<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 December 31, 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
- --------------------------------------------------------------------------------
(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
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 214-1016
N/A
- --------------------------------------------------------------------------------
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>
December 31, September 30,
1995 1995
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------
ASSETS
Land $ 8,451,772 $ 8,451,772
Buildings and improvements 12,375,974 12,368,563
Furniture, fixtures and equipment 348,796 349,107
Less: Accumulated depreciation (4,839,919) (4,703,648)
Allowance for loss on impairment of assets (4,745,000) (4,745,000)
------------ -------------
Property held for sale 11,591,623 11,720,794
Cash and cash equivalents 1,204,097 1,008,091
Other assets 3,611 13,148
------------ -------------
Total assets $12,799,331 $12,742,033
------------ -------------
------------ -------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Note payable $ 638,000 $ 638,000
Accounts payable and accrued expenses 228,026 157,860
Accrued real estate taxes 184,841 142,130
Deposits due to tenants 95,880 95,365
Due to affiliates 79,653 78,018
Unearned rental income 33,772 32,944
------------ -------------
Total liabilities 1,260,172 1,144,317
------------ -------------
Contingencies
Partners' capital
Limited partners (53,855 limited and equivalent units issued and
outstanding) 11,330,668 11,394,078
General partners 208,491 203,638
------------ -------------
Total partners' capital 11,539,159 11,597,716
------------ -------------
Total liabilities and partners' capital $12,799,331 $12,742,033
------------ -------------
------------ -------------
</TABLE>
The accompanying notes are an integral part of these statements
2
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<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
(a limited partnership)
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
---------------------
1995 1994
<S> <C> <C>
- --------------------------------------------------------------------------------------------------
REVENUES
Rental income $495,359 $477,340
Interest 6,512 4,005
Other 4,034 2,941
-------- --------
505,905 484,286
-------- --------
EXPENSES
Property operating 191,836 175,255
Depreciation and amortization 136,271 130,402
General and administrative 78,928 59,007
Real estate taxes 72,881 47,550
Interest 11,740 13,121
-------- --------
491,656 425,335
-------- --------
Net income $ 14,249 $ 58,951
-------- --------
-------- --------
ALLOCATION OF NET INCOME
Limited partners $ 3,571 $ 45,107
-------- --------
-------- --------
General partners $ 10,678 $ 13,844
-------- --------
-------- --------
Net income per limited partnership unit $ .07 $ .84
-------- --------
-------- --------
</TABLE>
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STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(Unaudited)
<TABLE>
<CAPTION>
LIMITED GENERAL
PARTNERS PARTNERS TOTAL
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
Partners' capital--September 30, 1995 $11,394,078 $203,638 $11,597,716
Net income 3,571 10,678 14,249
Distributions (66,981) (5,825) (72,806)
----------- -------- -----------
Partners' capital--December 31, 1995 $11,330,668 $208,491 $11,539,159
----------- -------- -----------
----------- -------- -----------
</TABLE>
The accompanying notes are an integral part of these statements
3
<PAGE>
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
(a limited partnership)
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
------------------------
1995 1994
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Rental income and deposits received $ 506,239 $ 488,772
Interest received 6,512 4,005
Other income received 4,034 2,941
Property operating expenses paid (80,512) (287,826)
Real estate taxes paid (30,170) (20,273)
General and administrative expenses paid (114,083) (87,138)
Interest paid (16,108) (10,589)
---------- ---------
Net cash provided by operating activities 275,912 89,892
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Property improvements (7,100) (7,690)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions paid (72,806) (145,611)
---------- ---------
Net increase (decrease) in cash and cash equivalents 196,006 (63,409)
Cash and cash equivalents at beginning of period 1,008,091 708,909
---------- ---------
Cash and cash equivalents at end of period $1,204,097 $ 645,500
---------- ---------
---------- ---------
- ---------------------------------------------------------------------------------------------------
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Net income $ 14,249 $ 58,951
---------- ---------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 136,271 130,402
Changes in:
Other assets 9,537 10,939
Accounts payable and accrued expenses 70,166 (141,426)
Accrued real estate taxes 42,711 27,277
Due to affiliates 1,635 3,256
Deposits due to tenants 515 545
Unearned rental income 828 (52)
---------- ---------
Total adjustments 261,663 30,941
---------- ---------
Net cash provided by operating activities $ 275,912 $ 89,892
---------- ---------
---------- ---------
</TABLE>
The accompanying notes are an integral part of these statements
4
<PAGE>
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 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 December
31, 1995 and the results of its operations and its cash flows for the three
months ended December 31, 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, 1995.
B. Property Held for Sale
Effective October 1, 1995, the Partnership adopted Statement of Financial
Accounting Standards (``SFAS'') No. 121, ``Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of.'' Under SFAS No.
121, impairment of properties to be held and used is determined to exist when
estimated amounts recoverable through future operations on an undiscounted basis
are below the properties' carrying value. If a property is determined to be
impaired, it should be recorded at the lower of its carrying value or its fair
value. For properties that are held for sale, SFAS No. 121 states that they
should be reported at the lower of carrying amount or fair value less costs to
sell.
On December 15, 1995, the Management Committee of the Partnership determined
to seek bids for all of the properties held by the Partnership. Accordingly,
effective December 15, 1995, the Partnership has reclassified its properties
from held for use to held for sale and has ceased depreciating the properties.
The adoption of SFAS No. 121 had no material effect on the results of
operations or financial position of the Partnership during the quarter ended
December 31, 1995.
C. Related Parties
The General Partners and their 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. They 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 three months ended December 31, 1995 and 1994 were
approximately $29,000 and $20,000, respectively, and for affiliates of Messrs.
George S. Watson and A. Starke Taylor, III, the individual General Partners,
were approximately $24,000 and $1,250 for the three months ended December 31,
1995 and 1994, respectively.
