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 and President of Fedex Services Alan B. Graf - Chief Financial Officer and Executive Vice President David J. Bronczek - Chief Executive Officer of FedEx Express and President of FedEx Express William J. Logue - Chief Executive Officer and President Christine P. Richards - Executive Vice President, General Counsel and Secretary David F. Rebholz - Chief Executive Officer of FedEx Ground Package System Inc and President of FedEx Ground Package System Inc

Thomas R. Wadewitz - JP Morgan Chase & Co, Research Division Robert H. Salmon - Deutsche Bank AG, Research Division Nathan Brochmann - William Blair & Company L.L.C., Research Division David G. Ross - Stifel, Nicolaus & Co., Inc., Research Division Helane R. Becker - Dahlman Rose & Company, LLC, Research Division Benjamin J. Hartford - Robert W. Baird & Co. Incorporated, Research Division William J. Greene - Morgan Stanley, Research Division Christian Wetherbee - Citigroup Inc, Research Division Salvatore Vitale - Sterne Agee & Leach Inc., Research Division Scott H. Group - Wolfe Trahan & Co. Ken Hoexter - BofA Merrill Lynch, Research Division Brandon R. Oglenski - Barclays Capital, Research Division Arthur W. Hatfield - Raymond James & Associates, Inc., Research Division Elliott Waller - Jefferies & Company, Inc., Research Division Patrick C. Geekie - Crédit Suisse AG, Research Division Anthony P. Gallo - Wells Fargo Securities, LLC, Research Division David Vernon - Sanford C. Bernstein & Co., LLC., Research Division

Good day, everyone, and welcome to the FedEx Corporation Second Quarter Fiscal Year 2013 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mickey Foster, Vice President of Investor Relations for FedEx Corporation. Please go ahead, sir.

Good morning, and welcome to FedEx Corporation's second quarter earnings conference call. The second quarter earnings release and our Stat Book are on our website at fedex.com. This call is being broadcast from our website, and the replay and podcast will be available for approximately 1 year. Joining us on the call today are members of the media. [Operator Instructions] Preference will be given to inquiries of a long-term strategic nature. 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. Such 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. In our earnings release, we include certain non-GAAP financial measures, which we may discuss on this call. Please refer to the release available on our website for further discussion of these measures and a reconciliation of them to the most directly comparable GAAP measures. To the extent we disclose any other non-GAAP financial measures on this call, please refer to the Investor Relations portion of 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. Good morning, and welcome to our conference call to discuss operating and financial results for the second quarter of fiscal 2013. We're very pleased with the operating results at FedEx Ground and FedEx Freight, which continue to show improvement. At FedEx Express, persistent weakness in the global economy and increasing demand for lower-yielding international services limited profits during the quarter. Superstorm Sandy affected overall earnings as well. At the October investors and lenders meeting, we showed you plans to improve annual profitability by $1.7 billion during the next 3 years with a significant portion of the benefits achieved by fiscal year 2015. I'm very confident we're on our way to achieving this ambitious goal. We're hard at work currently on another record-setting holiday shipping season driven by the increasing popularity of e-commerce. On Monday, December 17, team members moved about 19.8 million shipments through our various systems around the world, a daily record. For the overall holiday, we believe volumes in our worldwide networks will increase by more than 13% compared to last year. I'd like to say thank you to all our team members, especially those in the areas affected by Sandy, for their hard work and dedication during this peak season. Before I turn the call over to Mike Glenn for his views on the economy and Alan Graf for his analysis of the quarter, I'd like to do 2 things. First, I'd like to thank Bill Margaritis, our Corporate Vice President of Communications, who will be departing FedEx on December 31 after 16 years of service. Bill, we appreciate everything you've done for us during your time here and look forward to seeing you often in the future. Second, I'd like to congratulate FedEx Express for being recognized by the Great Place to Work Institute as among the world’s top 10 best multinational workplaces for the second year in a row. The ranking is the world's largest annual study of workplace excellence and identifies the top 25 best multinationals in terms of workplace culture. Now let me turn it over to Mike Glenn.

