Assisted Living Concepts, Inc. Announces Third Quarter Results

Announces the Exploration of Corporate Alternatives; Initiates Process of Divesting Owned New Jersey Residences and Other Underperforming Assets

Marketwired

MENOMONEE FALLS, WI--(Marketwire - Nov 2, 2012) -  Assisted Living Concepts, Inc. ("ALC") (NYSE: ALC) reported a net loss of $4.0 million in the third quarter of 2012 as compared to net income of $5.8 million in the third quarter of 2011. 

During the third quarters of both 2012 and 2011, ALC recorded One-Time Items described below. Excluding the One-Time Items, net loss in the third quarter of 2012 would have been $0.9 million as compared to net income of $5.6 million in the third quarter of 2011.

Revenues in the third quarter of 2012 were $55.6 million as compared to revenues of $58.6 million in the third quarter of 2011. Occupancy declined from 5,628 units in the third quarter of 2011 to 5,251 units in the third quarter of 2012. 

"I am pleased to report significant progress in the regulatory arena," commented Dr. Charles "Chip" Roadman, President and Chief Executive Officer. "The Company has rehired a number of key former and experienced new employees which has resulted in enhanced services to our residents positioning the Company for future operating growth. These operating changes at the residence levels have resulted in a positive upward trend in occupancy levels starting in mid-September." 

The Company announced today that as part of an operational review of certain of its residences and taking into account the recommendation of its Facility Review Committee, it will be commencing a process to divest its seven owned residences in New Jersey. If the New Jersey residences are divested, it is intended that the proceeds will be used primarily to pay down debt. The Board of Directors expects the process to be completed in the first quarter of 2013. The Board of Directors anticipates such a transaction will be accretive to earnings. In the first three quarters of 2012, the owned New Jersey residences had revenues of $2.7 million and a pre-tax loss of $1.1 million. Although the Company has received expressions of interest in respect of the New Jersey residences and will be conducting a divesture process, no assurance can be given that such a divestiture will be completed, the timing or the amount of proceeds from the divestiture of such residences. In addition, the Board is considering divestiture of certain closed and other underperforming residences. 

The Company also announced today that a Special Committee of the Board would continue its strategic review process to explore corporate alternatives with a view to enhancing shareholder value. No assurance can be given that the process will result in a transaction or, if a transaction is undertaken, the timing or the terms of any such transaction. 

For the first nine months of 2012, ALC reported a net loss of $23.5 million as compared to net income of $17.1 million in the first nine months of 2011. 

Excluding the One-Time Items described below, net income in the first nine months of 2012 and 2011 would have been $11.0 million and $15.9 million, respectively.

Diluted earnings per common share for the third quarter and the first nine months ended September 30, 2012 and 2011 were:

         
    Quarter ended
September 30,
  Nine months ended
 September 30,
    2012     2011   2012     2011
Diluted earnings (loss) per common share   $ (0.18 )   $ 0.25   $ (1.02 )   $ 0.73
Pro forma diluted earnings (loss) per common share excluding One-Time Items   $
(0.04
)   $
0.24
   
 $0.38
    $
0.68
 

One-Time Items (net of tax) in the quarter and nine months ended September 30, 2012 included:

1. Charges related to the purchase of 12 previously leased properties from Ventas Realty, Limited Partnership and MLD Delaware Trust relating to the write off of $22.7 million related to litigation settlement and a lease termination fee, $5.3 million write-off of operating lease intangible, and $0.6 million of deal costs, partially offset by $0.6 million of rental savings for the nine months ended September 30, 2012.

2. The write-off of construction costs associated with expansion projects that management has determined will not be completed. ($0.0 million and $0.3 million for the three and nine months ended September 30, 2012.)

3. Expenses incurred in connection with an internal investigation, litigation related to the Ventas transaction, public relations and quality committee projects. ($1.0 million and $2.0 million for the three and nine months ended September 30, 2012). 

4. The write down of long-lived assets determined to be impaired ($2.1 million for the three and nine months ended September 30, 2012.)

