Mickey Foster - Frederick W. Smith - Founder, Executive Chairman, Chief Executive Officer and President T. Michael Glenn - Executive Vice President of Market Development & Corporate Communications, Chief Executive Officer of Fedex Services - Sub and President of Fedex Services - Sub Alan B. Graf - Chief Financial Officer and Executive Vice President David J. Bronczek - Chief Executive Officer of FedEx Express and President of FedEx Express David F. Rebholz - Chief Executive Officer of FedEx Ground Package System Inc and President of FedEx Ground Package System Inc William J. Logue - Chief Executive Officer and President

Thomas R. Wadewitz - JP Morgan Chase & Co, Research Division Justin B. Yagerman - Deutsche Bank AG, Research Division David G. Ross - Stifel, Nicolaus & Co., Inc., Research Division Arthur W. Hatfield - Morgan Keegan & Company, Inc., Research Division Nathan Brochmann - William Blair & Company L.L.C., Research Division Kevin W. Sterling - BB&T Capital Markets, Research Division Robert F. Pickels - Manning & Napier Advisors, LLC Donald Broughton - Avondale Partners, LLC, Research Division Peter Nesvold William J. Greene - Morgan Stanley, Research Division Garrett L. Chase - Barclays Capital, Research Division Keith Schoonmaker - Morningstar Inc., Research Division Christian Wetherbee - Citigroup Inc, Research Division Jeffrey A. Kauffman - Sterne Agee & Leach Inc., Research Division Ken Hoexter - BofA Merrill Lynch, Research Division Christopher J. Ceraso - Crédit Suisse AG, Research Division Scott H. Group - Wolfe Trahan & Co. Benjamin J. Hartford - Robert W. Baird & Co. Incorporated, Research Division David Vernon - Sanford C. Bernstein & Co., LLC., Research Division Peter S. Jacobs David P. Campbell - Thompson, Davis & Company

Good day, everyone, and welcome to the FedEx Corporation Second Quarter Fiscal Year 2012 Earnings Conference Call. Today's call is being recorded. At this time, I'd like to turn the call over to Mickey Foster, Vice President of Investor Relations for FedEx Corporation. Please go ahead.

Good morning, and welcome to FedEx Corporation's Second Quarter Earnings Conference Call. The second quarter earnings release and our financial and operational statistics 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 only one year. Joining us on the call today are members of the media. [Operator Instructions] 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 releases 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 on our 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, President and CEO of FedEx Services; 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 Bill Logue, President and CEO of FedEx Freight. And now our Chairman, Fred Smith, will share his views on the quarter.

Thank you, Mickey, and welcome to everyone. We're going to make a couple of changes to the format today in light of some of the changes we've made in getting information out to you. We moved the press release up 30 minutes. And as Mickey mentioned, we're also going to be taking questions on the Internet. And as a result of those, there's really no need for me to recap the things that are very clearly spelled out in the press release, which you had half an hour more to look at. We're going to ask, prior to Alan Graf's usual remarks, that will deal with segment information and put some color on the numbers, we're going to have Mike Glenn to talk to you about our economic forecast with a couple of remarks about what we're seeing in the peak season and e-commerce, which will set the framework for Alan's comments. Now today, as you saw in the release, we also announced an agreement to purchase new 767 airplanes from Boeing. So after Alan's remarks, I'm going to ask Dave Bronczek to make a couple of comments about that deal, which I think will put it in context. And then following Mike, Alan and Dave, we'll open up the floor to questions, including those that we get over the Internet. Before I turn it over to Mike, let me sincerely thank the FedEx team members around the world, all 300,000 of them, for their continuing efforts, especially during this busy peak season to deliver our Purple Promise to millions of customers every day. Mike?

