PROPERTY AND EQUIPMENT AND LEASES:

Property and Equipment

Major classifications of property and equipment as of December 31, 2017 and 2016 were as follows (dollars in thousands):



	2017
	Gross Book Value		Accumulated Depreciation			Net Book Value
Property:
Land and land improvements	$	755,234	$	—		$	755,234
Buildings and leasehold improvements	257,173		(59,611		)	197,562
Bridges/tunnels/culverts	718,001		(122,380		)	595,621
Track property	2,758,946		(568,954		)	2,189,992
Total property	4,489,354		(750,945		)	3,738,409
Equipment:
Computer equipment	24,070		(17,852		)	6,218
Locomotives and railcars	993,872		(290,796		)	703,076
Vehicles and mobile equipment	77,928		(48,147		)	29,781
Signals and crossing equipment	75,460		(42,079		)	33,381
Track equipment	88,629		(18,873		)	69,756
Other equipment	77,271		(37,874		)	39,397
Total equipment	1,337,230		(455,621		)	881,609
Construction-in-process	36,903		—			36,903
Total property and equipment	$	5,863,487	$	(1,206,566	)	$	4,656,921



	2016
	Gross Book Value		Accumulated Depreciation			Net Book Value
Property:
Land and land improvements	$	735,054	$	—		$	735,054
Buildings and leasehold improvements	214,980		(43,431		)	171,549
Bridges/tunnels/culverts	692,324		(103,521		)	588,803
Track property	2,639,961		(477,366		)	2,162,595
Total property	4,282,319		(624,318		)	3,658,001
Equipment:
Computer equipment	20,449		(14,927		)	5,522
Locomotives and railcars	893,911		(217,704		)	676,207
Vehicles and mobile equipment	72,388		(41,257		)	31,131
Signals and crossing equipment	72,210		(37,632		)	34,578
Track equipment	48,931		(15,663		)	33,268
Other equipment	57,547		(24,845		)	32,702
Total equipment	1,165,436		(352,028		)	813,408
Construction-in-process	31,910		—			31,910
Total property and equipment	$	5,479,665	$	(976,346	)	$	4,503,319

Construction-in-process consisted primarily of costs associated with equipment purchases and track and equipment upgrades. Major classifications of construction-in-process as of December 31, 2017 and 2016 were as follows (dollars in thousands):



	2017		2016
Property:
Buildings and leasehold improvements	$	4,209	$	85
Bridges/tunnels/culverts	1,000		1,600
Track property	5,504		12,302
Equipment:
Locomotives and railcars	18,397		11,786
Other equipment	7,793		6,137
Total construction-in-process	$	36,903	$	31,910

Track property upgrades typically involve the substantial replacement of rail, ties and/or other track material. Locomotive upgrades generally consist of major mechanical enhancements to the Company's existing locomotive fleet. Upgrades to the Company's railcars typically include rebuilding of car body structures and/or converting to an alternative type of railcar.

The Company depreciates its property and equipment using the straight-line method over the useful lives of the property and equipment. The following table sets forth the estimated useful lives of the Company's major classes of property and equipment:



	Estimated Useful Life (in Years)
	Minimum	Maximum
Property:
Buildings and leasehold improvements (subject to term of lease)	2	40
Bridges/tunnels/culverts	20	50
Track property	3	50

Equipment:
Computer equipment	2	10
Locomotives and railcars	2	30
Vehicles and mobile equipment	2	15
Signals and crossing equipment	5	20
Track equipment	2	20
Other equipment	2	20

Depreciation expense for the years ended December 31, 2017, 2016 and 2015 totaled $192.9 million, $172.3 million and $159.1 million, respectively.

In December 2017, the Company recorded a $5.9 million non-cash charge related to the impairment of track assets on idle branch lines in South Australia, which was recorded to net loss/(gain) on sale and impairment of assets within operating expenses within the Company's Australian Operations segment.

The Company's Credit Agreement is collateralized by a substantial portion of the Company's real and personal property assets of its domestic subsidiaries that have guaranteed the United States obligations under the Credit Agreement and a substantial portion of the personal property assets of its foreign subsidiaries that have guaranteed the foreign obligations under the Credit Agreement. See Note 8, Long-Term Debt, for more information on the Company's Credit Agreement.

Leases

The Company enters into operating leases for railcars, locomotives and other equipment as well as real property. The Company also enters into agreements with other railroads and other third parties to operate over certain sections of their track and pays a per car fee to use the track or makes an annual lease payment. The costs associated with operating leases are expensed as incurred and are not included in the property and equipment table above.

The number of railcars and locomotives leased by the Company as of December 31, 2017, 2016 and 2015 was as follows:



	2017	2016	2015
Railcars	21,669	20,738	21,819
Locomotives	198	309	333

The Company's operating lease expense for equipment and real property leases and expense for the use of other railroad and other third parties' track for the years ended December 31, 2017, 2016 and 2015 was as follows (dollars in thousands):



	2017		2016		2015
Equipment	$	80,759	$	91,537	$	91,919
Real property	$	17,268	$	14,291	$	12,136
Trackage rights	$	87,490	$	87,194	$	78,140

For the year ended December 31, 2016, the Company incurred $10.5 million of charges associated with leased coal railcars in the U.K. that exceed the Company's expected ongoing needs and were therefore considered permanently taken out of service. See Note 3, Changes in Operations, for additional information regarding the U.K. coal business.

The Company is a party to several lease agreements with Class I carriers and other third parties to operate over various rail lines in North America, with varied expirations. Certain of these lease agreements have annual lease payments, which are included in the operating lease section of the schedule of future minimum lease payments shown below as well as the trackage rights expense in the table above. Revenues from railroads that the Company leases from Class I carriers and other third parties accounted for approximately 11.3% of the Company's 2017 total operating revenues. Leases from Class I railroads and other third parties that are subject to expiration in each of the next ten years represent 3% or less of the Company's annual revenues in the year of expiration based on the Company's operating revenues for the year ended December 31, 2017. For example, the Company's revenues associated with leases from Class I railroads and other third parties subject to expiration in each of the next five years (2018 - 2022) would represent approximately 2.4%, 0.3%, 0.0%, 0.6% and 1.1% of the Company's operating revenues in each of those years, respectively, based on the Company's operating revenues for the year ended December 31, 2017.

The Company's capital leased assets primarily consist of locomotives and railcars. The amortization of capital leased assets is included within the Company's depreciation expense. The following is a summary of future minimum lease payments under capital leases and operating leases as of December 31, 2017 (dollars in thousands):



	Capital		Operating		Total
2018	$	9,624	$	100,952	$	110,576
2019	9,103		81,637		90,740
2020	15,593		67,973		83,566
2021	7,320		55,408		62,728
2022	12,381		44,893		57,274
Thereafter	20,967		263,653		284,620
Total minimum payments	$	74,988	$	614,516	$	689,504