<PAGE>
 
================================================================================

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

                                   FORM 10-K
(Mark One)

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE 
     ACT OF 1934 
      For the fiscal year ended May 31, 1998.

                                       OR
                                        
[_]  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                        (I.R.S. Employer
     incorporation or organization)                        Identification No.)

2005 CORPORATE AVENUE, MEMPHIS, TENNESSEE                         38132
  (Address of principal executive offices)                      (Zip Code)

      REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:  (901) 369-3600
                                        
          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

      Title of each class         Name of each exchange on which registered
      -------------------         -----------------------------------------
             NONE                                   NONE

       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 [X]        No [_]

  Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K ((S) 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. [X]

  The Registrant is a wholly-owned subsidiary of FDX Corporation, a Delaware
corporation ("FDX"), and there is no market for the Registrant's common stock,
par value $.10 per share ("Common Stock").  As of August 17, 1998, 1,000 shares
of the Registrant's Common Stock were outstanding.

  The Registrant meets the conditions set forth in General Instructions I(1)(a)
and (b) of Form 10-K, and is filing this form with the reduced disclosure format
pursuant to General Instruction I(2).

================================================================================
<PAGE>
 
                               TABLE OF CONTENTS
                                        
<TABLE> 
<CAPTION> 
                                                                                       PAGE
<S>          <C>                                                                       <C> 
                                              PART I
 
ITEM 1.      Business.................................................................    1
ITEM 2.      Properties...............................................................    8
ITEM 3.      Legal Proceedings........................................................   11
ITEM 4.      Submission of Matters to a Vote of Security Holders......................   12
 
                                              PART II
 
ITEM 5.       Market for the Registrant's Common Stock and Related Stockholder Matters   12
ITEM 6.       Selected Financial Data.................................................   12
ITEM 7.       Management's Discussion and Analysis....................................   13
ITEM 7A.      Quantitative and Qualitative Disclosures About Market Risk..............   20
ITEM 8.       Financial Statements and Supplementary Data.............................   21
ITEM 9.       Changes in and Disagreements with Accountants
              on Accounting and Financial Disclosure..................................   40
 
                                              PART III

ITEM 10.      Directors and Executive Officers of the Registrant......................   40
ITEM 11.      Executive Compensation..................................................   40
ITEM 12.      Security Ownership of Certain Beneficial Owners and Management..........   40
ITEM 13.      Certain Relationships and Related Transactions..........................   40
 
                                              PART IV

ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K..............   40


                       FINANCIAL STATEMENT SCHEDULE INDEX

Report of Independent Public Accountants on Financial Statement Schedule..............  S-1
SCHEDULE II   Valuation and Qualifying Accounts.......................................  S-2


EXHIBIT INDEX.........................................................................  E-1

</TABLE> 
<PAGE>
 
                                    PART I
                                        
ITEM 1.  BUSINESS

INTRODUCTION

   Federal Express Corporation ("FedEx" or the "Company") was incorporated in
Delaware on June 24, 1971 and began operations in 1973. The Company offers a
wide range of express services, providing rapid, reliable, time-definite
delivery of documents, packages and freight to more than 210 countries.  The
Company connects areas of the world that generate 90 percent of the world's
gross domestic product through door-to-door, customs-cleared service, with a
money-back guarantee.  The Company's extensive air route authorities and
transportation infrastructure, combined with its use of leading-edge information
technologies, make the Company the world's largest express-distribution company,
providing fast, reliable service for nearly three million shipments each
business day.

   FDX Corporation ("FDX") was incorporated in Delaware on October 2, 1997. On
January 27, 1998, the Company and Caliber System, Inc. ("Caliber") became
wholly-owned subsidiaries of FDX.  In this transaction, which was accounted for
as a pooling of interests, Caliber shareholders received 0.8 shares of FDX
common stock for each share of Caliber common stock.  Each share of the
Company's common stock was automatically converted into one share of FDX common
stock.  FedEx is the largest of the FDX subsidiaries.

RECENT DEVELOPMENTS

   During fiscal year 1997, the Company announced plans to develop an 89-acre
site in suburban Memphis, Tennessee comprising nine separate buildings with more
than 1.1 million square feet of space.  The office campus is designed to
consolidate many administrative and training functions currently spread
throughout the Memphis metropolitan area.  When completed by late fall of 2001,
the office campus will bring together approximately 3,700 employees from more
than 100 work groups.

   In October 1997, the Company achieved re-certification of ISO 9001
registration for its global operations.  ISO 9001 is currently the most rigorous
international standard for Quality Management and Assurance.  The Company is the
only express transportation company to receive worldwide certification of its
systems.  The ISO 9000 quality standards were developed by the International
Organization for Standardization in Geneva, Switzerland to promote and
facilitate international trade.  More than 90 countries, including European
Union members, the United States and Japan, recognize ISO 9000.

   Also in October 1997, the Company announced that it had selected Miami
International Airport as the site for a new $50 million hub for its Latin
America and Caribbean operations. Construction on the 189,000 square foot
facility began in spring 1998. The Miami hub will include the proprietary FedEx
Expressclear/(SM)/ system which facilitates the customs clearance of most
inbound shipments prior to a flight's arrival. When completed, the Miami hub
will allow the Company to offer expanded next business day service between the
major markets of Latin America, the United States, Canada and Mexico, as well as
two business day service to Europe and Asia.

   In the first quarter of 1998, the Company announced the only next business
day 10:30 a.m. express cargo service from Asia to the United States. The Company
introduced a direct flight from Osaka, Japan to Memphis, Tennessee. The nonstop
daily flight cut transit times across the Pacific in half for the Company's
customers -- from 48 to 24 hours -- who ship from Asia to North America. The
FedEx International Priority/(R)/ service is backed by the Company's money-back
guarantee. The new flight

                                       1
<PAGE>
 
schedule also enabled the Company to offer its Asian customers later pickup
times for connections through the company's AsiaOne/(R)/ hub in Subic Bay, The
Philippines, to 13 major Asian markets. Also in the first quarter 1998, the
Company announced three new international service enhancements: a flat-rate box
for shipping by FedEx International Priority, an expansion of FedEx
International Economy/(R)/ service, and lower rates from the United States to
major Canadian markets.
 
   In March 1998, the Company expanded its services by offering customers a
Sunday delivery option. FedEx Priority Overnight/(R)/ service now provides
delivery by 3:00 p.m. on Sunday to select zip codes in 50 top United States
metropolitan areas.

FEDEX SERVICES

   Detailed information about all of the Company's services can be found on the
Company's Internet web site at www.fedex.com.  The Company offers four U.S.
domestic overnight delivery services: FedEx First Overnight/(R)/, FedEx Priority
Overnight/(R)/, FedEx Standard Overnight/(R)/ and FedEx Overnight Freight/(R)/.
Overnight document and package service extends to virtually the entire United
States population and overnight freight service covers all major and most
medium-size metropolitan areas.  Packages and documents are either picked up
from shippers by FedEx couriers or are dropped off by shippers at FedEx
facilities, FedEx World Service Centers,/(R)/ FedEx/(R)/ Drop Boxes, FedEx
ShipSites/(R)/ or FedEx Authorized ShipCenters/(R)/ strategically located
throughout the country.

   Four U.S. domestic deferred services are available for less urgent shipments:
FedEx 2Day/(R)/, FedEx 2Day Freight/(R)/, FedEx Express Saver/(R)/ and FedEx
Express Saver/(R)/ Freight.  FedEx SameDay/(R)/ service is for urgent shipments
to virtually any U.S. destination.

