##### 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, 2010
 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
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



ASSISTED LIVING CONCEPTS, INC.
  
 INDEX
 PageNumberPart I. Financial InformationItem 1. Financial StatementsCondensed Consolidated Balance Sheets
 as of September 30, 2010 (unaudited) and December 31, 2009
    
    
    3Condensed Consolidated Statements of Operations
 for the Three and Nine Month Periods Ended September 30, 2010 and 2009 (unaudited)
    
    
    4Condensed Consolidated Statements of Cash Flows
 for the Nine Month Periods Ended September 30, 2010 and 2009 (unaudited)
    
    
    5Notes to Condensed Consolidated Financial Statements (unaudited)
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    22Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    41Item 4. Controls and Procedures
    
    
    43Part II. Other InformationItem 1A. Risk Factors
    
    
    44Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    45Item 5. Other Information
    
    
    46Item 6. Exhibits
    
    
    48Signature
    
    
    S-1Exhibit Index
    
    EI-1Exhibit 31.1Exhibit 31.2Exhibit 32.1
   2




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 
 Part I. FINANCIAL INFORMATION
 
 Item 1. FINANCIAL STATEMENTS
 
 CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)
 September 30,
    
    
    December 31,2010
    
    
    2009(unaudited)ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    37,134
    
    
    $
    4,360Investments
    
    
    3,930
    
    
    
    3,427Accounts receivable, less allowances of $1,008 and $738, respectively
    
    
    3,209
    
    
    
    2,668Prepaid expenses, supplies and other receivables
    
    
    3,785
    
    
    
    3,537Deposits in escrow
    
    
    2,264
    
    
    
    1,993Income taxes receivable
    
    
    59
    
    
    
    723Deferred income taxes
    
    
    4,646
    
    
    
    4,636Current assets of discontinued operations
    
    
    168
    
    
    
    36Total current assets
    
    
    55,195
    
    
    
    21,380Property and equipment, net
    
    
    410,370
    
    
    
    415,454Intangible assets, net
    
    
    10,598
    
    
    
    11,812Restricted cash
    
    
    3,018
    
    
    
    4,389Other assets
    
    
    1,912
    
    
    
    1,935Non-current assets of discontinued operations
    
    
    
    
    
    
    399Total Assets
    
    $
    481,093
    
    
    $
    455,369LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    6,422
    
    
    $
    8,005Accrued liabilities
    
    
    19,898
    
    
    
    19,228Deferred revenue
    
    
    6,656
    
    
    
    6,368Current maturities of long-term debt
    
    
    2,342
    
    
    
    1,823Current portion of self-insured liabilities
    
    
    500
    
    
    
    500Current liabilities of discontinued operations
    
    
    
    
    
    
    34Total current liabilities
    
    
    35,818
    
    
    
    35,958Accrual for self-insured liabilities
    
    
    1,481
    
    
    
    1,416Long-term debt
    
    
    130,290
    
    
    
    119,914Deferred income taxes
    
    
    17,656
    
    
    
    13,257Other long-term liabilities
    
    
    11,740
    
    
    
    11,853Commitments and contingenciesTotal Liabilities
    
    
    196,985
    
    
    
    182,398Preferred Stock, par value $0.01 per share, 25,000,000 shares authorized; no
shares issued and outstanding
    
    
    
    
    
    
    Class A Common Stock, $0.01 par value, 80,000,000 shares authorized at
September 30, 2010 and December 31, 2009; 12,406,770 and 12,397,525 shares
issued and 9,990,534 and 10,048,674 shares outstanding, respectively
    
    
    124
    
    
    
    124Class B Common Stock, $0.01 par value, 15,000,000 shares authorized at
September 30, 2010 and December 31, 2009; 1,521,801 and 1,528,650 shares
issued and outstanding, respectively
    
    
    15
    
    
    
    15Additional paid-in capital
    
    
    315,247
    
    
    
    314,602Accumulated other comprehensive loss
    
    
    (555
    )
    
    
    (2,012
    )Retained earnings
    
    
    44,562
    
    
    
    33,486Treasury stock at cost, 2,416,236 and 2,348,851 shares, respectively
    
    
    (75,285
    )
    
    
    (73,244
    )Total Stockholders Equity
    
    
    284,108
    
    
    
    272,971Total Liabilities and Stockholders Equity
    
    $
    481,093
    
    
    $
    455,369
   3




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)  In thousands, except per share data)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Revenues
    
    $
    58,529
    
    
    $
    57,236
    
    
    $
    174,693
    
    
    $
    170,986Expenses:Residence operations (exclusive of depreciation and
amortization and residence lease expense shown below)
    
    
    34,902
    
    
    
    35,059
    
    
    
    105,419
    
    
    
    107,493General and administrative
    
    
    3,664
    
    
    
    3,146
    
    
    
    11,694
    
    
    
    9,921Residence lease expense
    
    
    5,161
    
    
    
    5,053
    
    
    
    15,355
    
    
    
    14,976Depreciation and amortization
    
    
    5,745
    
    
    
    5,440
    
    
    
    17,113
    
    
    
    15,589Impairment of long-lived asset
    
    
    
    
    
    
    148
    
    
    
    
    
    
    
    148Goodwill impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,315Total operating expenses
    
    
    49,472
    
    
    
    48,846
    
    
    
    149,581
    
    
    
    164,442Income from operations
    
    
    9,057
    
    
    
    8,390
    
    
    
    25,112
    
    
    
    6,544Other income (expense):Other-than-temporary investments impairment
    
    
    
    
    
    
    
    
    
    
    (2,026
    )
    
    
    Interest income
    
    
    2
    
    
    
    7
    
    
    
    10
    
    
    
    26Interest expense
    
    
    (1,893
    )
    
    
    (1,914
    )
    
    
    (5,680
    )
    
