eps3073.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, 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
(I.R.S. Employer Identification No.)
incorporation or organization)
 

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 o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o       Accelerated filer o   
Non-accelerated filer o  (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 o     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 8, 2008
     
Common Stock
 
3,441,551 shares

 
 
 
 

FORWARD LOOKING STATEMENTS

Some of the information presented in or incorporated by reference in this report constitutes "forward-looking statements," within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks, uncertainties and assumptions.  These statements can be identified by the use of the words such as "anticipate," "believe," "estimate," "expect," "intend," "plan," "project" and other words of similar meaning.  In particular, these include statements relating to intentions, beliefs or current expectations concerning, among other things, future performance, results of operations, the outcome of contingencies, such as bankruptcy and other legal proceedings, and financial conditions.  These statements do not relate strictly to historical or current facts.  These forward-looking statements are based on American Biltrite Inc.’s expectations and American Biltrite Inc.’s understanding of its majority-owned subsidiary Congoleum Corporation’s expectations, as of the date of this report, of future events, and American Biltrite Inc. undertakes no obligation to update any of these forward-looking statements, except as required by federal securities laws.  Although American Biltrite Inc. believes that these expectations are based on reasonable assumptions, within the bounds of its knowledge of its business and operations, there can be no assurance that actual results will not differ materially from its expectations.  Readers are cautioned not to place undue reliance on any forward-looking statements.  Any or all of these statements may turn out to be incorrect.  By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future.  Any forward-looking statements made in this report speak only as of the date of this report unless the statement indicates that another date applies.  It is not possible to predict or identify all factors that could potentially cause actual results to differ materially from expected and historical results.  Factors that could cause or contribute to American Biltrite Inc.’s actual results differing from its expectations include those factors discussed in Item 1A of Part II of this Quarterly Report on Form 10-Q and in American Biltrite Inc.’s other filings with the Securities and Exchange Commission.


 
 
 
 

AMERICAN BILTRITE INC.

INDEX

PART I.
FINANCIAL INFORMATION
 
       
 
Item 1.
Financial Statements:
 
       
   
Consolidating Condensed Balance Sheets – Assets as of June 30, 2008 (Unaudited) and December 31, 2007
1
       
   
Consolidating Condensed Balance Sheets – Liabilities and Stockholders’ Equity as of June 30, 2008 (Unaudited) and December 31, 2007
2
       
   
Consolidating Condensed Statements of Operations (Unaudited) For the Three Months Ended June 30, 2008 and 2007
3
       
   
Consolidating Condensed Statements of Operations (Unaudited) For the Six Months Ended June 30, 2008 and 2007
4
       
   
Consolidating Condensed Statements of Cash Flows – Operating Activities (Unaudited) For the Six Months Ended June 30, 2008 and 2007
5
       
   
Consolidating Condensed Statements of Cash Flows – Investing & Financing  Activities (Unaudited) For the Six Months Ended June 30, 2008 and 2007
6
       
   
Notes to Unaudited Consolidating Condensed Financial Statements
7
       
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
28
       
 
Item 4T.
Controls and Procedures
41
     
PART II.
OTHER INFORMATION
 
       
 
Item 1.
Legal Proceedings
41
       
 
Item 1A.
Risk Factors
42
       
 
Item 3.
Defaults Upon Senior Securities
50
       
 
Item 4.
Submission of Matters to a Vote of Security Holders
50
       
 
Item 5.
Other Information
52
       
 
Item 6.
Exhibits
53
   
Signature
55
 
 
 
 
 

PART I.   FINANCIAL INFORMATION

Item 1. Financial Statements


AMERICAN BILTRITE INC. AND SUBSIDIARIES
CONSOLIDATING CONDENSED BALANCE SHEETS – ASSETS
(In thousands of dollars)

   
ABI Consolidated
   
Eliminations
   
Congoleum
   
American Biltrite
 
   
June 30,
2008
   
December 31, 2007
   
June 30,
2008
   
December 31, 2007
   
June 30,
2008
   
December 31, 2007
   
June 30,
2008
   
December 31, 2007
 
   
(Unaudited)
         
(Unaudited)
         
(Unaudited)
         
(Unaudited)
       
Assets
                                               
Current Assets:
                                               
Cash and cash equivalents
  $ 29,049     $ 30,185                 $ 26,474     $ 26,327     $ 2,575     $ 3,858  
Restricted cash
    29,373       6,501                   29,373       6,501                  
Accounts receivable, net
    43,968       41,345     $ (433 )   $ (316 )     17,120       14,162       27,281       27,499  
Inventories
    83,552       78,401       (123 )     (125 )     40,979       35,182       42,696       43,344  
Deferred income taxes
    961       961                                       961       961  
Prepaid expense & other current assets
    6,228       20,001                       3,301       13,138       2,927       6,863  
Total current assets
    193,131       177,394       (556 )     (441 )     117,247       95,310       76,440       82,525  
                                                                 
Property, plant & equipment, net
    93,709       99,153                       58,391       61,993       35,318       37,160  
                                                                 
Other assets:
                                                               
Insurance for asbestos-related liabilities
    11,140       11,140                                       11,140       11,140  
Goodwill, net
    11,605       11,605                                       11,605       11,605  
Other assets
    18,809       19,014       (117 )     (126 )     11,741       11,909       7,185       7,231  
      41,554       41,759       (117 )     (126 )     11,741       11,909       29,930       29,976  
                                                                 
Total assets
  $ 328,394     $ 318,306     $ (673 )   $ (567 )   $ 187,379     $ 169,212     $ 141,688     $ 149,661  

See accompanying notes to consolidating condensed financial statements.

