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,
2008







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,
MA  02481-2097


(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
            NYSE
  Amex








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.  YES [  ]NO [X]





Indicate by check mark if the Registrant
is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act.  YES [  ]NO [X]





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.YES [X]    NO [  ]





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.   [  ]





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





Large
accelerated filer [  ]  Accelerated filer
[  ]  Non-accelerated filer [  ] Smaller
reporting company [X]





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





The aggregate market value of the
registrant's common stock held by non-affiliates as of June 30, 2008 was $7.4
million.





The number of shares of the registrant's
common stock, par value $.01 per share, outstanding as of March 16, 2009 was
3,441,551.





Documents
Incorporated by Reference–
Portions of the proxy statement for the annual meeting of stockholders to be
held on May 12, 2009, which will be filed by the registrant within 120 days
after December 31, 2008, 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 a
Delaware corporation.  ABI's major operations include its Tape
Division, a controlling interest in K&M Associates L.P., a Rhode Island
limited 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, a Delaware
corporation ("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 be eliminated pursuant to the terms of the
plan of reorganization for Congoleum pending in the Bankruptcy Court or any
future plan or outcome in those proceedings.





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 the U.S. and Canada.  ABI, through wholly-owned
subsidiaries, owns an aggregate 94.5% interest (7% as sole general partner and
87.5% 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 its U.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, 2008,
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 the
Joint Plan was solicited in accordance with court-approved voting
procedures.  Various objections to the Joint Plan were filed, and on
May 12, 2008 the Bankruptcy Court heard oral argument on summary judgment
motions relating to certain of those objections.  On June 6, 2008, the
Bankruptcy Court issued a ruling that the Joint Plan was not legally
confirmable, and issued an Order to Show Cause why the case should not be
converted or dismissed pursuant to 11 U.S.C. § 1112.  Following a
further hearing on June 26, 2008, the Bankruptcy Court issued an opinion that
vacated the Order to Show Cause and instructed the parties to submit a
confirmable plan by the end of calendar year 2008.  Following further
negotiations, the Bondholders’ Committee, the ACC, the FCR, representatives of
holders of pre-petition settlements and Congoleum reached an agreement in
principle which the Company understands that Congoleum believe addressed the
issues raised by the Bankruptcy Court in the ruling on the Joint Plan and in the
court's prior decisions.  A term sheet describing the proposed
material terms of a contemplated new plan of reorganization and a settlement of
avoidance litigation with respect to pre-petition claim settlements (the
“Litigation Settlement”) was entered into by those parties and was filed with
the Bankruptcy Court on August 14, 2008.  Certain insurers and a large
bondholder have filed objections to the Litigation Settlement and/or reserved
their rights to object to confirmation of the contemplated new plan of
reorganization.  The Bankruptcy Court approved the Litigation
Settlement following a hearing on October 20, 2008, but the court reserved
certain issues, including whether any plan of reorganization embodying the
settlement meets the standards required for confirmation of a plan of
reorganization.  On November 14, 2008, Congoleum, the ACC and the
Bondholders’ Committee filed an amended joint plan of reorganization for
Congoleum, et al. with the Bankruptcy Court (the “Amended Joint
Plan”).  In January 2009, an insurer filed a motion for summary
judgment seeking denial of confirmation of the Amended


2


Joint
Plan, and a hearing was held on February 5, 2009.  On February 26,
2009, the Bankruptcy Court rendered an opinion denying confirmation of the
Amended Joint Plan.  Pursuant to the opinion, the Bankruptcy Court
entered an order dismissing Congoleum’s bankruptcy case (the “Order of
Dismissal”).  On February 27, 2009, Congoleum and the Bondholders’
Committee appealed the Order of Dismissal to the U.S. District Court for the
District of New Jersey.  On March 3, 2009, an order was entered by the
Bankruptcy Court granting a stay of the Bankruptcy Court’s Order of Dismissal
pending a final non-appealable decision affirming the Order of
Dismissal.  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 the United States, the Tape
Division operates production facilities in Belgium, Italy and Singapore, where
bulk tape products are converted into various sizes.  Sales offices at
the Singapore and Italy locations and sales representative offices in Shanghai,
China, Bangkok Thailand and Seoul, South Korea enable 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 in China, 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% of Hulera Sacatepequez, S.A., a
Guatemalan corporation which manufactures products in Guatemala similar to those
of Hulera Sula.  Hulera Sula also owns 60% of Fomtex, S.A., a
Guatemalan corporation, which manufactures foam mattresses, beds and other foam
products.  During 2008, the Company wrote off its investment of $850
thousand in Hulera Sula as a result of Hulera Sula’s recent operating results
and the uncertainty in the Company’s ability to recover its
investment.





In October 2003, ABI discontinued the
operations of its wholly owned subsidiary Janus Flooring Corporation (“Janus
Flooring”), which manufactured pre-finished hardwood flooring in
Canada.  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.  During 2008,
the Company recognized a gain of approximately $1.0 million on the sale of land
and building owned by Janus Flooring.  The sale of the property
occurred in 2006, but the gain was deferred until 2008 upon the final resolution
of an environmental matter and receipt of payment on a note receivable from the
buyer of the property.





For financial reporting purposes, ABI
operates in four industry segments:  flooring products (Congoleum),
the Tape Division, jewelry (K&M) 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.





3


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 and
Singapore facilities sell these products throughout Europe and the Far
East.





The products of K&M are sold
domestically and in Canada through 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 43 distribution
points in the United States and Canada, 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.





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.





4


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
2008, Congoleum paid $15.9 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 $20.3 million in 2009 on these matters. At December 31, 2008,
Congoleum had incurred but not paid approximately $7.4 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 2009 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.  As noted
elsewhere in this Annual Report on Form 10-K, the Bankruptcy Court recently
issued an opinion denying confirmation of the Amended Joint Plan and ordering
Congoleum’s bankruptcy case be dismissed.  That order is being
appealed and the Bankruptcy Court has granted a stay of its dismissal order
pending a final non-appealable decision affirming the dismissal
order.





In connection with Congoleum’s plan of
reorganization, ABI expects to spend $300 thousand in 2009, 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.





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.




5




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.





Congoleum encounters competition from
three other manufacturers in North America and, 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.





6


K&M competes with other companies
that sell 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®, ProtecRite®, Autowrap®, Ideal Seal®, Therm-X®, 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.  These trademarks are important for the
Company in maintaining a competitive position.  K&M also licenses
the Panama Jack®, Guess?®, Rocawear®, Its Happy Bunny®, and Peanuts® trademarks
as well as certain others for use with its jewelry
products.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 $6.0 million and $6.2 million, on a consolidated basis, for
2008 and 2007, respectively.





Key
CustomersFor
the year ended December 31, 2008, two customers of Congoleum accounted forover 10% ofABI's consolidated net
sales.  The two customers together accountedfor63%of Congoleum’s net sales of $172.6
million.  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.The loss of one or both of these
customerswould have a material adverse effect on
Congoleum’s business, results of operations and financial condition andwould likely have a
material adverse effect on the Company’s business, results of operations or
financial condition.





K&M’s top three customers in terms
of net sales in 2008 together accounted for 54%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 constituteapproximately 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.





7


Sales to five unaffiliated customers of
AB Canada together constitute approximately 22%of the net sales for AB
Canada.  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 AB Canada's business, results of operations and
financial condition.





AB Canada’s sales to Congoleum accounted
forapproximately6%of AB Canada’s net sales in
2008.  The loss of Congoleum’s business would have a significant,
adverse effect 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, 2008 and 2007 was $15.8 million
and $16.3 million, respectively.  It is anticipated that all of the
backlog as of December 31, 2008 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, 2008, ABI
and its subsidiaries employed approximately 1,300
people.  Substantially all of ABI’s and its subsidiaries’ employees
are employed on a full time basis.


8


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 the United Stateswere $28.5
millionin 2008 and $28.8
million in 2007.





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.








9


Item
      1A.
            RISK
      FACTORS





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





The
Company’s independent registered public accountant has issued an opinion on the
Company’s consolidated financial statements that states that the consolidated
financial statements were prepared assuming the Company will continue as a going
concern and further states that the Company’s need to refinance its credit
facility raises substantial doubt about its ability to continue as a going
concern.  The Company’s existing principal credit facility expires on
September 30, 2009.  As noted elsewhere in this Annual Report on Form
10-K, the Company is negotiating with its current lenders to obtain an amendment
or waiver to address certain financial covenants under the Company’s existing
principal credit agreement which the Company expects it would not comply with
for the period ended March 31, 2009 and subsequent periods and is negotiating to
obtain alternative financing to replace its existing credit agreement, including
the term loan and credit facility included as part of its credit
agreement.  If the Company is unable to obtain such an amendment or
waiver or to obtain alternative financing on satisfactory terms, the Company may
not be able to continue as a going concern.





The
Company will have to amend its existing principal credit agreement, or obtain a
waiver from its lenders, to cure defaults under that agreement, or obtain
sufficient alternative financing.





The
Company has had to amend its principal credit agreement several times in the
past in order to avoid being in default of that agreement as a result of failing
to satisfy certain financial covenants contained in that
agreement.  The Company currently expects that it would fail to comply
with certain financial covenants under the credit agreement for the period ended
March 31, 2009 and subsequent periods.  As a result, the Company is
currently negotiating with its lenders to amend the credit agreement to address,
or obtain a waiver for, any such breaches.  If an event of default
were to occur, the lenders could cease to make borrowings available under the
credit facility and require the Company to repay all amounts outstanding under
the credit agreement.  If the Company were unable to repay those
amounts due, the lenders could have their rights over the collateral (most of
the Company’s and its subsidiaries’ (excluding Congoleum) assets, as applicable)
exercised, which would likely have a material adverse effect on the Company’s
business, results of operations or financial condition.  Although the
Company currently anticipates that it will be able to obtain a waiver or enter
an amendment to address these matters, there can be no assurance that the
Company will be successful in this regard.  Further, any waiver or
amendment the Company may obtain is expected to be limited in scope and duration
such that the Company would likely need to obtain further amendments or waivers
in the future or obtain alternative financing.





10


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





The
Company relies on borrowings under its $30 million revolving credit facility
which is governed by its principal credit agreement to fund its business and
operations.  If the Company is not able to generate sufficient cash
flows from its operations as a result of the current recession in the United
States or otherwise, it may have greater reliance on the availability of
borrowings under its credit facility.  The Company's credit facility
is scheduled to expire on September 30, 2009.  As noted in the risk
factor above “The Company will have to amend its existing principal credit
agreement, or obtain a waiver from its lenders, to cure defaults under that
agreement, or obtain sufficient alternative financing”, the Company needs to
obtain an amendment to the credit agreement, or a waiver from its lenders, to
address financial covenants under that agreement which the Company expects it
would not comply with for the period ended March 31, 2009 and subsequent
periods.  In addition, the Company will need to extend, refinance or
replace the credit facility under the credit agreement by the expiration date or
any earlier time required by any waiver or amendment it may enter into to
address the expected covenant breaches.  The Company is currently
negotiating for alternative financing to replace its credit
agreement.  There can be no assurances that the Company will be able
to obtain alternative financing on satisfactory terms.  The global
credit markets have recently been experiencing substantial disruption, and as a
result, credit has become more expensive and difficult to obtain.  In
addition, creditors have generally been imposing more stringent restrictions on
the terms of credit.  If these conditions continue to exist, the
Company may be unable to obtain adequate alternative financing and any
alternative financing the Company may obtain may be significantly more expensive
and restrictive than the terms under the existing credit
agreement.  If the terms of any alternative financing that the Company
may obtain were significantly more expensive or restrictive or failed to provide
the Company with sufficient funds for operations or otherwise, the Company's
business, results of operations or financial condition would be materially
adversely affected.  In addition, if a lender under the existing or
any future credit facility the Company may obtain fails to fund a request by the
Company to borrow money under that credit facility, the Company's business,
results of operations or financial condition may be materially adversely
affected.





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





11


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





As
more fully set forth in Notes 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.  An amended joint
plan of reorganization for Congoleum proposed by the ACC, the Bondholders’
Committee and Congoleum was filed in the Bankruptcy Court, which plan is
referred to elsewhere in this Annual Report on Form 10-K as the "Amended Joint
Plan."  While Congoleum believed that the Amended Joint Plan had
sufficient creditor support to be confirmed, the Bankruptcy Court recently
issued an opinion denying confirmation of the Amended Joint Plan and ordering
Congoleum’s bankruptcy case be dismissed (which is referred to elsewhere in this
Annual Report on Form 10-K as the "Order of Dismissal").  That order
is being appealed with the United States District Court for the District of New
Jersey and the Bankruptcy Court has granted a stay of its Order of Dismissal
pending a final non-appealable decision affirming the Order of
Dismissal.  There can be no assurance that the appeal of the Order of
Dismissal will be granted by the District Court or any other court which may be
appealed to or that the Bankruptcy Court will not subsequently vacate its grant
of a stay of its Order of Dismissal.  If the appeal were denied,
Congoleum’s bankruptcy case could be dismissed, resulting in Congoleum no longer
benefiting from the protection from creditor claims currently afforded to it by
the chapter 11 case and the Bankruptcy Code.  Further, as indicated in
the Order of Dismissal, Congoleum’s ability to refile another bankruptcy
petition may be limited, which could result in Congoleum having to attempt to
conduct its business and operations outside of the protections of the Bankruptcy
Code, including attempting to defend against, satisfy or defray its creditor
claims, such as its substantial asbestos liabilities and its Senior Notes, and
continued litigation against its insurers to attempt to obtain insurance
coverage for Congoleum’s asbestos liabilities.  It is unclear what
effect the Order of Dismissal, the stay of the Bankruptcy Court’s Order of
Dismissal pending a final non-appealable decision affirming the Order of
Dismissal and the continued litigation may have on Congoleum’s business and
operations, including with regard to its relationships with its vendors,
suppliers, customers, lenders and other constituencies.





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





ABI
has certain intercompany claims against and arrangements with
Congoleum.  The Amended Joint Plan would govern an intercompany
settlement and ongoing intercompany arrangements among ABI and its subsidiaries
and reorganized Congoleum, which would be effective when the Amended Joint Plan
took effect and would have a term of two years.  Those intercompany
arrangements include the provision of management services by ABI to reorganized
Congoleum and other business relationships substantially consistent with their
traditional relationships.  The Amended Joint Plan provides that the
final terms of the intercompany arrangements among ABI


12


and
its subsidiaries and reorganized Congoleum would be memorialized in a new
agreement to be entered into by reorganized Congoleum and American Biltrite in
form and substance mutually agreeable to the Bondholders’ Committee, the
official asbestos claimants' committee and ABI.  The existing
arrangements currently in effect among ABI and its non-debtor subsidiaries and
Congoleum expire on June 30, 2009, unless renewed.  In addition, under
the terms of the Amended Joint Plan, ABI’s rights and claims to indemnification
from Congoleum under the existing joint venture agreement between ABI and
Congoleum that relate to ABI's contribution to Congoleum in 1993 of ABI's tile
division, and the joint venture agreement itself, would have been deemed
rejected and disallowed upon the effective date of the Amended Joint Plan, and
therefore eliminated.  The Amended Joint Plan's rejection and
disallowance of the joint venture agreement and ABI’s claims thereunder included
any unfunded indemnification claims ABI may have had prepetition and during the
pendency of Congoleum's Chapter 11 case as well as any such claims ABI might
otherwise have been entitled to assert after the Amended Joint Plan became
effective.  If the appeal of the Order of Dismissal were denied, it is
uncertain what would become of ABI’s and its nondebtor subsidiaries’ claims
against and relationships with Congoleum, although ABI expects that those claims
and relationships could be adversely affected and could even be rendered
worthless.  In addition, there can be no assurance that ABI, Congoleum
and other applicable Congoleum constituencies will be able to reach agreement on
the terms of any management services proposed to be provided by ABI to
reorganized Congoleum or any other proposed business relationships among ABI and
its affiliates and reorganized Congoleum.  Any plan of reorganization
for Congoleum that may be confirmed may have terms that differ significantly
from the terms contemplated by the Amended Joint Plan, including with respect to
any management services that may be provided by ABI to reorganized Congoleum and
ABI's claims and interests and other business relationships with reorganized
Congoleum.





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





Any
plan of reorganization for Congoleum, if proposed, will be subject to numerous
conditions, approvals and other requirements, including the receipt of necessary
creditor, claimant and court approvals.  Certain insurers have
contested the reorganization plans previously filed by Congoleum in the
Bankruptcy Court and Congoleum is involved in ongoing litigation against its
insurers in a state court coverage action.  If the insurers are
successful in contesting the appeal of the Order of Dismissal, any future
reorganization plan or in denying coverage under the insurance policies, such
reorganization plan may not become effective.  Further, even if the
insurers are not successful in contesting the appeal of the Order of Dismissal,
any future plan that may be proposed or in denying coverage under the insurance
policies, Congoleum may be required to incur significant time and expense
litigating against the insurers, which could further delay any confirmation or
effectiveness of any reorganization plan.  In order to obtain
confirmation of any reorganization plan, Congoleum will need sufficient funds to
pay for the





13


continued
litigation with these insurers as well as the bankruptcy proceedings
generally.  In addition, for a plan of reorganization to be confirmed,
Congoleum will need to obtain and demonstrate the sufficiency of exit
financing.  Congoleum cannot presently determine the terms of such
financing, nor can there be any assurances of its success obtaining it,
particularly in light of the recent substantial disruption in the global credit
markets which has resulted in credit becoming more expensive and difficult to
obtain.  Moreover, the failure of any lender under any credit facility
Congoleum may have or obtain to fund requests for borrowings by Congoleum could
negatively impact Congoleum's business, results of operations or financial
condition and its chances of obtaining confirmation of any plan of
reorganization.





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





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





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





For
further information regarding the Company's and Congoleum's asbestos liability,
insurance coverage and strategies to resolve that asbestos liability, please see
Notes 1, 8 and 9 of the Notes to Consolidated Financial Statements and
"Management’s Discussion and Analysis of Financial Condition and Results of
Operations," which are included in Part II, Item 8 and Part II, Item 9,
respectively, of this Annual Report on Form 10-K.





14


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





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





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





15


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





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





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





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





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





16


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





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





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





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





17


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





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





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





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





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





18


In
addition, raw material and energy costs increased sharply over the past year,
particularly during the first half of 2008, which has negatively impacted the
Company's and Congoleum's businesses and operating results.  Although
raw material and energy costs have recently declined, it is not known whether
raw material and energy prices will remain lower or will revert to increasing
price levels.  In light of the current and forecasted economic
conditions in the United States and the industries in which the Company and
Congoleum conduct business, the Company and Congoleum may be unable to pass
increased raw material and energy costs on to their respective
customers.





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





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





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





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





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





19


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





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





The
Company's Canadian Division sells its products through distributors and a direct
sales force.  Sales to five unaffiliated customers accounted for
approximately 22% of the Canadian Division's net sales for the year ended
December 31, 2008.  The loss of the largest unaffiliated customer
and/or two or more of the other four unaffiliated customers 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 material adverse impact on the Company's business, results of operations, or
financial condition.  Congoleum derives a significant percentage of
its sales from two of its distributors.  These two distributors
accounted for approximately 63% of Congoleum's net sales for the year ended
December 31, 2008.





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





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





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





Item
      1B.
            UNRESOLVED
      STAFF
      COMMENTS





Not applicable.


20


ITEM
      2.
            PROPERTIES





At December 31, 2008, ABI and its
subsidiaries owned ten manufacturing 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, and
      Orlando, FL
                26,000
                Leased
                Jewelry
      products





ABI knows of no material defect in the
titles to any such properties or material encumbrances thereon other than a
mortgage on a property in Singapore securing outstanding debt in an amount equal
toapproximately 44% of
theoriginal cost of the
property 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 and that these properties are suitable and adequate for the Company’s
present purposes.





It is estimated that during 2008, ABI's
and its subsidiaries' plants for the manufacture of floor covering products
operated at approximately 52% of aggregate capacity, its plants for the
manufacture of tape products operated at approximately 58% 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.


21


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 theseand
relatedmatters.





In accordance with SFAS No. 5,Accounting for
Contingencies, ABI has
recorded a reserve of approximately $3.2million, 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 approximately1,269pending claims involvingapproximately 1,824 individuals as ofDecember 31,
2008.  These
claims relate to products of the Company’s former TileDivision, 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 2014 was $13.6 million to $44.0 million as of
December 31, 2008.  The Company believes no amount within this range
is more likely than any other and, accordingly, has recorded a liability of
$13.6 million in its financial statements, which represents 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 $13.5 million at
December 31, 2008, 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 150% of the related indemnity costs on
average.


