UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED AUGUST 31, 2008

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM                      TO                     

Commission File Number: 1-7806

FEDERAL EXPRESS CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	71-0427007
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
3610 Hacks Cross Road
Memphis, Tennessee (Address of principal executive offices)	38125 (ZIP Code)

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

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 þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o	Accelerated filer o	Non-accelerated filer þ	Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ

The number of shares of common stock outstanding as of September 19, 2008 was 1,000. The Registrant is a wholly owned subsidiary of FedEx Corporation, and there is no market for the Registrant’s common stock.

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

FEDERAL EXPRESS CORPORATION

INDEX

	PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets August 31, 2008 and May 31, 2008		3-4
Condensed Consolidated Statements of Income Three Months Ended August 31, 2008 and 2007		5
Condensed Consolidated Statements of Cash Flows Three Months Ended August 31, 2008 and 2007		6
Notes to Condensed Consolidated Financial Statements		7-11
Report of Independent Registered Public Accounting Firm		12
ITEM 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition		13-19
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk		20
ITEM 4. Controls and Procedures		20
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings		21
ITEM 1A. Risk Factors		21
ITEM 6. Exhibits		21
Signature		22
Exhibit Index		E-1
EXHIBIT 12.1
EXHIBIT 15.1
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

-2-

FEDERAL EXPRESS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN MILLIONS)

	August 31,
	2008		May 31,
	(Unaudited)		2008
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	318	$	298
Receivables, less allowances of $71 and $69		1,527		1,619
Spare parts, supplies and fuel, less allowances of $164 and $163		329		352
Deferred income taxes		374		392
Due from other FedEx subsidiaries		608		532
Prepaid expenses and other		85		112
Total current assets		3,241		3,305
PROPERTY AND EQUIPMENT, AT COST		18,224		18,108
Less accumulated depreciation and amortization		9,703		9,588
Net property and equipment		8,521		8,520
OTHER LONG-TERM ASSETS
Goodwill		931		936
Other assets		755		696
Total other long-term assets		1,686		1,632
	$	13,448	$	13,457

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

-3-

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

	August 31,
	2008		May 31,
	(Unaudited)		2008
LIABILITIES AND OWNER’S EQUITY
CURRENT LIABILITIES
Current portion of long-term debt	$	1	$	1
Accrued salaries and employee benefits		654		730
Accounts payable		1,345		1,505
Accrued expenses		945		954
Due to parent company and other FedEx subsidiaries		434		369
Total current liabilities		3,379		3,559
LONG-TERM DEBT, LESS CURRENT PORTION		744		744
OTHER LONG-TERM LIABILITIES
Deferred income taxes		956		941
Pension, postretirement healthcare and other benefit obligations		672		669
Self-insurance accruals		579		575
Deferred lease obligations		613		606
Deferred gains, principally related to aircraft transactions		306		313
Other liabilities		137		136
Total other long-term liabilities		3,263		3,240
COMMITMENTS AND CONTINGENCIES
OWNER’S EQUITY
Common stock, $0.10 par value; 1,000 shares authorized, issued and outstanding		—		—
Additional paid-in capital		476		476
Retained earnings		5,455		5,273
Accumulated other comprehensive income		131		165
Total owner’s equity		6,062		5,914
	$	13,448	$	13,457

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

-4-

FEDERAL EXPRESS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

(IN MILLIONS)

	Three Months Ended
	August 31,
	2008			2007
REVENUES	$	6,360		$	5,851
OPERATING EXPENSES:
Salaries and employee benefits		2,080			2,013
Purchased transportation		318			279
Rentals and landing fees		413			408
Depreciation and amortization		237			227
Fuel		1,319			800
Maintenance and repairs		393			401
Intercompany charges, net		531			514
Other		735			700
		6,026			5,342
OPERATING INCOME		334			509
OTHER INCOME (EXPENSE):
Interest, net		(2	)		41
Other, net		(3	)		(48	)
		(5	)		(7	)
INCOME BEFORE INCOME TAXES		329			502
PROVISION FOR INCOME TAXES		132			182
NET INCOME	$	197		$	320

