Mickey Foster - Investor Relations Frederick W. Smith - Chairman of the Board, President, Chief Executive Officer Alan B. Graf Jr. - Chief Financial Officer T. Michael Glenn - Executive Vice President - Market Development and Corporate Communications Douglas G. Duncan - FedEx Freight President and Chief Executive Officer Christine P. Richards - Executive Vice President, General Counsel, Secretary David F. Rebholz - President and Chief Executive Officer - FedEx Ground David J. Bronczek - President and Chief Executive Officer - FedEx Express Analysts : Tom Wadewitz - JPMorgan Ken Hoexter - Merrill Lynch Bill Greene - Morgan Stanley Donald Broughton - Avondale Partners David Ross - Stifel Nicolaus Jon Langenfeld - Robert W. Baird & Co. Justin Jagerman - Deutsche Bank Matthew Brookler - Piper Jaffray Ed Wolfe - Wolfe Research Helane Becker - Jesup & Lamont Gary Chase - Barclay's Capital Chris Ceraso - Credit Suisse Robin Byde - HSBC Global Research John Barnes - RBC Capital Markets Keith Scunmacher - Morningstar David Campbell - Thompson, Davis & Company Scott Flower - Macquarrie Securities

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 your host, Mr. Mickey Foster. Please go ahead, sir.