22


The recorded amounts were based on facts
currently known by ABI and a number of assumptions.  However,
projecting future events, such as the number of new claims to be filed each
year, the average cost of disposing of each such claim, 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 that it 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 remains to vigorously defend against and strategically settle its
asbestos claims on a case-by-case basis.  The Company believes it has
substantial insurance coverage to mitigate future costs related to this
matter.





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
the Joint Plan was solicited in accordance with court-approved voting
procedures.  Various objections to the Joint Plan were filed, and on
May 12, 2008 the Bankruptcy Court heard oral argument on summary judgment
motions relating to certain of those objections.  On June 6, 2008, the
Bankruptcy Court issued a ruling that the Joint Plan was not legally
confirmable, and issued an Order to Show Cause why the case should not be
converted or dismissed pursuant to 11 U.S.C. § 1112.





23


Following
a further hearing on June 26, 2008, the Bankruptcy Court issued an opinion that
vacated the Order to Show Cause and instructed the parties to submit a
confirmable plan by the end of calendar year 2008.  Following further
negotiations, the Bondholders’ Committee, the ACC, the FCR, representatives of
holders of pre-petition settlements and Congoleum reached an agreement in
principle which the Company understands that Congoleum believed addressed the
issues raised by the Bankruptcy Court in the ruling on the Joint Plan and in the
court's prior decisions.  A term sheet describing the proposed
material terms of the Amended Joint Plan and the Litigation Settlement was
entered into by those parties and was filed with the Bankruptcy Court on August
14, 2008.  Certain insurers and a large bondholder have filed
objections to the Litigation Settlement and/or reserved their rights to object
to confirmation of the Amended Joint Plan.  The Bankruptcy Court
approved the Litigation Settlement following a hearing on October 20, 2008, but
the court reserved certain issues, including whether any plan of reorganization
embodying the settlement meets the standards required for confirmation of a plan
of reorganization.  On November 14, 2008, Congoleum, the ACC and the
Bondholders’ Committee filed an amended joint plan of reorganization for
Congoleum, et al. with the Bankruptcy Court (the “Amended Joint
Plan”).  In January 2009, an insurer filed a motion for summary
judgment seeking denial of confirmation of the Amended Joint Plan, and a hearing
was held on February 5, 2009.  On February 26, 2009, the Bankruptcy
Court rendered an opinion denying confirmation of the Amended Joint
Plan.  Pursuant to the opinion, the Bankruptcy Court entered the Order
of Dismissal dismissing Congoleum’s bankruptcy case.  On February 27,
2009, Congoleum and the Bondholders’ Committee appealed the Order of Dismissal
to the U.S. District Court for the District of New Jersey.  On March
3, 2009, an order was entered by the Bankruptcy Court granting a stay of the
Bankruptcy Court’s Order of Dismissal pending a final non-appealable decision
affirming the Order of Dismissal.  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.





There can be no assurance thatthe appeal of the Order of
Dismissalwill be granted
by theDistrict Courtor any other court which
may be appealed to or thatthe Bankruptcy Courtwill not subsequently vacate
itsgrant of a stay of its
Order of Dismissal.If the appeal were denied, Congoleum’sbankruptcycase could be dismissed,resulting in Congoleum no longer
benefiting from the protection from creditor claims currently afforded to it by
the chapter 11 case and the Bankruptcy Code.  Further, as indicated in
the Orderof
Dismissal, Congoleum’s
ability to refile another bankruptcy petition may be limited, which could result
in Congoleum having to attempt to conduct its business and operations outside of
the protections of the Bankruptcy Code, including attempting to defend against,
satisfy or defray its creditor claims, such as its substantial asbestos
liabilities and itsSeniorNotes, and continued litigation against
its insurers to attempt to obtain insurance coverage for Congoleum’s asbestos
liabilities.It is unclear what effect the Order of
Dismissal, the stay of the Bankruptcy Court’s Order of Dismissalpending a final non-appealable decision
affirming theOrder of
Dismissal and the continued litigation may have on Congoleum’s business and
operations, including with regard to its relationships with its vendors,
suppliers, customers, lenders and other constituencies.





24


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





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 its Trenton sheet
facility.  ABI had also signed a similar consent order with regard to
its former Trenton tile facility.  Congoleum agreed to be financially
responsible for the clean-up of the Trenton tile facility as part of ABI’s
contribution to Congoleum of ABI’s former Tile Division.  See Note 8
of the Notes 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 of the
Notes 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 of the Notes 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.





25


PART II





ITEM 5.
            MARKET FORTHEREGISTRANT'S COMMON STOCK AND
      RELATED SECURITY HOLDER
MATTERS





American Biltrite Inc.'s Common Stock is
traded on the NYSE Amex (ticker symbol: ABL).  At the close of
business on March 16, 2009, the closing price of ABI's Common Stock was$0.66per share and the approximate number of
record holders was259.High and low sales prices for ABI’s
Common Stock for each quarter over the last two years were:





Sale Prices of Common
      Shares2008
              2007Quarter
    Ended
              High
              Low
              High
              LowMarch 31
              $7.50
              $4.25
              $9.75
              $7.98June 30
              7.65
              4.23
              9.89
              8.07September
30
              5.59
              4.00
              8.82
              5.75December 31
              4.80
              1.38
              7.25
              4.05





No
dividends on the Common Stock were declared during 2008 or 2007.  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.


26


EQUITY
COMPENSATION PLAN INFORMATION





The
following table sets forth information regarding the Company's equity
compensation plans as of December 31, 2008.





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
                    
                    
                    535,500
                    
                    
                    
                    $  8.39
                    
                    
                    
                    347,520Equity
      Compensation Plans Not Approved by Security Holders
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Total
                    
                    
                    535,500
                    
                    
                    
                    8.39
                    
                    
                    
                    347,520(1)





(1)
            Includes
      287,020 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 and further amended on May 6, 2008.  In addition to
      stock options, awards under that plan, 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 under
      that plan.





At
the annual meeting of the Company’s stockholders held on May 6, 2008, the
Company's stockholders approved the American Biltrite Inc. Amended and Restated
1999 Stock Option Plan for Non-Employee Directors, under which non-employee
directors may be granted non-qualified options to purchase shares of Common
Stock.  Prior to this approval, the Company granted such options to
its non-employee directors pursuant to the Company’s 1999 Stock Option Plan for
Non-Employee Directors, as amended, which had not been approved by the Company’s
stockholders.





Congoleum
maintains separate equity compensation plans.


27


ITEM 6.
            SELECTED FINANCIAL
      DATA





Not
applicable.








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





As
noted elsewhere in this Annual Report on Form 10-K, including under “Risk
Factors” in Item 1A and “Liquidity and Capital Resources – ABI and Non-Debtor
Subsidiaries” in this Item 7, the Company is negotiating with its current
lenders to obtain an amendment or waiver to address certain financial covenants
under its existing principal credit agreement which the Company expects it would
not comply with for the period ended March 31, 2009 and subsequent
periods.  The Company is negotiating to obtain alternative financing
to replace that credit agreement, including the term loan and credit facility
included as part of that credit agreement.  The credit facility under
that credit agreement expires on September 30, 2009.  The Company’s
independent registered public accountant has issued an opinion on the Company’s
consolidated financial statements that states that the consolidated financial
statements were prepared assuming the Company will continue as a going concern
and further states that the Company’s need to refinance its credit facility
raises substantial doubt about its ability to continue as a going
concern.  If the Company is unable to obtain such an amendment or
waiver or to obtain alternative financing on satisfactory terms, the Company may
not be able to continue as a going concern.





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





In
addition, raw material and energy costs increased sharply over the past year,
particularly during the first half of 2008, which has negatively impacted the
Company's and Congoleum's businesses and operating results.  Although
raw material and energy costs have recently declined, it is not known whether
raw material and energy prices will remain lower or will revert to increasing
price levels.  In light of the current and forecasted economic
conditions in the United States and the industries in which the Company and
Congoleum conduct business, the Company and Congoleum may be unable to pass
increased raw material and energy costs on to their respective
customers.





28


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





American
Biltrite’s consolidated financial statements include its majority-owned
subsidiary, Congoleum.  However, under the terms of the Amended Joint
Plan, ABI’s ownership interest in
Congoleum would 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 the Joint Plan
was solicited in accordance with court-approved voting
procedures.  Various objections to the Joint Plan were filed, and on
May 12, 2008 the Bankruptcy Court heard oral argument on summary judgment
motions relating to certain of those objections.  On June 6, 2008, the
Bankruptcy Court issued a ruling that the Joint Plan was not legally
confirmable, and issued an Order to Show Cause why the case should not be
converted or dismissed pursuant to 11 U.S.C. § 1112.  Following a
further hearing on June 26, 2008, the Bankruptcy Court issued an opinion that
vacated the Order to Show Cause and instructed the parties to submit a
confirmable plan by the end of calendar year 2008.  Following further
negotiations, the Bondholders’ Committee, the ACC, the FCR, representatives of
holders of pre-petition settlements and Congoleum reached an agreement in
principle which the Company understands that Congoleum believed addressed the
issues raised by the Bankruptcy Court in the ruling on the Joint Plan and in the
court's prior decisions.  A term sheet describing the proposed
material terms of the Amended Joint Plan and the Litigation Settlement was
entered into by those parties and was filed with the Bankruptcy Court on August
14, 2008.  Certain insurers and a large bondholder have filed
objections to the Litigation Settlement and/or reserved their rights to object
to confirmation of the Amended Joint Plan.  The Bankruptcy Court
approved the Litigation Settlement following a hearing on October 20, 2008, but
the court reserved certain issues, including whether any plan of reorganization
embodying the settlement meets the standards required for confirmation of a plan
of


29


reorganization.  On
November 14, 2008, Congoleum, the ACC and the Bondholders’ Committee filed an
amended joint plan of reorganization for Congoleum, et al. with the Bankruptcy
Court (the “Amended Joint Plan”).  In January 2009, an insurer filed a
motion for summary judgment seeking denial of confirmation of the Amended Joint
Plan, and a hearing was held on February 5, 2009.  On February 26,
2009, the Bankruptcy Court rendered an opinion denying confirmation of the
Amended Joint Plan.  Pursuant to the opinion, the Bankruptcy Court
entered the Order of Dismissal dismissing Congoleum’s bankruptcy
case.  On February 27, 2009, Congoleum and the Bondholders’ Committee
appealed the Order of Dismissal to the U.S. District Court for the District of
New Jersey.  On March 3, 2009, an order was entered by the Bankruptcy
Court granting a stay of the Bankruptcy Court’s Order of Dismissal pending a
final non-appealable decision affirming the Order of Dismissal.





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





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





ABI
estimates that it will spend an additional $300 thousand for legal fees in 2009,
which it has accrued, in connection with Congoleum’s reorganization
plan.  Actual costs for pursuing and implementing the Amended 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.





30


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





2008
                        
                        
                        
                        
                        
                        2007(In
      thousands of dollars)Net
      sales
                        
                        $
                        202,449
                        
                        
                        
                        
                        
                        $
                        216,463Cost
      of sales
                        
                        
                        151,814
                        
                        
                        
                        
                        
                        
                        160,034Gross
      profit
                        
                        
                        50,635
                        
                        
                        25.0%
                        
                        
                        
                        56,429
                        
                        
                        26.1%Selling,
      general & administrative expenses
                        
                        
                        53,316
                        
                        
                        26.3%
                        
                        
                        
                        57,820
                        
                        
                        26.7%Impairment
      charges
                        
                        
                        12,899
                        
                        
                        
                        
                        
                        
                        -Loss
      from operations
                        
                        
                        (15,580
                        )
                        
                        
                        
                        
                        
                        (1,391
                        )Interest
      expense, net
                        
                        
                        (1,612
                        )
                        
                        
                        
                        
                        
                        (2,297
                        )Other
      income, net
                        
                        
                        869
                        
                        
                        
                        
                        
                        
                        1,380Loss
      before taxes and other items
                        
                        
                        (16,323
                        )
                        
                        
                        
                        
                        
                        (2,308
                        )Benefit
      from income taxes
                        
                        
                        (677
                        )
                        
                        
                        
                        
                        
                        (1,033
                        )Noncontrolling
      interests
                        
                        
                        157
                        
                        
                        
                        
                        
                        
                        (57
                        )Loss
      from continuing operations
                        
                        $
                        (15,489
                        )
                        
                        
                        
                        
                        $
                        (1,332
                        )





Net
sales for the year ended December 31, 2008 were $202.4 million, a decrease of
$14.0 million from sales of $216.5 million in 2007.  Tape segment
sales decreased $7.8 million or 7.9% due to lower sales volume of transfer
paper, protective films and HVAC products, partly offset by $2.5 million in
selling price increases.  Canadian segment sales increased $0.6
million or 1.0% due to improved industrial product sales.  Jewelry
segment sales decreased $7.7 million or 12.2% due to lower shipments to mass
merchandiser and mid-tier retailers, reflecting the weak retail
environment.





31


Gross
profit was 25.0% of net sales in 2008 compared to 26.1% in 2007.  Tape
segment gross margins declined by 0.9 percentage points of net sales primarily
due to significant inflation on raw materials, particularly during the first
half of 2008, and the impact of lower production volumes, partly offset by price
increases.  Canadian division gross margins improved by 4.5 percentage
points of net sales due to improved margins on industrial products resulting
from price increases, a more profitable sales mix of flooring products, and the
effect of the weaker Canadian dollar relative to the US dollar in the fourth
quarter of 2008.  Jewelry segment margins decreased by 5.9 percentage
points of net sales due to increases in landed costs, higher selling allowances
and higher royalty costs (resulting from more licensed products in the sales
mix).





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, 2008 and 2007 would have been 23.9% and 25.6%, respectively.





Selling,
general and administrative expenses for the year ended December 31, 2008 were
$53.3 million, down from $57.8 million in 2007.  Tape division
selling, general and administrative expenses decreased $0.8 million due to lower
sales related expenses and savings from headcount reductions, partly offset by
severance costs and the impact of currency translation.  Selling,
general and administrative expenses increased $0.6 million at Canadian division
mainly due to higher salaries and travel expenses related to personnel
changes.  Jewelry segment selling, general and administrative expenses
decreased by $1.7 million from 2007 to 2008 primarily due to headcount reduction
programs and other expense cuts.  In addition, corporate expenses not
allocated to operations were significantly lower in 2008 than 2007 due to lower
net provisions for environmental and other contingent liabilities.





During
2008, the Company evaluated the recovery of goodwill and certain other
capitalized intangibles related to the Jewelry segment in light of that
segment’s recent operating performance, the economic environment, and market
value conditions for similar businesses.  Based on that evaluation, a
non-cash impairment charge of $12.0 million was recorded in the fourth quarter
of 2008 which wrote off all goodwill and capitalized intangibles of the
Company.  The Company also evaluated the recovery of its investment in
Hulera Sula in light of Hulera Sula’s operating losses for 2008 and
2007.  A non-cash impairment charge of $850 thousand was recorded to
write off the Company’s investment in Hulera Sula.





Net
interest expense of $1.6 million for 2008 was down $0.7 million as a result of
lower debt levels as well as lower interest rates.





Other
income decreased from $1.4 million in 2007 to $0.9 million in 2008 as a result
of expenses related to certain interest rate swap agreements, including costs to
terminate those agreements in 2008.





32


The
effective tax rates for 2008 and 2007 were 4.1% and 44.8%,
respectively.  The lower 2008 effective tax rate is due primarily to
the increase in valuation allowance against net operating loss carry forwards
and other deferred tax assets, which may not be recovered by ABI in future
periods due to the uncertainty in ABI’s ability to generate sufficient taxable
income.





The
Company incurred a loss of $15.5 million from continuing operations for 2008
compared with a loss of $1.3 million in 2007 as a result of the $12.9 million
non-cash impairment charge in 2008 coupled with weaker operating results at two
of the three divisions.





Congoleum





2008
                    
                    
                    
                    
                    
                    2007(In
      thousands of dollars)Net
      sales
                    
                    $
                    172,644
                    
                    
                    
                    
                    
                    $
                    204,262Cost
      of sales
                    
                    
                    142,032
                    
                    
                    
                    
                    
                    
                    153,809Gross
      profit
                    
                    
                    30,612
                    
                    
                    17.7%
                    
                    
                    
                    50,453
                    
                    
                    24.7%Selling,
      general & administrative expenses
                    
                    
                    35,397
                    
                    
                    20.5%
                    
                    
                    
                    37,469
                    
                    
                    18.3%Asbestos-related
      reorganization expenses
                    
                    
                    11,491
                    
                    
                    
                    
                    
                    
                    41,315Loss
      from operations
                    
                    
                    (16,276
                    )
                    
                    
                    
                    
                    
                    (28,331
                    )Bond
      interest reversal
                    
                    
                    -
                    
                    
                    
                    
                    
                    
                    29,603Interest
      income, net
                    
                    
                    857
                    
                    
                    
                    
                    
                    
                    197Other
      expense, net
                    
                    
                    (970
                    )
                    
                    
                    
                    
                    
                    (447
                    )(Loss)
      income before taxes
                    
                    
                    (16,389
                    )
                    
                    
                    
                    
                    
                    1,022(Benefit
      from) provision for income taxes
                    
                    
                    (1,768
                    )
                    
                    
                    
                    
                    
                    1,713Net
      loss
                    
                    $
                    (14,621
                    )
                    
                    
                    
                    
                    $
                    (691
                    )





Net
sales for the year ended December 31, 2008 totaled $172.6 million as compared to
$204.3 million for the year ended December 31, 2007, a decrease of $31.7 million
or 15.5%.  The decrease in sales resulted primarily from lower sales
to the manufactured housing industry coupled with continued demand weakness in
the new construction and remodeling markets, partially offset by price increases
instituted during 2008 (4.7%).





Gross
profit for the year ended December 31, 2008 totaled $30.6 million, or 17.7% of
net sales, compared to $50.5 million or 24.7% of net sales for the year ended
December 31, 2007.  Sharp increases in raw material costs during the
year (3.7% of net sales), coupled with the negative impact of lower production
volumes over which to spread fixed manufacturing overhead (6.5% of net sales)
accounted for the decline in gross margin dollars and percentage, partially
offset by cost reduction programs implemented during the year.





Selling,
general and administrative expenses were $35.4 million for the year ended
December 31, 2008 as compared to $37.5 million for the year ended December 31,
2007, a decrease of $2.1 million.  The decrease was primarily driven
by lower wages and benefits expense (down $2.0 million), reflecting workforce
reductions instituted in 2008, coupled with reductions in other selling, general
and administrative expenses.





33


Based
on the terms of the Amended Joint Plan, in the third quarter of 2008 Congoleum
recorded an additional $11.5 million provision for estimated costs for the
reorganization proceedings.  In the fourth quarter of 2007 Congoleum
recorded an additional $41.3 million charge.  Of this charge, $14.9
million related to the write-off of certain insurance litigation costs
receivable that would not have been collected under the terms of the Amended
Joint Plan and $26.4 million was an additional provision for estimated costs for
the reorganization proceedings and the Coverage Action.





Loss
from operations, excluding the special charges above, was $4.8 million for the
year ended December 31, 2008 compared to operating income of $12.9 million for
the year ended December 31, 2007, a decrease of $17.7 million.  This
change in operating income was a result of lower sales, coupled with the
unfavorable impact of raw material costs and lower production volumes on gross
profit, partially offset by lower operating expenses.





Interest
income was $1.3 million and $1.2 million in 2008 and 2007, respectively. 
Interest expense, excluding interest on the Senior Notes, for 2008, was $0.4
million as compared to interest expense of $1.0 million for
2007.  Bond interest reversal on the Senior Notes in 2007 was $29.6
million.





Benefit
for income taxes was $1.8 million in 2008 and a provision of $1.7 million in
2007, reflecting an increase in non-deductible expenses for tax purposes in
2007.





Liquidity
and Capital Resources – ABI and Non-Debtor Subsidiaries





Cash
and cash equivalents, including short term investments, decreased by $863
thousand to $3.0 million at December 31, 2008 as compared to December 31,
2007.  Total debt at December 31, 2008 was $25.5 million, down $3.4
million from December 31, 2007.  Working capital at December 31, 2008
was $24.8 million, compared with $32.5 million at December 31,
2007.  The ratio of current assets to current liabilities at December
31, 2008 was 1.51 compared to 1.64 at December 31, 2007. The decreases in
working capital and ratio of current assets to current liabilities is due in
part to the classification of ABI’s Term Loan ($5.5 million) entirely as a
current liability as of December 31, 2008. See below for further discussion of
the Company’s financing.