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

-5-

FEDERAL EXPRESS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(IN MILLIONS)

	Three Months Ended
	August 31,
	2008			2007
Operating Activities:
Net income	$	197		$	320
Noncash charges:
Depreciation and amortization		237			227
Other, net		57			37
Changes in operating assets and liabilities, net		(133	)		(168	)
Net cash provided by operating activities		358			416
Investing Activities:
Capital expenditures		(332	)		(456	)
Other		5			—
Net cash used in investing activities		(327	)		(456	)
Financing Activities:
Principal payments on debt		(1	)		(1	)
Net payments from parent company		—			40
Net cash (used in) provided by financing activities		(1	)		39
Effect of exchange rate changes on cash		(10	)		2
Net increase in cash and cash equivalents		20			1
Cash and cash equivalents at beginning of period		298			257
Cash and cash equivalents at end of period	$	318		$	258

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

-6-

FEDERAL EXPRESS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(1) General

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. These interim financial statements of Federal Express Corporation (“FedEx Express”) have been prepared in accordance with accounting principles generally accepted in the United States and Securities and Exchange Commission (“SEC”) instructions for interim financial information, and should be read in conjunction with our Annual Report on Form 10-K for the year ended May 31, 2008 (“Annual Report”). Accordingly, significant accounting policies and other disclosures normally provided have been omitted since such items are disclosed therein.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (including normal recurring adjustments) necessary to present fairly our financial position as of August 31, 2008 and the results of our operations and cash flows for the three-month periods ended August 31, 2008 and 2007. Operating results for the three-month period ended August 31, 2008 are not necessarily indicative of the results that may be expected for the year ending May 31, 2009.

We are a wholly owned subsidiary of FedEx Corporation (“FedEx”) engaged in a single line of business and operate in one business segment — the worldwide express transportation and distribution of goods and documents.

Except as otherwise specified, references to years indicate our fiscal year ending May 31, 2009 or ended May 31 of the year referenced and comparisons are to the corresponding period of the prior year.

STOCK-BASED COMPENSATION. FedEx has two types of equity-based compensation: stock options and restricted stock. The key terms of the stock option and restricted stock awards granted under FedEx’s incentive stock plans are set forth in FedEx’s Annual Report.

FedEx uses the Black-Scholes option pricing model to calculate the fair value of stock options. The value of restricted stock awards is based on the price of the stock on the grant date. We recognize stock-based compensation on a straight-line basis over the requisite service period of the award in the “Salaries and employee benefits” caption of our condensed consolidated income statement.

Our total share-based compensation expense was $9 million for the three months ended August 31, 2008 and $8 million for the three months ended August 31, 2007. This amount represents the amount charged to us by FedEx for awards granted to our employees.

NEW ACCOUNTING PRONOUNCEMENTS. New accounting rules and disclosure requirements can significantly impact our reported results and the comparability of our financial statements. We believe the following new accounting pronouncements are relevant to the readers of our financial statements.

On May 31, 2007, we adopted Statement of Financial Accounting Standards (“SFAS”) 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans.” SFAS 158 requires recognition in the balance sheet of the funded status of defined benefit pension and other postretirement benefit plans, and the recognition in accumulated other comprehensive income (“AOCI”) of unrecognized gains or losses and prior service costs or credits. Additionally, SFAS 158 requires the measurement date for plan assets and liabilities to coincide with the sponsor’s year end. On June 1, 2008, we made our transition election for the measurement date provision of SFAS 158 using the two-measurement approach. Under this approach, we completed two actuarial measurements, one at February 29, 2008 and the other at June 1, 2008. This approach requires us to record the net periodic benefit cost for the transition period from March 1, 2008 through May 31, 2008 as an adjustment to beginning retained earnings ($15 million, net of tax) and actuarial gains and losses for the period (a gain of $11 million, net of tax) as an adjustment to the opening balance of AOCI. Our actuarial gains resulted primarily from a 32 basis point increase in the discount rate for our postretirement healthcare plan at June 1, 2008.

