions to the
Joint Plan or any other plan will be satisfied or waived,thatthe Joint Plan or anyotherplan willtimelyreceive necessary court approvals from
the Bankruptcy Court and theDistrict Court, thatthe Joint Plan orany otherplan will be confirmed, thatthe Joint Plan orany otherplan, if confirmed, will become
effective, or thatCongoleumwillhavesufficient funds to pay for continued
litigation over any plan of reorganizationand 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 Joint
Plan.
  86
 American
Biltrite Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements (continued)
  9.  Congoleum Asbestos
Liabilities and Planned Reorganization(continued)
 
 In anticipation of Congoleum's
commencement of the Chapter 11 cases, Congoleum entered into the Claimant
Agreement, which provides settlement of certain prepetition asbestos claims
against Congoleum and provides for an aggregate settlement value of at least
$466 million as well as an additional number of individually negotiated trial
listed settlements with an aggregate value of approximately $25 million, for
total settlements in excess of $491 million.  Participants in the
Claimant Agreement signed releases limiting their recourse against Congoleum to
what they would receive from the Plan Trust and Congoleum has therefore
estimated its liability under the Claimant Agreement as the cost of effecting
the settlement through confirmation of a plan of reorganization.  In
addition, as a result of tabulating ballots on a previous plan, 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 a previous
plan.  It is also likely that additional new claims will be asserted
in connection with solicitation of acceptances of the Joint
Plan.  Congoleum does not believe it can reasonably estimate the
liability associated with claims that may be pending.
 
 During 2007, Congoleum paid $13.1
million (net of recoveries) in fees and expenses related to implementation of
its planned reorganization under Chapter 11 of the Bankruptcy Code and
litigation with certain insurance companies.  Given the terms of the
proposed Joint Plan, 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 prior years.  Given the terms of the proposed 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 will not be collected under
the terms of the Joint Plan if it is confirmed and effective and $26.4 million
was an additional provision for estimated costs for the reorganization
proceedings and coverage litigation.  In the fourth quarter of 2007
Congoleum also recorded a $41.0 million interest expense credit to reverse
post-petition interest accrued on its Senior Notes.  Terms of previous
reorganization plans had provided, among other things, for the payment of
post-petition interest on the Senior Notes and therefore Congoleum had continued
to accrue such interest.  Under the terms of the Joint Plan, the
holders of the Senior Note will not receive any post-petition
interest.
 
  87
 American
Biltrite Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements (continued)
  9.  Congoleum Asbestos
Liabilities and Planned Reorganization (continued)
 
 Liabilities
Subject to Compromise
 
 Pursuant
to SOP 90-7, Congoleum is required to segregate pre-petition liabilities that
are subject to compromise and report them separately on the consolidated balance
sheet.  Liabilities that may be affected by a plan of reorganization
are recorded at the amount of the expected allowed claims, even if they may be
settled for lesser amounts.  Substantially all of Congoleum’s
pre-petition debt is recorded at face value and is classified within liabilities
subject to compromise.  In addition, Congoleum’s accrued interest
expense on its Senior Notes is also recorded in liabilities subject to
compromise. Additional
pre-petition claims (liabilities subject to compromise) may arise due to the
rejection of executory contracts or unexpired leases, or as a result of the
allowance of contingent or disputed claims.
 
 Liabilities
subject to compromise at December 31 were as follows (in thousands):
 
 2007
              
              
              2006CurrentPre-petition
      other payables and accrued interest
              
              $
              4,997
              
              
              $
              34,602Non-currentDebt
      (at face value)
              
              
              100,000
              
              
              
              100,000Pension
      liability
              
              
              10,772
              
              
              
              15,502Other
      post-retirement benefit obligation
              
              
              9,337
              
              
              
              9,249Pre-petition
      other liabilities
              
              
              13,115
              
              
              
              11,782133,224
              
              
              
              136,533Elimination—Payable
      to American Biltrite
              
              
              (126
              )
              
              
              (135
              )133,098
              
              
              
              136,398Total
      liabilities subject to compromise
              
              $
              138,095
              
              
              $
              171,000
 
 Additional
pre-petition claims (liabilities subject to compromise) may arise due to the
rejection of executory contracts or unexpired leases, or as a result of the
allowance of contingent or disputed claims.
 
 10.  Income
Taxes
 
 The
Company is subject to income taxes in the United States and certain foreign
jurisdictions.  For tax return purposes, ABI and Congoleum are not
part of a consolidated group and, consequently, file separate federal and state
tax returns.  Judgment is required in determining the consolidated
provision for income taxes and recording the related assets and
liabilities.  In the ordinary course of the Company’s business, there
are transactions and calculations where the ultimate tax determination is
uncertain.  Accruals for tax contingencies are provided for in
accordance with the requirements of FIN 48.  The Company’s adoption of
FIN 48 and the reserves provided for uncertain tax positions are not material to
the Company’s consolidated financial statement as of and for the year ended
December 31, 2007.  The Company records tax penalties and interest as
a component of income tax expense.
  88
 American
Biltrite Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements (continued)
  10.  Income Taxes(continued)
 
 Deferred income taxes reflect the net
tax effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes.  Significant components of the Company’s deferred tax assets
and liabilities as of December 31, 2007and 2006were as follows(in
thousands):
 
 2007
              
              
              2006Deferred tax
      assets:Accruals and
      reserves
              
              $
              4,664
              
              
              $
              4,349Environmental
      reserves
              
              
              15,681
              
              
              
              10,345Postretirement benefit
      obligations
              
              
              5,368
              
              
              
              5,043Net operating losses and
      credit carryforwards
              
              
              22,890
              
              
              
              20,272Total deferred tax
      assets
              
              
              48,603
              
              
              
              40,009Less valuation
      allowance
              
              
              (8,581
              )
              
              
              (9,258
              )Net deferred tax
      assets
              
              
              40,022
              
              
              
              30,750Deferred tax
      liabilities:Depreciationand
      amortization
              
              
              12,263
              
              
              
              15,425Insurance
      receivable
              
              
              6,780
              
              
              
              11,037Inventory
              
              
              663
              
              
              
              1,779Accrued
      interest
              
              
              15,296
              
              
              
              -Postretirement benefit
      obligations
              
              
              4,922
              
              
              
              3,781Other
              
              
              799
              
              
              
              1,005Total deferred tax
      liabilities
              
              
              40,723
              
              
              
              33,027Net deferred tax
      liability
              
              $
              (701
              )
              
              $
              (2,277
              )
 
 As of
December 31, 2007 and 2006, ABI had deferred tax assets for state net
operating loss (“NOL”) and foreign credit carryforwards of $944 thousand
and $571 thousand, respectively.  The NOL’s and credit carryforwards
will begin to expire in 2008.  The Company provided a full valuation
allowance against these deferred assets as of December 31, 2007 and 2006 due to
uncertainty in generating future taxable income to utilize the NOL’s and credit
carryforwards.
  As of
December 31, 2006, the Company merged Janus with and into American Biltrite
(Canada) Ltd.  As a result of the merger, Janus’ prior years’ NOL’s
may be utilized to reduce AB Canada’s taxable income in future
periods.  As of December 31, 2007 and 2006, AB Canada had NOL’s in the
amounts of $12.5 million ($12.4 million Canadian dollars) and $12.1 million
($14.1 million Canadian dollars), respectively, and the division had recorded a
deferred tax asset of approximately $3.7 million as of December 31, 2007 and
2006.  However, due to the uncertainty of AB Canada’s ability to
generate sufficient future taxable income to utilize the Janus NOL’s, the
Company recorded a full valuation allowance against the deferred asset as of
December 31, 2007 and 2006.  A significant portion of the NOL carry
forwards expire in 2010.
  89
 American
Biltrite Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements (continued)
  10.  Income Taxes(continued)
 
 At December 31, 2007and 2006, Congoleum had available federalNOL’s of approximately$31.9 million and$31.2million, respectively.  These
carry forwards were generated from Congoleum’s losses and may be utilized to
offset Congoleum’s future taxable income.  The federal loss carry
forwards will begin to expire in 2023.At December 31, 2007 and
2006, Congoleum had available state net operating loss carry forwards of
approximately $41.2 million and $44.8 million, respectively.  The
state loss carry forwards will begin to expire in 2008.  Congoleum
also had available federal tax credit carry forwards of $2.1 million as of
December 31, 2007 and 2006 and state tax credit carry forwards of $1.6 million
and $1.5 million as of December 31, 2007 and 2006, respectively.  The
federal and state tax credit carry forwards will begin to expire in2018and 2008,
respectively.  Congoleumhas determined that a partial valuation
allowance is necessary to reduce the deferred tax assets to theamount expected to be realized, and at
December 31, 2007 and 2006, Congoleum had recorded $3.9 million and $5.0 million
for a valuation allowance against its deferred tax assets.
 
