most conservatively forecasted investment requirements. Cognizant of those problems, no party has proposed or suggested continuation of the entire Milwaukee system as a single operating entity.

FINANCIAL AND STATISTICAL DATA

As of October 31, 1979, the Milwaukee had cash and temporary cash investments totaling $5.8 million and a working capital deficit of $12.3 million. Total assets stood at $835.6 million and total liabilities (including capitalized leases and accumulated deferred income taxes) at $717.2 million (both figures including intercompany receivables and payables, and the original investment plus retained earnings of principal subsidiaries). Book shareholders' equity was $118.4 million. A detailed balance sheet as of October 31, 1979, is set forth in appendix A.

During 1979, the Milwaukee lost $117.8 million, apart from subsidiary earnings. The railroad's loss including earnings of subsidiaries was $105.2 million. That performance followed a loss of $81.9 million in 1978, and accumulated losses of $105 million for the years 1975-1977. An income statement for 1979 is set forth in appendix B.

Properties and investments.-The trustee, in consultation with Ford, Bacon & Davis Construction Corporation (FBD), estimated the liquidation value of the Milwaukee's assets as of December 31, 1977 (excluding intercompany amounts) to be $832,166,000 inclusive and $720,633,000 exclusive of subsidiaries. The estimate, and the assumptions and methodologies used in deriving it, are contained in FBD's report to the trustee dated November 29, 1978.o A summary of the estimate is set forth in appendix C.

The liquidation estimate is the sum of the valuation of Milwaukee assets independent of one another, without consideration for sale as assembled property. No incremental value attributable to going concern value or social value was included. Further, the estimate was not adjusted or discounted to reflect the time value of money. FBD believed that correctly applying a discount factor would have entailed making several assumptions, resulting in. a highly speculative conclusion.

"Figures for 1978 and 1979 are not directly comparable to those of earlier years because of accounting changes.

'Ford, Bacon & Davis Construction Corporation, Liquidation Value of the Chicago, Milwaukee, St. Paul & Pacific Railroad (1978) (FBD Report).

10Among the assumptions identified were proper discount rate; timing of property dispositions; increase in property values from inflation and other market factors; earnings generated from land, locomotive, and freight car rentals; earnings from invested funds; and earnings generated by the Milwaukee Land Company during the liquidation period. FBD Report at p. 5.

The Milwaukee has two principal wholly owned subsidiaries. The Milwaukee Land Company, which has holdings in timber properties, industrial real estate, and railroad locomotives and freight cars,11 was valued at $110,203,000. The primary asset of The Milwaukee Motor Transportation Company, a motor carrier, was its equipment (tractors, trailers, and trailer-on-flatcar loading equipment); the company was valued at $1,330,000. Schedules of the liquidation values of the Milwaukee's land and motor companies are set forth in appendixes D and E, respectively.

The Milwaukee's investment in affiliated companies (mostly terminal and switching railroads) owned jointly with other rail carriers was not included in the FBD liquidation valuation. Because the Milwaukee lacked control, and the market for those investments was considered limited, no attempt was made to value them. Appendix F sets forth the companies, the Milwaukee's ownership percentage, and its present investment and advances book value, as reflected in the railroad's 1978 Annual Report.

CLAIMS AGAINST THE ESTATE

Expenses of Administration

Expenses of administration.-In his original reorganization plan, the trustee estimated that as of June 30, 1979, the costs and expenses of administering the estate and developing a reorganization plan, including deferred wages, was $16,132,000. These costs were estimated in the trustee's MRRA case initial statement to be $16.2 million as of April 1, 1980. His initial statement in this proceeding indicates that such claims (which exclude any expenses of parties in interest allowed under section. 77(c)(12) of the Bankruptcy Act) were expected to total approximately $19.3 million by March 1, 1980. Included in the $19.3 million is $6.8 million in respect of Milwaukee II employees' deferred back pay.

