Edgar Filing: AMERICAN BILTRITE INC

eps3898.htm

FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Quarterly Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

For Quarter Ended June 30, 2010	Commission File Number 1-4773

AMERICAN BILTRITE INC.
(Exact name of registrant as specified in its charter)

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

57 River Street Wellesley Hills, Massachusetts 02481-2097 (Address of Principal Executive Offices) (781) 237-6655 (Registrant’s telephone number, including area code) Not Applicable (Former name, former address and former fiscal year if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes [X] No [ ]

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

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

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

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

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

Class		Outstanding at August 13, 2010

Common Stock		3,441,357 shares

FORWARD LOOKING STATEMENTS

Some of the information presented in or incorporated by reference in this report constitutes “forward-looking statements,” within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks, uncertainties and assumptions. These forward-looking statements are based on American Biltrite Inc.’s expectations as of the date of this report, of future events. American Biltrite Inc. undertakes no obligation to update any of these forward looking statements, except as may be required by the federal securities laws. Although American Biltrite believes that these expectations are based on reasonable assumptions, within the bounds of its knowledge of its business and experience, there can be no assurance that actual results will not differ materially from expectations. Any or all of these expectations may turn out to be incorrect and any forward-looking statements made in this report speak only as of the date of this report unless the statement indicates that another date applies. Readers are cautioned not to place undue reliance on any forward-looking statements. Actual results could differ significantly as a result of various factors. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. It is not possible to predict or identify all factors that could potentially cause actual results to differ materially from expected and historical results.

Factors that could cause actual results to differ from expectations include: (i) American Biltrite’s ability to comply with the covenants imposed on it under its credit agreement, the availability of borrowings under its credit facilities and its ability to generate sufficient operating cash flows to fund its businesses and operations; (ii) the future cost and timing of payments associated with and availability of insurance coverage for environmental liabilities and product and general liability claims, including asbestos related liabilities; (iii) increases in raw material prices and availability of raw materials; (iv) increased competitive activity from competitors, some of which have greater resources and broader distribution channels; (v) unfavorable developments in various markets for American Biltrite Inc.’s or its subsidiaries’ products or in the national or global economy in general; (vi) shipment delays, depletion of inventory and increased production costs resulting from unforeseen disruptions of operations at any of American Biltrite Inc.’s or its subsidiaries’ facilities or distributors; (vii) the incurrence of product warranty costs; (viii) changes in customers for American Biltrite’s or its subsidiaries’ products or the failure of customers to timely pay for product purchased; (ix) any discontinuation of American Biltrite Inc.’s business arrangements with Congoleum; (x) the failure of distributors or sales representatives to adequately perform; and (xi) the loss of any key executives.

Other factors that could cause or contribute to American Biltrite Inc.’s actual results differing from its expectations include those factors discussed in Item 1A of Part II of this Quarterly Report on Form 10-Q and in American Biltrite Inc.’s other filings with the Securities and Exchange Commission.

AMERICAN BILTRITE INC.

INDEX

PART I.	FINANCIAL INFORMATION

	Item 1.	Financial Statements:

		Consolidating Condensed Balance Sheets – Assets as of June 30, 2010 (Unaudited) and December 31, 2009	1

		Consolidating Condensed Balance Sheets – Liabilities and Stockholders’ Equity (Deficit) as of June 30, 2010 (Unaudited) and December 31, 2009	2

		Consolidating Condensed Statements of Operations (Unaudited) For the Three Months Ended June 30, 2010 and 2009	3

		Consolidating Condensed Statements of Operations (Unaudited) For the Six Months Ended June 30, 2010 and 2009	4

		Consolidating Condensed Statements of Cash Flows – Operating Activities (Unaudited) For the Six Months Ended June 30, 2010 and 2009	5

		Consolidating Condensed Statements of Cash Flows – Investing & Financing Activities (Unaudited) For the Six Months Ended June 30, 2010 and 2009	6

		Notes to Unaudited Consolidating Condensed Financial Statements	7

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

	Item 4.	Controls and Procedures	32

PART II.	OTHER INFORMATION

	Item 1.	Legal Proceedings	32

	Item 1A.	Risk Factors	33

	Item 4.	Other Information	41

	Item 6.	Exhibits	42

	Signature		43

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

AMERICAN BILTRITE INC. AND SUBSIDIARIES

CONSOLIDATING CONDENSED BALANCE SHEETS – ASSETS

(In thousands of dollars)