 Significant components of
theprovision
for(benefit from)income taxes for the years ended
December 31 were as follows(in
thousands):
 
 2007
              
              
              2006Current:Federal
              
              $
              1,542
              
              
              $
              24Foreign
              
              
              298
              
              
              
              618State
              
              
              361
              
              
              
              87Total
    current
              
              
              2,201
              
              
              
              729Deferred:Federal
              
              
              829
              
              
              
              (1,507
              )Foreign
              
              
              (201
              )
              
              
              (309
              )State
              
              
              (453
              )
              
              
              70Valuation
      allowance
              
              
              (1,696
              )
              
              
              408Total
    deferred
              
              
              (1,521
              )
              
              
              (1,338
              )$
              680
              
              
              $
              (609
              )
 
  90
 American
Biltrite Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements (continued)
  10.  Income Taxes
(continued)
 
 The reconciliation of income
tax(benefit)
provisioncomputed at the
U.S. federal statutory tax rate to the effective rate of the Company’s tax(benefit) provisionfor the years ended December 31 was as
follows:
 
 2007
              
              
              2006U.S.statutory
    rate
              
              
              (34.0
              )%
              
              
              34.0
              %State income taxes, net of federal
      benefits and valuation allowance
              
              
              (5.3
              )
              
              
              33.1Foreign tax rate
      difference
              
              
              19.6
              
              
              
              39.5Non-deductible
      items
              
              
              220.6
              
              
              
              104.2Valuation
      allowance
              
              
              (133.8
              )
              
              
              (14.8
              )Research and development
      credits
              
              
              -
              
              
              
              (33.8
              )Prior year
      estimates
              
              
              (16.0
              )
              
              
              276.1Change in tax liability
      reserves
              
              
              (7.5
              )
              
              
              (844.4
              )Other
              
              
              10.0
              
              
              
              (22.8
              )Effective tax
      rate
              
              
              53.6
              %
              
              
              (428.9
              )%
 
 Excluding
Congoleum, ABI’s effective tax rate was (45.1)% and 83.0% for 2007 and 2006,
respectively.  ABI’s effective tax rate results from the effect of
combining various segments with differing statutory rates applied to pretax
losses in certain locations and pretax income in other
locations.  ABI’s U.S. operations and foreign branches incurred a
pretax loss of $1.2 million for 2007 and $0.4 million in 2006.  The
tax benefits recorded for the losses were $358 thousand (30.1%) and $74 thousand
(16.9)% for 2007 and 2006, respectively.  The Company’s Canadian
operation had a pretax loss of $1.1 million for 2007 and pretax income of $0.7
million for 2006.  A tax benefit of $675 thousand (61.4%) and a tax
provision of $309 thousand (41.5%) were recorded by the Canadian operations for
2007 and 2006, respectively.  During 2007, the Canadian operations
recognized a tax benefit as a result of a change in valuation allowance against
NOL carryforwards from Janus.  ABI’s combined pretax loss of $2.3
million and net tax benefit of $1.0 million for 2007 resulted in an effective
tax rate of (45.1)%.  The combined pretax income and net tax provision
of $283 thousand and $235 thousand, respectively, resulted in an effective rate
of 83.0% for 2006.
 Congoleum’s
effective tax rate was 167.6% and (511.5)% for 2007 and 2006,
respectively.  For 2007, Congoleum’s tax provision included a
provision of $2.7 million for non-deductible expenses, of which $1.7 million was
for bankruptcy related expenses recognized during the fourth quarter of 2007
(see Note 9).  During the fourth quarter, Congoleum also recorded a
tax benefit of $1.2 million in connection with a reduction in its valuation
allowance against its deferred tax assets for NOL carryforwards.  For
2006, Congoleum recorded a tax benefit of $0.8 million on a loss before income
taxes of $0.2 million.  The benefit arose from Congoleum entering into
a closing agreement with the Internal Revenue Service in October 2006, with
respect to tax returns for years 2000 to 2003, resulting in the reversal of
previously established tax reserves for the years under
audit.
  91
 American
Biltrite Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements (continued)
  10.  Income Taxes
(continued)
 
 The components of(loss) incomebefore the provision for or benefit from income taxes and other
itemsfor the years ended
December 31 were as follows(in
thousands):
 
 2007
              
              
              2006Domestic
              
              $
              (1,526
              )
              
              $
              (932
              )Foreign
              
              
              258
              
              
              
              1,074$
              (1,268
              )
              
              $
              142
 
 Through
December 31, 2007, the Company has not provided U.S. income taxes on
approximately $20.8 million of unremitted foreign earnings because such earnings
are intended to be indefinitely reinvested outside the U.S.  The
Company’s current intention is to indefinitely reinvest accumulated earnings of
its foreign subsidiaries.  The Company believes that any U.S. tax
liability due upon remittance of such earnings would be immaterial due to
availability of U.S. foreign tax credits generated from such
remittance.
 
 ABI and
Congoleum’s federal income tax returns are open and subject to examination from
the 2004 tax return years and forward.  ABI and Congoleum’s various
state income tax returns are generally open from the 2002 tax return year and
forward based on individual state statute of limitations.  As of
December 31, 2007, American Biltrite Inc. and Congoleum were not under
examination by the IRS or any state taxing authority.  Congoleum’s tax
return NOL carryforwards and credits are significant.  The tax years
in which losses arose may be subject to audit when such NOL and tax credit
carryforwards are utilized to offset taxable income and tax liability in future
periods.  AB Canada’s federal and provincial tax returns are open and
subject to examination from 2002 and forward.  As of December 31,
2007, the Company’s Canadian division was not under examination by Canada’s
federal or provincial taxing authorities.
 During
2007 and 2006, the Company made net payments for income taxes of $820 thousand
and $732 thousand, respectively.
  92
 American
Biltrite Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements (continued)
  11.  Other
Comprehensive Income
 
 The
Company records unrealized gains or losses on foreign currency translation
adjustments and changes in minimum pension liabilities in other comprehensive
income.  During 2006, the Company recognized the effects of adopting
SFAS 158 in accumulated other comprehensive loss.  Components of other
comprehensive income (loss) and the effects of adopting SFAS 158 for the years
ended December 31, 2007 and 2006 were as follows (in thousands):
 
 2007
              
              
              2006Foreign currency translation
      adjustments
              
              $
              3,927
              
              
              $
              41Change in additional minimum
      pension liability under SFAS 87
              
              
              -
              
              
              
              1,296Cumulative adjustment for adoption
      of SFAS 158
              
              
              -
              
              
              
              (2,276
              )Defined benefits plan
      adjustment
              
              
              (222
              )
              
              
              -Tax effect ofdefined benefit planadjustments
              
              
              99
              
              
              
              (440
              )Net change in accumulated other
      comprehensive loss
              
              $
              3,804
              
              
              $
              (1,379
              )
 
 During 2006, in accordance with SFAS
158, the Company determined the change in additional minimum pension liability
under SFAS 87, prior to the adoption of SFAS 158.  The change of $1.3
million is included as a component of other comprehensive income for the year
ended December 31, 2006.  Upon adoption of SFAS 158, the Company
recognized a cumulative adjustment of $2.3 million, before taxes, in accumulated
other comprehensive loss, reflecting the funded status of the ABI and Congoleum
pension and postretirement plans as of December 31, 2006.  The net
adjustment increased accumulated other comprehensive loss and decreased total
equity.  The Company also recorded a net deferred tax liability of
$440 thousand arising from the cumulative adjustment of ABI’s pension plans,
some of which were overfunded as of    December 31,
2006.  Congoleum’s benefit plans were underfunded as of December 31,
2006, resulting in a cumulative adjustment to accumulated other comprehensive
loss of $3.8 million, with no tax effect due to a full valuation allowance
recorded against its net deferred tax assets.
 
 During 2007, the Company recorded
significant unrealized gains as a result of the change in the exchange rate used
to convert Canadian dollars to U.S. dollars.  The exchange rate used
to translate the Canadian division’s balance sheet as of December 31, 2007 was
approximately 18% higher than the exchange rate used as of December 31,
2006.
 
  93
 American
Biltrite Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements (continued)
  11.  Other
Comprehensive Income (continued)
 
 As of December 31, 2007 and 2006, the
components of accumulated other comprehensive loss, net of taxes, were as
follows(in
thousands):
 
 2007
              
              
              2006Foreign currency translation
      adjustments
              
              $
              4,269
              
              
              $
              342Minimum pension
      liability
              
              
              (19,756
              )
              
              
              (19,633
              )$
              (15,487
              )
              
              $
              (19,291
              )
 
 12.  Income (Loss) Per
Share
 
 The following table sets forth the
computation of basic and diluted loss per share for the years ended December 31,
2007 and 2006(in thousands,
except per share amounts):
 
 2007
              
              
              2006Numerator:Net (loss)
      income
              
              $
              (2,005
              )
              
              $
              685Denominator:Basic income per
      share:
                Weighted-average
      shares
              
              
              3,442
              
              
              
              3,442Dilutive employee stock
      options
              
              
              -
              
              
              
              15Diluted income per
      share:
                Adjusted weighted-average shares
      and assumed conversions
              
              
              3,442
              
              
              
              3,457Basic (loss) income per
      share
              
              $
              (0.58
              )
              
              $
              0.20Diluted (loss) income per
      share
              
              $
              (0.58
              )
              
              $
              0.20
 
 13.  Stock Option
Plans
 
 ABI Stock Plans
 
 During
1999, ABI adopted a stock option plan, which permits the issuance of options to
purchase up to 50,000 shares of ABI common stock to non-employee
directors.  Under the terms of the plan, options granted are
nonqualified and are issued at a price equal to 100% of fair market value at the
date of grant (as determined under the plan).  Options granted under
the plan are exercisable six months after the date of grant.
 
  94
 American
Biltrite Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements (continued)
  13.  Stock Option
Plans(continued)
 
 ABI
maintains a stock award and incentive plan which permits the issuance of
options, stock appreciation rights (“SARs”), limited SARs, restricted stock,
restricted stock units and other stock-based awards of ABI to selected employees
and independent contractors of the Company.  The amended plan reserved
550,000 shares of common stock for grant and provides that the term of each
award be determined by the committee of the Board of Directors (the "Committee")
charged with administering the plan.
 
 Under the terms of the stock award and
incentive plan, options granted may be either nonqualified or incentive stock
options and the exercise price may not be less than the fair market value of a
share on the date of grant(as determined under the plan), as determined by the
Committee.  SARs and limited SARs granted in tandem with an option
shall be exercisable only to the extent the underlying option is exercisable and
the exercise price shall be equal to the exercise price of the underlying
option.  In addition, the Committee may grant restricted stock to
participants of the plan.  No SARs or restricted stock have been
granted under the plan since its adoption.  Other than the
restrictions that limit the sale and transfer of restricted stockgranted under the plan,recipients of restricted stock granted
under the plan generallyare entitled to all the rights of a shareholder.
 
