##### 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, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from          to
 Commission file number: 001-13498
 Assisted Living Concepts, Inc.
 (Exact name of registrant as specified in its charter)
 Nevada
    
    93-1148702(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)W140 N8981 Lilly RoadMenomonee Falls, Wisconsin
    
    53051(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code: (262) 257-8888
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



ASSISTED LIVING CONCEPTS, INC.
 INDEX
 PageNumberPart I. Financial InformationItem 1. Financial StatementsCondensed Consolidated Balance Sheets  as of June 30, 2008 (unaudited) and December 31, 2007
    
    
    3Condensed Consolidated Statements of Income  for the Three and Six Month Periods Ended June 30, 2008 and 2007 (unaudited)
    
    
    4Condensed Consolidated Statements of Cash Flows  for the Six Month Periods Ended June 30, 2008 and 2007 (unaudited)
    
    
    5Notes to Unaudited Condensed 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
    
    
    28Item 4. Controls and Procedures
    
    
    28Part II. Other InformationItem 1A. Risk Factors
    
    
    29Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    29Item 4. Submission of Matters to a Vote of Security Holders
    
    
    29Item 5. Other Information
    
    
    31Item 6. Exhibits
    
    
    32Signature
    
    
    S-1Exhibit Index
    
    EI-1Certification of CEOCertification of CFOSection 1350 Certifications
  2




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##### Table of Contents



Part I. FINANCIAL INFORMATION
 
 Item 1. FINANCIAL STATEMENTS
 ASSISTED LIVING CONCEPTS, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (In thousands, except share and per share data)
 June 30,
    
    
    December 31,2008
    
    
    2007(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    14,932
    
    
    $
    14,066Investments
    
    
    3,622
    
    
    
    4,596Accounts receivable, less allowances of $953 and $992, respectively
    
    
    3,412
    
    
    
    3,746Supplies, prepaid expenses and other current assets
    
    
    6,159
    
    
    
    6,733Deferred income taxes
    
    
    4,150
    
    
    
    4,080Total current assets
    
    
    32,275
    
    
    
    33,221Property and equipment, net
    
    
    399,379
    
    
    
    395,141Goodwill and other intangible assets, net
    
    
    30,712
    
    
    
    20,736Restricted cash
    
    
    1,330
    
    
    
    8,943Cash designated for acquisition
    
    
    
    
    
    
    14,864Other assets
    
    
    3,426
    
    
    
    3,336Total Assets
    
    $
    467,122
    
    
    $
    476,241LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    9,920
    
    
    $
    7,800Accrued liabilities
    
    
    17,155
    
    
    
    17,951Deferred revenue
    
    
    7,151
    
    
    
    6,346Accrued income taxes
    
    
    404
    
    
    
    198Current maturities of long-term debt
    
    
    14,469
    
    
    
    26,543Current portion of self-insured liabilities
    
    
    300
    
    
    
    300Total current liabilities
    
    
    49,399
    
    
    
    59,138Accrual for self-insured liabilities
    
    
    1,249
    
    
    
    941Long-term debt
    
    
    117,185
    
    
    
    103,176Deferred income taxes
    
    
    7,882
    
    
    
    9,008Other long-term liabilities
    
    
    9,752
    
    
    
    9,444Commitments and contingenciesTotal Liabilities
    
    
    185,467
    
    
    
    181,707Preferred Stock, par value $0.01 per share, 25,000,000 shares authorized, none
issued or outstanding
    
    
    
    
    
    
    Class A Common Stock, par value $0.01 per share, 400,000,000 shares
authorized,
52,902,278 and 56,131,873 issued and outstanding, respectively
    
    
    595
    
    
    
    595Class B Common Stock, par value $0.01 per share, 75,000,000 shares authorized,
8,664,967 and 8,727,458 issued and outstanding, respectively
    
    
    100
    
    
    
    100Additional paid-in capital
    
    
    313,592
    
    
    