Good morning and welcome to FedEx Corporation’s second quarter earnings conference call. I’m Mickey Foster, Vice President of Investor Relations. The earnings release and stat book are on our website at fedex.com. This call is being broadcast from our website and the replay and Podcast download will be available for approximately one year. Joining us on the call today are members of the media. During our 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 in this conference call may be considered forward-looking statements within the meaning of the Act. Such forward-looking statements are subject to risks, uncertainties, and other factors which could cause actual results to differ materially from those expressed or implied by such forward-looking statements. For additional information on these factors please refer to our press release and filings with the SEC. To the extent we disclose any non-GAAP financial measures on this call, please refer to the Investor Relations portion of the website at fedex.com for a 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; Dave Bronczek, President and CEO of FedEx Express; Dave Rebholz, President and CEO of FedEx Ground; and Doug Duncan, CEO of FedEx Freight. And now our chairman, Fred Smith, will share his views on the quarter, followed by Alan Graf and after Alan, we will have questions and answers. Frederick W. Smith: Thank you, Mickey and welcome to today’s conference call to discuss second quarter earnings and our outlook for the second half of the fiscal year. Positive momentum in the global economy and continued execution of our business strategy drove volumes higher across all FedEx transportation segments. Growth was highlighted by increased international shipments. We are encouraged by this trend. At FedEx Express, international priority volume rose 6% in the second quarter due largely to volume growth in Asia and Latin America. U.S. domestic package volume at FedEx Express increased 4% and average daily volume also increased at FedEx ground and FedEx freight. We believe these quarterly trends in volume growth indicate global economic conditions are improving. For more than a year now, we’ve taken decisive actions during the worst economic downturn in FedEx history to reduce expenses while still expanding our portfolio of services. We reorganized our networks and personnel for greater efficiency and productivity. We pledged FedEx would emerge from this recession as a leaner, stronger company and we intend to do so. With continued improvement in the world economy, we expect stronger demand for our services in the second half of FY10 and stronger year over year comparisons. For the remainder of FY10, we will continue to balance cost controls with investment opportunities that serve our long-term interests, such as a more fuel-efficient and productive Boeing 757 and 777 aircraft joining our fleet. By the end of FY10, we will have added a total of 17 757s and four 777s. We will also invest in services that add value for our customers. A few weeks ago, FedEx ushered in a new era of tracking capability with the announcement of a unique product called [Sensaware]. Available this spring and designed for the life sciences industry, Sensaware couples a multi-sensor device and [inaudible] platform for real-time sharing of information on high value, highly sensitive critical shipments. We believe the U.S. economy reached a turning point year over year during our second fiscal quarter with the one year anniversary of the financial collapse. Several economic indicators related to industrial demand turned positive compared to the same time last year. Other forward-looking indicators point to near-term improvement. Manufacturers of capital goods say many of their customers are buying again, as opposed to drawing down inventories, signalling an up-tick in capital spending. We believe the process of inventory clearance has bottomed and subsequent restocking is driving growth. As we look ahead, we see continued opportunities to expand our international business portfolio to take advantage of its potential for high growth and profitability. For example, FedEx has launched international direct distribution, a multi-mobile shipping option allowing customers to choose among air service and ocean transportation based on their transit time needs and strengthening FedEx as a leading provider of end-to-end supply chain solutions. FedEx International direct distribution enables customers to consolidate multiple packages or freight into one shipment, saving time, money, and streamlining customs clearance before the individual shipments are delivered to their destinations. FedEx trade networks, as part of the express segment, is a growing international ocean and air freight forwarder and it has opened new offices across Asia, Europe, and Latin America as part of its aggressive expansion plan, bringing to 18 the number of new locations in 2009 to complement its operations in the U.S. and Canada. In November, FedEx Express widened its international portfolio, adding India to the list of countries, including China, Canada, the U.K., and Mexico where it offers branded domestic service. FedEx express enhanced its overnight service between Asia and Europe, introducing next business day service connecting mainland China, Hong Kong, and Singapore with France and Germany. In China, FedEx express accelerated inbound international express shipments to Shanghai by six hours. At this time, I’d like to thank our 275,000 plus team members around the world for their loyalty and dedicated service in this past year as FedEx weathered the worst economic conditions in its history. During this holiday season, we especially appreciate their commitment to our purple promise, which says simply I will make every FedEx experience outstanding. Because of our team’s great work, FedEx handled a record 14.1 million shipments this past Monday, up from 12 million packages on last year’s business day. And for all of you who procrastinate, don’t forget FedEx express will accept packages up until Wednesday, December 23rd for delivery before Christmas and if you’d like to bring them to the FedEx office, we would be happy to pack them as well. Before turning the call over to Alan, I’d like to offer my personal thanks and the thanks of our Board of Directors and other team members to Doug Duncan, the founding President and Chief Executive Officer of FedEx Freight. Doug has been a great partner and is retiring after the first quarter of calendar year 2010. He will be succeeded by Bill Loeb. Doug has given many years of outstanding service to FedEx, so best wishes to you, Doug, and we appreciate everything you have done for us. Now, Alan Graf, our Executive Vice President and Chief Financial Officer, will give you some more color on these remarks. Alan B. Graf Jr.: Thank you, Fred and good morning, everyone. In the second quarter, we were able to exceed the top end of our guidance range primarily as a result of stronger than expected international priority package and freight revenues and better than expected ground and smart post package volume. International priority package volume increased 6% versus last year, led by the Asia and Latin America regions, and international priority freight pounds increased by 16%. We were able to move the higher than anticipated volume from Asia by flying extra sections with existing aircraft and incurring only incremental variable operating costs. Overall, FedEx Corporation revenue decreased 10% as significantly lower fuel surcharges and a very aggressive pricing environment were only partially offset by volume growth and continued strong cost management and productivity gains. Operating income declined 27% as last year’s results significantly benefited from falling fuel prices and the related fuel surcharge timing lag. Additionally, in the second quarter we have begun to accrue variable compensation for the individual performance portion of our annual incentive compensation plan for non-exempt salaried employees, managers, senior managers, eligible exempts, individual contributors, and administrative professionals. Second quarter results also highlight the dedication of our team members worldwide and the operating leverage we have built into our global networks by lowering our cost structure while continuing to invest in growth opportunities. Cost control efforts included fewer flight hours and improved route efficiencies which led to a 5% reduction in jet fuel consumption despite a 4% increase in express package volumes. At FedEx express, average daily package volume increased 4%, while composite package yield declined 16%, primarily as a result of lower fuel surcharges. Our weighted average U.S. domestic and outbound fuel surcharge declined to 6% in the second quarter versus 30% last year. At express, operating income declined 36%. At ground, volume increases and strong productivity drove segment operating income up 12% to $238 million. Ground volume increased 4% and FedEx smart post volumes increased 63%. FedEx ground yields decreased only 2% as improvements in base rates and higher extra service revenue helped to mitigate the lower -- the impact of lower fuel surcharges. FedEx freight, although less than truck load average daily shipments improved 3% year over year, yields declined 12% on lower fuel surcharges and a very competitive pricing environment driven by significant industry over capacity. As a result, the FedEx freight segment incurred an operating loss of $12 million. Looking ahead, our third quarter guidance of $0.50 to $0.70 per share versus $0.31 per share last year for the quarter and $3.45 to $3.75 per share for fiscal 2010 reflect our expectations for stronger year over year demand for our services, given easier comparisons, stable fuel prices, a continued benefit of our cost reduction actions taken during the past year, and a global economy which we believe should continue to modestly improve in our fiscal second half. We are expecting sequential U.S. GDP growth of 4% in the fourth calendar quarter of 2009, 3.6% in the first calendar quarter of 2010, and 2.7% in the second calendar quarter of 2010. With the global economic conditions improving, we expect stronger demand for our services in the second half of fiscal 2010. However, we expect a competitive pricing environment will persist. While we continue to closely manage our cost structure, continued improvement in demand for our services will produce volume driven increases and operating costs as we adjust capacity to match demand. Our guidance is tempered by the uncertainty of current demand trends after our peak shipping season, expectations of a continued competitive price environment, especially in the LTL market, and the reestablishment of some of our compensation programs, all of which will somewhat dampen our near-term earnings potential as our variable incentive compensation programs have a high marginal accrual rate at our current expected profit levels. On the balance sheet side, our balance sheet and liquidity position remain very strong, even after capital expenditures of $1.5 billion and pension contributions made in the first half of fiscal 2010. We made contributions of $613 million to our tax qualified U.S. domestic pension plans during the first half of 2010. In December, we made additional required quarterly contributions of $118 million to our U.S. retirement plans and expect to contribute another $235 million in fiscal second half, all to keep our pension funds fully funded as compared to some of our competitors. On the capital expenditure side, we still expect to spend approximately $2.6 billion in fiscal 2010 and include spending for aircraft and related equipment at FedEx express and network expansion at FedEx ground and smart post. We also continue to invest in productivity enhancing technologies. We invested $859 million in aircraft and aircraft related equipment in the first half of fiscal 2010 and expect to invest an additional $361 million for aircraft for the remainder of 2010 at express. Aircraft weighted expenditures include the new B777s, the first of which entered revenue service in the second quarter of 2010 and of course the 757s. These aircraft related capital expenditures are necessary to achieve significant long-term operating savings and to support long-term international volume growth. And now we’ll be happy to answer your questions.

