Financial Analysts’ Meeting
New York, NY - January 23, 2008

Questions and Answers

(Question) Good morning, it's Tom Wadewitz from J.P. Morgan. I wonder if you could give a sense of some drivers of the significant change in yield growth in fourth quarter versus third. You talked about it a little bit, but it’s tough to figure out how to forecast '08 when you had the 2.5% growth in third and 8% in fourth. I'm just talking about reported yields year-over-year. So, I am wondering if you can give a little further thought on that, and perhaps, how we should look at yield growth in '08?

(Mr. Moorman) Let me ask Don to come up too and maybe give some color, but I think the important thing to understand is that — and we talked about this before and we talk about it in light of the third quarter in particular — our yield growth is to some extent dependent upon when we have contracts come up and the repricing of those contracts. That's not really ratable necessarily on a quarter-to-quarter basis. On an annual basis, as Don mentioned, I think we have a pretty good idea of what's going to happen, but in any particular quarter, it can be problematic depending on the number of contracts that we have come up. A good example Don, I guess, is the fact that in the fourth quarter we saw 30 percent of our international intermodal contracts being renewed.

(Mr. Seale) Wick, you have pretty much answered the question.

(Mr. Moorman) I am sure Tom has another question for you.

(Mr. Seale) Tom, I’d like to just reiterate that it's not linear timing as we have indicated in past quarters. Timing of repricing comes into play. Certainly, fuel comes into play as well, and mix comes into play. In the fourth quarter, we had a slightly favorable mix. We also had higher fuel, and as I mentioned of the 8% gain in RPU after you back out the 1% for the automotive settlement half was pure price, the other half was mix and fuel. And looking ahead, 4% is what we see as an average over '08 as we go forward. It won't necessary be ratable in each quarter. It could fluctuate a little bit quarter-to-quarter, but we think that’s a good solid number for the year.

(Question) Right. And I understand that fuel is a significant driver in reported yields, but in terms of mix, you had some significant mix unfavorable in the third quarter and sounds like slightly favorable in fourth, and I'm concluding from what you are saying that the fourth quarter is more representative on what your '08 run rate would look like. Is that fair?

(Mr. Seale) Yes. As you may recall in the second and the third quarters we tried to make this explicit, that we had a very quiet period in both of those quarters on repricing, from a timing perspective. And I mentioned in the second and third quarters that that would start to change in the fourth quarter, and we would see some repricing in the fourth quarter that would have a more favorable impact going into '08. That continues to be the situation.

(Question) Okay. I've got maybe one more for you Don, and one for Wick, I'll just give you both at the same time. Your primary competitor, CSX, yesterday had some pretty optimistic comments on export coals saying they thought it would be up 50% in '08 versus '07. I'm wondering if you can give a sense of whether you could realize a similar magnitude type of improvement, or if there are port constraints or anything else to consider there.

And then for Wick, in terms of operating ratio, you didn't really talk about how we might think about O.R. in '08 versus '07. You said volumes probably up a little, pricing up 4%, you didn't comment at all on cost side opportunity or O.R. So, if you could give any presumably high-level comments on that? Thank you.

(Mr. Seale) Tom, with respect to export coal, the weak US dollar, Australian port congestion, higher bunker fuel rates, — all of that adds up to strong demand in Europe. For not only metallurgical coal, which as you know has been our traditional market in Europe, but also steam coal. And steam coals are being booked into Europe at levels that certainly were unanticipated a year ago. So it comes back down to, our export business was up 23% in the fourth quarter; and it's been up all year. We forecast a continuation of those types of increases in export, but utility coal — or steam coal is also entering into the picture.

The unknown here is how the U.S. domestic utilities, will come back into the market for steam coal this year as stockpiles start to move. We still have above-target stockpiles, we are being told by the utilities in the Southeast. But the coal burn is up, and the coal volume is not moving to the extent that it could to replenish that. So in short, we think stockpiles have to come down. And when that happens, the domestic utilities are going to be back in the marketplace. And they’ll be competing for that same coal in terms of some of the coal that's going into the export market.

