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

FORM 10-K

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 ("Common Stock"). As of July 7, 2003, 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

Introduction

        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 214 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 holding company parent 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. We provide our customers with late on-call and regular pickup services, as well as convenient drop-off locations. 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 134,000 employees and operate approximately 53,500 drop-off locations, 643 aircraft and 48,000 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, ground and e-commerce services. FedEx Services sells and markets the full portfolio of services offered by us and other FedEx 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.

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

Delivery Services

U.S. Domestic

        We offer three U.S. overnight delivery services: FedEx First Overnight®, FedEx Priority Overnight® and FedEx Standard Overnight®. Overnight document and package service extends to virtually the entire United States population. Packages and documents are either picked up from shippers by our couriers or dropped off by shippers at our sorting facilities, FedEx World Service Centers®, FedEx® Drop Boxes, FedEx ShipSites® or FedEx Authorized ShipCenters® strategically located throughout the country. Two U.S. deferred services are available for less urgent shipments: FedEx 2Day® and FedEx Express Saver®. FedEx SameDay® service is for urgent shipments up to 70 pounds to virtually any U.S. destination.

        Domestic shipments are backed by money-back guarantees and are used by customers primarily for shipment of time-sensitive documents and goods, including high-value machines and machine parts, computer parts, software and consumer items. We handle virtually every shipment from origin to destination.

        We also offer express freight services to handle the needs of the time-definite freight market. We offer customers the option of one-, two- or three-business day service backed by two money-back guarantees. Shipments must weigh 151 lbs. to 2,200 lbs., and be forkliftable, stackable, banded and

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shrinkwrapped. FedEx 1Day^SM Freight offers 10:30 a.m. delivery on the next business day in many areas of the continental United States, including Alaska. FedEx 2Day Freight® offers noon delivery in two business days in all 50 states. FedEx 3Day® Freight offers 3:00 p.m. delivery within three business days in every state except Alaska and Hawaii.

International

        We offer various international package and document delivery services to 214 countries, as well as international freight services. These services include: FedEx® International Next Flight, FedEx International First®, FedEx International Priority® ("IP"), FedEx International Economy®, FedEx International Priority DirectDistribution®, FedEx International Priority Plus®, FedEx International MailService®, FedEx International Priority® Freight, FedEx International Economy® Freight, FedEx International Express Freight®, FedEx International Airport-to-Airport^SM, and the FedEx Expressclear^SM Electronic Customs Clearance and FedEx International Broker Select® service feature options. All services, except FedEx International Express Freight® and FedEx International Airport-to-Airport^SM, are backed by our money-back guarantee.

        Our super express freighter (Super X) routing offers next-business-day 10:30 a.m. express cargo service from Asia to the United States. The routing features a non-stop flight from Osaka, Japan to Memphis, Tennessee, which has made later cutoff times and shorter transit times available to markets in the South Pacific and areas in Western Japan. In addition, our customers enjoy later cutoff times and next-business-day service among 27 major Asian markets, because of our intra-Asian flights connecting through our AsiaOne® hub in Subic Bay, Philippines. During 2003, we began utilizing recently awarded interim frequencies to 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.

        Responding to growing demand for reduced transit times, later customer pickups and earlier deliveries in key global markets, we reconfigured our international express transportation network during 2003. In one example of these service enhancements, we increased our capacity for heavyweight shipments between Asia and Europe. This change enables us to offer later cutoff times for shipments to Western Europe and earlier flight arrivals to Paris, thereby providing more extensive connectivity through our EuroOne® network to various European destinations for Asian shippers.

        We offer the most comprehensive international freight service in the industry, backed by a money-back guarantee, real-time tracking and advanced customs clearance. Our international freight services may be used by customers to combine pickup, linehaul and delivery options to meet their daily business needs. The following FedEx International Priority® Freight delivery options are available for worldwide shipments: Door to Airport (DTA); Airport to Airport (ATA); Airport to Door (ATD); and Door to Door (DTD). FedEx International Priority® Freight and FedEx International Economy® Freight provide service to approximately 55 and 45 countries, respectively.

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

        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

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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.