 
1
 
 

AMERICAN BILTRITE INC. AND SUBSIDIARIES
CONSOLIDATING CONDENSED BALANCE SHEETS – LIABILITIES AND STOCKHOLDERS’ EQUITY
(In thousands of dollars)

   
ABI Consolidated
   
Eliminations
   
Congoleum
   
American Biltrite
 
   
June 30,
2008
   
December 31, 2007
   
June 30,
2008
   
December 31, 2007
   
June 30,
2008
   
December 31, 2007
   
June 30,
2008
   
December 31, 2007
 
   
(Unaudited)
         
(Unaudited)
         
(Unaudited)
         
(Unaudited)
       
Liabilities
                                               
Current liabilities:
                                               
Accounts payable
  $ 18,211     $ 22,570     $ (433 )   $ (316 )   $ 8,687     $ 10,715     $ 9,957     $ 12,171  
Accrued expenses
    34,106       37,035                       17,400       20,742       16,706       16,293  
Asbestos-related liabilities
    45,647       31,207                       45,647       31,207                  
Deferred income taxes
    7,725       7,725                       7,725       7,725                  
Notes payable
    32,336       30,309                       17,436       10,551       14,900       19,758  
Current portion of long-term debt
    2,207       2,376                                       2,207       2,376  
Liabilities subject to compromise
    4,997       4,997                       4,997       4,997                  
Total current liabilities
    145,229       136,219       (433 )     (316 )     101,892       85,937       43,770       50,598  
                                                                 
Long-term debt, less current portion
    6,235       6,725                                       6,235       6,725  
Asbestos-related liabilities
    12,840       12,600                                       12,840       12,600  
Other liabilities
    12,685       12,195                                       12,685       12,195  
Noncontrolling interests
    895       1,093                                       895       1,093  
Liabilities subject to compromise
    129,926       129,605       (117 )     (126 )     130,043       129,731                  
Total liabilities
    307,810       298,437       (550 )     (442 )     231,935       215,668       76,425       83,211  
                                                                 
Stockholders’ equity
                                                               
Common stock
    46       46       (93 )     (93 )     93       93       46       46  
Additional paid-in capital
    19,651       19,607       (49,377 )     (49,368 )     49,377       49,368       19,651       19,607  
Retained earnings
    31,746       30,835       35,423       35,413       (63,526 )     (65,417 )     59,849       60,839  
Accumulated other comprehensive loss
    (15,727 )     (15,487 )     6,111       6,110       (22,687 )     (22,687 )     849       1,090  
Less treasury shares
    (15,132 )     (15,132 )     7,813       7,813       (7,813 )     (7,813 )     (15,132 )     (15,132 )
Total stockholders’ equity
    20,584       19,869       (123 )     (125 )     (44,556 )     (46,456 )     65,263       66,450  
Total liabilities and stockholders’ equity
  $ 328,394     $ 318,306     $ (673 )   $ (567 )   $ 187,379     $ 169,212     $ 141,688     $ 149,661  

See accompanying notes to consolidating condensed financial statements.

 
2
 
 

AMERICAN BILTRITE INC. AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
For the Three Months Ended June 30, 2008 and 2007
(In thousands of dollars, except number of shares and per share amounts)

   
ABI Consolidated
   
Eliminations
   
Congoleum
   
American Biltrite
 
   
2008
   
2007
   
2008
   
2007
   
2008
   
2007
   
2008
   
2007
 
                                                 
Net sales
  $ 101,239     $ 115,558     $ -     $ -     $ 47,166     $ 57,541     $ 54,073     $ 58,017  
                                                                 
Cost of products sold
    77,677       86,058       (400 )     (371 )     37,277       43,797       40,800       42,632  
Selling, general & administrative expenses
    23,576       24,975                       9,238       9,963       14,338       15,012  
(Loss) income from operations
    (14 )     4,525       400       371       651       3,781       (1,065 )     373  
Other income (expense)
                                                               
Interest income
    212       180                       64       130       148       50  
Interest expense
    (611 )     (3,687 )                     -       (3,077 )     (611 )     (610 )
Other (expense) income
    (146 )     196       (407 )     (368 )     (350 )     8       611       556  
      (545 )     (3,311 )     (407 )     (368 )     (286 )     (2,939 )     148       (4 )
(Loss) income before taxes and other items
    (559 )     1,214       (7 )     3       365       842       (917 )     369  
                                                                 
Provision for income taxes
    563       63                       153       7       410       56  
Noncontrolling interests
    27       (20 )                                     27       (20 )
(Loss) income from continuing operations
    (1,095 )     1,131       (7 )     3       212       835       (1,300 )     293  
Discontinued operation
    1,025       -                                       1,025       -  
                                                                 
Net (loss) income
  $ (70 )   $ 1,131     $ (7 )   $ 3     $ 212     $ 835     $ (275 )   $ 293  

   
Basic
   
Diluted
 
   
2008
   
2007
   
2008
   
2007
 
(Loss) income per common share from continuing operations
  $ (0.32 )   $ 0.33     $ (0.32 )   $ 0.33  
Discontinued operation
    0.30       -       0.30       -  
                                 
Net (loss) income per common share
  $ (0.02 )   $ 0.33     $ (0.02 )   $ 0.33  
 
                               
Weighted average number of common and equivalent shares outstanding
    3,441,551       3,441,551       3,441,551       3,442,346  

See accompanying notes to consolidating condensed financial statements.