    313,548Accumulated other comprehensive (loss) income
    
    
    (515
    )
    
    
    103Retained earnings
    
    
    27,645
    
    
    
    19,318Treasury stock at cost, Class A Common Stock, 8,087,760 and 4,691,060 shares,
respectively
    
    
    (59,762
    )
    
    
    (39,130
    )Total Stockholders Equity
    
    
    281,655
    
    
    
    294,534Total Liabilities and Stockholders Equity
    
    $
    467,122
    
    
    $
    476,241
  3




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ASSISTED LIVING CONCEPTS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 (Unaudited)  In thousands, except per share data)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues
    
    $
    57,854
    
    
    $
    57,426
    
    
    $
    118,101
    
    
    $
    114,947Expenses:Residence operations (exclusive of depreciation and
amortization and residence lease expense shown below)
    
    
    37,020
    
    
    
    38,219
    
    
    
    75,945
    
    
    
    75,977General and administrative
    
    
    2,990
    
    
    
    3,839
    
    
    
    6,080
    
    
    
    6,826Residence lease expense
    
    
    5,009
    
    
    
    3,460
    
    
    
    9,907
    
    
    
    7,159Depreciation and amortization
    
    
    4,348
    
    
    
    4,323
    
    
    
    9,244
    
    
    
    8,504Transaction costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56Total operating expenses
    
    
    49,367
    
    
    
    49,841
    
    
    
    101,176
    
    
    
    98,522Income from operations
    
    
    8,487
    
    
    
    7,585
    
    
    
    16,925
    
    
    
    16,425Other expense:Interest income
    
    
    291
    
    
    
    604
    
    
    
    470
    
    
    
    1,070Interest expense
    
    
    (1,882
    )
    
    
    (1,461
    )
    
    
    (3,965
    )
    
    
    (3,142
    )Income before income taxes
    
    
    6,896
    
    
    
    6,728
    
    
    
    13,430
    
    
    
    14,353Income tax expense
    
    
    (2,620
    )
    
    
    (2,556
    )
    
    
    (5,103
    )
    
    
    (5,454
    )Net income
    
    $
    4,276
    
    
    $
    4,172
    
    
    $
    8,327
    
    
    $
    8,899Weighted average common shares:Basic
    
    
    63,015
    
    
    
    69,482
    
    
    
    63,780
    
    
    
    69,482Diluted
    
    
    63,667
    
    
    
    70,183
    
    
    
    64,433
    
    
    
    70,194Per share data:Basic earnings per common share
    
    $
    0.07
    
    
    $
    0.06
    
    
    $
    0.13
    
    
    $
    0.13Diluted earnings per common share
    
    $
    0.07
    
    
    $
    0.06
    
    
    $
    0.13
    
    
    $
    0.13
  4




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ASSISTED LIVING CONCEPTS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
(In thousands)
 Six Months EndedJune 30,2008
    
    
    2007OPERATING ACTIVITIES:Net income
    
    $
    8,327
    
    
    $
    8,899Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    9,244
    
    
    
    8,504Amortization of purchase accounting adjustments for:Leases and debt
    
    
    (397
    )
    
    
    (429
    )Below market resident leases
    
    
    
    
    
    
    (39
    )Provision for bad debt
    
    
    39
    
    
    
    158Provision for professional/general liability insurance
    
    
    447
    
    
    
    300Payments for professional/general liability insurance
    
    
    (140
    )
    
    
    (204
    )Deferred income taxes
    
    
    2,298
    
    
    
    756Equity-based compensation expense
    
    
    44
    
    
    
    192Changes in assets and liabilities:Accounts receivable
    
    
    295
    
    
    
    1,713Supplies, prepaid expenses and other current assets
    
    
    574
    
    
    
    869Accounts payable
    
    
    2,120
    
    
    
    485Accrued liabilities
    
    
    (796
    )
    
    
    286Deferred revenue
    
    
    805
    
    
    