	ABI Consolidated				Eliminations						Congoleum				American Biltrite
	June 30, 2010		December 31, 2009		June 30, 2010			December 31, 2009			June 30, 2010		December 31, 2009		June 30, 2010		December 31, 2009
	(Unaudited)				(Unaudited)						(Unaudited)				(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	11,740	$	16,467							$	11,030	$	16,065	$	710	$	402
Restricted cash		35,706		31,580								35,706		31,580
Short-term investments		2,400		2,400												2,400		2,400
Accounts receivable, net		42,790		30,780	$	(678	)	$	(105	)		21,029		11,699		22,439		19,186
Inventories		68,206		61,853		(112	)		(41	)		32,793		28,883		35,525		33,011
Taxes receivable		354		287												354		287
Prepaid expense & other current assets		6,816		6,001								3,088		3,868		3,728		2,133
Total current assets		168,012		149,368		(790	)		(146	)		103,646		92,095		65,156		57,419

Property, plant & equipment, net		75,070		80,541								45,396		49,250		29,674		31,291

Other assets:
Insurance for asbestos-related liabilities		17,646		17,646												17,646		17,646
Other assets		29,710		30,067		(109	)		(109	)		22,331		22,331		7,488		7,845
		47,356		47,713		(109	)		(109	)		22,331		22,331		25,134		25,491

Total assets	$	290,438	$	277,622	$	(899	)	$	(255	)	$	171,373	$	163,676	$	119,964	$	114,201

See accompanying notes to consolidating condensed financial statements.

AMERICAN BILTRITE INC. AND SUBSIDIARIES

CONSOLIDATING CONDENSED BALANCE SHEETS – LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

(In thousands of dollars)

	ABI Consolidated						Eliminations						Congoleum						American Biltrite
	June 30, 2010			December 31, 2009			June 30, 2010			December 31, 2009			June 30, 2010			December 31, 2009			June 30, 2010			December 31, 2009
	(Unaudited)						(Unaudited)						(Unaudited)						(Unaudited)
Liabilities
Current liabilities:
Accounts payable	$	19,533		$	14,462		$	(678	)	$	(105	)	$	8,874		$	7,740		$	11,337		$	6,827
Accrued expenses		34,006			32,235									17,435			16,188			16,571			16,047
Asbestos-related liabilities		44,727			48,458									44,727			48,458
Deferred income taxes		12,724			12,724									12,724			12,724
Notes payable		29,384			18,231									22,995			14,180			6,389			4,051
Current portion of long-term debt		1,460			1,448															1,460			1,448
Liabilities subject to compromise		4,992			4,997									4,992			4,997
Total current liabilities		146,826			132,555			(678	)		(105	)		111,747			104,287			35,757			28,373

Long-term debt, less current portion		6,363			7,134															6,363			7,134
Asbestos-related liabilities		17,700			17,700															17,700			17,700
Other liabilities		14,142			14,656															14,142			14,656
Liabilities subject to compromise		150,939			149,562			(109	)		(109	)		151,048			149,671
Total liabilities		335,970			321,607			(787	)		(214	)		262,795			253,958			73,962			67,863

Stockholders’ equity (deficit)
Common stock		46			46			(93	)		(93	)		93			93			46			46
Additional paid-in capital		20,049			19,950			(49,395	)		(49,395	)		49,395			49,395			20,049			19,950
Less cost of shares in treasury		(15,132	)		(15,132	)		7,813			7,813			(7,813	)		(7,813	)		(15,132	)		(15,132	)
Retained earnings (deficit)		(11,069	)		(10,400	)		42,782			42,340			(96,347	)		(95,207	)		42,496			42,467
Accumulated other comprehensive loss		(39,506	)		(39,088	)		(377	)		(377	)		(36,750	)		(36,750	)		(2,379	)		(1,961	)
Total stockholders’ equity (deficit) of controlling interests		(45,612	)		(44,624	)		730			288			(91,422	)		(90,282	)		45,080			45,370
Noncontrolling interests		80			639			(842	)		(329	)								922			968
Total stockholders’ equity (deficit)		(45,532	)		(43,985	)		(112	)		(41	)		(91,422	)		(90,282	)		46,002			46,338
Total liabilities and stockholders’ equity (deficit)	$	290,438		$	277,622		$	(899	)	$	(255	)	$	171,373		$	163,676		$	119,964		$	114,201

See accompanying notes to consolidating condensed financial statements.