   U.S. domestic overnight and second-day services are primarily used by
customers for shipment of time-sensitive documents and goods, high-value
machines and machine parts, computer parts, software and consumer items from
manufacturers, distributors and retailers and to retailers, manufacturers and
consumers.  The Company's employees handle virtually every shipment from origin
to destination.

   In addition to the services discussed above, the Company offers various
international package and document delivery services and international freight
services, including: FedEx International First/(SM)/, FedEx International
Priority, FedEx International Priority DirectDistribution/(SM)/, FedEx
International Economy/(R)/, FedEx International Priority Freight/(R)/, FedEx
International Economy Freight/(R)/, FedEx Expressclear/(SM)/ Electronic Customs
Clearance, FedEx International Broker Select/(R)/, FedEx International Priority
Plus/(R)/, FedEx International Express Freight/(R)/, FedEx International Mail
Service/(R)/ and FedEx International Airport-to-Airport /(SM)/.

CHARTER SERVICES AND CRAF PARTICIPATION

   The Company offers commercial and military charter services which supplement
the utilization of aircraft capacity when not needed in the Company's scheduled
operations.  In addition to providing these charter services, the Company
participates in the Civil Reserve Air Fleet ("CRAF") program.  Under this
program, the Department of Defense may requisition for military use certain of
the Company's wide-bodied aircraft in the event of a declared need, including a
national emergency.  The Company is 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 its
participation in the CRAF program, the Company is entitled to bid on peacetime
military cargo charter business. The Company, together with a consortium of
other carriers, currently contracts with the United States Government for
charter flights. The Company, while continuing to participate in the CRAF
program and

                                       2
<PAGE>
 
continuing to bid on military charters with respect to the carriage of cargo,
discontinued military passenger flights at the end of September 1992.

   The Company offers commercial and military charter services which supplement
the utilization of aircraft capacity when not needed in the Company's scheduled
operations.  During fiscal 1998, revenues from charter operations accounted for
approximately 0.7% of the Company's total revenues and approximately 0.6% and
0.9% of total revenues during fiscal 1997 and 1996, respectively.

LOGISTICS AND ELECTRONIC COMMERCE

   Logistics and Electronic Commerce ("LEC"), formerly Logistics, Electronic
Commerce and Catalog, is a division of the Company which offers information-
rich, technology-based products and services which facilitate the movement of
goods throughout the order management process.  LEC focuses on markets where
delivering high-speed, time-definite, information-intensive solutions provide
significant customer value.  In 1998, LEC further expanded its information
systems focus to solutions that enable customers to do business electronically
-- ranging from order-entry to after-sales support.  The combination of these
electronic commerce capabilities and the Company's global transportation and
information network allow the Company's customers to create or redesign their
supply chains to reduce cost and improve service to their customers.

   LEC offers the Company's customers several products and services. FedEx
interNetShip/(SM)/ provides shipment processing capability within the United
States on the World Wide Web. From the Company's World Wide Web page
(www.fedex.com), shippers can retrieve precise details on the status of their
shipments any time of day from anywhere in the world. The Company also offers
FedEx Ship/(R)/ software, free of charge, that can be used on a personal
computer. FedEx Ship allows customers to generate plain paper airbills on a
laser printer, track shipments, order FedEx pickups and maintain a database of
shipping addresses and activity using modems and their own personal computers.
FedEx PowerShip/(R)/ 2, is a stand alone automated shipping system which
provides package tracking, produces shipping labels, calculates shipping
charges, invoices the customer daily and produces customized reports. For
customers that ship 100 or more packages a day, FedEx offers FedEx PowerShip
Plus/(R)/ software, which performs the same functions as FedEx PowerShip 2 but
can be integrated with the customer's own computer systems for customer service,
accounting, inventory control and financial analysis purposes. FedEx PowerShip
PassPort/(R)/ is an automated shipping system which is automatically updated
with FedEx's system information, such as routing codes and rates. FedEx
PowerShip 3/(R)/ enables customers who ship as few as three packages per day to
enjoy the advantage of automated shipping.

PRICING

   The Company periodically publishes list prices in its Service Guides for the
majority of its services. In general, during fiscal 1998, U.S. domestic shipping
rates were based on the service selected, weight, size, any ancillary charge and
whether or not the shipment is picked up by a Company courier or dropped off by
the customer at a Company location.   International rates are based on the type
of service provided and vary with size, weight and destination.  The Company
offers its customers volume discounts generally based on actual or potential
average daily revenue produced.  Discounts are determined by reference to
several local and national revenue bands developed by the Company.  In general,
the more revenue a particular customer produces, the greater the discount.  Of
the Company's more than two million current customers, a significant portion
participates in the Company's discount program.

                                       3
<PAGE>
 
   To more closely align the Company's rates with its transportation costs, the
Company introduced distance-based pricing effective July 1, 1997 for U.S.
shipments. The rates are based on the weight and size of the shipment, the
distance between the shipper and the recipient and the service commitment.

SERVICE REVENUES

   The following table shows the amount of revenues generated for each class of
service offered for the fiscal years ending May 31 (amounts in thousands):

<TABLE>
<CAPTION>
                                                    1998                 1997                  1996
                                                    ----                 ----                  ----
<S>                                              <C>                  <C>                  <C>
FedEx Priority Overnight                         $ 4,852,164          $ 4,485,317            $ 4,170,254
FedEx Standard Overnight                           1,958,047            1,758,462              1,616,538
FedEx  2Day                                        2,179,188            1,621,643              1,365,430
U.S. domestic freight services                       337,098              207,729                132,122
International priority services                    2,731,140            2,351,096              1,996,827
International freight services                       597,861              604,472                554,143
Charter                                               87,902               72,330                 92,389
LEC and other*                                       511,441              418,701                345,916
                                                 -----------          -----------            -----------
Total                                            $13,254,841          $11,519,750            $10,273,619
                                                 ===========          ===========            ===========
</TABLE>
_________________________
* Includes revenues generated by the specialized services summarized above under
"Logistics and Electronic Commerce."  Also includes revenues from sales of
aircraft engine noise-reduction kits and non-U.S. intra-country operations.

SEASONALITY OF BUSINESS

   The Company's express package business and international airfreight business
are both seasonal in nature.  Historically, the U.S. domestic package business
experiences an increase in late November and December.  International business,
particularly in the Asia to U.S. markets, peaks in October and November due to
U.S. domestic holiday sales.  The latter part of the Company's third fiscal
quarter and late summer, being post winter-holiday and summer vacation seasons,
have historically exhibited lower volumes relative to other periods.

OPERATIONS

   The Company's global transportation and distribution services are provided
through an extensive worldwide network consisting of numerous aviation and
ground transportation operating rights and authorities, 615 aircraft,
approximately 40,900 vehicles, sorting facilities, FedEx World Service Centers,
FedEx Drop Boxes, FedEx ShipSites, FedEx Authorized ShipCenters and
sophisticated package tracking, billing and communications systems.

   The Company's primary U.S. domestic sorting facility, the SuperHub located in
Memphis, serves as the center of the Company's multiple hub-and-spokes U.S.
domestic system.  A second national hub is located in Indianapolis.  In addition
to these national hubs, the Company operates regional hubs in Newark, Oakland
and Fort Worth and major metropolitan sorting facilities in Los Angeles and
Chicago.  Facilities in Anchorage, Alaska and Subic Bay, The Philippines serve
as sorting facilities for express package and freight traffic moving to and from
Asia, Europe and North America.  Major sorting and freight handling facilities
are located at Narita Airport in Tokyo, Charles de Gaulle Airport in Paris,
Stansted Airport outside London and Pearson Airport in Toronto.