    
    (5,451
    )Income from continuing operations before income taxes
    
    
    7,166
    
    
    
    6,483
    
    
    
    17,416
    
    
    
    1,119Income tax expense
    
    
    (2,599
    )
    
    
    (2,295
    )
    
    
    (6,340
    )
    
    
    (4,621
    )Net income (loss) from continuing operations
    
    
    4,567
    
    
    
    4,188
    
    
    
    11,076
    
    
    
    (3,502
    )Loss from discontinued operations, net of tax
    
    
    
    
    
    
    (802
    )
    
    
    
    
    
    
    (980
    )Net income (loss)
    
    $
    4,567
    
    
    $
    3,386
    
    
    $
    11,076
    
    
    $
    (4,482
    )Weighted average common shares:Basic
    
    
    11,517
    
    
    
    11,655
    
    
    
    11,554
    
    
    
    11,806Diluted
    
    
    11,679
    
    
    
    11,786
    
    
    
    11,720
    
    
    
    11,806Per share data:Basic earnings per common shareEarnings (loss) from continuing operations
    
    $
    0.40
    
    
    $
    0.36
    
    
    $
    0.96
    
    
    $
    (0.30
    )Loss from discontinued operations
    
    
    
    
    
    
    (0.07
    )
    
    
    
    
    
    
    (0.08
    )Net income (loss)
    
    $
    0.40
    
    
    $
    0.29
    
    
    $
    0.96
    
    
    $
    (0.38
    )Diluted earnings per common shareEarnings (loss) from continuing operations
    
    $
    0.39
    
    
    $
    0.36
    
    
    $
    0.95
    
    
    $
    (0.30
    )Loss from discontinued operations
    
    
    
    
    
    
    (0.07
    )
    
    
    
    
    
    
    (0.08
    )Net income (loss)
    
    $
    0.39
    
    
    $
    0.29
    
    
    $
    0.95
    
    
    $
    (0.38
    )
   4




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)
(In thousands)
 Nine Months EndedSeptember 30,2010
    
    
    2009OPERATING ACTIVITIES:Net income (loss)
    
    $
    11,076
    
    
    $
    (4,482
    )Adjustments to reconcile net income (loss) to net cash
provided by operating activities:Depreciation and amortization
    
    
    17,113
    
    
    
    15,889Other-than-temporary investments impairment
    
    
    2,026
    
    
    
    Goodwill impairment
    
    
    
    
    
    
    16,315Loss due to property and equipment impairment
    
    
    
    
    
    
    1,379Amortization of purchase accounting adjustments for leases
    
    
    (295
    )
    
    
    (296
    )Provision for bad debts
    
    
    270
    
    
    
    (66
    )Provision for self-insured liabilities
    
    
    455
    
    
    
    717Loss on disposal of fixed assets
    
    
    279
    
    
    
    54Equity-based compensation expense
    
    
    614
    
    
    
    320Deferred income taxes
    
    
    3,464
    
    
    
    (28
    )Changes in assets and liabilities:Accounts receivable
    
    
    (811
    )
    
    
    367Prepaid expenses, supplies and other receivables
    
    
    (248
    )
    
    
    (569
    )Deposits in escrow
    
    
    (271
    )
    
    
    141Current assets  discontinued operations
    
    
    (132
    )
    
    
    (106
    )Accounts payable
    
    
    (446
    )
    
    
    (738
    )Accrued liabilities
    
    
    670
    
    
    
    1,220Deferred revenue
    
    
    288
    
    
    
    819Current liabilities  discontinued operations
    
    
    (34
    )
    
    
    87Payments of self-insured liabilities
    
    
    (389
    )
    
    
    (547
    )Income taxes payable / receivable
    
    
    664
    
    
    
    3,312Changes in other non-current assets
    
    
    1,394
    
    
    
    461Other non-current assets  discontinued operations
    
    
    399
    
    
    
    534Other long-term liabilities
    
    
    225
    
    
    
    1,049Long-term liabilities  discontinued operations
    
    
    
    
    
    
    (14
    )Cash provided by operating activities
    
    
    36,311
    
    
    
    35,818INVESTING ACTIVITIES:Payment for executive retirement plan securities
    
    
    (163
    )
    
    
    (156
    )Payments for new construction projects
    
    
    (4,622
    )
    
    
    (12,888
    )Payments for purchases of property and equipment
    
    
    (7,609
    )
    
    
    (12,346
    )Cash used in investing activities
    
    
    (12,394
    )
    
    
    (25,390
    )FINANCING ACTIVITIES:Purchase of treasury stock
    
    
    (2,041
    )
    
    
    (5,763
    )Issuance of shares for employee stock options
    
    
    31
    
    
    
    Repayment of revolving credit facility
    
    
    
    
    
    
    (24,000
    )Proceeds from issuance of new mortgage debt
    
    
    12,250
    
    
    
    14,000Repayment of mortgage debt
    
    
    (1,383
    )
    
    
    (8,675
    )Cash provided by (used in) financing activities
    
    
    8,857
    
    
    
    (24,438
    )Increase (decrease) in cash and cash equivalents
    
    
    32,774
    
    
    
    (14,010
    )Cash and cash equivalents, beginning of year
    
    
    4,360
    
    
    
    19,905Cash and cash equivalents, end of period
    
    $
    37,134
    
    
    $
    5,895Supplemental schedule of cash flow information:Cash paid during the period for:Interest
    
    $
    5,350
    
    
    $
    5,771Income tax payments, net of refunds
    
    
    2,178
    
    
    
    715
   5




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 1. BASIS OF PRESENTATION
      2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 (a) Principles of Presentation and Consolidation
   (b) Accounts Receivable
   6




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ASSISTED LIVING CONCEPTS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
   (c) Investments
    (d) Goodwill
   7




