Mickey Foster – Vice President, Investor Relations Fred Smith - Chairman, President and CEO Alan Graf - Executive Vice President and CFO Mike Glenn - Executive Vice President – Market Development and Corporate Communications Chris Richards - Executive Vice President, General Counsel and Secretary Rob Carter - Executive Vice President – FedEx Information Services and CIO Dave Bronczek - President and CEO of FedEx Express Dave Rebholz - President and CEO of FedEx Ground Doug Duncan, President and CEO of FedEx Freight

Tom Wadewitz – JP Morgan Art Hatfield – Morgan Keegan John Barnes – BB&T Capital Markets William Greene – Morgan Stanley David Ross – Stifel Nicholaus Jason Seidl – Credit Suisse Gary Chase – Lehman Brothers Edward Wolfe – Bear Stearns Scott Flower – Bank of America Securities John Langenfeld – Baird Ken Hoexter – Merrill Lynch Rob Nichols – Manning & Napier Advisors David Campbell – Thompson, Davis & Company Peter Jacobs – [Reagan Mackenzie]

Good day everyone and welcome to the FedEx Corporation second quarter earnings conference call. Today’s call is being recorded. At this time I will turn the call over to Mickey Foster, Vice President Investor Relations.

Good morning and welcome to the FedEx Corporation second quarter earnings conference call. The earnings release and stat book our on our website atwww.FedEx.com. This call is being broadcast from our website and the replay will be available for approximately one year. Joining us on the call today are also members of the media. During the question and answer session callers will be limited to one question and a follow up so we can accommodate all those who would like to participate. I want to remind all listeners that FedEx Corporation desires to take advantage of the Safe Harbor provisions of the Private Securities Litigation Reform Act. Certain statements on this conference call may be considered forward looking statements, such as statements relating to managements views with respect to future events and financial performance. Such forward looking statements are subject to risks, uncertainties and other factors which could cause actual results to differ materially from historical experience or from future results expressed or implied by such forward looking statements. For additional information on these factors please refer to FedEx Corporation and its subsidiaries press releases and filings with the SEC. To the extent we may disclose any non-GAAP financial measures on this call please refer to the investor relations portion of our website atwww.FedEx.com for reconciliation of such measures to the most directly comparable GAAP measures. Joining us on the call today are Fred Smith, Chairman, President and CEO, Alan Graf, Executive Vice President and CFO, Mike Glenn, Executive Vice President – Market Development and Corporate Communications, Chris Richards, Executive Vice President, General Counsel and Secretary, Rob Carter, Executive Vice President – FedEx Information Services and CIO, Dave Bronczek, President and CEO of FedEx Express, Dave Rebholz, President and CEO of FedEx Ground, and Doug Duncan, President and CEO of FedEx Freight. Now our Chairman, Fred Smith will share his views on the quarter followed by Alan Graf and after Alan we will have question and answers.

Good morning everyone, Happy Holidays and Merry Christmas. Thank you for joining our conference call focusing on FedEx’s financial and operating performance during the second fiscal quarter of 08’. FedEx as most of you know is truly a global company, serving more than 220 countries and territories with unparalleled networks of transportation and information systems. We are seeing continued international growth; our strategic investments have well positioned FedEx to take advantage of macro economic trends and increased activity in important world markets. In the second fiscal quarter revenues from FedEx International Priority shipments grew 13%, led by increases from Asia and US Export. FedEx International Domestic revenues rose as strategic acquisitions gained traction in countries such as the United Kingdom, China and India. A recently launched direct FedEx Express Freight or Flight between Manchester in the United Kingdom and the United States is showing good results. Last week FedEx Express announced the opening of a new branch in Fuzhou, China. It’s an example of China’s booming second and third tier cities. In 2006 its volume of foreign trade exceeded $3 billion, a 32.6% increase year over year. That’s just one example of one city. US economy continues to grow but it is clearly restrained by high fuel prices, slower growth in industrial production and a decline in the automotive market. During the current 12 month period about one million fewer cars were sold in this country. There is, of course, a financial crisis and significant turn down in the housing industry as well. We recognize these challenging macro economic trends and are taking action in the remainder of FY08 to address these conditions. We remain, however, confident about a long term prospects for profitable growth in all our business segments. This is the busiest time of the year at FedEx and I want to thank our 280,000 FedEx team members around the world for their dedication and hard work in delivering the Holiday’s for our customers. Because of that wonderful teams outstanding efforts, FedEx set a record for its busiest day on December 17th, moving about 11.4 million packages through our global networks. This years peak was a particularly strong one for www.FedEx.com, for the first time, daily shipments generated online surpassed the two million mark. In addition to the beginning of our peak season, FedEx is busy on several fronts during the second quarter of fiscal year 08’. FedEx was front and center in US and International relief efforts. FedEx, along with our partner relief organizations helped deliver more than 130 tons of relief supplies in response to disasters in California, Peru, Mexico and the Dominican Republic. Red Cross recently awarded FedEx its Circle of Humanitarians Award for contributions and long standing commitment to the Red Cross. In October, thousands of FedEx team members continued the tradition of participating in FedEx Cares Week. A week long volunteer event, benefiting local communities across the country. FedEx-United Way relationship is some 30 years old and this year we raised nearly $16 million for United Way, a record for FedEx and its team members. For many years, FedEx as been known as a good place to work and we are proud of recognition for our workplace accomplishments. Fortune Magazine recognized FedEx as one of its 2007 Blue Ribbon Companies for appearing on lists such as Americas Most Admired Companies, the Global Most Admired Companies and Most Desirable MBA Employer. FedEx was ranked number one among companies most admired for human resources. List, a joint effort of the Haig Group and Human Resources Executive Magazine ranks the top 50 companies most admired in people, management, innovation, product and service quality and management quality. Pink a magazine for successful female business executives and entrepreneurs rated FedEx as one of the top companies for women. For closing I want to reiterate that FedEx will aggressively manage our costs going forward. That includes costs related to operations, capital expenditures and personnel to address the economic challenges facing the corporation. Alan Graf will provide more information on that in a moment. I’d also like to remind any of you procrastinators that FedEx is ready to help deliver your holiday gifts on time. The last day to ship with FedEx Express is the day after tomorrow, December 22, for delivery scheduled before Christmas. Let me turn it now over to Alan.

