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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

Commission file number 1-7806

FEDERAL EXPRESS CORPORATION
(Exact Name of Registrant as Specified in its Charter)

Registrant's telephone number, including area code: (901) 369-3600

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

        Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

        Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act.) Yes o    No ý

        The Registrant is a wholly owned subsidiary of FedEx Corporation, a Delaware corporation, and there is no market for the Registrant's common stock, par value $0.10 per share. As of July 12, 2004, 1,000 shares of the Registrant's common stock were outstanding.

        The Registrant meets the conditions set forth in General Instruction I(1)(a) and (b) of Form 10-K and is therefore filing this Form with the reduced disclosure format permitted by General Instruction I(2).

TABLE OF CONTENTS

PART I

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PART I

Item 1.    Business

Overview

        Federal Express Corporation ("FedEx Express") invented express distribution in 1973 and remains the industry leader, providing rapid, reliable, time-definite delivery of packages, documents and freight to 215 countries. FedEx Express is a wholly owned subsidiary of FedEx Corporation ("FedEx"), which was incorporated in Delaware on October 2, 1997 to serve as the parent holding company of FedEx Express. We offer time-certain delivery within one to three business days, serving markets that comprise more than 90% of the world's gross domestic product through door-to-door, customs-cleared service, with a money-back guarantee. Our extensive air route authorities and transportation infrastructure, combined with our leading-edge information technologies, make us the world's largest express transportation company. We employ more than 133,500 employees and operate approximately 52,000 drop-off locations, 645 aircraft and 47,000 vehicles and trailers in our integrated global network.

        FedEx Corporate Services, Inc. ("FedEx Services"), a wholly owned subsidiary of FedEx, provides a convenient single point of access for many customer support functions, such as customer service, sales and automation. Much of the sales, marketing and information technology support for FedEx Express and FedEx Ground Package System, Inc. ("FedEx Ground"), a wholly owned subsidiary of FedEx, have been combined under FedEx Services to more effectively sell the entire portfolio of express and ground services. FedEx Services sells and markets the full portfolio of services offered by us and FedEx's other principal package-delivery subsidiaries and provides customer-facing solutions that meet customer needs. FedEx Services also includes substantially all of the information technology groups from FedEx, FedEx Express and FedEx Ground. The majority of FedEx's e-commerce groups are also part of FedEx Services.

        In 2004, FedEx acquired FedEx Kinko's Office and Print Services, Inc. ("FedEx Kinko's"), formerly known as Kinko's, Inc. This strategic business acquisition has increased our retail presence worldwide, expanding customer access to our shipping services at FedEx Kinko's more than 1,200 locations. In May 2004, FedEx began offering the full range of our time-definite global express shipping services at all U.S. FedEx Kinko's Office and Print Centers. This added approximately 1,000 staffed locations to our retail network, substantially increasing customer access to our shipping services. FedEx also plans to offer complete "pack-and-ship" capabilities to FedEx Kinko's customers later this calendar year, in time for the peak holiday season. Internationally, FedEx Kinko's Office and Print Centers also plan to add our shipping services in the future.

        Except as otherwise specified, any reference to a year indicates our fiscal year ended May 31 of the year referenced.

Services

        We offer a wide range of shipping services for delivery of documents, packages and freight. Overnight document and package services are backed by money-back guarantees and extend to virtually the entire United States population. We offer three U.S. overnight delivery services: FedEx First Overnight, FedEx Priority Overnight and FedEx Standard Overnight. FedEx SameDay service is for urgent shipments up to 70 pounds to virtually any U.S. destination. We also offer express freight services to handle the needs of the time-definite global freight market.

        With unmatched air route authorities and an extensive air/ground infrastructure, we provide customs-cleared, door-to-door service to more international locations than any competitor. International express

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delivery with a money-back guarantee is available to 215 countries, with a variety of time-definite services to meet distinct customer needs. We also offer the most comprehensive international freight service in the industry, backed by a money-back guarantee, real-time tracking and advanced customs clearance.

        During 2004, as part of our continued international expansion, we:

•

Increased capacity on flights between Europe and Asia. For instance, by adding a refueling stop in Kazakhstan, we were able to increase our cargo capacity between Hong Kong and Paris by an additional 55,000 pounds for each flight.



•

Expanded our network within Europe and Asia. We added 13 additional weekly flights in and out of Hong Kong, allowing us to offer even greater access to Asia from the U.S. and Europe as well as within the Asia-Pacific region. We also now provide customers with better intra-Asian connectivity as a result of adding six weekly flights to Subic Bay, Philippines, linking customers to the FedEx AsiaOne network and the rest of the world.



•

Increased our presence in China. We announced plans to establish a new regional headquarters in Shanghai and to expand service from 220 Chinese cities to 320 over the next five years. The new regional structure there will provide broader expertise and expanded resources and service offerings to mainland customers as part of our long-term commitment to China. We also launched the industry's first direct flight from southern China to North America, further expanding our airlift capacity from China.



•

Launched express service to Iraq. Our role as one of the world's leading drivers of international trade and growth will be a significant asset to Iraq and its business community as the country works toward rebuilding its infrastructure and economy.

        In June 2004, the United States and the People's Republic of China signed a new aviation accord that will further facilitate trade to and from China. The agreement, which extends through 2010, provides 111 new weekly U.S.-China flights for U.S. cargo airlines such as us. The U.S. Department of Transportation will be responsible for allocating the new flights, the first of which is scheduled to be available in August 2004.

        Through an alliance with La Poste, one of the world's leading postal organizations, customers of Chronopost International, a subsidiary of La Poste, have access to the our air network. Additionally, our customers in France and Belgium have benefited from the enhanced ground infrastructure of La Poste.

        Looking forward to our future needs, we have agreed to purchase ten Airbus A380 aircraft. The immense capacity, extensive range and excellent efficiency of this aircraft make it ideally suited for the anticipated needs of our global network later this decade. To facilitate the use of this growing network, we have strengthened our international trade consulting services and offer a variety of online tools that enable customers to more easily determine and comply with international shipping requirements.

        We provide our customers with a high level of service quality, as evidenced by our ISO 9001 certification for our global operations. ISO 9001 registration is required by thousands of customers around the world. Our global certification solidifies our reputation as the quality leader in the transportation industry. ISO 9001 is currently the most rigorous international standard for Quality Management and Assurance. ISO standards were developed by the International Organization for Standardization in Geneva, Switzerland to promote and facilitate international trade. More than 150 countries, including European Union members, the United States and Japan, recognize ISO standards.

