Union Pacific 2012 Annual Report Download - page 29

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Operating Expenses
Millions 2012 2011 2010 % Change 2012 v 2011 % Change 2011 v 2010
Compensation and benefits $ 4,685 $ 4,681 $ 4,314 - % 9 %
Fuel 3,608 3,581 2,486 1 44
Purchased services and materials 2,143 2,005 1,836 7 9
Depreciation 1,760 1,617 1,487 9 9
Equipment and other rents 1,197 1,167 1,142 3 2
Other 788 782 719 1 9
Total $ 14,181 $ 13,833 $ 11,984 3 % 15 %
Operating expenses increased $348 million in
2012 versus 2011. Depreciation, wage and
benefit inflation, higher fuel prices and volume-
related trucking services purchased by our
logistics subsidiaries, contributed to higher
expenses during the year. Efficiency gains,
volume related fuel savings (2% fewer gallons
of fuel consumed) and $38 million of weather
related expenses in 2011, which favorably
affects the comparison, partially offset the cost
increase.
Operating expenses increased $1.8 billion in
2011 versus 2010. Our fuel price per gallon
rose 36% during 2011, accounting for $922
million of the increase. Wage and benefit inflation, volume-related costs, depreciation, and property taxes
also contributed to higher expenses. Expenses increased $20 million for costs related to the flooding in
the Midwest and $18 million due to the impact of severe heat and drought in the South, primarily Texas.
Cost savings from productivity improvements and better resource utilization partially offset these
increases. A $45 million one-time payment relating to a transaction with CSX Intermodal, Inc (CSXI)
increased operating expenses during the first quarter of 2010, which favorably affects the comparison of
operating expenses in 2011 to those in 2010.
Compensation and Benefits – Compensation and benefits include wages, payroll taxes, health and
welfare costs, pension costs, other postretirement benefits, and incentive costs. Expenses in 2012 were
essentially flat versus 2011 as operational improvements and cost reductions offset general wage and
benefit inflation and higher pension and other postretirement benefits. In addition, weather related costs
increased these expenses in 2011.
A combination of general wage and benefit inflation, volume-related expenses, higher training costs
associated with new hires, additional crew costs due to speed restrictions caused by the Midwest flooding
and heat and drought in the South, and higher pension expense drove the increase during 2011
compared to 2010.
Fuel – Fuel includes locomotive fuel and gasoline for highway and non-highway vehicles and heavy
equipment. Higher locomotive diesel fuel prices, which averaged $3.22 per gallon (including taxes and
transportation costs) in 2012, compared to $3.12 in 2011, increased expenses by $105 million. Volume,
as measured by gross ton-miles, decreased 2% in 2012 versus 2011, driving expense down. The fuel
consumption rate was flat year-over-year.
Higher locomotive diesel fuel prices, which averaged $3.12 (including taxes and transportation costs) in
2011, compared to $2.29 per gallon in 2010, increased expenses by $922 million. In addition, higher
gasoline prices for highway and non-highway vehicles also increased year-over-year. Volume, as
measured by gross ton-miles, increased 5% in 2011 versus 2010, driving expense up by $122 million.
Purchased Services and Materials – Expense for purchased services and materials includes the costs of
services purchased from outside contractors and other service providers (including equipment
2012 Operating Expenses