Good morning everyone. This morning we reported earnings per share of $1.54 for the second quarter ended November 30, compared to $1.64 per share a year ago. Overall revenue growth was up 6% to $9.5 billion for the second quarter and was primarily attributable to continued growth in FedEx Express International Priority volumes and yields, significant increases in FedEx Express International Domestic revenues due to acquisitions in the second half of fiscal 2007 and continued very strong volume growth at FedEx Ground. The profit decline was primarily due to the net impact of substantially higher fuel costs and continued weakness in the US economy which is limiting demand for our US Domestic Dxpress package and less than truck load freight services. Lower variable incentive compensation and reduced retirement costs partially mitigated the impact of the higher net fuel costs in the weak economy. While we have indexed fuel surcharges in place they cannot keep pace in the short term with rapidly rising fuel prices. Fuel expense increased approximately 23% during the second quarter of 2008, primarily due to an increase in the average price per gallon of fuel. We used 306 million gallons of jet fuel in the second quarter. Our operating income in the second quarter reflected a difficult quarter over quarter comparison as last years second quarter results benefited from the timing lag that exists when we purchase fuel and when our indexed fuel surcharges automatically adjust. During the second quarter of fiscal 2008 we experienced just the opposite affect as fuel prices significantly increased throughout the quarter. While changes in fuel surcharges for FedEx Express and FedEx Ground lagged these increases by approximately six to eight weeks. Looking at our segments and starting with Express, revenue for the quarter was $6.04 billion an increase of 6%. Operating income was $531 million, an increase of 5%. Our shining star during the quarter was International Priority; IP revenues grew 13% on volume growth of 7% and a yield improvement of 5%. IP volume growth during the second quarter was due to increase demand in Asia, with double digit volume growth there resulting from continued expansion of our services in the important Asian markets. IP yields were favorably impacted by exchange rate as well as higher weights per package. Increased International Domestic volumes were driven by acquisitions in the second half of fiscal 2007. US Domestic Package and US Freight volumes decreased during the second quarter. In addition to higher net fuel costs and the softness in the US economy, continued investment in Domestic Express services in China also restrained earnings in the second quarter. In October of calendar 2007, we announced a 6.9% average list price increase effective January 7, 2008, on FedEx Express US Domestic and US Outbound Express Package and Freight Shipments and made various changes to other surcharges. While we lowered our fuel surcharge index by 2%. Turning to Ground, for the second quarter, revenues were $1.7 billion, up 12% but operating income was $173 million down 10%. Revenues at Ground increased during the second quarter due to 8% volume growth and 3% yield growth. Average daily volumes at FedEx Ground rose in the second quarter to continued growth of our FedEx Home Delivery Service and market share gains in our commercial business. Yield improvement during the second quarter was primarily due to the impact of a general rate increase and higher extra service revenue, primarily through our residential, additional handling, large package surcharges and dimensional rating. Operating income and margin were lower primarily, again, due to the independent contractor incentive programs, higher net fuel costs and investments to continue to expand our capacity to meet the growing demand for our services. We look at Freight in the second quarter, we reported revenue of $1.24 billion which was up 1%, but operating income was $79 million, which was down substantially by 43%. Simply stated, less than truck load shipments declined 6% year over year as demands for services in the LTL sector has been severely restrained by the weak US economy. We expect this weakness to continue into our third fiscal quarter. Turing now to guidance, ongoing weakness in the US economy and high fuel costs will continue to restrain our results. These factors will be mitigated by revenue growth primarily from International Priority Services at Express and increased volumes at Ground. We expect earnings to be in the $1.15 to $1.30 range in the third quarter compared to $1.35 a year ago. For the full year we are still holding our most recent guidance of $6.40 to $6.70. This outlook does assume relative stability in fuel prices and no additional weakening in the economy. We are looking for economic growth in the 2.25% to 2.5% range for the rest of the fiscal year. Our cash flows and our liquidity remain very strong. We will continue to make significant investments to expand our global networks and broaden our service offerings, particularly through our international investments. Our planned investments for 2008 are focused on support for long term volume growth. Including additional and expanded facilities and new aircraft, improvements in service level, improvements to productivity including updates and enhancements through our terrific technology capabilities. Capital expenditures during the first half were higher than the prior year, primarily due to increased spending at Express for facility expansion and sending at Services associated with the addition of new locations at FedEx Kinko’s. However, in light of the impact of the weak US economy on demand for domestic package and LTL services we have reduced our 2008 capital target down [inaudible] percent, to approximately $3.1 billion. We’ll continue to examine this as we go through the remainder of the year. FedEx Kinko’s will slow the rate of expansion of new locations in fiscal 2009 and will balance store expansion efforts with initiatives to improve the customer experience at existing stores. We are employing significant cross containments and costs targeting initiatives across all of our business segments and manage near term expenditures but we will continue to pursue strategic projects related to our long term growth plan. We do remain optimistic about the long term prospects for all of our business segments. In general operating productivity has improved significantly and I want to join Fred and the rest of the management team in thanking all the men and women here at FedEx for their very hard work and dedication during this extremely busy peak season. We are achieving very high service levels and are satisfying customers every day. Now the team will be happy to answer your questions.

