<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 June 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 of (I.R.S. Employer
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>
June 30, December 31,
1995 1994
<S> <C> <C>
---------------------------------------------------------------------------------------------------
ASSETS
Investment in property:
Land $ 4,903,072 $ 4,903,072
Buildings and improvements 17,360,279 17,246,589
Furniture, fixtures and equipment 474,316 474,249
Less: Accumulated depreciation and amortization (7,887,147) (7,511,313)
Allowance for loss on impairment of assets (1,418,000) (1,418,000)
----------- ------------
Net investment in property 13,432,520 13,694,597
Cash and cash equivalents 727,711 547,459
Other assets 19,208 21,344
----------- ------------
Total assets $14,179,439 $14,263,400
----------- ------------
----------- ------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accrued real estate taxes $ 82,526 $ 99,405
Deposits due to tenants 81,659 62,660
Accounts payable and accrued expenses 76,415 76,563
Unearned rental income 58,735 50,002
Due to affiliates, net 38,276 24,557
----------- ------------
Total liabilities 337,611 313,187
----------- ------------
Contingencies
Partners' capital
Limited partners (51,818 limited and equivalent units issued and
outstanding) 13,904,147 14,011,448
General partners (62,319) (61,235 )
----------- ------------
Total partners' capital 13,841,828 13,950,213
----------- ------------
Total liabilities and partners' capital $14,179,439 $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>
Six Months Three Months
Ended June 30, Ended June 30,
------------------------- ---------------------
1995 1994 1995 1994
<S> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------------
Revenues
Rental income $1,406,217 $1,270,029 $728,287 $652,941
Interest 7,746 4,676 4,139 2,130
---------- ---------- -------- --------
1,413,963 1,274,705 732,426 655,071
---------- ---------- -------- --------
Expenses
Property operating 506,856 439,369 253,572 223,432
Depreciation and amortization 375,834 364,098 189,171 182,268
Real estate taxes 127,467 132,708 63,415 64,068
General and administrative 125,760 154,368 70,336 61,414
---------- ---------- -------- --------
1,135,917 1,090,543 576,494 531,182
---------- ---------- -------- --------
Net income $ 278,046 $ 184,162 $155,932 $123,889
---------- ---------- -------- --------
---------- ---------- -------- --------
ALLOCATION OF NET INCOME
Limited partners $ 275,266 $ 182,320 $154,373 $122,650
---------- ---------- -------- --------
---------- ---------- -------- --------
General partners $ 2,780 $ 1,842 $ 1,559 $ 1,239
---------- ---------- -------- --------
---------- ---------- -------- --------
Net income per limited partnership unit $ 5.34 $ 3.54 $ 2.99 $ 2.38
---------- ---------- -------- --------
---------- ---------- -------- --------
----------------------------------------------------------------------------------------------------
</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 275,266 2,780 278,046
Distributions (382,567) (3,864 ) (386,431)
----------- -------- -----------
Partners' capital (deficit)--June 30, 1995 $13,904,147 $(62,319) $13,841,828
----------- -------- -----------
----------- -------- -----------
---------------------------------------------------------------------------------------------------
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>
Six Months
Ended June 30,
-------------------------
<S> <C> <C>
1995 1994
---------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Rental income and deposits received $1,436,085 $1,298,219
Interest received 7,746 4,676
General and administrative expenses paid (107,355) (178,473)
Property operating expenses paid (511,690) (512,216)
Real estate taxes paid (144,346) (151,144)
---------- ----------
Net cash provided by operating activities 680,440 461,062
CASH FLOWS FROM INVESTING ACTIVITIES
Property improvements (113,757) (17,573)
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions paid to partners (386,431) (495,130)
---------- ----------
Net increase (decrease) in cash and cash equivalents 180,252 (51,641)
Cash and cash equivalents at beginning of period 547,459 705,405
---------- ----------
Cash and cash equivalents at end of period $ 727,711 $ 653,764
---------- ----------
---------- ----------
---------------------------------------------------------------------------------------------------
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Net income $ 278,046 $ 184,162
---------- ----------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 375,834 364,098
Changes in:
Other assets 2,136 29,188
Accounts payable and accrued expenses (148) (96,648)
Accrued real estate taxes (16,879) (18,436)
Due to affiliates 13,719 (304)
Unearned rental income 8,733 1,331
Deposits due to tenants 18,999 (2,329)
---------- ----------
Total adjustments 402,394 276,900
---------- ----------
Net cash provided by operating activities $ 680,440 $ 461,062
---------- ----------
---------- ----------
---------------------------------------------------------------------------------------------------
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES
Distributions to partners $ (386,431) $ (473,410)
Decrease in distribution payable -- (21,720)
---------- ----------
Distributions paid to partners $ (386,431) $ (495,130)
---------- ----------
---------- ----------
---------------------------------------------------------------------------------------------------
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
JUNE 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 June 30,
1995, the results of its operations for the six and three months ended June 30,
1995 and 1994 and its cash flows for the six months ended June 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 six months ended June 30, 1995 and 1994 were approximately $40,000 and
$39,000, respectively, and for the three months ended June 30, 1995 and 1994
were approximately $20,000 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 $2,500 and $1,250 for the reimbursement of
these services for the six months and three months ended June 30, 1995. The
Partnership recorded $27,250 relating to the reimbursement of these services for
the period from November 1988 through March 1994 during the three months ended
March 31, 1994. An additional $1,250 was recorded during the three months ended
June 30, 1994.