Thank you, Fred. On Monday of this week, FedEx handled about 17 million shipments in our global network, almost double our average daily volume to set the latest record for the busiest day in company history. As expected, the increase was driven by FedEx SmartPost, as well as increased volume at FedEx Ground and Home Delivery. And let me add my thanks to our team members for an outstanding job in handling this traffic on Monday and throughout the rest of the peak season. E-commerce sales have been growing at mid-teen rates for the past 2 years and continue to account for a growing share of retail sales. During the third quarter, e-commerce made up 4.6% of total retail sales, which is up from 4.3% in calendar year '10 and less than 1% in the year 2000. The forecast for the entire holiday season is for 15% year-over-year growth in e-commerce and that compares to 12% growth in 2010. According to the National Retail Federation, almost 38% of total Thanksgiving weekend spending was done online, which is up from 33% last year. FedEx residential deliveries have benefited from strong e-commerce demand, especially SmartPost and home deliveries noted earlier. However, FedEx continues to manage demand for our services as part of our yield improvement strategy. Turning to our economic forecast. We expect overall economic growth to continue at a moderate pace. Inventory destocking has been a headwind for GDP and shipping demand in recent months. A combination of record low inventories relative to sales in the distribution sector and continued growth in demand should lead to restocking in the coming months, which should benefit our company. Consumer confidence remains at very low levels, but we have seen improvement recently. For November, consumer confidence hit the highest level since July, and had…

Thank you, Mike, and good morning, everyone. Before I get to my comments, I would like to inform everyone that on Tuesday, our Corporate Vice President and Treasurer, Burnetta Williams, passed away following a battle with cancer. Burnetta was a very important member of our senior management team, who, among many other things, designed and executed our financing strategy. She will be greatly missed, and please join me in a brief moment of silence in her honor. Thank you. Looking at our corporate results, our earnings per share for the second quarter were $1.57, up 35% on an adjusted basis and revenues climbed 10% to $10.6 billion. Despite muted economic growth, we increased our operating margin to 7.4%, with continuing strength at FedEx Ground, improved profitability at FedEx Freight and higher yields across all of our transportation segments. Starting with Ground, the segment continued its excellent performance with increased yields, volumes and operating margin. Revenue increased 13% to $2.3 billion, driven by market share gains and continued strong growth in FedEx Home Delivery and FedEx SmartPost services, reflecting the growth of e-commerce as Mike mentioned. Operating income soared 34% to $398 million, resulting in a record second quarter operating margin of 17%. Average daily volumes increased 4% for FedEx Ground and FedEx SmartPost also posted strong growth with daily volumes up 17% to 1.7 million packages per day. Our FedEx Freight segment significantly improved with higher yields and ongoing efficiency gains from our integrated LTL network. FedEx Freight posted operating income of $40 million versus a loss last year. Revenue grew 9% to $1.3 billion from higher yields and weight per shipment, partially offset by 3% lower daily volumes. FedEx Express revenues were up 10% to $6.6 billion, primarily due to an increase in package yields. Operating income increased to…

Thank you, Alan, and good morning to everyone. As you know, one of the most important investments for the future is the modernization of our aircraft fleet. And as you are aware, FedEx Express has been aggressive in its fleet modernization efforts, beginning with the replacement of our aging 727 fleet with 757s and continuing with the acquisitions of 777s to support our international growth. Now in conjunction with the earnings release today, we announced our plan to continue these modernization efforts as we entered into an agreement with Boeing to purchase 27 new 767-300 F aircraft over the remainder of the decade, with 3 arriving in FY 2014 and 6 per year in fiscal 2015 through fiscal 2018. The 767s were selected as the best choice to begin replacing our older MD-10 aircraft, some of which, believe it or not, are older than 40 years old, with aircraft of similar capacity and without the relatively high fuel and maintenance costs. By purchasing more modern, more reliable and much more fuel-efficient aircraft, we reduced the structural cost of our operations into the future, while maintaining our great service reliability that our customers have come to expect. The 767 provides a lower operating cost of over 23% per trip and over 20% per pound of payload compared to our MD-10 fleet. With the approximate 30% fuel efficiency, the advantage of the 767 being the key driver of these benefits. In addition, we'll receive near-term benefits associated with the voided maintenance on our MD-10 fleet and lower upfront cost of maintenance the 767s provide during the initial period of operation. We will also benefit from the operational compatibilities this new aircraft type will share, of course, with our 757 and our 777 fleets. Also, being announced today is our agreement with Boeing…

We'll now open it up for questions.

[Operator Instructions] We'll take our first question from Tom Wadewitz with JPMorgan. Thomas R. Wadewitz - JP Morgan Chase & Co, Research Division: Let's see, I wanted to ask you a question about volume growth expectations in international and then also how that relates to your new fleet plan. So if you could offer some comments about how you think International volumes may grow in, let's say, calendar '12, what your outlook would be and how you think the fleet will or what you would essentially be planning for in your baseline fleet capacity expansion in the international network the next several years given the changes in your 777 order and the new 767s?