(Operator Instructions) We will go first to Tom Wadewitz with JPMorgan. Tom Wadewitz - JPMorgan: I wanted to ask you a little bit about your guidance, the volume trend appears very constructive and it sounds like you are generally expecting that to continue. It looks like the third quarter is perhaps a little more conservative than the full year and I am wondering if there are any cost items in the third quarter that are somewhat unusual versus what you would expect looking at the fourth quarter or versus what you would have had in the second quarter. Alan B. Graf Jr.: Well, a couple of items -- first, seasonally the third quarter is always our weakest, particularly post holidays. We are having a strong December I will say, as Fred mentioned on our largest package day of 14.1 million packages. But we expect a little bit of a slow-down in the January and February timeframe and then secondarily as I alluded to, we really didn’t have time to add much cost for the anticipated traffic that we saw at express and we want to keep our service levels as high as humanly possible and to keep -- catch up with that volume and keep service levels high, we are going to have to invest in additional hours and also the cycles that we put on those aircraft will have to have some additional maintenance. So there is a little bit of drag there, as well as we will be continuing to accrue for our annual incentive compensation plans in the second half. We had no accruals in the first quarter and we had some catch-up accruals in the second quarter. So other than that, I still believe the outlook, as Fred mentioned and I mentioned for our traffic is very positive and we should have a lot of momentum going into the fourth quarter and into fiscal 11. Tom Wadewitz - JPMorgan: Okay, and in terms of the variable compensation, can you give us a sense of the magnitude of what that is in second quarter, was in second quarter and if that’s kind if similar if you look at that across the next two quarters, or if it’s a lot different given that you had some -- I think you said some additional true-up in second quarter related maybe to what you didn’t accrue in first quarter? Alan B. Graf Jr.: Well, I wouldn’t say it’s not material to the overall earnings of the company but it is a little bit of a drag. Just as we use it as a shock absorber coming down to help cushion our earnings decline in very tough times, now we are reinvesting back in our folks who work so hard. So it will have a dampening effect but it won't be material, but it will have a dampening effect.

Your next question comes from the line of Ken Hoexter with Merrill Lynch. Ken Hoexter - Merrill Lynch: Normally through this process of a shifting economy, it sounds like we are seeing a bit of express run-up in anticipation, maybe a little bit of fear of retailers to stock some inventory -- when do you expect part of that migration to move back or are you seeing that migration begin yet to establishing normal inventory levels through the ground shipments? Are you seeing that develop yet? T. Michael Glenn: It’s very difficult to make that call at this point. That’s why in Alan’s earlier remarks, he mentioned that it was going to be important for us to see the trends after the holiday season. We have been pleased with the volume trends as we have progressed through the quarter and leading up to the month of December, which led to our record day of 14.1 million packages but we certainly want to keep a watch out for the volume trends as we move into January and February before we make that final call. Ken Hoexter - Merrill Lynch: And then if I can shift a follow-up just on to the LTL side, how long do you think it is going to take here to rationalize capacity in the industry, just looking at the aggressive pricing that you have got in the marketplace? Just maybe if you can -- if Doug on his way out can just talk a little bit about what plans are for the division and how long he sees that taking to maybe stabilize a bit? Thanks. Douglas G. Duncan: Ken, we’ve been trying to predict when the excess capacity will leave for quite some time and things seem to change daily with press releases by some of our competitors but I would say to you that I think capacity is coming out. We’ve got a competitor or two that continues to lose business at a 40% clip year over year. That is capacity coming out. We are very happy with the volumes we have put in the networks now and now have the scale efficiencies that we need and I think we now have some opportunities to begin to improve the yield going forward, now that we’ve got the volumes that we need to really operate. Ken Hoexter - Merrill Lynch: Doug, are you surprised with the pricing, as aggressive as it is, that volumes weren’t even better? Douglas G. Duncan: Well, you are seeing our volumes, we grew 3% in the quarter but every month was better than the previous month and our November number of shipments were actually up double-digit percentages year over year.

