UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------- FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal quarter 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 1-10813 ----------------------- PLM EQUIPMENT GROWTH FUND III (Exact name of registrant as specified in its charter) California 68-0146197 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One Market, Steuart Street Tower Suite 900, San Francisco, CA 94105-1301 (Address of principal (Zip code) executive offices) Registrant's telephone number, including area code (415) 974-1399 ----------------------- 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 X No ______ PLM EQUIPMENT GROWTH FUND III (A Limited Partnership) BALANCE SHEETS (in thousands of dollars) ASSETS March 31, December 31, 1996 1995 ----------------------------------- Equipment held for operating leases $ 124,141 $ 130,132 Less accumulated depreciation (82,741) (84,207) ----------------------------------- 41,400 45,925 Equipment held for sale 2,598 475 ----------------------------------- Net equipment 43,998 46,400 Cash and cash equivalents 2,698 3,243 Restricted cash and marketable securities 5,737 5,660 Investments in unconsolidated special purpose entities 19,025 20,739 Accounts and note receivable, net of allowance for doubtful accounts of $1,286 in 1996 and $569 in 1995 1,667 2,242 Net investment in sales-type lease 4,357 4,518 Prepaid expenses 43 74 Deferred charges, net of accumulated amortization of $2,196 in 1996 and $2,159 in 1995 404 441 ----------------------------------- Total assets $ 77,929 $ 83,317 =================================== LIABILITIES Liabilities: Accounts payable and accrued expenses $ 1,050 $ 1,355 Due to affiliates 1,445 1,499 Notes payable 39,751 41,000 Prepaid deposits and reserves for repairs 9,052 9,126 ----------------------------------- Total liabilities 51,298 52,980 Partners' capital: Limited Partners ( 9,871,873 Depositary Units at March 31, 1996 and 9,899,573 Depositary Units at December 31, 1995) 26,631 30,337 General Partner -- -- ----------------------------------- Total partners' capital 26,631 30,337 ----------------------------------- Total liabilities and partners' capital $ 77,929 $ 83,317 =================================== See accompanying notes to these financial statements. PLM EQUIPMENT GROWTH FUND III (A Limited Partnership) STATEMENTS OF INCOME (in thousands of dollars except per unit amounts) For the three months ended March 31, 1996 1995 --------------------------- Revenues: Lease revenue $ 4,483 $ 6,128 Interest and other income 334 339 Net gain on disposition of equipment 834 2,055 --------------------------- Total revenues 5,651 8,522 Expenses: Depreciation and amortization 2,049 3,012 Management fees to affiliate 201 295 Repairs and maintenance 639 1,223 Interest expense 881 883 Insurance expense to affiliates -- 161 Other insurance expense 65 116 Bad debt expense 718 57 Marine equipment operating expenses 29 689 General and administrative expenses to affiliates 183 211 Other general and administrative expenses 235 216 --------------------------- Total expenses 5,000 6,863 Equity in net loss of unconsolidated special purpose entities (68) -- --------------------------- Net income $ 583 $ 1,659 =========================== Partners' share of net income : Limited Partners $ 374 $ 1,449 General Partner 209 210 --------------------------- Total $ 583 $ 1,659 =========================== Net income per Depositary Unit ( 9,871,873 Units at March 31, 1996 and 9,946,773 Units at March 31, 1995) $ 0.04 $ 0.15 =========================== Cash distributions $ 4,169 $ 4,196 =========================== Cash distributions per Depositary Unit $ 0.40 $ 0.40 =========================== See accompanying notes to these financial statements. PLM EQUIPMENT GROWTH FUND III (A Limited Partnership) STATEMENT OF CHANGES IN PARTNERS' CAPITAL For the period from December 31, 1994 to March 31, 1996 (in thousands of dollars) Limited General Partners Partner Total ------------------------------------------------ Partners' capital at December 31, 1994 $ 44,751 $ -- $ 44,751 Net income 1,869 837 2,706 Repurchase of Depositary Units (383) -- (383) Cash Distributions (15,900) (837) (16,737) ------------------------------------------------ Partners' capital at December 31, 1995 30,337 -- 30,337 Net income 374 209 583 Repurchase of Depositary Units (120) -- (120) Cash distributions (3,960) (209) (4,169) ------------------------------------------------ Partners' capital at March 31, 1996 $ 26,631 $ -- $ 26,631 ================================================ See accompanying notes to financial statements. PLM EQUIPMENT GROWTH FUND III (A Limited Partnership) STATEMENTS OF CASH FLOWS (thousands of dollars) For the three months