##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 Form 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2011
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number: 001-13498
 Assisted Living Concepts, Inc.
 (Exact name of registrant as specified in its charter)
 Nevada
    
    93-1148702(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 W140 N8981 Lilly RoadMenomonee Falls, Wisconsin
    
    53051(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code: (262) 257-8888
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



INDEX
 PageNumberPart I. Financial InformationItem 1. Financial StatementsCondensed Consolidated Balance Sheets  as of March 31, 2011 (unaudited) and December 31, 2010
    
    
    3Condensed Consolidated Statements of Income  for the Three Months Ended March 31, 2011 and 2010 (unaudited)
    
    
    4Condensed Consolidated Statements of Cash Flows  for the Three Months Ended March 31, 2011 and 2010 (unaudited)
    
    
    5Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    20Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    34Item 4. Controls and Procedures
    
    
    35Part II. Other InformationItem 1A. Risk Factors
    
    
    36Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    36Item 5. Other Information
    
    
    36Item 6. Exhibits
    
    
    38Signature
    
    
    S-1Exhibit Index
    
    EI-1Exhibit 31.1Exhibit 31.2Exhibit 32.1
   2




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##### Table of Contents



Part I. FINANCIAL INFORMATION
 
 Item 1.
    
    FINANCIAL STATEMENTS
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
 March 31,
    
    
    December 31,2011
    
    
    2010(unaudited)ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    2,908
    
    
    $
    13,364Investments
    
    
    4,583
    
    
    
    4,599Accounts receivable, less allowances of $1,819 and $1,414, respectively
    
    
    3,550
    
    
    
    3,201Prepaid expenses, supplies and other receivables
    
    
    5,465
    
    
    
    3,020Deposits in escrow
    
    
    3,055
    
    
    
    3,472Income tax receivable
    
    
    
    
    
    
    356Deferred income taxes
    
    
    4,784
    
    
    
    5,108Current assets of discontinued operations
    
    
    168
    
    
    
    168Total current assets
    
    
    24,513
    
    
    
    33,288Property and equipment, net
    
    
    435,584
    
    
    
    437,303Intangible assets, net
    
    
    9,883
    
    
    
    10,193Restricted cash
    
    
    3,448
    
    
    
    3,448Other assets
    
    
    2,367
    
    
    
    872Total Assets
    
    $
    475,795
    
    
    $
    485,104LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    6,233
    
    
    $
    6,154Accrued liabilities
    
    
    19,368
    
    
    
    20,173Deferred revenue
    
    
    8,386
    
    
    
    4,784Income tax payable
    
    
    1,519
    
    
    
    Current maturities of long-term debt
    
    
    2,460
    
    
    
    2,449Current portion of self-insured liabilities
    
    
    500
    
    
    
    500Total current liabilities
    
    
    38,466
    
    
    
    34,060Accrual for self-insured liabilities
    
    
    1,768
    
    
    
    1,597Long-term debt
    
    
    110,501
    
    
    
    129,661Deferred income taxes
    
    
    20,961
    
    
    
    20,503Other long-term liabilities
    
    
    9,900
    
    
    
    10,024Commitments and contingenciesTotal Liabilities
    
    
    181,596
    
    
    
    195,845Preferred Stock, par value $0.01 per share, 25,000,000 shares authorized; no
shares issued and outstanding
    
    
    
    
    
    
    Class A Common Stock, $0.01 par value, 80,000,000 shares authorized at March
31, 2011 and December 31, 2010; 12,464,070 and 12,408,369 shares issued and
9,998,134 and 9,967,033 shares outstanding, respectively
    
    
    125
    
    
    
    124Class B Common Stock, $0.01 par value, 15,000,000 shares authorized at March
31, 2011 and December 31, 2010; 1,468,493 and 1,520,310 shares issued and
outstanding, respectively
    
    
    15
    
    
    
    15Additional paid-in capital
    
    
    315,571
    
    
    
    315,292Accumulated other comprehensive income/(loss)
    
    
    352
    
    
    
    (95
    )Retained earnings
    
    
    54,981
    
    
    
    49,970Treasury stock at cost, 2,465,936 and 2,441,336 shares, respectively
    
    
    (76,845
    )
    
    
    (76,047
    )Total Stockholders Equity
    
    
    294,199
    
    
    