        Detailed information about all of our delivery services can be found below (see "Shipping—Management Solutions") and on the FedEx Web site at fedex.com. The information on the FedEx Web site, however, does not form part of this Report.

E-Business Revolution

        We have played a significant role in two business revolutions that have influenced the emergence of what is now known as e-commerce. First came the automation revolution. At a time when the world was waking up to the power of computing technology, we led the charge to automate shipping for our customers. This technology has afforded key advantages to both our customers and our transportation operations. We have been the leader in shipping automation since 1985, when we launched the first PC-based automated shipping system, named FedEx PowerShip®. In 1994, the FedEx Web site, fedex.com, became the first Web site to offer online package tracking. Two years later, in 1996, we launched FedEx® Ship [email protected], the first shipping application for express packages on the Internet. Today, approximately 70% of our shipments are automated.

        The second revolution, the integration revolution, is now underway. We are enabling e-commerce by empowering businesses with integration and supply chain capabilities that give them added efficiency improvements, supply chain cost reductions, and the ability to provide better customer service. These solutions include our FedEx® Ship Manager solution suite, FedEx NetReturn® and FedEx Insight^SM, a revolutionary Web-based application that offers visibility of current status on inbound, outbound and third-party payor shipments. During 2003 FedEx Services and Motorola began introducing FedEx® PowerPad, a Microsoft Windows-Powered Pocket PC designed to enhance customer service by providing our couriers with online, near real-time, wireless access to the FedEx network.

        Reflecting our emphasis on e-commerce and information technology, during 2003 FedEx Chief Information Officer, Robert B. Carter, received CIO Magazine's "CIO 20/20 Vision Award," and FedEx received the magazine's CIO-100 award. In 2002, eWeek magazine ranked FedEx No. 2 in its annual FastTrack 500 list of leading e-business innovators. In June 2003, Wired magazine ranked FedEx No. 12 on "The Wired 40," an index of 40 companies that are "reshaping the global economy." The top-40 list recognizes companies that demonstrate five business attributes critical to success in today's high-tech, borderless world: innovation, intelligent use of new tools, strategic vision, global reach and networked communication.

Shipping-Management Solutions

        Our comprehensive e-shipping strategy is driven by our desire for customer satisfaction. Through FedEx Services, we strive to build 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, along with our integration solutions.

        At fedex.com, our customers ship packages, determine international documentation requirements, track package status, pay invoices and more. During 2002, we launched MyFedEx.com, a customer portal that goes beyond simple tracking and tracing capabilities to offer personalized services for registered users. In 2003, we unveiled the first carrier-provided, online duty and tax estimator, available through FedEx® Global Trade Manager. FedEx has extended the reach of the fedex.com Web site to be accessible from most types of hand-held devices, making it faster and easier for U.S. customers to access real-time package status tracking information and to identify the nearest drop-off locations. This service is available through most Web-enabled devices, including mobile telephones, personal digital assistants and two-way pagers.

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        For the third consecutive year, fedex.com was honored with the Best Transportation Web Site award, as well as Standard of Excellence honors, at the Web Marketing Association's WebAwards held during 2003. FedEx received the Best Transportation Web Site award for FedEx Insight^SM ( www.fedex.com/insight) and the Standard of Excellence award for FedEx® Global Trade Manager in the international Web site category. FedEx® Global Trade Manager was also recognized by Computerworld magazine during 2002 as one of the ten most innovative information technology projects.

        Our integration solutions include FedEx® Ship Manager API and Server, FedEx NetReturn API™ and FedEx NetReturn®. We design our e-commerce tools and solutions so they are 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. At their core, these solutions all offer time-saving shipment processing and printing capabilities, address books, reporting and tracking. The following summarizes the shipping-management solutions offered for use with FedEx Express:

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FedEx® Ship Manager at fedex.com—a Web-shipping application, available to customers who have Internet connectivity and a laser printer. Customers can also arrange for package pickup, cancel shipments and track package status.



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FedEx® Tracking—allows customers to track the status of FedEx Express and FedEx Ground packages, as well as FedEx Freight, FedEx Custom Critical and FedEx Trade Networks shipments, at one time through the FedEx Web site.



