Union Pacific 2005 Annual Report Download - page 31

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Operating Expenses
Millions of Dollars 2005 2004 2003
% Change
2005 v 2004
% Change
2004 v 2003
Salaries, wages, and employee benefits ......... $ 4,375 $ 4,167 $3,892 5% 7%
Fuel and utilities ........................... 2,562 1,816 1,341 41 35
Equipment and other rents .................. 1,402 1,374 1,221 2 13
Depreciation .............................. 1,175 1,111 1,067 6 4
Materials and supplies ...................... 546 488 414 12 18
Casualty costs ............................. 411 694 416 (41) 67
Purchased services and other costs ............ 1,312 1,270 1,067 3 19
Total .................................... $11,783 $10,920 $9,418 8% 16%
Operating expenses increased $863 million in 2005
versus 2004. Excluding the asbestos charge of $247
million (pre-tax) in 2004, operating expenses increased
$1.1 billion, or 10%. Significantly higher locomotive
fuel prices accounted for $740 million of this increase
(our fuel surcharge programs helped offset these
expenses in the form of higher revenue). Inflation in
wages, benefits, materials, and services, as well as a
larger workforce, resulted in most of the additional
increase. Also driving higher operating expenses were
increased contract services and clean-up and
restoration costs associated with the West Coast storm
in January.
Higher fuel prices, the asbestos charge of $247
million (pre-tax), higher crew and asset utilization costs
resulting from slower network velocity, and volume-
related costs all contributed to higher operating
expenses in 2004. Expenses were also negatively
impacted by wage and benefit inflation, training
expenses associated with hiring additional trainmen,
increased depreciation expense, and higher casualty
costs. A jury verdict upheld against the Railroad in 2004
for a 1998 crossing accident and a derailment in San
Antonio, Texas, increased casualty costs. Slower
network velocity and service difficulties, and increased
hiring and training efforts added approximately $300
million in operating expenses during 2004.
Salaries, Wages, and Employee Benefits – Several factors drove higher employment expenses in 2005. General wage
and benefit inflation continued to increase expenses, reflecting higher salaries and wages and the year-over-year
impact of higher healthcare and other benefits costs. We also incurred higher expenses for management bonuses
in 2005, as executive bonuses were not awarded for 2004 and bonuses for the professional workforce were
significantly reduced. A 3% increase in our workforce and higher demand during the year also contributed to the
increases. Additionally, labor expenses, in the form of higher train crew costs and labor incurred for repair and
clean-up activities, increased due to the hurricanes in the third quarter and the West Coast storm in the first
quarter. Reduced severance and relocation costs, increased network efficiency, and reduced training expenses
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