AMERICAN BILTRITE INC. AND SUBSIDIARIES

CONSOLIDATING CONDENSED STATEMENTS OF OPERATIONS (Unaudited)

For the Three Months Ended June 30, 2010 and 2009

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

	ABI Consolidated						Eliminations						Congoleum						American Biltrite
	2010			2009			2010			2009			2010			2009			2010			2009

Net sales	$	91,798		$	81,322		$	-		$	-		$	41,638		$	39,350		$	50,160		$	41,972

Cost of products sold		71,106			65,240			(575	)		(194	)		34,835			33,156			36,846			32,278
Selling, general & administrative expenses		19,762			19,111									7,609			7,449			12,153			11,662
Income (loss) from operations		930			(3,029	)		575			194			(806	)		(1,255	)		1,161			(1,968	)
Other income (expense)
Interest income		1			6									–			1			1			5
Interest expense		(345	)		(316	)								(161	)		(100	)		(184	)		(216	)
Other (expense) income		(719	)		782			(467	)		(181	)		(17	)		410			(235	)		553
		(1,063	)		472			(467	)		(181	)		(178	)		311			(418	)		342
(Loss) income before taxes		(133	)		(2,557	)		108			13			(984	)		(944	)		743			(1,626	)
Provision for income taxes		214			21									14			-			200			21
Net (loss) income		(347	)		(2,578	)		108			13			(998	)		(944	)		543			(1,647	)
Noncontrolling interests		404			421			449			424									(45	)		(3	)
Net income (loss) attributable to controlling interests	$	57		$	(2,157	)	$	557		$	437		$	(998	)	$	(944	)	$	498		$	(1,650	)

	Basic					Diluted
	2010		2009			2010		2009
Net income (loss) attributable to controlling interests per common share	$	0.02	$	(0.63	)	$	0.02	$	(0.63	)

Weighted average number of common and equivalent shares outstanding		3,441,463		3,441,551			3,447,049		3,441,551

See accompanying notes to consolidating condensed financial statements.

AMERICAN BILTRITE INC. AND SUBSIDIARIES

CONSOLIDATING CONDENSED STATEMENTS OF OPERATIONS (Unaudited)

For the Six Months Ended June 30, 2010 and 2009

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

	ABI Consolidated						Eliminations						Congoleum						American Biltrite
	2010			2009			2010			2009			2010			2009			2010			2009

Net sales	$	172,480		$	151,383		$	-		$	-		$	75,689		$	69,456		$	96,791		$	81,927

Cost of products sold		132,271			121,577			(687	)		(503	)		62,192			59,292			70,766			62,788
Selling, general & administrative expenses		39,242			39,621									14,519			15,699			24,723			23,922
Income (loss) from operations		967			(9,815	)		687			503			(1,022	)		(5,535	)		1,302			(4,783	)
Other income (expense)
Interest income		4			13									–			3			4			10
Interest expense		(676	)		(661	)								(210	)		(208	)		(466	)		(453	)
Other (expense) income		(1,184	)		459			(758	)		(474	)		118			704			(544	)		229
		(1,856	)		(189	)		(758	)		(474	)		(92	)		499			(1,006	)		(214	)
(Loss) income before taxes		(889	)		(10,004	)		(71	)		29			(1,114	)		(5,036	)		296			(4,997	)
Provision for (benefit from) income taxes		241			(32	)								26			15			215			(47	)
Net (loss) income		(1,130	)		(9,972	)		(71	)		29			(1,140	)		(5,051	)		81			(4,950	)
Noncontrolling interests		461			2,318			513			2,271									(52	)		47
Net (loss) income attributable to controlling interests	$	(669	)	$	(7,654	)	$	442		$	2,300		$	(1,140	)	$	(5,051	)	$	29		$	(4,903	)

	Basic						Diluted
	2010			2009			2010			2009
Net loss attributable to controlling interests per common share	$	(0.19	)	$	(2.22	)	$	(0.19	)	$	(2.22	)

Weighted average number of common and equivalent shares outstanding		3,441,498			3,441,551			3,441,498			3,441,551

See accompanying notes to consolidating condensed financial statements.

AMERICAN BILTRITE INC. AND SUBSIDIARIES

CONSOLIDATING CONDENSED STATEMENTS OF CASH FLOWS – OPERATING ACTIVITIES (Unaudited)

For the Six Months Ended June 30, 2010 and 2009

(In thousands of dollars)