[Operator Instructions] We’ll go first to Tom Wadewitz with JP Morgan. Tom Wadewitz – JP Morgan: The question that stands out to me the most is on your guidance and it appears that in maintaining the full year you have very aggressive guidance for fourth quarter. I don’t know if this is precisely backing into it but something like mid teens growth, 16% year over year growth in fourth quarter following third quarter being down year over year. I wonder if you could explain to us, are there some significant cost take outs that affect fourth quarter and provide that optimism, is it demand really picking up, is it China Express, what’s really behind that and how much confidence do you have that you’re going to see that fairly sharp turn in earnings in fourth quarter?

I think there are a couple of reasons worth noting here. One, we are expecting to see very similar results at FedEx Ground volume and FedEx International Priority volumes in the third and fourth quarter. That will be part one of why we believe the fourth quarter will be improving so much. Importantly at Express, if fuel prices remain stable, the affect that we’ve had here in the second quarter is going to reverse significantly in the fourth quarter and we will get back most of or all of what we lost in the second quarter year over year in the fourth quarter. Fuel will be a very big positive in the fourth quarter and continued IP and Ground growth. As far as costs, we are being very aggressive in restraining our overhead in our SG&A areas across the board we are retargeting our priorities and have focused more on what we think are the very highest return projects and frankly, setting some aside until we see a better economic environment. Tom Wadewitz – JP Morgan: Are there significant cost take out opportunities that you can really work on in the near term; I guess in terms of the China Express rollout, is there some expectation at fourth quarter that you lap some of the costs and that begins to help you or is that a little further out than fourth quarter?

There is some lapping going on in two areas. One is certainly China, secondarily in our national less than truckload business which has been weak for several quarters in a row. That’s definitely happening. I’ll let Dave talk to you about China.

China Domestic is actually doing very well. Their volumes almost every week set new records for us. I should point out that the International Priority product that we have around the world is really the powerful driver of our IP revenues. It’s not just China Domestic at the moment. Tom Wadewitz – JP Morgan: Thank you for the time.

We’ll go next to Art Hatfield with Morgan Keegan Art Hatfield – Morgan Keegan: Just one quick question, Alan, on the Ground, on the driver incentive program, can you help us quantify a little bit more what the cost you in Q2 and how should we think about that impacting the results in Q3 and Q4.

I’m not going to quantify it specifically, Art, but of course it has to do with several areas, notably California as well as some changes to our incentive plans that are ongoing in the rest of the country. I’ll let Mr. Rebholz give you a little bit more color on that.