 The following tables summarize
information about ABI’s stock options:
 
 2007
              
              
              2006Shares
              
              
              Weighted-
                Average
                Exercise
    Price
              
              
              Shares
              
              
              Weighted-
                Average
                Exercise
    PriceOutstanding at beginning of
      year
              
              
              486,000
              
              
              $
              15.40
              
              
              
              483,000
              
              
              $
              15.42Granted
              
              
              4,000
              
              
              
              8.77
              
              
              
              4,000
              
              
              
              10.97Exercised
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Forfeited
              
              
              (188,000
              )
              
              
              23.44
              
              
              
              (1,000
              )
              
              
              9.65Outstanding at end of
      year
              
              
              302,000
              
              
              
              10.31
              
              
              
              486,000
              
              
              
              15.40Options exercisable at end of
      year
              
              
              298,000
              
              
              $
              10.33
              
              
              
              482,000
              
              
              $
              15.44Available for grant at end of
      year
              
              
              281,020
              
              
              
              
              
              
              
              97,020
 
 Range of
                Exercise
    Price
              
              Outstanding at
                December 31,
                2007
              
              Weighted-
                Average
      Exercise
                Price
              
              Exercisable at
                December 31,
                2007
              
              Weighted-
                Average
      Exercise
                Price
              
              Weighted-Average
                Remaining
                Contractual
      Life
                (Years)$7.10 -$14.00
              
              275,000
              
              $ 
9.74
              
              271,000
              
              $ 
9.76
              
              6.40$14.01 -$17.25
              
              21,000
              
              $14.82
              
              21,000
              
              $14.82
              
              2.07$17.26 -$23.625
              
              6,000
              
              $20.50
              
              6,000
              
              $20.50
              
              1.50
 
  95
 American
Biltrite Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements (continued)
  13.  Stock Option Plans
(continued)
 
 OneachJuly 1stof each year, ABI grants options to
each of its non-employee directors under the plan adopted in 1999.  On
July 1, 2007 and 2006, 4,000 options were granted.  The
weighted-average grant date fair value of the options was $4.11 and $5.16,
respectively.The fair value of the options was estimated at
the date of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for 2007 and 2006, respectively: risk-free interest
rate of 4.52% and 4.53%, expected dividend yield of zero percent for each of the
two years, volatility factor of the expected market price of the Company’s
common stock of 33.9% and 34.7%, and a weighted-average expected life of the
options of seven and one-half years.  The options vested on January
1st
of the following year, and during 2007 and 2006, ABI recognized expense of
$16 thousand and $21 thousand, respectively.
 
 Congoleum Stock Option
Plans
 
 Congoleum maintains a Stock Option Plan
and a Directors’ Stock Option Plan.  Under these plans, options to
purchase up to 850,000 shares of Congoleum’s Class A common stock may be issued
to directors, officers and key employees.  These options may be either
incentive stock options or nonqualified stock options, and the options’ exercise
price must be at least equal to the fair value of Congoleum’s Class A common
stock on the date of grant(as determined under the plan).
 
 The following table summarizes
information about Congoleum’s stock options:
 
 2007
              
              
              2006Shares
              
              
              Weighted-
                Average
                Exercise
    Price
              
              
              Shares
              
              
              Weighted-
                Average
                Exercise
    PriceOutstanding at beginning of
      year
              
              
              662,000
              
              
              $
              2.04
              
              
              
              692,000
              
              
              $
              2.04Granted
              
              
              2,500
              
              
              
              0.95
              
              
              
              2,500
              
              
              
              2.11Canceled
              
              
              -
              
              
              
              
              
              
              
              -Exercised
              
              
              -
              
              
              
              
              
              
              
              (600
              )
              
              
              0.36Forfeited
              
              
              (2,500
              )
              
              
              2.05
              
              
              
              (31,900
              )
              
              
              2.08Outstanding at end of
      year
              
              
              662,000
              
              
              
              2.04
              
              
              
              662,000
              
              
              
              2.04Weighted-average remaining
      contractual life of options outstanding (years)
              
              
              4.64
              
              
              
              
              
              
              
              5.73Options exercisable at end of
      year
              
              
              637,300
              
              
              
              2.04
              
              
              
              509,700
              
              
              
              2.04Available for grant at end of
      year
              
              
              173,800
              
              
              
              
              
              
              
              173,800
 
 The total fair value of Congoleum
options that vested during 2007 and 2006 was $225 thousand and $223 thousand,
respectively.
 
  96
 American
Biltrite Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements (continued)
  13.  Stock Option Plans
(continued)
 
 Stock option information related to
nonvested shares for the Congoleum Stock Option Plans for the year ended
December 31, 2007 was as follows:
 
 Shares
              
              
              Weighted-
                Average Grant
                Date Fair
    ValueNonvested at December 31,
      2006
              
              
              151,300
              
              
              $
              1.55Granted
              
              
              2,500
              
              
              
              0.75Vested
              
              
              (128,800
              )
              
              
              1.78Forfeited
              
              
              (300
              )
              
              
              1.65Nonvested at December 31,
      2007
              
              
              24,700
              
              
              
              0.29
 
 The intrinsic value of stock options
exercised during 2007 and 2006 and stock options outstanding (whether or not
then exercisable) and stock options outstanding and exercisable at December 31,
2007 and 2006 under the ABI Stock Plans and the Congoleum Stock Option Plans
were insignificant as a result of each companies’ stock price during each of the
two years ended December 31, 2007.
 
 Upon exercise of stock options, ABI and
Congoleum issue shares which are issuable upon such exercise from their
respective treasury stock.
 
 14.  Industry
Segments
 
 Description of Products and
Services
 
 The Company has four reportable
segments: flooring products, tape division, jewelry, and a Canadian division
that produces flooring and rubber products.  The flooring segment
consists of Congoleum, which manufactures vinyl and vinyl composition floor
coverings and sells them primarily through floor covering distributors, to
retailers and contractors for commercial and residential use.  The
tape division consists of two production facilities in theUnited States, and finishing and sales facilities inBelgium,ItalyandSingapore.  The tape division
manufactures paper, film, HVAC, electrical, shoe, and other tape products for
use in industrial and automotive markets.  The jewelry segment
consists of K&M Associates L.P., a national costume jewelry supplier to mass
merchandisers and department stores.  The Company’s Canadian division
produces flooring, rubber products, including materials used by footwear
manufacturers, and other industrial products.
  97
 American
Biltrite Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements (continued)
  14.  Industry
Segments (continued)
 
 Factors Used to Identify Reportable
Segments
 
 Reportable segments are business units
that offer different products and are each managed separately.  The
Company’s Canadian division manufactures certain products which are similar to
products of the flooring segment; however, the Canadian division is managed and
reports separately from the flooring segment.
 
 Measurement of Segment Profit or Loss
and Segment Assets
 
 Costs specific to a segment, such as
pension expense, are charged to the segment.  Certain Corporate office
expenses are allocated to certain segments based on resources
allocated.  Significant assets of the Corporate office include cash,
insurance assets related to accrued liabilities, and deferred tax
assets.  The accounting policies of the reportable segments are the
same as those described in the summary of significant accounting
policies.
 
 Intersegment sales and transfers are
recorded at cost plus an agreed upon intercompany profit on intersegment sales
or transfers.
 
 Segment Profit and
Assets
 
 Years ended December
      312007
              
              
              2006(In
    thousands)RevenuesRevenues from external
      customers:Flooring
      products
              
              $
              204,262
              
              
              $
              219,474Tape
    products
              
              
              97,895
              
              
              
              102,971Jewelry
              
              
              63,114
              
              
              
              59,741Canadian
      division
              
              
              55,454
              
              
              
              53,351Total revenues from external
      customers
              
              
              420,725
              
              
              
              435,537Intersegment
      revenues:Flooring
      products
              
              
              -
              
              
              
              -Tape
    products
              
              
              -
              
              
              
              13Jewelry
              
              
              -
              
              
              
              -Canadian
      division
              
              
              4,629
              
              
              
              5,311Total intersegment
      revenues
              
              
              4,629
              
              
              
              5,324Total
    revenues
              
              
              425,354
              
              
              
              440,861Reconciling
      itemsIntersegment
      revenues
              
              
              (4,629
              )
              
              
              (5,324
              )Total consolidated
      revenues
              
              $
              420,725
              
              
              $
              435,537
  98
 American
Biltrite Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements (continued)
  14.  Industry
Segments (continued)
 
 Approximately 51% and 50% of the
Canadian division’s revenues from external customers were for flooring products
for 2007 and 2006, respectively.  The remaining revenues from the
Canadian division’s external customers were from sale of rubber and other
industrial products.
 
 For 2007 and 2006 one customer of the
flooring division accounted for 20% of the Company’s consolidated
revenues.  Another customer of the flooring division accounted for 12%
and 14% of the Company’s consolidated revenues for 2007 and 2006,
respectively.
 
 Years ended December
      312007
              
              
              2006(In
    thousands)Interest
    incomeFlooring
      products
              
              $
              1,224
              
              
              $
              515Tape
    products
              
              
              -
              
              
              
              -Jewelry
              
              
              -
              
              
              
              -Canadian
      division
              
              
              -
              
              
              
              165Total segment interest
      revenue
              
              
              1,224
              
              
              
              680Corporate interest
      revenue
              
              
              114
              
              
              
              189Total consolidated interest
      income
              
              $
              1,338
              
              
              $
              869Interest
      expenseFlooring
      products
              
              $
              1,027
              
              
              $
              775Tape
    products
              
              
              52
              
              
              
              41Jewelry
              
              
              1,125
              
              
              
              940Canadian
      division
              
              
              427
              
              
              
              726Total segment interest
      expense
              
              
              2,631
              
              
              
              2,482Corporate interest
      expense
              
              
              807
              
              
              
              971Total consolidated interest
      expense
              
              $
              3,438
              
              
              $
              3,453Depreciation and amortization
      expenseFlooring
      products
              
              $
              10,690
              
              
              $
              10,478Tape
    products
              
              
              2,295
              
              
              
              2,703Jewelry
              
              
              998
              
              
              
              1,079Canadian
      division
              
              
              2,196
              
              
              
              1,978Total segment depreciation and
      amortization
              
              
              16,179
              
              
              
              16,238Corporate
      depreciation
              
              
              6
              
              
              
              7Total consolidated depreciation
      and amortization
              
              $
              16,185
              
              
              $
              16,245
  99
 American
Biltrite Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements (continued)
  14.  Industry
Segments (continued)
 
 Years ended December
      312007
              
              
              2006(In
    thousands)Segment profit
      (loss)Flooring
      products
              
              $
              1,022
              
              
              $
              (165
              )Tape
    products
              
              
              (1,135
              )
              
              
              536Jewelry
              
              
              1,508
              
              
              
              916Canadian
      division
              
              
              (1,099
              )
              
              
              744Total segment profit
      (loss)
              
              
              296
              
              
              
              2,031Reconciling
      itemsCorporate (expenses)
      income
              
              
              (1,582
              )
              
              
              (1,913
              )Intercompany
      profit
              
              
              18
              
              
              
              24Total consolidated earnings (loss)
      from continuing operations  before income taxes and other
      items
              
              $
              (1,268
              )
              
              $
              142
 
 Segment
profit or loss is before income tax expense or benefit.  During 2007,
the flooring products segment recorded a charge of $41.3 million for
asbestos-related reorganization costs.  In addition, the segment
recognized a gain of $29.6 million for the reversal of bond interest previously
accrued (see Note 9).  During 2006, the flooring products segment
recognized a gain of $1.3 million in connection with the replacement of an oven
used in production (see Note 3).
 
