eps3804.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 March 31, 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 May 17, 2010
     
Common Stock
 
3,441,419 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’s expectations, and American Biltrite’s understanding of Congoleum’s expectations, as of the date of this release, of future events. American Biltrite 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. 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. 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 actual results to differ from expectations include: (i) American Biltrite’s and Congoleum’s ability to comply with the covenants imposed on them under their respective credit agreements and the availability of borrowings under their credit facilities and their ability to generate sufficient operating cash flows to fund their respective businesses and operations; (ii) the future cost and timing of payments associated with and availability of insurance coverage for environmental and non-asbestos related product and general liability claims; (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’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’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’s intercompany arrangements with Congoleum on terms substantially consistent with those currently in effect, which agreements are contemplated to be revised under the currently proposed plan of reorganization for Congoleum, and the expected terms of such proposed amendments have been previously referred to by American Biltrite in its prior periodic filings with the Securities and Exchange Commission; (x) the failure of distributors or sales representatives to adequately perform; and (xi) the loss of any key executives.


 
 

 

American Biltrite and Congoleum have significant asbestos related liabilities. On December 31, 2003, Congoleum filed a voluntary petition with the United States Bankruptcy Court for the District of New Jersey (Case No. 03-51524) seeking relief under Chapter 11 of the United States Bankruptcy Code as a means to resolve claims asserted against it related to the use of asbestos in its products decades ago. On August 17, 2009, the United States District Court for the District of New Jersey withdrew reference to Congoleum’s Chapter 11 case from the Bankruptcy Court and assumed authority over the proceedings. Congoleum’s Chapter 11 case is pending. Some additional factors that could cause actual results to differ from Congoleum’s and American Biltrite’s objectives for resolving asbestos liability include: (i) the future cost and timing of estimated asbestos liabilities and payments; (ii) the availability of insurance coverage and reimbursement from insurance companies that underwrote the applicable insurance policies for asbestos-related claims, including insurance coverage and reimbursement for asbestos claimants under any proposed plan of reorganization for Congoleum, which certain insurers have objected to in the applicable courts adjudicating Congoleum’s Chapter 11 case and are litigating in New Jersey state court; (iii) the costs relating to the execution and implementation of any plan of reorganization for Congoleum; (iv) timely reaching agreement with other creditors, or classes of creditors, that exist or may emerge; (v) satisfaction of the conditions and obligations under American Biltrite and Congoleum’s outstanding debt instruments, and amendment or waiver of those outstanding debt instruments, as necessary, to permit Congoleum and American Biltrite to satisfy their obligations under any plan of reorganization for Congoleum; (vi) the response from time-to-time of the lenders, customers, suppliers, holders of Congoleum’s Senior Notes and their representatives, and other creditors and constituencies to the Chapter 11 process and related developments arising from the strategy to resolve asbestos liability; (vii) Congoleum’s ability to maintain debtor-in-possession financing sufficient to provide it with funding that may be needed during the pendency of its Chapter 11 case and to obtain exit financing sufficient to provide it with funding that may be needed for its operations after emerging from the bankruptcy process, in each case, on reasonable terms; (viii) timely obtaining sufficient creditor and court approval (including the results of any relevant appeals) of any reorganization plan for Congoleum and the court overruling any objections to the plan that may be filed; (ix) costs of, developments in, and the outcome of insurance coverage litigation pending in New Jersey state court involving Congoleum and certain insurers; (x) the impact any adopted federal legislation addressing asbestos claims may have on American Biltrite’s and Congoleum’s businesses, results of operations or financial conditions; (xi) compliance with the United States Bankruptcy Code, including section 524(g); and (xii) the possible adoption of another party’s plan of reorganization, which may prove to be unfeasible.

In addition, in view of American Biltrite’s relationships with Congoleum, American Biltrite could be affected by Congoleum’s negotiations regarding its pursuit of a plan of reorganization, and there can be no assurance as to what that impact, positive or negative, might be. In any event, the failure of Congoleum to obtain confirmation and consummation of a Chapter 11 plan of reorganization would have a material adverse effect on Congoleum’s business, results of operations or financial condition and could have a material adverse effect on American Biltrite’s business, results of operations or financial condition. 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 March 31, 2010 (Unaudited) and December 31, 2009
1
       
   
Consolidating Condensed Balance Sheets – Liabilities and Stockholders’ Equity (Deficit) as of March 31, 2010 (Unaudited) and December 31, 2009
2
       
   
Consolidating Condensed Statements of Operations (Unaudited) For the Three Months Ended March 31, 2010 and 2009
3
       
   
Consolidating Condensed Statements of Cash Flows (Unaudited) For the Three Months Ended March 31, 2010 and 2009
4
       
   
Notes to Unaudited Consolidating Condensed Financial Statements
5
       
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
27
       
 
Item 4.
Controls and Procedures
42
       
PART II.
OTHER INFORMATION
 
       
 
Item 1.
Legal Proceedings
43
       
 
Item 1A.
Risk Factors
43
       
 
Item 3.
Defaults Upon Senior Securities
54
       
 
Item 5.
Other Information
54
       
 
Item 6.
Exhibits
55
       
Signature
 
59

 

 
 

 

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
 
   
March 31,
2010
   
December 31,
2009
   
March 31,
2010
   
December 31,
2009
   
March 31,
2010
   
December 31,
2009
   
March 31,
2010
   
December 31,
2009
 
   
(Unaudited)
         
(Unaudited)
         
(Unaudited)
         
(Unaudited)
       
Assets
                                               
Current assets:
                                               
Cash and cash equivalents
  $ 13,619     $ 16,467                 $ 12,660     $ 16,065     $ 959     $ 402  
Restricted cash
    33,656       31,580                   33,656       31,580                  
Short-term investments
    2,400       2,400                                   2,400       2,400  
Accounts receivable, net
    37,717       30,780     $ (1,065 )   $ (105 )     16,260       11,699       22,522       19,186  
Inventories
    64,396       61,853       (220 )     (41 )     32,952       28,883       31,664       33,011  
Taxes receivable
    306       287                                       306       287  
Prepaid expense & other current assets
    7,820       6,001                       3,344       3,868       4,476       2,133  
Total current assets
    159,914       149,368       (1,285 )     (146 )     98,872       92,095       62,327       57,419  
                                                                 
Property, plant & equipment, net
    78,273       80,541                       47,324       49,250       30,949       31,291  
                                                                 
Other assets:
                                                               
Insurance for asbestos-related liabilities
    17,646       17,646                                       17,646       17,646  
Other assets
    29,884       30,067       (109 )     (109 )     22,331       22,331       7,662       7,845  
      47,530       47,713       (109 )     (109 )     22,331       22,331       25,308       25,491  
                                                                 
Total assets
  $ 285,717     $ 277,622     $ (1,394 )   $ (255 )   $ 168,527     $ 163,676     $ 118,584     $ 114,201  
                                                                 
See accompanying notes to consolidating condensed financial statements.
 