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FedEx Insight^SM—provides qualifying customers with an enhanced level of shipment visibility through a Web-based application that dramatically broadens the amount of real-time status information on inbound, outbound and third-party payor FedEx Express and FedEx Ground shipments.



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FedEx® Global Trade Manager—helps customers navigate the complexities of international commerce through the FedEx Web site. Shippers can identify and prepare many of the appropriate import/export forms based on the commodity description and country of import and export. FedEx Global Trade Manager also alerts customers to restrictions on shipping certain commodities, tells whether the country of import or export is under embargo, provides information on some special licensing requirements and, through its "Estimate Duties and Taxes" application, estimates applicable governmental charges, duties and fees.



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FedEx® Drop-off Locator—allows customers to easily find and view maps of FedEx drop-off locations through the FedEx Web site. Customers can conduct searches by address, city, state or ZIP Code to find one of many full-service and self-service locations worldwide.



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FedEx® Rate Finder—allows customers to determine the cost of shipping packages from the U.S. to virtually anywhere in the world through the FedEx Web site.



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FedEx® Ship Manager—this shipping software provides customers with a full range of shipping functions and the speed to handle medium to high package volumes. It is ideal for mailroom and warehouse environments where shipment processing is centralized.



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FedEx® Ship Manager API—allows customers to seamlessly integrate FedEx Express and FedEx Ground services into their online environments by downloading software from the Internet that will allow them to connect real time with FedEx when placing shipping orders and scheduling pickup requests.



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FedEx® Ship Manager Server—software that allows for maximum speed and integration with complex business systems. Can handle extremely high speed demands. Ideal for multiple users and locations where coordination and integration are needed across a complex business supply chain and associated systems.

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FedEx Certified Solution Program—allows access to other carriers and complete integration solutions through certified third-party automation solution providers.



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FedEx DirectLink®—enables customers to electronically receive, manage and remit FedEx Express and FedEx Ground invoicing data.



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FedEx NetReturn®—uses a comprehensive Internet-based returns management system to allow customers to gain better control over the return inventory process, resulting in lower costs, improved cycle times and increased customer service levels.



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FedEx NetReturn API^TM—allows customers to seamlessly integrate FedEx Express and FedEx Ground services into their order management or inventory management applications by downloading software from the Internet that provides visibility of their authorized return inventory through automated dispatching, tracking and reporting throughout the returns process.



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FedEx EDI Electronic Invoice and Remittance—integrates with customers' accounts payable systems to allow them to receive FedEx invoice data electronically, including data regarding domestic and international shipments, duties and taxes.

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 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 Worldwide Delivery Service Sponsor" of the National Football League. In addition, FedEx sponsors:

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FedExField, the 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 future home of the NBA's Memphis Grizzlies



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



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The BMW WilliamsF1 Formula One racing team



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The French Open tennis tournament



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The PGA TOUR and the Champions Tour golf organizations

        From time to time, FedEx also undertakes special projects that help to publicize FedEx's service, such as the delivery in April 2003 of two giant pandas from Beijing, China to their new home at the Memphis Zoo. In addition to emphasizing FedEx's reputation for fast, reliable service to and from Asia through its extensive global transportation network, this mission highlighted FedEx's ability to ship unusual items.

U.S. Postal Service Agreements

        Under two agreements with the U.S. Postal Service that run through August 2008—one for domestic air transportation of postal shipments, and the other for placement of FedEx Drop Boxes at U.S. Post Offices:

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We provide air capacity for transportation of Priority Mail, Express Mail and First Class Mail for the U.S. Postal Service, carrying predominately unitized shipments which are pre-sorted by the Postal Service into sacks, trays, tubs or containers. The air transportation agreement took effect in August 2001 and was amended in 2003 to allow us to continue carrying incremental pounds of mail through May 29, 2004 at higher committed volumes than required under the original agreement.

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We have the option to place a self-service drop box in every U.S. Post Office location. We began a national roll-out of the drop box program in June 2001 and, as of May 31, 2003, had placed approximately 5,000 drop boxes at U.S. Post Offices in approximately 325 metropolitan areas.