ended March 31, 1996 1995 ----------------------------- Cash flows from operating activities: Net income $ 583 $ 1,659 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,049 3,012 Net gain on disposition of equipment (834) (2,055) Cash distribution from unconsolidated special purpose entities in excess of income 1,714 -- Changes in operating assets and liabilities: Accounts and note receivable, net 575 418 Prepaid expenses 31 117 Restricted cash and marketable securities (77) (76) Accounts payable and accrued expenses (305) 705 Due to affiliates (54) 201 Prepaid deposits and reserves for repairs (74) 6 ----------------------------- Cash provided by operating activities 3,608 3,987 ----------------------------- Investing activities: Payments for purchase of equipment -- (613) Payments for capitalizable repairs (249) (382) Payments of acquisition-related fees to affiliate -- (33) Payments received on sales-type lease 161 -- Proceeds from disposition of equipment 1,473 1,293 ----------------------------- Cash provided by investing activities 1,385 265 ----------------------------- Financing activities: Cash distributions paid to General Partner (209) (210) Cash distributions paid to Limited Partners (3,960) (3,986) Repurchase of depositary units (120) (170) Principal payments on notes payable (1,249) -- ----------------------------- Cash used in financing activities (5,538) (4,366) ----------------------------- Cash and cash equivalents: Net decrease in cash and cash equivalents (545) (114) Cash and cash equivalents at beginning of period 3,243 14,885 ----------------------------- Cash and cash equivalents at end of period $ 2,698 $ 14,771 ============================= Supplemental information: $ 815 $ 156 ============================= Interest paid See accompanying notes to financial statements. PLM EQUIPMENT GROWTH FUND III (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS March 31, 1996 1. Opinion of Management In the opinion of the management of PLM Financial Services, Inc. (FSI), the General Partner, the accompanying unaudited financial statements contain all adjustments necessary, consisting primarily of normal recurring accruals, to present fairly the financial position of PLM Equipment Growth Fund III (the Partnership) as of March 31, 1996, the statements of income and cash flows for the three months ended March 31, 1996 and 1995, and the statement of changes in Partners' capital for the period December 31, 1994 to March 31, 1996. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted from the accompanying financial statements. For further information, reference should be made to the financial statements and notes thereto included in the Partnership's Annual Report on Form 10-K for the year ended December 31, 1995, on file at the Securities and Exchange Commission. 2. Investments in Unconsolidated Special Purpose Entities During the second half of 1995, the Partnership began to increase the level of its participation in the ownership of large-ticket transportation assets to be owned and operated jointly with affiliated programs. This trend has continued in the first quarter of 1996. Prior to 1996, the Partnership accounted for operating activities associated with joint ownership of rental equipment as undivided interests, including its proportionate share of each asset with similar wholly-owned assets in its financial statements. Under generally accepted accounting principles, the effects of such activities, if material, should be reported using the equity method of accounting. Therefore, effective January 1, 1996, the Partnership adopted the equity method to account for its investment in such jointly-held assets. The principle differences between the previous accounting method and the equity method relates to the presentation of activities relating to these assets in the statement of operations. Whereas, under equity accounting the Partnership's proportionate share is presented as a single net amount, "equity in net income (loss) of unconsolidated special purpose entities", under the previous method, the Partnership's income statement reflected its proportionate share of each individual item of revenue and expense. Accordingly, the effect of adopting the equity method of accounting has no cumulative effect on previously reported partner's capital or on the Partnership's net income (loss) for the period of adoption. Because the effects on previously issued financial statements of applying the equity method of accounting to investments in jointly-owned assets are not considered to be material to such financial statements taken as a whole, previously issued financial statements have not been restated. However, certain items have been reclassified in the previously issued balance