##### 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, 2010
 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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##### 



ASSISTED LIVING CONCEPTS, INC.
 INDEX
 PageNumberPart I. Financial InformationItem 1. Financial StatementsCondensed Consolidated Balance Sheets  as of March 31, 2010 (unaudited) and December 31, 2009
    
    
    3Condensed Consolidated Statements of Operations  for the Three Months Ended March 31, 2010 and 2009 (unaudited)
    
    
    4Condensed Consolidated Statements of Cash Flows  for the Three Months Ended March 31, 2010 and 2009 (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
    
    
    37Item 4. Controls and Procedures
    
    
    38Part II. Other InformationItem 1A. Risk Factors
    
    
    38Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    38Item 5. Other Information
    
    
    39Item 6. Exhibits
    
    
    40Signature
    
    
    S-1Exhibit Index
    
    EI-1Exhibit 10.4Exhibit 31.1Exhibit 31.2Exhibit 32.1
   2




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 
 Part I. FINANCIAL INFORMATION
 
 Item 1. FINANCIAL STATEMENTS.
 
 CONSOLIDATED BALANCE SHEETS
 (In thousands, except share and per share data)
 March 31,
    
    
    December 31,2010
    
    
    2009(unaudited)ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    10,131
    
    
    $
    4,360Investments
    
    
    3,851
    
    
    
    3,427Accounts receivable, less allowances of $842 and $738, respectively
    
    
    2,594
    
    
    
    2,668Prepaid expenses, supplies and other receivables
    
    
    4,886
    
    
    
    3,537Deposits in escrow
    
    
    1,581
    
    
    
    1,993Income tax receivable
    
    
    
    
    
    
    723Deferred income taxes
    
    
    3,960
    
    
    
    4,636Current assets of discontinued operations
    
    
    168
    
    
    
    36Total current assets
    
    
    27,171
    
    
    
    21,380Property and equipment, net
    
    
    413,312
    
    
    
    415,454Intangible assets, net
    
    
    11,408
    
    
    
    11,812Restricted cash
    
    
    3,016
    
    
    
    4,389Other assets
    
    
    2,033
    
    
    
    1,935Non-current assets of discontinued operations
    
    
    
    
    
    
    399Total Assets
    
    $
    456,940
    
    
    $
    455,369LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    6,591
    
    
    $
    8,005Accrued liabilities
    
    
    16,337
    
    
    
    19,228Deferred revenue
    
    
    7,873
    
    
    
    6,368Current maturities of long-term debt
    
    
    1,853
    
    
    
    1,823Income tax payable
    
    
    333
    
    
    
    Current portion of self-insured liabilities
    
    
    500
    
    
    
    500Current liabilities of discontinued operations
    
    
    
    
    
    
    34Total current liabilities
    
    
    33,487
    
    
    
    35,958Accrual for self-insured liabilities
    
    
    1,510
    
    
    
    1,416Long-term debt
    
    
    119,434
    
    
    
    119,914Deferred income taxes
    
    
    13,626
    
    
    
    13,257Other long-term liabilities
    
    
    12,077
    
    
    
    11,853Commitments and contingenciesTotal Liabilities
    
    
    180,134
    
    
    
    182,398Preferred 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, 2010 and December 31, 2009;
12,403,318 and 12,397,525 shares issued and 10,053,867 and 10,048,674 shares outstanding, respectively
    
    
    124
    
    
    
    124Class B Common Stock, $0.01 par value, 15,000,000 shares authorized at March 31, 2010 and December 31, 2009;
1,523,255 and 1,528,650 shares issued and outstanding, respectively
    
    
    15
    
    
    
    15Additional paid-in capital
    
    
    314,739
    
    
    
    314,602Accumulated other comprehensive loss
    
    
    (1,907
    )
    
    
    (2,012
    )Retained earnings
    
    
    37,099
    
    
    
    33,486Treasury stock at cost, 2,349,451 and 2,348,851 shares, respectively
    
    
    (73,264
    )
    
    
    (73,244
    )Total Stockholders Equity
    
    
    276,806
    
    
    