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ASSISTED LIVING CONCEPTS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
     (e) Comprehensive Income (Loss)
   8




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ASSISTED LIVING CONCEPTS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(In thousands)Net income (loss)
    
    $
    4,567
    
    
    $
    3,386
    
    
    $
    11,076
    
    
    $
    (4,482
    )Unrealized gains (losses) on
investments, net of tax expense
(benefit) of $104, $1, $120 and
$(8), respectively
    
    
    171
    
    
    
    122
    
    
    
    200
    
    
    
    (10
    )Unrealized gains (losses) on
derivatives, net of tax expense
(benefit) of $30, $122, $6 and
$(91), respectively
    
    
    49
    
    
    
    (199
    )
    
    
    10
    
    
    
    (147
    )Other-than-temporary impairment
loss on investments, net of tax
benefit of $764
    
    
    
    
    
    
    
    
    
    
    1,248
    
    
    
    Total comprehensive income (loss)
    
    $
    4,787
    
    
    $
    3,309
    
    
    $
    12,534
    
    
    $
    (4,639
    )
  September 30,
    
    
    December 31,2010
    
    
    2009(In thousands)Unrealized gains (losses) on investments
    
    $
    176
    
    
    $
    (1,271
    )Net unrealized loss on derivatives
    
    
    (731
    )
    
    
    (741
    )Accumulated other comprehensive loss
    
    $
    (555
    )
    
    $
    (2,012
    )
 (f) Income Taxes
     9




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ASSISTED LIVING CONCEPTS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (g) Recently Adopted Accounting Pronouncements
     (h) Recently Issued Accounting Pronouncements
    10




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 3. PROPERTY AND EQUIPMENT
  September 30,
    
    
    December 31,2010
    
    
    2009(In thousands)Land and land improvements
    
    $
    27,629
    
    
    $
    27,207Buildings and improvements
    
    
    448,395
    
    
    
    442,176Furniture and equipment
    
    
    29,266
    
    
    
    27,900Leasehold improvements
    
    
    9,623
    
    
    
    8,216Construction in progress
    
    
    3,278
    
    
    
    2,024518,191
    
    
    
    507,523Less accumulated depreciation and amortization
    
    
    (107,821
    )
    
    
    (92,069
    )$
    410,370
    
    
    $
    415,454
 4. INVESTMENTS
      11




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ASSISTED LIVING CONCEPTS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  September 30, 2010
    
    
    December 31, 2009Fair
    
    
    Unrealized
    
    
    
    
    
    
    Fair
    
    
    UnrealizedMarket
    
    
    Gain/
    
    
    
    
    
    
    Market
    
    
    Gain/Cost
    
    
    Value
    
    
    (Loss)
    
    
    Cost
    
    
    Value
    
    
    (Loss)(In thousands)ERP Investments
    
    $
    1,190
    
    
    $
    1,217
    
    
    $
    27
    
    
    $
    1,079
    
    
    $
    1,079
    
    
    $
    Equity Investments
with unrealized
gains
    
    
    2,441
    
    
    
    2,713
    
    
    
    272
    
    
    
    
    
    
    
    2
    
    
    
    2Equity Investments
with unrealized
losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,400
    
    
    
    2,346
    
    
    
    (2,054
    )Total Investments
    
    $
    3,631
    
    
    $
    3,930
    
    
    $
    299
    
    
    $
    5,479
    
    
    $
    3,427
    
    
    $
    (2,052
    )
 5. DEBT
  September 30,
    
    
    December 31,2010
    
    
    2009(In thousands)$120 million credit facility bearing interest at floating rates, due November 2011 (1)
    
    $
    50,000
    
    
    $
    50,000Mortgage note, bearing interest at 6.24%, due 2014
    
    
    32,870
    
    
    
    33,526Mortgage note, bearing interest at 6.50%, due 2015
    
    
    25,810
    
    
    
    13,829Mortgage note, bearing interest at 7.07%, due 2018
    
    
    8,740
    
    
    
    8,844Oregon Trust Deed Notes, weighted average interest rate of 7.38%, maturing from 2021
through 2026
    
    
    8,209
    
    
    
    8,438HUD Insured Mortgages, interest rates ranging from 5.66% to 5.85%, due 2032
    
    
    4,056
    
    
    
    4,123HUD Insured Mortgage, bearing interest at 7.55%, due 2036
    
    
    2,947
    
    
    
    2,977Total debt
    
    
    132,632
    
    
    
    121,737Less current maturities
    
    
    (2,342
    )
    
    
    (1,823
    )Total long-term debt
    
    $
    130,290
    
    
    $
    119,914
 (1)
    
    Borrowings under this facility bear interest at a floating rate at ALCs option equal
to LIBOR plus a margin of 150 basis points or prime. At September 30, 2010, prime was
3.25% and LIBOR was 0.26%. $120 Million Credit Facility
    12




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ASSISTED LIVING CONCEPTS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
   6.24% Mortgage Note due 2014
  6.50% Mortgage Note due 2015
     13




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ASSISTED LIVING CONCEPTS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Mortgage Note due 2018
  Oregon Trust Deed Notes
   HUD Insured Mortgages
  Letters of credit
  6. LONG-TERM EQUITY-BASED COMPENSATION PROGRAM
    14




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ASSISTED LIVING CONCEPTS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
         15




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ASSISTED LIVING CONCEPTS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  2010
    
    
    2009Weighted
    
    
    
    
    
    
    Weighted#
    
    
    Average
    
    
    #
    
    
    AverageOptions
    
    
    Exercise
    
    
    Options
    
    
    Exercise/ SARs
    
    
    Price
    
    
    / SARs
    
    
    PriceOutstanding at beginning of period
    
    
    159,000
    
    
    $
    18.96
    
    
    
