U.K. PENSION PLAN:

In connection with the acquisition of Freightliner on March 25, 2015, the Company assumed a defined benefit pension plan for its U.K. employees through a standalone shared cost arrangement within the Railways Pension Scheme (Pension Program). The Pension Program is managed and administered by a professional pension administration company and is overseen by trustees with professional advice from independent actuaries and other advisers. The Pension Program is a shared cost arrangement with required contributions shared between Freightliner and its employees with Freightliner contributing 60% and the remaining 40% contributed by active employees. The Company engages independent actuaries to compute the amounts of liabilities and expenses relating to the Pension Program subject to the assumptions that the Company selects.

The following table summarizes the funding obligations and assets of the Pension Program as of December 31, 2017 and 2016 (dollars in thousands):



	2017			2016
Projected benefit obligation (100%)	$	698,809		$	607,003
Fair value of plan assets (100%)	531,671			450,281
Funded status (100%)	(167,138		)	(156,722		)
Employees' share of deficit (40%)	(66,855		)	(62,689		)
Net pension liability recognized in the balance sheet (60%)	$	(100,283	)	$	(94,033	)

The following table presents the changes in the Company's portion of the benefit obligation and fair value of plan assets of the Pension Program for the years ended December 31, 2017 and 2016 and the funded status as of December 31, 2017 and 2016 (dollars in thousands):



	2017			2016
Change in benefit obligations:
Benefit obligation at beginning of period	$	364,202		$	348,033
Service cost	15,401			12,980
Interest cost	10,194			12,074
Benefits paid	(13,580		)	(8,853		)
Actuarial loss	6,697			59,008
Exchange rate changes	36,372			(59,040		)
Benefit obligation at end of year	$	419,286		$	364,202
Change in plan assets:
Fair value of plan assets at beginning of period	$	270,169		$	277,308
Actual return on plan assets	27,847			38,360
Benefits paid	(13,580		)	(8,853		)
Employer contributions	8,531			8,607
Exchange rate changes	26,036			(45,253		)
Fair value of plan assets at end of year	$	319,003		$	270,169
Funded status of the Pension Plan	$	(100,283	)	$	(94,033	)

The Pension Program's actuarial loss for the year ended December 31, 2017 was primarily due to a decrease in the discount rate as reflected in the table of actuarial assumptions below, partially offset by updated participant census data. The Pension Program's actuarial loss for the year ended December 31, 2016 was primarily due to a decrease in the discount rate as reflected in the table of actuarial assumptions below.

The following table presents the amounts recognized for the Pension Program in the consolidated balance sheets as of December 31, 2017 and 2016 and in other comprehensive income/(loss) for the years ended December 31, 2017 and 2016 (dollars in thousands):



	2017			2016
Amounts recognized in the consolidated balance sheet:
Accrued expenses	$	13,879		$	9,047
Other long-term liabilities	86,404			84,986
Total amount recognized in the consolidated balance sheet	$	100,283		$	94,033
Amount recognized in other comprehensive income/(loss):
Net actuarial loss	$	(24,409	)	$	(25,234	)

The following table summarizes the components of the Pension Program related to the net benefit costs recognized in labor and benefits in the Company's consolidated statement of operations for the years ended December 31, 2017, 2016 and 2015 (dollars in thousands):



	2017			2016			2015
Service cost	$	15,401		$	12,980		$	11,345
Interest cost	10,194			12,074			8,812
Expected return on plan assets	(17,046		)	(15,434		)	(12,509		)
Net periodic benefit cost	$	8,549		$	9,620		$	7,648

The following table presents the actuarial assumptions used to compute the funded status of the Pension Program as of December 31, 2017, 2016 and 2015:



	2017		2016		2015
Discount rate	2.4	%	2.7	%	3.8	%
Price inflation (RPI measure)	3.3	%	3.3	%	3.1	%
Pension increases (CPI measure)	2.2	%	2.2	%	2.0	%
Salary increases	3.3	%	3.3	%	3.7	%

The following table presents the actuarial assumptions used for the calculation of net periodic expense associated with the Pension Program for the years ended December 31, 2017, 2016 and 2015:



	2017		2016		2015
Discount rate	2.7	%	3.8	%	3.2	%
Price inflation (RPI measure)	3.3	%	3.1	%	3.0	%
Pension increases (CPI measure)	2.2	%	2.0	%	1.7	%
Salary increases	3.3	%	3.7	%	3.4	%
Expected return on plan assets	6.0	%	6.1	%	6.1	%

The discount rates used by the actuaries are established by considering the yields on high quality corporate bonds having a similar duration as the expected liabilities under the Pension Program. The following table presents the sensitivity to a change in the Company's U.K. pension liability resulting from a one percentage point change in the discount rate and retail price index (RPI) as of December 31, 2017 (dollars in thousands):