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        Information regarding our e-shipping tools and solutions can be found below ("Technology"). In addition, detailed information about all of our delivery services can be found on the FedEx Web site at fedex.com. The information on the FedEx Web site, however, does not form part of this Report.

Technology

        In 1979, FedEx Express founder Frederick W. Smith said, "The information about a package is as important as the delivery of the package itself." Mr. Smith's vision for our technology in 1979 was a radical idea. Yet, today we are a world leader in technology, and his vision remains at the core of our comprehensive technology strategy.

        Our technology strategy is driven by our desire for customer satisfaction. Through FedEx Services, we strive to build technology solutions that will solve our customers' business problems with simplicity, convenience, speed and reliability. The focal point of our strategy is the award-winning FedEx Web site, together with our integration solutions.

        The fedex.com Web site is widely recognized for its speed, ease of use and customer-focused features. In 2003, the Web Marketing Association praised fedex.com as the "Best Transportation Web Site," and in 2002, eWeek saluted it as a top e-business innovator. At fedex.com, our customers ship packages, determine international documentation requirements, track package status, pay invoices and more. The FedEx Insight Web-based application provides our customers with visibility and package status of their inbound and outbound shipments. The FedEx Global Trade Manager online resource enables our customers to more easily navigate the complexities of international commerce by helping them identify the documents they need to ship to and from specific countries. FedEx Global Trade Manager also offers a currency converter, profiles of regulatory information by country, a customs regulation guide and, through its "Estimate Duties and Taxes" features, customers can estimate applicable governmental charges, duties and fees. The MyFedEx.com customer portal goes beyond simple tracking and tracing capabilities to offer personalized services for registered users.

        The fedex.com Web site is accessible from most wireless devices, making it faster and easier for our U.S. and Canadian customers to access real-time package status tracking information and drop-off location data for shipments. The wireless service is available through Web-enabled devices, such as mobile telephones, personal digital assistants and Research In Motion (RIM) devices. We also use wireless data collection devices to scan bar codes on shipments. Our newest data collection device, the FedEx PowerPad, uses Bluetooth wireless technology to give our couriers wireless access to our network, thereby enhancing and accelerating the package information available to our customers.

        Our e-commerce tools and solutions are designed to be easily integrated into our customers' applications, as well as into third-party software being developed by leading e-procurement, systems integration and enterprise resource planning companies. This is increasingly important, given the growing customer trend toward sophisticated multi-carrier shipping platforms. The FedEx Ship Manager suite of solutions offers a wide range of options to help our customers manage their shipping and associated processes. The FedEx Returns Portfolio makes it easier for consumers to make merchandise returns and helps merchants better manage their returns process.

        Detailed information about our e-commerce tools and solutions can be found on the FedEx Web site at fedex.com. The information on the FedEx Web site, however, does not form part of this Report.

Marketing

        The FedEx brand name is a symbol for high-quality service, reliability and speed. FedEx is one of the most widely recognized brands in the world. Special emphasis is placed on promoting and protecting

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the FedEx brand, one of our most important assets. In addition to traditional print and broadcast advertising, we promote the FedEx brand through corporate sponsorships and special events. For example, FedEx is the "Official Delivery Service Sponsor" of the National Football League. In addition, FedEx sponsors:

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FedExField, home of the NFL's Washington Redskins



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The FedEx Orange Bowl, host of one of college football's Bowl Championship Series games



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FedExForum, the home of the NBA's Memphis Grizzlies



•

The PGA TOUR and the Champions Tour golf organizations



•

The FedEx St. Jude Classic, a PGA TOUR event which raises millions of dollars for St. Jude Children's Research Hospital



•

The BMW WilliamsF1 Formula One racing team



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The National Thoroughbred Racing Association (NTRA)



•

The French Open tennis tournament

U.S. Postal Service Agreements

        Under two agreements with the U.S. Postal Service that run through August 2008, we provide air capacity for transportation of Priority, Express and First-Class Mail and have placed approximately 5,000 drop boxes at U.S. Post Offices in approximately 325 metropolitan areas. In March 2004, the air transportation agreement was amended to allow us to continue carrying incremental pounds of mail through November 30, 2004 at higher committed volumes than required under the original agreement.

        Effective July 1, 2004, the U.S. Postal Service chose us as the provider of transportation and delivery for the international delivery service called Global Express Guaranteed (GXG). The service, which is available at over 7,400 postal locations, offers international express delivery with a money-back guarantee (subject to certain limitations). Customers bring their packages to a U.S. Post Office where they fill out the GXG air waybill, pay postage and fees and drop off their packages. The U.S. Postal Service tenders the packages to us, and we provide transportation and delivery to the ultimate international destination.

Pricing

        We periodically publish list prices in our Service Guides for the majority of our services. In general, during 2004, U.S. shipping rates were based on the service selected, destination zone, weight, size, any ancillary service charge and whether the shipment was picked up by a FedEx Express courier or dropped off by the customer at a FedEx Express location. International rates are based on the type of service provided and vary with size, weight and destination. We offer our customers discounts generally based on actual or potential average daily revenue produced.

        We have a dynamic fuel surcharge for all U.S. domestic and U.S. outbound shipments and for shipments originating internationally, where legally and contractually possible. The surcharge percentage is subject to monthly adjustment based on the spot price for jet fuel. For example, the fuel surcharge for June 2004 was based on the spot price for jet fuel published for April 2004. Changes to our fuel surcharge, when calculated according to the spot price for jet fuel and FedEx Express trigger points, are applied effective from the first Monday of the month. These trigger points may change from time to time, but information on the fuel surcharge for each month is available at fedex.com approximately two weeks before the surcharge is applicable.

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Operations

        Our primary sorting facility, located in Memphis, serves as the center of our multiple hub-and-spoke system. A second national hub is located in Indianapolis. In addition to these national hubs, we operate regional hubs in Newark, Oakland and Fort Worth and major metropolitan sorting facilities in Los Angeles and Chicago. Facilities in Anchorage, Paris and Subic Bay, Philippines, serve as sorting facilities for express package and freight traffic moving to and from Asia, Europe and North America. Additional major sorting and freight handling facilities are located at Narita Airport in Tokyo, Stansted Airport outside London and Pearson Airport in Toronto. Facilities in Subic Bay and Paris are also designed to serve as regional hubs for their respective market areas. Throughout our worldwide network, we operate city stations and employ a staff of customer service agents, cargo handlers and couriers who pick up and deliver shipments in the station's service area. For more information about our sorting and handling facilities, see Part I, Item 2 of this Report under the caption "Sorting and Handling Facilities." In some international regions, where low package traffic makes our direct presence less economical, Global Service Participants have been selected to complete deliveries and to pick up packages.

