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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

For the quarterly period ended March 31, 2011

or

Commission File Number 001-16817

FIVE STAR QUALITY CARE, INC.

(Exact Name of Registrant as Specified in Its Charter)

400 Centre Street, Newton, Massachusetts 02458

(Address of Principal Executive Offices) (Zip Code)

(Registrant’s Telephone Number, Including Area Code): 617-796-8387

Indicate by check mark whether the 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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filed,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

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

Number of registrant’s shares of common stock, $0.01 par value, outstanding as of April 28, 2011: 36,019,864.

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FIVE STAR QUALITY CARE, INC.

FORM 10-Q

MARCH 31, 2011

INDEX

As used herein the terms “we”, “us”, “our” and “Five Star” include Five Star Quality Care, Inc. and its consolidated subsidiaries unless otherwise expressly stated or the context otherwise requires.

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Part I.    Financial Information

Item 1.  Condensed Consolidated Financial Statements

FIVE STAR QUALITY CARE, INC.

CONDENSED CONSOLIDATED BALANCE SHEET

(in thousands, except share data)

(unaudited)

See accompanying notes.

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FIVE STAR QUALITY CARE, INC.

CONDENSED CONSOLIDATED STATEMENT OF INCOME

(in thousands, except per share data)

(unaudited)

See accompanying notes.

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FIVE STAR QUALITY CARE, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(in thousands)

(unaudited)

See accompanying notes.

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FIVE STAR QUALITY CARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

(unaudited)

Note 1.  Basis of Presentation and Organization

The accompanying condensed consolidated financial statements of Five Star Quality Care, Inc. and its subsidiaries, which we refer to as the Company, we, us or our, have been prepared without audit.  Certain information and disclosures required by U.S. generally accepted accounting principles, or GAAP, for complete financial statements have been condensed or omitted.  We believe the disclosures made are adequate to make the information presented not misleading.  However, the accompanying financial statements should be read in conjunction with the financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2010, or our Annual Report.  In the opinion of our management, all adjustments, which include only normal recurring adjustments, considered necessary for a fair presentation have been included.  All material intercompany transactions and balances have been eliminated.  Our operating results for interim periods are not necessarily indicative of the results that may be expected for the full year.  For discussion of our liquidity and capital resources see Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report on Form 10-Q.

We operate senior living communities, including independent living communities, assisted living communities and skilled nursing facilities, or SNFs.  As of March 31, 2011, we leased or owned and operated 210 senior living communities containing 22,291 living units, including 172 primarily independent and assisted living communities with 18,845 living units and 38 SNFs with 3,446 living units.

We leased our 38 SNFs containing 3,446 living units from Senior Housing Properties Trust, or SNH, our former parent.  Of our 172 primarily independent and assisted living communities, we:

·                                          leased 144 communities containing 16,556 living units from SNH;

·                                          leased four communities with 200 living units from HCP, Inc.; and

·                                          owned 24 communities with 2,089 living units.

In total, our 210 senior living communities included 6,323 independent living apartments, 10,591 assisted living suites and 5,377 skilled nursing units.  Excluded from the preceding data is one assisted living community containing 70 living units and three SNFs containing in aggregate 329 living units leased from SNH and two SNFs owned by us containing 271 living units that we have classified as discontinued operations.

We operate two rehabilitation hospitals with 321 beds that we lease from SNH.  Our two rehabilitation hospitals provide inpatient rehabilitation services at the two hospitals and three satellite locations.  In addition, we operate 13 outpatient rehabilitation clinics affiliated with these rehabilitation hospitals.  We also own and operate five institutional pharmacies.

Note 2. Property and Equipment

Property and equipment, at cost, consists of the following:

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FIVE STAR QUALITY CARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

(unaudited)

As of March 31, 2011 and December 31, 2010, we had assets of $6,486 and $7,752, respectively, included in our property and equipment that we intend to sell to SNH as permitted by our leases.