Net
cash used by operating activities of continuing operations for the year ended
December 31, 2008 was $1.6 million compared with cash provided of $6.7 million
for the year ended December 31, 2007.  This decrease was primarily due
to a $3.6 million increase in inventory during 2008 compared with a decrease in
inventory of $5.9 million in 2007, as well as more cash used to settle payables
and accrued liabilities in 2008 versus 2007, partly offset by reductions in
accounts receivable levels.





Capital
expenditures for 2008 were $1.5 million compared to $1.7 million for
2007.





34


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.





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.





35


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 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.





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.





36


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
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





37


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.





The
Company does not anticipate it will meet the covenant with respect to the ratio
of Consolidated Adjusted EBITDA to Consolidated Fixed Charges for the period
ended March 31, 2009 and subsequent periods.  As a result, the Company
is currently negotiating with its lenders to amend the Credit Agreement to
address, or obtain a waiver for, any such breaches.  The credit
facility under the Credit Agreement expires September 30, 2009 and will have to
be extended, refinanced or replaced by that expiration date or any earlier time
required by any waiver or amendment the Company may obtain or enter into to
address the expected covenant breaches under the Credit
Agreement.  Although the Company currently anticipates that it will be
able to obtain a waiver or enter an amendment to address these matters, there
can be no assurances that the Company will be successful in this
regard.  Further, any waiver or amendment the Company may obtain is
expected to be limited in scope and duration such that the Company would likely
need to obtain further amendments or waivers in the future or obtain alternative
financing. Based on the Company’s anticipated covenant breaches, the Company has
classified the entire outstanding balance of the Term Loan ($5.5 million) as a
current liability at December 31, 2008.





The
Company is also currently negotiating for alternative financing to replace the
Credit Agreement, including the Term Loan and the Revolver. The Company believes
it will be successful in obtaining alternative financing during the second
quarter of 2009, and that the replacement facility contemplated would provide
the Company with sufficient financing on commercially reasonable terms for an
extended period of time. It is possible, however, that the Company may not be
successful in obtaining the alternative financing it is currently seeking and it
may not be able to obtain financing from other alternative sources or under a
different arrangement with its existing lenders.  Failure to obtain
adequate financing on commercially reasonable terms would have a material
adverse effect on the Company's business, results of operations and financial
condition.





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





38


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





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





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 elsewhere in this Annual Report on Form 10-K, including
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 liquidity and capital resources.  During
2008, Congoleum paid $15.9 million in fees and expenses related to
reorganization proceedings under the Bankruptcy Code and the New Jersey state
court insurance coverage action Congoleum is litigating against certain of its
insurers (the “Coverage Action”).  Furthermore, at December 31, 2008,
Congoleum had incurred but not paid approximately $7.4 million in additional
fees and expenses for services rendered through that date.





39


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





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





Unrestricted
cash and cash equivalents, including short-term investments at December 31,
2008, were $15.1 million, a decrease of $11.3 million from December 31,
2007.  Under the terms of its revolving credit agreement, payments on
Congoleum’s accounts receivable are deposited in an account assigned by
Congoleum to its lender and the funds in that account are used by the lender to
pay down any loan balance.  There were no funds deposited in this
account at December 31, 2008 and December 31, 2007.  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, 2008.  In the second quarter of 2008
Congoleum received an additional $22.7 million from other insurance carriers
which is also included in restricted cash.  Congoleum expects to
contribute these funds, less any amounts withheld pursuant to reimbursement
arrangements, to the plan trust that would be established upon effectiveness of
the plan of reorganization should the Bankruptcy Court confirm such a plan
pursuant to section 524(g) of the Bankruptcy Code (the “Plan
Trust”).  Net working capital was a negative $1.6 million at December
31, 2008, down from $9.4 million at December 31, 2007.  The ratio of
current assets to current liabilities was 1.0 to 1.0 at December 31, 2008 and
1.1 to 1.0 at December 31, 2007.  Net cash used in operations during
for the year ended December 31, 2008 was $10.1 million, as compared to net cash
provided by operations of $11.3 million during the year ended December 31,
2007.


40


Capital
expenditures in 2008 totaled $4.6 million.  Congoleum is currently
planning capital expenditures of approximately $3.5 million in 2009 and between
$3.0 million and $5.0 million in 2010, primarily for maintenance and improvement
of plants and equipment, which Congoleum expects to fund with cash from
operations and credit facilities.





In
January 2004, the Bankruptcy Court authorized entry of a final order approving
Congoleum’s debtor-in-possession financing, which replaced its pre-petition
credit facility on substantially similar terms. The debtor-in-possession
financing agreement (as amended and approved by the Bankruptcy Court to date)
provides a revolving credit facility expiring on the earlier of (i) June 30,
2009 and (ii) the date the plan of reorganization in Congoleum's bankruptcy
cases as confirmed by the Bankruptcy Court becomes effective.  Total
borrowing under the facility may not exceed $30.0 million.  Interest
is based on 0.25% above the prime rate.  This financing agreement
contains certain covenants, which include the maintenance of minimum earnings
before interest, taxes, depreciation and amortization (“EBITDA”).  In
connection with the amendment and extension of the agreement during 2008, the
minimum level of EBITDA that Congoleum must maintain was reduced for quarters
ending after June 30, 2008.  Congoleum paid a fee of $25 thousand for
such amendment, plus an amendment fee in the amount of $15 thousand per
month.  The financing agreement also includes restrictions on the
incurrence of additional debt and limitations on capital expenditures. The
covenants and conditions under this financing agreement must be met in order for
Congoleum to borrow from the facility. Congoleum was not in compliance with the
minimum EBITDA covenant under its credit facility for the period ended December
31, 2008, and obtained a waiver of that covenant as well as an amendment of the
covenant levels for the remaining term of the facility to make them less
restrictive.  The interest rate was increased to 1.75% above the prime
rate.  A fee of $30 thousand was paid in connection with the waiver
and amendment.  Borrowings under this facility are collateralized by
inventory and receivables.  At December 31, 2008, based on the level
of receivables and inventory, $17.4 million was available under the facility, of
which $2.0 million was utilized for outstanding letters of credit and $14.0
million was utilized by the revolving loan.  Congoleum anticipates
that its debtor-in-possession financing facility (including anticipated
extensions beyond June 30, 2009) together with cash from operations will provide
it with sufficient liquidity to operate during 2009 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 exit financing.  Congoleum cannot
presently determine the terms of such financing, nor can there be any assurances
of its success obtaining it.





In
addition to the provision for asbestos litigation discussed previously,
Congoleum has also recorded what it believes are adequate provisions for
environmental remediation and product-related liabilities (other than
asbestos-related claims), including provisions for testing for potential
remediation of conditions at its own facilities. Congoleum is subject to
federal, state and local environmental laws and regulations and certain legal
and administrative claims are pending or have been asserted against
Congoleum.  Among these claims, Congoleum is a named party in several
actions associated with waste disposal sites (more fully discussed in Note 8 to
the Consolidated Financial Statements contained in Item 8 of this Annual Report
on Form 10-K). These actions include possible obligations to remove or mitigate
the effects on the environment of wastes deposited at various sites, including
Superfund sites and certain of Congoleum’s


41


owned
and previously owned facilities.  The contingencies also include
claims for personal injury and/or property damage.  The exact amount
of such future cost and timing of payments are indeterminable due to such
unknown factors as the magnitude of cleanup costs, the timing and extent of the
remedial actions that may be required, the determination of Congoleum’s
liability in proportion to other potentially responsible parties, and the extent
to which costs may be recoverable from insurance.  Congoleum has
recorded provisions in its financial statements for the estimated probable loss
associated with all known general and environmental contingencies. While
Congoleum believes its estimate of the future amount of these liabilities is
reasonable, and that they will be paid over a period of five to ten years, the
timing and amount of such payments may differ significantly from Congoleum’s
assumptions.  Although the effect of future government regulation
could have a significant effect on Congoleum’s costs, Congoleum is not aware of
any pending legislation which would reasonably have such an
effect.  There can be no assurances that the costs of any future
government regulations could be passed along to its
customers.  Estimated insurance recoveries related to these
liabilities are reflected in other non-current assets.





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





Congoleum's
principal sources of capital are net cash provided by operating activities and
borrowings under its financing agreement. Congoleum believes that its existing
cash (including restricted cash), cash generated from operations, and
debtor-in-possession credit arrangements should be sufficient to provide
adequate working capital for operations during 2009.  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.





As
noted elsewhere in this Annual Report on Form 10-K, the Bankruptcy Court has
issued an Order of Dismissal and the appeal of that order that is currently
being pursued may not be successful.  There can be no assurance that
Congoleum’s bankruptcy case will not be dismissed or converted or that a plan of
reorganization for Congoleum will be approved, confirmed and become effective on
terms consistent with the Amended Joint Plan or otherwise.





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.





42


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 of the Notes 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.  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 percentage point increase in the Company’s acceptance rate of mesothelioma
claims results in a 21% increase in mesothelioma liability assuming all other
variables remained constant.





43


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 2008, Congoleum paid $15.9
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 Amended 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.





In
anticipation of Congoleum's commencement of the Chapter 11 cases, Congoleum
entered into a 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 may be asserted in connection with solicitation of acceptances of any
future 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 believes it has insufficient/limited
financial resources to litigate and/or settle asbestos claims in the ordinary
course of business.





44


While
Congoleum has provided for the anticipated costs to effect the Amended Joint
Plan, costs for pursuing and implementing the Amended 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.  Upon
effectiveness of any plan of reorganization for Congoleum, ABI expects that the
plan will provide that ABI’s 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.





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.





45


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.





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 2008 and 2007, 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, 2008, the Company determined this rate to be
5.75% - 7.50%.





46


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.


47


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 Biltrite2008
                
                
                2007
                
                
                2008
                
                
                2007
                
                
                2008
                
                
                2007
                
                
                2008
                
                
                2007AssetsCurrent
      assets:Cash
      and cash equivalents
                
                $
                18,072
                
                
                $
                30,185
                
                
                
                
                
                
                
                
                $
                15,077
                
                
                $
                26,327
                
                
                $
                2,995
                
                
                $
                3,858Restricted
      cash
                
                
                29,680
                
                
                
                6,501
                
                
                
                
                
                
                
                
                
                29,680
                
                
                
                6,501Accounts
      and notes receivable, less allowances for doubtful accounts and discounts
      of $2,720 in 2008 and $2,917 in 2007
                
                
                36,627
                
                
                
                41,345
                
                
                $
                (367
                )
                
                $
                (316
                )
                
                
                13,789
                
                
                
                14,162
                
                
                
                23,205
                
                
                
                27,499Inventories
                
                
                79,082
                
                
                
                78,401
                
                
                
                (89
                )
                
                
                (125
                )
                
                
                35,814
                
                
                
                35,182
                
                
                
                43,357
                
                
                
                43,344Taxes
      receivable
                
                
                1,334
                
                
                
                468
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                1,334
                
                
                
                468Deferred
      income taxes
                
                
                -
                
                
                
                961
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                -
                
                
                
                961Prepaid
      expenses & other current assets
                
                
                6,406
                
                
                
                20,001
                
                
                
                
                
                
                
                
                
                
                
                3,922
                
                
                
                13,138
                
                
                
                2,484
                
                
                
                6,863Total
      current assets
                
                
                171,201
                
                
                
                177,862
                
                
                
                (456
                )
                
                
                (441
                )
                
                
                98,282
                
                
                
                95,310
                
                
                
                73,375
                
                
                
                82,993Property,
      plant & equipment, net
                
                
                88,466
                
                
                
                99,153
                
                
                
                
                
                
                
                
                
                
                
                56,520
                
                
                
                61,993
                
                
                
                31,946
                
                
                
                37,160Other
      assets:Insurance
      for asbestos-related liabilities
                
                
                13,509
                
                
                
                11,140
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                13,509
                
                
                
                11,140Goodwill,
      net
                
                
                –
                
                
                
                11,605
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                –
                
                
                
                11,605Other
      assets
                
                
                21,825
                
                
                
                22,507
                
                
                
                (117
                )
                
                
                (126
                )
                
                
                17,065
                
                
                
                15,402
                
                
                
                4,877
                
                
                
                7,23135,334
                
                
                
                45,252
                
                
                
                (117
                )
                
                
                (126
                )
                
                
                17,065
                
                
                
                15,402
                
                
                
                18,386
                
                
                
                29,976Total
      assets
                
                $
                295,001
                
                
                $
                322,267
                
                
                $
                (573
                )
                
                $
                (567
                )
                
                $
                171,867
                
                
                $
                172,705
                
                
                $
                123,707
                
                
                $
                150,129





See
accompanying notes.


48


American
Biltrite Inc. and Subsidiaries





Consolidated
Balance Sheets with Consolidating Details – Liabilities and Stockholders’ Equity
(Deficit)


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





December
      31
                          
                          
                          Eliminations
                          
                          
                          Congoleum
                          
                          
                          American Biltrite2008
                          
                          
                          2007
                          
                          
                          2008
                          
                          
                          2007
                          
                          
                          2008
                          
                          
                          2007
                          
                          
                          2008
                          
                          
                          2007LiabilitiesCurrent
      liabilities:Accounts
      payable
                          
                          $
                          16,298
                          
                          
                          $
                          22,570
                          
                          
                          $
                          (366
                          )
                          
                          $
                          (316
                          )
                          
                          $
                          7,472
                          
                          
                          $
                          10,715
                          
                          
                          $
                          9,192
                          
                          
                          $
                          12,171Accrued
      expenses
                          
                          
                          31,880
                          
                          
                          
                          36,913
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          16,897
                          
                          
                          
                          20,742
                          
                          
                          
                          14,983
                          
                          
                          
                          16,171Asbestos-related
      liabilities
                          
                          
                          50,022
                          
                          
                          
                          31,207
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          50,022
                          
                          
                          
                          31,207Deferred
      income taxes
                          
                          
                          6,533
                          
                          
                          
                          7,725
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          6,533
                          
                          
                          
                          7,725Notes
      payable
                          
                          
                          32,747
                          
                          
                          
                          30,309
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          13,994
                          
                          
                          
                          10,551
                          
                          
                          
                          18,753
                          
                          
                          
                          19,758Current
      portion of long-term debt
                          
                          
                          5,611
                          
                          
                          
                          2,376
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          5,611
                          
                          
                          
                          2,376Liabilities
      subject to compromise
                          
                          
                          4,997
                          
                          
                          
                          4,997
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          4,997
                          
                          
                          
                          4,997Total
      current liabilities
                          
                          
                          148,088
                          
                          
                          
                          136,097
                          
                          
                          
                          (366
                          )
                          
                          
                          (316
                          )
                          
                          
                          99,915
                          
                          
                          
                          85,937
                          
                          
                          
                          48,539
                          
                          
                          
                          50,476Long-term
      debt, less current portion
                          
                          
                          1,112
                          
                          
                          
                          6,725
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          1,112
                          
                          
                          
                          6,725Asbestos-related
      liabilities
                          
                          
                          13,563
                          
                          
                          
                          12,600
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          13,563
                          
                          
                          
                          12,600Other
      liabilities
                          
                          
                          16,801
                          
                          
                          
                          12,785
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          16,801
                          
                          
                          
                          12,785Noncontrolling
      interests
                          
                          
                          835
                          
                          
                          
                          1,093
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          835
                          
                          
                          
                          1,093Liabilities
      subject to compromise
                          
                          
                          161,386
                          
                          
                          
                          133,098
                          
                          
                          
                          (117
                          )
                          
                          
                          (126
                          )
                          
                          
                          161,503
                          
                          
                          
                          133,224Total
      liabilities
                          
                          
                          341,785
                          
                          
                          
                          302,398
                          
                          
                          
                          (483
                          )
                          
                          
                          (442
                          )
                          
                          
                          261,418
                          
                          
                          
                          219,161
                          
                          
                          
                          80,850
                          
                          
                          
                          83,679Stockholders’
      equity (deficit)Common
      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
                          
                          
                          19,749
                          
                          
                          
                          19,607
                          
                          
                          
                          (49,386
                          )
                          
                          
                          (49,368
                          )
                          
                          
                          49,386
                          
                          
                          
                          49,368
                          
                          
                          
                          19,749
                          
                          
                          
                          19,607Retained
      earnings (deficit)
                          
                          
                          1,803
                          
                          
                          
                          30,835
                          
                          
                          
                          35,466
                          
                          
                          
                          35,413
                          
                          
                          
                          (80,038
                          )
                          
                          
                          (65,417
                          )
                          
                          
                          46,375
                          
                          
                          
                          60,839Accumulated
      other comprehensive loss
                          
                          
                          (53,250
                          )
                          
                          
                          (15,487
                          )
                          
                          
                          6,110
                          
                          
                          
                          6,110
                          
                          
                          
                          (51,179
                          )
                          
                          
                          (22,687
                          )
                          
                          
                          (8,181
                          )
                          
                          
                          1,090Less
      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 (deficit)
                          
                          
                          (46,784
                          )
                          
                          
                          19,869
                          
                          
                          
                          (90
                          )
                          
                          
                          (125
                          )
                          
                          
                          (89,551
                          )
                          
                          
                          (46,456
                          )
                          
                          
                          42,857
                          
                          
                          
                          66,450Total
      liabilities and stockholders’ equity (deficit)
                          
                          $
                          295,001
                          
                          
                          $
                          322,267
                          
                          
                          $
                          (573
                          )
                          
                          $
                          (567
                          )
                          
                          $
                          171,867
                          
                          
                          $
                          172,705
                          
                          
                          $
                          123,707
                          
                          
                          $
                          150,129





See
accompanying notes.


49


American
Biltrite Inc. and Subsidiaries





Consolidated
Statements of Operations with Consolidating Details


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





Years Ended December 31
                  
                  
                  Eliminations
                  
                  
                  Congoleum
                  
                  
                  American
      Biltrite2008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007Net
      sales
                  
                  $
                  375,093
                  
                  
                  $
                  420,725
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  172,644
                  
                  
                  $
                  204,262
                  
                  
                  $
                  202,449
                  
                  
                  $
                  216,463Cost
      of products sold
                  
                  
                  292,501
                  
                  
                  
                  312,814
                  
                  
                  $
                  (1,345
                  )
                  
                  $
                  (1,029
                  )
                  
                  
                  142,032
                  
                  
                  
                  153,809
                  
                  
                  
                  151,814
                  
                  
                  
                  160,034Selling,
      general & administrative expenses
                  
                  
                  88,713
                  
                  
                  
                  95,289
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  35,397
                  
                  
                  
                  37,469
                  
                  
                  
                  53,316
                  
                  
                  
                  57,820Impairment
      charges
                  
                  
                  12,899
                  
                  
                  
                  -
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  12,899
                  
                  
                  
                  -Asbestos-related
      reorganization charges
                  
                  
                  11,491
                  
                  
                  
                  41,315
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  11,491
                  
                  
                  
                  41,315Loss
      from operations
                  
                  
                  (30,511
                  )
                  
                  
                  (28,693
                  )
                  
                  
                  1,345
                  
                  
                  
                  1,029
                  
                  
                  
                  (16,276
                  )
                  
                  
                  (28,331
                  )
                  
                  
                  (15,580
                  )
                  
                  
                  (1,391
                  )Other
      income (expense)Interest
      income
                  
                  
                  1,317
                  
                  
                  
                  1,338
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  1,261
                  
                  
                  
                  1,224
                  
                  
                  
                  56
                  
                  
                  
                  114Bond
      interest reversal
                  
                  
                  -
                  
                  
                  
                  29,603
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  -
                  
                  
                  
                  29,603Other
      interest expense
                  
                  
                  (2,072
                  )
                  
                  
                  (3,438
                  )
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (404
                  )
                  
                  
                  (1,027
                  )
                  
                  
                  (1,668
                  )
                  
                  
                  (2,411
                  )Other
      (expense) income, net
                  
                  
                  (1,411
                  )
                  
                  
                  (78
                  )
                  
                  
                  (1,310
                  )
                  
                  
                  (1,011
                  )
                  
                  
                  (970
                  )
                  
                  
                  (447
                  )
                  
                  
                  869
                  
                  
                  
                  1,380(2,166
                  )
                  
                  
                  27,425
                  
                  
                  
                  (1,310
                  )
                  
                  
                  (1,011
                  )
                  
                  
                  (113
                  )
                  
                  
                  29,353
                  
                  
                  
                  (743
                  )
                  
                  
                  (917
                  )(Loss)
      income before taxes and other items
                  
                  
                  (32,677
                  )
                  
                  
                  (1,268
                  )
                  
                  
                  35
                  
                  
                  
                  18
                  
                  
                  
                  (16,389
                  )
                  
                  
                  1,022
                  
                  
                  
                  (16,323
                  )
                  
                  
                  (2,308
                  )(Benefit
      from) provision for income taxes
                  
                  
                  (2,445
                  )
                  
                  
                  680
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (1,768
                  )
                  
                  
                  1,713
                  
                  
                  
                  (677
                  )
                  
                  
                  (1,033
                  )Noncontrolling
      interests
                  
                  
                  157
                  
                  
                  
                  (57
                  )
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  157
                  
                  
                  
                  (57
                  )Net
      loss from continuing operations
                  
                  
                  (30,075
                  )
                  
                  
                  (2,005
                  )
                  
                  
                  35
                  
                  
                  
                  18
                  
                  
                  
                  (14,621
                  )
                  
                  
                  (691
                  )
                  
                  
                  (15,489
                  )
                  
                  
                  (1,332
                  )Discontinued
      operation
                  
                  
                  1,025
                  
                  
                  
                  -
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  1,025
                  
                  
                  
                  -Net
      loss
                  
                  $
                  (29,050
                  )
                  
                  $
                  (2,005
                  )
                  
                  $
                  35
                  
                  
                  $
                  18
                  
                  
                  $
                  (14,621
                  )
                  
                  $
                  (691
                  )
                  
                  $
                  (14,464
                  )
                  
                  $
                  (1,332
                  )





2008
                                                                              
                                                                              
                                                                              2007Net
      loss per common share, basic and diluted:Continuing
      operations
                                                                              
                                                                              $
                                                                              (8.74
                                                                              )
                                                                              
                                                                              $
                                                                              (0.58
                                                                              )Discontinued
      operation
                                                                              
                                                                              
                                                                              0.30
                                                                              
                                                                              
                                                                              
                                                                              -Net
      loss per common share
                                                                              
                                                                              $
                                                                              (8.44
                                                                              )
                                                                              
                                                                              $
                                                                              (0.58
                                                                              )Weighted
      average number of common and equivalent shares
    outstanding
                                                                              
                                                                              
                                                                              3,441,551
                                                                              
                                                                              
                                                                              
                                                                              3,441,551





See
accompanying notes.