    272,971Total Liabilities and Stockholders Equity
    
    $
    456,940
    
    
    $
    455,369
   3




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 In thousands, except per share data)
 Three Months EndedMarch 31,2010
    
    
    2009Revenues
    
    $
    57,859
    
    
    $
    57,067Expenses:Residence operations (exclusive of
depreciation and amortization and residence
lease expense shown below)
    
    
    35,712
    
    
    
    37,253General and administrative (including non-cash
stock-based compensation expense of $137 and
$65, respectively)
    
    
    3,774
    
    
    
    3,434Residence lease expense
    
    
    5,083
    
    
    
    4,930Depreciation and amortization
    
    
    5,670
    
    
    
    4,931Goodwill impairment
    
    
    
    
    
    
    16,315Total operating expenses
    
    
    50,239
    
    
    
    66,863Income (loss) from operations
    
    
    7,620
    
    
    
    (9,796
    )Other income (expense):Interest income
    
    
    4
    
    
    
    12Interest expense
    
    
    (1,888
    )
    
    
    (1,703
    )Income (loss) before income taxes
    
    
    5,736
    
    
    
    (11,487
    )Income tax expense
    
    
    (2,123
    )
    
    
    (144
    )Net income (loss) from continuing operations
    
    
    3,613
    
    
    
    (11,631
    )Loss from discontinued operations, net of tax
    
    
    
    
    
    
    (144
    )Net income (loss)
    
    $
    3,613
    
    
    $
    (11,775
    )Weighted average common shares:Basic
    
    
    11,578
    
    
    
    11,956Diluted
    
    
    11,744
    
    
    
    11,956Per share data:Basic earnings (loss) per common shareEarnings (loss) from continuing operations
    
    $
    0.31
    
    
    $
    (0.97
    )Loss from discontinued operations
    
    
    
    
    
    
    (0.01
    )Net income (loss)
    
    $
    0.31
    
    
    $
    (0.98
    )Diluted earnings (loss) per common shareEarnings (loss) from continuing operations
    
    $
    0.31
    
    
    $
    (0.97
    )Loss from discontinued operations
    
    
    
    
    
    
    (0.01
    )Net income (loss)
    
    $
    0.31
    
    
    $
    (0.98
    )
   4




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 (In thousands)
 Three Months EndedMarch 31,2010
    
    
    2009(reclassified)OPERATING ACTIVITIES:Net income (loss)
    
    $
    3,613
    
    
    $
    (11,775
    )Adjustments to reconcile net income (loss) to net cash provided by operating activities:Depreciation and amortization
    
    
    5,670
    
    
    
    5,028Goodwill impairment
    
    
    
    
    
    
    16,315Amortization of purchase accounting adjustments for leases
    
    
    (99
    )
    
    
    (99
    )Provision for bad debts
    
    
    104
    
    
    
    (30
    )Provision for self-insured liabilities
    
    
    170
    
    
    
    259Loss on disposal of fixed assets
    
    
    170
    
    
    
    29Unrealized gain on investments
    
    
    (27
    )
    
    
    Equity-based compensation expense
    
    
    137
    
    
    
    65Change in fair value of derivatives
    
    
    65
    
    
    
    (172
    )Deferred income taxes
    
    
    1,045
    
    
    
    (65
    )Changes in assets and liabilities:Accounts receivable
    
    
    (30
    )
    
    
    250Supplies, prepaid expenses and other receivables
    
    
    (1,349
    )
    
    
    (2,283
    )Deposits in escrow
    
    
    412
    
    
    
    566Current assets  discontinued operations
    
    
    (132
    )
    
    
    Accounts payable
    
    
    (904
    )
    
    
    (1,423
    )Accrued liabilities
    
    
    (2,891
    )
    
    
    (605
    )Deferred revenue
    
    
    1,505
    
    
    
    1,591Current liabilities  discontinued operations
    
    
    (34
    )
    
    
    Payments of self-insured liabilities
    
    
    (77
    )
    
    
    (89
    )Income taxes payable / receivable
    
    
    927
    
    
    