                                       4
<PAGE>
 
   Throughout its worldwide network, the Company operates city stations and
employs 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, the
Company operates 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 and corporate or industrial parks.  The
Company has also formed alliances with certain retailers to extend this customer
convenience network to over 11,000 drop-off sites in retail stores.  In
international regions where low package traffic makes the Company's direct
presence less economical, Global Service Participants have been selected to
complete deliveries.

   The Company has an advanced package tracking and billing system, FedEx
COSMOS/(R)/, that utilizes hand-held electronic scanning equipment and computer
terminals.  This system provides proof of delivery information, an
electronically reproduced airbill for the customer and information regarding the
location of a package within the Company's system.  For international shipments,
the Company has developed FedEx Expressclear, 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 fiscal 1998, the Company purchased aviation fuel from various
suppliers under contracts which vary in length from 12 to 36 months and which
provide for specific amounts of fuel to be delivered. The fuel represented by
these contracts is purchased at market prices which may fluctuate daily.
Management believes that, barring a substantial disruption in supplies of crude
oil, these agreements will ensure the availability of an adequate supply of fuel
for the Company's needs for the immediate future. However, 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,
could have a significant adverse effect on the Company.

   In the past three years, the Company has entered into contracts which are
designed to limit its exposure to fluctuations in jet fuel prices.  Under these
contracts, the Company makes (or receives) payments based on the difference
between a specified lower (or upper) limit and the market price of jet fuel, as
determined by an index of spot market prices representing various geographic
regions.  The difference is recorded as an increase or decrease in fuel expense.
The Company hedges its exposure to jet fuel price market risk only on a
conservative, limited basis.  No such contracts were outstanding as of May 31,
1998.  See Note 11 of Notes to Consolidated Financial Statements.

The following table sets forth the Company's costs for aviation fuel and its
percentage of total operating expense for the previous five fiscal years:


                             TOTAL COST         PERCENTAGE OF TOTAL
         FISCAL YEAR       (IN THOUSANDS)        OPERATING EXPENSE
         -----------       --------------        ----------------- 
            1998              $570,959                 4.6%
            1997               557,533                 5.2
            1996               461,401                 4.8
            1995               394,225                 4.5
            1994               374,561                 4.7


                                       5
<PAGE>
 
  Approximately 20% of the Company's requirement for vehicle fuel is purchased
in bulk.  The remainder of the Company's requirement is satisfied by retail
purchases with various discounts.  The percentage of total operating expense for
vehicle fuel purchases for each of the last five fiscal years has not exceeded
1.5%.

COMPETITION

  The U.S. domestic express market is highly competitive and sensitive to both
price and service.  Competitors in this market include other express package
concerns, principally United Parcel Service of America, Inc. ("UPS") and
Airborne Express, passenger airlines offering package express services, regional
express delivery concerns, airfreight forwarders and the United States Postal
Service.

  The international express package and freight markets are also highly
competitive.  The ability to compete effectively internationally depends upon
price, frequency and capacity of scheduled service, extent of geographic
coverage and reliability.  The Company currently holds certificates of authority
to serve more foreign countries than any other United States all-cargo air
carrier and its extensive, scheduled international route system allows it to
offer single-carrier service to many points not offered by its principal all-
cargo competitors.  This international route system, combined with an integrated
air and ground network, enables the Company 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.  However, many of the
Company's competitors in the international market are government owned,
controlled, or subsidized carriers which may have greater resources, lower
costs, less profit sensitivity and more favorable operating conditions than the
Company.  The Company's principal competitors in the international market are
foreign national air carriers, United States passenger airlines and all-cargo
airlines and other express package companies including UPS and DHL Worldwide
Express.

REGULATION

  AIR

  Under the Federal Aviation Act of 1958, as amended, both the Department of
Transportation ("DOT") and the Federal Aviation Administration ("FAA") exercise
regulatory authority over the Company.  The DOT's authority relates primarily to
economic 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.  The Company holds various certificates
issued by the DOT, authorizing the Company to engage in U.S. domestic and
international air transportation of property and mail on a worldwide basis.  The
Company's international authority permits it to carry cargo and mail from
several points in its U.S. domestic route system to numerous points throughout
the world.  The DOT regulates international routes and practices and is
authorized to investigate and take action against discriminatory treatment of
United States air carriers abroad. The right of a United States carrier to serve
foreign points is subject to the DOT's approval and generally requires a
bilateral agreement between the United States and the foreign government. The
carrier must then be granted the permission of such foreign government to
provide specific flights and services. The regulatory environment for global
aviation rights may from time to time impair the ability of the Company to
operate its air network in the most efficient manner.
 
  The FAA's regulatory authority relates primarily to safety and operational
aspects of air transportation, including aircraft standards and maintenance,
personnel and ground facilities, which may from time to time affect the ability
of the Company to operate its aircraft in the most efficient manner.  The
Company holds an operating certificate granted by the FAA pursuant to Part 121
of the Federal Aviation Regulations.  This

                                       6
<PAGE>
 
certificate is of unlimited duration and remains in effect so long as the
Company maintains its standards of safety and meets the operational requirements
of the regulations.

  GROUND

  The ground transportation performed by the Company is integral to its air
transportation services.  Prior to January 1996, the Company conducted its
interstate motor carrier operations pursuant to common and contract carrier
authorities issued by the Interstate Commerce Commission ("ICC").  The ICC
Termination Act of 1995 abolished the ICC and transferred responsibility for
interstate motor carrier registration to the DOT.

  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. The Company is registered in
those states that require registration.

  COMMUNICATION

  Because of the extensive use of radio and other communication facilities in
its aircraft and ground transportation operations, the Company is subject to the
Federal Communications Commission Act of 1934, as amended.  Additionally, the
Federal Communications Commission regulates and licenses the Company's
activities pertaining to satellite communications.

  ENVIRONMENTAL

  Pursuant to the Federal Aviation Act, the FAA, with the assistance of the
Environmental Protection Agency, is authorized to establish standards governing
aircraft noise.  The Company's present aircraft fleet is in compliance with
current noise standards of the Federal Aviation Regulations.  The Company's
aircraft are also subject to, and are in compliance with, the regulations
limiting the level of engine smoke 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 the Company's aircraft operations
in some of the localities where they apply but do not have a material effect on
any of the Company's significant markets.  Congress' passage of the Airport
Noise and Capacity Act of 1990 established a National Noise Policy which enabled
the Company to plan for noise reduction and better respond to local noise
constraints.

  Certain regulations under the Clean Water Act, the Clean Air Act and the
Resource Conservation and Recovery Act impact the Company's operations. The
Company is most directly affected by regulations pertaining to underground
storage tanks, hazardous waste handling, vehicle and equipment emissions and the
discharge of effluents from properties and equipment owned or operated by the
Company.

EMPLOYEES

  At June 30, 1998, the Company employed approximately 88,000 permanent full-
time and 50,000 permanent part-time employees, of which approximately 21% are
employed in Memphis.  Employees of the Company's international branches and
subsidiaries in the aggregate comprise approximately 12% of all employees.  The
Company believes its relationship with its employees is excellent.

