##### 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, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from          to
 Commission file number: 001-13498
 Assisted Living Concepts, Inc.
 (Exact name of registrant as specified in its charter)
 Nevada
    
    93-1148702(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)W140 N8981 Lilly Road 
Menomonee Falls, Wisconsin
    
    53051(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code: (262) 250-4500
 111 West Michigan Street
Milwaukee, WI, 53203
 (Former name, former address and former fiscal year, if changed since last report)
 þ o
  o o þ
 o þ




---



##### 



ASSISTED LIVING CONCEPTS, INC.
 INDEX
 PageNumberPart I. Financial InformationItem 1. Financial StatementsConsolidated Balance Sheets  as of June 30, 2007 (unaudited) and December 31, 2006
    
    
    3Consolidated Statements of Income  for the Three and Six Month Periods Ended June 30, 2007 and 2006 (unaudited)
    
    
    4Consolidated Statements of Cash Flows  For the Six Month Periods Ended June 30, 2007 and 2006 (unaudited)
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    27Item 4. Controls and Procedures
    
    
    28Part II. Other InformationItem 1A. Risk Factors
    
    
    29Item 2. Unregistered Sale of Equity Securities and Use of Proceeds
    
    
    29Item 4. Submission of Matters to a Vote of Security Holders
    
    
    29Item 5. Other Information
    
    
    29Item 6. Exhibits
    
    
    30Signatures
    
    
    S-1Exhibit Index
    
    EI-1Certification of CEOCertification of CFOSection 1350 Certification of CEOSection 1350 Certification of CFO
  2




---



##### 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)
 June 30,
    
    
    December 31,2007
    
    
    2006(Unaudited)ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    34,595
    
    
    $
    19,951Investments
    
    
    6,123
    
    
    
    5,332Accounts receivable, less allowances of $911 and $1,086, respectively
    
    
    3,524
    
    
    
    5,395Supplies, prepaid expenses and other current assets
    
    
    7,309
    
    
    
    8,178Income tax receivable
    
    
    
    
    
    
    90Deferred income taxes
    
    
    1,187
    
    
    
    1,552Total current assets
    
    
    52,738
    
    
    
    40,498Property and equipment, net
    
    
    375,240
    
    
    
    374,612Goodwill and other intangible assets, net
    
    
    17,036
    
    
    
    18,102Restricted cash
    
    
    8,270
    
    
    
    10,947Other assets
    
    
    3,494
    
    
    
    3,181Total Assets
    
    $
    456,778
    
    
    $
    447,340LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    5,619
    
    
    $
    5,134Accrued liabilities
    
    
    21,723
    
    
    
    19,580Current maturities of long-term debt
    
    
    14,483
    
    
    
    2,732Income taxes payable
    
    
    336
    
    
    
    Current portion of self-insured liabilities
    
    
    300
    
    
    
    300Total current liabilities
    
    
    42,461
    
    
    
    27,746Accrual for self-insured liabilities
    
    
    1,267
    
    
    
    1,171Long-term debt
    
    
    74,809
    
    
    
    87,904Deferred income taxes
    
    
    5,537
    
    
    
    5,146Other long-term liabilities
    
    
    8,990
    
    
    
    8,535Total Liabilities
    
    
    133,064
    
    
    
    130,502Stockholders Equity:Preferred Stock, par value $0.01 per share, 25,000,000 shares authorized, none
issued
    
    
    
    
    
    
    Class A Common Stock, par value $0.01 per share, 400,000,000 shares
authorized, 59,972,731 and 59,501,918 issued, respectively
    
    
    600
    
    
    
    595Class B Common Stock, par value $0.01 per share, 75,000,000 shares
authorized, 9,275,657 and 9,956,337 issued, respectively
    
    
    93
    
    
    
    100Treasury stock at cost, Class A Common Stock, 260,900 and 0 shares,
respectively
    
    
    (2,791
    )
    
    
    Additional paid-in capital
    
    
    313,742
    
    
    
    313,474Accumulated other comprehensive income
    
    
    1,032
    
    
    
    530Retained earnings
    
    
    11,038
    
    
    
    2,139Total Stockholders Equity
    
    
    323,714
    
    
    
