<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, 2000
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 (I.R.S. Employer Identification No.)
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) 214-3500
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 NET ASSETS
(in process of liquidation)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------
ASSETS
Property held for sale $2,018,521 $2,018,521
Cash and cash equivalents 1,009,029 1,036,053
Other assets 364,352 277,922
---------- ------------
Total assets 3,391,902 3,332,496
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LIABILITIES
Estimated liquidation costs 333,655 366,078
Estimated remediation costs 500,000 500,000
---------- ------------
Total liabilities 833,655 866,078
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Net assets available to limited and general partners $2,558,247 $2,466,418
---------- ------------
---------- ------------
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, 1999 $2,466,418 $ -- $2,466,418
Net income from liquidating activities 91,829 -- 91,829
---------- -------- ----------
Net assets in liquidation--March 31, 2000 $2,558,247 $ -- $2,558,247
---------- -------- ----------
---------- -------- ----------
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The accompanying notes are an integral part of these statements.
</TABLE>
2
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PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
March 31, 2000
(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 March 31, 2000 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.
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
should 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, 1999.
In accordance with a consent statement dated September 17, 1996, the limited
partners approved, on October 18, 1996, the sale of all eight miniwarehouse
facilities owned by the Partnership to Public Storage, Inc. ('Public'), and the
liquidation and dissolution of the Partnership. Seven of the eight properties
which were under contract were sold to Public and its affiliates on December 16,
1996.
The Partnership continues to own the Hampton Park property located in Capitol
Heights, Maryland. In conjunction with the contract of sale of the property to
Public, as described above, a Phase I Environmental Site Assessment was
performed in the first quarter of 1996 by Law Engineering and Environmental
Services, Inc. ('LAW'), which identified one of the tenants as a potential
environmental concern. As a result, the property was not sold to Public.
LAW, at the request of the Partnership, performed a Phase II Environmental
Site Assessment which was completed in June 1996. Analysis of soil and ground
water samples collected at the site in this assessment indicated detectable
levels of tetrachloroethene ('PCE'). LAW, at the request of the Partnership,
reported the PCE release to the Maryland Department of the Environment ('MDE').
The MDE requested that a limited subsurface assessment be performed to evaluate
the potential impact to subsurface soil and ground water. Since this 1996
assessment there have been fourteen additional quarterly groundwater sampling
events performed through the first quarter of 2000. Based upon the results of
these tests, the Partnership has continued its quarterly monitoring of the
property and will continue to do so until further direction is provided by the
MDE.
As of March 31, 2000, the Statement of Net Assets reflects an accrued
liability of $500,000 which represents the Partnership's best estimate of the
obligation regarding the environmental issues mentioned above. The amount
includes costs associated with an active remediation program over a five-year
period. It is reasonably possible that the loss exposure will be in excess of
the amount accrued and will be material to the Partnership and may possibly
change in the near future. However, it is uncertain at this time what will
ultimately be required to resolve the environmental issue at the property. It is
the Partnership's intention to sell the property and distribute any remaining
funds to the partners at such time; however, because of the environmental
problem it is uncertain when any such sale could be consummated.
In conjunction with the liquidation basis of accounting, the Partnership has
recorded an accrual as of March 31, 2000 for the estimated costs expected to be
incurred to liquidate the Partnership. Due to the nature of the Hampton Park
environmental issue, the date of liquidation is uncertain. However, the
Partnership has utilized a December 31, 2000 date for purposes of estimating
costs through the conclusion of liquidation. The actual charges to be incurred
by the Partnership will depend primarily upon the length of time required to
liquidate the Partnership's remaining net assets, and may differ from the
amounts accrued as of March 31, 2000. No additional amounts have been accrued
during the quarter ended March 31, 2000.
3
<PAGE>
The Net Assets in liquidation increased approximately $92,000 during the
first quarter of 2000. This increase was primarily the result of income from
operations of the Hampton Park property, and to a lesser extent, interest
income.
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.
Included in the Estimated Liquidation Costs as of March 31, 2000, reflected
in the Statement of Net Assets, is $110,000 expected to be payable to the
General Partners and their affiliates during the anticipated remaining
liquidation period. See Note A for a further discussion regarding the
Partnership's estimated liquidation costs.
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.