One-Time Items in the nine months ended September 30, 2011 included:

1. A reduction in tax expense associated with the settlement of all issues associated with a tax allocation agreement with a subsidiary of our former parent Extendicare Inc. ($0.0 million and $0.8 million for the quarter and nine months ended September 30, 2011, respectively)

2. Income/expense associated with a mark to market adjustment for interest rate swap agreements ($0.1 million income and $0.1 million expense net of tax for the quarter and nine months ended September 30, 2011, respectively)

3. The write-off of deferred financing fees associated with our refinanced debt ($0.0 million and $0.2 million net of tax for the quarter and nine months ended September 30, 2011, respectively)

4. Gains on sales of equity investments ($0.0 million and $0.6 million net of tax for the quarter and nine months ended September 30, 2011, respectively)

5. Income associated with purchase accounting adjustments on repaid debt ($0.1 million and $0.1 million net of tax for the both the quarter and nine months ended September 30, 2011)

Certain non-GAAP financial measures are used in the discussions in this release in assessing the performance of the business. See attached tables for definitions of Adjusted EBITDA and Adjusted EBITDAR, reconciliations of net income to Adjusted EBITDA and Adjusted EBITDAR, calculations of Adjusted EBITDA and Adjusted EBITDAR as a percentage of total revenues, and non-GAAP financial measure reconciliation information.

As of September 30, 2012, ALC operated 211 senior living residences comprising 9,325 units.

The following discussions include the impact of the One-Time Items. 

Quarters ended September 30, 2012, September 30, 2011, June 30, 2012

Revenues of $55.6 million in the third quarter ended September 30, 2012 decreased $3.0 million or 5.1 % as compared to $58.6 million in the third quarter of 2011 and decreased $1.3 million or 2.3% from $56.9 million in the second quarter of 2012.

Adjusted EBITDAR for the third quarter of 2012 was $8.2 million or 14.8% of revenues and

  • decreased $13.1 million or 61.5% from $21.3 million and 36.4% of revenues in the third quarter of 2011; and
  • decreased $8.8 million or 51.6% from $17.0 million and 29.8% of revenues in the second quarter of 2012.

Adjusted EBITDA for the third quarter of 2012 was $5.4 million or 9.7% of revenues and

  • decreased $11.5 million or 68.1% from $16.9 million and 28.9% of revenues in the third quarter of 2011; and
  • decreased $8.3 million or 60.6% from $13.7 million and 24.0% of revenues in the second quarter of 2012.

Third quarter 2012 compared to third quarter 2011

Revenues in the third quarter of 2012 decreased by $3.0 million from the third quarter of 2011 primarily due to a decrease in private pay occupancy ($3.3 million), and the planned reduction in the number of units occupied by Medicaid residents ($0.4 million), partially offset by rate increases ($0.7 million). Average private pay rates increased in the third quarter of 2012 by 1.2% from average private pay rates for the third quarter of 2011. Average overall rates, including the impact of improved payer mix, increased in the third quarter of 2012 by 1.7% from comparable rates for the third quarter of 2011. 

Both Adjusted EBITDAR and Adjusted EBITDA decreased in the third quarter of 2012 primarily due to an increase in residence operations expenses ($8.1 million) (this excludes the gain on disposal of fixed assets), an increase in general and administrative expenses ($2.0 million) (this excludes non-cash equity based compensation) and a decrease in revenue ($3.0 million) partially offset, for Adjusted EBITDA only, a decrease in residence lease expense ($1.6 million) resulting from the June 15, 2012, purchase of twelve previously leased properties. Residence operations expenses increased primarily from an increases in labor expenses ($4.9 million), maintenance expense ($1.0 million), legal and consulting fees ($1.0 million), bad debt expense ($0.3 million), travel and conference fees ($0.2 million), food expense ($0.2 million) and other expenses ($0.5 million). General and administrative expenses increased as a result of an internal investigation, litigation and expenses incurred in connection with public relations and quality improvement initiatives.