    316,838Total Liabilities and Stockholders Equity
    
    $
    456,778
    
    
    $
    447,340
  3




---



##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 
 CONSOLIDATED STATEMENTS OF INCOME
 (unaudited)
 (In thousands, except per share data)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues
    
    $
    57,426
    
    
    $
    56,998
    
    
    $
    114,947
    
    
    $
    113,774Expenses:Residence operations (exclusive of depreciation and amortization and residence lease expense shown below)
    
    
    38,219
    
    
    
    37,839
    
    
    
    75,977
    
    
    
    75,756General and administrative
    
    
    3,839
    
    
    
    2,190
    
    
    
    6,826
    
    
    
    4,941Residence lease expense
    
    
    3,460
    
    
    
    3,537
    
    
    
    7,159
    
    
    
    7,025Depreciation and amortization
    
    
    4,323
    
    
    
    4,169
    
    
    
    8,504
    
    
    
    8,292Transaction costs
    
    
    
    
    
    
    2,300
    
    
    
    56
    
    
    
    2,300Total operating expenses
    
    
    49,841
    
    
    
    50,035
    
    
    
    98,522
    
    
    
    98,314Income from operations
    
    
    7,585
    
    
    
    6,963
    
    
    
    16,425
    
    
    
    15,460Other expense:Interest expense, net
    
    
    (857
    )
    
    
    (2,584
    )
    
    
    (2,072
    )
    
    
    (5,414
    )Income from continuing operations before income taxes
    
    
    6,728
    
    
    
    4,379
    
    
    
    14,353
    
    
    
    10,046Income tax expense
    
    
    (2,556
    )
    
    
    (2,442
    )
    
    
    (5,454
    )
    
    
    (4,631
    )Net income from continuing operations
    
    
    4,172
    
    
    
    1,937
    
    
    
    8,899
    
    
    
    5,415Loss from discontinued operations, net of taxes
    
    
    
    
    
    
    (105
    )
    
    
    
    
    
    
    (1,273
    )Net income
    
    $
    4,172
    
    
    $
    1,832
    
    
    $
    8,899
    
    
    $
    4,142Weighted average common shares:Basic
    
    
    69,482
    
    
    
    69,322
    
    
    
    69,482
    
    
    
    69,322Diluted
    
    
    70,183
    
    
    
    70,205
    
    
    
    70,194
    
    
    
    70,205Per share data:Basic earnings per common share:Income from continuing operations
    
    $
    0.06
    
    
    $
    0.03
    
    
    $
    0.13
    
    
    $
    0.08Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.02
    )Net income
    
    $
    0.06
    
    
    $
    0.03
    
    
    $
    0.13
    
    
    $
    0.06Diluted earnings per common share:Income from continuing operations
    
    $
    0.06
    
    
    $
    0.03
    
    
    $
    0.13
    
    
    $
    0.08Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.02
    )Net income
    
    $
    0.06
    
    
    $
    0.03
    
    
    $
    0.13
    
    
    $
    0.06
  4




---



##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 
  CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 (In thousands)
 Six Months EndedJune 30,2007
    
    
    2006OPERATING ACTIVITIES:Net income
    
    $
    8,899
    
    
    $
    4,142Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    8,504
    
    
    
    8,349Amortization of purchase accounting adjustments for:Leases and debt
    
    
    (429
    )
    
    
    (239
    )Below market resident leases
    
    
    (39
    )
    
    
    (859
    )Provision for bad debt
    
    
    158
    
    
    
    162Provision for self-insured liabilities
    
    
    300
    
    
    
    330Payments of self-insured liabilities
    
    
    (204
    )
    
    
    (212
    )Loss on impairment of long-lived assets and discontinued
operations
    
    
    
    
    
    
    1,723Deferred income taxes
    
    
    756
    
    
    
    83Equity-based compensation expense
    
    
    192
    
    
    
    280Changes in assets and liabilities:Accounts receivable
    
    
    1,713
    
    
    
    (299
    )Supplies, prepaid expenses and other current assets
    
    
    869
    
    
    
    (271
    )Accounts payable
    
    
    485
    
    
    
