<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, 1997
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 Identification No.)
of incorporation or organization)
One Seaport Plaza, New York, N.Y. 10292-0128
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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)
STATEMENT OF NET ASSETS
(in process of liquidation)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------
ASSETS
Property held for sale $1,518,521 $1,518,521
Cash and cash equivalents 925,275 1,227,972
Other assets 106,710 63,620
---------- ------------
Total assets 2,550,506 2,810,113
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LIABILITIES
Estimated liquidation costs 367,974 385,000
Other liabilities 90,356 368,769
Due to affiliates 21,416 47,022
---------- ------------
Total liabilities 479,746 800,791
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Contingencies
Net assets available to limited and general partners $2,070,760 $2,009,322
---------- ------------
---------- ------------
Limited and equivalent partnership units issued and outstanding 51,818 51,818
---------- ------------
---------- ------------
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</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(in process of liquidation)
(Unaudited)
<TABLE>
<CAPTION>
LIMITED GENERAL
PARTNERS PARTNERS TOTAL
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
Net assets in liquidation--December 31, 1996 $2,009,322 $ -- $2,009,322
Changes in estimated liquidation values of assets and
liabilities 61,438 -- 61,438
---------- -------- ----------
Net assets in liquidation--June 30, 1997 $2,070,760 $ -- $2,070,760
---------- -------- ----------
---------- -------- ----------
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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)
STATEMENT OF OPERATIONS
(going concern basis)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Three Months
Ended Ended
June 30, June 30,
1996 1996
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------
REVENUES
Rental income $1,439,989 $ 725,993
Interest 11,454 5,882
----------- -------------
1,451,443 731,875
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EXPENSES
Property operating 500,538 237,963
General and administrative 419,285 254,886
Real estate taxes 119,344 59,565
----------- -------------
1,039,167 552,414
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Net income $ 412,276 $ 179,461
----------- -------------
----------- -------------
ALLOCATION OF NET INCOME
Limited partners $ 408,153 $ 177,666
----------- -------------
----------- -------------
General partners $ 4,123 $ 1,795
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----------- -------------
Net income per limited partnership unit $ 7.92 $ 3.45
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----------- -------------
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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)
STATEMENT OF CASH FLOWS
(going concern basis)
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended
June 30,
1996
<S> <C>
- -------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Rental income and deposits received $1,448,247
Interest received 11,454
Property operating expenses paid (517,892)
Real estate taxes paid (143,160)
General and administrative expenses paid (199,543)
-----------
Net cash provided by operating activities 599,106
CASH FLOWS FROM INVESTING ACTIVITIES
Property improvements (15,563)
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions paid to partners (386,431)
-----------
Net increase in cash and cash equivalents 197,112
Cash and cash equivalents at beginning of period 957,903
-----------
Cash and cash equivalents at end of period $1,155,015
-----------
-----------
- -------------------------------------------------------------------------------------------------
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Net income $ 412,276
-----------
Adjustments to reconcile net income to net cash provided by operating activities:
Changes in:
Other assets (13,418)
Accounts payable and accrued expenses 151,452
Due to affiliates 50,936
Accrued real estate taxes (23,816)
Unearned rental income 12,936
Deposits due to tenants 8,740
-----------
Total adjustments 186,830
-----------
Net cash provided by operating activities $ 599,106
-----------
-----------
- -------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of this statement
</TABLE>
4
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
June 30, 1997
(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 for the period ended June 30, 1997 contain all adjustments
necessary to present fairly such information subject to the effects of any
further liquidation accounting adjustments that would have been required had the
current realizable values of assets and the amounts of liabilities been known
when Prudential-Bache/Watson & Taylor, Ltd.-2 (the 'Partnership') first adopted
the liquidation basis of accounting as of October 1, 1996. Prior to October 1,
1996, the books and records of the Partnership were maintained on a going
concern accrual basis of accounting.
The Partnership continues to own the Hampton Park property located in Capitol
Heights, Maryland. This property evidenced certain concentrations of hazardous
materials discovered in an environmental review of the property. The State
environmental regulatory department has advised the Partnership that it will
continue to monitor the property, but it is uncertain at this time what will
ultimately be required to resolve the environmental issue at the property. There
are no assurances that a buyer can be found for the Hampton Park property until
the environmental issue is resolved. Therefore, it is uncertain when the final
sale of this property will be accomplished.
