##### 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 March 31, 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.)
 111 West Michigan Street, Milwaukee, Wisconsin 53203  (Address of Principal Executive Offices)  Telephone: (414) 908-8800  (Registrants telephone number, including area code)
 þ o
  o o þ
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##### 



ASSISTED LIVING CONCEPTS, INC.
 INDEX
 PageNumberPart I. Financial InformationItem 1. Financial StatementsConsolidated Balance Sheets  as of March 31, 2007
(unaudited) and December 31, 2006
    
    
    3Consolidated Statements of Income  for the Three Months
Ended March 31, 2007 and 2006 (unaudited)
    
    
    4Consolidated Statements of Cash Flows  For the Three Months
Ended March 31, 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
    
    
    25Item 4. Controls and
Procedures
    
    
    25Item 4T. Controls and
Procedures
    
    
    25Part II. Other InformationItem 1A. Risk
Factors
    
    
    26Item 4. Submission of Matters to a Vote of Security Holders
    
    
    26Item 5. Other Information
    
    
    27Item 6. Exhibits
    
    
    28Signatures
    
    
    S-1Exhibit Index
    
    EI-1Form of 2007 Cash Incentive Compensation Award AgreementForm of Tandem Stock Option/Stock Appreciation Rights Award AgreementCertificationCertificationCertificationCertification
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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)
 March 31,
    
    
    December 31,2007
    
    
    2006(Unaudited)ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    28,396
    
    
    $
    19,951Investments
    
    
    4,938
    
    
    
    5,332Accounts receivable, less allowances of $936 and $1,086 respectively
    
    
    5,180
    
    
    
    5,395Supplies, prepaid expenses and other current
assets
    
    
    7,828
    
    
    
    8,178Income tax receivable
    
    
    
    
    
    
    90Deferred income taxes
    
    
    1,325
    
    
    
    1,552Total current assets
    
    
    47,667
    
    
    
    40,498Property and equipment, net
    
    
    374,943
    
    
    
    374,612Goodwill and other intangible assets, net
    
    
    17,569
    
    
    
    18,102Restricted cash
    
    
    9,949
    
    
    
    10,947Other assets
    
    
    3,292
    
    
    
    3,181Total Assets
    
    $
    453,420
    
    
    $
    447,340LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    4,120
    
    
    $
    5,134Accrued liabilities
    
    
    20,022
    
    
    
    19,580Current maturities of long-term debt
    
    
    2,781
    
    
    
    2,732Income taxes payable
    
    
    2,219
    
    
    
    Current portion of self-insured liabilities
    
    
    300
    
    
    
    300Total current liabilities
    
    
    29,442
    
    
    
    27,746Accrual for self-insured liabilities
    
    
    1,164
    
    
    
    1,171Long-term debt
    
    
    87,187
    
    
    
    87,904Deferred income taxes
    
    
    5,470
    
    
    
    5,146Other long-term liabilities
    
    
    8,755
    
    
    
    8,535Total Liabilities
    
    
    132,018
    
    
    
    130,502Preferred Stock, par value $0.01 per share, 25,000,000 shares authorized, none
issued or outstanding
    
    
    
    
    
    
    Series A Common Stock, par value $0.01 per share, 400,000,000 authorized,
60,056,892 and 59,501,918 issued and outstanding, respectively
    
    
    601
    
    
    
    595Series B Common Stock, par value $0.01 per share, 75,000,000 authorized,
9,440,074 and 9,956,337 issued and outstanding, respectively
    
    
    94
    
    
    
    100Additional paid-in capital
    
    
    313,553
    
    
    
    313,474Accumulated other comprehensive income
    
    
    288
    
    
    
    530Retained earnings
    
    
    6,866
    
    
    
    2,139Total Stockholders Equity
    
    
    321,402
    
    
    
    316,838Total Liabilities and Stockholders Equity
    
    $
    453,420
    
    
    $
    447,340
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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 
 CONSOLIDATED STATEMENTS OF INCOME
 (Unaudited)
 In thousands, except per share data)
 Three Months EndedMarch 31,2007
    
    
    2006Revenues
    
    $
    57,521
    
    
    $
    56,776Expenses:Residence operations (exclusive of depreciation and
amortization and residence lease expense shown
below)
    
    
    37,758
    
    
    
    37,917General and administrative
    
    
    2,987
    
    
    
    2,751Residence lease expense
    
    
    3,699
    
    
    
    3,488Depreciation and amortization
    
    
    4,181
    
    
    