 December 312007
              
              
              2006(In
    thousands)Segment
    assetsFlooring
      products
              
              $
              172,705
              
              
              $
              184,202Tape
    products
              
              
              52,287
              
              
              
              52,848Jewelry
              
              
              38,046
              
              
              
              38,913Canadian
      division
              
              
              37,907
              
              
              
              36,396Total segment
      assets
              
              
              300,945
              
              
              
              312,359Reconciling
      itemsCorporate
      assets
              
              
              31,523
              
              
              
              32,008Intersegment accounts
      receivable
              
              
              (10,417
              )
              
              
              (12,416
              )Intersegment profit in
      inventory
              
              
              (126
              )
              
              
              (144
              )Intersegment other
      asset
              
              
              (126
              )
              
              
              (135
              )Total consolidated
      assets
              
              $
              321,799
              
              
              $
              331,672
 
 The Jewelry segment assets include
goodwill of $11.5 million at December 31, 2007 and 2006.
 
  100
 American
Biltrite Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements (continued)
  14.  Industry
Segments (continued)
 
 Years ended December
      312007
              
              
              2006(In
    thousands)Additions to long-lived
      assetsFlooring
      products
              
              $
              4,541
              
              
              $
              4,642Tape
    products
              
              
              527
              
              
              
              496Jewelry
              
              
              406
              
              
              
              442Canadian
      division
              
              
              745
              
              
              
              837Corporate
              
              
              -
              
              
              
              -Total additions to long-lived
      assets
              
              $
              6,219
              
              
              $
              6,417
 
 Geographic Area
Information
 
 December 312007
              
              
              2006(In
    thousands)Long-lived assets by
      areaUnited
    States
              
              $
              127,767
              
              
              $
              129,718Canada
              
              
              13,688
              
              
              
              16,746Europe
              
              
              909
              
              
              
              885Asia
              
              
              2,041
              
              
              
              2,001Total long-lived
      assets
              
              $
              144,405
              
              
              $
              149,350
 
 Years ended December
      312007
              
              
              2006(In
    thousands)Revenues from external
      customersUnited
    States
              
              $
              332,021
              
              
              $
              349,547Canada
              
              
              43,920
              
              
              
              43,766Mexico
              
              
              2,204
              
              
              
              5,574Europe
              
              
              23,526
              
              
              
              20,652Asia
              
              
              16,858
              
              
              
              13,769Other
              
              
              2,196
              
              
              
              2,229Total revenues from external
      customers
              
              $
              420,725
              
              
              $
              435,537
 
 Revenues are attributed to regions based
on the location of customers.
  101
 American
Biltrite Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements (continued)
  15.  Acquisition
 
 On
October 31, 2005, the Company acquired certain assets and assumed certain
liabilities of JayRam, Inc., comprising of JayRam Inc.’s Jay Jewelry division, a
Florida distributor of costume jewelry with a market focus on theme parks,
tourist attractions and surf and beach shops.  The purchase price
consisted of $2.4 million, comprised of a cash payment of $1.4 million on the
closing date and a note payable to the seller for $1.0 million, plus additional
payments to the seller based on 25% of the acquired business’s future earnings
before interest, taxes, depreciation and amortization (“Jay Jewelry EBITDA”) for
a period of three years.  During 2007, the Company made an additional
payment of $15 thousand based on the 2006 Jay Jewelry EBITDA and recorded
additional goodwill in that amount.  The 2007 Jay Jewelry EBITDA will
not result in additional payment or goodwill.
 
 The
transaction was accounted for under the purchase method of accounting and,
accordingly, the assets and liabilities acquired were recorded at their
estimated fair values at the closing date of the acquisition.  The
recorded fair value of tangible assets acquired and liabilities assumed were
$690 thousand and $91 thousand, respectively.  The purchase agreement
includes a non-competition and non-solicitation agreement with the
seller.  The Company obtained a valuation for these intangible assets
as well as the acquired trade name and customer list.  The aggregate
value of these assets was $1.4 million, resulting in goodwill of $426
thousand.  During 2006, the seller and K&M agreed to a reduction
in the purchase price based on a review of the assets and liabilities of the
acquired company as of the acquisition date in accordance with the purchase
agreement.  The $1.0 million note payable and goodwill were reduced by
$251 thousand.  The note is payable in equal monthly installments
through October 2008 with interest at 6%.
 
 The
values assigned to the amortizable intangible assets acquired and the
amortization periods are as follows:
 
 Value
                Assigned
              
              Amortization
                Period(In
    thousands)Non-competition and
      non-solicitation agreement
              
              $
              616
              
              2 yearsCustomer
    list
              
              
              640
              
              7 yearsTrade name
              
              
              119
              
              15 years$
              1,375
 
 Accumulated amortization as of December
31, 2007 and 2006 was $660 thousand and $356 thousand,
respectively.
  102
 American
Biltrite Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements (continued)
  15.  Acquisition
(continued)
 
 Amortization expense for the years ended
December 31, 2007 and 2006 was $304 thousand and $305 thousand,
respectively.  Amortization expense in each of the next five years is
as follows(in
thousands):
 
 2008
              
              $
              2702009
              
              
              992010
              
              
              992011
              
              
              992012
              
              
              84
 
 16.  Discontinued
Operation
 
 During the second quarter of 2003, the
Company reassessed operations at itsToronto,Canadasubsidiary, Janus Flooring Corporation
(“Janus”), a manufacturer of prefinished hardwood flooring, and decided to exit
and dispose of this business before the end of 2003 due to its history of
operating losses.  In connection with this decision to exit and
dispose of Janus, the Company recorded a charge of $8.5 million in the second
quarter of 2003.  Results of Janus, including this charge, have been
reported as a discontinued operation.
 
 As of
December 31, 2005, the remaining liabilities of Janus were insignificant, and
the primary remaining asset consisted of a building and land held for
sale.  In April 2006, the Company completed the sale of the building
and land owned by Janus.  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.  Commissions and other expenses
incurred in connection with the sale totaled approximately C$200 thousand,
resulting in net cash proceeds of C$800 thousand.  Payment of the note
is due within 60 days of receipt of an environmental certification on the land
sold, which the Company received on March 20, 2008.  As of December
31, 2007 and 2006, the Company had recorded a deferred gain of approximately
C$1.1 million.  The Company expects to recognize the gain upon receipt
of payment on the C$4.0 million note.
 
 As a
result of the sale of the building and land and the recording of the note
receivable related to the sale, the discontinued operation was effectively
dissolved during 2006.  At December 31, 2007 and 2006, the note
receivable and deferred gain were included in the assets and liabilities of
continuing operations.  Due to the expected payment on the note and
the recognition of the gain in 2008, the note receivable and deferred gain were
recorded in Prepaid and other current assets and accrued expenses, respectively,
at December 31, 2007.
 
 As of
December 31, 2006, the Company merged Janus with and into American Biltrite
(Canada) Ltd., primarily for the purposes of utilizing Janus’ prior years’ net
operating losses against future taxable income (see Note 10).
 
  103
 American
Biltrite Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements (continued)
  17. 
Fair Value of Financial Instruments
  The
Company’s consolidated cash and cash equivalents, restricted cash, accounts
receivable, accounts payable, notes payable and long-term debt are financial
instruments.  Congoleum’s $100 million 8 5/8% Senior Notes due 2008 had a
book value of $99.9 million and a fair market value of $72.0 million at December
31, 2007.  The corresponding amounts at December 31, 2006 were a book value
of $99.9 million and a fair market value of $91.0 million.  The carrying
value of the Company's remaining financial instruments approximates their
fair value at December 31, 2007.
 
 The fair
value of the Company’s publicly traded long-term debt is determined based on
quoted market values.  The fair value of the Company’s other financial
instruments is determined based on discounted cash flows.  Due to the short
period over which the cash flows are expected to be realized, the carrying value
of the financial instruments approximates the net present value of cash flows
and changes in interest rate assumptions would not have a material effect on the
calculation.
 
 On
September 29, 2006, American Biltrite Inc. entered into swap agreements to
convert the interest rates on the Term Loan and $6.0 million of borrowings under
the Revolver from floating rates to fixed rates of interest.  The swap
agreement for the Term Loan (the “Term Loan Swap”) has a five-year term with the
same quarterly payment dates as the Term Loan and reduces proportionately in
line with the amortization of the Term Loan.  The swap agreement for
the $6.0 million loan outstanding under the Revolver (the “Revolver Swap”) has a
three-year term with quarterly settlement dates beginning December 31,
2006.  The Company expects its borrowings under the Revolver to remain
above $6.0 million through September 29, 2009, the termination date of the
Revolver Swap.  The Term Loan Swap and the Revolver Swap are carried
at fair value.  For the years ended December 31, 2007 and 2006, the
Company recorded a loss of $271 thousand and $56 thousand, respectively, for the
change in the fair value of the swap agreements.  Changes in the fair
value of the swap agreements are recorded in other income
(expense).
 