First priority ERSA trustee's certificates.-The trustee identified in his original plan, and as of June 30, 1979, $5.1 million in claims arising from first priority trustee's certificates guaranteed under the Emergency Rail Services Act of 1970 (ERSA). 12 In his MRRA case

12

"The Milwaukee Land Company owns the Washington, Idaho and Montana Railway Company, a short-line railroad operating between Lairds (near Palouse), WA, and Bovill and Purdue, ID. It also owns the M.L.C. Equipment Company.

1245 U.S.C. 661 et seq.

initial statement, he estimated that these claims would amount to $25.1 million by April 1, 1980. His initial statement in this proceeding estimates these claims to be $55.1 million as of March 1, 1980.

State and local taxes.-The trustee's original plan indicated that as of June 30, 1979, State and local tax claims totaled $15,563,000. His MRRA case initial statement estimated that these claims would total $17.0 million by April 1, 1980. In his initial statement here, he has estimated State and local tax claims to be $19.5 million as of March 1, 1980.

Personal injury claims and certain expenses of administration (and priority funding of employee protection agreement).—In his original plan, the trustee stated that personal injury claims and all expenses of administration not included in the claims set forth above amounted to $12,835,000 as of June 30, 1979. His initial statement in the MRRA case estimated that these claims would be $11.3 million by April 1, 1980. His initial statement here has increased this class of claims to include federally guaranteed obligations (in the amount of $75 million) to fund the employee protection agreement entered under section 9 of the MRRA. The trustee now expects this class of claims to total $86.6 million as of March 1, 1980.

Secured Debt

Milwaukee first mortgage bonds.-The trustee's original plan estimated that as of June 30, 1979, claims of bondholders secured under the first mortgage of Chicago, Milwaukee, St. Paul and Pacific Railroad Company (dated January 1, 1944) totaled $52,634,000.13 In his MRRA case initial statement, he stated that by April 1, 1980, these claims would amount to $54.1 million. His initial statement in this proceeding estimates that first mortgage claims would total $53.9 million ($48.7 million principal and the balance accrued interest at 4 percent from July 1, 1977) as of March 1, 1980. Bedford Belt first mortgage bonds; Southern Indiana first mortgage bonds; CTH&SE first and refunding bonds; CTH&SE income bonds.-In his original plan, the trustee estimated that as of June 30, 1979, claims of bondholders secured under (a) the Bedford Belt Railway Company first mortgage; (b) the first mortgage of

"Indenture trustees for first mortgage creditors have indicated that the principal amount of their claim approximately $48,735,300. The Milwaukee's balance sheet also carries the bonds at that amount.

Southern Indiana Railway Company (dated February 1, 1901); (c) the first and refunding mortgage of Chicago, Terre Haute and Southeastern Railroad (dated December 1, 1910, supplemented and assumed by the Milwaukee by an agreement dated December 31, 1948); and (d) the income mortgage of Chicago, Terre Haute and Southeastern Railway Company (dated December 1, 1910, supplemented and assumed by the Milwaukee by an agreement dated December 31, 1948), totaled $19,139,000. His MRRA case initial statement indicated that these claims would amount to $19.5 million by April 1, 1980. His initial statement here also estimates the claims to be $19.5 million ($17.2 million principal plus fixed interest, contingent interest, and litigation settlement) as of March 1, 1980.

General mortgage bonds.-The trustee's original plan estimated that as of June 30, 1979, claims of bondholders secured under the general mortgage of Chicago, Milwaukee, St. Paul and Pacific Railroad Company (dated January 1, 1944) totaled $66,959,000.1 In his MRRA case initial statement, he indicated that these claims would approximate $67 million by April 1, 1980. His initial statement here indicates that general mortgage bondholder claims totaled $67.5 million ($56.3 million principal16 plus $7.6 million contingent interest and $3.6 million litigation settlement) as of March 1, 1980. The indenture trustee under the general mortgage, however, asserts that the total claim as of November 1, 1979, was $73,437,847 (including $57,114,700 principal; $11,343,816 interest due as of December 19, 1977; $4,797,635 interest due after December 19, 1977; $7,000 for administrative expenses; and $174,696 for expenses and compensation).