    289,259Total Liabilities and Stockholders Equity
    
    $
    475,795
    
    
    $
    485,104
   3




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CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)  In thousands, except per share data)
 Three Months EndedMarch 31,2011
    
    
    2010Revenues
    
    $
    58,409
    
    
    $
    57,859Expenses:Residence operations (exclusive of depreciation and
amortization and residence lease expense shown below)
    
    
    35,069
    
    
    
    35,712General and administrative (including non-cash
stock-based compensation expense of $280 and $137,
respectively)
    
    
    3,889
    
    
    
    3,774Residence lease expense
    
    
    4,368
    
    
    
    5,083Depreciation and amortization
    
    
    5,741
    
    
    
    5,670Total operating expenses
    
    
    49,067
    
    
    
    50,239Income from operations
    
    
    9,342
    
    
    
    7,620Other (expense) incomeInterest expense:Debt
    
    
    (2,082
    )
    
    
    (1,888
    )Change in fair value of derivative and amortization
    
    
    (287
    )
    
    
    Write-off of deferred financing costs
    
    
    (279
    )
    
    
    Interest income
    
    
    2
    
    
    
    4Other
    
    
    56
    
    
    
    Income before income taxes
    
    
    6,752
    
    
    
    5,736Income tax expense
    
    
    (1,741
    )
    
    
    (2,123
    )Net income
    
    $
    5,011
    
    
    $
    3,613Weighted average common shares:Basic
    
    
    11,472
    
    
    
    11,578Diluted
    
    
    11,640
    
    
    
    11,744Per share data:Basic earnings per common share
    
    $
    0.44
    
    
    $
    0.31Diluted earnings per common share
    
    $
    0.43
    
    
    $
    0.31
   4




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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 Three Months EndedMarch 31,2011
    
    
    2010OPERATING ACTIVITIES:Net income
    
    $
    5,011
    
    
    $
    3,613Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    5,741
    
    
    
    5,670Amortization of purchase accounting adjustments for leases
    
    
    (167
    )
    
    
    (99
    )Provision for bad debts
    
    
    405
    
    
    
    104Provision for self-insured liabilities
    
    
    255
    
    
    
    170Loss on disposal of fixed assets
    
    
    
    
    
    
    170Unrealized gain on investments
    
    
    (56
    )
    
    
    (27
    )Equity-based compensation expense
    
    
    280
    
    
    
    137Change in fair value of derivatives and amortization
    
    
    287
    
    
    
    Deferred income taxes
    
    
    503
    
    
    
    1,045Changes in assets and liabilities:Accounts receivable
    
    
    (754
    )
    
    
    (30
    )Supplies, prepaid expenses and other receivables
    
    
    (2,445
    )
    
    
    (1,349
    )Deposits in escrow
    
    
    417
    
    
    
    302Current assets  discontinued operations
    
    
    
    
    
    
    (132
    )Accounts payable
    
    
    267
    
    
    
    (904
    )Accrued liabilities
    
    
    (559
    )
    
    
    (2,891
    )Deferred revenue
    
    
    3,602
    
    
    
    1,505Current liabilities  discontinued operations
    
    
    
    
    
    
    (34
    )Payments of self-insured liabilities
    
    
    (83
    )
    
    
    (77
    )Income taxes payable / receivable
    
    
    1,875
    
    
    
    927Changes in other non-current assets
    
    
    407
    
    
    
    1,385Other non-current assets  discontinued operations
    
    
    
    
    
    
    399Other long-term liabilities
    
    
    (9
    )
    
    
    225Cash provided by operating activities
    
    
    14,977
    
    
    
    10,109INVESTING ACTIVITIES:Payment for securities
    
    
    (46
    )
    
    
    (56
    )Proceeds on sales of securities
    
    
    311
    
    
    
    Payments for new construction projects
    
    
    (463
    )
    
    
    (1,371
    )Payments for purchases of property and equipment
    
    
    (3,437
    )
    
    
    (2,432
    )Cash used in investing activities
    
    
    (3,635
    )
    
    
    (3,859
    )FINANCING ACTIVITIES:Payments of financing costs
    
    
    (1,902
    )
    
    
    Purchase of treasury stock
    
    
    (798
    )
    
    
    (20
    )Repayment of borrowings on revolving credit facility
    
    
    (68,000
    )
    
    
    Proceeds on borrowings from revolving credit facility
    
    
    50,000
    
    
    
