##### 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 September 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 September 30, 2008, (unaudited) and December 31, 2007
    
    
    3Condensed Consolidated Statements of Income  for the Three and Nine Month Periods Ended September
30, 2008 and 2007 (unaudited)
    
    
    4Condensed Consolidated Statements of Cash Flows  for the Nine Month Periods Ended September 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
    
    
    29Item 4. Controls and Procedures
    
    
    29Part II. Other InformationItem 1A. Risk Factors
    
    
    30Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    30Item 5. Other Information
    
    
    31Item 6. Exhibits
    
    
    32Signature
    
    
    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
 ASSISTED LIVING CONCEPTS, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (In thousands, except share and per share data)
 September 30,
    
    
    December 31,2008
    
    
    2007(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    6,347
    
    
    $
    14,066Investments
    
    
    2,850
    
    
    
    4,596Accounts receivable, less allowances of $965 and $992, respectively
    
    
    3,864
    
    
    
    3,746Supplies, prepaid expenses and other current assets
    
    
    6,106
    
    
    
    6,733Deferred income taxes
    
    
    4,446
    
    
    
    4,080Income taxes receivable
    
    
    356
    
    
    
    Total current assets
    
    
    23,969
    
    
    
    33,221Property and equipment, net
    
    
    410,070
    
    
    
    395,141Goodwill and other intangible assets, net
    
    
    30,162
    
    
    
    20,736Restricted cash
    
    
    1,338
    
    
    
    8,943Cash designated for acquisition
    
    
    
    
    
    
    14,864Other assets
    
    
    3,099
    
    
    
    3,336Total Assets
    
    $
    468,638
    
    
    $
    476,241LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    10,529
    
    
    $
    7,800Accrued liabilities
    
    
    18,805
    
    
    
    17,951Deferred revenue
    
    
    8,196
    
    
    
    6,346Accrued income taxes
    
    
    
    
    
    
    198Current maturities of long-term debt
    
    
    9,110
    
    
    
    26,543Current portion of self-insured liabilities
    
    
    300
    
    
    
    300Total current liabilities
    
    
    46,940
    
    
    
    59,138Accrual for self-insured liabilities
    
    
    1,429
    
    
    
    941Long-term debt
    
    
    117,697
    
    
    
    103,176Deferred income taxes
    
    
    9,093
    
    
    
    9,008Other long-term liabilities
    
    
    9,920
    
    
    
    9,444Commitments and contingenciesTotal Liabilities
    
    
    185,079
    
    
    
    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,
52,806,292 and 56,131,873 issued and outstanding, respectively
    
    
    595
    
    
    
    595Class B Common Stock, par value $0.01 per share, 75,000,000 shares authorized,
8,546,902 and 8,727,458 issued and outstanding, respectively
    
    
    100
    
    
    
    100Additional paid-in capital
    
    
    313,652
    
    
    
    313,548Accumulated other comprehensive (loss) income
    
    
    (993
    )
    
    
    103Retained earnings
    
    
    30,611
    
    
    
    19,318Treasury stock at cost, Class A Common Stock, 8,210,660 and 4,691,060 shares,
respectively
    
    
    (60,406
    )
    
    
    (39,130
    )Total Stockholders Equity
    
    
    283,559
    
    
    
    294,534Total Liabilities and Stockholders Equity
    
    $
    468,638
    
    
    $
    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
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues
    
    $
    58,367
    
    
    $
    57,898
    
    
    $
    176,468
    
    
    $
    172,845Expenses:Residence operations (exclusive of depreciation and
amortization and residence lease expense shown below)
    
    
    38,577
    
    
    
    38,832
    
    
    
    114,522
    
    
    
    114,809General and administrative
    
    
    3,458
    
    
    
    2,663
    
    
    
    9,538
    
    
    
    9,489Residence lease expense
    
    
    4,987
    
    
    
    3,595
    
    
    
    14,894
    
    
    
    10,754Depreciation and amortization
    
    
    4,691
    
    
    
    4,584
    
    
    
    13,935
    
    
    
    13,088Transaction costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56Total operating expenses
    
    
    51,713
    
    
    
    49,674
    
    
    
    152,889
    
    
    
    148,196Income from operations
    
    
    6,654
    
    
    