    (88
    )Changes in other non-current assets
    
    
    1,275
    
    
    
    (991
    )Other non-current assets  discontinued operations
    
    
    399
    
    
    
    Other long-term liabilities
    
    
    160
    
    
    
    267Cash provided by operating activities
    
    
    10,109
    
    
    
    6,750INVESTING ACTIVITIES:Payment for executive retirement plan securities
    
    
    (56
    )
    
    
    Payments for new construction projects
    
    
    (1,371
    )
    
    
    (8,359
    )Payments for purchases of property and equipment
    
    
    (2,432
    )
    
    
    (4,077
    )Cash used in investing activities
    
    
    (3,859
    )
    
    
    (12,436
    )FINANCING ACTIVITIES:Purchase of treasury stock
    
    
    (20
    )
    
    
    (1,969
    )Proceeds on borrowings on revolving credit facility
    
    
    
    
    
    
    6,000Repayment of mortgage debt
    
    
    (459
    )
    
    
    (7,624
    )Cash used by financing activities
    
    
    (479
    )
    
    
    (3,593
    )Increase (decrease) in cash and cash equivalents
    
    
    5,771
    
    
    
    (9,279
    )Cash and cash equivalents, beginning of year
    
    
    4,360
    
    
    
    19,905Cash and cash equivalents, end of period
    
    $
    10,131
    
    
    $
    10,626Supplemental schedule of cash flow information:Cash paid during the period for:Interest
    
    $
    1,782
    
    
    $
    1,807Income tax payments, net of refunds
    
    
    86
    
    
    
    62
   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) Investments
    (d) Goodwill
   7




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ASSISTED LIVING CONCEPTS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
      Balance at December 31, 2008
    
    $
    16,315Additions
    
    
    Adjustments
    
    
    (16,315
    )Balance at March 31, 2009 and 2010
    
    $
    
 (e) Comprehensive Income (Loss)
  Three Months EndedMarch 31,2010
    
    
    2009(In thousands)Net income (loss)
    
    $
    3,613
    
    
    $
    (11,775
    )Unrealized gains (losses) on investments, net of tax expense (benefit) of $129 and ($160), respectively
    
    
    212
    
    
    
    (260
    )Unrealized loss on derivatives, net of tax benefit of $65 and $106, respectively
    
    
    (107
    )
    
    
    (172
    )Total comprehensive income (loss)
    
    $
    3,718
    
    
    $
    (12,207
    )
  8




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  March 31,
    
    
    December 31,2010
    
    
    2009(In thousands)Unrealized losses on investments
    
    $
    (1,059
    )
    
    $
    (1,271
    )Net unrealized loss on derivatives
    
    
    (848
    )
    
    
    (741
    )Accumulated other comprehensive loss
    
    $
    (1,907
    )
    
    $
    (2,012
    )
 (f) Income Taxes
    (g) Recently Adopted Accounting Pronouncements
   9




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ASSISTED LIVING CONCEPTS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
      (h) Recently Issued Accounting Pronouncements
    10




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 3. PROPERTY AND EQUIPMENT
  March 31,
    
    
    December 31,2010
    
    
    2009(In thousands)Land and land improvements
    
    $
    27,279
    
    
    $
    27,207Buildings and improvements
    
    
    443,251
    
    
    
    442,176Furniture and equipment
    
    
    28,194
    
    
    
    27,900Leasehold improvements
    
    
    8,803
    
    
    
    8,216Construction in progress
    
    
    3,070
    
    
    
    2,024510,597
    
    
    
    507,523Less accumulated depreciation and amortization
    
    
    (97,285
    )
    
    
    (92,069
    )$
    413,312
    
    
    $
    415,454
 4. DEBT
  March 31,
    
    
    December 31,2010
    
    
    2009(In thousands)$120 million credit facility bearing interest at floating rates, due
November 2011 (1)
    
    $
    50,000
    
    
    $
    50,000Mortgage note, bearing interest at 6.24%, due 2014
    
    
    33,311
    
    
    
    33,526Mortgage note, bearing interest at 6.50%, due 2014
    
    
    13,738
    
    
    