50


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
      Biltrite2008
                        
                        
                        2007
                        
                        
                        2008
                        
                        
                        2007
                        
                        
                        2008
                        
                        
                        2007
                        
                        
                        2008
                        
                        
                        2007Operating
      activitiesNet
      loss
                        
                        $
                        (29,050
                        )
                        
                        $
                        (2,005
                        )
                        
                        $
                        35
                        
                        
                        $
                        18
                        
                        
                        $
                        (14,621
                        )
                        
                        $
                        (691
                        )
                        
                        $
                        (14,464
                        )
                        
                        $
                        (1,332
                        )Net
      income from discontinued operation
                        
                        
                        (1,025
                        )
                        
                        
                        -
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (1,025
                        )
                        
                        
                        -Net
      loss from continuing operations
                        
                        
                        (30,075
                        )
                        
                        
                        (2,005
                        )
                        
                        
                        35
                        
                        
                        
                        18
                        
                        
                        
                        (14,621
                        )
                        
                        
                        (691
                        )
                        
                        
                        (15,489
                        )
                        
                        
                        (1,332
                        )Adjustments
      to reconcile net loss to net cash (used) provided by operating
      activities:Depreciation
      and amortization
                        
                        
                        15,138
                        
                        
                        
                        16,185
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        10,238
                        
                        
                        
                        10,690
                        
                        
                        
                        4,900
                        
                        
                        
                        5,495Provision
      for doubtful accounts and discounts
                        
                        
                        3,802
                        
                        
                        
                        2,826
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        3,802
                        
                        
                        
                        2,826Deferred
      income taxes
                        
                        
                        (1,969
                        )
                        
                        
                        (1,576
                        )
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (1,721
                        )
                        
                        
                        325
                        
                        
                        
                        (248
                        )
                        
                        
                        (1,901
                        )Asbestos-related
      charge
                        
                        
                        11,491
                        
                        
                        
                        41,315
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        11,491
                        
                        
                        
                        41,315Bond
      interest (reversal) expense
                        
                        
                        -
                        
                        
                        
                        (29,603
                        )
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        -
                        
                        
                        
                        (29,603
                        )Impairment
      charges
                        
                        
                        12,899
                        
                        
                        
                        -
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        12,899
                        
                        
                        
                        -Stock
      compensation charge
                        
                        
                        160
                        
                        
                        
                        35
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        18
                        
                        
                        
                        19
                        
                        
                        
                        142
                        
                        
                        
                        16Change
      in operating assets and liabilities:Accounts
      and notes receivable
                        
                        
                        (80
                        )
                        
                        
                        (2,068
                        )
                        
                        
                        41
                        
                        
                        
                        216
                        
                        
                        
                        373
                        
                        
                        
                        3,436
                        
                        
                        
                        (494
                        )
                        
                        
                        (5,720
                        )Inventories
                        
                        
                        (4,241
                        )
                        
                        
                        4,876
                        
                        
                        
                        (35
                        )
                        
                        
                        (18
                        )
                        
                        
                        (632
                        )
                        
                        
                        (962
                        )
                        
                        
                        (3,574
                        )
                        
                        
                        5,856Prepaid
      expenses & other current assets
                        
                        
                        202
                        
                        
                        
                        2,113
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        48
                        
                        
                        
                        1,965
                        
                        
                        
                        154
                        
                        
                        
                        148Proceeds
      from legal fees disgorgement
                        
                        
                        9,168
                        
                        
                        
                        -
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        9,168
                        
                        
                        
                        -Accounts
      payable and accrued expenses
                        
                        
                        (9,752
                        )
                        
                        
                        (1,359
                        )
                        
                        
                        (41
                        )
                        
                        
                        (216
                        )
                        
                        
                        (7,115
                        )
                        
                        
                        (1,097
                        )
                        
                        
                        (2,596
                        )
                        
                        
                        (46
                        )Asbestos-related
      expenses
                        
                        
                        (15,895
                        )
                        
                        
                        (13,048
                        )
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (15,895
                        )
                        
                        
                        (13,048
                        )Asbestos-related
      reimbursement from insurance settlement
                        
                        
                        -
                        
                        
                        
                        1,498
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        -
                        
                        
                        
                        1,498Noncontrolling
      interests
                        
                        
                        (258
                        )
                        
                        
                        6
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (258
                        )
                        
                        
                        6Other
                        
                        
                        (2,331
                        )
                        
                        
                        (1,226
                        )
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (1,494
                        )
                        
                        
                        (2,561
                        )
                        
                        
                        (837
                        )
                        
                        
                        1,335Net
      cash (used) provided by operating activities
                        
                        $
                        (11,741
                        )
                        
                        $
                        17,969
                        
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        (10,142
                        )
                        
                        $
                        11,286
                        
                        
                        $
                        (1,599
                        )
                        
                        $
                        6,683


See
accompanying notes.


51


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
      Biltrite2008
                  
                  
                  2007
                  
                  2008
                  2007
                  
                  2008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007Investing
      activitiesInvestments
      in property, plant and equipment
                  
                  $
                  (6,111
                  )
                  
                  $
                  (6,219
                  )
                  
                  
                  
                  $
                  (4,591
                  )
                  
                  $
                  (4,541
                  )
                  
                  $
                  (1,520
                  )
                  
                  $
                  (1,678
                  )Net
      cash used by investing activities
                  
                  
                  (6,111
                  )
                  
                  
                  (6,219
                  )
                  
                  
                  
                  
                  (4,591
                  )
                  
                  
                  (4,541
                  )
                  
                  
                  (1,520
                  )
                  
                  
                  (1,678
                  )Financing
      activitiesNet
      short-term borrowings (payments)
                  
                  
                  3,387
                  
                  
                  
                  (2,393
                  )
                  
                  
                  
                  
                  3,443
                  
                  
                  
                  (2,164
                  )
                  
                  
                  (56
                  )
                  
                  
                  (229
                  )Payments
      on long-term debt
                  
                  
                  (2,378
                  )
                  
                  
                  (2,301
                  )
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (2,378
                  )
                  
                  
                  (2,301
                  )Net
      change in restricted cash
                  
                  
                  40
                  
                  
                  
                  3,155
                  
                  
                  
                  
                  
                  40
                  
                  
                  
                  3,155Janus
      note receivable
                  
                  
                  4,034
                  
                  
                  
                  -
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  4,034
                  
                  
                  
                  -Net
      cash provided (used) by financing activities
                  
                  
                  5,083
                  
                  
                  
                  (1,539
                  )
                  
                  
                  
                  
                  3,483
                  
                  
                  
                  991
                  
                  
                  
                  1,600
                  
                  
                  
                  (2,530
                  )Effect
      of foreign exchange rate changes on cash
                  
                  
                  656
                  
                  
                  
                  (1,206
                  )
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  656
                  
                  
                  
                  (1,206
                  )Net
      (decrease) increase in cash
                  
                  
                  (12,113
                  )
                  
                  
                  9,005
                  
                  
                  
                  
                  
                  (11,250
                  )
                  
                  
                  7,736
                  
                  
                  
                  (863
                  )
                  
                  
                  1,269Cash
      and cash equivalents at beginning of year
                  
                  
                  30,185
                  
                  
                  
                  21,180
                  
                  
                  
                  
                  
                  26,327
                  
                  
                  
                  18,591
                  
                  
                  
                  3,858
                  
                  
                  
                  2,589Cash
      and cash equivalents at end of year
                  
                  $
                  18,072
                  
                  
                  $
                  30,185
                  
                  
                  
                  
                  $
                  15,077
                  
                  
                  $
                  26,327
                  
                  
                  $
                  2,995
                  
                  
                  $
                  3,858





See
accompanying notes.


52


American
Biltrite Inc. and Subsidiaries





Consolidated
Statements of Stockholders’ Equity (Deficit)


(In
thousands of dollars)











Common
                                Stock
                              
                              
                              Additional
                                Paid-in
                                Capital
                              
                              
                              Retained
                                Earnings
                              
                              
                              Accumulated
                                Other
                                Comprehensive
                                Loss
                              
                              
                              Treasury
                                Stock
                              
                              
                              Total
                                Stockholders’
                                Equity
                                (Deficit)Balance
      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
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              3,158
                              
                              
                              
                              
                              
                              
                              
                              3,158Defined
      benefit plans adjustment, net of tax of $99
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              646
                              
                              
                              
                              
                              
                              
                              
                              646Total
      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
                              )
                              
                              
                              19,869Comprehensive
      incomeNet
      loss for 2008
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              (29,050
                              )
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              (29,050
                              )Foreign
      currency translation adjustments
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              (4,040
                              )
                              
                              
                              
                              
                              
                              
                              (4,040
                              )Defined
      benefit plans adjustment, net of tax of $155
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              (33,723
                              )
                              
                              
                              
                              
                              
                              
                              (33,723
                              )Total
      comprehensive loss
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              (66,813
                              )Stock
      compensation
                              
                              
                              
                              
                              
                              
                              142
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              142Effect
      of Congoleum stock compensation
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              18
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              18Balance
      at December 31, 2008
                              
                              $
                              46
                              
                              
                              $
                              19,749
                              
                              
                              $
                              1,803
                              
                              
                              $
                              (53,250
                              )
                              
                              $
                              (15,132
                              )
                              
                              $
                              (46,784
                              )





See
accompanying notes.











53


American Biltrite Inc. and
Subsidiaries





Notes to Consolidated Financial
Statements





December 31, 2008








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 $89.6 million in excess of the value of ABI’s
investment in Congoleum at December 31, 2008.  ABI owns a majority of
the voting stock of Congoleum, and expects to continue doing so until
Congoleum’s reorganization proceedings are concluded.  Upon
effectiveness of any plan of reorganization for Congoleum, ABI expects that the
plan will provide that ABI’s 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.


54


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, 2008 and 2007, the
Company had two customers that accounted for 29% and 32% of net sales,
respectively.  At December 31, 2008 and 2007, one customer accounted
for 17% and 14% 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.





55


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, 2008 and 2007, none of Congoleum’s
cash was restricted under its financing agreement.  Additionally,
Congoleum’s restricted cash includes certain insurance settlements to be paid to
the Plan Trust under the terms of Congoleum’s reorganization
plan.  Restricted cash at December 31, 2008 and 2007 represented the
settlement amounts and interest earned.





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.


56


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, 2008
and 2007 amounted to $79 thousand and $282 thousand, respectively, net of
accumulated amortization of $3.5 million and $3.3 million, respectively, and are
included in other noncurrent assets.





Derivative
Instruments





During
2006, in connection with its debt refinancing (see Note 5), 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 were 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 were recognized in Other income (expense) on the consolidated
statement of operations in accordance with SFAS 133.  As of December
31, 2007, the fair value of the swap agreements was a loss of $327
thousand.  On December 30, 2008, the Company early terminated the swap
agreements and paid $542 thousand.  For 2008, the Company recognized
expense of $215 thousand for the further devaluation and termination of the swap
agreements.





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.





57


American
Biltrite Inc. and Subsidiaries





Notes
to Consolidated Financial Statements (continued)








1.  Significant Accounting
Policies (continued)





Goodwill
at December 31, 2007 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 $305 thousand was recorded for this
acquisition.





During
2008, the Company evaluated the recovery of goodwill and certain other
capitalized intangibles related to the Jewelry segment in light of that
segment’s recent operating performance, the economic environment, and market
value conditions for similar businesses.  Based on that evaluation, a
non-cash impairment charge of $12.0 million was recorded in the fourth quarter
of 2008, which wrote off all goodwill ($11.6 million) and capitalized
intangibles ($444 thousand) of the Company.





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.  The Company evaluated the recoverability of
its other long-lived assets and determined they were not impaired.





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):





2008
                  
                  
                  2007Beginning
      balance
                  
                  $
                  2,369
                  
                  
                  $
                  2,940Accruals
                  
                  
                  5,040
                  
                  
                  
                  4,031Charges
                  
                  
                  (4,998
                  )
                  
                  
                  (4,602
                  )Ending
      balance
                  
                  $
                  2,411
                  
                  
                  $
                  2,369





58


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.  The Company
does not include legal defense costs in its estimates of future costs and
related insurance recoveries to settle asbestos litigation.





59


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.  As noted in Note 9, the United States Bankruptcy
Court for the District of New Jersey (the “Bankruptcy Court”) has issued an
order dismissing Congoleum’s bankruptcy 11 case (the “Order of Dismissal”) and
that order is being appealed.  The Bankruptcy Court has issued a stay
of the Order of Dismissal pending a final non-appealable decision affirming the
Order of Dismissal.  There can be no assurance that Congoleum’s
bankruptcy case will not be dismissed or converted or that a plan of
reorganization for Congoleum will be approved, confirmed and become effective on
terms consistent with the most recent amended joint plan of reorganization for
Congoleum filed with the Bankruptcy Court or otherwise.





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 $2.4 million and $2.6 million for 2008 and 2007,
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, 2008 and 2007 were $6.3 million
and $7.2 million, respectively.  Purchasing and finished goods
inspection costs were $2.2 million for each of the years 2008 and
2007.





60


American
Biltrite Inc. and Subsidiaries





Notes
to Consolidated Financial Statements (continued)








1.  Significant Accounting
Policies (continued)





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.





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.


61


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 $6.0
million and $6.2 million for the years ended December 31, 2008 and 2007,
respectively.





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.





62


American
Biltrite Inc. and Subsidiaries





Notes
to Consolidated Financial Statements (continued)








1.  Significant Accounting
Policies (continued)





Recently Issued Accounting
Principles





In
May 2008, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standard (“SFAS”) No. 162, The Hierarchy of Generally Accepted
Accounting Principles(“SFAS 162”).  SFAS 162 is intended to
improve financial reporting by identifying a consistent framework, or hierarchy,
for selecting accounting principles to be used in the preparation of financial
statements of nongovernmental entities that are presented in conformity with
generally accepted accounting principles in the United States.  This
Statement is effective 60 days following the Securities and Exchange
Commission’s approval of the Public Company Accounting Oversight Board
amendments to AU Section 411, The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles.  The
Company is in the process of evaluating the impact, if any, of the provisions of
SFAS 162 on its consolidated financial position, operations and cash
flows.





In
December 2007, the FASB issued SFAS No. 141(revised 2007), Business Combinations (“SFAS
141(R)”), and SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51 (“SFAS
160”).  SFAS 141(R) will change how business acquisitions are
accounted for and will impact financial statements both on the acquisition date
and in subsequent periods.  SFAS 160 will change the accounting
and reporting for minority interests, which will be recharacterized as
noncontrolling interests and classified as a component of
equity.  SFAS 141(R) and SFAS 160 are required to be adopted
concurrently and are effective for fiscal years beginning on or after
December 15, 2008.  The adoption of SFAS 141(R) will change our
accounting treatment for business combinations on a prospective basis, beginning
in the first quarter of 2009.  The Company is currently evaluating the
impact, if any, that SFAS 141(R) may have on its financial condition and results
of operations.





In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities – Including an amendment of FASB Statement No.
115(“SFAS 159”).SFAS 159 permits
entities to choose to measure many financial instruments and certain other items
at fair value.  The objective is to improve financial reporting by
providing entities with the opportunity to mitigate volatility in reported
earnings caused by measuring related assets and liabilities differently without
having to apply complex hedge accounting provisions.  SFAS 159 was
effective in the first quarter of 2008, and the adoption did not have a material
impact on the Company’s financial position or results of
operations.





63


American
Biltrite Inc. and Subsidiaries





Notes
to Consolidated Financial Statements (continued)








1.  Significant Accounting
Policies (continued)





In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS
157). SFAS 157 replaces multiple existing definitions of fair value with a
single definition, establishes a consistent framework for measuring fair value
and expands financial statement disclosures regarding fair value
measurements.  SFAS 157 applies only to fair value measurements that
already are required or permitted by other accounting standards and does not
require any new fair value measurements and was effective for fiscal years
beginning after November 15, 2007.  The adoption of SFAS 157 did not
have a material impact on the Company’s financial position or results of
operations.





2.  Inventories





Inventories at December 31 consisted of
the following(in
thousands):





2008
                
                
                2007Finished
    goods
                
                $
                56,262
                
                
                $
                55,478Work-in-process
                
                
                10,847
                
                
                
                10,327Raw materials and
      supplies
                
                
                11,973
                
                
                
                12,596$
                79,082
                
                
                $
                78,401





At December 31, 2008, domestic
inventories determined by the LIFO inventory method amounted to $46.0 million
($45.6 million at December 31, 2007).  If the FIFO inventory method,
which approximates replacement cost, had been used for these inventories, they
would have been $14.0 million and $7.6 million higher at December 31, 2008 and
2007, respectively.  During 2008 and 2007, certain inventory
quantities were reduced, which resulted in liquidations of LIFO inventory
layers.  The liquidations increased cost of sales by $95 thousand and
$7 thousand for 2008 and 2007, respectively.





64


American
Biltrite Inc. and Subsidiaries





Notes
to Consolidated Financial Statements (continued)








3.  Property, Plant and
Equipment





A summary of the major components of
property, plant and equipment at December 31 is as follows(in
thousands):





2008
                
                
                2007Land and
      improvements
                
                $
                5,527
                
                
                $
                5,527Buildings
                
                
                77,340
                
                
                
                78,717Machinery and
      equipment
                
                
                285,453
                
                
                
                290,491Construction-in-progress
                
                
                3,896
                
                
                
                2,976372,216
                
                
                
                377,711Less accumulated
      depreciation
                
                
                283,750
                
                
                
                278,558$
                88,466
                
                
                $
                99,153





Depreciation expense amounted to $14.6
million and $15.5 million for 2008 and 2007, respectively.





4.  Accrued
Expenses





Accrued expenses at December 31
consisted of the following(in
thousands):





2008
                
                
                2007Accrued advertising and sales
      promotions
                
                $
                17,625
                
                
                $
                20,906Employee compensation and related
      benefits
                
                
                7,124
                
                
                
                7,581Environmental
      liabilities
                
                
                815
                
                
                
                849Royalties
                
                
                959
                
                
                
                828Income
taxes
                
                
                371
                
                
                
                355Other
                
                
                4,986
                
                
                
                6,394$
                31,880
                
                
                $
                36,913





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, 2008 and 2007 (see Note 9).





65


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):





2008
                
                
                2007Notes payable
      (current)
                
                $
                32,747
                
                
                $
                30,309Term loan
                
                $
                5,500
                
                
                $
                7,500Other notes
                
                
                1,223
                
                
                
                1,601Total term
    debt
                
                
                6,723
                
                
                
                9,101Less current
      portion
                
                
                2,111
                
                
                
                2,376Non-current term
      debt
                
                $
                4,612
                
                
                $
                6,725





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


66


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.