    Repayment of mortgage debt
    
    
    (1,098
    )
    
    
    (459
    )Cash used by financing activities
    
    
    (21,798
    )
    
    
    (479
    )(Decrease)/Increase in cash and cash equivalents
    
    
    (10,456
    )
    
    
    5,771Cash and cash equivalents, beginning of year
    
    
    13,364
    
    
    
    4,360Cash and cash equivalents, end of period
    
    $
    2,908
    
    
    $
    10,131Supplemental schedule of cash flow information:Cash paid during the period for:Interest
    
    $
    2,047
    
    
    $
    1,782Income tax payments, net of refunds
    
    
    114
    
    
    
    86
   5




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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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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
   (c) Investments
    (d) Comprehensive Income (Loss)
   7




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##### Table of Contents



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Three Months EndedMarch 31,2011
    
    
    2010(In thousands)Net income
    
    $
    5,011
    
    
    $
    3,613Unrealized gains on investments, net of tax expense of $73 and $129, respectively
    
    
    120
    
    
    
    212Unrealized gain/loss on derivatives, net of tax benefit of $97 and $65, respectively
    
    
    131
    
    
    
    (107
    )Reclassification of net losses on swap derivatives to earnings, net of tax benefit
of $109
    
    
    196
    
    
    
    Total comprehensive income
    
    $
    5,458
    
    
    $
    3,718
  March 31,
    
    
    December 31,2011
    
    
    2010(In thousands)Unrealized gain on investments
    
    $
    596
    
    
    $
    476Net unrealized loss on derivatives
    
    
    (244
    )
    
    
    (571
    )Accumulated other comprehensive income/(loss)
    
    $
    352
    
    
    $
    (95
    )
 (e) Income Taxes
    (f) Recently Adopted Accounting Pronouncements
 Improving
Disclosures About Fair Value Measurements
  8




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  Consolidation
  (g) Recently Issued Accounting Pronouncements
  Intangibles-Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test
for Reporting Units with Zero or Negative Carrying Amounts.
 Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business
Combinations.
  9




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##### Table of Contents



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 3. PROPERTY AND EQUIPMENT
  March 31,
    
    
    December 31,2011
    
    
    2010(In thousands)Land and land improvements
    
    $
    31,488
    
    
    $
    31,426Buildings and improvements
    
    
    480,902
    
    
    
    475,332Furniture and equipment
    
    
    31,074
    
    
    
    30,433Leasehold improvements
    
    
    8,974
    
    
    
    8,442Construction in progress
    
    
    1,675
    
    
    
    4,770554,113
    
    
    
    550,403Less accumulated depreciation and amortization
    
    
    (118,529
    )
    
    
    (113,100
    )$
    435,584
    
    
    $
    437,303
 4. INTANGIBLE ASSETS, NET
  March 31, 2011
    
    
    December 31, 2010Gross
    
    
    
    
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    
    
    
    
    Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Net
    
    
    Amount
    
    
    Amortization
    
    
    NetResident relationships
    
    $
    3,169
    
    
    $
    (2,869
    )
    
    $
    300
    
    
    $
    3,169
    
    
    $
    (2,744
    )
    
    $
    425Operating lease intangible
and renewal options
    
    
    11,665
    
    
    
    (2,198
    )
    
    
    9,467
    
    
    
    11,665
    
    
    
    (2,029
    )
    
    
    9,636Non-compete agreements
    
    
    331
    
    
    
    (216
    )
    
    
    115
    
    
    
    331
    
    
    
    (199
    )
    
    
    132Total
    
    $
    15,165
    
    
    $
    (5,283
    )
    
    $
    9,883
    
    
    $
    15,165
    
    
    $
    (4,972
    )
    
    $
    10,193
   2011
    
    $
    1,1652012
    
    
    7432013
    
    
    6772014
    
    
    6772015
    
    
    677After 2015
    
    
    6,254$
    10,193
  10




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 5. DEBT
  March 31,
    
    
    December 31,2011
    
    
    2010(In thousands)$125 million credit facility bearing interest at floating rates, due February 2016(1)
    
    $
    32,000
    
    
    $
    $120 million credit facility bearing interest at floating rates
    
    
    
    
    
    
    50,000Mortgage note, bearing interest at 6.24%, due 2014
    
    
    32,414
    
    
    