    (1,033
    )Accrued liabilities
    
    
    2,143
    
    
    
    3,359Income taxes payable/receivable
    
    
    137
    
    
    
    (1,017
    )Other non-current assets including restricted cash
    
    
    2,364
    
    
    
    (193
    )Other long-term liabilities
    
    
    709
    
    
    
    486Current due to Extendicare
    
    
    
    
    
    
    1,909Cash provided by operating activities
    
    
    26,557
    
    
    
    16,700INVESTING ACTIVITIES:Payments for new construction projects
    
    
    (2,098
    )
    
    
    (1,240
    )Payments for purchases of property and equipment
    
    
    (5,968
    )
    
    
    (3,363
    )Cash used in investing activities
    
    
    (8,066
    )
    
    
    (4,603
    )FINANCING ACTIVITIES:Capital contributions from Extendicare
    
    
    74
    
    
    
    1,522Purchase of treasury stock
    
    
    (2,791
    )
    
    
    Repayment of interest bearing advances to Extendicare
    
    
    
    
    
    
    (14,500
    )Payments of long-term debt
    
    
    (1,130
    )
    
    
    (1,241
    )Cash used in financing activities
    
    
    (3,847
    )
    
    
    (14,219
    )Increase / (decrease) in cash and cash equivalents
    
    
    14,644
    
    
    
    (2,122
    )Cash and cash equivalents, beginning of year
    
    
    19,951
    
    
    
    6,439Cash and cash equivalents, end of period
    
    $
    34,595
    
    
    $
    4,317Supplemental schedule of cash flow information:Cash paid during the period for:Interest
    
    $
    3,319
    
    
    $
    5,649Income tax payments, net of refunds
    
    
    4,460
    
    
    
    257
  5




---



##### Table of Contents



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,§
    
    an Escanaba, Michigan residence since its acquisition on November 1, 2006, and§
    
    Pearson since its formation on June 19, 2006.
     6




---



##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 (a) Principles of Presentation and Consolidation
   (b) Accounts Receivable
    (c) Comprehensive Income
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands)Net income
    
    $
    4,172
    
    
    $
    1,832
    
    
    $
    8,899
    
    
    $
    4,142Net unrealized gains
    
    
    744
    
    
    
    
    
    
    
    502
    
    
    
    Total comprehensive income
    
    $
    4,916
    
    
    $
    1,832
    
    
    $
    9,401
    
    
    $
    4,142
 7




---



##### Table of Contents



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




---



##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 3. DISCONTINUED OPERATIONS
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2006(In thousands)Revenues
    
    $
    53
    
    
    $
    540Residence operations (exclusive of depreciation and
amortization and residence lease expense shown
below)
    
    
    209
    
    
    
    731Residence lease expense
    
    
    17
    
    
    
    118Depreciation and amortization
    
    
    7
    
    
    
    60Loss on impairment of long-lived assets
    
    
    
    
    
    
    1,731Total operating expenses
    
    
    233
    
    
    
    2,640Loss from discontinued operations
    
    
    (180
    )
    
    
    (2,100
    )Interest expense
    
    
    7
    
    
    
    Loss from discontinued operations before income taxes
    
    
    (173
    )
    
    
    (2,100
    )Income tax benefit
    
    
    68
    
    
    
    827Net loss from discontinued operations
    
    $
    (105
    )
    
    $
    (1,273
    )
  (a) Closure and Disposition of Assisted Living Residence in Texas
  (b) Closure of Assisted Living Residence in Washington
  (c) Closure of Assisted Living Residence in Oregon
  9




---



##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 4. EARNINGS PER SHARE
 Earnings Per Share
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands, except per share data)Basic earnings per share calculationNumerator:Income from continuing operations
    
    $
    4,172
    
    
    $
    1,937
    
    
    $
    8,899
    
    
    $
    5,415Loss from discontinued operations, net of tax
    
    
    
    
    
    
    (105
    )
    
    
    
    
    
    
    (1,273
    )Net income to common stockholders
    
    $
    4,172
    
    
    $
    1,832
    
    
    $
    8,899
    
    
    $
    4,142Denominator:Weighted average of common shares outstanding
    
    
    69,482
    
    
    