 
3
 
 

 AMERICAN BILTRITE INC. AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
For the Six Months Ended June 30, 2008 and 2007
(In thousands of dollars, except number of shares and per share amounts)

   
ABI Consolidated
   
Eliminations
   
Congoleum
   
American Biltrite
 
   
2008
   
2007
   
2008
   
2007
   
2008
   
2007
   
2008
   
2007
 
                                                 
Net sales
  $ 196,996     $ 215,589     $ -     $ -     $ 94,863     $ 106,856     $ 102,133     $ 108,733  
                                                                 
Cost of products sold
    150,270       160,253       (700 )     (554 )     74,101       81,113       76,869       79,694  
Selling, general & administrative expenses
    45,965       48,229                       18,370       19,414       27,595       28,815  
Income (loss) from operations
    761       7,107       700       554       2,392       6,329       (2,331 )     224  
Other income (expense)
                                                               
Interest income
    1,363       336                       1,192       254       171       82  
Interest expense
    (1,319 )     (7,235 )                     (197 )     (6,058 )     (1,122 )     (1,177 )
Other income (expense)
    87       148       (699 )     (549 )     (414 )     (34 )     1,200       731  
      131       (6,751 )     (699 )     (549 )     581       (5,838 )     249       (364 )
Income (loss) before taxes and other items
    892       356       1       5       2,973       491       (2,082 )     (140 )
                                                                 
Provision for (benefit from)  income taxes
    1,082       (59 )                     1,082       7       -       (66 )
Noncontrolling interests
    67       (25 )                                     67       (25 )
(Loss) income from continuing operations
    (123 )     390       1       5       1,891       484       (2,015 )     (99 )
Discontinued operation
    1,025       -                                       1,025       -  
                                                                 
Net income (loss)
  $ 902     $ 390     $ 1     $ 5     $ 1,891     $ 484     $ (990 )   $ (99 )

   
Basic
   
Diluted
 
   
2008
   
2007
   
2008
   
2007
 
(Loss) income per common share from continuing operations
  $ (0.04 )   $ 0.11     $ (0.04 )   $ 0.11  
Discontinued operation
    0.30       -       0.30       -  
                                 
Net income per common share
  $ 0.26     $ 0.11     $ 0.26     $ 0.11  
                                 
Weighted average number of common and equivalent shares outstanding
    3,441,551       3,441,551       3,441,551       3,442,326  

See accompanying notes to consolidating condensed financial statements.

 
4
 
 

AMERICAN BILTRITE INC. AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENTS OF CASH FLOWS – OPERATING ACTIVITIES (Unaudited)
For the Six Months Ended June 30, 2008 and 2007
(In thousands of dollars)
 
    
ABI Consolidated
   
Eliminations
   
Congoleum
   
American Biltrite
 
   
2008
   
2007
   
2008
   
2007
   
2008
   
2007
   
2008
   
2007
 
Operating activities
                                               
Net income (loss)
  $ 902     $ 390     $ 1     $ 5     $ 1,891     $ 484     $ (990 )   $ (99 )
Net income from discontinued operation
    (1,025 )     -                                       (1,025 )     -  
Income (loss) from continuing operations
    (123 )     390       1       5       1,891       484       (2,015 )     (99 )
Adjustments to reconcile net income (loss) to net cash (used) provided by operating activities:
                                                               
Depreciation and amortization
    7,915       8,130                       5,299       5,393       2,616       2,737  
Stock compensation expense
    53       10                       9       10       44       -  
Change in operating assets and liabilities:
                                                               
Accounts and notes receivable
    (2,335 )     (5,091 )     108       402       (2,958 )     (504 )     515       (4,989 )
Inventories
    (5,039 )     (1,387 )     (1 )     (5 )     (5,797 )     (1,329 )     759       (53 )
Prepaid expenses and other assets
    593       2,770                       669       2,805       (76 )     (35 )
Proceeds from legal fees disgorgement
    9,168       -                       9,168       -                  
Accounts payable and accrued expenses
    (7,330 )     8,027       (108 )     (402 )     (6,456 )     7,683       (766 )     746  
Asbestos-related expenses
    (8,472 )     (7,783 )                     (8,472 )     (7,783 )                
Noncontrolling interests
    (198 )     (51 )                                     (198 )     (51 )
Other
    1,690       (1,460 )                     1,373       (1,041 )     317       (419 )
Net cash (used) provided by operating activities of continuing operations
  $ (4,078 )   $ 3,555     $ -     $ -     $ (5,274 )   $ 5,718     $ 1,196     $ (2,163 )

See accompanying notes to consolidating condensed financial statements.

 
5
 
 

 AMERICAN BILTRITE INC. AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENTS OF CASH FLOWS – INVESTING & FINANCING ACTIVITIES (Unaudited)
For the Six Months Ended June 30, 2008 and 2007
(In thousands of dollars)
 
    
ABI Consolidated
   
Eliminations
   
Congoleum
   
American Biltrite
 
   
2008
   
2007
   
2008
   
2007
   
2008
   
2007
   
2008
   
2007
 
Investing activities
                                               
Investments in property, plant and equipment
  $ (2,274 )   $ (2,034 )   $ -     $ -     $ (1,504 )   $ (1,073 )   $ (770 )   $ (961 )
Net cash used by investing activities of continuing operations
    (2,274 )     (2,034 )     -       -       (1,504 )     (1,073 )     (770 )     (961 )
                                                                 
