##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 Form 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from       to
 Commission file number: 001-13498
 Assisted Living Concepts, Inc.
 (Exact name of registrant as specified in its charter)
 Nevada
    
    93-1148702(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)W140 N8981 Lilly RoadMenomonee Falls, Wisconsin
    
    53051(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code: (262) 257-8888
 111 West Michigan Street
Milwaukee, WI, 53203  (Former name, former address and former fiscal year, if changed since last report)
 þ o
  o o þ
 o þ




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##### 



ASSISTED LIVING CONCEPTS, INC.
 INDEX
 PageNumberPart I. Financial InformationItem 1. Financial StatementsConsolidated Balance Sheets  as of September 30,
2007 (unaudited) and December 31,
2006
    
    
    3Consolidated Statements of Income  for the Three
and Nine Month Periods Ended September 30, 2007
and 2006
(unaudited)
    
    
    4Consolidated Statements of Cash Flows  For the
Nine Month Periods Ended September 30, 2007 and
2006 (unaudited)
    
    
    5Notes to Consolidated Financial
Statements
    
    
    6Item 2. Managements Discussion and Analysis of
Financial Condition and Results of
Operations
    
    
    13Item 3. Quantitative and Qualitative Disclosures
About Market Risk
    
    
    30Item 4. Controls and
Procedures
    
    
    30Part II. Other InformationItem 1A. Risk
Factors
    
    
    31Item 2. Unregistered Sales of Equity Securities and
Use of Proceeds
    
    
    31Item 5. Other Information
    
    
    31Item 6. Exhibits
    
    
    32Signature
    
    
    S-1Exhibit Index
    
    EI-1Certification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906
  2




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##### Table of Contents



Part I. FINANCIAL INFORMATION
 
 Item 1. FINANCIAL STATEMENTS
 ASSISTED LIVING CONCEPTS, INC.
 
 CONSOLIDATED BALANCE SHEETS
 (In thousands, except share and per share data)
 September 30,
    
    
    December 31,2007
    
    
    2006(Unaudited)ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    8,975
    
    
    $
    19,951Investments
    
    
    5,589
    
    
    
    5,332Accounts receivable, less allowances of $1,011 and $1,086, respectively
    
    
    3,817
    
    
    
    5,395Supplies, prepaid expenses and other current assets
    
    
    6,550
    
    
    
    8,178Income tax receivable
    
    
    
    
    
    
    90Deferred income taxes
    
    
    1,094
    
    
    
    1,552Total current assets
    
    
    26,025
    
    
    
    40,498Property and equipment, net
    
    
    394,441
    
    
    
    374,612Goodwill and other intangible assets, net
    
    
    21,305
    
    
    
    18,102Restricted cash
    
    
    8,703
    
    
    
    10,947Other assets
    
    
    3,145
    
    
    
    3,181Total Assets
    
    $
    453,619
    
    
    $
    447,340LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    3,650
    
    
    $
    5,134Accrued liabilities
    
    
    21,650
    
    
    
    19,580Current maturities of long-term debt
    
    
    19,614
    
    
    
    2,732Income taxes payable
    
    
    1,107
    
    
    
    Current portion of self-insured liabilities
    
    
    300
    
    
    
    300Total current liabilities
    
    
    46,321
    
    
    
    27,746Accrual for self-insured liabilities
    
    
    2,166
    
    
    
    1,171Long-term debt
    
    
    87,811
    
    
    
    87,904Deferred income taxes
    
    
    5,589
    
    
    
    5,146Other long-term liabilities
    
    
    9,189
    
    
    
    8,535Total Liabilities
    
    
    151,076
    
    
    
    130,502Stockholders Equity:Preferred Stock, par value $0.01 per share, 25,000,000 shares authorized, none
issued
    
    
    
    
    
    
    Class A Common Stock, par value $0.01 per share, 400,000,000 shares
authorized, 57,582,951 and 59,501,918 issued, respectively
    
    
    576
    
    
    
    595Class B Common Stock, par value $0.01 per share, 75,000,000 shares
authorized, 8,935,436 and 9,956,337 issued, respectively
    
    
    89
    
    
    
    100Treasury stock at cost, Class A Common Stock, 3,016,410 and 0 shares,
respectively
    
    
    (27,633
    )
    
    
    Additional paid-in capital
    
    
    313,548
    
    
    
    313,474Accumulated other comprehensive income
    
    
    700
    
    
    
    530Retained earnings
    
    
    15,263
    
    
    
    2,139Total Stockholders Equity
    
    
    302,543
    
    
    
    316,838Total Liabilities and Stockholders Equity
    
    $
    453,619
    
    
    $
    447,340
  3




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ASSISTED LIVING CONCEPTS, INC.
 