sheet to conform to the current period presentation. PLM EQUIPMENT GROWTH FUND III (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS March 31, 1996 2. Investments in Unconsolidated Special Purpose Entities (continued) The net investment in unconsolidated special purpose entities includes the following jointly-owned equipment (and related assets and liabilities) (in thousands): March 31, December 31, % Equipment 1996 1995 Ownership - ---------------------------------------------------------------------------------------------------------------- 56% Marine vessel $ 4,674 $ 4,821 45% Mobile offshore drilling unit 6,089 6,093 50% G.E. Aircraft engine 633 656 17% Three commercial aircraft, two aircraft engines, and portfolio of aircraft rotables 4,008 5,259 14% Seven commercial aircraft 3,621 3,910 ---------------------------------- Investments in unconsolidated special purpose entities $ 19,025 $ 20,739 ================================== At March 31, 1996 and December 31, 1995, a jointly-owned mobile offshore drilling unit was subject to a pending sale contract. 3. Cash Distributions Cash distributions are recorded when paid and totaled $4.2 million for the three months ended March 31, 1996 and 1995. Cash distributions to unitholders in excess of net income are considered to represent a return of capital. Cash distributions to unitholders of $3.6 million and $2.5 million during the three months ended March 31, 1996 and 1995, were deemed to be a return of capital. Cash distributions of $0.25 per Depositary Unit were declared on March 11, 1996, and are to be paid on May 15, 1996, to the Unitholders of record as of March 31, 1996. This cash distribution will amount to $2.5 million. PLM EQUIPMENT GROWTH FUND III (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS March 31, 1996 4. Equipment Owned equipment held for operating leases is stated at cost. Equipment held for sale is stated at the lower of the equipment's depreciated cost or estimated net realizable value and is subject to a pending contract for sale. The components of equipment are as follows (in thousands): March 31, December 31, 1996 1995 ------------------------------------- Equipment held for operating leases: Rail equipment $ 35,987 $ 35,761 Marine containers 14,668 15,015 Marine vessels 15,463 15,463 Aircraft and aircraft engines 50,457 56,269 Trailers 7,566 7,624 ------------------------------------- 124,141 130,132 Less accumulated depreciation (82,741) (84,207) ------------------------------------- 41,400 45,925 Equipment held for sale 2,598 475 ===================================== Net equipment $ 43,998 $ 46,400 ===================================== Revenues are earned by placing the equipment under operating leases which are generally billed monthly or quarterly. Certain of the Partnership's marine vessels and marine containers are leased to operators of utilization-type leasing pools which include equipment owned by unaffiliated parties. In such instances revenues received by the Partnership consist of a specified percentage of revenues generated by leasing the equipment to sublessees, after deducting certain direct operating expenses of the pooled equipment. Rents for railcars are based on mileage traveled or a fixed rate; rents for all other equipment are based on fixed rates. At March 31, 1996, equipment held for sale included two aircraft engines with a net book value of $2.6 million subject to a pending contract for sale for $2.4 million. At December 31, 1995, equipment held for sale included 110 coalcars with a net book value of $0.5 million, which were sold in March 1996, for $1.3 million As of March 31, 1996, all equipment in the Partnership portfolio was either on lease or operating in PLM-affiliated short-term trailer rental facilities, with the exception of 47 railcars, 34 marine containers, and two aircraft engines. The aggregate carrying value of equipment off lease was $3.2 million at March 31, 1996. At December 31, 1995, 53 marine containers, 18 tank cars and 2 aircraft engines were off-lease, with an aggregate carrying value of $3.1 million. During the three months ended March 31, 1996, the Partnership disposed of 113 marine containers, 111 railcars of which 110 cars were held for sale at December 31, 1995, and three trailers, with a combined net carrying value of $0.6 million for combined proceeds of $1.5 million. During the three months ended March 31, 1995, the Partnership sold 131 marine containers and 69 railcars with a combined net carrying value of $0.6 million for combined proceeds $1.3 million. Additionally, the Partnership entered into a sales-type lease related to one marine vessel with a carrying value, net of drydock and estimated selling expenses, of $3.6 million for a sales price equal to the present value of the future lease payments, of $5.0 million. PLM EQUIPMENT GROWTH FUND III (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS March 31, 1996 6. Repurchase of Depositary Units On December 28, 1992, the Partnership, which is traded on the American Stock Exchange under the symbol GFZ, engaged in a program to repurchase up to 250,000 Depository Units. In the three months ended March 31, 1996, the Partnership repurchased and canceled 27,700 Depositary Units at a cost of $0.12 million. As of March 31, 1996, the Partnership has repurchased a cumulative total of 128,053 Depositary Units at a total cost of $0.92 million. 