(Mr. Moorman) For all of the reasons Don has mentioned, we think it's going to be a very good year for export coal; but I think our uncertainty is we think there may be some things happening in the market — particularly in the second half — that may tilt the balance one way or the other, which really don't have much to do with anything we do. I think the good news for us is that whether it moves export or moves utility, it's moving by rail, and that's a positive thing.

(Mr. Seale) And Tom, one other comment: I mentioned CONSOL's mine at Buchanan. As you know, that's low-vol, high-quality metallurgical coal that traditionally has flowed to the export market. If that mine does indeed come back in the first quarter — and we have reports that indicate it just might — that will be favorable in terms of our export flow as well.

(Mr. Moorman) Tom, you did notice I didn't make any comments about the O.R. going forward. As you know, we just don't, other than to say that we think we can drive the O.R. lower in our company, and we have a lot of initiatives under way, and a lot of what Steve talked about in terms of asset utilization. So, we're not going to make predictions, but we're committed to driving it on down. We think we can with the kind of year Don outlined in terms of volume and revenue growth.

(Question) Thanks, Wick, it's Tony Hatch. I first wanted to thank you for providing a lot of information today, and I just have three quick questions about some of the stuff you talked about. The first is when would we expect to see Heartland, or specifically, Rickenbacker, begin to contribute? The second, for Steve really, is, given this focus which I found really interesting on integrating unit trains better, and what not, does that allow you to accelerate putting in ECB or PTC into the system? And the last Wick for you is, among your compensation plans — I know you just added what Steve talked about today — I didn't know, you guys were going reasonably quickly, do you have anything in there for any kind of return whether be it on invested capital, replacement costs or whatever, is there a return component to your bonus compensation?

(Mr. Moorman) Steve will come on to get the last one. Starting with the compensation, the bonus computation we're talking about, the calculation is what affects the annual bonus program that we have, which applies to not only all of our non-agreement work force, but our locomotive engineers and our dispatchers as well. That computation works the same way for everyone in the company. We think that's an important thing, particularly as our operating supervision in engineers and dispatchers look at this new component. They understand it already because they see the statistics. and they will understand on a daily basis what they can do to impact it; unlike the other two components which they have an impact on but it’s not immediately visible, which are operating ratio and pre-tax net. We have other long-term incentive compensation programs that are stock-based for a significant portion of our management, but not all, which have a strong return component in performance shares in particular. So, if you look across — and this is all outlined in our proxy — you’ll see that in terms of aligning our compensation with all of the key drivers of shareholders' value, I think we have some really strong compensation programs to do that. Tony remind me, what's the first thing you asked here?

(Question) Rickenbacker.

(Mr. Moorman) Rickenbacker opens hopefully next month, the terminal itself. Obviously, we have service to it today. What the Heartland Corridor project does is take a considerable amount of time off that existing service. The new APM Moller-Maersk Terminal in Norfolk has now opened and is currently ramping up. And we should see more and more Maersk traffic and other traffic be driven out of that terminal during the course of 2008. Our projection right now for Norfolk is that we’ll just continue over the next 2-3 years to see steady intermodal volume growth as more and more steamship carriers come into Norfolk. Obviously the Port of Hampton Roads is a great port, natural port, and has a lot of advantages. Don mentioned to you this ongoing shift that we see in West Coast to East Coast steamship business. Norfolk’s clearly a major player in that as well, and so, it’s not a step function; it will be just increasing growth out of the port. Steve?

(Mr. Tobias) You're all familiar with many of things that we've done in our merchandise side of the business from the standpoint of cycle time and taking handlings out of what we do. It's a natural progression to apply those concepts into our unit train application and have them fit better in intermodal as well, because they're essentially point-to-point operations, and have them fit better into the overall network of how we do business functionally as a railroad. As your question relates to UTCS and PTC, certainly we are rolling those processes as fast as we can roll them, as we are LEADER, which I know Tony you are familiar with in its application across our systems. It will help facilitate those processes as we put greater regularity into what we do. The real upside in the unit train piece of this is we’ve made the commitment to apply the resources and the assets to standardize the requirement for the performance necessitated for these unit trains. That puts a whole different parameter around what our customer base, both the receiver and the supplier, can look to as a standard to begin to find ways to take cost out of what they do, which will help us do a better job of cycling and also impact lifestyle, which is important part of what we're trying to do also as a railroad. In short, we are applying the KISS principle: we want to make this very simple, and we think there’s enough upside here that everyone will benefit in a very significant way.