 CONSOLIDATED STATEMENTS OF INCOME
 (Unaudited)
 (In thousands, except per share data)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues
    
    $
    57,898
    
    
    $
    58,820
    
    
    $
    172,845
    
    
    $
    172,594Expenses:Residence operations (exclusive of
depreciation and amortization and residence
lease expense shown
below)
    
    
    38,832
    
    
    
    39,599
    
    
    
    114,809
    
    
    
    115,355General and administrative
    
    
    2,663
    
    
    
    2,915
    
    
    
    9,489
    
    
    
    7,856Residence lease expense
    
    
    3,595
    
    
    
    3,564
    
    
    
    10,754
    
    
    
    10,589Depreciation and amortization
    
    
    4,584
    
    
    
    4,235
    
    
    
    13,088
    
    
    
    12,527Transaction costs
    
    
    
    
    
    
    1,435
    
    
    
    56
    
    
    
    3,735Loss on impairment of long-lived assets
    
    
    
    
    
    
    3,080
    
    
    
    
    
    
    
    3,080Total operating expenses
    
    
    49,674
    
    
    
    54,828
    
    
    
    148,196
    
    
    
    153,142Income from operations
    
    
    8,224
    
    
    
    3,992
    
    
    
    24,649
    
    
    
    19,452Other expense:Interest expense, net
    
    
    (1,405
    )
    
    
    (2,294
    )
    
    
    (3,477
    )
    
    
    (7,708
    )Income from continuing operations before income
taxes
    
    
    6,819
    
    
    
    1,698
    
    
    
    21,172
    
    
    
    11,744Income tax expense
    
    
    (2,594
    )
    
    
    (1,177
    )
    
    
    (8,048
    )
    
    
    (5,808
    )Net income from continuing operations
    
    
    4,225
    
    
    
    521
    
    
    
    13,124
    
    
    
    5,936Loss from discontinued operations, net of taxes
    
    
    
    
    
    
    (225
    )
    
    
    
    
    
    
    (1,498
    )Net income
    
    $
    4,225
    
    
    $
    296
    
    
    $
    13,124
    
    
    $
    4,438Weighted average common shares:Basic
    
    
    67,891
    
    
    
    69,322
    
    
    
    68,946
    
    
    
    69,322Diluted
    
    
    68,575
    
    
    
    70,205
    
    
    
    69,648
    
    
    
    70,205Per share data:Basic earnings per common share:Income from continuing operations
    
    $
    0.06
    
    
    $
    0.01
    
    
    $
    0.19
    
    
    $
    0.08Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.02
    )Net income
    
    $
    0.06
    
    
    $
    0.01
    
    
    $
    0.19
    
    
    $
    0.06Diluted earnings per common share:Income from continuing operations
    
    $
    0.06
    
    
    $
    0.01
    
    
    $
    0.19
    
    
    $
    0.08Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.02
    )Net income
    
    $
    0.06
    
    
    $
    0.01
    
    
    $
    0.19
    
    
    $
    0.06
  4




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ASSISTED LIVING CONCEPTS, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 (In thousands)
 Nine Months EndedSeptember 30,2007
    
    
    2006OPERATING ACTIVITIES:Net income
    
    $
    13,124
    
    
    $
    4,438Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    13,088
    
    
    
    12,587Amortization of purchase accounting adjustments for:Leases and debt
    
    
    (753
    )
    
    
    (636
    )Below market resident leases
    
    
    (39
    )
    
    
    (1,067
    )Provision for bad debt, net of write-offs
    
    
    75
    
    
    
    64Provision for self-insured liabilities
    
    
    1,217
    
    
    
    400Payments of self-insured liabilities
    
    
    (222
    )
    
    
    (227
    )Loss on impairment of long-lived assets and discontinued operations
    
    
    
    
    
    
    5,018Deferred income taxes
    
    
    901
    
    
    
    (2,159
    )Equity-based compensation expense
    
    
    
    
    
    
    416Changes in assets and liabilities:Accounts receivable
    
    
    1,503
    
    
    
    (723
    )Supplies, prepaid expenses and other current assets
    
    
    1,628
    
    
    
    (1,351
    )Accounts payable
    
    
    (1,484
    )
    
    
    (682
    )Accrued liabilities
    
    
    2,070
    
    
    