-7-

On June 1, 2008, we adopted SFAS 157, “Fair Value Measurements,” which provides a common definition of fair value, establishes a uniform framework for measuring fair value and requires expanded disclosures about fair value measurements. There is a one-year deferral of the adoption of the standard as it relates to non-financial assets and liabilities. The adoption of SFAS 157 had no impact on our financial statements at June 1, 2008.

In December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS 141R, “Business Combinations,” and SFAS 160, “Accounting and Reporting Noncontrolling Interest in Consolidated Financial Statements, an amendment of ARB No. 51.” These new standards significantly change the accounting for and reporting of business combination transactions, including noncontrolling interests (previously referred to as minority interests). For example, these standards require the acquiring entity to recognize the full fair value of assets acquired and liabilities assumed in the transaction and require the expensing of most transaction and restructuring costs. Both standards are effective for us beginning June 1, 2009 (fiscal 2010) and are applicable only to transactions occurring after the effective date.

(2) Comprehensive Income

The following table provides a reconciliation of net income reported in our financial statements to comprehensive income for the three-month periods ended August 31 (in millions):

	2008			2007
Net income	$	197		$	320
Other comprehensive income:
Foreign currency translation adjustments, net of deferred tax benefit of $9 in 2008		(44	)		16
Amortization of unrealized pension actuarial gains/losses, net of deferred taxes of $1 in 2008		(1	)		1
Comprehensive income	$	152		$	337

(3) Retirement Plans

We sponsor or participate in programs that provide retirement benefits to most of our employees. These programs include defined benefit pension plans, defined contribution plans and postretirement healthcare plans. A majority of our employees are covered by the FedEx Corporation Employees’ Pension Plan (“FedEx Plan”), a defined benefit pension plan sponsored by our parent, FedEx. The FedEx Plan covers certain U.S. employees age 21 and over with at least one year of service and provides benefits primarily based on earnings, age and years of service. Defined contribution plans covering a majority of U.S. employees and certain international employees are in place. We also sponsor or participate in nonqualified benefit plans covering certain of our U.S. employee groups and other pension plans covering certain of our international employees. For more information, refer to the financial statements of FedEx included in its Form 10-Q for the quarter ended August 31, 2008.

-8-

Our retirement plans costs for the three-month periods ended August 31 were as follows (in millions):

	2008		2007
Pension plans sponsored by FedEx	$	12	$	40
Other U.S. domestic and international pension plans		9		8
U.S. domestic and international defined contribution plans		52		21
Postretirement healthcare plans		12		13
	$	85	$	82

The reduction in pension costs for the plans sponsored by FedEx for the three-month period ended August 31, 2008 was due to lower pension expense attributable to a significantly higher discount rate used to determine our 2009 expense. The increase in defined contribution costs for the three-month period ended August 31, 2008 was due to plan design changes described in the FedEx Annual Report.

The components of the net periodic benefit cost of the pension and postretirement healthcare plans currently sponsored by us were individually immaterial for all periods presented. No material contributions were made during the first quarter of 2009 or 2008 to pension plans sponsored by us, and we do not expect to make material contributions in 2009.

(4) Commitments

As of August 31, 2008, our purchase commitments under various contracts for the remainder of 2009 and annually thereafter were as follows (in millions):

			Aircraft-
	Aircraft		Related (1)		Other (2)		Total
2009 (remainder)	$	727	$	154	$	23	$	904
2010		910		132		14		1,056
2011		736		9		11		756
2012		82		—		9		91
2013		—		—		8		8
Thereafter		—		—		99		99

(1)	Primarily aircraft modifications.
(2)	Primarily advertising and promotions contracts.

The amounts reflected in the table above for purchase commitments represent non-cancelable agreements to purchase goods or services. Commitments to purchase aircraft in passenger configuration do not include the attendant costs to modify these aircraft for cargo transport unless we have entered into non-cancelable commitments to modify such aircraft. Open purchase orders that are cancelable are not considered unconditional purchase obligations for financial reporting purposes and are not included in the table above.

