<PAGE>
UNITED STATES
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, 1995
/ / 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: 0-14397
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
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(Exact name of registrant as specified in its charter)
Texas 75-1991528
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Seaport Plaza, New York, NY 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 mark 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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Part 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
(a limited partnership)
STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
<TABLE>
<CAPTION>
June 30, September 30,
1995 1994
<S> <C> <C>
----------------------------------------------------------------------------------------------------
ASSETS
Investment in property:
Land $ 8,451,772 $ 8,451,772
Buildings and improvements 12,332,979 12,277,288
Furniture, fixtures and equipment 348,953 330,371
Less: Accumulated depreciation (4,569,221) (4,174,673)
Allowance for loss on impairment of assets (2,745,000) (2,745,000)
------------ -------------
Net investment in property 13,819,483 14,139,758
Cash and cash equivalents 797,293 708,909
Other assets 44,561 55,097
------------ -------------
Total assets $14,661,337 $14,903,764
------------ -------------
------------ -------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Note payable $ 638,000 $ 638,000
Accounts payable and accrued expenses 134,149 279,503
Accrued real estate taxes 116,534 144,899
Deposits due to tenants 96,268 79,924
Due to affiliates 44,101 40,285
Unearned rental income 24,336 25,485
------------ -------------
Total liabilities 1,053,388 1,208,096
------------ -------------
Contingencies
Partners' capital
Limited partners (53,855 limited and equivalent units issued and
outstanding) 13,392,902 13,501,222
General partners 215,047 194,446
------------ -------------
Total partners' capital 13,607,949 13,695,668
------------ -------------
Total liabilities and partners' capital $14,661,337 $14,903,764
------------ -------------
------------ -------------
----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements
2
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PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
(a limited partnership)
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
June 30, June 30,
------------------------- ---------------------
1995 1994 1995 1994
<S> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------------
REVENUES
Rental income $1,461,017 $1,409,836 $501,213 $469,189
Interest 12,784 8,306 4,518 2,677
Other 10,941 13,643 3,812 2,325
---------- ---------- -------- --------
1,484,742 1,431,785 509,543 474,191
---------- ---------- -------- --------
EXPENSES
Property operating 516,180 490,459 165,330 155,691
Depreciation 394,548 382,265 133,072 128,221
General and administrative 178,625 199,385 62,231 60,168
Real estate taxes 154,859 155,562 52,166 53,811
Interest 37,022 25,464 12,483 7,548
---------- ---------- -------- --------
1,281,234 1,253,135 425,282 405,439
---------- ---------- -------- --------
Net income $ 203,508 $ 178,650 $ 84,261 $ 68,752
---------- ---------- -------- --------
---------- ---------- -------- --------
ALLOCATION OF NET INCOME
Limited partners $ 159,609 $ 137,599 $ 68,205 $ 54,276
---------- ---------- -------- --------
---------- ---------- -------- --------
General partners $ 43,899 $ 41,051 $ 16,056 $ 14,476
---------- ---------- -------- --------
---------- ---------- -------- --------
Net income per limited partnership unit $ 2.98 $ 2.57 $ 1.27 $ 1.01
---------- ---------- -------- --------
---------- ---------- -------- --------
----------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(Unaudited)
<TABLE>
<CAPTION>
LIMITED GENERAL
PARTNERS PARTNERS TOTAL
<S> <C> <C> <C>
---------------------------------------------------------------------------------------------------
Partners' capital--September 30, 1994 $13,501,222 $194,446 $13,695,668
Net income 159,609 43,899 203,508
Distributions (267,929) (23,298) (291,227)
----------- -------- -----------
Partners' capital--June 30, 1995 $13,392,902 $215,047 $13,607,949
----------- -------- -----------
----------- -------- -----------
---------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements
3
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<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
(a limited partnership)
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
---------------------------
1995 1994
<S> <C> <C>
----------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Rental income and deposits received $ 1,486,748 $ 1,407,153
Interest received 12,784 8,306
Other income received 10,941 13,643
Property operating expenses paid (639,170) (496,382)
Real estate taxes paid (183,224) (226,374)
General and administrative expenses paid (197,173) (174,507)
Interest paid (37,022) (29,101)
----------- -----------
Net cash provided by operating activities 453,884 502,738
CASH FLOWS FROM INVESTING ACTIVITIES
Property improvements (74,273) (75,013)
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions paid to partners (291,227) (542,121)
----------- -----------
Net increase (decrease) in cash and cash equivalents 88,384 (114,396)
Cash and cash equivalents at beginning of period 708,909 666,220
----------- -----------
Cash and cash equivalents at end of period $ 797,293 $ 551,824
----------- -----------
----------- -----------
----------------------------------------------------------------------------------------------------
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Net income $ 203,508 $ 178,650
----------- -----------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 394,548 382,265
Changes in:
Other assets 10,536 (17,072)
Accounts payable and accrued expenses (145,354) (34,549)
Accrued real estate taxes (28,365) (70,812)
Due to affiliates 3,816 49,867
Deposits due to tenants 16,344 24,871
Unearned rental income (1,149) (10,482)
----------- -----------
Total adjustments 250,376 324,088
----------- -----------
Net cash provided by operating activities $ 453,884 $ 502,738
----------- -----------
----------- -----------
----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements
4
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PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
June 30, 1995
(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.-3 (the ``Partnership'') as of June 30,
1995, the results of its operations for the nine and three months ended June 30,
1995 and 1994 and its cash flows for the nine months ended June 30, 1995 and
1994. 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 September 30, 1994.
