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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

     
x   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
     
    For the quarterly period ended June 30, 2003

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 1-13498

Assisted Living Concepts, Inc.

(Exact name of registrant as specified in its charter)
     
Nevada   93-1148702
(State or other jurisdiction of   (IRS Employer
incorporation or organization)   Identification No.)

1349 Empire Central, Suite 900
Dallas, TX 75247

(Address of principal executive offices)

(214) 424-4000
(Registrant’s telephone number, including area code)

     Indicate by check mark whether Registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x      No o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o      No x

     Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes x      No o

     The Registrant had 6,431,925 shares of common stock, $.01 par value, outstanding at August 7, 2003.



 


TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF OPERATIONS
CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Item 4. Controls and Procedures
PART II — OTHER INFORMATION
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
EXHIBIT INDEX
EX-12 Ratio of Earnings to Fixed Charges
EX-31.1 Certification Pursuant to Section 302
EX-31.2 Certification Pursuant to Section 302
EX-32.1 Certification Pursuant to Section 906
EX-32.2 Certification Pursuant to Section 906


Table of Contents

ASSISTED LIVING CONCEPTS, INC.

FORM 10-Q
June 30, 2003

INDEX

PART I — FINANCIAL INFORMATION

                     
                PAGE
               
Item 1.   Financial Statements        
   
Consolidated Balance Sheets, December 31, 2002 and June 30, 2003
    3  
       
Consolidated Statements of Operations, Three and Six Months Ended June 30, 2002 and 2003
    4  
       
Consolidated Statements of Cash Flows, Six Months Ended June 30, 2002 and 2003
    5  
       
Notes to Consolidated Financial Statements
    6  
Item 2.  
Management’s Discussion and Analysis of Financial Condition and Results of Operations
    17  
Item 3.  
Quantitative and Qualitative Disclosure About Market Risk
    22  
Item 4.  
Controls and Procedures
    23  
           
PART II — OTHER INFORMATION
       
Item 1.  
Legal Proceedings
    23  
Item 4.  
Submission of Matters to a Vote of Security Holders
    23  
Item 6.  
Exhibits and Reports on Form 8-K
    23  

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Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

ASSISTED LIVING CONCEPTS, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Amounts)

                         
            December 31,   June 30,
            2002   2003
           
 
                    (Unaudited)
ASSETS
Current assets:
               
 
Cash and cash equivalents
  $ 7,165     $ 10,256  
 
Cash restricted for resident security deposits
    1,929       1,673  
 
Accounts receivable, net of allowance for doubtful accounts of $230 at December 31, 2002 and $517 at June 30, 2003
    2,715       3,420  
 
Prepaid insurance
    343       745  
 
Prepaid expenses
    991       675  
 
Assets held for sale
    9,727        
 
Cash restricted for workers’ compensation claims
    4,696       4,407  
 
Other current assets
    3,193       3,150  
 
   
     
 
   
Total current assets
    30,759       24,326  
Restricted cash
    5,315       5,312  
Property and equipment, net
    177,930       183,637  
Deferred income taxes
          990  
Other assets, net
    2,036       2,349  
 
   
     
 
   
Total assets
  $ 216,040     $ 216,614  
 
   
     
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
               
 
Accounts payable
  $ 769     $ 633  
 
Accrued real estate taxes
    4,836       4,009  
 
Accrued interest expense
    2,174       2,024  
 
Accrued payroll expense
    5,021       4,971  
 
Other accrued expenses
    5,718       6,757  
 
Income taxes payable
          1,068  
 
Resident security deposits
    1,991       1,562  
 
Other current liabilities
    976       530  
 
Current portion of unfavorable lease adjustment
    607       583  
 
Current portion of long-term debt and capital lease obligations
    11,521       2,760  
 
   
     
 
   
Total current liabilities
    33,613       24,897  
Other liabilities
    463       578  
Unfavorable lease adjustment, net of current portion
    2,508       2,220  
Long-term debt and capital lease obligations, net of current portion
    109,078       108,054  
Senior and Junior Secured notes
    41,993       49,604  
 
   
     
 
   
Total liabilities
    187,655       185,353  
Commitments and contingencies
               
Shareholders’ equity:
               
 
Preferred stock, $.01 par value; 3,250,000 shares authorized; none issued or outstanding
           
 
Common stock, $.01 par value; 20,000,000 shares authorized; issued and outstanding 6,431,759 shares at December 31, 2002 and June 30, 2003 (68,241 shares to be issued upon settlement of pending claims)
    65       65  
 
Additional paid-in capital
    32,734       33,816  
 
Accumulated deficit
    (4,414 )     (2,620 )
 
   
     
 
   
Total shareholders’ equity
    28,385       31,261  
 
   
     
 
   
Total liabilities and shareholders’ equity
  $ 216,040     $ 216,614  
 
   
     
 

The accompanying notes are an integral part of these consolidated financial statements.

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ASSISTED LIVING CONCEPTS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)

                                     
        Three Months Ended   Six Months Ended
        June 30,   June 30,
       
 
        2002   2003   2002   2003
       
 
 
 
Revenue
  $ 37,813     $ 41,932     $ 74,827     $ 83,076  
Operating expenses:
                               
 
Residence operating expenses
    26,159       27,720       51,627       55,443  
 
Corporate general and administrative
    5,578       4,760       9,895       9,102  
 
Building rentals
    3,067       3,119       6,105       6,224  
 
Depreciation and amortization
    1,644       1,701       3,256       3,377  
 
   
     
     
     
 
   
Total operating expenses
    36,448       37,300       70,883       74,146  
 
   
     
     
     
 
Operating income
    1,365       4,632       3,944       8,930  
Other income (expense):
                               
 
Interest expense
    (3,466 )     (3,429 )     (7,057 )     (6,858 )
 
Interest income
    52       30       106       66  
 
Other income (expense), net
    18       (67 )     19       (71 )
 
   
     
     
     
 
   
Total other expense, net
    (3,396 )     (3,466 )     (6,932 )     (6,863 )
 
   
     
     
     
 
Income (loss) before debt restructure, reorganization costs, and discontinued operations
    (2,031 )     1,166       (2,988 )     2,067  
Debt restructure and reorganization costs
    (219 )           (666 )      
 
   
     
     
     
 
Income (loss) from continuing operations before income taxes
    (2,250 )     1,166       (3,654 )     2,067  
 
Income tax expense
          403             767  
 
   
     
     
     
 
Income (loss) from continuing operations
    (2,250 )     763       (3,654 )     1,300  
Discontinued operations:
                               
 
Income (loss) from operations (including gain on sale of assets of $899 in March 2003)
    (380 )           (426 )     830  
 
Income tax expense
                      336  
 
   
     
     
     
 
Income (loss) from discontinued operations
    (380 )           (426 )     494  
 
   
     
     
     
 
Net income (loss)
  $ (2,630 )   $ 763     $ (4,080 )   $ 1,794  
 
   
     
     
     
 
Basic earnings per share:
                               
 
Income (loss) from continuing operations
  $ (0.34 )   $ 0.12     $ (0.56 )   $ 0.20  
 
Income (loss) from discontinued operations
    (0.06 )           (0.07 )     0.08  
 
   
     
     
     
 
 
Net income (loss)
    (0.40 )   $ 0.12     $ (0.63 )   $ 0.28  
 
   
     
     
     
 
Diluted earnings per share:
                               
 
Income (loss) from continuing operations
  $ (0.34 )   $ 0.12     $ (0.56 )   $ 0.20  
 
Income (loss) from discontinued operations
    (0.06 )           (0.07 )     0.07  
 
   
     
     
     
 
 
Net income (loss)
  $ (0.40 )   $ 0.12     $ (0.63 )   $ 0.27  
 
   
     
     
     
 

The accompanying notes are an integral part of these consolidated financial statements.