Thank you, Fred. I'm going to make a few brief comments regarding the economy, then give a summary of our yield results and then finally, a couple of comments on peak season. We continue to see modest growth in the global economy with our forecast for U.S. GDP calling for 1.9% growth in calendar year '13. For industrial production, we expect a growth rate of 2.4% in calendar year '13. This is slightly lower than our prior forecast, primarily reflecting a lower entry point in FY '13 due to Hurricane Sandy. Our global GDP forecast is 2.5% in calendar year '13. And finally, I just want to emphasize that the calendar year '13 outlook could swing either direction depending upon policy outcomes, especially with the fiscal cliff issues in the U.S. and certainly issues in Europe. Turning to yield. In the domestic Express sector, excluding the impact of fuel, year-over-year Express yields increased 2.5%, which was primarily driven by pricing and rate -- rating and discount improvements. In the Ground segment, again, excluding the impact of fuel, our yields increased 2.9%. The year-over-year increase was driven by list and discount improvements followed by an increase in extra services charges. Excluding fuel, in the international export Express segment, package yields declined 3.8% year-over-year due to a change in product mix, rate and discounts and weight changes as well as the impact of exchange rate. And finally, excluding the impact of fuel, yield per hundredweight increased 1.9% year-over-year, which was primarily driven by pricing rate changes. And as noted in our recently released peak day volume forecast, FedEx expected to handle more than 19 million packages on Monday, December 10. FedEx, not only exceeded our forecast on the 10th, but we also handled more than 19 million packages on Monday, November 26, which was Cyber Monday, and Monday, December 17. The heavy volume was driven primarily by e-commerce sales, which consist of lighter weight, lower-yielding residential delivery packages; and our team, both at Express and Ground, worked very closely with our largest e-commerce and multichannel retail customers to deliver outstanding service during this peak season. And with that, I'll turn it over to Alan.

Thank you, Mike, and good morning, everyone. Our second quarter earnings of $1.39 per share, which includes an $0.11 per share hit from Superstorm Sandy, reflects the strength of FedEx Ground and SmartPost, continuing improvement at FedEx Freight and the current trends at FedEx Express. As we said in October at our investors and lenders meeting, we are committed to delivering improved profitability and shareholder returns, and in addition to a review of the quarter and outlook for the second half of fiscal year '13, I will comment on our progress toward delivering on our profit improvement plans. So let's first review segment results for the quarter, and we'll start with Ground. Ground's strong revenue growth from e-commerce and market share gains continues to expand our network and increase our capabilities. New volume milestones were reached for the second quarter as SmartPost moved over 2 million packages per day and Ground delivered over 4 million packages per day. On Cyber Monday, November 26, Ground moved 8.7 million packages and SmartPost 6.1 million packages. Ground's operating income increased 4% to $412 million in the quarter, primarily due to 8% higher volume together with yield growth, partially offset by network expansion costs. Operating margin did decrease in the quarter primarily due to lower fuel surcharge revenue and higher purchase transportation costs related to increased fuel expense. Operating income at Ground was also negatively impacted by Sandy. At Freight, we are continuing to benefit from the leverage gained by integrating our networks and differentiating our service by offering priority and economy choices for our customers, plus increasing our use of rail. Freight's operating income for the quarter improved significantly, up $36 million from a year ago to $76 million as a result of LTL yield growth and increased average daily LTL shipments, along…

[Operator Instructions] And our first question comes from Tom Wadewitz with JPMorgan. Thomas R. Wadewitz - JP Morgan Chase & Co, Research Division: Let's see. I wanted to ask a bit, Alan, about the -- you had quite a bit of helpful commentary following up in the October meeting, kind of reviewing some of the drivers on the broader improvement program. If you're taking this charge in fourth quarter, it would imply that you have significant run of the headcount that would be out in fiscal '14. Is that primarily related to the SG&A cost savings, the I think $500 million total that you had identified? And how would we think about that? Is it reasonable to think that you could realize a fair bit of that cost savings given the timing of your buyout program?

Tom, thanks for the question. At the investors and lenders meeting, we had thought that the buyout would be as people departed. We have since done a lot of further accounting research and have determined that we will take the charges upon the signing of the execution of the voluntary buyouts no matter when people depart. So that's why we will expect most of the charges to occur in 2013. We are working very hard on our reorganization plans. We think we know within pretty a good tolerance range of how many people are going to accept it and where they will be and how we will address that. But until we actually get through February, it's going to be very difficult for me to quantify how much in fiscal '14 that we will be able to put to the bottom line as we determine how long we'll have to retain people to ensure the smooth transition. It will be significant, but I would look for most of the benefits from the voluntary buyout to be realized in fiscal '15. And I will say the same thing for the profit improvement program at Express. We've already started it there. Dave will talk about it. In fact, I'll just turn it over to him and let him talk about it as part of this. We've already started that. We've saved a lot of money already, and we're well on our road. I would just say to sum up, we are very confident about reaching the $1.7 billion profit improvement program by fiscal '16. And I think as the deeper we get into this, the more confident that we are. And let me have Dave talk a little bit about the profit improvement.