 
1

 

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

   
ABI Consolidated
   
Eliminations
   
Congoleum
   
American Biltrite
 
   
March 31,
2010
   
December 31,
2009
   
March 31,
2010
   
December 31,
2009
   
March 31,
2010
   
December 31,
2009
   
March 31,
2010
   
December 31,
2009
 
   
(Unaudited)
         
(Unaudited)
         
(Unaudited)
         
(Unaudited)
       
Liabilities
                                               
Current liabilities:
                                               
Accounts payable
  $ 17,105     $ 14,462     $ (1,065 )   $ (105 )   $ 9,219     $ 7,740     $ 8,951     $ 6,827  
Accrued expenses
    30,018       32,235                       13,536       16,188       16,482       16,047  
Asbestos-related liabilities
    47,900       48,458                       47,900       48,458                  
Deferred income taxes
    12,724       12,724                       12,724       12,724                  
Notes payable
    26,158       18,231                       20,128       14,180       6,030       4,051  
Current portion of long-term debt
    1,458       1,448                                       1,458       1,448  
Liabilities subject to compromise
    4,997       4,997                       4,997       4,997                  
Total current liabilities
    140,360       132,555       (1,065 )     (105 )     108,504       104,287       32,921       28,373  
                                                                 
Long-term debt, less current portion
    6,716       7,134                                       6,716       7,134  
Asbestos-related liabilities
    17,700       17,700                                       17,700       17,700  
Other liabilities
    14,565       14,656                                       14,565       14,656  
Liabilities subject to compromise
    150,338       149,562       (109 )     (109 )     150,447       149,671                  
Total liabilities
    329,679       321,607       (1,174 )     (214 )     258,951       253,958       71,902       67,863  
                                                                 
Stockholders’ equity (deficit)
                                                               
Common stock
    46       46       (93 )     (93 )     93       93       46       46  
Additional paid-in capital
    20,000       19,950       (49,395 )     (49,395 )     49,395       49,395       20,000       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)
    (11,126 )     (10,400 )     42,225       42,340       (95,349 )     (95,207 )     41,998       42,467  
Accumulated other comprehensive loss
    (38,234 )     (39,088 )     (377 )     (377 )     (36,750 )     (36,750 )     (1,107 )     (1,961 )
Total stockholders’ equity (deficit) of controlling interests
    (44,446 )     (44,624 )     173       288       (90,424 )     (90,282 )     45,805       45,370  
Noncontrolling interests
    484       639       (393 )     (329 )                     877       968  
Total stockholders’ equity (deficit)
    (43,962 )     (43,985 )     (220 )     (41 )     (90,424 )     (90,282 )     46,682       46,338  
Total liabilities and stockholders’ equity (deficit)
  $ 285,717     $ 277,622     $ (1,394 )   $ (255 )   $ 168,527     $ 163,676     $ 118,584     $ 114,201  
                                                                 
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 March 31, 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
  $ 80,682     $ 70,061                 $ 34,051     $ 30,106     $ 46,631     $ 39,955  
                                                             
Cost of products sold
    61,165       56,337     $ (112 )   $ (309 )     27,357       26,136       33,920       30,510  
Selling, general & administrative expenses
    19,480       20,510                       6,910       8,250       12,570       12,260  
Income (loss) from operations
    37       (6,786 )     112       309       (216 )     (4,280 )     141       (2,815 )
Other income (expense)
                                                               
Interest income
    3       7                             2       3       5  
Interest expense
    (331 )     (345 )                     (49 )     (108 )     (282 )     (237 )
Other (expense) income
    (465 )     (323 )     (291 )     (293 )     135       294       (309 )     (324 )
      (793 )     (661 )     (291 )     (293 )     86       188       (588 )     (556 )
Loss before income taxes
    (756 )     (7,447 )     (179 )     16       (130 )     (4,092 )     (447 )     (3,371 )
Provision for (benefit from) income taxes
    27       (53 )                     12       15       15       (68 )
Net loss
    (783 )     (7,394 )     (179 )     16       (142 )     (4,107 )     (462 )     (3,303 )
Noncontrolling interests
    57       1,897       64       1,847                       (7 )     50  
Net loss attributable to controlling interests
  $ (726 )   $ (5,497 )   $ (115 )   $ 1,863     $ (142 )   $ (4,107 )   $ (469 )   $ (3,253 )
                                                                 
      2010       2009                                                  
Net loss attributable to controlling interests per share
                                                               
Basic
  $ (0.21 )   $ (1.60 )                                                
Diluted
    (0.21 )     (1.60 )                                                
Weighted average number of common and equivalent shares outstanding
                                                               
Basic
    3,441,531       3,441,551                                                  
Diluted
    3,441,531       3,441,551                                                  
                                                                 
See accompanying notes to consolidating condensed financial statements.
 

 
3

 

AMERICAN BILTRITE INC. AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
For the Three Months Ended March 31, 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
  $ (783 )   $ (7,394 )   $ (179 )   $ 16     $ (142 )   $ (4,107 )   $ (462 )   $ (3,303 )
Adjustments to reconcile net loss to net cash used by operating activities:
                                                               
Depreciation and amortization
    3,468       3,443                       2,332       2,432       1,136       1,011  
Stock compensation expense
    50       52                             2       50       50  
Change in operating assets and liabilities:
                                                               
Accounts and notes receivable
    (7,017 )     (1,275 )     960       (92 )     (4,561 )     (2,059 )     (3,416 )     876  
Inventories
    (3,720 )     727       179       (16 )     (4,069 )     (2,328 )     170       3,071  
Prepaid expenses and other assets
    285       449                       524       556       (239 )     (107 )
Accounts payable and accrued expenses
    1,647       (5,349 )     (960 )     92       845       (3,369 )     1,762       (2,072 )
Asbestos-related expenses
    (2,635 )     (1,292 )                     (2,635 )     (1,292 )                
Other
    594       558                       790       682       (196 )     (124 )
                                                                 
Net cash used by operating activities
    (8,111 )     (10,081 )                 (6,916 )     (9,483 )     (1,195 )     (598 )
Investing activities
                                                               
Investments in property, plant and equipment
    (727 )     (1,177 )                     (406 )     (859 )     (321 )     (318 )
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
    (727 )     (2,177 )                 (406 )     (859 )     (321 )     (1,318 )
Financing activities
                                                               
Net short-term borrowings
    7,938       3,776                       5,993       2,972       1,945       804  
Payments on long-term debt
    (408 )     (584 )                                     (408 )     (584 )
Net change in restricted cash
    (2,076 )     (28 )                     (2,076 )     (28 )                
                                                                 
Net cash provided by financing activities
    5,454       3,164                   3,917       2,944       1,537       220  
Effect of foreign exchange rate changes on cash
    536       379                                       536       379  
Net (decrease) increase in cash
    (2,848 )     (8,715 )                 (3,405 )     (7,398 )     557       (1,317 )
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
  $ 13,619     $ 9,357     $     $     $ 12,660     $ 7,679     $ 959     $ 1,678  
                                                                 
See accompanying notes to consolidating condensed financial statements.
 

