PROPERTY AND EQUIPMENT AND LEASES:

Property and Equipment

Major classifications of property and equipment as of December 31, 2018 and 2017 were as follows (dollars in thousands):



	2018
	Gross Book Value		Accumulated Depreciation			Net Book Value
Property:
Land and land improvements	$	742,417	$	—		$	742,417
Buildings and leasehold improvements	245,400		(74,595		)	170,805
Bridges/tunnels/culverts	749,395		(139,957		)	609,438
Track property	2,868,568		(641,739		)	2,226,829
Total property	4,605,780		(856,291		)	3,749,489
Equipment:
Computer equipment	23,310		(17,811		)	5,499
Locomotives and railcars	1,011,879		(328,070		)	683,809
Vehicles and mobile equipment	81,433		(56,178		)	25,255
Signals and crossing equipment	75,886		(46,583		)	29,303
Track equipment	66,069		(23,238		)	42,831
Other equipment	87,537		(43,353		)	44,184
Total equipment	1,346,114		(515,233		)	830,881
Construction-in-process	32,644		—			32,644
Total property and equipment	$	5,984,538	$	(1,371,524	)	$	4,613,014



	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	2,792,529		(568,954		)	2,223,575
Total property	4,522,937		(750,945		)	3,771,992
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	55,046		(18,873		)	36,173
Other equipment	77,271		(37,874		)	39,397
Total equipment	1,303,647		(455,621		)	848,026
Construction-in-process	36,903		—			36,903
Total property and equipment	$	5,863,487	$	(1,206,566	)	$	4,656,921

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, 2018 and 2017 were as follows (dollars in thousands):



	2018		2017
Property:
Buildings and leasehold improvements	$	5,398	$	4,209
Bridges/tunnels/culverts	—		1,000
Track property	3,835		5,504
Equipment:
Locomotives and railcars	17,759		18,397
Other equipment	5,652		7,793
Total construction-in-process	$	32,644	$	36,903

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	3	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, 2018, 2017 and 2016 totaled $206.7 million, $192.9 million and $172.3 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 (gain)/loss on sale and impairment of assets within operating expenses within the Company's Australian Operations segment.

The Company's Third Amended and Restated Senior Secured Syndicated Credit Facility Agreement (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 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, 2018, 2017 and 2016 was as follows:



	2018	2017	2016
Railcars	21,320	21,669	20,738
Locomotives	191	198	309

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, 2018, 2017 and 2016 was as follows (dollars in thousands):



	2018		2017		2016
Equipment	$	79,632	$	80,759	$	91,537
Real property	$	19,187	$	17,268	$	14,291
Trackage rights	$	87,743	$	87,490	$	87,194

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 that are subject to expiration within the next 10 years accounted for approximately 9.6% of the Company's 2018 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, 2018. 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 (2019 - 2023) would represent approximately 1.2%, 0.0%, 0.5%, 1.0% and 1.2% 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, 2018. A portion of the leases subject to expiration in 2019 were scheduled to expire in 2018 and are currently operating on a month-to-month basis (while lease negotiations continue).

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, 2018 (dollars in thousands):



	Capital		Operating		Total
2019	$	11,405	$	82,191	$	93,596
2020	17,261		63,062		80,323
2021	8,668		54,305		62,973
2022	9,625		44,739		54,364
2023	10,780		35,919		46,699
Thereafter	13,988		383,739		397,727
Total minimum payments	$	71,727	$	663,955	$	735,682