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ASSISTED LIVING CONCEPTS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

                     
        Six Months Ended June 30,
       
        2002   2003
       
 
Operating Activities:
               
Net income (loss)
  $ (4,080 )   $ 1,794  
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
               
 
Depreciation and amortization
    3,359       3,377  
 
Stock-based compensation expense
          93  
 
Amortization of debt issuance costs
    52       55  
 
Amortization of fair value adjustment to building rentals
    (306 )     (312 )
 
Amortization of fair market adjustment to long-term debt
    213       184  
 
Amortization of discount on long-term debt
    211       271  
 
Straight line adjustment to building rentals
    188       115  
 
Interest paid-in-kind
    610       660  
 
Provision for doubtful accounts
    132       456  
 
(Gain) loss on sale or disposal of assets
    443       (833 )
Changes in assets and liabilities:
               
 
Accounts receivable
    (136 )     (1,162 )
 
Prepaid expenses
    (1,202 )     (86 )
 
Other current assets
    172       43  
 
Other assets
    (299 )     (368 )
 
Accounts payable
    (218 )     (136 )
 
Accrued expenses
    1,443       82  
 
Other current liabilities
    294       123  
 
   
     
 
   
Net cash provided by operating activities
    876       4,356  
Investing Activities:
               
Decrease (increase) in restricted cash
    (2,680 )     548  
Purchases of property and equipment
    (1,333 )     (1,093 )
Sales of properties
          2,569  
 
   
     
 
   
Net cash provided by (used in) investing activities
    (4,013 )     2,024  
Financing Activities:
               
Proceeds from long-term debt
    3,400        
Payments on long-term debt and capital lease obligations
    (725 )     (3,289 )
Debt issuance costs
    (79 )      
 
   
     
 
   
Net cash provided by (used in) financing activities
    2,596       (3,289 )
 
   
     
 
Net increase (decrease) in cash and cash equivalents
    (541 )     3,091  
Cash and cash equivalents, beginning of period
    6,077       7,165  
 
   
     
 
Cash and cash equivalents, end of period
  $ 5,536     $ 10,256  
 
   
     
 
Supplemental disclosure of cash flow information:
               
 
Cash payments for interest
  $ 5,422     $ 6,109  

The accompanying notes are an integral part of these consolidated financial statements.

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ASSISTED LIVING CONCEPTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. The Company

Assisted Living Concepts, Inc., (“the Company”) owns, leases and operates assisted living residences which provide housing to older persons who need help with the activities of daily living such as bathing and dressing. The Company provides personal care and support services and makes available routine health care services, as permitted by applicable law, designed to meet the needs of its residents.

2. Basis of Presentation

The condensed consolidated financial statements included herein have been prepared by the Company without audit and in the opinion of management include all adjustments (all of which are normal and recurring) necessary for a fair presentation of the results of operations for each of the three and six month periods ended June 30, 2002 and 2003, pursuant to the rules and regulations of the Securities and Exchange Commission. The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain reclassifications have been made to the prior period financial statements to conform to the current period presentation. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations; however the Company believes that the disclosures in the accompanying financial statements are adequate to make the information presented not misleading.

The accompanying condensed consolidated financial statements should be read in conjunction with the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2002 filed with the Securities and Exchange Commission. The results of operations for the three and six month periods ended June 30, 2003 are not necessarily indicative of the results for a full year.

The results of operations for the three and six month periods ended June 30, 2002 and 2003 reflect the continuing operations of 177 residences. Results of operations for five residences sold on September 30, 2002 and two residences sold in March 2003 are included in discontinued operations in the accompanying financial statements. (See Note 5).

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3. Long-Term Debt

As of December 31, 2002 and June 30, 2003, long-term debt consists of the following (in thousands):

                                 
    December 31, 2002   June 30, 2003
   
 
    Carrying   Principal   Carrying   Principal
    Amount   Amount   Amount   Amount
   
 
 
 
Trust Deed Notes, payable to the State of Oregon Housing and Community Services Department (OHCS) due 2028
  $ 9,688     $ 9,585     $ 9,603     $ 9,499  
Variable Rate Multifamily Revenue Bonds, payable to the Washington State Housing Finance Commission Department due 2028
    7,217       7,295       7,220       7,295  
Variable Rate Demand Housing Revenue Bonds, Series 1997, payable to the Idaho Housing and Finance Association due 2017
    6,277       6,345       6,280       6,345  
Variable Rate Demand Housing Revenue Bonds, Series A-1 and A-2 payable to the State of Ohio Housing Finance Agency due 2018
    11,451       11,575       10,455       10,575  
Housing and Urban Development Insured Mortgages due 2035
    7,329       7,410       7,305       7,385  
New Senior Secured Notes due 2009
    35,750       35,750       34,350       34,350  
New Junior Secured Notes due 2012
    13,925       16,225       15,254       17,154  
Mortgages payable due 2008
    27,995       27,948       27,674       27,675  
G.E. Capital (Previously Heller Healthcare Finance, Inc.) Credit Facility due 2005
    42,691       43,516       42,277       42,991  
Capital lease obligations
    269       269              
 
   
     
     
     
 
Total long-term debt
    162,592     $ 165,918       160,418     $ 163,269  
 
           
             
 
Less current portion
    11,521               2,760          
 
   
             
         
Long-term debt
  $ 151,071             $ 157,658          
 
   
             
         

The Trust Deed Notes payable to OHCS are secured by buildings, land, furniture and fixtures of six Oregon residences. The notes are payable in monthly installments including interest at effective rates ranging from 7.375% to 9.0%.

The Variable Rate Multifamily Revenue Bonds are payable to the Washington State Housing Finance Commission Department and at June 30, 2003 are secured by a $7.4 million letter of credit and by buildings, land, furniture and fixtures of the five Washington residences and had an interest rate of 1.2% at June 30, 2003. The letter of credit expires in January 2004 and had an interest rate of 1.2% at June 30, 2003.

The Variable Rate Demand Housing Revenue Bonds, Series 1997 are payable to the State of Idaho Housing and Finance Association and at June 30, 2003 are secured by a $6.5 million letter of credit and by buildings, land, furniture and fixtures of four Idaho residences and had an interest rate of 1.2% at June 30, 2003. The letter of credit expires in July 2004 and had an interest rate of 1.5% at June 30, 2003.

The Variable Rate Demand Housing Revenue Bonds are payable to the State of Ohio Housing Finance Agency (“OHFA”) and at June 30, 2003 are secured by a $10.8 million letter of credit and by buildings, land, furniture and fixtures of six Ohio residences and had an interest rate of 1.1% at June 30, 2003. The letter of credit expires in July 2005 and had an interest rate of 1.5% at June 30, 2003.

At June 30, 2003, mortgage loans include three fixed rate loans secured by seven Texas residences, three Oregon residences and three New Jersey residences. These loans collectively require monthly principal and interest payments of $230,000, with balloon payments of $11.8 million, $5.3 million and $7.2 million due at maturity in May 2008, August 2008 and September 2008, respectively. These loans bear fixed interest rates from 7.58% to 8.79%.

Housing and Urban Development (“HUD”) insured mortgages include three separate loan agreements entered into in 2001. These are fixed rate mortgages, each of which is secured by a separate facility in Texas. These loans mature between July 1, 2036 and August 1,

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2036 and collectively require monthly principal and interest payments of $47,493. The loans bear fixed interest rates between 7.40% and 7.55%.

The GE Capital credit facility is a secured line of credit up to $44.0 million. This is a variable rate credit facility, secured by 31 facilities. This credit facility matures in January 2005 and requires monthly principal payments of $65,000 for 2003 and $80,000 for 2004. The interest on the credit facility is calculated at LIBOR plus 4.5%, floating monthly (not to be less than 8%) and is payable monthly in arrears.

On January 1, 2002 the Debtors emerged from the proceedings under Chapter 11 of the Bankruptcy Code. The Company’s Plan of reorganization included the issuance of $40.25 million aggregate principal amount of seven-year secured notes (the “New Senior Secured Notes”), bearing interest at 10% per annum, payable semi-annually in arrears, and $15.25 million aggregate principal amount of ten-year secured notes (the “New Junior Secured Notes” and collectively with the New Senior Secured Notes, the “New Notes”), bearing interest payable in additional New Junior Secured Notes for three years at 8% per annum and thereafter payable in cash at 12% per annum, payable semi-annually in arrears. The New Junior Secured Notes were issued at a discount of $2.6 million. The discount is being amortized over the life of the New Junior Secured Notes using the effective interest method. The New Notes are secured by 51 properties as of June 30, 2003.

Of the $51.5 million outstanding in New Notes, $18.5 million is payable to related parties at June 30, 2003.

As of the Effective Date, the Successor Company revalued its long-term debt in conjunction with the implementation of fresh-start reporting. At December 31, 2001, an adjustment of $3.1 million was recorded to reduce long-term debt to its fair market value. Amortization of this adjustment is computed using the straight-line method over the individual loan life.

As of June 30, 2003, the following annual principal payments are required (in thousands):

             
July 1, 2003 through December 31, 2003
  $ 1,867  
 
2004
    2,942  
 
2005
    43,762  
 
2006
    2,258  
 
2007
    2,408  
Thereafter
    110,032  
 
   
 
   
Total
  $ 163,269  
 
   
 

The Company has a series of reimbursement agreements with U.S. Bank for letters of credit that secure certain of our Revenue bonds payable, which total approximately $24.7 million as of June 30, 2003. As such letters of credit expire, beginning in January 2004, the Company will need to obtain replacement letters of credit, post cash collateral or refinance the underlying debt. There can be no assurance that replacement letters of credit will be procured from the same or other lending institutions on terms that are acceptable to the Company. In the event that the Company is unable to obtain a replacement letter of credit or provide alternate collateral prior to the expiration of any of these letters of credit, the underlying debt would be in default. The Company’s agreements with U.S. Bank contain restrictive covenants that include compliance with certain financial ratios.