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, 1996.
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 and three months ended June 30, 1996 were approximately $95,000 and
$59,000, 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 approximately $19,000 and $11,000 for the
six and three months ended June 30, 1996, respectively, relating to the
reimbursement of these services.
Estimated liquidation costs payable to the General Partners and their
affiliates were approximately $140,000 as of June 30, 1997 and December 31,
1996.
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
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 June 30, 1997.
C. Contingencies
On March 5, 1997, a lawsuit captioned Madison Partnership Liquidity Investors
VIII, LLC ('Madison') v. Prudential-Bache Properties, Inc. was filed in the
Court of Chancery in the State of Delaware. The suit alleges a breach of
contract with Madison and a breach of fiduciary duty to Madison, as well as
intentional interference with the contract between Madison and the purported
tendering limited partners. The suit seeks injunctive and declaratory relief
demanding that the Partnership's transfer agent effectuate the purported
transfers to Madison, pursuant to the tender offer made by Madison to the
limited partners. The lawsuit does not name the Partnership as a defendant but
does name the Partnership's Managing General Partner. The distribution amounts
in excess of Madison's tender offer price, with respect to the units that are
the subject of this lawsuit, have been escrowed by the Partnership's transfer
agent. The case was settled as of July 25, 1997. The settlement resolves the
issues presented by the litigation without payment of monetary consideration.
Upon completion of certain actions by the parties, the case will be dismissed
with prejudice.
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
In accordance with the Consent Statement dated September 17, 1996, the
limited partners approved, on October 18, 1996, the sale to Public Storage, Inc.
of all eight miniwarehouse facilities owned by the Partnership and the
liquidation and dissolution of the Partnership. Seven of the eight properties
which were under contract were sold to Public Storage, Inc. and its affiliates
on December 16, 1996.
The Partnership continues to own the Hampton Park property located in Capitol
Heights, Maryland. This property evidenced certain concentrations of hazardous
materials discovered in an environmental review of the property. The State
environmental regulatory department has advised the Partnership that it will
continue to monitor the property, but it is uncertain at this time what will
ultimately be required to resolve the environmental issue at the property. There
are no assurances that a buyer can be found for the Hampton Park property until
the environmental issue is resolved. Therefore, it is uncertain when the final
sale of this property will be accomplished.
A distribution of $300 per limited partnership unit was made on December 19,
1996 representing the net sales proceeds reduced by a contingency reserve and
funds required to meet the anticipated current and future operating costs until
the liquidation of the Partnership. The Partnership intends to liquidate in
1997, subject to the prior sale of the Hampton Park property, and will
distribute any remaining funds at such time. In accordance with the Partnership
Agreement, such distributions to partners will be made based upon each partner's
capital account for Federal income tax purposes. Estimated costs expected to be
incurred through the date of liquidation of the Partnership have been accrued in
the accompanying financial statements.
Results of Operations
As a result of the Partnership adopting liquidation accounting in accordance
with generally accepted accounting principles as of October 1, 1996 and thus not
reporting results of operations thereafter, there is no management discussion
comparing the corresponding 1997 and 1996 periods.
6
<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)
27.1 Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K--None
7
<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, 1997
----------------------------------------
Eugene D. Burak
Vice President
Chief Accounting Officer for the Registrant
8
<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-31-1997
<PERIOD-START> Jan-1-1997
<PERIOD-END> Jun-30-1997
<PERIOD-TYPE> 6-Mos
<CASH> 925,275
<SECURITIES> 0
<RECEIVABLES> 106,710
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,031,985
<PP&E> 1,518,521
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,550,506
<CURRENT-LIABILITIES> 479,746
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 2,070,760
<TOTAL-LIABILITY-AND-EQUITY> 2,550,506
<SALES> 0
<TOTAL-REVENUES> 0<F1>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0<F1>
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>
Registrant adopted the liquidation basis of accounting
on October 1, 1996, and, accordingly, does not reflect
Statement of Operations subsequent to 1996. See Note A
to the financial statements for further details.
</FN>
</TABLE>
