<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, 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 of incorporation (I.R.S. Employer
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 __
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<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,
1996 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Property held for sale $13,114,814 $13,099,251
Cash and cash equivalents 1,155,015 957,903
Other assets 42,713 29,295
----------- ------------
Total assets $14,312,542 $14,086,449
----------- ------------
----------- ------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accounts payable and accrued expenses $ 265,456 $ 114,004
Deposits due to tenants 97,650 88,910
Due to affiliates, net 117,216 66,280
Accrued real estate taxes 81,642 105,458
Unearned rental income 59,102 46,166
----------- ------------
Total liabilities 621,066 420,818
----------- ------------
Partners' capital
Limited partners (51,818 limited and equivalent units issued and
outstanding) 13,755,298 13,729,712
General partners (63,822) (64,081 )
----------- ------------
Total partners' capital 13,691,476 13,665,631
----------- ------------
Total liabilities and partners' capital $14,312,542 $14,086,449
----------- ------------
----------- ------------
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The accompanying notes are an integral part of these statements
</TABLE>
2
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<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,
------------------------- -----------------------
1996 1995 1996 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues
Rental income $1,439,989 $1,406,217 $ 725,993 $728,287
Interest 11,454 7,746 5,882 4,139
---------- ---------- ---------- --------
1,451,443 1,413,963 731,875 732,426
---------- ---------- ---------- --------
Expenses
Property operating 500,538 506,856 237,963 253,572
General and administrative 419,285 125,760 254,886 70,336
Real estate taxes 119,344 127,467 59,565 63,415
Depreciation -- 375,834 -- 189,171
---------- ---------- ---------- --------
1,039,167 1,135,917 552,414 576,494
---------- ---------- ---------- --------
Net income $ 412,276 $ 278,046 $ 179,461 $155,932
---------- ---------- ---------- --------
---------- ---------- ---------- --------
ALLOCATION OF NET INCOME
Limited partners $ 408,153 $ 275,266 $ 177,666 $154,373
---------- ---------- ---------- --------
---------- ---------- ---------- --------
General partners $ 4,123 $ 2,780 $ 1,795 $ 1,559
---------- ---------- ---------- --------
---------- ---------- ---------- --------
Net income per limited partnership unit $ 7.92 $ 5.34 $ 3.45 $ 2.99
---------- ---------- ---------- --------
---------- ---------- ---------- --------
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</TABLE>
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(Unaudited)
<TABLE>
<CAPTION>
LIMITED GENERAL
PARTNERS PARTNERS TOTAL
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<S> <C> <C> <C>
Partners' capital (deficit)--December 31, 1995 $13,729,712 $(64,081) $13,665,631
Net income 408,153 4,123 412,276
Distributions (382,567) (3,864 ) (386,431)
----------- -------- -----------
Partners' capital (deficit)--June 30, 1996 $13,755,298 $(63,822) $13,691,476
----------- -------- -----------
----------- -------- -----------
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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,
-------------------------
1996 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Rental income and deposits received $1,448,247 $1,436,085
Interest received 11,454 7,746
General and administrative expenses paid (199,543) (107,355)
Property operating expenses paid (517,892) (511,690)
Real estate taxes paid (143,160) (144,346)
---------- ----------
Net cash provided by operating activities 599,106 680,440
CASH FLOWS FROM INVESTING ACTIVITIES
Property improvements (15,563) (113,757)
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions paid to partners (386,431) (386,431)
---------- ----------
Net increase in cash and cash equivalents 197,112 180,252
Cash and cash equivalents at beginning of period 957,903 547,459
---------- ----------
Cash and cash equivalents at end of period $1,155,015 $ 727,711
---------- ----------
---------- ----------
- ---------------------------------------------------------------------------------------------------
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Net income $ 412,276 $ 278,046
---------- ----------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation -- 375,834
Changes in:
Other assets (13,418) 2,136
Accounts payable and accrued expenses 151,452 (148)
Accrued real estate taxes (23,816) (16,879)
Due to affiliates, net 50,936 13,719
Unearned rental income 12,936 8,733
Deposits due to tenants 8,740 18,999
---------- ----------
Total adjustments 186,830 402,394
---------- ----------
Net cash provided by operating activities $ 599,106 $ 680,440
---------- ----------
---------- ----------
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The accompanying notes are an integral part of these statements
</TABLE>
4
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<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 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 June 30,
1996 and the results of its operations and its cash flows for the six and three
months ended June 30, 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. On June 10, 1996,
the Partnership entered into a contract with Public Storage, Inc., the current
property manager of the Partnership's properties, for the sale of all the
Partnership's properties for an aggregate sales price of $18,000,000. This sale
is subject to the approval by the limited partners holding a majority of the
limited partnership units and certain other conditions and potential price
adjustments, including the cost to remedy any potential environmental issues. In
preparing the properties for sale, the Partnership had an environmental site
assessment performed by a qualified engineering firm for each of the
Partnership's properties. Two of the Partnership's properties evidenced certain
levels of hazardous materials. The Managing General Partner is working with the
engineering firm to determine the extent of the contamination. It is uncertain
at this time what the cost of remediation or the impact on the sale of the
affected properties may be. The Partnership is exploring its alternatives in
addressing this issue.
The Partnership anticipates sending proxy statements in August 1996 or as
soon thereafter as practicable for the purpose of advising limited partners of
the terms of the agreement and to solicit their consent of the proposed sale. It
is expected that, if approved, the sale will close before December 31, 1996.
Following the closing, the Partnership will make one or more cash distributions
to the limited partners. The bulk of the distributions are expected to occur
shortly after the closing with the remainder expected to be distributed within
twelve months after the closing, at which time the Partnership would then be
liquidated.