67


American
Biltrite Inc. and Subsidiaries





Notes
to Consolidated Financial Statements (continued)








5.  Financing Arrangements
(continued)





At
December 31, 2008 and 2007, $18.8 million and $19.8 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, 2008 and 2007 was $9.5 million and $8.5 million, of
which $8.2 million and $2.7 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.





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.





68


American
Biltrite Inc. and Subsidiaries





Notes
to Consolidated Financial Statements (continued)








5.  Financing Arrangements
(continued)





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.





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.  The Company does not
anticipate it will meet the covenant with respect to the ratio of Consolidated
Adjusted EBITDA to Consolidated Fixed Charges for the period ended March 31,
2009 and subsequent periods. As a result, the Company is currently
negotiating with its lenders to amend the Credit Agreement to address, or obtain
a waiver for, any such breaches.  The credit facility under the Credit
Agreement expires September 30, 2009 and will have to be extended, refinanced or
replaced by that expiration date or any earlier time required by any waiver or
amendment the Company may obtain or enter into to address the current and
expected covenant breaches under the Credit Agreement.  Although the
Company currently anticipates that it will be able to obtain a waiver or enter
an amendment to address these matters, there can be no assurances that the
Company will be successful in this regard.  Further, any waiver or
amendment the Company may obtain is expected to be limited in scope and duration
such that the Company would likely need to obtain further amendments or waivers
in the future or obtain alternative financing. Based on the Company’s
anticipated covenant breaches, the Company has classified the entire outstanding
balance of the Term Loan ($5.5 million) as a current liability at December 31,
2008.


69


American
Biltrite Inc. and Subsidiaries





Notes
to Consolidated Financial Statements (continued)








5.  Financing Arrangements
(continued)





The
Company is also currently negotiating for alternative financing to replace the
Credit Agreement, including the Term Loan and the Revolver. The Company believes
it will be successful in obtaining alternative financing during the second
quarter of 2009, and that the replacement facility contemplated would provide
the Company with sufficient financing on commercially reasonable terms for an
extended period of time. It is possible, however, that the Company may not be
successful in obtaining the alternative financing it is currently seeking and it
may not be able to obtain financing from other alternative sources or under a
different arrangement with its existing lenders.  Failure to obtain
adequate financing on commercially reasonable terms would have a material
adverse effect on the Company's business, results of operations and financial
condition.





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





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.At December 31, 2008, the Company was
restricted from making any distributions from retained
earnings.





Other Notes





In 1998, the Company obtained loans from
local banks in connection with the acquisition of buildings in Belgium and
Singapore.  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 2,700 Singapore dollars (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 the Singapore
loan.  The loans are secured by the property acquired with the
proceeds of the applicable loan.  During 2008, the remaining balance
of the Belgian loan was paid.


70


American
Biltrite Inc. and Subsidiaries





Notes
to Consolidated Financial Statements (continued)








5.  Financing Arrangements
(continued)





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, the outstanding balance on the note was
$221 thousand.  During 2008, the remaining balance was
paid.





Congoleum Debt





In
January 2004, the Bankruptcy Court authorized entry of a final order approving
Congoleum’s debtor-in-possession financing, which replaced its pre-petition
credit facility on substantially similar terms. The debtor-in-possession
financing agreement (as amended and approved by the Bankruptcy Court to date)
provides a revolving credit facility expiring on the earlier of (i) June 30,
2009 and (ii) the date the plan of reorganization in Congoleum's bankruptcy
cases as confirmed by the Bankruptcy Court becomes effective.  Total
borrowing under the facility may not exceed $30.0 million.  Interest
is based on 0.25% above the prime rate.  This financing agreement
contains certain covenants, which include the maintenance of minimum earnings
before interest, taxes, depreciation and amortization (“EBITDA”).  In
connection with the most recent amendment and extension of the agreement, the
minimum level of EBITDA that Congoleum must maintain was reduced for quarters
ending after June 30, 2008.  Congoleum paid a fee of $25 thousand for
such amendment, plus an amendment fee in the amount of $15 thousand per
month.  The financing agreement also includes restrictions on the
incurrence of additional debt and limitations on capital expenditures. The
covenants and conditions under this financing agreement must be met in order for
Congoleum to borrow from the facility. Congoleum was in compliance with these
covenants (as amended) at December 31, 2008.  Borrowings under this
facility are collateralized by inventory and receivables.  At December
31, 2008, based on the level of receivables and inventory, $17.4 million was
available under the facility, of which $2.0 million was utilized for outstanding
letters of credit and $14.0 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 2009
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 exit financing. 
Congoleum cannot presently determine the terms of such financing, nor can there
be any assurances of its success obtaining it.








71


American
Biltrite Inc. and Subsidiaries





Notes
to Consolidated Financial Statements (continued)








5.  Financing Arrangements
(continued)





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.  During 2003, Congoleum and the trustee under the
indenture governing the Senior Notes amended the indenture, and sufficient note
holders consented, to explicitly permit Congoleum to take steps in connection
with preparing and filing its prepackaged plan of reorganization under Chapter
11 of the Bankruptcy Code.  The amount of accrued interest on the
Senior Notes that was not paid as of the bankruptcy filing on December 31, 2003
was approximately $3.6 million. The accrued interest and the principal amount of
the Senior Notes, are included in “Liabilities Subject to Compromise” (see Note
9) as of December 31, 2008.





Congoleum’s
$100 million 8 5/8% Senior Notes due 2008 had a book value of $100 million with
no fair market value information available at December 31, 2008 due to
insufficient market activity.  These notes had a book value of $99.9
million and a fair market value of $72.0 million at December 31,
2007.





Interest





Interest paid on all outstanding debt
amounted to $2.1 million in each of the years 2008 and 2007.  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 2008 and
2007.





72


American
Biltrite Inc. and Subsidiaries





Notes
to Consolidated Financial Statements (continued)








5.  Financing Arrangements
(continued)





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):





2009
              $5,6112010
              1172011
              1042012
              1092013
              1142014 and
      thereafter
              668





6.  Other
Liabilities





Other liabilities at December 31
consisted of the following(in
thousands):





2008
                
                
                2007Pension benefit
      obligations
                
                $
                8,185
                
                
                $
                2,817Environmental remediation and
      product related liabilities
                
                
                4,454
                
                
                
                5,336Income taxes
      payable
                
                
                394
                
                
                
                590Deferred income
      taxes
                
                
                131
                
                
                
                1,337Other
                
                
                3,637
                
                
                
                2,705$
                16,801
                
                
                $
                12,785





The Company’s pension benefit
obligations increased during 2008 primarily as a result of a change in the
funded status of certain plans (see Note 7).





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, 2008 and 2007 (see Note 9).





73


American
Biltrite Inc. and Subsidiaries





Notes
to Consolidated Financial Statements (continued)








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
      Benefits2008
                            
                            
                            2007
                            
                            
                            2008
                            
                            
                            2007(In
      thousands)Change
      in Benefit Obligation:Benefit
      obligation at beginning of year
                            
                            $
                            110,661
                            
                            
                            $
                            107,527
                            
                            
                            $
                            9,926
                            
                            
                            $
                            9,664Service
      cost
                            
                            
                            2,325
                            
                            
                            
                            2,275
                            
                            
                            
                            188
                            
                            
                            
                            213Interest
      cost
                            
                            
                            6,265
                            
                            
                            
                            6,168
                            
                            
                            
                            594
                            
                            
                            
                            566Plan
      participants contributions
                            
                            
                            184
                            
                            
                            
                            180Amendments
                            
                            
                            150
                            
                            
                            
                            -Actuarial
      (gain) loss
                            
                            
                            996
                            
                            
                            
                            (2,025
                            )
                            
                            
                            1,186
                            
                            
                            
                            (137
                            )Foreign
      currency exchange rate changes
                            
                            
                            (2,640
                            )
                            
                            
                            2,368Benefits
      paid
                            
                            
                            (6,176
                            )
                            
                            
                            (5,832
                            )
                            
                            
                            (407
                            )
                            
                            
                            (380
                            )Benefit
      obligation at end of year
                            
                            $
                            111,765
                            
                            
                            $
                            110,661
                            
                            
                            $
                            11,487
                            
                            
                            $
                            9,926





Pension
      Benefits2008
                
                
                2007(In
      thousands)Change
      in Plan Assets:Fair
      value of plan assets at beginning of year
                
                $
                98,238
                
                
                $
                90,371Actual
      return on plan assets
                
                
                (25,831
                )
                
                
                3,262Employer
      contribution
                
                
                3,633
                
                
                
                7,685Plan
      participants contribution
                
                
                184
                
                
                
                180Foreign
      currency exchange rate changes
                
                
                (2,833
                )
                
                
                2,572Benefits
      paid
                
                
                (6,176
                )
                
                
                (5,832
                )Fair
      value of plan assets at end of year
                
                $
                67,215
                
                
                $
                98,238





74


American
Biltrite Inc. and Subsidiaries





Notes
to Consolidated Financial Statements (continued)








7.  Pension Plans
(continued)





The
weighted-average assumptions used to determine benefit obligation for the
pension benefits as of year-end were as follows:





2008
              
              2007Discount
      rate
              5.75%
      - 7.50%
              
              5.50%
      - 6.00%Rate
      of compensation increase
              3.00%
      - 4.00%
              
              4.00%
      - 5.00%





The
funded status of the plans and the unrecognized amounts included in accumulated
other comprehensive loss as of December 31, 2008 and 2007 were as follows (in thousands):





Pension
      Benefits
                            
                            
                            Other
      Benefits2008
                            
                            
                            2007
                            
                            
                            2008
                            
                            
                            2007Unfunded
      status
                            
                            $
                            (44,550
                            )
                            
                            $
                            (12,423
                            )
                            
                            $
                            (11,487
                            )
                            
                            $
                            (9,926
                            )Unrecognized
      net actuarial loss
                            
                            
                            52,664
                            
                            
                            
                            19,762
                            
                            
                            
                            1,386
                            
                            
                            
                            250Unrecognized
      transition obligations
                            
                            
                            -
                            
                            
                            
                            (10
                            )
                            
                            
                            -
                            
                            
                            
                            3Unamortized
      prior service cost
                            
                            
                            886
                            
                            
                            
                            1,053Net
      amount recognized
                            
                            $
                            9,000
                            
                            
                            $
                            8,382
                            
                            
                            $
                            (10,101
                            )
                            
                            $
                            (9,673
                            )





The
amounts recorded in the consolidated balance sheets as of December 31, 2008 and
2007 were as follows (in
thousands):





Pension
      Benefits
                            
                            
                            Other
      Benefits2008
                            
                            
                            2007
                            
                            
                            2008
                            
                            
                            2007Other
      assets (noncurrent)
                            
                            $
                            782
                            
                            
                            $
                            1,165Accrued
      benefit liability (noncurrent liabilities)
                            
                            
                            (45,332
                            )
                            
                            
                            (13,588
                            )
                            
                            $
                            (11,487
                            )
                            
                            $
                            (9,926
                            )Accumulated
      other comprehensive loss
                            
                            
                            53,550
                            
                            
                            
                            20,805
                            
                            
                            
                            1,386
                            
                            
                            
                            253Net
      amount recorded
                            
                            $
                            9,000
                            
                            
                            $
                            8,382
                            
                            
                            $
                            (10,101
                            )
                            
                            $
                            (9,673
                            )





As
a result of the adoption of SFAS 158, the Company recorded an asset of $782
thousand for the overfunded status of its pension plans covering employees of AB
Canada.  The accrued benefit liability includes Congoleum’s pension
liability of $37.0 million and $10.8 million as of December 31, 2008 and 2007,
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, 2008 and 2007 (see Note
9).





75


American
Biltrite Inc. and Subsidiaries





Notes
to Consolidated Financial Statements (continued)








7.  Pension Plans
(continued)





At
December 31, 2008 and 2007, accumulated other comprehensive loss also included
the tax effect of pension liabilities recorded ($186 thousand and $341 thousand,
respectively) and the effect of including the non-controlling interests’ portion
of Congoleum’s pension liability adjustments ($14.7 million and $2.0 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, 2008 and 2007 are as follows (in
thousands):





2008
                
                
                2007Underfunded
      plansPBO
                
                $
                100,984
                
                
                $
                94,723Fair
      value of plan assets
                
                
                55,652
                
                
                
                81,135Funded
      status
                
                
                (45,332
                )
                
                
                (13,588
                )ABO
                
                
                98,346
                
                
                
                89,269Overfunded
      plansPBO
                
                $
                10,781
                
                
                $
                15,938Fair
      value of plan assets
                
                
                11,563
                
                
                
                17,103Funded
      status
                
                
                782
                
                
                
                1,165ABO
                
                
                9,648
                
                
                
                13,620All
      plansPBO
                
                $
                111,765
                
                
                $
                110,661Fair
      value of plan assets
                
                
                67,215
                
                
                
                98,238Funded
      status
                
                
                (44,550
                )
                
                
                (12,423
                )ABO
                
                
                107,994
                
                
                
                102,889





The
components of net periodic benefit cost for the years ended December 31, 2008
and 2007 are as follows (in
thousands):





Pension
      Benefits
                            
                            
                            Other
      Benefits2008
                            
                            
                            2007
                            
                            
                            2008
                            
                            
                            2007Service
      cost
                            
                            $
                            2,325
                            
                            
                            $
                            2,368
                            
                            
                            $
                            188
                            
                            
                            $
                            213Interest
      cost
                            
                            
                            6,265
                            
                            
                            
                            6,168
                            
                            
                            
                            594
                            
                            
                            
                            566Expected
      return on plan assets
                            
                            
                            (6,783
                            )
                            
                            
                            (6,574
                            )Recognized
      net actuarial loss
                            
                            
                            1,153
                            
                            
                            
                            1,235
                            
                            
                            
                            50
                            
                            
                            
                            71Amortization
      of prior service cost
                            
                            
                            154
                            
                            
                            
                            167
                            
                            
                            
                            3
                            
                            
                            
                            10Amortization
      of transition obligation
                            
                            
                            (9
                            )
                            
                            
                            (51
                            )Net
      periodic benefit cost
                            
                            $
                            3,105
                            
                            
                            $
                            3,313
                            
                            
                            $
                            835
                            
                            
                            $
                            860


76


American
Biltrite Inc. and Subsidiaries





Notes
to Consolidated Financial Statements (continued)








7.  Pension Plans
(continued)





Changes recognized in Other
Comprehensive Income for the years ended December 31, 2008 and 2007 are as
follows:





2008
                
                
                2007Net
      actual loss
                
                $
                33,527
                
                
                $
                1,209Recognized
      actuarial loss
                
                
                (31
                )
                
                
                (1,435
                )Prior
      service cost (credit)
                
                
                56
                
                
                
                (142
                )Recognized
      prior service (credit) cost
                
                
                (28
                )
                
                
                9Foreign
      exchange
                
                
                354
                
                
                
                (188
                )Total
      changes recognized in Other Comprehensive Income (before tax
      effect)
                
                $
                33,878
                
                
                $
                (547
                )





For the Company’s pension plans, the
estimated net loss and prior service cost to be amortized from accumulated other
comprehensive loss during 2009 isexpected to be $4.3 million and $104
thousand, respectively.  For the Company’s post-retirement benefit
plans, the estimated net loss to be amortized from accumulated other
comprehensive loss during 2009 is expected to be $65
thousand.





The
weighted-average assumptions used to determine net periodic benefit cost related
to the pension benefits were as follows:





2008
                  
                  2007Discount
      rate
                  6.00%
      - 7.50%
                  
                  5.50%
      - 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
weighted-average discount rate used to determine net periodic benefit cost
related to the Other Benefits was 6.00% for 2008 and 2007.





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.





77


American
Biltrite Inc. and Subsidiaries





Notes
to Consolidated Financial Statements (continued)








7.  Pension Plans
(continued)





Assumed healthcare cost trend rates as
of year-end were as follows:





December
      312008
              2007Healthcare
      cost trend rate assumed for next year
              8.5%
              9.5%Ultimate
      healthcare cost trend rate
              5.0%
              5.0%Year
      that the assumed rate reaches the ultimate rate
              2012
              2012





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
                $  72
                
                $  63Effect
      on post-retirement benefit obligation
                886
                
                797





For
the Company’s pension plans, the weighted-average asset allocation at December
31, 2008 and 2007, by asset category, were as follows:





December
      312008
                2007Equity
      securities
                52%
                62%Debt
      securities
                45%
                37%Other
                3%
                1%Total
                100%
                100%





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 securities
with 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, 2008.





78


American
Biltrite Inc. and Subsidiaries





Notes
to Consolidated Financial Statements (continued)








7.  Pension Plans
(continued)





Contributions





Congoleum expects to contribute $5.2
million to its pension planand $571 thousand to its other postretirement
plan in 2009.  American Biltrite expects to contribute $475 thousand
to its pension plan in 2009.





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 2008.





Pension
                  Benefits
                
                
                Other
                  Benefits(In
      thousands)2009
                
                $
                6,622
                
                
                $
                5712010
                
                
                6,914
                
                
                
                6582011
                
                
                7,067
                
                
                
                7402012
                
                
                7,393
                
                
                
                8312013
                
                
                7,502
                
                
                
                9412014
      - 2018
                
                
                40,584
                
                
                
                5,969





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 Companywas
$885 thousand and $918
thousand for the years ended December 31, 2008 and 2007,
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
2014.  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 $5.4 million in
2008 and $5.2 million in 2007.


79


American
Biltrite Inc. and Subsidiaries





Notes
to Consolidated Financial Statements (continued)








8.  Commitments and
Contingencies (continued)





Future minimum payments relating to
operating leases are as follows(in
thousands):





2009
                  
                  $
                  4,4472010
                  
                  
                  3,2812011
                  
                  
                  8122012
                  
                  
                  4632013
                  
                  
                  269Thereafter
                  
                  
                  2$
                  9,274





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, 2008, the Company’s commitments for minimum
royalty and advertising payments were as follows(in
thousands):





2009
                
                $
                1,8022010
                
                
                1692011
                
                
                212$
                2,183





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.