In May 2002, we amended our existing agreement with U.S. Bank, establishing new covenants, with which we were in compliance as of June 30, 2003. Failure to comply with these covenants would constitute an event of default, which would allow U.S. Bank to declare any amounts outstanding under the loan documents to be due and payable.

In addition to the debt agreements with OHCS related to the six owned residences in Oregon, the Company has entered into Lease Approval Agreements with OHCS and the lessor of the Oregon Leases, which obligates the Company to comply with the terms and conditions of the underlying trust deed relating to the leased buildings. Under the terms of the OHCS debt agreements, the Company is required to maintain a capital replacement escrow account to cover expected capital expenditure requirements for the Oregon Leases and the six OHCS loans.

As a further condition of the OHCS debt agreements, the Company is required to comply with the terms of certain regulatory agreements which provide, among other things, that in order to preserve the federal income tax exempt status of the bonds, the Company is required to lease at least 20% of the units of the projects to low or moderate income persons as defined in Section 142(d) of the Internal Revenue Code. There are additional requirements as to the age and physical condition of the residents with which the Company must also comply. Non-compliance with these restrictions may result in an event of default and cause acceleration of the scheduled repayment.

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4. Income Taxes

The Company anticipates taxable income for both financial reporting and tax return purposes for the year ending December 31, 2003, and accordingly has provided for federal and state income taxes on income from continuing operations and discontinued operations for the six months ended June 30, 2003. The Company has recorded such income tax expense at the rate of 38.1% for the six months ended June 30, 2003.

The provision for income taxes differs from the applicable U.S. statutory federal rate as a result of the following items:

         
Statutory federal tax rate
    34.0 %
State income taxes, net of federal benefit
    2.6 %
Non-deductible expenses
    1.5 %
 
   
 
Effective tax rate
    38.1 %
 
   
 

At December 31, 2002, the Company had approximately $93.5 million of net operating loss (NOL) carryforwards which will expire between 2009 and 2022. These NOL carryforwards have been reduced to approximately $16 million as a result of the discharge and cancellation of certain prepetition liabilities under the Plan. The reduction of the NOL carryforwards was effective on January 1, 2003.

The NOL carryforwards remaining after the application of the cancellation of indebtedness provisions are subject to certain provisions of the Internal Revenue Code which restricts the utilization of such NOL carryforwards. In addition, any net unrealized built-in losses resulting from the excess of tax basis over the carrying value of the Company’s assets (primarily property and equipment) as of the Effective Date, which are recognized within five years are also subject to these provisions. Section 382 of the Internal Revenue Code imposes limitations on the utilization of the NOL carryforwards and built-in losses after certain changes of ownership of a loss company. The Company is deemed to be a loss company for these purposes. Under these provisions, the Company’s ability to utilize these NOL carryforwards and built-in losses in the future will generally be subject to an annual limitation of approximately $1.6 million (the “Annual Limitation”). There can be no assurance that the Company will be able to utilize these NOL carryforwards or built-in losses and therefore, the Company established a 100 percent valuation allowance of approximately $43.6 million as of Effective Date. Pursuant to SOP 90-7, the income tax benefit, if any, of the future realization of these NOL carryforwards and built-in loss deductible temporary differences will be recorded as an adjustment to additional paid-in capital.

For the year ended December 31, 2002, the Annual Limitation was not utilized since the Company incurred a loss for financial statement purposes. A 100 percent valuation allowance of approximately $45.0 million was recorded to offset the associated net deferred tax asset as of December 31, 2002. For the full fiscal year ending December 31, 2003, the Company anticipates utilizing the 2003 Annual Limitation as well as some or all of the 2002 unused Annual Limitation. Because of the uncertainty of anticipating future taxable income, for the six months ended June 30, 2003 the Company has recorded a charge in lieu of taxes resulting from the initial recognition of built-in loss Annual Limitation tax benefits allocated as a credit to additional paid-in capital pursuant to SOP 90-7. To the extent the Company’s 2003 financial statement income after permanent differences exceeds $3.2 million (the annual limitation for 2002 and 2003) and depending upon the Company’s ability to recognize deferred tax assets which arose subsequent to the Effective Date, the Company’s effective tax rate for 2003 would likely be less than 38.1%.

Subsequently recognized tax benefits relating to the valuation allowance for deferred tax assets as of June 30, 2003 will be allocated as follows:

                 
Additional paid-in capital
  $ 42.5     million
Income tax benefit that would be reported in the consolidated statement of operations
    1.3     million
 
   
         
 
  $ 43.8     million
 
   
         

5. Discontinued Operations

During March 2003, the Company sold one residence in Ohio and one residence in Indiana. The total sales price for these residences was $2.6 million, and the Company recognized a gain from these sales of $899,000.

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In accordance with SFAS No. 144, the results of operations and the gain and losses from the sales have been included in “Income (loss) from discontinued operations” in the accompanying financial statements for the three and six month periods ended June 30, 2002 and 2003.

On September 30, 2002 the Company completed the sale of four Florida residences and one Georgia residence. Consequently, the results of operations for these residences are included in “Income (loss) from discontinued operations” in the accompanying financial statements for the three and six month periods ended June 30, 2002.

6. Stock-based Compensation

Previously, the Company accounted for stock-based compensation plans under the recognition and measurement provisions of APB Opinion No. 25, “Accounting for Stock Issued to Employees” (APB No. 25) and related interpretations. No stock-based employee compensation expense for stock options was reflected in Net Income previous to April 1, 2003, as all stock options granted under those plans had an exercise price equal to the fair market value of the underlying common stock on the date of grant. Effective April 1, 2003, the Company adopted the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation”, and recognizes compensation expense according to the prospective transition method under SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure”. Under this method the Company expenses the fair value of all new stock options granted after January 1, 2003. The following table illustrates the effect on net income and earnings per share had the company applied the fair value accounting method to all of the Company’s stock option grants.

                                   
      Three Months Ended June 30,   Six Months Ended June 30,
     
 
      2002   2003   2002   2003
     
 
 
 
Net income (loss), as reported
  $ (2,630 )   $ 763     $ (4,080 )   $ 1,794  
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects
          93             93  
Deduct: Total stock-based employee compensation expense determined under fair value method for all awards granted, net of related tax effects
    (12 )     (118 )     (13 )     (144 )
 
   
     
     
     
 
Pro forma net income (loss)
  $ (2,642 )   $ 738     $ (4,093 )   $ 1,743  
 
   
     
     
     
 
Net income (loss) per share:
                               
 
Basic — as reported
  $ (0.41 )   $ 0.12     $ (0.63 )   $ 0.28  
 
Basic — pro forma
  $ (0.41 )   $ 0.11     $ (0.63 )   $ 0.27  
 
Diluted — as reported
  $ (0.41 )   $ 0.12     $ (0.63 )   $ 0.27  
 
Diluted — pro forma
  $ (0.41 )   $ 0.11     $ (0.63 )   $ 0.27  

7. Income (Loss) Per Share

The weighted average common shares used for basic net income (loss) per common share were 6,500,000 for the three and six month periods ended June 30, 2002 and 2003. The effect of dilutive stock options using the treasury stock method added 110,113 shares for the three month period ended June 30, 2003 and 52,519 shares for the six month period ended June 30, 2003. The effect of options for the three and six month periods ended June 30, 2002 is not considered since their effect is antidilutive.

8. Subsequent Event

In July 2003, the Company completed an open market purchase of a portion of the Company’s outstanding 10% Senior Secured Notes due 2009 and Junior Secured Notes due 2012. The transaction included the purchase of $147,889 principal amount of Senior Secured Notes and $34,178 principal amount of Junior Secured Notes (collectively, the “Purchase Notes”). Because the purchase of the Junior Notes is not permitted under the Indentures and constitutes a Default thereunder, and the purchase of the Senior Notes may not be permitted and could constitute Default there under, although this issue is not clear, the Company intends to cure the Default by reversing these transactions and selling the Purchased Notes. Failure to cure the Default under the Indentures could have a material adverse effect on the Company.

9. Subsidiary Guarantee of New Notes

The New Notes, issued by the Company, are publicly traded and the repayment of these notes is guaranteed by three wholly owned subsidiaries of the Company: ALC Indiana, Inc., Home and Community Care, Inc. (“HCI”) and Carriage House Assisted Living, Inc. (“Carriage House”). The following information is presented as required under the Securities and Exchange Commission Financial Reporting Release No. 55 in connection with the guarantee of the New Notes by the Company’s wholly owned subsidiaries. The operating and investing activities of the separate legal entities included in the consolidating financial statements are fully interdependent and integrated with the Company and each other.