    4,123Transaction costs
    
    
    56
    
    
    
    Total operating expenses
    
    
    48,681
    
    
    
    48,279Income from
operations
    
    
    8,840
    
    
    
    8,497Other expense:Interest expense, net
    
    
    (1,215
    )
    
    
    (2,830
    )Income from continuing operations before income
taxes
    
    
    7,625
    
    
    
    5,667Income tax expense
    
    
    (2,898
    )
    
    
    (2,189
    )Net income from continuing
operations
    
    
    4,727
    
    
    
    3,478Loss from discontinued operations, net of
taxes
    
    
    
    
    
    
    (1,168
    )Net
income
    
    $
    4,727
    
    
    $
    2,310Weighted average common shares:Basic
    
    
    69,482
    
    
    
    69,322Diluted
    
    
    70,205
    
    
    
    70,205Per share data:Basic earnings per common share:Income from continuing operations
    
    $
    0.07
    
    
    $
    0.05Loss from discontinued operations
    
    
    
    
    
    
    (0.02
    )Net income
    
    $
    0.07
    
    
    $
    0.03Diluted earnings per common share:Income from continuing operations
    
    $
    0.07
    
    
    $
    0.05Loss from discontinued operations
    
    
    
    
    
    
    (0.02
    )Net income
    
    $
    0.07
    
    
    $
    0.03
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ASSISTED LIVING CONCEPTS, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 (In thousands)
 Three Months Ended March 31,2007
    
    
    2006OPERATING ACTIVITIES:Net income
    
    $
    4,727
    
    
    $
    2,310Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    4,181
    
    
    
    4,177Amortization of purchase accounting adjustments for:Leases and debt
    
    
    (215
    )
    
    
    (131
    )Below market resident leases
    
    
    (39
    )
    
    
    (475
    )Provision for bad
debt
    
    
    150
    
    
    
    139Provision for self-insured
liabilities
    
    
    150
    
    
    
    177Payments of self-insured
liabilities
    
    
    (143
    )
    
    
    (117
    )Loss on impairment of long-lived assets and
discontinued operations
    
    
    
    
    
    
    1,722Deferred income taxes
    
    
    551
    
    
    
    240Equity-based compensation expense
    
    
    6
    
    
    
    278Changes in assets and liabilities:Accounts receivable
    
    
    65
    
    
    
    (333
    )Supplies, prepaid expenses and other current
assets
    
    
    350
    
    
    
    (171
    )Accounts payable
    
    
    (1,014
    )
    
    
    (917
    )Accrued liabilities
    
    
    442
    
    
    
    645Income taxes payable/receivable
    
    
    2,461
    
    
    
    1,557Other non-current assets
    
    
    887
    
    
    
    (64
    )Other long-term liabilities
    
    
    353
    
    
    
    232Current due to stockholder and
affiliates
    
    
    
    
    
    
    2,882Cash provided by operating
activities
    
    
    12,912
    
    
    
    12,151INVESTING ACTIVITIES:Payments for new construction
projects
    
    
    (1,152
    )
    
    
    (771
    )Payments for purchases of property and
equipment
    
    
    (2,827
    )
    
    
    (1,425
    )Cash used in investing
activities
    
    
    (3,979
    )
    
    
    (2,196
    )FINANCING ACTIVITIES:Capital contributions (distributions) from (to)
Extendicare
    
    
    73
    
    
    
    (35
    )Repayment of interest bearing advances to
Extendicare
    
    
    
    
    
    
    (6,500
    )Payments of long-term debt
    
    
    (561
    )
    
    
    (516
    )Cash used in financing
activities
    
    
    (488
    )
    
    
    (7,051
    )Increase in cash and cash equivalents
    
    
    8,445
    
    
    
    2,904Cash and cash equivalents, beginning of
year
    
    
    19,951
    
    
    
    6,439Cash and cash equivalents, end of period
    
    $
    28,396
    
    
    $
    9,343Supplemental schedule of cash flow information:Cash paid during the period for:Interest
    
    $
    1,792
    
    
    $
    2,946Income tax payments, net of refunds
    
    
    (113
    )
    
    
    129
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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 time of the Acquisition,§
    
    three assisted living residences that were constructed and owned by EHSI (two of
which were operated by ALC) during 2005,§
    
    the Escanaba, MI residence since its acquisition on November 1, 2006, and§
    
    Pearson since its formation on June 19, 2006.
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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
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ASSISTED LIVING CONCEPTS, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (c) Comprehensive Income
  Three Months EndedMarch 31,2007
    
