This past year, 280,000 FedEx team members applied their dedication, creativity, and passion to the task of changing what's possible for our customers, offering them more innovative solutions, faster delivery, and greater access to the world. In short, our team members are providing a consistently outstanding customer experience that we believe sets an industry standard. Thanks to their efforts, I am pleased to report that FedEx Corporation achieved another benchmark in financial performance.

We have just entered our 35th year of continuous operation, and often, someone mentions to me they've seen the first FedEx aircraft - the very special "Wendy" N8FE - at the Smithsonian Air and Space Museum. I tell them how honored I am to be a part of that history. But I also say I'm proud to be part of a team that focuses on the future and new ways we can help our customers achieve their goals in the vast global marketplace. In fact, I often tell people that FedEx is just getting started. Though customers may begin talking to us about one or more of our services, they sometimes end up telling us what they really want to accomplish is better service, greater sales, and higher profits. Then, given our broad portfolio of solutions, we can really help them achieve their goals.

And as we talk to businesses large and small, we realize that what FedEx provides is greater than transportation, logistics, and business services. We ultimately provide access. As we've learned from our landmark research with SRI International, greater access leads to better societies. Individuals, businesses, and nations alike benefit from the ability to draw from a global marketplace of goods, services, and information. The possibilities speak to our customers, and they speak to us at FedEx as well. Looking forward, we will strive to meet the evolving needs of our customers and create new markets for our services.

With that forward focus in mind, I'd like to mention in particular three areas of accomplishment among many in fiscal 2007.

The first is the growth of our networks. We believe we have the best collection of networks in the industry and are always looking to expand them strategically for more profitable growth and greater possibilities for our customers. In FY07, we completed acquisitions in areas where we see a bright future.

In China, FedEx Express completed its acquisition of our partner DTW's share of our joint venture international priority express business. We also acquired DTW's domestic China express network. Within three months, we instituted next-business-day domestic express service in China, improving access to markets for businesses throughout the world's largest nation.

In India, we acquired our service provider, PAFEX, giving us a wholly owned subsidiary serving nearly 4,400 destinations in a country that has joined China as one of the world's fastest growing markets.

We strengthened our network in both the eastern and western portions of the European Union. In the UK, we acquired ANC, allowing FedEx Express to directly serve the entire UK domestic market, providing customers a broader range of shipping options and services. In Hungary, we acquired our global service provider there, Flying-Cargo, increasing our capacity in fast-growing eastern Europe.

In North America, we enhanced our less-than-truckload freight portfolio by completing the acquisition of Watkins Motor Lines. Watkins now operates as FedEx National LTL, broadening our FedEx Freight service offerings. Watkins' Canadian operations are now FedEx Freight Canada, a great addition to our portfolio there. A number of new terminals were opened throughout the Freight system this past year.

The second area of accomplishment to note this past fiscal year was continued crisp execution.

When we acquired FedEx Kinko's, we envisioned it as a complementary and powerful retail and digital network, having great synergies with other FedEx services. We made significant progress toward that vision in FY07. We are weaving FedEx philosophy, culture, and metrics deep into the fabric of FedEx Kinko's, resulting in reduced employee turnover and continued performance improvement. We rolled out a new, more compact model for FedEx Kinko's centers and opened more than 200 of them in FY07. This new model will help us open more locations faster and increase convenience and service for our customers. Through FedEx Print Online, we are applying our digital network expertise to helping customers print complex documents, regardless of time and distance. In the same vein, customers can now initiate end-to-end direct mail campaigns right from their computers, with the order fulfilled at a FedEx Kinko's. The FedEx Kinko's network is now producing significant revenues - at an $800,000,000 run rate as we ended FY07 - for our Express and Ground companies. This highly profitable traffic is growing substantially.

FedEx Ground made a seamless transition from its longtime leader Dan Sullivan to its new president and CEO, Dave Rebholz, who brings great skills and many years of FedEx experience to his new role. This past year FedEx Ground added new hubs, additional direct routings, and numerous IT system improvements to further reduce transit times in our Ground network. A number of new state-of-the-art FedEx Ground facilities were opened during FY07.

The FedEx Ground small business owners have remained committed to providing outstanding service to Ground customers, despite litigation challenges. As we have in the past, we will continue to aggressively defend our model, wherever challenged.

At FedEx Express, we further strengthened our industry-leading global network. Our strongest emphasis in FY07 came where growth is fastest: Asia. Our new Asia Pacific Hub is slated to open in FY09 in Guangzhou, the epicenter of Chinese manufacturing, optimally positioning us to meet the future needs of this thriving market. Our domestic hub in Hangzhou opened at the end of FY07 and will play a major role in our new China system. We also created a new administrative center for China in Nanjing and one for the Asia Pacific region in Manila. We added more capacity to meet projected shipping growth in South Korea as well.

A third area of significant accomplishment is our continuing commitment to improving our customers' experience at every FedEx touchpoint.

We know that expanding the physical networks of our companies is not enough. We must also fulfill our Purple Promise: "I will make every FedEx experience outstanding." In FY07, we revamped our Service Quality Index across operating companies to better reflect customer needs. This is making our networks easier to use and helping us offer new solutions that enable customers to build their businesses by tapping into the power of access.

FedEx team members in our operating companies literally see the world from the air, the ground, and from store windows facing main streets and malls in cities and towns of every size. From every angle, we see opportunities to improve the quality of life for people in the communities we serve. We continue to act on many of those opportunities, both in our daily business activities and through our corporate citizenship activities.

In FY07, we expanded our long-standing commitment to bring help quickly when disaster strikes. We announced a donation to the Salvation Army to deploy mobile canteens, each providing up to 2,500 meals a day, along with a grant to train Salvation Army emergency response personnel in countries around the world. On a day-to-day basis, our company continues to increase support to communities by giving people access to needed food, education, medical care, safety programs, and more. This past year, in conjunction with Heart to Heart, we agreed to pre-stage disaster-relief supplies in a response center in Kansas City and in FedEx facilities in Subic Bay, Dubai, and Miami. We also maintain a significant support relationship with the Red Cross to help in times of crisis.

We recognize the importance of environmental stewardship and the necessity of improving fuel efficiency. That is why we are adding more hybrid vans to our FedEx Express fleet and are participating in the development of improved commercial hybrid powertrains, to accelerate the spread and lower the acquisition costs of this promising technology industry-wide. We will further reduce our energy intensity and noise footprint by acquiring Boeing 757 aircraft, which offer major reductions in fuel consumption per ton earned over the planes they replace. Also with conservation in mind, we have chosen the fuel-efficient Boeing 777-200LR twin jet wide-body freighter to meet future international expansion needs.

Our focus in FY07 resolutely remained on providing more possibilities each day to our customers, while positioning FedEx to extend access to more markets and offer more services in coming years. This is how the people of FedEx keep businesses small and large on the leading edge of commerce - equipping them for continued success in a changing business world.

Though the years ahead will certainly contain challenges, there will also be unprecedented opportunities. Whether in China, Chile, California or the Czech Republic, people today move to a global beat of new possibilities, thanks in large part to the explosive growth of access to goods and ideas.

It's a future we at FedEx anticipate with great excitement.

Sincerely,

Frederick W. Smith
Chairman, President and Chief Executive Officer