(Mr. Moorman) You might mention ECP.

(Mr. Tobias) Obviously, as we migrate to electronically controlled pneumatic brakes, it is one of the greater technology applications. We have two trains running with ECP, as it lends itself to coal, it lends itself to intermodal probably, and the migration into merchandise as you have some understanding of the merchandise network will take a bit longer because of the myriad types of equipment. But it is a natural progression; the benefits there are more than significant. Of course there will be some cost associated with it and as Debbie has pointed out we'll balance our capital dollars against the requirement and make the right decision for NS.

(Question) Hi, Ken Hoexter from Merrill Lynch. You'd talked earlier about 30% of your intermodal volume was repriced during the quarter. I think it was said earlier by...

(Mr. Moorman) The international contracts, not the total volume.

(Question) Okay. International contracts, can you talk about the length of those contract renewals, how the market is right now, particularly in light of the large shift that we are seeing of freight moving to the all-water East Coast?

(Mr. Moorman) I'll let Don.

(Mr. Seale) Good morning Ken. With respect to the international business, which, as you know, is about half of our total intermodal book of business, 30% of that was renegotiated in the fourth quarter, and the term of those renegotiated contracts range from three to five years. It's a mix of terms. As far as the shift in traffic, this is something that as we've made our trips to Asia over the past five, six, seven years, the shipping community has told us very clearly to plan an increased usage of the Suez Canal, and Panama Canal. All-water service to the East Coast has expanded as trade patterns continue to develop and change and that's been a very clear message, in terms of strategy, which in turn led us to the Heartland Corridor planning, the development of Rickenbacker. All of that was part of what the shipping community has been telling us over the past five or six years. It is accelerating, as we speak, and I think I've shared this with you in the past, if you go back five years ago, 20% of our international container traffic was coming over East Coast ports. At the end of 2007, 50% of our import container business came out over the East Coast. So the shift is now, it's happening, and it will continue to happen in our view.

(Question) So, if I understand it right, about 60% of all freight that hits the ports goes by trucking because it's more local in nature. Has that changed at all, or is that the goal with the network investments? I'm just trying to understand if you're seeing, particularly with truck prices where they are, more and more of those goods move by truck?

(Mr. Seale) We're seeing double-stack economics compete very favorably with truck from the ports. Now, if a ship lands in New York all-water, obviously that impacts local distribution. So instead of a Chicago to New York haul, it would be local trucking. But, if a ship comes to Norfolk and the cargo goes to the Ohio Valley, that is a great haul for us from Norfolk all the way to the Columbus area, as opposed to Chicago to Columbus today. So there are some net outs here that are very favorable, even in some of the shorter-haul lanes like Savannah to Atlanta. The port of Savannah is seeing increased activity with all-water. We have focused on that corridor, and we're running heavy, dense, double-stack trains between Savannah and Atlanta. And we are competing quite well, and the margins are very good as well.

(Question) Helpful. Then on the — I guess more a Jim question, or maybe it is a Wick big picture question. On the investment tax credit proposal in Congress, how would that shift — you just gave us great detail and breakdown of your cap ex plans — how would that shift your thinking on cap ex? Would you likely want to make larger investments in the near term, or would that shift your thinking at all?

(Mr. Moorman) Well, it depends on the flavor obviously, but I would say that with the right kinds of investment tax credits — for example, something that looks like the bill that the rails have introduced already with the 25% tax credit — where we see opportunities where we know we're going to have ongoing infrastructure investments into our network — and Deb's team, we have a big process we detailed before in terms of looking at our infrastructure and our need not just for 2008 but for the next five years, and if there is a program that's put in place that makes it economically attractive to go ahead and accelerate those investments and increase our capital spending in the short term, knowing that we're saving money by doing that, we’ll jump in that game. I think that would be not only beneficial to the railroads, but as we keep talking about with this legislation as you know, I think it would be great public policy as well. So it's something we're watching. I call Rob Kesler and ask him about it, and the AAR is looking at how that can be done, too. It would have an impact if it's the right kind of tax credit and what we think about over '08 and '09, for maybe some increased infrastructure investment.