 
4

 

AMERICAN BILTRITE INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATING CONDENSED
FINANCIAL STATEMENTS
March 31, 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 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 months ended March 31, 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 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.  The accompanying consolidated financial statements include the results for Congoleum for all periods presented.  Congoleum’s results include losses (including other comprehensive losses) of $90.0 million in excess of the value of ABI’s investment in Congoleum at March 31, 2010 and December 31, 2009.  ABI owns a majority of the voting stock of Congoleum, and expects to continue doing so until Congoleum’s Chapter 11 reorganization is completed.  Upon effectiveness of any plan of reorganization for Congoleum, ABI expects that its ownership interests in Congoleum will be cancelled, at which time ABI would no longer include Congoleum's results in the consolidated results of the Company.  The Company has elected to continue to consolidate the financial statements of Congoleum in its consolidated results because it believes that is the appropriate presentation given its current voting control of Congoleum.  However, the accompanying financial statements also present the details of consolidation to separately show the financial condition, operating results and cash flows of ABI (including its non-debtor subsidiaries) and Congoleum (and its debtor subsidiaries), which may be more meaningful for certain analyses.


 
5

 

Note A - Basis of Presentation (continued)
 
For more information regarding Congoleum’s asbestos liability and plan for resolving that liability, please refer to Note I.

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 I, 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 provides financial reporting guidance for entities that are reorganizing under the Bankruptcy Code.  Congoleum has implemented this guidance in its consolidated financial statements for periods commencing after December 31, 2003.  Companies in reorganization under the Bankruptcy Code are required to segregate pre-petition liabilities that are subject to compromise and report them separately on the balance sheet. Liabilities that may be affected by a plan of reorganization are recorded at the amount of the expected allowed claims, even if they may be settled for lesser amounts.  Liabilities for asbestos claims are recorded based upon the minimum amount Congoleum expects to spend for its contribution to, and costs to settle asbestos liabilities through, the trust that would be created on or after the date the District Court confirms a plan of reorganization containing terms currently proposed and by the effective date of that plan (as described in Note I).  Obligations arising post-petition and pre-petition obligations that are secured or that the Bankruptcy Court has authorized Congoleum to pay, are not classified as liabilities subject to compromise.  Other pre-petition claims (which would be classified as liabilities subject to compromise) may arise due to the rejection by Congoleum of executory contracts or unexpired leases pursuant to the Bankruptcy Code or as a result of the allowance by the District Court of contingent or disputed claims related to pre-petition matters.

 
6

 

Note A - Basis of Presentation (continued)

Recently Issued Accounting Principles

In May 2009, the FASB issued new accounting guidance that establishes general standards of accounting for, and disclosure of, events that occur after the balance sheet date but before financial statements are issued or are available to be issued.  The new accounting guidance was effective for interim and annual periods ending after June 15, 2009.  In particular, the new accounting guidance established (i) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, (ii) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and (iii) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. The adoption of the new accounting guidance did not have a material effect on the Company’s financial condition or results of operations.  There were no events subsequent to March 31, 2010 and through our financial statement issuance date requiring disclosure.

Note B - Inventories
 
Inventories at March 31, 2010 and December 31, 2009 consisted of the following (in thousands):
 

   
March 31,
2010
   
December 31,
2009
 
             
Finished goods
  $ 43,462     $ 43,789  
Work-in-process
    11,178       9,335  
Raw materials and supplies
    9,756       8,729  
                 
    $ 64,396     $ 61,853  


 
7

 

Note C – Accrued Expenses

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

   
March 31,
2010
   
December 31,
2009
 
             
Accrued advertising and sales promotions
  $ 14,386     $ 16,981  
Employee compensation and related benefits
    7,930       6,954  
Environmental matters
    1,159       1,118  
Royalties
    592       639  
Income taxes
    201       166  
Other
    5,750       6,377  
                 
    $ 30,018     $ 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 on the Credit Agreement were used to pay off borrowings from another financial institution and to pay fees and expenses in connection with the refinancing.

The Credit Agreement provides American Biltrite Inc. and its subsidiaries with (i) a $30.0 million commitment under the Revolver (including a $12.0 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 March 31, 2010, the Company had $6.0 million and $7.0 million outstanding under the Revolver and Term Loan, respectively, and $11.0 million of additional unused borrowing capacity available under the Revolver.


 
8

 

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 to 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 of 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 on every day 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 these covenants as revised by the recent amendment.  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.


 
9

 

Note D – Financing Arrangements (continued)

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

On June 30, 2009, the Company also entered into accounts receivable financing agreements (the “FGI Financing Agreements”) with Faunus Group International (“FGI”).  The FGI Financing Agreements were intended to provide up to a maximum amount outstanding at any time of $4.0 million in net amounts funded based upon an 80% advance rate. Fees under the FGI Financing Agreements included a monthly collateral management fee equal to 0.66% of the average monthly balance of accounts purchased by FGI as well as interest on the daily net funds employed at a rate equal to the greater of (i) 7.0% or (ii) 2.5% above FGI’s prime rate, and were subject to certain minimum monthly amounts.  ABI’s ability to borrow funds under the FGI Financing agreements during 2009 was less than anticipated; at December 31, 2009, the Company had $803 thousand payable to FGI.  In January 2010, the Company terminated the FGI Financing Agreement, repaid the outstanding balance, and paid an $80 thousand early termination fee.

Note E – Other Liabilities

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

   
March 31,
2010
   
December 31,
2009
 
             
Pension benefits
  $ 5,976     $ 5,871  
Environmental remediation and product related liabilities
    5,570       5,570  
Income taxes payable
    609       352  
Deferred income taxes
    312       312  
Other
    2,098       2,551  
                 
    $ 14,565     $ 14,656  

See Note F for Liabilities Subject to Compromise.


