Union Pacific 2012 Annual Report Download - page 30

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maintenance and contract expenses incurred by our subsidiaries for external transportation services);
materials used to maintain the Railroad’s lines, structures, and equipment; costs of operating facilities
jointly used by UPRR and other railroads; transportation and lodging for train crew employees; trucking
and contracting costs for intermodal containers; leased automobile maintenance expenses; and tools and
supplies. Expenses for contract services increased $103 million in 2012 versus 2011, primarily due to
increased demand for transportation services purchased by our logistics subsidiaries for their customers
and additional costs for repair and maintenance of locomotives and freight cars.
Expenses for contract services increased $106 million in 2011 versus 2010, driven by volume-related
external transportation services incurred by our subsidiaries, and various other types of contractual
services, including flood-related repairs, mitigation and improvements. Volume-related crew transportation
and lodging costs, as well as expenses associated with jointly owned operating facilities, also increased
costs compared to 2010. In addition, an increase in locomotive maintenance materials used to prepare a
portion of our locomotive fleet for return to active service due to increased volume and additional capacity
for weather related issues and warranty expirations increased expenses in 2011.
Depreciation – The majority of depreciation relates to road property, including rail, ties, ballast, and other
track material. A higher depreciable asset base, reflecting ongoing capital spending, increased
depreciation expense in 2012 compared to 2011.
A higher depreciable asset base, reflecting ongoing capital spending, increased depreciation expense in
2011 compared to 2010. Higher depreciation rates for rail and other track material also contributed to the
increase. The higher rates, which became effective January 1, 2011, resulted primarily from increased
track usage (based on higher gross ton-miles in 2010).
Equipment and Other Rents – Equipment and other rents expense primarily includes rental expense that
the Railroad pays for freight cars owned by other railroads or private companies; freight car, intermodal,
and locomotive leases; and office and other rent expenses. Increased automotive and intermodal
shipments, partially offset by improved car-cycle times, drove an increase in our short-term freight car
rental expense in 2012. Conversely, lower locomotive lease expense partially offset the higher freight car
rental expense.
Costs increased in 2011 versus 2010 as higher short-term freight car rental expense and container lease
expense offset lower freight car and locomotive lease expense.
Other – Other expenses include personal injury, freight and property damage, destruction of equipment,
insurance, environmental, bad debt, state and local taxes, utilities, telephone and cellular, employee
travel, computer software, and other general expenses. Other costs in 2012 were slightly higher than
2011 primarily due to higher property taxes. Despite continual improvement in our safety experience and
lower estimated annual costs, personal injury expense increased in 2012 compared to 2011, as the
liability reduction resulting from historical claim experience was less than the reduction in 2011.
Higher property taxes, casualty costs associated with destroyed equipment, damaged freight and
property and environmental costs increased other costs in 2011 compared to 2010. A one-time payment
of $45 million in the first quarter of 2010 related to a transaction with CSXI and continued improvement in
our safety performance and lower estimated liability for personal injury, which reduced our personal injury
expense year-over-year, partially offset increases in other costs.

Non-Operating Items
Millions 2012 2011 2010 % Change 2012 v 2011 % Change 2011 v 2010
Other income $ 108 $ 112 $ 54 (4)
%
107 %
Interest expense (535) (572) (602) (6) (5)
Income taxes (2,375) (1,972) (1,653) 20
%
19 %

Other Income – Other income decreased in 2012 versus 2011 due to lower gains from real estate sales
and higher environmental costs associated with non-operating properties, partially offset by an interest
payment from a tax refund.