    13,829Mortgage note, bearing interest at 7.07%, due 2018
    
    
    8,808
    
    
    
    8,844Oregon Trust Deed Notes, weighted average interest rate of 7.38%, maturing
from 2021 through 2026
    
    
    8,363
    
    
    
    8,438HUD Insured Mortgages, interest rates ranging from 5.66% to 5.85%, due 2032
    
    
    4,100
    
    
    
    4,123HUD Insured Mortgage, bearing interest at 7.55%, due 2036
    
    
    2,967
    
    
    
    2,977Total debt
    
    
    121,287
    
    
    
    121,737Less current maturities
    
    
    (1,853
    )
    
    
    (1,823
    )Total long-term debt
    
    $
    119,434
    
    
    $
    119,914
 
 (1)
    
    Borrowings under this facility bear interest at a floating rate at ALCs option equal
to LIBOR plus a margin of 150 basis points or prime. At March 31, 2010, prime was 3.25%
and LIBOR was 0.25%. $120 Million Credit Facility
   11




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ASSISTED LIVING CONCEPTS, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    6.24% Mortgage Note due 2014
  6.50% Mortgage Note due 2014
    12




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ASSISTED LIVING CONCEPTS, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Mortgage Note due 2018
  Oregon Trust Deed Notes
   HUD Insured Mortgages
  Unfavorable Market Value of Debt Adjustment
  Letters of credit
   13




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ASSISTED LIVING CONCEPTS, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 5. LONG-TERM EQUITY-BASED COMPENSATION PROGRAM
          14




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ASSISTED LIVING CONCEPTS, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  2010
    
    
    2009Weighted
    
    
    
    
    
    
    Weighted#
    
    
    Average
    
    
    #
    
    
    AverageOptions /
    
    
    Exercise
    
    
    Options /
    
    
    ExerciseSARs
    
    
    Price
    
    
    SARs
    
    
    PriceOutstanding at beginning of period
    
    
    159,000
    
    
    $
    18.96
    
    
    
    129,500
    
    
    $
    30.10Granted
    
    
    96,250
    
    
    $
    31.71
    
    
    
    95,000
    
    
    $
    15.35Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expired
    
    
    (19,000
    )
    
    $
    15.35
    
    
    
    (97,500
    )
    
    $
    29.45Outstanding at end of period
    
    
    236,250
    
    
    $
    24.45
    
    
    
    127,000
    
    
    $
    19.57Options Exercisable at March 31
    
    
    36,009
    
    
    $
    20.31
    
    
    
    
    
    
    $
    Weighted average fair value of options
    
    $
    13.09
    
    
    
    
    
    
    $
    9.96Aggregate intrinsic value of options
    
    $
    2.0 Million
    
    
    
    
    
    
    $
    Weighted average contractual term
    
    4.2 years
    
    
    
    
    
    
    4.7 years
  March 3,
    
    
    Apr 30,
    
    
    Feb 22,
    
    
    May 5,
    
    
    March 29,2010
    
    
    2009
    
    
    2009
    
    
    2008
    
    
    2008Expected life from grant date (in years)
    
    
    5
    
    
    
    5
    
    
    
    5
    
    
    
    5
    
    
    
    5Risk-free interest rate
    
    
    2.33
    %
    
    
    2.02
    %
    
    
    2.06
    %
    
    
    3.15
    %
    
    
    2.50
    %Volatility
    
    
    63.7
    %
    
    
    68.9
    %
    
    
    66.9
    %
    
    
    45.8
    %
    
    
    46.9
    %Dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted average fair value (per share)
    
    $
    17.48
    
    
    $
    9.62
    
    
    $
    8.55
    
    
    $
    14.15
    
    
    $
    12.90
   15




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##### Table of Contents



ASSISTED LIVING CONCEPTS, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 6. EARNINGS PER SHARE
   2010
    
    
    2009(In thousands,except per share data)Basic earnings (loss) per share calculation:Income (loss) from continuing operations
    
    $
    3,613
    
    
    $
    (11,631
    )Loss from discontinued operations, net of tax
    
    
    