We have the bulk of the expenses reflected in our go forward forecast. We had a terrific response in the California contractors; they have transferred into multi-work area and have signed up. There was a secondary component to the incentive, that is an incentive to drive more contractors into the multi-work area system and we’re north of three quarters of those people signed up for the program and as already stated the costs are reflective in the go forward numbers. Art Hatfield – Morgan Keegan: Is there a date where this program ends or where we shouldn’t see the near term costs reflected in earnings?

The variable incentive is an ongoing improvement to the contractor model, that’s it. Art Hatfield – Morgan Keegan: Thank you very much.

We’ll go next to John Barnes with BB&T Capital Markets. John Barnes – BB&T Capital Markets: I missed a couple minutes of the beginning of the conference call, Alan; did you quantify the dollar reduction in CapEx that you sighted in your press release?

We’re targeting that at about $3.1 billion, which is about 11% reduction. John Barnes – BB&T Capital Markets: Can you elaborate a little bit as to where that money is coming out of?

It’s across the board with the exception of what we need to do at Ground in terms of continuing to expand our facilities to handle the unbelievable volume growth that they have. I should just take this opportunity to let you know that on Monday night, Ground had 900,000 more pick ups this year than last year, packages that is, when you think about the productivity and the work that has to go into that kind of surge, which is continuing, we have to build additional facilities and have more people providing the service. Everywhere else we’ve reduced pretty much across the board, we’ve delayed some vehicles, some information technology, pushed out a couple of aircraft, but are still investing in the areas we think have the highest ROIC. John Barnes – BB&T Capital Markets: Does this change the outlook on the fleet replacement program? Does it delay it at all or is that still ongoing?

No, we really very much are excited about the 757’s and the 777’s, the productivity and return on investment capital on those are huge. With the price of fuel in particular they are going to exceed anything we’ve ever done. While there certainly are long term in nature in terms of their returns their really vital for the strategy of this company going forward. John Barnes – BB&T Capital Markets: Last question, from a cost standpoint, as you get down into the LTL segment, you’ve taken a bit of a margin hit, I think there’s been some re-branding of Watkins and some integration of things like that. Where do you stand in that and how much of that cost begins to fall off over the next two, three, four quarters?

Yes, we did have, I think it was $3.5 million of re-branding in the quarter. We have to have it all done by September of next year and we are well on track to do that. I would point out on the margins though that there were a couple big one timers in there. Last year we had insurance proceed from Hurricane Katrina, we also had a big gain on a sale of a piece of property in Sacramento. You couple that with the fuel surcharge reduction, that’s almost 400 basis points of the change year over year. John Barnes – BB&T Capital Markets: Thanks for the color, nice quarter guys, thanks for your time.

We’ll go next to William Greene with Morgan Stanley. William Greene – Morgan Stanley: Just one quick follow up to the comment you made about the 900,000 more pick ups. How much growth is that?

It’s actually the number of packages. It’s substantially higher than the average growth rate that we’ve had; it was a very big day. William Greene – Morgan Stanley: If we look at the US Export business, how much was that up in the quarter?

Let me just say that for IP revenue this quarter I wanted to point this out, it was the highest growth rate we’ve had in six quarters. Interestingly enough, Asia Pacific led the strong double digit growth rates across the world. US Export was right there with it and Europe, but Latin America and Canada also grew year over year. US Export was up over 10%. William Greene – Morgan Stanley: That’s faster than you had in the fiscal first quarter?

Yes, that’s right. William Greene – Morgan Stanley: Last question, on the rate increases that you announced for calendar 08’. How much should we assume typically can make it into yield after discounting?

A substantial part of it will flow through, although that’s difficult to say in this particular economic time with fuel prices being what they are. I would say fuel prices are the wild card in this particular period. We’ll have to wait and see, we’ve always seen a substantial flow through, again, I think fuel is the wild card. William Greene – Morgan Stanley: Mike, let me just ask you if you look at it from the perspective of the last down turn that we had, or slow down, back at the early part of this decade. How much of it were you able to capture back then, was it 10%, 20% of the increase?

I think it’s a difficult comparison because we didn’t have fuel surcharge index in place at that time, I don’t know that you can use that as a comparison to go forward. William Greene – Morgan Stanley: Thanks.

We’ll go next to David Ross with Stifel Nicholaus. David Ross – Stifel Nicholaus: A question on FedEx Freight, the growth in National LTL versus the Legacy FedEx Freight business, what’s the difference in volume growth there?