	ABI Consolidated						Eliminations						Congoleum						American Biltrite
	2010			2009			2010			2009			2010			2009			2010			2009
Operating activities
Net (loss) income	$	(1,130	)	$	(9,972	)	$	(71	)	$	29		$	(1,140	)	$	(5,051	)	$	81		$	(4,950	)
Adjustments to reconcile net (loss) income to net cash provided (used) by operating activities:
Depreciation and amortization		6,871			6,919									4,616			4,835			2,255			2,084
Stock compensation expense		99			103									–			4			99			99
Change in operating assets and liabilities:
Accounts and notes receivable		(12,611	)		(662	)		573			(100	)		(9,330	)		(1,247	)		(3,854	)		685
Inventories		(8,589	)		12,451			71			(29	)		(3,910	)		4,713			(4,750	)		7,767
Prepaid expenses and other assets		227			1,058									780			1,039			(553	)		19
Accounts payable and accrued expenses		6,420			(1,976	)		(573	)		100			2,374			(3,662	)		4,619			1,586
Asbestos-related expenses		(7,855	)		(4,200	)								(7,855	)		(4,200	)
Insurance proceeds for fire loss		1,000			–															1,000			–
Other		826			1,677									1,379			1,648			(553	)		29
Net cash (used) provided by operating activities of continuing operations	$	(14,742	)	$	5,398		$	-		$	-		$	(13,086	)	$	(1,921	)	$	(1,656	)	$	7,319

See accompanying notes to consolidating condensed financial statements.

AMERICAN BILTRITE INC. AND SUBSIDIARIES

CONSOLIDATING CONDENSED STATEMENTS OF CASH FLOWS – INVESTING & FINANCING ACTIVITIES (Unaudited)

For the Six Months Ended June 30, 2010 and 2009

(In thousands of dollars)

	ABI Consolidated						Eliminations				Congoleum						American Biltrite
	2010			2009			2010		2009		2010			2009			2010			2009
Investing activities
Investments in property, plant and equipment	$	(1,387	)	$	(2,934	)	$	–	$	–	$	(762	)	$	(1,520	)	$	(625	)	$	(1,414	)
Purchase of short-term investments		(2,400	)		(1,000	)												(2,400	)		(1,000	)
Proceeds from sale of short-term investments		2,400			–													2,400			–

Net cash used by investing activities		(1,387	)		(3,934	)		–		–		(762	)		(1,520	)		(625	)		(2,414	)

Financing activities
Net short-term borrowings (repayments)		11,213			352							8,815			3,254			2,398			(2,902	)
Payments on long-term debt		(759	)		(5,566	)												(759	)		(5,566	)
Proceeds from borrowings on long-term debt		–			8,000													–			8,000
Refinancing costs		–			(1,527	)												–			(1,527	)
Funding of letters of credit		–			(1,628	)												–			(1,628	)
Net change in restricted cash		(2	)		(1,087	)						(2	)		(1,087	)
Net cash provided (used) by financing activities		10,452			(1,456	)		–		–		8,813			2,167			1,639			(3,623	)
Effect of foreign exchange rate changes on cash		950			113													950			113
Net (decrease) increase in cash		(4,727	)		121			–		–		(5,035	)		(1,274	)		308			1,395
Cash and cash equivalents at beginning of period		16,467			18,072							16,065			15,077			402			2,995

Cash and cash equivalents at end of period	$	11,740		$	18,193		$	–	$	–	$	11,030		$	13,803		$	710		$	4,390

See accompanying notes to consolidating condensed financial statements.

AMERICAN BILTRITE INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATING CONDENSED

FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)

Note A – Basis of Presentation

The accompanying unaudited consolidating condensed financial statements which include the accounts of American Biltrite Inc. and its wholly owned subsidiaries (and including, unless the context otherwise indicates, its majority-owned subsidiary K&M Associates L.P., are referred to herein as “ABI”, “American Biltrite” or the “Company”) as well as entities over which it has voting control have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2010 are not necessarily indicative of the results that may be expected for future periods, including the year ending December 31, 2010. For further information, refer to the consolidating financial statements and the notes to those financial statements included in American Biltrite Inc.'s Annual Report on Form 10-K for the year ended December 31, 2009.

The consolidating condensed balance sheet at December 31, 2009 has been derived from the audited financial statements as of that date but does not include all of the information and notes required by U.S. GAAP for complete financial statements.

As discussed more fully below and elsewhere in these notes to consolidating condensed financial statements, the Company’s subsidiary Congoleum Corporation (“Congoleum”) filed for bankruptcy protection on December 31, 2003 in the United States Bankruptcy Court for the District of New Jersey (the “Bankruptcy Court”), and on August 17, 2009, the United States District Court for the District of New Jersey (the “District Court”) withdrew the reference of Congoleum’s Chapter 11 case from the Bankruptcy Court and assumed authority over the proceedings. Congoleum’s plan of reorganization was confirmed by the District Court on June 7, 2010 and became effective July 1, 2010. Upon effectiveness of Congoleum’s plan of reorganization, ABI’s ownership interests in Congoleum were cancelled. Consequently, the results of reorganized Congoleum will not be included in the consolidated results of the Company subsequent to June 30, 2010. In periods subsequent to June 30, 2010, the historical results of Congoleum will be reported as a discontinued operation.