    
    2006(In thousands)Net income
    
    $
    4,727
    
    
    $
    2,310Unrealized gains (losses)
    
    
    (242
    )
    
    
    Total comprehensive income
    
    $
    4,485
    
    
    $
    2,310
 (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
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ASSISTED LIVING CONCEPTS, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (f) Reclassifications
  3. DISCONTINUED OPERATIONS
  2006(In thousands)Revenues
    
    $
    487Residence operations (exclusive of depreciation
and amortization
and residence lease expense shown below)
    
    
    522Residence lease expense
    
    
    101Depreciation and amortization
    
    
    53Loss on impairment of long-lived
assets
    
    
    1,731Loss from discontinued
operations
    
    
    (1,920
    )Interest expense
    
    
    (7
    )Loss from discontinued operations before income
taxes
    
    
    (1,927
    )Income tax benefit
    
    
    759Net loss from discontinued
operations
    
    $
    (1,168
    )
  (a)
    
    Closure and Disposition of Assisted Living Residence in TexasIn the first quarter of 2006, due to future capital needs of the residence and poor
financial performance, ALC decided to close an assisted living residence (60 units) located
in San Antonio, Texas, and actively pursue the disposition of the property on the market.
As a result, ALC reclassified the financial results of this residence to discontinued
operations and recorded an impairment charge of $1.7 million.(b)
    
    Closure of Assisted Living Residences in WashingtonIn the first quarter of 2006, the lease term ended for an assisted living residence (63
units) in Edmonds, Washington, and ALC decided to terminate its operations due to poor financial performance. ALC
concluded its relationship with the landlord on April 30, 2006. As a result, ALC
reclassified the financial results of this residence to discontinued operations. There was
no gain or loss on disposition of the operations and leasehold interest.(c)
    
    Closure of Assisted Living Residence in OregonIn the first quarter of 2006, due to poor financial performance, ALC decided to close an
assisted living residence (45 units) located in Klamath Falls, Oregon. There was
no gain or loss recorded upon the closure.
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ASSISTED LIVING CONCEPTS, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 4. LONG-TERM EQUITY-BASED COMPENSATION PROGRAM
    ), Share-Based Payment , Accounting for Stock Issued to
Employees
 Weighted
    
    
    AggregateAverage
    
    
    Intrinsic# Options
    
    
    Exercise
    
    
    Value/ SARs
    
    
    Price
    
    
    (In thousands)Outstanding on
January 1,
2007
    
    
    
    
    
    
    Granted
    
    
    380,000
    
    
    $
    11.80Exercised
    
    
    
    
    
    
    Cancelled/Forfeited
    
    
    
    
    
    
    Outstanding on March
31, 2007
    
    
    380,000
    
    
    $
    11.80
    
    
    $
    Options Exercisable
March 31,
2007
    
    
    
    
    
    $
    
    
    
    $
    Weighted average fair
value of
options
    
    $
    6.01Weighted average
contractual
term
    
    4.9 years
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ASSISTED LIVING CONCEPTS, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   2007Expected life from grant date (in years)
    
    
    5Risk-free interest rate
    
    
    5.45
    %Volatility
    
    
    53.1
    %Dividend yield
    
    
    Weighted average fair value (per share)
    
    $
    6.01
  5. EARNINGS PER SHARE
 Earnings Per Share
  Three Months EndedMarch 31,2007
    
    
    2006(In thousands,except per share data)Basic earnings per share calculationNumerator:Income from continuing
operations
    
    $
    4,727
    
    
    $
    3,478Loss from discontinued operations,
net of tax
    
    
    
    
    
    
    (1,168
    )Net income to common
stockholders
    
    $
    4,727
    
    
    $
    2,310Denominator:Weighted average of common shares
outstanding
    
    
    69,482
    
    
    
    69,322Income from continuing
operations
    
    $
    0.07
    
    
    $
    0.05Loss from discontinued operations,
net of tax
    
    
    
    
    
    
    (0.02
    )Basic earnings per
share
    
    $
    0.07
    
    
    $
    0.03
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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Three Months EndedMarch 31,2007
    
    
    2006(In thousands,except per share data)Diluted earnings per share calculationNumerator:Income from continuing
operations
    
    $
    4,727
    
    
    $
    3,478Income from discontinued operations,
net of tax
    
    
    
    
    
    
    (1,168
    )Net income to common
stockholders
    
    $
    4,727
    
    
    $
    2,310Denominator:Weighted average of common shares
outstanding
    
    
    69,482
    
    
    