80


American
Biltrite Inc. and Subsidiaries





Notes
to Consolidated Financial Statements (continued)








8.  Commitments and
Contingencies (continued)





Liabilities of Congoleum comprised the
majority of the environmental and other liabilities reported on the Company’s
consolidated balance sheets as of December 31, 2008 and 2007 as shown in the
table below.  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, 2008 and
2007.  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, it will be reflected in the accompanying 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 312008
                                          
                                          
                                          2007Liability
                                          
                                          
                                          Receivable
                                          
                                          
                                          Liability
                                          
                                          
                                          Receivable(In
    thousands)American
      BiltriteEnvironmental
      liabilitiesAccrued
      expenses
                                          
                                          $
                                          604
                                          
                                          
                                          
                                          
                                          
                                          $
                                          639Other liabilities,
      non-current
                                          
                                          
                                          4,454
                                          
                                          
                                          
                                          
                                          
                                          
                                          5,336Other assets,
      non-current
                                          
                                          
                                          -
                                          
                                          
                                          $
                                          1,957
                                          
                                          
                                          
                                          -
                                          
                                          
                                          $
                                          2,2035,058
                                          
                                          
                                          
                                          1,957
                                          
                                          
                                          
                                          5,975
                                          
                                          
                                          
                                          2,203Asbestos product
      liabilityAsbestos-related liabilities,
      non-current
                                          
                                          
                                          13,563
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          12,600
                                          
                                          
                                          
                                          -Insurance for asbestos-related
      liabilities
                                          
                                          
                                          -
                                          
                                          
                                          
                                          13,509
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          11,14013,563
                                          
                                          
                                          
                                          13,509
                                          
                                          
                                          
                                          12,600
                                          
                                          
                                          
                                          11,140OtherOther liabilities,
      current
                                          
                                          
                                          211
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          211
                                          
                                          
                                          
                                          -Other liabilities,
      non-current
                                          
                                          
                                          1,053
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          1,039
                                          
                                          
                                          
                                          -1,264
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          1,250
                                          
                                          
                                          
                                          -$
                                          19,885
                                          
                                          
                                          $
                                          15,466
                                          
                                          
                                          $
                                          19,825
                                          
                                          
                                          $
                                          13,343


81


American
Biltrite Inc. and Subsidiaries





Notes
to Consolidated Financial Statements (continued)








8.  Commitments and
Contingencies (continued)





December 312008
                                                                          
                                                                          
                                                                          2007Liability
                                                                          
                                                                          
                                                                          Receivable
                                                                          
                                                                          
                                                                          Liability
                                                                          
                                                                          
                                                                          Receivable(In
    thousands)CongoleumEnvironmental
      liabilitiesLiabilities subject to compromise,
      current
                                                                          
                                                                          $
                                                                          640
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          $
                                                                          640Liabilities subject to compromise,
      non-current
                                                                          
                                                                          
                                                                          3,719
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          3,802Other assets,
      non-current
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          $
                                                                          2,113
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          $
                                                                          2,1134,359
                                                                          
                                                                          
                                                                          
                                                                          2,113
                                                                          
                                                                          
                                                                          
                                                                          4,442
                                                                          
                                                                          
                                                                          
                                                                          2,113Asbestos product
      liabilityAsbestos-related liabilities,
      current
                                                                          
                                                                          
                                                                          50,022
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          31,208
                                                                          
                                                                          
                                                                          
                                                                          -Other assets,
      current
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          1,322
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          10,49050,022
                                                                          
                                                                          
                                                                          
                                                                          1,322
                                                                          
                                                                          
                                                                          
                                                                          31,208
                                                                          
                                                                          
                                                                          
                                                                          10,490OtherLiabilities subject to compromise,
      current
                                                                          
                                                                          
                                                                          49
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          49
                                                                          
                                                                          
                                                                          
                                                                          -Liabilities subject to compromise,
      non-current
                                                                          
                                                                          
                                                                          813
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          825
                                                                          
                                                                          
                                                                          
                                                                          -Other assets,
      non-current
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          130
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          130862
                                                                          
                                                                          
                                                                          
                                                                          130
                                                                          
                                                                          
                                                                          
                                                                          874
                                                                          
                                                                          
                                                                          
                                                                          130$
                                                                          55,243
                                                                          
                                                                          
                                                                          $
                                                                          3,565
                                                                          
                                                                          
                                                                          $
                                                                          36,524
                                                                          
                                                                          
                                                                          $
                                                                          12,733ConsolidatedEnvironmental
      liabilitiesAccrued
      expenses
                                                                          
                                                                          $
                                                                          604
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          $
                                                                          639Liabilities subject to compromise,
      current
                                                                          
                                                                          
                                                                          640
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          640Liabilities subject to compromise,
      non-current
                                                                          
                                                                          
                                                                          3,719
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          3,802Other liabilities,
      non-current
                                                                          
                                                                          
                                                                          4,454
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          5,336Other assets,
      non-current
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          $
                                                                          4,070
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          $
                                                                          4,3169,417
                                                                          
                                                                          
                                                                          
                                                                          4,070
                                                                          
                                                                          
                                                                          
                                                                          10,417
                                                                          
                                                                          
                                                                          
                                                                          4,316Asbestos product
      liabilityAsbestos-related liabilities,
      current
                                                                          
                                                                          
                                                                          50,022
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          31,208
                                                                          
                                                                          
                                                                          
                                                                          -Asbestos-related liabilities,
      non-current
                                                                          
                                                                          
                                                                          13,563
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          12,600
                                                                          
                                                                          
                                                                          
                                                                          -Other assets,
      current
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          1,322
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          10,490Insurance for asbestos-related
      liabilities
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          13,509
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          11,14063,585
                                                                          
                                                                          
                                                                          
                                                                          14,831
                                                                          
                                                                          
                                                                          
                                                                          43,808
                                                                          
                                                                          
                                                                          
                                                                          21,630OtherLiabilities subject to compromise,
      current
                                                                          
                                                                          
                                                                          49
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          49
                                                                          
                                                                          
                                                                          
                                                                          -Liabilities subject to compromise,
      non-current
                                                                          
                                                                          
                                                                          813
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          825
                                                                          
                                                                          
                                                                          
                                                                          -Other liabilities,
      current
                                                                          
                                                                          
                                                                          211
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          211
                                                                          
                                                                          
                                                                          
                                                                          -Other liabilities,
      non-current
                                                                          
                                                                          
                                                                          1,053
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          1,039
                                                                          
                                                                          
                                                                          
                                                                          -Other assets,
      non-current
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          130
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          1302,126
                                                                          
                                                                          
                                                                          
                                                                          130
                                                                          
                                                                          
                                                                          
                                                                          2,124
                                                                          
                                                                          
                                                                          
                                                                          130$
                                                                          75,128
                                                                          
                                                                          
                                                                          $
                                                                          19,031
                                                                          
                                                                          
                                                                          $
                                                                          56,349
                                                                          
                                                                          
                                                                          $
                                                                          26,076





82


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 1,269 pending claims involving
approximately 1,824individuals as of
December 31, 2008.  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:





2008
                      
                      
                      2007Claims
      at January 1
                      
                      
                      1,360
                      
                      
                      
                      1,332New
      claims
                      
                      
                      356
                      
                      
                      
                      523Settlements
                      
                      
                      (13
                      )
                      
                      
                      (20
                      )Dismissals
                      
                      
                      (434
                      )
                      
                      
                      (475
                      )Claims
      at December 31
                      
                      
                      1,269
                      
                      
                      
                      1,360





ABI
has primary and multiple excess layers of insurance coverage for asbestos
claims. The total indemnity costs incurred to settle claims were approximately
$867 thousand in 2008 and $2.2 million in 2007 all of which were paid by ABI's
primary insurance carriers, as were the related defense costs.  In
June 2008, ABI’s primary layer insurance carriers advised ABI that coverage
limits under the February 1996 coverage-in-place agreement had
exhausted.  In August 2008, ABI and its applicable first-layer
umbrella carriers reached an understanding on the coverage under ABI’s
applicable first-layer excess umbrella policies (the “Umbrella Coverage”),
including defense and indemnity obligations, allocation of claims to specific
policies, and other matters. There was no gap in coverage following the
exhaustion of the primary layer insurance coverage.





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





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American
Biltrite Inc. and Subsidiaries





Notes
to Consolidated Financial Statements (continued)








8.  Commitments and
Contingencies (continued)





In
general, governmental authorities have determined that asbestos-containing sheet
and tile products are nonfriable (i.e., cannot be crumbled by hand pressure)
because the asbestos was encapsulated in the products during the manufacturing
process.  Thus, governmental authorities have concluded that these
products do not pose a health risk when they are properly maintained in place or
properly removed so that they remain nonfriable.  The Company has
issued warnings not to remove asbestos-­containing flooring by sanding or
other methods that may cause the product to become friable.  The
Company estimates its liability for indemnity to resolve current and reasonably
anticipated future asbestos-related claims (not including claims asserted
against Congoleum), based upon a strategy to actively defend against 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 percentage point increase in the Company’s acceptance rate of
mesothelioma claims results in a 21% increase in mesothelioma liability assuming
all other variables remained constant.





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





84


American
Biltrite Inc. and Subsidiaries





Notes
to Consolidated Financial Statements (continued)








8.  Commitments and
Contingencies (continued)





The
estimated range of liability for settlement of current claims pending and claims
anticipated to be filed through 2014 was $13.6 million to $44.0 million as of
December 31, 2008.  The Company believes no amount within this range
is more likely than any other, and accordingly has recorded a liability of $13.6
million in its financial statements which represents a probable and
reasonably estimable amount for the future liability at the present
time.  The Company also believes that based on this liability
estimate, the corresponding amount of insurance probable of recovery is
$13.5million at
December 31, 2008, which has been included in other assets.  The same
factors that affect developing forecasts of potential indemnity costs for
asbestos-related liabilities also affect estimates of the total amount of
insurance that is probable of recovery, as do a number of additional
factors.  These additional factors include 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
knownfacts by
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 seven sites located in six separate
states (the “CERCLA Sites”).  At one of the seven sites, which is
located in Southington, Connecticut, (the "Southington Site"), an ABI subsidiary
("Ideal") is also named as a PRP.  At the Southington Site, in 2008,
the other named PRPs offered a de minimus settlement to ABI and a performing
party settlement to Ideal, which offers ABI and Ideal accept. ABI’s de minimus
settlement amount was $106 thousand while Ideal’s performing party settlement
amount was $671 thousand. ABI obtained a release for future obligations relating
to this Site from the United States government and its agencies





85


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Biltrite Inc. and Subsidiaries





Notes
to Consolidated Financial Statements (continued)








8.  Commitments and
Contingencies (continued)





including
the EPA, the State of Connecticut, and the other PRP group defendants (the
“Settling Parties”).  While Ideal did not receive a release from
future obligations relating to this Site from the Settling Parties, it is not
anticipated that any further assessments will be made against Ideal any time in
the foreseeable future.  Under a preexisting agreement, Ideal shared a
percentage of the settlement with the former owner of Ideal's
assets.  Under a preexisting 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 which TBC paid to
ABI.  Both the former owner of Ideal’s assets and TBC reimbursed ABI
their respective shares of Ideal’s performing party settlement amount and ABI’s
de minimus settlement amount, respectively.





At another site, ABI, together with a
number of othernamedPRPs,entereda consent decree and site remediation
agreement (the "Agreements")in September 1996, 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 $1.5million to $3.5million.  Pursuant to a final
allocation among consent decree participants, ABI's share of the currently
estimated future remediation costs range from approximately $41thousand to $93thousand.  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’s
ultimate liability and funding obligations in connection with the CERCLA 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, ABI, as a PRP, can be held jointly and severally liable for all
environmental costs associated with a site.





ABI is involved in twoUnited States Environmental Protection
Agency (“EPA”)sites in Georgia.  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 ABIenteran 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 toenterthe consent order.  The
former owners haveenteredan AOC and will remediate theAtlanta





86


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Biltrite Inc. and Subsidiaries





Notes
to Consolidated Financial Statements (continued)








8.  Commitments and
Contingencies (continued)





site 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 atthe Georgiasiteswill not be
material.Pursuant to ABI’s
preexistingagreementwithTBC, TBC is liable for 37.5% of
theseremediation costs, incurred by ABI at
these Georgia Sites.





A lawsuit was brought by Olin
Corporationin 1993 in the
Federal District Court of Massachusetts, the present owner of a former chemical
plant site in Wilmington, Massachusetts (the "Olin Site"),against ABI and three other defendants,which alleged that ABI andthethreeotherdefendants 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.





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 through December 31, 1998.  ABI
and TBC also agreed to reimburse Olin for 21.7% of Olin's response costs
incurred at the site after January 1, 1999, plus an annual reimbursement of $100
thousand for Olin's internal costs.Pursuant to ABI’s preexisting agreement
withTBC, 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
2009will be approximately $3.6million.  ABI has estimated
total costs, includingfor2009, to be in the range of $16.0million to $47.3million.  As ofDecember 31,2008, ABI has estimated its potential
liabilitytoOlin to be in the range of
$3.9million to $10.7million 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
overapproximatelythenext ten years.In January 2006, the EPA assumed the
responsibility for the oversight of the Olin Site from the Massachusetts
Department of Environmental Protection.





87


American
Biltrite Inc. and Subsidiaries





Notes
to Consolidated Financial Statements (continued)








8.  Commitments and
Contingencies (continued)





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 $2.3
million.  ABI has been advised by Miller that the clean-up for Parcel
B has been completed under budget.  ABI has been 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.  Pursuant to ABI’s
preexisting agreement with TBC, TBC is liable for 37.5% of costs these incurred
by ABI for the Maine Sites.





The Company has been placed on notice by
a group of four companies that entered into a settlement agreement with the EPA
agreeing to fund and carry out a time critical remedial action (the “Ward
Performing Parties”) that it is a potential responsible party of a claim at the
Ward Transformer Superfund Site in Raleigh, North Carolina (the “Ward
Site”).  There are three areas in the Ward Site which are to be
remediated in two phases.  ABI is to be treated as ade minimusparty at this site.  A Phase I
settlement offer is expected to be made by the Ward Performing Parties to the
named PRPs for this site.  ABI expects that the settlement offer for
ABI will be approximately $45 thousand for ABI’s portion of the Phase I
costs.  It is also expected that the proposed settlement would provide
that if the costs of Phase I exceed $55 million, then the excess costs will be
treated as Phase II costs.  A Phase II settlement offer will be made
when the scope of work at the Ward Site has been determined by the Ward
Performing Parties.Pursuant to ABI’s preexisting agreement
with TBC, TBC is liable for
37.5% of theseremediation costs, incurred
by ABI at this North
Carolina site.





88


American
Biltrite Inc. and Subsidiaries





Notes
to Consolidated Financial Statements (continued)








8.  Commitments and
Contingencies (continued)





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 in Maine as 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
andABI shared37.5% of the amount of that
reimbursement with TBC pursuant toABI’s preexistingagreement 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, $117thousand of which was reimbursed
throughDecember 31,2008and 37.5% of the amount of that
reimbursement was shared with TBC pursuant toABI’s preexistingagreement with TBC.  ABI and
one of its insurance carriers continue to discuss ABI’s remaining demands for
insurance coverage for these sites.





In
connection with the transfer of ABI's Trenton, NJ tile plant to Congoleum in
1993, the Company entered 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.





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 ofDecember 31,2008and 2007, ABIrecordeda reserve of $5.1millionand $6.0 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$2.0millionand $2.2 million as ofDecember 31, 2008and 2007, 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.





89


American
Biltrite Inc. and Subsidiaries





Notes
to Consolidated Financial Statements (continued)








8.  Commitments and
Contingencies (continued)





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, 2008 and $4.4 million at
December 31, 2007, are not reduced by the amount of insurance
recoveries.  Such estimated insurance recoveries approximated $2.1
million at December 31, 2008 and $2.1 million at December 31, 2007, 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.





Congoleum
is named, together with a large number (in most cases, hundreds) of other
companies, as a PRP in pending proceedings under CERCLA, and similar state
laws.  In addition, in four other instances, although not named as a
PRP, Congoleum has received a request for information.  The pending
proceedings 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 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





90


American
Biltrite Inc. and Subsidiaries





Notes
to Consolidated Financial Statements (continued)








8.  Commitments and
Contingencies (continued)





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.





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.


91


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 Asbestos
Claimants’ Committee (“ACC”), the Future Claimants’ Representative (“FCR”) and
other asbestos claimant representatives.  In addition, an insurance
company, Continental Casualty Company, and its affiliate, Continental Insurance
Company (collectively, “CNA”), filed a plan of reorganization and the Official
Committee of Bondholders (“Bondholders’ Committee”) (representing holders of
Congoleum’s 8 5/8% Senior Notes due August 1, 2008 (the “Senior Notes”)) also
filed a plan of reorganization.  In May 2006, the Bankruptcy Court
ordered the principal parties in interest in Congoleum’s reorganization
proceedings to participate in reorganization plan mediation
discussions.  Several mediation sessions took place during 2006,
culminating in two competing plans, one which Congoleum filed jointly with the
ACC in September 2006 (the “Tenth Plan”) and the other filed by CNA, both of
which the Bankruptcy Court subsequently ruled were not confirmable as a matter
of law.    In March 2007, Congoleum resumed global plan
mediation discussions with the various parties seeking to resolve the issues
raised in the Bankruptcy Court’s ruling with respect to the Tenth
Plan.  In July 2007, the FCR filed a plan of reorganization and
proposed disclosure statement.   After extensive further
mediation sessions, on February 5, 2008, the FCR, the ACC, the Bondholders’
Committee and Congoleum jointly filed the Joint Plan.  The Bankruptcy
Court approved the disclosure statement for the Joint Plan in February 2008, and
the Joint Plan was solicited in accordance with court-approved voting
procedures.  Various objections to the Joint Plan were filed, and on
May 12, 2008 the Bankruptcy Court heard oral argument on summary judgment
motions relating to certain of those objections.  On June 6, 2008, the
Bankruptcy Court issued a ruling that the Joint Plan was not legally
confirmable, and issued an Order to Show Cause why the case should not be
converted or dismissed pursuant to 11 U.S.C. § 1112.  Following a
further hearing on June 26, 2008, the Bankruptcy Court issued an opinion that
vacated the Order to Show Cause and instructed the parties to submit a
confirmable plan by the end of calendar year 2008.  Following further
negotiations, the Bondholders’ Committee, the ACC, the FCR, representatives of
holders of pre-petition settlements and Congoleum reached an agreement in
principle which the Company understands that Congoleum believed addressed the
issues raised by the Bankruptcy Court in the ruling on the Joint Plan and in the
court's prior decisions.  A term sheet describing the proposed
material terms of a contemplated new plan of reorganization and a settlement of
avoidance litigation with respect to pre-petition claim settlements (the
“Litigation Settlement”) was entered into by those parties and was filed with
the Bankruptcy Court on August 14, 2008.





92


American
Biltrite Inc. and Subsidiaries





Notes
to Consolidated Financial Statements (continued)








9.  Congoleum Asbestos
Liabilities and Planned Reorganization (continued)





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





Under
the terms of the Amended Joint Plan, a trust 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 would also receive 70% of the newly issued
common stock of reorganized Congoleum when the plan takes effect (the “Trust
Shares”) and $5 million in new 9.75% senior secured notes that mature five years
from issuance.





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





93


American
Biltrite Inc. and Subsidiaries





Notes
to Consolidated Financial Statements (continued)








9.  Congoleum Asbestos
Liabilities and Planned Reorganization (continued)





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





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





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





94


American
Biltrite Inc. and Subsidiaries





Notes
to Consolidated Financial Statements (continued)








9.  Congoleum Asbestos
Liabilities and Planned Reorganization (continued)





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





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 havesubmitted 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 claimsmaybe asserted in connection with
solicitation of acceptances ofany future plan.  Congoleum does not
believe it can reasonably estimate the liability associated with claims that may
be pending.





During 2007, Congoleum paid
$15.9million (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 proposedAmendedJoint 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.





95


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):





2008
                
                
                2007CurrentPre-petition
      other payables and accrued interest
                
                $
                4,997
                
                
                $
                4,997Non-currentDebt
      (at face value)
                
                
                100,000
                
                
                
                100,000Pension
      liability
                
                
                37,022
                
                
                
                10,772Other
      post-retirement benefit obligation
                
                
                10,938
                
                
                
                9,337Pre-petition
      other liabilities
                
                
                13,543
                
                
                
                13,115161,503
                
                
                
                133,224Elimination—Payable
      to American Biltrite
                
                
                (117
                )
                
                
                (126
                )161,386
                
                
                
                133,098Total
      liabilities subject to compromise
                
                $
                166,383
                
                
                $
                138,095





96


American
Biltrite Inc. and Subsidiaries





Notes
to Consolidated Financial Statements (continued)








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.





The components of(loss) income from continuing
operationsbefore the
provision for or benefit
from income taxes and other itemsfor the years ended December 31 were as
follows(in
thousands):





2008
                
                
                2007Domestic
                
                $
                (34,144
                )
                
                $
                (1,526
                )Foreign
                
                
                1,467
                
                
                
                258$
                (32,677
                )
                
                $
                (1,268
                )





Significant components of
theprovision
for(benefit from)income taxes for the years ended
December 31 were as follows(in
thousands):





2008
                
                
                2007Current:Federal
                
                $
                (891
                )
                
                $
                1,542Foreign
                
                
                164
                
                
                
                298State
                
                
                251
                
                
                
                361Total
    current
                
                
                (476
                )
                
                
                2,201Deferred:Federal
                
                
                (4,292
                )
                
                
                829Foreign
                
                
                -
                
                
                
                (201
                )State
                
                
                (443
                )
                
                
                (453
                )Valuation
      allowance
                
                
                2,766
                
                
                
                (1,696
                )Total
    deferred
                
                
                (1,969
                )
                
                
                (1,521
                )$
                (2,445
                )
                
                $
                680





97


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 effectivetaxrate of the Company’s tax(benefit) provisionfor the years ended December 31 was as
follows:





2008
                  
                  
                  2007U.S. statutory
      rate
                  
                  
                  (34.0
                  )%
                  
                  
                  (34.0
                  )%State income taxes, net of federal
      benefits
                  
                  
                  (4.6
                  )
                  
                  
                  (5.3
                  )Foreign tax rate
      difference
                  
                  
                  (0.2
                  )
                  
                  
                  19.6Non-deductible
      items
                  
                  
                  4.4
                  
                  
                  
                  220.6Valuation
      allowance
                  
                  
                  25.5
                  
                  
                  
                  (133.8
                  )Prior year
      estimates
                  
                  
                  -
                  
                  
                  
                  (16.0
                  )Change in tax liability
      reserves
                  
                  
                  0.6
                  
                  
                  
                  (7.5
                  )Other
                  
                  
                  0.8
                  
                  
                  
                  10.0Effective tax
      rate
                  
                  
                  (7.5
                  )%
                  
                  
                  53.6
                  %





Excluding
Congoleum, ABI’s effective tax rate was 4.2% and (44.8)% for 2008 and 2007,
respectively.  Congoleum’s effective tax rate was 10.8% and 167.6% for
2008 and 2007, respectively.