Note A – Basis of Presentation (continued)

The accompanying consolidated financial statements include the results for Congoleum for all periods presented. Congoleum’s results include losses (including other comprehensive losses) of $90.6 million in excess of the value of ABI’s investment in Congoleum at June 30, 2010. During the periods presented, ABI owned a majority of the voting stock of Congoleum and continued to consolidate the financial statements of Congoleum in its consolidated results. The accompanying financial statements present the details of consolidation to separately show the financial condition, operating results and cash flows of ABI (including its non-debtor subsidiaries) and Congoleum (and its debtor subsidiaries), which may be more meaningful for certain analyses.

The American Institute of Certified Public Accountants provides financial reporting guidance for entities that are reorganizing under the United States Bankruptcy Code (the “Bankruptcy Code”). Congoleum implemented this guidance in its consolidated financial statements for periods commencing after December 31, 2003 and through June 30, 2010. Companies in reorganization under the Bankruptcy Code are required to segregate pre-petition liabilities that are subject to compromise and report them separately on the balance sheet. Liabilities that may be affected by a plan of reorganization are recorded at the amount of the expected allowed claims, even if they may be settled for lesser amounts. Obligations arising post-petition and pre-petition obligations that are secured or that the Bankruptcy Court has authorized Congoleum to pay, are not classified as liabilities subject to compromise.

Note B – Inventories

Inventories at June 30, 2010 and December 31, 2009 consisted of the following (in thousands):

	June 30, 2010		December 31, 2009

Finished goods	$	47,492	$	43,789
Work-in-process		9,958		9,335
Raw materials and supplies		10,756		8,729

	$	68,206	$	61,853

In February 2010, a minor fire at the Company’s Lowell, Massachusetts facility caused limited damage to a production line and certain inventory. Costs incurred in connection with the fire totaled approximately $2.1 million and included the replacement of damaged inventory, repair of damaged equipment, and clean up and restoration of the production line. The Company filed a claim with its insurance carrier and, in April and July 2010, received advances of $1.0 million and $720 thousand, respectively, for the claim. The Company expects that substantially all of its costs arising from the fire will be reimbursed by its insurance carrier.

Note C – Accrued Expenses

Accrued expenses at June 30, 2010 and December 31, 2009 consisted of the following (in thousands):

	June 30, 2010		December 31, 2009

Accrued advertising and sales promotions	$	17,072	$	16,981
Employee compensation and related benefits		8,171		6,954
Environmental matters		1,252		1,118
Royalties		554		639
Income taxes		327		166
Other		6,630		6,377

	$	34,006	$	32,235

See Note F for Liabilities Subject to Compromise.

Note D – Financing Arrangements

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

The Credit Agreement provides American Biltrite Inc. and its subsidiaries with (i) a $30.0 million commitment under the Revolver (including a $12.0 million Canadian revolving credit facility sublimit) and (ii) an $8.0 million Term Loan. The Credit Agreement also provides letter of credit facilities with availability of up to $6.0 million (including a $3.0 million Canadian letter of credit facility sublimit) subject to availability under the Revolver. The Revolver expires on June 30, 2012, and all indebtedness under the Credit Agreement other than the Term Loan, matures on that date. The Term Loan principal is payable in 72 monthly installments of $111 thousand beginning August 1, 2009 and ending on July 1, 2015. The maximum amount available for revolving debt borrowings is reduced to the amount of the borrowing base if that amount is lower. The borrowing base is based upon eligible assets of the Company, including accounts receivables and inventory. The Company’s obligations under the Credit Agreement are secured by a lien on the assets of the Company and its subsidiaries. At June 30, 2010, the Company had $6.4 million and $6.7 million outstanding under the Revolver and Term Loan, respectively, and $11.4 million of additional unused borrowing capacity available under the Revolver.

Note D – Financing Arrangements (continued)

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

The Credit Agreement contains customary bank covenants, including limitations on incurrence of debt and liens or other encumbrances on assets or properties, sale of assets, making of loans or investments, including paying dividends and redemptions of capital stock, the formation or acquisition of subsidiaries and transactions with affiliates. The Credit Agreement requires the Company and the other borrowers and the guarantors to maintain, on a consolidated basis, a minimum fixed charge coverage ratio of 1.0:1.0. The Credit Agreement also requires that the Company and the other borrowers and the guarantors maintain, on a consolidated basis, a minimum amount of earnings before interest, taxes, depreciation, and amortization, as determined under the Credit Agreement.

