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 June 30, 1997 [ ] 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 800, 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, except unit amounts) June 30, December 31, 1997 1996 ------------------------------------ Assets: Equipment held for operating lease, at cost $ 134,861 $ 136,670 Less accumulated depreciation (84,267 ) (78,607 ) ------------------------------------ Net equipment 50,594 58,063 Cash and cash equivalents 2,233 1,414 Restricted cash and marketable securities 6,119 5,966 Investments in unconsolidated special-purpose entities 9,645 11,138 Accounts and note receivable, net of allowance for doubtful accounts of $1,336 in 1997 and $1,381 in 1996 1,279 1,515 Prepaid expenses and other assets 23 64 Deferred charges, net of accumulated amortization of $453 in 1997 and $800 in 1996 396 491 ------------------------------------ Total assets $ 70,289 $ 78,651 ==================================== Liabilities and partners' capital: Liabilities: Accounts payable and accrued expenses $ 913 $ 1,505 Due to affiliates 856 1,297 Lessee deposits and reserves for repairs 7,404 7,552 Note payable 39,823 40,284 ------------------------------------ Total liabilities 48,996 50,638 ------------------------------------ Partners' capital: Limited partners (9,871,073 depositary units as of June 30, 1997 and December 31, 1996) 21,293 28,013 General Partner - - ------------------------------------ Total partners' capital 21,293 28,013 ------------------------------------ Total liabilities and partners' capital $ 70,289 $ 78,651 ==================================== See accompanying notes to financial statements. PLM EQUIPMENT GROWTH FUND III (A Limited Partnership) STATEMENTS OF OPERATIONS (in thousands of dollars, except weighted-average unit amounts) For the Three Months For the Six Months Ended June 30, Ended June 30, 1997 1996 1997 1996 ------------------------------------------------------------ Revenues: Lease revenue $ 5,233 $ 4,683 $ 10,224 9,369 Interest and other income 93 118 188 249 Net gain on disposition of equipment 35 19 124 852 ------------------------------------------------------------ Total revenues 5,361 4,820 10,536 10,470 ------------------------------------------------------------ Expenses: Depreciation and amortization 3,544 2,042 7,100 4,090 Marine equipment operating expense 14 56 20 86 Repairs and maintenance 870 2,101 2,285 2,740 Interest expense 807 757 1,604 1,637 Insurance expense 66 71 112 136 Management fees to affiliate 302 306 594 507 General and administrative expenses to affiliates 171 187 353 369 Other general and administrative expenses 236 281 381 518 (Recovery of) provision for bad debt (20 ) (89 ) (46 ) 629 ------------------------------------------------------------ Total expenses 5,990 5,712 12,403 10,712 ------------------------------------------------------------ Equity in net income (loss) of unconsolidated special-purpose entities 157 6 342 (62 ) ------------------------------------------------------------ Net loss $ (472 ) $ (886 ) $ (1,525 ) (304 ) ============================================================ Partners' share of net (loss) income: Limited partners $ (602 ) $ (1,016 ) $ (1,785 ) (643 ) General Partner 130 130 260 339 ------------------------------------------------------------ Total $ (472 ) $ (886 ) $ (1,525 ) (304 ) ============================================================ Net loss per weighted-average depositary unit (9,871,073 units and 9,871,873 units as of June 30, 1997 and 1996, respectively) $ (0.06 ) $ (0.10 ) $ (0.18 ) (0.07 ) ============================================================ Cash distributions $ 2,598 $ 2,600 $ 5,195 6,769 ============================================================ Cash distributions per weighted-average depositary unit $ 0.25 $ 0.25 $ 0.50 0.65 ============================================================ See accompanying notes to financial statements. PLM EQUIPMENT GROWTH FUND III (A Limited Partnership) STATEMENTS OF CHANGES IN PARTNERS' CAPITAL For the period from December 31, 1995 to June 30, 1997 (in thousands of dollars) Limited General Partners Partner Total ------------------------------------------------ Partners' capital as of December 31, 1995 $ 30,337 $ - $ 30,337 Net income 9,162 598 9,760 Repurchase of depositary units (120 ) - (120 ) Cash distributions (11,366 ) (598 ) (11,964 ) ------------------------------------------------- Partners' capital as of December 31, 1996 28,013 - 28,013 Net (loss) income (1,785 ) 260 (1,525 ) Cash distributions (4,935 ) (260 ) (5,195 ) ------------------------------------------------- Partners' capital as of June 30, 1997 $ 