    69,322Assumed conversion of Class B
shares
    
    
    723
    
    
    
    883Diluted weighted average shares
outstanding
    
    
    70,205
    
    
    
    70,205Income from continuing
operations
    
    $
    0.07
    
    
    $
    0.05Income from discontinued operations,
net of tax
    
    
    
    
    
    
    (0.02
    )Diluted earnings per
share
    
    $
    0.07
    
    
    $
    0.03
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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 described or referred to in Item 1A  Risk Factors in Part II 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 period ended March 31, 2007 compared to the three
month period ended March 31, 2006.§
    
    Liquidity and Capital Resources.This section provides a discussion of our liquidity
and capital resources as of March 31, 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
   Revenues
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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
    Residence Operations Expenses
   Three Months EndedMarch 31,2007
    
    2006Wage and benefit costs
    
    
    57
    %
    
    
    60
    %Utility and property costs
    
    
    16
    
    
    
    16Variable resident care costs
    
    
    27
    
    
    
    24Total residence operation costs
    
    
    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.
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ASSISTED LIVING CONCEPTS, INC.
  Key Performance Indicators
  Census
  Average Daily Census
  Occupancy Percentage or Occupancy Rate
  Private Pay Mix
  Average Revenue Rate by Payer Source
  EBITDA and EBITDAR
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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
 2007
    
    2006Private
pay
    
    
    5,219
    
    
    
    4,921Medicaid
    
    
    1,741
    
    
    
    2,029Total ADC
    
    
    6,960
    
    
    
    6,950Private pay percentage
    
    
    81.4
    %
    
    
    78.1
    %
  Same Residence Basis
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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 Average Daily Census
 2007
    
    2006Private
pay
    
    
    5,179
    
    
    
    4,921Medicaid
    
    
    1,741
    
    
    
    2,029Total ADC
    
    
    6,920
    
    
    
    6,950Private pay percentage
    
    
    81.3
    %
    
    
    78.1
    %
  Occupancy Percentage
   All Continuing Residences
  Occupancy Percentage
 2007
    
    2006Mature
    
    
    84.2
    %
    
    
    85.5
    %Developmental
    
    
    54.6
    %
    
    
    60.4
    %Total residences
    
    
    83.7
    %
    
    
    84.2
    %
    Same Residence Basis
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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 Occupancy Percentage
 2007
    
    2006Mature
    
    
    84.1
    %
    
    
    85.5
    %Developmental
    
    
    54.6
    %
    
    
    75.3
    %Total residences
    
    
    83.6
    %
    
    
    85.2
    %
   Average Revenue Rate by Payer Source
 All Continuing Residences
  Average Daily Revenue Rate
 2007
    
    
    2006Private pay
    
    $
    99.18
    
    
    $
    96.83Medicaid
    
    $
    67.98
    
    
    $
    65.70Total
    
    $
    91.38
    
    
    $
    87.74
  Number of Residences Under Operation
  2007
    
    2006Owned
    
    
    152
    
    
    
    151Under capital
lease
    
    
    5
    
    
    
    5Under operating
leases
    
    
    50
    
    
    
    50Total under
operation
    
    
    207
    
    
    
    206Percent of residences:Owned
    
    
    73.4
    %
    
    
    73.3
    %Under capital
leases
    
    
    2.4
    
    
    
    2.4Under operating
leases
    
    
    24.2
    
    
    
    24.3100.0
    %
    
    
    100.0
    %
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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 ADJUSTED EBITDA and ADJUSTED EBITDAR
  2007
    
    
    2006(In thousands)Net income
    
    $
    4,727
    
    
    $
    2,310Loss from discontinued operations, net of
taxes
    
    
    
    
    
    
    1,168Provision for income taxes
    
    
    2,898
    
    
    
    2,189Income from continuing operations before
income taxes
    
    
    7,625
    
    
    
    5,667Add:Depreciation and amortization
    
    
    4,181
    
    
    
    4,123Interest expense, net
    
    
    1,215
    
    
    
    2,830Transaction costs
    
    
    56
    
    
    
    Non-cash equity based
compensation
    
    
    6
    
    
    
    278Adjusted EBITDA
    
    
    13,083
    
    
    
    12,898Add: Residence Lease expense
    
    
    3,699
    
    
    