    3,791Income taxes payable/receivable
    
    
    1,109
    
    
    
    (214
    )Other non-current assets, including restricted cash
    
    
    2,280
    
    
    
    (356
    )Other long-term liabilities
    
    
    909
    
    
    
    1,167Current due to Extendicare
    
    
    
    
    
    
    7,473Cash provided by operating activities
    
    
    35,406
    
    
    
    27,939INVESTING ACTIVITIES:Payments for acquisitions
    
    
    (24,436
    )
    
    
    Payments for new construction projects
    
    
    (3,210
    )
    
    
    (1,607
    )Payments for purchases of property and equipment
    
    
    (8,474
    )
    
    
    (10,476
    )Cash used in investing activities
    
    
    (36,120
    )
    
    
    (12,083
    )FINANCING ACTIVITIES:Capital contributions from Extendicare
    
    
    74
    
    
    
    16,127Purchase of treasury stock
    
    
    (27,663
    )
    
    
    Repayment of interest bearing advances to Extendicare
    
    
    
    
    
    
    (25,200
    )Proceeds from borrowings on revolving credit facility
    
    
    19,000
    
    
    
    Proceeds from mortgage debt
    
    
    4,301
    
    
    
    Repayment of mortgage debt
    
    
    (5,974
    )
    
    
    (1,768
    )Cash used in financing activities
    
    
    (10,262
    )
    
    
    (10,841
    )Increase / (decrease) in cash and cash equivalents
    
    
    (10,976
    )
    
    
    5,015Cash and cash equivalents, beginning of year
    
    
    19,951
    
    
    
    6,439Cash and cash equivalents, end of period
    
    $
    8,975
    
    
    $
    11,454Supplemental schedule of cash flow information:Cash paid during the period for:Interest
    
    $
    5,372
    
    
    $
    8,134Income tax payments, net of refunds
    
    
    5,854
    
    
    
    486
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ASSISTED LIVING CONCEPTS, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. BASIS OF PRESENTATION
       §
    
    the assisted living residences operated by EHSI through the Separation Date, which
ranged from 29 to 36 residences between January 1, 2003 and the date of the Acquisition
and consisted of 32 residences operated by EHSI at December 31, 2005,§
    
    177 assisted living residences operated by ALC since the Acquisition,§
    
    three assisted living residences that were constructed and owned by EHSI (two of
which were operated by ALC) during 2005,§
    
    an Escanaba, Michigan residence since its acquisition on November 1, 2006, and§
    
    Pearson since its formation on June 19, 2006.
     6




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ASSISTED LIVING CONCEPTS, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 (a) Principles of Presentation and Consolidation
   (b) Accounts Receivable
    (c) Comprehensive Income
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands)Net
income
    
    $
    4,225
    
    
    $
    296
    
    
    $
    13,124
    
    
    $
    4,438Net unrealized
(losses)gains
    
    
    (332
    )
    
    
    
    
    
    
    170
    
    
    
    Total comprehensive
income
    
    $
    3,893
    
    
    $
    296
    
    
    $
    13,294
    
    
    $
    4,438
 7




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ASSISTED LIVING CONCEPTS, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (d) Income Taxes
  Accounting for Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109 Accounting for Income Taxes
 (e) New Accounting Pronouncements
 Fair Value Measurements
 (f) Reclassifications
  8




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ASSISTED LIVING CONCEPTS, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 3. DISCONTINUED OPERATIONS
  Three Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30,
    
    
    September 30,2006
    
    
    2006(In thousands)Revenues
    
    $
    
    
    
    $
    540Residence operations (exclusive of depreciation and
amortization and residence lease expense shown
below)
    
    
    102
    
    
    
    833Residence lease expense
    
    
    1
    
    
    
    119Depreciation and amortization
    
    
    
    
    
    
    60Loss on impairment of long-lived assets
    
    
    207
    
    
    
    1,938Total operating expenses
    
    
    310
    
    
    
    2,950Loss from discontinued operations
    
    
    (310
    )
    
    
    (2,410
    )Interest expense
    
    
    7
    
    
    
    7Loss from discontinued operations before income taxes
    
    
    (317
    )
    
    
    (2,417
    )Income tax benefit
    
    
    92
    
    
    
    919Net loss from discontinued operations
    
    $
    (225
    )
    
    $
    (1,498
    )
  (a) Closure and Disposition of Assisted Living Residence in Texas
  (b) Closure of Assisted Living Residence in Washington
  (c) Closure of Assisted Living Residence in Oregon
  9