  Negotiations between the FedEx Pilots Association ("FPA") and the Company led
to a tentative collective bargaining agreement in December 1997.  By a vote of
56% to 44%, the FPA rejected that

                                       7
<PAGE>
 
agreement on March 11, 1998. In the months following the rejection of the
tentative agreement, the FPA installed a new negotiating committee and the FPA
president resigned. Formal negotiations aimed at achieving a comprehensive
collective bargaining agreement resumed in late July 1998.

  Attempts by other labor organizations to organize certain other groups of
employees have been initiated.  Although the Company cannot predict the outcome
of these labor activities or their effect on the Company or its employees, if
any, the Company is responding to these organization attempts.

FINANCIAL INFORMATION ABOUT FOREIGN AND U.S. DOMESTIC OPERATIONS

  For information concerning financial results for the Company's U.S. domestic
and international operations for the three years ended May 31, 1998, 1997 and
1996, refer to Note 9 of Notes to Consolidated Financial Statements.


ITEM 2.  PROPERTIES

   The Company's principal owned or leased properties include its 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

   The Company's aircraft fleet at June 30, 1998 consisted of the following:


                                                            MAXIMUM GROSS
                                                          STRUCTURAL PAYLOAD
DESCRIPTION                          NUMBER             (POUNDS PER AIRCRAFT)*
-----------                          ------             ----------------------
McDonnell Douglas MD11                26**                     198,500
McDonnell Douglas DC10-30             22**                     172,000
McDonnell Douglas DC10-10             47**                     142,000
Airbus A300-600                       25**                     117,700
Airbus A310-200                       39**                      74,200
Boeing B727-200                       95**                      59,500
Boeing B727-100                       68**                      38,000
Fokker F27-500                        24                        14,000
Fokker F27-600                         8                        12,500
Cessna 208B                          251                         3,500
Cessna 208A                           10                         3,000
                                   -----
 Total                               615
_________________________
* Maximum gross structural payload includes revenue payload and container 
weight.
**25 MD11, 17 DC10-30, four DC10-10, 25 A300, 16 A310, 13 B727-200 and five
B727-100 aircraft are subject to operating leases.

   The A300s and A310s are two-engine, wide-bodied aircraft which have a longer
range and more capacity than B727s.  The MD11s are three-engine, wide-bodied
aircraft which have a longer range and larger capacity than DC10s.  The DC10s
are three-engine, wide-bodied aircraft which have been specially modified to
meet the Company's cargo requirements.  The B727s are three-engine aircraft
configured for

                                       8
<PAGE>
 
cargo service. The Company's Fokker F27 and Cessna 208 turbo-prop aircraft are
leased to unaffiliated operators to support Company 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, the Company "wet leases" approximately 21 smaller piston-engine
and turbo-prop aircraft which feed packages to and from airports served by the
Company's 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. The Company's wet lease
agreements are for terms not exceeding one year and are generally cancelable
upon 30 days notice.

   At June 30, 1998, the Company operated approximately 40,900 ground transport
vehicles, including pick-up and delivery vans, larger trucks called container
transport vehicles and over-the-road tractors and trailers.

AIRCRAFT PURCHASE COMMITMENTS

   At June 30, 1998, the Company was committed under various contracts to
purchase 11 Airbus A300, 34 MD11 and 50 Ayers ALM 200 aircraft to be delivered
through 2007.

   During 1997, the Company entered into agreements with two airlines to acquire
53 DC10s, spare parts, aircraft engines and other equipment, and maintenance
services in exchange for a combination of aircraft engine noise reduction kits
and cash.  Delivery of these aircraft began in 1997 and will continue through
2001.  Additionally, these airlines may exercise put options through December
31, 2003, requiring the Company to purchase up to 29 additional DC10s along with
additional aircraft engines and equipment.

SORTING AND HANDLING FACILITIES

   At July 1, 1998, the Company operated the following sorting and handling
facilities:

<TABLE>
<CAPTION>
                                                         SORTING                                     LEASE
                                          SQUARE        CAPACITY                                  EXPIRATION
        LOCATION             ACRES         FEET        (PER HOUR)*            LESSOR                 YEAR
        --------             -----         ----        -----------            ------               ---------  
NATIONAL
<S>                          <C>          <C>            <C>                <C>                     <C>
Memphis, Tennessee            479         3,074,440      465,000            Memphis-Shelby           2012
                                                                            County Airport
                                                                              Authority

Indianapolis, Indiana         120           645,000      153,000          Indianapolis Airport       2016
                                                                               Authority
 
REGIONAL
 
Fort Worth, Texas             168           641,000       74,000           Fort Worth Alliance       2014
                                                                            Airport Authority
 
Newark, New Jersey             56           503,800      142,000           Port Authority of New     2010
                                                                            York and New Jersey
</TABLE> 

                                       9
<PAGE>
 
<TABLE>
<CAPTION>
                                                         SORTING                                     LEASE
                                          SQUARE        CAPACITY                                  EXPIRATION
        LOCATION             ACRES         FEET        (PER HOUR)*            LESSOR                 YEAR
        --------             -----         ----        -----------            ------               ---------  
REGIONAL
<S>                          <C>          <C>            <C>                <C>                     <C> 
Oakland, California            21           191,000       50,000              City of Oakland        2011

METROPOLITAN

Los Angeles, California        25           130,000       53,000            City of Los Angeles      2009

Chicago, Illinois              55           419,000       15,000              City of Chicago        2018

Anchorage, Alaska+             42           208,000        4,200          Alaska Department of       2013
                                                                           Transportation and
                                                                            Public Facilities
INTERNATIONAL
Subic Bay,                     18           300,000       16,000               Subic Bay             2002
The Philippines++                                                         Metropolitan Authority
</TABLE> 
________________________
*    Documents and packages
+    Handles international express package and freight shipments to and from 
     Asia, Europe and North   America.
++   Handles intra-Asia express package and freight shipments.

   The Company's facilities at the Memphis International Airport also consist of
aircraft hangars, flight training and fuel facilities, administrative offices
and warehouse space.  The Company leases these facilities from the Memphis-
Shelby County Airport Authority under several leases.  The leases cover land,
the administrative and sorting buildings, other facilities, ramps and certain
related equipment.  The Company has 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 the Company to
maintain and insure the leased property and to pay all related taxes,
assessments and other charges.  The leases are subordinate to, and the Company's
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, the Company has major
international sorting and freight handling facilities located at Narita Airport
in Tokyo, Japan, Charles de Gaulle Airport in Paris, France, Stansted Airport
outside London, England and Pearson Airport in Toronto, Canada.   During 1997,
construction began on the Company's new European sorting hub at Charles de
Gaulle Airport which is expected to open in 2000.  The Fort Worth hub became
operational in September 1997.  Also, new, larger facilities were opened in 1998
at the new Chek Lap Kok airport in Hong Kong, CKS International Airport in
Taiwan and Dubai Airport, United Arab Emirates.

                                       10
<PAGE>
 
ADMINISTRATIVE AND OTHER PROPERTIES AND FACILITIES

   The Company has facilities housing administrative and technical operations on
approximately 200 acres adjacent to the Memphis International Airport.  Of the
seven buildings located on this site, four are subject to long-term leases, and
the other three are owned by the Company.  The Company also leases approximately
90 facilities in the Memphis area for its corporate headquarters, warehouse
facilities and administrative offices.  During fiscal year 1997, the Company
began construction on an office campus in Collierville, Tennessee for its
information and telecommunications division, and announced plans to build a
headquarters office campus in East Shelby County, Tennessee.  See also Item 1,
"Business - Recent Developments."