Your next question comes from the line of Bill Greene with Morgan Stanley. Bill Greene - Morgan Stanley: Fred, I had a question for you on this proposed rule change from the national mediation board on union elections on the railway labor act -- a couple of the airlines and rails I have spoken to think it’s a challenge because you could end up with sort of a minority union. How do you think about this for FedEx? How will you adjust if this rule change actually goes through? Frederick W. Smith: Well, I am going to defer that question to our General Counsel, Chris Richards, who is more up to speed on it than I am. Christine P. Richards: This rule change would, as you say, allow for a minority election in the sense that prior to the rule under the national mediation board rules, you would have to get 50% plus one of the craft or class to vote for a union before a union would be recognized. Under the proposed rule, it would just be 50% plus one of the actual people who participate in the election. It is a significant change. It overturns 70 years of precedent but I do want to point out, this is a change to a rule that is very similar to the one that is applicable for elections under the national labor relations act, so we feel confident we could deal with the situation in any event. Bill Greene - Morgan Stanley: Okay. Just as a follow-up for Alan, you mentioned that the volume trends in the November quarter exceeded your expectations. What are you thinking we can see on international priority and even ground for the fiscal third quarter? Alan B. Graf Jr.: I think ground has been fairly steady, steady as she goes with our growth rates and I’ll let Dave Rebholz add some color to that. On international priority, they are going to definitely be strong here in the second half and there’s a couple of reasons for that. One, first of all, the comparisons are fairly easy but secondarily, when you have by far the best, most reliable broadest service and the most awesome sales force who can construct specific service portfolios for our customers and the reach and the brand that we have, there’s no limit to what we are going to do with IP. David F. Rebholz : First of all, you need to understand that we continue to build our volume base off of acquisition of competitive volume. And the reason why I bring that up is because we have spent a lot of time, effort, and energy in improving our value proposition so that we are the best provider of partial product in the industry. Our customers are recognizing it, additional customers continue to look at us in that regard. I feel very, very confident that we are going to continue to grow at the pace we have. The beauty of our organization is that we have a broad portfolio that allows customers to pick and choose the value proposition they would like vis-a-vis the smart post offering, and as evidenced by its growth rate, we are very, very proud of what we have to offer and we will put ourselves up against anyone and quite frankly, we will win.

Your next question comes from the line of Donald Broughton with Avondale Partners. Donald Broughton - Avondale Partners: Doug, I was hoping you could give us a little bit of insight into the volume trends, national versus regional, on freight, where were you seeing the most ability to grow volume. Douglas G. Duncan: Donald, they are both growing. National had some record days in November, bigger than they have ever had before but regional is growing as well, so the opportunities are actually broad-based across our two networks. Donald Broughton - Avondale Partners: Obviously regional is bigger than national but on a percentage basis, did you see greater volume growth at national on either an absolute or a percentage basis or -- Douglas G. Duncan: It’s not material. Donald Broughton - Avondale Partners: Not a material difference? Douglas G. Duncan: No, they are both growing and I think what we have seen is given the competitive posture in the marketplace we are still a premium service and premium priced carrier and we have had to accept a little less premium but when we have done so, our value proposition wins in both networks. Alan B. Graf Jr.: I am reading between the lines on your question here about our yields with obviously national being lower than regional and that mix -- it’s really the competitive environment and not the mix that is driving those yields down and we know we have to work on that. As Doug said, we have balanced out our networks now, we feel good about the productivity we are getting in it, and that’s a concentration on improving our yield outlook. Donald Broughton - Avondale Partners: Fantastic, so could you help me then get a little bit of a clue, Alan, on how to back out exactly how much of it was fuel and how much of it was unfriendly rate environment? Alan B. Graf Jr.: Well, it was -- those were the two major components of the yield decline with the pricing environment being a little bit bigger of an impact negatively than the fuel impact. Douglas G. Duncan: Donald, I would say you still need to look at it all up, because customers negotiate the total price and some customers negotiate tougher on the fuel surcharge, some tougher on the base rate, so looking at the differences there, I don’t think are really constructive. You have to look at it all up. That’s what the customer looks at and that’s what we manage our business at. Donald Broughton - Avondale Partners: Well, I think we all believe that when the capacity reduction comps, not if but when, the rate environment is going to get a lot better for everyone. I’ll let someone else ask a question. Thank you.