This is Dave Bronczek. Well, we have, as I mentioned, we have an additional 16 777 still coming and still moving into our network in all the appropriate parts of the world. So we're very comfortable with that. This change allowed us to put in the 767 aircraft to much improve our profitability primarily in the United States system, and at the same time, reduce our overall capital costs. So we're very confident that we can match our international capacity needs. If we need to, we can exercise options and we have the ability to leave our MD-11s out in the international market longer than we had anticipated. So net-net, it's a win-win-win for us.

We have a couple of Internet questions, so I'll ask Alan Graf to address the first one here.

First one says, Express had EBIT margins north of 8.5% on $22 billion in revenue in 2007. Today, with revenues of $26 billion rate, margins are 5%, are prior margins achievable at some point and what revenue level is required to see that level of profitability? Well, absolutely, the prior margins are achievable. Obviously, right now, with our IPV weaker than we expected, we're adjusting our network to match that capacity, and in fact, my guidance for the rest of the fiscal year assumes essentially no growth year-over-year in our IP volumes. And with the advent that we told you today about the 767, we should see significantly enhanced performance in terms of AOD costs, lower fuel burn, unit performance, along with a lot of other productivity things that we're working on. So we're going to work really hard on things we can control, which is the cost and productivity side of the house, and if we get the economy that Mike Glenn talked about, we should be back on our way towards improving these margins.

Okay, so we'll continue now with questions on the call.

We'll take our next question from Justin Yagerman from Deutsche Bank.

I want to ask you a question on Ground. Now we've seen back-to-back pretty stellar margins here in this division. You guys continued to improve. I've got to imagine some of that is the continued percentage of SmartPost that's coming into the business. One, I wanted to ask what you guys are viewing run rate margins to look like in Ground given that we've seen this kind of improvement on a quarterly basis now. And two, what kind of impact, if any, could USPS changes have on SmartPost and could there be an impact on the margin improvement that we've seen?

Justin, Dave Rebholz. Let me take your latter first because there seems to be a lot of inquiry about the Post Office. First of all, we've got a great working relationship and the right economic model that allows us to adjust. I don't see any risk in the short term whatsoever. I would love to be able to determine what the Post Office does or says or implements. Frankly, we don't have that answer, but what we do have is a working model that will continue to produce the kinds of dividends that we're looking for vis-à-vis our model. In terms of our overall impact, my boss, Mr. Smith, suggests that I should be at 20%, but I think in reality, where we are right now is a sweet spot. We continue with our variable model to produce the kind of dividends that both reward our small business independent contractors, as well as FedEx. As it lies out right now, including the current economic conditions, I think that we're in a very good spot and any economic upside will only benefit us. And that's the reality of where we sit today.

And our next question comes from David Ross from Stifel, Nicolaus. David G. Ross - Stifel, Nicolaus & Co., Inc., Research Division: If you could just comment on the International Express volumes by region. How much was Asia down versus Europe versus U.S., and how much could you take out in the quarter specifically in the transpacific market?

Yes, this is Dave Bronczek again. Generally speaking, Asia-Pacific have the lion's share of the impact to our International volumes. Around the rest of the world, they held up pretty nicely, quite frankly.

This is Alan. Let me just add that our Europe IP actually grew year-over-year.

And our next question comes from Art Hatfield from Morgan Keegan. Arthur W. Hatfield - Morgan Keegan & Company, Inc., Research Division: Just a real quick question. With the changes in the fleet plans, with taking some aircraft down and the new Boeing 767 order, and then obviously the delay in the 777, how can we think about maintenance going forward? One of the benefits of those coming on and some of the things you're doing would be that we'd see kind of muted growth in that. Should we expect to see that pick up with the fleet stand the way it is for now?

Art, great question. Obviously maintenance is a significant issue at FedEx Express. This will improve it. Fuel efficiency is also significant at Express, this improves it. And let me just add one other thing to the last question. Our 2-year rate of international growth in Asia is up 10%. So when you add the last 2 years together, I just wanted to make sure that people knew we are still growing in Asia.

Our next question comes from Nate Brochmann with William Blair & Co. Nathan Brochmann - William Blair & Company L.L.C., Research Division: I wanted to talk a little bit about with the e-commerce growth, whether that's a shift maybe from other modes that might have taken place in the past or whether that's true market share gains. And then also whether you're seeing any real change in your customer supply chains because of that and how you're shifting your network to take advantage of those changes.