   The Company owns 13 and leases 707 facilities for city station operations in
the United States.  In addition, 159 city stations are owned or leased
throughout the Company's international network.  The majority of these leases
are for terms of five to ten years. The Company believes that suitable
alternative facilities are available in each locale on satisfactory terms, if
necessary. As of July 1, 1998, the Company leased space for 391 FedEx World
Service Centers in the United States and had placed approximately 31,000 Drop
Boxes. The Company also owns stand-alone mini-centers located on leaseholds in
parking lots adjacent to office buildings, shopping centers and office parks of
which 189 were operating at July 1, 1998. Internationally, the Company leases
space for 46 FedEx World Service Centers and has approximately 964 FedEx Drop
Boxes.

   The Company leases central processing units and most of the disk drives,
printers and terminals used for data processing.  Owned equipment consists
primarily of Digitally Assisted Dispatch Systems ("DADS") terminals used in
communications between dispatchers and couriers, computerized routing, tracing
and billing equipment used by customers and mobile radios used in the Company's
vehicles.  The Company also leases space on C-Band and Ku-Band satellite
transponders for use in its telecommunications network.


ITEM 3.  LEGAL PROCEEDINGS

   Customers of the Company have filed four separate class-action lawsuits
against the Company generally alleging that the Company has breached its
contract with the plaintiffs in transporting packages shipped by them.  These
lawsuits allege that the Company continued to collect a 6.25% federal excise tax
on the transportation of property shipped by air after the tax expired on
December 31, 1995, until it was reinstated in August 1996.  The plaintiffs
seek certification as a class action, damages, an injunction to enjoin the
Company from continuing to collect the excise tax referred to above, and an
award of attorneys' fees and costs.  Three of those cases were consolidated in
Minnesota Federal District Court.  That court stayed the consolidated cases in
favor of a case filed in Circuit Court of Greene County, Alabama.  The stay was
lifted in July 1998.  The complaint in the Alabama case also alleges that the
Company continued to collect the excise tax on the transportation of property
shipped by air after the tax expired again on December 31, 1996.

   A fifth case, filed in the Supreme Court of New York, New York County,
containing allegations and requests for relief substantially similar to the
other four cases was dismissed with prejudice on the Company's motion on October
7, 1997.  The Court found that there was no breach of contract and that the
other causes of action were preempted by federal law.  The plaintiffs have
appealed.  This case originally alleged that the Company continued to collect
the excise tax on the transportation of property shipped by air after the tax
expired on December 31, 1996.  The New York complaint was later amended to cover
the

                                       11
<PAGE>
 
first expiration period of the tax (December 31, 1995 through August 27, 1996)
covered in the original Alabama complaint.

   The air transportation excise tax expired on December 31, 1995, was reenacted
by Congress effective August 27, 1996, and expired again on December 31, 1996.
The excise tax was then reenacted by Congress effective March 7, 1997.  The
expiration of the tax relieved the Company of its obligation to pay the tax
during the periods of expiration.  The Taxpayer Relief Act of 1997, signed by
President Clinton in August 1997, extended the tax for 10 years through
September 30, 2007.

   The Company intends to vigorously defend itself in these cases.  No amount
has been reserved for these contingencies.

   In November 1987, The Flying Tiger Line Inc. ("Flying Tigers"), a company
acquired by the Company in 1989, received a notice from the United States
Environmental Protection Agency ("EPA") identifying Flying Tigers as a
potentially responsible party ("PRP") in connection with a "Superfund" site
located in Monterey Park, California.  The site is a 190-acre landfill which
operated from 1948 through 1984.  In June 1985, the EPA began a remedial
investigation of the site to identify the extent of contamination.  The EPA
estimates that approximately 0.1% of the waste disposed at the site is
attributable to Flying Tigers.  Flying Tigers participated in a partial
settlement relating to remedial actions for management of contamination and site
control.  Partial consent decrees were entered in the United States District
Court for the Central District of California in 1989 and 1992 which provided, in
part, for payments of $109,000 and $230,000, respectively, by Flying Tigers and
the Company to the partial-settlement escrow account.  All outstanding issues
are not expected to be resolved for several years.  Due to several variables
which are beyond the Company's control, it is impossible to accurately estimate
the Company's potential share of the remaining costs, but based on Flying
Tigers' relatively insignificant contribution of waste to the site, the Company
believes that its remaining liability will not be material.

   The Company and its subsidiaries are subject to other legal proceedings and
claims which arise in the ordinary course of their business.  In the opinion of
management, the aggregate liability, if any, with respect to these other actions
will not materially adversely affect the Company's financial position or results
of operations.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

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

                                    PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
         STOCKHOLDER MATTERS

   The Company is a wholly-owned subsidiary of FDX and there is no market for
the Company's common stock.

ITEM 6.  SELECTED FINANCIAL DATA

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

                                       12
<PAGE>
 
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
         OF OPERATIONS AND FINANCIAL CONDITION

Introduction and Recent Developments

   The Company was incorporated in Delaware on June 24, 1971 and began
operations in 1973.  On January 27, 1998, the Company and Caliber System, Inc.
("Caliber") became wholly-owned subsidiaries of FDX Corporation ("FDX").  In
this transaction, which was accounted for as a pooling of interests, Caliber
shareholders received 0.8 shares of FDX common stock for each share of Caliber
common stock.  Each share of the Company's common stock was automatically
converted into one share of FDX common stock.  The accompanying financial
statements have been restated as if the Company had always been owned by FDX.

FEDEX SERVICES

   The Company offers a wide range of express services, providing rapid,
reliable, time-definite delivery of documents, packages and freight to more than
210 countries. The Company connects areas of the world that generate 90 percent
of the world's gross domestic product through door-to-door, customs-cleared
service, with a money-back guarantee. The Company's extensive air route
authorities and transportation infrastructure, combined with its use of leading-
edge information technologies, make the Company the world's largest express-
distribution company, providing fast, reliable service for nearly three million
shipments each business day.
 
RESULTS OF OPERATIONS

   The Company's net income for 1998 was $421 million compared with $361 million
and $308 million for 1997 and 1996, respectively.  Year-over-year improvements
in the Company's consolidated results for the past three years reflect double-
digit growth of its express delivery package volume and slight improvements in
U.S. domestic revenue per package (yield).  In 1998, U.S. domestic margins
improved as yields increased at a higher rate than cost per package.  However,
international margins declined in the face of diminished airfreight revenues,
foreign currency fluctuations and rising expenses.

  NON-RECURRING ITEMS

   Results of operations included various non-recurring items which affected
reported earnings for 1998 and 1997 as discussed below.

   Current year results included $14 million of expenses related to the
acquisition of Caliber.  These expenses were primarily investment banking fees.

   A significant non-recurring item impacting 1998's results of operations was
the Teamsters strike against UPS in August 1997.  During the 12 operating days
of the strike, the Company delivered approximately 800,000 additional U.S.
domestic express packages per day.  While it is difficult to estimate with
precision the impact of this additional volume, the Company has retained a
portion of this volume.  The Company analytically calculated that the volume not
retained at the end of the first quarter contributed approximately $150 million
in U.S. domestic revenues to that quarter.