Your next question comes from the line of David Ross with Stifel Nicolaus. David Ross - Stifel Nicolaus: In the press release, you talked about fewer flight hours, making network adjustments, route efficiencies to really help the express margin. Could you talk a little bit about with the improved volumes, how much excess capacity is remaining in the network? And then given I guess the recent volume trends, are you going to think about adding capacity or is there still room to kind of run with your current network the way it’s been adjusted? David J. Bronczek: We pulled our flight hours down in the second quarter year over year by 6%. Alan and Fred both talked about the fuel efficiencies obviously we got off of that but as the volumes around the world, mainly in Asia, in Latin America started materializing, we started flying a lot of extra sections and quite frankly, we’re having a hard time keeping up, actually, with the [rolled] containers even at that pace. One thing I wanted to add that’s important I think for you to understand our capacity, we start in January officially flying our 777s, and then they come -- and then another section goes in, another route structure goes in in April, so we’ll have 777s flying in and out of Asia starting the third quarter and then in the fourth quarter, with all of that later pick-up time and farther reach, so we are very excited about the opportunities to keep the international revenue growing. David Ross - Stifel Nicolaus: Okay, and then could you talk a little bit I guess about the lane balance in the international moves? I guess a lot of the Asia export traffic might have been directed to the U.S. and is that true? How much is going from Asia to the U.S. versus Asia receiving freight from the U.S.? And then where was the Latin American freight going? David J. Bronczek: Well, the Latin American freight is coming into the United States primarily but Asia is actually going into Europe and the United States. And we actually have had backlogs in Asia, Europe, and in Latin America for the last several weeks.

Your next question comes from the line of Jon Langenfeld with Robert W. Baird. Jon Langenfeld - Robert W. Baird & Co. : Allan, in your prepared remarks, you mentioned a couple of times the pricing and the aggressive pricing environment. I was hoping you could just focus on the domestic ground and express market and let us know what you are seeing there, and then how you think that pricing environment could or could not change as you look out over the next 12 months? T. Michael Glenn: One of the things that’s important for us as the economy continues to improve, we believe that we’ve got a terrific opportunity to review our pricing strategy, to make sure it reflects the value of the services that we provide, with the specific objective being to improve our yields for both our parcel and our freight services. And there are several things that we can do and plan to do to make a positive impact on those yields. Simply one would be to ensure we get acceptable rate increases as contract renewals roll around and we have a lot of contract renewals that will be in the hopper here in the months ahead. Two is we are reviewing our pricing guidelines for new business, given that the strength of the volume trends and three, we are ensuring and analyzing specific customers to make sure that they are meeting volume commitments to retain their current pricing. So we’ve got a lot of opportunity as volumes continue to improve and as the economy strengthens to really see some yield management on the upside, given where we have been in this difficult economy. Jon Langenfeld - Robert W. Baird & Co. : Okay, so that sounds good I guess looking forward -- how about what you are currently seeing? It seems like you continue to express a view that the market is pretty competitive on price in ground and express, maybe even more so than what it was over the last six or 12 months? T. Michael Glenn: Well, I would certainly say it’s more competitive in the freight LTL arena than it is in the parcel arena but again, we think there’s an opportunity going forward to move that in a positive direction in both of those key markets for us.

Your next question comes from the line of Justin [Jagerman] with Deutsche Bank. Justin Jagerman - Deutsche Bank : I wanted to get a sense on the international priority -- how much of that would you attribute to just general growth in the freight environment? And how much would you attribute to market share gains? I’ve got to imagine BHL is somewhat impaired coming out of Asia to the U.S., given their lack of service here. T. Michael Glenn: Well, I think there are three primary issues going on here. One is clearly some inventory restocking going on, given that inventories had dropped to such a low level. Two is there’s certainly been some increased consumer demand, especially in the electronic products sector, handheld smartphones and things of that nature. And third is we’ve been improving our position relative to the competition and taking some market share. So I think all three of those are factors, given our strong performance. Justin Jagerman - Deutsche Bank : Got it, and you gave an update last quarter on where you guys were on the Hong Kong to Memphis flights on a daily basis. Can you give us a sense on how that trended through the quarter and where you are now as we head into January and February? Frederick W. Smith: Well, obviously that’s a very powerful lane for us, so much so that our first group of 777s are going to go Hong Kong to Memphis, so it continues to grow, it continues to be very strong, not only to the United States but to Europe as well. Justin Jagerman - Deutsche Bank : Okay, last time you had said you had gone from seven to eight flights a day. Have you gone to nine or -- I mean, during the quarter, have you pulled back to eight as you have passed the peak? Any color around that? Frederick W. Smith: Well, we’ve actually gone to nine and then we have added on top of the nine, we’ve added all the extra sessions, so we’ve had dozens of extra sessions flown by our terrific flight crew and our ramp folks and so forth, so it’s been a very busy peak for us. Justin Jagerman - Deutsche Bank : Got it. And switching geographies, I guess, a bit -- you talked in your prepared remarks about increasing freight forwarding capabilities during the quarter but I know that European parcel express is obviously a big priority for you guys heading into this part of the economic upturn, hopefully. What are your thoughts on that? There’s been news out of TNT about potentially active as shareholders. There’s been lots of scuttlebutt in the marketplace, as there always is. Any thoughts on how you are going to be looking to attack that market on a go-forward basis? Frederick W. Smith: In regards to TNT and the speculation there, we just don’t make any comment about corporate development activities, opportunities, ever. It’s just not in our best interest to do so and we just won't get involved in that. Now having said that, one of the things that I think is a little bit of a myth about FedEx is our European operations are somehow not strong and they are exceedingly strong and Europe is extraordinarily profitable for us and we have expanded our air express operations in Europe, and our intercontinental network to and from Europe, both to Asia and to the United States. We bought a wonderful company in the United Kingdom. So we feel that we’ve got a lot of growth prospects in Europe just from things that we can do organically and we are very happy with our situation in Europe. People forget that Europe is very different situation than in the United States. It’s a highly fractionated marketplace. There are many, many competitors in most of the domestic markets. There are at least half a dozen pan-European ground parcel networks. There are four intra-European air express networks. So it’s not the same situation as it is in the United States and I think sometimes people erroneously conclude that the analogies are greater than they actually are.