Financing activities
                                                               
Net short-term borrowings (repayments)
    2,173       4,488                       6,885       800       (4,712 )     3,688  
Payments on long-term debt
    (662 )     (663 )                                     (662 )     (663 )
Collection on Janus note receivable
    4,034       -                                       4,034       -  
Net change in restricted cash
    40       (41 )                     40       (41 )                
Net cash provided (used) by financing activities of continuing operations
    5,585       3,784       -       -       6,925       759       (1,340 )     3,025  
Effect of foreign exchange rate changes on cash
    (369 )     (602 )                                     (369 )     (602 )
Net (decrease) increase in cash
    (1,136 )     4,703       -       -       147       5,404       (1,283 )     (701 )
Cash and cash equivalents at beginning of period
    30,185       21,180                       26,327       18,591       3,858       2,589  
                                                                 
Cash and cash equivalents at end of period
  $ 29,049     $ 25,883     $ -     $ -     $ 26,474     $ 23,995     $ 2,575     $ 1,888  

See accompanying notes to consolidating condensed financial statements.



 
6
 
 

AMERICAN BILTRITE INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATING CONDENSED
FINANCIAL STATEMENTS
June 30, 2008
(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., referred to herein as "ABI", "American Biltrite" or the "Company") as well as entities over which it has voting control have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information, the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring adjustments, provisions for discontinued operations and provisions to effect a plan of reorganization under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code") of Congoleum Corporation ("Congoleum"), a majority-owned subsidiary of the Company, to settle asbestos liabilities) considered necessary for a fair presentation have been included.  Operating results for the three and six months ended June 30, 2008 are not necessarily indicative of the results that may be expected for future periods, including the year ending December 31, 2008.  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, 2007.

The consolidating balance sheet at December 31, 2007 has been derived from the audited financial statements as of that date but does not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements.

During 2003, the Company decided to discontinue the operations of its Janus Flooring Corporation subsidiary ("Janus"), a manufacturer of pre-finished hardwood flooring, and sell the related assets.  Historical financial results were restated to reflect the classification of Janus as a discontinued operation in accordance with the Financial Accounting Standards Board's ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 144, Accounting for the Impairment or Disposal of Long-lived Assets.  Results of Janus, including charges resulting from the shutdown, are being reported as a discontinued operation.  In April 2006, the Company completed the sale of Janus’ remaining building and land (see Note C).  As a result of the sale of property, the discontinued operation was effectively dissolved during 2006.  As of December 31, 2006, the Company merged Janus with and into American Biltrite Inc.’s subsidiary, American Biltrite (Canada) Ltd. ("AB Canada"), primarily for the purposes of utilizing Janus’ prior years’ net operating losses against future taxable income.

 
7
 
 

Note A - Basis of Presentation (continued)

As discussed more fully below and elsewhere in these notes to consolidating condensed financial statements, the Company's subsidiary Congoleum filed for bankruptcy protection on December 31, 2003 in the United States Bankruptcy Court for the District of New Jersey (the "Bankruptcy Court").  The accompanying consolidated financial statements include the results for Congoleum for all periods presented.  Congoleum’s results include losses (including other comprehensive losses) of $44.6 million and $46.5 million in excess of the value of ABI’s investment in Congoleum at June 30, 2008 and December 31, 2007, respectively.  ABI owns a majority of the voting stock of Congoleum, and expects to continue doing so until Congoleum’s reorganization proceedings are concluded, at which time ABI expects its ownership interests in Congoleum will be eliminated.  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 asbestos liability and plan for resolving that liability, please refer to Note K.

The financial statements of Congoleum have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  Accordingly, the financial statements do not include any adjustments that might be necessary should Congoleum be unable to continue as a going concern.  In light of Congoleum’s substantial asbestos liabilities, which are further described in Note K, there is substantial doubt about Congoleum’s ability to continue as a going concern unless it obtains relief from those liabilities through a successful reorganization under Chapter 11 of the Bankruptcy Code.

The American Institute of Certified Public Accountants Statement of Position 90-7, Financial Reporting by Entities in Reorganization Under the Bankruptcy Code ("SOP 90-7"), provides financial reporting guidance for entities that are reorganizing under the Bankruptcy Code.  Congoleum has implemented this guidance in its consolidated financial statements for periods commencing after December 31, 2003.  Pursuant to SOP 90-7, companies in reorganization under the Bankruptcy Code are required to segregate pre-petition liabilities that are subject to compromise and report them separately on the balance sheet. Liabilities that may be affected by a plan of reorganization are recorded at the amount of the expected allowed claims, even if they may be settled for lesser amounts.  Liabilities for asbestos claims are recorded based upon the minimum amount Congoleum expects to spend for its contribution to, and costs to settle asbestos liabilities through, the Plan Trust (as defined in Note K). Obligations arising post-petition and pre-petition obligations that are secured or that the Bankruptcy Court has authorized Congoleum to pay, are not classified as liabilities subject to compromise.  Other pre-petition claims (which would be classified as liabilities subject to compromise) may arise due to the rejection by Congoleum of executory contracts or unexpired leases pursuant to the Bankruptcy Code or as a result of the allowance by the Bankruptcy Court of contingent or disputed claims related to pre-petition matters.