   The Company recorded two aircraft-related items in the current year.  The
Company realized a net gain of $17 million from the insurance settlement and the
release from certain related liabilities on a leased MD11 aircraft destroyed in
an accident in July 1997.  This gain was recorded in operating and

                                       13
<PAGE>
 
non-operating income in substantially equal amounts. An unrelated expense, which
partially offset this gain, was an addition of $9 million to an operating
reserve for the disposition of leased B747 aircraft. In recording the additional
reserve, maintenance and repairs and rentals and landing fees expenses were
increased. These aircraft, which were subleased, underwent certain maintenance
and repairs before being transferred to a new lessee. The net effect of the MD11
gain and the B747 reserve on the Company's domestic and international operating
income was immaterial.

   The Company's 1997 results included a $15 million pre-tax benefit to
operating income from the settlement of a Tennessee personal property tax matter
and a $17 million gain in non-operating income from an insurance settlement for
a DC10 destroyed by fire in September 1996.
 
   REVENUES

   The following table shows a comparison of revenues for the years ended 
May 31:

<TABLE>
<CAPTION>
In millions                                                                                      Percent Change
                                     1998              1997               1996            1998/1997          1997/1996
                                     ----              ----               ----            ---------          --------- 
<S>                                <C>                <C>                <C>                <C>                <C>
U.S. domestic express              $ 9,326            $ 8,073            $ 7,284                +16                +11
International Priority (IP)          2,731              2,351              1,997                +16                +18
International Express
Freight (IXF) and
Airport-to-Airport (ATA)               598                605                554                - 1                + 9
FedEx Air Charter                       88                 72                 92                +21                -22
Logistics services                      99                 99                 94                  -                + 5
Other*                                 413                320                253                +29                +27
                                   =======            =======            =======
                                   $13,255            $11,520            $10,274                +15                +12
</TABLE>
______________________
* Includes the sale of engine noise reduction kits.

   The following table shows a comparison of selected shipment statistics for
the years ended May 31:

<TABLE>
<CAPTION>
In thousands, except dollar amounts                                                            Percent Change
                                       1998             1997             1996           1998/1997          1997/1996
                                       ----             ----             ----           ---------          --------- 
<S>                                  <C>               <C>             <C>              <C>                <C>
U.S. domestic express:           
   Average daily packages              2,767            2,490            2,246              +11              +11
   Revenue per package                $13.27           $12.77           $12.67              + 4              + 1
                                 
IP:                              
   Average daily packages                259              226              192              +15              +18
   Revenue per package                $41.45           $40.91           $40.58              + 1              + 1
                                 
IXF/ATA:                         
   Average daily pounds                2,770            2,542            2,144              + 9              +19
   Revenue per pound                  $  .85           $  .94           $ 1.01              -10              - 7
</TABLE>
                                        
   In 1998, the Company's U.S. domestic package volumes increased on a year-
over-year basis primarily due to rapid growth of its deferred services,
including the Company's FedEx Express Saver.  This growth was augmented by
incremental UPS strike-related volume, the majority of which was in the deferred

                                       14
<PAGE>
 
service category.  Excluding the effects of a temporary 2% fuel surcharge and
expiration of the air cargo transportation tax on 1997 yields, the Company's
U.S. domestic yields rose 5% in 1998 as a result of continuing yield-management
actions.  These actions included pursuing price increases on low-yielding
accounts, discontinuing unprofitable accounts, increasing average weight per
package and implementing a 3% to 4% price increase targeted to list price and
standard discount matrix customers for U.S. domestic shipments effective
February 15, 1998.

   The expiration of the air cargo transportation excise tax added approximately
$50 million to U.S. domestic revenues and 1% to U.S. domestic yields in both
1997 and 1996. The tax expired on December 31, 1995, was reenacted by Congress
effective August 27, 1996, and expired again on December 31, 1996. The Company
was not obligated to pay the tax during the periods in which it was expired. The
excise tax was reenacted by Congress effective March 7, 1997, and, in August
1997, it was extended for 10 years through September 30, 2007.

   The Company's IP service continued to experience double-digit growth in
average daily volumes and revenues, with yields remaining relatively constant.
Current year volume growth slowed to 15% year-over-year, primarily due to
weakness in Asian markets.

   In 1998 and 1997, the Company's international non-express airfreight revenues
were a significant factor in determining international profitability. The
Company uses ATA airfreight service (a lower-priced, space-available service) to
fill space on international flights not used by express services such as IP or
IXF. In 1998, weakness in Asian economies and continued downward pressure on
yields resulted in lower non-express airfreight prices and revenues than in
1997. In 1997, airfreight revenues increased year-over-year due to the Company's
expansion in international markets, despite excess market capacity and downward
pressure on yields.

   The increases in the Company's other revenue in 1998 and 1997 were primarily
attributable to increased sales of engine noise reduction kits.

   OPERATING EXPENSES

   Volume growth and expansion of the Company's operations resulted in a trend
of rising operating expenses.  Presented below are year-over-year percentage
changes in selected operating expenses:

                                                      Percent Change
                                           1998/1997                  1997/1996
                                           ---------                  ---------
Salaries and employee benefits                +14                        +10
Rentals and landing fees                      +14                        +12
Depreciation and amortization                 + 9                        + 8
Maintenance and repairs                       +17                        +15
Fuel                                          + 3                        +19
Other                                         +20                        +15
                                             
     Total Operating Expenses                 +15                        +12

                                        
   Salaries and employee benefits expense rose primarily due to higher
employment levels associated with volume growth.  Increased provisions under the
Company's performance-based incentive compensation plans in 1998 and 1997 and a
$25 million special appreciation bonus in 1998 for U.S.

                                       15
<PAGE>
 
operations employees for their extra efforts during the UPS strike also
contributed to the increases in salaries and employee benefits expense.

   Rentals and landing fees increased primarily due to additional aircraft
leased by the Company.  As of May 31, 1998, the Company had 86 wide-bodied
aircraft under operating lease compared with 78 as of May 31, 1997, and 74 as of
May 31, 1996.  Management expects year-over-year increases in lease expense to
continue as the Company enters into additional aircraft rental agreements during
1999 and thereafter.

   In the past three years, the Company's aircraft fleet has increased resulting
in a corresponding rise in maintenance expense. The rise in maintenance and
repairs expense for 1998 was primarily due to higher engine maintenance expense
on B727, DC10 and A310 aircraft. As discussed above, most of the 1998 increase
in an operating reserve for the disposition of B747 aircraft was recorded as
maintenance and repairs expense. In 1997, the Company experienced higher engine
maintenance expense on MD11 and A310 aircraft.

   The Company expects a predictable pattern of aircraft maintenance and repairs
expense.  However, unanticipated maintenance events will occasionally disrupt
this pattern, resulting in periodic fluctuations in maintenance and repairs
expense.  Given the Company's increasing fleet size, aging fleet and variety of
aircraft types, management believes that maintenance and repairs expense will
continue a trend of year-over-year increases for the foreseeable future.

   Fuel expense rose only slightly in 1998 as average jet fuel price per gallon
fell 10% and gallons consumed increased 13%.   Fuel expense increased in 1997
due to a 12% and 8% rise in average jet fuel price per gallon and gallons
consumed, respectively.  In 1997, the increase in average price per gallon of
jet fuel was due to higher jet fuel prices and a 4.3 cents per gallon excise tax
on aviation fuel, used domestically, which became effective October 1, 1995.
For the past three years, fuel expense included amounts received and paid by the
Company under contracts which are designed to limit the Company's exposure to
fluctuations in jet fuel prices.

