<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, 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>
September 30, December 31,
1996 1995
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------
ASSETS
Property held for sale $13,148,742 $13,099,251
Cash and cash equivalents 1,133,516 957,903
Other assets 43,228 29,295
------------- ------------
Total assets $14,325,486 $14,086,449
------------- ------------
------------- ------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accounts payable and accrued expenses $ 311,796 $ 114,004
Deposits due to tenants 97,498 88,910
Accrued real estate taxes 90,445 105,458
Due to affiliates 60,373 66,280
Unearned rental income 60,953 46,166
------------- ------------
Total liabilities 621,065 420,818
------------- ------------
Partners' capital
Limited partners (51,818 limited and equivalent units issued and
outstanding) 13,768,114 13,729,712
General partners (63,693) (64,081 )
------------- ------------
Total partners' capital 13,704,421 13,665,631
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Total liabilities and partners' capital $14,325,486 $14,086,449
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------------- ------------
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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>
Nine months Three months
ended September 30, ended September 30,
------------------------- -----------------------
1996 1995 1996 1995
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
REVENUES
Rental income $2,190,501 $2,113,897 $ 750,512 $707,680
Interest 18,769 13,213 7,315 5,467
---------- ---------- ---------- --------
2,209,270 2,127,110 757,827 713,147
---------- ---------- ---------- --------
EXPENSES
Property operating 772,224 773,950 271,686 267,094
General and administrative 631,977 219,439 212,692 93,679
Real estate taxes 185,950 192,115 66,606 64,648
Depreciation -- 569,034 -- 193,200
---------- ---------- ---------- --------
1,590,151 1,754,538 550,984 618,621
---------- ---------- ---------- --------
Net income $ 619,119 $ 372,572 $ 206,843 $ 94,526
---------- ---------- ---------- --------
---------- ---------- ---------- --------
ALLOCATION OF NET INCOME
Limited partners $ 612,928 $ 368,846 $ 204,775 $ 93,580
---------- ---------- ---------- --------
---------- ---------- ---------- --------
General partners $ 6,191 $ 3,726 $ 2,068 $ 946
---------- ---------- ---------- --------
---------- ---------- ---------- --------
Net income per limited partnership unit $ 11.89 $ 7.15 $ 3.97 $ 1.81
---------- ---------- ---------- --------
---------- ---------- ---------- --------
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</TABLE>
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(Unaudited)
<TABLE>
<CAPTION>
LIMITED GENERAL
PARTNERS PARTNERS TOTAL
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
Partners' capital (deficit)--December 31, 1995 $13,729,712 $(64,081) $13,665,631
Net income 612,928 6,191 619,119
Distributions (574,526) (5,803 ) (580,329)
----------- -------- -----------
Partners' capital (deficit)--September 30, 1996 $13,768,114 $(63,693) $13,704,421
----------- -------- -----------
----------- -------- -----------
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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>
Nine months
ended September 30,
-------------------------
<S> <C> <C>
1996 1995
- ---------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Rental income and deposits received $2,199,943 $2,149,941
Interest received 18,769 13,213
Property operating expenses paid (776,748) (766,270)
General and administrative expenses paid (435,568) (139,105)
Real estate taxes paid (200,963) (199,309)
---------- ----------
Net cash provided by operating activities 805,433 1,058,470
CASH FLOWS FROM INVESTING ACTIVITIES
Property improvements (49,491) (151,634)
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions paid to partners (580,329) (579,646)
---------- ----------
Net increase in cash and cash equivalents 175,613 327,190
Cash and cash equivalents at beginning of period 957,903 547,459
---------- ----------
Cash and cash equivalents at end of period $1,133,516 $ 874,649
---------- ----------
---------- ----------
- ---------------------------------------------------------------------------------------------------
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Net income $ 619,119 $ 372,572
---------- ----------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation -- 569,034
Changes in:
Other assets (13,933) 5,211
Accounts payable and accrued expenses 197,792 38,874
Deposits due to tenants 8,588 27,078
Accrued real estate taxes (15,013) (7,194)
Due to affiliates (5,907) 49,140
Unearned rental income 14,787 3,755
---------- ----------
Total adjustments 186,314 685,898
---------- ----------
Net cash provided by operating activities $ 805,433 $1,058,470
---------- ----------
---------- ----------
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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
September 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 September
30, 1996, the results of its operations for the nine and three months ended
September 30, 1996 and 1995 and its cash flows for the nine months ended
September 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 13, 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 subject to
certain adjustments for 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 these issues.