Third quarter 2012 compared to the second quarter 2012

Revenues in the third quarter of 2012 declined by $1.3 million from the second quarter of 2012 primarily due to lower occupancy ($1.2 million) and lower average daily revenue as a result of promotional discounts ($0.7 million), partially offset by one additional day in the third quarter ($0.6 million). Average private pay rates declined in the third quarter of 2012 by 1.2% from average private pay rates for the second quarter of 2012. 

Decreased Adjusted EBITDA and Adjusted EBITDAR in the third quarter of 2012 as compared to the second quarter of 2012 resulted primarily from an increase in residence operations expenses ($7.5 million) (this excludes the gain on disposal of fixed assets), a decrease in revenue discussed above ($1.3 million), and an increase in general and administrative expenses ($0.1 million) (this excludes non-cash equity-based compensation) partially offset for Adjusted EBITDA only, a decrease in residence lease expense ($0.5 million) resulting from the June 15, 2012, purchase of twelve previously leased properties. Residence operations expenses increased primarily from an increase in labor expenses ($4.7 million), utilities expense ($0.8 million), maintenance expense ($0.7 million), legal and consulting fees ($0.7 million, travel and conference fees ($0.4 million), and food expense ($0.2 million). General and administrative expenses increased as a result of an increase in payroll expense ($0.4 million) partially offset by a reduction in legal and consulting expenses ($0.5 million.).

Nine months ended September 30, 2012 and September 30, 2011

Revenues of $171.4 million in the nine months ended September 30, 2012 decreased $4.2 million or 2.4% from $175.6 million in the nine months ended September 30, 2011.

Adjusted EBITDAR for the nine months ended September 30, 2012 was $46.4 million, or 27.1% of revenues and

  • decreased $16.3 million or 26.0% from $62.8 million and 35.7% of revenues in the nine months ended September 30, 2011.

Adjusted EBITDA for the nine months ended September 30, 2012 was $35.7 million, or 20.9% of revenues and

  • decreased $13.8 million or 27.8% from $49.5 million and 28.2% of revenues in the nine months ended September 30, 2011.

Nine months ended September 30, 2012 compared to nine months ended September 30, 2011

Revenues in the nine months ended September 30, 2012 decreased by $4.2 million from the nine months ended September 30, 2011 primarily due to a decrease in private pay occupancy ($5.2 million), and the planned reduction in the number of units occupied by Medicaid residents ($1.3 million), partially offset by higher average daily revenue from rate increases ($1.7 million) and one additional day in the 2012 period due to leap year ($0.6 million). Average rates increased in the nine months ended September 30, 2012 by 1.6% over average rates for the nine months ended September 30, 2011. 

Both Adjusted EBITDA and Adjusted EBITDAR decreased in the nine months ended September 30, 2012 primarily from an increase in residence operations expenses ($8.6 million) (this excludes the gain on disposal of fixed assets and write-off of construction costs), a decrease in revenues discussed above ($4.2 million) and an increase in general and administrative expenses ($3.5 million) (this excludes non-cash equity based compensation) and, for Adjusted EBITDA only, a decrease in residence lease expense ($2.5 million). Residence operations expenses increased primarily from an increase in bad debts. General and administrative expenses increased as a result of an internal investigation, an all-company conference, litigation and expenses incurred in connection with public relations and quality improvement initiatives. Residence operations expenses increased as a result of increased salaries and wages associated with quality restoration efforts initiated in June 2012 and an increase in professional fees from litigation and regulatory issues primarily in the southeast.

Liquidity

At September 30, 2012 ALC had availability of $13.3 million under its credit agreement. ALC owns 101 unencumbered residences that may be used to secure future capital needs.

Investor Call

ALC has scheduled a conference call for today November 2, 2012 at 10:00 a.m. (ET) to discuss its financial results for the third quarter. This earnings release will be posted on ALC's website at www.alcco.com. The toll-free number for the live call is 866-238-1422 or International 703-639-1159. A taped rebroadcast of the conference call will be available approximately three hours following the live call until midnight on December 2, 2012, by dialing toll free 800-475-6701, or international 320-365-3844; and using access code 270618.