    1,857Income taxes payable/receivable
    
    
    562
    
    
    
    137Other non-current assets
    
    
    7,523
    
    
    
    2,364Other long-term liabilities
    
    
    524
    
    
    
    709Cash provided by operating activities
    
    
    31,469
    
    
    
    26,557INVESTING ACTIVITIES:Payment for acquisition
    
    
    (14,532
    )
    
    
    Cash designated for acquisition
    
    
    14,864
    
    
    
    Payments for new construction projects
    
    
    (3,125
    )
    
    
    (2,098
    )Accrued costs of new construction
    
    
    (945
    )
    
    
    Payments for purchases of property and equipment
    
    
    (8,350
    )
    
    
    (5,968
    )Cash used in investing activities
    
    
    (12,088
    )
    
    
    (8,066
    )FINANCING ACTIVITIES:Capital contributions from Extendicare
    
    
    
    
    
    
    74Purchase of treasury stock
    
    
    (20,632
    )
    
    
    (2,791
    )Proceeds from issuance of new mortgage debt
    
    
    9,026
    
    
    
    Proceeds from borrowings on revolving credit facility
    
    
    6,000
    
    
    
    Payments of long-term debt
    
    
    (12,909
    )
    
    
    (1,130
    )Cash used in financing activities
    
    
    (18,515
    )
    
    
    (3,847
    )Increase in cash and cash equivalents
    
    
    866
    
    
    
    14,644Cash and cash equivalents, beginning of year
    
    
    14,066
    
    
    
    19,951Cash and cash equivalents, end of period
    
    $
    14,932
    
    
    $
    34,595Supplemental schedule of cash flow information:Cash paid during the period for:Interest
    
    $
    4,061
    
    
    $
    3,319Income tax payments, net of refunds
    
    
    2,245
    
    
    
    4,460
  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
   (b) Accounts Receivable
    6




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ASSISTED LIVING CONCEPTS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  (c) Comprehensive Income
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(In thousands)Net income
    
    $
    4,276
    
    
    $
    4,172
    
    
    $
    8,327
    
    
    $
    8,899Unrealized gains (losses)
    
    
    8
    
    
    
    744
    
    
    
    (618
    )
    
    
    502Total comprehensive income
    
    $
    4,284
    
    
    $
    4,916
    
    
    $
    7,709
    
    
    $
    9,401
 (d) Income Taxes
  Accounting for Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109 Accounting for Income Taxes
   7




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ASSISTED LIVING CONCEPTS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (e) New Accounting Pronouncements
  The Fair Value Option for Financial
Assets and Financial LiabilitiesIncluding an amendment of FASB Statement No. 115
 Business Combinations
 (f) Reclassifications
  3. LONG-TERM EQUITY-BASED COMPENSATION PROGRAM
     8




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ASSISTED LIVING CONCEPTS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
   Share-Based Payment
 2008
    
    
    2007Weighted
    
    
    
    
    
    
    Weighted#
    
    
    Average
    
    
    #
    
    
    AverageOptions
    
    
    Exercise
    
    
    Options
    
    
    Exercise/ SARs
    
    
    Price
    
    
    / SARs
    
    
    PriceOutstanding at beginning of period
    
    
    320,000
    
    
    $
    11.80
    
    
    
    
    
    
    
    Granted
    
    
    647,500
    
    
    $
    6.02
    
    
    
    380,000
    
    
    $
    11.80Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expired
    
    
    (320,000
    )
    
    $
    11.80
    
    
    
    
    
    
    
    Outstanding at end of period
    
    
    647,500
    
    
    $
    6.02
    
    
    
    380,000
    
    
    $
    11.80Options Exercisable at June 30
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    Weighted average fair value of options
    
    $
    2.64
    
    
    
    
    
    
    $
    6.01Aggregate intrinsic value of options
    
    $
    
    
    
    
    
    
    
    $
    Weighted average contractual term
    
    4.9 years
    
    
    
    
    