In accordance with the Consent Statement dated September 17, 1996, the
limited partners approved the sale, and it is expected that the sale will close
before December 31, 1996 subject to certain adjustments for environmental issues
noted above. 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 nine months ended September 30, 1996 and 1995 were approximately
$113,000 and $81,000, respectively, and for the three months ended September 30,
1996 and 1995 were approximately $18,000 and $41,000, 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 $20,000 and $4,000 for the nine months ended September
30, 1996 and 1995, respectively, and for the three months ended September 30,
1996 and 1995 recorded approximately $1,000 in each period.
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 distributions and reimbursement of
expenses, but has waived all of its rights resulting from its ownership of
5
<PAGE>
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, an affiliate of PBP, owns 180 limited
partnership units at September 30, 1996.
6
<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 13, 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 subject to certain adjustments for
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 these issues.
In accordance with the Consent Statement dated September 17, 1996, the
limited partners approved the sale, and it is expected that the sale will close
before December 31, 1996 subject to certain adjustments for environmental issues
noted above. 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 nine months ended September 30, 1996, the Partnership's cash and
cash equivalents increased by approximately $176,000 due to cash flow from
property operations in excess of distributions and capital expenditures.
Distributions made during the three months ended September 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.
Results of Operations
Average occupancy rates for the nine months ended September 30, 1996 and 1995
were as follows:
<TABLE>
<CAPTION>
September 30,
--------------
Property 1996 1995
------------------------------------------------------------------------------------
<S> <C> <C>
Arlington 89.1% 91.6%
Arapaho 96.1 94.2
South May/I-240 84.5 87.9
Santa Fe 85.5 90.3
South May/44th St. 95.8 97.4
Timbercrest 94.1 96.2
Cherry Hill 90.4 90.7
Hampton Park 95.2 91.4
------------------------------------------------------------------------------------
(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 $247,000 and $112,000 for the nine and
three months ended September 30, 1996 as compared with the corresponding periods
in 1995 for the reasons discussed below.
Rental income increased by approximately $77,000 and $43,000 for the nine and
three months ended September 30, 1996 as compared to the corresponding periods
in 1995. These variances relate primarily to increased average occupancy rates
at Arapaho and Hampton Park, partially offset by lower average
7
<PAGE>
occupancy rates at the other properties. The three month increase was also aided
by the improved occupancy rates at Santa Fe, reversing a negative trend for the
first six months of 1996.
General and administrative expenses increased by approximately $413,000 and
$119,000 for the nine and three months ended September 30, 1996 as compared to
the corresponding periods in 1995. These variances were primarily due to the
accrual of professional fees and other costs relating to the solicitation of the
consent of the limited partners for the sale of the properties.
Depreciation expense decreased by approximately $569,000 and $193,000 for the
nine and three months ended September 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 nine and three months ended
September 30, 1996. However, depreciation is still being recorded for income tax
purposes.
8
<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 and Reports on Form 8-K
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
9
<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: November 14, 1996
----------------------------------------
Eugene D. Burak
Vice President
Chief Accounting Officer for the Registrant
10
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial
information extracted from the financial
statements for P-B Watson & Taylor Ltd.-2
and is qualified in its entirety by
reference to such financial statements
</LEGEND>
<RESTATED>
<CIK> 0000737296
<NAME> P-B Watson & Taylor Ltd.-2
<MULTIPLIER> 1
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-1-1996
<PERIOD-END> Sep-30-1996
<PERIOD-TYPE> 9-Mos
<CASH> 1,133,516
<SECURITIES> 0
<RECEIVABLES> 43,228
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,176,744
<PP&E> 13,148,742
<DEPRECIATION> 0
<TOTAL-ASSETS> 14,325,486
<CURRENT-LIABILITIES> 621,065
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 13,704,421
<TOTAL-LIABILITY-AND-EQUITY> 14,325,486
<SALES> 0
<TOTAL-REVENUES> 2,209,270
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,590,151
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING>
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 619,119
<EPS-PRIMARY> 11.89
<EPS-DILUTED> 0
</TABLE>
