<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 March 31, 1996
/ / 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
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Texas 75-1991528
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(State or other jurisdiction (I.R.S. Employer
of 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 __
<PAGE>
Part I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
(a limited partnership)
STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
<TABLE>
<CAPTION>
March 31, September 30,
1996 1995
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------
ASSETS
Property held for sale $11,621,767 $11,720,794
Cash and cash equivalents 1,119,258 1,008,091
Other assets 1,989 13,148
----------- -------------
Total assets $12,743,014 $12,742,033
----------- -------------
----------- -------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Note payable $ 638,000 $ 638,000
Accounts payable and accrued expenses 198,072 157,860
Accrued real estate taxes 135,535 142,130
Deposits due to tenants 101,677 95,365
Due to affiliates, net 53,167 78,018
Unearned rental income 27,163 32,944
----------- -------------
Total liabilities 1,153,614 1,144,317
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Partners' capital
Limited partners (53,855 limited and equivalent units issued and
outstanding) 11,376,890 11,394,078
General partners 212,510 203,638
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Total partners' capital 11,589,400 11,597,716
----------- -------------
Total liabilities and partners' capital $12,743,014 $12,742,033
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----------- -------------
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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.-3
(a limited partnership)
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
March 31, March 31,
----------------------- ---------------------
1996 1995 1996 1995
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
REVENUES
Rental income $1,008,409 $959,804 $513,050 $482,464
Interest 12,862 8,266 6,350 4,261
Other 7,546 7,129 3,512 4,188
---------- -------- -------- --------
1,028,817 975,199 522,912 490,913
---------- -------- -------- --------
EXPENSES
Property operating 369,190 350,850 177,353 175,596
General and administrative 229,365 116,394 150,437 58,075
Real estate taxes 133,197 102,693 60,316 55,143
Depreciation 136,271 261,476 -- 131,074
Interest 23,501 24,539 11,762 11,418
---------- -------- -------- --------
891,524 855,952 399,868 431,306
---------- -------- -------- --------
Net income $ 137,293 $119,247 $123,044 $ 59,607
---------- -------- -------- --------
---------- -------- -------- --------
ALLOCATION OF NET INCOME
Limited partners $ 116,771 $ 91,404 $113,200 $ 45,663
---------- -------- -------- --------
---------- -------- -------- --------
General partners $ 20,522 $ 27,843 $ 9,844 $ 13,944
---------- -------- -------- --------
---------- -------- -------- --------
Net income per limited partnership unit $ 2.18 $ 1.71 $ 2.11 $ .85
---------- -------- -------- --------
---------- -------- -------- --------
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</TABLE>
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(Unaudited)
<TABLE>
<CAPTION>
LIMITED GENERAL
PARTNERS PARTNERS TOTAL
<S> <C> <C> <C>
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Partners' capital--September 30, 1995 $11,394,078 $203,638 $11,597,716
Net income 116,771 20,522 137,293
Distributions (133,959) (11,650) (145,609)
----------- -------- -----------
Partners' capital--March 31, 1996 $11,376,890 $212,510 $11,589,400
----------- -------- -----------
----------- -------- -----------
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The accompanying notes are an integral part of these statements
</TABLE>
3
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
(a limited partnership)
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
March 31,
------------------------
1996 1995
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Rental income and deposits received $1,020,099 $ 958,276
Interest received 12,862 8,266
Other income received 7,546 7,129
Property operating expenses paid (365,651) (441,914)
Real estate taxes paid (139,792) (174,443)
General and administrative expenses paid (213,196) (113,146)
Interest paid (27,848) (24,539)
---------- ---------
Net cash provided by operating activities 294,020 219,629
CASH FLOWS FROM INVESTING ACTIVITIES
Property improvements (37,244) (43,229)
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions paid to partners (145,609) (218,417)
---------- ---------
Net increase (decrease) in cash and cash equivalents 111,167 (42,017)
Cash and cash equivalents at beginning of period 1,008,091 708,909
---------- ---------
Cash and cash equivalents at end of period $1,119,258 $ 666,892
---------- ---------
---------- ---------
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RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Net income $ 137,293 $ 119,247
---------- ---------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 136,271 261,476
Changes in:
Other assets 11,159 4,770
Accounts payable and accrued expenses 40,212 (106,716)
Accrued real estate taxes (6,595) (71,750)
Due to affiliates, net (24,851) 18,900
Deposits due to tenants 6,312 (10,279)
Unearned rental income (5,781) 3,981
---------- ---------
Total adjustments 156,727 100,382
---------- ---------
Net cash provided by operating activities $ 294,020 $ 219,629
---------- ---------
---------- ---------
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The accompanying notes are an integral part of these statements
</TABLE>
4
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 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.-3 (the ``Partnership'') as of March 31,
1996 and the results of its operations for the six and three months ended March
31, 1996 and 1995, and its cash flows for the six months ended March 31, 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 September 30, 1995.
On December 15, 1995, the Management Committee of the Partnership determined
to seek bids for all of the properties held by the Partnership. The Partnership
is continuing the process of attempting to sell the properties held by the
Partnership. However, there can be no assurances that any transactions will be
consummated. The limited partners will be advised if the Partnership enters into
a definitive agreement to sell the properties. Accordingly, effective December
31, 1995, the Partnership has reclassified its properties to held for sale and
has ceased depreciating the properties for financial statement purposes only.
