##### 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 June 30, 2009
 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(Address of principal executive offices)
    
    53051(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
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




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##### 



ASSISTED LIVING CONCEPTS, INC.
 INDEX
 PageNumberPart I. Financial InformationItem 1. Financial StatementsCondensed Consolidated Balance Sheets  as of June 30, 2009 (unaudited) and December 31, 2008
    
    
    3Condensed Consolidated Statements of Operations  for the Three and Six Month Periods Ended
June 30, 2009 and 2008 (unaudited)
    
    
    4Condensed Consolidated Statements of Cash Flows  for the Six Month Periods Ended June 30,
2009 and 2008 (unaudited)
    
    
    5Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    22Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    39Item 4. Controls and Procedures
    
    
    41Part II. Other InformationItem 1A. Risk Factors
    
    
    42Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    42Item 4. Submission of Matters to a Vote of Security Holders
    
    
    42Item 5. Other Information
    
    
    42Item 6. Exhibits
    
    
    44Signature
    
    
    S-1Exhibit Index
    
    EI-1Exhibit 31.1Exhibit 31.2Exhibit 32.1
  Explanatory Note:
   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)
 June 30,
    
    
    December 31,2009
    
    
    2008(unaudited)ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    5,681
    
    
    $
    19,905Investments
    
    
    3,094
    
    
    
    3,139Accounts receivable, less allowances of $662 and $689, respectively
    
    
    2,363
    
    
    
    2,696Prepaid expenses, supplies and other receivables
    
    
    4,490
    
    
    
    3,463Deposits in escrow
    
    
    1,955
    
    
    
    2,343Income tax receivable
    
    
    
    
    
    
    3,147Deferred income taxes
    
    
    4,152
    
    
    
    4,614Total current assets
    
    
    21,735
    
    
    
    39,307Property and equipment, net
    
    
    427,930
    
    
    
    422,791Goodwill
    
    
    
    
    
    
    16,315Intangible assets, net
    
    
    12,628
    
    
    
    13,443Restricted cash
    
    
    3,495
    
    
    
    4,534Other assets
    
    
    2,461
    
    
    
    2,231Total Assets
    
    $
    468,249
    
    
    $
    498,621LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    7,843
    
    
    $
    13,574Accrued liabilities
    
    
    17,667
    
    
    
    17,898Deferred revenue
    
    
    7,163
    
    
    
    6,739Income taxes payable
    
    
    1,141
    
    
    
    Current maturities of long-term debt
    
    
    12,367
    
    
    
    19,392Current portion of self-insured liabilities
    
    
    500
    
    
    
    300Total current liabilities
    
    
    46,681
    
    
    
    57,903Accrual for self-insured liabilities
    
    
    1,108
    
    
    
    1,176Long-term debt
    
    
    130,818
    
    
    
    136,890Deferred income taxes
    
    
    11,195
    
    
    
    11,811Other long-term liabilities
    
    
    11,334
    
    
    
    11,102Commitments and contingenciesTotal Liabilities
    
    
    201,136
    
    
    
    218,882Preferred Stock, par value $0.01 per share, 25,000,000 shares
authorized, no shares issued and outstanding, respectively
    
    
    
    
    
    
    Class A Common Stock, par value $0.01 per share, 80,000,000
authorized, 10,121,266 and 10,443,313 issued and outstanding,
respectively
    
    
    124
    
    
    
    124Class B Common Stock, par value $0.01 per share, 15,000,000
authorized, 1,559,829 and 1,562,101 issued and outstanding,
respectively
    
    
    16
    
    
    
    16Additional paid-in capital
    
    
    314,384
    
    
    
    314,202Accumulated other comprehensive loss
    
    
    (2,069
    )
    
    
    (1,989
    )Retained earnings
    
    
    25,773
    
    
    
    33,641Treasury stock at cost, 2,242,749 and 1,918,398 shares, respectively
    
    
    (71,115
    )
    
    
    (66,255
    )Total Stockholders Equity
    
    
    267,113
    
    
    
    279,739Total Liabilities and Stockholders Equity
    
    $
    468,249
    
    
    $
    498,621
   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
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenues
    
    $
    57,381
    
    
    $
    57,854
    
    
    $
    115,015
    
    
    $
    118,101Expenses:Residence operations (exclusive of depreciation and
amortization and residence lease expense shown below)
    
    
    35,699
    
    
    
    37,020
    
    
    
    73,518
    
    
    
    75,945General and administrative
    
    
    3,341
    
    
    