Yes. Thanks, Alan, and that's correct. We're very optimistic that the 5-point plan that we presented is going exceptionally well. SG&A, as Alan pointed out, a big part of it is at Express. This quarter, I should go back to, and I'll talk about expenses in a minute here, significantly was affected this quarter, our profits and our margins by Superstorm Sandy was a big part of the $0.11 was at Express. Another big part of it significantly was at fuel that Alan pointed out, although it seemed like it would be a positive, it was a negative significantly. Pension, and then the fourth point that you may not pick up, it's in -- our purchase transportation is our new acquisitions sits in that purchase transportation number. It's a big negative number. That's the short term, obviously, until we get these new acquisitions rolling. So you have those significant headwinds in our profits and our margins this quarter. Going forward, we're very optimistic that those margins and profits improve. But on the expense side, even in this quarter, our FTEs were down 1,736, over 2%. Our fuel usage was down, thanks to our great programs we've put into air operations, aircraft maintenance was down even though our pounds were up. So our pounds were up across the world, a lot of them being international economy, which I'll talk about a little bit later, because it's a new network design that we're putting in for that lower-yielding international traffic to be in a much more cost-effective network going forward. That's part of our 5-point plan. So we're feeling very good about our 5-point plan. We actually had a quarter that would have significantly looked better had those 4 initiatives not hit all at one time. So going forward, we're very optimistic.

Our next question comes from Justin Yagerman with Deutsche Bank.

It's Rob on for Justin. I guess, Dave, as a follow-up to your comments related to the various cost initiatives at Express, you guys had called out, I think, roughly $350 million at the Investor Day, which you weren't including in that $1.7 billion of cost initiatives that you were targeting for fiscal '13. Can you give us a sense how much of that actually showed up in the earnings this quarter just given the headwinds from Sandy? Earnings were a bit better, so I'm just trying to get a sense of how much of those cost initiatives are now kind of showing up in the bottom line.

Yes, that's a good question because if it wasn't for Sandy a lot more would have shown up, and we actually did reduce our FTEs in our U.S. transformation number that you're talking about, the $350 million would have been significantly better. You would have seen it a lot more dramatic. But it's in our U.S. domestic transformation program that you're talking about. We're going after those costs in a lot of different areas. Attrition, of course, redesigning the network, and even with Sandy, we still had pretty good improvement on our FTEs. Alan?

Rob, let me just add to that, that we're building momentum, and while I know that a lot of people don't like my outlook for the third quarter, we did keep the year the same because we expect the momentum to build through Q3, and we will really start to see the impact of this at Express in the Q4 results for Express and for the corporation and then on into fiscal '14. So momentum is there. It does take a while to get everything once we've made the plans executed. You've got, for example, bid packs with the pilots. You've got attrition that you have to let happen. We've got to continue to go through the reorganization for the G&A that we're doing, but strong momentum-building, and you'll see it in Q4.

And one last thing on the 4 767s, obviously, it's accretive from our operating profits and margins. It's a positive MIRR as well, and it's all part of 1 of those 5 pillars that I pointed out in our fleet modernization as well.

And our next question comes from Nate Brochmann with William Blair & Company. Nathan Brochmann - William Blair & Company L.L.C., Research Division: I wanted to talk a little bit on the international side. Obviously, there continues to be some trade-down there, but yet kind of saw some uptick in volumes. I was wondering how much of that might be market share gains from your competitors' disruption over there may be with their big deal, just separating that as well as with just improved activity over there.

This is Mike Glenn. Market share data trails, so it would be premature to make definitive statements regarding market share gains at this time. Although, we have seen strong performance, stronger performance out of the Asia Pacific region and certainly, strong performance out of Europe.

I would also add that our European organic expansion plan is right on target. Our strategic business case there is -- looks very good despite the weak economy over there. They're executing on it very well. As you know, we've made important acquisitions in Poland and France, and we will continue to roll that out, and we're very pleased with the progress.