    8,224
    
    
    
    23,579
    
    
    
    24,649Other expense:Interest income
    
    
    17
    
    
    
    408
    
    
    
    487
    
    
    
    1,478Interest expense
    
    
    (1,886
    )
    
    
    (1,813
    )
    
    
    (5,851
    )
    
    
    (4,955
    )Income before income taxes
    
    
    4,785
    
    
    
    6,819
    
    
    
    18,215
    
    
    
    21,172Income tax expense
    
    
    (1,819
    )
    
    
    (2,594
    )
    
    
    (6,922
    )
    
    
    (8,048
    )Net income
    
    $
    2,966
    
    
    $
    4,225
    
    
    $
    11,293
    
    
    $
    13,124Weighted average common shares:Basic
    
    
    61,357
    
    
    
    67,891
    
    
    
    62,966
    
    
    
    68,946Diluted
    
    
    62,004
    
    
    
    68,575
    
    
    
    63,617
    
    
    
    69,648Per share data:Basic earnings per common share
    
    $
    0.05
    
    
    $
    0.06
    
    
    $
    0.18
    
    
    $
    0.19Diluted earnings per common share
    
    $
    0.05
    
    
    $
    0.06
    
    
    $
    0.18
    
    
    $
    0.19
  4




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ASSISTED LIVING CONCEPTS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 (In thousands)
 Nine Months EndedSeptember 30,2008
    
    
    2007OPERATING ACTIVITIES:Net income
    
    $
    11,293
    
    
    $
    13,124Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    13,935
    
    
    
    13,088Amortization of purchase accounting adjustments for:Leases and debt
    
    
    (549
    )
    
    
    (753
    )Below market resident leases
    
    
    
    
    
    
    (39
    )Provision for bad debt
    
    
    27
    
    
    
    75Provision for professional/general liability insurance
    
    
    673
    
    
    
    1,217Payments for professional/general liability insurance
    
    
    (185
    )
    
    
    (222
    )Loss on sale or disposal of fixed assets
    
    
    160
    
    
    
    Deferred income taxes
    
    
    3,328
    
    
    
    901Equity-based compensation expense
    
    
    104
    
    
    
    Changes in assets and liabilities:Accounts receivable
    
    
    (145
    )
    
    
    1,503Supplies, prepaid expenses and other current assets
    
    
    627
    
    
    
    1,628Accounts payable
    
    
    (413
    )
    
    
    (1,484
    )Accrued liabilities
    
    
    854
    
    
    
    602Deferred revenue
    
    
    1,850
    
    
    
    1,468Income taxes payable/receivable
    
    
    96
    
    
    
    1,109Other non-current assets
    
    
    7,842
    
    
    
    2,280Other long-term liabilities
    
    
    799
    
    
    
    909Cash provided by operating activities
    
    
    40,296
    
    
    
    35,406INVESTING ACTIVITIES:Payment for acquisition
    
    
    (14,532
    )
    
    
    (24,436
    )Cash designated for acquisition
    
    
    14,864
    
    
    
    Payments for new construction projects
    
    
    (12,102
    )
    
    
    (3,210
    )Payments for purchases of property and equipment
    
    
    (12,283
    )
    
    
    (8,474
    )Cash used in investing activities
    
    
    (24,053
    )
    
    
    (36,120
    )FINANCING ACTIVITIES:Capital contributions from Extendicare
    
    
    
    
    
    
    74Purchase of treasury stock
    
    
    (21,276
    )
    
    
    (27,663
    )Proceeds from issuance of new mortgage debt
    
    
    9,026
    
    
    
    4,301Proceeds from borrowings on revolving credit facility
    
    
    7,000
    
    
    
    19,000Payments of long-term debt
    
    
    (18,712
    )
    
    
    (5,974
    )Cash used in financing activities
    
    
    (23,962
    )
    
    
    (10,262
    )Decrease in cash and cash equivalents
    
    
    (7,719
    )
    
    
    (10,976
    )Cash and cash equivalents, beginning of year
    
    
    14,066
    
    
    
    19,951Cash and cash equivalents, end of period
    
    $
    6,347
    
    
    $
    8,975Supplemental schedule of cash flow information:Capital expenditure in accounts payable (non cash disclosures)
    
    $
    3,142
    
    
    
    Cash paid during the period for:Interest
    
    $
    6,016
    
    
    $
    5,372Income tax payments, net of refunds
    
    
    3,511
    
    
    
    5,854
  5




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ASSISTED LIVING CONCEPTS, INC.
 