    2,990
    
    
    
    6,775
    
    
    
    6,080Residence lease expense
    
    
    4,990
    
    
    
    5,009
    
    
    
    9,917
    
    
    
    9,907Depreciation and amortization
    
    
    5,316
    
    
    
    4,348
    
    
    
    10,344
    
    
    
    9,244Goodwill impairment
    
    
    
    
    
    
    
    
    
    
    16,315
    
    
    
    Total operating expenses
    
    
    49,346
    
    
    
    49,367
    
    
    
    116,869
    
    
    
    101,176Income (loss) from operations
    
    
    8,035
    
    
    
    8,487
    
    
    
    (1,854
    )
    
    
    16,925Other expense:Interest income
    
    
    8
    
    
    
    291
    
    
    
    21
    
    
    
    470Interest expense
    
    
    (1,973
    )
    
    
    (1,882
    )
    
    
    (3,816
    )
    
    
    (3,965
    )Income (loss) before income taxes
    
    
    6,070
    
    
    
    6,896
    
    
    
    (5,649
    )
    
    
    13,430Income tax expense
    
    
    (2,163
    )
    
    
    (2,620
    )
    
    
    (2,219
    )
    
    
    (5,103
    )Net income (loss)
    
    $
    3,907
    
    
    $
    4,276
    
    
    $
    (7,868
    )
    
    $
    8,327Weighted average common shares:Basic
    
    
    11,808
    
    
    
    12,603
    
    
    
    11,882
    
    
    
    12,756Diluted
    
    
    11,927
    
    
    
    12,733
    
    
    
    11,882
    
    
    
    12,887Per share data:Basic earnings (loss) per common share
    
    $
    0.33
    
    
    $
    0.34
    
    
    $
    (0.66
    )
    
    $
    0.65Diluted earnings (loss) per common share
    
    $
    0.33
    
    
    $
    0.34
    
    
    $
    (0.66
    )
    
    $
    0.65
   4




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 Six Months EndedJune 30,2009
    
    
    2008OPERATING ACTIVITIES:Net (loss) income
    
    $
    (7,868
    )
    
    $
    8,327Adjustments to reconcile net (loss) income to net cash provided by operating activities:Depreciation and amortization
    
    
    10,344
    
    
    
    9,244Goodwill impairment
    
    
    16,315
    
    
    
    Amortization of purchase accounting adjustments for leases and debt
    
    
    (198
    )
    
    
    (397
    )Provision for bad debts
    
    
    (27
    )
    
    
    39Provision for self-insured liabilities
    
    
    392
    
    
    
    447Loss on sale or disposal of fixed assets
    
    
    34
    
    
    
    Equity-based compensation expense
    
    
    188
    
    
    
    44Deferred income taxes
    
    
    (154
    )
    
    
    2,298Changes in assets and liabilities:Accounts receivable
    
    
    360
    
    
    
    83Supplies, prepaid expenses and other current assets
    
    
    (1,027
    )
    
    
    790Deposits in escrow
    
    
    388
    
    
    
    (4
    )Accounts payable
    
    
    (1,735
    )
    
    
    2,120Accrued liabilities
    
    
    (231
    )
    
    
    (796
    )Deferred revenue
    
    
    424
    
    
    
    805Payments of self-insured liabilities
    
    
    (320
    )
    
    
    (140
    )Income taxes payable / receivable
    
    
    4,296
    
    
    
    558Changes in other non-current assets
    
    
    809
    
    
    
    7,576Other long-term liabilities
    
    
    553
    
    
    
    524Cash provided by operating activities
    
    
    22,543
    
    
    
    31,518INVESTING ACTIVITIES:Payment for executive retirement plan securities
    
    
    (95
    )
    
    
    (49
    )Payment for acquisitions
    
    
    
    
    
    
    (14,532
    )Cash designated for acquisition
    
    
    
    
    
    
    14,864Payments for new construction projects
    
    
    (11,768
    )
    
    
    (3,125
    )Accrued costs for new construction
    
    
    
    
    
    
    (945
    )Payments for purchases of property and equipment
    
    
    (6,930
    )
    
    
    (8,350
    )Cash used in investing activities
    
    
    (18,793
    )
    
    
    (12,137
    )FINANCING ACTIVITIES:Purchase of treasury stock
    
    
    (4,860
    )
    
    
    (20,632
    )Proceeds on borrowings on revolving credit facility
    
    
    
    
    
    
    6,000Repayment of revolving credit facility
    
    
    (19,000
    )
    