    
    
    
    (144
    )Net income (loss) to common stockholders
    
    $
    3,613
    
    
    $
    (11,775
    )Weighted average number of common shares outstanding
    
    
    11,578
    
    
    
    11,956Income (loss) from continuing operations
    
    $
    0.31
    
    
    $
    (0.97
    )Loss from discontinued operations, net of tax
    
    
    
    
    
    
    (0.01
    )Basic net income (loss) per share
    
    $
    0.31
    
    
    $
    (0.98
    )Diluted earnings (loss) per share calculation:Income (loss) from continuing operations
    
    $
    3,613
    
    
    $
    (11,631
    )Loss from discontinued operations, net of tax
    
    
    
    
    
    
    (144
    )Net income (loss) to common stockholders
    
    $
    3,613
    
    
    $
    (11,775
    )Weighted average number of common shares outstanding
    
    
    11,578
    
    
    
    11,956Assumed conversion of Class B shares
    
    
    114
    
    
    
    Effect of dilutive stock options
    
    
    52
    
    
    
    Diluted weighted average number of common shares outstanding
    
    
    11,744
    
    
    
    11,956Income (loss) from continuing operations
    
    $
    0.31
    
    
    $
    (0.97
    )Loss from discontinued operations, net of tax
    
    
    
    
    
    
    (0.01
    )Diluted net income (loss) per share
    
    $
    0.31
    
    
    $
    (0.98
    )
  16




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ASSISTED LIVING CONCEPTS, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 7. SHARE REPURCHASE
  8. FAIR VALUE OF FINANCIAL INSTRUMENTS
  SignificantTotal carrying
    
    
    Quoted prices
    
    
    other
    
    
    Significantvalue at
    
    
    in active
    
    
    observable
    
    
    unobservableMarch 31,
    
    
    markets
    
    
    inputs
    
    
    inputs2010
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)AssetsInvestment securities 
available-for-sale
    
    $
    3,851
    
    
    $
    3,851
    
    
    $
    
    
    
    $
    LiabilitiesDerivative financial instruments
    
    
    (1,367
    )
    
    
    
    
    
    
    (1,367
    )
    
    
    
      17




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ASSISTED LIVING CONCEPTS, INC.
 NOTES TO 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
    
    
    $
    (1,016
    )Interest rate swap  March 2009
    
    
    1.98
    %
    
    $
    20,000
    
    
    
    3/11/2009
    
    
    
    11/14/2011
    
    
    $
    (351
    )
 9. DERIVATIVE FINANCIAL INSTRUMENTS
      18




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ASSISTED LIVING CONCEPTS, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Fair Values of Derivative Instruments
Liability Derivatives
(In thousands)
 March 31, 2010
    
    
    December 31, 2009Balance Sheet
    
    
    
    
    
    Balance SheetDerivatives Designated as Hedging Instruments
    
    Location
    
    Fair Value
    
    
    Location
    
    Fair ValueInterest rate contracts
    
    Other long-term liabilities
    
    $
    1,367
    
    
    Other long-term liabilities
    
    $
    1,195
 10. DISCONTINUED OPERATIONS
   Three Months EndedMarch 31,2010
    
    
    2009(In thousands,except per share data)Revenues
    
    $
    
    
    
    $
    567Expenses:Residence operations (exclusive of depreciation
and amortization and residence lease expense
shown below)
    
    
    
    
    
    
    566Residence lease income
    
    
    
    
    
    
    (3
    )Depreciation and amortization
    
    
    
    
    
    
    97Total operating expenses
    
    
    
    
    
    
    660Loss from operations
    
    
    
    
    
    
    (93
    )Other expense:Interest income
    
    
    
    
    
    
    1Interest expense
    
    
    
    
    
    
    (140
    )Loss from discontinued operations before income taxes
    
    
    
    
    
    
    (232
    )Income tax benefit
    
    
    
    
    
    
    88Net loss from discontinued operations
    
    $
    
    
    
    $
    (144
    )Weighted average common shares:Basic
    
    
    11,578
    
    
    
    11,956Diluted
    
    
    11,744
    
    
    