        Sister company FedEx Kinko's offers retail access to our shipping services at all of its U.S. locations. We also operate FedEx World Service Centers, which are staffed, store-front facilities located in high-traffic, high-density areas. Unmanned FedEx Drop Boxes provide customers the opportunity to drop off packages at locations in office buildings, shopping centers, corporate or industrial parks and outside U.S. Post Offices. We have formed alliances with certain retailers to extend this customer convenience network to drop-off sites in retail stores.

Fuel Supplies and Costs

        During 2004, we purchased aviation fuel from various suppliers under contracts that vary in length and which provide for specific amounts of fuel to be delivered. The fuel represented by these contracts is purchased at market prices that may fluctuate daily. Because of our dynamic fuel surcharge, we do not have any jet fuel hedging contracts. See "Pricing."

        The following table sets forth our costs for aviation fuel and its percentage of total operating expenses for the last five fiscal years:

        Approximately 14% of our requirement for vehicle fuel is purchased in bulk. The remainder of our requirement is satisfied by retail purchases with various discounts.

        We believe that, barring a substantial disruption in supplies of crude oil, our fuel purchase contracts will ensure the availability of an adequate supply of fuel for our needs for the immediate future. A substantial reduction of oil supplies from oil-producing regions or refining capacity, or other events causing a substantial reduction in the supply of aviation fuel, however, could have a significant adverse effect on us.

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Competition

        The express package and freight markets are both highly competitive and sensitive to price and service. The ability to compete effectively depends upon price, frequency and capacity of scheduled service, ability to track packages, extent of geographic coverage, reliability and innovative service offerings. Competitors include other package delivery concerns, principally United Parcel Service, Inc. ("UPS"), DHL (which acquired Airborne Express), passenger airlines offering express package services, regional express delivery concerns, airfreight forwarders and the U.S. Postal Service. Our principal competitors in the international market are DHL, UPS, foreign postal authorities such as Deutsche Poste and TNT Post Group, passenger airlines and all-cargo airlines.

        Our extensive, scheduled international route system allows us to offer single-carrier service to many points not served by our principal all-cargo competitors. This international route system, combined with an integrated air and ground network, enables us to offer international customers more extensive single-carrier service to a greater number of U.S. points than can be provided currently by any of our competitors. Many of our competitors in the international market, however, are government-owned, -controlled or -subsidized carriers, which may have greater resources, lower costs, less profit sensitivity and more favorable operating conditions than we do.

Employees

        We are headquartered in Memphis, Tennessee. David J. Bronczek is our President and Chief Executive Officer. As of May 31, 2004, we employed approximately 84,500 permanent full-time and 49,000 permanent part-time employees, of which approximately 18% are employed in the Memphis area. Employees of our international branches and subsidiaries in the aggregate represent approximately 17% of all employees. We believe our relationship with our employees is excellent.

        Our pilots, who are represented by the Air Line Pilots Association, International ("ALPA"), have been employed under a collective bargaining agreement since May 31, 1999. The current agreement did not expire, but became amendable on May 31, 2004. Negotiations with ALPA to reach a new labor agreement began in March 2004 and are still underway. We will continue to operate under our current agreement while we negotiate with our pilots.

        Attempts by other labor organizations to organize certain other groups of employees occur from time to time. Although these organizing attempts have not resulted in any certification of a U.S. domestic collective bargaining representative (other than ALPA), we cannot predict the outcome of these labor activities or their effect, if any, on us or our employees.

Regulation

        Air.    Under the Federal Aviation Act of 1958, as amended, both the U.S. Department of Transportation ("DOT") and the Federal Aviation Administration ("FAA") exercise regulatory authority over us.

        The FAA's regulatory authority relates primarily to operational aspects of air transportation, including aircraft standards and maintenance, personnel and ground facilities, which may from time to time affect our ability to operate our aircraft in the most efficient manner. We hold an air carrier certificate granted by the FAA pursuant to Part 119 of the federal aviation regulations. This certificate is of unlimited duration and remains in effect so long as we maintain our standards of safety and meet the operational requirements of the regulations.

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        The DOT's authority relates primarily to economic and security aspects of air transportation. The DOT's jurisdiction extends to aviation route authority and to other regulatory matters, including the transfer of route authority between carriers. We hold various certificates issued by the DOT, authorizing us to engage in U.S. and international air transportation of property and mail on a worldwide basis. Our international authority permits us to carry cargo and mail from several points in our U.S. route system to numerous points throughout the world. The DOT regulates international routes and practices and is authorized to investigate and take action against discriminatory treatment of United States air carriers abroad. The right of a United States carrier to serve foreign points is subject to the DOT's approval and generally requires a bilateral agreement between the United States and the foreign government. The carrier must then be granted the permission of such foreign government to provide specific flights and services. The regulatory environment for global aviation rights may from time to time impair our ability to operate our air network in the most efficient manner.

        In 2001, the Aviation and Transportation Security Act transferred responsibility for aviation security from the FAA to the Transportation Security Administration ("TSA") within the DOT, and ultimately, the new Department of Homeland Security. The TSA has adopted and may in the future adopt security-related regulations, including new requirements for cargo security, which could impact our air operations or otherwise increase our costs.

        We participate in the Civil Reserve Air Fleet ("CRAF") program. Under this program, the U.S. Department of Defense may requisition for military use certain of our wide-bodied aircraft in the event of a declared need, including a national emergency. We are compensated for the operation of any aircraft requisitioned under the CRAF program at standard contract rates established each year in the normal course of awarding contracts. Through our participation in the CRAF program, we are entitled to bid on peacetime military cargo charter business. We, together with a consortium of other carriers, currently contract with the U.S. Government for charter flights.

        Ground.    The ground transportation performed by us is integral to our air transportation services. The enactment of the Federal Aviation Administration Authorization Act of 1994 abrogated the authority of states to regulate the rates, routes or services of intermodal all-cargo air carriers and most motor carriers. States may now only exercise jurisdiction over safety and insurance. We are registered in those states that require registration.

        Like other interstate motor carriers, we are subject to certain DOT safety requirements governing interstate operations. In addition, vehicle weight and dimensions remain subject to both federal and state regulations.

        Communication.    Because of the extensive use of radio and other communication facilities in our aircraft and ground transportation operations, we are subject to the Federal Communications Commission Act of 1934, as amended. Additionally, the Federal Communications Commission regulates and licenses our activities pertaining to satellite communications.