And just one last point, you've seen in our numbers. International priority, which is also international priority distribution where a lot of our high-tech customers use that product, grew at 3%. International economy grew at 14%. So going forward, there's a big opportunity for us there to put those packages in the right network for improving our profits.

Our next question comes from David Ross with Stifel, Nicolaus. David G. Ross - Stifel, Nicolaus & Co., Inc., Research Division: Could you talk a little bit about the company's exposure to the U.S. housing market? The housing market seems to have bottomed and has gotten better this year. If there's more upside surprise in 2013, can you talk a little bit about how each of the different segments might benefit from that?

Yes, I think from the -- this is -- David, this is Bill Logue. On the Freight side of the business, as the housing recovery comes around, obviously, that's a big role in the Freight side of the business. So whether we -- in the quarter, we saw some good volume movement through November -- October, November, pretty healthy for us, so again, helped our results. And again, as we see continued improvement going forward, then there's significant upside for us on the Freight side. Now as we go into our Q3 side of the business, obviously, we have a -- 2 less operating days in this quarter, and our third quarter, which is December, January, February, is the most challenging quarter because it's in the LTL space. It's 3 challenging months. That plus 2 less days. So as we work through Q3, our objective is to stay focused on continuing to build on our base business, continue our efficiencies and very focused on our contract renewals, which we are in a very heavy part of our season right now and prepare us to run efficient through Q3 as best we can with the challenges of the volume during this period and get us ready for Q4. So again, if housing continues, we'll see the benefit of that.

Our next question comes from Helane Becker with the Dahlman Rose. Helane R. Becker - Dahlman Rose & Company, LLC, Research Division: Just on the -- some press reports a couple of weeks ago on this recent lawsuit over charges in your network. Can you just address that or how we should think about that?

Helane, it's Chris Richards. This case was filed in February 2011 and received some recent media attention. We deny the allegations in this complaint. It had to do with an assertion that we weren't properly paying -- we were improperly charging for residential surcharges which, of course, we have a very settled process where customers, if they have this concern, can note from their invoice that they have it, and we'll address those issues. I have to tell you, it's not uncommon for plaintiffs' counsel where they have a situation where a case may be disposed of on preliminary motions for them to go to the media and attempt to bring forward negative facts in the media. And we're not going to try this case in the media. So just want to bring it to the attention of all of our customers that we note on our invoices when a residential surcharge has been applied. We take seriously and address any concern that's raised about those charges. We have a good process in place to make sure we are doing this correctly. But on the other hand, this isn't a perfect science, and if you drive around your town, you'll probably find some places where houses that used to be filled with families are now the locations for beauty salons and Mexican restaurants and other kinds of things. And so it's a changing situation that we address through our various data sources. So that's where we are. It's very preliminary stage, and we can't be accountable for plaintiffs' lawyers' actions.

Our next question comes from Ben Hartford with -- of Robert W. Baird. Benjamin J. Hartford - Robert W. Baird & Co. Incorporated, Research Division: I'm wondering if you can provide some context on the airfreight dynamics without giving specific numbers in the quarter, can you talk directionally about how trends trended? It sounds as though November airfreight was healthy after being weak for the 5 months prior. And can you talk a little bit about trade lanes in terms of that dynamic and maybe what you're seeing from a near-term perspective, whether you do have the sense that airfreight fundamentals globally have started to bottom or if there's still too much uncertainty to make any sort of any claims? So any sort of color on that would be helpful.

Well, I'll start. This is Dave Bronczek. The airfreight out of Asia Pacific is doing quite well. A lot of it is our high-tech customers. Obviously, this time of the year, there is a shift. However, we think, in the overall market that has more Express on the high end and more Freight IE type of traffic on the low end, so it's actually going to play into our network very well. So our volumes were up out of the Asia Pacific. They're also up out of Europe. So we are actually seeing some positive trends from our key customers in our market segment. Mike?

Yes, I was just going to highlight, as Dave mentioned, as most people know during the quarter there were several high-tech product releases that certainly benefited the market overall in FedEx. And those don't happen every quarter, but certainly, we benefited from that during the quarter.

This is Fred Smith speaking. On our Investor Relations website, you can read a speech which I gave in May at the Wings Club that gives a comprehensive look of our views about the international cargo business from the Express sector through the commodity airfreight or traditional airfreight business down to Ocean Freight. And you'll see that over the last several years, particularly since the great recession, there have been major systemic changes. And I'd commend that work to you because it gives a more comprehensive answer to the question you just asked.