    11,956Revenue per share data:Basic discontinued revenue per share
    
    $
    0.00
    
    
    $
    0.01Diluted discontinued revenue per share
    
    $
    0.00
    
    
    $
    0.01
  19




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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, 2009, 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 more traditional assisted living
residents with home care services.
   
    
    our private pay rates generally exceed those paid through Medicaid
reimbursement programs by 50% to 60%;
    
    we reduce our exposure to reductions in reimbursement rates provided by
government programs; 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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ASSISTED LIVING CONCEPTS, INC.
    Unit expansions
  Temporary closings
  Discontinued Operations
  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
assisted 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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ASSISTED LIVING CONCEPTS, INC.
  Increasing the overall size of our portfolio by building additional capacity and making
acquisitions
      Applying efficiencies achievable from operating a large number of assisted 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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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 quarter ended March 31, 2010 compared to the quarter ended
March 31, 2009.
    
    Liquidity and Capital Resources.This section provides a discussion of our
liquidity and capital resources as of March 31, 2010, 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.
   23




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ASSISTED LIVING CONCEPTS, INC.
 Business Overview
 Revenues
    Residence Operations Expenses
  Three Months EndedMarch 31,2010
    
    
    2009Wage and benefit costs
    
    
    59
    %
    
    
    60
    %Property related costs
    
    
    25
    
    
    
    24Other operating costs
    
    
    16
    
    
    
    16Total
    
    
    100
    %
    
    
    100
    %
  Key Performance Indicators
  Census
   24




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ASSISTED LIVING CONCEPTS, INC.
 Average Daily Census
  Occupancy
  Private Pay Mix
  Average Revenue Rate
  Adjusted EBITDA and Adjusted EBITDAR
    Review of Key Performance Indicators
   25




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ASSISTED LIVING CONCEPTS, INC.
 ADC
 All Continuing Residences
  Average Daily Census
 2010
    
    
    2009Private pay
    
    
    5,468
    
    
    
    5,385Medicaid
    
    
    214
    
    
    
    522Total ADC
    
    
    5,682
    
    
    
    5,907Private pay occupancy percentage
    
    
    96.2
    %
    
    
    91.2
    %Private pay revenue percentage
    
    
    97.5
    %
    
    
    93.8
    %
  Same Residence Basis
  Average Daily Census
 2010
    
    
    2009Private pay
    
    
    5,396
    
    
    
    5,326Medicaid
    
    
    210
    
    
    
    452Total ADC
    
    
    5,606
    
    
    
    5,778Private pay occupancy percentage
    
    
    96.3
    %
    
    
    92.2
    %Private pay revenue percentage
    
    
    97.5
    %
    
    
    94.5
    %
  Occupancy Percentage
   26




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ASSISTED LIVING CONCEPTS, INC.
  All Continuing Residences
  Occupancy Percentage
 2010
    
    
    2009Mature
    
    
    64.5
    %
    
    
    66.4
    %Developmental
    
    
    21.6
    %
    
    
    19.3
    %Total residences
    
    
    63.0
    %
    
    
    65.9
    %
    Same Residence Basis
  Occupancy Percentage
 2010
    
    
    2009Mature
    
    
    64.7
    %
    
    
    67.0
    %Developmental
    
    
    
    
    
    
    Total residences
    
    
    64.7
    %
    
    
    67.0
    %
   27




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ASSISTED LIVING CONCEPTS, INC.
 Average Revenue Rate
 All Continuing Residences
  Average Daily Revenue Rate
 2010
    
    
    2009Average daily revenue rate
    
    $
    113.13
    
    
    $
    107.34
  Number of Residences Under Operation
  2010
    
    
    2009Owned*
    
    
    152
    
    
    
    152Under operating leases
    
    
    59
    
    
    
    59Total under operation
    
    
    211
    
    
    
    211Percent of residences:Owned
    
    
    72.0
    %
    
    
    72.0
    %Under operating leases
    
    
    28.0
    
    
    