Note 3. Comprehensive Income

Cumulative other comprehensive income represents the net realized appreciation of investments and our share of Affiliates Insurance Company, or AIC’s, comprehensive income.  Comprehensive income for the three months ended March 31, 2011 and 2010 is summarized below:

Note 4.  Financial Data by Segment

Our reportable segments consist of our senior living community business and our rehabilitation hospital business.   In the senior living community segment, we operate independent living communities, assisted living communities and SNFs, which are subject to centralized oversight and provide housing and services generally to elderly residents.  Our rehabilitation hospital segment provides inpatient rehabilitation services at two hospital locations and three satellite locations and outpatient rehabilitation services at 13 affiliated outpatient clinics.  We do not consider our institutional pharmacy operations to be a material, separately reportable segment of our business.  Consequently, we report our institutional pharmacy revenues and expenses as separate items within our corporate and other activities.  All of our operations and assets are located in the United States, except for the operations of our captive insurance company, which participates in our workers’ compensation and liability insurance programs and is located in the Cayman Islands.

We use segment operating profit as a means to evaluate our performance and for our business decision making purposes.  Segment operating profit excludes interest, dividend and other income, interest and other expense, and corporate expenses.

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FIVE STAR QUALITY CARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

(unaudited)

Our revenues by segments and a reconciliation of segment operating profit (loss) to income (loss) from continuing operations for the three months ended March 31, 2011 and 2010 are as follows:

(1)             Corporate and Other includes operations that we do not consider significant, separately reportable segments of our business, as well as income and expenses that are not attributable to a specific segment.

(2)             General and administrative expenses are not attributable to a specific segment and include items such as corporate payroll and benefits and contractual service expenses affecting home office activities.

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FIVE STAR QUALITY CARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

(unaudited)

Note 5. Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill and other intangible assets from January 1, 2011 to March 31, 2011 are as follows:

(1)           Goodwill and other intangible assets in our Senior Living Communities segment relate to management agreements and trademarks we acquired in connection with one of the leases we initiated with SNH in 2009 and goodwill we recorded in connection with our senior living community acquisitions in previous years.

(2)             Intangible assets in our Corporate and Other segment relate to customer agreements we acquired in connection with our pharmacy acquisitions.

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FIVE STAR QUALITY CARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

(unaudited)

Note 6.  Income Taxes

We do not currently recognize the benefit of all of our deferred tax assets, including tax loss carry forwards that may be used to offset future taxable income because we currently do not believe that it is more likely than not that we will realize such benefit.  In measuring our deferred tax assets, we considered all available evidence, both positive and negative, to determine whether, based on the weight of that evidence, a valuation allowance is needed for all or a portion of the deferred tax assets.  Judgment is required in considering the relative impact of negative and positive evidence.  The weight given to the potential effect of negative and positive evidence is commensurate with the extent to which it can be objectively verified.  The more negative evidence that exists, the more positive evidence is necessary and the more difficult it is to support a conclusion that a valuation allowance is unnecessary.  We believe that our history of losses coupled with the uncertainties surrounding the current changes to the healthcare industry and our declining occupancy rates are sufficient negative evidence that realization of our deferred tax assets is not more likely than not.  As a result, we believe a full valuation allowance against our deferred tax assets is required.  When we believe that we will more likely than not realize the benefit of our deferred tax assets, we will record deferred tax assets as an income tax benefit in our consolidated statement of income, which will affect our results of operations.  As of December 31, 2010, our federal net operating loss carry forward, which begins to expire in 2025 if unused, was approximately $107,249, and our tax credit carry forward, which begins to expire in 2022 if unused, was approximately $4,351.  Our net operating loss carry forwards and tax credit carry forwards are subject to audit and adjustments by the Internal Revenue Service.

For the three months ended March 31, 2011, we recognized tax expenses of $379, which includes tax expense of $341 for state taxes on operating income that are payable without regard to our tax loss carry forwards.  Tax expense also includes $38 related to a non-cash deferred liability arising from the amortization of goodwill for tax purposes but not for book purposes.