(Question) All right. And just a technical numbers question for Jim. It seems like if you take the $253 million of fuel expense and divide by the gallons, you get more like a $2.83 cost as opposed to the $2.56. Is that because of the shift of added expenses that you'd mentioned earlier of other diesel costs being thrown, is that right?

(Mr. Squires) Right, exactly. Because of the reclassification, we added fuel-related expenses to the new fuel line item, and that took it up roughly 10% off what would have been pure locomotive diesel fuel.

(Question) So, going forward are you going to relate what is, again on a consistent basis, for the locomotive diesel, or are we just going to go by that? Are you going to continue to report the cost that you have to spend per?

(Mr. Squires) We'll continue to report that, along with gallons consumed.

(Question) Okay. And then just finally, if I look at your balance sheet, your debt-to-cap ratio would, over the next year or two years, again, it's just holding results improving in the same pace would drop down about 3 points, which means you have about $1 billion of capacity to increase buybacks over the next year and another $2 billion in two years. Just wondering, what would get you to be more aggressive on a stock buyback at this point, just conceptually?

(Mr. Squires) Well, we said that we feel we have room for incremental leverage, certainly within our capital structure while maintaining strong investment grade ratings. That is our overall objective. But within that, sort of within that parameter, we have room for significant additional debt, and we've said this morning that we expect to do something like the amount of share repurchases we did in '07 and '06 in '08. So I think that's going to be the plan. We'll have to see how things go. Stock price is a factor, credit markets are a factor, the economy is a factor, cash flow generation, are all factors.

(Question) Thanks again for the white slides.

(Question) Scott Flower. Just a couple of questions. Obviously you gave us great detail on the cap ex, and we appreciate that. I wonder maybe if either you or Jim could give us some color — how do you look at the balancing of, obviously I guess I’m not used to seeing up cap ex in what is a choppy volume environment, at least in your term, so maybe you can give us some perspective how you see the balancing of, forward investing, for what you see or eventual volume rebound versus the regulatory environment and prospectus and how you get that timing right so that you're not too early relative to what volume recovery versus obviously the broader perspective that you may see in the industry? And then I had a couple of other follow-ups for Don.

(Mr. Moorman) That's obviously a great question because we want to invest as close as we can to a just-in-time basis. We remain, as I’ve said earlier, very optimistic about our prospects for volume growth when the economy starts to get a little better. So the question is at what point do you start to invest? The issue with a lot of our projects, particularly the projects that Deb has outlined in terms of infrastructure, is fairly long lead projects time. Longer lead times than they used to be, because as you might imagine, not just in the rail industry, the issues and timing around particularly the acquisition of property and the permitting to do construction just seem to take longer and longer every year. With our commitment to investing for the volume growth that we know is coming, we have to kind of step out and make those investments, we think quite often a year or two in advance, just to be to the point where we can go out and do the construction. This is, as you say, a little choppy on the volume side, but we look through this, and we're going to do as we've always done, Scott, and you know how we look at the world. We're going to try to do this in a ratable way, and be ready so that when the volume comes, we'll be able to handle it and handle it profitably. Having said that, we looked at it very closely this year.

One piece I should point out, which both Deb and Steve touched on, but it’s something that's there that we told you about before, and it’s just something that’s out there that we have to contend with in the next six to eight years, is that we have to buy a lot of coal cars. Our coal car fleet is aging rapidly and reaching the end of its, really its second life, because most of the fleet was rebodied about 20 years ago. As I am sure you all know, these cars start to deteriorate after some period of time because of the corrosive effects of coal. Now the good news is that with the new cars we're buying we're using different steels, so that won't be a factor in the future, and we also are adding capacity, so these are much more productive cars; but one of the drivers of our capital for the next few years is just going to be the fact that we have to step out and buy coal cars, and that's a fair sized component of this year's budget — 1,300 cars this year.