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ASSISTED LIVING CONCEPTS, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 4. LONG-TERM EQUITY-BASED COMPENSATION PROGRAM
   10




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ASSISTED LIVING CONCEPTS, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 5. EARNINGS PER SHARE
 Earnings Per Share
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands, except per share data)Basic earnings per share calculationNumerator:Income from continuing
operations
    
    $
    4,225
    
    
    $
    521
    
    
    $
    13,124
    
    
    $
    5,936Loss from discontinued operations,
net of tax
    
    
    
    
    
    
    (225
    )
    
    
    
    
    
    
    (1,498
    )Net income to common
stockholders
    
    $
    4,225
    
    
    $
    296
    
    
    $
    13,124
    
    
    $
    4,438Denominator:Weighted average of common shares
outstanding
    
    
    67,891
    
    
    
    69,322
    
    
    
    68,946
    
    
    
    69,322Income from continuing
operations
    
    $
    0.06
    
    
    $
    0.01
    
    
    $
    0.19
    
    
    $
    0.08Loss from discontinued operations,
net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.02
    )Basic earnings per
share
    
    $
    0.06
    
    
    $
    0.01
    
    
    $
    0.19
    
    
    $
    0.06Diluted earnings per share calculationNumerator:Income from continuing
operations
    
    $
    4,225
    
    
    $
    521
    
    
    $
    13,124
    
    
    $
    5,936Loss from discontinued operations,
net of tax
    
    
    
    
    
    
    (225
    )
    
    
    
    
    
    
    (1,498
    )Net income to common
stockholders
    
    $
    4,225
    
    
    $
    296
    
    
    $
    13,124
    
    
    $
    4,438Denominator:Weighted average of common shares
outstanding
    
    
    67,891
    
    
    
    69,322
    
    
    
    68,946
    
    
    
    69,322Assumed conversion of Class B
shares
    
    
    684
    
    
    
    883
    
    
    
    702
    
    
    
    883Diluted weighted average shares
outstanding
    
    
    68,575
    
    
    
    70,205
    
    
    
    69,648
    
    
    
    70,205Income from continuing
operations
    
    $
    0.06
    
    
    $
    0.01
    
    
    $
    0.19
    
    
    $
    0.08Loss from discontinued operations,
net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.02
    )Diluted earnings per
share
    
    $
    0.06
    
    
    $
    0.01
    
    
    $
    0.19
    
    
    $
    0.06
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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 6. SHARE BUYBACK PROGRAM
  7. ACQUISITION
  8. DEBT REFINANCINGS
  9. SUBSEQUENT EVENT
  12




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ASSISTED LIVING CONCEPTS, INC.
 
 Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Managements Discussion and Analysis of Financial Condition and Results of Operations contains
forward-looking statements. Forward-looking statements are subject to risks, uncertainties and
assumptions which could cause actual results to differ materially from those projected, including
those described or referred to in Item 1A  Risk Factors in Part I of the Companys Annual Report
on Form 10-K for the year ended December 31, 2006, and in Part II, Item 5  Other Information -
Forward-Looking Statements and Cautionary Factors in this report.
 The following discussion should be read in conjunction with our consolidated financial statements
and the related notes to the consolidated financial statements in Part I, Item 1 of this report.
  §
    
    Business Overview.This section provides a general financial description of our
business. More specifically, this section describes the sources and composition of our
revenues and operating expenses. In addition, this section outlines the key performance
indicators that we use to monitor and manage our business and anticipate future trends.§
    
    Consolidated Results of Operations.This section provides an analysis of our results
of operations for the three month and nine month periods ended September 30, 2007
compared to the three month and nine month periods ended September 30, 2006.§
    
    Liquidity and Capital Resources.This section provides a discussion of our liquidity
and capital resources as of September 30, 2007, and our expected future cash needs.§
    
    Critical Accounting Policies.This section discusses accounting policies which we
consider to be critical to obtain an understanding of our consolidated financial
statements because their application requires significant judgment and reliance on
estimations of matters that are inherently uncertain. Our critical accounting policies
are those that require significant judgment and estimates on the part of management in
their application.
 Business Overview
 General
  §
    
    increasing the overall size of our portfolio through building additional capacity to
existing residences and through acquisitions;§
    
    increasing our overall occupancy percentage and our percentage of revenue from private
pay sources; and§
    
    applying operating efficiencies and best practices achievable from owning a large number
of assisted living residences.
     13




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ASSISTED LIVING CONCEPTS, INC.
      Revenues
    14