Your next question comes from the line of Matthew [Brookler] with Piper Jaffray. Matthew Brookler - Piper Jaffray: You guys mentioned in your press release that at express, you had a one-time adjustment for self-insurance. Can you guys quantify that amount? Alan B. Graf Jr.: About a nickel a share after all things considered. Matthew Brookler - Piper Jaffray: Okay. And turning to the LTL division, it sounds like you guys saw nice volume growth there and you discussed potentially maybe taking up rates going forward. At this point in time, do you guys have additional capacity to take more share going forward or are you guys fully utilized? Douglas G. Duncan: Obviously we have filled up considerable capacity and we are operating at scale efficiencies now to really drive the productivity in the network but we do have additional capacities and of course, the months of December, January, and February are seasonally low months for the industry so we have the ability to take on more but it’s nice to have the volume in place so that we can begin to look for opportunities to improve the yield. We can't do that when you don’t have the volumes in place.

Your next question comes from the line of Ed Wolfe with Wolfe Research. Ed Wolfe - Wolfe Research : It seems like seemingly you’ve been able to reduce labor costs more effectively than UPS. How do you look directionally at the opportunity for market share gains in ground and express versus the opportunity to focus a bit more on rates going forward, knowing that you’ve got that little bit of advantage right now, it feels, relative to your competitor? T. Michael Glenn: Market share is an interesting statistic but it is not what drives FedEx Corporation. Obviously we are looking to improve the bottom line and as I mentioned, as the economy improves, we think there’s a terrific opportunity to see the pricing environment firm up and improve and I mentioned the many tactics that we can put in place and are looking at to make sure that happens. But as Doug mentioned in the freight sector, obviously when you have the shipments in your network, it’s easier to do that. When you have the solid growth trends we have at express and ground, you can be more selective, including being more willing to walk away from a piece of business as the economy is improving, then you might be in a difficult economy. So we think it’s a terrific opportunity and obviously there’s a lot of leverage for the corporation, so it’s a high priority for us. Ed Wolfe - Wolfe Research : When you look at your full year guidance you just gave for fiscal 10, what’s the expectation in that for pricing for express, ground, and freight, relative to pricing that was achieved in the current quarter directionally for each of those? Is it similar pricing to where we are at or is some of it up, some of it down -- how do you look at that directionally? Frederick W. Smith: Well, obviously we’d like to see the pricing environment improve. We’d like to see our yield performance improve but some of these tactics that I mentioned, you have to play as they come to you. In other words, we have to wait for contract renewals to come around. That’s important. We don’t think obviously it would be appropriate to open up a contract in the middle of that contract but we have a number of contracts coming up for renewal, we have a number of new business opportunities and obviously revised pricing guidelines and taking a firmer negotiating position when you are negotiating contract renewals will give us opportunity going forward but that does take some time to see that change.

Your next question comes from the line of Helane Becker with Jesup & Lamont. Helane Becker - Jesup & Lamont : Alan, can you quantify how much the 401K match will add or give us some sense of the number there that we should be thinking about? And two, I noticed the U.S./Japan bilateral agreement is going to open skies and that does affect some cargo but by virtue of the 1952s, you have unlimited route [rights] in Asia. Can you just talk about the effect that agreement would have on you, if any, and the opportunities that exist for you going forward? Thank you. Alan B. Graf Jr.: I’ll take the first one -- I think if you will just track our salaries and benefits, you will be able to see the impact of the 401K again. It was a shock absorber coming down to help protect the shareholders from a cash flow and earnings standpoint. We need to reinvest back in that program. We are only putting half of it back up for now, as we wait and see on the strength and continuing strength of the economic improvement. So again, it will have a dampening effect but it won't be material. You just have to take all these things together as we continue to manage them and there’s base salaries, there’s merit increases, and then there’s the compensation associated with bonus programs and with the 401K and they will be increasing our cost of labor but we believe that we will be able to get that back and more in productivity with our new lower cost structure and redesigned networks. And I’ll let Chris answer the Japan question. Christine P. Richards: Helane, the recent Japan U.S. agreement didn’t really provide much upside for us but we were in such a good position with our Japan routes and slots that we really weren’t looking for a lot of benefit.