        Environmental.    Pursuant to the Federal Aviation Act, the FAA, with the assistance of the U.S. Environmental Protection Agency, is authorized to establish standards governing aircraft noise. Our aircraft fleet is in compliance with current noise standards of the federal aviation regulations. Our aircraft are also subject to, and are in compliance with, the regulations governing engine emissions. In addition to federal regulation of aircraft noise, certain airport operators have local noise regulations, which limit aircraft operations by type of aircraft and time of day. These regulations have had a restrictive effect on our aircraft operations in some of the localities where they apply but do not have a material effect on any of our significant markets. Congress's passage of the Airport Noise and Capacity Act of 1990 established a National Noise Policy, which enabled us to plan for noise reduction and better respond to local noise

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constraints. Our international operations are also subject to noise regulations in certain of the countries in which we operate.

        We are subject to federal, state and local environmental laws and regulations relating to, among other things, contingency planning for spills of petroleum products and the disposal of waste oil. Additionally, we are subject to numerous regulations dealing with underground fuel storage tanks, hazardous waste handling, vehicle and equipment emissions and the discharge of effluents from our properties and equipment. We have environmental management programs to ensure compliance with these regulations.

Item 2.    Properties

        Our principal owned and leased properties include our aircraft, vehicles, national, regional and metropolitan sorting facilities, administration buildings, FedEx World Service Centers, FedEx Drop Boxes and data processing and telecommunications equipment.

Aircraft and Vehicles

        As of May 31, 2004, our operating aircraft fleet consisted of the following:

(1)

Maximum operational revenue payload is the lesser of the net volume-limited payload and the net maximum structural payload.

(2)

The MD10-30s and MD10-10s are DC10-30s and DC10-10s, respectively, that have been converted to an MD10 configuration.

(3)

Includes 13 aircraft not currently in operation and awaiting completion of passenger-to-freighter modification.

(4)

Includes five aircraft not currently in operation and awaiting completion of passenger-to-freighter modification.

(5)

Not currently in operation and awaiting completion of passenger-to-freighter modification.

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The MD11s are three-engine, wide-bodied aircraft that have a longer range and larger capacity than DC10s.



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The DC10s are three-engine, wide-bodied aircraft that have been specially modified to meet our cargo requirements. The DC10s come in two versions, the DC10-10 and the DC10-30. The DC10-30 has a longer range and higher weight capacity than the DC10-10.



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The MD10s are three-engine, wide-bodied DC10 aircraft that have received an Advanced Common Flightdeck (ACF) modification, which includes a conversion to a two-pilot cockpit, as well as upgrades of electrical and other systems.



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The A300s and A310s are two-engine, wide-bodied aircraft that have a longer range and more capacity than B727s.



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The B727s are three-engine aircraft configured for cargo service.



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The Fokker F27 and Cessna 208 turbo-prop aircraft are leased, and the ATR turbo-prop aircraft will be leased following their passenger-to-freighter modification, to independent operators to support our operations in areas where demand does not justify use of a larger aircraft.

        An inventory of spare engines and parts is maintained for each aircraft type.

        In addition, we "wet lease" 40 smaller piston-engine and turbo-prop aircraft which feed packages to and from airports served by our larger jet aircraft. The wet lease agreements call for the owner-lessor to provide flight crews, insurance and maintenance, as well as fuel and other supplies required to operate the aircraft. Our wet lease agreements are for terms not exceeding one year and are generally cancelable upon 30 days' notice.

        At May 31, 2004, we operated approximately 47,000 ground transport vehicles, including pickup and delivery vans, larger trucks called container transport vehicles and over-the-road tractors and trailers.

Aircraft Purchase Commitments

        We are committed to purchase two A310s, seven ATRs and ten Airbus A380s (a new high-capacity, long-range aircraft). The A310s and ATRs are expected to be delivered in 2005. We expect to take delivery of three of the ten A380 aircraft in each of 2009, 2010 and 2011 and the remaining one in 2012. We also hold options for ten additional A380 aircraft. Deposits and progress payments of $25 million have been made toward these purchases and other planned aircraft-related transactions. Also see Note 13 of the accompanying audited financial statements for more information about our purchase commitments.

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Sorting and Handling Facilities

        At May 31, 2004, we operated the following sorting and handling facilities:

(1)

Documents and packages.

(2)

Handles international express package and freight shipments to and from Asia, Europe and North America.

(3)

Handles intra-Asia express package and freight shipments, as well as international express package and freight shipments to and from Asia.

(4)

Handles intra-Europe express package and freight shipments, as well as international express package and freight shipments to and from Europe.

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        Our facilities at the Memphis International Airport also include aircraft maintenance hangars, flight training and fuel facilities, administrative offices and warehouse space. We lease these facilities from the Memphis-Shelby County Airport Authority (the "Authority") under several leases. The leases cover land, administrative and sorting buildings, other facilities, ramps and certain related equipment. We have the option to purchase certain equipment (but not buildings or improvements to real estate) leased under such leases at the end of the lease term for a nominal sum. The leases obligate us to maintain and insure the leased property and to pay all related taxes, assessments and other charges. The leases are subordinate to, and our rights thereunder could be affected by, any future lease or agreement between the Authority and the U.S. Government.

        We have major international sorting and freight handling facilities located at Narita Airport in Tokyo, Japan, Stansted Airport outside London, England and Pearson Airport in Toronto, Canada. We also have a substantial presence at Chek Lap Kok Airport in Hong Kong, CKS International Airport in Taiwan, Dubai, United Arab Emirates, Frankfurt, Germany and Miami International Airport.

Administrative and Other Properties and Facilities

        Our world headquarters are located in southeastern Shelby County, Tennessee. The headquarters campus, which comprises eight separate buildings with more than 1.1 million square feet of space, houses approximately 1,600 employees. We also have facilities housing administrative and technical operations on approximately 200 acres adjacent to the Memphis International Airport. Of the eight buildings located on this site, four are subject to long-term leases and the other four are owned by us. We also lease approximately 40 facilities in the Memphis area for administrative offices and warehouses.

        We lease state-of-the-art technology centers in Collierville, Tennessee, Irving, Texas, Colorado Springs, Colorado, and Orlando, Florida. These facilities house our personnel and FedEx Services' personnel responsible for strategic software development and other functions that support FedEx's technology and e-commerce solutions.