This is Mike Glenn. And as I mentioned earlier, we have seen an increase in e-commerce sales as a percentage of total retail sales. In the third quarter, e-commerce sales were 4.6% of total retail sales which was up from 4.3% last year and 1% in 2000. So there is certainly an increasing trend for more online sales, although still as a percentage of total retail sales, it's relatively small even though it's growing at about 15%. Certainly, as e-commerce is becoming more popular, promotional tactics like free shipping are a key part of that. Our SmartPost service plays right into the hands of that and allows us to compete very effectively in the e-commerce area with SmartPost. And our FedEx Home Delivery also performs extremely well with optimal services, such as appointment delivery, date delivery and time delivery. So we we're well-positioned to take advantage of this increasing trend of e-commerce sales and it certainly benefited during this peak. Let me just, if I could, just take 1 minute to correct something I said earlier. I mentioned that FedEx Freight yields increased 5% absent fuel, that number is actually 4%. I picked up the International Priority number when I was speaking there, so FedEx Freight yields absent fuel increased 4%, not 5%.

Our next question will come from Kevin Sterling from BB&T Capital Markets. Kevin W. Sterling - BB&T Capital Markets, Research Division: Please accept my condolences regarding the passing of your Treasurer. As I look at your average pounds per package in Express, we saw an increase this quarter, it looks like to one of the highest level in recent years, how should we think about average pounds per package at Express going forward? Is this higher average the new normal or was there something going on this quarter?

Well, we had more, heavier deferred traffic, heavier box deferred traffics into our mix, and of course, IP and IPFS. IPFS has higher weight and it helps our overall revenue. So quite frankly, I think a lot of focus is on IP, IPFS combined. So I think we're on that track going forward.

And we'll take our next question from Robert Pickels from Manning & Napier. Robert F. Pickels - Manning & Napier Advisors, LLC: My questions are mostly on the new aircraft order. For what it's worth, we applaud the decision that you guys have made. I just wanted to get a few details on it. You mentioned you've deferred the 777s. Is that sort of indefinitely deferred or is there -- maybe you could just help me understand what the total 777 aircraft order is and the timeline of that? And then in the past, you've said that 777 is the best return on capital opportunity that you have. I'm just wondering, I'm guessing that's still the case so I'm just wondering what's changed that math? Is that the 767 has entered as a more viable option or is it that the slower demand in Asia or maybe you can just talk about that a little bit?

That's a great question. The 767 is a terrific plane for us to replace our very aging MD-10 aircraft and we looked at multiple ways to do it. Quite frankly, we're going to, to leave our MD-11s out in the international longer now. It's a better operating profit return for us for now. We just moved back the 777s. We're still keeping the orders, obviously, to open up room to put this very efficient, very productive, very profitable airplane into our fleet at a time that we thought was the best opportunity to do so. So I think on all fronts, we're going to keep the 777s. Obviously, we just push them back. We opened up a window for CapEx to put the 767 airplane in. We have 16 777s still coming as scheduled and then the other ones will come in behind them. So we just opened up a window here to replace a very old, very inefficient, expensive airplane with a terrific airplane for exactly the role that it will serve.

And we'll take our next question from Donald Broughton from Avondale Partners.

A strategic question. As you add these 777s and the 767s in your international priority Express business, would you rather see just extraordinary growth in 1 lane than add it to, say, your dominance in the transpacific lane or would rather see a more even growth in all of your lanes over the next 5, 10 years?

We'd rather see an overall even distribution around the world. And of course, as Asia keeps emerging, the traffic flows continue to expand to Latin America, to Europe, to the Middle East, obviously, North America. So I think the global market is the global market and it'll just keep expanding around the world that way. So I think we're in great shape, well-positioned to have the best airplane for exactly the needs that we need for our customers in the 777.

Hey Donald, this is Alan. I'm sure, as you know, a balanced network is a much more profitable network whether you're flying airplanes or switching telephone calls, and we work on that every day. We do it with pricing, we do it with picking the customers that we need and knowing exactly where we have capacity that we need to fill. And so that is a key point in moving Express's margins up over time is to continue that balance in that global network.

Just one other thing and it shouldn't go unsaid, I mentioned it in my comments, but the commonality of the 757 and the 767, and the efficiencies with our crew force and so forth, there's another very big advantage besides the fuel and besides the maintenance. It's a terrific airplane for our operating margins going forward.