    129,500
    
    
    $
    30.10Granted
    
    
    136,250
    
    
    $
    32.13
    
    
    
    127,000
    
    
    $
    15.65Exercised
    
    
    (4,000
    )
    
    $
    15.35
    
    
    
    
    
    
    
    Expired
    
    
    (19,000
    )
    
    $
    15.35
    
    
    
    (97,500
    )
    
    $
    29.45Forfeited
    
    
    (4,000
    )
    
    $
    15.35
    
    
    
    
    
    
    
    Outstanding at end of period
    
    
    268,250
    
    
    $
    26.01
    
    
    
    159,000
    
    
    $
    18.96Options Exercisable at September 30
    
    
    53,353
    
    
    $
    22.29
    
    
    
    10,667
    
    
    $
    32.10Weighted average fair value of options
    
    $
    13.95
    
    
    
    
    
    
    $
    9.89Aggregate intrinsic value of options
    
    $
    1.2
    Million
    
    
    
    
    
    $
    0.6
    MillionWeighted average contractual term
    
    3.9
    years
    
    
    
    
    
    
    4.5
    years
  May 3,
    
    
    March 3,
    
    
    Apr 30,
    
    
    Feb 22,
    
    
    May 5,
    
    
    March 29,2010
    
    
    2010
    
    
    2009
    
    
    2009
    
    
    2008
    
    
    2008Expected life from grant date (in years)
    
    
    5
    
    
    
    5
    
    
    
    5
    
    
    
    5
    
    
    
    5
    
    
    
    5Risk-free interest rate
    
    
    2.13
    %
    
    
    2.33
    %
    
    
    2.02
    %
    
    
    2.06
    %
    
    
    3.15
    %
    
    
    2.50
    %Volatility
    
    
    62.6
    %
    
    
    63.7
    %
    
    
    68.9
    %
    
    
    66.9
    %
    
    
    45.8
    %
    
    
    46.9
    %Dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted average fair value (per share)
    
    $
    17.97
    
    
    $
    17.48
    
    
    $
    9.62
    
    
    $
    8.55
    
    
    $
    14.15
    
    
    $
    12.90
   16




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 7. EARNINGS PER SHARE
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(In thousands, except per share data)Basic earnings per share calculationNumerator:Income (loss) from continuing operations
    
    $
    4,567
    
    
    $
    4,188
    
    
    $
    11,076
    
    
    $
    (3,502
    )Loss from discontinued operations, net of tax
    
    
    
    
    
    
    (802
    )
    
    
    
    
    
    
    (980
    )Net income (loss) to common stockholders
    
    $
    4,567
    
    
    $
    3,386
    
    
    $
    11,076
    
    
    $
    (4,482
    )Denominator:Weighted average of common shares outstanding
    
    
    11,517
    
    
    
    11,655
    
    
    
    11,554
    
    
    
    11,806Basic earnings (loss) from continuing operations
    
    $
    0.40
    
    
    $
    0.36
    
    
    $
    0.96
    
    
    $
    (0.30
    )Loss from discontinued operations, net of tax
    
    
    
    
    
    
    (0.07
    )
    
    
    
    
    
    
    (0.08
    )Basic earnings (loss) per share
    
    $
    0.40
    
    
    $
    0.29
    
    
    $
    0.96
    
    
    $
    (0.38
    )Diluted earnings per share calculationNumerator:Income (loss) from continuing operations
    
    $
    4,567
    
    
    $
    4,188
    
    
    $
    11,076
    
    
    $
    (3,502
    )Loss from discontinued operations, net of tax
    
    
    
    
    
    
    (802
    )
    
    
    
    
    
    
    (980
    )Net income (loss) to common stockholders
    
    $
    4,567
    
    
    $
    3,386
    
    
    $
    11,076
    
    
    $
    (4,482
    )Denominator:Weighted average of common shares outstanding
    
    
    11,517
    
    
    
    11,655
    
    
    
    11,554
    
    
    
    11,806Assumed conversion of Class B shares
    
    
    114
    
    
    
    115
    
    
    
    114
    
    
    
    Dilutive effect of stock options
    
    
    48
    
    
    
    16
    
    
    
    52
    
    
    
    Diluted weighted average shares outstanding
    
    
    11,679
    
    
    
    11,786
    
    
    
    11,720
    
    
    
    11,806Diluted earnings (loss) from continuing operations
    
    $
    0.39
    
    
    $
    0.36
    
    
    $
    0.95
    
    
    $
    (0.30
    )Loss from discontinued operations, net of tax
    
    
    
    
    
    
    (0.07
    )
    
    
    
    
    
    
    (0.08
    )Diluted earnings (loss) per share
    
    $
    0.39
    
    
    $
    0.29
    
    
    $
    0.95
    
    
    $
    (0.38
    )
  17




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 8. SHARE REPURCHASE
  9. FAIR VALUE OF FINANCIAL INSTRUMENTS
  SignificantQuoted prices
    
    
    other
    
    
    Significantin active
    
    
    observable
    
    
    unobservableTotal carrying
    
    
    markets
    
    
    inputs
    
    
    inputsvalue
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)September 30, 2010AssetsEquity investments
    
    $
    3,104
    
    
    $
    3,104
    
    
    $
    
    
    
    $
    LiabilitiesDerivative financial instruments
    
    
    1,179
    
    
    
    
    
    
    
    1,179
    
    
    
    December 31, 2009AssetsEquity investments
    
    $
    2,412
    
    
    $
    2,412
    
    
    $
    
    
    
    $
    LiabilitiesDerivative financial instruments
    
    
    1,195
    
    
    
    
    
    
    
    1,195
    
    
    
    
     18




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
     Fixed
    
    
    Notional
    
    
    Effective
    
    
    Expiration
    
    
    EstimatedInterest Rate
    
    
    Amount
    
    
    Date
    
    
    Date
    
    
    Fair ValueInterest rate swap  November 2008
    
    
    2.83
    %
    
    $
    30,000
    
    
    
