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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1 TO
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 3, 1998
MEDITRUST CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 1-08131 95-3520818
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
197 First Avenue, Suite 300
Needham Heights, MA 02194
(address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 433-6000
MEDITRUST OPERATING COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 1-08132 96-3419438
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
197 First Avenue, Suite 100
Needham Heights, MA 02194
(address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 453-8062
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<PAGE>
Item 5. Other Events
Meditrust Corporation ("Meditrust") and Meditrust Operating Company ("Operating
Company", and together with Meditrust, "The Meditrust Companies") hereby amend
and restate the Joint Current Report on Form 8-K of The Meditrust Companies,
event date January 3, 1998, as filed with the Securities and Exchange Commission
on March 10, 1998, to read in its entirety as follows:
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
On January 3, 1998, La Quinta Inns, Inc. ("La Quinta"), Meditrust and
Operating Company entered into a merger agreement (the "Merger Agreement"),
pursuant to which La Quinta will merge with and into Meditrust with Meditrust
being the surviving corporation (the "Merger"). As a result of the Merger,
Meditrust will acquire all of the assets and liabilities of La Quinta and will
assume or retire La Quinta's existing indebtedness.
La Quinta is currently one of the largest owners/operators of mid-priced
hotels, without food and beverage facilities, in the United States, having over
270 inns and hotels primarily located in the western and southern United States.
La Quinta was formed and incorporated in Texas in 1968 originally as La Quinta
Motor Inns, Inc. La Quinta became a publicly traded entity in 1972 and adopted
its present name in 1992.
Pursuant to the terms of the Merger Agreement, shareholders of La Quinta
may receive a combination of common stock of The Meditrust Companies (the
"Paired Shares") and the earnings and profit distribution referred to below, or
they may elect to receive cash, subject to the amount of aggregate cash payable
to La Quinta shareholders being limited to approximately $521 million
(representing approximately 24% to 28% of the total merger consideration
depending on the Meeting Date Price described below). The stock consideration
will be payable in Paired Shares under an exchange ratio determined based on the
average closing price of the Paired Shares for 20 randomly determined trading
days in a 30 trading day period ending the eighth day prior to La Quinta's
shareholder meeting called to consider the Merger (the "Meeting Date Price").
The Merger Agreement provides that the La Quinta shareholders receiving
stock consideration will receive Paired Shares in an amount, based on the
Meeting Date Price, equal to the difference between $26.00 and the earnings and
profit distribution to be received per La Quinta share, so long as the Meeting
Date Price is between $34.20 and $41.80. La Quinta shareholders receiving stock
consideration will also receive the earnings and profit distribution so long as
they hold the Paired Shares on the applicable record date. The earnings and
profit distribution is expected to be declared immediately prior to the Merger,
payable to all shareholders of record of The Meditrust Companies on a date to be
determined by Meditrust between the fifteenth and the forty-fifth day following
the Merger and payable within fifteen days of such record date.
The Merger Agreement provides that if the Meeting Date Price is greater
than or equal to $41.80 but less than or equal to $45.60, the exchange ratio for
each share of La Quinta common stock exchanged into Paired Shares will be
0.6220, reduced by the consideration to be received in the earnings and profit
distribution per La Quinta share (resulting in total consideration based on the
Meeting Date Price ranging from $26.00 to $28.36 per share of La Quinta common
stock, including the earnings and profit distribution, as the Meeting Date Price
increases through this range). If the Meeting Date Price is greater than $45.60,
then each La Quinta share will be entitled to receive $28.36 in total
consideration based on the Meeting Date Price, comprised of Paired Shares and
the earnings and profit distribution referred to above.
The Merger Agreement further provides that if the Meeting Date Price is
less than $34.20 but greater than or equal to $30.40, the exchange ratio for
each share of La Quinta common stock exchanged into Paired Shares will be
0.7602, reduced by the amount to be received in the earnings and profit
distribution per La Quinta share (resulting in total consideration based on the
Meeting Date Price ranging from $26.00 to $23.11 per share of La Quinta common
stock, including the earnings and profit distribution, as the Meeting Date Price
decreases through this range). If the Meeting Date Price is below $30.40, La
Quinta will have the right to terminate the Merger Agreement under certain
circumstances, subject to a "top-up" right exercisable by Meditrust, which is
designed to return total consideration per La Quinta share based on the Meeting
Date Price to at least $23.11 inclusive of the earning and profit distribution.
If the Meeting Date Price is below $28.50, La Quinta will have the unilateral
right to terminate the Merger Agreement.
The Merger is subject to various conditions including, without limitation,
approval of the Merger by two-thirds of the outstanding shares of La Quinta
common stock, by a majority of the outstanding shares of The Meditrust
Companies, and regulatory agencies.
In addition, on January 11, 1998, The Meditrust Companies and Cobblestone
Holdings, Inc. ("Cobblestone") entered into a merger agreement (the "Cobblestone
Merger Agreement"), pursuant to which Cobblestone will merge with and into
Meditrust (the "Cobblestone Merger" and, together with the Merger, the "La
Quinta/Cobblestone Mergers"). Cobblestone is a privately held company and one of
the leading owners/operators of golf courses in the United States. Cobblestone
has a portfolio of 25 facilities with 29 courses in major golf markets in
Arizona, California, Florida, Georgia, Texas and Virginia.
Under the terms of the Cobblestone Merger Agreement, The Meditrust
Companies will acquire all of the outstanding common stock of Cobblestone for
Paired Shares and all of the outstanding preferred stock of Cobblestone for
either Paired Shares or, at The Meditrust Companies' option, cash, with an
aggregate value of approximately $241 million. The number of Paired Shares to
be issued in the Cobblestone Merger is expected to be 7,928,000 shares using
$30.40 as the assumed Paired Share stock price, subject to adjustment in the
manner described in the Cobblestone Merger Agreement. In addition,
approximately $169 million of Cobblestone debt and associated costs will be
refinanced or assumed as a condition of the closing. The Cobblestone Merger is
subject to customary closing conditions.
The Pro Forma Financial Statements included herein have been adjusted for
the purchase method of accounting whereby the hotels, golf courses and related
improvements and other assets and liabilities owned by La Quinta and Cobblestone
are adjusted to estimated fair market value. The fair market value of the assets
and liabilities of La Quinta and Cobblestone have been determined based upon
preliminary estimates and are subject to change as additional information is
obtained. Management does not anticipate that the preliminary allocation of
purchase costs based upon the estimated fair market value of the assets and
liabilities of La Quinta and Cobblestone will materially change; however, the
allocation of purchase costs are subject to final determination based upon
estimates and other evaluations of fair market value as of the close of the
transactions. Therefore, the allocations reflected in the following unaudited
Pro Forma Financial Statements may differ from the amounts ultimately
determined.
1
<PAGE>
The following unaudited Pro Forma Condensed Statements of Operations
presented assume the La Quinta/ Cobblestone Mergers had been consummated on
terms set forth in the respective merger agreement at the beginning of the
period presented. The results of the operations of Santa Anita Realty
Enterprises ("Santa Anita Realty") and Santa Anita Operating Company ("Santa
Anita Operating") for periods prior to the merger of the corporate predecessors
of Meditrust and Operating Company into Santa Anita Realty and Santa Anita
Operating, respectively, which occurred on November 5, 1997, are not included in
the unaudited Pro Forma Condensed Statements of Operations because such results
are not significant. In addition, the unaudited Pro Forma Condensed Combined
Balance Sheet presented assumes the La Quinta/Cobblestone Mergers had occurred
on March 31, 1998.
Separate Pro Forma Condensed Consolidated Statements of Operations for the
year ended December 31, 1997 and the three months ended March 31, 1998 are
presented for both Meditrust and Operating Company as they are legally separate
registrants. In addition, Pro Forma Condensed Consolidated Statements of
Operations for the year ended December 31, 1997 and the three months ended
March 31, 1998 are presented to show the impact of the La Quinta/Cobblestone
Mergers on The Meditrust Companies taken as a whole.
The following unaudited Pro Forma Condensed Statements of Operations for
the year ended December 31, 1997 and the three months ended March 31, 1998 of
The Meditrust Companies, Meditrust and Operating Company are derived from
historical financial information and pro forma information based in part upon
the Combined and Separate Statements of Operations of The Meditrust Companies,
filed on The Meditrust Companies' Form 10-K, as amended by amendments filed on
Form 10-K/A, for the year ended December 31, 1997 and Form 10-Q for the three
months ended March 31, 1998, and in part upon the Combined Statements of
Operations of La Quinta filed on Form 10-K for the year ended December 31, 1997
and Form 10-Q for the three months ended March 31, 1998 and the Consolidated
Statements of Operations of Cobblestone Holdings, Inc. filed on Form 10-K for
the year ended September 30, 1997 and Form 10-Q for the three and six months
ended March 31, 1998. The following unaudited Pro Forma Condensed Combined
Balance Sheet is based in part upon The Meditrust Companies unaudited Combined
and Separate Balance Sheets as of March 31, 1998 and should be read in
conjunction with the La Quinta and Cobblestone unaudited financial statements
as of March 31, 1998. In management's opinion, all material adjustments
necessary to reflect the effects of the La Quinta/Cobblestone Mergers have been
made.
The following unaudited Pro Forma Condensed Statements of Operations are
not necessarily indicative of what the actual results of The Meditrust
Companies would have been assuming such transactions had been completed as of
the beginning of the period presented, nor do they purport to represent the
results for future periods.
The following unaudited Pro Forma Condensed Combined Balance Sheet is not
necessarily indicative of what the actual financial position would have been
assuming that the La Quinta/Cobblestone Mergers had been completed as of March
31, 1998, nor does it purport to represent the future financial position of The
Meditrust Companies.
2
<PAGE>
THE MEDITRUST COMPANIES PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
The Meditrust
Companies La Quinta Cobblestone
(Historical) (A) (Historical) (B) (Historical) (C)
------------------ ------------------ ------------------
<S> <C> <C> <C>
(In thousands)
ASSETS
Real estate investments .................. $3,022,605 $1,523,581 $ 176,830
Cash and cash equivalents ................ 90,526 1,453 400
Trade, notes and other receivables ....... 41,662 18,612 9,714
Deferred charges, prepaid expenses,
inventory and other assets .............. 111,655 28,502 11,053
Deferred income taxes .................... -- 8,325 --
Intangible assets ........................ -- -- 3,489
Goodwill ................................. 193,256 -- --
---------- ---------- ---------
Total assets ........................... $3,459,704 $1,580,473 $ 201,486
========== ========== =========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Liabilities:
Debt ..................................... $1,242,909 $ 960,932 $ 154,631
Accounts payable, accrued expenses
and other liabilities ................... 109,581 125,973 12,989
Deferred income taxes .................... 501 39,291 4,184
Minority interest ........................ -- 2,646 337
---------- ---------- ---------
Total liabilities ...................... 1,352,991 1,128,842 172,141
---------- ---------- ---------
Redeemable preferred stock ............... -- -- 42,241
Shareholders' equity:
Series A Non-Voting Convertible
Common Stock ............................ 1,700 -- --
Common stock ............................. 17,684 8,509 17
Additional paid-in-capital ............... 2,282,226 250,496 5,389
Unearned officer's compensation .......... -- (948) --
Retained earnings (loss) ................. -- 288,607 (18,302)
Distributions in excess of net income..... (194,897) -- --
Treasury stock, at cost .................. -- (95,033) --
---------- ---------- ---------
Total shareholders' equity ............. 2,106,713 451,631 (12,896)
---------- ---------- ---------
Total liabilities and shareholders'
equity ................................ $3,459,704 $1,580,473 $ 201,486
========== ========== =========
<CAPTION>
La Quinta Cobblestone Total
Pro Forma Pro Forma Pro Forma Total
Adjustments (D) Adjustments (AA) Adjustments Pro Forma
------------------- -------------------- -------------- -------------
<S> <C> <C> <C> <C>
(In thousands)
ASSETS
Real estate investments .................. $ 1,083,673 (E) $ 86,364(BB) $1,170,037 $5,893,053
Cash and cash equivalents ................ -- -- -- 92,379
Trade, notes and other receivables ....... 42,000 (F) -- 42,000 111,988
Deferred charges, prepaid expenses,
inventory and other assets .............. (5,862)(G) -- (5,862) 145,348
Deferred income taxes .................... (8,325)(H) -- (8,325) --
Intangible assets ........................ 112,543 (I) 7,511 (CC) 120,054 123,543
Goodwill ................................. 331,129 (J) 158,596 (DD) 489,725 682,981
------------ ------------ ---------- ----------
Total assets ........................... $ 1,555,158 $ 252,471 $1,807,629 $7,049,292
============ ============ ========== ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Liabilities:
Debt ..................................... $ 834,000(K) $ 45,000(EE) $ 879,000 $3,237,472
Accounts payable, accrued expenses
and other liabilities ................... -- -- -- 248,543
Deferred income taxes .................... (39,291)(H) (4,184)(FF) (43,475) 501
Minority interest ........................ -- -- -- 2,983
------------ ------------ ---------- ----------
Total liabilities ...................... 794,709 40,816 835,525 3,489,499
------------ ------------ ---------- ----------
Redeemable preferred stock ............... -- (42,241)(GG) (42,241) --
Shareholders' equity:
Series A Non-Voting Convertible
Common Stock ............................ -- -- 1,700
Common stock ............................. 150 (L) 1,569 (HH) 1,719 27,929
Additional paid-in-capital ............... 1,102,925 (M) 234,025 (II) 1,336,950 3,875,061
Unearned officer's compensation .......... 948 (N) -- 948 --
Retained earnings (loss) ................. (288,607)(O) 18,302 (JJ) (270,305) --
Distributions in excess of net income..... (150,000)(P) -- (150,000) (344,897)
Treasury stock, at cost .................. 95,033 (N) -- 95,033 --
------------ ------------ ---------- ----------
Total shareholders' equity ............. 760,449 253,896 1,014,345 3,559,793
------------ ------------ ---------- ----------
Total liabilities and shareholders'
equity ................................ $ 1,555,158 $ 252,471 $1,807,629 $7,049,292
============ ============ ========== ==========
</TABLE>
See accompanying notes to the unaudited pro forma condensed combined balance
sheet.
3
<PAGE>
The Meditrust Companies
Notes to Pro Forma Condensed Combined Balance Sheet as of March 31, 1998
(In Thousands, Except Per Share Amounts)
(Unaudited)
(A) Represents the historical combined balance sheet of Meditrust and Operating
Company as of March 31, 1998.
(B) Represents the historical balance sheet of La Quinta as of March 31, 1998.
(C) Represents the historical balance sheet of Cobblestone as of March 31,
1998.
Adjustments for the La Quinta Transaction:
(D) Represents adjustments to record the Merger between Meditrust and La
Quinta. The Merger will be accounted for using the purchase method of
accounting, based upon the estimated purchase price of $3,007,012 assuming a
Meeting Date Price of $30.40 per Paired Share, as follows:
<TABLE>
<S> <C>
Issuance of 43,297 Paired Shares of The Meditrust Companies, and cash of $475,384 in
exchange
for 77,223 shares of La Quinta common stock (see Note M) ................................ $1,837,464
Assumption of mortgage debt and other liabilities ........................................ 960,932
Merger costs (see calculation below) ..................................................... 208,616
----------
$3,007,012
==========
</TABLE>
The following is a calculation of the estimated fees and other expenses related
to the Merger:
<TABLE>
<S> <C>
Buyout of options and restricted stock (8,339 common stock options and 25 shares of
restricted stock) ....................................................................... $132,000
Employment and non-compete agreements .................................................... 12,000
Severance agreements ..................................................................... 7,000
Adjustment of pension plan liability to fair value ....................................... 5,000
Estimated call premium for retirement of $120,000 La Quinta 9.25% Senior Subordinated
Notes, plus interest on defeasance of debt .............................................. 10,000
Estimated loan costs in connection with increasing the availability under The Meditrust
Companies' Revolving Credit Facility .................................................... 5,000
Advisory fees ............................................................................ 28,616
Legal and accounting fees ................................................................ 5,000
Other, including printing and filing costs ............................................... 4,000
--------
$208,616
========
</TABLE>
(E) Represents adjustments for the purchase method of accounting whereby the
investment in La Quinta hotel properties is adjusted to its estimated fair
market value, as follows:
<TABLE>
<S> <C>
Purchase price (see Note D) .................................................. $3,007,012
Less: pre-Merger historical basis of La Quinta real estate ................... 1,523,581
Allocation of pro forma basis of La Quinta net assets acquired as follows:
Intangible assets ............................................................ 112,543
Goodwill ..................................................................... 331,129
Other assets ................................................................. 84,705
Other liabilities ............................................................ (128,619)
----------
Subtotal .................................................................... 1,923,339
----------
Step-up to record fair value of La Quinta's real estate investments .......... $1,083,673
==========
</TABLE>
(F) Represents adjustment for the purchase method of accounting to record a
receivable associated with the tax benefit provided from the realization of a
preacquisition net operating loss carry back resulting from the buyout of La
Quinta stock options and restricted stock.
4
<PAGE>
The Meditrust Companies
Notes to Pro Forma Condensed Combined Balance Sheet as of March 31, 1998
(In Thousands, Except Per Share Amounts)
(Unaudited)
(G) Represents adjustments for the purchase method of accounting to write off
deferred costs of $10,862 and record $5,000 of deferred loan costs expected to
be incurred in connection with increasing the availability under The Meditrust
Companies' revolving loan agreements that permit borrowings in an aggregate
amount of up to $365 million with Fleet National Bank, as agent for certain
other financial institutions, and with Via Banque (the "Revolving Credit
Facility").
(H) Represents adjustments for the purchase method of accounting to write off
the deferred tax assets and liabilities of La Quinta.
(I) Represents adjustments for the purchase method of accounting whereby the
tradename, assembled work force and customer reservation system of La Quinta
are adjusted to their estimated fair market values.
(J) Represents purchase consideration in excess of the fair market value of the
net assets of La Quinta.
(K) Represents additional borrowings assumed to be incurred in connection with
the Merger as follows:
<TABLE>
<S> <C>
Cash consideration for La Quinta shares .................................. $475,384
Assumed current and accumulated earnings and profits distribution ........ 150,000
Merger costs (see calculation above in Note D) ........................... 208,616
--------
Total additional borrowings .............................................. $834,000
========
</TABLE>
(L) Represents adjustments to record the exchange of La Quinta common stock for
Paired Shares of The Meditrust Companies. Pursuant to the Merger Agreement, La
Quinta shareholders may elect to receive either (i) $26.00 cash per share of La
Quinta common stock; or (ii) Paired Shares, for which the Exchange Ratio, as
defined in the La Quinta Merger Agreement, is based upon the Meeting Date Price
of a Paired Share of The Meditrust Companies. For purposes of these statements,
the Meeting Date Price is assumed to be $30.40 and the earnings and profits
distribution is assumed to be $150,000. At March 31, 1998, there were 77,223
shares of La Quinta common stock outstanding. Assuming approximately 18,284
outstanding shares of La Quinta are exchanged for cash, the remaining 58,939
shares will be exchanged for 43,297 Paired Shares of The Meditrust Companies.
The change in common stock is summarized as follows:
<TABLE>
<S> <C>
Paired Shares issued in connection with the Merger ......... 43,297
Par value of each Paired Share ............................. $ 0.20
--------
Increase in common stock ................................... 8,659
Less: La Quinta historical common stock .................... (8,509)
--------
Adjustment to common stock ................................. $ 150
========
</TABLE>
(M) Represents adjustments to eliminate La Quinta's historical additional
paid-in-capital and record equity based upon the number of Paired Shares issued
in connection with the Merger as follows:
<TABLE>
<S> <C>
Consideration for La Quinta outstanding shares (58,939 shares of La Quinta common stock
for $23.11 per share in Paired Shares and earnings and profits distribution; 18,284
shares for $26.00 cash per share) ....................................................... $1,837,464
Less: 18,284 shares of La Quinta common stock to be exchanged for cash ................... (475,384)
----------
Remaining consideration .................................................................. 1,362,080
Book value of La Quinta's additional paid-in-capital ..................................... (250,496)
Increase in common stock ................................................................. (8,659)
----------
Adjustment to additional paid-in-capital ................................................. $1,102,925
==========
</TABLE>
(N) Represents adjustments to eliminate unearned officer's compensation and
treasury stock of La Quinta of $948 and $95,033, respectively.
(O) Represents adjustment to eliminate La Quinta's historical retained earnings
of $288,607.
5
<PAGE>
The Meditrust Companies
Notes to Pro Forma Condensed Combined Balance Sheet as of March 31, 1998
(In Thousands, Except Per Share Amounts)
(Unaudited)
(P) Represents adjustment to record the distribution of current and accumulated
earnings and profits, which is assumed to be $150,000, to the shareholders of
The Meditrust Companies after consummation of the Merger. The estimated
earnings and profits distribution has been presented as if the transaction had
been consummated based on the terms and assumptions set forth in the Merger
Agreement.
Adjustments for the Cobblestone Transaction
(AA) Represents adjustments to record the merger between Meditrust and
Cobblestone. The merger will be accounted for using the purchase method of
accounting, based upon the estimated purchase price of $440,631, assuming an
exchange price of $30.40 per Paired Share of The Meditrust Companies, as
follows:
<TABLE>
<S> <C>
Issuance of 7,928 Paired Shares of The Meditrust Companies in exchange for 5,220
redeemable
preferred shares at $8.25 per share and 1,722 common shares at $114.94 per share ........ $241,000
Assumption of mortgage debt and other liabilities ........................................ 154,631
Merger costs (see calculation below) ..................................................... 45,000
--------
$440,631
========
</TABLE>
The following is a calculation of the estimated fees and other expenses related
to the Cobblestone Merger:
<TABLE>
<S> <C>
Buyout of stock options (113 options at an average strike price of $15.80) ....... $13,000
Estimated cash required for tender premium to retire outstanding Cobblestone debt 15,000
Employment and severance costs ................................................... 3,000
Advisory fees .................................................................... 10,000
Legal and accounting fees ........................................................ 3,000
Other, including printing and filing costs ....................................... 1,000
-------
$45,000
=======
</TABLE>
(BB) Represents adjustments for the purchase method of accounting whereby the
investment in Cobblestone golf properties is adjusted to its estimated fair
market value, as follows:
<TABLE>
<S> <C>
Purchase price of Cobblestone (see Note AA) ........................... $440,631
Less: pre-merger basis of Cobblestone real estate investments ......... 176,830
</TABLE>
Allocation of pro forma basis of Cobblestone to net assets acquired, as
follows:
<TABLE>
<S> <C>
Intangible assets .................................................... 11,000
Goodwill ............................................................. 158,596
Other assets ......................................................... 21,167
Other liabilities .................................................... (13,326)
-------
Subtotal ............................................................ 354,267
-------
Step-up to record fair value of Cobblestone's real estate investments $ 86,364
=========
</TABLE>
(CC) Represents adjustments for the purchase method of accounting to write off
certain intangible assets of Cobblestone of $3,489 and record the tradename,
assembled work force and other intangible assets of $11,000 acquired in the
Cobblestone Merger at their estimated fair market values.
(DD) Represents purchase consideration in excess of the fair market value of
the net assets of Cobblestone.
(EE) Represents additional borrowings assumed to be incurred in connection with
the Cobblestone Merger as follows:
<TABLE>
<S> <C>
Merger costs -- (see calculation above) ......... $45,000
=======
</TABLE>
6
<PAGE>
The Meditrust Companies
Notes to Pro Forma Condensed Combined Balance Sheet as of March 31, 1998
(In Thousands, Except Per Share Amounts)
(Unaudited)
(FF) Represents adjustment for the purchase method of accounting to write off
the deferred tax liability of Cobblestone.
(GG) Represents the exchange of 5,220 shares of redeemable preferred stock of
Cobblestone with a historical value of $42,241 for 1,390 Paired Shares of The
Meditrust Companies based on a redemption price of $8.25 per redeemable
preferred share and an assumed exchange price of $30.40 per Paired Share of The
Meditrust Companies.
(HH) Represents adjustments to record the exchange of redeemable preferred
stock and common stock of Cobblestone for Paired Shares. Pursuant to the
Cobblestone Merger Agreement, each share of outstanding Cobblestone common
stock will be converted into the right to receive Paired Shares based on the
Exchange Ratio, as defined in the Cobblestone Merger Agreement, and each share
of outstanding Cobblestone redeemable preferred stock will be converted into
$8.25 per share payable in cash, or Paired Shares. At the balance sheet date,
The Meditrust Companies will exchange 7,928 Paired Shares for 5,220 and 1,722
shares of redeemable preferred stock and common stock of Cobblestone,
respectively, based upon an assumed exchange price of $30.40.
The increase in common stock is summarized as follows:
<TABLE>
<S> <C>
Paired Shares issued in connection with the Cobblestone Merger ......... 7,928
Par value of each Paired Share ......................................... $ 0.20
-------
Increase in common stock ............................................... 1,586
Less: Cobblestone's historical common stock ............................ (17)
-------
Adjustment to common stock ............................................. 1,569
=======
</TABLE>
(II) Represents adjustments to eliminate Cobblestone's historical additional
paid-in capital and record equity based upon the number of Paired Shares issued
in the Cobblestone Merger as follows:
<TABLE>
<S> <C>
Purchase consideration for outstanding shares of Cobblestone redeemable preferred stock
and common stock (5,220 redeemable preferred shares at $8.25 per share and 1,722 common
shares at $114.94 per share) ............................................................ $241,000
Book value of Cobblestone's additional paid-in-capital ................................... (5,389)
Increase in common stock ................................................................. (1,586)
--------
Adjustment to additional paid-in-capital ................................................. $234,025
========
</TABLE>
(JJ) Represents the adjustment to eliminate Cobblestone's historical retained
loss of $18,302.
7
<PAGE>
THE MEDITRUST COMPANIES
PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
The
Operating Meditrust
Meditrust Company Eliminating Companies
Pro Forma (A) Pro Forma (B) Entries Pro Forma
--------------- --------------- ------------------- ------------
<S> <C> <C> <C> <C>
(In thousands, except per share amounts)
Revenue:
Rental ............................................. $ 137,868 $ -- $ -- $137,868
Rent from Operating Company ........................ 248,292 -- (248,292)(C) --
Interest ........................................... 151,315 -- (193)(D) 151,122
Horse racing revenue ............................... -- 5,228 -- 5,228
Hotel revenue ...................................... -- 494,494 -- 494,494
Restaurant rent, food & beverage revenue ........... -- 21,158 -- 21,158
Golf club revenue .................................. -- 58,333 -- 58,333
Other .............................................. -- 3,480 -- 3,480
---------- ---------- ----------- --------
Total revenue ..................................... 537,475 582,693 (248,485) 871,683
Expenses:
Interest expense ................................... 190,920 209 (193)(D) 190,936
Amortization of goodwill ........................... 26,700 135 -- 26,835
Depreciation, amortization & asset
retirements ...................................... 144,309 6,438 -- 150,747
General and administrative ......................... 10,111 22,905 -- 33,016
Rental expense due to Meditrust .................... -- 248,292 (248,292)(C) --
Horse racing operations ............................ -- 4,263 -- 4,263
Hotel and restaurant operations .................... -- 244,501 -- 244,501
Golf club operations ............................... -- 57,984 -- 57,984
Property operations ................................ 220 -- -- 220
Net gain on property transactions .................. -- (8,808) -- (8,808)
Partners' equity in earnings ....................... -- 860 -- 860
---------- ---------- ----------- --------
Total expenses .................................... 372,260 576,779 (248,485) 700,554
---------- ---------- ----------- --------
Income before income taxes .......................... 165,215 5,914 -- 171,129
Income tax provision ................................ -- 2,070 -- 2,070
---------- ---------- ----------- --------
Net income .......................................... 165,215 3,844 -- 169,059
---------- ---------- ----------- --------
Basic earnings per share ............................ $ 1.21 $ 0.03 $ 1.24
Basic weighted average shares outstanding ........... 135,999(E) 135,795(E) 135,795
Diluted earnings per share .......................... $ 1.21 $ 0.03 $ 1.24
Diluted weighted average shares outstanding ......... 136,732(E) 136,249(E) 136,249
</TABLE>
See accompanying notes to the unaudited pro forma condensed combined statement
of operations.
8
<PAGE>
The Meditrust Companies
Notes to Pro Forma Condensed Combined Statement of Operations
for the Year Ended December 31, 1997
(In Thousands, Except Per Share Amounts)
(Unaudited)
(A) Represents the pro forma results of operations of Meditrust for the year
ended December 31, 1997 as adjusted for the Merger and the Cobblestone Merger.
(B) Represents the pro forma results of operations of Operating Company for the
year ended December 31, 1997 as adjusted for the Merger and the Cobblestone
Merger.
(C) Represents the elimination of rental income and expense related to the race
track, hotels and golf course properties leased by Operating Company from
Meditrust.
(D) Represents the elimination of interest income and expense related to the
operating note between Meditrust and Operating Company.
(E) Basic and diluted weighted average shares include 8,500 paired shares
of Series A Non-Voting Convertible Common Stock issued in a private placement by
The Meditrust Companies to Merrill Lynch International (the "Forward Equity
Transaction"). In connection with the Forward Equity Transaction, The Meditrust
Companies entered into a Purchase Price Adjustment Mechanism Agreement, dated as
of February 26, 1998, with Merrill Lynch International (the "Price Adjustment
Agreement"), pursuant to which the parties agreed to adjust the purchase price
of the 8,500,000 paired shares of Series A Non-Voting Convertible Common Stock
on or prior to February 26, 1999 by the difference between (i) the market price
for the Paired Shares at the time of the settlement and (ii) a reference price
(the "Reference Price") based on the closing price for the Paired Shares on
February 25, 1998 plus a forward accretion, minus an adjustment to reflect
distributions on the Paired Shares during the transaction period (such
difference, the "Price Difference"). If the Price Difference is positive,
Merrill Lynch International is obligated to deliver Paired Shares or cash to The
Meditrust Companies equal in value to the aggregate Price Difference. If the
Price Difference is negative, The Meditrust Companies are obligated to deliver
additional Paired Shares equal in value to the aggregate Price Difference to
Merrill Lynch International. In the event that the market price for the Paired
Shares at the time of settlement is lower than the Reference Price, The
Meditrust Companies will have to deliver additional Paired Shares to Merrill
Lynch International, which would have dilutive effects on the capital stock of
The Meditrust Companies. Additionally, under certain adverse market conditions,
Merrill Lynch International has the right to accelerate the settlement of all or
a portion of the obligation under the Price Adjustment Agreement. Such early
settlements may force The Meditrust Companies to issue Paired Shares at a
depressed price, which may heighten the dilutive effects on the capital stock of
The Meditrust Companies.
The Series A Non-Voting Convertible Common Stock will receive the same dividend
as the Company's Common Stock; however, the guaranteed minimum return is Libor
plus 75 basis points. Any difference between Libor plus 75 basis points and the
dividend payments received by the shareholders will be included in an adjustment
amount under the Price Adjustment Agreement. The Company expects the annual
dividend to exceed the Libor plus 75 basis points.
This Forward Equity Transaction has been accounted for as an equity transaction
with the shares treated as outstanding from their date of issuance for both
basic and diluted earnings per share purposes. The accounting treatment for
this transaction is expected to be reviewed by the Emerging Issues Task force
(EITF). The Securities and Exchange Commission has concluded that until the
EITF has an opportunity to perform a full review of this transaction, future
transactions of this type will be accounted for as debt. For previously
completed transactions such as the Company's, the Securities and Exchange
Commission will not object to the accounting treatment reflected in the Pro
Forma Condensed Combined Statement of Operations.
9
<PAGE>
THE MEDITRUST COMPANIES
PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
The
Operating Meditrust
Meditrust Company Eliminating Companies
Pro Forma (A) Pro Forma (B) Entries Pro Forma
--------------- --------------- ------------------ ------------
<S> <C> <C> <C> <C>
(In thousands, except per share amounts)
Revenue:
Rental ............................................. $ 43,656 $ -- $ -- $ 43,656
Rent from Operating Company ........................ 73,265 -- (73,265)(C) --
Interest ........................................... 39,004 -- (290)(D) 38,714
Horse racing revenue ............................... -- 36,511 -- 36,511
Hotel revenue ...................................... -- 131,297 -- 131,297
Restaurant rent, food & beverage revenue ........... -- 5,279 -- 5,279
Golf club revenue .................................. -- 17,019 -- 17,019
Other .............................................. 26,000 1,043 -- 27,043
---------- ---------- ---------- ---------
Total revenue ..................................... 181,925 191,149 (73,555) 299,519
Expenses:
Interest expense ................................... 56,088 528 (290)(D) 56,326
Amortization of goodwill ........................... 7,496 201 -- 7,697
Depreciation, amortization & asset
retirements ...................................... 39,797 4,088 -- 43,885
General and administrative ......................... 3,794 7,248 -- 11,042
Rental expense due to Meditrust .................... -- 73,265 (73,265)(C) --
Horse racing operations ............................ -- 28,196 -- 28,196
Hotel and restaurant operations .................... -- 65,959 -- 65,959
Golf club operations ............................... -- 14,569 -- 14,569
Property operations ................................ 1,265 -- -- 1,265
Other .............................................. 21,430 -- -- 21,430
Partners' equity in earnings ....................... -- 204 -- 204
---------- ---------- ---------- ---------
Total expenses .................................... 129,870 194,258 (73,555) 250,573
---------- ---------- ---------- ---------
Income before income taxes .......................... 52,055 (3,109) -- 48,946
Income tax provision ................................ -- -- -- --
---------- ---------- ---------- ---------
Net income .......................................... 52,055 (3,109) -- 48,946
---------- ---------- ---------- ---------
Basic earnings per share ............................ $ 0.35 $ (0.02) $ 0.33
Basic weighted average shares outstanding ........... 149,626(E) 148,320(E) 148,320
Diluted earnings per share .......................... $ 0.35 $ (0.02) $ 0.33
Diluted weighted average shares outstanding ......... 150,105(E) 148,799(E) 148,799
</TABLE>
See accompanying notes to the unaudited pro forma condensed combined statement
of operations.
10
<PAGE>
The Meditrust Companies
Notes to Pro Forma Condensed Combined Statement of Operations
for the Three Months Ended March 31, 1998
(In Thousands, Except Per Share Amounts)
(Unaudited)
(A) Represents the pro forma results of operations of Meditrust for the three
months ended March 31, 1998 as adjusted for the Merger and the Cobblestone
Merger.
(B) Represents the pro forma results of operations of Operating Company for the
three months ended March 31, 1998 as adjusted for the Merger and the
Cobblestone Merger.
(C) Represents the elimination of rental income and expense related to the race
track, hotels and golf course properties leased by Operating Company from
Meditrust.
(D) Represents the elimination of interest income and expense related to the
operating note between Meditrust and Operating Company.
(E) Basic and diluted weighted average shares include 8,500 shares of Series A
Non-Voting Convertible Common Stock issued in a Forward Equity Transaction on
February 27, 1998.
The Series A Non-Voting Convertible Common Stock will receive the same dividend
as the Company's Common Stock; however, the guaranteed minimum return is Libor
plus 75 basis points. Any difference between Libor plus 75 basis points and the
dividend payments received by the shareholders will be included in an adjustment
amount under the Price Adjustment Agreement. The Company expects the annual
dividend to exceed the Libor plus 75 basis points.
This Forward Equity Transaction has been accounted for as an equity transaction
with the shares treated as outstanding from their date of issuance for both
basic and diluted earnings per share purposes. The accounting treatment for
this transaction is expected to be reviewed by the Emerging Issues Task force
(EITF). The Securities and Exchange Commission has concluded that until the
EITF has an opportunity to perform a full review of this transaction, future
transactions of this type will be accounted for as debt. For previously
completed transactions such as the Company's, the Securities and Exchange
Commission will not object to the accounting treatment reflected in the Pro
Forma Condensed Combined Statement of Operations.
11
<PAGE>
MEDITRUST CORPORATION
PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
La Quinta
Meditrust Merger
Historical (A) Adjustments (B)
---------------- -----------------
<S> <C> <C>
(In thousands, except per share amounts)
Revenue:
Rental ................................ $ 137,868 $ --
Rent from Operating Company ........... 740 234,753 (D)
Interest .............................. 151,315 --
--------- -----------
Total revenue ........................ 289,923 234,753
Expenses:
Interest expense ...................... 87,412 110,408 (E)
Amortization of goodwill .............. 2,214 16,556 (G)
Depreciation and amortization ......... 26,954 107,383 (H)
General and administrative ............ 10,111 --
Property operations ................... 220 --
--------- -----------
Total expenses ....................... 126,911 234,347
--------- -----------
Net income ............................. 163,012 406
========= ===========
Basic earnings per share ............... $ 2.14
Basic weighted average shares
outstanding ......................... 76,274
Diluted earnings per share ............. $ 2.12
Diluted weighted average shares
outstanding ........................... 77,007
<CAPTION>
Cobblestone Other
Merger Pro Forma Meditrust
Adjustments (C) Adjustments Pro Forma
----------------- -------------------- ----------------
<S> <C> <C> <C>
(In thousands, except per share amounts)
Revenue:
Rental ................................ $ -- $ -- $ 137,868
Rent from Operating Company ........... 12,799 (D) -- 248,292
Interest .............................. -- -- 151,315
---------- ------------ -----------
Total revenue ........................ 12,799 -- 537,475
Expenses:
Interest expense ...................... 13,500 (F) (20,400) (I) 190,920
Amortization of goodwill .............. 7,930 (G) -- 26,700
Depreciation and amortization ......... 9,972 (H) -- 144,309
General and administrative ............ -- -- 10,111
Property operations ................... -- -- 220
---------- ------------ -----------
Total expenses ....................... 31,402 (20,400) 372,260
---------- ------------ -----------
Net income ............................. (18,603) 20,400 165,215
========== ============ ===========
Basic earnings per share ............... $ 1.21
Basic weighted average shares
outstanding ......................... 135,999(J)
Diluted earnings per share ............. $ 1.21
Diluted weighted average shares
outstanding ........................... 136,732(J)
</TABLE>
See accompanying notes to the unaudited pro forma condensed consolidated
statement of operations.
12
<PAGE>
Meditrust Corporation
Notes to Pro Forma Condensed Consolidated Statement of Operations
for the Year Ended December 31, 1997
(In Thousands, Except Per Share Amounts)
(Unaudited)
(A) Represents the historical statement of operations of Meditrust for the year
ended December 31, 1997.
(B) Represents adjustments to Meditrust's results of operations assuming the
Merger had occurred as of January 1, 1997.
(C) Represents adjustments to Meditrust's results of operations assuming the
Cobblestone Merger had occurred as of January 1, 1997.
(D) Represents the pro forma lease revenue from Operating Company to Meditrust
for the use of assets that Meditrust will have ownership of subsequent to the
La Quinta/Cobblestone Mergers. The respective lease revenue is calculated on a
triple net basis based upon the historical revenue and expenses of the assets
for the period presented.
(E) Represents adjustments to historical interest expense of Meditrust based on
the Merger as follows:
<TABLE>
<S> <C>
Reclassification of historical interest expense from Operating Company ................ $ 49,186
Adjustment to reflect the increase in interest expense as a result of additional
borrowings of $834,000 at an assumed rate of 7.5% partially offset by the effect of
refinancing the existing La Quinta $120,000 9.25% Senior Subordinated Notes from an
effective rate of 9.58% to 7.5% ...................................................... 60,222
Amortization of additional deferred loan costs ........................................ 1,000
--------
Adjustment to interest expense ........................................................ $110,408
========
</TABLE>
(F) Represents adjustments to historical interest expense of Meditrust based on
the Cobblestone Merger as follows:
<TABLE>
<S> <C>
Reclassification of historical interest expense from Operating Company ................ $ 15,273
Adjustment to reflect the net decrease in interest expense as a result of additional
borrowings of $45,000 and refinancing the existing debt at 7.5% ...................... (1,773)
--------
Adjustment to interest expense ........................................................ $ 13,500
========
</TABLE>
(G) Represents adjustments to reflect amortization of goodwill of $16,556 and
$7,930 pertaining to the mergers with La Quinta and Cobblestone, respectively.
Goodwill represents purchase consideration in excess of the fair market value
of the net assets of La Quinta and Cobblestone. Amortization of goodwill is
computed using the straight line method over a 20 year estimated useful life.
(H) Represents adjustment to increase depreciation of real estate and
personalty and amortization of intangible assets acquired. Depreciation is
computed using the straight line method and is based upon the estimated useful
lives of 30 years for buildings and improvements, 20 years for land
improvements and 5 to 7 years for personal property. Amortization of the
tradename asset is computed using the straight line method over a 20 year
estimated life. Intangible assets for the assembled work force and customer
reservation system are amortized on a straight line basis over a 3 year
estimated life. These estimates are based upon management's knowledge of the
properties and the hotel and golf course industries in general.
(I) Represents adjustments to interest expense based upon the reduction in
additional borrowings assumed to be incurred in connection with the La
Quinta/Cobblestone Mergers, effected through the receipt of approximately
$272,000 on February 27, 1998 from the issuance of 8,500 shares of Series A
Non-Voting Convertible Common Stock in a Forward Equity Transaction, which is
assumed to have occurred as of January 1, 1997 for pro forma purposes.
Interest expense on additional borrowings under The Meditrust Companies'
Revolving Credit Facility assumes an average interest rate of 7.5%. An increase
of 25 basis points in the interest rate on this variable rate debt would
increase pro forma interest expense by $2,217, decrease net income to $162,998
and decrease basic earnings per share by $0.02 based upon 135,999 basic
weighted average common shares outstanding.
13
<PAGE>
(J) Basic and diluted weighted average shares include 8,500 shares of Series A
Non-Voting Convertible Common Stock issued in a Forward Equity Transaction on
February 27, 1998.
The Series A Non-Voting Convertible Common Stock will receive the same dividend
as the Company's Common Stock; however, the guaranteed minimum return is Libor
plus 75 basis points. Any difference between Libor plus 75 basis points and the
dividend payments received by the shareholders will be included in an adjustment
amount under the Price Adjustment Agreement. The Company expects the annual
dividend to exceed the Libor plus 75 basis points.
This Forward Equity Transaction has been accounted for as an equity transaction
with the shares treated as outstanding from their date of issuance for both
basic and diluted earnings per share purposes. The accounting treatment for
this transaction is expected to be reviewed by the Emerging Issues Task force
(EITF). The Securities and Exchange Commission has concluded that until the
EITF has an opportunity to perform a full review of this transaction, future
transactions of this type will be accounted for as debt. For previously
completed transactions such as the Company's, the Securities and Exchange
Commission will not object to the accounting treatment reflected in the Pro
Forma Condensed Consolidated Statement of Operations.
14
<PAGE>
MEDITRUST CORPORATION
PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
La Quinta
Meditrust Merger
Historical (A) Adjustments (B)
---------------- -----------------
<S> <C> <C>
(In thousands, except per share amounts)
Revenue:
Rental ................................ $ 43,656 $ --
Rent from Operating Company ........... 6,781 60,554 (D)
Interest .............................. 39,004 --
Other ................................. 26,000 --
--------- ----------
Total revenue ........................ 115,441 60,554
Expenses:
Interest expense ...................... 25,417 29,369 (E)
Amortization of goodwill .............. 1,375 4,139 (G)
Depreciation and amortization ......... 10,458 26,846 (H)
General and administrative ............ 3,794 --
Property operations ................... 1,265 --
Other ................................. 21,430 --
--------- ----------
Total expenses ....................... 63,739 60,354
--------- ----------
Net income ............................. 51,702 200
========= ==========
Basic earnings per share ............... $ 0.56
Basic weighted average shares
outstanding ......................... 92,734
Diluted earnings per share ............. $ 0.56
Diluted weighted average shares
outstanding ........................... 93,213
<CAPTION>
Cobblestone Other
Merger Pro Forma Meditrust
Adjustments (C) Adjustments Pro Forma
----------------- ------------------- ----------------
<S> <C> <C> <C>
(In thousands, except per share amounts)
Revenue:
Rental ................................ $ -- $ -- $ 43,656
Rent from Operating Company ........... 5,930 (D) -- 73,265
Interest .............................. -- -- 39,004
Other ................................. -- -- 26,000
--------- ----------- -----------
Total revenue ........................ 5,930 -- 181,925
Expenses:
Interest expense ...................... 4,702 (F) (3,400) (I) 56,088
Amortization of goodwill .............. 1,982 (G) -- 7,496
Depreciation and amortization ......... 2,493 (H) -- 39,797
General and administrative ............ -- -- 3,794
Property operations ................... -- -- 1,265
Other ................................. -- -- 21,430
--------- ----------- -----------
Total expenses ....................... 9,177 (3,400) 129,870
--------- ----------- -----------
Net income ............................. (3,247) $ 3,400 52,055
========= =========== ===========
Basic earnings per share ............... $ 0.35
Basic weighted average shares
outstanding ......................... 149,626(J)
Diluted earnings per share ............. $ 0.35
Diluted weighted average shares
outstanding ........................... 150,105(J)
</TABLE>
See accompanying notes to the unaudited pro forma condensed consolidated
statement of operations.
15
<PAGE>
Meditrust Corporation
Notes to Pro Forma Condensed Consolidated Statement of Operations
for the Three Months Ended March 31, 1998
(In Thousands, Except Per Share Amounts)
(Unaudited)
(A) Represents the historical statement of operations of Meditrust for the
three months ended March 31, 1998.
(B) Represents adjustments to Meditrust's results of operations assuming the
Merger had occurred as of January 1, 1997.
(C) Represents adjustments to Meditrust's results of operations assuming the
Cobblestone Merger had occurred as of January 1, 1997.
(D) Represents the pro forma lease revenue from Operating Company to Meditrust
for the use of assets that Meditrust will have ownership of subsequent to the
La Quinta/Cobblestone Mergers. The respective lease revenue is calculated on a
triple net basis based upon the historical revenue and expenses of the assets
for the period presented.
(E) Represents adjustments to historical interest expense of Meditrust based on
the Merger as follows:
<TABLE>
<S> <C>
Reclassification of historical interest expense from Operating Company ................ $14,063
Adjustment to reflect the increase in interest expense as a result of additional
borrowings of $834,000 at an assumed rate of 7.5% partially offset by the effect of
refinancing the existing La Quinta $120,000 9.25% Senior Subordinated Notes from an
effective rate of 9.58% to 7.5% ...................................................... 15,056
Amortization of additional deferred loan costs ........................................ 250
-------
Adjustment to interest expense ........................................................ $29,369
=======
</TABLE>
(F) Represents adjustments to historical interest expense of Meditrust based on
the Cobblestone Merger as follows:
<TABLE>
<S> <C>
Reclassification of historical interest expense from Operating Company ................ $5,145
Adjustment to reflect the net decrease in interest expense as a result of additional
borrowings of $45,000 and refinancing the existing debt at 7.5% ...................... (443)
------
Adjustment to interest expense ........................................................ $4,702
======
</TABLE>
(G) Represents adjustments to reflect amortization of goodwill of $4,139 and
$1,982 pertaining to the mergers with La Quinta and Cobblestone, respectively.
Goodwill represents purchase consideration in excess of the fair market value
of the net assets of La Quinta and Cobblestone. Amortization of goodwill is
computed using the straight line method over a 20 year estimated useful life.
(H) Represents adjustment to increase depreciation of real estate and
personalty and amortization of intangible assets acquired. Depreciation is
computed using the straight line method and is based upon the estimated useful
lives of 30 years for buildings and improvements, 20 years for land
improvements and 5 to 7 years for personal property. Amortization of the
tradename asset is computed using the straight line method over a 20 year
estimated life. Intangible assets for the assembled work force and customer
reservation system are amortized on a straight line basis over a 3 year
estimated life. These estimates are based upon management's knowledge of the
properties and the hotel and golf course industries in general.
(I) Represents adjustments to interest expense based upon the reduction in
additional borrowings assumed to be incurred in connection with the La
Quinta/Cobblestone Mergers, effected through the receipt of approximately
$272,000 on February 27, 1998, from the issuance of 8,500 shares of Series A
Non-Voting Convertible Common Stock in a Forward Equity Transaction, which is
assumed to have occurred as of January 1, 1997 for pro forma purposes.
Interest expense on additional borrowings under The Meditrust Companies'
Revolving Credit Facility assumes an average interest rate of 7.5%. An increase
of 25 basis points in the interest rate on this variable rate debt would
increase pro forma interest expense by $554, decrease net income to $51,501 and
decrease basic earnings per share by $0.00 based upon 149,626 basic weighted
average common shares outstanding.
16
<PAGE>
(J) Basic and diluted weighted average shares include 8,500 shares of Series A
Non-Voting Convertible Common Stock issued in a Forward Equity Transaction on
February 27, 1998.
The Series A Non-Voting Convertible Common Stock will receive the same dividend
as the Company's Common Stock; however, the guaranteed minimum return is Libor
plus 75 basis points. Any difference between Libor plus 75 basis points and the
dividend payments received by the shareholders will be included in an adjustment
amount under the Price Adjustment Agreement. The Company expects the annual
dividend to exceed the Libor plus 75 basis points.
This Forward Equity Transaction has been accounted for as an equity transaction
with the shares treated as outstanding from their date of issuance for both
basic and diluted earnings per share purposes. The accounting treatment for
this transaction is expected to be reviewed by the Emerging Issues Task force
(EITF). The Securities and Exchange Commission has concluded that until the
EITF has an opportunity to perform a full review of this transaction, future
transactions of this type will be accounted for as debt. For previously
completed transactions such as the Company's, the Securities and Exchange
Commission will not object to the accounting treatment reflected in the Pro
Forma Condensed Consolidated Statement of Operations.
17
<PAGE>
MEDITRUST OPERATING COMPANY
PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Operating
Company La Quinta Cobblestone
(Historical)(A) (Historical)(B) (Historical)(C)
----------------- ----------------- -----------------
<S> <C> <C> <C>
(In thousands, except per share amounts)
Revenue:
Horse racing revenue ...................... $ 5,228 $ -- $ --
Hotel revenue ............................. -- 494,494 --
Restaurant rent, food & beverage
revenue .................................. -- 8,075 13,083
Golf club revenue ......................... -- -- 65,515
Other ..................................... 137 -- 3,343
------- -------- --------
Total revenue ............................ 5,365 502,569 81,941
Expenses:
Interest expense .......................... 209 49,186 15,273
Amortization of goodwill .................. 135 -- --
Depreciation, amortization & asset
retirements .............................. 171 60,817 8,909
General and administrative ................ 447 18,524 4,030
Rent expense due to Meditrust ............. 740 -- --
Horse racing operations ................... 4,263 -- --
Hotel operations .......................... -- 244,501 --
Golf club operations ...................... -- -- 58,786
Net gain on property transactions ......... -- (8,808) --
Partners' equity in earnings .............. -- 860 --
------- -------- --------
Total expenses ........................... 5,965 365,080 86,998
------- -------- --------
(Loss) income before income taxes .......... (600) 137,489 (5,057)
Income tax provision ....................... -- 50,185 49
------- -------- --------
Net (loss) income .......................... $ (600) $ 87,304 $ (5,106)
======= ======== ========
Basic earnings per share ................... $ (0.01)
Basic weighted average shares
outstanding ............................... 82,490
Diluted earnings per share ................. $ (0.01)
Diluted weighted average shares
outstanding ............................... 83,223
<CAPTION>
La Quinta Cobblestone Total Operating
Pro Forma Pro Forma Pro Forma Company
Adjustments(D) Adjustments(E) Adjustments Pro Forma
------------------ ------------------ ------------- ----------------
<S> <C> <C> <C> <C>
(In thousands, except per share amounts)
Revenue:
Horse racing revenue ...................... $ -- $ -- $ -- $ 5,228
Hotel revenue ............................. -- -- -- 494,494
Restaurant rent, food & beverage
revenue .................................. -- -- -- 21,158
Golf club revenue ......................... -- (7,182)(F) (7,182) 58,333
Other ..................................... -- -- -- 3,480
----------- ----------- ---------- -----------
Total revenue ............................ -- (7,182) (7,182) 582,693
Expenses:
Interest expense .......................... (49,186)(G) (15,273)(G) (64,459) 209
Amortization of goodwill .................. -- -- -- 135
Depreciation, amortization & asset
retirements .............................. (58,592)(G) (4,867)(G) (63,459) 6,438
General and administrative ................ -- (96)(J) (96) 22,905
Rent expense due to Meditrust ............. 234,753 (H) 12,799 (H) 247,552 248,292
Horse racing operations ................... -- -- -- 4,263
Hotel operations .......................... -- -- -- 244,501
Golf club operations ...................... -- (802)(F) (802) 57,984
Net gain on property transactions ......... -- -- -- (8,808)
Partners' equity in earnings .............. -- -- -- 860
----------- ----------- ---------- -----------
Total expenses ........................... 126,975 (8,239) 118,736 576,779
----------- ----------- ---------- -----------
(Loss) income before income taxes .......... (126,975) 1,057 (125,918) 5,914
Income tax provision ....................... (48,164)(I) -- (48,164) 2,070
----------- ----------- ---------- -----------
Net (loss) income .......................... $ (78,811) $ 1,057 $ (77,754) $ 3,844
=========== =========== ========== ===========
Basic earnings per share ................... $ 0.03
Basic weighted average shares
outstanding ............................... 135,795(K)
Diluted earnings per share ................. $ 0.03
Diluted weighted average shares
outstanding ............................... 136,249(K)
</TABLE>
See accompanying notes to the unaudited pro forma condensed consolidated
statement of operations.
18
<PAGE>
Meditrust Operating Company
Notes to Pro Forma Condensed Consolidated Statement of Operations
For the Year Ended December 31, 1997
(In Thousands, Except Per Share Amounts)
(Unaudited)
(A) Represents the historical statement of operations of Operating Company for
the period ended December 31, 1997.
(B) Represents the historical statement of operations of La Quinta for the year
ended December 31, 1997.
(C) Represents the historical statement of operations of Cobblestone for the
year ended September 30, 1997.
(D) Represents adjustments to Operating Company's results of operations
assuming the Merger had occurred as of January 1, 1997.
(E) Represents adjustments to Operating Company's results of operations
assuming the Cobblestone Merger had occurred as of January 1, 1997.
(F) Represents the adjustment to defer all initiation fee revenue from the sale
of club memberships along with the direct incremental costs of selling the
memberships, and to amortize deferred revenue over the expected term of
memberships and supported by a course by course analysis of member attrition.
The incremental direct costs incurred with the selling of memberships will be
deferred and capitalized in a manner similar to deferred loan costs in
accordance with SFAS No. 91.
(G) Represents the adjustment to reclassify interest, depreciation and
amortization expenses related to the ownership of real estate assets from
Operating Company to Meditrust.
(H) Represents the pro forma lease expense of Operating Company for the use of
assets that Meditrust will have ownership of subsequent to the La
Quinta/Cobblestone mergers. The respective lease expense is calculated on a
triple net basis based upon the historical revenue and expenses of the assets
for the periods presented.
(I) Represents the adjustment to La Quinta's and Cobblestone's income tax
provisions necessitated by the impact to taxable income from the effects of the
Merger.
(J) Represents the adjustment to eliminate semi-annual investment banking and
service fees to an affiliate of the majority shareholder of Cobblestone.
(K) Basic and diluted weighted average shares include 8,500 shares of Series A
Non-Voting Convertible Common Stock issued in a Forward Equity Transaction on
February 27, 1998.