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ASSISTED LIVING CONCEPTS, INC.
CONSOLIDATING BALANCE SHEETS
JUNE 30, 2003
(in thousands, except share amounts)
(unaudited)

                                                             
                Wholly-Owned Subsidiaries                
               
               
                ALC                   Non-                
                Indiana,   Carriage           Participating   Consolidating   Consolidated
        ALC, Inc.   Inc.   House   HCI   Subsidiaries   Adjustments   Total
       
 
 
 
 
 
 
ASSETS
Current Assets:
                                                       
 
Cash and cash equivalents
  $ 10,256     $     $     $     $     $     $ 10,256  
 
Cash restricted for resident security deposits
    1,673                                     1,673  
 
Accounts receivable, net of allowance for doubtful accounts
    3,178                         242             3,420  
 
Prepaid insurance
    745                                     745  
 
Prepaid expenses
    675                                     675  
 
Cash restricted for workers’ compensation claims
    4,407                                     4,407  
 
Other current assets
    1,139                         2,011             3,150  
 
   
     
     
     
     
     
     
 
   
Total current assets
    22,073                         2,253             24,326  
Restricted cash
    5,312                                     5,312  
Receivable from subsidiaries/parent
    9,380       5,023               3,289       1,068       (18,760 )      
Property and equipment, net
    85,529       12,444       3,501       4,111       78,052             183,637  
Investment in subsidiaries
    29,634                               (29,634 )      
Deferred income taxes
    990                                     990  
Other assets, net
    1,883                         466             2,349  
 
   
     
     
     
     
     
     
 
   
Total assets
  $ 154,801     $ 17,467     $ 3,501     $ 7,400     $ 81,839     $ (48,394 )   $ 216,614  
 
   
     
     
     
     
     
     
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
                                                       
 
Accounts payable
  $ 594     $     $     $     $ 39     $     $ 633  
 
Accrued real estate taxes
    2,451       446       239       102       771             4,009  
 
Accrued interest expense
    1,837                         187             2,024  
 
Accrued payroll expense
    4,900                         71             4,971  
 
Other accrued expenses
    6,700                         57             6,757  
 
Resident security deposits
    1,414                   (1 )     149             1,562  
 
Other current liabilities
    1,355       243                               1,598  
 
Current portion of unfavorable lease adjustment
    505             78                         583  
 
Current portion of long-term debt and capital lease obligation
    1,257                         1,503             2,760  
 
   
     
     
     
     
     
     
 
   
Total current liabilities
    21,013       689       317       101       2,777             24,897  
Other liabilities
    533             45                         578  
Unfavorable lease adjustment, net of current portion
    1,850             309             61             2,220  
Long-term debt and capital lease obligation, net of current portion
    81,901                         75,757             157,658  
Payable to subsidiaries/parent
    18,070             690                   (18,760 )      
 
   
     
     
     
     
     
     
 
   
Total liabilities
    123,367       689       1,361       101       78,595       (18,760 )     185,353  
 
   
     
     
     
     
     
     
 
Commitments and contingencies
                                                       
Shareholders’ equity:
                                                       
 
Preferred stock
                                         
 
Common stock
    65       16,342                         (16,342 )     65  
 
Additional paid-in capital
    33,989             2,549       7,365       5,667       (15,754 )     33,816  
 
Accumulated deficit
    (2,620 )     436       (409 )     (66 )     (2,423 )     2,462       (2,620 )
 
   
     
     
     
     
     
     
 
   
Total shareholders’ equity
    31,434       16,778       2,140       7,299       3,244       (29,634 )     31,261  
 
   
     
     
     
     
     
     
 
   
Total liabilities and shareholder’s’equity
  $ 154,801     $ 17,467     $ 3,501     $ 7,400     $ 81,839     $ (48,394 )   $ 216,614  
 
   
     
     
     
     
     
     
 

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ASSISTED LIVING CONCEPTS, INC.

CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 2002
(in thousands, except share amounts)

                                                             
                Wholly-Owned Subsidiaries                
               
               
                ALC                   Non-                
                Indiana,   Carriage           Participating   Consolidating   Consolidated
        ALC, Inc.   Inc.   House   HCI   Subsidiaries   Adjustments   Total
       
 
 
 
 
 
 
ASSETS
Current Assets:
                                                       
 
Cash and cash equivalents
  $ 7,165     $     $     $     $     $     $ 7,165  
 
Cash restricted for resident security deposits
    1,929                                     1,929  
 
Accounts receivable, net of allowance for doubtful accounts
    2,446                   3       266             2,715  
 
Prepaid insurance
    343                                     343  
 
Prepaid expenses
    946                         45             991  
 
Assets held for sale
    9,727                                     9,727  
 
Cash restricted for workers’ compensation claims
    4,696                                     4,696  
 
Other current assets
    1,199                   3       1,991             3,193  
 
   
     
     
     
     
     
     
 
   
Total current assets
    28,451                   6       2,302             30,759  
Restricted cash
    5,315                                     5,315  
Receivable from subsidiaries/parent
    9,745       6,454               2,780               (18,979 )      
Property and equipment, net
    81,328       12,565       3,558       4,176       76,303             177,930  
Investment in subsidiaries
    27,632                               (27,632 )      
Deferred income taxes
                                         
Other assets, net
    1,635                         401             2,036  
 
   
     
     
     
     
     
     
 
   
Total assets
  $ 154,106     $ 19,019     $ 3,558     $ 6,962     $ 79,006     $ (46,611 )   $ 216,040  
 
   
     
     
     
     
     
     
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
                                                       
 
Accounts payable
  $ 234     $     $     $ 1     $ 534     $     $ 769  
 
Accrued real estate taxes
    2,830       285       234       71       1,416             4,836  
 
Accrued interest expense
    2,147                         27             2,174  
 
Accrued payroll expense
    4,960                         61             5,021  
 
Other accrued expenses
    5,669                         49             5,718  
 
Resident security deposits
    1,779                   (1 )     213             1,991  
 
Other current liabilities
    976                                     976  
 
Current portion of unfavorable lease adjustment
    525             82                         607  
 
Current portion of long-term debt and capital lease obligation
    8,817                         2,704             11,521  
 
   
     
     
     
     
     
     
 
   
Total current liabilities
    27,937       285       316       71       5,004             33,613  
Other liabilities
    430             33                         463  
Unfavorable lease adjustment, net of current portion
    2,095             347             66             2,508  
Long-term debt and capital lease obligation, net of current portion
    78,852                         72,219             151,071  
Payable to subsidiaries/parent
    16,234             1,236             1,509       (18,979 )      
 
   
     
     
     
     
     
     
 
   
Total liabilities
    125,548       285       1,932       71       78,798       (18,979 )     187,655  
 
   
     
     
     
     
     
     
 
Commitments and contingencies
                                                       
Shareholders’ equity:
                                                       
 
Preferred stock
                                         
 
Common stock
    65       16,342                         (16,342 )     65  
 
Additional paid-in capital
    32,907             2,548       7,365       5,667       (15,753 )     32,734  
 
Accumulated deficit
    (4,414 )     2,392       (922 )     (474 )     (5,459 )     4,463       (4,414 )
 
   
     
     
     
     
     
     
 
   
Total shareholders’ equity
    28,558       18,734       1,626       6,891       208       (27,632 )     28,385  
 
   
     
     
     
     
     
     
 
   
Total liabilities and shareholders’ equity
  $ 154,106     $ 19,019     $ 3,558     $ 6,962     $ 79,006     $ (46,611 )   $ 216,040  
 
   
     
     
     
     
     
     
 

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ASSISTED LIVING CONCEPTS, INC.

CONSOLIDATING STATEMENTS OF OPERATIONS
Six Months Ended June 30, 2003
(in thousands)
(undaudited)

                                                     
                Wholly-Owned Subsidiaries        
               
       
                ALC                   Non-        
                Indiana,   Carriage           participating   Consolidated
        ALC,INC.   Inc.   House   HCI   Subsidiaries   Total
       
 
 
 
 
 
Revenue
  $ 75,657     $     $     $     $ 7,419     $ 83,076  
Operating expenses:
                                               
 
Residence operating expenses
    49,772       197       128             5,346       55,443  
 
Corporate general and administrative
    9,102                               9,102  
 
Building rentals
    5,778             446                   6,224  
 
Depreciation and amortization
    1,696       203       69       66       1,343       3,377  
 
   
     
     
     
     
     
 
   
Total operating expenses
    66,348       400       643       66       6,689       74,146  
 
   
     
     
     
     
     
 
Operating income (loss)
    9,309       (400 )     (643 )     (66 )     730       8,930  
 
   
     
     
     
     
     
 
Other income (expense):
                                               
 
Interest expense
    (3,569 )                       (3,289 )     (6,858 )
 
Interest income
    66                               66  
 
Management fee income (expense)
    98             (234 )           136        
 
Lease income (expense)
    (1,080 )     1,080                          
 
Other expense, net
    (71 )                             (71 )
 
   
     
     
     
     
     
 
   
Total other expense, net
    (4,556 )     1,080       (234 )           (3,153 )     (6,863 )
 