7. Delisting of Partnership Units The General Partner delisted the Partnership's Depositary units from the American Stock Exchange (AMEX) under the symbol GFZ on April 8, 1996. The last day for trading on the AMEX was March 22, 1996. Under the Internal Revenue Code (the Code) the Partnership was classified as a Publicly Traded Partnership. The Code treats all Publicly Traded Partnerships as corporations if they are publicly traded after December 31, 1997. Treating the Partnership as a corporation would mean the Partnership itself would have become a taxable, rather than a "flow through" entity. As a taxable entity, the income of the Partnership would have become subject to federal taxation at both the partnership level and at the investor level to the extent that income would have been distributed to an investor. In addition, the General Partner believed that the trading price of the Depositary Units would have become distorted when the Partnership began the final liquidation of the underlying equipment portfolio. In order to avoid taxation of the Partnership as a corporation and to prevent unfairness to Unitholders, the General Partner delisted the Partnership's Depositary Units from the AMEX. While the Partnership's Depositary Units are no longer publicly traded on a national stock exchange, the General Partner continues to manage the equipment of the Partnership and prepare and distribute quarterly and annual reports and Forms 10-Q and 10-K in accordance with the Securities and Exchange Commission requirements. In addition, the General Partner continues to provide pertinent tax reporting forms and information to Unitholders. The General Partner anticipates an informal market for the Partnership's units may develop in the secondary marketplace similar to that which currently exists for non-publicly traded partnerships. 8. Debt The General Partner has entered into a joint $25 million credit facility (the Committed Bridge Facility) on behalf of the Partnership, PLM Equipment Growth Fund II, PLM Equipment Growth Fund IV, PLM Equipment Growth Fund V, PLM Equipment Growth Fund VI, and PLM Equipment Growth and Income Fund VII, and Professional Lease Management Income Fund I (Fund I), all affiliated investment programs, and TEC Acquisub, Inc. (TECAI), an indirect wholly-owned subsidiary of the General Partner, which may be used to provide interim financing of up to (i) 70% of the aggregate book value or 50% of the aggregate net fair market value of eligible equipment owned by the Partnership or Fund I plus (ii) 50% of unrestricted cash held by the borrower. The Committed Bridge Facility became available on December 20, 1993 and became available to the Company on May 8, 1995, and was amended and restated on September 27, 1995 to expire on September 30, 1996. The Committed Bridge Facility also provides for a $5 million Letter of Credit Facility for the eligible borrowers. Outstanding borrowings by Fund I, TECAI, or PLM Equipment Growth Funds II through VII reduce the amount available to each other under the Committed Bridge Facility. Individual borrowings may be outstanding for no more than 179 days, with all advances due no later than September 30, 1996. The Committed Bridge Facility prohibits the Partnership from PLM EQUIPMENT GROWTH FUND III (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS March 31, 1996 8. Debt (continued) incurring any additional indebtedness. Interest accrues at either the prime rate or adjusted LIBOR plus 2.5% at the borrower's option and is set at the time of an advance of funds. Borrowings by the Partnership are guaranteed by the General Partner. As of March 31, 1996, PLM Equipment Growth Fund V had $5,610,000 in outstanding borrowings under the Committed Bridge Facility, PLM Equipment Growth Fund VI had $11,220,000 and TECAI had $7,706,000 in outstanding borrowings. None of the other programs had any outstanding borrowings. 9. Subsequent Event On May 10, 1996, the Partnership sold two aircraft engines for $2.4 million which were classified as assets held for sale at March 31, 1996. The net book value of the two aircraft engines was $2.6 million. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (I) Results of Operations Comparison of the Partnership's Operating Results for the Three Months Ended March 31, 1996 and 1995 (A) Revenues Total revenues of $5.7 million for the three months ended March 31, 1996, decreased from $8.5 million for the same period in 1995. This decrease in 1996 revenues was attributable primarily to lower lease revenue as a result of equipment sales in 1995, lower gain on disposition of equipment, and off-lease equipment. (1) Lease revenue for the first quarter of 1996 of $4.5 million decreased from $6.1 million in 1995. The following table presents lease revenues earned by equipment type (in thousands): For the three months ended March 31, ------------------------------ 1996 1995 ------------------------------ Marine vessels $ 500 $ 1,673 Rail equipment 1,955 1,806 Aircraft 1,134 1,339 Marine containers 422 448 Trailers 472 497 Mobile offshore drilling unit -- 365 ------------------------------ $ 4,483 $ 6,128 ============================== Although, net income was not affected by the change in accounting for investments in unconsolidated special purpose entities, lease revenues attributable to unconsolidated special purpose entities totaled $1.5 million in the first quarter of 1996, which included $0.8 million, $0.4 million, $0.3 million for aircraft and aircraft engine, marine vessel, and mobile offshore drilling unit revenue, respectively, which represented revenue for jointly-owned assets (refer to the "Equity in net income of unconsolidated special purpose entities" section below). The decreases in 1996 lease revenues of equipment owned are explained below: (a) a decrease of $0.7 million in marine vessels revenue attributable to the sale of one marine vessel during the first quarter of 1995; (b) a decrease in aircraft revenue of $0.2 million related to the off-lease status of two aircraft engines; (c) an increase in railcar revenue of $0.2 million due to the acquisition of 30 tank cars during the first quarter of 1995; (2) Net gain on disposition of equipment was $0.8 million in the first quarter of 1996 from the disposition of 113 marine containers and 111 railcars and three trailers, compared to a gain of $2.1 million in the first quarter of 1995, from the disposition of 131 marine containers, 64 railcars, 5 locomotives, and one marine vessel. (B) Expenses Total expenses of $5 million for the first quarter of 1996, decreased from $6.9 million for the same period in 1995. Although net income was not affected as a result of the change in accounting for investments in unconsolidated special purpose entities, expenses attributable to unconsolidated special purpose entities totaled $1.6 million in the first quarter of 1996, which included $1.1 million, $0.2 million, $0.1 million, $0.1 million, and $0.1 million decreases in depreciation, marine equipment operating expenses, repairs and maintenance, management fees, and general and administative expenses, respectively, all relating to jointly-owned assets (refer to the "Equity in net income of unconsolidated special purpose entities" section below). The remaining decreases in 1996 expenses are explained below: (1) Direct operating expenses (defined as repairs and maintenance, insurance expense, and marine equipment operating expenses) decreased to $0.7 million in the first quarter of 1996, from $2.2 million in the same period in 1995. This resulted from: (a) a decrease of $0.5 million in marine equipment operating expenses from the first quarter 1995, due to the sale of one marine vessel during the first quarter of 1995; (b) a decrease of $0.6 million in repairs and maintenance costs from 1995 levels due to the sale of 130 railcars and five locomotives during the last three quarters of 1995, the sale of 111 railcars in the first quarter of 1996, and the sale of one marine vessel in the first quarter of 1995; (c) a decrease of $0.2 million in insurance expense to affiliates and other insurance expense due to the sale of one marine vessel in the first quarter of 1995; (2) Indirect operating expenses (defined as depreciation and amortization expense, management fees, interest expense, general and administrative expenses, and bad debt expense) decreased to $4.3 million in the first quarter of 1996, from $4.7 million in the first quarter 1995. The change related to owned equipment resulted primarily from: (a) an increase of $0.7 million in bad debt expenses from 1995 levels primarily reflecting the General Partner's evaluation of the collectibility of receivables due from one aircraft lessee that encountered financial difficulties; (b) a decrease in depreciation and amortization expense of $0.3 million from 1995 levels reflecting the