21,293 $ - $ 21,293 ================================================= See accompanying notes to financial statements. PLM EQUIPMENT GROWTH FUND III (A Limited Partnership) STATEMENTS OF CASH FLOWS (thousands of dollars) For the Six Months Ended June 30, 1997 1996 ----------------------------- Operating activities: Net loss $ (1,525 ) $ (304 ) Adjustments to reconcile net loss to net cash provided by operating activities: Net gain on disposition of equipment (124 ) (852 ) Depreciation and amortization 7,100 4,090 Equity in net (income) loss from unconsolidated special-purpose entities (342 ) 62 Sales-type lease income - (398 ) Changes in operating assets and liabilities: Restricted cash and marketable securities (153 ) (153 ) Accounts and note receivable, net 236 255 Prepaid expenses and other assets 41 (180 ) Accounts payable and accrued expenses (592 ) 1,144 Due to affiliates (441 ) 329 Lessee deposits and reserves for repairs (148 ) 80 ---------------------------- Net cash provided by operating activities 4,052 4,073 ---------------------------- Investing activities: Payments for purchases of equipment - (5,500 ) Payments for capitalized improvements (137 ) (587 ) Payments of acquisition-related fees to affiliate - (303 ) Payments received from sales-type leases - 724 Distributions from unconsolidated special-purpose entities 1,835 1,734 Proceeds from disposition of equipment 725 4,350 ---------------------------- Net cash provided by investing activities 2,423 418 ---------------------------- Financing activities: Proceeds from note payable - 4,600 Principal payments on note payable (461 ) (4,686 ) Cash distributions paid to limited partners (4,935 ) (6,430 ) Cash distributions paid to General Partner (260 ) (339 ) Repurchase of depositary units - (120 ) ---------------------------- Net cash used in financing activities (5,656 ) (6,975 ) ---------------------------- Net increase (decrease) in cash and cash equivalents 819 (2,484 ) Cash and cash equivalents at beginning of period 1,414 3,243 ---------------------------- Cash and cash equivalents at end of period $ 2,233 $ 759 ============================ Supplemental information: Interest paid $ 1,772 $ 1,526 ============================ See accompanying notes to financial statements. PLM EQUIPMENT GROWTH FUND III (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS June 30, 1997 1. Opinion of Management In the opinion of the management of PLM Financial Services, Inc. (FSI or 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 June 30, 1997 and December 31, 1996, the statements of operations for the three months and six months ended June 30, 1997 and 1996, the statements of changes in partners' capital for the period from December 31, 1995 to June 30, 1997, and the statements of cash flows for the six months ended June 30, 1997 and 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, 1996, on file at the Securities and Exchange Commission. 2. Reclassifications Certain amounts in the 1996 financial statements have been reclassified to conform to the 1997 presentation. 3. Cash Distributions Cash distributions are recorded when paid and totaled $5.2 and $6.8 million for the six months ended June 30, 1997 and 1996, respectively. Cash distributions to unitholders in excess of net income are considered to represent a return of capital. Cash distributions to unitholders of $4.9 million and $6.4 million during the six months ended June 30, 1997 and 1996 were deemed to be a return of capital. 4. Investments in Unconsolidated Special-Purpose Entities The net investment in unconsolidated special-purpose entities (USPEs) included the following jointly-owned equipment (and related assets and liabilities) (in thousands): % June 30, December 31, Ownership Equipment 1997 1996 - -------------------------------------------------------------------------------------------------------- 17% Two trusts that own three commercial aircraft, two aircraft engines, and a portfolio of aircraft rotables $ 3,622 $ 4,564 56% Marine vessel 3,589 3,999 17% Trust that owns six commercial aircraft 2,434 2,575 --------------------------------- Investments in unconsolidated special-purpose entities $ 9,645 $ 11,138 ================================= 5. Transactions with General Partner and Affiliates Partnership management fees payable to an affiliate of the General Partner were $0.9 million and $1.3 million as of June 30, 1997 and December 31, 1996, respectively. The Partnership's proportional share of USPE-affiliated management fees of $46,000 and $20,000 were payable as of June 30, 1997 and December 31, 1996, respectively. PLM EQUIPMENT GROWTH FUND III (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS June 30, 1997 5. Transactions with General Partner and Affiliates (continued) The Partnership's proportional share of the affiliated expenses incurred by the USPEs during 1997 and 1996, are listed in the following table (in thousands): For the Three Months For the Six Months Ended June 30, Ended June 30, 1997 1996 1997 1996 -------------------------------------------------------------- Management fees $ 46 $ 70 $ 88 $ 137 Insurance expense 25 29 52 55 Data processing and administrative expenses 12 60 24 63 Transportation Equipment Indemnity Company, Ltd. (TEI) provides marine insurance coverage for Partnership equipment and other insurance brokerage services. TEI is an affiliate of the General Partner. 6. Equipment The components of owned equipment are as follows (in thousands): June 30, December 31, 1997 1996 ------------------------------------- Equipment held for operating leases: Aircraft and aircraft engines $ 70,615 $ 70,615 Rail equipment 34,815 35,733 Marine containers 12,367 13,146 Mobile offshore drilling unit 9,666 9,666 Trailers 7,398 7,510 ------------------------------------ 134,861 136,670 Less accumulated depreciation (84,267 ) (78,607 ) ------------------------------------ ==================================== Net equipment $ 50,594 $ 58,063 ==================================== As of June 30, 1997, all equipment in the Partnership portfolio was either on lease or operating in PLM-affiliated short-term trailer rental facilities, with the exception of 22 railcars and 30 marine containers with an aggregate carrying value of $0.2 million. As of December 31, 1996, all equipment in the Partnership portfolio was either on lease or operating in PLM-affiliated short-term rental facilities, with the exception of 1 aircraft, 32 marine containers and 67 railcars with an aggregate carrying value of $4.3 million. During the six months ended June 30, 1997, the Partnership sold or disposed of marine containers, trailers, and railcars with an aggregate net book value of $0.6 million for aggregate proceeds of $0.7 million. During the six months ended June 30, 1996, the Partnership sold or disposed of aircraft engines, marine containers, trailers, and railcars with an aggregate net book value of $3.5 million for aggregate proceeds of $4.4 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 June 30, 1997 and 1996 (A) Owned Equipment Operations Lease revenues less direct expenses (repair and maintenance, marine equipment operating, and asset-specific insurance expenses) on owned equipment increased for the quarter ended June 30, 1997, compared to the same period of 1996. The following table presents results by owned equipment type (in thousands): For the Three Months Ended June 30, 1997 1996 ------------------------------------ Aircraft and aircraft engines $ 1,852 $ (40 ) Rail equipment 1,277 1,120 Trailers 526 425 Mobile offshore drilling unit 396 - Marine containers 269 402 Marine vessels - 560 Aircraft and aircraft engines: Aircraft lease revenues and direct expenses were $2.0 million and $0.1 million, respectively, for the quarter ended June 30, 1997, compared to $1.1 million and $1.2 million, respectively, during the same period of 1996. The increase in contribution was due to higher revenues and lower repair and maintenance expenses in the second quarter of 1997, compared to the same period of 1996. The increase in revenues was due to one off-lease aircraft that went back on lease during the first quarter of 1997. The repair and maintenance expenses of $1.2 million in the second quarter of 1996 were for repairs to this aircraft to prepare it for re-lease. Rail equipment: Railcar lease revenues and direct expenses were $1.9 million and $0.6 million, respectively, for the quarter ended June 30, 1997, compared to $1.9 million and $0.8 million, respectively, during the same period of 1996. The increase in railcar contribution resulted from running repairs required on certain railcars in the fleet during the second quarter of 1996 that were not needed during the second quarter of 1997. Trailers: Trailer lease revenues and direct expenses were $0.6 million and $0.1 million, respectively, for the quarter ended June 30, 1997, compared to $0.5 million and $0.1 million, respectively, during the same period of 1996. All trailers had made the transition to the PLM-affiliated short-term rental yards as of June 30, 1997. Trailers earned higher lease rates while in the affiliated short-term rental yards than they earned during the same period of 1996 while they were on term lease. This increase was partially offset by lower revenues caused by reduced trailer utilization. Mobile offshore drilling unit: Mobile offshore drilling unit lease