   
     
     
     
     
     
 
Income (loss) from continuing operations before income taxes
    4,753       680       (877 )     (66 )     (2,423 )     2,067  
 
Income tax expense
    524       243                         767  
 
   
     
     
     
     
     
 
Income (loss) from continuing operations
    4,229       437       (877 )     (66 )     (2,423 )     1,300  
Income (loss) from discontinued operations (including gain on sale of assets)
    830                               830  
 
Income tax expense
    336                               336  
 
   
     
     
     
     
     
 
Income from discontinued operations
    494                               494  
 
   
     
     
     
     
     
 
 
Net income (loss)
  $ 4,723     $ 437     $ (877 )   $ (66 )   $ (2,423 )   $ 1,794  
 
   
     
     
     
     
     
 

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ASSISTED LIVING CONCEPTS, INC

CONSOLIDATING STATEMENTS OF OPERATIONS
Six Months Ended June 30, 2002
(in thousands)
(undaudited)

                                                     
                Wholly-Owned Subsidiaries        
               
       
                ALC                   Non-        
                Indiana,   Carriage           Participating   Consolidated
        ALC, Inc.   Inc.   House   HCI   Subsidiaries   Total
       
 
 
 
 
 
Revenue
  $ 67,739     $     $     $     $ 7,088     $ 74,827  
Operating expenses:
                                               
 
Residence operating expenses
    46,005       136       125             5,361       51,627  
 
Corporate general and administrative
    9,895                               9,895  
 
Building rentals
    5,638             467                   6,105  
 
Depreciation and amortization
    1,658       199       64       44       1,291       3,256  
 
   
     
     
     
     
     
 
   
Total operating expenses
    63,196       335       656       44       6,652       70,883  
 
   
     
     
     
     
     
 
Operating income (loss)
    4,543       (335 )     (656 )     (44 )     436       3,944  
Other income (expense):
                                               
 
Interest expense
    (3,775 )                       (3,282 )     (7,057 )
 
Interest income
    106                               106  
 
Management fee income (expense)
    89             (150 )           61        
 
Lease income (expense)
    (1,080 )     1,080                          
 
Other income, net
    19                               19  
 
   
     
     
     
     
     
 
   
Total other income (expense), net
    (4,641 )     1,080       (150 )           (3,221 )     (6,932 )
 
   
     
     
     
     
     
 
Income (loss) before debt restructure, and reorganization cost, and discontinued operations
    (98 )     745       (806 )     (44 )     (2,785 )     (2,988 )
Debt restructure and reorganization costs
    (666 )                             (666 )
 
   
     
     
     
     
     
 
Income (loss) from continuing operations
    (764 )     745       (806 )     (44 )     (2,785 )     (3,654 )
Income (loss) from discontinued operations
    (334 )                 (423 )     331       (426 )
 
   
     
     
     
     
     
 
 
Net income (loss)
  $ (1,098 )   $ 745     $ (806 )   $ (467 )   $ (2,454 )   $ (4,080 )
 
   
     
     
     
     
     
 

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ASSISTED LIVING CONCEPTS, INC.
CONSOLIDATING STATEMENT OF CASH FLOWS
Six months ended June 30, 2003
(in thousands)
(unaudited)

                                                       
                  Wholly-Owned Subsidiaries        
                 
       
                  ALC                   Non-        
                  Indiana,   Carriage           Participating   Consolidated
          ALC, Inc.   Inc.   House   HCI   Subsidiaries   Total
         
 
 
 
 
 
Operating Activities:
                                               
 
Net income (loss)
  $ 4,723     $ 437     $ (877 )   $ (66 )   $ (2,423 )   $ 1,794  
Adjustment to reconcile net income (loss) to net cash provided by operating activities:
                                               
   
Depreciation and amortization
    1,696       203       69       66       1,343       3,377  
   
Stock-based compensation expense
    93                               93  
   
Amortization of deferred financing fees
    55                               55  
   
Amortization of fair value adjustment to building rentals
    (271 )           (41 )                 (312 )
   
Amortization of fair market adjustment to debt
    184                               184  
   
Amortization of note discount
    271                               271  
   
Straight-line adjustment to building rentals
    115                               115  
   
Interest paid-in-kind
    660                               660  
   
Provision for doubtful accounts
    437                         19       456  
   
Gain on sale or disposal of assets
    (833 )                             (833 )
Changes in assets and liabilities:
                                               
   
Receivable (payable) from subsidiaries/ parent
    (2,085 )     (963 )     844       (35 )     2,239        
   
Accounts receivable
    (1,189 )                 3       24       (1,162 )
   
Prepaid expenses
    (131 )                       45       (86 )
   
Other current assets
    60                   3       (20 )     43  
   
Other assets
    (303 )                       (65 )     (368 )
   
Accounts payable
    360                   (1 )     (495 )     (136 )
   
Accrued expenses
    352       161       5       31       (467 )     82  
   
Other current liabilities
    (120 )     243                         123  
   
Other liabilities
    (12 )           12                    
 
   
     
     
     
     
     
 
     
Net cash provided by operating activities
    4,062       81       12       1       200       4,356  
Investing Activities:
                                               
Decrease in restricted cash
    548                               548  
Purchases of property and equipment
    (799 )     (81 )     (12 )     (1 )     (200 )     (1,093 )
Sale of properties
    2,569                               2,569  
 
   
     
     
     
     
     
 
     
Net cash provided by (used in) investing activities
    2,318       (81 )     (12 )     (1 )     (200 )     2,024  
Financing Activities:
                                               
Proceeds from long-term debt
                                   
Payments on long-term debt and capital lease obligation
    (3,289 )                             (3,289 )
Debt issuance costs
                                   
 
   
     
     
     
     
     
 
   
Net cash used in financing activities
    (3,289 )                             (3,289 )
 
   
     
     
     
     
     
 
Net increase in cash and cash equivalents
    3,091                               3,091  
Cash and cash equivalents, beginning of period
    7,165                               7,165  
 
   
     
     
     
     
     
 
 
Cash and cash equivalents, end of period
  $ 10,256     $     $     $     $     $ 10,256  
 
   
     
     
     
     
     
 

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ASSISTED LIVING CONCEPTS, INC.
CONSOLIDATING STATEMENT OF CASH FLOWS
Six months ended June 30, 2002
(in thousands)
(unaudited)

                                                     
                Wholly-Owned Subsidiaries        
               
       
                ALC                   Non-        
                Indiana,   Carriage           Participating   Consolidated
        ALC, Inc.   Inc   House   HCI   Subsidiaries   Total
       
 
 
 
 
 
Operating Activities:
                                               
Net income (loss)
  $ (1,098 )   $ 745     $ (806 )   $ (467 )   $ (2,454 )   $ (4,080 )
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
                                               
 
Depreciation and amortization
    1,702       199       64       103       1,291       3,359  
 
Amortization of debt issuance costs
    52                               52  
 
Amortization of fair value adjustment to building rentals
    (260 )           (46 )                 (306 )
 
Amortization of fair market adjustment to long- term debt
    213                               213  
 
Amortization of discount on long-term debt
    211                               211  
 
Straight-line adjustment to building rentals
    188                               188  
 
Interest paid-in-kind
    610                               610  
 
Provision for doubtful accounts
    137                         (5 )     132  
 
Loss on sale of assets
    20                   423             443  
Changes in assets and liabilities:
                                               
 
Receivable from subsidiaries/parent
    645       (862 )     816       (87 )     (512 )      
 
Accounts receivable
    (145 )                 11       (2 )     (136 )
 
Prepaid expenses
    (1,245 )                       43       (1,202 )
 
Other current assets
    605                   3       (436 )     172  
 
Other assets
    (253 )                       (46 )     (299 )
 
Accounts payable
    (24 )                 (3 )     (191 )     (218 )
 
Accrued expenses
    2,088       (59 )     8       14       (608 )     1,443  
 
Other current liabilities
    371                   3       (80 )     294  
 
Other liabilities
    656             18             (674 )      
 
   
     
     
     
     
     
 
   
Net cash provided by (used in) operating activities
    4,473       23       54             (3,674 )     876  
Investing Activities:
                                               
Decrease/increase in restricted cash
    (2,680 )                             (2,680 )
Purchases of property and equipment
    2,171       (23 )     (54 )             (3,427 )     (1,333 )
 
   
     
     
     
     
     
 
   
Net cash used in investing activities
    (509 )     (23 )     (54 )           (3,427 )     (4,013 )
Financing Activities:
                                               
Proceeds from long-term debt
    (3,701 )                       7,101       3,400  
Payments on long-term debt and capital lease obligation
    (725 )                             (725 )
Debt issuance costs
    (79 )                             (79 )
 
   
     
     
     
     
     
 
   
Net cash provided by (used in ) financing activities
    (4,505 )                       7,101       2,596  
 
   
     
     
     
     
     
 
Net decrease in cash and cash equivalents
    (541 )                             (541 )
Cash and cash equivalents, beginning of period
    6,077                               6,077  
 
   
     
     
     
     
     
 
Cash and cash equivalents, end of period
  $ 5,536     $     $     $     $     $ 5,536  
 
   
     
     
     
     
     
 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

References in this section to “ALC,” the “Company,” “us” or “we” refer to Assisted Living Concepts, Inc. and its wholly owned subsidiaries.