We'll take our next question from Peter Nesvold with Jefferies.

So you brought down the U.S. GDP forecast by about 30 basis points or so, but you maintained the earnings outlook for the year. And so I'm curious, is it that you're still just inside that range, just maybe a little bit lower on the earnings front or has something more company-specific occurred, whether it's yield improvement or cost-cutting, et cetera, that's allowed you to hold the EPS outlook despite the lower GDP backdrop?

Are you sneakily asking me to give you a pinpoint EPS number here?

Absolutely not. Just directional.

Look, we're managing this company, and even though we see a little bit slower GDP domestically, we still see growth, we still see world growth, as Mike mentioned, and we still feel very comfortable with the range that we have out there.

This is Fred Smith speaking. I want to make sure that there's a clear understanding of what Dave said here about these planes. The original plan was to bring in 777s and push the MD-11s in the domestic fleet and retire the MD-10s, and that had a very good return. When the 767 was selected for the U.S. tanker mission and Boeing decided to keep the airplane in production, we looked at that and bringing it into the middle and replacing the MD-10s was a higher return than the 777s. And it pushed the MD-11s, if you will, back into the international system. So our international capacity hasn't changed at all and we have international capacity to grow. But we'll simply operate the MD-11s in the international system a bit longer. And the 777s and the MD-11s are not that much difference in capacity. The big difference is in efficiency and range in the 777s. So it's important that you understand that dynamic, not much has changed other than the fact we're bringing in a higher return asset in the middle and utilizing the MD-11s in the international. And the somewhat smaller 767, relative to the MD-11, is a better fit for the domestic system, which is why it has the higher returns. So I was a little bit afraid people were getting -- going down the wrong rabbit hole here even though, Dave, I think, said it pretty clearly, but I just wanted to reemphasize that.

Our next question comes from Bill Greene from Morgan Stanley.

Alan, you had a really interesting chart at the Investor Day that showed sort of earnings trends for FedEx from the last cycle. And you said, listen, it's not a forecast, but there is a suggestion here that we're seeing sort of similar trends. But now we've had a lot of changes at the macro level. So can you update us on your thoughts about you're kind of pushing that out or forward because of cost efforts so where we are on that trend line?

Well, I think as we just pointed out to you, even though we don't have the robust economic environment that we would love to have, we still increased our EPS 35%. So had we had a robust economy like we did back in 2007, hard to say, but it would have been significantly higher than that. And so we have to manage to what the economy around the world is doing and so we're going to do that. And this has slowed us a bit in terms of Express because of the size of the network which we are, as I've said, resizing right now but if you take a look at Ground and Freight's performance, we're managing right through it. So I'm still very confident, that's why we reconfirmed the range and we hope to continue that in fiscal '13.

Our next question comes from Gary Chase from Barclays Capital.

I wondered if you could elaborate a little bit on some of the capacity adjustments you're referring to in the prepared remarks within the Express network. And should we be thinking that, that is more structural change in adaptation to what you were just describing, Alan? Or is it more of a view that just temporarily these adjustments make sense from a capacity perspective?

I'll let Alan chime in here but this is Dave to start off. We have fluctuations in our volumes. And of course, we match the lift to the load. And we do it every day and every week. So when we have surges in capacity from big shippers around the world, we'll add the capacity or take it back. And quite frankly, we have a lot of flexibility in our fleet, as Fred mentioned, with our MD-11s to go up and over the top of the normal peaking days. So we have what we call extra sections, we can flex them up or down.

Yes, I would say that, as we talk about here, every day, balancing the network is a key driver in Express' profitability. And the volatility of trade flows is high as it's ever been and I think it's going to be -- we think it's going to be the new normal. And so we're going to have to be much more adept at matching our capacity quicker. I think we're doing that. I think having the 767s is going to help quite a bit in that regard and that's how we're going to do this going forward. And I think we will be very efficient at it.

Our next question comes from Keith Schoonmaker from MorningStar.

I noticed international domestic grew revenue an impressive nearly 50% year-over-year but the average yield declined somewhat. Can you please comment on growth rate, excluding acquisitions in India and Mexico, and perhaps give some direction on profitability of this portion of the business?

Well, a lot of it was acquisitions, quite frankly. And the international growth rates, though, are very strong, as I mentioned, if you look at a 2-year cycle of our International growth, it's strong all around the world and even this past quarter, absent Asia, we had very good balanced international loads and international revenue. So I think a big part of the yields that you're looking at, even though Mike mentioned the International yields are up 5%, is some of the noise of acquisitions.