 
8
 
 

Note A - Basis of Presentation (continued)

Recently Issued Accounting Principles

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements ("SFAS No. 157").  SFAS No. 157 provides a common fair value hierarchy for companies to follow in determining fair value measurements in the preparation of financial statements and expands disclosure requirements relating to how such fair value measurements were developed.  SFAS No. 157 clarifies the principle that fair value should be based on the assumptions that the marketplace would use when pricing an asset or liability, rather than company-specific data.  SFAS No. 157 is effective for fiscal years beginning after November 15, 2007.  However, on February 12, 2008, the FASB issued Staff Position 157-2 which delays the effective date of SFAS No. 157 for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis.  For items within its scope, this Staff Position defers the effective date of SFAS No. 157 to fiscal years beginning after November 15, 2008.  The Company does not believe that the adoption of SFAS No. 157 for its non-financial assets and liabilities, effective January 1, 2009, will have a material impact to the consolidated financial statements.  The Company adopted SFAS No. 157 effective January 1, 2008 for its financial assets and liabilities.  The adoption did not have a material impact to the consolidated financial statements (See Notes E and F).

In July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes – An Interpretation of FASB Statement No. 109 ("FIN 48").  FIN 48 clarifies the accounting for uncertainty in income taxes recognized in financial statements in accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes ("FAS 109").  This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  FIN 48 also provides guidance on derecognition of tax benefits, classification on the balance sheet, interest and penalties, accounting in interim periods, disclosure and transition.  The Company adopted FIN 48 effective January 1, 2007.  As a result of the adoption, the Company determined that no cumulative effect adjustment was necessary to the opening balance of retained earnings as of January 1, 2007.  The Company’s unrecognized tax benefits as of January 1, 2007 were immaterial, and recognition of such tax benefits is not expected to have a material impact on the Company’s income tax provision in future periods.  Changes in the Company’s unrecognized tax benefits during the six months ended June 30, 2008 were immaterial.  Furthermore, the Company does not expect such changes in the next twelve months to be material to the Company’s financial position or results of operation.


 
9
 
 

Note A - Basis of Presentation (continued)

For tax return purposes, ABI and Congoleum are not part of a consolidated group and, consequently, file separate federal and state tax returns. ABI’s and Congoleum’s federal income tax returns are open and subject to examination from the 2004 and 2003 tax return years and forward, respectively.  ABI’s and Congoleum’s various state income tax returns are generally open from the 2002 and later tax return years based on individual state statute of limitations.  Congoleum’s tax return net operating loss carryforwards are significant.  The tax years in which losses arose may be subject to audit when such carryforwards are utilized to offset taxable income in future periods.  AB Canada’s federal and provincial tax returns are open and subject to examination from 2002 and later.
 
 
For the six months ended June 30, 2008, the Company did not record a tax benefit for American Biltrite’s year-to-date loss due to uncertainty in the future benefit and utilization of net operating losses. Income tax expense was recorded for the three months ended June 30, 2008 as a result of the reversal of a tax benefit recorded in the first quarter. Congoleum recorded a tax provision of $153 thousand and $1.1 million for the three and six months ended June 30, 2008, respectively, based on its expected effective tax rate for the year. Income tax provision and benefit recorded by American Biltrite and Congoleum for the three and six months ended June 30, 2007 were not significant.
 
The Company records tax penalties and interest as a component of income tax expense.

Note B - Inventories
 
Inventories at June 30, 2008 and December 31, 2007 consisted of the following (in thousands):
 
   
June 30,
2008
   
December 31,
2007
 
             
Finished goods
  $ 59,667     $ 55,478  
Work-in-process
    12,749       10,327  
Raw materials and supplies
    11,136       12,596  
                 
    $ 83,552     $ 78,401  

Note C – Sale of Property

In April 2006, the Company completed the sale of a building and land owned by Janus, a discontinued operation (see Note A).  The building and land were sold for $5.0 million Canadian dollars ("C$").  The Company received C$1.0 million in cash and a C$4.0 million note.  The note was paid in full in May 2008 subsequent to the receipt of an environmental certification on the land sold.  The Company recognized a gain of approximately C$1.0 million on the sale of the building and land in May 2008.  The gain has been recorded as a gain from the discontinued operation.


 
10
 
 

Note D – Accrued Expenses

Accrued Expenses at June 30, 2008 and December 31, 2007 consisted of the following (in thousands):

   
June 30,
2008
   
December 31,
2007
 
             
Accrued advertising and sales promotions
  $ 14,644     $ 20,906  
Employee compensation and related benefits
    9,401       7,581  
Interest
    460       7  
Environmental matters
    849       849  
Royalties
    721       828  
Income taxes
    1,827       477  
Other
    6,204       6,387  
                 
    $ 34,106     $ 37,035  

See Note H for Liabilities Subject to Compromise.

Note E – Financing Arrangements

American Biltrite Inc.’s primary source of borrowings are the revolving credit facility (the "Revolver") and the term loan ("Term Loan") it has with Bank of America, National Association ("BofA") and BofA acting through its Canada branch (the "Canadian Lender") pursuant to an amended and restated credit agreement (the "Credit Agreement").  The Credit Agreement provides American Biltrite Inc. and its subsidiary K&M Associates L.P. ("K&M") with (i) a $30.0 million commitment under the Revolver with a $12.0 million borrowing sublimit (the "Canadian Revolver") for American Biltrite Inc.’s subsidiary AB Canada and (ii) the $10.0 million Term Loan.  The Credit Agreement also provides for domestic and Canadian letter of credit facilities with availability of up to $5.0 million and $1.5 million, respectively, subject to availability under the Revolver and the Canadian Revolver, respectively.