Our next question comes from Bill Greene with Morgan Stanley.

Yes, Fred, maybe I can ask you just to follow up a little bit on that. We hear a lot about nearsourcing of manufacturing back to North America. Obviously, FedEx serves all of those places. But we also hear that international priority freight is some of the best freight on the network. So maybe what are the puts and takes there? Is it a good thing if we get nearsourcing back here for FedEx? Or is that more of a challenge as a secular shift?

Well, we're in all these sectors. It's just really an issue of managing the capacity and putting the right traffic in the right network. And I think over the last couple of years, as Dave mentioned, customers have opted to trade a bit of speed for a lower price but that's fine. We just have to make sure that the economy traffic has moved in the appropriate network, and we're moving a lot -- and moving it on the ground more as opposed to flying it as much. So it's more drive, fly, drive rather than -- and then fly, fly. So that takes some time. One of the things that we're most excited about in the last couple of years -- and perhaps, Dave can talk a bit more about this -- we bought a terrific company in Mexico, which will be a major beneficiary of nearsourcing trends. We got a great team down there, and it's going very well. So we're prepared on either side for continued growth across the Pacific. And I think the sector that we pioneered, the door-to-door Express, will be the growth area. And we're also well situated for nearsourcing. Dave?

That's exactly right, Fred, and we have a great company in Mexico. We come across the border now in trucks when it gets nearsourced, and that's a great question. Or it's Indonesia or it's in China or it's in Austin, Texas. Those customers are telling us in advance where they're moving to, and we align our network to that. In some cases, it's actually better for us financially when they nearsource it. So we have a good line of sight on where these customers are, and we have great businesses and great business models all around the world to handle it.

Our next question comes from Christian Wetherbee with Citi.

I was maybe wondering if we could touch a little bit on kind of the fuel surcharge in the purchase transportation and maybe the Sandy allocation within Express. Just trying to get a better sense of maybe what the underlying kind of earnings power the segment is right now and how you think about that x some of those items. Just a little bit more color there would be very helpful.

Well, as we grow FedEx Trade Networks, our purchase transportation costs are going to increase because they're all -- that's all purchase transportation. FedEx Trade Networks is a very important part of our strategy. It goes back to the last couple of questions where we're getting bigger in ocean, and we are also getting bigger in forwarded air traffic on a small basis now, but hope to be larger as we go where we can't justify flying an entire aircraft. That's an important part of our strategy. Also with acquisitions, there's a lot of purchase transportation acquisitions. And acquisitions, when you first make them, you have 2 costs that you have to deal with, particularly in the first year. One is you can't capitalize the cost of the acquisitions anymore. Now those are expensed immediately. And secondarily, you have integration costs as we hook those acquisitions into our international network. We know that going upfront. We have a strategic business case on all of these that understand that. But as we get them tucked in and up and running and FedEx-branded, 18 months down the road, they start to pay off. So those are the answers there. As to the fuel, you have to remember about the fuel surcharge. You have to remember what happened a year ago in terms of those lag between the surcharge and the price and what happened this year. So a lot of people thought we'd have a tailwind. We actually had a headwind, as our fuel price variance was significantly higher than year-over-year and our surcharge revenue was basically flat across the enterprise.

Our next question comes from Jeff Kauffman with Sterne Agee. Salvatore Vitale - Sterne Agee & Leach Inc., Research Division: Sal Vitale on for Jeff Kauffman. Just looking at some of the trends in the Express business, volume-wise, was there anything in terms of easier comps this quarter? If we look at the trend over the last few quarters, you had the -- the May quarter was down about 3% year-over-year. August was up about 1.5%, and then you had up 6% in the November quarter. Is there anything there we should be looking at?

I don't think there is anything beneficial in that regard. I think to the contrary we're still lapping the one customer -- one large customer, the cell phone industry that I mentioned last quarter, which moved the traffic out of the Express network into the home and SmartPost -- Ground and SmartPost network. So that is still a headwind for us in the Express sector. So what we've seen is stronger numbers. Obviously, we've been benefiting from e-commerce to some degree and specific opportunities with other customers. But it's more -- I would say it's more of a headwind than a tailwind that we're dealing with.

