PROPERTY AND EQUIPMENT AND LEASES:

Property and Equipment

Major classifications of property and equipment as of December 31, 2013 and 2012 were as follows (dollars in thousands):



	2013			2012
Property:
Land and land improvements	$	547,539		$	562,432
Buildings and leasehold improvements	122,919			90,149
Bridges/tunnels/culverts	556,108			531,388
Track property	2,078,084			2,010,511
Total property	3,304,650			3,194,480
Equipment:
Computer equipment	11,307			9,235
Locomotives and railcars	493,977			458,404
Vehicles and mobile equipment	42,127			38,226
Signals and crossing equipment	63,208			30,564
Track equipment	19,205			17,853
Other equipment	28,524			22,673
Total equipment	658,348			576,955
Construction-in-process	30,395			69,505
Total property and equipment	3,993,393			3,840,940
Less: accumulated depreciation	(552,649		)	(444,645		)
Property and equipment, net	$	3,440,744		$	3,396,295

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, 2013 and 2012 were as follows (dollars in thousands):



	2013		2012
Property:
Buildings and leasehold improvements	$	92	$	93
Bridges/tunnels/culverts	937		3,500
Track property	21,912		24,252
Equipment:
Locomotives and railcars	6,657		39,291
Other equipment	797		2,369
Total construction-in-process	$	30,395	$	69,505

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 freight car.

Depreciation expense for the years ended December 31, 2013, 2012 and 2011 totaled $119.2 million, $66.6 million and $59.7 million, respectively.

The 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 9, 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 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, including 8,004 railcars and 175 locomotives acquired from RailAmerica in 2012, as of December 31, 2013 and 2012 was as follows:

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, 2013, 2012 and 2011 was as follows (2012 excludes lease expense related to RailAmerica's equipment and real property leases and trackage rights expense included in equity earnings for the period from October 1, 2012 to December 28, 2012) (dollars in thousands):



	2013		2012		2011
Equipment	$	32,050	$	13,386	$	19,328
Real property	$	8,062	$	5,055	$	4,632
Trackage rights	$	50,911	$	28,250	$	23,066

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 collectively accounted for approximately 9% of the Company's 2013 total operating revenues. Leases from Class I railroads and other third parties that are subject to expiration in each of the next 10 years represent less than 2% of the Company's annual revenues in the year of expiration based on the Company's operating revenues for the year ended December 31, 2013.

The following is a summary of future minimum lease payments under capital leases and operating leases as of December 31, 2013 (dollars in thousands):



	Capital		Operating		Total
2014	$	876	$	32,414	$	33,290
2015	877		21,644		22,521
2016	881		17,305		18,186
2017	8,297		14,387		22,684
2018	27		12,420		12,447
Thereafter	184		137,231		137,415
Total minimum payments	$	11,142	$	235,401	$	246,543

December 31,

Locomotives