    32,644Mortgage note, bearing interest at 6.50%, due 2015
    
    
    25,441
    
    
    
    25,663Mortgage note, bearing interest at 7.07%, due 2018
    
    
    8,664
    
    
    
    8,703Oregon Trust Deed Notes, weighted average interest rate of 6.82%, maturing from 2021 through 2026
    
    
    7,506
    
    
    
    8,130HUD Insured Mortgages, interest rates ranging from 5.66% to 5.85%, due 2032
    
    
    4,010
    
    
    
    4,033HUD Insured Mortgage, bearing interest at 7.55%, due 2036
    
    
    2,926
    
    
    
    2,937Total debt
    
    
    112,961
    
    
    
    132,110Less current maturities
    
    
    (2,460
    )
    
    
    (2,449
    )Total long-term debt
    
    $
    110,501
    
    
    $
    129,661
 (1)
    
    Borrowings under this facility bear interest at a floating rate at ALCs
option equal to LIBOR or prime plus a margin. The margin is determined by ALCs consolidated
leverage ratio (as defined in the U.S. Bank Credit Facility) and ranges from 225 to 350 basis
points over LIBOR or 137.5 to 250 basis points over prime. From February 18, 2011 through March
31, 2011 ALCs LIBOR and prime margins were 275 and 175 basis points, respectively. At March
31, 2011, prime was 3.25% and LIBOR was 0.25%. $125 Million Credit Facility
      11




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Mortgage Note due 2014
  6.5% Mortgage Note due 2015
    Mortgage Note due 2018
  Oregon Trust Deed Notes
    12




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 HUD Insured Mortgages
  $120 Million Credit Facility due November 2011
      Unfavorable Market Value of Debt Adjustment
   13




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Letters of credit
  5. LONG-TERM EQUITY-BASED COMPENSATION PROGRAM
        14




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  2011
    
    
    2010Weighted#
    
    
    Average
    
    
    #
    
    
    Weighted AverageOptions/
    
    
    Exercise
    
    
    Options /
    
    
    ExerciseSARs
    
    
    Price
    
    
    SARs
    
    
    PriceOutstanding at beginning of period
    
    
    265,584
    
    
    $
    26.12
    
    
    
    159,000
    
    
    $
    18.96Granted
    
    
    85,250
    
    
    $
    37.38
    
    
    
    96,250
    
    
    $
    31.71Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expired
    
    
    (61,250
    )
    
    $
    31.71
    
    
    
    (19,000
    )
    
    $
    15.35Forfeited
    
    
    (8,334
    )
    
    $
    25.17
    
    
    
    
    
    
    
    Outstanding at end of period
    
    
    281,250
    
    
    $
    28.34
    
    
    
    236,250
    
    
    $
    24.45Options exercisable at March 31
    
    
    92,030
    
    
    $
    21.15
    
    
    
    36,009
    
    
    $
    20.31Weighted average fair value of options
    
    $
    14.88
    
    
    
    
    
    
    $
    13.09Aggregate intrinsic value of options
    
    $
    3.0 million
    
    
    
    
    
    
    $
    2.0 millionWeighted average contractual term
    
    3.7 years
    
    
    
    
    
    
    4.2 years
  March 2,
    
    
    May 3,
    
    
    March 3,
    
    
    Apr 30,
    
    
    Feb 22,
    
    
    May 5,
    
    
    March 29,2011
    
    
    2010
    
    
    2010
    
    
    2009
    
    
    2009
    
    
    2008
    
    
    2008Expected life from grant date (in
years)
    
    
    5
    
    
    
    5
    
    
    
    5
    
    
    
    5
    
    
    
    5
    
    
    
    5
    
    
    
    5Risk-free interest rate
    
    
    2.21
    %
    
    
    2.13
    %
    
    
    2.33
    %
    
    
    2.02
    %
    
    
    2.06
    %
    
    
    3.15
    %
    
    
    2.5
    %Volatility
    
    
    58.63
    %
    
    
    62.6
    %
    
    
    63.7
    %
    
    
    68.9
    %
    
    
    66.9
    %
    
    
    45.8
    %
    
    
    46.9
    %Dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted average fair value (per share)
    
    $
    19.37
    
    
    $
    17.97
    
    
    $
    17.48
    
    
    $
    9.62
    
    
    $
    8.55
    
    
    $
    14.15
    
    
    $
    12.90
   15




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 6. EARNINGS PER SHARE
   2011
    