    
    Proceeds from issuance of new mortgage debt
    
    
    14,000
    
    
    
    9,026Repayment of mortgage debt
    
    
    (8,114
    )
    
    
    (12,909
    )Cash used by financing activities
    
    
    (17,974
    )
    
    
    (18,515
    )(Decrease) increase in cash and cash equivalents
    
    
    (14,224
    )
    
    
    866Cash and cash equivalents, beginning of year
    
    
    19,905
    
    
    
    14,066Cash and cash equivalents, end of period
    
    $
    5,681
    
    
    $
    14,932Supplemental schedule of cash flow information:Cash paid during the period for:Interest
    
    $
    3,663
    
    
    $
    4,061Income tax payments, net of refunds
    
    
   (1,892
    )
    
    
    2,245
   5




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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
    6




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ASSISTED LIVING CONCEPTS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (b) Accounts Receivable
    (c) Goodwill
 Goodwill and Other Intangible Assets
      7




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ASSISTED LIVING CONCEPTS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
   Balance at December 31, 2008
    
    $
    16,315Additions
    
    
    Adjustments
    
    
    (16,315
    )Balance at June 30, 2009
    
    $
    
 (d) Comprehensive Income (Loss)
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands)Net income (loss)
    
    $
    3,907
    
    
    $
    4,276
    
    
    $
    (7,868
    )
    
    $
    8,327Unrealized gains (losses) on
investments, net of tax expense
(benefit) of $151 and $4,
respectively, and $(9) and
$(350), respectively
    
    
    128
    
    
    
    8
    
    
    
    (132
    )
    
    
    (618
    )Unrealized gains on derivatives,
net of tax expense of $137 and
$0, respectively, and $32 and
$0, respectively
    
    
    224
    
    
    
    
    
    
    
    52
    
    
    
    Total comprehensive income (loss)
    
    $
    4,259
    
    
    $
    4,284
    
    
    $
    (7,948
    )
    
    $
    7,709
  June 30,
    
    
    December 31,2009
    
    
    2008(In thousands)Unrealized losses on investments
    
    $
    (1,466
    )
    
    $
    (1,334
    )Net unrealized losses on derivatives
    
    
    (603
    )
    
    
    (655
    )Accumulated other comprehensive loss
    
    $
    (2,069
    )
    
    $
    (1,989
    )
 (e) Income Taxes
   8




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Accounting for Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109 Accounting for Income Taxes
   (f) New Accounting Pronouncements
 Business Combinations
 Determination of the
Useful Life of Intangible Assets
  9




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Interim Disclosures about Fair Value of Financial Instruments Disclosures about Fair Value of
Financial Instruments Interim Financial Reporting,
 , Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating Securities
 Fair Value Measurements
 Determining the Fair Value of a Financial Asset
When the Market for That Asset Is Not Active
 Noncontrolling Interests in Consolidated Financial
Statements
 Disclosures about Derivative Instruments and
Hedging Activities, an amendment of SFAS No. 133
   10




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  TM TM
 (g) Reclassifications
  3. LONG-TERM EQUITY-BASED COMPENSATION PROGRAM
     11




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




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  2009
    
    
    2008Weighted
    
    
    
    
    
    
    Weighted#
    
    
    Average
    
    
    #
    
    
    AverageOptions
    
    
    Exercise
    
    
    Options
    
    
    Exercise/ SARs
    
    
    Price
    
    
    / SARs
    
    
    PriceOutstanding at beginning of period
    
    
    129,500
    
    
    $
    30.10
    
    
    
    64,000
    
    
    $
    59.00Granted
    
    
    127,000
    
    
    $
    15.65
    
    
    
    129,500
    
    
    $
    30.10Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expired
    
    
    (97,500
    )
    
    $
    29.45
    
    
    
    (64,000
    )
    
    $
    59.00Outstanding at end of period
    
    
    159,000
    
    
    $
    18.96
    
    
    
    129,500
    
    
    $
    30.10Options Exercisable at June 30
    
    
    10,667
    
    
    $
    32.10
    
    
    
    
    
    
    $
    Weighted average fair value of options
    
    $
    9.89
    
    
    
    
    
    
    $
    13.21Aggregate intrinsic value of options
    
    $
    
    
    
    
    
    
    
    $
    Weighted average contractual term
    
    4.5 years
    
    
    
    
    
    
    4.8 years
  Apr 30,
    
    
    Feb 22,
    
    
    May 5,
    
    
    March 29,2009
    
    
    2009
    
    
    2008
    
    
    2008Expected life from grant date (in years)
    