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 June 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
5
<PAGE>
<PAGE>
Partnership is not named a defendant in the consolidated complaint, but the name
of the Partnership is 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. That motion is pending.
D. Subsequent Event
In August 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 June 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 six months ended June
30, 1995, the Partnership's cash and cash equivalents increased by approximately
$180,000 primarily due to cash retained for anticipated property improvements.
Distributions made during the three months ended June 30, 1995 totaled
approximately $193,000 of which $191,000 and $2,000 were paid to the limited
partners and General Partners, respectively. These distributions were funded
from current property operations. The Partnership retained a portion of the cash
from property operations in anticipation of budgeted 1995 property improvements.
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. Property improvements (including tenant
improvements) are currently budgeted at approximately $163,000 for the remainder
of 1995.
Results of Operations
Occupancies at June 30, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
Property 1995 1994
<S> <C> <C>
----------------------------------------------------------------------
Cherry Hill 92.4% 91.5%
May 240 87.3 98.0
Santa Fe 90.3 92.8
South May 98.2 94.8
Timbercrest 96.9 92.7
Arlington 92.3 93.6
Arapaho 88.1 87.3
Hampton Park 84.7 64.4
(Occupancies are calculated by dividing occupied units by available
units.)
</TABLE>
Net income increased by approximately $94,000 and $32,000 for the six and
three months ended June 30, 1995, respectively, as compared with the same
periods in 1994 for the reasons discussed below.
Rental income increased by approximately $136,000 and $75,000 for the six and
three months ended June 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 Cherry Hill, May 240, South May, Timbercrest and
Arlington properties had an increase in average occupancies. The improved rental
rate at the Hampton Park property was slightly offset by a decrease in average
occupancy. The average occupancies at the Santa Fe and Arapaho properties were
stable.
General and administrative expenses decreased by approximately $29,000 but
increased by approximately $9,000 for the six and three months ended June 30,
1995 as compared to the same periods in the prior year primarily due to the
accrual of prior periods' general, administrative and monitoring expense
reimbursements in the first quarter of 1994 as further discussed in Note B to
the financial statements. The three month change is the result of increased
professional fees.
Property operating expenses increased by approximately $67,000 and $30,000
for the six and three months ended June 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, utility expense at Arlington and Hampton Park and
repairs and maintenance expense at May 240, Arlington, Timbercrest and Hampton
Park. 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.
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. (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
By: Prudential-Bache Properties, Inc.
A Delaware corporation
Managing General Partner
By: /s/ Robert J. Alexander Date: August 11, 1995
----------------------------------------
Robert J. Alexander
Vice President
Chief Accounting Officer for the
Registrant
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> Jun-30-1995
<PERIOD-TYPE> 6-Mos
<CASH> 727,711
<SECURITIES> 0
<RECEIVABLES> 19,208
<ALLOWANCES> (1,418,000)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 22,737,667
<DEPRECIATION> (7,877,147)
<TOTAL-ASSETS> 14,197,439
<CURRENT-LIABILITIES> 337,611
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 13,841,828
<TOTAL-LIABILITY-AND-EQUITY> 14,179,439
<SALES> 0
<TOTAL-REVENUES> 1,413,963
<CGS> 0
<TOTAL-COSTS> 1,135,917
<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> 278,046
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