    
    2010(In thousands,except per share data)Basic earnings per share calculation:Net income to common stockholders
    
    $
    5,011
    
    
    $
    3,613Weighted average number of common shares outstanding
    
    
    11,472
    
    
    
    11,578Basic net income per share
    
    $
    0.44
    
    
    $
    0.31Diluted earnings per share calculation:Net income to common stockholders
    
    $
    5,011
    
    
    $
    3,613Weighted average number of common shares outstanding
    
    
    11,472
    
    
    
    11,578Assumed conversion of Class B shares
    
    
    112
    
    
    
    114Effect of dilutive stock options
    
    
    56
    
    
    
    52Diluted weighted average number of common shares outstanding
    
    
    11,640
    
    
    
    11,744Diluted net income per share
    
    $
    0.43
    
    
    $
    0.31
 7. SHARE REPURCHASE
   16




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 8. FAIR VALUE OF FINANCIAL INSTRUMENTS
  Quoted Pricesin Active
    
    
    Significant
    
    
    SignificantMarkets for
    
    
    Other
    
    
    UnobservableIdentical Assets
    
    
    Observable
    
    
    Inputs(Level 1)
    
    
    Inputs (Level 2)
    
    
    (Level 3)
    
    
    TotalMarch 31, 2011AssetsEquity investments
    
    $
    3,032
    
    
    $
    
    
    
    $
    
    
    
    $
    3,032LiabilitiesDerivative financial
instruments
    
    
    
    
    
    
    674
    
    
    
    
    
    
    
    674December 31, 2010AssetsEquity investments
    
    $
    3,024
    
    
    $
    
    
    
    $
    
    
    
    $
    3,024LiabilitiesDerivative financial instruments
    
    
    
    
    
    
    920
    
    
    
    
    
    
    
    920
         17




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  Fixed
    
    
    Notional
    
    
    Effective
    
    
    Expiration
    
    
    EstimatedInterest Rate
    
    
    Amount
    
    
    Date
    
    
    Date
    
    
    Fair ValueInterest rate swap  November 2008
    
    
    2.83
    %
    
    $
    30,000
    
    
    
    11/13/2008
    
    
    
    11/14/2011
    
    
    $
    (469
    )Interest rate swap  March 2009
    
    
    1.98
    %
    
    $
    20,000
    
    
    
    3/11/2009
    
    
    
    11/14/2011
    
    
    $
    (205
    )
 9. DERIVATIVE FINANCIAL INSTRUMENTS
     Fair Values of Derivative Instruments
Liability Derivatives
(In thousands)
 March 31, 2011
    
    
    December 31, 2010Derivatives as Hedging Instruments
    
    Balance Sheet Location
    
    Fair Value
    
    
    Balance Sheet Location
    
    Fair ValueInterest rate contracts
    
    Accrued liabilities
    
    $
    674
    
    
    Accrued liabilities
    
    $
    920
   18




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##### Table of Contents



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 9. SUBSEQUENT EVENTS
   19




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##### Table of Contents



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, 2010, and in Part II,
Item 5  Other Information  Forward-Looking Statements and Cautionary Factors in this report.
 The following discussion should be read in conjunction with our condensed consolidated financial
statements and the related notes to the condensed consolidated financial statements in Part I, Item
1 of this report.
 Executive Overview
   
    
    family members are more willing and able to provide care at home;
 
    
    residents have insufficient investment income or are unable to obtain necessary funds
from the sale of their homes or other investments; and
 
    
    independent living facilities are accepting traditional assisted living residents with
home care services.
   
    
    our private pay rates generally exceed those paid through Medicaid reimbursement
programs by 50% to 70%;
 
    
    we reduce our exposure to reductions in reimbursement rates provided by government
programs;
 
    
    Medicaid reimbursement rates in the first quarter of 2011 declined by 8.7% from the
first quarter of 2010 in our residences and
 
    
    our private pay residents typically have less severe health needs and require fewer
services than residents funded by Medicaid programs, resulting in:
 
    
    a better fit for our social and wellness model; and
    
    a safer environment for employees and the other residents in our communities.
  20