    28.0100.0
    %
    
    
    100.0
    %
 *
    
    Includes seven residences temporarily closed for refurbishment in 2010 and four residences
temporarily closed for refurbishment in 2009.  28




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ASSISTED LIVING CONCEPTS, INC.
 ADJUSTED EBITDA and ADJUSTED EBITDAR
  2010
    
    
    2009(In thousands)Net income (loss)
    
    $
    3,613
    
    
    $
    (11,775
    )Income loss from discontinued operations, net of taxes
    
    
    
    
    
    
    144Provision for income taxes
    
    
    2,123
    
    
    
    144Income (loss) from continuing operations before
income taxes
    
    
    5,736
    
    
    
    (11,487
    )Add:Depreciation and amortization
    
    
    5,670
    
    
    
    4,931Interest expense, net
    
    
    1,884
    
    
    
    1,691Non-cash equity based compensation
    
    
    137
    
    
    
    65Loss on disposal of fixed assets
    
    
    170
    
    
    
    29Goodwill impairment
    
    
    
    
    
    
    16,315Adjusted EBITDA
    
    
    13,597
    
    
    
    11,544Add: Residence lease expense
    
    
    5,083
    
    
    
    4,930Adjusted EBITDAR
    
    $
    18,680
    
    
    $
    16,474
  2010
    
    
    2009($ In thousands)Revenues
    
    $
    57,859
    
    
    $
    57,067Adjusted EBITDA
    
    $
    13,597
    
    
    $
    11,544Adjusted EBITDAR
    
    $
    18,680
    
    
    $
    16,474Adjusted EBITDA as percent of total revenue
    
    
    23.5
    %
    
    
    20.2
    %Adjusted EBITDAR as percent of total revenue
    
    
    32.3
    %
    
    
    28.9
    %
    29




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ASSISTED LIVING CONCEPTS, INC.
 Consolidated Results of Operations
 Three Months Ended March 31, 2010 Compared with Three Months Ended March 31, 2009
  2010
    
    
    2009Revenues
    
    
    100.0
    %
    
    
    100.0
    %Residence operations (exclusive of
depreciation and amortization and residence
lease
expense shown below)
    
    
    61.7
    
    
    
    65.3General and administrative
    
    
    6.5
    
    
    
    6.0Residence lease expense
    
    
    8.8
    
    
    
    8.6Depreciation and amortization
    
    
    9.8
    
    
    
    8.6Goodwill impairment
    
    
    
    
    
    
    28.6Income (loss) from operations
    
    
    13.2
    
    
    
    (17.1
    )Interest expense, net
    
    
    (3.3
    )
    
    
    (2.9
    )Income tax expense
    
    
    (3.7
    )
    
    
    (0.3
    )Loss from discontinued operations, net of taxes
    
    
    
    
    
    
    (0.3
    )Net income (loss)
    
    
    6.2
    %
    
    
    (20.6
    )%
 Revenues
  Residence Operations (exclusive of depreciation and amortization and residence lease expense shown
below)
  General and Administrative
  Residence Lease Expense
   30




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ASSISTED LIVING CONCEPTS, INC.
 Depreciation and Amortization
  Impairment of Goodwill
  Income (Loss) from Operations
  Interest Income
  Interest Expense
  Income (Loss) from Continuing Operations before Income Taxes
  Income Tax Expense
  Net Income (Loss) from Continuing Operations
   31




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ASSISTED LIVING CONCEPTS, INC.
 Loss from Discontinued Operations, Net of Tax
  Net Income (Loss)
  Liquidity and Capital Resources
 Sources and Uses of Cash
  2010
    
    
    2009(In thousands)Cash provided by operating activities
    
    $
    10,109
    
    
    $
    6,750Cash used in investing activities
    
    
    (3,859
    )
    
    
    (12,436
    )Cash used in financing activities
    
    
    (479
    )
    
    
    (3,593
    )Increase (decrease) in cash and cash equivalents
    
    $
    5,771
    
    
    $
    (9,279
    )
       32




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ASSISTED LIVING CONCEPTS, INC.
    $120 Million Credit Facility
      33




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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
    34




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ASSISTED LIVING CONCEPTS, INC.
 Expansion Program
  Share Repurchase
  Accrual for Self-Insured Liabilities
    Unfunded Deferred Compensation Plan
  $120 Million Credit Facility
   35




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ASSISTED LIVING CONCEPTS, INC.
 Contractual Obligations
  Critical Accounting Policies
   36




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ASSISTED LIVING CONCEPTS, INC.
 