Our next question comes from Scott Group with Wolfe Trahan. Scott H. Group - Wolfe Trahan & Co.: So what I understand on the Ground side, we saw nice acceleration in the volume growth and wondering what's driving that. Are you hearing from customers? Or do you think you're taking maybe a little bit of share or accelerated share ahead of UPS' Teamster contract next year? And then on the expense side at Ground that you talked about expansion costs and higher contractor costs, maybe give a little bit of color there. And should we think about those as ongoing in the next few quarters?

Okay, Scott, this is Dave Rebholz. There is no question that with our value proposition and the quality of the service that we are performing that we are taking some level of share. It would absolutely be ridiculous to not think that we're not doing that. All up, our customers are pointing out to us what's valuable, what's important. We have picked up a number of significant customers that have, obviously, stated concerns over the U.S. -- UPS situation, but I don't think that's the primary driver in this. Otherwise, I think we would see a heck of a lot more volume coming on board in the short term. So I think we're absolutely winning the game over the long run. In terms of the cost structure, just basic fundamentals here. We -- Alan already mentioned the net fuel position that we were in. We are all in the position of the lagging factor, which will benefit us going forward. We put on a significant -- and you follow us very closely. We put on a significant amount of expansion that comes on in this particular quarter in anticipation of the peak volumes that we have to handle, which Mike already told you, were record-level days. My peers laugh at me when I say it's kind of like the fishes and loaves because the days are unique, dramatic, and we're handling it at incredible levels of performance. So I am very, very pleased with our team. And I would like to go on the record for saying the level of dedication and commitment, not only from our own employees, but from our contractors is second to none. So all up, those are really the 2 big issues in this quarter, fuel and expansion. We anticipated it, and we're looking forward for the years to come, in particular the second half, because I think we've got headway to play this thing out. I have no idea what the situation is with UPS and their contract. All I know is we've got customers that are coming on for the long term.

Our next question comes from Ken Hoexter with Merrill Lynch.

Dave, can I just follow up on the Ground side there, it seemed like yields also seemed to take a deceleration, not a decline, but maybe slowing over what we've seen in the last few quarters. Is it getting more competitive in terms of getting those in that business? Or is -- I guess maybe is e-commerce having a greater impact? I know you just highlighted expansion and fuel, but is the rapid growth of e-commerce impacting your margin capabilities as a growth of SmartPost or anything else that's going on within the network that we should think about?

Ken, the issue here is that as we have moved into this peak season, the acceleration of e-commerce is very real. You don't have to look at FedEx to understand what's going on out there in the marketplace with our largest retail customers and their customers. It appears that there's been a lot of pent-up demand from us, we as consumers, and so ordering online is the most convenient way to do business. So I don't think that trend is going to change. The economics on yield, we were over yield, as was already articulated by Alan in our press release. That's not to say that the larger the customers and as the mix changes that we could not envision some sort of yield risk as a function of customer mix, not as a function of rate, okay? So I think we're in a very healthy position, and all I can tell you is, is that the growth is and the demand is very strong. And yes, it is true, and I'll let Mike comment on it, our largest customers are seeing record years.

Ken, I just want to highlight a couple of points. I certainly agree with what Dave is saying. But I want you to focus on the fact that FedEx has been leading the industry in terms of overall yield improvement. And our yield management and our sales team along with our revenue management team has done an outstanding job of managing our yields in the various quarters over the last couple of years. Our objective, as I stated at the investor and lenders meeting, is to balance our yield improvement along with volume growth to maximize profitability for each operating company, and we have worked very closely with the operating companies to make sure that we accomplish that. Certainly, during quarters leading up to -- or the quarter leading up to the peak season, we do see a change in customer mix, as Dave noted, which does put some pressure on the yield. But our long-term objective is to balance yield improvements and volume growth to maximize our profits, and that's what we're focused on. So some quarters you're going to see yields a little higher, some quarters you're going to see yields a little lower, but the key is improving our profits.

Our next question comes from Brandon Oglenski with Barclays.

This question might kind of be a follow-up for you, Mike, or maybe Dave Bronczek. But when we look at yields in Express as well, is that being challenged any way domestically by what your peer is doing with these new Saver products that they've introduce over the last few quarters? And with the declining volume environment, what are some things that you're doing to try to push better pricing outcomes looking forward?