 
10

 

Note F – Liabilities Subject to Compromise

As a result of Congoleum’s Chapter 11 filing (see Notes A and I), Congoleum is required to segregate pre-petition liabilities that are subject to compromise and report them separately on the consolidated balance sheet.  Liabilities that may be affected by a plan of reorganization are recorded at the amount of the expected allowed claims, even if they may be settled for lesser amounts.  Substantially all of Congoleum’s pre-petition debt is recorded at face value and is classified within liabilities subject to compromise.  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 March 31, 2010 and December 31, 2009 and included in ABI’s consolidated balance sheet at each such date were as follows (in thousands):

   
March 31,
2010
   
December 31,
2009
 
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
    26,890       26,286  
Other post-retirement benefit obligation
    11,201       11,117  
Pre-petition other liabilities
    12,356       12,268  
      150,447       149,671  
Elimination – Payable to American Biltrite
    (109 )     (109 )
Total non-current liability
    150,338       149,562  
                 
Total liabilities subject to compromise
  $ 155,335     $ 154,559  

 
11

 

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 months ended March 31, 2010 and 2009 (in thousands):

   
Three Months Ended March 31,
 
   
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  
 
The weighted average assumptions used to determine net periodic benefit cost for the three months ended March 31, 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%
 


 
12

 

Note H - Commitments and Contingencies

The Company and Congoleum are subject to federal, state and local environmental laws and regulations, and certain legal and administrative claims are pending or have been asserted against the Company and Congoleum.  Among these claims, the Company and Congoleum are separately a named party in several actions associated with waste disposal sites. These actions include possible obligations to remove or mitigate the effects on the environment of wastes deposited at various sites, including Superfund sites and certain of the Company’s and Congoleum’s owned and previously owned facilities.  The contingencies also include claims for personal injury and/or property damage.  The exact amount of such future cost and timing of payments are indeterminable due to such unknown factors as the magnitude of cleanup costs, the timing and extent of the remedial actions that may be required, the determination of the Company’s and Congoleum’s liability in proportion to other potentially responsible parties, the financial viability of other potentially responsible parties, and the extent to which costs may be recoverable from insurance.  Provisions in the financial statements have been recorded for the estimated probable loss associated with all known general and environmental contingencies for the Company and Congoleum. While the Company and Congoleum believe their estimate of the future amount of these liabilities is reasonable, and that they will be paid 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 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 a material adverse effect on their respective results of operations or financial position.  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.
 
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.


 
13

 

Note H - Commitments and Contingencies (continued)

American Biltrite Inc.

ABI is a co-defendant with many other manufacturers and distributors of asbestos containing products in approximately 1,215 pending claims involving approximately 1,770 individuals as of March 31, 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 three months ended March 31, 2010 and year ended December 31, 2009 was as follows:

   
Three Months
Ended
March 31,
2010
   
Year Ended
December 31,
2009
 
             
Beginning claims
    1,193       1,269  
New claims
    62       240  
Settlements
    (6 )     (25 )
Dismissals
    (34 )     (291 )
                 
Ending claims
    1,215       1,193  

ABI has multiple excess layers of insurance coverage for asbestos claims.  The total indemnity costs incurred to settle claims during the three months ended March 31, 2010 and the year ended December 31, 2009 were $415 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


 
14

 

Note H - Commitments and Contingencies (continued)

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

The estimated range of liability for settlement of current claims pending and claims anticipated to be filed through 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 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 March 31, 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, projecting future events, such as the

 
15

 

Note H - Commitments and Contingencies (continued)

number of new claims to be filed each year, the average cost of disposing of each such claim, and the continuing solvency of various insurance companies, as well as numerous uncertainties surrounding asbestos legislation in the United States, could cause the actual liability and insurance recoveries for the Company to be higher or lower than those projected or recorded.

There can be no assurance that the Company’s accrued asbestos liabilities will approximate its actual asbestos-related settlement costs, or that it will receive the insurance recoveries which it has accrued.  The Company believes that it is reasonably possible that it will incur charges for resolution of asbestos claims in the future, which could exceed the Company’s existing reserves. The Company’s strategy remains to vigorously defend against, and strategically settle, its asbestos claims on a case-by-case basis.  The Company believes it has substantial insurance coverage to mitigate future costs related to this matter.

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 three month period ended on March 31, 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 carry out a time critical remedial action (the “Ward Performing Parties”).  The Ward Performing Parties previously notified the Company that it is a potential responsible party of a claim at the Ward Site.  The Company was advised by the Ward Performing Parties that legal issues raised by a small group of current PRPs against the Environmental Protection Agency 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 expect that the EPA will eventually issue a Unilateral Administrative Order to a small group of current PRPs (the “Selected PRPs”).  If, or when, that occurs, the Ward Performing Parties would then expect that the Selected PRPs would assert claims against all of the other PRPs.  At that point in time, the Company would expect to receive a settlement offer for its share of the clean-up costs.   If a settlement offer is made and not agreed to, the Company then expects that Selected PRPs will commence litigation against the Company seeking indemnification from the Company for those costs.

As of March 31, 2010 and December 31, 2009, ABI recorded a reserve of $6.5 million, which represent probable and reasonably estimable amounts to cover the anticipated remediation costs described above based on facts and circumstances known to the Company.  The Company has also recorded a receivable of  $2.5 million as of March 31, 2010 and December 31, 2009, for ABI’s


 
16

 

Note H - Commitments and Contingencies (continued)

estimable and probable recoveries for the contingencies described above.  These projects tend to be long-term in nature, and these assumptions are subject to refinement as facts change.  As such, it is possible that the Company may need to revise its recorded liabilities and receivables for environmental costs in future periods, resulting in potentially material adjustments to the Company’s earnings in future periods.  The Company closely monitors existing and potential environmental matters to consider the reasonableness of its estimates and assumptions.

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 three month period ended March 31, 2010.

Congoleum

Congoleum is a defendant in a large number of asbestos-related lawsuits and has commenced proceedings under Chapter 11 of the Bankruptcy Code for purposes of resolving its asbestos-related liabilities (see Note I).

Congoleum records a liability for environmental remediation claims when a cleanup program or claim payment becomes probable and the costs can be reasonably estimated.  As assessments and cleanup programs progress, these liabilities are adjusted based upon the progress in determining the timing and extent of remedial actions and the related costs and damages.  The recorded liabilities, totaling $4.6 million at March 31, 2010 and December 31, 2009, are not reduced by the amount of estimated insurance recoveries.  Such estimated insurance recoveries approximated $2.1 million at March 31, 2010 and December 31, 2009, and are reflected in other non-current assets. Receivables for expected insurance recoveries are recorded if the related carriers are solvent and paying claims under a reservation of rights or under an obligation pursuant to coverage in place or a settlement agreement.  Substantially all of Congoleum’s recorded insurance asset for environmental matters is collectible from a single carrier.