Our next question comes from Chris Wetherbee with Citi.

A quick follow-up on the capacity discussion that you just had. When you think about parking some additional aircraft or matching it, can you give a little sense of, geographically, where you're thinking, I mean is it really still all the Asia to U.S. planes or does this need to be maybe be adjusted here in the U.S.?

Well, it could be anywhere in the world. Quite frankly it would be mostly the Asia capacity as the volumes spike and peak at this time of the year, coming off of that, it would be primarily in the Asia market.

Our next question comes from Jeff Kauffman with Sterne Agee. Jeffrey A. Kauffman - Sterne Agee & Leach Inc., Research Division: Alan, I may be reaching out a little far, but I think my bigger questions have been answered. Pension expense, is this more of a fiscal '13 issue and can you -- some other companies are starting to talk about it, can you give us any guidance on what you're thinking about pension costs when we revise the assumptions there?

Well, my favorite subject, if you've got 3 hours, we can talk about it. But obviously, May 31, the end of our fiscal year, we'll take a look at what -- how our assets have performed and what our discount rate is and we'll deal with it when we deal with it. I should say I think that versus many companies that I look at in the universe of all companies, we've done an excellent job with our liability driven investment strategy, our portfolio is actually up since June 1. So on the asset side at the moment, we're feeling pretty comfortable. It'll all be decided by the discount rate and we'll know that when we get there. But I'm not expecting to have the shock and awe that some of these other companies are going to have, particularly those who had September 30 year end fiscal dates.

And our next question comes from Ken Hoexter from Bank of America Merrill Lynch.

I just wanted to bring it back to Ground. I guess, Dave, if you look at the growth in the Ground network, you're up to almost 4 million packages per day on the pure Ground side and the SmartPost's up almost another 2 million. Is there kind of sizable investments you need to start making as SmartPost is maintaining this pace? I just want to understand your investment and your scalability to keep pace with the growth you're seeing and keeping margins at those levels.

Ken, this is Dave. It's a great question. We ponder this monthly. We have plenty of capacity to grow. We try to size our network around peak. Unfortunately, with the large retail base, we have peaking factors that are greater than other OpCos at FedEx. Knowing that, we implement strategies and investments that size it accordingly. I don't think we have any risk and I do not think that we have any additional expense that we have to play or pay for. The SmartPost model is different than the Ground model and the home model, but in reality, I think we're sized perfectly for where we need to go over the next 2 or 3 years.

And our next question comes from Chris Ceraso with Crédit Suisse. Christopher J. Ceraso - Crédit Suisse AG, Research Division: I know you spent a fair amount of time on the airplane and the strategy, but just 1 follow-up question here on the 777. Is there anything implicit in this decision to defer some of the airplanes? A comment on the actual returns that you're seeing, in other words, is it proving to be worth it for you to buy these 777s in order to offer the later drop-off time for your customers, are they paying up for this service?

The answer is absolutely yes. We love the 777s. We'll love them into the future. We just had, as Fred pointed out and I mentioned in my comments, an opportunity in the short term here for the U.S. network to put the 767 in, to better improve our profitability primarily here in the United States by replacing the MD-10s with a better opportunity. I should add that because we're so big and a powerful network that we have the ability to flex around the world. So when I talk about replacing capacity or adjusting for capacity, we have a lot of frequencies into most markets around the world so when we adjust our capacity, we're never eliminating or distracting from our service to our customers, never. It's just the amount of frequency we put into those markets. So the 777s, they're fantastic, customers love them, we have later departures, earlier arrivals all around the world and that will be the backbone of our system going forward.

And our next question comes from Scott Group with Wolfe Trahan. Scott H. Group - Wolfe Trahan & Co.: So Alan, I think I heard you mention that you're expecting International Priority volumes to be flattish in the second half of fiscal '12. I was wondering if you can talk about some of your other volume assumptions for Domestic Express and Ground, and LTL, if you can give some color there. And then also, is there any benefit in fiscal '12 from lower maintenance or with the planes or does that happen starting in fiscal '13?