Our yield strategy, I can tell you, is independent of what our primary competitor is doing. As I said before, our objective here is to balance our yield improvement along with volume growth to maximize our profitability. We've worked very closely with our Express company to identify opportunities, whether they be on a lane segment basis or out of a particular market or region to grow our services. We've had a lot of new contract negotiations that have come up in the quarter, and we work, again, very closely to make sure that we're getting the level of contribution that we need to get. What's really driving a lot of the yield issues in the market in general in Express is the growth in e-commerce. And again, as I stated at the investor and lenders meeting, our SmartPost and home delivery services are ideal for growth in SmartPost; and at the same time, we are being more selective in the Express segment when pursuing e-commerce opportunities. Certainly, Express benefited during the quarter from strong e-commerce results, but we are more selective in that regard and perhaps more selective than our primary competitor.

Our next question comes from Art Hatfield with Raymond James. Arthur W. Hatfield - Raymond James & Associates, Inc., Research Division: Just a quick question going back to the profit improvement initiatives and the cost saves that will come. Alan, in your comments, you talked about some of the savings in next fiscal year and then most of the benefits being in place by the end of fiscal '15. Is the right way for us to think about it -- I know you can't pinpoint all of this at this point in time, but as this occurs will it be something that will come in a stair-step function? Or will it accrue smoothly over the quarters as you start to see those benefits kick in?

I think it'll be a combination. There'll be small stair steps, but it'll mostly be momentum that will drive this. Again, we are talking about thousands of people here. So as we reorganize around that with a very limited backfill behind that, we have to space these folks out. So there'll be May, then there'll be some August, then there'll probably be some November, then there'll be some the next May. And I don't have clear visibility of that except I know where we'll be in fiscal '15 with pretty good certainty. So we'll have a lot more to say about this over the next couple of calls, Art, because I'll have a lot better knowledge after we actually go through the process. We've told our employees what the voluntary buyout is. We want them to think about it over the holidays and talk with their families. We want to do this the right way, and I'm confident that we'll get where we need to be.

Our next question comes from Peter Nesvold with Jefferies & Company. Elliott Waller - Jefferies & Company, Inc., Research Division: It's Elliott Waller on for Peter. Just continuing in the cost savings, just questions for you. Just how many people approximately were offered the buyout? And your charges that you spoke of in the next quarter, how many people does that assume, ballpark estimate, in terms of accept those buyouts? And then should we expect charges going forward into fiscal '14?

Elliott, the -- most of the voluntary buyouts offered are at FedEx Express and FedEx Services. There'll be a significantly large population, but I'm not going to get into details of numbers. As I said, we expect it to be in the thousands of those who will take the voluntary buyout, and I've given a number between $550 million and $650 million. We will book the majority of that in the fourth quarter as contracts are signed as opposed to spreading that out. So we will have most of the voluntary buyout -- will be in fiscal '13. There will be some continuing costs associated with the program that will go into fiscal '14, but they will not be material compared to the savings that we'll see in '14. So we'll have a plus in fiscal '14. I just can't tell you how big it is today, but I will certainly give you some indication at our next call, and then we'll have a great definitive answer for you when we report our year-end earnings.

We have a question from Andrew Meister. Are you actually trying to affect turning freight from one network to another for the long-term benefit of both FDX and your customers? And how do you affect such changes, if so? The reality is we don't affect those changes. The customers affect the changes, and it depends on a number of factors. But again, referencing the Wings Club speech, what you'll see is one of the most important elements in the transportation market over the last decade is the increased price of fuel. From 2001 to 2011, the price of diesel and jet fuel went up about 4.5x. So that by itself drives people to make price service trade-offs, and obviously, the more expensive Express transportation, the more energy intensive, because it's built around aviation, and it drives people to make decisions. Second is the relationship of value per pound of the product that's being shipped. Mike mentioned a cell phone provider, I think it was a communications company, and they moved from Express to SmartPost. Well, what happened there is cell phones went from being exotic, expensive devices to much lower-cost commodities, and so the need to move them with the same speed requirement declined. That's happened to a lot of the electronics trade across the Pacific. And they may be moved in air transportation for a product release, but over time, as the value per pound of the product goes down, they might move to ocean transport. So it's a dynamic process, and we're not doing this. It's a function of what the customers want, and we, then, have to be prepared as we are to efficiently handle it. And that's what the FedEx portfolio does. We can handle nearsourcing or Trans-Pacific. We can handle the most economical shipment in our Ground and SmartPost network or the defibrillator for the surgery tomorrow for a first overnight delivery. Now I do think that the rapidity with some of these changes over the last few years has been something that we've had to deal with, and that's what we talked about in the investors and lenders meeting. And the reality is that things didn't come back the same way after the big recession as everybody thought they would, and so clearly, the voluntary buyout and the new networks that Dave Bronczek are putting in place are reflecting what customers want. So that's the answer to how traffic churns in the network. It's not us. It's the customers and the macroeconomic environment and the input costs, particularly the price of fuel.