Certain balances for the prior period have been reclassified to conform with
the current financial statement presentation.
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, property management (including direct management of the
Partnership's unimproved properties), investor communications, printing and
other administrative services. PBP and its affiliates receive reimbursement 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 and three months ended June 30, 1995 and 1994 were approximately
$66,000 and $78,000, respectively, and for the three months ended June 30, 1995
and 1994 were approximately $12,000 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. The Partnership recorded $3,750 and $1,250 for the reimbursement of
these services for the nine and three months ended June 30, 1995. The
Partnership recorded $27,250 relating to the reimbursement for these services
for the period from November 1988 through March 1994 during the three months
ended March 31, 1994. An additional $1,250 was recorded during each of the three
month periods ended June 30, 1994 and September 30, 1994.
PBP and the individual General Partners of the Partnership own 270, 135 and
135 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 (``PSI''), an affiliate of PBP, owns 253
limited partnership units at June 30, 1995.
C. Contingencies
There are no material legal proceedings pending by or against the Partnership
or its properties.
By order of the Judicial Panel on Multidistrict Litigation dated April 14,
1994, a number of purported class actions then pending in various federal
district courts were transferred to a single judge of the United States District
Court for the Southern District of New York and consolidated for pretrial
proceedings under the caption In re Prudential Securities Incorporated Limited
Partnerships Litigation (MDL Docket 1005). On June 8, 1994, plaintiffs in the
transferred cases filed a complaint that consolidated the previously filed
complaints and named as defendants, among others, PSI, certain of its present
and former employees and PBP. The Partnership is not named a defendant in the
consolidated complaint, but the name of the Partnership is
5
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listed as being among the limited partnerships at issue in the case. The
consolidated complaint alleges violations of the federal and New Jersey
Racketeer Influenced and Corrupt Organizations Act (``RICO'') statutes, fraud,
negligent misrepresentation, breach of fiduciary duties, breach of third-party
beneficiary contracts, and breach of implied covenants in connection with the
marketing and sales of limited partnership interests. Plaintiffs request relief
in the nature of rescission of the purchase of securities and recovery of all
consideration and expenses in connection therewith, as well as compensation for
lost use of money invested less cash distributions; compensatory damages;
consequential damages; treble damages for defendants' RICO violations (both
federal and New Jersey); general damages for all injuries resulting from
negligence, fraud, breaches of contract, and breaches of duty in an amount to be
determined at trial; disgorgement and restitution of all earnings, profits,
benefits and compensation received by defendants as a result of their unlawful
acts; costs and disbursements of the action; reasonable attorneys' fees; and
such other and further relief as the court deems just and proper.
PSI and PBP, along with various other defendants, filed a motion to dismiss
the consolidated complaint on December 20, 1994. That motion is pending.
D. Subsequent Event
In August 1995, distributions of approximately $67,000 and $6,000 were paid
to the limited partners and the General Partners, respectively, for the quarter
ended June 30, 1995.
6
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PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
(a limited partnership)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Unaudited)
Liquidity and Capital Resources
The Partnership owns and operates five office/warehouse facilities, one
office facility, one mini-storage facility and two parcels of undeveloped land.
During the nine months ended June 30, 1995, the Partnership's cash and cash
equivalents increased by approximately $88,000 to $797,000 primarily due to cash
retained for anticipated property improvements offset by the timing of accrued
expense payments.
Distributions of approximately $67,000 and $6,000 were paid to the limited
partners and General Partners, respectively, during the quarter ended June 30,
1995. The distributions were funded by property operations. The Partnership
retained a portion of the cash from property operations in anticipation of
budgeted 1995 property improvements.
The Partnership's ability to make future distributions and the amount of
distributions that may be made will be affected not only by the amount of cash
generated by the Partnership from the operations of its properties, but also by
the amount expended for property improvements and the amount set aside for
anticipated property improvements. Property improvements (including tenant
improvements) are currently budgeted at approximately $155,000 for the remainder
of calendar year 1995.