They both grew sequentially year over year from Q1 which is really what we were looking at. We put these companies together; we’ve integrated them now that you see Q2 you’ve got good year over year comparisons of the entire business segment. These two companies are actually managed together, the IT systems are the same, the sales force is the same, they interchange shipments between each other to maintain 100% coverage around the country. It’s really difficult to break that out. Of course, now that we’ve got Q2 and we’ve got year over year comparables we manage the networks together and that’s the way we report them. I think the 6% decline in shipment is your year over year comparable for the entire network. David Ross – Stifel Nicholaus: The fuel surcharge impact at FedEx Freight, what was the net impact on the margin in the quarter?

The fuel surcharge reduction that we took on retail pricing on the surface was about two margin points. That was part of an overall strategy to make us more competitive with the small and medium sized customer. After we got the reengineering done at National and we’ve combined the sales forces, that’s just one piece to our strategy of aggressively going after the market and beginning to grow market share in these two networks.

We’ll go next to Jason Seidl with Credit Suisse Jason Seidl – Credit Suisse: First, Fred, congratulation on the Humanitarian Award, that’s probably more important than anything we are talking about on this call. If I can go back to some of the comments about the contractor model at Ground. Alan, while you’re not going to quantify in terms of the impact, can you give us an idea, are you going to do what you did in California across other states throughout the course of the year. Is that how we should look on margin pressure going forward?

I’m going to try to respond to that. As we said in our press release, we have an increased level of uncertainty in both the regulatory and the legal area. The changes we’ve made are in response to legal action in California and other aspects of the challenges that we are seeing. We continue to aggressively work these issues and we’re very pleased with the outcome of both of these programs. We had virtually all of the California contractors accept the incentives and we’ve had a tremendous response on the nationwide program. Jason Seidl – Credit Suisse: On the Freight side, Doug, did FedEx National lose money again in the quarter or did you guys reach break even?

It’s impossible to break that out now that would give you anything constructive to use. These networks are managed together, they interchange shipments, they share the same IT, they share the same sales force. We are managing these together now so that now that we’ve go the year over year comparables in Q2 I think that’s the right way to look at for the entire business segment.

I would add that Doug is exactly correct. Maybe this will help you, in a very weak, less than truck load market; the weakest part of it is the long haul part of it.

We’ll go next to Gary Chase with Lehman Brothers. Gary Chase – Lehman Brothers: Just curious on the currency side in IP, that clearly helps yield. I’m wondering, should we think of that as a profit contributor or do you have enough non-dollar costs that kind of washes it out in the op profit line?

We do have a lot offshore expenses these days associated with pick up and deliver of course. Our fuel, pilot pay and depreciation of aircraft are dollar denominated. It was a help for profit, no question about it. Gary Chase – Lehman Brothers: Is there some percentage that we can use as a benchmark, I guess we can go back and look at what those are?

In our case, it’s not substantial like it would be for other companies, particularly manufacturing companies, but it did have a little bit of a boost for us this quarter.

We’ll go next to Edward Wolfe with Bear Stearns. Edward Wolfe – Bear Stearns: Two questions, just following up on the Ground side and then on guidance if we could. The language in your release is pretty strong for the first time, talking about its reasonably possible that cost increases could be material going forward for the change in relationships with your contractors. Should we view this as legalese or should we view this as there really is ongoing changes or the risk of changes that might alter the ongoing margin potential at Ground. How do we think about that and what are you referring to?

As you know, we’re well committed to providing the most transparent disclosure that we can in both the releases and the SEC filings. This is a best summary that we can provide of a situation that we are dealing with right now. It’s very straightforward, we anticipate changes and we understand that it’s reasonably possible that these cost increases could be material. Edward Wolfe – Bear Stearns: Why now though, you haven’t put this in before? What’s changed in the timing of this?

We felt at this point in time it was best to go ahead and talk about this in this context. Edward Wolfe – Bear Stearns: A follow up on the guidance. Alan, you talked about the fuel impact would reverse itself in two quarter. If fuel stays flat and it peaked a couple weeks back, why shouldn’t that reverse itself in two months in the current quarter, why should it wait four months to reverse itself, what am I missing?

You’re not missing a thing, Ed, you’re correct. It will be a benefit in the third quarter but the year over year impact won’t be nearly as big as it will be in the fourth. Edward Wolfe – Bear Stearns: You made one other comment about the volumes that would pick up in the fourth quarter, I didn’t quite understand. Something about Express and Ground volumes as good in fourth quarter, as third quarter. I didn’t quite get that.

What we’re saying is that those are going to remain the two strongest parts of our business. We’ve got, again with a caveat that we’re not expecting a recession; we are expecting continued growth, although it would be low, particularly global growth. At our IP and Ground volumes are going to be significant profit contributors in the fourth quarter.