    
    5
    
    
    
    5
    
    
    
    5
    
    
    
    5Risk-free interest rate
    
    
    2.02
    %
    
    
    2.06
    %
    
    
    3.15
    %
    
    
    2.50
    %Volatility
    
    
    68.9
    %
    
    
    66.9
    %
    
    
    45.8
    %
    
    
    46.9
    %Dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted average fair value (per share)
    
    $
    9.62
    
    
    $
    8.55
    
    
    $
    14.15
    
    
    $
    12.90
   13




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 4. EARNINGS PER SHARE
 Earnings Per Share
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands, except per share data)Basic earnings (loss) per share calculationNumerator:Net income (loss) to common stockholders.
    
    $
    3,907
    
    
    $
    4,276
    
    
    $
    (7,868
    )
    
    $
    8,327Denominator:Weighted average of common shares outstanding
    
    
    11,808
    
    
    
    12,603
    
    
    
    11,882
    
    
    
    12,756Basic earnings (loss) per share
    
    $
    0.33
    
    
    $
    0.34
    
    
    $
    (0.66
    )
    
    $
    0.65Diluted earnings (loss) per share calculationNumerator:Net income (loss) to common stockholders
    
    $
    3,907
    
    
    $
    4,276
    
    
    $
    (7,868
    )
    
    $
    8,327Denominator:Weighted average of common shares outstanding
    
    
    11,808
    
    
    
    12,603
    
    
    
    11,882
    
    
    
    12,756Assumed conversion of Class B shares
    
    
    117
    
    
    
    130
    
    
    
    
    
    
    
    131Dilutive effect of stock options
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Diluted weighted average shares outstanding
    
    
    11,927
    
    
    
    12,733
    
    
    
    11,882
    
    
    
    12,887Diluted earnings (loss) per share
    
    $
    0.33
    
    
    $
    0.34
    
    
    $
    (0.66
    )
    
    $
    0.65
 5. SHARE REPURCHASE
   14




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ASSISTED LIVING CONCEPTS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 6. DEBT
  Interest
    
    
    June 30,
    
    
    December 31,Rate (1)
    
    
    2009
    
    
    2008(In thousands)Mortgage note, bearing interest at 6.24%, due 2014
    
    
    6.34
    %
    
    $
    33,945
    
    
    $
    34,352Mortgage note, bearing interest at 6.5%, due 2014
    
    
    6.50
    %
    
    
    14,000
    
    
    
    Mortgage note, bearing interest at 8.65%, due 2009
    
    
    
    
    
    
    
    
    
    
    7,140Capital lease obligations, interest rates ranging from 2.84% to 13.54%, maturing
through 2009
    
    
    6.46
    %
    
    
    10,602
    
    
    
    10,882Mortgage note, bearing interest at 7.07%, due 2018
    
    
    7.14
    %
    
    
    8,899
    
    
    
    8,966Oregon Trust Deed Notes, interest rates ranging from 0% to 9.0%, maturing from
2021 through 2026
    
    
    7.12
    %
    
    
    8,584
    
    
    
    8,726HUD Insured Mortgages, interest rates ranging from 5.66% to 5.85%, due 2032
    
    
    5.79
    %
    
    
    4,159
    
    
    
    4,201HUD Insured Mortgage, bearing interest at 7.55%, due 2036
    
    
    7.11
    %
    
    
    2,996
    
    
    
    3,015$120 million credit facility bearing interest at floating rates, due November 2011
    
    
    (2
    )
    
    
    60,000
    
    
    
    79,000Long-term debt before current maturities
    
    
    
    
    
    
    143,185
    
    
    
    156,282Less current maturities
    
    
    
    
    
    
    (12,367
    )
    
    
    (19,392
    )Total long-term debt
    
    
    
    
    
    $
    130,818
    
    
    $
    136,890
 
 (1)
    
    Interest rate is effective interest rate for the six months ended June 30, 2009. The
effective interest rate is determined as the interest expense for the year divided by the
recorded fair value of the debt instrument.(2)
    
    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 June 30, 2009, prime was 3.25% and
LIBOR was 0.30% 6.24% Mortgage Note due 2014
  6.50% Mortgage Note due 2014
    15




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ASSISTED LIVING CONCEPTS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  Mortgage Note 2009
   Capital Lease Obligations
    16




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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
  $120 Million Credit Facility
    17




