<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1995
OR
/ /TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______________________ to ______________________
Commission file number: 0-13518
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Texas 75-1933081
- --------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
One Seaport Plaza, New York, N.Y. 10292-0116
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 214-1016
N/A
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check CK whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _CK_ No __
<PAGE>
<PAGE>
Part I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
(a limited partnership)
STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------
ASSETS
Investment in property:
Land $ 4,903,072 $ 4,903,072
Buildings and improvements 17,390,649 17,246,589
Furniture, fixtures and equipment 481,823 474,249
Less: Accumulated depreciation and amortization (8,080,347) (7,511,313)
Allowance for loss on impairment of assets (1,418,000) (1,418,000)
------------- ------------
Net investment in property 13,277,197 13,694,597
Cash and cash equivalents 874,649 547,459
Other assets 16,133 21,344
------------- ------------
Total assets $14,167,979 $14,263,400
------------- ------------
------------- ------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accrued real estate taxes $ 92,211 $ 99,405
Deposits due to tenants 89,738 62,660
Accounts payable and accrued expenses 115,437 76,563
Unearned rental income 53,757 50,002
Due to affiliates, net 73,697 24,557
------------- ------------
Total liabilities 424,840 313,187
------------- ------------
Contingencies
Partners' capital
Limited partners (51,818 limited and equivalent units issued and
outstanding) 13,806,445 14,011,448
General partners (63,306) (61,235)
------------- ------------
Total partners' capital 13,743,139 13,950,213
------------- ------------
Total liabilities and partners' capital $14,167,979 $14,263,400
------------- ------------
------------- ------------
- ----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
</TABLE>
2
<PAGE>
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
(a limited partnership)
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Three Months
Ended September 30, Ended September 30,
------------------------- ---------------------
1995 1994 1995 1994
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
REVENUES
Rental income $2,113,897 $1,932,928 $707,680 $662,899
Interest 13,213 8,346 5,467 3,670
---------- ---------- -------- --------
2,127,110 1,941,274 713,147 666,569
---------- ---------- -------- --------
EXPENSES
Property operating 773,950 689,576 267,094 246,578
Depreciation and amortization 569,034 547,590 193,200 183,492
Real estate taxes 192,115 196,094 64,648 63,386
General and administrative 219,439 211,941 93,679 61,202
---------- ---------- -------- --------
1,754,538 1,645,201 618,621 554,658
---------- ---------- -------- --------
Net income $ 372,572 $ 296,073 $ 94,526 $111,911
---------- ---------- -------- --------
---------- ---------- -------- --------
ALLOCATION OF NET INCOME
Limited partners $ 368,846 $ 293,112 $ 93,580 $110,792
---------- ---------- -------- --------
---------- ---------- -------- --------
General partners $ 3,726 $ 2,961 $ 946 $ 1,119
---------- ---------- -------- --------
---------- ---------- -------- --------
Net income per limited partnership unit $ 7.15 $ 5.68 $ 1.81 $ 2.14
---------- ---------- -------- --------
---------- ---------- -------- --------
- ----------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(Unaudited)
<TABLE>
<CAPTION>
LIMITED GENERAL
PARTNERS PARTNERS TOTAL
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
Partners' capital (deficit)--December 31, 1994 $14,011,448 $(61,235) $13,950,213
Net income 368,846 3,726 372,572
Distributions (573,849) (5,797) (579,646)
----------- -------- -----------
Partners' capital (deficit)--September 30, 1995 $13,806,445 $(63,306) $13,743,139
----------- -------- -----------
----------- -------- -----------
- ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
</TABLE>
3
<PAGE>
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
(a limited partnership)
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
-------------------------
<S> <C> <C>
1995 1994
- ---------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Rental income and deposits received $2,149,941 $1,958,603
Interest received 13,213 8,346
General and administrative expenses paid (139,105) (217,978)
Property operating expenses paid (766,270) (691,105)
Real estate taxes paid (199,309) (215,458)
---------- ----------
Net cash provided by operating activities 1,058,470 842,408
CASH FLOWS FROM INVESTING ACTIVITIES
Property improvements (151,634) (52,510)
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions paid to partners (579,646) (805,525)
---------- ----------
Net increase (decrease) in cash and cash equivalents 327,190 (15,627)
Cash and cash equivalents at beginning of period 547,459 705,405
---------- ----------
Cash and cash equivalents at end of period $ 874,649 $ 689,778
---------- ----------
---------- ----------
- ---------------------------------------------------------------------------------------------------
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Net income $ 372,572 $ 296,073
---------- ----------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 569,034 547,590
Changes in:
Other assets 5,211 34,847
Accounts payable and accrued expenses 38,874 7,844
Accrued real estate taxes (7,194) (19,364)
Due to affiliates, net 49,140 (15,410)
Unearned rental income 3,755 (7,978)
Deposits due to tenants 27,078 (1,194)
---------- ----------
Total adjustments 685,898 546,335
---------- ----------
Net cash provided by operating activities $1,058,470 $ 842,408
---------- ----------
---------- ----------
- ---------------------------------------------------------------------------------------------------
SUPPLEMENTAL SCHEDULE OF FINANCING ACTIVITIES
Distributions to partners $ (579,646) $ (783,805)
Decrease in distribution payable -- (21,720)
---------- ----------
Distributions paid to partners $ (579,646) $ (805,525)
---------- ----------
---------- ----------
- ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
</TABLE>
4
<PAGE>
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(Unaudited)
A. General
These financial statements have been prepared without audit. In the opinion
of Prudential-Bache Properties, Inc. (``Managing General Partner'') (``PBP''),
the financial statements contain all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the financial position of
Prudential-Bache/Watson & Taylor, Ltd.-2 (the ``Partnership'') as of September
30, 1995, the results of its operations for the nine and three months ended
September 30, 1995 and 1994 and its cash flows for the nine months ended
September 30, 1995 and 1994. However, the operating results for the interim
periods may not be indicative of the results expected for the full year.
Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with generally accepted accounting
principles have been omitted. It is suggested that these financial statements be
read in conjunction with the financial statements and notes thereto included in
the Partnership's Annual Report on Form 10-K filed with the Securities and
Exchange Commission for the year ended December 31, 1994.
Certain balances for the prior period have been reclassified to conform with
the current financial statement presentation.
B. Related Parties
PBP and its affiliates perform services for the Partnership which include,
but are not limited to: accounting and financial management; transfer and
assignment functions; asset management; investor communications; printing and
other administrative services. PBP and its affiliates receive reimbursements for
costs incurred in connection with these services, the amount of which is limited
by the provisions of the Partnership Agreement. The costs and expenses incurred
on behalf of the Partnership which are reimbursable to PBP and its affiliates
for the nine months ended September 30, 1995 and 1994 were approximately $81,000
and $62,000, respectively, and for the three months ended September 30, 1995 and
1994 were approximately $41,000 and $19,000, respectively.
Affiliates of Messrs. Watson and Taylor, the individual General Partners,
also perform certain administrative and monitoring functions on behalf of the
Partnership. The Partnership recorded $25,850 relating to the reimbursement for
these services for the period from November 1988 through December 1993 during
the three months ended March 31, 1994. Beginning January 1, 1994, the
Partnership has incurred $1,250 quarterly for the continuing reimbursement of
these services.
PBP and the individual General Partners of the Partnership own 258, 130 and
130 equivalent limited partnership units, respectively. PBP receives funds from
the Partnership, such as General Partner distributions and reimbursement of
expenses, but has waived all of its rights resulting from its ownership of
equivalent limited partnership units.
Prudential Securities Incorporated (``PSI''), an affiliate of PBP, owns 180
limited partnership units at September 30, 1995.
C. Contingencies
There are no material legal proceedings pending by or against the Partnership
or its properties.
By order of the Judicial Panel on Multidistrict Litigation dated April 14,
1994, a number of purported class actions then pending in various federal
district courts were transferred to a single judge of the United States District
Court for the Southern District of New York and consolidated for pretrial
proceedings under the caption In re Prudential Securities Incorporated Limited
Partnerships Litigation (MDL Docket 1005). On June 8, 1994, plaintiffs in the
transferred cases filed a complaint that consolidated the previously filed
complaints and named as defendants, among others, PSI, certain of its present
and former employees and PBP. The Partnership is not named a defendant in the
consolidated complaint, but the name of the Partnership is
5
<PAGE>
<PAGE>
listed as being among the limited partnerships at issue in the case. The
consolidated complaint alleges violations of the federal and New Jersey
Racketeer and Influenced Corrupt Organizations Act (``RICO'') statutes, fraud,
negligent misrepresentation, breach of fiduciary duties, breach of third-party
beneficiary contracts and breach of implied covenants in connection with the
marketing and sales of limited partnership interests. Plaintiffs request relief
in the nature of rescission of the purchase of securities and recovery of all
consideration and expenses in connection therewith, as well as compensation for
lost use of money invested less cash distributions; compensatory damages;
consequential damages; treble damages for defendants' RICO violations (both
federal and New Jersey); general damages for all injuries resulting from
negligence, fraud, breaches of contract, and breaches of duty in an amount to be
determined at trial; disgorgement and restitution of all earnings, profits,
benefits and compensation received by defendants as a result of their unlawful
acts; costs and disbursements of the action; reasonable attorneys' fees; and
such other and further relief as the court deems just and proper.
PSI and PBP, along with various other defendants, filed a motion to dismiss
the consolidated complaint on December 20, 1994. By order dated August 20, 1995,
the transferee court granted plaintiffs' motion for temporary class
certification, preliminarily approved a settlement entered into between
plaintiffs and PBP and PSI, scheduled a fairness hearing for November 17, 1995,
approved the form and content of the notice to class members and directed that
it be provided to class members. The full amount due under the settlement
agreement has been paid by PSI.