Pricing

        We periodically publish list prices in our Service Guides for the majority of our services. In general, during 2003, 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 2003 was based on the spot price for jet fuel published for April 2003. 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 two weeks before the surcharge is applicable.

Operations

        Our global transportation and distribution services are provided through an extensive worldwide network consisting of numerous aviation and ground transportation operating rights and authorities, 643 aircraft, approximately 48,000 vehicles and trailers, sorting facilities, FedEx World Service Centers, FedEx Drop Boxes, FedEx ShipSites and FedEx Authorized ShipCenters, as well as sophisticated package tracking, billing and communications systems.

        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. In some cities, we 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 also formed alliances with certain retailers to extend this customer convenience network to drop-off sites in retail stores. In 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.

        We are beginning to equip our couriers with the new FedEx® PowerPad to provide wireless access to the FedEx network. FedEx® PowerPad, which uses Bluetooth wireless technology, enhances and accelerates the package information available to customers by enabling couriers to wirelessly send and

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receive near real-time information and updates from any location. Every time a package is scanned, the FedEx® PowerPad immediately uploads information into FedEx COSMOS®, our advanced package tracking and tracing system. FedEx COSMOS® provides proof-of-delivery information, an electronically reproduced airbill for the customer and information regarding the location of a package within our system. For international shipments, we have developed FedEx Expressclear^SM, a worldwide electronic customs clearance system, which speeds up customs clearance by allowing customs agents in destination countries to review information about shipments before they arrive.

Fuel Supplies and Costs

        During 2003, 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.

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

        In 2002, we implemented a dynamic fuel surcharge, which applies to all shipments tendered within the United States, all U.S. export shipments and shipments originating internationally, where legally and contractually possible. For a description of the dynamic fuel surcharge, see "Pricing." In past years, FedEx entered into jet fuel hedging contracts, which were designed to limit our exposure to fluctuations in jet fuel prices. Under these contracts, FedEx made (or received) payments based on the difference between a specified price and the market price of jet fuel, as determined by an index of spot market prices representing various geographic regions. The difference was recorded as an increase or decrease in fuel expense. FedEx effectively closed its hedge positions during the fourth quarter of 2001 and did not enter into any jet fuel hedging contracts during 2002 or 2003. To date, our dynamic fuel surcharge has obviated the need for jet fuel hedging contracts.

        Approximately 15% 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.

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.

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("UPS"), DHL Worldwide Express, 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 Worldwide Express, UPS, foreign postal authorities such as Deutsche Poste and TNT Post Group, passenger airlines and all-cargo airlines.

        We currently hold certificates of authority to serve more foreign countries than any other United States all-cargo air carrier and 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. domestic points than can be provided currently by 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, 2003, we employed approximately 86,000 permanent full-time and 48,000 permanent part-time employees, of which approximately 19% are employed in the Memphis area. Employees of our international branches and subsidiaries in the aggregate represent approximately 16% of all employees. We believe our relationship with our employees is excellent.

        We and our pilots, who are currently represented by the Air Line Pilots Association, International ("ALPA"), have been operating under a five-year collective bargaining agreement since May 31, 1999. The agreement provides, in part, for a 17% pay increase over the term of the contract (3.4% average annual increase), enhanced retirement benefits, direct pilot input on scheduling issues and limits on types of trips scheduled during certain times of the day.

        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.

        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

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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.

        On November 19, 2001, President Bush signed into law the Aviation and Transportation Security Act, which, among other things, transferred responsibility for aviation security from the FAA to the new 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 United States 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 present 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 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

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handling, vehicle and equipment emissions and the discharge of effluents from properties and equipment owned or operated by us. 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

        Our operating aircraft fleet at May 31, 2003 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 that are not currently in operation and awaiting passenger-to-freighter modification.

(4)

Includes five aircraft that are not currently in operation and awaiting passenger-to-freighter modification.

(5)

We expect to retire five of these aircraft during 2004.

(6)

Aircraft was not in operation at May 31, 2003 and was returned to the lessor in June 2003.

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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, which has a longer range and higher weight capacity than the DC10-10.