    4.9 years
  9




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ASSISTED LIVING CONCEPTS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 May 5,
    
    March 29,
    
    March 30,2008
    
    2008
    
    2007Expected life from grant date (in years)
    
    
    5
    
    
    
    5
    
    
    
    5Risk-free interest rate
    
    
    3.15
    %
    
    
    2.50
    %
    
    
    5.45
    %Volatility
    
    
    45.8
    %
    
    
    46.9
    %
    
    
    53.1
    %Dividend yield
    
    
    
    
    
    
    
    
    
    
    Weighted average fair value (per share)
    
    $
    2.83
    
    
    $
    2.58
    
    
    $
    6.01
  4. GOODWILL AND OTHER INTANGIBLE ASSETS
  Balance at December 31, 2007
    
    $
    19,909Additions
    
    
    Adjustments
    
    
    (3,494
    )Balance at June 30, 2008
    
    $
    16,415
   June 30, 2008
    
    
    December 31, 2007Gross
    
    
    
    
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    
    
    
    
    Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Net
    
    
    Amount
    
    
    Amortization
    
    
    NetResident relationships
    
    $
    9,304
    
    
    $
    (6,860
    )
    
    $
    2,444
    
    
    $
    7,099
    
    
    $
    (6,272
    )
    
    $
    827Operating lease
intangible and
renewal
options
    
    
    11,928
    
    
    
    (346
    )
    
    
    11,582
    
    
    
    
    
    
    
    
    
    
    
    Non-compete agreements
    
    
    301
    
    
    
    (30
    )
    
    
    271
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    21,533
    
    
    $
    (7,236
    )
    
    $
    14,297
    
    
    $
    7,099
    
    
    $
    (6,272
    )
    
    $
    827
  5. EARNINGS PER SHARE
 Earnings Per Share
 10




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ASSISTED LIVING CONCEPTS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(In thousands,except per share data)Basic earnings per share calculationNumerator:Net income to common stockholders
    
    $
    4,276
    
    
    $
    4,172
    
    
    $
    8,327
    
    
    $
    8,899Denominator:Weighted average of common shares outstanding
    
    
    63,015
    
    
    
    69,482
    
    
    
    63,780
    
    
    
    69,482Basic earnings per share
    
    $
    0.07
    
    
    $
    0.06
    
    
    $
    0.13
    
    
    $
    0.13Diluted earnings per share calculationNumerator:Net income to common stockholders
    
    $
    4,276
    
    
    $
    4,172
    
    
    $
    8,327
    
    
    $
    8,899Denominator:Weighted average of common shares outstanding
    
    
    63,015
    
    
    
    69,482
    
    
    
    63,780
    
    
    
    69,482Assumed conversion of Class B shares
    
    
    652
    
    
    
    701
    
    
    
    653
    
    
    
    712Diluted weighted average shares outstanding
    
    
    63,667
    
    
    
    70,183
    
    
    
    64,433
    
    
    
    70,194Diluted earnings per share
    
    $
    0.07
    
    
    $
    0.06
    
    
    $
    0.13
    
    
    $
    0.13
 6. ACQUISITION
   (In thousands)Operating lease intangible and renewals
    
    $
    11,928Resident relationship intangible
    
    
    2,205Non-compete agreements
    
    
    301Vehicles
    
    
    97Other
    
    
    293Total
    
    $
    14,824
  11




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 7. SHARE REPURCHASE
  8. FINANCING AND COMMITTMENTS
   9. SUBSEQUENT EVENTS
   12




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ASSISTED LIVING CONCEPTS, INC.
 
 Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Managements Discussion and Analysis of Financial Condition and Results of Operations contains
forward-looking statements. Forward-looking statements are subject to risks, uncertainties and
assumptions which could cause actual results to differ materially from those projected, including
those 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, 2007, 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
      13




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 Business Strategies
  §
    
    increasing the overall number of units in our portfolio through additions to existing
residences and acquisitions of additional residences;§
    
    increasing occupancy 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 of our portfolio through both building additional capacity on to
existing residences and acquisitions
   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
  14




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
   §
    
    Business Overview.This section provides a general financial description of our
business, including the sources and composition of our revenues and operating expenses.
In addition, this section outlines the key performance indicators that we use to monitor
and manage our business and to anticipate future trends.§
    
    Consolidated Results of Operations.This section provides an analysis of our results
of operations for the three and six month periods ended June 30, 2008 compared to the
three and six month periods ended June 30, 2007.§
    
    Liquidity and Capital Resources.This section provides a discussion of our liquidity
and capital resources as of June 30, 2008, 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 condensed consolidated
financial statements because their application on the part of management requires
significant judgment and reliance on estimations of matters that are inherently
uncertain.
 Business Overview
 Revenues
    Residence Operations Expenses
  Three Months Ended
    
    
    Six Months Ended2008
    
    
    2007
    
    
    2008
    
    
    2007Wage and benefit costs
    
    
    62
    %
    
    
    62
    %
    
    
    62
    %
    
    
    62
    %Property related costs
    
    
    20
    
    
    
    18
    
    
    
    21
    
    
    
    19Other operating costs
    
    
    18
    
    
    
    20
    
    
    
    17
    
    
    
    19Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
  15




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##### Table of Contents



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




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ASSISTED LIVING CONCEPTS, INC.
  Review of Key Performance Indicators
   ADC
 All Continuing Residences
  Average Daily Census
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Private pay
    
    
    5,481
    
    
    
    5,292
    
    
    
    5,556
    
    
    
    5,255Medicaid
    
    
    763
    
    
    
    1,444
    
    
    
    818
    
    
    
    1,592Total ADC
    
    
    6,244
    
    
    
    6,736
    
    
    
    6,374
    
    
    
    6,847Private pay revenue percentage
    
    
    91.4
    %
    
    
    84.4
    %
    
    
    91.0
    %
    
    
    82.9
    %
  Same Residence Basis
  Average Daily Census
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Private pay
    
    
    4,915
    
    
    
    5,292
    
    
    
    4,990
    
    
    
    5,255Medicaid
    
    
    763
    
    
    
    1,444
    
    
    
    818
    
    
    
    1,592Total ADC
    
    
    5,678
    
    
    
    6,736
    
    
    
    5,808
    
    
    
    6,847Private pay revenue percentage
    
    
    90.5
    %
    
    
    84.4
    %
    
    
    90.1
    %
    
    
    82.9
    %
  17




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 Occupancy Percentage
   All Continuing Residences
  Occupancy Percentage
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007# of
    
    
    %
    
    
    # of
    
    
    %
    
    
    # of
    
    
    %
    
    
    # of
    
    
    %Units
    
    
    Occupancy
    
    
    Units
    
    
    Occupancy
    
    
    Units
    
    
    Occupancy
    
    
    Units
    
    
    OccupancyMature
    
    
    8,867
    
    
    
    69.3
    %
    
    
    8,292
    
    
    
    81.5
    %
    
    
    8,845
    
    
    
    70.9
    %
    
    
    8,261
    
    
    
    82.8
    %Developmental
    
    
    209
    
    
    
    48.7
    %
    
    
    34
    
    
    
    49.8
    %
    
    
    231
    
    
    
    43.6
    %
    
    
    65
    
    
    
    52.1
    %Total residences
    
    
    9,076
    
    
    
    68.8
    %
    
    
    8,326
    
    
    
    80.9
    %
    
    
    9,076
    
    
    
    70.2
    %
    
    
    8,326
    
    
    
    82.3
    %
    Same Residence Basis
  18




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 Occupancy Percentage
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007# of
    
    
    %
    
    
    # of
    
    
    %
    
    
    # of
    
    
    %
    
    
    # of
    
    
    %Units
    
    
    Occupancy
    
    
    Units
    
    
    Occupancy
    
    
    Units
    
    
    Occupancy
    
    
    Units
    
    
    OccupancyMature
    
    
    8,326
    
    
    