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##### Table of Contents



Unit expansions
  Acquisitions
  Business Strategies
  
    
    increasing our private pay occupancy;
 
    
    increasing the overall size of our portfolio by building additional capacity and making
acquisitions;
 
    
    applying operating efficiencies achievable from owning a large number of senior living
residences; and
 
    
    increasing the attractiveness and operating results of our portfolio by refurbishing
and repositioning residences or eliminating residences that do not meet our internal goals.
 Increasing our private pay occupancy
   21




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##### Table of Contents



Increasing the overall size of our portfolio by building additional capacity and making
acquisitions
     Applying efficiencies achievable from operating a large number of senior living residences
  Increasing the attractiveness and operating results of our portfolio by refurbishing and
repositioning residences or eliminating residences that do not meet our internal goals
    22




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##### Table of Contents




    
    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 months ended March 31, 2011 compared to the three months ended March
31, 2010.
 
    
    Liquidity and Capital Resources:This section provides a discussion of our liquidity
and capital resources as of March 31, 2011, and our expected future cash needs.
 
    
    Critical Accounting Policies:This section discusses accounting policies which we
consider to be critical to obtain an understanding of our consolidated financial statements
because their application on the part of management requires significant judgment and reliance
on estimations of matters that are inherently uncertain.
  Business Overview
 Revenues
     23




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##### Table of Contents



Residence Operations Expenses
  As of March 31,2011
    
    
    2010Wage and benefit costs
    
    
    59
    %
    
    
    59
    %Property related costs
    
    
    26
    
    
    
    25Other operating costs
    
    
    15
    
    
    
    16Total
    
    
    100
    %
    
    
    100
    %
  Key Performance Indicators
  Census
  Average Daily Census
  Occupancy
  Private Pay Mix
  Average Revenue Rate
  Adjusted EBITDA and Adjusted EBITDAR
   24




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##### Table of Contents



Review of Key Performance Indicators
   ADC
 All Continuing Residences
  Average Daily Census
 2011
    
    
    2010Private pay
    
    
    5,497
    
    
    
    5,468Medicaid
    
    
    93
    
    
    
    214Total ADC
    
    
    5,590
    
    
    
    5,682Private pay occupancy percentage
    
    
    98.3
    %
    
    
    96.2
    %Private pay revenue percentage
    
    
    99.0
    %
    
    
    97.5
    %
  25




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##### Table of Contents



Occupancy Percentage
   All Continuing Residences
  Occupancy Percentage
 2011
    
    
    2010All residences
    
    
    62.4
    %
    
    
    63.0
    %
   Average Revenue Rate
 All Continuing Residences
  Average Daily Revenue Rate
 2011
    
    
    2010Average daily revenue rate
    
    $
    116.09
    
    
    $
    113.13
   26




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##### Table of Contents



Number of Residences Under Operation
  2011
    
    
    2010Owned(1)
    
    
    161
    
    
    
    152Under operating leases
    
    
    50
    
    
    
    59Total under operation
    
    
    211
    
    
    
    211Percent of residences:Owned
    
    
    76.3
    %
    
    
    72.0
    %Under operating leases
    
    
    23.7
    
    
    
    28.0100.0
    %
    
    
    100.0
    %
 (1)
    
    Includes nine residences temporarily
closed for refurbishment in 2011 and seven residences
temporarily closed for refurbishment in 2010 ADJUSTED EBITDA and ADJUSTED EBITDAR
  2011
    
    
    2010(In thousands)Net income
    
    $
    5,011
    
    
    $
    3,613Provision for income taxes
    
    
    1,741
    
    
    
    2,123Income from continuing operations
before income taxes
    
    
    6,752
    
    
    
    5,736Add:Depreciation and amortization
    
    
    5,741
    
    
    
    5,670Interest expense, net
    
    
    2,646
    
    
    
    1,884Non-cash equity based compensation
    
    
    280
    
    
    
    137Loss on disposal of fixed assets
    
    
    
    
    
    
    170Other
    
    
    (56
    )
    
    
    Adjusted EBITDA
    
    
    15,363
    
    
    
    13,597Add: Residence lease expense
    
    
    4,368
    
    
    