(Question) The other question and maybe this is for Don. Obviously imports and exports are shifting and there is obviously currency impact. Can you give us some sense of how much of your total business is actually affected by trade, either imports or exports, and I know that may be fuzzy? And then give us some sense of how you're participating in the up tick of exports, because obviously a lot of the discussion about imports falling off is well known, how, and in what areas you're participating in exports and how that’s changing could be helpful?

(Mr. Seale) Well, Scott, one of the immediate impacts with the weaker dollar and increased exports and somewhat softer imports and also the port shifts that we talked about earlier is that we're seeing a lot less empty repositioning of containers transcontinentally back to the Pacific coast ports. That is something that has changed rather dramatically, and those empties now are being loaded somewhat back to the East Coast ports for export product, but also the empties that are being taken back to the port are being repositioned back to the East Coast as opposed to the West Coast.

Now, with respect to the second part of your question, in terms of a flavor of what types of products — our machinery market is up significantly. I mentioned in the automotive market that General Motors was one of the increases this quarter, along with the new domestics. The GM increase was not domestic. It was export-related.

So it’s a range of products running from machinery, automotive products, agricultural products. I also mentioned our grain business, both domestic and export corn, which as we told you in the past, the export grain market has not been a market that we have played in on a strategic basis because we like the more predictable domestic market. It’s more predictable, it is more ratable, with the Southeastern feed mills that we’ve located on line. But the export grain market is so prevailing today that we are participating in it and doing quite well, and that business continues to grow. So grain, machinery, automotive, some chemical traffic, it is across the board.

(Question) Thank you.

(Mr. Moorman) I’ve got a couple more over here, and then we'll do a couple on the phone if we can.

(Question) Hi. Sami Kohan with Lehman Brothers. Two quick questions. In the up tick in the equity income from Conrail you mentioned a tax item, or Jim did. How much of that $20 million increase was from the tax audit reversal, like if we just put a number on it?

(Moorman) Essentially all of it. That reflects obviously our portion from our ownership interest to Conrail.

(Question) Right. And then the second question is in the third quarter you spend a lot of time talking about mix but specifically length of haul issues. Was there an offsetting impact this quarter, or was mix, just mix, between commodity types when you mentioned the positive mix?

(Mr. Moorman) I think one of the things we saw, Don, in the third quarter in our coal business — in particular was where this mix effect hit us — we saw for various reasons a little fall off in our long haul traffic. At the same time, we've got a lot of short-haul river coal traffic, and that's accelerated and it continues to stay at a high level, but we saw some of the long haul traffic come back to us, so that you didn't see that mix effect this quarter in the same way that you did last quarter. And the other mix effects, Don? Anything in particular, it’s just kind of something here, something there?

(Mr. Seale) Right.

(Mr. Moorman) It’s no one thing. Every quarter you're just going to see little pieces throughout our business. Could be a little in intermodal, could be in various places.

(Question) Adam Longson, Morgan Stanley. A couple of quick questions primarily for Don. I know the economic environment creates a lot of uncertainty, but given all the growth initiatives that are out there, do you have a sense for when total volume growth might return?

(Mr. Moorman) You know that’s a question we ask all the time.

(Mr. Seale) That's a question that I feel places the weight of the world is on my shoulders. That's a great question. And with all the moving parts in the domestic and international economy, in terms of when volume growth will resume, if you break it in to a couple of components – let’s start with domestic trucking industry. When that industry tightens up inside the U.S., we'll see domestic intermodal certainly continue its growth pattern. On the international trade side, I see that coming back. We're in the middle of a transition of repositioning vessels, and repositioning ports, but growth will be there over time.

Going forward we see increased coal demand from all sources including the Illinois basin, PRB, Central App and Northern Appalachia, while import coal has declined as the dollar has weakened.  The lack of alternatives for coal as an energy source will continue to increase demand for coal over time.  While utility stock piles are temporarily high as they are today in the Southeast, natural gas prices are currently $8 and that will continue to drive demand for coal.  Coal is the most available, most economic fuel for electrical utility generation, so volume growth should resume in the domestic utility sector along with the export market that we previously addressed.