Note 7.  Earnings Per Share

We computed basic earnings per share, or EPS, for the three months ended March 31, 2011 and 2010 using the weighted average number of shares outstanding during the periods.  Diluted EPS for the periods ended March 31, 2011 and 2010 reflects additional shares of our common stock, $0.01 par value per share, or our common shares, related to our convertible senior notes due in 2026, or the Notes, that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income applicable to common shareholders that would result from their assumed issuance.  The weighted average shares outstanding used to calculate basic and diluted EPS include approximately 511,560 and 435,610 unvested shares as of March 31, 2011 and 2010, respectively, issued to our officers and others under our 2001 Stock Option and Stock Plan.

The following table provides a reconciliation of income from continuing operations and loss from discontinued operations and the number of common shares used in the computations of diluted EPS:

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FIVE STAR QUALITY CARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

(unaudited)

Note 8.  Fair Values of Assets and Liabilities

The table below presents the assets and liabilities measured at fair value at March 31, 2011, categorized by the level of inputs used in the valuation of each asset.

(1)    Long lived assets held for sale consist of property and equipment we expect to sell to SNH as permitted by our leases.  We expect to sell these assets to SNH at their recorded cost and we have either recently acquired the assets or the assets are part of active construction projects. Accordingly, the cost of these assets approximates their fair value.

(2)       Investments in available for sale securities are reported on our balance sheet as current investments in available for sale securities of $14,062 and long term restricted investments in available for sale securities of $3,359 and are carried at fair value.  We determine the estimated fair value of our available for sale securities by reviewing each security’s current market price, the ratings of the security, the financial condition of the issuer and our intent and ability to retain the investment during temporary market price fluctuations or until maturity.  In evaluating the factors described above, we presume a decline in value to be an “other than temporary impairment” if the quoted market price of the security is below the security’s cost basis for an extended period.  However, this presumption may be overcome if there is persuasive evidence indicating the value decline is temporary in nature, such as when the operating performance of the obligor is strong or if the market price of the security is historically volatile.  When we believe that a change in fair value of an available for sale security is temporary, we record a corresponding credit or charge to other comprehensive income for any unrealized gains or losses.  When we determine that an impairment in the fair value of an available for sale security is an “other than temporary impairment”, we record a charge to earnings.

Our investments in available for sale securities with amortized costs of $11,541 and $11,638 as of March 31, 2011 and December 31, 2010, respectively, had unrealized gains of $5,886 and $5,515 as of March 31, 2011 and December 31, 2010, respectively, and had unrealized losses of $6 and $40 as of March 31, 2011 and December 31, 2010, respectively.  At March 31, 2011, three of the securities we hold have been in a loss position for three to five months.  During the three months ended March 31, 2011, we received proceeds of $173 in connection with the sale of available for sale securities and recorded a realized gain totaling $76 and no realized losses.

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FIVE STAR QUALITY CARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

(unaudited)

During the three months ended March 31, 2011, we did not change the type of inputs used to determine the fair value of our assets and liabilities that we measure at fair value.  Accordingly, there were no transfers of assets or liabilities between levels of the fair hierarchy during the period ended March 31, 2011.

The carrying values of accounts receivable, acquisition deposits, the equity investment in AIC and our mortgage notes payable approximate fair value as of March 31, 2011 and December 31, 2010.  The carrying value and fair value of the Notes was $37,282 and $35,931, respectively, as of March 31, 2011 and $37,905 and $35,631, respectively, as of December 31, 2010.  We estimate the fair value of the Notes using quoted market data for these securities. We measured the fair value of our equity investment in AIC by considering, among other things, the individual assets and liabilities held by AIC, AIC’s overall financial condition and earning trends, and the financial condition and prospects for the insurance industry generally.