 NOTES TO UNAUDITED 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 UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  (c) Comprehensive Income
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(In thousands)Net income
    
    $
    2,996
    
    
    $
    4,225
    
    
    $
    11,293
    
    
    $
    13,124Unrealized gains (losses)
    
    
    (1,216
    )
    
    
    (332
    )
    
    
    (597
    )
    
    
    170Total comprehensive income
    
    $
    1,780
    
    
    $
    3,893
    
    
    $
    10,696
    
    
    $
    13,294
 (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 UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (e) New Accounting Pronouncements
 Fair Value Measurements
 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 UNAUDITED 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 September 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 UNAUDITED 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
    
    
    (3,597
    )Balance at September 30, 2008
    
    $
    16,312
   September 30, 2008
    
    
    December 31, 2007Gross
    
    
    
    
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    
    
    
    
    Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Net
    
    
    Amount
    
    
    Amortization
    
    
    NetResident relationships
    
    $
    9,526
    
    
    $
    (7,115
    )
    
    $
    2,411
    
    
    $
    7,099
    
    
    $
    (6,272
    )
    
    $
    827Operating lease intangible and renewal
options
    
    
    11,665
    
    
    
    (507
    )
    
    
    11,158
    
    
    
    
    
    
    
    
    
    
    
    Non-compete agreements
    
    
    331
    
    
    
    (50
    )
    
    
    281
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    21,522
    
    
    $
    (7,672
    )
    
    $
    13,850
    
    
    $
    7,099
    
    
    $
    (6,272
    )
    
    $
    827
  5. EARNINGS PER SHARE
 Earnings Per Share
(SFAS 128)
 10




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ASSISTED LIVING CONCEPTS, INC.
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(In thousands,except per share data)Basic earnings per share calculationNumerator:Net income to common stockholders
    
    $
    2,966
    
    
    $
    4,225
    
    
    $
    11,293
    
    
    $
    13,124Denominator:Weighted average of common shares outstanding
    
    
    61,357
    
    
    
    67,891
    
    
    
    62,966
    
    
    
    68,946Basic earnings per share
    
    $
    0.05
    
    
    $
    0.06
    
    
    $
    0.18
    
    
    $
    0.19Diluted earnings per share calculationNumerator:Net income to common stockholders
    
    $
    2,966
    
    
    $
    4,225
    
    
    $
    11,293
    
    
    $
    13,124Denominator:Weighted average of common shares outstanding
    
    
    61,357
    
    
    
    67,891
    
    
    
    62,966
    
    
    
    68,946Assumed conversion of Class B shares
    
    
    647
    
    
    
    684
    
    
    
    651
    
    
    
    702Diluted weighted average shares outstanding
    
    
    62,004
    
    
    
    68,575
    
    
    
    63,617
    
    
    
    69,648Diluted earnings per share
    
    $
    0.05
    
    
    $
    0.06
    
    
    $
    0.18
    
    
    $
    0.19
 6. ACQUISITION
   (In thousands)Operating lease intangible
    
    $
    11,573Resident relationship intangible
    
    
    2,427Non-compete agreements
    
    
    331Vehicles
    
    
    107Other
    
    
    386Total
    
    $
    14,824
  11




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ASSISTED LIVING CONCEPTS, INC.
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 7. SHARE REPURCHASE
  8. FINANCING AND COMMITTMENTS
    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
      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.
 13




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ASSISTED LIVING CONCEPTS, INC.
 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
   §
    
    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.
 14




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ASSISTED LIVING CONCEPTS, INC.
 §
    
    Consolidated Results of Operations.This section provides an analysis of our results
of operations for the three and nine month periods ended September 30, 2008, compared to
the three and nine month periods ended September 30, 2007.§
    
    Liquidity and Capital Resources.This section provides a discussion of our liquidity
and capital resources as of September 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
    