About Us

Assisted Living Concepts, Inc. and its subsidiaries operate 211 senior living residences comprising 9,325 residents in 20 states. ALC's senior living facilities typically consist of 40 to 60 units and offer residents a supportive, home-like setting and assistance with the activities of daily living. ALC employs approximately 4,600 people.

Forward-looking Statements

Statements contained in this release other than statements of historical fact, including statements regarding anticipated financial performance, business strategy and management's plans and objectives for future operations, including management's expectations about improving occupancy and private pay mix, are forward-looking statements. Forward-looking statements generally include words such as "expect," "point toward," "intend," "will," "indicate," "anticipate," "believe," "estimate," "plan," "strategy" or "objective." Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied. In addition to the risks and uncertainties referred to in the release, other risks and uncertainties are contained in ALC's filings with United States Securities and Exchange Commission and include, but are not limited to, the following: changes in the health care industry in general and the senior housing industry in particular because of governmental and economic influences; changes in general economic conditions, including changes in housing markets, unemployment rates and the availability of credit at reasonable rates; changes in regulations governing the industry and ALC's compliance with such regulations; changes in government funding levels for health care services; resident care litigation, including exposure for punitive damage claims and increased insurance costs, and other claims asserted against ALC; ALC's ability to maintain and increase census levels; ALC's ability to attract and retain qualified personnel; the availability and terms of capital to fund acquisitions and ALC's capital expenditures; changes in competition; and demographic changes. Given these risks and uncertainties, readers are cautioned not to place undue reliance on ALC's forward-looking statements. All forward-looking statements contained in this report are necessarily estimates reflecting the best judgment of the party making such statements based upon current information. ALC assumes no obligation to update any forward-looking statement.

   
ASSISTED LIVING CONCEPTS, INC.  
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  
(Unaudited)  
(In thousands, except per share data)  
   
   
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2012     2011     2012     2011  
                                 
Revenues   $ 55,576     $ 58,553     $ 171,417     $ 175,589  
Expenses:                                
  Residence operations (exclusive of depreciation and amortization and residence lease expense shown below)     42,314       34,545       111,865       103,144  
  General and administrative     4,792       2,928       13,649       10,558  
  Residence lease expense     2,834       4,430       10,683       13,225  
  Lease termination and settlement     (25 )     --       37,130       --  
  Depreciation and amortization     6,526       5,807       18,088       17,260  
  Intangible impairment     --       --       8,650       --  
  Asset impairment     3,500       --       3,500       --  
  Transaction costs     --       --       1,046       --  
    Total operating expenses     59,941       47,710       204,611       144,187  
(Loss)/income from operations     (4,365 )     10,843       (33,194 )     31,402  
Other (expense) income:                                
  Interest expense:                                
    Debt     (2,321 )     (1,858 )     (5,660 )     (6,046 )
    Change in fair value of derivatives and amortization     --       164       --       (94 )
    Write-off of deferred financing costs     --       --       --       (279 )
  Interest income     3       2       8       8  
  Gain on sale of securities     --       --       --       910  
(Loss)/income before income taxes     (6,683 )     9,151       (38,846 )     25,901  
Income tax benefit/(expense)     2,641       (3,388 )     15,344       (8,851 )
Net (loss)/income   $ (4,042 )   $ 5,763     $ (23,502 )   $ 17,050  
Weighted average common shares:                                
  Basic     22,970       22,962       22,970       22,951  
  Diluted     22,970       23,236       22,970       23,261  
Per share data:                                
  Basic earnings per common share   $ (0.18 )   $ 0.25     $ (1.02 )   $ 0.74  
  Diluted earnings per common share   $ (0.18 )   $ 0.25     $ (1.02 )   $ 0.73  
                                 
Dividends declared and paid per common share   $ 0.00     $ 0.10     $ 0.20     $ 0.20  
                                 
Adjusted EBITDA (1)   $ 5,385     $ 16,895     $ 35,749     $ 49,540  
Adjusted EBITDAR (1)   $ 8,219     $ 21,325     $ 46,432     $ 62,765  
                                 