We’ll go next to Scott Flower with Bank of America Securities Scott Flower – Bank of America Securities: I just wondered if I could get a little color on, however you want to describe it, as we look through the quarter between the different units of Freight, Ground, and Express. How did volume growth progress, was it even, did it vary, did it get better, did it get worse. I’m just trying to get some gauge as we look through the fiscal second quarter. How did volume growth progress?

Volume growth did not materially increase in the quarter until we got into this last week. We’ve seen a strong surge in volume in this last week. Obviously a lot of people are delaying purchases and making those via the internet because they can now. Having said that, the quarter, relatively speaking, did not see the increases that you would expect to see as you approach peak season and approach the Christmas Holiday period. Scott Flower – Bank of America Securities: Did the rate of change slow or increase or what is about the same throughout the different months, understanding there is seasonality?

It was relatively flat compared to previous years. Moving up towards the final week or so of the holiday period. Scott Flower – Bank of America Securities: The other quick question I had is. I’m just wondering, one of the things we look at, maybe because of the mix of some of the acquisitions you’ve made, that obviously weight of package may matter, obviously weight of package was up 8% or so. Is that a function of some of the international acquisitions or is that a domestic number is that telling us anything that the weight of package is improving or is that a mix affect from acquisitions or just in general? The average weight of express package I think was up about 8% in the quarter and I’m just trying to get a sense of was that driven by mix affect due to acquisitions or was that maybe telling that the depth of the economy is overstated and sort of all the doom and gloom that’s prevalent. Not in this call but just generically in the market today?

Primarily related to IP packages, although there was some mix issue on the domestic side related to softer volumes in the financial markets.

We’ll go next to John Langenfeld of Baird. John Langenfeld – Baird: Can you reflect on the pricing environment today, Domestic, Express pricing environment today versus maybe the 2000-2001 calendar period?

You’re taxing my memory here by asking me to go all the way back to 2000-2001. The best way that I can answer that question is to say that we’ve seen no material change in the recent quarters. John Langenfeld – Baird: It seems like there was more pressure on the yield side back then, when the economy slowed than what we’re seeing here today.

I think there are a number of factors that are different today. Obviously, FedEx has a very broad portfolio of services that allows us to customize our solutions to meet the individual needs of any of our major customers. As a result of that, they have the flexibility to move volume between networks to meet their needs at any given time during a business cycle. We have seen some movement of volumes between express and ground networks, between our Priority and Preferred services and that does certainly impact the pricing environment in a significant way. You have to look at it relative to the portfolio that we offer today versus what was available in 2001, it’s significantly different. John Langenfeld – Baird: Doug, your business is probably closest to the day to day economy. As you think about how your trends progress during the quarter, can you give us some color? Was it consistent, did it deteriorate throughout the quarter, how would you look at that on a volume basis?

Clearly our strongest month was November; clearly it built during the quarter. I think you have to go back and understand that we came out of the summer, we got the FedEx National Company, all the reengineering network changes done, we completed the consolidation of our sales force so we had a sales force out there with a strong message. We introduced the service level and the long haul business that is head and shoulders above everything else that’s out there. I think the track we’ve seen since summer the growth track we’ve seen has been far more about market share growth than it has been about the economic growth. The truck indexes that I see have been continuing to climb and flat and we have bucked that trend but I think that’s a FedEx phenomenon and not necessarily a market phenomenon.

We’ll go next to Ken Hoexter with Merrill Lynch. Ken Hoexter – Merrill Lynch: I want to review what you said about the peak season. Are you saying through December you are seeing higher volumes than a year ago? You were saying the record days had been stronger. I just want to understand, or were you just referring specifically just to the peak day?

In Alan’s opening remarks he was referring specifically to the peak day. Having said that, what we did see a record volume, if you look at the month as a whole, really kind of trailing what you’ve seen with retail sales the start of the month was a little bit less than we anticipated but we have seen some strengthening as we get closer to Christmas. This week, for example, has been particularly strong. I would call it more of a balloon affect and it’s really had, I think the higher fuel prices that we’re seeing which I think fuel or petroleum is representing about 7% of GDP which is significantly up as having a material impact on spending in the holiday season, we are seeing the affect of that. Having said that, this week has been strong. Ken Hoexter – Merrill Lynch: Strong, obviously it always builds to this week, it’s strong in a year over year basis or just stronger than the prior weeks?

Stronger than prior weeks. Ken Hoexter – Merrill Lynch: If we can revisit what you were talking about Ground, there was a string of lawsuits filed in California I just saw something happen in Massachusetts last night. I though everything was aggregated into Indiana or Illinois where you aggregated 30 some odd cases. That offer that you made in California, it sounded like there was an incentive program nationwide, are you offering the same bullet, deadline for everybody to go to multi-routes or is that something that’s kind of an offer but not mandated?