  104
 American
Biltrite Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements (continued)
  18.  Quarterly Financial
Information (Unaudited)
 
 First
                Quarter
              
              
              Second
                Quarter
              
              
              Third
                Quarter
              
              
              Fourth
                Quarter(In
      thousands, except per share amounts)2007Net sales
              
              $
              100,031
              
              
              $
              115,558
              
              
              $
              107,403
              
              
              $
              97,733Gross
profit
              
              
              25,836
              
              
              
              29,500
              
              
              
              28,163
              
              
              
              24,412(Loss) income from continuing
      operations
              
              
              (741
              )
              
              
              1,131
              
              
              
              675
              
              
              
              (3,070
              )Discontinued
      operation
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Net (loss)
      income
              
              
              (741
              )
              
              
              1,131
              
              
              
              675
              
              
              
              (3,070
              )Net (loss) income per share,
      basic:(Loss)
      income from continuing operations
              
              
              (0.22
              )
              
              
              0.33
              
              
              
              0.20
              
              
              
              (0.89
              )Discontinued
      operation
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Net (loss)
      income
              
              
              (0.22
              )
              
              
              0.33
              
              
              
              0.20
              
              
              
              (0.89
              )Net (loss) income per share,
      diluted:(Loss)
      income from continuing operations
              
              
              (0.22
              )
              
              
              0.33
              
              
              
              0.20
              
              
              
              (0.89
              )Discontinued
      operation
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Net (loss)
      income
              
              
              (0.22
              )
              
              
              0.33
              
              
              
              0.20
              
              
              
              (0.89
              )2006Net sales
              
              $
              111,721
              
              
              $
              117,465
              
              
              $
              108,474
              
              
              $
              97,877Gross
profit
              
              
              28,357
              
              
              
              29,186
              
              
              
              26,899
              
              
              
              23,510Income (loss) from continuing
      operations
              
              
              548
              
              
              
              980
              
              
              
              (858
              )
              
              
              34Discontinued
      operation
              
              
              (62
              )
              
              
              36
              
              
              
              6
              
              
              
              1Net income
      (loss)
              
              
              486
              
              
              
              1,016
              
              
              
              (852
              )
              
              
              35Net income (loss) per share,
      basic:Income
      (loss) from continuing operations
              
              
              0.16
              
              
              
              0.28
              
              
              
              (0.25
              )
              
              
              0.01Discontinued
      operation
              
              
              (0.02
              )
              
              
              0.01
              
              
              
              -
              
              
              
              -Net income
      (loss)
              
              
              0.14
              
              
              
              0.29
              
              
              
              (0.25
              )
              
              
              0.01Net income (loss) per share,
      diluted:Income
      (loss) from continuing operations
              
              
              0.16
              
              
              
              0.28
              
              
              
              (0.25
              )
              
              
              0.01Discontinued
      operation
              
              
              (0.02
              )
              
              
              0.01
              
              
              
              -
              
              
              
              -Net income
      (loss)
              
              
              0.14
              
              
              
              0.29
              
              
              
              (0.25
              )
              
              
              0.01
 
 During the fourth quarter of 2007,
Congoleum recorded adjustments to reverse bond interest previously accrued
($29.6 million), to write off legal fee recoveries ($14.9 million) and to
increase its reserves for estimated bankruptcy related expenses ($26.4
million).  These adjustments resulted in a deferred tax liability of
$1.7 million, which was included in the provision recorded in the fourth quarter
(see Notes 9 and 10).
 
 During the fourth quarter of 2006,
Congoleum recorded a gain of $1.3 million for the replacement of production
equipment (see Note 3).
  105
  Report of IndependentRegisteredPublic Accounting
Firm
 
 
 Board of
Directors and Stockholders
 American
Biltrite Inc.
 
 We have
audited the accompanying consolidated balance sheets with consolidating details
of American Biltrite Inc. and subsidiaries (the Company) as of December 31, 2007
and 2006, and the related consolidated statements of operations with
consolidating details, stockholders' equity, and cash flows with consolidating
details for each of the two years in the period ended December 31,
2007.  Our audits also included the financial statement schedule
listed in the Index at Item 15(a).  These financial statements and
schedule are the responsibility of the Company's management.  Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  We were
not engaged to perform an audit of the Company's internal control over financial
reporting.  Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting.  Accordingly, we express no such opinion.  An
audit also includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation.  We believe that our audits provide
a reasonable basis for our opinion.
 
 In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of American Biltrite Inc.
and subsidiaries at December 31, 2007 and 2006, and the consolidated results of
their operations and their cash flows for each of the two years in the period
ended December 31, 2007, in conformity with U.S. generally accepted accounting
principles.  Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
 
 As
discussed in Notes 1 and 7 to the consolidated financial statements, in 2006 the
Company adopted Statement of Financial Accounting Standards ("SFAS") No. 158,
"Employers' Accounting for Defined Benefit Pension and Other Postretirement
Plans – An amendment of FASB Statement Nos. 87, 88, 106, and 132(R)" and as
discussed in Notes 1 and 13 to the consolidated financial statements, in 2006
the Company adopted SFAS No. 123 (Revised 2004), "Share-Based
Payment".
 
 /s/
ERNST & YOUNG LLP
 
 Boston,
Massachusetts
 March 21,
2008
  106
  ITEM
      9.
              CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURES
 
 Not applicable.
 
 ITEM 9A(T).CONTROLS AND
PROCEDURES
 
 (a)  Evaluation of Disclosure Controls
and Procedures.The Company’s management, with the
participation of the Company’s Chief Executive Officer, or CEO, and Chief
Financial Officer, or CFO, evaluated the effectiveness of the Company’s
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as amended) as of December 31,
2007.  Based on this evaluation, the Company’s CEO and CFO concluded
that, as of December 31, 2007, 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 Securities Exchange Act of 1934, as amended, 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 CEO and CFO, as appropriate to
allow timely decisions regarding required disclosure.
 
 (b)  Management’s Annual Report on
Internal Control Over Financial Reporting.
 
 The management of American Biltrite Incisresponsible for establishing and
maintaining adequate internal control over financial reporting, as that term is defined under Rule
13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as
amended.The management of American Biltrite
Inc.designedAmerican Biltrite Inc.’sinternal control system to provide
reasonable assurance to management and the Board of Directors regarding the
preparation and fair presentation ofAmerican Biltrite Inc.’sfinancial statements.Because of its inherent
limitations, internal control over financial reporting may not prevent or detect
misstatements.  Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
applicable policies or procedures may deteriorate.
 
 The management of American Biltrite
Inc.assessed the
effectiveness ofAmerican
Biltrite Inc.’sinternal
control over financial reporting as of December 31, 2007.In making this assessment,the management of American Biltrite
Inc.used the criteria set
forth by the Committee of Sponsoring Organizations of the Treadway Commission in
Internal Control—Integrated Framework.Based onitsassessment,the management of American Biltrite
Inc.believesthat, as of December 31, 2007,American Biltrite
Inc.’sinternal control
over financial reporting is effective at a reasonable assurance level based on
these criteria.
 
  107
  This
Annual Report on Form 10-K does not include an attestation report of the
Company's registered public accounting firm regarding internal control over
financial reporting.  This  Management's Annual Report on
Internal Control Over Financial Reporting was not subject to attestation by the
Company's registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the Company to provide only
management's report in this annual report.
 
 (c)  Changes in Internal
Controls.No change in the Company’s internal control over
financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the
Securities Exchange Act of 1934, as amended) occurred during the fiscal quarter
ended December 31, 2007 that has materially affected, or is reasonably likely to
materially affect, the Company’s internal control over financial
reporting.
 
 
 ITEM 9B.OTHER INFORMATION
 
 Not
applicable.
 
 
 PART III
 
 ITEM 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT
 
 The
Company has adopted a code of ethics (as that term is defined in Item 406 of
Regulation    S-K of the regulations promulgated by the
SEC), which is included in the Company's written code of conduct or corporate
policies, that applies to the principal executive officer, principal financial
officer, principal accounting officer, controller and all other employees of the
Company.  The text of the Company's code of ethics is posted on our
Internet website www.ambilt.com or may be obtained without charge by sending a
written request to Mr. Henry W. Winkleman, Secretary of the Company, at the
Company's office at 57 River Street, Wellesley Hills, Massachusetts
02481.  We intend to satisfy the disclosure requirement under Item
5.05 of Form 8-K regarding an amendment to, or a waiver from, a provision of our
code of ethics that applies to our principal executive officer, principal
financial and accounting officer or controller by posting such information on
our website at www.ambilt.com.
 
 Other
information required by this item
is incorporated herein by reference to ABI's Proxy Statement for its Annual
Stockholders' Meeting to be held on May 6, 2008, which is to be filed with the
Securities and Exchange Commission within 120 days after December 31,
2007.
 
  108
  ITEM 11.EXECUTIVE
COMPENSATION
 
 The information required by this item is
incorporated herein by reference to ABI's Proxy Statement for its Annual
Stockholders' Meeting to be held on May 6, 2008, which is to be filed with the
Securities and Exchange Commission within 120 days after December 31,
2007.
 
 ITEM
      12.
              SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS
 
 The information required by this item is
incorporated herein by reference in part to Item 5 of this Annual Report on Form
10-K and in part to ABI's Proxy Statement for its Annual Stockholders' Meeting
to be held on May 6, 2008, which is to be filed with the Securities and Exchange
Commission within 120 days after December 31, 2007.
 
 ITEM 13.CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
 
 The information required by this item is
incorporated by reference to ABI's Proxy Statement for its Annual Stockholders'
Meeting to be held on May 6, 2008, which is to be filed with the Securities and
Exchange Commission within 120 days after December 31, 2007.
 
 ITEM 14.PRINCIPAL ACCOUNTANT FEES AND
SERVICES
 
 The information required by this item is
incorporated herein by reference to ABI's Proxy Statement for its Annual
Stockholders' Meeting to be held on May 6, 2008, which is to be filed with the
Securities and Exchange Commission within 120 days after December 31,
2007.
 