    69,322
    
    
    
    69,482
    
    
    
    69,322Income from continuing operations
    
    $
    0.06
    
    
    $
    0.03
    
    
    $
    0.13
    
    
    $
    0.08Loss from discontinued operations, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.02
    )Basic earnings per share
    
    $
    0.06
    
    
    $
    0.03
    
    
    $
    0.13
    
    
    $
    0.06Diluted earnings per share calculationNumerator:Income from continuing operations
    
    $
    4,172
    
    
    $
    1,937
    
    
    $
    8,899
    
    
    $
    5,415Income from discontinued operations, net of tax
    
    
    
    
    
    
    (105
    )
    
    
    
    
    
    
    (1,273
    )Net income to common stockholders
    
    $
    4,172
    
    
    $
    1,832
    
    
    $
    8,899
    
    
    $
    4,142Denominator:Weighted average of common shares outstanding
    
    
    69,482
    
    
    
    69,322
    
    
    
    69,482
    
    
    
    69,322Assumed conversion of Class B shares
    
    
    701
    
    
    
    883
    
    
    
    712
    
    
    
    883Diluted weighted average shares outstanding
    
    
    70,183
    
    
    
    70,205
    
    
    
    70,194
    
    
    
    70,205Income from continuing operations
    
    $
    0.06
    
    
    $
    0.03
    
    
    $
    0.13
    
    
    $
    0.08Income from discontinued operations, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.02
    )Diluted earnings per share
    
    $
    0.06
    
    
    $
    0.03
    
    
    $
    0.13
    
    
    $
    0.06
 10




---



##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 5. SHARE BUYBACK PROGRAM
  6. SUBSEQUENT EVENTS
   11




---



##### 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 I of the Companys Annual Report
on Form 10-K for the year ended December 31, 2006, and in Part II, Item 5  Other Information 
Forward-Looking Statements and Cautionary Factors in this report.
 The following discussion should be read in conjunction with our consolidated financial statements
and the related notes to the consolidated financial statements in Part I, Item 1 of this report.
  §
    
    Business Overview.This section provides a general financial description of our business. More specifically, this section describes the sources and composition of our revenues and operating expenses. In addition, this section outlines the key performance indicators that we use to monitor and manage our business and anticipate future trends.§
    
    Consolidated Results of Operations.This section provides an analysis of our results of operations for the three month and six month periods ended June 30, 2007 compared to the three month and six month periods ended June 30, 2006.§
    
    Liquidity and Capital Resources.This section provides a discussion of our liquidity and capital resources as of June 30, 2007, and our expected future cash needs.§
    
    Critical Accounting Policies.This section discusses accounting policies which we consider to be critical to obtain an understanding of our consolidated financial statements because their application requires significant judgment and reliance on estimations of matters that are inherently uncertain. Our critical accounting policies are those that require significant judgment and estimates on the part of management in their application.
 Business Overview
 General
 Our business strategy, as outlined in our Annual Report on Form 10-K for the year ended December 31, 2006, is to grow our revenue and operating income by:§
    
    increasing the overall size of our portfolio through building additional capacity to existing residences and through acquisitions;§
    
    increasing our overall occupancy percentage and our percentage of revenue from private pay sources; and§
    
    applying operating efficiencies and best practices achievable from owning a large number of assisted living residences.
     12




---



##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
   Revenues
    Residence Operations Expenses
   Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2007
    
    2006
    
    2007
    
    2006Wage and benefit costs
    
    
    58
    %
    
    
    59
    %
    
    
    57
    %
    
    
    60
    %Utility and property costs
    
    
    13
    
    
    
    14
    
    
    
    15
    
    
    
    15Variable resident care costs
    
    
    29
    
    
    
    27
    
    
    
    28
    
    
    
    25Total residence operation costs
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
  13




---



##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 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.
  Key Performance Indicators
  Census
  Average Daily Census
  Occupancy Percentage or Occupancy Rate
  Private Pay Mix
  Average Revenue Rate by Payer Source
  14