On August 14, 2008, American Biltrite Inc. and its subsidiaries, K&M and AB Canada, entered into an amendment, effective as of June 30, 2008, 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 permits the Company to include the principal proceeds it received from the payoff of a note (see Note C) to its Consolidated Adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA"), as determined under the Credit Agreement, for the periods ending June 30, 2008, September 30, 2008 and December 31, 2008.  The Credit Agreement includes a financial covenant that requires the Company's Consolidated Adjusted EBITDA for the four consecutive fiscal quarters then ending to exceed 100% of the Company's Consolidated Fixed Charges for the 12-month period ending on such date, as determined under the Credit Agreement (the "Fixed Charge Covenant").  Further, under



 
11
 
 

Note E – Financing Arrangements (continued)

the amendment, the lenders waived defaults that may have otherwise existed as of June 30, 2008 with respect to the Fixed Charges covenant.  ABI paid BofA a fee of $50 thousand in connection with this amendment.  On March 12, 2008, the same parties entered into an amendment to the Credit Agreement to revise a financial covenant to remove 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 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 year ended December 31, 2007 and the six months ended June 30, 2008.

On September 29, 2006, American Biltrite Inc. entered into swap agreements to convert the interest rates on the Term Loan and $6.0 million of borrowings under the Revolver from floating rates to fixed rates of interest.  The swap agreement for the Term Loan (the "Term Loan Swap") has a five year term with the same quarterly payment dates as the Term Loan and reduces proportionately in line with the amortization of the Term Loan.  The swap agreement for the $6.0 million outstanding under the Revolver (the "Revolver Swap") has a three year term with quarterly settlement dates beginning December 31, 2006.  The Company expects its borrowings under the Revolver to remain above $6.0 million through September 29, 2009, the termination date of the Revolver Swap and the Revolver.  The Term Loan Swap and the Revolver Swap are carried at fair value.  Changes in the fair value of the swap agreements are recorded in Other Income (Expense).  For the three and six months ended June 30, 2008, the Company recorded a gain and a loss of $180 thousand and $80 thousand, respectively, for the adjustment of the fair values of the swap agreements.  For the three and six months ended June 30, 2007, the Company recorded a gain of $134 thousand and $90 thousand, respectively.


 
12
 
 

Note F – Fair Value Measurements

Effective January 1, 2008, the Company adopted SFAS No. 157, which defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date.  SFAS No. 157 establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value.  This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs.  The three levels of inputs used to measure fair value are as follows:

 
§
Level 1 – Quoted prices in active markets for identical assets or liabilities.

 
§
Level 2 – Quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; inputs that are derived principally from or corroborated by observable market data by correlation or other means.

 
§
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company’s only financial assets or liabilities subject to SFAS No. 157 are its interest rate swap agreements (see Note E).  Prior to the adoption of SFAS No. 157, the Company recorded the swap agreements at fair value.  The fair value of the swap agreements is based on quoted prices for similar assets or liabilities in active markets (Level 2).  As of June 30, 2008, the Company had recorded an unrealized loss of $408 thousand for its interest rate swap agreements.

Note G – Other Liabilities

Other Liabilities at June 30, 2008 and December 31, 2007 consisted of the following (in thousands):

   
June 30,
2008
   
December 31,
2007
 
             
Pension benefits
  $ 3,055     $ 2,817  
Environmental remediation and product related liabilities
    5,576       5,336  
Deferred income taxes
    1,528       1,337  
Other
    2,526       2,705  
                 
    $ 12,685     $ 12,195  

See Note H for Liabilities Subject to Compromise.


 
13
 
 

Note H – Liabilities Subject to Compromise

As a result of Congoleum’s Chapter 11 filing (see Notes A and K), 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 but unpaid interest expense on its 8 5/8% Senior Notes Due 2008 is also recorded in liabilities subject to compromise. See Notes A and K for further discussion of Congoleum’s asbestos liability and its pending Chapter 11 case.  Liabilities subject to compromise at June 30, 2008 and December 31, 2007 and included in ABI’s consolidated balance sheet at each such date were as follows (in thousands):

   
June 30,
2008
   
December 31,
2007
 
Current liability
           
Pre-petition other payables and accrued interest
  $ 4,997     $ 4,997  
Non-current
               
Debt (at face value)
    100,000       100,000  
Pension liability
    11,209       10,772  
Other post-retirement benefit obligation
    9,572       9,337  
Pre-petition other liabilities
    9,262       9,622  
      130,043       129,731  
Elimination – Payable to American Biltrite
    (117 )     (126 )
Total non-current liability
    129,926       129,605  
                 
Total liabilities subject to compromise
  $ 134,923     $ 134,602  

Additional pre-petition claims (which would be classified as liabilities subject to compromise) may arise due to the rejection by Congoleum of executory contracts or unexpired leases pursuant to the Bankruptcy Code, or as a result of the allowance by the Bankruptcy Court of contingent or disputed claims.


 
14
 
 

Note I – 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, 2008 and 2007 (in thousands):

   
Three Months Ended June 30,
 
   
2008
   
2007
 
   
Pension
   
Other
Benefits
   
Pension
   
Other
Benefits
 
Service cost
  $ 642     $ 56     $ 611     $ 53  
Interest cost
    1,652       144       1,606       142  
Expected return on plan assets
    (1,719 )     -       (1,614 )     -  
Recognized net actuarial loss
    384       15       337       18  
Amortization of prior service cost
    31       -       28       3  
 
                               
Net periodic benefit cost
  $ 990     $ 215     $ 968     $ 216  

   
Six Months Ended June 30,
 
   
2008
   
2007
 
   
Pension
   
Other
Benefits
   
Pension
   
Other
Benefits
 
Service cost
  $ 1,284     $ 112     $ 1,214     $ 106  
Interest cost
    3,304       288       3,201       284  
Expected return on plan assets
    (3,438 )     -       (3,211 )     -  
Recognized net actuarial loss
    768       30       675       36  
Amortization of prior service cost
    62       -       54       6  
                                 