The housing sector — your guess is as good as mine in terms of when that’s going to actually bottom out. We've seen starts down 25% last year, year before last, another 26%. We've got a ways to go I think to work through that, and as we mentioned in earlier meetings, housing has a covers a lot of what we transport in today’s economy.  But if you put all that together, we still feel that our '08 volumes will be better than our '07 volumes.

(Question) Up year-over year?

(Mr. Seale) Up year-over year.

(Question) And then just one more quick follow-up. In terms of the 4% pricing you're talking about next year, how much confidence or visibility do you have into that through things that are somewhat locked in, say, escalation contracts, contract renewals, things like that?

(Mr. Seale) I can say we have very good confidence in that number. We know when contracts are going to be repriced, which contracts are going to be repriced. We know when we're going to reprice confidential quotes, so that number is an aggregate of the plan over the year, and as Wick indicated, that plan over the year doesn’t call for it to be the same every quarter, because of the timing — and termination or expiration dates of those rate instruments. They are not all timed in every quarter, because they've been in place for years, and depending upon when they're renegotiated, when they're put in place, it varies the next expiration and renegotiation time. But we're very confident of the 4%.

(Question) Then if we have time, just one last quick one. I know improving service and investing in service has been a hallmark of Norfolk Southern, particularly over the last couple of years, it's sort of been the mantra. Yet the volume growth hasn't been there, and a lot of that is due to the economy. Have you really seen the kind of returns you were expecting from investing in service, and has that shifted your approach to how you may invest going forward?

(Mr. Moorman) Let me answer that. We look at the impact of the economy and obviously that's a significant driver. I think the world has changed some, but we're still very closely tied to the economy. But we don't see anything in terms of how we deal with our customers, what they tell us, and what we've been able to do in our renegotiations in terms of both price and the volume they have available, that tells us that investing in service isn't a high return prospect. I think the last four or five years are very instructive in terms of when the volume growth came on in '03 and '04, our network was able to handle it, and we were able to deliver good customer service, and that's really what drove a lot of our volume growth. People turned to us because they knew we had a high-value service product, and we are consistently told — and we do a lot of market analysis that the better we make it, the more prospects we have, as Steve said. The other great thing about improving service and running the railroad more and more like a Swiss watch is that you take out assets. The more regularity you have, the more asset-efficient you are and the most costs that come out. So from both standpoints, that's the direction we want to go.

I know we have a few people on the telephone, and we're running out of time here. Who is out there?

(Question) Edward Wolfe. Thanks, everybody, for reaching out through the phones at this time. Thanks, Wick. A couple of things. You talked a lot about contracts repricing and some of them in the fourth quarter. Don, if you said it, I didn't hear it. You talked about the contracts being three to five years. What was the average amount of rate you're getting per year on those three to five-year international contracts, and then separately, could you talk about were there any other legacy contracts long-term? It looks like coal yields are up dramatically relative to last quarter as well. Were there some long-term coal contracts that came up in fourth quarter?

(Mr. Moorman) Ed, first of all, thank you for the comment about opening up the phone lines. Although we have broken with tradition to do that, we're not going to break with tradition in terms of not really talking about price increases that are built into contracts, any specific group of contracts. In terms of the coal for the fourth quarter, I think we had a couple of renewals, but I think what you saw there really again more than anything as the mitigation of that mix effect that just seemed to really be specific to the third quarter. The other thing, too, that we didn't mention is that a lot of our coal contracts have an RCAFU inflator or adjustment in it, so you start to see the impact of fuel flow through that as well, and really the impact in the third quarter year-over-year was down, and the impact in the fourth quarter year-over-year is up. So that's the other piece of it, I guess you're seeing.

(Question) Okay. Just directionally, without getting into company-specific, can you talk about are there contracts similar to fourth quarter coming up throughout first, second, third quarter, fourth quarter of '08?

(Mr. Moorman) Again, I think in any given year, we feel that between contracts, private quotes, and our public tariffs, there’s about half of our book of business that's out there for some kind of repricing. And we don't see anything that makes us think that number is different in 2008. It is just going to run about that number every year.