Deposits and progress payments of $326 million have been made toward aircraft purchases, options to purchase additional aircraft and other planned aircraft-related transactions. Our primary aircraft purchase commitments include the Boeing 757 (“B757”) in passenger configuration, which will require additional costs to modify for cargo transport, and the new Boeing 777 Freighter (“B777F”) aircraft. In addition, we have committed to modify our DC10 aircraft for two-man cockpit configurations. Future payments related to these activities are included in the table above. Aircraft and aircraft-related contracts are subject to price escalations.

-9-

The following table is a summary of the number and type of aircraft we are committed to purchase as of August 31, 2008, with the year of expected delivery:

	A300		B757		B777F		MD11		Total
2009 (remainder)		3		13		—		1		17
2010		—		6		4		1		11
2011		—		5		10		—		15
2012		—		2		1		—		3
Total		3		26		15		2		46

A summary of future minimum lease payments under capital leases and noncancelable operating leases with an initial or remaining term in excess of one year at August 31, 2008 is as follows (in millions):

			Operating Leases
	Capital		Aircraft and Related		Facilities and		Total Operating
	Leases		Equipment		Other		Leases
2009 (remainder)	$	8	$	438	$	463	$	901
2010		95		545		557		1,102
2011		6		525		487		1,012
2012		6		504		424		928
2013		118		499		373		872
Thereafter		—		2,931		3,734		6,665
Total		233	$	5,442	$	6,038	$	11,480
Less amount representing interest		28
Present value of net minimum lease payments	$	205

While certain of our lease agreements contain covenants governing the use of the leased assets or require us to maintain certain levels of insurance, none of our lease agreements include material financial covenants or limitations.

We make payments under certain leveraged operating leases that are sufficient to pay principal and interest on certain pass-through certificates. The pass-through certificates are not our direct obligations, nor do we guarantee them.

(5) Contingencies

Wage-and-Hour. We are a defendant in a number of lawsuits containing various class-action allegations of wage-and-hour violations. The plaintiffs in these lawsuits allege, among other things, that they were forced to work “off the clock,” were not paid overtime or were not provided work breaks or other benefits. The complaints generally seek unspecified monetary damages, injunctive relief, or both. We have denied any liability and intend to vigorously defend ourselves in these wage-and-hour lawsuits. We do not believe that any loss is probable in these lawsuits, and given the nature and status of the claims, we cannot yet determine the amount or a reasonable range of potential loss, if any.

Other. We are subject to other legal proceedings that arise in the ordinary course of our business. In the opinion of management, the aggregate liability, if any, with respect to these other actions will not have a material adverse effect on our financial position, results of operations or cash flows.

-10-

(6) Parent/Affiliate Transactions

Affiliate company balances that are currently receivable or payable relate to charges for services provided to or by other FedEx affiliates and are settled on a monthly basis. In addition, we are allocated net interest on these amounts at market rates.

We maintain an accounts receivable arrangement with FedEx Customer Information Services, Inc. (“FCIS”), a wholly owned subsidiary of FedEx Corporate Services, Inc. (“FedEx Services”). FedEx Services is a wholly owned subsidiary of FedEx. Under this arrangement, FCIS records and collects receivables associated with our domestic package delivery functions, while we continue to recognize revenue for the transportation services provided. Our net receivables recorded by FCIS totaled approximately $1.4 billion at August 31, 2008 and May 31, 2008.

The costs of the FedEx Services segment, which includes FedEx Office and Print Services, Inc., are allocated to us and are included in the expense line item “Intercompany charges” based on metrics such as relative revenues or estimated services provided. We believe these allocations approximate the net cost of providing these functions.