---



##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 Adjusted EBITDA and Adjusted EBITDAR
    Review of Key Performance Indicators
  §
    
    residences classified in the financial statements as discontinued operations, and§
    
    two freestanding residences and an additional 129 assisted living units contained in skilled nursing facilities that were retained by Extendicare.
  ADC
 All Continuing Residences
  Average Daily Census
 Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2007
    
    %
    
    2006
    
    %
    
    2007
    
    %
    
    2006
    
    %Private Pay
    
    
    5,292
    
    
    
    78.6
    %
    
    
    4,995
    
    
    
    71.5
    %
    
    
    5,255
    
    
    
    76.7
    %
    
    
    4,958
    
    
    
    71.2
    %Medicaid
    
    
    1,444
    
    
    
    21.4
    
    
    
    1,987
    
    
    
    28.5
    
    
    
    1,592
    
    
    
    23.3
    
    
    
    2,008
    
    
    
    28.8Total
    
    
    6,736
    
    
    
    100.0
    %
    
    
    6,982
    
    
    
    100.0
    %
    
    
    6,847
    
    
    
    100.0
    %
    
    
    6,966
    
    
    
    100.0
    %
  15




---



##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
  Same Residence Basis
  Average Daily Census
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    %
    
    
    2006
    
    
    %
    
    
    2007
    
    
    %
    
    
    2006
    
    
    %Private Pay
    
    
    5,252
    
    
    
    78.4
    %
    
    
    4,995
    
    
    
    71.5
    %
    
    
    5,215
    
    
    
    76.6
    %
    
    
    4,958
    
    
    
    71.2
    %Medicaid
    
    
    1,444
    
    
    
    21.6
    
    
    
    1,987
    
    
    
    28.5
    
    
    
    1,592
    
    
    
    23.4
    
    
    
    2,008
    
    
    
    28.8Total
    
    
    6,696
    
    
    
    100.0
    %
    
    
    6,982
    
    
    
    100.0
    %
    
    
    6,807
    
    
    
    100.0
    %
    
    
    6,966
    
    
    
    100.0
    %
  Occupancy Percentage
   All Continuing Residences
  Occupancy Percentage
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Mature
    
    
    81.5
    %
    
    
    85.6
    %
    
    
    82.8
    %
    
    
    85.6
    %Developmental
    
    
    49.8
    %
    
    
    63.8
    %
    
    
    52.1
    %
    
    
    62.2
    %All
Residences
    
    
    80.9
    %
    
    
    84.4
    %
    
    
    82.3
    %
    
    
    84.3
    %
  16




---



##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
   Same Residence Basis
  Occupancy Percentage
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Mature
    
    
    81.4
    %
    
    
    85.6
    %
    
    
    82.8
    %
    
    
    85.6
    %Developmental
    
    
    49.8
    %
    
    
    74.1
    %
    
    
    52.1
    %
    
    
    74.7
    %All
Residences
    
    
    80.8
    %
    
    
    85.2
    %
    
    
    82.2
    %
    
    
    85.2
    %
   Average Revenue Rate by Payer Source
 All Continuing Residences
  Average Daily Revenue
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    % Increase
    
    
    2007
    
    
    2006
    
    
    % IncreasePrivate Pay
    
    $
    100.21
    
    
    $
    95.86
    
    
    
    4.5
    %
    
    $
    99.70
    
    
    $
    96.34
    
    
    
    3.5
    %Medicaid
    
    $
    67.62
    
    
    $
    64.77
    
    
    
    4.4
    %
    
    $
    67.82
    
    
    $
    65.24
    
    
    
    4.0
    %All payer
sources
    
    $
    93.22
    
    
    $
    87.01
    
    
    
    7.1
    %
    
    $
    92.29
    
    
    $
    87.38
    
    
    
    5.6
    %
  17




---



##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 Number of Residences Under Operation
  2007
    
    
    2006Owned (Note
1)
    
    
    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
    %
 
 (1)
    
    Includes 29 assisted living properties which were owned by EHSI
as of March 31, 2006 and transferred from EHSI to ALC as part of
the Separation. Adjusted EBITDA and EBITDAR
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands)Net
income
    