(Question) Okay. Can you talk a little bit about export coal and as a percentage of total coal right now — what that looks like or what the rail cars this year are versus what could be possible in '08?

(Mr. Moorman) Let me get Don up to comment on that. Export coal, as you know, our franchise compared to what it was ten years ago looks dramatically different in terms of the percentage of coal that goes export versus utility. Don, do you want to comment a little more on that?

(Mr. Seale) Ed, good morning. On the export, I’ll put it in terms of tons. The '07 tons for export was about 15.5 million-tons total. That was over Baltimore as well as Lambert's Point, and that will be up significantly in 2008 based on our plan.

(Question) Could it be double? Is it that kind of capacity?

(Mr. Seale) I am not comfortable going into the order of magnitude. I think if you look at the increases that we've seen in '07, we certainly feel that export met coal and the utility steam coal that I mentioned earlier will be up. And if we see some of the mines come back that I mentioned like CONSOL’s Buchanan operation, that will be another boost. Finally, we have the capacity at Pier 6 at Lambert's Point to go to 19 million tons. We have the capacity without doing anything else, and we have capacity to go above that just by tweaking it.

(Question) Is the 19 million before the two mines reopened or after assuming they are reopen?

(Mr. Seale) The 19 million I am talking about is the capacity of the terminal at Norfolk, Ed.

(Question) Okay. That's helpful. In terms of the mines reopening, what would that add would you think to volume? How do we think about that potential?

(Mr. Seale) CONSOL's Buchanan mine went down in August of 2007, and that mine produces 5.2 million-tons of coal per year. It is high quality low vol metallurgical coal, and it can go to the domestic market at the proper price, or it can go to the export market, so that certainly would be a boost to availability today as low vol coal for export is in tight supply.

(Question) That makes sense. Jim, switching gears for a second — now that the synfuel credits are gone, can you give some kind of guidance on other income excluding them? It’s been all over the ballpark. How do we think about that going forward?

(Mr. Squires) I think that's going to revert back to a more normalized pattern, ex the synfuel. The effective rate will gravitate upwards, turning the taxes upwards to more like a statutory rate type of rate.

(Question) So the tax rate I know will be 37, 38, but how do I look at that other income number? Is $75 million for a year a good number, $100 million, how do I think about that?

(Mr. Squires) There’re just a lot of components in that, Ed. You’ve got probably two dozen or so different moving parts inside other income. The big ones are obviously the real estate related to rentals, the real estate sales, the royalties and what not. You'll see detail of some of the larger components of that in our 2007 10-K, so take a look at that, and I think that’ll give you a sense of what's a more normalized level for those types of Other income-net items.

(Question) Okay. Just quickly, can you give an update, there is some sense there could be an Amtrak strike, and if there was a strike at Amtrak, what impact that might have for Norfolk?

(Mr. Moorman) As you know, Amtrak and the labor unions that had gone through the PEB process have now signed an agreement that I think calls for the back pay which the PEB recommended, I think, maybe paid over a couple of years. It’s got to go to Congress, but everything I read in the newspapers says that Congress is ready to act to give them the money. Knock on wood, I think the possibility of an Amtrak strike is pretty much gone.

(Question) Okay. Thank you very much. I appreciate all the time.

(Question) Jason Seidl. Thanks again for taking calls from the phone. Quick question. You mentioned you're expecting carloading growth to go up year-over-year. Yet you did say that the first couple of months were going to be challenging. Should I anticipate that most of this is going to come from sort of export coal growth a couple of mines coming back, and the Maersk port ramping up, or do you anticipate any economic recovery in the second half of the year with those comments?

(Mr. Moorman) In general, as Don mentioned, it’s mines coming back, it’s other growth in coal, it’s project-driven to some extent, some of our other markets like ethanol, like scrubber stone, and it does have to do with the renewal of some of our international intermodal volumes as well, not just Maersk, and not just Norfolk. So it’s a lot of project-driven growth, and it comes on throughout the year. It’s not really tied to any kind of economic forecast that has a much rosier second half of the year, for example. It’s tied to the economic forecast that essentially says this year with housing and everything the economy will look like it has for awhile. I think that’s the best way to say it.