 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
 Qualitative Disclosures
    Fair ValueContract Date
    
    Notional Amount
    
    
    Fixed Rate
    
    
    Maturity

    
    at March 31, 2010November 13, 2008
    
    $
    30 million
    
    
    
    2.83
    %
    
    November 2011
    
    $
    (1,016,000
    )March 10, 2009
    
    $
    20 million
    
    
    
    1.98
    %
    
    November 2011
    
    $
    (351,000
    )
      37




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ASSISTED LIVING CONCEPTS, INC.
 Quantitative Disclosures
  
 Item 4. CONTROLS AND PROCEDURES.
 Disclosure Controls and Procedures
 Internal Control Over Financial Reporting
 
 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, 2010 to January 31, 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    13,211,104February 1, 2010 to February 28,
2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    13,211,104March 1, 2010 to March 31, 2010
    
    
    600
    (1)
    
    $
    33.16
    
    
    
    600
    
    
    $
    13,191,207Total
    
    
    600
    (1)
    
    $
    33.16
    
    
    
    600
    
    
    $
    13,191,207
 (1)
    
    Consists of purchases made through the share purchase program approved by the Board of
Directors on August 9, 2009 under which ALC may purchase up to $15 million of its outstanding
shares of Class A Common Stock through August 9, 2010 (exclusive of fees).  38




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ASSISTED LIVING CONCEPTS, INC.
 
 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;
    
    our strategy to reduce our reliance on Medicaid customers could cause overall
occupancy and revenues to decline;
    
    events which adversely affect the ability of seniors to afford our monthly resident
fees including sustained economic downturns, difficult housing markets and losses on
investments designated for retirement could cause our occupancy rates, revenues and
results of operations to decline;
    
    national, regional and local competition could cause us to lose market share and
revenue;
    
    our ability to cultivate new or maintain existing relationships with physicians and
others in the communities in which we operate who provide referrals for new residents
could affect occupancy rates;
    
    changes in the numbers of our residents who are private pay residents may
significantly affect our profitability;
    
    reductions in Medicaid rates may decrease our revenues;
    
    termination of our resident agreements and vacancies in the living spaces we lease
could adversely affect our revenues, earnings and occupancy levels;
    
    increases in labor costs, as a result of a shortage of qualified personnel,
regulatory requirements or otherwise, could substantially increase our operating costs;
    
    we may not be able to increase residents fees to cover energy, food and other costs
which could reduce operating margins;
    
    markets where overbuilding exists and future overbuilding in other markets where we
operate our residences may adversely affect our operations;
    
    personal injury claims, if successfully made against us, could materially and
adversely affect our financial condition and results of operations;
    
    failure to comply with laws and government regulation could lead to fines, penalties
or operating restrictions;
    
    compliance with 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;
  39




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ASSISTED LIVING CONCEPTS, INC.
 
    
    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.
  
 Item 6. EXHIBITS.
   40




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ASSISTED LIVING CONCEPTS, INC.
 
 SIGNATURE
  ASSISTED LIVING CONCEPTS, INC.By:
    
    /s/ John Buono

John BuonoSenior Vice President and Chief Financial Officer(Principal Financial Officer and Duly Authorized Officer)
   S-1




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ASSISTED LIVING CONCEPTS, INC.
 
 EXHIBIT INDEX TO MARCH 31, 2010 QUARTERLY REPORT ON FORM 10-Q
 ExhibitNumber
    
    Description10.1
    
    
    Form of 2010 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 3, 2010, File No.
001-13498)10.2
    
    
    Form of 2010 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 3,
2010, File No. 001-13498)10.3
    
    
    Form of Directors 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)10.4
    
    
    Summary of Director Compensation31.1
    
    
    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