    68.0
    %
    
    
    8,292
    
    
    
    81.5
    %
    
    
    8,304
    
    
    
    69.8
    %
    
    
    8,261
    
    
    
    82.8
    %Developmental
    
    
    24
    
    
    
    70.2
    %
    
    
    34
    
    
    
    49.8
    %
    
    
    46
    
    
    
    34.0
    %
    
    
    65
    
    
    
    52.1
    %Total residences
    
    
    8,350
    
    
    
    68.0
    %
    
    
    8,326
    
    
    
    80.9
    %
    
    
    8,350
    
    
    
    69.6
    %
    
    
    8,326
    
    
    
    82.3
    %
    Average Revenue Rate by Payer Source
 All Continuing Residences
  Average Daily Revenue Rate
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Private pay
    
    $
    105.99
    
    
    $
    100.21
    
    
    $
    106.26
    
    
    $
    99.70Medicaid
    
    $
    71.89
    
    
    $
    67.62
    
    
    $
    71.58
    
    
    $
    67.82Total
    
    $
    101.82
    
    
    $
    93.22
    
    
    $
    101.81
    
    
    $
    92.29
  Number of Residences Under Operation
  19




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 2008
    
    
    2007Owned
    
    
    153
    
    
    
    152Under capital lease
    
    
    5
    
    
    
    5Under operating leases
    
    
    58
    
    
    
    50Total under operation
    
    
    216
    
    
    
    207Percent of residences:Owned
    
    
    70.8
    %
    
    
    73.4
    %Under capital leases
    
    
    2.3
    
    
    
    2.4Under operating leases
    
    
    26.9
    
    
    
    24.2100.0
    %
    
    
    100.0
    %
 ADJUSTED EBITDA and ADJUSTED EBITDAR
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(In thousands)Net income
    
    $
    4,276
    
    
    $
    4,172
    
    
    $
    8,327
    
    
    $
    8,899Provision for income taxes
    
    
    2,620
    
    
    
    2,556
    
    
    
    5,103
    
    
    
    5,454Income from continuing operations before income taxes
    
    
    6,896
    
    
    
    6,728
    
    
    
    13,430
    
    
    
    14,353Add:Depreciation and amortization
    
    
    4,348
    
    
    
    4,323
    
    
    
    9,244
    
    
    
    8,504Interest expense, net
    
    
    1,591
    
    
    
    857
    
    
    
    3,495
    
    
    
    2,072Transaction costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56Non-cash equity based compensation
    
    
    41
    
    
    
    186
    
    
    
    44
    
    
    
    192Adjusted EBITDA
    
    
    12,876
    
    
    
    12,094
    
    
    
    26,213
    
    
    
    25,177Add: Residence lease expense
    
    
    5,009
    
    
    
    3,460
    
    
    
    9,907
    
    
    
    7,159Adjusted EBITDAR
    
    $
    17,885
    
    
    $
    15,554
    
    
    $
    36,120
    
    
    $
    32,336
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007($ In thousands)Revenues
    
    $
    57,854
    
    
    $
    57,426
    
    
    $
    118,101
    
    
    $
    114,947Adjusted EBITDA
    
    $
    12,876
    
    
    $
    12,094
    
    
    $
    26,213
    
    
    $
    25,177Adjusted EBITDAR
    
    $
    17,885
    
    
    $
    15,554
    
    
    $
    36,120
    
    
    $
    32,336Adjusted EBITDA as percent of total revenue
    
    
    22.3
    %
    
    
    21.1
    %
    
    
    22.2
    %
    
    
    21.9
    %Adjusted EBITDAR as percent of total revenue
    
    
    30.9
    %
    
    
    27.1
    %
    
    
    30.6
    %
    
    
    28.1
    %
  20




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ASSISTED LIVING CONCEPTS, INC.
    Consolidated Results of Operations
 Three Months Ended June 30, 2008 Compared with Three Months Ended June 30, 2007
  2008
    