98


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, 2008and 2007were as follows(in
thousands):





2008
                  
                  
                  2007Deferred tax
      assets:Inventory
                  
                  $
                  719Investments
                  
                  
                  3,639Accruals and
      reserves
                  
                  
                  3,460
                  
                  
                  $
                  4,664Environmental
      reserves
                  
                  
                  23,382
                  
                  
                  
                  15,681Postretirement benefit
      obligations
                  
                  
                  21,560
                  
                  
                  
                  5,368Depreciation and
      amortization
                  
                  
                  222
                  
                  
                  
                  -Net operating losses and credit
      carryforwards
                  
                  
                  17,470
                  
                  
                  
                  22,890Total deferred tax
      assets
                  
                  
                  70,452
                  
                  
                  
                  48,603Less valuation
      allowance
                  
                  
                  (17,708
                  )
                  
                  
                  (8,581
                  )Net deferred tax
      assets
                  
                  
                  52,744
                  
                  
                  
                  40,022Deferred tax
      liabilities:Depreciationand
      amortization
                  
                  
                  8,427
                  
                  
                  
                  12,263Insurance
      receivable
                  
                  
                  3,769
                  
                  
                  
                  6,780Inventory
                  
                  
                  -
                  
                  
                  
                  663Accrued
      interest
                  
                  
                  19,806
                  
                  
                  
                  15,296Postretirement benefit
      obligations
                  
                  
                  19,110
                  
                  
                  
                  4,922Other
                  
                  
                  197
                  
                  
                  
                  799Total deferred tax
      liabilities
                  
                  
                  51,309
                  
                  
                  
                  40,723Net deferred taxasset(liability)
                  
                  $
                  1,435
                  
                  
                  $
                  (701
                  )





As
of December 31, 2008, ABI had state net operating loss (“NOL”) carryforwards of
$8.3 million and federal and state tax credit carryforwards of $329
thousand.  These NOL’s and credit carryforwards began to expire in
2008.  As of December 31, 2008, AB Canada had NOL’s in the amounts of
$7.6 million, a significant portion of which will expire in 2010.  Due
to the uncertainty surrounding the realization of the Company’s deferred tax
assets and as a result of the Company’s cumulative losses in recent years, the
Company has provided a valuation allowance against its deferred tax assets that
are not more likely than not to be realized, resulting in a net deferred tax
liability of $131 thousand as of December 31, 2008.  As of December
31, 2007, the Company had provided a full valuation allowance only against its
state NOLs and credit carryforwards.  ABI’s valuation allowance
increased by $6.3 million during 2008.





99


American
Biltrite Inc. and Subsidiaries





Notes
to Consolidated Financial Statements (continued)








10.  Income Taxes
(continued)





At December 31, 2008, Congoleum had available federaland state NOL’s of approximately$21.4 million and $37.6 million,
respectively.  The federal NOLswill begin to expire in 2025 and the state NOLs will begin to
expire in 2009.Congoleum also had available
federal and state tax credit carry forwards of $2.3 million and $1.8 million as of December 31, 2008,
respectively.  The federaland statetax credit carry forwards will begin to
expire in 2020 and 2009, respectively.  Congoleum has determined that
a partial valuation allowance is necessary to reduce the deferred tax assets to
the amount expected to be realized, and at December 31, 2008 and 2007, Congoleum
had recorded a valuation allowance of $6.7million and $3.9 million, thereby
increasing itsvaluation allowance by $2.8 million during
2008.





Through
December 31, 2008, the Company has not provided U.S. income taxes on
approximately $18.6 million of unremitted foreign earnings because such earnings
are intended to be indefinitely reinvested outside the U.S.  It is not
practical to estimate the amount of income taxes payable on the earnings that
are indefinitely reinvested in foreign operations.





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 FIN 48
reserves for uncertain tax positions are not material to the Company’s
consolidated financial statements as of and for the years ended December 31,
2008 and 2007.  The Company records tax penalties and interest as a
component of income tax expense.





ABI
and Congoleum’s federal and state income tax returns are subject to examination
for all tax years from 2005 to the present.  However, 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 liabilities in
future periods.  AB Canada’s federal and provincial tax returns are
subject to examination from 2002 to the present.





During
2008 and 2007, the Company made net payments for income taxes of $350 thousand
and $820 thousand, respectively.





100


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 pension liabilities in other comprehensive
income.  Components of other comprehensive income (loss) for the years
ended December 31, 2008 and 2007 were as follows (in thousands):





2008
                
                
                2007Foreign currency translation
      adjustments
                
                $
                (4,040
                )
                
                $
                3,158Defined benefits plan
      adjustment
                
                
                (33,878
                )
                
                
                547Tax effect of defined benefit plan
      adjustments
                
                
                155
                
                
                
                99Net change in accumulated other
      comprehensive loss
                
                $
                (37,763
                )
                
                $
                3,804





During 2008 and 2007, the Company
recorded significant unrealized losses and gains, respectively, 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, 2008 was approximately 19% lower than the
exchange rate used as of December 31, 2007.  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.





During 2008, the Company recorded a net
adjustment of $33.7 million to accumulated other comprehensive income as a
result of significant changes in the funded status of its pension plans (see
Note 7).





As of December 31, 2008 and 2007, the
components of accumulated other comprehensive loss, net of taxes, were as
follows(in
thousands):





2008
                
                
                2007Foreign currency translation
      adjustments
                
                $
                (541
                )
                
                $
                3,499Pension
      liability
                
                
                (52,709
                )
                
                
                (18,986
                )$
                (53,250
                )
                
                $
                (15,487
                )





101


American
Biltrite Inc. and Subsidiaries





Notes
to Consolidated Financial Statements (continued)








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,
2008 and 2007(in thousands,
except share and per share amounts):





2008
                
                
                2007Numerator:Net loss
                
                $
                (29,050
                )
                
                $
                (2,005
                )Denominator:Basic income per
      share:
                  Weighted-average
      shares
                
                
                3,441,551
                
                
                
                3,441,551Dilutive employee stock
      options
                
                
                -
                
                
                
                -Diluted income per
      share:
                  Adjusted weighted-average shares
      and assumed conversions
                
                
                3,441,551
                
                
                
                3,441,551Basic loss per
      share
                
                $
                (8.44
                )
                
                $
                (0.58
                )Diluted loss per
      share
                
                $
                (8.44
                )
                
                $
                (0.58
                )





13.  Stock Option
Plans





ABI Stock Plans





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.  At the annual meeting of
ABI’s stockholders held on May 6, 2008, ABI's stockholders approved an increase
of 250,000 shares of common stock reserved for issuance under the plan, bringing
the total reserved under the amended plan to 800,000 shares of common
stock.  The amended plan also 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 stock granted under
the plan, recipients of restricted stock granted under the plan generally are
entitled to all the rights of a shareholder.


102


American
Biltrite Inc. and Subsidiaries





Notes
to Consolidated Financial Statements (continued)








13.  Stock Option Plans
(continued)





At
the annual meeting of ABI’s stockholders held on May 6, 2008, ABI's stockholders
approved the American Biltrite Inc. Amended and Restated 1999 Stock Option Plan
for Non-Employee Directors, which permits the issuance of options to purchase up
to 100,000 shares of ABI common stock to non-employee
directors.  Prior to this approval, the Company granted such options
to its non-employee directors pursuant to a stock option plan that ABI adopted
in 1999.  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.





On March 17, 2008 and August 14, 2008,
ABI granted 250,000 and 8,000 options, respectively, to certain employees of ABI
under its employee stock option plan.  The weighted-average grant date
fair value of the options was $3.49 and $2.40,
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, respectively: risk-free interest rate of 2.71% and
3.46%, 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
45.7% and 46.5%, and a weighted-average expected life of the options of seven
years.  The options vest 20% on the anniversary of the grant date for
five years.  The Company recognizes compensation expense ratably over
the vesting period.  During 2008, ABI recognized stock compensation
expense of $132 thousand for the employee options.





On each July 1stof each year, ABI grants options to
each of its non-employee directors under the amended and restated plan adopted
in 2008.  On July 1, 2008 and 2007, 4,000 options were
granted.  The weighted-average grant date fair value of the options
was $2.52 and $4.11, 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 2008 and 2007,
respectively: risk-free interest rate of 3.62% and 4.52%, 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 44.3% and 33.9%, 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 2008
and 2007, ABI recognized expense of $10 thousand and $16 thousand,
respectively.





The total fair value ofABIoptions that vested during 2008 and
2007 was $16 thousand and
$21thousand,
respectively.





103


American
Biltrite Inc. and Subsidiaries





Notes
to Consolidated Financial Statements (continued)








13.  Stock Option Plans
(continued)





The following tables summarize
information about ABI’s stock options:





2008
                                
                                
                                2007Shares
                                
                                
                                Weighted-
                                  Average
                                  Exercise Price
                                
                                
                                Shares
                                
                                
                                Weighted-
                                  Average
                                  Exercise PriceOutstanding at beginning of
      year
                                
                                
                                301,500
                                
                                
                                $
                                10.31
                                
                                
                                
                                486,000
                                
                                
                                $
                                15.40Granted
                                
                                
                                262,000
                                
                                
                                
                                6.41
                                
                                
                                
                                4,000
                                
                                
                                
                                8.77Exercised
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -Forfeited
                                
                                
                                (28,000
                                )
                                
                                
                                10.56
                                
                                
                                
                                (188,500
                                )
                                
                                
                                23.44Outstanding at end of
      year
                                
                                
                                535,500
                                
                                
                                
                                8.39
                                
                                
                                
                                301,500
                                
                                
                                
                                10.31Options exercisable at end of
      year
                                
                                
                                277,500
                                
                                
                                $
                                10.23
                                
                                
                                
                                298,000
                                
                                
                                $
                                10.33Available for grant at end of
      year
                                
                                
                                347,520
                                
                                
                                
                                
                                
                                
                                
                                281,020





Range of
              Exercise
    Price
            Outstanding at
              December 31,
              2008
            Weighted-Average
              Exercise
    Price
            Exercisable at
              December 31,
              2008
            Weighted-Average
              Exercise
    Price
            Weighted-Average
              Remaining
              Contractual
      Life
              (Years)$  4.56
      -$10.96
            499,000
            $  7.95
            241,000
            $  9.59
            7.31$10.97
    -$14.00
            14,500
            $12.29
            14,500
            $12.29
            5.06$14.01 -
    $17.25
            16,000
            $14.06
            16,000
            $14.06
            1.17$17.26 -
      $23.625
            6,000
            $20.50
            6,000
            $20.50
            0.50





Stock option information related to
nonvested shares forABI’s
stock option plansfor the
year ended December 31, 2008 was as follows:





Shares
                                  
                                  Weighted-Average
                                    Grant
      Date
                                    Fair
      ValueNonvested at
      December 31, 2007
                                  
                                  
                                  4,000
                                  
                                  
                                  $4.11Granted
                                  
                                  
                                  262,000
                                  
                                  
                                  3.44Vested
                                  
                                  
                                  (4,000
                                  )
                                  
                                  4.11Forfeited
                                  
                                  
                                  (4,000
                                  )
                                  
                                  3.49Nonvested at
      December 31, 2008
                                  
                                  
                                  258,000
                                  
                                  
                                  3.44





The compensation expense the Company
will recognize as the options vest ratably from January 2009 through March 2013
is approximately $750 thousand.


104


American
Biltrite Inc. and Subsidiaries





Notes
to Consolidated Financial Statements (continued)








13.  Stock Option Plans
(continued)





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:





2008
                                
                                
                                2007Shares
                                
                                
                                Weighted-Average
                                  Exercise Price
                                
                                
                                Shares
                                
                                
                                Weighted-Average
                                  Exercise PriceOutstanding at beginning of
      year
                                
                                
                                662,000
                                
                                
                                $
                                2.04
                                
                                
                                
                                662,000
                                
                                
                                $
                                2.04Granted
                                
                                
                                2,500
                                
                                
                                
                                0.02
                                
                                
                                
                                2,500
                                
                                
                                
                                0.95Canceled
                                
                                
                                -
                                
                                
                                
                                
                                
                                
                                
                                -Exercised
                                
                                
                                -
                                
                                
                                
                                
                                
                                
                                
                                -Forfeited
                                
                                
                                (18,000
                                )
                                
                                
                                2.28
                                
                                
                                
                                (2,500
                                )
                                
                                
                                2.05Outstanding at end of
      year
                                
                                
                                646,500
                                
                                
                                
                                2.02
                                
                                
                                
                                662,000
                                
                                
                                
                                2.04Weighted-average remaining
      contractual life of options outstanding (years)
                                
                                
                                3.74
                                
                                
                                
                                
                                
                                
                                
                                4.64Options exercisable at end of
      year
                                
                                
                                637,400
                                
                                
                                
                                2.02
                                
                                
                                
                                637,300
                                
                                
                                
                                2.04Available for grant at end of
      year
                                
                                
                                189,300
                                
                                
                                
                                
                                
                                
                                
                                173,800





The total fair value of Congoleum
options that vested during 2008 and 2007 was $21thousand and $225 thousand,
respectively.





Stock option information related to
nonvested shares for the Congoleum Stock Option Plans for the year ended
December 31, 2008 was as follows:





Shares
                                  
                                  
                                  Weighted-Average
                                    Grant
      Date
                                    Fair
      ValueNonvested at
      December 31, 2007
                                  
                                  
                                  24,700
                                  
                                  
                                  
                                  $1.66Granted
                                  
                                  
                                  2,500
                                  
                                  
                                  
                                  0.02Vested
                                  
                                  
                                  (15,200
                                  )
                                  
                                  
                                  1.36Forfeited
                                  
                                  
                                  (400
                                  )
                                  
                                  
                                  5.74Nonvested at
      December 31, 2008
                                  
                                  
                                  11,600
                                  
                                  
                                  
                                  1.55


105


American
Biltrite Inc. and Subsidiaries





Notes
to Consolidated Financial Statements (continued)








13.  Stock Option Plans
(continued)





The intrinsic value of stock options
exercised during 2008 and 2007 and stock options outstanding (whether or not
then exercisable) and stock options outstanding and exercisable at December 31,
2008 and 2007 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, 2008.





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 the United States, and
finishing and sales facilities in Belgium, Italy and Singapore.  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.





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.





106


American
Biltrite Inc. and Subsidiaries





Notes
to Consolidated Financial Statements (continued)








14.  Industry
Segments (continued)





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
      312008
                    
                    
                    2007(In
    thousands)RevenuesRevenues from external
      customers:Flooring
      products
                    
                    $
                    172,644
                    
                    
                    $
                    204,262Tape
    products
                    
                    
                    90,120
                    
                    
                    
                    97,895Jewelry
                    
                    
                    55,410
                    
                    
                    
                    63,114Canadian
      division
                    
                    
                    56,919
                    
                    
                    
                    55,454Total revenues from external
      customers
                    
                    
                    375,093
                    
                    
                    
                    420,725Intersegment
      revenues:Flooring
      products
                    
                    
                    -
                    
                    
                    
                    -Tape
    products
                    
                    
                    -
                    
                    
                    
                    -Jewelry
                    
                    
                    -
                    
                    
                    
                    -Canadian
      division
                    
                    
                    3,767
                    
                    
                    
                    4,629Total intersegment
      revenues
                    
                    
                    3,767
                    
                    
                    
                    4,629Total
    revenues
                    
                    
                    378,860
                    
                    
                    
                    425,354Reconciling
      itemsIntersegment
      revenues
                    
                    
                    (3,767
                    )
                    
                    
                    (4,629
                    )Total consolidated
      revenues
                    
                    $
                    375,093
                    
                    
                    $
                    420,725





107


American
Biltrite Inc. and Subsidiaries





Notes
to Consolidated Financial Statements (continued)








14.  Industry
Segments (continued)





Approximately 48% and 51% of the
Canadian division’s revenues from external customers were for flooring products
for 2008 and 2007, respectively.  The remaining revenues from the
Canadian division’s external customers were from sale of rubber and other
industrial products.





For 2008 and 2007, one customer of the
flooring division accounted for 19% and 20%, respectively, of the Company’s
consolidated revenues.  Another customer of the flooring division
accounted for 10% and 12% of the Company’s consolidated revenues for 2008 and
2007, respectively.





Years ended December
      312008
                
                
                2007(In
    thousands)Interest
    incomeFlooring
      products
                
                $
                1,261
                
                
                $
                1,224Tape
    products
                
                
                -
                
                
                
                -Jewelry
                
                
                -
                
                
                
                -Canadian
      division
                
                
                -
                
                
                
                -Total segment interest
      revenue
                
                
                1,261
                
                
                
                1,224Corporate
                
                
                56
                
                
                
                114Total consolidated interest
      income
                
                $
                1,317
                
                
                $
                1,338Interest
      expenseFlooring
      products
                
                $
                404
                
                
                $
                1,027Tape
    products
                
                
                51
                
                
                
                52Jewelry
                
                
                742
                
                
                
                1,125Canadian
      division
                
                
                150
                
                
                
                427Total segment interest
      expense
                
                
                1,347
                
                
                
                2,631Corporate
                
                
                725
                
                
                
                807Total consolidated interest
      expense
                
                $
                2,072
                
                
                $
                3,438Depreciation and amortization
      expenseFlooring
      products
                
                $
                10,238
                
                
                $
                10,690Tape
    products
                
                
                2,133
                
                
                
                2,295Jewelry
                
                
                850
                
                
                
                998Canadian
      division
                
                
                1,809
                
                
                
                2,196Total segment depreciation and
      amortization
                
                
                15,030
                
                
                
                16,179Corporate
                
                
                108
                
                
                
                6Total consolidated depreciation
      and amortization
                
                $
                15,138
                
                
                $
                16,185


108


American
Biltrite Inc. and Subsidiaries





Notes
to Consolidated Financial Statements (continued)








14.  Industry
Segments (continued)





Years ended December 312008
                  
                  
                  2007(In
    thousands)Segment (loss)
      profitFlooring
      products
                  
                  $
                  (16,389
                  )
                  
                  $
                  1,022Tape
    products
                  
                  
                  (3,869
                  )
                  
                  
                  (1,135
                  )Jewelry
                  
                  
                  (3,102
                  )
                  
                  
                  1,508Canadian
      division
                  
                  
                  1,581
                  
                  
                  
                  (1,099
                  )Total segment (loss)
      profit
                  
                  
                  (21,779
                  )
                  
                  
                  296Reconciling
      itemsCorporate
      expenses
                  
                  
                  (10,933
                  )
                  
                  
                  (1,582
                  )Intercompany
      profit
                  
                  
                  35
                  
                  
                  
                  18Total consolidated loss from
      continuing operations before income taxes and other
      items
                  
                  $
                  (32,677
                  )
                  
                  $
                  (1,268
                  )





Segment
profit or loss is before income tax expense or benefit.  During 2008,
the Company recorded non-cash impairment charges aggregating $12.9
million.  The jewelry segment’s loss for 2008 includes a charge of
$749 thousand for the write off of goodwill and other intangible assets acquired
in the segment’s purchase of Jay Jewelry.  Corporate expenses for 2008
include non-cash impairment charges for the write off of goodwill associated
with the Company’s acquisition of partnership interests in the jewelry segment
($11.3 million) and the write off of the Company’s investment in Hulera Sula
($850 thousand.)  These non-cash charges reduced the Company’s
goodwill, other intangible assets and investment in Hulera Sula to
zero.  During 2008 and 2007, the flooring products segment recorded
charges of $11.5 million and $41.3 million, respectively, 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).





December 312008
                  
                  
                  2007(In
    thousands)Segment
    assetsFlooring
      products
                  
                  $
                  171,867
                  
                  
                  $
                  172,705Tape
    products
                  
                  
                  48,115
                  
                  
                  
                  52,287Jewelry
                  
                  
                  24,038
                  
                  
                  
                  38,046Canadian
      division
                  
                  
                  29,866
                  
                  
                  
                  37,907Total segment
      assets
                  
                  
                  273,886
                  
                  
                  
                  300,945Reconciling
      itemsCorporate
      assets
                  
                  
                  35,948
                  
                  
                  
                  31,991Intersegment accounts
      receivable
                  
                  
                  (14,626
                  )
                  
                  
                  (10,417
                  )Intersegment profit in
      inventory
                  
                  
                  (90
                  )
                  
                  
                  (126
                  )Intersegment other
      asset
                  
                  
                  (117
                  )
                  
                  
                  (126
                  )Total consolidated
      assets
                  
                  $
                  295,001
                  
                  
                  $
                  322,267


109


American
Biltrite Inc. and Subsidiaries





Notes
to Consolidated Financial Statements (continued)








14.  Industry
Segments (continued)





For the purposes of presenting segment
assets, the jewelry segment goodwill was classified as an asset of that
segment.  The jewelry segment assets as of December 31, 2007 included
goodwill of $11.6 million.