Your next question comes from the line of Gary Chase with Barclay's Capital. Gary Chase - Barclay's Capital : I wanted to ask a couple of Mike Glenn, if I could -- first on smart post. You know, last quarter you mentioned that you were really working hard to get product into the right channel and I’m just curious how far you are through that process, if we should expect to see more volume shift from regular ground or home delivery into smart post looking forward, or if you think you are through most of that. T. Michael Glenn: That’s a tactic that is also available to us to improve yields across the parcel product portfolio. It would not only affect smart post but would affect ground and express as well. Again, as part of our yield improvement plans, we want to work with customers to make sure we are providing them the very best value proposition that meets their individual needs and we will be providing some solutions to them that could affect the product mix across our portfolio and could benefit FedEx as well. So that’s an ongoing part of our strategy. Gary Chase - Barclay's Capital : Okay, so it doesn’t sound like there’s anything -- it doesn’t sound like we should expect major change there. I also was noting that weight per package, that dynamic seems to have changed this quarter. The year-on-year, while you are still down, not as much as you were in the last few. Just curious for your color on what might be driving that and if we should expect that to turn for the better looking forward? I’m talking about weight per package in express. T. Michael Glenn: Yeah, weight per package is always an early indication in terms of the economy. When the economy is turning down, you see weight per package decline as customers look to move heavier shipments into slower modes of transportation as a way of managing their transportation budgets and as the economy starts to improve, you tend to see weight per package firm up. So we think that’s another indicator of the positive trends in the economy.

Your next question comes from the line of Chris Ceraso with Credit Suisse. Chris Ceraso - Credit Suisse : What if the expected LTL even doesn’t happen? Do you think there’s a chance that maybe some of the price pressure in the market abates because the stronger players pull off the throttle and trying to tip the weaker guy over? Douglas G. Duncan: As I said, I think capacity is coming out of -- excess capacity is coming out of this industry. Maybe not at the speed we would like to see but it is coming out and we have been able to grow our volumes and we really believe there’s an opportunity now to begin improving the yields going forward from here. So it won't be a rapid turnaround but the opportunities exist for us to do that. Chris Ceraso - Credit Suisse : Okay. And then there was a comment earlier about quantifying the improvement out of Asia, some of it’s restocking, some of it is demand. Do you have decent visibility into orders for January and February so you can disaggregate how much of it is restocking and how much of it is real demand? Is that what’s behind some of your caution on the fiscal third quarter? T. Michael Glenn: It’s a little early to be making that call. I think it’s important to see some of the trends in January and early February before we will really understand of those three issues, how much was inventory restocking versus demand. We have a pretty good handle on the third issue as our relative position compared to the competition but how much is inventory restocking versus demand, we need a little more time to get the level of clarity that we’d like.

Your next question comes from the line of Robin Byde with HSBC. Robin Byde - HSBC Global Research : Just a question on purchase, transportation costs. These are starting to turn flat year-on-year, looking at your numbers. Can you give us a bit more color on [bolt-in] freight rate trends? I mean, I guess freight rates charged by your suppliers are starting to rise with improvement in the global economy. Is that correct? Alan B. Graf Jr.: Well, purchased transportation is complex when you talk about FedEx Corporation. You need to break it down by op-co, where of course ground is the biggest user of purchased transportation. Again, we have done a great job with productivity, and I’m going to let Dave Rebholz talk about that. Additionally, as we take additional volumes at freight, we have to add some purchase transportation and so we can get our networks back up and take that over. That is initially a drag on our costs. We are much more efficient one we take charge of those routes but in order to take that volume, we had to spend more on purchased trans but the biggest, most important unit is ground and I’ll let Dave address that. David F. Rebholz : Purchased trans is a reasonable balancing act in terms of what we put on, where we put on, and under what economic set of circumstances. I can tell you that the cost of purchasing power of FedEx gives us leverage in the marketplace, given our growth rate and the consistency expectations we have on service and performance from our vendors, I don’t think that we’ve done anything unreasonable. I think what we have done is balanced off where the right economics work and at absolutely no impact to our performance and our vendors are terrific but I don’t think there’s anything of any kind of significance in the numbers that you should be concerned about. Robin Byde - HSBC Global Research : Okay, thank you.