        We own or lease 677 facilities for city station operations in the United States. In addition, 205 city stations are owned or leased throughout our international network. The majority of these leases are for terms of five to ten years. City stations serve as the sorting and distribution center for a particular city or region. We believe that suitable alternative facilities are available in each locale on satisfactory terms, if necessary.

        As of May 31, 2004, we owned or leased space for 351 FedEx World Service Centers in the United States and had approximately 40,400 Drop Boxes, including 5,000 Drop Boxes outside U.S. Post Offices. As of May 31, 2004, we also had approximately 8,400 FedEx Authorized ShipCenters and FedEx ShipSites, which are drop-off locations situated within certain retailers, such as OfficeMax, Staples and sister company FedEx Kinko's. Internationally, we have approximately 2,000 drop-off locations, including 102 FedEx World Service Centers.

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Item 3.    Legal Proceedings

        FedEx Express and its subsidiaries are subject to legal proceedings and claims that arise in the ordinary course of their business. In the opinion of management, the aggregate liability, if any, with respect to these actions will not materially adversely affect our financial position, results of operations or cash flows.

Item 4.    Submission of Matters to a Vote of Security Holders

        Omitted under the reduced disclosure format permitted by General Instruction I(2)(c) of Form 10-K.

PART II

Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

        FedEx Express is a wholly owned subsidiary of FedEx, and there is no market for FedEx Express's common stock.

Item 6.    Selected Financial Data

        Omitted under the reduced disclosure format permitted by General Instruction I(2)(a) of Form 10-K.

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Item 7.    Management's Discussion and Analysis of Results of Operations and Financial Condition

GENERAL

        The following Management's Discussion and Analysis of Results of Operations and Financial Condition, which describes the principal factors affecting the results of operations of FedEx Express, is abbreviated pursuant to General Instruction I(2)(a) of Form 10-K. This discussion should be read in conjunction with the other sections of this Annual Report on Form 10-K, including "Item 1: Business"; "Item 8: Financial Statements and Supplementary Data"; and "Item 9A: Controls and Procedures," which include additional information about our significant accounting policies, practices and the transactions that underlie our financial results. For additional information, including a discussion of liquidity, capital resources and contractual cash obligations, as well as our critical accounting policies and estimates, see the Annual Report on Form 10-K for the fiscal year ended May 31, 2004 of our parent company, FedEx.

        FedEx Services provides the customer-facing sales, marketing and information technology functions of FedEx Express and our sister company FedEx Ground. The costs for these activities are allocated based on metrics such as relative revenues and estimated services provided. These allocations materially approximate the cost of providing these functions. The line item "Intercompany charges" on the financial summary below represents an allocation primarily of salaries and benefits, depreciation and other costs for the sales, marketing and information technology functions provided to us by FedEx Services. In addition, "Intercompany charges" also includes allocated charges from our parent for management fees related to services received for general corporate oversight, executive officers and certain legal and finance functions. We believe the total amounts allocated reasonably reflect the cost of providing such services.

        The key factors that affect our operating results are as follows:

•

the overall customer demand for our various services;



•

the volume of shipments transported through our network, as measured by our average daily volume and shipment weight;



•

the mix of services purchased by our customers;



•

the prices we obtain for our services, as measured by average revenue per package and pound (yield);



•

our ability to manage our cost structure for capital expenditures and operating expenses such as salaries and benefits, fuel and maintenance; and



•

our ability to match operating costs to shifting volume levels.

        Except as otherwise specified, references to years indicate our fiscal year ended May 31, 2004 or ended May 31 of the year referenced and comparisons are to the prior year.

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RESULTS OF OPERATIONS

        The following table compares revenues, operating expenses and operating income and margin (dollars in millions) and selected statistics (in thousands, except yield amounts) for the years ended May 31:

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Revenues

        Total revenues increased 6% in 2004, principally due to higher IP revenues in Asia, Europe and U.S. outbound. IP revenues increased significantly on volume growth (7%) and higher yield (9%). Asia experienced strong average daily volume growth (led by China with volume growth of over 50%), while outbound shipments from Europe, the United States and Latin America continued to improve. The increase in IP yield was largely attributable to Europe. The yield increase was primarily due to higher average weight per package, favorable exchange rate differences and higher fuel surcharge revenue.

        U.S. domestic package revenue increased 2% in 2004 as both volumes and yields grew slightly. For U.S. domestic composite yield, a small decline in average rate per pound was offset by increases in average weight per package and fuel surcharge revenue. For U.S. domestic shipments and U.S. outbound international shipments, an average list price increase of 2.5%, along with certain surcharge increases, became effective January 5, 2004. Freight revenue increased in 2004 due to increased yields related to service mix, despite lower volumes.

        Fuel surcharge revenue was higher in 2004 primarily due to higher jet fuel prices and the introduction of certain international dynamic fuel surcharges in September 2002. Our dynamic fuel surcharges are based on the spot price for jet fuel. Using this index, the U.S. domestic fuel surcharge ranged between 3.0% and 6.5% during 2004 and 2.0% and 5.5% during 2003. International fuel surcharges ranged between 2% and 6.5% during 2004 and were as high as 6% during 2003.

Operating Income

        During 2004, operating income decreased 20% due to business realignment costs totaling $422 million (partially offset by approximately $150 million of savings). Higher incentive compensation and pension costs and base salary increases, as well as higher maintenance expenses, were offset by revenue growth and ongoing cost control efforts. In addition, 2004 benefited from one additional operating day.

        Salaries and benefits were higher during 2004 due to higher incentive compensation and pension costs and wage rate increases. This increase was partially offset by savings from the business realignment initiatives. Purchased transportation costs increased in 2004 as IP volume growth led to an increase in contract pick-up and delivery services. Higher maintenance costs in 2004 were primarily due to the timing of scheduled aircraft maintenance events, higher utilization of aircraft related to USPS volumes and a higher average age of certain types of our aircraft. Intercompany charges increased during 2004 due to higher incentive compensation, healthcare and pension costs and base salary increases at FedEx Services.

        Fuel costs were higher in 2004 due to a 10% increase in the average price per gallon of aircraft fuel, as fuel consumption was flat. However, fuel surcharge revenue more than offset higher jet fuel prices primarily due to the international dynamic fuel surcharges that were introduced in September 2002. Rentals and landing fees decreased in 2004 due to the amendment of operating leases for six MD11 aircraft that resulted in these aircraft being recorded as fixed assets under capital lease. In addition, as discussed in Note 12 to the accompanying audited financial statements, two additional MD11s were recorded as fixed assets at September 1, 2003 as a result of the adoption of Financial Accounting Standards Board Interpretation No. ("FIN") 46, "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51." Depreciation and amortization expense declined slightly due to decreases in capital spending, despite the additional depreciation from the eight MD11 aircraft added to fixed assets.