    
    2007Revenues
    
    
    100.0
    %
    
    
    100.0
    %Residence operations
(exclusive of depreciation and
amortization and residence
lease
expense shown below)
    
    
    64.0
    
    
    
    66.6General and administrative
    
    
    5.2
    
    
    
    6.7Residence lease expense
    
    
    8.7
    
    
    
    6.0Depreciation and amortization
    
    
    7.4
    
    
    
    7.5Income from operations
    
    
    14.7
    
    
    
    13.2Interest expense, net
    
    
    (2.8
    )
    
    
    (1.5
    )Income tax expense
    
    
    (4.5
    )
    
    
    (4.4
    )Net income
    
    
    7.4
    %
    
    
    7.3
    %
 Revenues
  Residence Operations (exclusive of depreciation and amortization and residence lease expense shown below)
  General and Administrative
  21




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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
  Six Months Ended June 30, 2008 Compared with Six Months Ended June 30, 2007
  22




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 2008
    
    
    2007Revenues
    
    
    100.0
    %
    
    
    100.0
    %Residence operations
(exclusive of depreciation and
amortization and residence
lease
expense shown below)
    
    
    64.3
    
    
    
    66.1General and administrative
    
    
    5.2
    
    
    
    6.0Residence lease expense
    
    
    8.4
    
    
    
    6.2Depreciation and amortization
    
    
    7.8
    
    
    
    7.4Transaction costs
    
    
    
    
    
    
    Income from operations
    
    
    14.3
    
    
    
    14.3Interest expense, net
    
    
    (2.9
    )
    
    
    (1.8
    )Income tax expense
    
    
    (4.3
    )
    
    
    (4.8
    )Net income
    
    
    7.1
    %
    
    
    7.7
    %
 Revenues
  Residence Operations (exclusive of depreciation and amortization and residence lease expense shown below)
  General and Administrative
  Residence Lease Expense
  Depreciation and Amortization
  Transaction Costs
  23




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 Income from Operations
  Interest Income
  Interest expense
  Income before Income Taxes
  Income Tax Expense
  Net Income
  Liquidity and Capital Resources
 Sources and Uses of Cash
  2008
    
    
    2007(In thousands)Cash provided by operating activities
    
    $
    31,469
    
    
    $
    26,557Cash used in investing activities
    
    
    (12,088
    )
    
    
    (8,066
    )Cash used in financing activities
    
    
    (18,515
    )
    
    
    (3,847
    )Increase in cash and cash equivalents
    
    $
    866
    
    
    $
    14,644
   24




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
      $100 Million Credit Facility
   DMG Mortgage Notes Payable in 2008
  Debt Instruments
  25




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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
  Expansion Plans
  Share Repurchase
  26




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 Accrual for Self-Insured Liabilities
    Unfunded Deferred Compensation Plan
  $100 Million Credit Facility
  Contractual Obligations
  Critical Accounting Policies
  27




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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
 Disclosure Controls and Procedures
 Internal Control Over Financial Reporting
 28




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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 of
    
    Per Share
    
    Part of Publicly
    
    Yet Be PurchasedShares
    
    (excluding
    
    Announced Plans or
    
    Under the Plans orPeriod
    
    Purchased
    
    fees)
    
    Programs
    
    Programs (1)April 1, 2008 to April 30, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    16,933,529May 1, 2008 to May 31, 2008
    
    
    400,000
    
    
    $
    6.43
    
    
    
    400,000
    
    
    $
    14,360,696June 1, 2008 to June 30, 2008
    
    
    1,483,000
    (1)
    
    $
    6.00
    
    
    
    1,483,000
    
    
    $
    5,458,210Total
    
    
    1,883,000
    (1)
    
    $
    6.09
    
    
    
    1,883,000
    
    
    $
    5,458,210
 
 (1)
    