Net periodic benefit cost
  $ 1,980     $ 430     $ 1,933     $ 432  

 
15
 
 

Note I – Pension Plans (continued)

The weighted average assumptions used to determine net periodic benefit cost for the six months ended June 30, 2008 and 2007 were as follows:

 
2008
 
2007
 
Pension
 
Other
Benefits
 
Pension
 
Other
Benefits
               
Discount rate
5.50% - 6.00%
 
6.00%
 
5.20% - 6.00%
 
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%
 

Note J - Commitments and Contingencies

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

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


 
16
 
 

Note J - Commitments and Contingencies (continued)

Liabilities of Congoleum comprise the substantial majority of the environmental and other liabilities reported on the Company’s consolidated balance sheet.  Due to the relative magnitude and wide range of estimates of these liabilities and the fact that recourse related to these liabilities is generally limited to Congoleum, these matters are discussed separately following matters for which ABI has actual or potential liability.  However, since ABI includes Congoleum in ABI’s consolidating financial statements, to the extent that Congoleum incurs a liability or expense, it will be reflected in ABI's consolidating financial statements.

American Biltrite Inc.

ABI is a co-defendant with many other manufacturers and distributors of asbestos containing products in approximately 1,339 pending claims involving approximately 1,894 individuals as of June 30, 2008.  The claimants allege personal injury or death from exposure to asbestos or asbestos-containing products.  Activity related to ABI's asbestos claims is as follows:

   
Six Months
Ended
June 30,
2008
   
Year Ended
December 31,
2007
 
             
Beginning claims
    1,360       1,332  
New claims
    261       523  
Settlements
    (8 )     (20 )
Dismissals
    (274 )     (475 )
                 
Ending claims
    1,339       1,360  

The total indemnity costs incurred to settle claims during the six months ended June 30, 2008 and the year ended December 31, 2007 were $0.6 million and $2.2 million, respectively, all of which were paid by ABI's insurance carriers pursuant to a February 1996 coverage-in-place agreement with ABI's applicable primary layer insurance carriers, as were the related defense costs.  In June 2008, ABI’s primary layer insurance carriers advised ABI that coverage limits under the February 1996 coverage-in-place agreement had exhausted.  ABI’s first-layer umbrella carriers are providing defense and indemnity coverage pursuant to an umbrella/first-layer excess policies arrangement (the “Umbrella Coverage) between ABI and the applicable insurance carriers. The Umbrella Coverage addresses defense and indemnity obligations, allocation of claims to specific policies, and other matters.

 
17
 
 

Note J - Commitments and Contingencies (continued)

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

In general, governmental authorities have determined that asbestos-containing sheet and tile products are nonfriable (i.e., cannot be crumbled by hand pressure) because the asbestos was encapsulated in the products during the manufacturing process.  Thus, governmental authorities have concluded that these products do not pose a health risk when they are properly maintained in place or properly removed so that they remain nonfriable.  The Company has issued warnings not to remove asbestos-­containing flooring by sanding or other methods that may cause the product to become friable.

The Company estimates its liability to defend and 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 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.  In 2007, the Company utilized an actuarial study to assist it in developing estimates of the Company’s potential liability for resolving present and possible future asbestos claims.  At December 31, 2007, the estimated range of liability for settlement of current claims pending and claims anticipated to be filed through 2013 was $12.6 million to $41.4 million.  The Company believed no amount within this range is more likely than any other, and accordingly, recorded the minimum liability estimate of $12.6 million in its consolidated financial statements at December 31, 2007.  At June 30, 2008, the Company has recorded $12.8 million for the estimated minimum liability.  The Company has also recorded, based on this minimum liability estimate, an estimate of the amount of insurance probable of recovery is $11.1 million at June 30, 2008 and December 31, 2007, which has been included in other assets in the Company’s consolidated balance sheet.  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 and a number of assumptions made prior to the completion of the umbrella/first-layer excess policies arrangement.  The Company intends to engage an actuary to estimate the amount


 
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Note J - Commitments and Contingencies (continued)

of insurance probable of recovery taking that arrangement into consideration.  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.

Due to the numerous variables and uncertainties, including the effect of Congoleum's Chapter 11 case and any plan of reorganization on the Company's liabilities, the Company does not believe that reasonable estimates can be developed of liabilities for asbestos-related claims against the Company (not including claims asserted against Congoleum) 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 Company anticipates that any resolution of its asbestos related liabilities that may result from any reorganization plan for Congoleum will be limited at most to liabilities derivative of claims asserted against Congoleum as may be afforded under Section 524(g)(4) of the Bankruptcy Code.

There have been no material developments relating to the environmental sites or the other environmental matters described in ABI's Annual Report on Form 10-K during the six month period ended June 30, 2008.

Congoleum

Congoleum is a defendant in a large number of asbestos-related lawsuits and on December 31, 2003, filed a petition commencing a voluntary reorganization case under Chapter 11 of the Bankruptcy Code for purposes of resolving its asbestos-related liabilities.  See Note K.

Congoleum is named, together with a large number (in most cases, hundreds) of other companies, as a potentially responsible party ("PRP") in pending proceedings under the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA") and similar state laws.  In addition, in four other instances, although not named as a PRP, Congoleum has received a request for information.  The pending proceedings in which Congoleum is a named PRP currently relate to eight disposal sites in New Jersey, Pennsylvania and Maryland in which recovery from generators of hazardous substances is sought for the cost of cleaning up the contaminated waste sites.  Congoleum’s ultimate liability and funding obligations in connection with those other sites depends on many factors, including the volume of material contributed to the site by Congoleum, the number of other PRP’s and their financial viability, the remediation methods and technology to be used and the extent to which costs may be recoverable by Congoleum from relevant insurance policies.  However, under CERCLA and certain other laws, Congoleum, as a PRP, can be held jointly and severally liable for all environmental costs associated with a site.