  109
  PART IV
 
 ITEM
15.EXHIBITS, FINANCIAL
STATEMENT SCHEDULES
 
 (a)           List of Financial Statements and
Financial Statement Schedules
 
 (1)
              The following consolidated
      financial statements of American Biltrite Inc. and its subsidiaries are
      included in Item 8 of this Annual Report on Form
    10-K:
 
 Consolidated Balance Sheets with
      Consolidating Details -December 31, 2007 and 2006, pages40&41
 
 Consolidated Statements of
      Operations with Consolidating Details -Years ended December 31, 2007 and
      2006, page42
 
 Consolidated Statements of Cash
      Flows with Consolidating Details -Years ended December 31, 2007 and
      2006, page43&44
 
 Consolidated Statements of
      Stockholders' Equity -Years ended December 31, 2007 and
      2006, page45
 
 Notes to Consolidated Financial
      Statements, pages46through105
 
 (2)           The following financial statement
schedule is included in Item 15(c)
 
 SCHEDULE II - Valuation and Qualifying
Accounts
 
 All other schedules for which provision
is made in the applicable accounting regulations of the Securities and Exchange
Commission are not required under the related instructions or are inapplicable
and therefore have been omitted.
 
 (3)           Listing of Exhibits
 
 The listing of exhibits required under
this item is incorporated herein by reference to pages114through125of this Form 10-K.
 
 (b)
              Exhibits:  The required
      exhibits are filed herewith or incorporated by reference following the
      required Exhibit Index.
 
 (c)
              Financial Statement
      Schedule:  The required consolidated financial statement
      schedule is included onpage 111of this Form
      10-K.
  110
  
 American Biltrite Inc. and
Subsidiaries
 
 Schedule II -- Valuation and Qualifying
Accounts
 
 Years ended December 31, 2007 and
2006
 
 (In thousands of
dollars)
 
 
 COL. A
              COL. B
              COL. C
              COL. D
              COL. E
              COL. F
              COL. GDescription
              Balance at
                Beginning of
                Period
              Additions
              Deductions -
                Describe
              Balance at
                End of
                PeriodCharged to
                Costs and
                Expenses
              Charged to
                Other
                Accounts --
                Describe
              Other2007Allowances for doubtful accounts
      and cash discounts
              $3,070
              $2,826
              
              
              $2,979(A)
              $2,9172006Allowances for doubtful accounts
      and cash discounts
              $2,820
              $3,627
              
              
              $3,377(A)
              $3,070
 
 
 (A)
              Represents accounts charged off
      during the year, net of
recoveries.
  111
  Pursuant to the requirements of Section
13 or 15(d) 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: March
      28, 2008
              by:/s/
      Howard N. Feist IIIHoward N. Feist III, Vice
      President Finance and Chief Financial
  Officer
 
 Pursuant to the requirements of the
Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
 
 
 Date:March
      28, 2008
                by:/s/
      Roger S. MarcusRoger S. Marcus, Chairman of the
      Board, Chief Executive Officer and DirectorDate:March
      28, 2008
                by:/s/
      Richard G. MarcusRichard G. Marcus, President,
      Chief Operating Officer and DirectorDate:March
      28, 2008
                by:/s/
      William M. MarcusWilliam M. Marcus, Executive Vice
      President, Treasurer, Chairman of the Executive Committee and
      DirectorDate:March
      28, 2008
                by:/s/
      Leo R. BreitmanLeo R. Breitman,
      DirectorDate:March
      28, 2008
                by:/s/
      Gilbert K. GailiusGilbert K. Gailius,
      DirectorDate:March
      28, 2008
                by:/s/
      John C. Garrels IIIJohn C. Garrels III,
      DirectorDate:March
      28, 2008
                by:/s/
      Frederick H. JosephFrederick H. Joseph,
      DirectorDate:March
      28, 2008
                by:/s/
      Mark N. KaplanMark N. Kaplan,
      DirectorDate:March
      28, 2008
                by:/s/
      James S. MarcusJames S. Marcus,
      Director
   112
 
 Date:March
      28, 2008
                by:/s/
      Natalie S. MarcusNatalie S. Marcus,
      DirectorDate:March
      28, 2008
                by:/s/
      Kenneth I. WatchmakerKenneth I. Watchmaker,
      DirectorDate:March
      28, 2008
                by:/s/
      Howard N. Feist IIIHoward N. Feist III, Vice
      President Finance, Chief Financial Officer and Principal Accounting
      Officer
   113
  EXHIBIT
INDEX
 
 Exhibit
      No.
              Description3
      (1)  VII
              Restated
      Certificate of Incorporation3
      (2)  XXVII
              By-Laws,
      amended and restated as of November 7, 20074
      (1)  XVIII
              Amended
      and Restated Credit Agreement, dated as of September 25, 2006, among
      American Biltrite Inc., K&M Associates L.P., and American Biltrite
      (Canada) Ltd., Bank of America, National Association, both in its capacity
      as a domestic lender and as a domestic administrative agent, Bank of
      America, National Association, acting through its Canada branch, both in
      its capacity as a Canadian lender and as Canadian administrative agent,
      and the other lenders from time to time party thereto4
      (2)  XIX
              Amendment
      No. 1 to Amended and Restated Credit Agreement, dated as of November 7,
      2006, among American Biltrite Inc, K&M Associates L.P., and American
      Biltrite (Canada) Ltd., Bank of America, National Association, both in its
      capacity as a domestic lender and as a domestic administrative agent, Bank
      of America, National Association, acting through its Canada branch, both
      in its capacity as a Canadian lender and as Canadian administrative agent,
      and the other lenders from time to time party thereto4
      (3) XXII
              Amendment
      No. 2 to Amended and Restated Credit Agreement, dated as of March 31,
      2007, among American Biltrite Inc., K&M Associates L.P., and American
      Biltrite (Canada) Ltd., Bank of America, National Association, both in its
      capacity as a domestic lender and as a domestic administrative agent for
      the lenders, Bank of America, National Association, acting through its
      Canada branch, both in its capacity as a Canadian lender and as Canadian
      administrative agent for the lenders, and the other lenders from time to
      time party thereto4
      (4)
              Amendment
      No. 3 to Amended and Restated Credit Agreement, dated as of
      December  14, 2007, among American Biltrite Inc., K&M
      Associates L.P., and American Biltrite (Canada) Ltd., Bank of America,
      National Association, both in its capacity as a domestic lender and as a
      domestic administrative agent for the lenders, Bank of America, National
      Association, acting through its Canada branch, both in its capacity as a
      Canadian lender and as Canadian administrative agent for the lenders, and
      the other lenders from time to time party
  thereto
 
  114
  
 Exhibit
      No.
              Description4
      (5)  XXV
              Amendment
      No. 4 to Amended and Restated Credit Agreement, dated as of December 31,
      2007, among American Biltrite Inc., K&M Associates L.P., and American
      Biltrite (Canada) Ltd., Bank of America, National Association, both in its
      capacity as a domestic lender and as a domestic administrative agent for
      the lenders, Bank of America, National Association, acting through its
      Canada branch, both in its capacity as a Canadian lender and as Canadian
      administrative agent for the lenders, and the other lenders from time to
      time party thereto4
      (6)  XIII
              Security
      Agreement, dated as of October 14, 2003, among American Biltrite Inc.,
      K&M Associates L.P., Fleet National Bank and the subsidiaries of
      American Biltrite Inc. from time to time party thereto4
      (7)  XIV
              Intercreditor
      and Collateral Agency Agreement, dated as of May 20, 2005, by and among
      Fleet National Bank, a Bank of America company, The Prudential Insurance
      Company of America, and the other banks from time to time party thereto,
      and Fleet National Bank, a Bank of America company, as administrative
      agent, and the Acknowledgment of and Consent and Agreement to
      Intercreditor and Collateral Agency Agreement by American Biltrite Inc.
      and certain of its domestic guarantor subsidiaries4
      (8)  XIII
              Guarantee
      Agreement dated as of October 14, 2003, among Abtre, Inc., Aimpar, Inc.,
      American Biltrite Intellectual Properties, Inc., Ideal Tape Co., Inc.,
      Majestic Jewelry, Inc., Ocean State Jewelry, Inc., 425 Dexter Associates,
      L.P. and Fleet National Bank4
      (9)  XIV
              Joinder
      Agreement, dated as of May 20, 2005, between Abimex, LLC and Fleet
      National Bank, a Bank of America company, as domestic
  agent4
      (10)  XIV
              Joinder
      Agreement, dated as of May 20, 2005, between ABItalia, Inc. and Fleet
      National Bank, a Bank of America company, as domestic
  agent4
      (11)  XIV
              Joinder
      Agreement, dated as of May 20, 2005, between American Biltrite Far East,
      Inc. and Fleet National Bank, a Bank of America company, as domestic
      agent4
      (12)  XIV
              Joinder
      Agreement, dated as of May 20, 2005, between K&M Legendary Services,
      Inc. and Fleet National Bank, a Bank of America company, as domestic
      agent
 
  115
  
 Exhibit
      No.
              Description4
      (13)  XIV
              Deed
      of Hypothec and Issue of Mortgage Bonds, dated May 20, 2005, by American
      Biltrite (Canada) Ltd. in favor of Bank of America, National
      Association4
      (14)  XIV
              Hypothec
      and Pledge of Bonds, dated May 20, 2005, between American Biltrite
      (Canada) Ltd. and Bank of America, National Association4
      (15)  I
              Indenture,
      dated as of August 3, 1998, by and between Congoleum Corporation and First
      Union National Bank, as trustee
 
 4
      (16)  I
              First
      Supplemental Indenture, dated as of March 28, 2003, between Congoleum
      Corporation and Wachovia Bank, National Association (as successor to First
      Union National Bank), as trustee4
      (17)  I
              Second
      Supplemental Indenture, dated as of August 7, 2003, between Congoleum
      Corporation and Wachovia Bank, National Association (as successor to First
      Union National Bank), as trustee4
      (18)  XXIII
              Instrument
      of Resignation, Appointment and Acceptance dated as of November 15, 2005
      among the Company, Wachovia Bank, National Association and HSBC Bank USA,
      National Association, as Successor Trustee10
      (1)  III
              Joint
      Venture Agreement dated as of December 16, 1992 by and among American
      Biltrite Inc., Resilient Holdings Incorporated, Congoleum Corporation,
      Hillside Industries Incorporated and Hillside Capital
      Corporation
 