    3,488Adjusted EBITDAR
    
    $
    16,782
    
    
    $
    16,386
  2007
    
    
    2006($ In thousands)Revenues
    
    $
    57,521
    
    
    $
    56,776Adjusted EBITDA
    
    $
    13,083
    
    
    $
    12,898Adjusted EBITDAR
    
    $
    16,782
    
    
    $
    16,386Adjusted EBITDA as percent of total revenue
    
    
    22.7
    %
    
    
    22.7
    %Adjusted EBITDAR as percent of total revenue
    
    
    29.2
    %
    
    
    28.9
    %
    Consolidated Results from Operations
 Three Months Ended March 31, 2007 Compared with Three Months Ended March 31, 2006
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ASSISTED LIVING CONCEPTS, INC.
 2007
    
    2006Revenues
    
    
    100.0
    %
    
    
    100.0
    %Residence
operations
(exclusive of
depreciation and
amortization and
residence lease
expense shown
below)
    
    
    65.6
    
    
    
    66.8General and
administrative
    
    
    5.2
    
    
    
    4.8Residence lease
expense
    
    
    6.5
    
    
    
    6.1Depreciation and
amortization
    
    
    7.3
    
    
    
    7.3Transaction
costs
    
    
    0.1
    
    
    
    Impairment of
long-lived
asset
    
    
    
    
    
    
    Income from
operations
    
    
    15.3
    
    
    
    15.0Interest expense,
net
    
    
    (2.1
    )
    
    
    (5.0
    )Income tax
expense
    
    
    (5.0
    )
    
    
    (3.9
    )Net income from
continuing
operations
    
    
    8.2
    
    
    
    6.1Loss from
discontinued
operations, net of
tax
    
    
    
    
    
    
    (2.0
    )Net
income
    
    
    8.2
    %
    
    
    4.1
    %
 Revenues
  Residence Operations (exclusive of depreciation and amortization and residence lease expense shown
below)
  General and Administrative
  Residence Lease Expense
  Depreciation and Amortization
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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 Transaction Costs
  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
  Related Party Transactions
 Transactions with Extendicare and its Affiliates
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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
   Liquidity and Capital Resources
 Sources and Uses of Cash
  2007
    
    
    2006(In thousands)Cash provided by operating
activities
    
    $
    12,912
    
    
    $
    12,151Cash used in investing
activities
    
    
    (3,979
    )
    
    
    (2,196
    )Cash used in financing
activities
    
    
    (488
    )
    
    
    (7,051
    )Increase in cash and cash
equivalents
    
    $
    8,445
    
    
    $
    2,904
       $100 Million Credit Facility
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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
  Capital Commitments
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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 Expansion Plans
  Share Buyback
  Accrual for Self-Insured Liabilities
   Contractual Obligations
  Critical Accounting Policies
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##### Table of Contents



Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
 Qualitative Disclosures
   Quantitative Disclosures
  
 Item 4. CONTROLS AND PROCEDURES
  
 Item 4T. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
 Internal Control Over Financial Reporting
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##### Table of Contents



Part II. OTHER INFORMATION
 
 Item 1A. RISK FACTORS.
  
 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
    Name
    
    For
    
    WithheldLaurie A. Bebo
    
    
    116,236,121
    
    
    
    7,750Alan Bell
    
    
    110,010,951
    
    
    
    6,232,920Jesse C. Brotz
    
    
    116,040,977
    
    
    
    202,894Derek H.L. Buntain
    
    
    115,656,240
    
    
    
    587,631David J. Hennigar
    
    
    109,648,459
    
    
    
    6,595,412Malen S. Ng
    
    
    116,231,188
    
    
    
    12,683Melvin A. Rhinelander
    
    
    116,041,879
    
    
    
    201,292Charles H. Roadman II, MD
    
    
    116,232,288
    
    
    
    11,583Michael J. Spector
    
    
    116,235,919
    
    
    
    7,952
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##### Table of Contents



Item 5. OTHER INFORMATION.
 Forward-Looking Statements and Cautionary Factors
   §
    
    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;§
    
    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;§
    
    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;§
    
    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 covenants could restrict our operations 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.
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Item 6. EXHIBITS.
  - 28 -




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##### Table of Contents



SIGNATURES
  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 MARCH 31, 2007 QUARTERLY REPORT ON FORM 10-Q
 ExhibitNumber
    
    Description10.1
    
    Form of 2007 Cash Incentive Compensation Award Agreement as amended May 3, 2007.10.2
    
    Form of Tandem Stock Option/Stock Appreciation Rights Award Agreement as amended May 3, 2007.31.1
    
    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 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.