Note 9.  Indebtedness

We have a $35,000 revolving secured line of credit, or our Credit Agreement, that matures on March 18, 2013 when all amounts outstanding are due. Borrowings under our Credit Agreement are available for acquisitions, working capital and general business purposes.  Funds available under our Credit Agreement may be drawn, repaid and redrawn until maturity and no principal payment is due until maturity.  We borrow in U.S. dollars and borrowings under our Credit Agreement bear interest at LIBOR (with a floor of 2% per annum) plus 400 basis points or 6% as of March 31, 2011.  We are the borrower under our Credit Agreement and certain of our subsidiaries guarantee our obligations under our Credit Agreement, which is secured by our and our guarantor subsidiaries’ accounts receivable and related collateral. Our Credit Agreement contains covenants requiring us to maintain certain financial ratios, places limits on our ability to incur or assume debt or create liens with respect to certain of our properties and has other customary provisions. Our Credit Agreement also provides for acceleration of payment of all amounts due thereunder or upon the occurrence and continuation of certain events of default.  As of March 31, 2011 and April 28, 2011, $5,000 and $0, respectively, was outstanding and $30,000 and $35,000, respectively, was available under our Credit Agreement. As of March 31, 2011 and April 28, 2011 we believe we are in compliance with all applicable covenants under our Credit Agreement. Interest expense and other associated costs related to our Credit Agreement and our prior revolving line of credit were $147 and $63 for the three months ended March 31, 2011 and 2010, respectively.

On July 1, 2010, we repaid our outstanding balance and terminated our non-recourse credit facility with UBS AG, or UBS. Interest expense and other associated costs related to this facility were $0 and $56 for the three months ended March 31, 2011 and 2010, respectively.

In October 2006, we issued $126,500 principal amount of the Notes.  Our net proceeds from this issuance were approximately $122,600.  The Notes bear interest at a rate of 3.75% per annum and are convertible into our common shares at any time.  The initial and current conversion rate, which is subject to adjustment, is 76.9231 common shares per $1 principal amount of the Notes, which represents a conversion price of $13.00 per share.  The Notes are guaranteed by certain of our wholly owned subsidiaries.  The Notes mature on October 15, 2026.  We may prepay the Notes at any time after October 20, 2011 and the holders may require that we purchase all or a portion of these Notes on each of October 15 of 2013, 2016 and 2021.  If a “fundamental change”, as defined in the indenture governing the Notes, occurs, holders of the Notes may require us to repurchase all or a portion of their Notes for cash at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus any accrued and unpaid interest and, in certain circumstances, plus a make whole premium as defined in the indenture governing the Notes.  Interest expense and other associated costs related to the Notes was $354 and $454 for the three months ended March 31, 2011 and 2010, respectively.  We issued these Notes pursuant to an indenture which contains various customary covenants.  As of March 31, 2011 and April 28, 2011, we believe we are in compliance with all applicable covenants of this indenture.

During the three months ended March 31, 2011, we purchased and retired $623 par value of our outstanding Notes for $604, plus accrued interest and retired the Notes and recorded a gain of $1, net of related unamortized costs, on early extinguishment of debt included in interest, dividend and other income.  We funded these purchases

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FIVE STAR QUALITY CARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

(unaudited)

principally with available cash.  As a result of these purchases and other purchases we made in prior years, $37,282 in principal amount of the Notes remain outstanding.

At March 31, 2011, two of our communities, included in discontinued operations, were encumbered by United States Department of Housing and Urban Development, or HUD, insured mortgage notes totaling $7,791 that contained standard HUD mortgage covenants.  The weighted average interest rate on these notes was 5.43%.  Payments of principal and interest are due monthly until the mortgage notes mature; one note matures in June 2035 and the other matures in May 2039.  Mortgage interest expense, including premium amortization, was $111 and $199 for the three months ended March 31, 2011 and 2010, respectively.

Note 10. Off Balance Sheet Arrangements

As of March 31, 2011, we had no off balance sheet arrangements that have had or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources, except for the pledge of certain of our assets, such as accounts receivable, with a carrying value of $18,002 arising from our operation of 56 properties owned by SNH and leased to us which secures SNH’s borrowings from its lender.