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The MD10s are three-engine, wide-bodied aircraft based on the DC10 that have received an Advanced Common Flightdeck (ACF) conversion. The ACF modification 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 42 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" 47 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, 2003, we operated worldwide approximately 48,000 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 one A300, two A310s, ten A380s and 19 ATRs to be delivered through 2012. Deposits and progress payments of $27 million have been made toward these purchases and other planned aircraft-related transactions.

        The Airbus A380 aircraft is a new high-capacity, long-range aircraft. We will take delivery of three of the ten aircraft in each of 2009, 2010 and 2011 and the remaining one in 2012. We also hold options for ten additional Airbus A380 aircraft.

        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, 2003, 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 United States Government.

        In addition to the facilities noted above, 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, and Frankfurt, Germany.

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, was designed to consolidate many administrative and training functions that had previously been spread throughout the Memphis metropolitan area. The office campus brings together approximately 2,600 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 50 facilities in the Memphis area for administrative offices and warehouses.

        We lease state-of-the-art technology centers in Collierville, Tennessee, Irving, Texas and Colorado Springs, Colorado. 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 679 facilities for city station operations in the United States. In addition, 198 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, 2003, we owned or leased space for 296 FedEx World Service Centers in the United States and had approximately 40,500 Drop Boxes, including 5,000 Drop Boxes outside U.S. Post Offices. We also operate stand-alone mini-centers located on leaseholds in parking lots adjacent to office buildings, shopping centers and office parks, of which 42 were in service at May 31, 2003. As of May 31, 2003, we also had approximately 10,800 FedEx ShipSites and FedEx ShipCenters, which are drop-off locations situated within certain retailers, such as OfficeMax or Kinkos. Internationally, we have approximately 2,000 drop-off locations, including 48 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 and Related Stockholder Matters

        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, 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 accompanying audited financial statements, 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, critical accounting policies and outlook, see the Annual Report on Form 10-K for the fiscal year ended May 31, 2003 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, wages 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 the volume of shipments transported through our network, as measured by our average daily volume; the mix of services purchased by our customers; the prices we obtain for our services, as measured by average revenue per package (yield); our ability to manage our cost structure for capital expenditures and operating expenses such as salaries, wages 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, 2003 or ended May 31 of the year referenced and comparisons are to the prior year.

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.

New Accounting Pronouncements

        A number of new accounting pronouncements were enacted during 2003, mostly in connection with attempts to improve the transparency of financial reporting. None of these new pronouncements had a material effect on our financial position or results of operations during 2003. See Note 2 to the accompanying audited financial statements for discussion of these recent accounting pronouncements.

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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 7% in 2003, largely due to increased IP and U.S. freight revenues. Year-over-year revenue comparisons reflect the impact in 2002 of the terrorist attacks on September 11, 2001, which adversely affected both U.S. outbound international shipments and U.S. domestic shipments, and the economic decline that began in calendar 2001. Higher U.S. freight revenues from increased average daily pounds during 2003 also affected year-over-year revenue comparisons, as we benefited from a full twelve months of operations and higher shipping levels under our transportation contract with the U.S. Postal Service ("USPS").

        During 2003, total package revenue increased 5%, due to increases in IP volumes and yield. IP volume growth occurred predominantly in Asia and Europe, which experienced average daily volume growth rates of 21% and 11%, respectively, during 2003. In the United States, package revenue increased 2% in 2003 due to higher yield and volumes in the U.S. deferred and U.S. overnight box categories. Total average daily package volumes for 2003 were at levels experienced in 1998.

        Yields increased in 2003 in nearly all service categories and composite average weight per package was flat. The increase in U.S. domestic package yield during 2003 was due to higher fuel surcharge revenue and average list price increases. For U.S. domestic shipments and U.S. outbound international shipments, an average list price increase of 3.5% became effective January 6, 2003. IP yield improvements during 2003 were due to favorable exchange rate differences, increased fuel surcharge revenue and growth in higher-yielding lanes.

        Fuel surcharge revenue was higher in 2003 due to higher jet fuel prices and the introduction of a dynamic international fuel surcharge in September 2002. Our fuel surcharge is based on the spot price for jet fuel. Using this index, the U.S. domestic fuel surcharge ranged between 2.0% and 5.5% during 2003 and between 0% and 3% from November 2001 through May 2002. International fuel surcharges were as high as 6% during 2003.