(7) Supplemental Cash Flow Information

The following table presents supplemental cash flow information for the three-month periods ended August 31 (in millions):

	2008		2007
Cash payments for:
Interest (net of capitalized interest)	$	13	$	18
Income taxes (primarily paid to parent)		91		167

-11-

REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholder
Federal Express Corporation

We have reviewed the condensed consolidated balance sheet of Federal Express Corporation as of August 31, 2008, and the related condensed consolidated statements of income and cash flows for the three-month periods ended August 31, 2008 and 2007. These financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Federal Express Corporation as of May 31, 2008, and the related consolidated statements of income, changes in owner’s equity and comprehensive income, and cash flows for the year then ended not presented herein, and in our report dated July 10, 2008, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of May 31, 2008, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ Ernst & Young LLP

Memphis, Tennessee
September 17, 2008

-12-

Item 2. 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 and financial condition of Federal Express Corporation (“FedEx Express”), is abbreviated pursuant to General Instruction H(2)(a) of Form 10-Q. This discussion should be read in conjunction with the accompanying quarterly unaudited condensed consolidated financial statements and our Annual Report on Form 10-K for the year ended May 31, 2008 (“Annual Report”). Our Annual Report includes additional information about our significant accounting policies, practices and the transactions that underlie our financial results. For additional information, including a discussion of outlook, liquidity, capital resources, contractual cash obligations and critical accounting estimates, see the Quarterly Report on Form 10-Q of our parent, FedEx Corporation (“FedEx”), for the quarter ended August 31, 2008.

We are the world’s largest express transportation company. Our sister company FedEx Corporate Services, Inc. (“FedEx Services”) provides customer-facing sales, marketing, information technology and customer service support to us and our sister company FedEx Ground Package System, Inc. (“FedEx Ground”), as well as retail access for our customers through FedEx Office and Print Services, Inc. (“FedEx Office”).

The operating expenses line item “Intercompany charges” on the financial summary represents an allocation that primarily includes salaries and benefits, depreciation and other costs for the sales, marketing, information technology and customer service support provided to us by FedEx Services and FedEx Office’s net operating costs. These costs are allocated based on metrics such as relative revenues or estimated services provided. “Intercompany charges” also include allocated charges from our parent for management fees related to services received for general corporate oversight, including executive officers and certain legal and finance functions. We believe the total amounts allocated reasonably reflect the cost of providing these functions.

The key indicators necessary to understand our operating results include:

• 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 (yield);

• our ability to manage our cost structure (capital expenditures and operating expenses) to match shifting volume levels; and

• the timing and amount of fluctuations in fuel prices and our ability to recover incremental fuel costs through our fuel surcharges.

The majority of our operating expenses are directly impacted by revenue and volume levels. Accordingly, we expect these operating expenses to fluctuate on a year-over-year basis consistent with the change in revenues and volume. The following discussion of operating expenses describes the key drivers impacting expense trends beyond changes in revenues and volume.

Except as otherwise specified, references to years indicate our fiscal year ending May 31, 2009 or ended May 31 of the year referenced and comparisons are to the corresponding period of the prior year.

-13-

RESULTS OF OPERATIONS

The following table compares revenues, operating expenses, operating income, net income and operating margin (dollars in millions) for the three-month periods ended August 31:

							Percent
	2008			2007			Change
Revenues:
Package:
U.S. overnight box	$	1,711		$	1,615			6
U.S. overnight envelope		525			512			3
U.S. deferred		762			711			7
Total U.S. domestic package revenue		2,998			2,838			6
International Priority (IP)		2,044			1,820			12
International domestic (1)		170			156			9
Total package revenue		5,212			4,814			8
Freight:
U.S.		598			593			1
International priority freight		340			292			16
International airfreight		131			94			39
Total freight revenue		1,069			979			9
Other		79			58			36
Total revenues		6,360			5,851			9
Operating expenses:
Salaries and employee benefits		2,080			2,013			3
Purchased transportation		318			279			14
Rentals and landing fees		413			408			1
Depreciation and amortization		237			227			4
Fuel		1,319			800			65
Maintenance and repairs		393			401			(2	)
Intercompany charges		531			514			3
Other		735			700			5
Total operating expenses		6,026			5,342			13
Operating income	$	334		$	509			(34	)
Operating margin		5.3	%		8.7	%	(340		)bp
Other income (expense):
Interest, net		(2	)		41			(105	)
Other, net		(3	)		(48	)		(94	)
		(5	)		(7	)		(29	)
Income before income taxes		329			502			(34	)
Provision for income taxes		132			182			(27	)
Net income	$	197		$	320			(38	)

⁽¹⁾ International domestic revenues include our international domestic operations, primarily in the United Kingdom, Canada, China and India.