Properties held for sale are recorded at the lower of the carrying amount or the
estimated fair value less costs to sell.
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 March 31, 1996 were approximately $60,000 and
$28,000, respectively. Similar costs for the six and three months ended March
31, 1995 were $54,000 and $34,000, 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 $15,000 and $6,600 for the six and three months ended March 31, 1996,
respectively. Similar costs for the six and three months ended March 31, 1995
were $2,500 and $1,250, respectively.
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. Accordingly, the 270 units owned by PBP
have been excluded from the calculation of net income per limited partner unit
and distributions per limited partnership unit.
Prudential Securities Incorporated (``PSI''), an affiliate of PBP, owns 253
limited partnership units at March 31, 1996.
C. Subsequent Event
The unimproved property in Southlake, Texas (``Southlake'') was sold on April
25, 1996 for a gross sales price of $1,013,000 less costs to sell.
5
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<PAGE>
In May 1996, distributions of approximately $67,000 and $6,000 were paid to
the limited partners and the General Partners, respectively, for the quarter
ended March 31, 1996. Also in May 1996, a special distribution of approximately
$1,000,000 was paid to the limited partners representing the net proceeds from
the sale of Southlake.
6
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
(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 three office/showroom/warehouse facilities,
three mini-storage complexes and one office facility, along with two parcels of
undeveloped land. On December 15, 1995, the Management Committee of the
Partnership determined to seek bids for all of the properties held by the
Partnership. The Partnership is continuing the process of attempting to sell the
properties held by the Partnership. However, there can be no assurances that any
transactions will be consummated. The limited partners will be advised if the
Partnership enters into a definitive agreement to sell the properties.
During the six months ended March 31, 1996, the Partnership's cash and cash
equivalents increased by approximately $111,000 due to cash flow from property
operations in excess of distributions and capital expenditures. Distributions
made during the three months ended March 31, 1996 totaled approximately $73,000
of which $67,000 and $6,000 were paid to the limited partners and General
Partners, respectively. These distributions were funded from current and prior
periods' 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 March 31, 1996 and 1995 were
as follows:
<TABLE>
<CAPTION>
March 31,
--------------------
Property 1996 1995
<S> <C> <C>
- ------------------------------------------------------------------------------------
Barrow Road 95.2% 90.3%
La Prada 94.5 93.2
Tulsa Peoria 95.2 91.1
Westheimer 82.9 77.7
Eastgate 95.8 98.0
Quail Valley 99.6 100.0
Mt. Holly 86.9 92.3
- ------------------------------------------------------------------------------------
(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 $18,000 and $63,000 for the six and
three months ended March 31, 1996, respectively, as compared to the
corresponding periods in 1995 primarily for the reasons discussed below.
Rental income increased by approximately $49,000 and $31,000 for the six and
three months ended March 31, 1996, respectively, as compared to the same periods
in fiscal 1995 primarily due to increased revenue at the Barrow Road, La Prada
and Westheimer properties as a result of increased rental rates and average
occupancies. Rental income at the remaining properties remained relatively
stable for the six and three months ended March 31, 1996 as compared to the same
periods in 1995.
Property operating expenses increased by approximately $18,000 and $2,000 for
the six and three months ended March 31, 1996, respectively, as compared to the
same periods in 1995 due to increases in property payroll costs and insurance
expense partially offset by decreased repairs and maintenance expense at all
properties except Tulsa Peoria and Mt. Holly.
General and administrative expenses increased by approximately $113,000 and
$92,000 for the six and three months ended March 31, 1996, respectively, as
compared to the same periods in 1995. This variance
7
<PAGE>
was primarily due to increased professional fees and other costs relating to the
anticipated solicitation of the consent of the limited partners for the
potential sale of the properties.
Real estate taxes increased by approximately $31,000 and $5,000 for the six
and three months ended March 31, 1996, respectively, as compared to the same
periods in 1995. This was due to higher actual payments made during the first
quarter of 1996 for 1995 taxes which were higher than had been accrued for in
1995 as well as a proportionate increase in tax accruals for 1996.
Depreciation expense decreased by approximately $125,000 and $131,000,
for the six and three months ended March 31, 1996, respectively,
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 three months ended March 31, 1996.
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
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)
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 thereunto duly authorized.
Prudential-Bache/Watson & Taylor, Ltd.-3
By: Prudential-Bache Properties, Inc.
A Delaware corporation,
Managing General Partner
By: /s/ Eugene D. Burak Date: May 15, 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. 3
and is qualified in its entirety by reference
to such financial statements
</LEGEND>
<RESTATED>
<CIK> 0000759726
<NAME> P-B Watson & Taylor, Ltd. 3
<MULTIPLIER> 1
<FISCAL-YEAR-END> Sep-30-1996
<PERIOD-START> Oct-01-1995
<PERIOD-END> Mar-31-1996
<PERIOD-TYPE> 6-Mos
<CASH> 1,119,258
<SECURITIES> 0
<RECEIVABLES> 1,989
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,121,247
<PP&E> 16,461,686
<DEPRECIATION> (4,839,919)
<TOTAL-ASSETS> 12,743,014
<CURRENT-LIABILITIES> 515,614
<BONDS> 638,000
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,153,614
<SALES> 0
<TOTAL-REVENUES> 1,028,817
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 868,023
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,501
<INCOME-PRETAX> 137,293
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 137,293
<EPS-PRIMARY> 2.18
<EPS-DILUTED> 0
</TABLE>