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ASSISTED LIVING CONCEPTS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  Unfavorable Market Value of Debt Adjustment
  Letters of credit
  Expansion program
   18




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ASSISTED LIVING CONCEPTS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 7. PROPERTY AND EQUIPMENT
  June 30,
    
    
    December 31,2009
    
    
    2008(In thousands)Land and land improvements
    
    $
    26,882
    
    
    $
    26,751Buildings and improvements
    
    
    443,750
    
    
    
    412,276Furniture and equipment
    
    
    29,119
    
    
    
    26,663Leasehold improvements
    
    
    7,073
    
    
    
    5,771Construction in progress
    
    
    7,236
    
    
    
    27,934514,060
    
    
    
    499,395Less accumulated depreciation and amortization
    
    
    (86,130
    )
    
    
    (76,604
    )$
    427,930
    
    
    $
    422,791
  8. FAIR VALUE OF FINANCIAL INSTRUMENTS
  SignificantTotal carrying
    
    
    Quoted prices
    
    
    other
    
    
    Significantvalue at
    
    
    in active
    
    
    observable
    
    
    unobservableJune 30,
    
    
    markets
    
    
    inputs
    
    
    inputs2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)AssetsInvestment securities 
available-for-sale
    
    $
    3,094
    
    
    $
    3,094
    
    
    $
    
    
    
    $
    LiabilitiesDerivative financial instruments
    
    
    (973
    )
    
    
    
    
    
    
    (973
    )
    
    
    
     19




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  The Fair Value Option for Financial Assets and Financial
LiabilitiesIncluding an amendment of FASB Statement No. 115
     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
    
    
    $
    (853
    )Interest rate swap  March 2009
    
    
    1.98
    %
    
    $
    20,000
    
    
    
    3/11/2009
    
    
    
    11/14/2011
    
    
    $
    (120
    )
 9. DERIVATIVE FINANCIAL INSTRUMENTS
 Disclosures about Derivative Instruments and
Hedging Activities  an amendment of FASB Statement No. 133
  Accounting for Derivative Instruments and Hedging Activities
  20




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ASSISTED LIVING CONCEPTS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
   Fair Values of Derivative Instruments
Liability Derivatives
(In thousands)
 June 30, 2009
    
    
    December 31, 2008Derivatives designated as hedging
    
    Balance Sheet
    
    
    
    
    
    Balance Sheetinstruments under SFAS 133
    
    Location
    
    Fair Value
    
    
    Location
    
    Fair ValueInterest rate contracts
    
    Other long-term liabilities
    
    $
    973
    
    
    Other long-term liabilities
    
    $
    1,056
 The Effect of Derivative Instruments on the Statement of Operations
(In thousands)
 Amount of Gain Recognized in OCI on Derivatives(Effective Portion)Derivatives in SFAS 133 Cash
    
    Three Months Ended June 30,
    
    
    Six Months Ended June 30,Flow Hedging Relationships
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Interest rate contracts
    
    $
    361
    
    
    $
    
    
    
    $
    83
    
    
    $
    
 10. SUBSEQUENT EVENTS
   21




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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 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, 2008, 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
  
    
    residents may be unable to obtain necessary funds from the sale of their homes or
other investments; and
 
    
    family members have an increased ability and willingness to provide care at home.
      22




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
  Business Strategies
  
    
    increasing the overall size and attractiveness of our portfolio by building additional
capacity, refurbishing existing residences, and making acquisitions;
 
    
    increasing our occupancy rate and the percentage of revenue derived from private pay
sources; and
 
    
    applying operating efficiencies achievable from owning a large number of assisted
living residences.
 Increasing the overall size and attractiveness of our portfolio by building additional capacity,
refurbishing existing residences, and making acquisitions
      23




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 Increasing our occupancy rate and the percentage of revenue derived from private pay sources
     Applying operating efficiencies achievable from owning a large number of assisted living residences
   
    
    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 six months ended June 30, 2009 compared to the quarter
and six months ended June 30, 2008.
 
    
    Liquidity and Capital Resources.This section provides a discussion of our liquidity
and capital resources as of June 30, 2009, 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.
  24




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ASSISTED LIVING CONCEPTS, INC.
 