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ASSISTED LIVING CONCEPTS, INC.
 Residence Operations Expenses
   Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2007
    
    2006
    
    2007
    
    2006Wage and benefit
costs
    
    
    56
    %
    
    
    57
    %
    
    
    57
    %
    
    
    59
    %Utility and
property
costs
    
    
    15
    
    
    
    15
    
    
    
    15
    
    
    
    15Variable resident
care
costs
    
    
    29
    
    
    
    28
    
    
    
    28
    
    
    
    26Total residence
operation
costs
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
  General and Administrative Costs
  §
    
    board of director fees;§
    
    Sarbanes-Oxley compliance:§
    
    hiring additional members of the management team;§
    
    stock registration and listing fees;§
    
    other general and administrative costs anticipated for reporting and compliance;§
    
    quarterly and annual filings;§
    
    transfer agent fees;§
    
    public relations; and§
    
    directors and officers liability insurance.
  15




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ASSISTED LIVING CONCEPTS, INC.
 K ey Performance Indicators
  Census
  Average Daily Census
  Occupancy Percentage or Occupancy Rate
  Private Pay Mix
  Average Revenue Rate by Payer Source
  Adjusted EBITDA and Adjusted EBITDAR
    16




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ASSISTED LIVING CONCEPTS, INC.
 Review of Key Performance Indicators
  §
    
    residences classified in the financial statements as discontinued operations, and§
    
    two freestanding residences and an additional 129 assisted living units contained in
skilled nursing facilities that were retained by Extendicare.
  ADC
 All Continuing Residences
  Average Daily Census
 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2007
    
    %
    
    2006
    
    %
    
    2007
    
    %
    
    2006
    
    %Private Pay
    
    
    5,359
    
    
    
    81.4
    %
    
    
    5,110
    
    
    
    72.0
    %
    
    
    5,290
    
    
    
    78.3
    %
    
    
    5,009
    
    
    
    71.5
    %Medicaid
    
    
    1,221
    
    
    
    18.6
    
    
    
    1,988
    
    
    
    28.0
    
    
    
    1,467
    
    
    
    21.7
    
    
    
    2,001
    
    
    
    28.5Total
    
    
    6,580
    
    
    
    100.0
    %
    
    
    7,098
    
    
    
    100.0
    %
    
    
    6,757
    
    
    
    100.0
    %
    
    
    7,010
    
    
    
    100.0
    %
  Same Residence Basis
  Average Daily Census
 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2007
    
    %
    
    2006
    
    %
    
    2007
    
    %
    
    2006
    
    %Private Pay
    
    
    5,252
    
    
    
    81.1
    %
    
    
    5,110
    
    
    
    72.0
    %
    
    
    5,227
    
    
    
    78.1
    %
    
    
    5,009
    
    
    
    71.5
    %Medicaid
    
    
    1,221
    
    
    
    18.9
    
    
    
    1,988
    
    
    
    28.0
    
    
    
    1,467
    
    
    
    21.9
    
    
    
    2,001
    
    
    
    28.5Total
    
    
    6,473
    
    
    
    100.0
    %
    
    
    7,098
    
    
    
    100.0
    %
    
    
    6,694
    
    
    
    100.0
    %
    
    
    7,010
    
    
    
    100.0
    %
  17




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ASSISTED LIVING CONCEPTS, INC.
 Occupancy Percentage
   All Continuing Residences
  Occupancy Percentage
 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2007
    
    2006
    
    2007
    
    2006Mature
    
    
    78.6
    %
    
    
    85.7
    %
    
    
    81.1
    %
    
    
    85.6
    %Developmental
    
    
    36.6
    %
    
    
    69.9
    %
    
    
    45.7
    %
    
    
    64.8
    %All
Residences
    
    
    77.6
    %
    
    
    84.8
    %
    
    
    80.7
    %
    
    
    84.5
    %
    18




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 Same Residence Basis
  Occupancy Percentage
 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2007
    
    2006
    
    2007
    
    2006Mature
    
    
    78.5
    %
    
    
    85.7
    %
    
    
    81.0
    %
    
    
    85.6
    %Developmental
    
    
    13.5
    %
    
    
    76.9
    %
    
    
    45.0
    %
    
    
    75.4
    %All
Residences
    
    
    78.0
    %
    
    
    85.3
    %
    
    
    80.8
    %
    
    
    85.2
    %
   Average Revenue Rate by Payer Source
 All Continuing Residences
  Average Daily Revenue
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    % Increase
    