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

Other

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


 
17

 

Note I – Congoleum Asbestos Liabilities and Planned Reorganization

On December 31, 2003, Congoleum filed a voluntary petition with the Bankruptcy Court seeking relief under Chapter 11 of the Bankruptcy Code as a means to resolve claims asserted against it related to the use of asbestos in its products decades ago. During 2003, Congoleum had obtained the requisite votes of asbestos personal injury claimants necessary to seek approval of a proposed, pre-packaged Chapter 11 plan of reorganization. In January 2004, Congoleum filed its proposed plan of reorganization and disclosure statement with the Bankruptcy Court. From that filing through 2007, several subsequent plans were negotiated with representatives of the Asbestos Claimants’ Committee (“ACC”), the Future Claimants’ Representative (“FCR”) and other asbestos claimant representatives.  In addition, an insurance company, Continental Casualty Company, and its affiliate, Continental Insurance Company (collectively, “CNA”), filed a plan of reorganization and the Official Committee of Bondholders (“Bondholders’ Committee”) (representing holders of Congoleum’s 8 5/8% Senior Notes due August 1, 2008) also filed a plan of reorganization. In May 2006, the Bankruptcy Court ordered the principal parties in interest in Congoleum’s reorganization proceedings to participate in reorganization plan mediation discussions. Several mediation sessions took place during 2006, culminating in two competing plans, one which Congoleum filed jointly with the ACC in September 2006 (the “Tenth Plan”) and the other filed by CNA, both of which the Bankruptcy Court subsequently ruled were not confirmable as a matter of law. In March 2007, Congoleum resumed global plan mediation discussions with the various parties seeking to resolve the issues raised in the Bankruptcy Court’s ruling with respect to the Tenth Plan. In July 2007, the FCR filed a plan of reorganization and proposed disclosure statement. After extensive further mediation sessions, on February 5, 2008, the FCR, the ACC, the Bondholders’ Committee and Congoleum jointly filed a joint plan of reorganization (the “Joint Plan”). The Bankruptcy Court approved the disclosure statement for the Joint Plan in February 2008, and the Joint Plan was solicited in accordance with court-approved voting procedures.

Various objections to the Joint Plan were filed, and in May 2008 the Bankruptcy Court heard oral argument on summary judgment motions relating to certain of those objections.  In June 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 in June 2008, the Bankruptcy Court issued an opinion that vacated the Order to Show Cause and instructed the parties to submit a confirmable plan by the end of calendar year 2008.  Following further negotiations, the Bondholders’ Committee, the ACC, the FCR, representatives of holders of pre-petition settlements and Congoleum reached an agreement in principle and on a term sheet describing the proposed material terms of a contemplated new plan of reorganization and a settlement of avoidance litigation with respect to pre-petition claim settlements (the “Litigation Settlement”) was entered into by those parties and was filed with the Bankruptcy Court in August 2008.  Certain insurers and a large bondholder filed objections to the Litigation Settlement and/or reserved their rights to object to confirmation of the contemplated new plan of reorganization.  The Bankruptcy Court approved the Litigation Settlement following a hearing in October 2008, but the court reserved certain issues, including whether any plan of reorganization embodying the settlement meets the standards required for confirmation of a plan of reorganization.  In November 2008, Congoleum, the ACC and the Bondholders’ Committee filed an amended joint plan of reorganization for

 
18

 

Note I – Congoleum Asbestos Liabilities and Planned Reorganization (continued)

Congoleum, et al. with the Bankruptcy Court (the “Amended Joint Plan”).  In January 2009, an insurer filed a motion for summary judgment seeking denial of confirmation of the Amended Joint Plan.  A hearing was held in February 2009 and the Bankruptcy Court granted the insurer’s motion, finding certain provisions of the Amended Joint Plan unconfirmable as a matter of law (the “Summary Judgment Ruling”) and denying confirmation of the Amended Joint Plan.  Pursuant to the ruling, the Bankruptcy Court entered an order dismissing Congoleum’s bankruptcy case (the “Order of Dismissal”).  In March 2009, an order was entered by the Bankruptcy Court granting a stay of the Bankruptcy Court’s Order of Dismissal pending a final non-appealable decision affirming the Order of Dismissal.

In February 2009, Congoleum, the Bondholders’ Committee and the ACC appealed the Order of Dismissal and the Summary Judgment Ruling to the District Court.  In August 2009, the District Court issued an opinion and order (the “District Court Order”) reversing the Order of Dismissal.  With respect to the plan of reorganization, the District Court ruled that a settlement with certain asbestos claimants was not an impediment to confirmation while another plan provision would require a minor modification.  The decision also provided specific guidance about the plan and directed the parties in the case to provide briefings in preparation for a confirmation hearing.  In addition, the District Court withdrew the reference of Congoleum’s chapter 11 case from the Bankruptcy Court and assumed authority over the proceedings from the Bankruptcy Court. Certain insurers have filed notices of appeal with respect to the District Court Order with the Third Circuit.  Congoleum, the Bondholders’ Committee and the ACC have moved to dismiss the appeals, and such motion is pending. As a result of the Multi-Insurer Settlement, discussed below, the insurers’ appeal before the United States Third Circuit Court of Appeals (the “Third Circuit”) has been terminated.

Following additional negotiations, in October 2009, the ACC, the Bondholders’ Committee and Congoleum jointly filed a revised plan of reorganization (the “Second Amended Joint Plan”) and disclosure statement with the District Court.  In late 2009 and early 2010, negotiations among Congoleum, the Bondholders’ Committee, the FCR, the ACC, other asbestos claimant representatives, and various insurers and New Jersey insurance guaranty organizations culminated in a $100 million settlement with nine insurance groups and the New Jersey insurance guaranty associations (the “Multi-Insurer Settlement”).  Subject to various requirements set forth in the Multi-Insurer Settlement, the insurance companies and guaranty associations will pay $100 million to settle certain policies issued to Congoleum and such amount will be paid to the plan trust that would be established upon effectiveness of the currently proposed plan of reorganization on file with the District Court, should the District Court confirm such a plan pursuant to section 524(g) of the Bankruptcy Code (the “Plan Trust”), in accordance with the terms of that plan of reorganization.  Of that amount, $97 million would be available for the payment of asbestos claims.  The Multi-Insurer Settlement was approved by the District Court in February 2010.  On February 19, 2010, the District Court also approved a settlement between Congoleum and St. Paul Travelers, which provides that St. Paul Travelers will pay $25.0 million in two installments to the Plan Trust.  On March 15, 2010, the FCR filed a notice of appeal before the Third Circuit with respect to such settlement agreement, which notice was amended on March 23, 2010, and such appeal is pending.

 
19

 

Note I – Congoleum Asbestos Liabilities and Planned Reorganization (continued)

On February 12, 2010, Congoleum, the Bondholders’ Committee, the FCR and the ACC jointly filed a revised plan of reorganization (the “Third Amended Joint Plan”) and disclosure statement with the District Court.  In order to address comments received on the Third Amended Joint Plan from various parties, a further revised plan of reorganization and disclosure statement was filed on March 11, 2010 by Congoleum, the Bondholders’ Committee, the FCR and the ACC (the “Fourth Amended Joint Plan”).  The terms of the Third Amended Plan and Fourth Amended Joint Plan are substantially similar to those of the Second Amended Joint Plan.  On March 12, 2010, the District Court approved the adequacy of the disclosure statement and voting procedures for the Fourth Amended Joint Plan and a confirmation hearing with regard to that plan is scheduled to commence on June 7, 2010.