revenues and direct expenses were $0.4 million and $14,000, respectively, for the quarter ended June 30, 1997. The Partnership acquired and placed into lease service one mobile offshore drilling unit in the third quarter of 1996. Marine containers: Marine container lease revenues and direct expenses were $0.3 million and $2,000, respectively, for the quarter ended June 30, 1997, compared to $0.4 million and $3,000, respectively, during the same period of 1996. The number of marine containers owned by the Partnership has been declining due to sales and dispositions. The result of this declining fleet and a decrease in utilization has been a decrease in marine container contribution. Marine vessels: Marine vessels lease revenues and direct expenses were $0.7 million and $0.1 million, respectively, for the second quarter of 1996. The decrease of contribution from marine vessels in the second quarter of 1997 was due to the sale of all the Partnership's marine vessels during 1996. (B) Indirect Operating Expenses Related to Owned Equipment Operations Total indirect expenses of $5.1 million for the quarter ended June 30, 1997 increased from $3.5 million for the same period of 1996. The variance is explained as follows: (1) An increase of $1.5 million in depreciation and amortization expense from 1996 levels reflects the Partnership's depreciation on equipment purchased in 1996, offset by the sale or disposition of certain Partnership assets during 1997 and 1996 and by the Partnership's use of the double-declining balance method of depreciation. (2) An increase of $0.1 million in bad debt expense primarily reflects the Partnership's evaluation of collectibility of certain receivable balances. (C) Net Gain on Disposition of Owned Equipment The net gain on the disposition of owned equipment for the second quarter of 1997 was $35,000, resulting from the disposition of marine containers, trailers, and railcars with an aggregate net book value of $0.3 million for aggregate proceeds of $0.4 million. The net gain of $19,000 in the second quarter of 1996 resulted from the disposition of aircraft engines, marine containers, railcars, and trailers with an aggregate net book value of $0.3 million for aggregate proceeds of $0.3 million. (D) Equity in Net Income (Loss) of Unconsolidated Special-Purpose Entities Net income (loss) generated from the operation of jointly-owned assets accounted for under the equity method is shown in the following table by equipment type (in thousands): For the Three Months Ended June 30, 1997 1996 ------------------------------------- Aircraft, aircraft engines and rotables $ 215 $ 91 Marine vessels (58 ) (84 ) Mobile offshore drilling unit - - Aircraft, aircraft engines, and rotables: The Partnership's share of aircraft revenues and expenses was $0.7 million and $0.5 million, respectively, for the quarter ended June 30, 1997, compared to $0.8 million and $0.7 million, respectively, during the same period of 1996. As of June 30, 1997, the Partnership had a partial beneficial interest in three trusts that hold nine commercial aircraft, two aircraft engines, and a portfolio of aircraft rotables. The increase in contribution was due to a lower depreciation expense, which was partially offset by a decrease in revenues due to the liquidation of the Partnership's 50% investment in an aircraft engine resulting the General Partner's sale of the asset in the third quarter of 1996. Marine vessels: The Partnership's share of revenues and expenses of marine vessels was $0.3 million and $0.4 million, respectively, for the quarter ended June 30, 1997, compared to $0.4 million and $0.5 million, respectively, for the same period of 1996. The decrease in loss was due to a lower depreciation expense for the quarter ended June 30, 1997, compared to the same period of 1996. Mobile offshore drilling unit: The Partnership's share of revenues and expenses of the mobile offshore drilling unit was $0.3 million and $0.3 million, respectively, for the second quarter of 1996. The Partnership liquidated its 45% investment in an entity that owned a mobile offshore drilling unit during 1996 as a result of the General Partner's sale of the asset. (E) Net Loss The Partnership's net loss of $0.5 million in the second quarter of 1997 decreased from a net loss of $0.9 million in the second quarter of 1996. The Partnership's ability to acquire, operate, or liquidate assets, secure leases, and re-lease those assets whose leases expire is subject to many factors. Therefore, the Partnership's performance for the three months ended June 30, 1997 is not necessarily indicative of future periods. In the second quarter of 1997, the Partnership distributed $2.5 million to the limited partners, or $0.25 per weighted-average depositary unit. Comparison of the Partnership's Operating Results for the Six Months Ended June 30, 1997 and 1996 (A) Owned Equipment Operations Lease revenues less direct expenses (repair and maintenance, marine equipment operating, and asset-specific insurance expenses) on owned equipment increased for the six months ended 1997 when compared to the same period of 1996. The following table presents results by owned equipment type (in thousands): For the Six Months Ended June 30, 1997 1996 ------------------------------------- Rail equipment $ 2,810 $ 2,585 Aircraft and aircraft engines 2,756 1,034 Trailers 927 836 Mobile offshore drilling unit 794 - Marine containers 571 820 Marine vessels (5 ) 1,158 Rail equipment: Railcar lease revenues and direct expenses were $3.8 million and $1.0 million, respectively, for the six months ended 1997, compared to $3.9 million and $1.3 million, respectively, during the same quarter of 1996. The increase in railcar contribution resulted from running repairs required on certain railcars in the fleet during the first six months of 1996 that were not needed during the same period of 1997. Aircraft and aircraft engines: Aircraft lease revenues and direct expenses were $4.0 million and $1.2 million, respectively, for the six months ended June 30, 1997, compared to $2.3 million and $1.3 million, respectively, during the same quarter of 1996. The increase of contribution was due to higher lease revenues and a lower repair and maintenance expense for the six months ended June 30, 1997, compared to the same period of 1996. The increase in revenues was due to one off-lease aircraft that went back on lease during the first quarter of 1997. Trailers: Trailer lease revenues and direct expenses were $1.0 million and $0.1 million, respectively, for the six months ended June 30, 1997, compared to $1.0 million and $0.2 million, respectively, during the same quarter of 1996. The increase in trailer contribution resulted from running repairs required on certain trailers in the fleet during the first six months of 1996 that were not needed during the same period of 1997. Mobile offshore drilling unit: Mobile offshore drilling unit lease revenues and direct expenses were $0.8 million and $20,000, respectively, for the six months ended June 30, 1997. The Partnership acquired and placed into lease service one mobile offshore drilling unit in the third quarter of 1996. Marine containers: Marine container lease revenues and direct expenses were $0.6 million and $5,000, respectively, for the six months ended June 30, 1997, compared to $0.8 million and $6,000, respectively, during the same period of 1996. The number of marine containers owned by the Partnership has been declining due to sales and dispositions. The result of this declining fleet and a decrease in utilization has been a decrease in marine container net contribution. Marine vessels: Marine vessel lease revenues and direct expenses were zero and $5,000, respectively, for the six months ended June 30, 1997, compared to $1.4 million and $0.2 million, respectively, during the same period of 1996. The decrease of contribution from marine vessels in 1997 was due to the sale of all the Partnership's marine vessels during 1996. (B) Indirect Operating Expenses Related to Owned Equipment Operations Total indirect expenses of $10.0 million for the six months ended June 30, 1997 increased from $7.8 million for the same period of 1996. The variance is explained as follows: (1) An increase in depreciation expense of $3.0 million from 1996 levels reflects the Partnership's depreciation on equipment purchased in 1996, offset by the sale or disposition of certain Partnership assets during 1997 and 1996 and by the Partnership's use of the double-declining balance method of depreciation. (2) A decrease of $0.7 million in bad debt expense from 1996 levels primarily reflects the Partnership's evaluation of the collectibility of certain receivable balances. (3) A decrease of $0.1 million in general and administrative expense was due to a decrease in Canadian receipts tax because of a decrease in Canadian revenues earned by railcars. (C) Net Gain on Disposition of Owned Equipment The net gain on the disposition of equipment was $0.1 million for the six months ended June 30, 1997, resulting from the disposition of marine containers, trailers, and railcars, compared to the net gain of $0.9 million in the same period of 1996, resulting from the disposition of aircraft engines, marine containers, trailers, and railcars. (D) Equity in Net Income (Loss) of Unconsolidated Special-Purpose Entities Net income (loss) generated