    11/13/2008
    
    
    
    11/14/2011
    
    
    $
    (823
    )Interest rate swap  March 2009
    
    
    1.98
    %
    
    $
    20,000
    
    
    
    3/11/2009
    
    
    
    11/14/2011
    
    
    $
    (356
    )
 10. DERIVATIVE FINANCIAL INSTRUMENTS
     19




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  Fair Values of Derivative Instruments
Liability Derivatives
(In thousands)
 September 30, 2010
    
    
    December 31, 2009Balance Sheet
    
    
    
    
    
    
    Balance SheetDerivatives Designated as Hedging Instruments
    
    Location
    
    Fair Value
    
    
    Location
    
    Fair ValueInterest rate contracts
    
    Other long-term liabilities
    
    $
    1,179
    
    
    Other long-term liabilities
    
    $
    1,195
 11. DISCONTINUED OPERATIONS
   Three Months Ended
    
    
    Nine Months EndedSeptember 30, 2009
    
    
    September 30, 2009(In thousands, except per share data)Revenues
    
    $
    743
    
    
    $
    2,008Expenses:Residence operations (exclusive of depreciation and
amortization and residence lease expense shown below)
    
    
    516
    
    
    
    1,600Residence lease income
    
    
    (5
    )
    
    
    (11
    )Depreciation and amortization
    
    
    105
    
    
    
    300Loss on impairment
    
    
    1,231
    
    
    
    1,231Total operating expenses
    
    
    1,847
    
    
    
    3,120Loss from operations
    
    
    (1,104
    )
    
    
    (1,112
    )Other expense:Interest income
    
    
    1
    
    
    
    3Interest expense
    
    
    (137
    )
    
    
    (416
    )Loss from discontinued operations before income taxes
    
    
    (1,240
    )
    
    
    (1,525
    )Income tax benefit
    
    
    438
    
    
    
    545Net loss from discontinued operations
    
    $
    (802
    )
    
    $
    (980
    )Weighted average common shares:Basic
    
    
    11,655
    
    
    
    11,806Diluted
    
    
    11,786
    
    
    
    11,806Revenue per share data:Basic discontinued revenue per share
    
    $
    0.06
    
    
    $
    0.17Diluted discontinued revenue per share
    
    $
    0.06
    
    
    $
    0.17
  20




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 12. SUBSEQUENT EVENTS
   21




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##### Table of Contents



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 risks, uncertainties and assumptions described or referred to in Item 1A  Risk Factors in
Part I of ALCs Annual Report on Form 10-K for the year ended December 31, 2009, 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 condensed consolidated
financial statements and the related notes to the condensed consolidated financial statements in
Part I, Item 1 of this report.
 Executive Overview
   
    
    family members are more willing and able to provide care at home;
 
    
    residents have insufficient investment income or are unable to obtain necessary
funds from the sale of their homes or other investments; and
 
    
    independent living facilities with home care services are accepting more traditional
assisted living residents.
   
    
    our private pay rates generally exceed those paid through Medicaid reimbursement
programs by 60% to 70%;
 
    
    we reduce our exposure to reductions in reimbursement rates provided by government
programs; and
 
    
    our private pay residents typically have less severe health needs and require fewer
services than residents funded by Medicaid programs, resulting in:
 
    
    a better fit for our social and wellness model;
 
    
    a safer environment for employees and the other residents in our communities; and
 
    
    lower staffing needs.
   22




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
    Unit expansions
  Acquisitions
  Temporary closings
  Discontinued operations
  Business Strategies
  
    
    increasing our private pay occupancy;
 
    
    increasing the overall size of our portfolio by building additional capacity and
making acquisitions;
  23




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 
    
    applying operating efficiencies achievable from owning a large number of senior
living residences; and
 
    
    increasing the attractiveness and operating results of our portfolio by refurbishing
and repositioning residences or eliminating residences that do not meet our internal
goals.
 Increasing our private pay occupancy
   Increasing the overall size of our portfolio by building additional capacity and making
acquisitions
      Applying efficiencies achievable from operating a large number of senior living residences
   Increasing the attractiveness and operating results of our portfolio by refurbishing and
repostioning residences or eliminating residences that do not meet our internal goals
   24




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
    
    
    Business Overview:This section provides a general financial description of our
business, including 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 to anticipate future trends.
 
    
    Consolidated Results of Operations:This section provides an analysis of our results of
operations for the quarter and nine months ended September 30, 2010 compared to the quarter
and nine months ended September 30, 2009.
 
    
    Liquidity and Capital Resources:This section provides a discussion of our liquidity and
capital resources as of September 30, 2010, 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 on the part of management requires significant judgment and
reliance on estimations of matters that are inherently uncertain.
  Business Overview
 Revenues
   25




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
   Residence Operations Expenses
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Wage and benefit costs
    
    
    60
    %
    
    
    62
    %
    
    
    61
    %
    
    
    61
    %Property related costs
    
    
    24
    
    
    
    22
    
    
    
    23
    
    
    
    22Other operating costs
    
    
    16
    
    
    
    16
    
    
    
    16
    
    
    
    17Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
  Key Performance Indicators
  Census
  Average Daily Census
  Occupancy
  Private Pay Occupancy and Revenue Percentage
   26




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 Average Revenue Rate
  Adjusted EBITDA and Adjusted EBITDAR
    Review of Key Performance Indicators
  ADC
 All Continuing Residences
   27




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 Average Daily Census
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Private pay
    
    
    5,492
    
    
    
    5,381
    
    
    
    5,479
    
    
    
    5,373Medicaid
    
    
    123
    
    
    
    371
    
    
    
    166
    
    
    