                                 
(1) See attached tables for definitions of Adjusted EBITDA and Adjusted EBITDAR and reconciliations of net income to Adjusted EBITDA and Adjusted EBITDAR  
                                 
                                 
                                 
ASSISTED LIVING CONCEPTS, INC  
CONDENSED CONSOLIDATED BALANCE SHEETS  
(In thousands, except share and per share data)  
   
   
    September 30,     December 31,  
    2012     2011  
ASSETS   (unaudited)        
Current Assets:                
  Cash and cash equivalents   $ 2,653     $ 2,652  
  Cash and escrow deposits - restricted     2,688       3,150  
  Investments     1,967       1,840  
  Accounts receivable, less allowances of $3,534 and $2,903 respectively     4,679       4,609  
  Prepaid expenses, supplies and other receivables     3,438       3,387  
  Income tax receivable     12,210       606  
  Deferred income taxes     4,173       4,027  
  Total current assets     31,808       20,271  
Property and equipment, net     486,385       430,733  
Intangible assets, net     17       9,028  
Restricted cash     2,036       1,996  
Other assets     2,030       2,025  
    Total Assets   $ 522,276     $ 464,053  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY                
Current Liabilities:                
  Accounts payable   $ 6,908     $ 7,086  
  Accrued liabilities     21,597       17,877  
  Deferred revenue     5,401       8,004  
  Current maturities of long-term debt     6,401       2,538  
  Current portion of self-insured liabilities     500       500  
    Total current liabilities     40,807       36,005  
Accrual for self-insured liabilities     1,465       1,557  
Long-term debt     173,858       85,703  
Deferred income taxes     18,509       23,961  
Other long-term liabilities     7,456       9,107  
Commitments and contingencies                
    Total Liabilities     242,095       156,333  
Preferred Stock, par value $0.01 per share, 25,000,000 shares authorized; no shares issued and outstanding     --       --  
Class A Common Stock, $0.01 par value, 160,000,000 shares authorized at September 30, 2012 and December 31, 2011; 25,003,822 and 24,980,958 shares issued and 20,071,950 and 20,049,086 shares outstanding, respectively     250       250  
Class B Common Stock, $0.01 par value, 30,000,000 shares authorized at September 30, 2012 and December 31, 2011; 2,898,516 and 2,919,790 shares issued and outstanding, respectively     29       29  
Additional paid-in capital     317,236       316,694  
Accumulated other comprehensive income     171       156  
Retained earnings     39,340       67,436  
Treasury stock at cost, 4,931,872 and 4,931,872 shares, respectively     (76,845 )     (76,845 )
    Total Stockholders' Equity     280,181       307,720  
    Total Liabilities and Stockholders' Equity   $ 522,276     $ 464,053  
                 
                 
                 
ASSISTED LIVING CONCEPTS, INC.  
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  
(Unaudited)  
(In thousands)  
   
