<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 March 31, 1996
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
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
One Seaport Plaza, New York, N.Y. 10292-0116
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 214-1016
N/A
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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>
Part I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
(a limited partnership)
STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------
ASSETS
Property held for sale $13,103,746 $13,099,251
Cash and cash equivalents 993,396 957,903
Other assets 14,275 29,295
----------- ------------
Total assets $14,111,417 $14,086,449
----------- ------------
----------- ------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accounts payable and accrued expenses $ 179,711 $ 114,004
Deposits due to tenants 90,692 88,910
Unearned rental income 60,780 46,166
Due to affiliates, net 41,317 66,280
Accrued real estate taxes 33,687 105,458
----------- ------------
Total liabilities 406,187 420,818
----------- ------------
Partners' capital
Limited partners (51,818 limited and equivalent units issued and
outstanding) 13,768,915 13,729,712
General partners (63,685) (64,081 )
----------- ------------
Total partners' capital 13,705,230 13,665,631
----------- ------------
Total liabilities and partners' capital $14,111,417 $14,086,449
----------- ------------
----------- ------------
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The accompanying notes are an integral part of these statements
</TABLE>
2
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
(a limited partnership)
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months
ended March 31,
---------------------
1996 1995
<S> <C> <C>
- --------------------------------------------------------------------------------------------------
Revenues
Rental income $713,996 $677,930
Interest 5,572 3,607
-------- --------
719,568 681,537
-------- --------
Expenses
Property operating 262,575 253,284
Depreciation -- 186,663
General and administrative 164,399 55,424
Real estate taxes 59,779 64,052
-------- --------
486,753 559,423
-------- --------
Net income $232,815 $122,114
-------- --------
-------- --------
ALLOCATION OF NET INCOME
Limited partners $230,487 $120,893
-------- --------
-------- --------
General partners $ 2,328 $ 1,221
-------- --------
-------- --------
Net income per limited partnership unit $ 4.47 $ 2.34
-------- --------
-------- --------
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</TABLE>
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(Unaudited)
<TABLE>
<CAPTION>
LIMITED GENERAL
PARTNERS PARTNERS TOTAL
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
Partners' capital (deficit)--December 31,
1995 $13,729,712 $(64,081) $$13,665,631
Net income 230,487 2,328 232,815
Distributions (191,284) (1,932 ) (193,216)
----------- -------- -----------
Partners' capital (deficit)--March 31, 1996 $13,768,915 $(63,685) $13,705,230
----------- -------- -----------
----------- -------- -----------
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The accompanying notes are an integral part of these statements
</TABLE>
3
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
(a limited partnership)
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three months
ended March 31,
-----------------------
<S> <C> <C>
1996 1995
- ---------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Rental income and deposits received $ 745,412 $ 661,605
Interest received 5,572 3,607
General and administrative expenses paid (132,056) (27,644)
Property operating expenses paid (254,174) (183,835)
Real estate taxes paid (131,550) (132,901)
--------- ---------
Net cash provided by operating activities 233,204 320,832
CASH FLOWS FROM INVESTING ACTIVITIES
Property improvements (4,495) (16,889)
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions paid to partners (193,216) (193,216)
--------- ---------
Net increase in cash and cash equivalents 35,493 110,727
Cash and cash equivalents at beginning of period 957,903 547,459
--------- ---------
Cash and cash equivalents at end of period $ 993,396 $ 658,186
--------- ---------
--------- ---------
- ---------------------------------------------------------------------------------------------------
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Net income $ 232,815 $ 122,114
--------- ---------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation -- 186,663
Changes in:
Other assets 15,020 6,488
Accounts payable and accrued expenses 65,707 80,909
Accrued real estate taxes (71,771) (68,849)
Due to affiliates, net (24,963) 16,320
Unearned rental income 14,614 6
Deposits due to tenants 1,782 (22,819)
--------- ---------
Total adjustments 389 198,718
--------- ---------
Net cash provided by operating activities $ 233,204 $ 320,832
--------- ---------
--------- ---------
- ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
</TABLE>
4
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
(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 March 31,
1996 and the results of its operations and its cash flows for the three months
ended March 31, 1996 and 1995. 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, 1995.
On December 15, 1995, the Management Committee of the Partnership determined
to seek bids for all the properties held by the Partnership. The Partnership is
continuing the process of attempting to sell the properties held by the
Partnership. However, there can be no assurances that any transactions will be
consummated. The limited partners will be advised if the Partnership enters into
a definitive agreement to sell the properties. Accordingly, effective December
31, 1995, the Partnership has reclassified its properties to held for sale and
has ceased depreciating the properties for financial statement purposes only.
Properties held for sale are recorded at the lower of the carrying amount or the
estimated fair value less costs to sell.
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 three months ended March 31, 1996 and 1995 were approximately $30,000
and $20,000, respectively.