    $
    4,172
    
    
    $
    1,832
    
    
    $
    8,899
    
    
    $
    4,142Loss from
discontinued
operations, net of
tax
benefit
    
    
    
    
    
    
    105
    
    
    
    
    
    
    
    1,273Provision for
income
taxes
    
    
    2,556
    
    
    
    2,442
    
    
    
    5,454
    
    
    
    4,631Income from
continuing
operations before
income
taxes
    
    
    6,728
    
    
    
    4,379
    
    
    
    14,353
    
    
    
    10,046Add:Depreciation and
amortization
    
    
    4,323
    
    
    
    4,169
    
    
    
    8,504
    
    
    
    8,292Interest
expense,
net
    
    
    857
    
    
    
    2,584
    
    
    
    2,072
    
    
    
    5,414Transaction
costs
    
    
    
    
    
    
    2,300
    
    
    
    56
    
    
    
    2,300Non-cash equity
based
compensation
    
    
    186
    
    
    
    2
    
    
    
    192
    
    
    
    280Adjusted
EBITDA
    
    
    12,094
    
    
    
    13,434
    
    
    
    25,177
    
    
    
    26,332Add: Lease
expense
    
    
    3,460
    
    
    
    3,537
    
    
    
    7,159
    
    
    
    7,025Adjusted
EBITDAR
    
    $
    15,554
    
    
    $
    16,971
    
    
    $
    32,336
    
    
    $
    33,357
 18




---



##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands)Revenues
    
    $
    57,426
    
    
    $
    56,998
    
    
    $
    114,947
    
    
    $
    113,774Adjusted
EBITDA
    
    $
    12,094
    
    
    $
    13,434
    
    
    $
    25,177
    
    
    $
    26,332Adjusted
EBITDAR
    
$
    15,554
    
    
    $
    16,971
    
    
    $
    32,336
    
    
    $
    33,357Adjusted
EBITDA as percent
of total
revenue
    
    
    21.1
    %
    
    
    23.6
    %
    
    
    21.9
    %
    
    
    23.1
    %Adjusted
EBITDAR as percent
of total revenue
    
    
    27.1
    %
    
    
    29.8
    %
    
    
    28.1
    %
    
    
    29.3
    %
      19




---



##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 Consolidated Results from Operations
 Three Months Ended June 30, 2007 Compared with the Three Months Ended June 30, 2006
  Three Months EndedJune 30,2007
    
    
    2006Revenues
    
    
    100.0
    %
    
    
    100.0
    %Residence
operations
(exclusive of
depreciation and
amortization and
residence lease
expense shown
below)
    
    
    66.6
    
    
    
    66.4General and
administrative
costs
    
    
    6.7
    
    
    
    3.9Residence lease
expense
    
    
    6.0
    
    
    
    6.2Depreciation and
amortization
    
    
    7.5
    
    
    
    7.3Transaction
costs
    
    
    
    
    
    
    4.0Income from
operations
    
    
    13.2
    
    
    
    12.2Interest expense,
net
    
    
    (1.5
    )
    
    
    (4.5
    )Income tax
expense
    
    
    (4.4
    )
    
    
    (4.3
    )Net income from
continuing
operations
    
    
    7.3
    
    
    
    3.4Loss from
discontinued
operations, net of
tax
    
    
    
    
    
    
    (0.2
    )Net
income
    
    
    7.3
    %
    
    
    3.2
    %
 Revenues
  Residence Operations (exclusive of deprecation, amortization and residence lease expense shown
below)
  General and Administrative Costs
  Residence Lease expense
  20




---



##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 Depreciation and Amortization
  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
  21




---



##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 Six Months Ended June 30, 2007 Compared with the Six Months Ended June 30, 2006
  Six Months EndedJune 30,2007
    
    
    2006Revenues
    
    
    100.0
    %
    
    
    100.0
    %Residence
operations
(exclusive of
depreciation and
amortization and
residence lease
expense shown
below)
    
    
    66.1
    
    
    
    66.6General and
administrative
costs
    
    
    6.0
    
    
    
    4.3Residence lease
expense
    
    
    6.2
    
    
    
    6.2Depreciation and
amortization
    
    
    7.4
    
    
    