        Total freight revenue for 2003 increased significantly due to higher U.S. freight volume and yield, reflecting the impact of the USPS transportation agreement, which began in August 2001 and runs through August 2008. During 2003, we entered into a third addendum to the transportation agreement with the USPS, allowing us to continue carrying incremental pounds of mail through May 29, 2004 at higher committed volumes than required under the original agreement.

Operating Income

        During 2003, the 3% decrease in operating income and the decline in operating margin was attributable to increased employee benefit costs, higher maintenance expenses and, to a lesser extent, the net impact of higher fuel costs in an economic environment of sluggish U.S. domestic average daily package volumes. The decrease in operating income was also somewhat attributable to one fewer operating day during the year. Operating results during 2003 were impacted by unusually inclement weather during the winter and spring, which decreased business shipping, reduced operational efficiency and increased certain operating costs, such as for snow removal and de-icing.

        Salaries, wages and benefits were higher during 2003 due to wage rate increases and higher pension and healthcare costs. Also, the increase was partially the result of cost increases related to the USPS contract. Incentive compensation provisions declined in 2003 based on below-plan performance.

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        Fuel consumption was higher in 2003, primarily due to an increase in aircraft usage as a result of incremental U.S. freight pounds transported under the USPS agreement and IP volume growth. During 2003, fuel costs were higher, due to a 16% increase in the average price per gallon of aircraft fuel. Higher net fuel costs negatively affected operating income during 2003 by $24 million, as fuel surcharge revenue increases were not sufficient to offset higher jet fuel prices.

        Maintenance expenses were higher during 2003, primarily due to the timing of scheduled maintenance events. Depreciation and amortization expense declined during 2003 reflecting a trend of decreasing levels of capital spending, as well as changes in estimated useful lives and salvage values.

        During 2003, other operating expenses also increased. In the prior year, reimbursements from the USPS for network expansion costs were reflected as credits to other operating expenses. These reimbursements, however, had no effect on operating income, as they represented the recovery of incremental costs incurred. Partially offsetting operating costs during 2003 was a gain from the insurance settlement on an aircraft destroyed in an accident in July 2002 that resulted in a net $8 million favorable impact on operating income. During 2002, other operating expenses included $27 million from the favorable resolution of certain state tax matters.

Income Taxes

        Our effective tax rate was 37.5% in 2003 and 37.0% in 2002. The 37.5% effective tax rate in 2003 was higher due to lower state taxes in 2002. The 2002 rate was favorably impacted by the cessation of goodwill amortization and by several other factors, none of which were individually significant. The effective tax rate exceeds the statutory U.S. federal tax rate primarily because of state income taxes.

        For 2004, we expect the effective tax rate to be approximately 37.5%. 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 has been received as of May 31, 2003. 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 of this determination. 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.

Cost Savings Initiatives

        On June 2, 2003, we announced that we will offer voluntary early retirement and severance programs during 2004 to continue resizing our U.S. organization and improving profitability. The first program will offer voluntary early retirement incentives, with enhanced pension and postretirement healthcare benefits, to certain groups of employees who are age 50 or older. The second program will offer voluntary severance incentives to eligible employees. Both programs are limited to eligible U.S. salaried staff employees and managers at FedEx Express.

        Depending on employee acceptance rates, the pretax charge for these programs is estimated to be $230 million to $290 million in 2004, with most of the charge to be incurred in the first half of the year. Approximately one-third of the pretax charge will be cash. The remainder of the costs relate primarily to pension and postretirement healthcare liabilities. The cost of these programs will be reflected as a separate component of operating expenses. The estimated savings from these programs are expected to be $100 million to $130 million in 2004, primarily in the second half of the year. Thus, the net cost of these programs in 2004 is expected to be $130 million to $160 million. In 2005 and beyond, the estimated annual savings from these programs are expected to be $150 million to $190 million. The savings from these programs will be reflected primarily in lower ongoing salaries, wages and benefit costs.