 10
      (2)  IV
              Closing Agreement dated as ofMarch 11,
      1993by and among
      American Biltrite Inc., Resilient Holdings Incorporated, Congoleum
      Corporation, Hillside Industries Incorporated and Hillside Capital
      Corporation10 (3)  VII,
      II
              1993 Stock Award and Incentive
      Plan as Amended and Restated as ofMarch 4,
    199710
      (4)  V
              K&M Associates L.P. Amended
      and Restated Agreement of Limited Partnership10
      (5)  XVII
              Amendment No. 1 to Amended and
      Restated Agreement of Limited Partnership of K&M Associates L.P.,
      dated as ofJanuary
      1, 200610 (6)  VI,
      II
              Split-Dollar Agreement dated as ofDecember 20,
      1996by and between
      American Biltrite Inc. and The Richard G. Marcus Irrevocable Insurance
      Trust of 1990 DatedJune 1,
  1990
 
  116
  
 Exhibit
      No.
              Description10 (7)  VI,
      II
              Split-Dollar Agreement dated as ofJanuary 9,
      1997by and between
      American Biltrite Inc. and Joseph D. Burns10 (8)  VI,
      II
              Description of Supplemental
      Retirement Benefits for Gilbert K. Gailius10
      (9)  VIII
              American Biltrite 1999 Stock
      Option Plan for Non-Employee
Directors
 
 10 (10)  IX,
      II
              Description of Employment
      Arrangement for Gilbert K. Gailius.10 (11)  X,
      II
              Split-Dollar Agreement dated as ofNovember 20,
      2000by and between
      American Biltrite Inc. and Howard N. Feist
  III
 
 10
      (12)  XI
              Personal
      Services Agreement, dated as of March 11, 1993, by and between Congoleum
      Corporation and the Company; First Amendment dated as of February 8, 1995;
      Second Amendment dated as of November 15, 1996; Third Amendment dated as
      of March 10, 1998; Fourth Amendment dated as of November 7,
      200210
      (13) XXVI
              Fifth
      Amendment to Personal Services Agreement, dated as of March 11, 2008, by
      and between American Biltrite Inc. and Congoleum
    Corporation10
      (14)  XVIII
              Amended
      and Restated Credit Agreement, dated as of September 25, 2006, among
      American Biltrite Inc., K&M Associates L.P., and American Biltrite
      (Canada) Ltd., Bank of America, National Association, both in its capacity
      as a domestic lender and as a domestic administrative agent, Bank of
      America, National Association, acting through its Canada branch, both in
      its capacity as a Canadian lender and as Canadian administrative agent,
      and the other lenders from time to time party thereto10
      (15) XIX
              Amendment
      No. 1 to Amended and Restated Credit Agreement, dated as of November 7,
      2006, among American Biltrite Inc, K&M Associates L.P., and American
      Biltrite (Canada) Ltd., Bank of America, National Association, both in its
      capacity as a domestic lender and as a domestic administrative agent, Bank
      of America, National Association, acting through its Canada branch, both
      in its capacity as a Canadian lender and as Canadian administrative agent,
      and the other lenders from time to time party
  thereto
 
  117
  
 Exhibit
      No.
              Description10
      (16) XXII
              Amendment
      No. 2 to Amended and Restated Credit Agreement, dated as of March 31,
      2007, among American Biltrite Inc., K&M Associates L.P., and American
      Biltrite (Canada) Ltd., Bank of America, National Association, both in its
      capacity as a domestic lender and as a domestic administrative agent for
      the lenders, Bank of America, National Association, acting through its
      Canada branch, both in its capacity as a Canadian lender and as Canadian
      administrative agent for the lenders, and the other lenders from time to
      time party thereto
 
 10
      (17)
              Amendment
      No. 3 to Amended and Restated Credit Agreement, dated as of
      December  14, 2007, among American Biltrite Inc., K&M
      Associates L.P., and American Biltrite (Canada) Ltd., Bank of America,
      National Association, both in its capacity as a domestic lender and as a
      domestic administrative agent for the lenders, Bank of America, National
      Association, acting through its Canada branch, both in its capacity as a
      Canadian lender and as Canadian administrative agent for the lenders, and
      the other lenders from time to time party thereto (filed as Exhibit 4 (4)
      to this Form 10-K)10
      (18)  XXIV
              Amendment
      No. 4 to Amended and Restated Credit Agreement, dated as of December 31,
      2007, among American Biltrite Inc., K&M Associates L.P., and American
      Biltrite (Canada) Ltd., Bank of America, National Association, both in its
      capacity as a domestic lender and as a domestic administrative agent for
      the lenders, Bank of America, National Association, acting through its
      Canada branch, both in its capacity as a Canadian lender and as Canadian
      administrative agent for the lenders, and the other lenders from time to
      time party thereto10
      (19) XIII
              Security
      Agreement, dated as of October 14, 2003, among American Biltrite Inc.,
      K&M Associates L.P., Fleet National Bank and the subsidiaries of
      American Biltrite Inc. from time to time party thereto10
      (20)  XIV
              Intercreditor
      and Collateral Agency Agreement, dated as of May 20, 2005, by and among
      Fleet National Bank, a Bank of  America company, The Prudential
      Insurance Company of America, and the other banks from time to time party
      thereto, and Fleet National Bank, a Bank of America company, as
      administrative agent, and the Acknowledgment of and Consent and Agreement
      to Intercreditor and Collateral Agency Agreement by American Biltrite Inc.
      and certain of its domestic guarantor
  subsidiaries
 
  118
  
 Exhibit
      No.
              Description10
      (21)  XIII
              Guarantee
      Agreement dated as of October 14, 2003, among Abtre, Inc., Aimpar, Inc.,
      American Biltrite Intellectual Properties, Inc., Ideal Tape Co., Inc.,
      Majestic Jewelry, Inc., Ocean State Jewelry, Inc., 425 Dexter Associates,
      L.P. and Fleet National Bank10
      (22)  XIV
              Joinder
      Agreement, dated as of May 20, 2005, between Abimex, LLC and Fleet
      National Bank, a Bank of America company, as domestic
  agent10
      (23)  XIV
              Joinder
      Agreement, dated as of May 20, 2005, between ABItalia, Inc. and Fleet
      National Bank, a Bank of America company, as domestic
  agent
 
 10
      (24)  XIV
              Joinder
      Agreement, dated as of May 20, 2005, between American Biltrite Far East,
      Inc. and Fleet National Bank, a Bank of America company, as domestic
      agent10
      (25)  XIV
              Joinder
      Agreement, dated as of May 20, 2005, between K&M Legendary Services,
      Inc and Fleet National Bank, a Bank of America company, as domestic
      agent10
      (26)  XIV
              Deed
      of Hypothec and Issue of Mortgage Bonds, dated May 20, 2005, by American
      Biltrite (Canada) Ltd. in favor of Bank of America, National
      Association10
      (27)  XIV
              Hypothec
      and Pledge of Bonds, dated May 20, 2005, between American Biltrite
      (Canada) Ltd. and Bank of America, National
  Association
 
 10
      (28)  XV
              Form
      of Stock Option Agreement for American Biltrite Inc.'s 1993 Stock Award
      and Incentive Plan, as amended and restated as of March 4, 1997 (for
      awards issued under the plan prior to March 17, 2008)10
      (29)
              Form
      of Stock Option Agreement for American Biltrite Inc.'s 1993 Stock Award
      and Incentive Plan, as amended and restated as of March 4, 1997 (for
      awards issued under the plan on and after March 17,
  2008)10
      (30)  XV
              Form
      of Stock Option Agreement for American Biltrite Inc.'s 1999 Stock Option
      Plan for Non-Employee Directors (for awards issued under the plan prior to
      March 31, 2008)10
      (31)  XII
              Settlement
      Agreement Between Congoleum Corporation and Various Asbestos Claimants
      dated April 10, 2003
 
  119
  
 Exhibit
      No.
              Description10
      (32)  XII
              First
      Amendment to Settlement Agreement Between Congoleum Corporation and
      Various Asbestos Claimants dated June 6, 200310
      (33)  XII
              Collateral
      Trust Agreement, dated April 16, 2003, by and between Congoleum
      Corporation, Arthur J. Pergament, solely in his capacity as the Collateral
      Trustee of the Collateral Trust, and Wilmington Trust Company, solely in
      its capacity as Delaware Trustee of the Collateral
  Trust
 
 10
      (34)  XII
              First
      Amendment to Collateral Trust Agreement, dated June 6, 2003, by and
      between Congoleum Corporation, Arthur J. Pergament, solely in his capacity
      as the Collateral Trustee of the Collateral Trust, and Wilmington Trust
      Company, solely in its capacity as Delaware Trustee of the Collateral
      Trust10
      (35)  XII
              Security
      Agreement, dated April 16, 2003, by and between Congoleum Corporation and
      Arthur J. Pergament, solely in his capacity as the Collateral Trustee of
      the Collateral Trust10
      (36)  XII
              Second
      Security Agreement, dated April 17, 2003, by and between Congoleum
      Corporation and Arthur J. Pergament, solely in his capacity as the
      Collateral Trustee of the Collateral Trust10
      (37)  XII
              Termination
      Agreement, dated June 6, 2003, by and between Congoleum Corporation and
      Arthur J. Pergament, solely in his capacity as the Collateral Trustee of
      the Collateral Trust10
      (38)  XII
              Superseding
      Security Agreement, dated June 11, 2003, by and between Congoleum
      Corporation and Arthur J. Pergament, solely in his capacity as the
      Collateral Trustee of the Collateral Trust10
      (39)  I
              Loan
      and Security Agreement, dated December 10, 2001 by and between Congress
      Financial Corporation and Congoleum Corporation10
      (40)  I
              Amendment
      No. 1 to Loan and Security Agreement, dated September 24, 2002,
      by and between Congress Financial Corporation and Congoleum
      Corporation10
      (41)  I
              Amendment
      No. 2 to Loan and Security Agreement, dated as of February 27, 2003,
      by and between Congress Financial Corporation and Congoleum
      Corporation
 
  120
  
 Exhibit
      No.
              Description10
      (42)  I
              Ratification
      and Amendment Agreement dated January 7, 2004, by and between Congoleum
      Corporation and Congress Financial Corporation10
      (43)  I
              Amendment
      No. 1 to Ratification and Amendment Agreement and Amendment No. 3 to Loan
      and Security Agreement dated as of December 14, 200410
      (44) XXI
              Amendment
      No. 2 to Ratification and Amendment Agreement and Amendment No. 4 to Loan
      and Security Agreement dated as of January 13, 200510
      (45)  XXI
              Amendment
      No. 3 to Ratification and Amendment Agreement and Amendment No. 5 to Loan
      and Security Agreement dated as of June 7,
2005
 