    7.3Transaction
costs
    
    
    0.0
    
    
    
    2.0Income from
operations
    
    
    14.3
    
    
    
    13.6Interest expense,
net
    
    
    (1.8
    )
    
    
    (4.8
    )Income tax
expense
    
    
    (4.8
    )
    
    
    (4.1
    )Net income from
continuing
operations after
income
taxes
    
    
    7.7
    
    
    
    4.7Loss from
discontinued
operations, net of
tax
    
    
    
    
    
    
    (1.1
    )Net
income
    
    
    7.7
    %
    
    
    3.6
    %
 Revenues
  Residence Operations (exclusive of depreciation and amortization and residence lease expense shown
below)
  General and Administrative
  Residence Lease Expense
  Depreciation and Amortization
  22




---



##### 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
  23




---



##### 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
    
    $
    26,557
    
    
    $
    16,700Cash used in investing
activities
    
    
    (8,066
    )
    
    
    (4,603
    )Cash used in financing
activities
    
    
    (3,847
    )
    
    
    (14,219
    )Increase / (decrease) in cash
and cash
equivalents
    
    $
    14,644
    
    
    $
    (2,122
    )
       $100 Million Credit Facility
  24




---



##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
   Debt Instruments
  Principal Repayment Schedule
  Letters of credit
  Restricted Cash
  Contractual Obligations
  Off Balance Sheet Arrangements
  Cash Management
  Future Liquidity and Capital Resources
  Acquisitions
  25




---



##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 Capital Commitments
  Expansion Plans
  Share Buyback
   Accrual for Self-Insured Liabilities
   Critical Accounting Policies
  26




---



##### Table of Contents



Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   Quantitative Disclosures
  27




---



##### Table of Contents



Item 4. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
 Internal Control Over Financial Reporting
 28




---



##### Table of Contents



Part II. OTHER INFORMATION
 
 Item 1A. RISK FACTORS.
  
 Item 2. UNREGISTERD SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  (d)(c)
    
    Maximum NumberTotal Number of
    
    (or Approximate DollarShares Purchased as
    
    Value) of Shares(a)
    
    (b)
    
    Part of Publicly
    
    that May Yet BeTotal Number of
    
    Average Price Paid
    
    Announced Plans or
    
    Purchased Under thePeriod
    
    Shares Purchased
    
    Per Share
    
    Programs
    
    Plans or ProgramsApril 1, 2007 to April 30, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    20,000,000May 1, 2007 to May 31, 2007
    
    
    20,000
    
    
    $
    11.23
    
    
    
    20,000
    
    
    $
    19,775,401June 1, 2007 to June 30, 2007
    
    
    240,900
    
    
    $
    10.65
    
    
    
    240,900
    
    
    $
    17,209,468Total
    
    
    260,900
    
    
    $
    10.70
    
    
    
    260,900
 
 (1)
    
    Consists of purchases made through the share purchase program announced on
December 14, 2006, under which the Company may repurchase up to $20 million of its
outstanding shares of Class A Common Stock over the subsequent twelve month period.  
 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 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;
 29




---



##### Table of Contents



§
    
    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;§
    
    acquisitions that we may make could subject us to a number of operating risks; and§
    
    costs associated with capital improvements could adversely affect our profitability.
  §
    
    loan 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.
  
 Item 6. EXHIBITS.
  30




---



##### 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)  S-1




---



##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 
 EXHIBIT INDEX TO JUNE 30, 2007 QUARTERLY REPORT ON FORM 10-Q
 ExhibitNumber
    
    Description10.1
    
    Form of 2007 Cash Incentive Compensation Award
Agreement as amended May 3, 2007 (incorporated by
reference to Exhibit 10.1 to Quarterly Report of
Assisted Living Concepts, Inc. on Form 10-Q for the
quarter ended March 31, 2007, File No. 001-13498).10.2
    
    Form of Tandem Stock Option/Stock Appreciation Rights
Award Agreement as amended May 3, 2007 (incorporated by
reference to Exhibit 10.2 to Quarterly Report of
Assisted Living Concepts, Inc. on Form 10-Q for the
quarter ended March 31, 2007, 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 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.
 EI-1