   
    Nine Months Ended September 30,  
    2012     2011  
OPERATING ACTIVITIES:            
Net (loss)/income   $ (23,502 )   $ 17,050  
Adjustments to reconcile net (loss)/income to net cash (used in)/provided by operating activities:                
  Depreciation and amortization     18,088       17,260  
  Impairment of fixed assets     3,500       --  
  Impairment of operating lease intangible     8,650       --  
  Amortization of purchase accounting adjustments for leases     (309 )     (544 )
  Provision for bad debts     641       1,019  
  Provision for self-insured liabilities     765       765  
  (Gain)/loss on disposal of fixed assets     (14 )     (95 )
  Unrealized gain on investments     (31 )     (910 )
  Equity-based compensation expense     542       973  
  Change in fair value of derivatives and amortization     --       94  
  Deferred income taxes     (5,600 )     2,344  
Changes in assets and liabilities:                
  Accounts receivable     (711 )     (2,126 )
  Supplies, prepaid expenses and other receivables     (51 )     (1,109 )
  Deposits in escrow     462       (483 )
  Accounts payable     182       (265 )
  Accrued liabilities     3,720       749  
  Deferred revenue     (2,603 )     4,223  
  Payments of self-insured liabilities     (845 )     (287 )
  Income taxes payable / receivable     (11,604 )     856  
  Changes in other non-current assets     317       2,049  
  Other long-term liabilities     (1,315 )     (273 )
    Cash (used in)/provided by operating activities     (9,718 )     41,290  
INVESTING ACTIVITIES:                
  Payment for securities     (163 )     (156 )
  Proceeds on sales of securities     84       3,274  
  Payments for acquisition of 12 previously leased residences     (62,870 )     --  
  Proceeds on sales of fixed assets     1,427       146  
  Payments for new construction projects     (1,959 )     (523 )
    Payments for purchases of property and equipment     (13,823 )     (10,702 )
  Cash used in investing activities     (77,304 )     (7,961 )
FINANCING ACTIVITIES:                
  Payments of financing costs     (362 )     (1,903 )
  Purchase of treasury stock     --       (798 )
  Repayment of borrowings on revolving credit facility     (79,100 )     (63,000 )
  Proceeds on borrowings from revolving credit facility     173,000       81,000  
  Repayment of GE credit facility     --       (50,000 )
  Repayment of mortgage debt     (1,921 )     (5,061 )
  Issuance of Class A common stock for stock options     --       262  
  Payment of dividends     (4,594 )     (4,594 )
    Cash provided by/(used in) financing activities     87,023       (44,094 )
Increase/(decrease) in cash and cash equivalents     1       (10,765 )
Cash and cash equivalents, beginning of year     2,652       13,364  
Cash and cash equivalents, end of period   $ 2,653     $ 2,599  
                 
Supplemental schedule of cash flow information:                
Cash paid during the period for:                
  Interest   $ 5,662     $ 5,915  
  Income tax payments, net of refunds     1,860       6,287  
                   
                   
                   
ASSISTED LIVING CONCEPTS, INC.  
Financial and Operating Statistics  
   
Continuing residences*   Three Months Ended  
    September 30,
2012
    June 30,
2012
    September 30,
2011
 
Average Occupied Units by Payer Source     5,251       5,365       5,628  
Average Revenue per Occupied Unit Day   $ 115.05     $ 116.47     $ 113.09  
Occupancy Percentage*     59.5 %     60.5 %     62.4 %
                         

* Depending on the timing of new additions and temporary closures of our residences, we may increase or reduce the number of units we actively operate. For the three months ended September 30, 2012, June 30, 2012 and September 30, 2011 we actively operated 8,822, 8,873 and 9,015 units, respectively. 

       
Same residence basis**   Three Months Ended  
    September 30,
2012
  June 30,
2012
    September 30,
2011
 
Average Occupied Units by Payer Source     5,251     5,362       5,578  
Average Revenue per Occupied Unit Day   $ 115.05   $ 115.38     $ 113.09  
Occupancy Percentage*     59.5 %   60.8 %     63.2 %
                       

** Excludes quarterly impact of 0, 78 and 194 units temporarily closed for renovation in the September 30, 2012, June 30, 2012 and September 30, 2011 three month periods, respectively.

       
Continuing residences*   Nine Months Ended  
    September 30,
2012
    September 30,
2011
 
Average Occupied Units     5,365       5,602  
                 
Average Revenue per Occupied Unit Day   $ 116.60     $ 114.81  
                 
Occupancy Percentage*     60.4 %     62.3 %
                 

* Depending on the timing of new additions and temporary closures of our residences, we may increase or reduce the number of units we actively operate. For the nine months ended September 30, 2012 and September 30, 2011 we actively operated 8,883 and 8,991 units, respectively. 

       
Same residence basis**   Nine Months Ended  
    September 30,
2012
    September 30,
2011
 
Average Occupied Units     5,313       5,536  
                 
Average Revenue per Occupied Unit Day   $ 116.43     $ 115.01  
                 
Occupancy Percentage*     60.9 %     63.4 %
                 

** Excludes impact of 20 completed expansion units, 72 re-opened and 134 units temporarily closed for renovation in the 2012 year to date period and 217 units temporarily closed for renovation in the 2011 year to date period.