  Business Overview
 Revenues
    Residence Operations Expenses
  Three Months Ended
    
    
    Six Months Ended2009
    
    
    2008
    
    
    2009
    
    
    2008Wage and benefit costs
    
    
    62
    %
    
    
    62
    %
    
    
    61
    %
    
    
    62
    %Property related costs
    
    
    21
    
    
    
    20
    
    
    
    22
    
    
    
    21Other operating costs
    
    
    17
    
    
    
    18
    
    
    
    17
    
    
    
    17Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
   25




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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
  Adjusted EBITDA and Adjusted EBITDAR
     26




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ASSISTED LIVING CONCEPTS, INC.
 Review of Key Performance Indicators
  ADC
 All Continuing Residences
  Average Daily Census
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Private pay
    
    
    5,413
    
    
    
    5,481
    
    
    
    5,424
    
    
    
    5,556Medicaid
    
    
    455
    
    
    
    763
    
    
    
    493
    
    
    
    818Total ADC
    
    
    5,868
    
    
    
    6,244
    
    
    
    5,917
    
    
    
    6,374Private pay occupancy percentage
    
    
    92.3
    %
    
    
    87.8
    %
    
    
    91.7
    %
    
    
    87.2
    %Private pay revenue percentage
    
    
    94.9
    %
    
    
    91.4
    %
    
    
    94.3
    %
    
    
    91.0
    %
  Same Residence Basis
  Average Daily Census
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Private pay
    
    
    5,376
    
    
    
    5,454
    
    
    
    5,393
    
    
    
    5,516Medicaid
    
    
    455
    
    
    
    740
    
    
    
    489
    
    
    
    789Total ADC
    
    
    5,831
    
    
    
    6,194
    
    
    
    5,882
    
    
    
    6,305Private pay occupancy percentage
    
    
    92.2
    %
    
    
    88.0
    %
    
    
    91.7
    %
    
    
    87.5
    %Private pay revenue percentage
    
    
    94.9
    %
    
    
    91.6
    %
    
    
    94.3
    %
    
    
    91.2
    %
  27




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ASSISTED LIVING CONCEPTS, INC.
  Occupancy Percentage
   All Continuing Residences
  Occupancy Percentage
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Mature
    
    
    65.4
    %
    
    
    69.3
    %
    
    
    65.7
    %
    
    
    70.9
    %Developmental
    
    
    15.4
    %
    
    
    48.7
    %
    
    
    16.3
    %
    
    
    43.6
    %Total residences
    
    
    64.1
    %
    
    
    68.8
    %
    
    
    64.8
    %
    
    
    70.2
    %
     28




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 Same Residence Basis
  Occupancy Percentage
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Mature
    
    
    65.4
    %
    
    
    70.0
    %
    
    
    66.0
    %
    
    
    71.4
    %Developmental
    
    
    0.0
    %
    
    
    48.7
    %
    
    
    0.0
    %
    
    
    43.6
    %Total residences
    
    
    65.4
    %
    
    
    69.5
    %
    
    
    66.0
    %
    
    
    70.7
    %
   Average Revenue Rate by Payer Source
 All Continuing Residences
  Average Daily Revenue Rate
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Average daily revenue rate
    
    $
    107.45
    
    
    $
    101.82
    
    
    $
    107.39
    
    
    $
    101.81
   29




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ASSISTED LIVING CONCEPTS, INC.
 Number of Residences Under Operation
  2009
    
    
    2008Owned*
    
    
    153
    
    
    
    153Under capital lease
    
    
    5
    
    
    
    5Under operating leases
    
    
    58
    
    
    
    58Total under operation
    
    
    216
    
    
    
    216Percent of residences:Owned
    
    
    70.8
    %
    
    
    70.8
    %Under capital leases
    
    
    2.3
    
    
    
    2.3Under operating leases
    
    
    26.9
    
    
    
    26.9100.0
    %
    
    
    100.0
    %
 *
    
    Includes four residences temporarily closed for refurbishment in 2009 and one
residence temporarily closed for refurbishment in 2008. ADJUSTED EBITDA and ADJUSTED EBITDAR
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands)Net income (loss)
    
    $
    3,907
    
    
    $
    4,276
    
    
    $
    (7,868
    )
    
    $
    8,327Provision for income taxes
    
    
    2,163
    
    
    
    2,620
    
    
    
    2,219
    
    
    
    5,103Income (loss) from continuing
operations before income taxes
    
    
    6,070
    
    
    
    6,896
    
    
    
    (5,649
    )
    
    
    13,430Add:Depreciation and amortization
    
    
    5,316
    
    
    
    4,348
    
    
    
    10,344
    
    
    
    9,244Interest income
    
    
    (8
    )
    
    
    (291
    )
    
    
    (21
    )
    
    
    (470
    )Interest expense
    
    
    1,973
    
    
    