   In order to mitigate the impact of the increase in jet fuel prices
experienced in 1997, the Company implemented fuel surcharges on airfreight
shipments, effective December 1, 1996, for shipments out of Europe and selected
Asian countries.  Additionally, the Company implemented fuel surcharges,
effective December 15, 1996, for airfreight shipments originating in the United
States, Latin America and the remaining parts of Asia, except those to the
People's Republic of China and Hong Kong.  These surcharges were discontinued
effective April 15 or June 1, 1997, depending on the origin country.  The
Company also implemented a temporary 2% fuel surcharge, effective February 3,
1997, on U.S. domestic shipments except FedEx Same Day service and including
Puerto Rico. This surcharge also applied to all U.S. export IP shipments, except
those to the People's Republic of China and Hong Kong. This surcharge was lifted
on August 1, 1997.

   Increases in other operating expenses for 1998 and 1997 were primarily due to
expenses related to volume growth and, in 1998, expenses necessitated by
additional volume during the UPS strike, including transportation of packages by
third parties, temporary manpower and uniforms and supplies.  The cost of sales
of engine noise reduction kits also increased in 1998 and 1997.

   The Company's work on the Year 2000 ("Y2K") computer compliance issue began
in 1996. The Company's Y2K compliance program consists of five parts: inventory,
assessment, renovation, testing and implementation. The Company has conducted an
inventory and assessment of remediation required for business-critical
information technology applications.  Project plans have been created, and
progress is being monitored on an ongoing basis.  Upon completion, validation of
these efforts will be performed by

                                       16
<PAGE>
 
an internal, independent process. The Company's goal is to have the majority of
these business-critical information technology applications Y2K compliant by
December 31, 1998. The Company is also in the process of completing Company-wide
inventory, assessment and remediation project plans for business-critical
personal computers and software, user applications and embedded-chip systems.
The Company's goal is to have the majority of these business-critical components
Y2K compliant by May 31, 1999.

   The Company is investigating the Y2K compliance status of its vendors,
suppliers and affiliates via the Company's own internal vendor compliance
effort. The Company will carry out this task through a Company-wide effort,
assisted by consultants, to address internal issues, and jointly with industry
trade groups, to address issues related to third parties which are common to air
carriers.

   The Company has incurred approximately $50 million to date, including
consulting fees, internal staff costs and other expenses.  The Company expects
to incur additional expenses of approximately $100 million in the next two years
to be Y2K compliant.

   While the Company believes it is taking all appropriate steps to achieve Y2K
compliance, its Y2K issues and any potential future business interruptions,
costs, damages or losses related thereto, are dependent, to a significant
degree, upon the Y2K compliance of third parties, both domestic and
international, such as government agencies, customers, vendors and suppliers.
The Y2K problem is pervasive and complex, as virtually every computer operation
will be affected in some way.  Consequently, no assurance can be given that Y2K
compliance can be achieved without significant additional costs.

   OPERATING INCOME

   The Company's consolidated operating income increased 20% and 12% in 1998 and
1997, respectively.

   U.S. domestic operating income rose 35% and 3% in 1998 and 1997,
respectively.  In 1998, operating income improved primarily due to increases in
revenue per package (3.9%) exceeding increases in cost per package (2.9%) and
due to a rise in average daily volume (11%).  Also, as noted above, 1998 U.S.
domestic operating results were significantly impacted by the UPS strike.  Sales
of engine noise reduction kits contributed $127 million, $87 million and $63
million to U.S. domestic operating income in 1998, 1997 and 1996, respectively.
In 1997, domestic income included a $15 million pre-tax benefit from the
settlement of a Tennessee personal property tax matter.  Increases in cost per
package (1.4%) exceeded increases in revenue per package (0.8%), while average
daily volume rose 11%.  U.S. domestic operating margins were 7.8%, 6.7% and 7.3%
in 1998, 1997 and 1996, respectively.

   International operating income declined $57 million in 1998, compared with a
$59 million increase in 1997. International operating results declined in 1998
as a result of slower growth of IP and IXF volumes during a period of
international network expansion. Lower airfreight yields, higher salaries and
employee benefits and aircraft lease expense, additional start-up costs for
several new international flights and the net effect of foreign currency
fluctuations negatively impacted international results. The increase in
operating income in 1997 was attributable to strong growth in the Company's IP
volumes and airfreight pounds, partially offset by lower airfreight yields.
International operating margins were 2.3%, 4.4% and 2.9% in 1998, 1997, and
1996, respectively.

                                       17
<PAGE>
 
   OTHER INCOME AND EXPENSE AND INCOME TAXES

   Net interest expense increased 21% for 1998, primarily due to lower levels of
capitalized interest at the Company.  Interest is capitalized during the
modification of certain MD11 and DC10 aircraft from passenger to freighter
configuration, among other projects.  For 1997, net interest expense decreased
5% primarily due to lower effective interest rates.   The level of capitalized
interest in 1997 was comparable to that of 1996.

   Other, net for 1998 included a gain from an insurance settlement for an MD11
aircraft destroyed in an accident in July 1997.  Other, net for 1997 included a
$17 million gain from an insurance settlement for a  DC10 aircraft destroyed by
fire in September 1996.

   The Company's effective tax rate was 42.8% in 1998, 42.5% in 1997 and 43.0%
in 1996. Excluding non-recurring items from the Caliber acquisition in 1998, the
effective rate would have been 42.0% in 1998, 42.5% in 1997 and 43.0% in 1996.
In each year, the effective tax rate (exclusive of non-recurring items) was
greater than the statutory U.S. federal tax rate primarily because of state
income taxes and other factors as identified in Note 6 of Notes to Consolidated
Financial Statements. For 1999, management expects the effective tax rate to
remain at a level similar to the 1998 rate (exclusive of non-recurring items).
The actual rate, however, is dependent on a number of factors, including the
amount and source of operating income.

   OUTLOOK

   Management is committed to achieving long-term earnings growth by providing,
on a global basis, a wide range of highly reliable express services for the
time-definite transportation of documents, packages and freight using an
extensive fleet of aircraft and vehicles and leading-edge information
technologies.  This frequently involves a significant front-end investment in
assets, technology and personnel that may reduce near-term profitability.

   As discussed in Revenues above, a key reason for the increase in the
Company's U.S. domestic yield was the continued yield-management actions of
implementing price increases on low-yielding accounts, discontinuing
unprofitable accounts, increasing average weight per package and implementing a
3% to 4% rate increase in February 1998.  Management believes yields will
continue to benefit from these actions in 1999, while package volumes will grow
at a lower rate in 1999 than in the past several years.  The Company will
continue to manage yields with the goal of ensuring an appropriate balance
between revenues generated and the cost of providing express services.  Actual
results, however, may vary depending primarily on the impact of competitive
pricing changes, customer responses to yield management initiatives, changing
customer demand patterns and domestic economic conditions.

   The Company's operating income from the sales of engine noise reduction kits
peaked in 1998 and is expected to decline $45 million year-over-year in 1999 and
to become insignificant by 2001.  Actual results may differ depending primarily
on the impact of actions by the Company's competitors and regulatory conditions.

   While the Company's long-term strategy for international operations is to
improve global connectivity for its customers by strategically expanding its
worldwide network, international economic developments, including the current
Asian economic difficulties, may limit short-term growth of the Company's
international services and profits.  Management expects, however, strategic
expansion to allow for continued, long-term growth of these services.