Non-GAAP Financial Measures

Adjusted EBITDA and Adjusted EBITDAR

Adjusted EBITDA is defined as net loss/income from continuing operations before income taxes, interest expense net of interest income, depreciation and amortization, equity based compensation expense, transaction costs and certain non-cash, gains and losses, including disposal of assets, impairment of goodwill and other long-lived assets, impairment of investments, impairment of intangibles and non-recurring lease termination and settlement fees. Adjusted EBITDAR is defined as Adjusted EBITDA before rent expenses incurred for leased assisted living properties. Adjusted EBITDA and Adjusted EBITDAR are not measures of performance under accounting principles generally accepted in the United States of America, or GAAP. We use Adjusted EBITDA and Adjusted EBITDAR as key performance indicators and Adjusted EBITDA and Adjusted EBITDAR expressed as a percentage of total revenues as a measurement of margin.

We understand that EBITDA and EBITDAR, or derivatives thereof, are customarily used by lenders, financial and credit analysts, and many investors as a performance measure in evaluating a company's ability to service debt and meet other payment obligations or as a common valuation measurement in the long-term care industry. Moreover, ALC's revolving credit facility contains covenants in which a form of EBITDA is used as a measure of compliance, and we anticipate EBITDA will be used in covenants in any new financing arrangements that we may establish. We believe Adjusted EBITDA and Adjusted EBITDAR provide meaningful supplemental information regarding our core results because these measures exclude the effects of non-operating factors related to our capital assets, such as the historical cost of the assets.

We report specific line items separately, and exclude them from Adjusted EBITDA and Adjusted EBITDAR because such items are transitional in nature and would otherwise distort historical trends. In addition, we use Adjusted EBITDA and Adjusted EBITDAR to assess our operating performance and in making financing decisions. In particular, we use Adjusted EBITDA and Adjusted EBITDAR in analyzing potential acquisitions and internal expansion possibilities. Adjusted EBITDAR performance is also used in determining compensation levels for our senior executives. Adjusted EBITDA and Adjusted EBITDAR should not be considered in isolation or as a substitute for net income, cash flows from operating activities, and other income or cash flow statement data prepared in accordance with GAAP, or as a measure of profitability or liquidity. We present Adjusted EBITDA and Adjusted EBITDAR on a consistent basis from period to period, thereby allowing for comparability of operating performance.

Adjusted EBITDA and Adjusted EBITDAR Reconciliation Information

The following table sets forth a reconciliation of net income to Adjusted EBITDA and Adjusted EBITDAR:

             
    Three Months Ended     Nine Months Ended  
    September 30, 2012     September
30, 2011
    June 30,
2012
    September
30, 2012
    September 30, 2011  
    (in thousands)  
Net income   (4,042 )   $ 5,763     $ (25,109 )   $ (23,502 )   $ 17,050  
Add provision for income taxes   (2,641 )     3,388       (16,014 )     (15,344 )     8,851  
                                       
Income before income taxes   (6,683 )   $ 9,151     $ (41,123 )   $ (38,846 )   $ 25,901  
Add:                                      
  Depreciation and amortization   6,526       5,807       5,793       18,088       17,260  
  Interest expense, net   2,318       2,024       1,747       5,652       6,206  
  Non-cash equity based compensation   182       299       7       542       973  
    (Gain)/loss on disposal of fixed assets   (433 )     (54 )     (112 )     (517 )     (95 )
  Write-down of cost associated with expansion projects not completed   -       -       504       504       -  
  Gain on sale of equity investments   -       -       -               (910 )
  Recovery of purchase accounting associated with early termination of debt   -       (168 )     -               (168 )
  Write-off of operating lease intangible, lease termination fee and settlement   (25 )     -       45,805       45,780       -  
  Change in value of derivative and amortization   -       (164 )     -               94  
  Write-off of deferred financing fees           -       -               279  
  Asset impairment   3,500                       3,500          
  Transaction costs                   1,046       1,046          
                                       