    1,882
    
    
    
    3,816
    
    
    
    3,965Goodwill impairment
    
    
    
    
    
    
    
    
    
    
    16,315
    
    
    
    Non-cash equity based compensation
    
    
    123
    
    
    
    41
    
    
    
    188
    
    
    
    44Adjusted EBITDA
    
    
    13,474
    
    
    
    12,876
    
    
    
    24,993
    
    
    
    26,213Add: Residence lease expense
    
    
    4,990
    
    
    
    5,009
    
    
    
    9,917
    
    
    
    9,907Adjusted EBITDAR
    
    $
    18,464
    
    
    $
    17,885
    
    
    $
    34,910
    
    
    $
    36,120
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008($ In thousands)Revenues
    
    $
    57,381
    
    
    $
    57,854
    
    
    $
    115,015
    
    
    $
    118,101Adjusted EBITDA
    
    $
    13,474
    
    
    $
    12,876
    
    
    $
    24,993
    
    
    $
    26,213Adjusted EBITDAR
    
    $
    18,464
    
    
    $
    17,885
    
    
    $
    34,910
    
    
    $
    36,120Adjusted EBITDA as percent of total revenue
    
    
    23.5
    %
    
    
    22.3
    %
    
    
    21.7
    %
    
    
    22.2
    %Adjusted EBITDAR as percent of total revenue
    
    
    32.2
    %
    
    
    30.9
    %
    
    
    30.4
    %
    
    
    30.6
    %
   30




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ASSISTED LIVING CONCEPTS, INC.
   Consolidated Results of Operations
 Three Months Ended June 30, 2009 Compared with Three Months Ended June 30, 2008
  2009
    
    
    2008Revenues
    
    
    100.0
    %
    
    
    100.0
    %Residence operations
(exclusive of depreciation and
amortization and residence
lease
expense shown below)
    
    
    62.2
    
    
    
    64.0General and administrative
    
    
    5.8
    
    
    
    5.2Residence lease expense
    
    
    8.7
    
    
    
    8.7Depreciation and amortization
    
    
    9.3
    
    
    
    7.4Total operating expenses
    
    
    86.0
    
    
    
    85.3Income from operations
    
    
    14.0
    
    
    
    14.7Interest income
    
    
    
    
    
    
    0.5Interest expense
    
    
    (3.4
    )
    
    
    (3.3
    )Income before income taxes
    
    
    10.6
    
    
    
    11.9Income tax expense
    
    
    (3.8
    )
    
    
    (4.5
    )Net income
    
    
    6.8
    %
    
    
    7.4
    %
 Revenues
  Residence Operations (exclusive of depreciation and amortization and residence lease expense shown
below)
  General and Administrative
   31




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 Residence Lease Expense
  Depreciation and Amortization
  Income from Operations
  Interest Income
  Interest Expense
  Income before Income Taxes
  Income Tax Expense
  Net income
   32




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ASSISTED LIVING CONCEPTS, INC.
 Six Months Ended June 30, 2009 Compared with Six Months Ended June 30, 2008
  2009
    
    
    2008Revenues
    
    
    100.0
    %
    
    
    100.0
    %Residence operations
(exclusive of depreciation and
amortization and residence
lease
expense shown below)
    
    
    63.9
    
    
    
    64.3General and administrative
    
    
    5.9
    
    
    
    5.2Residence lease expense
    
    
    8.6
    
    
    
    8.4Depreciation and amortization
    
    
    9.0
    
    
    
    7.8Goodwill impairment
    
    
    14.2
    
    
    
    Total operating expenses
    
    
    101.6
    
    
    
    85.7Income (loss) from operations
    
    
    (1.6
    )
    
    
    14.3Interest income
    
    
    
    
    
    
    0.4Interest expense
    
    
    (3.3
    )
    
    
    (3.3
    )Income before income taxes
    
    
    (4.9
    )
    
    
    11.4Income tax expense
    
    
    (1.9
    )
    
    
    (4.3
    )Net income
    
    
    (6.8
    )
    
    
    7.1
 Revenues
  Residence Operations (exclusive of depreciation and amortization and residence lease expense shown
below)
  General and Administrative
  Residence Lease Expense
  Depreciation and Amortization
   33




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ASSISTED LIVING CONCEPTS, INC.
 Goodwill Impairment
 Goodwill and Other
Intangible Assets
 (Loss) Income from Operations
  Interest Income
  Interest Expense
  (Loss)Income before Income Taxes
  Income Tax Expense
  Net (loss) income
  Liquidity and Capital Resources
 Sources and Uses of Cash
  2009
    