Years ended December 312008
                
                
                2007(In
    thousands)Additions to long-lived
      assetsFlooring
      products
                
                $
                4,591
                
                
                $
                4,541Tape
    products
                
                
                365
                
                
                
                527Jewelry
                
                
                169
                
                
                
                406Canadian
      division
                
                
                986
                
                
                
                745Corporate
                
                
                -
                
                
                
                -Total additions to long-lived
      assets
                
                $
                6,111
                
                
                $
                6,219





Geographic Area
Information





December 312008
                
                
                2007(In
    thousands)Long-lived assets by
      areaUnited
    States
                
                $
                110,724
                
                
                $
                127,767Canada
                
                
                10,287
                
                
                
                13,688Europe
                
                
                819
                
                
                
                909Asia
                
                
                1,970
                
                
                
                2,041Total long-lived
      assets
                
                $
                123,800
                
                
                $
                144,405





Years ended December 312008
                
                
                2007(In
    thousands)Revenues from external
      customersUnited
    States
                
                $
                290,300
                
                
                $
                332,021Canada
                
                
                40,324
                
                
                
                43,920Mexico
                
                
                1,153
                
                
                
                2,204Europe
                
                
                25,023
                
                
                
                23,526Asia
                
                
                15,874
                
                
                
                16,858Other
                
                
                2,419
                
                
                
                2,196Total revenues from external
      customers
                
                $
                375,093
                
                
                $
                420,725





Revenues are attributed to regions based
on the location of customers.





110


American
Biltrite Inc. and Subsidiaries





Notes
to Consolidated Financial Statements (continued)








15.  Discontinued
Operation





During the second quarter of 2003, the
Company reassessed operations at its Toronto, Canada subsidiary, 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.





During 2006, the Company disposed of
Janus’ remaining assets by completing the sale of a building and land owned by
Janus.  The gain on the sale of the building and land was deferred and
was not recognized until the second quarter of 2008, when the Company completed
its obligation to provide an environmental certification on the land sold and
the Company received payment on a $4.0 million (Canadian dollars) note payable
by the purchaser of the building and land.  The gain of approximately
$1.0 million has been recorded as income from discontinued
operations.





111


American
Biltrite Inc. and Subsidiaries





Notes
to Consolidated Financial Statements (continued)








16.  Quarterly Financial
Information (Unaudited)





First
                  Quarter
                
                
                Second
                  Quarter
                
                
                Third
                  Quarter
                
                
                Fourth
                  Quarter(In thousands, except per share
      amounts)2008Net sales
                
                $
                95,757
                
                
                $
                101,239
                
                
                $
                97,351
                
                
                $
                80,746Gross
profit
                
                
                23,164
                
                
                
                23,562
                
                
                
                22,021
                
                
                
                13,845Income (loss) from continuing
      operations
                
                
                972
                
                
                
                (1,095
                )
                
                
                (10,366
                )
                
                
                (19,586
                )Discontinued
      operation
                
                
                -
                
                
                
                1,025
                
                
                
                -
                
                
                
                -Net income
      (loss)
                
                
                972
                
                
                
                (70
                )
                
                
                (10,366
                )
                
                
                (19,586
                )Net income (loss) per share, basic
      and diluted:Income (loss) from continuing
      operations
                
                
                0.28
                
                
                
                (0.32
                )
                
                
                (3.01
                )
                
                
                (5.69
                )Discontinued
      operation
                
                
                -
                
                
                
                0.30
                
                
                
                -
                
                
                
                -Net income
      (loss)
                
                
                0.28
                
                
                
                (0.02
                )
                
                
                (3.01
                )
                
                
                (5.69
                )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
      and 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
                )





During the fourth quarter of 2008, the
Company recorded non-cash impairment charges for the write off of goodwill,
other intangible assets and the Company’s investment in Hulera
Sula.  The total impairment charge was $12.9 million ($3.75 per share)
(see Note 14).  During the third quarter of 2008, Congoleum recorded a
charge of $11.5 million ($3.34 per share) to increase its reserve for estimated
bankruptcy related expenses (see Note 9).  During the fourth quarter
of 2007, Congoleum recorded adjustments to reverse bond interest previously
accrued ($29.6 million or $8.60 per share), to write off legal fee recoveries
($14.9 million or $4.33 per share) and to increase its reserves for estimated
bankruptcy related expenses ($26.4 million or $7.67 per share).  These
adjustments resulted in a deferred tax liability of $1.7 million, which was
included in the provision recorded in the fourth quarter of 2007 (see Notes 9
and 10).


112


Report of Independent Registered Public
Accounting Firm








Board
of Directors and Stockholders


American
Biltrite Inc.







We have audited the accompanying
consolidated balance sheets of American Biltrite Inc. and subsidiaries as ofDecember 31,
2008and 2007, and the
related consolidated statements of operations with consolidating details,
shareholders' equity, and cash flows with consolidating details for each of the
two years in the period endedDecember 31, 2008.  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 atDecember 31, 2008and 2007, and the consolidated results
of their operations and their cash flows for each of the two years in the period
endedDecember 31,
2008, 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
theinformation set forth
therein.




The accompanying financial statements
have been prepared assuming that American Biltrite Inc. will continue as a going
concern. As more fully described inNote 5, theCompany’s need to refinance its credit
facility raisessubstantial doubt about its ability to
continue as a going concern. Management’s plans in regard to these matters also
are described inNote 5.TheDecember 31, 2008financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the outcome of this uncertainty.







/s/
ERNST & YOUNG LLP





Boston,
Massachusetts


March
24, 2009





113


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,
2008.  Based on this evaluation, the Company’s CEO and CFO concluded
that, as of December 31, 2008, 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 Inc.
is responsible 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. designed American Biltrite Inc.’s internal control
system to provide reasonable assurance to management and the Board of Directors
regarding the preparation and fair presentation of American Biltrite Inc.’s
financial 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 of American Biltrite Inc.’s internal control over
financial reporting as of December 31, 2008.  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 on its assessment, the
management of American Biltrite Inc. believes that, as of December 31,
2008, American Biltrite Inc.’s internal control over financial reporting is
effective at a reasonable assurance level based on these
criteria.





114


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, 2008 that has materially affected, or is reasonably likely to
materially affect, the Company’s internal control over financial
reporting.








ITEM 9B.
            OTHER
      INFORMATION





On
March 30, 2009, the Company issued a press release announcing its financial
results for the three months and year ended December 31, 2008.  A copy
of that press release is being furnished to the Securities and Exchange
Commission pursuant to this Part II, Item 9B of Form 10-K and is attached hereto
as Exhibit 99(16).








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 May12, 2009, which is to be filed with the
Securities and Exchange Commission within 120 days afterDecember 31,2008.





115


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 May12, 2009, which is to be filed with the
Securities and Exchange Commission within 120 days afterDecember 31,2008.





ITEM 12.
            SECURITY OWNERSHIP OF CERTAIN
      BENEFICIAL OWNERSAND 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 May12, 2009, which is to be filed with the
Securities and Exchange Commission within 120 days afterDecember 31,2008.





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 May12, 2009, which is to be filed with the
Securities and Exchange Commission within 120 days afterDecember 31,2008.





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 May12, 2009, which is to be filed with the
Securities and Exchange Commission within 120 days afterDecember 31,2008.


116


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, 2008 and 2007,
      pages 48 & 49





Consolidated Statements of
      Operations with Consolidating Details - Years ended December 31, 2008 and
      2007, page 50





Consolidated Statements of Cash
      Flows with Consolidating Details - Years ended December 31, 2008 and 2007,
      page 51 & 52





Consolidated Statements of
      Stockholders' Equity (Deficit) -
      Years ended December 31, 2008 and 2007, page
      53





Notes to Consolidated Financial
      Statements, pages 54 through
112





(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 pages 121 through 134 of 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 118of this Form
      10-K.





117





American Biltrite Inc. and
Subsidiaries





Schedule II -- Valuation and Qualifying
Accounts





Years ended December 31, 2008 and
2007





(In thousands of
dollars)








COL. A
                COL. B
                COL. C
                COL. D
                COL. E
                COL. F
                COL. GAdditionsDescription
                Balance at
                  Beginning of
                  Period
                Charged to
                  Costs and
                  Expenses
                Charged to
                  Other
                  Accounts --
                  Describe
                Other
                Deductions -
                  Describe
                Balance at
                  End of
    Period2008Allowances for doubtful accounts
      and cash discounts
                $2,917
                $3,802
                
                
                $3,999(A)
                $2,7202007Allowances for doubtful accounts
      and cash discounts
                $3,070
                $2,826
                
                
                $2,979(A)
                $2,917





(A)
            Represents accounts charged off
      during the year, net of
recoveries.


118


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
      27, 2009
                    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
      27, 2009
            by:/s/
      Roger S. MarcusRoger S. Marcus, Chairman of the
      Board, Chief Executive Officer and DirectorDate:March
      27, 2009
            by:/s/
      Richard G. MarcusRichard G. Marcus, President,
      Chief Operating Officer and DirectorDate:March
      27, 2009
            by:/s/
      William M. MarcusWilliam M. Marcus, Executive Vice
      President, Treasurer, Chairman of the Executive Committee and
      DirectorDate:March
      27, 2009
            by:/s/
      Leo R. BreitmanLeo R. Breitman,
      DirectorDate:March
      27, 2009
            by:/s/
      Gilbert K. GailiusGilbert K. Gailius,
      DirectorDate:March
      27, 2009
            by:/s/
      John C. Garrels IIIJohn C. Garrels III,
      DirectorDate:March
      27, 2009
            by:/s/
      Frederick H. JosephFrederick H. Joseph,
      DirectorDate:March
      27, 2009
            by:/s/
      Mark N. KaplanMark N. Kaplan,
      DirectorDate:March
      27, 2009
            by:/s/
      James S. MarcusJames S. Marcus,
      Director





119





Date:March
      27, 2009
            by:/s/
      Natalie S. MarcusNatalie S. Marcus,
      DirectorDate:March
      27, 2009
            by:/s/
      Kenneth I. WatchmakerKenneth I. Watchmaker,
      DirectorDate:March
      27, 2009
            by:/s/
      Howard N. Feist IIIHoward N. Feist III, Vice
      President Finance, Chief Financial Officer and Principal Accounting
      Officer





120


EXHIBIT
INDEX





Exhibit
      No.
            Description3
      (1) VI
            Restated
      Certificate of Incorporation3
      (2) XXVI
            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) XXVII
            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





121





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) XXIX
            Amendment
      No. 5 to Amended and Restated Credit Agreement, dated as of June 30, 2008,
      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
      (7) 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
      (8) 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
      (9) 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
      (10) XIV
            Joinder
      Agreement, dated as of May 20, 2005, between Abimex, LLC and Fleet
      National Bank, a Bank of America company, as domestic
  agent4
      (11) XIV
            Joinder
      Agreement, dated as of May 20, 2005, between ABItalia, Inc. and Fleet
      National Bank, a Bank of America company, as domestic
  agent





122





Exhibit
      No.
            Description4
      (12) 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
      (13) 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
      agent4
      (14) 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
      (15) XIV
            Hypothec
      and Pledge of Bonds, dated May 20, 2005, between American Biltrite
      (Canada) Ltd. and Bank of America, National Association4
      (16) I
            Indenture,
      dated as of August 3, 1998, by and between Congoleum Corporation and First
      Union National Bank, as trustee4
      (17) 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
      (18) 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
      (19)
            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
      Corporation10 (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,
    1997





123





Exhibit
      No.
            Description10 (4)XXVIII
            First Amendment to the1993 Stock Award and Incentive
      Plan as Amended and Restated as ofMarch 4,
    199710 (5) V
            K&M Associates L.P. Amended
      and Restated Agreement of Limited Partnership10 (6) XVII
            Amendment No. 1 to Amended and
      Restated Agreement of Limited Partnership of K&M Associates L.P.,
      dated as ofJanuary
      1, 200610 (7) 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,
  199010 (8) VI, II
            Split-Dollar Agreement dated as ofJanuary 9,
      1997by and between
      American Biltrite Inc. and Joseph D. Burns10 (9) VI, II
            Description of Supplemental
      Retirement Benefits for Gilbert K. Gailius10 (10) VIII
            American Biltrite 1999 Stock
      Option Plan for Non-Employee Directors(as in effect prior to the Amended
      and Restated 1999 Stock Option Plan for Non-Employee
      Directors)10 (11) XXVIII
            American BiltriteAmended and Restated1999 Stock Option Plan for
      Non-Employee Directors10 (12) IX, II
            Description of Employment
      Arrangement for Gilbert K. Gailius.10 (13)X, II
            Split-Dollar Agreement dated as ofNovember 20,
      2000by and between
      American Biltrite Inc. and Howard N. Feist III10
      (14) 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
      (15) XXV
            Fifth
      Amendment to Personal Services Agreement, dated as of March 11, 2008, by
      and between American Biltrite Inc. and Congoleum
    Corporation





124





Exhibit
      No.
            Description10 (16) XXX
            Sixth
      Amendment to Personal Services Agreement, dated as of September 23, 2008,
      by and between American Biltrite Inc. and Congoleum
      Corporation10
      (17) 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
      (18) 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.10
      (19) 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 thereto10
      (20) XXVII
            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





125





Exhibit
      No.
            Description10
      (21) 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 thereto10
      (22) XXIX
            Amendment
      No.5 to Amended and Restated Credit Agreement, dated as of June 30, 2008,
      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
      (23) 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
      (24) 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 subsidiaries10
      (25) 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
      (26) XIV
            Joinder
      Agreement, dated as of May 20, 2005, between Abimex, LLC and Fleet
      National Bank, a Bank of America company, as domestic
  agent10
      (27) XIV
            Joinder
      Agreement, dated as of May 20, 2005, between ABItalia, Inc. and Fleet
      National Bank, a Bank of America company, as domestic
  agent





126





Exhibit
      No.
            Description10
      (28) 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
      (29) 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
      (30) 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
      (31) XIV
            Hypothec
      and Pledge of Bonds, dated May 20, 2005, between American Biltrite
      (Canada) Ltd. and Bank of America, National Association10
      (32) 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
      (33)XXVIII
            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
      (34) 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 (35) XXIX
            Form
      of Stock Option Agreement for American Biltrite Inc.'s 1999 Stock Option
      Plan for Non-Employee Directors (for awards issued under the plan on or
      after March 31, 2008)10
      (36) XII
            Settlement
      Agreement Between Congoleum Corporation and Various Asbestos Claimants
      dated April 10, 200310
      (37) XII
            First
      Amendment to Settlement Agreement Between Congoleum Corporation and
      Various Asbestos Claimants dated June 6, 200310
      (38) 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





127





Exhibit
      No.
            Description10
      (39) 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
      (40) 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
      (41) 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
      (42) 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
      (43) 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
      (44) I
            Loan
      and Security Agreement, dated December 10, 2001 by and between Congress
      Financial Corporation and Congoleum Corporation10
      (45) I
            Amendment
      No. 1 to Loan and Security Agreement, dated September 24, 2002,
      by and between Congress Financial Corporation and Congoleum
      Corporation10
      (46) I
            Amendment
      No. 2 to Loan and Security Agreement, dated as of February 27, 2003,
      by and between Congress Financial Corporation and Congoleum
      Corporation10
      (47) I
            Ratification
      and Amendment Agreement dated January 7, 2004, by and between Congoleum
      Corporation and Congress Financial Corporation10
      (48) I
            Amendment
      No. 1 to Ratification and Amendment Agreement and Amendment No. 3 to Loan
      and Security Agreement dated as of December 14, 200410
      (49) XXI
            Amendment
      No. 2 to Ratification and Amendment Agreement and Amendment No. 4 to Loan
      and Security Agreement dated as of January 13, 2005


128





Exhibit
      No.
            Description10(50)
      XXI
            Amendment
      No. 3 to Ratification and Amendment Agreement and Amendment No. 5 to Loan
      and Security Agreement dated as of June 7, 200510
      (51) XX
            Amendment
      No. 4 to Ratification and Amendment Agreement and Amendment No. 6 to Loan
      and Security Agreement dated as of December 19, 200510
      (52) XXI
            Amendment
      No. 5 to Ratification and Amendment Agreement and Amendment No. 7 to Loan
      and Security Agreement dated as of September 27, 200610
      (53) XXI
            Amendment
      No. 6 to Ratification and Amendment Agreement and Amendment No. 8 to Loan
      and Security Agreement dated as of November 27, 200610
      (54) XXIV
            Amendment
      No. 7 to Ratification and Amendment Agreement and Amendment No. 9 to Loan
      and Security Agreement dated as of June 12, 200710
      (55)XXVIII
            Amendment
      No. 8 to Ratification and Amendment Agreement and Amendment No. 10 to Loan
      and Security Agreement dated as of December 11, 200710
      (56)
            Amendment
      No. 9 to Ratification and Amendment Agreement and Amendment No. 11 to Loan
      and Security Agreement dated as of June 4, 200810
      (57)
            Amendment
      No. 10 to Ratification and Amendment Agreement and Amendment No. 12 to
      Loan and Security Agreement dated as of October 6, 200810
      (58)
            Amendment
      No. 11 to Ratification and Amendment Agreement and Amendment No. 13 to
      Loan and Security Agreement dated as of March 16, 200910
      (59) XXIII
            Response
      Cost Sharing And Alternative Dispute Resolution Agreement, dated as of May
      21, 2007, by American Biltrite Inc. and Miller Industries,
      Inc.10
      (60) XXVII
            Business
      Relations Agreement dated as of March 11, 1993 by and between American
      Biltrite Inc. and Congoleum





129





Exhibit
      No.
            Description10
      (61) XXVI
            First
      Amendment to the Business Relations Agreement, dated as of August 19,
      199710
      (62) XXVI
            Second
      Amendment to the Business Relations Agreement, dated as of March 11,
      200810
      (63) XXX
            Amendment
      to the Business Relations Agreement, dated as of September  23,
      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 200299
      (1) XXXI
            AmendedJoint Plan of Reorganization Under
      Chapter11 of the
      Bankruptcy Code ofthe Debtors, the Official Asbestos
      Claimants' Committee and the Official Committee of Bondholders for
      Congoleum Corporation, et al., dated as ofNovember 14, 2008.99
      (2) XXXI
            Disclosure
      Statement with respect to the Amended Joint Plan of Reorganization Under
      Chapter 11 of the Bankruptcy Code of the Debtors, the Official Asbestos
      Claimants' Committee and the Official Committee of Bondholders for
      Congoleum Corporation et al, dated as of November 14, 2008, not including
      the exhibits thereto with the exception of Exhibit I, which is included
      herein as Exhibit 99 (3).





130





Exhibit
      No.
            Description99
      (3) XXXI
            Form
      of Management Services and Commercial Agreement, Which is Exhibit I to the
      AmendedJoint Plan of Reorganization Under
      Chapter11 of the
      Bankruptcy Code ofthe Debtors, the Official Asbestos
      Claimants' Committee and the Official Committee of Bondholders for
      Congoleum Corporation, et al., dated as ofNovember 14, 2008.99
      (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)XXVII
            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 Company99
      (10) XXVIII
            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
    Company





131





Exhibit
      No.
            Description99
      (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)XXVII
            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
      Company99
      (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)
            Press
      release dated March 30, 2009




_____________________________________________________________I
                    
                    Incorporated
      by reference to the exhibits filed with the Company's Annual Report on
      Form 10-K for the year ended December 31, 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, 1999


132





IX
              
              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, 2003XIII
              
              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 March 17, 2008


133





XXVI
              
              Incorporated
      by reference to the exhibits to the Company's Quarterly Report on Form
      10-Q for the quarter ended September 30, 2007XXVII
              
              Incorporated
      by reference to the exhibits to the Company's Annual Report on Form 10-K
      for the year ended December 31, 2007XXVIII
              
              Incorporated
      by reference to the exhibits to the Company's Quarterly Report on Form
      10-Q for the quarter ended March 31, 2008XXIX
              
              Incorporated
      by reference to the exhibits to the Company's Quarterly Report on Form
      10-Q for the quarter ended June 30, 2008XXX
              
              Incorporated
      by reference to the exhibits to the Company's Current Report on Form 8-K
      filed on September 24, 2008XXXI
              
              Incorporated
      by reference to the exhibits to the Company's Current Report on Form 8-K
      filed on November 20, 2008


134