    Consists of purchases made through the share purchase program originally announced on
December 14, 2006 ($20 million), and expanded on August 20, 2007 (additional $20 million) and
December 18, 2007 (additional $25 million), under which ALC may repurchase up to $65 million of
its outstanding shares of Class A common stock through December 18, 2008, (exclusive of fees). 
 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
   29




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##### Table of Contents



Name
    
    For
    
    WithheldLaurie A. Bebo
    
    
    111,292,413
    
    
    
    307,807Alan Bell
    
    
    111,080,998
    
    
    
    519,222Jesse C. Brotz
    
    
    103,744,560
    
    
    
    7,855,660Derek H.L. Buntain
    
    
    105,674,756
    
    
    
    5,925,464David J. Hennigar
    
    
    104,249,566
    
    
    
    7,350,654Malen S. Ng
    
    
    108,629,992
    
    
    
    2,970,228Melvin A. Rhinelander
    
    
    111,293,943
    
    
    
    306,277Charles H. Roadman II, MD
    
    
    111,292,693
    
    
    
    307,527Michael J. Spector
    
    
    111,405,457
    
    
    
    194,763
   BrokerFor
    
    Against
    
    Abstain
    
    Non-Votes110,286,982
    
    
    1,295,785
    
    
    
    17,453
    
    
    
    0
  BrokerFor
    
    Against
    
    Abstain
    
    Non-Votes76,217,800
    
    
    0
    
    
    
    1,080
    
    
    
    0
  BrokerFor
    
    Against
    
    Abstain
    
    Non-Votes106,131,068
    
    
    1,562,081
    
    
    
    14,964
    
    
    
    3,892,107
 30




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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, including general economic downturns and declines in housing markets that
restrict the ability of seniors to obtain funds from the sale of their homes, 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.
  31




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##### Table of Contents



Item 6. EXHIBITS.
  32




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##### Table of Contents



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




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 
 EXHIBIT INDEX TO JUNE 30, 2008 QUARTERLY REPORT ON FORM 10-Q
 ExhibitNumber
    
    Description3.1
    
    Amended and Restated Articles of Incorporation (incorporated by
reference to Exhibit 3.1 to quarterly report of Assisted Living
Concepts, Inc. on Form 10-Q for the quarter ended March 31, 2008,
File No. 001-13498)10.1
    
    Employment Agreement  Laurie A. Bebo (incorporated by reference
to Exhibit 10.1 to current report of Assisted Living Concepts,
Inc. on Form 8-K dated April 15, 2008, File No. 001-13498)10.2
    
    Employment Agreement  John Buono (incorporated by reference to
Exhibit 10.2 to current report of Assisted Living Concepts, Inc.
on Form 8-K dated April 15, 2008, File No. 001-13498)10.3
    
    Employment Agreement  Eric B. Fonstad (incorporated by reference
to Exhibit 10.3 to current report of Assisted Living Concepts,
Inc. on Form 8-K dated April 15, 2008, File No. 001-13498)10.4
    
    Employment Agreement  Walter A. Levonowich (incorporated by
reference to Exhibit 10.4 to current report of Assisted Living
Concepts, Inc. on Form 8-K dated April 15, 2008, File No.
001-13498)10.5
    
    Form of Director Tandem Stock Option/Stock Appreciation Rights
Award Agreement (incorporated by reference to Exhibit 10.2 to
current report of Assisted Living Concepts, Inc. on Form 8-K dated
May 5, 2008, File No. 001-13498)10.6
    
    Executive Retirement Program, as amended May 5, 2008 (incorporated
by reference to Exhibit 10.3 to current report of Assisted Living
Concepts, Inc. on Form 8-K dated May 5, 2008, File No. 001-13498)10.7
    
    Deferred Compensation Plan, as amended May 5, 2008 (incorporated
by reference to Exhibit 10.4 to current report of Assisted Living
Concepts, Inc. on Form 8-K dated May 5, 2008, 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