(Question) Fair enough. If I can go back to the pricing for a moment. You mentioned that roughly half of your business comes up for repricing every year. Your rival, CSX, yesterday basically said they have almost about 70% of their business locked up in pricing for 2008. Could you give us a similar number without giving us the exact amount?

(Mr. Moorman) Pricing? I don't know that we can just because, if for no other reason, I think we all define the world in slightly different ways, and trying to understand exactly how someone else thinks or defines the world is difficult for us, sometimes. Let me dodge that one.

(Question) That's not a problem. And, Jim, on the incentive compensation, the $13 million in the quarter, was that just a quarterly number or was that a reversal for an accrual that you took prior to that?

(Mr. Squires) That's an accrual that is updated continuously throughout the year and reflects the expectation for the incentive compensation for that period, so we adjusted it. You saw that sort of an adjustment throughout the year as we had raised the bar on our bonus and incentive compensation for 2007, and so you saw favorability in that item in each quarter.

(Question) Okay. Fair enough. Thanks for the time. I appreciate it.

(Question) David Feinberg, Goldman Sachs. Hi. How are you? Two quick questions. With regard to materials and others, I had some comments here in my notes that there were some insurance reserve reversals. I wanted to confirm if there were in the quarter, how big they were, and get a sense in terms of how often you review your insurance reserves, and what your expectations are for where they might be headed in '08?

(Mr. Squires) No. There were no such items included in materials and other this quarter for us.

(Question) And how often do you review those reserves? Is it once a year, twice a year, once a quarter?

(Mr. Squires) What do you mean specifically when you're referring to insurance reserves?

(Question) The reserves you're taking for your employee — for your safety insurance as well as …

(Mr. Squires) Oh, casualties and other claims? Okay. Quarterly. Two times a year on the PI with a full blown actuarial study, and then the other two quarters an update. But it’s adjusted quarterly.

(Question) Perfect. Just a housekeeping question. On the changes you're making in terms of measuring train performance, you mentioned that going forward you're going to be looking at all scheduled trains. What I didn't have is what you were looking at previously?

(Mr. Moorman) Effectively, our merchandise and intermodal network.

We are running a little late. Let's try to get one, if it is a quick one, two more questions.

(Question) John Larkin. Good morning, gentlemen. Thanks for taking the extra call here. Didn't hear a lot of commentary on head count, from Steve in particular. A lot of talk about the volume decline and increased efficiency. Just wondering how dramatic the head count reduction was year-over-year and how you see that playing out going forward, essentially if we were to get a volume increase? Would you have to dip into the folks that are on furlough, or would you have to begin to train new employees at some point in the future?

(Mr. Moorman) The volume was down just slightly, and if you look at our head count, there are a couple of different things going on. One, as you know, we hired and trained a lot of people on the T&E side, and we're continuing to replace people on the engineering and mechanical sides. We have not furloughed anyone. We've looked at the cost side, and it makes sense for us to kind of let attrition take our numbers down, because we have, as you know, a work force with a lot of people retiring in the next few months or year even. So rather than furlough people who are typically your younger people, a lot of whom don't then come back when you call them back — and we look at the cost of what it takes to train, hire and train one conductor — we think right now it makes better economic sense to try to keep folks working and let the numbers go down. We expect on the T&E side if volumes stay down, we won't be hiring as much and those numbers will go down. The other thing that has driven our head count a little bit in the past year or two is that we have, on the management side, got far bigger training programs. We're hiring people for our training, management training, first level supervisor training, and you've all heard me talk about demographics before. We're expecting a lot of turnover in our supervisory ranks in the next year or two, and we're getting ready for that. I always say that we're like every other American company other than Google. We've got an aging work force, and we're getting ready for some fairly dramatic shifts in terms of the demographics of our work force over the next few years.

(Question) That's very helpful.

(Mr. Moorman) Okay. I think we're all done. Thank you very much. I know it has been a long meeting. Thanks for your questions. We look forward to talking to you again.

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