There are several things going on and I can certainly understand how this can be confusing. First of all, the California incentives were offered in part, because we had litigation that was a separate litigation the Estrada case in California. Those California incentives as you correctly note were to convert single route contractors into multi-route contractor operations, that’s been very well received. At the same time we did that, we provided incentives to our contractors on a nationwide basis to enhance our multi-route operations, especially for those that want to grow their business. That is not particularly tied to any specific litigation or challenge, it was thought to be a good business move and consistent with our needs as a growing business. The multi-district litigation in Indiana is the consolidation of what are now 40 separate cases and with the exception of just one or two trailing cases those matters have now all been briefed and are awaiting decision in class certification except for the Kansas case where a decision was entered during this quarter. We have appealed that decision on class certification to the Seventh Circuit Court of Appeals and are waiting an outcome on that. Those matters continue to proceed. Separate from that litigation, however, we continue to have periodic challenges or allegations, like the ones made yesterday in Massachusetts. The Massachusetts AD yesterday issued citations which are a type of civil allegation, alleging certain violations in Massachusetts with respect to thirteen single route contractors. This is a beginning of a civil process where we will contest those allegations and we face these challenges periodically throughout the US.

We’ll go next to Rob Nichols of Manning & Napier Advisors. Rob Nichols – Manning & Napier Advisors: Given some of the costs pressures that might be developing in the Ground business, can you talk a little bit about how you think you might try to recover some of those cost pressures or improve the margins in you will? Is it passing some of the costs along to customers, is it reaching for more volume, are there cost cutting opportunities, you can use to offset some of these?

There’s no question that productivity and growth go hand in hand to offset cost pressures. We have consistently done on a year over year basis a terrific job of dropping productivity to the bottom line. Both to offset our capital investments and other costs that may arise. If you look at the core quarter, the core business was simply fantastic. I was very proud of our team. We did have some onetime costs that we recognized that were related to legal, but those are onetime costs. We expect that the continued productivity and technology investments that we have been making consistently over our 20 years will continue to reap benefits in anticipation of our earnings goals that we set for ourselves. Rob Nichols – Manny & Napier Advisors: Thank you.

We’ll go next to David Campbell with Thompson, Davis & Company David Campbell – Thompson, Davis & Company: There’s quite a bit of debate going on about the domestic downturn in industrial activity and consumer spending, spreading eventually to reduction in international business activity and tonnage growth rates. Do you have any opinion on that?

Let me try to give you a couple of larger themes about what’s going on. I think sometimes in these conference calls we get focused on a number here or a number there. The global trading system for the movement of goods like we carry is extremely strong and it is being driven by substantial macro economic trends. The most important of that is that you now have, in the form of the internet, a very low cost standardized visual medium where people can sell and source goods without regard to time or place. At the same time, you have networks like the one pioneered by FedEx, remember, we are the leader by a long shot in moving goods by air around the world. Sixty percent bigger than the next largest entity out there. Because of the great information systems we’ve put together and FedEx trade tools and so forth you are making it easy to move small lots of just in time type shipments. That is what is driving the growth in our IP business overall. I suspect even with low economic growth that that is going to continue for some time in the future. That’s a very positive story for our company. In particular, there are two subsets to that in our outlook. One is the dollar exchange rate is driving a substantial growth in international exports. There too, we have a commanding market share lead so we are benefiting and Dave Bronczek and his team are adding capacity. I mentioned Manchester Express Freighter that we put in place. The second theme is the outstanding domestic China network that we put in place. Obviously it’s a drag on earnings at the moment, but it is incredible what’s going on in China and we have a great service over there and I think both of these things in that very big macro economic trend is going to continue for some period of time. The second major issue is on the Ground side we are growing at a very rapid rate. We are growing at a very rapid rate because Dave Rebholz and his team have vastly improved the Ground network over the last few years and it is a heck of a value proposition. Those two themes are going forward. On the economy as a whole, as I think Alan mentioned a moment ago, you had since 2002 petroleum go from 3.1% of GDP to about 7% of GDP, you’ve lost 4% of the GDP in the United States which is mostly shipped offshore because 60% of our petroleum is now imported, that’s a huge offset to the growth in US export of goods and services. Of course all of you are familiar with the meltdown in the financial markets and what that has to do with housing. With fuel prices up and the housing meltdown you see a very tepid growth rate in the US economy as Alan mentioned to you. In the housing and automotive sectors where we see that the most is on the freight side, which are tied into those areas. We have outstanding growth opportunities in the international marketplace and on the Ground side of the house and I believe that this reengineering that Doug did in his Freight network, which, as he mentioned is providing a level of service never seen in that industry ever before. I think I’m correct, Doug, you are providing in excess of 98% on time deliveries in the national system as well as the regional system.

