Union Pacific 2007 Annual Report Download - page 31

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Operating Expenses
Millions of Dollars 2007 2006 2005
% Change
2007 v 2006
% Change
2006 v 2005
Salaries, wages, and employee benefits.. $ 4,591 $ 4,599 $ 4,375 -% 5%
Fuel and utilities .....................................
.
3,164 3,012 2,562 5 18
Equipment and other rents....................
.
1,423 1,455 1,402 (2) 4
Depreciation ...........................................
.
1,321 1,237 1,175 7 5
Materials and supplies............................
.
714 691 546 3 27
Casualty costs..........................................
.
321 410 411 (22) -
Purchased services and other costs........
.
1,374 1,290 1,312 7 (2)
Total ........................................................
.
$12,908 $12,694 $11,783 2% 8%
Operating expenses increased $214 million in 2007.
Higher fuel prices, which rose 9% during the period,
increased operating expenses by $242 million. Wage,
benefit and materials inflation and higher depreciation
expense also increased expenses during the year.
Productivity improvements, better resource
utilization, and a lower fuel consumption rate helped
offset these increases.
Operating expenses increased $911 million in 2006.
Higher fuel prices, which rose 16% during the period,
accounted for $393 million of the increase. Our fuel
surcharge programs helped offset these expenses in the
form of higher revenue. Wages, benefits, and materials
and supplies inflation; a larger workforce; volume-related expenses; and higher locomotive and freight car
maintenance and lease expenses accounted for most of the additional increase in 2006. Settlement of all
remaining insurance claims related to the January 2005 West Coast storm, an improved fuel consumption
rate, and improved car cycle times (which reduced freight car rental expense) partially offset the cost increases.
Additional clean-up and restoration costs for the January 2005 West Coast storm favorably affects comparison
of 2006 operating expenses with those in 2005.
Salaries, Wages, and Employee Benefits – Operational improvements and lower volume levels led to a 1%
decline in our workforce, saving $79 million in 2007. A smaller workforce and less need for new train
personnel reduced training costs during the year, which contributed to the improvement. General wage and
benefit inflation mostly offset the reductions, reflecting higher salaries and wages and the impact of higher
healthcare and other benefit costs.
General wage and benefit inflation increased expenses in 2006, reflecting higher salaries and wages and the
impact of higher healthcare and other benefit costs. A larger workforce, driven by higher volume levels, and
stock option expense required by new accounting rules also contributed to higher expenses. Conversely,
reduced protection costs and operational improvements, boosted by network management initiatives and
investment in capacity, partially offset these increases. Protection costs represent the differential payment
when the wage earned for active employment is lower than an employee’s protected rate of pay. An
individual’s protected rate is imposed by the STB for employees adversely affected by a merger or is established
by collective bargaining agreements with our labor unions in certain cases. Additionally, we incurred higher
labor expenses in 2005 for clean-up and restoration of property damaged by the January West Coast storm.
Fuel and Utilities – Fuel and utilities include locomotive fuel, utilities other than telephone, and gasoline and
other fuels. Higher diesel fuel prices, which averaged $2.24 per gallon (including taxes and transportation