    Nine Months Ended2008
    
    2007
    
    2008
    
    2007Wage and benefit costs
    
    
    60
    %
    
    
    60
    %
    
    
    61
    %
    
    
    63
    %Property related costs
    
    
    22
    
    
    
    20
    
    
    
    21
    
    
    
    19Other operating costs
    
    
    18
    
    
    
    20
    
    
    
    18
    
    
    
    18Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
  K ey Performance Indicators
  Census
  15




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##### Table of Contents



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




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ASSISTED LIVING CONCEPTS, INC.
 ADC
 All Continuing Residences
  Average Daily Census
 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2008
    
    2007
    
    2008
    
    2007Private pay
    
    
    5,498
    
    
    
    5,359
    
    
    
    5,537
    
    
    
    5,290Medicaid
    
    
    677
    
    
    
    1,221
    
    
    
    771
    
    
    
    1,467Total ADC
    
    
    6,175
    
    
    
    6,580
    
    
    
    6,308
    
    
    
    6,757Private pay revenue percentage
    
    
    92.0
    %
    
    
    86.2
    %
    
    
    91.3
    %
    
    
    84.0
    %
  Same Residence Basis
  Average Daily Census
 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2008
    
    2007
    
    2008
    
    2007Private pay
    
    
    4,999
    
    
    
    5,359
    
    
    
    4,993
    
    
    
    5,290Medicaid
    
    
    677
    
    
    
    1,221
    
    
    
    771
    
    
    
    1,467Total ADC
    
    
    5,676
    
    
    
    6,580
    
    
    
    5,764
    
    
    
    6,757Private pay revenue percentage
    
    
    91.3
    %
    
    
    86.2
    %
    
    
    90.5
    %
    
    
    84.0
    %
  Occupancy Percentage
  17




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
  All Continuing Residences
  Occupancy Percentage
 Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007# of
    
    
    %
    
    
    # of
    
    
    %
    
    
    # of
    
    
    %
    
    
    # of
    
    
    %Units
    
    
    Occupancy
    
    
    Units
    
    
    Occupancy
    
    
    Units
    
    
    Occupancy
    
    
    Units
    
    
    OccupancyMature
    
    
    8,867
    
    
    
    68.5
    %
    
    
    8,292
    
    
    
    78.6
    %
    
    
    8,845
    
    
    
    70.2
    %
    
    
    8,292
    
    
    
    81.1
    %Developmental
    
    
    209
    
    
    
    48.7
    %
    
    
    243
    
    
    
    36.6
    %
    
    
    231
    
    
    
    44.3
    %
    
    
    243
    
    
    
    45.7
    %Total residences
    
    
    9,076
    
    
    
    68.0
    %
    
    
    8,535
    
    
    
    77.6
    %
    
    
    9,076
    
    
    
    69.5
    %
    
    
    8,535
    
    
    
    80.7
    %
    Same Residence Basis
  Occupancy Percentage
 Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007# of
    
    
    %
    
    
    # of
    
    
    %
    
    
    # of
    
    
    %
    
    
    # of
    
    
    %Units
    
    
    Occupancy
    
    
    Units
    
    
    Occupancy
    
    
    Units
    
    
    Occupancy
    
    
    Units
    
    
    OccupancyMature
    
    
    8,511
    
    
    
    67.7
    %
    
    
    8,292
    
    
    
    78.5
    %
    
    
    8,489
    
    
    
    69.2
    %
    
    
    8,261
    
    
    
    81.0
    %Developmental
    
    
    24
    
    
    
    10.2
    %
    
    
    243
    
    
    
    13.5
    %
    
    
    46
    
    
    
    12.6
    %
    
    
    243
    
    
    
    45.0
    %Total residences
    
    
    8,535
    
    
    
    66.8
    %
    
    
    8,535
    
    
    
    77.6
    %
    
    
    8,535
    
    
    
    68.6
    %
    
    
    8535
    
    
    
    80.7
    %
 18




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
    Average Revenue Rate by Payer Source
 All Continuing Residences
  Average Daily Revenue Rate
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Private pay
    
    $
    106.19
    
    
    $
    101.24
    
    
    $
    106.23
    
    
    $
    100.23Medicaid
    
    $
    74.72
    
    
    $
    70.86
    
    
    $
    72.51
    
    
    $
    68.67Total
    
    $
    102.74
    
    
    $
    95.60
    
    
    $
    102.11
    
    
    $
    93.38
  Number of Residences Under Operation
  2008
    
    2007Owned
    
    
    153
    
    
    