    446Total ADC
    
    
    5,615
    
    
    
    5,752
    
    
    
    5,645
    
    
    
    5,819Private pay occupancy percentage
    
    
    97.8
    %
    
    
    93.5
    %
    
    
    97.1
    %
    
    
    92.3
    %Private pay revenue percentage
    
    
    98.7
    %
    
    
    95.7
    %
    
    
    98.1
    %
    
    
    94.8
    %
  Same Residence Basis
  Average Daily Census
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Private pay
    
    
    5,455
    
    
    
    5,334
    
    
    
    5,396
    
    
    
    5,303Medicaid
    
    
    123
    
    
    
    321
    
    
    
    164
    
    
    
    386Total ADC
    
    
    5,578
    
    
    
    5,655
    
    
    
    5,560
    
    
    
    5,689Private pay occupancy percentage
    
    
    97.8
    %
    
    
    94.3
    %
    
    
    97.0
    %
    
    
    93.2
    %Private pay revenue percentage
    
    
    98.7
    %
    
    
    96.2
    %
    
    
    98.1
    %
    
    
    95.4
    %
  Occupancy Percentage
   28




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
  All Continuing Residences
  Occupancy Percentage
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Mature
    
    
    62.7
    %
    
    
    64.7
    %
    
    
    64.1
    %
    
    
    65.5
    %Developmental
    
    
    30.0
    %
    
    
    19.6
    %
    
    
    25.0
    %
    
    
    18.0
    %Total residences
    
    
    62.3
    %
    
    
    63.2
    %
    
    
    62.7
    %
    
    
    64.4
    %
    Same Residence Basis
  Occupancy Percentage
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Mature
    
    
    62.7
    %
    
    
    64.7
    %
    
    
    64.2
    %
    
    
    65.6
    %Developmental
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %Total residences
    
    
    62.7
    %
    
    
    63.6
    %
    
    
    64.2
    %
    
    
    65.6
    %
   29




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 Average Revenue Rate
 All Continuing Residences
  Average Daily Revenue Rate
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Average daily revenue rate
    
    $
    113.29
    
    
    $
    108.15
    
    
    $
    113.36
    
    
    $
    107.64
  Number of Residences Under Operation
  2010
    
    
    2009Owned*
    
    
    152
    
    
    
    152Under operating leases**
    
    
    59
    
    
    
    59Total under operation
    
    
    211
    
    
    
    211Percent of residences:Owned
    
    
    72.0
    %
    
    
    72.0
    %Under operating leases
    
    
    28.0
    
    
    
    28.0100.0
    %
    
    
    100.0
    %
 *
    
    Includes six residences temporarily closed for refurbishment in 2010 and four residences
temporarily closed for refurbishment in 2009. Excludes nine residences purchased from HCP,
Inc. on November 1, 2010, discussed above in Executive Summary  Acquisitions.**
    
    Includes nine residences purchased from HCP, Inc. on November 1, 2010, discussed above in
Executive Summary  Acquisitions  30




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 ADJUSTED EBITDA and ADJUSTED EBITDAR
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(In thousands)Net income (loss)
    
    $
    4,567
    
    
    $
    3,386
    
    
    $
    11,076
    
    
    $
    (4,482
    )Add: Loss from discontinued operations, net of tax
    
    
    
    
    
    
    802
    
    
    
    
    
    
    
    980Add: Provision for income taxes
    
    
    2,599
    
    
    
    2,295
    
    
    
    6,340
    
    
    
    4,621Income from continuing operations before income taxes
    
    
    7,166
    
    
    
    6,483
    
    
    
    17,416
    
    
    
    1,119Add:Depreciation and amortization
    
    
    5,745
    
    
    
    5,440
    
    
    
    17,113
    
    
    
    15,589Interest expense, net
    
    
    1,891
    
    
    
    1,907
    
    
    
    5,670
    
    
    
    5,425Non-cash equity based compensation
    
    
    252
    
    
    
    132
    
    
    
    614
    
    
    
    320Loss due to property impairment
    
    
    
    
    
    
    148
    
    
    
    
    
    
    
    148(Gain)/Loss on disposal of fixed asset
    
    
    (36
    )
    
    
    54
    
    
    
    279
    
    
    
    54Write-down of equity investments
    
    
    
    
    
    
    
    
    
    
    2,026
    
    
    
    Transaction expenses associated with property acquisition
    
    
    18
    
    
    
    
    
    
    
    18
    
    
    
    Goodwill impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,315Adjusted EBITDA
    
    
    15,036
    
    
    
    14,164
    
    
    
    43,136
    
    
    
    38,970Add: Lease expense
    
    
    5,161
    
    
    
    5,053
    
    
    
    15,355
    
    
    
    14,976Adjusted EBITDAR
    
    $
    20,197
    
    
    $
    19,217
    
    
    $
    58,491
    
    
    $
    53,946
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009($ In thousands)Revenues
    
    $
    58,529
    
    
    $
    57,236
    
    
    $
    174,693
    
    
    $
    170,986Adjusted EBITDA
    
    $
    15,036
    
    
    $
    14,164
    
    
    $
    43,136
    
    
    $
    38,970Adjusted EBITDAR
    
    $
    20,197
    
    
    $
    19,217
    
    
    $
    58,491
    
    
    $
    53,946Adjusted EBITDA as percent of total revenue
    
    
    25.7
    %
    
    
    24.7
    %
    
    
    24.7
    %
    
    
    22.8
    %Adjusted EBITDAR as percent of total revenue
    
    
    34.5
    %
    
    
    33.6
    %
    
    
    33.5
    %
    
    
    31.5
    %
     31




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ASSISTED LIVING CONCEPTS, INC.
 Consolidated Results of Operations
 Three Months Ended September 30, 2010 Compared with Three Months Ended September 30, 2009
  2010
    