I think it's nothing dramatically departing from what we've been seeing in terms of the segment growth rates. We expect Ground will continue to grow. As I said, I think IP will be around flat year-over-year within a range. I think Domestic Express will be flat to maybe down a bit just as it has been. And we've been working very hard on our yields at Freight. We're now about ready to lap some comparisons and we expect to see Freight get back on a growth plane as well and that's all in the range that I've given you. And as far as maintenance, yes, we're working very hard on maintenance. When you park airplanes, you're able to defer maintenance for some period of time and we're very careful about which airplanes we park and for how long we park them. We keep them on the op spec. We can pull them out in a hurry, just as we've done in the past. Just adding one more thing to what Fred said, we are really trying to allocate our capital as best we can to drive ROIC. And the 777s in International are terrific. All we're changing right now is we're leaving MD-11s internationally and replacing these maintenance and fuel hog MD-10s in our Domestic business. That is a much higher return than using MD-11s to replace MD-10s in the domestic business and add additional 777s, particularly on the economic environment that we are in. So we are driving our returns by making this decision and lowering our CapEx in fiscal '13.

Our next question comes from Ben Hartford from Robert W. Baird. Benjamin J. Hartford - Robert W. Baird & Co. Incorporated, Research Division: This is for Bill Logue. I was hoping we could dive a little bit deeper on the LTL side. Alan addressed the volume expectations to some extent but with 4% growth on the industrial production side next year as the base line, how confident are you that we can sustain this kind of 4% plus type x fuel yield growth that you've experienced this quarter into calendar 2012?

Yes, great question. The sales team has done a great job for us on our yield front and worked our yield initiative very well. We continue to focus heavily on that, and as Alan mentioned, we started to lap ourselves in the volume on a year-over-year comparison. So we believe that, as we move forward, we have still have great opportunities. We're focusing heavily on the small, medium customer which is a very big segment for us from both a margin profitability perspective and from a market share opportunity, it's a big one. And also, as we go forward, we'll continue, again, right now, we're hitting the third quarter, which, for us, is December, January, February. From an LTL perspective it's obviously our challenging quarter and we're managing through that, getting ready to position ourselves strongly for Q4 as we move on. So we're very happy where we are from a year-over-year perspective.

This is Mike Glenn. On the yield front, the sales team has done a terrific job. And I want to point out that, going forward, we will be certainly be focused on yield improvement in the Express business. But I think a big driver there will be the change in customer mix as we bring on more and more small customers and that will be equally important as just normal rate increases that we get on a contractual basis.

And our next question comes from David Vernon with Bernstein. David Vernon - Sanford C. Bernstein & Co., LLC., Research Division: Just about the competitive dynamic in terms of market share stability on the Asia to Europe versus the Asia to U.S. lane, are you seeing, in this weak growth environment, any sort of change in behavior by some of the competitors on the long-haul IP package?

No, not in the main. On certain lanes, they try to match the opportunities that we've provided our customers. But in the main, we have our business lined out for our customers and the lanes into Asia and the lanes into United States. So if any of our competitors were trying to match that, they would have a hard time matching our later departures and earlier arrivals.

And our next question comes from Peter Jacobs with Jacobs Broel Asset Management.

Dave, I wanted to turn back to the 767, 777 capital spending plans, and I'm going to guess that a part of the decision to go with the 767s is that Boeing likely offered you a great deal on those, they tried to bridge the gap through the building of the tanker for the U.S. Air Force. And so, I mean, is it fair to say that this kind of dropped in your lap and that spurred you to make this decision where otherwise you probably would not have in that the pricing was probably pretty good? I'm not sure to the extent that you can confirm this, but I guess a nod or a wink would help us maybe better understand this opportunity that was presented to you.

Well, we've looked at the opportunity to improve our efficiencies and our fleet for many years now and quite frankly, our opportunities were to leave the MD-11s, as Alan and Fred correctly pointed out with our 777s, versus moving the MD-11s back. And this opportunity came along and it was a good opportunity for us and good for Boeing to replace a very old, very inefficient MD-11 or MD-10 that we had looked at replacing for many years now. So I think I would just leave it at that. We have a great opportunity to improve our operating profitability, our efficiency, fuel efficiency that we have been studying for a long time now into our fleet and we're very comfortable with the role that, that 767 plays with our 757 and with the 777.