On April 16, 2010, Congoleum filed a motion to approve a settlement agreement among Congoleum and the Chartis Companies (formerly, the AIG Companies), which provides, subject to various requirements, that the Chartis Companies pay the Plan Trust $40 million over a period of six years.  The District Court approved this settlement on May 3, 2010.  Including the settlements with the Chartis Companies and St. Paul Travelers, insurance settlements providing for payments to the Plan Trust totaling approximately $248 million have been agreed to among Congoleum and its insurance carriers.
 
Under the terms of the Fourth Amended Joint Plan, ABI’s ownership interest in Congoleum would be eliminated.  ABI expects its ownership interest in Congoleum would be eliminated under any alternate plan or outcome in Congoleum’s Chapter 11 case.

Under the terms of the Fourth Amended Joint Plan, upon the plan becoming effective, the Plan Trust would assume the liability for Congoleum’s current and future asbestos claims.  That trust would receive the proceeds of various settlements Congoleum has reached with a number of insurance carriers, and would be assigned Congoleum’s rights under any of its remaining policies covering asbestos product liability.  The trust would also receive 50.1% of the newly issued common stock of reorganized Congoleum when the plan takes effect.
 
Under the terms of the Fourth Amended Joint Plan, holders of Congoleum’s $100 million in 8.625% Senior Notes due in August 2008 would receive upon the effective date of the plan on a pro rata basis $33 million in aggregate principal of new 9% senior secured notes (the “New Senior Notes”) maturing December 31, 2017. The New Senior Notes would not accrue or earn interest for the first six months after the effective date of the Fourth Amended Joint Plan, after which time they would accrue interest at the rate of 9% per annum payable semi-annually in cash.  During the period beginning with the interest payment due 12 months after the effective date of the Fourth Amended Joint Plan to and including the interest payment due 30 months after the effective date of the Fourth Amended Joint Plan, at Congoleum’s option, interest may be paid in kind by the issuance of additional New Senior Notes in an aggregate principal amount equal to the amount of interest then due and payable on each such payment date, in which case the interest rate applicable during the period for which the payment applies would be 11% per annum.


 
20

 

Note I – Congoleum Asbestos Liabilities and Planned Reorganization (continued)

The indenture governing the New Senior Notes also would provide for the annual issuance of additional New Senior Notes (“Additional Notes”), with the aggregate principal amount of Additional Notes to be issued being determined as of the end of Congoleum’s fiscal year ending December 31, 2011, and on an annual basis at the end of each of the succeeding five years (each such date, a “Determination Date”), according to the following procedure.  As soon as practicable after each Determination Date, reorganized Congoleum’s average earnings before interest, taxes, depreciation and amortization for reorganized Congoleum for the two-year period ending on the Determination Date shall be calculated.  An assumed net debt capacity (“Net Debt Capacity”) shall then be determined as of each such Determination Date by multiplying this two-year average annual earnings before interest, taxes, depreciation and amortization for reorganized Congoleum by four.   Additional Notes shall be issuable to holders of New Senior Notes with respect to a Determination Date to the extent that the Net Debt Capacity as of such Determination Date, plus any cash amount on Congoleum’s balance sheet as of such Determination Date, exceeds the sum of (i) the amount of the outstanding balance of Reorganized Congoleum’s working capital loan (determined as the daily average outstanding amounts under such loan for the year ending on such Determination Date); (ii) the $33 million aggregate principal amount of New Senior Notes to be issued on the effective date of the Fourth Amended Joint Plan; (iii) the aggregate principal amount of Additional Notes issued with respect to all prior Determination Dates; and (iv) the aggregate principal amount of other interest-bearing debt outstanding as of such Determination Date.  The calculation of the principal amount of Additional Notes to be issued shall take place within three months after each Determination Date, and the issuance of such Additional Notes shall be deemed to have occurred as of the first day of the fiscal year following the Determination Date.  The indenture governing the New Senior Notes will provide that in no event will the cumulative principal amount of Additional Notes issued under the procedures described in this paragraph exceed $37 million.

Under the terms of the Fourth Amended Joint Plan, existing shares of Class A and Class B common stock of Congoleum would be cancelled when the plan took effect and holders of those shares, including ABI, would not receive anything on account of their cancelled shares.
 
The Fourth Amended Joint Plan would govern an intercompany settlement and ongoing intercompany arrangements among American Biltrite and its subsidiaries and reorganized Congoleum, which would be effective if and when the Fourth Amended Joint Plan takes effect and would have a term of two years.  Those intercompany arrangements include the provision of management services by American Biltrite to reorganized Congoleum and other business relationships substantially consistent with their traditional relationships.  The Fourth Amended Joint Plan provides that the final terms of the intercompany arrangements among American Biltrite and its subsidiaries and reorganized Congoleum would be memorialized in a new agreement to be entered into by reorganized Congoleum and American Biltrite in form and substance mutually agreeable to the Bondholders’ Committee, the ACC, the FCR and ABI.  Expiration or termination of these existing arrangements, failure to reach definitive agreement on final terms of future arrangements or failure to consummate such arrangements in connection


 
21

 

Note I – Congoleum Asbestos Liabilities and Planned Reorganization (continued)

with the effectiveness of a plan of reorganization for Congoleum could have a material adverse impact on the business relationships between ABI and Congoleum, and ABI’s business, operations and financial condition.

There can be no assurance that the Fourth Amended Joint Plan or any other plan of reorganization, if proposed, will receive the acceptances necessary for confirmation, that the Fourth Amended Joint Plan will not be modified further, that any plan will receive necessary court approvals from the District Court, that such approvals  will be received in a timely fashion, that any plan, if confirmed, will become effective, or that there will be sufficient funds to pay for continued proceedings with respect to any plan of reorganization.  In addition, for a plan of reorganization to be confirmed, Congoleum will need to obtain and demonstrate the sufficiency of exit financing.  Congoleum cannot presently determine the terms of such financing, nor can there be any assurances of its success obtaining it.

It also is unclear whether any other person might successfully propose and confirm a plan or what any such plan, if and when confirmed, would ultimately provide, and whether the District Court would approve such a plan.  Any plan of reorganization pursued by the Company will be subject to numerous conditions, approvals and other requirements, including District Court approvals, and there can be no assurance that such conditions, approvals and other requirements will be satisfied or obtained.