    153Under capital lease
    
    
    5
    
    
    
    5Under operating leases
    
    
    58
    
    
    
    50Total under operation
    
    
    216
    
    
    
    208Percent of residences:Owned
    
    
    70.8
    %
    
    
    73.6
    %Under capital leases
    
    
    2.3
    
    
    
    2.4Under operating leases
    
    
    26.9
    
    
    
    24.0100.0
    %
    
    
    100.0
    %
 19




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 ADJUSTED EBITDA and ADJUSTED EBITDAR
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(In thousands)Net income
    
    $
    2,966
    
    
    $
    4,225
    
    
    $
    11,293
    
    
    $
    13,124Provision for income taxes
    
    
    1,819
    
    
    
    2,594
    
    
    
    6,922
    
    
    
    8,048Income from continuing operations before income taxes
    
    
    4,785
    
    
    
    6,819
    
    
    
    18,215
    
    
    
    21,172Add:Depreciation and amortization
    
    
    4,691
    
    
    
    4,584
    
    
    
    13,935
    
    
    
    13,088Interest expense, net
    
    
    1,869
    
    
    
    1,405
    
    
    
    5,364
    
    
    
    3,477Transaction costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56Non-cash equity based compensation
    
    
    60
    
    
    
    (192
    )
    
    
    104
    
    
    
    Loss on sale or disposal of fixed assets
    
    
    160
    
    
    
    
    
    
    
    160
    
    
    
    Adjusted EBITDA
    
    
    11,565
    
    
    
    12,616
    
    
    
    37,778
    
    
    
    37,793Add: Residence lease expense
    
    
    4,987
    
    
    
    3,595
    
    
    
    14,894
    
    
    
    10,754Adjusted EBITDAR
    
    $
    16,552
    
    
    $
    16,211
    
    
    $
    52,672
    
    
    $
    48,547
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007($ In thousands)Revenues
    
    $
    58,367
    
    
    $
    57,898
    
    
    $
    176,468
    
    
    $
    172,845Adjusted EBITDA
    
    $
    11,565
    
    
    $
    12,616
    
    
    $
    37,778
    
    
    $
    37,793Adjusted EBITDAR
    
    $
    16,552
    
    
    $
    16,211
    
    
    $
    52,672
    
    
    $
    48,547Adjusted EBITDA as percent of total revenue
    
    
    19.8
    %
    
    
    21.8
    %
    
    
    21.4
    %
    
    
    21.9
    %Adjusted EBITDAR as percent of total revenue
    
    
    28.4
    %
    
    
    28.0
    %
    
    
    29.8
    %
    
    
    28.1
    %
    20




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ASSISTED LIVING CONCEPTS, INC.
 Consolidated Results of Operations
 Three Months Ended September 30, 2008 Compared with Three Months Ended September 30, 2007
  2008
    
    2007Revenues
    
    
    100.0
    %
    
    
    100.0
    %Residence operations
(exclusive of depreciation and
amortization and residence
lease
expense shown below)
    
    
    66.1
    
    
    
    67.1General and administrative
    
    
    5.9
    
    
    
    4.6Residence lease expense
    
    
    8.5
    
    
    
    6.2Depreciation and amortization
    
    
    8.0
    
    
    
    7.9Income from operations
    
    
    11.5
    
    
    
    14.2Interest expense, net
    
    
    (3.3
    )
    
    
    (2.4
    )Income tax expense
    
    
    (3.1
    )
    
    
    (4.5
    )Net income
    
    
    5.1
    %
    
    
    7.3
    %
 Revenues
  Residence Operations (exclusive of depreciation and amortization and residence lease expense shown
below)
  General and Administrative
  Residence Lease Expense
  Depreciation and Amortization
  21




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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
  Nine months ended September 30, 2008, compared with nine months ended September 30, 2007
  2008
    
    2007Revenues
    
    
    100.0
    %
    
    
    100.0
    %Residence operations
(exclusive of depreciation and
amortization and residence
lease
expense shown below)
    
    
    64.9
    
    
    