General

We operate, own and lease free-standing assisted living residences. These residences are primarily located in small, middle-market, rural and suburban communities with a population typically ranging from 10,000 to 40,000. As of June 30, 2003, we had operations in 14 states.

We provide personal care and support services, and make available routine nursing services (as permitted by applicable law) designed to meet the personal and health care needs of our residents. We believe that this combination of residential, personal care, support and health care services provides a cost-efficient alternative to, and affords an independent lifestyle for, individuals who do not require the broader array of medical services that nursing facilities are required by law to provide.

As of June 30, 2003, we operated 177 assisted living residences (6,838 units), of which we owned 122 residences (4,733 units) and leased 55 residences (2,105 units).

We derive our revenues primarily from resident fees for room, board and care. Resident fees typically are paid monthly by residents, their families, state Medicaid agencies or other third parties. Resident fees include revenue derived from a multi-tiered rate structure, which varies based on the level of care provided. Resident fees are recognized as revenues when services are provided. Our expenses include:

    residence operating expenses, such as staff payroll, food, property taxes, utilities, insurance and other direct residence operating expenses;
 
    general and administrative expenses consisting of regional management and corporate support functions such as legal, accounting and other administrative expenses;
 
    building rentals;
 
    depreciation and amortization; and
 
    interest expense related to debt.

We anticipate that the majority of our revenues will continue to come from private pay sources. However, we believe that by having located some of our residences in states with favorable regulatory and reimbursement climates, we should have a stable source of residents eligible for Medicaid reimbursement to the extent that private pay residents are not available and, in addition, provide our private pay residents with alternative sources of income when their private funds are depleted and they become Medicaid eligible.

Although we manage the mix of private paying residents and Medicaid paying residents residing in our facilities, any significant increase in our Medicaid population could have an adverse effect on our financial position, results of operations and cash flows, particularly if states operating these programs continue to limit, or more aggressively seek limits on, reimbursement rates.

Fresh-Start Reporting

Upon the Effective Date of our Plan of reorganization, we adopted fresh-start reporting in accordance with the American Institute of Certified Public Accountants Statement of Position 90-7, “Financial Reporting By Entities in Reorganization Under the Bankruptcy Code” (SOP 90-7). In connection with the adoption of fresh-start reporting, a new entity has been deemed created for financial reporting purposes. For financial reporting purposes, we adopted the provisions of fresh-start reporting effective December 31, 2001. In adopting the requirements of fresh-start reporting as of December 31, 2001, we were required to value our assets and liabilities at their estimated fair value and eliminate our accumulated deficit at December 31, 2001.

Sales of Residences

During March 2003, the Company sold one residence in Ohio and one residence in Indiana. The total sales price for these residences was $2.6 million, and the Company recognized a gain from these sales of $899,000.

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Table of Contents

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate these estimates, including those related to bad debts, income taxes, professional and general liability reserves, the carrying value of long-lived assets, financing operations, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Results of Operations

The following tables set forth, for the periods presented, operating expenses as a percentage of revenue, the number of total residences and units operated, average occupancy and rental rates and the sources of our revenue. The portion of revenues received from state Medicaid agencies are labeled as “Medicaid state paid portion” while the portion of our revenues that a Medicaid-eligible resident must pay out of his or her own resources is labeled “Medicaid resident paid portion.”

                                     
        Three Months Ended June 30,   Six Months Ended June 30,
       
 
        2002   2003   2002   2003
       
 
 
 
Revenue
    100.0       100.0       100.0       100.0  
Operating expenses:
                               
 
Residence operating expenses
    69.2       66.1       69.0       66.7  
 
Corporate general and administrative
    14.8       11.4       13.2       11.0  
 
Building rentals
    8.1       7.4       8.2       7.5  
 
Depreciation and amortization
    4.3       4.1       4.3       4.1  
 
   
     
     
     
 
   
Total operating expenses
    96.4       89.0       94.7       89.3  
 
   
     
     
     
 
Operating income
    3.6       11.0       5.3       10.7  
Other income (expense):
                               
 
Interest expense
    (9.2 )     (8.2 )     (9.4 )     (8.3 )
 
Interest income
    0.1       0.1       0.1       0.1  
 
Other income, net
    0.0       (0.2 )     0.0       (0.1 )
 
   
     
     
     
 
   
Total other expense, net
    (9.0 )     (8.3 )     (9.3 )     (8.3 )
Income (loss) before debt restructure, reorganization costs, and discontinued operations
    (5.4 )     2.8       (4.0 )     2.4  
Debt restructure and reorganization costs
    (0.6 )           (0.9 )      
 
   
     
     
     
 
Income (loss) from continuing operations before income taxes
    (6.0 )     2.8       (4.9 )     2.4  
 
Income tax expense
          1.0             0.8  
 
   
     
     
     
 
Income (loss) from continuing operations
    (6.0 )     1.8       (4.9 )     1.6  
Discontinued operations:
                               
 
Income (loss) from operations (including gain on sale of assets)
    (1.0 )           (0.6 )     1.0  
 
Income tax expense
                      (0.4 )
 
   
     
     
     
 
Income (loss) from discontinued operations
    (1.0 )           (0.6 )     0.6  
 
   
     
     
     
 
Net income (loss)
    (7.0 )     1.8       (5.5 )     2.2  
 
   
     
     
     
 
                                     
        Three Months Ended June 30,   Six Months Ended June 30,
       
 
        2002   2003   2002   2003
       
 
 
 
Other Data Relating to Continuing Operations:
                               
 
Residences operated (end of period)
    177       177       177       177  
 
Units operated (end of period)
    6,844       6,838       6,844       6,838  
 
Average occupancy rate (based on occupied units)
    84.5 %     87.6 %     84.4 %     87.8 %
 
Average monthly rental rate
  $ 2,159     $ 2,301     $ 2,140     $ 2,268  
 
Sources of revenue:
                               
   
Medicaid state paid portion
    12.70 %     13.60 %     12.40 %     13.30 %
   
Medicaid resident paid portion
    7.70 %     8.70 %     7.70 %     8.70 %
   
Private resident paid portion
    79.60 %     77.70 %     79.90 %     78.00 %
 
   
     
     
     
 
   
Total
    100.00 %     100.00 %     100.00 %     100.00 %
 
   
     
     
     
 

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Three months ended June 30, 2003 compared to three months ended June 30, 2002:

The Company recorded net income of $763,000 on revenues of $41.9 million for the three months ended June 30, 2003 (the “June 2003 Quarter”) compared to a net loss of $2.6 million on revenues of $37.8 million for the three months ended June 30, 2002 (the “June 2002 Quarter”).

Revenues increased $4.1 million for the June 2003 Quarter compared to the June 2002 Quarter primarily due to an increase in average occupancy percentage of approximately three percent and an increase in average rental rate received from residents of approximately $142 per month. In March 2003 the Company instituted a rent increase in all its residences.

Residence operating expenses increased $1.6 million for the June 2003 Quarter compared to the June 2002 Quarter but decreased as a percentage of revenue from 69.2% to 66.1%. Of the increase, $1.3 million is attributable to an increase in payroll expenses, which decreased slightly as a percentage of revenue. The increase in payroll is primarily due to an increase in benefits and workers’ compensation expense, additional personnel, and increased salaries and wages, including expenses related to employee incentives. An increase in utilities expense of $537,000 in addition to less significant increases in other expense categories comprise the remaining increase in residence operating expenses from the June 2002 Quarter to the June 2003 Quarter. These increases were offset primarily by a decrease of $186,000 in insurance costs, primarily liability insurance, and less significant decreases in other expense categories.

Corporate, general and administrative expenses decreased $818,000 for the June 2003 Quarter compared to the June 2002 Quarter and decreased as a percentage of revenue from 14.8% to 11.4%. This decrease is primarily related to $700,000 of severance expenses incurred in the June 2002 Quarter related to management changes. The Company incurred no severance expenses during the June 2003 Quarter. Also contributing to the decrease in administrative expenses was a $318,000 decrease in travel related expenses from the June 2002 Quarter to the June 2003 Quarter. These expenses decreased primarily due to the completion of the corporate office relocation to Dallas, Texas in May 2003 and the corporate office’s new facilities being more centrally located to the Company’s residences. These decreases were offset primarily by increases from the June 2002 Quarter to the June 2003 Quarter in bonus expenses and other employee incentives and hiring expenses of $280,000 and stock option expense of $93,000. Effective April 1, 2003, the Company has voluntarily elected to expense stock options issued by the Company during 2003.