    
    2007
    
    
    2006
    
    
    % IncreasePrivate Pay
    
    $
    101.24
    
    
    $
    95.52
    
    
    
    6.0
    %
    
    $
    100.23
    
    
    $
    96.06
    
    
    
    4.3
    %Medicaid
    
    $
    70.86
    
    
    $
    67.09
    
    
    
    5.6
    %
    
    $
    68.67
    
    
    $
    65.86
    
    
    
    4.3
    %All payer
sources
    
    $
    95.60
    
    
    $
    87.56
    
    
    
    9.2
    %
    
    $
    93.38
    
    
    $
    87.44
    
    
    
    6.8
    %
  19




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 Number of Residences Under Operation
  2007
    
    2006Owned (1)
    
    
    153
    
    
    
    151Under capital
lease
    
    
    5
    
    
    
    5Under operating
leases
    
    
    50
    
    
    
    50Total under
operation
    
    
    208
    
    
    
    206Percent of residences:Owned
    
    
    73.6
    %
    
    
    73.3
    %Under capital
leases
    
    
    2.4
    
    
    
    2.4Under operating
leases
    
    
    24.0
    
    
    
    24.3100.0
    %
    
    
    100.0
    %
 
 (1)
    
    Includes 29 assisted living properties which were owned by EHSI as of
March 31, 2006 and transferred from EHSI to ALC as part of the
Separation. Adjusted EBITDA and EBITDAR
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands)Net
income
    
    $
    4,225
    
    
    $
    296
    
    
    $
    13,124
    
    
    $
    4,438Loss from
discontinued
operations, net of
tax
benefit
    
    
    
    
    
    
    225
    
    
    
    
    
    
    
    1,498Provision for
income
taxes
    
    
    2,594
    
    
    
    1,177
    
    
    
    8,048
    
    
    
    5,808Income from
continuing
operations before
income
taxes
    
    
    6,819
    
    
    
    1,698
    
    
    
    21,172
    
    
    
    11,744Add:Depreciation and
amortization
    
    
    4,584
    
    
    
    4,235
    
    
    
    13,088
    
    
    
    12,527Interest
expense,
net
    
    
    1,405
    
    
    
    2,294
    
    
    
    3,477
    
    
    
    7,708Transaction
costs
    
    
    
    
    
    
    1,435
    
    
    
    56
    
    
    
    3,735Loss on
impairment of
long-lived
assets
    
    
    
    
    
    
    3,080
    
    
    
    
    
    
    
    3,080Non-cash equity
based
compensation
    
    
    (192
    )
    
    
    136
    
    
    
    
    
    
    
    416Adjusted
EBITDA
    
    
    12,616
    
    
    
    12,878
    
    
    
    37,793
    
    
    
    39,210Add: Lease
expense
    
    
    3,595
    
    
    
    3,564
    
    
    
    10,754
    
    
    
    10,589Adjusted
EBITDAR
    
    $
    16,211
    
    
    $
    16,442
    
    
    $
    48,547
    
    
    $
    49,799
 20




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ASSISTED LIVING CONCEPTS, INC.
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands)Revenues
    
    $
    57,898
    
    
    $
    58,820
    
    
    $
    172,845
    
    
    $
    172,594Adjusted
EBITDA
    
    $
    12,616
    
    
    $
    12,878
    
    
    $
    37,793
    
    
    $
    39,210Adjusted
EBITDAR
    
    $
    16,211
    
    
    $
    16,442
    
    
    $
    48,547
    
    
    $
    49,799Adjusted EBITDA as
percent of total
revenue
    
    
    21.8
    %
    
    
    21.9
    %
    
    
    21.9
    %
    
    
    22.7
    %Adjusted EBITDAR as
percent of total
revenue
    
    
    28.0
    %
    
    
    28.0
    %
    
    
    28.1
    %
    
    
    28.9
    %
    Consolidated Results of Operations
 Three Months Ended September 30, 2007 Compared with the Three Months Ended September 30,
2006
  Three Months EndedSeptember 30,2007
    
    2006Revenues
    
    
    100.0
    %
    
    
    100.0
    %Residence
operations
(exclusive of
depreciation and
amortization and
residence lease
expense shown
below)
    
    
    67.1
    
    
    
    67.3General and
administrative
costs
    
    
    4.6
    
    
    
    5.0Residence lease
expense
    
    
    6.2
    
    
    
    6.1Depreciation and
amortization
    
    
    7.9
    
    
    
    7.2Transaction
costs
    
    
    
    
    
    
    2.4Loss on impairment
of long-lived
assets
    
    
    