Prudential Securities Incorporated, an affiliate of PBP, owns 180 limited
partnership units at March 31, 2000.
4
<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 a consent statement dated September 17, 1996, the limited
partners approved, on October 18, 1996, the sale of all eight miniwarehouse
facilities owned by the Partnership to Public Storage, Inc. ('Public'), and the
liquidation and dissolution of the Partnership. Seven of the eight properties
which were under contract were sold to Public and its affiliates on December 16,
1996.
The Partnership continues to own the Hampton Park property located in Capitol
Heights, Maryland. In conjunction with the contract of sale of the property to
Public, as described above, a Phase I Environmental Site Assessment was
performed in the first quarter of 1996 by Law Engineering and Environmental
Services, Inc. ('LAW'), which identified one of the tenants as a potential
environmental concern. As a result, the property was not sold to Public.
LAW, at the request of the Partnership, performed a Phase II Environmental
Site Assessment which was completed in June 1996. Analysis of soil and ground
water samples collected at the site in this assessment indicated detectable
levels of tetrachloroethene ('PCE'). LAW, at the request of the Partnership,
reported the PCE release to the Maryland Department of the Environment ('MDE').
The MDE requested that a limited subsurface assessment be performed to evaluate
the potential impact to subsurface soil and ground water. Since this 1996
assessment there have been fourteen additional quarterly groundwater sampling
events performed through the first quarter of 2000. Based upon the results of
these tests, the Partnership has continued its quarterly monitoring of the
property and will continue to do so until further direction is provided by the
MDE.
As of March 31, 2000, the Statement of Net Assets reflects an accrued
liability of $500,000 which represents the Partnership's best estimate of the
obligation regarding the environmental issues mentioned above. The amount
includes costs associated with an active remediation program over a five-year
period. It is reasonably possible that the loss exposure will be in excess of
the amount accrued and will be material to the Partnership and may possibly
change in the near future. However, it is uncertain at this time what will
ultimately be required to resolve the environmental issue at the property. It is
the Partnership's intention to sell the property and distribute any remaining
funds to the partners at such time; however, because of the environmental
problem it is uncertain when any such sale could be consummated.
In conjunction with the liquidation basis of accounting, the Partnership has
recorded an accrual as of March 31, 2000 for the estimated costs expected to be
incurred to liquidate the Partnership. Due to the nature of the Hampton Park
environmental issue, the date of liquidation is uncertain. However, the
Partnership has utilized a December 31, 2000 date for purposes of estimating
costs through the conclusion of liquidation. The actual charges to be incurred
by the Partnership will depend primarily upon the length of time required to
liquidate the Partnership's remaining net assets, and may differ from the
amounts accrued as of March 31, 2000. No additional amounts have been accrued
during the quarter ended March 31, 2000.
The Net Assets in liquidation increased approximately $92,000 during the
first quarter of 2000. This increase was primarily the result of income from
operations of the Hampton Park property, and to a lesser extent, interest
income.
Results of Operations
As a result of the Partnership adopting the liquidation basis of 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 2000 and 1999 periods.
Impact of Year 2000
The Partnership has received no reports of incidents of systems or facilities
malfunctions related to the inability of computers and/or computer software to
process and calculate date-related information from and after January 1, 2000.
The Partnership did not incur any costs during the three months ended March 31,
2000 in connection with remediating its systems. The Partnership is not aware of
any material problems resulting from Year 2000 issues, either with its products,
its internal systems, or the products and services of
5
<PAGE>
third parties. The Partnership will continue to monitor its mission critical
computer applications and those of its suppliers and vendors throughout 2000 to
ensure that any latent Year 2000 matters that may arise are addressed promptly.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
6
<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. 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/ Steven Carlino Date: May 15, 2000
----------------------------------------
Steven Carlino
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-31-2000
<PERIOD-START> Jan-1-2000
<PERIOD-END> Mar-31-2000
<PERIOD-TYPE> 3-Mos
<CASH> 1,009,029
<SECURITIES> 0
<RECEIVABLES> 364,352
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,373,381
<PP&E> 2,018,521
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,391,902
<CURRENT-LIABILITIES> 833,655
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 2,558,247
<TOTAL-LIABILITY-AND-EQUITY> 3,391,902
<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-BASIC> 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>