from the operation of jointly-owned assets accounted for under the equity method is shown in the following table by equipment type (in thousands): For the Six Months Ended June 30, 1997 1996 ------------------------------------ Aircraft and aircraft engines and rotables $ 431 $ 174 Marine vessels (89 ) (231 ) Mobile offshore drilling unit - (5 ) Aircraft, aircraft engines, and rotables: The Partnership's share of aircraft revenues and expenses was $1.4 million and $1.0 million, respectively, for the quarter ended June 30, 1997, compared to $1.6 million and $1.4 million, respectively, during the same period of 1996. As of June 30, 1997, the Partnership had a partial beneficial interest in three trusts that hold nine commercial aircraft, two aircraft engines, and a portfolio of aircraft rotables. The increase in contribution was due to a lower depreciation expense, which was partially offset by a decrease in revenues due to the liquidation of the Partnership's 50% investment in an aircraft engine, resulting from the General Partner's sale of the asset in the third quarter of 1996. Marine vessels: The Partnership's share of revenues and expenses of marine vessels was $0.7 million and $0.8 million, respectively, for the quarter ended June 30, 1997, compared to $0.8 million and $1.0 million, respectively, for the same period of 1996. The decrease in loss was due to a lower depreciation expense for the six months ended June 30, 1997, compared to the same period of 1996. Mobile offshore drilling unit: The Partnership's share of revenues and expenses of the mobile offshore drilling unit was $0.6 million and $0.6 million, respectively, for the second quarter of 1996. The Partnership liquidated its 45% investment in a mobile offshore drilling unit during 1996 as a result of the General Partner's sale of the asset. (E) Net Loss The Partnership had a net loss of $1.5 million for the six months ended June 30, 1997, compared to a net loss of $0.3 million in the same period of 1996. The Partnership's ability to acquire, operate, or liquidate assets, secure leases, and re-lease those assets whose leases expire is subject to many factors. Therefore, the Partnership's performance in the six months ended June 30, 1997 is not necessarily indicative of future periods. The Partnership distributed $4.9 million to the limited partners, or $0.50 per weighted-average depositary unit in the six months ended June 30, 1997. (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 and to make cash distributions to the limited partners. For the six months ended June 30, 1997, the Partnership generated sufficient operating cash (net cash provided by operating activities, plus distributions from unconsolidated special-purpose entities) to meet its operating obligations and maintain the current level of distributions (total for six months ended June 30, 1997 of approximately $5.2 million) to the partners. During the six months ended June 30, 1997, the General Partner sold equipment on behalf of the Partnership and realized proceeds of $0.7 million. During the first six months of 1997, the Partnership paid down $0.5 million of the outstanding note balance as a result of asset sales. (III) OUTLOOK FOR THE FUTURE Since the Partnership is in its holding or passive liquidation phase, the General Partner will be seeking to selectively re-lease or sell assets as the existing leases expire. Sale decisions will cause the operating performance of the Partnership to decline over the remainder of its life. The General Partner anticipates that the liquidation of Partnership assets will be completed by the scheduled termination of the Partnership at the end of the year 2000. The Partnership intends to use cash flow from operations to satisfy its operating requirements, pay loan principal on debt, and pay cash distributions to the investors. (IV) FORWARD-LOOKING INFORMATION Except for historical information contained herein, the discussion in this Form 10-Q contains forward-looking statements that involve risks and uncertainties, such as statements of the Partnership's plans, objectives, expectations, and intentions. The cautionary statements made in this Form 10-Q should be read as being applicable to all related forward-looking statements wherever they appear in this Form 10-Q. The Partnership's actual results could differ materially from those discussed here. PART II -- OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Second amendment to the second amended and restated limited partnership agreement (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: August 8, 1997 By: /s/ Richard Brock ----------------- Richard Brock Vice President and Corporate Controller