FedEx Corporation achieved another year of record revenues and earnings in fiscal year 2006 through highly effective execution of our business strategy. But a single year's results cannot completely capture the positive impact we see from people's ever-expanding access to goods, services and information around the globe.

In its simplest form, better access makes it easier for people to get the things they need to improve their lives, their businesses and their communities. The success of FedEx reflects our increasing efficiency in connecting our customers to what they want and need. We combine the most comprehensive global networks with the global mindset to tailor our solutions to the desires and dreams of each customer. This combination enables our customers in each of the more than 220 countries and territories we serve to reach more of what's possible in the world today.

The Power of Networks
The impressive power of networks is universally recognized today: physical networks of roads or telecommunications cables, economic networks of trading partners, or social networks of like-minded Internet users. It is said that a network's power increases exponentially to the number of connections added. Our experience shows that the FedEx shipping and information networks follow that same model. In FY06, FedEx initiatives brought better connectivity and choice to our customers. As examples, let's look at two of the world's fastest growing economies — China and India.

Ever since we established international express operations in China more than 20 years ago, FedEx has played an important role in one of the greatest economic surges in world history. In January 2006 we announced a strategic investment in the long-term growth of China by agreeing to acquire the domestic express network of DTW Group along with its 50 percent share in our International Priority express joint venture. In FY06 we also broke ground on a new Asia-Pacific hub in Guangzhou and added three more weekly flights between China and the United States, maintaining our long-standing leadership position in this critical corridor. We are well positioned to serve the emerging growth patterns of this vibrant economy.

In FY06, we also expanded our service in India. FedEx was the first express company to serve this important market with direct international air routes. This expansion connects more of India — 4,348 cities and towns — to more of the world, faster. We inaugurated the first overnight express flight from India to China and doubled our capacity from Europe to Asia through an eastbound around-the-world flight, mirroring its westbound counterpart launched in FY05. As India's economy continues its rapid expansion, we have the network to serve it.

In the United States, we are making multiple moves to strengthen our networks. For example, FedEx Express announced a major expansion of its Indianapolis hub, which will increase package processing capacity more than 30 percent.

Our FedEx Freight network's rapid growth will be accelerated through the planned acquisition of Watkins Motor Lines, a leader in the long-haul segment of the less-than-truckload market. To be rebranded FedEx National LTL, it will dovetail with the regional networks of FedEx Freight, to create a comprehensive LTL solution for our customers.

Our FedEx Ground network is on track to expand its average daily package pickup capacity to approximately five million in the next five years, with three new hubs opened in FY06. FedEx Ground has accelerated transit times in more than half its lanes over the past three years, and in June 2006 alone improved transit times in more than 4,000 additional lanes.

All of this progress has been made under the outstanding leadership of FedEx Ground CEO Dan Sullivan, who will retire January 5, 2007. Dan founded the predecessor company 21 years ago and has been a valued member of our Strategic Management Committee since the company's acquisition by FedEx. He will leave with our thanks and admiration and will remain a consultant to FedEx. Dave Rebholz, currently FedEx Express Executive Vice President, will succeed Dan as FedEx Ground CEO.

FedEx Kinko's opened its World Production Center (WPC) in Memphis to help customers efficiently produce and distribute documents that have been sent through our digital networks to the WPC. We have also expanded services in 39 other commercial print production centers and opened 35 new FedEx Kinko's retail locations in FY06. Major efforts to improve training and customer satisfaction were also initiated during the fiscal year.

What's possible today is not just the result of shrinking time and space. Real access is also about the ready availability of more information. That is why we continue to innovate in information technology. In FY06, we significantly upgraded two important online shipping tools to make it easier for customers, particularly in small and medium businesses, to simplify shipping, especially internationally. We've also established the infrastructure to provide a single source for shipment status tracking across many FedEx operating companies, giving customers a consistent end-to-end view of their FedEx shipments.

Customers and Communities
The common thread in all these activities? Building customer loyalty. From our very first shipment 33 years ago, we have been consistently and positively committed to our customers' success. We are fine-tuning our customer satisfaction measurement systems to be sure we take into account everything customers feel is important in creating an exceptional relationship with FedEx. That is the clear purpose shared by our 260,000 team members worldwide: to make every FedEx experience outstanding. We call it The Purple Promise.

That purpose extends to our interactions with the communities where our customers and team members work and live. In FY06, FedEx once again responded to community needs in the wake of disaster, donating shipping for more than two million pounds of relief supplies to victims of Hurricane Katrina. Many FedEx team members volunteered to help, building homes, gathering donations, distributing supplies, working on communication systems and assisting affected people in many personal ways. We also responded to other natural disasters around the globe, including the recent earthquake in Indonesia. Our commitment to better communities includes responsible environmental practices. That is why we have ordered additional hybrid vehicles; continued to upgrade to a more fuel-efficient aircraft fleet; converted to a predominantly solar-powered hub in Oakland, Calif.; and expanded our use of recycled materials at FedEx Kinko's.

Growing the Power of Possibility
As more people see the possibilities that access makes available, FedEx continues to grow. That reality was underscored by a landmark study for FedEx by SRI International, a well-respected research group. The study, which is the first to define and measure access, confirmed what we have intuitively known for years — that open markets, open skies and open communication among nations and peoples are good for the world.

In this annual report, our customers share success stories that prove this point. No two stories are the same, of course, but each demonstrates how FedEx has helped change what's possible in their lives and livelihoods. Enabling people to think bigger, reach farther and accomplish more is how FedEx delivers value to customers and shareowners alike. That is the key to our success in the year just ended and will be, I believe, for many years to come.

Sincerely,

Frederick W. Smith
Chairman, President and Chief Executive Officer