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, 1996 and 1995 were approximately $95,000 and
$40,000, respectively, and for the three months ended June 30, 1996 and 1995,
were approximately $59,000 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 approximately $19,000 and $3,000 for the six months ended June 30, 1996
and 1995, respectively and for the three months ended June 30, 1996 and 1995
recorded approximately $11,000 and $1,000, respectively.
PBP and the two 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 distribu-
5
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tions 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 partnership unit and distributions per limited partnership unit.
Prudential Securities Incorporated (``PSI''), an affiliate of PBP, owns 180
limited partnership units at June 30, 1996.
C. Subsequent Event
In August 1996, distributions of approximately $191,000 and $2,000 were paid
to the limited partners and the General Partners, respectively, for the quarter
ended June 30, 1996.
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. On December 15, 1995, the
Management Committee of the Partnership determined to seek bids for all the
properties held by the Partnership. On June 10, 1996, the Partnership entered
into a contract with Public Storage, Inc., the current property manager of the
Partnership's properties, for the sale of all the Partnership's properties for
an aggregate sales price of $18,000,000. This sale is subject to the approval by
the limited partners holding a majority of the limited partnership units and
certain other conditions and potential price adjustments, including the cost to
remedy any potential environmental issues. In preparing the properties for sale,
the Partnership had an environmental site assessment performed by a qualified
engineering firm for each of the Partnership's properties. Two of the
Partnership's properties evidenced certain levels of hazardous materials. The
Managing General Partner is working with the engineering firm to determine the
extent of the contamination. It is uncertain at this time what the cost of
remediation or the impact on the sale of the affected properties may be. The
Partnership is exploring its alternatives in addressing this issue.
The Partnership anticipates sending proxy statements in August 1996 or as
soon thereafter as practicable for the purpose of advising limited partners of
the terms of the agreement and to solicit their consent of the proposed sale. It
is expected that, if approved, the sale will close before December 31, 1996.
Following the closing, the Partnership will make one or more cash distributions
to the limited partners. The bulk of the distributions are expected to occur
shortly after the closing with the remainder expected to be distributed within
twelve months after the closing, at which time the Partnership would then be
liquidated.
During the six months ended June 30, 1996, the Partnership's cash and cash
equivalents increased by approximately $197,000 due to cash flow from property
operations in excess of distributions and capital expenditures. Distributions
made during the three months ended June 30, 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 six months ended June 30, 1996 and 1995 were
as follows:
<TABLE>
<CAPTION>
June 30,
--------------
Property 1996 1995
------------------------------------------------------------------------------------
<S> <C> <C>
Arlington 89.5% 91.6%
Arapaho 95.2 94.0
South May/I-240 80.4 89.1
Santa Fe 82.5 92.7
South May/44th St. 95.4 97.2
Timbercrest 93.5 96.8
Cherry Hill 88.5 90.9
Hampton Park 95.7 89.7
------------------------------------------------------------------------------------
(Average occupancy rates are calculated by averaging the monthly occupancies deter-
mined by dividing occupied square footage by available square footage as of each
month-end.)
</TABLE>
Net income increased by approximately $134,000 and $24,000 for the six and
three months ended June 30, 1996 as compared with the same periods in 1995 for
the reasons discussed below.
7
<PAGE>
<PAGE>
Rental income increased by approximately $34,000 for the six months ended
June 30, 1996 as compared to the corresponding period in 1995. This increase
relates primarily to the properties at Arapaho and Hampton Park. The increase at
Arapaho was due to increased occupancy and rental rates, whereas the increase at
Hampton Park was mainly due to increased occupancy rates. However, this increase
was partially offset by the lower occupancy rates at all the other properties.
Property operating expenses decreased by approximately $6,000 and $16,000 for
the six and three months ended June 30, 1996 as compared to the corresponding
periods in 1995. The six month decrease was due primarily to a reduction in
payroll and utility expenses at most of the properties and significantly lower
insurance costs at the Arlington and Hampton Park properties. These decreases
were partially offset by an increase in security and alarm expense at the
Hampton Park property. Similar trends occurred between the three month
comparable periods in addition to a decrease of approximately $9,000 in repairs
and maintenance expense.
General and administrative expenses increased by approximately $294,000 and
$185,000 for the six and three months ended June 30, 1996 as compared to the
corresponding periods in 1995. This variance was primarily due to the accrual of
professional fees and other costs relating to the anticipated solicitation of
the consent of the limited partners for the sale of the properties.
Depreciation expense decreased by approximately $376,000 and $189,000 for the
six and three months ended June 30, 1996 as compared to the corresponding
periods 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 six and three months ended
June 30, 1996.
8
<PAGE>
<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
Registrant's Current Report on Form 8-K dated June 14, 1996, as
filed with the Securities and Exchange Commission on June 20, 1996,
relating to Item 5 regarding the Registrant's entering into a contract
of sale for all of the Registrant's properties.
9
<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/ Eugene D. Burak Date: August 14, 1996
----------------------------------------
Eugene D. Burak
Vice President
Chief Accounting Officer for the
Registrant
10
<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> Jun-30-1996
<PERIOD-TYPE> 6-Mos
<CASH> 1,155,015
<SECURITIES> 0
<RECEIVABLES> 42,713
<ALLOWANCES> (1,418,000)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 22,807,787
<DEPRECIATION> (8,274,973)
<TOTAL-ASSETS> 14,312,542
<CURRENT-LIABILITIES> 621,066
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 13,691,476
<TOTAL-LIABILITY-AND-EQUITY> 14,312,542
<SALES> 0
<TOTAL-REVENUES> 1,451,443
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,039,167
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 412,276
<INCOME-TAX> 0
<INCOME-CONTINUING> 412,276
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 412,276
<EPS-PRIMARY> 7.92
<EPS-DILUTED> 0
</TABLE>