Adjusted EBITDA   5,385       16,895       13,667       35,749       49,540  
Add: Lease expense   2,834       4,430       3,306       10,683       13,225  
Adjusted EBITDAR   8,219     $ 21,325     $ 16,973       46,432     $ 62,765  
                                       
                                       
                                       

The following table sets forth the calculations of Adjusted EBITDA, Adjusted EBITDAR, Adjusted EBITDA and Adjusted EBITDAR as percentages of total revenue:

             
    Three Months Ended     Nine Months Ended  
    September 30, 2012     September 30, 2011     June 30,
2012
    September 30, 2012     September 30, 2011  
    (dollars in thousands)  
Revenues   55,576     $ 58,553     $ 56,863     171,417     $ 175,589  
                                     
Adjusted EBITDA   5,385     $ 16,895     $ 13,667     35,749     $ 49,540  
                                     
Adjusted EBITDAR   8,219     $ 21,325     $ 16,973     46,432     $ 62,765  
                                     
Adjusted EBITDA as percent of total revenues   9.7 %     28.9 %     24.0 %   20.9 %     28.2 %
                                     
Adjusted EBITDAR as percent of total revenues   14.8 %     36.4 %     29.8 %   27.1 %     35.7 %
                                     
                                     
                                     
ASSISTED LIVING CONCEPTS, INC.  
Reconciliation of Non-GAAP Measures  
(unaudited)  
   
    Three Months Ended
September 30, 2012
    Three Months Ended
September 30, 2011
    Nine Months Ended September 30, 2012     Nine Months Ended
September 30, 2011
 
       
(dollars in thousands except per share data)
 
Net income   $ (4,042 )   $ 5,763     $ (23,502 )   $ 17,050  
  Add one time charges:                                
  Expenses incurred in connection with internal investigation, public relations and Ventas litigation     1,685               3,275          
      Write-off of deferred financing costs             -               279  
      Change in value of derivative net of amortization             -               94  
      Asset Impairment     3,500               3,500          
      Loss on disposal of fixed assets related to expansion project                     504          
      Loss on write off of lease intangible, termination and settlement fee and transaction costs     (25 )     -       46,826       -  
  Less one time credits:                     906          
    Rent                                
    Settlement relating to tax allocation agreement             -               750  
    Change in value of derivative net of amortization             164               -  
    Gain on sale of equity investments             -               910  
    Recovery of purchase accounting associated with early termination of debt             168               168  
    Net tax (expense) / benefit from charges and credits     2,038       (123 )     21,014       (262 )
    Pro forma net income excluding one-time charges and credits   $ (920 )   $ 5,554     $ 8,683     $ 15,857  
                                 
Weighted average common shares:                                
Basic     22,970       22,962       22,970       22,951  
Diluted     22,970       23,236       22,970       23,261  
                                 
Per share data:                                
      Basic earnings per common share                                
        Net income   $ (0.18 )   $ 0.25     $ (1.02 )   $ 0.74  
        Less: gain/ (loss) from one time charges and credits     (0.14 )     .01       (1.40 )     0.05  
        Pro forma net income excluding one-time charges and credits   $ (0.04 )   $ 0.24     $ 0.38     $ 0.69  
                                 
      Diluted earnings per common share*                                
        Net income     (0.18 )   $ 0.25     $ (1.02 )   $ 0.73  
        Less: gain/ (loss) from one time charges and credits     (0.14 )     .01       (1.40 )     0.05  
        Pro forma net income excluding one-time charges and credits     (0.04 )   $ 0.24     $ 0.38     $ 0.68  
                                 

* Per share numbers may not add due to rounding

Contact:
For further information, contact:
Assisted Living Concepts, Inc.
John Buono
Sr. Vice President, Chief Financial Officer and Treasurer
Phone: (262) 257-8999
Fax: (262) 251-7562
Email: Email Contact
Visit ALC's Website @ www.alcco.com

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