D. Subsequent Event
In November 1995, distributions of approximately $191,000 and $2,000 will be
paid to the limited partners and the General Partners, respectively, for the
quarter ended September 30, 1995.
6
<PAGE>
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
(a limited partnership)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Partnership owns and operates five mini-warehouse/business center
facilities and three mini-warehouse facilities. During the nine months ended
September 30, 1995, the Partnership's cash and cash equivalents increased by
approximately $327,000 due to net cash from property operations in excess of
capital expenditures and distributions to the partners.
Distributions of approximately $191,000 and $2,000 were paid in November 1995
to the limited partners and General Partners, respectively, for the quarter
ended September 30, 1995. These distributions were funded from cash flow from
current property operations.
The Partnership's ability to make future distributions and the amount of the
distributions that may be made will be affected not only by the amount of cash
generated by the Partnership from the operations of its properties, but also by
the amount expended for property improvements and the amount set aside for
anticipated property improvements.
Results of Operations
Occupancies at September 30, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
Property 1995 1994
<S> <C> <C>
----------------------------------------------------------------------
Cherry Hill 87.3% 93.1%
May 240 83.0 94.9
Santa Fe 86.4 90.0
South May 96.8 95.6
Timbercrest 92.7 90.7
Arlington 90.9 91.7
Arapaho 86.0 85.8
Hampton Park 91.4 78.5
(Occupancies are calculated by dividing occupied units by total
units.)
</TABLE>
Net income increased by approximately $76,000 and decreased by approximately
$17,000 for the nine and three months ended September 30, 1995, respectively, as
compared with the same periods in 1994 for the reasons discussed below.
Rental income increased by approximately $181,000 and $45,000 for the nine
and three months ended September 30, 1995 as compared to the same periods in
1994. Rental income increased for all of the properties primarily due to
improved rental rates. In addition, the South May, Timbercrest and Hampton Park
properties had an increase in average occupancies.
Property operating expenses increased by approximately $84,000 and $21,000
for the nine and three months ended September 30, 1995 as compared to the same
periods in 1994. These increases were due to higher property level payroll costs
at all properties except Santa Fe, higher utility expense at all properties
except May 240 and Arapaho, increased repairs and maintenance expense at all
properties except Arapaho and higher insurance expense primarily at Arlington.
Management fees also increased because they are based on rental income. In
addition, leasing commissions have increased since more of the commercial units
have been leased.
General and administrative expenses increased by approximately $7,000 and
$32,000 for the nine and three months ended September 30, 1995 as compared to
the same periods in the prior year. The nine month increase is primarily due to
increased professional fees and the three month increase is attributable to
higher costs associated with administering the Partnership.
7
<PAGE>
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings--This information is incorporated by reference to Note
C to the financial statements filed herewith in Item 1 of Part I of the
Registrant's Quarterly Report.
Item 2. Changes in Securities--None
Item 3. Defaults Upon Senior Securities--None
Item 4. Submission of Matters to a Vote of Security Holders--None
Item 5. Other Information--None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Description:
4.01 Revised Certificate of Limited Partnership Interest (filed as
an exhibit to Registrant's Form 10-K for the year ended
December 31, 1988 and incorporated herein by reference)
(b) Reports on Form 8-K--None
8
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Prudential-Bache/Watson & Taylor, Ltd.-2
<TABLE>
<S> <C>
By: Prudential-Bache Properties, Inc.
A Delaware corporation
Managing General Partner
By: /s/ Eugene D. Burak Date: November 14, 1995
----------------------------------------
Eugene D. Burak
Vice President
Chief Accounting Officer for the
Registrant
</TABLE>
9
<PAGE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial
information extracted from the financial
statements for Prudential-Bache Watson &
Taylor Ltd 2 and is qualified in its
entirety by reference to such financial statements
</LEGEND>
<RESTATED>
<CIK> 0000737296
<NAME> Prudential-Bache Watson & Taylor Ltd 2
<MULTIPLIER> 1
<FISCAL-YEAR-END> Dec-31-1995
<PERIOD-START> Jan-1-1995
<PERIOD-END> Sep-30-1995
<PERIOD-TYPE> 9-Mos
<CASH> 874,649
<SECURITIES> 0
<RECEIVABLES> 16,133
<ALLOWANCES> (1,418,000)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 22,775,544
<DEPRECIATION> (8,080,347)
<TOTAL-ASSETS> 14,167,979
<CURRENT-LIABILITIES> 424,840
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 13,743,139
<TOTAL-LIABILITY-AND-EQUITY> 14,167,979
<SALES> 0
<TOTAL-REVENUES> 2,127,110
<CGS> 0
<TOTAL-COSTS> 1,754,538
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 372,572
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