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        Over the past few years, we have taken many steps to bring our expense growth in line with revenue growth, while maintaining our industry-leading service levels. We have significantly decreased capital expenditures by reducing aircraft orders, consolidating facilities and discontinuing low-value programs. The voluntary early retirement and severance programs are another step in this ongoing process of reducing our cost structure in order to increase our competitiveness, meet the future needs of our employees and provide the expected financial returns for FedEx's shareholders.

Outlook

        We expect revenue to increase during 2004, in both the domestic and international markets. During 2004, we expect the U.S. economy to remain sluggish at least through our first fiscal quarter, with year-over-year improvement expected to be evident in our second half results. We believe the fundamentals for domestic economic acceleration in the U.S. economy are in place and, as a result, we expect to see improvements in both yields and volumes. Pension, healthcare and maintenance expenses are expected to continue to increase at a faster rate than revenue growth.

        On June 2, 2003, we announced that we will offer voluntary early retirement and severance programs during 2004 to continue resizing our U.S. organization and improving profitability. See "Cost Savings Initiatives" for further discussion of these programs.

        While the net cost of these programs is expected to negatively impact operating margin in 2004, we expect margins will begin to increase in 2005 due to these and other efforts. Our expectation of improved performance is based upon continued aggressive cost management actions and a return to solid growth in our U.S. overnight box volumes related to anticipated improvements in the economy. These cost management actions and improved volumes, along with a sharp focus on productivity, are expected to produce improved operational efficiency as volume growth is absorbed with minimal increases in operating costs.

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FORWARD-LOOKING STATEMENTS

        Certain statements in this report, including (but not limited to) those contained in "Outlook," "Airline Stabilization Compensation" and "Cost Savings Initiatives" 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 markets in which we operate, including the timing, speed and magnitude of the economy's recovery from the downturn that began in calendar 2001 in the sectors that drive demand for our services;



•

any impacts on our business resulting from new domestic or international government regulation;



•

the impact of any terrorist activities or international conflicts 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 extent to which eligible employees participate in our voluntary early retirement and severance programs;



•

sudden changes in fuel prices;



•

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



•

significant changes in the volumes of shipments transported through our networks, 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;



•

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;



•

changes in customer demand patterns;



•

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



•

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;



•

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.

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        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.

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. As disclosed in Note 5 to the accompanying audited financial statements, we have outstanding long-term debt (exclusive of capital leases) of $650 million at May 31, 2003 and 2002. 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, 2003 and $33 million as of May 31, 2002. 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. Currently, derivative instruments are not used to manage interest rate risk.

        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 euro, British pound sterling, Canadian dollar and Japanese yen. Foreign currency fluctuations during 2003 did not have a material effect on our results of operations. At May 31, 2003, 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 $38 million for 2004 (the comparable amount in the prior year was approximately $30 million). This 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 surcharge. In 2002, we implemented a new index for calculating our U.S. domestic fuel surcharge, which more closely links the fuel surcharge to prevailing market prices for jet 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 surcharge has a lag that exists before it is 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 jet 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

        FedEx Express engaged the services of Ernst & Young LLP as its independent auditors to replace Arthur Andersen LLP, effective April 12, 2002. For additional information, see FedEx Express's Current Report on Form 8-K dated March 11, 2002 (as amended by the Form 8-K/A filed on April 12, 2002).

Item 9A.    Controls and Procedures

        We maintain rigorous disclosure controls and procedures and internal control over financial reporting designed to ensure that our assets are adequately safeguarded and 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. We perform a quarterly assessment of these procedures and controls requiring certification by our principal executive and financial officers.

        We maintain appropriate policies, procedures and systems to support the timely and accurate reporting of our financial results. Our corporate forecasting and accounting close reporting processes form the foundation to ensure that all relevant information about our financial results is available to management. In addition, FedEx maintains a thorough quarterly and annual public financial reporting process that ensures all key members of management have direct and meaningful input into our financial disclosures.

        FedEx has controls that include the presence of an extensive internal audit function staffed by professional auditors that review the operational and financial effectiveness of our internal control systems on a global basis. In addition, our control environment is evaluated on an ongoing basis by our financial management and annually by our external auditors in connection with their audit of our financial statements.