Affiliates of Messrs. Watson and Taylor, the individual General Partners,
also perform certain administrative and monitoring functions on behalf of the
Partnership. Relating to the reimbursement of these services, the Partnership
recorded $5,600 and $1,250 for the three months ended March 31, 1996 and 1995,
respectively.
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. Accordingly, the 258 units owned by PBP
have been excluded from the calculation of net income per limited partner unit
and distributions per limited partnership unit.
Prudential Securities Incorporated (``PSI''), an affiliate of PBP, owns 180
limited partnership units at March 31, 1996.
C. Subsequent Event
In May 1996, distributions of approximately $191,000 and $2,000 were paid to
the limited partners and the General Partners, respectively, for the quarter
ended March 31, 1996.
5
<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. On December 15, 1995, the
Management Committee of the Partnership determined to seek bids for all the
properties held by the Partnership. The Partnership is continuing the process of
attempting to sell the properties held by the Partnership. However, there can be
no assurances that any transactions will be consummated. The limited partners
will be advised if the Partnership enters into a definitive agreement to sell
the properties.
During the three months ended March 31, 1996, the Partnership's cash and cash
equivalents increased by approximately $35,000 due to cash flow from property
operations in excess of distributions and capital expenditures. Distributions
made during the three months ended March 31, 1996 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 property
operations.
The Partnership's ability to make future distributions to the partners and
the amount that may be made will be affected not only by the amount of cash
generated by the Partnership from the operations of its properties, including
the amount expended for property improvements, but also by the amount from and
the timing of any sale of the Partnership's properties.
Results of Operations
Average occupancy rates for the three months ended March 31, 1996 and 1995
were as follows:
<TABLE>
<CAPTION>
March 31,
--------------
Property 1996 1995
----------------------------------------------------------------------
<S> <C> <C>
Arlington 87.5% 91.8%
Arapaho 93.8 92.8
South May/I-240 77.8 90.4
Santa Fe 80.3 95.4
South May/44th St. 95.0 97.0
Timbercrest 92.2 96.8
Cherry Hill 86.8 89.7
Hampton Park 97.2 86.8
----------------------------------------------------------------------
(Average occupancy rates are calculated by averaging the monthly occu-
pancies determined by dividing occupied square footage by available
square footage as of each month-end.)
</TABLE>
Net income for the three month period ended March 31, 1996, increased by
approximately $111,000 as compared with the corresponding period in 1995
primarily for the reasons discussed below.
Rental income increased by approximately $36,000 for the three months ended
March 31, 1996 as compared to the corresponding period in 1995. This increase
relates primarily to Hampton Park, which had improved rental rates and increased
average occupancy. For most of the other properties, lower average occupancy
rates were, to a great extent, offset by increased rental rates.
General and administrative expenses increased by approximately $109,000 for
the three months ended March 31, 1996 as compared to the corresponding period in
1995. This variance was primarily due to increased professional fees and other
costs relating to the anticipated solicitation of the consent of the limited
partners for the potential sale of the properties.
Property operating expenses increased by approximately $9,000 for the three
months ended March 31, 1996 as compared to the corresponding period in 1995 due
to increases in repairs and maintenance expenses at Cherry Hill and Hampton Park
and advertising and promotion expenses at Timbercrest. These increases were
partially offset by decreases in payroll costs at South May/I-240 and Hampton
Park and decreased utility expense at Arlington.
6
<PAGE>
Depreciation expense decreased by approximately $187,000 for the three months
ended March 31, 1996 as compared to the corresponding period in 1995 due to the
reclassification of the Partnership's properties from held for use to held for
sale as of December 31, 1995. Under generally accepted accounting principles,
such properties are no longer depreciated and therefore no depreciation expense
has been recorded for the three months ended March 31, 1996.
7
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings--None
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)
27.1 Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K--None
8
<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/ Eugene Burak Date: May 15, 1996
----------------------------------------
Eugene Burak
Vice President
Chief Accounting Officer for the
Registrant
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial
information extracted from the financial
statements for P-B Watson & Taylor Ltd II
and is qualified in its entirety by
reference to such financial statements
</LEGEND>
<RESTATED>
<CIK> 0000737296
<NAME> P-B Watson & Taylor II
<MULTIPLIER> 1
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-1-1996
<PERIOD-END> Mar-31-1996
<PERIOD-TYPE> 3-Mos
<CASH> 993,396
<SECURITIES> 0
<RECEIVABLES> 14,275
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,007,671
<PP&E> 13,103,746
<DEPRECIATION> 0
<TOTAL-ASSETS> 14,111,417
<CURRENT-LIABILITIES> 406,187
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 13,705,230
<TOTAL-LIABILITY-AND-EQUITY> 14,111,417
<SALES> 719,568
<TOTAL-REVENUES> 719,568
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 486,753
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 232,815
<EPS-PRIMARY> 4.47
<EPS-DILUTED> 0
</TABLE>