In March 2010, the Company and Wachovia entered into an amendment to the Credit Agreement. The amendment reduced the minimum required levels of earnings before interest, taxes, depreciation, and amortization under the Credit Agreement, and further provided that meeting such minimums would not be required for any monthly test period during which the Company’s unused available credit under the Credit Agreement was at least $6.0 million for 30 consecutive days. The Company paid a fee of $30 thousand to Wachovia in connection with this amendment.

The Company currently anticipates it will be able to comply with its covenants under the Credit Agreement. However, the Company had to receive covenant waivers on several occasions under its prior credit agreement or enter amendments to that agreement to address failures to satisfy covenants under that prior credit agreement, and it is possible that, in the future, the Company may need to obtain waivers for failures to satisfy its covenants under the Credit Agreement or enter amendments to the Credit Agreement to address any such failures or obtain replacement financing as a result. There can be no assurance the Company would be successful in obtaining any such waiver, entering any such amendment or obtaining any such replacement financing.

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

Note E – Other Liabilities

Other Liabilities at June 30, 2010 and December 31, 2009 consisted of the following (in thousands):

	June 30, 2010		December 31, 2009

Pension benefits	$	5,568	$	5,871
Environmental remediation and product related liabilities		5,570		5,570
Income taxes payable		609		352
Deferred income taxes		312		312
Other		2,083		2,551

	$	14,142	$	14,656

See Note F for Liabilities Subject to Compromise.

Note F – Liabilities Subject to Compromise

As a result of Congoleum’s Chapter 11 filing, 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. Additional, pre-petition claims (which would be classified as liabilities subject to compromise) may arise due to the rejection by Congoleum of executory contracts or unexpired leases pursuant to the Bankruptcy Code, or as a result of the allowance by the District Court of contingent or disputed claims. Liabilities subject to compromise at June 30, 2010 and December 31, 2009 and included in ABI’s consolidated balance sheet at each such date were as follows (in thousands):

	June 30, 2010			December 31, 2009
Current liability
Pre-petition other payables and accrued interest	$	4,992		$	4,997
Non-current
Debt		100,000			100,000
Pension liability		27,435			26,286
Other post-retirement benefit obligation		11,312			11,117
Pre-petition other liabilities		12,301			12,268
		151,048			149,671
Elimination – Payable to American Biltrite		(109	)		(109	)
Total non-current liability		150,939			149,562

Total liabilities subject to compromise	$	155,931		$	154,559

Note G – Pension Plans

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

The table below summarizes the components of the net periodic benefit cost for the Company's and Congoleum's pension and other benefit plans during the three and six months ended June 30, 2010 and 2009 (in thousands):

	Three Months Ended June 30,
	2010					2009
	Pension			Other Benefits		Pension			Other Benefits
Service cost	$	535		$	51	$	494		$	57
Interest cost		1,738			150		1,646			161
Expected return on plan assets		(1,436	)		-		(1,192	)		-
Recognized net actuarial loss		717			12		1,102			16
Amortization of prior service cost		23			-		27			-

Net periodic benefit cost	$	1,577		$	213	$	2,077		$	234

	Six Months Ended June 30,
	2010					2009
	Pension			Other Benefits		Pension			Other Benefits
Service cost	$	1,070		$	102	$	988		$	114
Interest cost		3,476			300		3,291			322
Expected return on plan assets		(2,872	)		-		(2,383	)		-
Recognized net actuarial loss		1,434			24		2,204			32
Amortization of prior service cost		46			-		54			-

Net periodic benefit cost	$	3,154		$	426	$	4,154		$	468

Note G – Pension Plans (continued)

The weighted average assumptions used to determine net periodic benefit cost for the three and six months ended June 30, 2010 and 2009 were as follows:

	2010		2009
	Pension	Other Benefits	Pension	Other Benefits

Discount rate	6.00% - 6.25%	6.00%	5.75% - 7.50%	5.75%
Expected long-term return on plan assets	7.00%	—	7.00%	—
Rate of compensation increase	3.00% - 3.50%	—	3.00% - 4.00%	—

Note H – Commitments and Contingencies

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

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 as appropriate to reflect such revisions and progress.

Note H – Commitments and Contingencies (continued)

ABI is a co-defendant with many other manufacturers and distributors of asbestos containing products in approximately 1,213 pending claims involving approximately 1,759 individuals as of June 30, 2010. 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 six months ended June 30, 2010 and year ended December 31, 2009 was as follows:

	Six months Ended June 30, 2010			Year Ended December 31, 2009

Beginning claims		1,193			1,269
New claims		124			240
Settlements		(11	)		(25	)
Dismissals		(93	)		(291	)

Ending claims		1,213			1,193

ABI has multiple excess layers of insurance coverage for asbestos claims. The total indemnity costs incurred to settle claims during the six months ended June 30, 2010 and the year ended December 31, 2009 were $634 thousand and $5.7 million, respectively, all of which were paid by ABI's first-layer excess umbrella insurance carriers, as were the related defense costs.