    
    
    
    5.2Income from
operations
    
    
    14.2
    
    
    
    6.8Interest expense,
net
    
    
    (2.4
    )
    
    
    (3.9
    )Income tax
expense
    
    
    (4.5
    )
    
    
    (2.0
    )Net income from
continuing
operations
    
    
    7.3
    
    
    
    0.9Loss from
discontinued
operations, net of
tax
    
    
    
    
    
    
    (0.4
    )Net
income
    
    
    7.3
    %
    
    
    0.5
    %
 21




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 Revenues
  Residence Operations (exclusive of depreciation, amortization and residence lease expense shown
below)
  General and Administrative Costs
  Residence Lease expense
  Depreciation and Amortization
  Transaction Costs
  Impairment of Long-Lived Asset
  22




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ASSISTED LIVING CONCEPTS, INC.
 Income from operations
  Interest Expense, Net
  Income from Continuing Operations before Income Taxes
  Income Tax Expense
  Net Income from Continuing Operations
  Loss from Discontinued Operations, net of tax
  Net Income
  23




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ASSISTED LIVING CONCEPTS, INC.
 Nine months ended September 30, 2007 Compared with the Nine months ended September 30, 2006
  Nine Months EndedSeptember 30,2007
    
    2006Revenues
    
    
    100.0
    %
    
    
    100.0
    %Residence
operations
(exclusive of
depreciation and
amortization and
residence lease
expense shown
below)
    
    
    66.4
    
    
    
    66.8General and
administrative
costs
    
    
    5.5
    
    
    
    4.6Residence lease
expense
    
    
    6.2
    
    
    
    6.1Depreciation and
amortization
    
    
    7.6
    
    
    
    7.2Transaction
costs
    
    
    0.0
    
    
    
    2.2Loss on impairment
of long-lived
asset
    
    
    
    
    
    
    1.8Income from
operations
    
    
    14.3
    
    
    
    11.3Interest expense,
net
    
    
    (2.0
    )
    
    
    (4.5
    )Income tax
expense
    
    
    (4.7
    )
    
    
    (3.4
    )Net income from
continuing
operations after
income
taxes
    
    
    7.6
    
    
    
    3.4Loss from
discontinued
operations, net of
tax
    
    
    
    
    
    
    (0.8
    )Net
income
    
    
    7.6
    %
    
    
    2.6
    %
 Revenues
  Residence Operations (exclusive of depreciation and amortization and residence lease expense shown
below)
  General and Administrative
  Residence Lease Expense
  24




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 Depreciation and Amortization
  Transaction Costs
  Impairment of Long-Lived Asset
  Income from Operations
  Interest Expense, Net
  Income from Continuing Operations before Income Taxes
  Income Tax Expense
  Net Income from Continuing Operations
  25




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 Loss from Discontinued Operations, net of tax
  Net Income
  Related Party Transactions
 Transactions with Extendicare and its Affiliates
     Liquidity and Capital Resources
 Sources and Uses of Cash
  2007
    
    
    2006(In thousands)Cash provided by operating
activities
    
    $
    35,406
    
    
    $
    27,939Cash used in investing
activities
    
    
    (36,120
    )
    
    
    (12,083
    )Cash used in financing
activities
    
    
    (10,262
    )
    
    
    (10,841
    )Change in cash and cash equivalents
    
    $
    (10,976
    )
    
    $
    5,015
  26




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
       $100 Million Credit Facility
   HUD Insured Mortgages due 2036
  27




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 Debt Obligations
  Principal Repayment Schedule
  Letters of credit
  Restricted Cash
  Contractual Obligations
  Off Balance Sheet Arrangements
  Cash Management
  Future Liquidity and Capital Resources
  Acquisitions
   28




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 Capital Commitments
  Expansion Plans
  Share Buyback
  Accrual for Self-Insured Liabilities
   Critical Accounting Policies
  29




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##### Table of Contents



Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    Quantitative Disclosures
  
 Item 4. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
 Internal Control Over Financial Reporting
  30




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##### Table of Contents



Part II. OTHER INFORMATION
 
 Item 1A. RISK FACTORS
  
 Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  (d)Maximum Number(c)
    
    
    (or Approximate(a)
    
    
    
    
    
    
    Total Number of
    
    
    Dollar Value) ofTotal
    
    
    (b)
    