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        While we believe our disclosure controls and procedures and our internal control over financial reporting are adequate, no system of controls can prevent all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable assurance that the objectives of the control system are met. Additionally, controls can be circumvented by the individual acts of some persons or by collusion of two or more people.

        Our principal executive and financial officers have evaluated our disclosure controls and procedures and, based on such evaluation, have determined that such disclosure controls and procedures were effective as of May 31, 2003 (the end of the period covered by this Annual Report on Form 10-K).

        During our fiscal quarter ended May 31, 2003, 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 and Related Stockholder Matters

        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.

Item 14.    Principal Accountant Fees and Services

        Of the fees Ernst & Young LLP billed FedEx for services provided during 2003 and 2002, we estimate that the following amounts were for services related to FedEx Express. These amounts represent the fees that Ernst & Young directly billed to FedEx Express, as well as that portion of Ernst & Young'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 amount shown for 2003 includes fees primarily for benefit plan audits. The amount shown for 2002 represents fees related to agreed-upon procedures required under law pertaining to FedEx Express's application for compensation under the Air Transportation Safety and System Stabilization Act.



•

Tax Fees. Represents fees for professional services provided primarily for domestic and international compliance and tax advice. Tax compliance and preparation fees totaled $728,000 and $171,000 in 2003 and 2002, respectively.



•

All Other Fees. Represents fees for products and services not otherwise included in the categories above. The amount shown for 2002 includes fees for healthcare benefit claims reviews.

26

        To help ensure the independence of our independent auditor, the Audit Committee of the Board of Directors of FedEx has approved and 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 auditor. The Audit Committee preapproves all audit services and non-audit services to be provided by our independent auditor. 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.

        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 auditor.

        In addition, beginning on January 1, 2004, our independent auditor may not provide any services to FedEx officers or Audit Committee members, including financial counseling and tax services.

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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

        Exhibits 3.1, 3.2, 10.1 through 10.49, 12, 23.1, 23.2, 24 and 99.1 through 99.4 are being filed or furnished in connection with this Report or incorporated herein by reference.

        The Exhibit Index on pages E-1 through E-7 is incorporated herein by reference.

(b)        Reports on Form 8-K

        No Current Reports on Form 8-K were filed during the fourth quarter of the fiscal year ended May 31, 2003.

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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.

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30

REPORT OF INDEPENDENT AUDITORS

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, 2003 and 2002, and the related consolidated statements of income, changes in owner's equity and comprehensive income, and cash flows for each of the two years in the period ended May 31, 2003. 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. The consolidated financial statements of Federal Express Corporation as of May 31, 2001 and for the year then ended, were audited by other auditors who have ceased operations and whose report dated June 27, 2001, expressed an unqualified opinion on those statements.

We conducted our audits in accordance with auditing standards generally accepted in the 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 2003 and 2002 financial statements referred to above present fairly, in all material respects, the consolidated financial position of Federal Express Corporation as of May 31, 2003 and 2002, and the consolidated results of its operations and its cash flows for each of the two years in the period ended May 31, 2003, in conformity with accounting principles generally accepted in the United States.

As discussed in Note 3 to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, in 2002.

/s/ Ernst & Young LLP

Memphis, Tennessee
June 23, 2003

F-1

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholder of Federal Express Corporation:

        We have audited the accompanying consolidated balance sheets of Federal Express Corporation (a Delaware corporation) and subsidiaries as of May 31, 2001 and 2000, 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, 2001. 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 auditing standards generally accepted in the 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 financial position of Federal Express Corporation and subsidiaries as of May 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended May 31, 2001, in conformity with accounting principles generally accepted in the United States.

/s/ Arthur Andersen LLP

Memphis, Tennessee
June 27, 2001

This is a copy of the audit report previously issued by Arthur Andersen LLP in connection with Federal Express Corporation's filing on Form 10-K for the year ended May 31, 2001. This audit report has not been reissued by Arthur Andersen LLP in connection with this filing on Form 10-K. See Exhibit 23.2 for further discussion.

F-2

FEDERAL EXPRESS CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)

ASSETS

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

F-3

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-4

FEDERAL EXPRESS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(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)

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

F-6

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