Our next question comes from Chris Ceraso with Credit Suisse. Patrick C. Geekie - Crédit Suisse AG, Research Division: This is actually Patrick Geekie on for Chris. We haven't talked too much about Freight thus far in the call, so I wonder if you could elaborate on the current competitive environment and in particular pricing that you're seeing right now in the market.

Okay, Chris, this is -- or this is -- Patrick, this is Bill Logue. The -- I would say from a competitive perspective, obviously, the market is a very competitive market. There is a -- on the pricing side, again, pricing remains rational. Obviously, the contract renewals and pricing is -- gets a little more challenging as you go through this time of year with the volume levels where they are. So again, we're seeing some of that in the market space. But overall, we're happy with where we're positioned in the market space. Customers are responding. As you saw, our volume growth continues on both volume and yield growth, and so we're getting yield improvements, and we're getting volume. And the customers are using both services, which is, again, the value that we put out with our new design model. So from that perspective, I think we're in good shape. And I said earlier, we're going through a -- our Q3 is a challenging quarter. So again, I want to make sure that, that's something that we're very focused on and building through Q3 to get us ready into a -- our strongest quarter, which is Q4. So from the market's perspective, challenging as we go into this time of year, but I think -- and I'll let Mike comment on some of the yield initiatives.

Well, as Bill indicated, when you're dealing with softness in the economy and you have the number of competitors that we are facing in the LTL industry, there is certainly opportunity to see more aggressive pricing. But I would reiterate what Bill said. I would consider the market rational. I think our team has done an outstanding job, again, working with the freight operating company, selectively being aggressive where appropriate and at the same time being focused on improving our yields. And as I stated before, without the impact of fuel, our yields went up 1.9% during the quarter, which I would characterize as very solid performance.

Our next question comes from Anthony Gallo with Wells Fargo.

Just a couple of questions tied to the headcount reduction. It was $550 million to $600 million (sic) [$650 million] in charges that equate to about a $300 million run rate benefit that begins in May of '13. Did I get those numbers and timing correct?

Well, I didn't comment on the run rate in '14 and I'm not going to, but you got the fourth quarter charges correct.

Our next question comes from David Vernon with Bernstein. David Vernon - Sanford C. Bernstein & Co., LLC., Research Division: Just a quick question. Looks like we're getting very good volume growth in the Ground segment, 8% and 17% in SmartPost, perhaps maybe not as much operating leverage as you'd expect in the business with that kind of volume. There were some comments about network expansion costs and Hurricane Sandy and stuff like that. Could you help us to understand what level of nonrecurring costs might be in the Ground result for the quarter?

Well, I'm not going to comment specifically on the specific numbers, but what we were trying to point out to you is every year we have expansion costs in this quarter because we time when we're bringing on capacity in anticipation of peak. In terms of the fuel, that's relatively public information that's -- you've got to be looking at what those fuel trends are. All up, I didn't think that our return on that growth rate was a bad number, so I'm not sure what else I can add to that, but I would ask Alan if he wanted to comment on it beyond that.

I think Dave told you earlier about our biggest customers who are having seasons that are higher than they even forecasted. And so that means that we had to add late additional capacity in November and in December to be able to handle the volume surges that we had not planned or forecasted and still make the service commitments that we made. So that's probably a little bit of nonrecurring because we've really had an unbelievable peak so far as we've given you the numbers. But having said that, knock on wood, the weather's been pretty good, and I think we'll have a great Service week this week and expect that we will continue our expansion at Ground. And we will have to have some of the things that we're dealing with next year, so there's a little bit of that in there. But generally speaking, the margins in Ground are solid, and they're going to stay solid and their growth is going to continue.

And at this time, I would like to turn the conference over to our speakers for any additional or closing remarks.

Thank you for your participation in FedEx Corporation's second quarter earnings release conference call. Please feel free to call anyone on the Investor Relations team if you have any additional questions about FedEx. Thank you very much.

That does conclude today's conference. Thank you for your participation.