That is correct.

Those are the bigger themes here and we don’t think that the United States is going to see an economic meltdown but we don’t think there is going to be strong growth in the US economy and that’s what our forecast is built around. We have a lot of confidence in these numbers that we are putting out there provided you don’t see fuel run up and bear in mind that last March’s conference call I said repeatedly that fuel is a wild card and fuel I think at that time was about $60 a barrel, it went to $90. As long as you don’t have a huge crisis of confidence. I personally think that the Congress and the administration ought to put some stimulative things out there. Monetary policy and the Fed can’t do it all. Larry Summers, yesterday, who is traditionally has a Democratic point of view is calling for tax cuts. The US tax rates on corporate tax rates are simply non-competitive; we are the highest of all industrialized counties except one. Reduction in corporate tax rates or new investment tax credit or something along those lines may be necessary to get it back into the growth rate, particularly when you’ve got to absorb new plant and equipment that is more efficient in terms of energy use. You cannot have an economy that goes from 3% of GDP spent on petroleum to 7% in a five year period without having it have a big affect. David Campbell – Thompson, Davis & Company: For my follow up, if the dollar were to not continue to be weak and say were to rally somewhat. Would that have a negative effect on our export growth? In other words, how much of the strength in exports is due to the dollar and how much is due to just overseas economic growth?

My guess is the much bigger factor in this is that huge macro economic scenario that I gave you. I think that is, to quote my friend the President, “Mis-underestimated” for a long time. You’ve got to remember, David, our planes go both ways. We’re happy to take stuff from China, from the United States and exchange rates are clearly an exogenous factor as are petroleum prices. I think the general growth story, because of those big factors I mentioned to you in the international trading area in the suite spot where we stand is going to continue for some period of time. We may be wrong, but it’s been going on for a long time now and I don’t think it’s going to change much despite exchange rates.

We’ll go next to Peter Jacobs with [Reagan Mackenzie]. Peter Jacobs – [Reagan Mackenzie]: First, for Fred, there was a commentary in the November 16th announcement that when you revised guidance downwards, basically saying that you are seeing some economic signs that the decline in industrial production has hit bottom. Could you talk about that a little bit and then I have a follow up question to get a better sense of the business and the percentage of business now that it’s being done basically from consumers ordering packages on the internet or gifts on the internet and sending those off?

In regard to the first question, I think in terms of year over year and industrial production in the first quarter calendar 07’ we were looking at industrial production about 2.5% year over year growth. Second quarter 1.8%, third quarter 1.8% and the fourth quarter we are estimating at about 2.1%. That will give you some indication. It didn’t decline; it went down to the trough and is sort of knocking along there at about 1.8% to 2% something along those lines. The second part of the question what what? Peter Jacobs – [Reagan Mackenzie]: I’m just curious about the growth that you’ve seen from customers using your services from ordering goods off of the internet and if you could help quantify that a little bit so we get a sense of the growth there and also what kind of percentage of the overall business that comprises now?

Let me let Mike Glenn comment about the specifics and then I’d like Rob Carter to comment about what’s going on in terms of integrating of information systems in with the e-tailers. There again is a very big macro economic story that’s sort of missed in the quarter to quarter numbers.

We won’t have the final numbers until after the holiday season but I think it’s clear to say that we’ve seen an increase in the percentage of packages that originate through the internet. I think that’s also evidenced by what we’ve seen in the month of December as customers, quite frankly, procrastinate more which is a benefit to us, although it does put more pressure on peak week. I’ll let Rob talk about more general issues.

Peter, we have amazing growth inthe internet channels no question about that but one of the most striking parts of it is the part of the internet that we call the gateway. Those e-tailers that integrate directly with our shipping and rating and tracking services directly into their e-tail sites. We’ve seen phenomenal growth in that segment of internet con activity. The internet is kind of transitioning from dragging everybody to www.FedEx.com to today a more connected world of people that tap into those services from an e-tailing standpoint; utilize our shipping capabilities directly in their systems, their customer and fulfillment systems. Some really fast and exciting growth there but overall those online channels continue to growth far more robustly than the brick and mortar holiday peak experiences growing at a much slower rate than the e-tailing experience this year, even based on very large numbers.

This concludes the question and answer session today. Mickey Foster I’d like to turn the conference back over to you for additional or closing remarks.

Thank you very much for participating on this second quarter conference call. Please feel free to call anyone on the IR team if you have any additional questions. Thank you very much.

Once again, this concludes today’s conference. We do appreciate your participation, you may now disconnect.