4R Act trustee's certificate.-In his original plan, the trustee indicated that as of June 30, 1979, claims secured by certificates issued under sections 505 and 511 of the 4R Act totaled $38,399,000. His MRRA case initial statement estimated these claims to be $45.9 million by April 1, 1980. His initial statement here estimates these claims to be $46.4 million ($24.4 million

"The various indenture trustees for these claimants have indicated that the principal amount of claims by Southern Indiana first mortgage creditors is approximately $5 million; by CTH&SE first and refunding mortgage creditors, about $7,170,000; and by CTH&SE income mortgage creditors, about $6,335,800.

The trustee's balance sheet carries the Bedford Belt bonds at $148,000; the Southern Indiana first mortgage bonds at $5,102,000; the CTH&SE first and refunding mortgage bonds at $7,170,000; and the CTH&SE income mortgage bonds at $4,738,800.

"In their motion to find the trustee's plan prima facie impracticable, indenture trustees for general mortgage creditors stated that the principal amount of their claim was $55,812,100. "General mortgage bonds are carried on the Milwaukee's balance sheet at $56,278,100.

principal and $0.7 million interest for section 505 certificates and $21.3 million principal for section 511 certificates) as of March 1, 1980.

Unsecured Debt

Debentures.-The trustee's original plan estimated that as of June 30, 1979, claims of 5 percent income debenture holders under the Chicago, Milwaukee, St. Paul and Pacific Railroad Company Indenture (dated January 1, 1955) totaled $55,604,000." His MRRA case initial statement indicated $55.9 million by April 1, 1980, while his initial statement here states $55.6 million as of March 1, 1980. Trade creditors.-In his original plan, the trustee estimated that, as of June 30, 1979, trade creditor claims were $38,552,000. His MRRA case initial statement placed these claims at $38.2 million by April 1, 1980. His initial statement in this proceeding likewise estimates trade creditor claims to be $38.2 million as of March 1, 1980.

Union Station bonds.-The indenture trustee under the first mortgage of Chicago Union Station Company (dated June 1, 1963), relating to the Chicago Union Station Company first mortgage 4-5/8 percent sinking fund bonds, has claimed that the full principal amount of the bonds has become due and payable by the Milwaukee pursuant to the Chicago Union Station Company Proprietors Agreement (also dated June 1, 1963). The indenture trustee states that the Milwaukee unconditionally guaranteed, jointly and severally with three other railroads, all obligations on the Union Station bonds, on which the principal amount now aggregates $23 million. The trustee and NewMil plans do not mention the claim.

KCT notes.-The indenture trustee under an Assignment Agreement and a Guaranty Agreement (both dated March 20, 1975) relating to certain notes of the Kansas City Terminal Railway Company (KCT), has averred that 25 percent of the outstanding principal amount of the notes is an existing and allowable claim against the Milwaukee. The indenture trustee asserts that the Milwaukee, along with 11 other railroads," guaranteed the KCT

"In the motion to find the trustee's plan prima facie impracticable, the indenture trustee for debenture holders averred that the principal amount of the claim was about $55,604,000, but in its initial statement has indicated that the aggregate principal amount is $55,800,000. The debentures are carried on the Milwaukee's balance sheet at $55,604,000.

"The other railroads are Chicago, Burlington and Quincy Railroad Company; The Pennsylvania Railroad Company; and The Philadelphia, Baltimore and Washington Railroad Company.

The other railroads are Atchison. Topeka and Santa Fe Railway Company; Burlington Northern, Inc.: Illinois Central Gulf Railroad Company; Norfolk and Western Railway Company; (footnote continued on next page)