	Change in Pension Liability
Discount Rate +1% per annum	$	(76,022	)
Discount Rate -1% per annum	$	100,641
RPI inflation +1% per annum	$	99,559
RPI inflation -1% per annum	$	(76,833	)

The assets of the Pension Program are held in a separate trustee administered fund operated by Railways Pension Trustee Company Limited. The trustee is responsible for ensuring that investment strategies are in compliance with the Pension Program. The assets are invested through a number of pooled investment funds, each with a different risk and return profile. Only railways pension programs may invest in these pooled funds. Each railways pension program holds units in some or all of the pooled funds. The use of these pools enables each railways pension program to hold a broader range of investments more efficiently than may have been possible through direct ownership. The Pension Program's asset allocation policy states the assets should be allocated as follows:



	Percentage
Asset category:
Return-seeking assets	81	%
Defensive/other assets	19	%
Total	100	%

The expected return on assets represents the weighted average of long-term expected yields of the pooled investment funds. The expected returns on these pooled funds are not readily determinable from quoted market prices. However, the funds are actively managed by the trustee to achieve benchmark returns. Accordingly, the expected return for each pooled investment fund for purposes of the actuarial calculations was estimated using the respective pooled fund's benchmark return relative to the RPI.

The following table provides the Pension Program's allocation of assets among the pooled investment funds and the expected return on assets for each pooled fund, net of expenses, as well as the weighted average expected return on assets used in the actuarial calculations as of December 31, 2017, 2016 and 2015:



	2017
	Weighted Average Expected Yields		Weighted Average Asset Allocation		Weighted Average Expected Return on Plan Assets
Growth, private equity and infrastructure pooled funds	7.1	%	81	%	5.7	%
Defensive and government bond pooled fund plus cash	1.4	%	19	%	0.3	%
Expected return on plan assets					6.0	%



	2016
	Weighted Average Expected Yields		Weighted Average Asset Allocation		Weighted Average Expected Return on Plan Assets
Growth, private equity and infrastructure pooled funds	7.1	%	82	%	5.8	%
Defensive and government bond pooled fund plus cash	1.5	%	18	%	0.3	%
Expected return on plan assets					6.1	%



	2015
	Weighted Average Expected Yields		Weighted Average Asset Allocation		Weighted Average Expected Return on Plan Assets
Growth, private equity and infrastructure pooled funds	6.9	%	81	%	5.6	%
Defensive and government bond pooled fund plus cash	2.8	%	19	%	0.5	%
Expected return on plan assets					6.1	%

The fair value of all of the Pension Program's assets are measured using the net asset value per share method. The following table presents the fair value of the Pension Program's assets as of December 31, 2017 and 2016 (dollars in thousands):



	2017		2016
Growth pooled fund^(a)	$	221,762	$	182,630
Private equity pooled fund^(b)	30,494		29,463
Government bond pooled fund^(c)	47,679		47,030
Infrastructure pooled fund^(d)	6,455		8,536
Long-term income pooled fund^(e)	8,485		2,510
Short duration index linked pooled fund^(f)	4,128		—
Fair value of plan assets	$	319,003	$	270,169

(a) The growth pooled fund is comprised of global equities, government bonds, property, emerging market bonds and hedge funds.

(b) The private equity pooled fund is comprised of a series of sub funds, each representing a different vintage of private equity investment.

(c) The government bond pooled fund is U.K. only government bond fund with an average portfolio duration of approximately five years.

(d) The infrastructure pooled fund is comprised of investments in facilities, structures and services required to facilitate the orderly operation of the economy.

(e) The long-term income pooled fund is comprised of investments offering inflation linkage, distributable income and are British pound denominated.

(f) The short duration index linked pooled fund is comprised of investments in government bonds with average portfolio duration of approximately five years.

The Company expects to contribute £8.1 million (or $10.9 million at the exchange rate on December 31, 2017) to the Pension Program for the year ending December 31, 2018. The Pension Program's assets may undergo significant changes over time as a result of market conditions. In the event that the Pension Program's projected assets and liabilities reveal additional funding requirements, the shared cost arrangement generally means that the Company will be required to pay 60% of any additional contributions, with active members contributing the remaining 40%, in each case over an agreed recovery period. If the Pension Program was to be terminated and wound up, any deficit would fall entirely on the Company and would not be shared with active members. Currently, the Company has no intention of terminating the Pension Program.

The following benefit payments are expected to be paid between 2018 and 2026 (dollars in thousands):



	Amount
2018	$	13,879
2019	$	14,184
2020	$	14,496
2021	$	14,815
2022	$	15,141
2023 - 2026	$	79,938