    5,083Adjusted EBITDAR
    
    $
    19,731
    
    
    $
    18,680
  2011
    
    
    2010($ In thousands)Revenues
    
    $
    58,409
    
    
    $
    57,859Adjusted EBITDA
    
    $
    15,363
    
    
    $
    13,597Adjusted EBITDAR
    
    $
    19,731
    
    
    $
    18,680Adjusted EBITDA as percent of total revenue
    
    
    26.3
    %
    
    
    23.5
    %Adjusted EBITDAR as percent of total revenue
    
    
    33.8
    %
    
    
    32.3
    %
   27




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##### Table of Contents



Consolidated Results of Operations
 Three Months Ended March 31, 2011 Compared with Three Months Ended March 31, 2010
  2011
    
    
    2010Revenues
    
    
    100.0
    %
    
    
    100.0
    %Residence operations (exclusive
of depreciation and amortization
and residence lease expense
shown below)
    
    
    60.0
    
    
    
    61.7General and administrative
    
    
    6.7
    
    
    
    6.5Residence lease expense
    
    
    7.5
    
    
    
    8.8Depreciation and amortization
    
    
    9.8
    
    
    
    9.8Income from operations
    
    
    16.0
    
    
    
    13.2Interest expense, net
    
    
    (4.5
    )
    
    
    (3.3
    )Other
    
    
    0.1
    
    
    
    Income tax expense
    
    
    (3.0
    )
    
    
    (3.7
    )Net income
    
    
    8.6
    %
    
    
    6.2
    %
 Revenues
  Residence Operations (exclusive of depreciation and amortization and residence lease expense shown
below)
  General and Administrative
  Residence Lease Expense
   28




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##### Table of Contents



Depreciation and Amortization
  Income from Operations
  Interest Income
  Interest Expense
  Other
  Income before Income Taxes
  Income Tax Expense
  Net Income
   29




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##### Table of Contents



Liquidity and Capital Resources
 Sources and Uses of Cash
  2011
    
    
    2010(In thousands)Cash provided by operating activities
    
    $
    14,977
    
    
    $
    10,109Cash used in investing activities
    
    
    (3,635
    )
    
    
    (3,859
    )Cash used in financing activities
    
    
    (21,798
    )
    
    
    (479
    )(Decrease) increase in cash and cash equivalents
    
    $
    (10,456
    )
    
    $
    5,771
         30




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##### Table of Contents



$125 Million Credit Facility
     $120 Million Credit Facility
      31




---



##### Table of Contents



Debt Instruments
  Principal Repayment Schedule
  Letters of Credit
  Restricted Cash
  Off Balance Sheet Arrangements
  Cash Management
  Future Liquidity and Capital Resources
    32




---



##### Table of Contents



Expansion Program
  Share Repurchase
  Dividends
  Accrual for Self-Insured Liabilities
    Unfunded Deferred Compensation Plan
   33




---



##### Table of Contents



$125 Million Credit Facility
  Contractual Obligations
  Critical Accounting Policies
  
 Item 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Qualitative Disclosures
    Fair ValueContract Date
    
    Notional Amount
    
    
    Fixed Rate
    
    
    Maturity
    
    at March 31, 2011November 13, 2008
    
    $30 million
    
    
    2.83
    %
    
    November 2011
    
    $
    (469,000
    )March 10, 2009
    
    $20 million
    
    
    1.98
    %
    
    November 2011
    
    $
    (205,000
    )
   34




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##### Table of Contents



Quantitative Disclosures
  
 Item 4.
    
    CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
 Internal Control Over Financial Reporting
  35




---



##### Table of Contents



Part II. OTHER INFORMATION
 
 Item 1A.
    
    RISK FACTORS.
  
 Item 2.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
  (d)(b)
    
    
    
    
    
    
    Maximum Number (orAverage
    
    
    (c)
    
    
    Approximate Dollar(a)
    
    
    Price Paid
    
    
    Total Number of Shares
    
    
    Value) of Shares thatTotal Number
    
    
    Per Share
    
    
    Purchased as Part of
    
    
    May Yet Be Purchasedof Shares
    
    
    (excluding
    
    
    Publicly Announced
    
    
    Under the Plans orPeriod
    
    Purchased
    
    
    fees)
    
    
    Plans or Programs
    
    
    Programs(1)January 1, 2011 to January 31, 2011
    
    
    19,600
    
    
    $
    31.48
    
    
    
    19,600
    
    
    $
    13,455,473February 1, 2011 to February 28, 2011
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    13,455,473March 1, 2011 to March 31, 2011
    
    
    5,000
    
    
    $
    36.13
    
    
    
    5,000
    
    
    $
    13,274,814Total
    
    
    24,600
    
    
    $
    32.42
    
    
    