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Business Realignment Costs

        During 2004, voluntary early retirement incentives with enhanced pension and postretirement healthcare benefits were offered to certain groups of employees who were age 50 or older. Voluntary cash severance incentives were also offered to eligible employees. These programs, which commenced August 1, 2003 and expired during the second quarter, were limited to eligible U.S. salaried staff employees and managers. Approximately 3,600 employees accepted offers under these programs. The response to these voluntary programs substantially exceeded our expectations. Consequently, replacement management and staff were required and some employee departure dates were deferred (up to May 31, 2004). Costs were also incurred in 2004 for the elimination of certain management positions based on the staff reductions from the voluntary programs and other cost reduction initiatives. Costs for the benefits provided under the voluntary programs were recognized in the period that eligible employees accepted the offer. Other costs associated with business realignment activities were recognized in the period incurred.

        We recognized $422 million of business realignment costs during 2004. Savings of approximately $150 million were realized, reflected primarily in lower salaries and benefits costs. The components of our business realignment costs and changes in the related accruals were as follows for the year ended May 31, 2004 (in millions):

(1)

Other includes costs for management severance agreements, which are payable over future periods, including compensation related to the modification of previously granted stock options and incremental pension and healthcare benefits. Other also includes professional fees directly associated with the business realignment initiatives and relocation costs.

        Total cash payments under these programs are expected to be approximately $215 million. Amounts charged to other assets/liabilities relate primarily to incremental pension and healthcare benefits.

Other Income and Expense and Income Taxes

        Net interest expense decreased in 2004 as the effects of the tax case described below offset increases to interest expense. These increases were due to the amendment of aircraft operating leases and the adoption of FIN 46, which together resulted in eight MD11 aircraft being recorded as fixed assets and the related obligations being recorded as long-term debt.

        In August 2003, we received a favorable ruling from the U.S. District Court in Memphis over the tax treatment of jet engine maintenance costs. The Court held that these costs were ordinary and necessary business expenses and properly deductible. As a result of this decision, we recognized a one-time benefit in 2004 of $26 million, net of tax, primarily related to the reduction of accruals related to this matter and the recognition of interest earned on amounts previously paid to the IRS. Future periods are not expected to be materially affected by the resolution of this matter. Although the IRS has appealed this ruling, we believe the District Court's ruling will be upheld on appeal (also, see Note 7 to the accompanying audited financial statements).

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        Our effective tax rate was 33.5% in 2004 and 37.5% in 2003. The lower effective rate in 2004 was primarily attributable to the favorable decision in the tax case discussed above, stronger than anticipated international results and the results of tax audits during 2004. Our stronger than anticipated international results, along with other factors, increased our ability to credit income taxes paid to foreign governments on foreign income against U.S. income taxes paid on the same income, thereby mitigating our exposure to double taxation. The effective tax rate exceeded the statutory U.S. federal tax rate in 2003 primarily because of state income taxes. For 2005, we expect the effective tax rate to be approximately 38.0%. The actual rate, however, will depend on a number of factors, including the amount and source of operating income.

Airline Stabilization Compensation

        Operations in 2002 were significantly affected by the terrorist attacks on September 11, 2001. During 2002, we recognized a total of $119 million of compensation under the Air Transportation Safety and System Stabilization Act (the "Act"), of which $101 million had been received as of May 31, 2004. The amounts recognized were for our estimate of losses we incurred as a result of the mandatory grounding of our aircraft and for incremental losses incurred through December 31, 2001. All amounts recognized were reflected as reduction of operating expense under the caption "Airline stabilization compensation."

        In the fourth quarter of 2003, the Department of Transportation ("DOT") asserted that we were overpaid by $31.6 million and has demanded repayment. We have filed requests for administrative and judicial review. We received an opinion from the District of Columbia U.S. Court of Appeals stating that most of the determinations that we requested were not yet ripe for decision and the Court will not rule prior to final determination by the DOT and exhaustion of administrative remedies.

        Pursuant to the Federal Aviation Administration reauthorization enacted during the third quarter of 2004, the General Accounting Office submitted a report to Congress on June 4, 2004, on the criteria and procedures used by the Secretary of Transportation under the Act. Issuance of the report frees the DOT to make a final determination on our claim and also reinforces the Congressional directive to the DOT to refer any remaining disputed claims to an administrative law judge upon an affected claimant's request.

        We agreed to mediation with the DOT, but it did not result in a resolution of the dispute. We will continue to pursue our claim for compensation under the Act.

        We believe that we have complied with all aspects of the Act, that it is probable we will ultimately collect the remaining $18 million receivable and that we will not be required to pay any portion of the DOT's $31.6 million demand. We cannot be assured of the ultimate outcome; however, it is reasonably possible that a material reduction to the $119 million of compensation we have previously recognized under the Act could occur. Based on the DOT's assertion, the range for potential loss on this matter is zero to $49.6 million.

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Outlook

        We anticipate revenue growth during 2005, in both the domestic and international markets. Revenue increases will be led by IP, where we expect volume and yield growth, particularly in Asia, U.S. outbound and Europe. We expect only slight U.S. domestic volume growth, with higher U.S. domestic yields to account for a large portion of revenue growth.

        We expect significant operating margin improvement during 2005, led by the full-year salaries and benefits savings of our 2004 business realignment initiatives. These cost management actions and improved volumes, along with a sharp focus on productivity, are expected to produce improved operational efficiency. In addition, we expect additional improvement due to IP volume growth with solid incremental margins, increased U.S. domestic yields and volumes aided by the FedEx Kinko's retail presence and the impact of reduced capital spending in prior years. While capital expenditures are expected to be higher than 2004 due to planned aircraft purchases to support IP volume growth, they are expected to remain below historical levels.

        Our pilots, who represent a small number of our total employees, are employed under a collective bargaining agreement. Negotiations with the pilots' union began in March 2004, as the current agreement became amendable on May 31, 2004. We will continue to operate under our current agreement while we negotiate with our pilots. Our financial results for 2005 may be affected by the results of these negotiations. However, we cannot estimate the financial impact, if any, the results of these negotiations may have on our results of operations.

        Increased security requirements for air cargo carriers have been put in place and have not had a material impact on our operating results for the periods presented. Although no specific proposals have been issued, further measures may be forthcoming. The impact on our results of operations of any such additional measures is unknown.