 10
      (46)  XX
              Amendment
      No. 4 to Ratification and Amendment Agreement and Amendment No. 6 to Loan
      and Security Agreement dated as of December 19, 200510
      (47)  XXIII
              Amendment
      No. 5 to Ratification and Amendment Agreement and Amendment No. 7 to Loan
      and Security Agreement dated as of September 27, 200610
      (48)  XXIII
              Amendment
      No. 6 to Ratification and Amendment Agreement and Amendment No. 8 to Loan
      and Security Agreement dated as of November 27, 200610
      (49) XXIV
              Amendment
      No. 7 to Ratification and Amendment Agreement and Amendment No. 9 to Loan
      and Security Agreement dated as of June 12, 200710
      (50)
              Amendment
      No. 8 to Ratification and Amendment Agreement and Amendment No. 10 to Loan
      and Security Agreement dated as of December 11, 200710
      (51) XXIII
              Response
      Cost Sharing And Alternative Dispute Resolution Agreement, dated as of May
      21, 2007, by American Biltrite Inc. and Miller Industries,
      Inc.10
      (52)
              Business
      Relations Agreement dated as of March 11, 1993 by and between American
      Biltrite Inc. and Congoleum10
      (53)
              First
      Amendment to the Business Relations Agreement, dated as of August 19,
      1997
 
  121
  
 Exhibit
      No.
              Description10
      (54) XXVI
              Second
      Amendment to the Business Relations Agreement, dated as of March 11,
      200821
      (1)
              Subsidiaries
      of the Registrant (including each subsidiary's jurisdiction of
      incorporation or organization and the name under which each subsidiary
      does business)23
      (1)
              Consent
      of Independent Registered Public Accounting Firm31
      (1)
              Certification
      of the Chief 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 Chief 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 the 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
2002
 
 99
      (1)  XXV
              Joint Plan of Reorganization Under
      Chapter 11 of the Bankruptcy Code of the Futures Representative, the
      Debtors, the Official Asbestos Claimants' Committee and the Official
      Committee of Bondholders for Congoleum Corporation, et al., dated as ofFebruary 5,
      2008,
      not  including the exhibits thereto with the exception
      of  Exhibit C, which is included herein as Exhibit 99
      (3)99
      (2)  XXV
              Proposed
      Disclosure Statement with respect to the Joint Plan of Reorganization
      Under Chapter 11 of the Bankruptcy Code of the Futures Representative, the
      Debtors, the Official Asbestos Claimants' Committee and the Official
      Committee of Bondholders for  Congoleum Corporation, et al.,
      dated as of February 5, 2008, not including the exhibits thereto with the
      exception of  Exhibit A, which is included herein as Exhibit 99
      (1)99
      (3) XXV
              Intercompany
      Term Sheet, which is Exhibit C to the Joint Plan of Reorganization Under
      Chapter 11 of the Bankruptcy Code of the Futures Representative,
      the  Debtors, the Official Asbestos Claimants' Committee and the
      Official Committee of Bondholders for Congoleum Corporation, et al., dated
      as of February 5, 2008
 
  122
  
 Exhibit
      No.
              Description99
      (4)  XIV
              Settlement
      Agreement and Release, dated June 18, 2004, by and between Congoleum
      Corporation and Liberty Mutual Insurance Company99
      (5)  XIV
              Settlement
      Agreement and Release, dated May 12, 2005, by, between and among Congoleum
      Corporation, Congoleum Sales, Inc., Congoleum Fiscal, Inc. and AIG
      Domestic Claims, Inc., as authorized agent for the applicable AIG
      companies, and the Plan Trust99
      (6)  XIV
              Confidential
      Settlement Agreement and Release, dated June 22, 2005, by and between
      Congoleum Corporation, the Plan Trust and certain underwriters at Lloyd's,
      London99
      (7)  XIV
              Amendment,
      dated July 29, 2005, to the Confidential Settlement Agreement and Release
      dated June 22, 2005, among Congoleum Corporation, the Plan Trust and
      certain underwriters at Lloyd's, London99
      (8)
              Second
      Amendment, dated November 8, 2007, to the Confidential Settlement
      Agreement and Release, among Congoleum Corporation, the Plan Trust and
      certain underwriters at Lloyd’s, London99
      (9)  XV
              Settlement
      Agreement and Release dated August 3, 2005 by, between and among Congoleum
      Corporation and Federal Insurance
Company
 
 99
      (10)
              Amended
      and Restated Plan Trust Settlement Agreement and Release dated as of
      January 18, 2008 among  Congoleum Corporation, the Plan Trust
      and Mt. McKinley Insurance Company and Everest Reinsurance
      Company99
      (11)  XVI
              Settlement
      Agreement and Release by and between Congoleum Corporation and Harper
      Insurance Limited, formerly known as Turegum Insurance
    Company99
      (12)  XVI
              Settlement
      and Policy Buyback Agreement and Release, dated as of April 25, 2006, by
      and among Congoleum Corporation, the Plan Trust, American Biltrite Inc.
      and Travelers Casualty and Surety Co., formerly known as The Aetna
      Casualty and Surety Company, and St. Paul Fire and Marine Insurance
      Company99
      (13)
              Letter
      Agreement, dated as of March 18, 2008, amending the Settlement and Policy
      Buyback Agreement and Release, dated as of April 25, 2006, by and among
      Congoleum Corporation, the Plan Trust, American Biltrite Inc. and
      Travelers Casualty and Surety Co., formerly known as The Aetna Casualty
      and Surety Company, and St. Paul Fire and Marine Insurance
      Company
 
  123
  
 Exhibit
      No.
              Description99
      (14)  XVI
              Settlement
      Agreement, made as of April 27, 2006, by and between Congoleum Corporation
      and Fireman's Fund Insurance Company99
      (15)  XIX
              Settlement
      and Policy Buyback Agreement and Release, made as of August 17, 2006, by
      and between Congoleum Corporation and Century Indemnity Company and its
      affiliates99
      (16)
              Put/Call
      Agreement, dated as of February 20, 2008, among Congoleum Corporation, the
      Initial Backstop Participants and the Trust to be
  formed
 _____________________________________________________________
 
 I
              
              Incorporated
      by reference to the exhibits filed with the Company's Annual Report on
      Form 10-K for the year ended December 31, 2004II
              
              Compensatory
      plans required to be filed as exhibits pursuant to Item 15 of Form
      10-KIII
              
              Incorporated
      by reference to the exhibits filed with the Company's Current Report on
      Form 8-K filed on December 21, 1992  (1-4773)IV
              
              Incorporated
      by reference to the exhibits filed with the Company's Current Report on
      Form 8-K filed on March 25, 1993  (1-4773)V
              
              Incorporated
      by reference to  the exhibits to the Company's Annual Report on
      Form 10-K for the year ended December 31,
      1995  (1-4773)VI
              
              Incorporated
      by reference to the exhibits to the Company's Annual Report on
      Form  10-K for the year ended December 31,
      1996  (1-4773)VII
              
              Incorporated
      by reference to the exhibits to the Company's Quarterly Report on Form
      10-Q for the quarter ended June 28,
    1997  (1-4773)
  VIII
              
              Incorporated
      by reference to the exhibits to the Company's Quarterly Report on Form
      10-Q for the quarter ended July 3, 1999IX
              
              Incorporated
      by reference to the exhibits to the Company's Annual Report on Form 10-K
      for the year ended December 31, 1999X
              
              Incorporated
      by reference to the exhibits to the Company's Annual Report on
      Form  10-K for the year ended December 31,
  2000XI
              
              Incorporated
      by reference to the exhibits to the Company's Annual Report on Form 10-K
      for the year ended December 31, 2002XII
              
              Incorporated
      by reference to the exhibits to the Company's Quarterly Report on Form
      10-Q for the quarter ended June 30,
2003
   124
   XIII
              
              Incorporated
      by reference to the exhibits to the Company's Current Report on
      Form    8-K filed on October 17,
  2003XIV
              
              Incorporated
      by reference to the exhibits to the Company's Quarterly Report on Form
      10-Q for the quarter ended June 30, 2005XV
              
              Incorporated
      by reference to the exhibits to the Company's Quarterly Report on Form
      10-Q for the quarter ended September 30, 2005XVI
              
              Incorporated
      by reference to the exhibits to the Company's Quarterly Report on Form
      10-Q for the quarter ended March 31, 2006XVII
              
              Incorporated
      by reference to the exhibits to the Company's Quarterly Report on Form
      10-Q for the quarter ended June 30, 2006XVIII
              
              Incorporated
      by reference to the exhibits to the Company's Current Report on
      Form    8-K filed on September 27,
  2006XIX
              
              Incorporated
      by reference to the exhibits to the Company's Quarterly Report on Form
      10-Q for the quarter ended September 30, 2006XX
              
              Incorporated
      by reference to the exhibits filed with the Company's Annual Report on
      Form 10-K for the year ended December 31, 2005XXI
              
              Incorporated
      by reference to the exhibits filed with the Company's Annual Report on
      Form 10-K for the year ended December 31, 2006XXII
              
              Incorporated
      by reference to the exhibits to the Company's Quarterly Report on Form
      10-Q for the quarter ended March 31, 2007XXIII
              
              Incorporated
      by reference to the exhibits to the Company's Current Report on Form 8-K
      filed on May 21, 2007XXIV
              
              Incorporated
      by reference to the exhibits to the Company's Quarterly Report on Form
      10-Q for the quarter ended June 30, 2007XXV
              
              Incorporated
      by reference to the exhibits to the Company's Current Report on Form 8-K
      filed on February 11, 2008XXVI
              
              Incorporated
      by reference to the exhibits to the Company's Current Report on Form 8-K
      filed on March 17, 2008XXVII
              
              Incorporated
      by reference to the exhibits to the Company's Quarterly Report on Form
      10-Q for the quarter ended September 30,
2007
 
  125