-14-

The following table compares selected statistics (in thousands, except yield amounts) for the three-month periods ended August 31:

					Percent
	2008		2007		Change
Package Statistics
Average daily package volume (ADV):
U.S. overnight box		1,103		1,139		(3	)
U.S. overnight envelope		629		699		(10	)
U.S. deferred		828		863		(4	)
Total U.S. domestic ADV		2,560		2,701		(5	)
IP		495		496		—
International domestic (1)		307		279		10
Total ADV		3,362		3,476		(3	)
Revenue per package (yield):
U.S. overnight box	$	24.24	$	21.83		11
U.S. overnight envelope		13.04		11.26		16
U.S. deferred		14.38		12.67		13
U.S. domestic composite		18.30		16.17		13
IP		64.54		56.42		14
International domestic (1)		8.63		8.59		—
Composite package yield		24.23		21.31		14
Freight Statistics
Average daily freight pounds:
U.S.		7,296		8,843		(17	)
International priority freight		2,312		2,025		14
International airfreight		1,866		1,752		7
Total average daily freight pounds		11,474		12,620		(9	)
Revenue per pound (yield):
U.S.	$	1.28	$	1.03		24
International priority freight		2.30		2.22		4
International airfreight		1.10		0.83		33
Composite freight yield		1.46		1.19		23

⁽¹⁾ International domestic statistics include our international domestic operations, primarily in the United Kingdom, Canada, China and India.

Revenues

Our revenues increased 9% in the first quarter of 2009, primarily due to yield improvement driven by increases in fuel surcharges. Yield improvements during the first quarter of 2009 were partially offset by decreased volumes in U.S. domestic package and freight services, as the weak U.S. economy and persistently higher fuel prices and the related impact on our fuel surcharges have reduced demand for these services, pressured base yields and driven a change in the mix of our services. In addition, the impact of one fewer operating day partially offset the revenue increase during the first quarter of 2009.

The increase in composite package yield in the first quarter of 2009 reflects substantially higher fuel surcharges in U.S. domestic and IP services. IP yield improvement in the first quarter of 2009 was also impacted by favorable exchange rates. Composite freight yield increased in the first quarter of 2009 due to higher fuel surcharges and a 14% increase in pounds in our higher-yielding international priority freight service.

IP volumes were flat during the first quarter of 2009 due to a softening in all major regions of the global economy. Additionally, the ongoing weak U.S. economy drove U.S. domestic shipping volumes to pre-1998 levels.

-15-

Our fuel surcharges are indexed to the spot price for jet fuel. Using this index, the U.S. domestic and outbound fuel surcharge and the international fuel surcharges ranged as follows for the three-month periods ended August 31:

	2008			2007
U.S. Domestic and Outbound Fuel Surcharge:
Low		28.00	%		13.50	%
High		34.50			14.00
Weighted-average		31.67			13.67
International Fuel Surcharges:
Low		18.00			12.00
High		34.50			15.50
Weighted-average		25.26			14.00

On September 18, 2008, we announced a 6.9% average list price increase effective January 5, 2009 on our U.S. domestic and U.S. outbound package and freight shipments and made various changes to other surcharges, while we lowered our fuel surcharge index by 2%.

Operating Income

The following table compares operating expenses and operating income as a percent of revenue for the three months ended August 31:

	Percent of Revenue
	2008			2007
Operating expenses:
Salaries and employee benefits		32.7	%		34.4	%
Purchased transportation		5.0			4.7
Rentals and landing fees		6.5			7.0
Depreciation and amortization		3.7			3.9
Fuel		20.7			13.7
Maintenance and repairs		6.2			6.8
Intercompany charges		8.3			8.8
Other		11.6			12.0
Total operating expenses		94.7			91.3
Operating income (margin)		5.3	%		8.7	%

Our operating results for the first quarter of 2009 were negatively impacted by the continued weak U.S. economy and higher fuel prices, which limited demand for our U.S. domestic package services, and a softening global economy. Cost containment activities, including lower variable incentive compensation, partially mitigated the negative impact of these factors on our operating results for the first quarter of 2009. Other key cost containment activities during the quarter included reductions in flight and labor hours, fuel consumption and maintenance costs primarily due to lower volumes and temporarily grounded aircraft, and freezes in hiring for open positions (excluding operational and sales positions). In addition, we continue to exercise stringent control over discretionary spending, such as travel, entertainment and professional fees.