 
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Note J - Commitments and Contingencies (continued)

The most significant exposure for which Congoleum has been named a PRP relates to a recycling facility site in Elkton, Maryland (the "Galaxy/Spectron Superfund Site").  The PRP group at this site is made up of 81 companies, substantially all of which are large, financially solvent entities.  Two removal actions were substantially complete as of December 31, 1998, and a groundwater treatment system was installed thereafter.  The United States Environmental Protection Agency has selected a remedy for the soil and shallow groundwater (Operable Unit 1 or OU-1); however, the remedial investigation/feasibility study related to the deep groundwater (Operational Unit 2 or OU-2) has not been completed.  The PRP group, of which Congoleum is a part, has entered into a consent decree to perform the remedy for OU-1 and resolve natural resource damage claims. The consent decree also requires the PRP group to perform the OU-2 remedy, assuming that the estimated cost of the remedy is not more than $10.0 million.  If the estimated cost of the OU-2 remedy is more than $10.0 million, the PRP group may decline to perform it or they may elect to perform it anyway. Cost estimates for the OU-1 and OU-2 work combined (including natural resource damages) range between $22 million and $34 million, with Congoleum’s share ranging between approximately $1.0 million and $1.6 million.  This assumes that all parties participate and that none cash-out and pay a premium; those two factors may account for some fluctuation in Congoleum’s share of the costs. Fifty percent (50%) of Congoleum’s share of the costs is presently being paid by one of its insurance carriers, Liberty Mutual Insurance Company, whose remaining policy limits for this claim are expected to cover approximately $300 thousand in additional costs.  Congoleum expects to fund the balance to the extent further insurance coverage is not available.

Congoleum filed a motion before the Bankruptcy Court seeking authorization and approval of the consent decree and related settlement agreements for the Galaxy/Spectron Superfund Site, as well as authorization for Liberty Mutual Insurance Company and Congoleum to make certain payments that have been invoiced to Congoleum with respect to the consent decree and related settlement agreements.  An order authorizing and approving consent decree and settlement agreements was issued by the Bankruptcy Court in August 2006.

Congoleum also accrues remediation costs for certain of Congoleum’s owned facilities on an undiscounted basis.  Congoleum has entered into an administrative consent order with the New Jersey Department of Environmental Protection and has established a remediation trust fund of $100 thousand as financial assurance for certain remediation funding obligations.  Estimated total clean-up costs of $1.3 million for Congoleum’s expected portion of those remediation funding obligations, including capital outlays and future maintenance costs for soil and groundwater remediation, are primarily based on engineering studies.  Of this amount, $300 thousand was included in current liabilities subject to compromise and $1.0 million was included in non-current liabilities subject to compromise in ABI’s consolidated balance sheet as of June 30, 2008 and December 31, 2007.


 
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Note J - Commitments and Contingencies (continued)

At June 30, 2008 and December 31, 2007, Congoleum recorded a total of $4.4 million for estimated environmental liabilities, which liabilities were not reduced by the amount of expected insurance recoveries.  At June 30, 2008 and December 31, 2007, such estimated insurance recoveries are approximately $2.2 million.  Receivables for expected insurance recoveries are recorded if the related carriers are solvent and paying claims under a reservation of rights or under an obligation pursuant to coverage in place or a settlement agreement.  Substantially all of Congoleum’s recorded insurance assets for environmental matters are collectible from a single carrier.

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

Other

In addition to the matters referenced above and in Note K, in the ordinary course of their businesses, the Company and Congoleum become involved in lawsuits and administrative proceedings in connection with 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.

Note K – Congoleum Asbestos Liabilities and Reorganization

On December 31, 2003, Congoleum filed a voluntary petition with the Bankruptcy Court seeking relief under Chapter 11 of the Bankruptcy Code as a means to resolve claims asserted against it related to the use of asbestos in its products decades ago.  During 2003, Congoleum had obtained the requisite votes of asbestos personal injury claimants necessary to seek approval of a proposed, pre-packaged Chapter 11 plan of reorganization.  In January 2004, Congoleum filed its proposed plan of reorganization and disclosure statement with the Bankruptcy Court.  From that filing through 2007, several subsequent plans were negotiated with representatives of the Asbestos Claimants’ Committee (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 Bondholders’ Committee also filed a plan of reorganization.  In May 2006, the Bankruptcy Court ordered the principal parties in interest in Congoleum’s reorganization proceedings to participate in global mediation discussions.  Numerous mediation sessions took place during 2006, culminating in two competing plans, one which Congoleum filed jointly with the ACC in 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.


 
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Note K – Congoleum Asbestos Liabilities and Reorganization (continued)

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.

Although the Joint Plan was ruled not legally confirmable, the following description of the terms of the Joint Plan is provided as it may be useful to the reader.  Under the terms of the Joint Plan, a trust would have been created upon consummation of the Joint Plan, which trust would have assumed the liability for Congoleum’s current and future asbestos claims (the "Plan Trust").  That trust would have received the proceeds of various settlements Congoleum has reached with a number of insurance carriers, and would have been assigned Congoleum’s rights under its remaining policies covering asbestos product liability.  The trust would also have received 50.1% of the newly issued common stock of reorganized Congoleum w