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

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, based upon a strategy to vigorously

Note H – Commitments and Contingencies (continued)

defend against and strategically settle 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. The estimate is sensitive to changes in the mesothelioma acceptance rate. For example, if the calibration window is shifted by one year to the 2004 to 2008 calibration period, the mesothelioma acceptance rate decreases by 1.2% to 4.6%, and this reduces the liability in the low estimate by about 20% (assuming all other variables remain 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 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, the Company does not believe that reasonable estimates can be developed of liabilities for claims beyond a six year horizon. The Company will continue to evaluate its range of future exposure, and the related insurance coverage available, and when appropriate, record future adjustments to those estimates, which could be material.

The estimated range of liability for settlement of current claims pending and claims anticipated to be filed through 2015 was $17.7 million to $62.0 million as of December 31, 2009. The Company believes no amount within this range is more likely than any other, and accordingly has recorded a liability of $17.7 million in its financial statements which the Company believes 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 $17.6 million at June 30, 2010 and December 31, 2009, 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 known facts by ABI and a number of assumptions. However, the uncertainties referred to above, including the difficulty 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.

Note H – Commitments and Contingencies (continued)

There can be no assurance that the Company’s accrued asbestos liabilities will approximate its actual asbestos-related settlement costs, or that it will receive the insurance recoveries which it has accrued or that its insurance will adequately cover the Company’s costs and liabilities with respect to asbestos claims. 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 believes it has substantial insurance coverage to mitigate future costs related to this matter.

In the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, the Company disclosed various legal proceedings. Material developments relating to those matters during the six month period ended on June 30, 2010 include those mentioned in the immediately following paragraph.

As reported in the Company's Annual Report on Form 10-K for the year ended December 31, 2009, the Company has been named as a Potentially Responsible Party (“PRP”) within the meaning of that term under the Federal Comprehensive Environmental Response Compensation and Liability Act, as amended, with respect to seven sites located in six separate states. One of those sites relates to the Ward Transformer Superfund Site in Raleigh, North Carolina (the “Ward Site”). With respect to the Ward Site, four companies have entered into a settlement agreement with the United States Environmental Protection Agency (“EPA”) agreeing to fund and perform remediation with respect to the site (the “Ward Performing Parties”). The Ward Performing Parties previously notified the Company that it is a PRP of a claim at the Ward Site. The Company was also advised by the Ward Performing Parties that certain legal issues raised in a lawsuit commenced by a small group of current PRPs against the EPA trying to apply the Burlington N. & S.F.R. Co v. United States, No. 07-1601 (May 4, 2009) decision to this Site were rejected by the Court that heard those arguments. The Ward Performing Parties have further advised ABI that they expect that the EPA will eventually issue a Unilateral Administrative Order to a small group of current PRPs with respect to the Ward Site (the “Selected PRPs”) and if that occurs, they further expect that the Selected PRPs would assert claims against all of the other PRPs with respect to the Ward Site. If a claim is asserted by the Selected PRPs, the Company expects it would receive a settlement offer for its share of the clean-up costs. If a settlement offer is made and not agreed to by the Company, the Company expects that the Selected PRPs would commence litigation against the Company seeking indemnification from the Company for the share of those costs that the Selected PRPs may assert are allocable to the Company.

Note H – Commitments and Contingencies (continued)

As of June 30, 2010 and December 31, 2009, ABI recorded a reserve of $6.6 million and $6.5 million, respectively, which the Company believes represents the probable and reasonably estimable amounts to cover the anticipated remediation costs described in the Company’s 2009 annual report and above based on facts and circumstances known to the Company. The Company has also recorded a receivable of $2.5 million as of June 30, 2010 and December 31, 2009, for what the Company believes is its 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 and funding obligations with respect to these matters in future periods. The Company monitors existing and potential environmental matters to consider the reasonableness of its estimates and assumptions.

There have been no other material developments relating to the environmental sites or the other environmental or other legal matters relating to ABI that were disclosed in ABI's Annual Report on Form 10-K for the year ended December 31, 2009, during the six month period ended June 30, 2010.