Partnership's double-declining depreciation method, and the sale or disposition of $3.3 million in Partnership assets during the last three quarters of 1995 and the first quarter of 1996; (C) Equity in net loss of unconsolidated special purpose entities represents the net losses generated from jointly-owned assets. At March 31, 1996, the Partnership had a 56% interest in a marine vessel, a 45% interest in a mobile offshore drilling unit, a 50% interest in an aircraft engine, a 17% interest in two trusts that consist of three commercial aircraft, two aircraft engines and portfolio of aircraft rotables, and a 14% interest in a trust that consists of seven commercial aircraft which were accounted for under the equity method. The mobile offshore drilling unit experienced a reduced re-lease rate during the first quarter of 1996 as compared to the prior year comparable quarter, resulting in reduced net income of $0.1 million. A further reduction of $0.1 million in net income related to the 56%-owned marine vessel due to higher repairs and maintenance expenses. Additionally, the acquisition of the three trusts holding four commercial aircraft, two aircraft engines, and a package of aircraft rotables during the third quarter of 1995 resulted in increased net income of $0.1 million as compared to the prior year comparable quarter. (D) Net Income The Partnership's net income of $0.6 million in the first quarter of 1996, decreased from net income of $1.7 million in the first quarter of 1995. The Partnership's ability to acquire, operate, or liquidate assets, secure leases, and re-lease those assets whose leases expire during the duration of the Partnership is subject to many factors, therefore, the Partnership's performance for the three months ended March 31, 1996 is not necessarily indicative of future periods. In the first quarter 1996, the Partnership distributed $4.0 million to the Limited Partners, or $0.40 per Depositary Unit. (II)Financial Condition - Capital Resources, Liquidity, and Distributions The Partnership purchased its initial equipment portfolio with capital raised from its initial equity offering and permanent debt financing. No further capital contributions from original partners are permitted under the terms of the Partnership's Limited Partnership Agreement. In addition the Partnership, under its current loan agreement, does not have the capacity to incur additional debt. Therefore, the Partnership relies on operating cash flow to meet its operating obligations, to make cash distributions to limited partners and increase the Partnership's equity portfolio with any remaining available surplus cash. The Partnership has one loan outstanding with a face amount of $39.8 million with interest at 1.5% over LIBOR. The loan allows the pay down and borrowing of funds in conjunction with the sale and subsequent purchase of assets during the reinvestment phase of the Partnership. During the first year following conversion to a term loan, beginning September 30, 1996, quarterly principal payments equal to 75% of net proceeds from asset sales will be due. Beginning the second year commencing December 31, 1997, quarterly principal payments will be equal to 75% of net proceeds from asset sales from September 30, 1997, or payments equal to 9.0% of the facility balance at September 30, 1997. During the first quarter of 1996, the Partnership paid down $1.2 million of the outstanding loan balance. The General Partner has entered into a joint $25 million credit facility (the Committed Bridge Facility) on behalf of the Partnership, PLM Equipment Growth Fund II, PLM Equipment Growth Fund IV, PLM Equipment Growth Fund V, PLM Equipment Growth Fund VI, and Professional Lease Management Income Fund I (Fund I), all affiliated investment programs, and TEC Acquisub, Inc. (TECAI), an indirect wholly-owned subsidiary of the General Partner, which may be used to provide interim financing of up to (i) 70% of the aggregate book value or 50% of the aggregate net fair market value of eligible equipment owned by the Partnership or Fund I, plus (ii) 50% of unrestricted cash held by the borrower. The Committed Bridge Facility became available on December 20, 1993, and became available to the Company on May 8, 1995, and was amended and restated on September 27, 1995, to expire on September 30, 1996. The Committed Bridge Facility also provides for a $5 million Letter of Credit Facility for the eligible borrowers. Outstanding borrowings by Fund I, TECAI, or PLM Equipment Growth Funds II through VII reduce the amount available to each other under the Committed Bridge Facility. Individual borrowings may be outstanding for no more than 179 days, with all advances due no later than September 30, 1996. The Committed Bridge Facility