    66.4General and administrative
    
    
    5.4
    
    
    
    5.5Residence lease expense
    
    
    8.5
    
    
    
    6.2Depreciation and amortization
    
    
    7.9
    
    
    
    7.6Transaction costs
    
    
    
    
    
    
    Income from operations
    
    
    13.3
    
    
    
    14.3Interest expense, net
    
    
    (3.0
    )
    
    
    (2.0
    )Income tax expense
    
    
    (3.9
    )
    
    
    (4.7
    )Net income
    
    
    6.4
    %
    
    
    7.6
    %
 22




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 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
  Income from Operations
  Interest Income
  23




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ASSISTED LIVING CONCEPTS, INC.
 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
    
    $
    40,296
    
    
    $
    35,406Cash used in investing activities
    
    
    (24,053
    )
    
    
    (36,120
    )Cash used in financing activities
    
    
    (23,962
    )
    
    
    (10,262
    )Decrease in cash and cash equivalents
    
    $
    (7,719
    )
    
    $
    (10,976
    )
     24




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ASSISTED LIVING CONCEPTS, INC.
    $120 Million Credit Facility
     DMG Mortgage Notes Payable in 2008
  25




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
   Debt Instruments
  Principal Repayment Schedule
  Letters of credit
  Restricted Cash
  Off Balance Sheet Arrangements
  Cash Management
  Future Liquidity and Capital Resources
   26




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
   Expansion Plans
  Share Repurchase
  Accrual for Self-Insured Liabilities
    Unfunded Deferred Compensation Plan
  27




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 $120 Million Credit Facility
  Contractual Obligations
  Critical Accounting Policies
  28




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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
 29




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##### Table of Contents



Part II. OTHER INFORMATION
 
 Item 1A. RISK FACTORS.
  Financial market conditions could restrict the availability of credit which could adversely affect
our ability to borrow to fund acquisitions, expansions and share repurchases.
  
 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
    
    Shares that MayNumber of
    
    Per Share
    
    as Part of Publicly
    
    Yet Be PurchasedShares
    
    (excluding
    
    Announced Plans
    
    Under the Plans orPeriod
    
    Purchased
    
    fees)
    
    or Programs
    
    Programs (1)July 1, 2008 to July 31, 2008
    
    
    122,900
    (1)
    
    $
    5.22
    
    
    
    122,900
    
    
    $
    4,816,597August 1, 2008 to August, 31, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    19,816,597September 1, 2008 to September
30, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    19,816,597Total
    
    
    122,900
    (1)
    
    $
    5.22
    
    
    
    122,900
    
    
    $
    19,816,597
 
 (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),
December 18, 2007, (additional $25 million) and August 6, 2008, (additional $15 million), under
which ALC may repurchase up to $80 million of its outstanding shares of Class A common stock
through August 6, 2009, (exclusive of fees). 30




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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;§
    
    our ability to successfully compete for acquisitions of new residences or to
successfully complete and fill expansions could adversely affect the growth of our
business;§
    
    our planned exit from Medicaid programs could reduce overall occupancy and
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;§
    
    events which adversely affect the perceived desirability or safety of our
residences to current or potential residents could cause occupancy and revenues to
decline;§
    
    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;§
    
    financial market conditions could restrict the availability of credit which could
adversely affect our ability to borrow to fund acquisitions, expansions and share
repurchases;§
    
    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.
  §
    
    covenants in loan agreements and leases 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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Item 6. EXHIBITS.
  32




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SIGNATURE
  ASSISTED LIVING CONCEPTS, INC.By:
    /s/ John BuonoJohn BuonoSenior Vice President and Chief Financial Officer

(Principal Financial Officer and Duly Authorized Officer)




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 
 EXHIBIT INDEX TO SEPTEMBER 30, 2008 QUARTERLY REPORT ON FORM 10-Q
 ExhibitNumber
    
    Description10.1
    
    First Amendment, dated as of August 22, 2008, to Credit Agreement
dated as of November 10, 2006, among Assisted Living Concepts,
Inc. the Lenders (as defined in the Credit Agreement), and General
Electric Credit Corporation (incorporated by reference to Exhibit
10.1 to current report of Assisted Living Concepts, Inc. on Form
8-K dated August 22, 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