In anticipation of Congoleum’s commencement of the Chapter 11 cases, Congoleum entered into a claimant agreement (the “Claimant Agreement”), which provides settlement of certain prepetition asbestos claims against Congoleum and provides for an aggregate settlement value of at least $466 million as well as an additional number of individually negotiated trial listed settlements with an aggregate value of approximately $25 million, for total settlements in excess of $491 million.  Participants in the Claimant Agreement signed releases limiting their recourse against Congoleum to what they would receive from the Plan Trust and Congoleum has therefore estimated its liability under the Claimant Agreement as the cost of effecting the settlement through confirmation of a plan of reorganization.  In addition, as a result of tabulating ballots on a previous proposed plan of reorganization, Congoleum is also aware of claims by claimants whose claims were not determined under the Claimant Agreement but who have submitted claims with a value of approximately $512 million based on the settlement values applicable in that previous plan.  It is also likely that additional new claims may be asserted in connection with solicitation of acceptances of any future plan, including the Fourth Amended Joint Plan.  Congoleum does not believe it can reasonably estimate the liability associated with claims that may be pending.

During the first quarter of 2010, Congoleum paid $2.6 million in fees and expenses related to implementation of its planned reorganization under Chapter 11 of the Bankruptcy Code and litigation with certain insurance companies.  Given the terms of the Fourth Amended Joint Plan, Congoleum has made provision in its financial statements for the minimum estimated cost to effect its plan to settle asbestos liabilities through confirmation of a plan that complies with section 524(g) of the Bankruptcy Code.


 
22

 

Note J – Stockholders’ (Deficit) Equity

The following table reconciles stockholders’ (deficit) equity for the year ended December 31, 2009 and the three months ended March 31, 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 three months ended March 31, 2010
    (726 )     (57 )     (783 )
Stock compensation expense
    50             50  
Foreign currency translation adjustments
    854             854  
K&M distribution
          (98 )     (98 )
                         
March 31, 2010
  $ (44,446 )   $ 484     $ (43,962 )
 
American Biltrite Inc. owns 55% of Congoleum’s outstanding shares of Class A and Class B common stock as of March 31, 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 Inc.  Prior to January 1, 2009, American Biltrite Inc. reported in its consolidated results 100% of Congoleum’s losses from the period Congoleum incurred a deficit in earnings during 2002 through December 31, 2008, 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.

In March 2010, a distribution of $1.8 million was made from K&M Associates in accordance with its partnership agreement.  The distribution made to the minority partner (5.5%) was $98 thousand, which reduced noncontrolling interests.


 
23

 

Note K - Comprehensive Income (Loss)

The following table presents total comprehensive income for the three months ended March 31, 2010 and 2009 (in thousands):

   
Three Months Ended
March 31,
 
   
2010
   
2009
 
             
Net loss attributable to ABI
  $ (726 )   $ (5,497 )
Foreign currency translation adjustments
    854       (184 )
Total comprehensive income (loss) attributable to ABI
  $ 128     $ (5,681 )

Note L - Income (Loss) Per Share

Basic earnings per share is based on the weighted-average number of common shares outstanding, and diluted earnings per share is based on the weighted-average number of common shares outstanding and all dilutive potential common share equivalents outstanding.  The dilutive effect of options is determined under the treasury stock method using the average market price for the period.  Common share equivalents are included in the per share calculations when the effect of their inclusion would be dilutive.

Note M - Industry Segments

Description of Products and Services

The Company has four segments for financial reporting purposes:  flooring products, tape division, jewelry and a Canadian division.  The flooring products segment consists of Congoleum, a manufacturer of resilient floor coverings, which are sold primarily through floor covering distributors to retailers and contractors for residential use. The tape division segment manufactures paper, film, HVAC, electrical, shoe and other tape products for use in industrial and automotive markets in two production facilities in the United States, and in finishing and sales facilities in Belgium and Singapore.  The jewelry segment consists of the Company's majority-owned subsidiary K&M Associates L.P., a national costume jewelry supplier to mass merchandisers and department stores.  The Company's Canadian division produces flooring, rubber and other industrial products.


 
24

 

Note M - Industry Segments (continued)

Net sales by segment for the three months ended March 31, 2010 and 2009 were as follows (in thousands):

   
2010
   
2009
 
Net sales to external customers:
           
Flooring products
  $ 34,051     $ 30,106  
Tape products
    22,288       16,469  
Jewelry
    10,974       11,565  
Canadian division
    13,369       11,921  
Total net sales to external customers
    80,682       70,061  
Intersegment net sales:
               
Flooring products
           
Tape products
           
Jewelry
           
Canadian division
    1,831       800  
Total intersegment net sales
    1,831       800  
Reconciling items
           
Intersegment net sales
    (1,831 )     (800 )
                 
Total consolidated net sales
  $ 80,682     $ 70,061  

Segment profit or loss is before income tax expense or benefit and noncontrolling interests.  Profit (loss) by segment for the three months ended March 31, 2010 and 2009 was as follows (in thousands):

   
Three Months Ended
March 31,
 
   
2010
   
2009
 
Segment (loss) profit
           
Flooring products
  $ (130 )   $ (4,092 )
Tape products
    (457 )     (2,533 )
Jewelry
    (291 )     (838 )
Canadian division
    301       75  
Total segment loss
    (577 )     (7,388 )
Reconciling items
               
Corporate expenses
          (75 )
Intercompany profit
    (179 )     16  
Total consolidated loss before income taxes and other items
  $ (756 )   $ (7,447 )


 
25

 

Note M - Industry Segments

Assets by segment as of the end of the quarter and the end of the prior year were as follows (in thousands):

   
March 31,
2010
   
December 31,
2009
 
Segment assets
           
Flooring products
  $ 168,527     $ 163,676  
Tape products
    46,496       42,279  
Jewelry
    13,625       16,316  
Canadian division
    31,317       28,656  
Total segment assets
    259,965       250,927  
Reconciling items
               
Corporate items
    32,326       29,611  
Intersegment accounts receivable
    (6,244 )     (2,765 )
Intersegment profit in inventory
    (221 )     (42 )
Intersegment other asset
    (109 )     (109 )
                 
Consolidated assets
  $ 285,717     $ 277,622  


 
26

 

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

Economic conditions in the United States have been challenging, including in the industries in which the Company and Congoleum conduct business.  Although the United States economy and the Company’s and Congoleum’s businesses have experienced a recent upturn in activity, the current level of activity remains well below 2007 levels, prior to when the recent United States and global recession is understood to have begun.  The downturn in the housing industry has resulted in reduced demand for the Company’s and Congoleum’s products.  The slowdown in manufacturing, including in the automotive and industrial sectors, has resulted in reduced demand for the Tape division’s products.  In addition, the decline in consumer and retailer spending has resulted in reduced demand for K&M’s products.  Forecasts generally call for a continued gradual economic recovery, with some risk of a “double-dip” recession, in the United States, including in the industries in which the Company and Congoleum conduct business.  The Company expects the current and forecasted economic conditions to continue to negatively impact or restrain the Company’s and Congoleum’s businesses and operations and that the extent of that impact or restraint will depend on the speed, extent and sustainability of the global economic recovery.

In addition, raw material and energy costs have increased sharply in the past, particularly during the first half of 2008, continue to be volatile and remain at higher historic levels, which has negatively impacted the Company’s and Congoleum’s businesses and operating results.  Although raw material and energy costs declined in late 2008 and most of 2009, they have since reverted to generally increasing price levels.  In light of the current and forecasted economic conditions in the United States and the industries in which the Company and Congoleum conduct business, the Company and Congoleum may be unable to pass increased raw material and energy costs on to their respective customers.

Although the Company and Congoleum have recently implemented reductions in their expenses, there can be no assurance that they will be able to sustain those expense reductions.

American Biltrite’s consolidated financial statements include its majority-owned subsidiary, Congoleum.  However, under the terms of the Fourth Amended Joint Plan, ABI’s ownership interest in Congoleum would be eliminated.  ABI expects its ownership interest in Congoleum to be eliminated under any alternate plan or outcome in Congoleum’s Chapter 11 case.

Congoleum is a defendant in a large number of asbestos-related lawsuits.  On December 31, 2003, Congoleum filed a voluntary petition with the Bankruptcy Court seeking relief under Chapter 11 of the Bankruptcy Code as a means to resolve claims asserted against it related to the use of asbestos in its products decades ago.  During 2003, Congoleum had obtained the requisite votes of asbestos personal injury claimants necessary to seek approval of a proposed, pre-packaged Chapter 11 plan of reorganization.  In January 2004, Congoleum filed its proposed plan of reorganization and disclosure statement with the Bankruptcy Court.  From that filing through 2007, several subsequent plans were negotiated with representatives of the ACC, the FCR and other asbestos claimant representatives.  In addition, two affiliated insurance companies, together referred to as CNA, filed a plan of reorganization and the Bondholders’ Committee also filed a

 
27

 

plan of reorganization.  In May 2006, the Bankruptcy Court ordered the principal parties in interest in Congoleum’s reorganization proceedings to participate in reorganization plan mediation discussions.  Several mediation sessions took place during 2006, culminating in two competing plans, one which Congoleum filed jointly with the ACC in September 2006 (the Tenth Plan) and the other filed by CNA, both of which the Bankruptcy Court subsequently ruled were not confirmable as a matter of law.  In March 2007, Congoleum resumed global plan mediation discussions with the various parties seeking to resolve the issues raised in the Bankruptcy Court’s ruling with respect to the Tenth Plan.  In July 2007, the FCR filed a plan of reorganization and proposed disclosure statement.  After extensive further mediation sessions, in February 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 in May 2008 the Bankruptcy Court heard oral argument on summary judgment motions relating to certain of those objections.  In June 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 in June 2008, the Bankruptcy Court issued an opinion that vacated the Order to Show Cause and instructed the parties to submit a confirmable plan by the end of calendar year 2008.  Following further negotiations, the Bondholders’ Committee, the ACC, the FCR, representatives of holders of pre-petition settlements and Congoleum reached an agreement in principle and on a term sheet describing the proposed material terms of a contemplated new plan of reorganization and a settlement of avoidance litigation with respect to pre-petition claim settlements (the Litigation Settlement) was entered into by those parties and was filed with the Bankruptcy Court in August 2008.  Certain insurers and a large bondholder filed objections to the Litigation Settlement and/or reserved their rights to object to confirmation of the contemplated new plan of reorganization.  The Bankruptcy Court approved the Litigation Settlement following a hearing in October 2008, but the court reserved certain issues, including whether any plan of reorganization embodying the settlement meets the standards required for confirmation of a plan of reorganization.  In November 2008, Congoleum, the ACC and the Bondholders’ Committee filed the Amended Joint Plan.  In January 2009, an insurer filed a motion for summary judgment seeking denial of confirmation of the Amended Joint Plan.  A hearing was held in February 2009 and the Bankruptcy Court granted the insurer’s motion finding certain provisions of the Amended Joint Plan unconfirmable as a matter of law (the Summary Judgment Ruling) and denying confirmation of the Amended Joint Plan.  Pursuant to the ruling, the Bankruptcy Court entered an order dismissing Congoleum’s bankruptcy case (the Order of Dismissal).  In March 2009, an order was entered by the Bankruptcy Court granting a stay of the Bankruptcy Court’s Order of Dismissal pending a final non-appealable decision affirming the Order of Dismissal.

In February 2009, Congoleum, the Bondholders’ Committee and the ACC appealed the Order of Dismissal and the Summary Judgment Ruling to the District Court.  In August 2009, the District Court issued the District Court Order reversing the Order of Dismissal.  With respect to the plan of reorganization, the District Court ruled that a settlement with certain asbestos claimants was not an impediment to confirmation while another plan provision would require a minor modification.  The decision also provided specific guidance about the plan and directed the parties in the case to provide briefings in preparation for a confirmation hearing.  In addition, the

 
28

 

District Court withdrew the reference of Congoleum’s chapter 11 case from the Bankruptcy Court and assumed authority over the proceedings. Certain insurers have filed notices of appeal with respect to the District Court Order with the Third Circuit.  Congoleum, the Bondholders’ Committee and the ACC have moved to dismiss the appeals, and such motion is pending. As a result of the Multi-Insurer Settlement, discussed below, the insurers’ appeal before the Third Circuit has been terminated.

Following additional negotiations, in October 2009, the ACC, the Bondholders’ Committee and Congoleum jointly filed a revised plan of reorganization (the Second Amended Joint Plan) and disclosure statement with the District Court.  In late 2009 and early 2010, negotiations among Congoleum, the Bondholders’ Committee, the FCR, the ACC, other asbestos claimant representatives, and various insurers and New Jersey insurance guaranty organizations culminated in a $100 million settlement with nine insurance groups and the New Jersey insurance guaranty associations (the Multi-Insurer Settlement).  Subject to various requirements set forth in the Multi-Insurer Settlement, the insurance companies and guaranty associations will pay $100 million to settle certain policies issued to Congoleum and such amount will be paid to the Plan Trust of which amount $97 million would be available for the payment of asbestos claims.  The Multi-Insurer Settlement was approved by the District Court in February 2010.  On February 19, 2010, the District Court also approved a settlement between Congoleum and St. Paul Travelers, which provides that St. Paul Travelers will pay $25.0 million in two installments to the Plan Trust.  On March 15, 2010, the FCR filed a notice of appeal before the Third Circuit with respect to such settlement agreement, which notice was amended on March 23, 2010, and such appeal is pending.

On February 12, 2010, Congoleum, the Bondholders’ Committee, the FCR and the ACC jointly filed the Third Amended Joint Plan and disclosure statement with the District Court.  In order to address comments received on the Third Amended Joint Plan from various parties, a further revised plan of reorganization and disclosure statement, the Fourth Amended Joint Plan, was filed with the District Court on March 11, 2010 by Congoleum, the Bondholders’ Committee, the FCR and the ACC.  The terms of the Third Amended Joint Plan and Fourth Amended Joint Plan are substantially similar to those of