Your next question comes from the line of John Barnes with RBC Capital Markets. John Barnes - RBC Capital Markets : Could you talk a little bit about the delivery schedule for the remaining 757s, when you anticipate having that done? You gave the number through the end of the fiscal 10 year. You know, when you anticipate getting the rest of the deliveries of the 757s and then the second part of that would be do you feel like you’ve got enough clarification yet on re-authorization, FAA re-authorization and the ROA issue to commit to the next round of the 777s? David J. Bronczek: I’ll answer the first and then Chris will answer the second part of your question. On the 757s, we’re receiving one 757 a month. That’s the plan that we put in place a year ago and we are right on track. We will get our 17th plane at the end of this month and then we will continue for several years to move the 727s out and the 757s in. Frederick W. Smith: On the contract on the 777, the way that contract is written is we exercise -- we don’t exercise the options -- excuse me, there’s a time period in front of each airplane, so I’ll let Christine give you some details about that. Christine P. Richards: The delivery date is preceded by a decision date and we make an indication to Boeing at the time of that decision date whether we will take that particular aircraft, so the RLA status has to be something we are comfortable with at each of those decision dates before we will take each particular airplane. John Barnes - RBC Capital Markets : Okay. And then Fred, just your opinion on how the FAA re-authorization is proceeding? I mean, do you have any more color as to timing and just the status of the two, kind of the senate and house versions and are they in renegotiation? Any color on that? Christine P. Richards: As you know, the FAA re-authorization passed the house with the RLA amendment in that bill. On the senate side, it has moved out of committee but nothing is moving much on the senate side right now except healthcare and I’m not in a position any better than you are as to guess when that might move forward. I can say this -- both the house and the senate have passed an extension of FAA funding through March 31, 2010, so we anticipate that this issue will continue to be something that we will be monitoring and working on very hard during the spring and summer of 2010.

Your next question comes from the line of Keith [Scunmacher] with Morningstar. Keith Scunmacher - Morningstar: I recognize trade networks is still ramping up but hoped to hear a little bit more about this development. With the announced 18 new offices, does this bring the total to about 30? And are clients here primarily express clients who want bundled services or some other particular market? T. Michael Glenn: That’s right -- it’s 18 this year and it will be over 30 by the end of the fiscal year. And yes, it’s primarily express customers around the world that will end up moving traffic into our sister companies here in the United States but it’s a nice bundle for us around the world. Keith Scunmacher - Morningstar: I guess continuing on that bundled idea, customers -- are you seeing a lot of customers switching from competitors maybe who value FedEx's more comprehensive ability to serve U.S. domestic, as well as international shipments? T. Michael Glenn: 656There’s no question about that. Obviously with DHL out of North America primarily, the structure and the strength we have in Asia-Pacific and around the world, Europe and the Middle East, customers are finding our bundle very attractive.

Your next question comes from the line of David Campbell with Thompson, Davis & Company. David Campbell - Thompson, Davis & Company: I heard a lot of talk and reading about your increasing interest in forwarding and -- the net, or the trade networks business and carrying freight but then I see in the Federal Express numbers that your air freight was down 25% in pounds in this last quarter. International priority was only up 6% -- international priority pounds were up 16% but on balance, there wasn’t any growth in the pounds and there was only 6% growth in packages. Is this a capacity problem? Or is it just you just haven’t gotten going on the forwarding/poundage business? David J. Bronczek: Obviously that’s what we want -- we want the higher IPFS pounds to displace the ATA low yielding traffic. In fact, ATA is having a hard time getting on our planes now for several weeks and going forward, it looks like it’s having a hard time. So we are actually very pleased with how we are moving the IPFS, the IP, and our deferred international product as well. We have a good mix, obviously the deferred traffic can flow on our planes on an off cycle, so David, it’s exactly the program we have in place for that. David Campbell - Thompson, Davis & Company: So we really won't see any change in the near term in those trends? David J. Bronczek: Probably not. We’ll continue to see more IPFS and IP pounds.

Thank you. Our last question will come from Scott Flower with Macquarrie Securities. Scott Flower - Macquarrie Securities : A couple of questions -- one was on the LTL business. I wanted to see if Dave could give us some sense of have the trends continued into December and just broadly, have a lot of the share gains come from national oriented accounts or customers? Douglas G. Duncan: The growth has come from a broad base of customers. We are getting increased business from small customers, what we call field accounts, as well as corporate accounts, so I would say the growth is very broad. And I forget the other part of your question. Scott Flower - Macquarrie Securities : Have the trends on shipments continued into December? You said there was -- through the quarter, trends were improving on shipments. Has that continued into December? Douglas G. Duncan: December volumes still remain very strong. It’s normally a time where we begin to see volumes tail off seasonally in the freight business, but that hasn’t happened to this point. Scott Flower - Macquarrie Securities : And then just one last question, perhaps for Alan -- I know it’s been broached but I just didn’t know whether I could get some gauging, and obviously it’s in your guidance but between the salary increase on merit and the 401K match and the incentive comp being brought back in, is there any sense you could give us just on a yearly basis what that totals to? Obviously again it is in your guidance. Alan B. Graf Jr.: Well, it is and I’m not going to say any more specific than I have, other than to assure you we have worked very hard on our productivity and our overall cost structure, which has significantly been lowered. As we bring additional traffic back and it’s time to repair and improve our compensation programs and reward that productivity that we are getting. So on a net net basis, it will not restrain our growth because we expect to see additional volume and productivity that will offset those costs.

Thank you. That will conclude today’s question-and-answer session. I’d like to turn the conference back over to Mr. Foster for any additional or closing remarks.

Thank you for your participation in the FedEx Corporation second quarter earnings release conference call. Please feel free to call anyone in the investor relations team if you have any additional questions. Thank you.

Thank you for your participation. This does conclude today’s conference call.