Note 11. Related Person Transactions

SNH is our former parent company, our largest landlord and our largest shareholder (owning approximately 9.0% of our outstanding common shares as of March 31, 2011).  Reit Management and Research LLC, or RMR, provides management services to both us and SNH.  As of March 31, 2011, we leased 186 senior living communities, including four that we report as discontinued operations, and two rehabilitation hospitals from SNH.  Under our leases with SNH, we pay SNH rent based on minimum annual rent amounts plus percentage rent based on increases in gross revenues at certain properties.

During the three months ended March 31, 2011 and 2010 our rent expense under our leases with SNH was $47,728 and $46,895, respectively, net of $225 amortization of a lease inducement from SNH in each period.  During the three months ended March 31, 2011, pursuant to the terms of our leases with SNH, we sold $10,837 of improvements made to our properties leased from SNH, and, as a result, our annual rent payable to SNH increased by approximately $869.  Our total minimum annual rent payable to SNH under our leases with SNH as of March 31, 2011 was $187,656, excluding percentage rent.  Additional information regarding our leases with SNH appears in Item 2 of our Annual Report under the section captioned “Our SNH Leases”.

During the three months ended March 31, 2011 and 2010, the aggregate fees earned by RMR from us for management, administrative and information system services pursuant to a business management and shared services agreement, or our business management agreement, totaled $2,807 and $2,774, respectively.

In November 2010, at our request, SNH agreed to sell three SNFs in Georgia with a total of 329 living units that are leased to us and we expect our annual rent to SNH to decrease by approximately $1,800 if and after this sale closes.  The sale of these properties is contingent upon customary closing conditions; accordingly, we can provide no assurance that the closing of SNH’s sale of these properties will be completed.

In November 2010, at our request, SNH agreed to sell one assisted living community in Pennsylvania with 70 living units that are leased to us and we expect our annual rent to SNH to decrease by approximately $72 if and after this sale closes.  The sale of this property is contingent upon customary closing conditions; accordingly, we can provide no assurance that the closing of SNH’s sale of this property will be completed.

In March 2011, SNH agreed to acquire for approximately $304,000, excluding closing costs, 20 senior living communities with 2,111 living units located in five states.  SNH reported that it expects to acquire these communities during the second quarter of 2011, subject to required regulatory approvals and lender approval of SNH’s assumption of mortgage debts on certain properties.  We expect to manage 15 of the 20 communities, costing approximately $211,500, under a long term contract.  We expect to lease the remaining five

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FIVE STAR QUALITY CARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

(unaudited)

communities under one or more of the combination leases currently in effect between us and SNH.  The terms of the agreements between us and SNH are subject to approval by special committees of each of our Board of Directors and SNH’s board of trustees composed solely of Independent Directors and trustees who are not also Directors or trustees of the other party.

We, RMR, SNH and other companies to which RMR provides management services each currently owns approximately 14.29% of AIC.  Four of our Directors and all of the trustees and directors of the other shareholders of AIC currently serve on the board of directors of AIC.  RMR, in addition to being a shareholder, provides management and administrative services to AIC pursuant to a management and administrative services agreement with AIC.  Although we own less than 20% of AIC, we use the equity method to account for this investment because we believe that we have significant influence over AIC because four of our Directors are directors of AIC.  As of March 31, 2011, we have invested approximately $5,209 in AIC.  We may invest additional amounts in AIC in the future if the expansion of this insurance business requires additional capital, but we are not obligated to do so.  This investment had a carrying value of $5,117 and $5,076 as of March 31, 2011 and December 31, 2010, respectively.  During the three months ended March 31, 2011 and 2010, we recognized income of $37 and a loss of $28, respectively, related to this investment.  In 2010, AIC designed a combination property insurance program for us and other AIC shareholders in which AIC participated as a reinsurer. Our total premiums paid under this program in 2010 were approximately $2,900.  We are currently investigating the possibilities to expand our insurance relationships with AIC to include other types of insurance. By participating in this insurance business with RMR and the other companies to which RMR provides management services, we expect that we may benefit financially by possibly reducing our insurance expenses or by realizing our pro-rata share of any profits of this insurance business.