Congoleum

Congoleum records a liability for environmental remediation claims when a cleanup program or claim payment becomes probable and the costs can be reasonably estimated. The recorded liabilities, totaling $4.6 million at June 30, 2010 and December 31, 2009, are not reduced by the amount of estimated insurance recoveries. Congoleum’s estimated insurance recoveries approximated $2.1 million at June 30, 2010 and December 31, 2009, and are reflected in other non-current assets in ABI’s consolidating condensed balance sheet. There have been no material developments relating to Congoleum’s environmental matters disclosed in ABI's Annual Report on Form 10-K for the year ended December 31, 2009, during the six month period ended June 30, 2010.

Other

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

Note I – Congoleum 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. Congoleum’s plan of reorganization (the “Plan”) was confirmed by the District Court on June 7, 2010 and became effective July 1, 2010. Although a notice of appeal has been filed with the United States Court of Appeals for the Third Circuit, the Plan has been substantially consummated, and Congoleum has moved to dismiss such appeal as equitably moot and on other grounds.

By operation of the Plan, all shares of Congoleum’s Class A and Class B common stock outstanding immediately prior to the Plan becoming effective were cancelled effective as of July 1, 2010, including those shares owned by ABI. As a result, after June 30, 2010, ABI does not own any equity interest in reorganized Congoleum and Congoleum is no longer a subsidiary of ABI. The former holders of the cancelled shares of Congoleum common stock, including ABI, did not receive any compensation on account of their cancelled shares.

The Plan governs an intercompany settlement and ongoing intercompany arrangements among American Biltrite and its subsidiaries and reorganized Congoleum, pursuant to which American Biltrite and reorganized Congoleum entered into a management services and commercial agreement effective as of July 1, 2010, which agreement has a term of two years. The management services and commercial agreement includes the provision of management services by American Biltrite to reorganized Congoleum and other business relationships substantially consistent with their traditional relationships.

Note J – Stockholders’ (Deficit) Equity

The following table reconciles stockholders’ (deficit) equity for the year ended December 31, 2009 and the six months ended June 30, 2010 (in thousands):

	Stockholders’ (Deficit) Equity of Controlling Interests			Non- Controlling Interests			Total Equity

December 31, 2008	$	(46,784	)	$	835		$	(45,949	)
Net loss for the year ended December 31, 2009		(12,208	)		(6,737	)		(18,945	)
Foreign currency translation adjustments		2,699			–			2,699
Defined benefit plans adjustment		11,463			6,487			17,950
Stock compensation expense		201			–			201
Effect of Congoleum stock compensation		5			4			9
Taxes payable adjustment for controlling interests		–			50			50

December 31, 2009		(44,624	)		639			(43,985	)
Net loss for the six months ended June 30, 2010		(669	)		(461	)		(1,130	)
Stock compensation expense		99			—			99
Foreign currency translation adjustments		(418	)		—			(418	)
K&M distribution		–			(98	)		(98	)

June 30, 2010	$	(45,612	)	$	80		$	(45,532	)

American Biltrite owned 55% of Congoleum’s outstanding shares of Class A and Class B common stock as of June 30, 2010. The noncontrolling interests recorded in American Biltrite’s consolidated financial statements include the 45% of outstanding shares of Congoleum Class A and Class B common stock not owned by American Biltrite. Prior to January 1, 2009, American Biltrite reported in its consolidated results 100% of Congoleum’s losses from the period Congoleum incurred a deficit in earnings during 2002 through December 31, 2008, in accordance with accounting rules in effect through December 31, 2008. Effective January 1, 2009, the Company adopted the FASB’s new accounting standard for the accounting of noncontrolling interests. Under the new standard, 45% of Congoleum’s income or loss is attributed to the noncontrolling interests even if the attribution of a loss results in a negative balance for noncontrolling interest. Upon effectiveness of Congoleum’s plan of reorganization as of July 1, 2010, ABI’s ownership interests in Congoleum were cancelled by operation of the plan. Consequently, the results of reorganized Congoleum will not be included in the consolidated results of the Company subsequent to June 30, 2010. Furthermore, the deconsolidation of Congoleum will result in the elimination of the accumulated deficit attributable to Congoleum, which amounted to $53.6 million at June 30, 2010, from American Biltrite’s consolidated stockholders’ equity.

Note J – Stockholders’ (Deficit) Equity (continued)

In March 2010, in accordance with its partnership agreement, the Company’s majority-owned (94.5%) subsidiary K&M Associates L.P. made a $1.8 million distribution to its partners. The amount of the distribution made to the minority partner (5.5%) of K&M Associates L.P. was $98 thousand, which reduced noncontrolling interests.

Note K – Comprehensive Income (Loss)

The following table presents total comprehensive income for the three and six months ended June 30, 2010 and 2009 (in thousands):

Three Months Ended June 30,		Six Months Ended June 30,
2010	2009	2010	2009