Fuel costs increased 65% in the first quarter of 2009 due to an increase in the average price per gallon of fuel. Fuel surcharges were sufficient to offset incremental fuel costs, based on a static analysis of the year-over-year changes in fuel prices compared to changes in fuel surcharges. Purchased transportation costs increased 14% in the first quarter of 2009 primarily due to higher utilization of third-party transportation providers (primarily in international locations).

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Other Income and Income Taxes

Interest income and other expense decreased during the first quarter of 2009 primarily due to decreased intercompany interest related to lower intercompany receivables and intercompany debt.

Our effective tax rate was 40.1% for the first quarter of 2009 and 36.3% for the first quarter of 2008. The 2008 tax rate was lower than the 2009 rate primarily due to a favorable tax audit adjustment and intercompany charges from FedEx Office. We expect the effective tax rate to be between 38.5% and 40% for 2009. The actual rate will depend on a number of factors, including the amount and source of operating income.

NEW ACCOUNTING PRONOUNCEMENTS

New accounting rules and disclosure requirements can significantly impact our reported results and the comparability of our financial statements. We believe the following new accounting pronouncements are relevant to the readers of our financial statements.

On May 31, 2007, we adopted Statement of Financial Accounting Standards (“SFAS”) 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans.” SFAS 158 requires recognition in the balance sheet of the funded status of defined benefit pension and other postretirement benefit plans, and the recognition in accumulated other comprehensive income (“AOCI”) of unrecognized gains or losses and prior service costs or credits. Additionally, SFAS 158 requires the measurement date for plan assets and liabilities to coincide with the sponsor’s year end. On June 1, 2008, we made our transition election for the measurement date provision of SFAS 158 using the two-measurement approach. Under this approach, we completed two actuarial measurements, one at February 29, 2008 and the other at June 1, 2008. This approach requires us to record the net periodic benefit cost for the transition period from March 1, 2008 through May 31, 2008 as an adjustment to beginning retained earnings ($15 million, net of tax) and actuarial gains and losses for the period (a gain of $11 million, net of tax) as an adjustment to the opening balance of AOCI. Our actuarial gains resulted primarily from a 32 basis point increase in the discount rate for our postretirement healthcare plan at June 1, 2008.

On June 1, 2008, we adopted SFAS 157, “Fair Value Measurements,” which provides a common definition of fair value, establishes a uniform framework for measuring fair value and requires expanded disclosures about fair value measurements. There is a one-year deferral of the adoption of the standard as it relates to non-financial assets and liabilities. The adoption of SFAS 157 had no impact on our financial statements at June 1, 2008.

In December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS 141R, “Business Combinations,” and SFAS 160, “Accounting and Reporting Noncontrolling Interest in Consolidated Financial Statements, an amendment of ARB No. 51.” These new standards significantly change the accounting for and reporting of business combination transactions, including noncontrolling interests (previously referred to as minority interests). For example, these standards require the acquiring entity to recognize the full fair value of assets acquired and liabilities assumed in the transaction and require the expensing of most transaction and restructuring costs. Both standards are effective for us beginning June 1, 2009 (fiscal 2010) and are applicable only to transactions occurring after the effective date.

