Income Taxes

9 Months Ended

Sep. 30, 2011

Notes to Financial Statements

Income Taxes

Note H – Income Taxes

The effective tax rate for the nine months ended September 30, 2011 and 2010 was 109.5% and 31.1%, respectively. The Company’s income tax benefit for the first nine months of 2011 was greater than its pretax loss of $525 thousand due primarily to the recognition of additional tax benefits related to changes in estimated foreign sourced income and foreign taxes paid.

The Company’s Canadian subsidiary, American Biltrite (Canada) Ltd. (“AB Canada”) was audited by the Canadian Revenue Authority (“CRA”) during 2010 for the years ending 2002 through 2007. In January 2011, the CRA notified AB Canada that certain amounts related to the Company’s management fees and net operating loss carryforwards of a discontinued operation will be disallowed. In September 2011, AB Canada received formal assessments for 2002 through 2007. If the CRA positions are sustained in full, the Company’s tax liability would increase by approximately $3.6 million plus interest and penalties for these years. In July 2011, AB Canada paid $2.1 million to the CRA, the minimum amount required to be paid. The Company intends to appeal the assessments and vigorously defend its positions. However, the final outcome of the audit and the Company’s appeal is uncertain and therefore, the impact on the financial position and results of operations of the Company cannot be fully determined.