One of the things that, for those of you who are interested in the airplane transaction Mike focused on, is the fact that there are 2 certified conversion programs for the 767. And the 767s have stayed in service a lot longer than many people thought they would because of the delays in the 787. And there's a good possibility that in a couple of years, as the 787 comes out and the 767s are released around the world, we might have made the same decision using used 767s, or for that matter, A330-200s, had they offered us a conversion program. So the new opportunity was a very good transaction for both us, I think, and Boeing. And it provides us with the opportunity to buy all new 767s or a mix of new and used. So you have to put this transaction in that context to broader industry issues.

And our next question comes from David Campbell with Thompson Davis and Company. David P. Campbell - Thompson, Davis & Company: There is a lot of talk, as you know, about recessions in Europe, how the situation there will get worse regarding the industrials production, consumer spending, I haven't seen it in the seasonal Air Freight data. And you talked about your IP growth totaling up in Europe. So I wondered if you had any visibility as to business activity there in the next 6 months to a year.

Well, I'll start off and then Alan can -- from our perspective from FedEx Express in Europe as Alan pointed out, we actually are growing, we're doing quite well, we're expanding, we're doing a lot of things to improve service pickups and later departures and the customers are responding with obviously more traffic for us. So from the next 6 months, from FedEx Express's perspective, we see pretty much business as usual for us.

David, we have an organic growth program underway inside of Europe, which is helping us tremendously. I think we've opened a number of new stations, made better connections improving our reliability and we're going to continue to do that. So our crystal ball is like everybody else's. I mean frankly, who knows what's going to happen over there? But so far, we've seen strength and we think we're going to see growth from Europe the rest of the fiscal year.

And our next question comes from Justin Yagerman from Deutsche Bank.

Just curious on the market share side, you made a quick comment that IP volumes were actually up in Europe. And it would seem to me that looking at the competitive landscape, your European competitors feel impaired for a variety of different reasons. When you guys are going into multinational customers, is there worry over doing business with these European companies right now? And I guess are you winning business based on their inability to service regions that you guys are now going to?

Justin, this is Mike. We're winning business based upon the global value preposition that we offer. Multinational companies are obviously doing businesses, by definition, in a number of different parts of the world and our ability to connect those locations with the largest, the fastest, the best service levels is really what's winning the day. We don't sense any issue regarding reluctance to deal with 1 competitor versus another over economic conditions in Europe. It's the value proposition that's winning the day.

And our next question comes from Tom Wadewitz with JPMorgan. Thomas R. Wadewitz - JP Morgan Chase & Co, Research Division: Fred, I wanted to ask you what you think of the current cycle. We're seeing this trend where heavy weight air freight out of Asia has been weak for quite a while. Your Asia outbound IP volumes have shown some weakness since July, August, obviously not as much is the heavyweight, and then the GDP that you're looking at seems to be still modest growth. So do you think this is kind of a normal response from air freight at this point later in the economic cycle? And how do you think that relationship between air freight and IP versus GDP would play out looking a bit forward?

Well, this is a big question that's being debated by a lot of people in the industry. For many, many years, the growth in air freight, meaning, the aggregate marketplace, whether it's the smallest individual package or a big consignment of heavy skids has grown at about twice the rate of GDP. And that connection over the last couple of 3 years seems to have been broken to some degree. It's a bit hard to say exactly because you had the tremendous meltdown in '08 and '09. But I think our overall belief is, and this plays to the strength that Dave Bronczek has been talking about today, the movement of goods by air internationally is changing in the following ways. Number one, the marketplace has evolved so there's a lot more small shipments going door-to-door and that's why the long-range capabilities of the 777s and these super express freighters, as we call them, are very important because it gives you more time to service your small and medium customers in the origin markets and we'll continue to do that as the 777s come in, we'll put in longer-range routes a few per year. In some of the other routes, you don't have to have that range capability. MD-11s stopping in Anchorage or going across the Atlantic is fine and is roughly the same capacity. The second thing that's marked by the air freight business today versus where it used to be, is it seems to be much more episodial and we think that's because such a high percentage of the business is composed of electronics. What is it Mike? About 25%? About 25% of the entire air freight market in its broadest sense are composed of electronics and they're now built around product launches, new devices and so forth,…

And this will conclude the question-and-answer session. At this time, I'd like to turn the call back over to Mr. Mickey Foster for any closing remarks.

Thank you very much for your participation on the FedEx Corporation's Second Quarter Earnings Release Conference Call. Please feel free to call anyone in the Investor Relations team if you have any additional questions. Happy holidays.

And ladies and gentlemen, this does conclude the call today. We appreciate your participation. You may now disconnect.