        Future results will depend upon a number of factors, including U.S. and international economic conditions, the impact from any terrorist activities or international conflicts, our ability to match our cost structure and capacity with shifting volume levels and our ability to effectively leverage our new service and growth initiatives. In addition, adjustments to our fuel surcharges lag changes in actual jet fuel prices paid. Therefore, our operating income could be materially affected should the spot price of jet fuel suddenly change by a significant amount or should we be unable to further increase our fuel surcharges in response to rising jet fuel prices due to competitive pressures. See "Forward-Looking Statements" for a more complete discussion of potential risks and uncertainties that could materially affect our future performance.

Seasonality of Business

        Our express package and freight businesses are seasonal in nature. Historically, the U.S. express package business experiences an increase in volumes in late November and December. International business, particularly in the Asia to U.S. market, peaks in October and November due to U.S. holiday sales. Our first and third fiscal quarters, because they are summer vacation and post winter-holiday seasons, have historically exhibited lower volumes relative to other periods.

        The transportation industry is affected directly by the state of the overall domestic and international economies. Seasonal fluctuations affect tonnage, revenues and earnings. Shipment levels, operating costs and earnings can also be adversely affected by inclement weather.

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New Accounting Pronouncements

        No new accounting pronouncements had a material effect on our financial position, results of operations or cash flows during 2004.

FORWARD-LOOKING STATEMENTS

        Certain statements in this report, including (but not limited to) those contained in "Business Realignment Costs," "Airline Stabilization Compensation" and "Outlook," are "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations, cash flows, plans, objectives, future performance and business of FedEx Express. Forward-looking statements include those preceded by, followed by or that include the words "may," "could," "would," "should," "believes," "expects," "anticipates," "plans," "estimates," "targets," "projects," "intends" or similar expressions. These forward-looking statements involve risks and uncertainties. Actual results may differ materially from those contemplated (expressed or implied) by such forward-looking statements, because of, among other things, potential risks and uncertainties, such as:

•

economic conditions in the domestic and international markets in which we operate;



•

any impacts on our business resulting from new domestic or international government regulation, including regulatory actions affecting aviation rights and labor rules;



•

the impact of any international conflicts or terrorist activities or related security measures on the United States and global economies in general, or the transportation industry in particular, and what effects these events will have on our costs or the demand for our services;



•

our ability to manage our cost structure for capital expenditures and operating expenses and match them, especially those relating to aircraft, vehicle and sort capacity, to shifting customer volume levels;



•

the ability of FedEx to effectively operate, integrate and leverage the FedEx Kinko's business;



•

sudden changes in fuel prices or currency exchange rates;



•

our ability to increase our fuel surcharges in response to rising fuel prices due to competitive pressures;



•

significant changes in the volumes of shipments transported through our network, the mix of services purchased by our customers or the prices we obtain for our services;



•

the amount of compensation we are entitled to receive and retain under the Air Transportation Safety and System Stabilization Act;



•

the outcome of negotiations to reach a new collective bargaining agreement with the union that represents our pilots;



•

market acceptance of our new service and growth initiatives;



•

competition from other providers of transportation services, including our ability to compete with new or improved services offered by our competitors;



•

the impact of technology developments on our operations and on demand for our services;

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•

disruptions to our technology infrastructure, including our computer systems and Web site;



•

our ability to obtain and maintain aviation rights in important international markets;



•

adverse weather conditions or natural disasters;



•

availability of financing on terms acceptable to us; and



•

other risks and uncertainties you can find in the press releases and SEC filings of FedEx and FedEx Express.

        As a result of these and other factors, no assurance can be given as to our future results and achievements. Accordingly, a forward-looking statement is neither a prediction nor a guarantee of future events or circumstances and those future events or circumstances may not occur. You should not place undue reliance on the forward-looking statements, which speak only as of the date of this report. We are under no obligation, and we expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.

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Item 7A.    Quantitative and Qualitative Disclosures About Market Risk

        While we currently have market risk sensitive instruments related to interest rates, we have no significant exposure to changing interest rates on our long-term debt because the interest rates are fixed on the majority of our long-term debt. We had approximately $130 million of outstanding floating-rate borrowings at May 31, 2004. We have not employed interest rate hedging to mitigate the risks with respect to these borrowings. A hypothetical 10% increase in the interest rate on our outstanding floating-rate borrowings would not have a material effect on our results of operations. As disclosed in Note 5 to the accompanying audited financial statements, we had outstanding fixed-rate, long-term debt (exclusive of capital leases) of approximately $625 million at May 31, 2004 and $650 million at May 31, 2003. Market risk for fixed-rate, long-term debt is estimated as the potential decrease in fair value resulting from a hypothetical 10% increase in interest rates and amounts to approximately $30 million as of May 31, 2004 and 2003. The underlying fair values of our long-term debt were estimated based on quoted market prices or on the current rates offered for debt with similar terms and maturities.

        While we are a global provider of transportation services, the substantial majority of our transactions are denominated in U.S. dollars. The distribution of our foreign currency denominated transactions is such that currency declines in some areas of the world are often offset by currency gains of equal magnitude in other areas of the world. The principal foreign currency exchange rate risks to which we are exposed are in the Japanese yen, Taiwan dollar, Canadian dollar and euro. During 2004 and 2003, we believe operating income was positively impacted due to foreign currency fluctuations. However, favorable foreign currency fluctuations also may have had an offsetting impact on the price we obtained or the demand for our services. At May 31, 2004, the result of a uniform 10% strengthening in the value of the dollar relative to the currencies in which our transactions are denominated would result in a decrease in operating income of approximately $80 million for 2005 (the comparable amount in the prior year was approximately $38 million). This increase is primarily due to the strong growth of our international operations. This theoretical calculation assumes that each exchange rate would change in the same direction relative to the U.S. dollar.

        In practice, our experience is that exchange rates in the principal foreign markets where we have foreign currency denominated transactions tend to have offsetting fluctuations. Therefore, the calculation above is not indicative of our actual experience in foreign currency transactions. In addition to the direct effects of changes in exchange rates, which are a changed dollar value of the resulting reported operating results, changes in exchange rates also affect the volume of sales or the foreign currency sales price as competitors' services become more or less attractive. The sensitivity analysis of the effects of changes in foreign currency exchange rates does not factor in a potential change in sales levels or local currency prices.