For more information about our related person transactions, including our dealings with SNH, RMR, AIC, our Managing Directors and their affiliates and about the risks which may arise as a result of these and other related person transactions, please see our Annual Report and our other filings made with the Securities and Exchange Commission, or the SEC, and, in particular, the sections captioned “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Related Person Transactions” in our Annual Report and the section captioned “Related Person Transactions and Company Review of Such Transactions” in our Proxy Statement dated February 23, 2011 relating to our 2011 Annual Meeting of Shareholders.  Our Annual Report and Proxy Statement are available at the SEC web site: www.sec.gov.

Note 12.  Discontinued Operations

In March 2007, we agreed with SNH that it should sell two assisted living communities located in Pennsylvania, which we lease from SNH.  In November 2010, we decided to modify the business plan for, and continue to operate, one of these communities because we could not find a qualified buyer at an acceptable price.  Consequently, the operating losses of this community totaling $266 and $228 for the three months ended March 31, 2011 and 2010, respectively, are no longer included in discontinued operations and we have reclassified the consolidated statements of income to include the results of operations as continuing.  We and SNH are in the process of selling the other assisted living community and, if and when it is sold, our annual minimum rent payable to SNH will decrease by $72, in accordance with the terms of our lease with SNH.

In November 2010, we agreed with SNH that it should sell three SNFs located in Georgia with a total of 329 living units that are leased to us and we expect our annual rent to SNH to decrease by approximately $1,800 if and after this sale closes.  SNH expects the sale of these properties to occur during the second quarter of 2011.  The sale of these properties is contingent upon customary closing conditions.  We can provide no assurance that the closing of SNH’s sale of this property will be completed.

In March 2011, we decided to sell two SNFs that we own located in Michigan with a total of 271 living units for approximately $12,500, which includes the buyers assumption of $7,791 HUD insured mortgage notes and our providing approximately $3,500 of seller financing.  We expect the sale of these properties to occur before or during

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FIVE STAR QUALITY CARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

(unaudited)

the third quarter of 2011.  The sale of these properties is contingent upon the buyer’s diligence and other customary closing conditions.  We can provide no assurance that the closing of our sale of these properties will be completed.

We have reclassified our consolidated statement of income for all periods presented to show the results of operations of the communities and pharmacies which have been sold or are expected to be sold as discontinued.  Below is a summary of the operating results of these discontinued operations included in the financial statements for the three months ended March 31, 2011 and 2010:

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Item 2. Management’s Discussion and Analysis of Financial Conditions and Results of Operation

RESULTS OF OPERATIONS

Our reportable segments consist of our senior living community business and our rehabilitation hospital business.   In the senior living community segment, we operate independent living communities, assisted living communities and SNFs, which are subject to centralized oversight and provide housing and services generally to elderly residents.  Our rehabilitation hospital segment provides inpatient health rehabilitation services at two hospital locations and three satellite locations and outpatient rehabilitation services at 13 outpatient clinics.  We do not consider our institutional pharmacy operations to be a material, separately reportable segment of our business. Consequently, we report our institutional pharmacy revenues and expense as separate items within our corporate and other activities.  All of our operations and assets are located in the United States, except for the operations of our captive insurance company, which participates in our workers’ compensation and liability insurance programs and is located in the Cayman Islands.

We use segment operating profit as an important measure to evaluate our performance and for business decision making purposes.  Segment operating profit excludes interest, dividend and other income, interest and other expense and certain corporate expenses.

Key Statistical Data For the Three Months Ended March 31, 2011 and 2010:

The following tables present a summary of our operations for the three months ended March 31, 2011 and 2010:

Senior living communities:

Comparable communities (senior living communities that we have operated continuously since January 1, 2010):

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Rehabilitation hospitals: