SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (date of earliest event reported):
July 17, 1998
MEDITRUST CORPORATION
(Exact Name of Registrant as specified in its charter)
Delaware 0-8131 95-3520818
(State or other jurisdiction (Commission File (I.R.S. Employer
of incorporation) Number) Identification No.)
197 First Avenue, Suite 300, Needham, MA 02494
(Address of principal executive offices and zip code)
(781) 433-6000
(Registrant's telephone number, including area code)
MEDITRUST OPERATING COMPANY
(Exact Name of Registrant as specified in its charter)
Delaware 0-8132 95-3419438
(State or other jurisdiction (Commission File (I.R.S. Employer
of incorporation) Number) Identification No.)
197 First Avenue, Suite 100, Needham, MA 02494
(Address of principal executive offices and zip code)
(781) 453-8062
(Registrant's telephone number, including area code)
<PAGE>
Item 5. Other Events.
------------
The Meditrust Companies are filing hereby certain supplemental information
for the period ended June 30, 1998 with respect to the acquisition of La Quinta
Inns, Inc., which acquisition was consummated on July 17, 1998. The following
summarizes certain operating data for The Meditrust Companies, The Cobblestone
Golf Group and La Quinta Inns, Inc. pertaining to the supplemental information
filed hereby:
o Cobblestone Golf Group purchased an additional eight golf facilities for
approximately $64,000,000 in the second quarter of 1998 resulting in a
total of 32 golf facilities owned and operated by The Cobblestone Golf
Group at June 30, 1998.
o During the second quarter of 1998, Meditrust invested approximately
$91,000,000 in nine healthcare facilities resulting in a total of 470
healthcare facilities at June 30, 1998.
o La Quinta Inns, Inc.'s RevPAR (revenue per available room) increased
4.2% from $42.61 in the second quarter of 1997 to $44.42 in the second
quarter of 1998. Occupancy and Average Room Rates were 74.5% and $57.23
in the second quarter of 1997, respectively, compared to 72.6% and
$61.20 in the second quarter of 1998, respectively.
o As of June 30, 1998, La Quinta owned and operated 280 hotels with more
than 36,000 rooms and suites including 47 Inn and Suite hotels.
The Meditrust Companies file hereby the following financial statements for
the acquisition of La Quinta Inns, Inc.:
Unaudited Condensed Balance Sheet and Income Statement of La Quinta Inns,
Inc. as of and for the six month period ended June 30, 1998. (Page 3)
The Meditrust Companies file hereby the following pro forma financial
information for the acquisition of La Quinta Inns, Inc.:
Unaudited Pro Forma Financial Statements of The Meditrust Companies as of
June 30, 1998. (Page 11)
2
<PAGE>
LA QUINTA INNS, INC.
Condensed Financial Statements and Notes
As of June 30, 1998
3
<PAGE>
LA QUINTA INNS, INC.
CONDENSED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
--------------- ------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................................... $ 3,961 $ 2,110
Receivables:
Trade and other (net of allowance of $136 and $191)........................ 21,979 14,805
Supplies and prepayments..................................................... 15,562 14,673
Deferred income taxes........................................................ 8,325 9,813
---------- ----------
Total current assets....................................................... 49,827 41,401
---------- ----------
Notes receivable, excluding current installments................................ 1,607 1,104
Property and equipment, net .................................................... 1,574,065 1,449,215
Deferred charges and other assets, at cost less applicable amortization......... 15,288 10,304
---------- ----------
Total assets............................................................... $1,640,787 $1,502,024
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt ...................................... $ 121,401 $ 29,400
Accounts payable............................................................. 83,036 73,605
Accrued expenses............................................................. 47,827 49,521
---------- ----------
Total current liabilities.................................................. 252,264 152,526
---------- ----------
Long-term debt, excluding current installments.................................. 867,853 872,285
Deferred income taxes, pension and other........................................ 39,850 42,020
Partners' capital............................................................... 2,779 2,667
Shareholders' equity:
Common stock ($.10 par value per share; 200,000 shares authorized;
85,093 and 85,007 shares issued)........................................... 8,509 8,501
Additional paid-in capital................................................... 250,609 249,612
Unearned officer's compensation.............................................. (880) (1,016)
Retained earnings............................................................ 314,836 270,462
Treasury stock, at cost (7,870 shares) ...................................... (95,033) (95,033)
---------- ----------
Total shareholders' equity................................................. 478,041 432,526
---------- ----------
Total liabilities and shareholders' equity................................. $1,640,787 $1,502,024
========== ==========
</TABLE>
See accompanying notes to condensed financial statements.
4
<PAGE>
LA QUINTA INNS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 June 30
----------------------- ------------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Hotel..................................................... $149,063 $133,660 $280,360 $245,042
Restaurant rental and other............................... 2,047 2,006 4,076 3,977
-------- -------- -------- --------
Total revenues......................................... 151,110 135,666 284,436 249,019
-------- -------- -------- --------
Operating costs and expenses:
Direct.................................................... 73,259 62,473 139,218 119,819
Corporate................................................. 1,845 4,905 7,422 9,187
Depreciation, amortization and asset retirements.......... 17,554 14,786 34,377 28,479
-------- -------- -------- --------
Total operating costs and expenses..................... 92,658 82,164 181,017 157,485
-------- -------- -------- --------
Operating income....................................... 58,452 53,502 103,419 91,534
-------- -------- -------- --------
Other expense:
Interest, net............................................. 14,693 12,567 28,756 23,940
Partners' equity in earnings.............................. 327 243 531 476
-------- -------- -------- --------
Earnings before income taxes and extraordinary items... 43,432 40,692 74,132 67,118
Income taxes................................................. 15,853 15,056 27,058 24,834
-------- -------- -------- --------
Net earnings........................................... $27,579 $ 25,636 $ 47,074 $ 42,284
======== ======== ======== ========
Basic net earnings per share................................. $ .36 $ .33 $ .61 $ .54
======== ======== ======== ========
Basic weighted average number of shares
outstanding............................................... 77,223 77,685 77,197 77,638
-------- -------- -------- --------
Diluted net earnings per share............................... $ .35 $ .32 $ .59 $ .53
======== ======== ======== ========
Diluted weighted average number of shares
outstanding............................................... 79,866 80,667 79,875 80,522
======== ======== ======== ========
</TABLE>
See accompanying notes to condensed financial statements.
5
<PAGE>
LA QUINTA INNS, INC.
CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Additional Unearned
Common Stock Treasury Stock Paid-In Officer's Retained
Shares Amount Shares Amount Capital Compensation Earnings Total
------ ------ ------ ------ ------- ------------ -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1996.. 84,274 $8,427 (6,704) $(71,914) $240,453 $ -- $188,610 $365,576
Exercise of stock options... 708 71 (10) (214) 8,075 -- -- 7,932
Issuance of restricted stock
and stock options......... 25 3 -- -- 1,084 (1,084) -- 3
Purchase of treasury stock.. -- -- (1,156) (22,905) -- -- -- (22,905)
Dividends paid.............. -- -- -- -- -- -- (5,414) (5,414)
Amortization of unearned
officer's compensation.... -- -- -- -- -- 68 -- 68
Net earnings................ -- -- -- -- -- -- 87,266 87,266
------ ------ ------- --------- -------- -------- --------- ---------
Balances at December 31, 1997 85,007 8,501 (7,870) (95,033) 249,612 (1,016) 270,462 432,526
Exercise of stock options... 86 8 -- -- 997 -- -- 1,005
Dividends paid.............. -- -- -- -- -- -- (2,700) (2,700)
Amortization of unearned
officer's compensation.... -- -- -- -- -- 136 -- 136
Net earnings................ -- -- -- -- -- -- 47,074 47,074
------ ------ ------- --------- -------- -------- --------- ---------
Balance at June 30, 1998
(unaudited)................. 85,093 $8,509 (7,870) $(95,033) $250,609 $ (880) $314,836 $478,041
====== ====== ======= ========= ======== ======== ========= =========
</TABLE>
See accompanying notes to condensed financial statements.
6
<PAGE>
LA QUINTA INNS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30
----------------------------------
1998 1997
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings...................................................................... $ 47,074 $ 42,284
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Non-cash items:
Depreciation, amortization and asset retirements............................ 34,377 28,479
Amortization of unearned officer's compensation............................. 136 --
Partners' equity in earnings................................................ 531 476
Changes in operating assets and liabilities:
Receivables................................................................. (8,499) (9,284)
Income taxes................................................................ 24,644 13,168
Supplies and prepayments.................................................... (1,242) (5,975)
Accounts payable and accrued expenses....................................... 6,194 3,122
Deferred charges and other assets........................................... (6,453) (98)
Deferred credits and other.................................................. (4,262) 5,407
--------- ---------
Net cash provided by operating activities............................... 92,500 77,579
--------- ---------
Cash flows from investing activities:
Construction, purchase and conversion of inns..................................... (148,607) (100,114)
Other capital expenditures........................................................ (21,453) (84,377)
Proceeds from property transactions............................................... 1,600 4,830
Purchase of partners' equity interests............................................ -- (81)
Other............................................................................. (582) 931
--------- ---------
Net cash used by investing activities................................... (169,042) (178,811)
--------- ---------
Cash flows from financing activities:
Proceeds from line of credit and long-term borrowings............................. 348,100 613,073
Principal payments on line of credit and long-term borrowings..................... (267,104) (502,723)
Capital distributions to partners................................................. (419) (402)
Dividends to shareholders......................................................... (2,700) (2,717)
Purchase of treasury stock........................................................ -- (7,371)
Net proceeds from stock transactions.............................................. 516 1,285
--------- ---------
Net cash provided by financing activities............................... 78,393 101,145
--------- ---------
Decrease in cash and cash equivalents................................................ 1,851 (87)
Cash and cash equivalents at beginning of period..................................... 2,110 1,508
--------- ---------
Cash and cash equivalents at end of period........................................... $ 3,961 $ 1,421
========= =========
Supplemental disclosure of cash flow information:
Interest paid........................................................................ $ 35,248 $ 26,995
Income tax paid...................................................................... 1,335 8,536
Income tax refunds................................................................... 96 2,567
Supplemental schedule of non-cash investing and financing activities:
Note issued in purchase of partners' equity interest................................. $ -- $ 2,500
Tax benefit from stock options exercised............................................. 489 1,776
Accrual for purchase of treasury stock............................................... -- 168
</TABLE>
See accompanying notes to condensed financial statements.
7
<PAGE>
LA QUINTA INNS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(1) Basis of Presentation
The accompanying unaudited condensed financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. In the opinion of management, all adjustments, consisting of normal
recurring adjustments, which are necessary for a fair presentation of financial
position and results of operations have been made. The condensed financial
statements should be read in conjunction with the financial statements and notes
thereto included in the December 31, 1997 Annual Report on Form 10-K.
(2) Property and Equipment
At June 30, 1998 and December 31, 1997, property and equipment consisted of
the following:
<TABLE>
<CAPTION>
(in thousands)
June 30, 1998 December 31, 1997
--------------- ------------------
(Unaudited)
<S> <C> <C>
Buildings..................................................... $1,315,225 $1,172,119
Furniture, fixtures and equipment............................. 226,236 197,453
Land and leasehold improvements............................... 231,760 206,039
Construction in progress...................................... 177,633 209,346
---------- ----------
Total property and equipment................................ 1,950,854 1,784,957
Less accumulated depreciation and amortization................ 376,789 335,742
---------- ----------
Net property and equipment.................................. $1,574,065 $1,449,215
========== ==========
</TABLE>
(3) Shareholders' Equity
The Company has presented basic earnings per share, computed on the basis
of the weighted average number of shares outstanding during the period, and
diluted earnings per share, computed on the basis of the weighted average number
of shares and all dilutive potential shares outstanding during the period. A
reconciliation between basic and diluted weighted average number of shares
outstanding and the related earnings per share calculation is presented below.
<TABLE>
<CAPTION>
June 30, 1998 June 30, 1997
---------------- ----------------
<S> <C> <C>
Net earnings available to shareholders........................ $ 47,074 $42,284
======== =======
Basic weighted average number of shares
outstanding................................................ 77,197 77,638
Dilutive effect of stock options.............................. 2,678 2,884
-------- -------
Diluted weighted average number of shares
outstanding................................................ 79,875 80,522
======== =======
Basic earnings per share .................................... $ .61 $ .54
Diluted earnings per share................................... $ .59 $ .53
</TABLE>
8
<PAGE>
(4) Accounts Payable and Accrued Expenses
At June 30, 1998 and December 31, 1997, accounts payable and accrued
expenses consisted of the following:
<TABLE>
<CAPTION>
(in thousands)
June 30, 1998 December 31, 1997
-------------- -------------------
(Unaudited)
<S> <C> <C>
Accounts payable:
Construction.............................................. $ 28,182 $40,059
Trade..................................................... 21,519 16,224
Cash overdrafts........................................... 4,751 11,405
Income taxes.............................................. 27,581 4,914
Other..................................................... 1,003 1,003
-------- -------
$ 83,036 $73,605
======== =======
Accrued expenses:
Payroll and employee benefits............................. $ 20,189 $22,282
Interest.................................................. 11,738 11,676
Property taxes............................................ 12,814 12,485
Other..................................................... 3,086 3,078
-------- -------
$ 47,827 $49,521
======== =======
</TABLE>
(5) Long-Term Debt
On June 6, 1998, the Company amended its $125 million Bank Unsecured Line
of Credit. The amendment increased the Bank Unsecured Line of Credit to $150
million and extended its term to July 31, 1998.
During 1997, the Company entered into two forward interest rate agreements
in anticipation of future debt issuance related to retirement of existing debt.
In June 1998 the terms of the agreements were amended to extend the termination
date from June 30, 1998 to July 15, 1998 and to modify the fixed rate of
interest from 6.46% to 6.47% for $120,000,000 of debt.
(6) Supplemental Retirement Plan and Trust
The Company maintains a trust account intended for use in settling benefits
due under the Supplemental Retirement Plan and Trust ("SERP") which covers a
select group of management employees. As a result of the execution of the Merger
Agreement (as further described in note 8), a "Potential Change in Control", as
defined in the SERP document, occurred. This event required the Company to make
a contribution to the trust sufficient to meet funding obligations as described
in the SERP document within 90 days of signing the Merger Agreement. On April 3,
1998, La Quinta deposited $2,520,000 into the trust account to meet the initial
funding requirement defined under the provisions of the SERP document.
(7) Contingencies
In January 1998, two lawsuits purporting to be class actions were filed in
the District Court of Bexar County, Texas on behalf of shareholders of La Quinta
against La Quinta, certain directors and officers of La Quinta, and Meditrust.
In April 1998 the two lawsuits were consolidated under the caption Robbins and
Brody v. Razzouk, et al., No. 98CI-00192 (the "Action") and an amended petition
was filed adding as defendants Merrill Lynch and certain individuals and
entities allegedly controlled by or associated with the Bass family
(collectively with the previously named defendants, the "Defendants"). The
amended petition in the Action alleges, among other things, that certain
Defendants (other than Meditrust and Merrill Lynch) have breached their
fiduciary duties to La Quinta shareholders by agreeing in the Merger Agreement
to merger consideration which is "grossly inadequate," by failing to solicit
competing bids or to provide a "market check," by failing to conduct a full and
thorough investigation, by failing to make adequate public disclosure regarding
the transaction, and by making allegedly false and misleading statements to La
Quinta shareholders in connection with the Joint Proxy Statement/Prospectus. The
amended petition also alleges that the directors of La
9
<PAGE>
Quinta and Merrill Lynch, as financial adviser to La Quinta, have conflicts of
interest based on dealings with Meditrust and that the recommendation to La
Quinta's shareholders by the directors of La Quinta and the fairness opinion by
Merrill Lynch are tainted by such conflicts. The petition alleges that Meditrust
and Merrill Lynch aided and abetted the alleged breaches of duty by the other
Defendants, and that Merrill Lynch acted negligently in rendering advice to La
Quinta's Board of Directors. The petition also alleges that certain option
payments and/or alleged special treatment of certain defendants in connection
with such options violate Article 2.12 of the Texas Business Corporation Act by
providing extra compensation and/or special treatment for such defendants in
connection with shares of La Quinta stock. The petition in the Action seeks,
among other things: (i) a declaration that Defendants have breached their
fiduciary duties to members of the alleged class; (ii) a declaration that the
proposed transaction is a legal nullity; (iii) an order preliminarily and
permanently enjoining consummation of the proposed transaction; (iv) if the
proposed transaction is consummated, an order to rescind it; (vi) the award of
compensatory damages; and (v) the award of costs, disbursements and attorneys'
fees.
On May 8, 1998 the parties entered into a memorandum of understanding to
settle the litigation. La Quinta and Meditrust agreed to issue press releases
relating to the Meeting Date Price, the Preliminary Exchange Ratio, the Final
Exchange Ratio and the adjusted Earnings and Profit distribution amount. La
Quinta further agreed to establish a toll-free number where its shareholders
could call the proxy solicitor to hear announcements regarding these press
releases. The cash election period was extended until three days prior to La
Quinta's Shareholder Meeting. Also, Meditrust and La Quinta agreed to disclose a
recent transaction between a corporate affiliate of Merrill Lynch and Meditrust
relating to the sale of securities by Meditrust to said affiliate and setting
forth the facts demonstrating why such transactions did not create any disabling
conflict with respect to the fairness opinion Merrill Lynch rendered as La
Quinta's financial advisor.
The parties have also agreed to execute and present to the court a
stipulation of settlement which will provide for an entry of judgement demanding
the actions and barring all claims for the release of all class members and for
class certification of a non-opt out, binding class of all persons who owned
shares of La Quinta on or after January 3, 1998. Provided the stipulation of
settlement has been executed and final court approval obtained, plaintiffs'
counsel will apply to the court for an award of attorney fees not to exceed
$700,000, which application will not be approved by La Quinta or Meditrust. The
parties are currently preparing the stipulation of settlement for submission to
the court.
The Company is party to various other lawsuits and claims generally
incidental to its business. The ultimate disposition of these other lawsuits and
claims is not expected to have a material adverse effect on the Company's
financial position or results of operations.
(8) Subsequent Event
On July 17, 1998, La Quinta merged with Meditrust corporation ("Meditrust
REIT") pursuant to an agreement and plan of merger (the "Merger Agreement") with
Meditrust REIT and Meditrust Operating Company ("Meditrust Operating Company"
and together with Meditrust REIT, the "Meditrust Companies"). Under the
provisions of the agreement, Meditrust REIT is the surviving corporation. In the
merger, La Quinta shares were converted into Paired Shares of the Meditrust
Companies or converted to cash. As a result of the merger, Meditrust REIT
acquired all of the assets and liabilities of the Company and assumed all of the
Company's existing indebtedness.
10
<PAGE>
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
On January 3, 1998, The Meditrust Corporation (the "Corporation") and The
Meditrust Operating Company ("Operating Company" and together with Corporation
"The Meditrust Companies") entered into a merger agreement with La Quinta Inns,
Inc. ("La Quinta") pursuant to which La Quinta would merge with and into the
Corporation with the Corporation being the surviving corporation (the "La Quinta
Merger"). On June 18, 1998 the Meditrust Companies' and La Quinta's shareholders
voted to approve the merger, and on July 17, 1998, the Corporation acquired by
merger all of the assets and liabilities of La Quinta and assumed La Quinta's
existing indebtedness.
Pursuant to the terms of the La Quinta merger agreement, shareholders of
La Quinta received a combination of Paired Common Shares ("Shares"), or cash,
subject to the amount of aggregate cash payable to La Quinta shareholders being
limited to approximately $521 million. The stock consideration was payable in
Shares under an exchange ratio determined based on the average closing price of
the 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 La Quinta Merger (the "Meeting Date Price").
Pursuant to the La Quinta merger agreement, the La Quinta shareholders
received 0.736 Shares in exchange for each share of La Quinta common stock,
reduced by the amount to be received in an earnings and profits distribution
per La Quinta share. La Quinta shareholders receiving stock consideration will
also receive the earnings and profits distribution so long as they held the
Shares on the applicable record date. Approximately 43,280,000 Shares were
issued, and approximately $483,039,000 was exchanged in order to consummate the
Merger.
To maintain its qualification as a REIT, the Corporation will be required
to distribute any current and accumulated earnings and profits inherited from La
Quinta in the merger (as determined for federal income tax purposes).
Accordingly, on June 16, 1998, the Corporation announced the planned
distribution to the shareholders of record on August 28, 1998, of a distribution
consisting of undistributed earnings and profits of La Quinta in the amount of
$.88361 per Share or approximately $133 million.
On January 11, 1998 The Meditrust Companies and Cobblestone Holdings, Inc.
("Cobblestone") entered into a merger agreement pursuant to which Cobblestone
would merge with and into the Corporation (the "Cobblestone Merger"). On May
29, 1998 the Cobblestone Merger was completed.
Under the terms of the Cobblestone merger agreement, The Meditrust
Companies acquired all of the outstanding common and preferred stock of
Cobblestone for approximately 8,177,300 Shares with an aggregate market value
of approximately $230 million and assumed $170 million of Cobblestone debt and
associated costs, which were paid off by the Corporation at the closing with
borrowings from The Meditrust Companies credit facilities.
The following pro forma condensed financial statements (the "Pro Forma
Financial Statements") have been adjusted for the purchase method of accounting
whereby the hotels and other assets and liabilities owned by La Quinta are
adjusted to estimated fair market value. The fair market value of the assets
and liabilities of La Quinta 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 will materially change; however, the allocation of purchase costs
is 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.
The following Pro Forma Financial Statements also give effect to the
February 26, 1998 issuance by each of the Corporation and the Operating Company
of 8.5 million shares of its respective Series A Non-Voting Convertible Common
Stock in a Forward Equity Issuance Transaction ("FEIT") at a purchase price of
$32.625 per share. On June 18, 1998, the Series A Non-Voting Convertible Common
Stock converted into a like number of Shares (the "FEITS Shares").
The Companies entered into a Purchase Price Adjustment Agreement under
which the Companies will, within one year from the FEIT, on a periodic basis,
adjust the original $32.625 purchase price per share based on the market price
of the paired common stock at the time of any interim or final adjustments, by
receiving additional paired common stock from the counter-party to the FEIT or
by issuing additional paired common stock to the counter-party to the FEIT. In
the event that the market price for the paired shares is lower than the
original purchase price, the Companies will have to deliver additional paired
shares to the counter-party, which would have dilutive effects on the capital
stock
11
<PAGE>
of the Companies. This dilutive effect increases significantly as the market
price of the paired shares decline further below the original purchase price.
Moreover, settlement whether at maturity or at an earlier date may force the
Companies to issue Shares at a depressed price, which may heighten this
dilutive effect on the capital stock of the Companies. The FEITS Shares will
receive the same dividend as the Shares; 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 holders of the FEITS Shares
will be included in an adjustment amount under the Purchase Price Adjustment
Agreement. The Companies expect the annual dividend to exceed the Libor plus 75
basis points.
This FEIT has been accounted for as an equity transaction. 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 Companies', the
Securities and Exchange Commission will not object to the accounting treatment
reflected in the Pro Forma Condensed Combined Financial Statements.
The following unaudited Pro Forma Condensed Statements of Operations
assume the La Quinta Merger and Cobblestone Merger had been consummated on
terms set forth in the respective merger agreements as of January 1, 1997, and
that the issuance by each of the Corporation and the Operating Company of the
aforesaid 8.5 million FEIT Shares and any additional issued or contingently
issuable Shares as of June 30, 1998 are reflected as of January 1, 1997. In
addition, the unaudited Pro Forma Condensed Combined Balance Sheet assumes the
La Quinta Merger had occurred on June 30, 1998.
Separate Pro Forma Condensed Consolidated Statements of Operations for the
year ended December 31, 1997 and the six months ended June 30, 1998 are
presented for both the Corporation and the Operating Company. In addition, Pro
Forma Condensed Combined Statements of Operations for the year ended December
31, 1997 and the six months ended June 30, 1998, and a Pro Forma Condensed
Combined Balance Sheet as of June 30, 1998, are presented to show the impact of
the La Quinta Merger on The Meditrust Companies taken as a whole.
The following Pro Forma Financial Statements are based upon, and should be
read in conjunction with, the combined or consolidated, as the case may be,
financial statements of The Meditrust Companies, the Corporation, the Operating
Company, La Quinta and Cobblestone which are either incorporated by reference
or included herein. In that regard, the following Pro Forma Condensed
Statements of Operations for the year ended December 31, 1997 are based upon
the historical financial statements of The Meditrust Companies, the
Corporation, the Operating Company and La Quinta for the year ended December
31, 1997 and the historical financial statements of Cobblestone for the year
ended September 30, 1997 and the following Pro Forma Condensed Statements of
Operations for the six months ended June 30, 1998 are based upon the historical
unaudited financial statements of The Meditrust Companies, the Corporation, the
Operating Company and La Quinta for the six months ended June 30, 1998, and the
historical unaudited financial statements of Cobblestone for the period January
1, 1998 through May 29, 1998. In management's opinion, all material adjustments
necessary to reflect the effects of the La Quinta Merger and Cobblestone Merger
have been made.
The Pro Forma Financial Statements set forth below are based upon a number
of assumptions and estimates, are subject to a number of uncertainties, and do
not purport to be indicative of the actual financial position or results of
operations that would have occurred had the La Quinta Merger and Cobblestone
Merger and the issuance by each of The Meditrust Companies of its FEIT Shares
in fact occurred on the dates indicated, nor do they purport to be indicative
of the results of operations or financial condition that may occur in the
future.
12
<PAGE>
THE MEDITRUST COMPANIES
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
The Meditrust La Quinta
Companies La Quinta Pro Forma Total
(Historical) (A) (Historical) (B) Adjustments (C) Pro Forma
------------------ ------------------ -------------------- -------------
<S> <C> <C> <C> <C>
(In thousands)
ASSETS
Real estate investments .............................. $3,345,261 $1,574,065 $ 908,891 (D) $5,828,217
Cash and cash equivalents ............................ 61,576 3,961 -- 65,537
Trade, notes and other receivables ................... 76,420 21,979 39,000 (E) 137,399
Deferred charges, prepaid expenses, inventory
and other assets .................................... 120,842 32,457 19,712 (F) 173,011
Deferred income taxes ................................ -- 8,325 (8,325)(G) --
Intangible assets .................................... 11,000 -- 112,543 (H) 123,543
Goodwill ............................................. 345,110 -- 286,364 (I) 631,147
---------- ---------- ------------ ----------
Total assets ....................................... $3,960,209 $1,640,787 $ 1,357,858 $6,958,854
========== ========== ============ ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Liabilities:
Debt ................................................. $1,336,608 $ 989,254 $ 830,237 (J) $3,156,099
Accounts payable, accrued expenses and other
liabilities ......................................... 102,646 130,863 -- 233,509
Deferred income taxes ................................ 685 39,850 (37,350)(G) 3,185
Minority interest .................................... -- 2,779 3,375 6,154
---------- ---------- ------------ ----------
Total liabilities .................................. 1,439,939 1,162,746 796,262 3,398,947
---------- ---------- ------------ ----------
Shareholders' equity:
Preferred stock ...................................... 70 -- -- 70
Common stock ......................................... 21,257 8,509 147 (K) 29,913
Additional paid-in-capital ........................... 2,705,384 250,609 913,372 (L) 3,869,365
Unearned officers' compensation ...................... -- (880) 880 (M) --
Retained earnings (loss) ............................. -- 314,836 (314,836)(N) --
Distributions in excess of net income ................ (206,441) -- (133,000)(O) (339,441)
Treasury stock, at cost .............................. -- (95,033) 95,033 (M) --
---------- ---------- ------------ ----------
Total shareholders' equity ......................... 2,520,270 478,041 561,596 3,559,907
---------- ---------- ------------ ----------
Total liabilities and shareholders' equity ......... $3,960,209 $1,640,787 $ 1,357,858 $6,958,854
========== ========== ============ ==========
</TABLE>
See accompanying notes to the unaudited pro forma
condensed combined balance sheet.
13
<PAGE>
The Meditrust Companies
Notes to Pro Forma Condensed Combined Balance Sheet as of June 30, 1998
(In Thousands, Except Per Share Amounts)
(Unaudited)
(A) Represents the historical combined balance sheet of the Corporation and the
Operating Company as of June 30, 1998.
(B) Represents the historical balance sheet of La Quinta as of June 30, 1998.
Adjustments for the La Quinta Transaction:
(C) Represents adjustments to record the merger between the Corporation and La
Quinta. The La Quinta Merger is being accounted for using the purchase method
of accounting, based upon the purchase price of $2,859,128, as follows:
<TABLE>
<S> <C>
Issuance of 43,280 Shares of The Meditrust Companies, and cash of $483,039 in exchange for
77,223 shares of La Quinta common stock (see Note L) .................................... $1,655,676
Assumption of mortgage debt and other liabilities ........................................ 989,254
Merger costs (see calculation below) ..................................................... 214,198
----------
$2,859,128
==========
</TABLE>
The following is a calculation of the fees and other expenses related to the La
Quinta Merger:
<TABLE>
<S> <C>
Buyout of options and restricted stock (8,339 common stock options and 25 shares of
restricted stock) ...................................................................... $131,557
Employment and non-compete agreements .................................................... 1,493
Severance agreements ..................................................................... 2,470
Adjustment of pension plan liability to fair value ....................................... 3,500
Call premium for retirement of $120,000 La Quinta 9.25% Senior Subordinated Notes, plus
interest on defeasance of debt .......................................................... 4,163
Loan costs in connection with The Meditrust Companies' new term and revolving credit 35,000
facility
Advisory fees ............................................................................ 27,888
Legal and accounting fees ................................................................ 5,127
Other, including printing and filing costs ............................................... 3,000
--------
$214,198
========
</TABLE>
(D) 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 C) .................................................. $2,859,128
Less: pre-merger historical basis of La Quinta real estate ................... 1,574,065
Allocation of pro forma basis of La Quinta net assets acquired as follows:
Intangible assets ............................................................ 112,543
Goodwill ..................................................................... 286,037
Other assets ................................................................. 117,109
Other liabilities ............................................................ (139,517)
----------
Subtotal .................................................................... 1,950,237
----------
Step-up to record fair value of La Quinta's real estate investments .......... $ 908,891
==========
</TABLE>
(E) 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.
14
<PAGE>
The Meditrust Companies
Notes to Pro Forma Condensed Combined Balance Sheet as of June 30, 1998
(In Thousands, Except Per Share Amounts)
(Unaudited)
(F) Represents adjustments for the purchase method of accounting to write off
deferred costs of $19,712 and record approximately $35,000 of deferred loan
costs expected to be incurred in connection with The Meditrust Companies' new
term and revolving credit facility.
(G) Represents adjustments for the purchase method of accounting to adjust the
deferred tax assets and liabilities of La Quinta.
(H) 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.
(I) Represents purchase consideration in excess of the fair market value of the
net assets of La Quinta.
(J) Represents additional borrowings assumed to be incurred in connection with
the La Quinta Merger as follows:
<TABLE>
<S> <C>
Cash consideration for La Quinta shares .................................. $483,039
Assumed current and accumulated earnings and profits distribution ........ 133,000
Merger costs (see calculation above in Note C) ........................... 214,198
--------
Total additional borrowings .............................................. $830,237
========
</TABLE>
(K) Represents adjustments to record the exchange of La Quinta common stock for
Shares of The Meditrust Companies. Pursuant to the La Quinta merger agreement,
La Quinta shareholders could elect to receive either (i) $26.00 cash per share
of La Quinta common stock; or (ii) Shares, for which the Exchange Ratio, as
defined in the La Quinta merger agreement, would be based upon the Meeting Date
Price of a Share of The Meditrust Companies. At June 30, 1998, there were
77,223 shares of La Quinta common stock outstanding. On the closing date
approximately 18,578 outstanding shares of La Quinta were exchanged for cash,
the remaining 58,645 shares were exchanged for 43,280 Shares of The Meditrust
Companies. The change in common stock is summarized as follows:
<TABLE>
<S> <C>
Shares issued in connection with the La Quinta Merger ......... 43,280
Par value of each Share ....................................... $ 0.20
--------
Increase in common stock ...................................... 8,656
Less: La Quinta historical common stock ....................... (8,509)
--------
Adjustment to common stock .................................... $ 147
========
</TABLE>
(L) Represents adjustments to eliminate La Quinta's historical additional
paid-in-capital and record equity based upon the number of Shares issued in
connection with the La Quinta Merger as follows:
<TABLE>
<S> <C>
Consideration for La Quinta outstanding shares (58,645 shares of La Quinta common stock
for 43,280 Shares of The Meditrust Companies; 18,578 shares of La Quinta common
stock for $26.00 cash per share) ........................................................ $1,655,676
Less: 18,578 shares of La Quinta common stock exchanged for cash ......................... (483,039)
----------
Remaining consideration .................................................................. 1,172,637
Book value of La Quinta's additional paid-in-capital ..................................... (250,609)
Increase in common stock ................................................................. (8,656)
----------
Adjustment to additional paid-in-capital ................................................. $ 913,372
==========
</TABLE>
(M) Represents adjustments to eliminate unearned officers compensation and
treasury stock of La Quinta of $880 and $95,033, respectively.
(N) Represents adjustment to eliminate La Quinta's historical retained earnings
of $314,836.
(O) Represents adjustment to record the distribution of current and accumulated
earnings and profits of $133,000 to the shareholders of The Meditrust Companies
after consummation of the La Quinta Merger.
15
<PAGE>
THE MEDITRUST COMPANIES
PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
The
Operating Meditrust
The Corporation 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 and royalty from Operating Company ............ 244,129 -- (244,129)(C) --
Restaurant rent .................................... 8,075 -- -- 8,075
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 ........... -- 13,083 -- 13,083
Golf club revenue .................................. -- 58,333 -- 58,333
Other .............................................. -- 3,480 -- 3,480
---------- ---------- ----------- --------
Total revenue ..................................... 541,387 574,618 (244,322) 871,683
Expenses:
Interest expense ................................... 207,011 209 (193)(D) 207,027
Amortization of goodwill............................ 24,203 135 -- 24,338
Depreciation, amortization & asset
retirements ...................................... 150,675 11,249 -- 161,924
General and administrative ......................... 10,111 22,905 -- 33,016
Rental expense due to the Corporation .............. -- 244,129 (244,129)(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 .................................... 384,272 585,375 (244,322) 725,325
---------- ---------- ----------- --------
Net income .......................................... 157,115 (10,757) -- 146,358
---------- ---------- ----------- --------
Basic earnings per share ............................ $ 1.15 $ (0.08) $ 1.07
Basic weighted average shares outstanding ........... 137,093(E) 136,889(E) 136,889
Diluted earnings per share .......................... $ 1.13 $ (0.08) $ 1.06
Diluted weighted average shares outstanding ......... 139,103(E) 138,620(E) 138,620
</TABLE>
See accompanying notes to the unaudited pro forma
condensed combined statement of operations.
16
<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 the Corporation for the
year ended December 31, 1997 as adjusted for the Mergers.
(B) Represents the pro forma results of operations of the Operating Company for
the year ended December 31, 1997 as adjusted for the Mergers.
(C) Represents the elimination of rental income and expense related to the race
track, hotels and golf course properties leased by the Operating Company from
the Corporation and royalty income and expense for tradenames held by the
Corporation and utilized by Operating Company.
(D) Represents the elimination of interest income and expense related to the
operating note between the Corporation and the Operating Company.
(E) Basic and diluted weighted average shares include 8,500 Shares issued in a
forward equity transaction on February 27, 1998. During June 1998, pursuant to
the Purchase Price Adjustment Agreement, 862 unregistered common shares were
placed in a collateral account held in the name of the counter-party to the
FEIT. In addition, under the terms of the same Purchase Price Adjustment
Agreement, had the closing stock price of $27.9375 on June 30, 1998 been used,
approximately 1,277 additional Shares would have been required to be issued
into the same collateral account. Accordingly, basic and diluted weighted
average shares include an additional 862 and 2,139 Shares, respectively.
17
<PAGE>
THE MEDITRUST COMPANIES
PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
The
Operating Meditrust
The Corporation 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 ............................................. $ 92,994 $ -- $ -- $ 92,994
Rent and royalty from Operating Company ............ 147,551 -- (147,551) (C) --
Restaurant rent .................................... 4,076 -- -- 4,076
Interest ........................................... 77,907 -- (949) (D) 76,958
Horse racing revenue ............................... -- 49,707 -- 49,707
Hotel revenue ...................................... -- 280,360 -- 280,360
Restaurant rent, food & beverage revenue ........... -- 8,781 -- 8,781
Golf club revenue .................................. -- 37,878 -- 37,878
Other .............................................. 26,000 424 -- 26,424
---------- ---------- ------------ --------
Total revenue ..................................... 348,528 377,150 (148,500) 577,178
Expenses:
Interest expense ................................... 118,498 1,058 (949) (D) 118,607
Amortization of goodwill............................ 13,425 403 -- 13,828
Depreciation, amortization & asset
retirements ...................................... 82,989 4,185 -- 87,174
General and administrative ......................... 7,068 11,601 -- 18,669
Rental expense due to the Corporation .............. -- 147,551 (147,551) (C) --
Horse racing operations ............................ -- 39,430 -- 39,430
Hotel and restaurant operations .................... -- 139,218 -- 139,218
Golf club operations ............................... -- 39,131 -- 39,131
Property operations ................................ 2,722 -- -- 2,722
Other .............................................. 21,093 -- -- 21,093
Partners' equity in earnings ....................... 531 -- -- 531
---------- ---------- ------------ --------
Total expenses .................................... 246,326 382,577 (148,500) 480,403
---------- ---------- ------------ --------
Net income .......................................... 102,202 (5,427) -- 96,775
---------- ---------- ------------ --------
Preferred stock dividends ........................... (613) -- -- (613)
---------- ---------- ------------ --------
Net income available to Paired Common
shareholders ....................................... 101,589 (5,427) -- 96,162
========== ========== ============ ========
Basic earnings per share ............................ $ 0.67 $ (0.04) $ 0.64
Basic weighted average shares outstanding ........... 150,786(E) 149,481(E) 149,481
Diluted earnings per share .......................... $ 0.67 $ (0.04) $ 0.64
Diluted weighted average shares outstanding ......... 152,539(E) 151,234(E) 151,234
</TABLE>
See accompanying notes to the unaudited pro forma
condensed combined statement of operations.
18
<PAGE>
The Meditrust Companies
Notes to Pro Forma Condensed Combined Statement of Operations
for the Six Months Ended June 30, 1998
(In Thousands, Except Per Share Amounts)
(Unaudited)
(A) Represents the pro forma results of operations of the Corporation for the
six months ended June 30, 1998 as adjusted for the Mergers.
(B) Represents the pro forma results of operations of the Operating Company for
the six months ended June 30, 1998 as adjusted for the Mergers.
(C) Represents the elimination of rental income and expense related to the race
track, hotels and golf course properties leased by the Operating Company from
the Corporation and royalty income and expense for tradenames held by the
Corporation and utilized by Operating Company.
(D) Represents the elimination of interest income and expense related to the
operating note between the Corporation and the Operating Company.
(E) Basic and diluted weighted average shares include 8,500 Shares issued in a
forward equity transaction on February 27, 1998. During June 1998, pursuant to
the Purchase Price Adjustment Agreement, 862 unregistered common shares were
placed in a collateral account held in the name of the counter-party to the
FEIT. In addition, under the terms of the same Purchase Price Adjustment
Agreement, had the closing stock price of $27.9375 on June 30, 1998 been used,
approximately 1,277 additional Shares would have been required to be issued
into the same collateral account. Accordingly, basic and diluted weighted
average shares include an additional 862 and 2,139 Shares, respectively.
19
<PAGE>
MEDITRUST CORPORATION
PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
La Quinta Cobblestone Other
The Corporation Merger Merger Pro Forma The Corporation
Historical (A) Adjustments (B) Adjustments (C) Adjustments Pro Forma
----------------- ----------------- ----------------- -------------------- ----------------
<S> <C> <C> <C> <C> <C>
(In thousands, except per share amounts)
Revenue:
Rental ............................... $ 137,868 $ --
Rent and royalty from Operating $ -- $ -- $ 137,868
Company ............................ 740 225,288 (D)
Restaurant rent ...................... -- 8,075 (E) 18,101 (D) -- 244,129
Interest ............................. 151,315 -- -- -- 8,075
--------- ----------- -- -- 151,315
Total revenue ....................... 289,923 233,363 ---------- ------------ -----------
Expenses: 18,101 -- 541,387
Interest expense ..................... 87,412 127,801 (F)
Amortization of goodwill.............. 2,214 14,302 (H) 12,198 (G) (20,400) (J) 207,011
Depreciation and amortization ........ 26,954 111,102 (I) 7,687 (H) -- 24,203
General and administrative ........... 10,111 -- 12,619 (I) -- 150,675
Property operations .................. 220 -- -- -- 10,111
Net gain on property transactions -- (8,808)(L) -- -- 220
Partners' equity in earnings ......... -- 860 (L) -- -- (8,808)
--------- ----------- -- -- 860
Total expenses ...................... 126,911 245,257 ---------- ------------ -----------
--------- ----------- 32,504 (20,400) 384,272
Net income ............................ 163,012 (11,894) ---------- ------------ -----------
========= =========== (14,403) 20,400 157,115
Basic earnings per share .............. $ 2.14 ========== ============ ===========
Basic weighted average shares $ 1.15
outstanding .......................... 76,274
Diluted earnings per share ............ $ 2.12 137,093(K)
Diluted weighted average shares $ 1.13
outstanding .......................... 77,007
139,103(K)
</TABLE>
See accompanying notes to the unaudited pro forma
condensed consolidated statement of operations.
20
<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 the Corporation for
the year ended December 31, 1997.
(B) Represents adjustments to the Corporation's results of operations assuming
the La Quinta Merger had occurred as of January 1, 1997.
(C) Represents adjustments to the Corporation's results of operations assuming
the Cobblestone Merger had occurred as of January 1, 1997.
(D) Represents the pro forma lease and royalty revenue from Operating Company
to the Corporation for the use of real estate and tradenames that the
Corporation will have ownership of subsequent to the 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. The royalty
expense is calculated utilizing anticipated royalty rates based upon historical
revenue for the periods presented.
(E) Represents the adjustment to reclassify restaurant ground rent from
Operating Company to the Corporation.
(F) Represents adjustments to historical interest expense of the Corporation
based on the La Quinta Merger as follows:
<TABLE>
<S> <C>
Reclassification of historical interest expense from Operating Company ................ $ 49,186
Adjustment to reflect the net increase in interest expense as a result of additional
borrowings of $830,237 at an assumed rate of approximately 7.4% 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 7.4% ........................... 59,178
Amortization of additional deferred loan costs ........................................ 19,437
--------
Adjustment to interest expense ........................................................ $127,801
========
</TABLE>
(G) Represents adjustments to historical interest expense of the Corporation
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 $29,000 and refinancing the existing debt at 7.4% ...................... (3,075)
--------
Adjustment to interest expense ........................................................ $ 12,198
========
</TABLE>
(H) Represents adjustments to reflect amortization of goodwill of $14,302 and
$7,687 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.
(I) 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. These estimates are based upon management's knowledge of the
properties and the hotel and golf course industries in general.
(J) Represents adjustments to interest expense based upon the reduction in
additional borrowings assumed to be incurred in connection with the 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 7.4%. An increase
of 25 basis points in the interest rate on this variable rate debt would
increase pro forma
21
<PAGE>
interest expense by $2,376, decrease pro forma net income to $154,739 and
decrease pro forma basic earnings per share by $0.02 based upon 137,093 basic
weighted average common shares outstanding. An increase of 50 basis points in
the interest rate on this variable rate debt would increase pro forma interest
expense by $4,751, decrease pro forma net income to $152,364 and decrease pro
forma basic earnings per share by $0.04 based upon 137,093 basic weighted
average common shares outstanding. An increase of 75 basis points in the
interest rate on this variable rate debt would increase pro forma interest
expense by $7,127, decrease pro forma net income to $149,988 and decrease pro
forma basic earnings per share by $0.05 based upon 137,093 basic weighted
average common shares outstanding.
(K) Basic and diluted weighted average shares include 8,500 Shares issued in a
forward equity transaction on February 27, 1998. During June 1998, pursuant to
the Purchase Price Adjustment Agreement, 862 Shares were placed in a collateral
account held in the name of the counter-party to the FEIT. In addition, under
the terms of the same Purchase Price Adjustment Agreement, had the closing
stock price of $27.9375 on June 30, 1998 been used, approximately 1,277
additional Shares would have been required to be issued into the same
collateral account. Accordingly, basic and diluted weighted average shares
include an additional 862 and 2,139 Shares, respectively.
(L) Represents the adjustment to reclassify other expenses related to the
ownership of real estate assets from Operating Company to the Corporation.
22
<PAGE>
MEDITRUST CORPORATION
PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
La Quinta Cobblestone Other
The Corporation Merger Merger Pro Forma The Corporation
Historical (A) Adjustments (B) Adjustments (C) Adjustments Pro Forma
----------------- ----------------- ----------------- ----------------- ------------------
<S> <C> <C> <C> <C> <C>
(In thousands, except per share amounts)
Revenue:
Rental ............................ $ 92,994 $ -- $ -- $ -- $ 92,994
Rent and royalty from Operating
Company ......................... 12,595 130,216 (D) 4,740 (D) -- 147,551
Restaurant rent ................... -- 4,076 (E) -- -- 4,076
Interest .......................... 77,907 -- -- -- 77,907
Other ............................. 26,000 -- -- -- 26,000
-------- ---------- -------- --------- ----------
Total revenue .................... 209,496 134,292 4,740 -- 348,528
Expenses:
Interest expense .................. 50,112 66,115 (F) 5,671 (G) (3,400)(J) 118,498
Amortization of goodwill........... 3,071 7,151 (H) 3,203 (H) -- 13,425
Depreciation and amortization ..... 22,180 55,551 (I) 5,258 (I) -- 82,989
General and administrative ........ 7,068 -- -- -- 7,068
Property operations ............... 2,722 -- -- -- 2,722
Other ............................. 21,093 -- -- -- 21,093
Partners' equity in earnings ...... -- 531 (L) _ -- 531
-------- ---------- -------- --------- ----------
Total expenses ................... 106,246 129,348 14,132 (3,400) 246,326
-------- ---------- -------- --------- ----------
Net income ......................... 103,250 4,944 (9,392) $ 3,400 102,202
-------- ---------- -------- --------- ----------
Preferred stock dividends .......... (613) -- -- -- (613)
-------- ---------- -------- --------- ----------
Net income available to Common
shareholders ...................... 102,637 4,944 (9,392) 3,400 101,589
======== ========== ======== ========= ==========
Basic earnings per share ........... $ 1.06 $ 0.67
Basic weighted average shares
outstanding ....................... 97,140 150,786 (K)
Diluted earnings per share ......... $ 1.04 $ 0.67
Diluted weighted average shares
outstanding ....................... 98,467 152,539 (K)
</TABLE>
See accompanying notes to the unaudited pro forma
condensed consolidated statement of operations.
23
<PAGE>
Meditrust Corporation
Notes to Pro Forma Condensed Consolidated Statement of Operations
for the Six Months Ended June 30, 1998
(In Thousands, Except Per Share Amounts)
(Unaudited)
(A) Represents the historical statement of operations of the Corporation for
the six months ended June 30, 1998.
(B) Represents adjustments to the Corporation's results of operations assuming
the La Quinta Merger had occurred as of January 1, 1997.
(C) Represents adjustments to the Corporation's results of operations assuming
the Cobblestone Merger had occurred as of January 1, 1997.
(D) Represents the pro forma lease and royalty revenue from Operating Company
to the Corporation for the use of real estate and tradenames that the
Corporation will have ownership of subsequent to the 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. The royalty
expense is calculated utilizing royalty rates based upon historical revenue for
the periods presented.
(E) Represents the adjustment to reclassify restaurant ground rent from
Operating Company to the Corporation.
(F) Represents adjustments to historical interest expense of the Corporation
based on the La Quinta Merger as follows:
<TABLE>
<S> <C>
Reclassification of historical interest expense from Operating Company ................ $28,756
Adjustment to reflect the increase in interest expense as a result of additional
borrowings of $830,237 at an assumed rate of approximately 7.4% 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 approximately 7.4% ............. 29,589
Amortization of additional deferred loan costs ........................................ 7,770
-------
Adjustment to interest expense ........................................................ $66,115
=======
</TABLE>
(G) Represents adjustments to historical interest expense of the Corporation
based on the Cobblestone Merger as follows:
<TABLE>
<S> <C>
Reclassification of historical interest expense from Operating Company ................ $ 8,575
Adjustment to reflect the net decrease in interest expense as a result of additional
borrowings of $29,000 and refinancing the existing debt at approximately 7.4% ........ (2,904)
--------
Adjustment to interest expense ........................................................ $ 5,671
========
</TABLE>
(H) Represents adjustments to reflect amortization of goodwill of $7,151 and
$3,203 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.
(I) 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. These estimates are based upon management's knowledge of the
properties and the hotel and golf course industries in general.
(J) Represents adjustments to interest expense based upon the reduction in
additional borrowings assumed to be incurred in connection with the 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 approximately
7.4%. An increase of 25 basis points in the interest rate on this variable rate
debt would increase pro forma interest expense by $1,188, decrease pro forma
net income to $100,401 and decrease pro forma basic earnings
24
<PAGE>
per share by $0.01 based upon 150,786 basic weighted average common shares
outstanding. An increase of 50 basis points in the interest rate on this
variable rate debt would increase pro forma interest expense by $2,376,
decrease pro forma net income to $99,213 and decrease pro forma basic earnings
per share by $0.01 based upon 150,786 basic weighted average common shares
outstanding. An increase of 75 basis points in the interest rate on this
variable rate debt would increase pro forma interest expense by $3,564,
decrease pro forma net income to $96,837 and decrease pro forma basic earnings
per share by $0.02 based upon 150,786 basic weighted average common shares
outstanding.
(K) Basic and diluted weighted average shares include 8,500 Shares issued in a
forward equity transaction on February 27, 1998. During June 1998, pursuant to
the Purchase Price Adjustment Agreement, 862 Shares were placed in a collateral
account held in the name of the counter-party to the FEIT. In addition, under
the terms of the same Purchase Price Adjustment Agreement, had the closing
stock price of $27.9375 on June 30, 1998 been used, approximately 1,277
additional Shares would have been required to be issued into the same
collateral account. Accordingly, basic and diluted weighted average shares
include an additional 862 and 2,139 Shares, respectively.
(L) Represents the adjustment to reclassify other expenses related to the
ownership of real estate assets from Operating Company to the Corporation.
25
<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 and royalty expense due to
the Corporation .......................... 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 .................................. (8,075)(G) -- (8,075) 13,083
Golf club revenue ......................... -- (7,182)(F) (7,182) 58,333
Other ..................................... -- -- -- 3,480
----------- ----------- ---------- -----------
Total revenue ............................ (8,075) (7,182) (15,257) 574,618
Expenses:
Interest expense .......................... (49,186)(H) (15,273)(H) (64,459) 209
Amortization of goodwill .................. -- -- -- 135
Depreciation, amortization & asset
retirements .............................. (53,781)(H) (4,867)(H) (58,648) 11,249
General and administrative ................ -- (96)(K) (96) 22,905
Rent and royalty expense due to
the Corporation .......................... 225,288 (I) 18,101 (I) 243,389 244,129
Horse racing operations ................... -- -- -- 4,263
Hotel operations .......................... -- -- -- 244,501
Golf club operations ...................... -- (802)(K) (802) 57,984
Net gain on property transactions ......... 8,808 (H) -- 8,808 --
Partners' equity in earnings .............. (860)(H) -- (860) --
----------- ----------- ---------- -----------
Total expenses ........................... 130,269 (2,937) 127,332 585,375
----------- ----------- ---------- -----------
(Loss) income before income taxes .......... (138,344) (4,245) (142,589) (10,757)
Income tax provision ....................... (50,185)(J) (49)(J) (50,234) --
----------- ----------- ---------- -----------
Net (loss) income .......................... $ (88,159) $ (4,196) $ (92,355) $ (10,757)
=========== =========== ========== ===========
Basic earnings per share ................... $ (0.08)
Basic weighted average shares
outstanding ............................... 136,889(L)
Diluted earnings per share ................. $ (0.08)
Diluted weighted average shares
outstanding ............................... 138,620(L)
</TABLE>
See accompanying notes to the unaudited pro forma
condensed consolidated statement of operations.
26
<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 the 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 the Operating Company's results of operations
assuming the La Quinta Merger had occurred as of January 1, 1997.
(E) Represents adjustments to the 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 restaurant ground rent from
Operating Company to the Corporation.
(H) Represents the adjustments to reclassify interest, depreciation,
amortization, and other expenses related to the ownership of real estate assets
from Operating Company to the Corporation and to record amortization for the
assembled La Quinta work force and customer reservation system which are to be
amortized on a straight line basis over a 3-year estimated life.
(I) Represents the pro forma lease and royalty expense of the Operating Company
for the use of the real estate and tradenames that the Corporation will have
ownership of subsequent to the Mergers. The lease expense is calculated on a
triple net basis based upon the historical revenue and expenses of the assets
for the periods presented. The royalty expense is calculated utilizing
anticipated royalty rates based upon historical revenue for the periods
presented.
(J) 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
Mergers.
(K) Represents the adjustment to eliminate semi-annual investment banking and
service fees to an affiliate of the majority shareholder of Cobblestone.
(L) Basic and diluted weighted average shares include 8,500 FEIT Shares. During
June 1998, pursuant to the Purchase Price Adjustment Agreement, 862 shares were
placed in a collateral account held in the name of the counter-party to the
FEIT. In addition, under the terms of the same Purchase Price Adjustment
Agreement, had the closing stock price of $27.9375 on June 30, 1998 been used,
approximately 1,277 additional Shares would have been required to be issued
into the same collateral account. Accordingly, basic and diluted weighted
average shares include an additional 862 and 2,139 Shares, respectively.
27
<PAGE>
MEDITRUST OPERATING COMPANY
PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 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 ..................... $ 49,707 $ -- $ --
Hotel revenue ............................ -- 280,360 --
Restaurant rent, food & beverage
revenue ................................. 2,687 4,076 6,094
Golf club revenue ........................ 10,565 -- 31,899
Other .................................... 424 -- --
-------- -------- --------
Total revenue ........................... 63,383 284,436 37,993
Expenses:
Interest expense ......................... 1,058 28,756 8,575
Amortization of goodwill ................. 403 -- --
Depreciation, amortization & asset
retirements ............................. 2,066 34,377 4,180
General and administrative ............... 1,239 7,422 2,940
Rent and royalty expense due to
the Corporation ......................... 12,595 -- --
Horse racing operations .................. 39,430 -- --
Hotel operations ......................... -- 139,218 --
Golf club operations ..................... 9,818 -- 29,838
Partners' equity in earnings ............. -- 531 --
-------- -------- --------
Total expenses .......................... 66,609 210,304 45,533
-------- -------- --------
(Loss) income before income taxes ......... (3,226) 74,132 (7,540)
Income tax provision ...................... -- 27,058 --
-------- -------- --------
Net (loss) income ......................... $ (3,226) $ 47,074 $ (7,540)
======== ======== ========
Basic earnings per share .................. $ (0.03)
Basic weighted average shares
outstanding .............................. 95,835
Diluted earnings per share ................ $ (0.03)
Diluted weighted average shares
outstanding .............................. 97,162
<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 ..................... $ -- $ -- $ -- $ 49,707
Hotel revenue ............................ -- -- -- 280,360
Restaurant rent, food & beverage
revenue ................................. (4,076)(G) -- (4,076) 8,781
Golf club revenue ........................ -- (4,586)(F) (4,586) 37,878
Other .................................... -- -- -- 424
----------- ---------- --------- ---------
Total revenue ........................... (4,076) (4,586) (8,662) 377,150
Expenses:
Interest expense ......................... (28,756)(H) (8,575)(H) (37,331) 1,058
Amortization of goodwill ................. -- -- -- 403
Depreciation, amortization & asset
retirements ............................. (32,258)(H) (4,180)(H) (36,438) 4,185
General and administrative ............... -- -- -- 11,601
Rent and royalty expense due to
the Corporation ......................... 130,216 (I) 4,740(I) 134,956 147,551
Horse racing operations .................. -- -- -- 39,430
Hotel operations ......................... -- -- -- 139,218
Golf club operations ..................... -- (525)(K) (525) 39,131
Partners' equity in earnings ............. (531)(H) -- (531) --
----------- ---------- --------- ---------
Total expenses .......................... 68,671 (8,540) 60,131 382,577
----------- ---------- --------- ---------
(Loss) income before income taxes ......... (72,747) 3,954 (68,793) (5,427)
Income tax provision ...................... (27,058)(J) -- (27,058) --
----------- ---------- --------- ---------
Net (loss) income ......................... $ (45,689) $ 3,954 $ (41,735) $ (5,427)
=========== ========== ========= =========
Basic earnings per share .................. $ (0.04)
Basic weighted average shares
outstanding .............................. 149,481(L)
Diluted earnings per share ................ $ (0.04)
Diluted weighted average shares
outstanding .............................. 151,234(L)
</TABLE>
See accompanying notes to the unaudited pro forma
condensed consolidated statement of operations.
28
<PAGE>
Meditrust Operating Company
Notes to Pro Forma Condensed Consolidated Statement of Operations
For the Six Months Ended June 30, 1998
(In Thousands, Except Per Share Amounts)
(Unaudited)
(A) Represents the historical statement of operations of the Operating Company
for the six months ended June 30, 1998.
(B) Represents the historical statement of operations of La Quinta for the six
months ended June 30, 1998.
(C) Represents the historical statement of operations of Cobblestone for the
period from January 1 to May 29, 1998.
(D) Represents adjustments to the Operating Company's results of operations
assuming the La Quinta Merger had occurred as of January 1, 1997.
(E) Represents adjustments to the 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, 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 ground restaurant rent from
Operating Company to the Corporation.
(H) Represents the adjustments to reclassify interest, depreciation,
amortization, and other expenses related to the ownership of real estate assets
from Operating Company to the Corporation and to record amortization for the La
Quinta assembled workforce and customer reservation system which are to be
amortized on a straight line basis over a 3-year estimated life.
(I) Represents the pro forma lease and royalty expense of the Operating Company
for the use of the real estate and tradenames that the Corporation will have
ownership of subsequent to the Mergers. The lease expense is calculated on a
triple net basis based upon the historical revenue and expenses of the assets
for the periods presented. The royalty expense is calculated utilizing
anticipated royalty rates based upon historical revenue for the periods
presented.
(J) Represents the adjustment to La Quinta's income tax provision necessitated
by the impact to taxable income from the effects of the Mergers.
(K) Represents the adjustment to eliminate semi-annual investment banking and
service fees to an affiliate of the majority shareholder of Cobblestone.
(L) Basic and diluted weighted average shares include 8,500 FEIT Shares. During
June 1998, pursuant to the Purchase Price Adjustment Agreement, 862
unregistered common shares were placed in a collateral account held in the name
of the counter-party to the FEIT. In addition, under the terms of the same
Purchase Price Adjustment Agreement, had the closing stock price of $27.9375 on
June 30, 1998 been used, approximately 1,277 additional Shares would have been
required to be issued into the same collateral account. Accordingly, basic and
diluted weighted average shares include an additional 862 and 2,139 Shares,
respectively.
29
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
------------------------------------------------------------------
(a) Financial Statements of Businesses Acquired
Pursuant to Section B(3) of the General Instructions to the Current Report
on Form 8-K and Rule 12b-2's definition of "Previously Reported," the financial
statements for the acquisition of La Quinta Inns, Inc. required by Item 7 of the
Form 8-K as of the date of filing the original Form 8-K which this Form 8-K/A
amends have been previously reported in a Joint Current Report on Form 8-K filed
by The Meditrust Companies on May 21, 1998.
(b) Pro Forma Financial Information
Pursuant to Section B(3) of the General Instructions to the Current Report
on Form 8-K and Rule 12b-2's definition of "Previously Reported," the pro forma
financial information for the acquisition of La Quinta Inns, Inc. required by
Item 7 of the Form 8-K as of the date of filing the original Form 8-K which this
Form 8-K/A amends have been previously reported in a Joint Current Report on
Form 8-K/A filed by The Meditrust Companies on May 21, 1998.
(c) Exhibits
Exhibit No. Description
- ----------- -----------
99.1* Press release announcing the completion of the merger of
La Quinta Inns, Inc. with and into Meditrust Corporation, dated
July 17, 1998.
- --------------
* Previously filed on Joint Current Report on Form 8-K, event date
July 17, 1998, filed July 28, 1998.
30
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
Dated: September 28, 1998 MEDITRUST CORPORATION
By: /s/ Michael S. Benjamin
--------------------------------
Name: Michael S. Benjamin
Title: Senior Vice President
MEDITRUST OPERATING COMPANY
By: /s/ William C. Baker
--------------------------------
Name: William C. Baker
Title: Interim President
31