    
    Shares Purchased as
    
    
    Shares that May YetNumber of
    
    
    Average
    
    
    Part of Publicly
    
    
    Be Purchased UnderShares
    
    
    Price Paid
    
    
    Announced Plans or
    
    
    the Plans orPeriod
    
    Purchased
    
    
    Per Share
    
    
    Programs
    
    
    Programs (1) (2)July 1, 2007 to July 31, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    37,217,295August 1, 2007 to August 31, 2007
    
    
    2,755,510
    
    
    $
    9.00
    
    
    
    2,755,510
    
    
    $
    12,427,588September 1, 2007 to September
30, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    12,427,588Total
    
    
    2,755,510
    
    
    $
    9.00
    
    
    
    2,755,510
    
    
    $
    12,427,588
 
 (1)
    
    Consists of purchases made through the share purchase program originally
announced on December 14, 2006 ($20 million), and expanded upon on August 20, 2007
(additional $20 million), under which the Company may repurchase up to $40 million of
its outstanding shares of Class A Common Stock through August 20, 2008.(2)
    
    The second quarter Form 10-Q included commissions as a reduction of the maximum
dollar value of Class A Common Stock that may yet be purchased under the share buyback
plan. By definition in the plan, the maximum available ($40,000,000) is exclusive of
fees and commissions, therefore the amount reported in the second quarter Form 10-Q has
been adjusted for $7,827 of commissions. 
 Item 5. OTHER INFORMATION
    §
    
    national, regional and local competition which could cause us to lose market share
and revenue;§
    
    markets where overbuilding exists and future overbuilding in other markets where we
operate our residences may adversely affect our operations;§
    
    our ability to cultivate new or maintain existing relationships with physicians and
others in the communities in which we operate could affect occupancy rates;
 31




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##### Table of Contents



§
    
    events which adversely affect the ability of seniors to afford our monthly resident
fees could cause our occupancy rates, revenues and results of operations to decline;§
    
    changes in the percentage of our residents that are private residents may affect
our profitability;§
    
    reductions in Medicaid rates could decrease our revenues;§
    
    termination of our resident agreements and vacancies in the living spaces we lease
could adversely affect our revenues, earnings and occupancy levels;§
    
    increases in labor costs, as a result of a shortage of qualified personnel or
otherwise, could increase operating costs;§
    
    personal injury claims, if successfully made against us, could materially and
adversely affect our financial condition and results of operations;§
    
    events that adversely affect the perceived desirability or safety of our residences
could cause occupancy and revenues to decline;§
    
    failure to comply with laws and government regulation could lead to fines and
penalties;§
    
    compliance with regulations may require us to make unanticipated expenditures which
could increase our costs and therefore adversely affect our earnings and financial
condition;§
    
    audits and investigations under contracts with federal and state government
agencies could have adverse findings that impact our business;§
    
    failure to comply with environmental laws, including laws regarding the management
of infectious medical waste, could materially and adversely affect our financial
condition and results of operations;§
    
    failure to comply with laws governing the transmission and privacy of health
information could materially and adversely affect our financial condition and results
of operations;§
    
    efforts to regulate the construction or expansion of healthcare providers could
impair our ability to expand through construction and redevelopment;§
    
    acquisitions that we may make could subject us to a number of operating risks; and§
    
    costs associated with capital improvements could adversely affect our
profitability.
  §
    
    loan or lease covenants could restrict our operations and our ability to execute our
growth strategy and defaults could result in the acceleration of indebtedness or
cross-defaults, any of which would negatively impact our liquidity and inhibit our
ability to grow our business and increase revenues;§
    
    if we do not comply with the requirements in leases or debt agreements pertaining to
revenue bonds, we would be subject to financial penalties;§
    
    our indebtedness and long-term leases could adversely affect our liquidity, our
ability to operate our business, and our ability to execute our growth strategy; and§
    
    increases in market interest rates could significantly increase the costs of our
unhedged debt and lease obligations, which could adversely affect our liquidity and
earnings.
  
 Item 6. EXHIBITS
  32




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##### Table of Contents



SIGNATURE
  ASSISTED LIVING CONCEPTS, INC.By:
    /s/ John BuonoJohn BuonoSenior Vice President and
Chief Financial Officer
(Principal Financial Officer and Duly Authorized Officer)




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 
 EXHIBIT INDEX TO SEPTEMBER 30, 2007 QUARTERLY REPORT ON FORM 10-Q
 ExhibitNumber
    
    Description31.1
    
    Certification of Chief Executive Officer pursuant to
Exchange Act Rule 13a-14(a) or Rule 15d- 14(a) as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer pursuant to
Exchange Act Rule 13a-14(a) or Rule 15d- 14(a) as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.