The Series A Non-Voting Convertible Common Stock will receive the same dividend
as the Company's Common Stock; however, the guaranteed minimum return is Libor
plus 75 basis points. Any difference between Libor plus 75 basis points and the
dividend payments received by the shareholders will be included in an adjustment
amount under the Price Adjustment Agreement. The Operating Company expects the
annual dividend to exceed the Libor plus 75 basis points.
This Forward Equity Transaction has been accounted for as an equity transaction
with the shares treated as outstanding from their date of issuance for both
basic and diluted earnings per share purposes. The accounting treatment for
this transaction is expected to be reviewed by the Emerging Issues Task force
(EITF). The Securities and Exchange Commission has concluded that until the
EITF has an opportunity to perform a full review of this transaction, future
transactions of this type will be accounted for as debt. For previously
completed transactions such as the Operating Company's, the Securities and
Exchange Commission will not object to the accounting treatment reflected in
the Pro Forma Condensed Combined Statement of Operations.
19
<PAGE>
MEDITRUST OPERATING
COMPANY PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Operating
Company La Quinta Cobblestone
(Historical)(A) (Historical)(B) (Historical)(C)
----------------- ----------------- -----------------
<S> <C> <C> <C>
(In thousands, except per share amounts)
Revenue:
Horse racing revenue ..................... $36,511 $ -- $ --
Hotel revenue ............................ -- 131,297 --
Restaurant rent, food & beverage
revenue ................................. -- 2,029 3,250
Golf club revenue ........................ 341 -- 17,701
Other .................................... 176 -- 867
------- -------- --------
Total revenue ........................... 37,028 133,326 21,818
Expenses:
Interest expense ......................... 528 14,063 5,145
Amortization of goodwill ................. 201 -- --
Depreciation, amortization & asset
retirements ............................. 813 16,823 2,706
General and administrative ............... 590 5,577 1,081
Rent expense due to Meditrust ............ 6,781 -- --
Horse racing operations .................. 28,196 -- --
Hotel operations ......................... -- 65,959 --
Golf club operations ..................... -- -- 14,686
Partners' equity in earnings ............. -- 204 --
------- -------- --------
Total expenses .......................... 37,109 102,626 23,618
------- -------- --------
(Loss) income before income taxes ......... (81) 30,700 (1,800)
Income tax provision ...................... -- 11,205 --
------- -------- --------
Net (loss) income ......................... $ (81) $ 19,495 $ (1,800)
======= ======== ========
Basic earnings per share .................. $ (0.00)
Basic weighted average shares
outstanding .............................. 91,428
Diluted earnings per share ................ $ (0.00)
Diluted weighted average shares
outstanding .............................. 91,907
<CAPTION>
La Quinta Cobblestone Total Operating
Pro Forma Pro Forma Pro Forma Company
Adjustments(D) Adjustments(E) Adjustments Pro Forma
------------------ ---------------- ------------- -----------------
<S> <C> <C> <C> <C>
(In thousands, except per share amounts)
Revenue:
Horse racing revenue ..................... $ -- $ -- $ -- $ 36,511
Hotel revenue ............................ -- -- -- 131,297
Restaurant rent, food & beverage
revenue ................................. -- -- -- 5,279
Golf club revenue ........................ -- (1,023)(F) (1,023) 17,019
Other .................................... -- -- -- 1,043
----------- ---------- --------- -----------
Total revenue ........................... -- (1,023) (1,023) 191,149
Expenses:
Interest expense ......................... (14,063)(G) (5,145)(G) (19,208) 528
Amortization of goodwill ................. -- -- -- 201
Depreciation, amortization & asset
retirements ............................. (13,548)(G) (2,706)(G) (16,254) 4,088
General and administrative ............... -- -- -- 7,248
Rent expense due to Meditrust ............ 60,554 (H) 5,930(H) 66,484 73,265
Horse racing operations .................. -- -- -- 28,196
Hotel operations ......................... -- -- -- 65,959
Golf club operations ..................... -- (117)(F) (117) 14,569
Partners' equity in earnings ............. -- -- -- 204
----------- ---------- --------- -----------
Total expenses .......................... 32,943 (2,038) 30,905 194,258
----------- ---------- --------- -----------
(Loss) income before income taxes ......... (32,943) 1,015 (31,928) (3,109)
Income tax provision ...................... (11,205)(I) -- (11,205) --
----------- ---------- --------- -----------
Net (loss) income ......................... $ (21,738) $ 1,015 $ (20,723) $ (3,109)
=========== ========== ========= ===========
Basic earnings per share .................. $ (0.02)
Basic weighted average shares
outstanding .............................. 148,320(J)
Diluted earnings per share ................ $ (0.02)
Diluted weighted average shares
outstanding .............................. 148,799(J)
</TABLE>
See accompanying notes to the unaudited pro forma condensed consolidated
statement of operations.
20
<PAGE>
Meditrust Operating Company
Notes to Pro Forma Condensed Consolidated Statement of Operations
For the Three Months Ended March 31, 1998
(In Thousands, Except Per Share Amounts)
(Unaudited)
(A) Represents the historical statement of operations of Operating Company for
the three months ended March 31, 1998.
(B) Represents the historical statement of operations of La Quinta for the
three months ended March 31, 1998.
(C) Represents the historical statement of operations of Cobblestone for the
three months ended March 31, 1998.
(D) Represents adjustments to Operating Company's results of operations
assuming the Merger had occurred as of January 1, 1997.
(E) Represents adjustments to Operating Company's results of operations
assuming the Cobblestone Merger had occurred as of January 1, 1997.
(F) Represents the adjustment to defer all initiation fee revenue from the sale
of club memberships along with the direct incremental costs of selling the
memberships, and to amortize deferred revenue over the expected term of
memberships and supported by a course by course analysis of member attrition.
The incremental direct costs incurred with the selling of memberships will be
deferred and capitalized in a manner similar to deferred loan costs in
accordance with SFAS No. 91.
(G) Represents the adjustment to reclassify interest, depreciation and
amortization expenses related to the ownership of real estate assets from
Operating Company to Meditrust.
(H) Represents the pro forma lease expense of Operating Company for the use of
assets that Meditrust will have ownership of subsequent to the La
Quinta/Cobblestone mergers. The respective lease expense is calculated on a
triple net basis based upon the historical revenue and expenses of the assets
for the periods presented.
(I) Represents the adjustment to La Quinta's income tax provision necessitated
by the impact to taxable income from the effects of the Merger.
(J) Basic and diluted weighted average shares include 8,500 shares of Series A
Non-Voting Convertible Common Stock issued in a Forward Equity Transaction on
February 27, 1998.
The Series A Non-Voting Convertible Common Stock will receive the same dividend
as the Company's Common Stock; however, the guaranteed minimum return is Libor
plus 75 basis points. Any difference between Libor plus 75 basis points and the
dividend payments received by the shareholders will be included in an adjustment
amount under the Price Adjustment Agreement. The Operating Company expects the
annual dividend to exceed the Libor plus 75 basis points.
This Forward Equity Transaction has been accounted for as an equity transaction
with the shares treated as outstanding from their date of issuance for both
basic and diluted earnings per share purposes. The accounting treatment for
this transaction is expected to be reviewed by the Emerging Issues Task force
(EITF). The Securities and Exchange Commission has concluded that until the
EITF has an opportunity to perform a full review of this transaction, future
transactions of this type will be accounted for as debt. For previously
completed transactions such as the Operating Company's, the Securities and
Exchange Commission will not object to the accounting treatment reflected in
the Pro Forma Condensed Combined Statement of Operations.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Amended Current Report on Form 8-K/A to be
signed on its behalf by the undersigned hereunto duly authorized.
Date: May 20, 1998 MEDITRUST CORPORATION
By: /s/ David F. Benson
-------------------------------
(Signature)
Name: David F. Benson
Title: President
MEDITRUST OPERATING COMPANY
By: /s/ Abraham D. Gosman
-------------------------------
(Signature)
Name: Abraham D. Gosman
Title: Chief Executive Officer,
President and Treasurer