Results of Operations
Occupancies at June 30, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
June 30,
-----------------
1995 1994
<S> <C> <C>
-------------------------------------------------------------
Barrow Road 90.3% 91.5%
La Prada 97.1 90.0
Tulsa Peoria 86.6 88.7
Westheimer 78.4 84.1
Eastgate 100.0 100.0
Quail Valley 100.0 100.0
Mt. Holly 94.3 87.3
</TABLE>
(Occupancies are calculated by dividing occupied units by available units.)
Net income increased by approximately $25,000 and $16,000 for the nine and
three months ended June 30, 1995, respectively, as compared to the corresponding
periods in 1994 for the reasons discussed below.
Rental income increased by approximately $51,000 and $32,000 for the nine and
three months ended June 30, 1995, respectively, as compared to the same periods
in fiscal 1994. Rental income at all of the properties except Westheimer and La
Prada has improved. The increase at Barrow Road and Quail Valley was due to
higher average occupancies while the increase at Tulsa Peoria, Eastgate and
Mount Holly was primarily due to increased rental rates. Average occupancies at
Mount Holly were also higher during the nine month period. Rental income at
Westheimer for the nine month period decreased due to lower average occupancies.
Rental income at La Prada and, for the three month period, at Westheimer was
flat.
Other income decreased by approximately $3,000 but increased by approximately
$1,000 for the nine and three months ended June 30, 1995, respectively, due to
the timing of billboard revenue receipts.
Property operating expenses increased by approximately $26,000 and $10,000
for the nine and three months ended June 30, 1995 as compared to the same
periods in the prior year primarily due to an increase in property payroll costs
at Westheimer, Tulsa Peoria and Quail Valley. Management fees also increased
because they are based on rental income. The increases were partially offset by
a decrease in repairs and maintenance due to budgeted projects that have not yet
been started.
General and administrative expenses decreased by approximately $21,000 but
increased by approximately $2,000 for the nine and three months ended June 30,
1995 as compared to the same periods in
7
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1994. The nine month decrease is primarily due to the accrual of prior periods'
general, administrative and monitoring expense reimbursements in the second
quarter of fiscal 1994 as further discussed in Note B to the financial
statements. The decreases were partially offset by higher office expenses at the
properties. The three month increase is primarily due to increased professional
fees offset, in part, by the timing of certain accruals from period to period.
Interest expense on the Partnership's note payable is calculated as a
percentage of net cash flow from the three properties (Eastgate, Quail Valley
and Mt. Holly) which collateralize the note. Interest expense increased by
approximately $12,000 and $5,000 for the nine and three months ended June 30,
1995 as compared to the same periods in 1994 as a result of increased cash flows
from operations at the three properties.
8
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<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. (a) Exhibits
Description:
3.01 Amended and Restated Certificate and Agreement of Limited
Partnership (filed as an exhibit to Registration Statement on Form
S-11 (No. 2-94976) and incorporated herein by reference)
3.02 Amendment to the Amended and Restated Certificate and
Agreement of Limited Partnership (filed as an exhibit to
Registrant's Form 10-K for the year ended September 30, 1989
and incorporated herein by reference)
4.01 Certificate of Limited Partnership Interest (filed as an
exhibit to Registration Statement on Form
S-11 (No. 2-94976) and incorporated herein by reference)
(b) Reports on Form 8-K--None
9
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<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 thereunto duly authorized.
Prudential-Bache/Watson & Taylor, Ltd.-3
By: Prudential-Bache Properties, Inc.
A Delaware corporation,
Managing General Partner
By: /s/ Robert J. Alexander Date: August 14, 1995
----------------------------------------
Robert J. Alexander
Vice President
Chief Accounting Officer for the
Registrant
<TABLE> <S> <C>
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<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial
information extracted from the financial
statements for Watson & Taylor Ltd 3
and is qualified in its entirety by reference
to such financial statements
</LEGEND>
<RESTATED>
<CIK> 0000759726
<NAME> Watson & Taylor Ltd 3
<MULTIPLIER> 1
<FISCAL-YEAR-END> Sep-30-1995
<PERIOD-START> Apr-1-1995
<PERIOD-END> Jun-30-1995
<PERIOD-TYPE> 6-Mos
<CASH> 797,293
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> (2,745,000)
<INVENTORY> 0
<CURRENT-ASSETS> 44,561
<PP&E> 21133,704
<DEPRECIATION> (4,569,221)
<TOTAL-ASSETS> 14,661,337
<CURRENT-LIABILITIES> 1,053,388
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 13,607,949
<TOTAL-LIABILITY-AND-EQUITY> 14,661,337
<SALES> 0
<TOTAL-REVENUES> 1,484,742
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,244,212
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 37,022
<INCOME-PRETAX> 203,508
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 203,508
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