        We have market risk for changes in the price of jet fuel; however, this risk is largely mitigated by revenue from our fuel surcharges. In 2002, we implemented new indices for calculating U.S. domestic fuel surcharges, which more closely link the fuel surcharges to prevailing market prices for fuel. In 2003, we implemented this methodology for determining a fuel surcharge on international shipments as well. Therefore, a hypothetical 10% change in the price of fuel would not be expected to materially affect our earnings. However, our fuel surcharges have a lag that exists before they are adjusted for changes in jet fuel prices and fuel prices can fluctuate within certain ranges before resulting in a change in our fuel surcharges. Therefore, our operating income may be affected should the spot price of fuel suddenly change by a significant amount or change by amounts that do not result in a change in our fuel surcharges.

        We do not purchase or hold any derivative financial instruments for trading purposes.

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Item 8.    Financial Statements and Supplementary Data

        The following financial statements are filed with this Report:

Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

        None.

Item 9A.    Controls and Procedures

        Our management, with the participation of our principal executive and financial officers, has evaluated the effectiveness of our disclosure controls and procedures in ensuring that the information required to be disclosed in our filings under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, including ensuring that such information is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure. Based on such evaluation, our principal executive and financial officers have concluded that such disclosure controls and procedures were effective, as of May 31, 2004 (the end of the period covered by this Annual Report on Form 10-K).

        During our fiscal quarter ended May 31, 2004, no change occurred in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART III

Item 10.    Directors and Executive Officers of the Registrant

        Omitted under the reduced disclosure format permitted by General Instruction I(2)(c) of Form 10-K.

Item 11.    Executive Compensation

        Omitted under the reduced disclosure format permitted by General Instruction I(2)(c) of Form 10-K.

Item 12.    Security Ownership of Certain Beneficial Owners and Management

        Omitted under the reduced disclosure format permitted by General Instruction I(2)(c) of Form 10-K.

Item 13.    Certain Relationships and Related Transactions

        Omitted under the reduced disclosure format permitted by General Instruction I(2)(c) of Form 10-K.

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Item 14.    Principal Accounting Fees and Services

        Of the fees Ernst & Young LLP billed FedEx for services provided during 2004 and 2003, we estimate that the following amounts were for services related to FedEx Express. These amounts (in thousands) represent the fees that Ernst & Young LLP directly billed to FedEx Express, as well as that portion of Ernst & Young LLP's fees that FedEx allocated to FedEx Express through management fees.

•

Audit Fees. Represents fees for professional services provided for the audit of FedEx Express's annual financial statements and review of FedEx Express's quarterly financial statements, and audit services provided in connection with other statutory or regulatory filings.



•

Audit-Related Fees. Represents fees for assurance services related to the audit of FedEx Express's financial statements. The amounts shown for 2004 and 2003 include fees primarily for benefit plan audits.



•

Tax Fees. Represents fees for professional services provided primarily for domestic and international compliance and tax advice. Tax compliance and preparation fees totaled $436,000 and $728,000 in 2004 and 2003, respectively. While not required, during 2004, FedEx Express began transitioning from Ernst & Young LLP as its primary tax services provider to PricewaterhouseCoopers LLP. The transition is expected to be completed in fiscal 2005. Thereafter, tax fees paid to Ernst & Young LLP are expected to be minimal.



•

All Other Fees. Represents fees for products and services not otherwise included in the categories above.

        To help ensure the independence of our independent registered public accounting firm, the Audit Committee of the Board of Directors of FedEx has adopted a Policy on Engagement of Independent Auditor, which is available on FedEx's Web site at http://fdx.client.shareholder.com/governance.cfm.

        Pursuant to the Policy on Engagement of Independent Auditor, the Audit Committee is directly responsible for the appointment, compensation and oversight of the independent registered public accounting firm. The Audit Committee preapproves all audit services and non-audit services to be provided by the firm. The Audit Committee may delegate to one or more of its members the authority to grant the required approvals, provided that any exercise of such authority is presented at the next Audit Committee meeting.

        Each audit or non-audit service that is approved by the Audit Committee (excluding tax services performed in the ordinary course of our business) will be reflected in a written engagement letter or writing specifying the services to be performed and the cost of such services, which will be signed by either a member of the Audit Committee or by an officer of FedEx authorized by the Audit Committee to sign on behalf of FedEx.

26

        The Audit Committee will not approve any prohibited non-audit service or any non-audit service that individually or in the aggregate may impair, in the Audit Committee's opinion, the independence of our independent registered public accounting firm.

        In addition, our independent registered public accounting firm may not provide any services to FedEx officers or Audit Committee members, including financial counseling and tax services.

PART IV

Item 15.    Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a)

1.    Financial Statements

        The consolidated financial statements required by this item are listed in Item 8, "Financial Statements and Supplementary Data" herein and are included on pages F-1 to F-25 herein.

2.    Financial Statement Schedules

        The following financial statement schedule is filed with this Report:

        All other financial statement schedules have been omitted because they are not applicable or the required information is included in the accompanying audited financial statements.

3.    Exhibits

        See the Exhibit Index on pages E-1 through E-7 for a list of the exhibits being filed or furnished with or incorporated by reference into this Report.

(b)

Reports on Form 8-K

        During the quarter ended May 31, 2004, FedEx Express filed two Current Reports on Form 8-K. The report filed March 17, 2004 furnished FedEx's press release announcing its and FedEx Express's financial results for the quarter ended February 29, 2004. The report filed April 8, 2004 furnished FedEx's press release announcing its 2005 earnings estimate and an increase of its 2004 earnings estimate.

27

SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

        Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.

28

29

REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholder
Federal Express Corporation

We have audited the accompanying consolidated balance sheets of Federal Express Corporation as of May 31, 2004 and 2003, and the related consolidated statements of income, changes in owner's equity and comprehensive income, and cash flows for each of the three years in the period ended May 31, 2004. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Federal Express Corporation at May 31, 2004 and 2003, and the consolidated results of its operations and its cash flows for each of the three years in the period ended May 31, 2004, in conformity with U.S. generally accepted accounting principles.

Memphis, Tennessee
June 22, 2004

F-1

FEDERAL EXPRESS CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)

ASSETS

The accompanying notes are an integral part of these consolidated financial statements.

F-2

FEDERAL EXPRESS CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)

LIABILITIES AND OWNER'S EQUITY

The accompanying notes are an integral part of these consolidated financial statements.

F-3

FEDERAL EXPRESS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN MILLIONS)

The accompanying notes are an integral part of these consolidated financial statements.

F-4

FEDERAL EXPRESS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)

The accompanying notes are an integral part of these consolidated financial statements.

F-5

FEDERAL EXPRESS CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN OWNER'S
EQUITY AND COMPREHENSIVE INCOME
(IN MILLIONS)