    
    2008(In thousands)Cash provided by operating activities
    
    $
    22,543
    
    
    $
    31,518Cash used in investing activities
    
    
    (18,793
    )
    
    
    (12,137
    )Cash used in financing activities
    
    
    (17,974
    )
    
    
    (18,515
    )(Decrease) increase in cash and cash equivalents
    
    $
    (14,224
    )
    
    $
    866
  34




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
         $120 Million Revolving Credit Facility
   35




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
     Debt Instruments
     36




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
  Principal Repayment Schedule
  Letters of Credit
  Restricted Cash
  Off Balance Sheet Arrangements
  Cash Management
  Future Liquidity and Capital Resources
    37




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
  Expansion Program
  Share Repurchase
  Accrual for Self-Insured Liabilities
     38




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 Unfunded Deferred Compensation Plan
  $120 Million Revolving Credit Facility
  Contractual Obligations
   Critical Accounting Policies
  
 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Qualitative Disclosures
   39




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##### Table of Contents



Fair ValueContract Date
    
    Notional Amount
    
    Fixed Rate
    
    
    Maturity
    
    at June 30, 2009November 13, 2008
    
    $30 million
    
    
    2.83
    %
    
    November 2011
    
    $
    (852,509
    )March 10, 2009
    
    $20 million
    
    
    1.98%
    
    
    November 2011
    
    $
    (120,344
    )
     Quantitative Disclosures
   40




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##### Table of Contents



Item 4. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
 Internal Control Over Financial Reporting
  41




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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(b)
    
    
    (c)
    
    
    (or Approximate(a)
    
    
    Average
    
    
    Total Number of
    
    
    Dollar Value) ofTotal
    
    
    Price Paid
    
    
    Shares Purchased as
    
    
    Shares that MayNumber
    
    
    Per Share
    
    
    Part of Publicly
    
    
    Yet Be Purchasedof Shares
    
    
    (excluding
    
    
    Announced Plans or
    
    
    Under the Plans orPeriod
    
    Purchased
    
    
    fees)
    
    
    Programs
    
    
    Programs (1)April 1, 2009 to April 30, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    12,056,236May 1, 2009 to May 31, 2009
    
    
    83,082
    (1)
    
    $
    15.56
    
    
    
    83,082
    
    
    $
    10,763,272June 1, 2009 to June 30, 2009
    
    
    111,866
    (1)
    
    $
    14.24
    
    
    
    111,866
    
    
    $
    9,170,768Total
    
    
    194,948
    (1)
    
    $
    14.80
    
    
    
    194,948
    
    
    $
    9,170,768
 (1)
    
    Consists of purchases made through the share purchase program initiated in December 2006
under which ALC was authorized to repurchase up to $80 million of its outstanding shares of Class
A Common Stock through August 6, 2009 (exclusive of fees). On August 9, 2009, the Board of
Directors authorized a new repurchase of up to $15 million of shares of Class A Common Stock over
the twelve-month period ending August 9, 2010. 
 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
  
 Item 5. OTHER INFORMATION.
 Forward-Looking Statements and Cautionary Factors
   42




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##### Table of Contents




    
    unfavorable economic conditions, such as recessions, high unemployment levels, and
declining housing and financial markets, could adversely affect the assisted 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;
 
    
    we may not be able 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;
 
    
    compliance with regulations may require us to make unanticipated expenditures which
could increase our costs and adversely affect our earnings and financial condition;
 
    
    new regulations could increase our costs or negatively impact our business;
 
    
    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.
  43




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
    
    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.
  
 Item 6. EXHIBITS.
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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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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 
 EXHIBIT INDEX TO JUNE 30, 2009 QUARTERLY REPORT ON FORM 10-Q
 ExhibitNumber
    
    Description10.1
    
    
    2006 Omnibus Incentive
Compensation Plan, amended
and restated to reflect
March 16, 2009
one-for-five reverse stock
split (incorporated by
reference to Exhibit 10.1
to current report of
Assisted Living Concepts,
Inc. on Form 8-K, dated
April 30, 2009, File No.
001-13498)10.2
    
    
    Loan Agreement, effective
as of June 12, 2009, 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 June 12, 2009, File
No. 001-13498)10.3
    
    
    Guaranty Agreement, by
Assisted Living Concepts,
Inc. as guarantor pursuant
to Loan Agreement,
effective as of June 12,
2009, 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 June 12, 2009, 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