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FORWARD-LOOKING STATEMENTS

Certain statements in this report are “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to our financial condition, results of operations, cash flows, plans, objectives, future performance and business. 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 global markets in which we operate;

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

• damage to our reputation or loss of brand equity;

• disruptions to the Internet or our technology infrastructure, including those impacting our computer systems and Web site, which can adversely affect shipment levels;

• the price and availability of jet and vehicle fuel;

• the impact of intense competition on our ability to maintain or increase our prices (including our fuel surcharges in response to rising fuel costs) or to maintain or grow our market share;

• our ability to manage our cost structure for capital expenditures and operating expenses, and match it to shifting and future customer volume levels;

• our ability to effectively operate, integrate, leverage and grow acquired businesses;

• any impacts on our businesses resulting from new domestic or international government laws and regulation, including regulatory actions affecting global aviation rights, increased air cargo and other security requirements, and tax, accounting, trade, labor (such as card check legislation), environmental (such as climate change legislation) or postal rules;

• changes in foreign currency exchange rates, especially in the euro, Chinese yuan, Canadian dollar, British pound and Japanese yen, which can affect our sales levels and foreign currency sales prices;

• any liability resulting from and the costs of defending against class-action litigation, such as wage-and-hour and discrimination and retaliation claims, patent litigation, and any other legal proceedings;

• our ability to maintain good relationships with our employees and prevent attempts by labor organizations to organize groups of our employees, which could significantly increase our operating costs and reduce our operational flexibility;

• a shortage of qualified labor and our ability to mitigate this shortage through recruiting and retention efforts and productivity gains;

• increasing costs, the volatility of costs and legal mandates for employee benefits, especially pension and healthcare benefits;

• significant changes in the volume of shipments transported through our network, customer demand for our various services or the prices we obtain for our services;

• market acceptance of our new service and growth initiatives;

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

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• adverse weather conditions or natural disasters, such as earthquakes and hurricanes, which can damage our property, disrupt our operations, increase fuel costs and adversely affect shipment levels;

• widespread outbreak of an illness or any other communicable disease, or any other public health crisis;

• availability of financing on terms acceptable to us and our ability to maintain our current credit ratings, especially given the capital intensity of our operations and the current volatility of credit markets; and

• other risks and uncertainties you can find in FedEx’s and our press releases and SEC filings, including the risk factors identified under the heading “Risk Factors” in “Management’s Discussion and Analysis of Results of Operations and Financial Condition” in our Annual Report, as updated by our quarterly reports on Form 10-Q.

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 forward-looking statements, which speak only as of the date on which they are made. We undertake no 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 3. Quantitative and Qualitative Disclosures About Market Risk

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

Item 4. 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, as amended, 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 August 31, 2008 (the end of the period covered by this Quarterly Report on Form 10-Q).

During our fiscal quarter ended August 31, 2008, 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.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

For a description of all material pending legal proceedings, see Note 5 of the accompanying condensed consolidated financial statements.

In July 2008, we received a formal request for certain information in connection with an ongoing investigation by the Japan Fair Trade Commission into possible anti-competitive behavior in the international freight forwarding industry. This investigation is separate from the ongoing investigations by the Antitrust Division of the U.S. Department of Justice, the Australian Competition and Consumer Commission and the Korea Fair Trade Commission that were disclosed in our Annual Report. We do not believe that we have engaged in any anti-competitive activities, and we are cooperating with these investigations.

Item 1A. Risk Factors

There have been no material changes from the risk factors disclosed in our Annual Report (under the heading “Risk Factors” in “Management’s Discussion and Analysis of Results of Operations and Financial Condition”) in response to Part I, Item 1A of Form 10-K.

Item 6. Exhibits

Exhibit
Number		Description of Exhibit
	12.1	Computation of Ratio of Earnings to Fixed Charges.
	15.1	Letter re: Unaudited Interim Financial Statements.
	31.1	Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31.2	Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32.1	Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	32.2	Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	FEDERAL EXPRESS CORPORATION
Date: September 19, 2008	/s/ CATHY D. ROSS
	CATHY D. ROSS
	SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER (PRINCIPAL FINANCIAL OFFICER)

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EXHIBIT INDEX

Exhibit
Number		Description of Exhibit
	12.1	Computation of Ratio of Earnings to Fixed Charges.
	15.1	Letter re: Unaudited Interim Financial Statements.
	31.1	Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31.2	Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32.1	Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	32.2	Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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