    
    2009Revenues
    
    
    100.0
    %
    
    
    100.0
    %Residence operations (exclusive of depreciation and amortization and residence lease
expense shown below)
    
    
    59.6
    
    
    
    61.3General and administrative
    
    
    6.3
    
    
    
    5.5Residence lease expense
    
    
    8.8
    
    
    
    8.8Loss on impairment  fixed assets
    
    
    
    
    
    
    0.3Depreciation and amortization
    
    
    9.8
    
    
    
    9.5Total operating expenses
    
    
    84.5
    
    
    
    85.4Income from operations
    
    
    15.5
    
    
    
    14.6Interest expense, net
    
    
    (3.2
    )
    
    
    (3.3
    )Income from continuing operations before income taxes
    
    
    12.3
    
    
    
    11.3Income tax expense
    
    
    (4.5
    )
    
    
    (4.0
    )Loss from discontinued operations, net of taxes
    
    
    
    
    
    
    (1.4
    )Net income
    
    
    7.8
    %
    
    
    5.9
    %
 Revenues
  Residence Operations (exclusive of depreciation and amortization and residence lease expense shown
below)
  General and Administrative
  Residence Lease Expense
   32




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ASSISTED LIVING CONCEPTS, INC.
 Depreciation and Amortization
  Income from Operations
  Interest Income
  Interest Expense
  Income from Continuing Operations before Income Taxes
  Income Tax Expense
  Net Income from Continuing Operations
  Loss from Discontinued Operations, Net of Tax
  Net Income
   33




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ASSISTED LIVING CONCEPTS, INC.
 Nine Months Ended September 30, 2010 Compared with Nine Months Ended September 30, 2009
  2010
    
    
    2009Revenues
    
    
    100.0
    %
    
    
    100.0
    %Residence operations (exclusive of depreciation and amortization and residence lease
expense shown below)
    
    
    60.3
    
    
    
    62.9General and administrative
    
    
    6.7
    
    
    
    5.8Residence lease expense
    
    
    8.8
    
    
    
    8.8Depreciation and amortization
    
    
    9.8
    
    
    
    9.1Goodwill impairment
    
    
    
    
    
    
    9.5Total operating expenses
    
    
    85.6
    
    
    
    96.1Income from operations
    
    
    14.4
    
    
    
    3.9Other-than-temporary investment impairments
    
    
    (1.2
    )
    
    
    Interest expense, net
    
    
    (3.3
    )
    
    
    (3.2
    )Income from continuing operations before income taxes
    
    
    9.9
    
    
    
    0.7Income tax expense
    
    
    (3.6
    )
    
    
    (2.7
    )Loss from discontinued operations, net of taxes
    
    
    
    
    
    
    (0.6
    )Net income (loss)
    
    
    6.3
    %
    
    
    (2.6
    )%
 Revenues
  Residence Operations (exclusive of depreciation and amortization and residence lease expense shown
below)
  General and Administrative
  Residence Lease Expense
   34




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ASSISTED LIVING CONCEPTS, INC.
 Depreciation and Amortization
  Impairment of Goodwill
  Income from Operations
  Other-Than-Temporary Investments Impairment
  Interest Income
  Interest Expense
  Income from Continuing Operations before Income Taxes
  Income Tax Expense
   35




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 Net Income (Loss) from Continuing Operations
  Loss from Discontinued Operations, Net of Tax
  Net Income (Loss)
  Liquidity and Capital Resources
 Sources and Uses of Cash
  2010
    
    
    2009(In thousands)Cash provided by operating activities
    
    $
    36,311
    
    
    $
    35,818Cash used in investing activities
    
    
    (12,394
    )
    
    
    (25,390
    )Cash provided by (used in) financing activities
    
    
    8,857
    
    
    
    (24,438
    )Increase (decrease) in cash and cash equivalents
    
    $
    32,774
    
    
    $
    (14,010
    )
      36




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ASSISTED LIVING CONCEPTS, INC.
    $120 Million Credit Facility
     37




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
  Debt Instruments
  Principal Repayment Schedule
  Letters of Credit
  Restricted Cash
  Off Balance Sheet Arrangements
  Cash Management
  Future Liquidity and Capital Resources
    38




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 Expansion Program
  Share Repurchase
  Accrual for Self-Insured Liabilities
    Unfunded Deferred Compensation Plan
  $120 Million Credit Facility
  Contractual Obligations
   39




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ASSISTED LIVING CONCEPTS, INC.
  Critical Accounting Policies
   40




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ASSISTED LIVING CONCEPTS, INC.
 
 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Qualitative Disclosures
    Fair ValueContract Date
    
    Notional Amount
    
    Fixed Rate
    
    
    Maturity
    
    at September 30, 2010November 13, 2008
    
    $30 million
    
    
    2.83
    %
    
    November 2011
    
    $
    (823,104
    )March 10, 2009
    
    $20 million
    
    
    1.98
    %
    
    November 2011
    
    $
    (355,647
    )
      41




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ASSISTED LIVING CONCEPTS, INC.
 Quantitative Disclosures
   42




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ASSISTED LIVING CONCEPTS, INC.
 
 Item 4. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
 Internal Control Over Financial Reporting
  43




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 
 Part II. OTHER INFORMATION
 
 Item 1A. RISK FACTORS.
   44




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ASSISTED LIVING CONCEPTS, INC.
 
 Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
  (d)(b)
    
    
    
    
    
    
    Maximum Number (orAverage
    
    
    (c)
    
    
    Approximate Dollar(a)
    
    
    Price Paid
    
    
    Total Number of Shares
    
    
    Value) of Shares thatTotal Number
    
    
    Per Share
    
    
    Purchased as Part of
    
    
    May Yet Beof Shares
    
    
    (excluding
    
    
    Publicly Announced
    
    
    Repurchased Under thePeriod
    
    Repurchased
    
    
    fees)
    
    
    Plans or Programs
    
    
    Plans or Programs (1)July 1, 2010 to July 31, 2010
    
    
    25,773
    
    
    $
    29.22
    
    
    
    25,773
    
    
    $
    11,339,064August 1, 2010 to August 31, 2010
    
    
    5,902
    
    
    $
    28.13
    
    
    
    5,902
    
    
    $
    14,833,996September 1, 2010 to September
30, 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    14,833,996Total
    
    
    31,675
    (1)
    
    $
    29.02
    
    
    
    31,675
    
    
    $
    14,833,996
 (1)
    
    Consists of shares repurchased under the share repurchase program approved by the Board of
Directors on August 9, 2009 under which ALC was authorized to purchase up to $15 million of
its outstanding shares of Class A Common Stock through August 9, 2010 (exclusive of fees). On
August 9, 2010, the Board of Directors extended and expanded the repurchase program by
authorizing the purchase of up to $15 million in Class A Common Stock over the twelve-month
period ending August 9, 2011.  45




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ASSISTED LIVING CONCEPTS, INC.
 
 Item 5. OTHER INFORMATION.
 Forward-Looking Statements and Cautionary Factors
   
    
    unfavorable economic conditions, such as recessions, high unemployment levels, and
declining housing and financial markets, could adversely affect the senior living
industry in general and cause us to loose revenue;
 
    
    our strategy to reduce our reliance on Medicaid customers could cause overall
occupancy and revenues to decline;
 
    
    events which adversely affect the ability of seniors to afford our monthly resident
fees including sustained economic downturns, difficult housing markets and losses on
investments designated for retirement could cause our occupancy rates, revenues and
results of operations to decline;
 
    
    national, regional and local competition could cause us to lose market share and
revenue;
 
    
    our ability to cultivate new or maintain existing relationships with physicians and
others in the communities in which we operate who provide referrals for new residents
could affect occupancy rates;
 
    
    changes in the numbers of our residents who are private pay residents may
significantly affect our profitability;
 
    
    reductions in Medicaid rates may 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,
regulatory requirements or otherwise, could substantially increase our operating costs;
 
    
    the inability to increase residents fees to cover energy, food and other costs which
could reduce operating margins;
 
    
    markets where overbuilding exists and future overbuilding in other markets where we
operate our residences may adversely affect our operations;
 
    
    personal injury claims, if successfully made against us, could materially and
adversely affect our financial condition and results of operations;
 
    
    failure to comply with laws and government regulation could lead to fines, penalties
or operating restrictions;
  46




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ASSISTED LIVING CONCEPTS, INC.
 
    
    compliance with new laws or regulations may require us to change our operations and
make unanticipated expenditures which could increase our costs and adversely affect our
earnings and financial condition;
 
    
    audits and investigations under our contracts with federal and state government
agencies could have adverse findings that may negatively 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 of new residences or additions to
existing residences;
 
    
    we may make acquisitions that could subject us to a number of operating risks; and
 
    
    costs associated with capital improvements could adversely affect our profitability.
  
    
    loan and lease covenants could restrict our operations and any default could result
in the acceleration of indebtedness or cross-defaults, any of which would negatively
impact our liquidity and our ability to grow our business and revenues;
 
    
    if we do not comply with the requirements in leases or debt agreements pertaining to
revenue bonds, we would be subject to lost revenues and financial penalties;
 
    
    restrictions in 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 interest rates could significantly increase the costs of our unhedged
debt and lease obligations, which could adversely affect our liquidity and earnings.
   47




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ASSISTED LIVING CONCEPTS, INC.
 
 Item 6. EXHIBITS.
   48




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ASSISTED LIVING CONCEPTS, INC.
 
 SIGNATURE
  ASSISTED LIVING CONCEPTS, INC.By:
    /s/ John BuonoJohn BuonoSenior Vice President and Chief Financial Officer
(Principal Financial Officer and Duly Authorized Officer)   S-1




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ASSISTED LIVING CONCEPTS, INC.
 
 EXHIBIT INDEX TO SEPTEMBER 30, 2010 QUARTERLY REPORT ON FORM 10-Q
 ExhibitNumber
    
    Description10.1
    
    
    Amended and Restated Loan
Agreement, effective as of
September 30, 2010, by and
between ALC Three, LLC as
borrower, Assisted Living
Concepts, Inc. as
guarantor, and TCF
National Bank
(incorporated by reference
to Exhibit 10.1 to current
report of Assisted Living
Concepts, Inc. on Form 8-K
dated September 29, 2010,
File No. 001-13498)10.2
    
    
    Amended and Restated
Guaranty Agreement by
Assisted Living Concepts,
Inc. as guarantor pursuant
to Amended and Restated
Loan Agreement, effective
as of September 30, 2010,
by and between ALC Three,
LLC as borrower, Assisted
Living Concepts, Inc. as
guarantor, and TCF
National Bank
(incorporated by reference
to Exhibit 10.2 to current
report of Assisted Living
Concepts, Inc. on Form 8-K
dated September 29, 2010,
File No. 001-13498)10.3
    
    
    Purchase and Sale
Agreement and Joint Escrow
Instructions by and
between HCP, Inc., Texas
HCP Holdings, L.P. and
Texas HCP Seven Holdings,
L.P. as sellers and
Assisted Living Concepts,
Inc. and ALF Partners,
L.P. as buyers made and
entered into as of October
11, 2010 (incorporated by
reference to Exhibit 10.1
to current report of
Assisted Living Concepts,
Inc. on Form 8-K dated
October 11, 2010, File No.
001-13498)31.1
    
    
    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 200231.2
    
    
    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 200232.1
    
    
    Certification of Chief Executive
Officer and Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
  EI-1