Building rentals increased $52,000 for the June 2003 Quarter compared to the June 2002 Quarter but decreased as a percentage of revenue from 8.1% to 7.4%.

Depreciation and amortization expense increased by $57,000 for the June 2003 Quarter compared to the June 2002 Quarter.

Interest expense decreased $37,000 for the June 2003 Quarter compared to the June 2002 Quarter. The decrease is due to the overall reduction of indebtedness.

Debt restructure and reorganization costs were $219,000 for the June 2002 Quarter. These are professional fees, including legal and investment advisory fees, related to the Company’s Plan of Reorganization which became effective January 1, 2002. The Company did not incur these expenses in the June 2003 Quarter.

Results from discontinued operations during the June 2002 Quarter include results of operations, sales-related expenses from residences that were subsequently sold and gains and/or losses related to those sales. All results and sales expenses related to previously sold residences had been recorded prior to the June 2003 Quarter.

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Table of Contents

Income tax expense was $403,000 for the June 2003 Quarter. The Company anticipates taxable income for both financial reporting and tax return purposes for the year ended December 31, 2003, and accordingly has provided for federal and state income taxes on income from continuing operations and discontinued operations for the three months ended June 30, 2003. The Company has recorded such income tax expense at the rate of 38.1%, the estimated effective tax rate for the full fiscal year, less the effect of the change in the estimate from the three months ended March 31, 2003. To the extent the Company’s 2003 financial statement income after permanent differences exceeds $3.2 million (the annual limitation for 2002 and 2003) and depending upon the Company’s ability to recognize deferred tax assets which arose subsequent to the Effective Date, the Company’s effective tax rate for 2003 would likely be less than 38.1%.

Six months ended June 30, 2003 compared to six months ended June 30, 2002:

The Company recorded net income of $1.8 million on revenues of $83.1 million for the six months ended June 30, 2003 compared to a net loss of $4.1 million on revenues of $74.8 million for the six months ended June 30, 2002.

Revenues increased $8.2 million for the six months ended June 2003 compared to the six months ended June 2002 primarily due to an increase in average occupancy percentage of approximately 3.4 percent and an increase in average rental rate received from residents of approximately $128 per month. In March 2003 the Company instituted a rent increase in all its residences.

Residence operating expenses increased $3.8 million for the six months ended June 2003 compared to the six months ended June 2002 but decreased as a percentage of revenue from 69.0% to 66.7%. Of the increase, $2.5 million is attributable to an increase in payroll expenses, which decreased slightly as a percentage of revenue. The increase in payroll is primarily due to an increase in benefits and workers’ compensation expense, additional personnel, and increased salaries and wages, including expenses related to employee incentives. An increase in utilities expense of $1.0 million in addition to less significant increases in other expense categories comprise the remaining increase in residence operating expenses from the six months ended June 2002 to the six months ended June 2003. These increases were offset primarily by a decrease of $368,000 in insurance costs, primarily liability insurance, and less significant decreases in other expense categories.

Corporate, general and administrative expenses decreased $793,000 for the six months ended June 2003 compared to the six months ended June 2002 and decreased as a percentage of revenue from 13.2% to 11.0%. This decrease is primarily related to $700,000 of severance expenses incurred in the six months ended June 2002 related to management changes. The Company incurred no severance expenses during the six months ended June 2003. Also contributing to the decrease in administrative expenses was a $385,000 decrease in travel related expenses from the six months ended June 2002 to the six months ended June 2003. These expenses decreased primarily due to the completion of the corporate office relocation to Dallas, Texas in May 2003 and the corporate office’s new facilities being more centrally located to the Company’s residences. These decreases were offset primarily by increases from the six months ended June 2002 to the six months ended June 2003 in bonus expenses and other employee incentives and hiring expenses of $382,000 and stock option expense of $93,000. Effective April 1, 2003, the Company has voluntarily elected to expense stock options issued by the Company during 2003.

Building rentals increased $119,000 for the six months ended June 2003 compared to the six months ended June 2002 but decreased as a percentage of revenue from 8.2% to 7.5%.

Depreciation and amortization expense increased by $121,000 for the six months ended June 2003 compared to the six months ended June 2002.

Interest expense decreased $199,000 for the six months ended June 2003 compared to the six months ended June 2002. The decrease is due to the overall reduction of indebtedness.

Debt restructure and reorganization costs were $666,000 for the six months ended June 2002. These are professional fees, including legal and investment advisory fees, related to the Company’s Plan of Reorganization which became effective January 1, 2002. The Company did not incur these expenses in the six months ended June 2003.

Results from discontinued operations during the six months ended June 2002 include results of operations, sales-related expenses from residences that were subsequently sold and gains and/or losses related to those sales. The results from discontinued operations during the six months ended June 2003 include results of operations, sales-related expenses from residences which were sold during March 2003, and gains and/or losses related to those sales.

Income tax expense was $1.1 million for the six months ended June 2003. The Company anticipates taxable income for both financial reporting and tax return purposes for the year ended December 31, 2003, and accordingly has provided for federal and state income

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taxes on income from continuing operations and discontinued operations for the six months ended June 30, 2003. The Company has recorded such income tax expense at the rate of 38.1%, the estimated effective tax rate for the full fiscal year. To the extent the Company’s 2003 financial statement income after permanent differences exceeds $3.2 million (the annual limitation for 2002 and 2003) and depending upon the Company’s ability to recognize deferred tax assets which arose subsequent to the Effective Date, the Company’s effective tax rate for 2003 would likely be less than 38.1%.

Liquidity and Capital Resources

At June 30, 2003, we had a working capital deficit of $571,000 and unrestricted cash and cash equivalents of $10.3 million.

Net cash provided by operating activities was $4.4 million during the six months ended June 30, 2003. The primary sources were net income of $1.8 million and the $3.4 million adjustment for depreciation and amortization.

Net cash provided by investing activities was $2.0 million during the six months ended June 30, 2003. The source was the sale of properties for $2.6 million.

Net cash used in financing activities was $3.3 million during the six months ended June 30, 2003, all of which related to payments on long-term debt.

Related to the New Notes, in June 2003 the Company received a notice of default from the Trustee indicating that the Company failed to comply with a non-financial covenant under the Indentures pertaining to the New Notes that requires the Company to deliver an annual opinion stating that all filings, recordings or other actions that are necessary to maintain the Liens under the Collateral Documents (as such terms are defined under the Indentures pertaining to the New Notes) have been done, or that no such action is required. The Company has delivered the required annual opinions to the Trustee and has received notice from the Trustee that the Default referenced in the Notice has been cured.

In July 2003, the Company completed an open market purchase of a portion of the Company’s outstanding 10% Senior Secured Notes due 2009 and Junior Secured Notes due 2012. The transaction included the purchase of $147,889 principal amount of Senior Secured Notes and $34,178 principal amount of Junior Secured Notes (collectively, the “Purchased Notes”). Because the purchase of the Junior Notes is not permitted under the Indentures and constitutes a Default there under, and the purchase of the Senior Notes may not be permitted and could constitute Default there under, although this issue is not clear, the Company intends to cure the Default by reversing these transactions and selling the Purchased Notes. Failure to cure the Default under the Indentures could have a material adverse effect on the Company.

As of June 30, 2003, approximately $24.2 million of our indebtedness was secured by letters of credit issued by U.S. Bank which have termination dates prior to the maturity of the underlying debt. As such letters of credit expire, beginning in January 2004, we will need to obtain replacement letters of credit, post cash collateral or refinance the underlying debt. There can be no assurance that we will be able to procure replacement letters of credit from the same or other lending institutions, or that if available, such letters of credit would be on terms that are acceptable to us. In the event that we are unable to obtain a replacement letter of credit or provide alternate collateral prior to the expiration of any of these letters of credit, we would be in default on the underlying debt. Any such default could have a material adverse effect on the Company.

Our credit agreements with U.S. Bank contain certain restrictive and financial covenants, including certain financial ratios. The agreements also require us to deposit $500,000 in cash collateral with U.S. Bank in the event certain regulatory actions are commenced with respect to the properties securing our obligations to U.S. Bank. U.S. Bank is required to release such deposits upon satisfactory resolution of the regulatory action. As of the date of this filing, no such deposits have been required.

In May 2002, we amended our existing agreement with U.S. Bank, establishing new covenants, with which we were in compliance as of June 30, 2003. Failure to comply with these covenants would constitute an event of default, which would allow U.S. Bank to declare any amounts outstanding under the loan documents to be due and payable.