PBP and Messrs. Watson and Taylor 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, limited partner distributions per unit and net income per
unit are calculated net of 270 equivalent limited partnership Units.
Prudential Securities Incorporated, an affiliate of PBP, owns 253 limited
partnership units at December 31, 1995.
D. Contingencies
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
5
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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 was not named a defendant in the consolidated complaint, but the
name of the Partnership was listed as being among the limited partnerships at
issue in the case. On August 9, 1995, PBP, PSI and other Prudential defendants
entered into a Stipulation and Agreement of Partial Compromise and Settlement
with legal counsel representing plaintiffs in the consolidated actions. The
court preliminarily approved the settlement agreement by order dated August 29,
1995 and, following a hearing held November 17, 1995, found that the agreement
was fair, reasonable, adequate and in the best interests of the plaintiff class.
The court gave final approval to the settlement, certified a class of purchasers
of specific limited partnerships, including the Partnership, released all
settled claims by members of the class against the PSI settling defendants and
permanently barred and enjoined class members from instituting, commencing or
prosecuting any settled claim against the released parties. The full amount due
under the settlement agreement has been paid by PSI.
E. Subsequent Event
In February 1996, distributions of approximately $67,000 and $6,000 were paid
to the limited partners and the General Partners, respectively, for the quarter
ended December 31, 1995.
6
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<PAGE>
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 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. If acceptable bids are received by the Partnership, the Partnership
will enter into agreements to sell the properties, subject to the approval of
the limited partners owning a majority of the Units, as required by the
Partnership Agreement. If such sales are approved and consummated, the
Partnership will liquidate and distribute its assets to its partners. There can,
of course, be no assurance that acceptable bids will be received or that any
transactions will be consummated.
During the three months ended December 31, 1995, the Partnership's cash and
cash equivalents increased by approximately $196,000 to $1,204,000 due largely
to cash flow from operations of the properties in excess of distributions and
capital expenditures. Distributions of approximately $67,000 and $6,000 were
paid to the limited partners and General Partners, respectively, during the
three months ended December 31, 1995. These distributions were funded from
property operations.
The Partnership's ability to make future distributions to the partners 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 capital improvements and the
amount set aside for anticipated capital improvements. Capital improvements are
currently budgeted at approximately $256,000 for calendar year 1996.
Results of Operations
Average occupancies for the three months ended December 31, 1995 and 1994
were as follows:
<TABLE>
<CAPTION>
Three Months Ended
December 31,
--------------------
1995 1994
<S> <C> <C>
- ----------------------------------------------------------------
Barrow Road 92.3% 90.9%
La Prada 93.3 89.0
Tulsa Peoria 90.8 82.6
Westheimer 74.9 77.5
Eastgate 95.3 97.6
Quail Valley 99.0 100.0
Mt. Holly 91.5 92.8
</TABLE>
(Occupancies are calculated by dividing occupied units by available units.)
Net income decreased by approximately $45,000 for the three months ended
December 31, 1995, as compared to the corresponding period in 1994 for the
reasons discussed below.
Rental income increased by approximately $18,000 for the three months ended
December 31, 1995, as compared to the same period in fiscal 1994 primarily due
to increased revenue at the Barrow Road and La Prada properties as a result of
increased rental rates and average occupancies. Rental income at the remaining
properties remained stable for the three months ended December 31, 1995 as
compared to the same period in fiscal 1994.
Property operating expenses increased by approximately $17,000 for the three
months ended December 31, 1995, as compared to the same period in 1994 largely
due to increases in property payroll costs and insurance expense.
7
<PAGE>
General and administrative expenses increased by approximately $20,000 for
the three months ended December 31, 1995 as compared to the same period in 1994
due to higher costs of administering the Partnership and increased professional
fees.
Real estate taxes increased by approximately $25,000 for the three months
ended December 31, 1995 as compared to the same period in 1994 due to tax
refunds received in 1994 and higher actual bills received in December 1995 than
had been estimated in the prior three quarters. Real estate taxes are accrued
based on estimates during the year and adjusted to reflect actual tax bills
during the quarter ended December 31.
8
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<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings--This information is incorporated by reference to Note
D 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)
401 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--
Registrant's Current Report on Form 8-K dated December
6, 1995, as filed with the Securities and Exchange
Commission on December 6, 1995, relating to Item 5
regarding the communication of certain information to
the limited partners.
Registrant's Current Report on Form 8-K dated December
15, 1995, as filed with the Securities and Exchange
Commission on December 26, 1995, relating to Item 5
regarding the intention of the Partnership to solicit
bids for the partnership's properties.
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/ Eugene D. Burak Date: February 14, 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 Prudential-Bache/Watson &
Taylor, Ltd. 3 and is qualified in its
entirety by reference to such financial
statements
</LEGEND>
<RESTATED>
<CIK> 0000759726
<NAME> Prudential-Bache/Watson & Taylor, Ltd. 3
<MULTIPLIER> 1
<FISCAL-YEAR-END> Sep-30-1996
<PERIOD-START> Oct-01-1995
<PERIOD-END> Dec-31-1995
<PERIOD-TYPE> 3-MOS
<CASH> 1,204,097
<SECURITIES> 0
<RECEIVABLES> 3,611
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 11,591,623
<DEPRECIATION> 4,839,919
<TOTAL-ASSETS> 12,799,331
<CURRENT-LIABILITIES> 622,172
<BONDS> 638,000
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 12,799,331
<SALES> 0
<TOTAL-REVENUES> 505,905
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 491,656
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,740
<INCOME-PRETAX> 14,249
<INCOME-TAX> 14,249
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,249
<EPS-PRIMARY> .07
<EPS-DILUTED> 0
</TABLE>