prohibits the General Partner from incurring any additional indebtedness. Interest accrues at either the prime rate or adjusted LIBOR plus 2.5% at the borrower's option and is set at the time of an advance of funds. Borrowings by the Partnership are guaranteed by the General Partner. As of March 31, 1996, PLM Equipment Growth Fund V had $5,610,000 in outstanding borrowings under the Committed Bridge Facility, PLM Equipment Growth Fund VI had $11,220,000 and TECAI had $7,706,000 in outstanding borrowings. Neither the Partnership nor the other programs had any outstanding borrowings. The General Partner is in negotiation to renew the facility. The General Partner believes it will successfully negotiate an extension of the facility prior to expiration on terms at least as favorable as those in the current facility. (III) Delisting of Partnership Units The General Partner delisted the Partnership's Depositary units from the American Stock Exchange (AMEX) under the symbol GFZ on April 8, 1996. The last day for trading on the AMEX was March 22, 1996. Under the Internal Revenue Code (the Code) the Partnership was classified as a Publicly Traded Partnership. For the past three years the Partnership has engaged in a plan to purchase up to 250,000 Depositary Units. For the three months ended March 31, 1996, the Partnership repurchased 27,700 Depositary Units at a cost of $0.12 million. As of March 31, 1996, the Partnership has repurchased a cumulative total of 128,053 Depositary Units at a total cost of $0.92 million. (IV) Trends The Partnership's operation of a diversified equipment portfolio in a broad base of markets is intended to reduce its exposure to volatility in individual equipment sectors. Throughout 1995 and the first part of 1996, market conditions, supply and demand equilibrium, and other factors varied in several markets. In the container and refrigerated over-the-road trailer markets, oversupply conditions, industry consolidations, and other factors resulted in falling rates and lower returns. In the dry over-the-road trailer markets, strong demand and a backlog of new equipment deliveries produced high utilization and returns. The marine vessel, rail, and mobile offshore drilling unit markets could be generally categorized by increasing rates as the demand for equipment is increasing faster than new additions net of retirements. Finally, demand for narrowbody stage II aircraft, such as those owned by the Partnership, has increased as expected savings from newer narrowbody aircraft have not materialized and deliveries of the newer aircraft have slowed down. These trends are expected to continue for the near term. These different markets have had individual effects on the performance of Partnership equipment - in some cases resulting in declining performance, and in others, in improved performance. The ability of the Partnership to realize acceptable lease rates on its equipment in the different equipment markets is contingent on many factors, such as specific market conditions and economic activity, technological obsolescence, governmental or other regulations, and others. The unpredictability of some of these factors, or of their occurrence, makes it difficult for the General Partner to clearly define trends or influences that may impact the performance of the Partnership's equipment. The General Partner continuously monitors both the equipment markets and the performance of the Partnership's equipment in these markets. The General Partner may decide to reduce the Partnership's exposure to equipment markets in which it determines that it cannot operate equipment and achieve acceptable rates of return. Alternatively, the General Partner may make a determination to enter equipment markets in which it perceives opportunities to profit from supply-demand instabilities or other market imperfections. The Partnership intends to use excess cash flow, if any, after payment of expenses, loan principal, and cash distributions to acquire additional equipment during the first seven years of Partnership operations. The General Partner believes these acquisitions may cause the Partnership to generate additional earnings and cash flow for the Partnership. PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits $25,000,000 Warehousing Credit Agreement dated September 27, 1995 with First Union National Bank of North Carolina. $41,000,000 Credit Agreement dated as of December 13, 1994 with First Union National Bank of North Carolina. (b) Reports on Form 8-K None. 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. PLM EQUIPMENT GROWTH FUND III By: PLM Financial Services, Inc. General Partner Date: May 13, 1996 By: /s/ David Davis --------------- David J. Davis Vice President and Corporate Controller