The Company leases 37 of its facilities, representing 1,426 units, from LTC Properties, Inc. In accordance with the Company’s plan of reorganization, effective January 1, 2002, the Company entered into a Master Lease Agreement with LTC under which 16 leases were consolidated. This Master Lease Agreement provides for aggregate rent reductions of $875,000 per year and restructures the provision related to minimum rent increases for the 16 properties for the initial remaining term. The Master Lease Agreement and other LTC lease agreements also provides LTC with the option to exercise certain remedies, including the termination of the Master Lease Agreement and the other LTC leases, upon the occurrence of an Event of Default. A change of control of the Company is deemed to be an Event of Default. A change of control is deemed to occur if, among other things, (i) any person, directly or indirectly, is or becomes the beneficial owner of thirty percent (30%) or more of the combined voting power of the Company’s outstanding voting securities, (ii) the stockholders approve under certain conditions a merger or consolidation of the Company with another corporation or entity, or (iii) the stockholders approve a plan of liquidation or sale of all or substantially all of the assets of the Company. If the surviving entity has a net worth of $75 million or more, the change of control does not constitute an Event of Default. In addition,

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there are cross default provisions in the LTC leases. At the same time that the Company entered into the Master Lease Agreement, it also amended 16 other leases with LTC under which the renewal rights of certain of those leases are tied together differently than previously with certain other leases. Below is summarized financial information for the 37 properties:

                                                 
    Three months ended
(in thousands)  
(unaudited)   March 31,   June 30,   September 30,   December 31,   March 31,   June 30,
    2002   2002   2002   2002   2003   2003
   
 
 
 
 
 
Revenue
  $ 7,873     $ 7,921     $ 8,315     $ 8,292     $ 8,448     $ 8,776  
Residence operating expenses
    5,182       5,214       5,432       5,493       5,469       5,442  
Building rentals
    2,120       2,120       2,120       2,120       2,149       2,149  
Depreciation & amortization
    2       5       10       13       15       17  
 
   
     
     
     
     
     
 
Total operating expenses
    7,304       7,339       7,562       7,626       7,633       7,608  
 
   
     
     
     
     
     
 
Operating income
  $ 569     $ 582     $ 753     $ 666     $ 815     $ 1,168  
 
   
     
     
     
     
     
 

An Event of Default under the LTC leases including a change of control of the Company that resulted in the termination of the LTC leases would significantly impair the Company’s cash flow from operations and could have a material adverse effect on the Company.

Under the Senior Notes and Junior Notes the Company is required to make an offer (the “Change of Control Offer”) to repurchase the Senior Notes and the Junior Notes upon the occurrence of a change of control of the Company. A change of control as defined in the Indentures includes, among other things, the acquisition by any person or group of beneficial ownership greater than 50% of the total voting power of the common stock of the Company. The Change of Control Offer must be at a price equal to 101% of the principal amount of the Senior Notes and Junior Notes, together with accrued and unpaid interest. The occurrence of a change of control under the Indentures could have a material adverse effect on the Company.

Pursuant to Amendment No. 9 to Schedule 13D/A, dated June 13, 2003, filed on behalf of BRU Holdings Company, Inc., LLC, BET Associates, L.P., Bruce E. Toll and Jennifer Toll (the “Filing Persons”), the Filing Persons have indicated that they have acquired the Company’s securities for investment purposes but are currently re-evaluating their position and possible alternative future courses of action, including the possibility of seeking to acquire control of the Company, although no specific plan or proposal has been formulated. According to Amendment No. 10, to Schedule 13D/A, dated July 9, 2003, the Filing Persons have acquired 18.96% of the Company’s common stock. Based on a Form 4 filed by Bruce Toll on August 5, 2003, the Filing Persons now beneficially own 1,234,640 shares (19.2%) of the Company’s common stock.

Certain of our leases and loan agreements, including the LTC leases, contain covenants and cross-default provisions such that a default on one of those agreements could cause us to be in default on one or more other agreements which would have a material adverse effect on the Company.

Our ability to make payments on and to refinance any of our indebtedness, to satisfy our lease obligations and to fund planned capital expenditures will depend on our ability to generate cash in the future. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.

Based upon our current level of operations, we believe that our current cash on hand and expected cash flow from operations are sufficient to meet our liquidity needs for at least the next twelve months.

There can be no assurance, however, that our business will generate sufficient cash flow from operations, or that currently anticipated cost savings and operating improvements will be realized on schedule, both of which may be necessary to enable us to pay our indebtedness, to satisfy our lease obligations and to fund our other liquidity needs. As a result, we may need to refinance all or a portion of our indebtedness, on or before maturity. There can be no assurance that we will be able to refinance any of our indebtedness, on commercially reasonable terms or at all.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

Market risk represents the risk of changes in value of a financial instrument, derivative or non-derivative, caused by fluctuations in interest rates, foreign exchange rates and equity prices. Changes in these factors could cause fluctuations in our results of operations and cash flows.

For fixed rate debt, changes in interest rates generally affect the fair market value of the debt instrument, but not our results of operations or cash flows. We do not have an obligation to prepay any of our fixed rate debt prior to maturity, and therefore, interest rate risk and changes in the fair market value of our fixed rate debt will not have an impact on our results of operations or cash flows until we decide, or are required, to refinance such debt.

For variable rate debt, changes in interest rates generally do not impact the fair market value of the debt instrument, but do affect our future results of operations and cash flows. We had variable rate debt of $67.2 million outstanding at June 30, 2003 with a weighted average interest rate of 5.6%, of which $43 million has an interest rate floor of 8.0%. Assuming that our balance of variable rate debt remains constant, each one-percent increase in interest rates would result in an annual increase in interest expense, and a corresponding decrease in net cash flows, of $242,000 until the interest rate floor is exceeded. Conversely, each one-percent decrease in interest rates would result in an annual decrease in interest expense, and a corresponding increase in net cash flows, of $242,000.

We are also exposed to market risks from fluctuations in interest rates and the effects of those fluctuations on market values of our cash equivalents and short-term investments. These investments generally consist of overnight investments that are not significantly exposed to interest rate risk, except to the extent that changes in interest rates will ultimately affect the amount of interest income earned and cash flow from these investments.

We do not have any derivative financial instruments in place to manage interest costs, but that does not mean we will not use them as a means to manage interest rate risk in the future.

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We do not use foreign currency exchange forward contracts or commodity contracts and do not have foreign currency exposure.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated our “disclosure controls and procedures” (as defined in Securities Exchange Act of 1934 (the “Exchange Act”) Rules 13a-15(e) and 15d-15(e) as of the end of the period covered by this report pursuant to Rule 13a-15(b) under the Exchange Act). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported in a timely manner, and (2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls

There has been no change in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected or is reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

We are involved from time to time in ordinary, routine or regulatory legal proceedings incidental to our business. As of August 14, 2003, we believe that such legal proceedings should not have a material adverse effect on our business.

Item 4. Submission of Matters to a Vote of Security Holders

The Company’s annual shareholder meeting was held on May 8, 2003. At this meeting the shareholders re-elected the seven current directors. The seven directors, along with the voting results are as follows:

                 
    Number of shares   Number of shares
Name   voting for   withheld voting

 
 
W. Andrew Adams
    5,112,905       1,216,181  
Andre C. Dimitriadis
    6,326,226       2,860  
Richard C. Ladd
    6,326,226       2,860  
Mark Holliday
    6,326,226       2,860  
Matthew G. Patrick
    6,326,226       2,860  
Leonard M. Tannenbaum
    5,112,905       1,216,181  
Steven L. Vick
    6,326,226       2,860  

Item 6. Exhibits and Reports on Form 8-K

      (a) The following documents are filed as part of this report:

     
Exhibit    
Number    
12   Ratio of Earnings to Fixed Charges
     
31.1   Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
31.2   Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

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32.1   Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
32.2   Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

  (b)   Reports on Form 8-K

      We filed a report on Form 8-K on May 8, 2003 pursuant to Item 5 of Form 8-K announcing the Company’s termination of the sale of its South Carolina facilities.
 
      We filed a report on Form 8-K on May 14, 2003 pursuant to Items 5 and 7 of Form 8-K announcing the Company’s financial results for the quarter ended March 31, 2003.
 
      We filed a report on Form 8-K on June 25, 2003 pursuant to Item 5 of Form 8-K announcing the Company’s receipt of a Notice of Default from the Trustee under the Company’s Indentures.

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SIGNATURES

     Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

             
    ASSISTED LIVING CONCEPTS, INC.
    Registrant    
             
    By:   /s/ Matthew Patrick
       
        Name:   Matthew Patrick
        Title:   Senior Vice President, Chief Financial Officer,
            Secretary and Treasurer
             
August 14, 2003            
             
    By:   /s/ Stephan M. Kearney
       
        Name:   Stephan M. Kearney
        Title:   Vice President, Controller and
            Chief Accounting Officer
             
August 14, 2003            

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EXHIBIT INDEX

     
Exhibit    
Number    

   
12   Ratio of Earnings to Fixed Charges
     
31.1   Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
31.2   Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
32.1   Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
32.2   Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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