    24,600
    
    
    $
    13,274,814
 (1)
    
    Consists of shares repurchased under the extended and expanded share
repurchase program approved by the Board of Directors on August 9, 2010 under which ALC is
authorized to purchase up to $15 million of its outstanding shares of Class A Common Stock through
August 9, 2011 (exclusive of fees). On May 2, 2011, the Board of Directors extended the stock
repurchase plan by resetting the authorized amount of repurchases to $15 million and removing the
expiration date. The plan will no longer be subject to an annual expiration date and will only
expire upon completion of stock repurchases totaling $15 million or by action of the Board. 
 Item 5.
    
    OTHER INFORMATION.
 Forward-Looking Statements and Cautionary Factors
   
    
    unfavorable economic conditions, such as recessions, high unemployment levels, and
declining housing and financial markets, could adversely affect the assisted living industry
in general and cause us to loose revenue;
 
    
    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;
  36




---



##### Table of Contents




    
    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;
 
    
    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 new laws or regulations may require us to change our operations and
make unanticipated expenditures which could increase our costs and adversely affect our
earnings and financial condition;
 
    
    audits and investigations under our contracts with federal and state government
agencies could have adverse findings that may negatively impact our business;
 
    
    failure to comply with environmental laws, including laws regarding the management of
infectious medical waste, could materially and adversely affect our financial condition and
results of operations;
 
    
    failure to comply with laws governing the transmission and privacy of health
information could materially and adversely affect our financial condition and results of
operations;
 
    
    efforts to regulate the construction or expansion of healthcare providers could impair
our ability to expand through construction of new residences or additions to existing
residences;
 
    
    we may make acquisitions that could subject us to a number of operating risks; and
 
    
    costs associated with capital improvements could adversely affect our profitability.
  
    
    loan and lease covenants could restrict our operations and any default could result in
the acceleration of indebtedness or cross-defaults, any of which would negatively impact our
liquidity and our ability to grow our business and revenues;
 
    
    if we do not comply with the requirements in leases or debt agreements pertaining to
revenue bonds, we would be subject to lost revenues and financial penalties;
 
    
    restrictions in our indebtedness and long-term leases could adversely affect our
liquidity, our ability to operate our business, and our ability to execute our growth
strategy; and
 
    
    increases in interest rates could significantly increase the costs of our unhedged
debt and lease obligations, which could adversely affect our liquidity and earnings.
  37




---



##### Table of Contents



Item 6.
    
    EXHIBITS.
   38




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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 MARCH 31, 2011 QUARTERLY REPORT ON FORM 10-Q
 ExhibitNumber
    
    Description10.1
    
    
    Form of 2011 Cash
Incentive Compensation
Award Agreement
(incorporated by reference
to Exhibit 10.1 to current
report of Assisted Living
Concepts, Inc. on Form
8-K, dated March 2, 2011,
File No. 001-13498)10.2
    
    
    Form of 2011 Tandem Stock
Option/Stock Appreciation
Rights Award Agreement
(incorporated by reference
to Exhibit 10.3 to current
report of Assisted Living
Concepts, Inc. on Form
8-K, dated March 2, 2011,
File No. 001-13498)10.3
    
    
    $125,000,000 Credit
Agreement dated as of
February 18, 2011 among
Assisted Living Concepts,
Inc., as borrower, U.S.
Bank National Association,
as administrative agent
and collateral agent,
Compass Bank, FirstMerit
Bank, N.A., and Harris
N.A., as documentation
agents, The Lenders and
L/C Issuers Party Hereto,
and U.S. Bank National
Association, as sole lead
arranger and sole
bookrunner (incorporated
by reference to Exhibit
10.1 to current report of
Assisted Living Concepts,
Inc. on Form 8-K dated
February 18, 2011, File
No. 001-13498)10.4
    
    
    Guaranty and Security
Agreement dated as of
February 18, 2011 among
Assisted Living Concepts,
Inc., and ALC Real Estate,
LLC, ALC Properties, II,
Inc., and Texas ALC II,
Inc. and each other
grantor from time to time
party hereto and U.S. Bank
National Association, as
administrative agent and
collateral agent
(incorporated by reference
to Exhibit 10.2 to current
report of Assisted Living
Concepts, Inc. on Form 8-K
dated February 18, 2011,
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