                                       18
<PAGE>
 
   Management expects IP average daily volume to continue its strong growth in
1999, and IP yields to remain relatively constant.  With respect to airfreight,
management believes volumes and yields will decline year-over-year in 1999.
Actual results for IP or airfreight, however, will depend on international
economic conditions, actions by the Company's competitors and regulatory
conditions for international aviation rights.

   The Company will continue to invest in technologies that improve the
efficiency of package pick-up, sorting, tracking and delivery and that improve
customer access and connectivity.  The Company will also continue projects
designed to enhance productivity and strengthen the Company's infrastructure.
Assuming effective implementation, these investments are expected to reduce
transportation cost per package.

   Effective June 1, 1998, the Company adopted a new accounting standard which
provides guidance on accounting for the costs of software developed or obtained
for internal use.  This standard requires that certain of these costs be
capitalized, and the Company estimates the pre-tax benefit of the adoption to be
approximately $30 million for 1999.

FINANCIAL CONDITION

   LIQUIDITY

   Cash and cash equivalents totaled $105 million at May 31, 1998, a decrease of
$17 million during 1998 compared with an increase of $29 million in 1997 and a
decrease of $264 million in 1996.  Cash provided from operations during 1998 was
$1.4 billion compared with $1.0 billion and $947 million in 1997 and 1996,
respectively. Management believes that cash flow from operations, FDX's
commercial paper program and the revolving bank credit facility of FDX will
adequately meet the Company's working capital needs for the foreseeable future.

   CAPITAL RESOURCES

   The Company's operations are capital intensive, characterized by significant
investments in aircraft, vehicles, computer and telecommunication equipment,
package handling facilities and sort equipment.  The amount and timing of
capital additions are dependent on various factors including volume growth,
domestic and international operating conditions, new or enhanced services,
geographical expansion of services, competition and availability of satisfactory
financing.

   Capital expenditures for 1998 totaled $1.8 billion and included three MD11
aircraft (which were subsequently sold and leased back), four Airbus A310
aircraft, aircraft modifications, customer automation and computer equipment,
facilities and vehicles and ground support equipment.  In comparison, prior year
expenditures totaled $1.5 billion and included ten Airbus A310 aircraft, two
MD11 aircraft (which were subsequently sold and leased back, one in 1997 and one
in 1998), customer automation and computer equipment and vehicles and ground
support equipment.  For information on the Company's purchase commitments, see
Note 11 of Notes to Consolidated Financial Statements.

   The Company has historically financed its capital investments through the use
of lease, debt and equity financing in addition to the use of internally
generated cash from operations.  Generally, management's practice in recent
years with respect to funding new wide-bodied aircraft acquisitions has been to
finance such aircraft through long-term lease transactions that qualify as off-
balance sheet operating leases under applicable accounting rules.  Management
has determined that these operating leases have provided economic benefits
favorable to ownership with respect to market values, liquidity and after-tax
cash flows.  In the future, other forms of secured financing may be pursued to
finance the

                                       19
<PAGE>
 
Company's aircraft acquisitions when management determines that it best meets
the Company's needs. The Company has been successful in obtaining investment
capital, both domestic and international, for long-term leases on terms
acceptable to it although the marketplace for such capital can become restricted
depending on a variety of economic factors beyond the control of the Company.
See Note 4 of Notes to Consolidated Financial Statements for additional
information concerning the Company's debt facilities.

   In July 1997, $20 million of Memphis-Shelby County Airport Authority
("MSCAA") Special Facilities Revenue Bonds were issued. The proceeds of the
bonds in combination with other funds were used to refund outstanding MSCAA
1982B bonds on September 2, 1997. Also in July 1997, the Company issued $250
million of unsecured senior notes with a maturity date of July 1, 2097, under
the Company's July 1996 shelf registration statement filed with the Securities
and Exchange Commission.

   In June 1998, approximately $833 million of pass through certificates were
issued under shelf registration statements filed with the Securities and
Exchange Commission to finance or refinance the debt portion of leveraged leases
related to eight Airbus A300 and five MD11 aircraft to be delivered through the
summer of 1999.  The pass through certificates are not direct obligations of, or
guaranteed by, the Company, but amounts payable by the Company under the
leveraged leases are sufficient to pay the principal of and interest on the
certificates.

   Management believes that the capital resources available to the Company
provide flexibility to access the most efficient markets for financing its
capital acquisitions, including aircraft, and are adequate for the Company's
future capital needs.

   DEFERRED TAX ASSETS

   At May 31, 1998, the Company had a net cumulative deferred tax liability of
$35 million consisting of $545 million of deferred tax assets and $580 million
of deferred tax liabilities.  The reversals of deferred tax assets in future
periods will offset similar amounts of deferred tax liabilities.

   Statements in this "Management's Discussion and Analysis of Results of
Operations and Financial Condition" or made by management of the Company which
contain more than historical information may be considered forward-looking
statements (as such term is defined in the Private Securities Litigation Reform
Act of 1995) which are subject to risks and uncertainties.  Actual results may
differ materially from those expressed in the forward-looking statements because
of important factors identified in this section.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

   The Company currently has market risk sensitive instruments related to
interest rates.  As disclosed in Note 4 of Notes to Consolidated Financial
Statements, the Company has outstanding unsecured debt of $1.4 billion at May
31, 1998, of which $1.2 billion is long-term.  The Company does not have
significant exposure to changing interest rates on its long-term debt because
the interest rates are fixed.  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 $45 million as of
May 31, 1998.  The underlying fair values of the Company's long-term debt were
estimated based on quoted market prices or on the current rates offered for debt
with similar terms and maturities.  The Company does not use derivative
financial instruments to manage interest rate risk.

                                       20
<PAGE>
 
   The Company's earnings are affected by fluctuations in the value of the U.S.
dollar, as compared to foreign currencies, as a result of transactions in
foreign markets.  At May 31, 1998, the result of a uniform 10% strengthening in
the value of the dollar relative to the currencies in which the Company's
transactions are denominated would result in a decrease in operating income of
approximately $15 million for the year ending May 31, 1999.  This calculation
assumes that each exchange rate would change in the same direction relative to
the U.S. dollar.  In addition to the direct effects of changes in exchange
rates, which are a changed dollar value of the resulting sales, 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 Company's
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.

   In the past three years, the Company has entered into contracts which are
designed to limit its exposure to fluctuations in jet fuel prices.  The Company
hedges it exposure to jet fuel price market risk only on a conservative, limited
basis.  No such contracts were outstanding as of May 31, 1998.  See Note 11 of
Notes to Consolidated Financial Statements for accounting policy and additional
information regarding jet fuel contracts.

   The Company does not purchase or hold any derivative financial instruments
for trading purposes.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                                                Page
                                                ---- 
Consolidated Statements of Income
   Years Ended May 31, 1998, 1997 and 1996...     22
 
Consolidated Balance Sheets
   May 31, 1998 and 1997.....................     23
 
Consolidated Statements of Cash Flows
   Years Ended May 31, 1998, 1997 and 1996...     25
 
Consolidated Statements of Changes
   in Owner's Equity
   Years Ended May 31, 1998, 1997 and 1996...     26

Notes to Consolidated Financial Statements...     27

Report of Independent Public Accountants.....     39

                                       21
<PAGE>
 
                  FEDERAL EXPRESS CORPORATION AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                           Years ended May 31,
                                                 -------------------------------------
                                                  1998            1997           1996
                                                 ------          ------         ------
                                                            (In thousands)
<S>                                             <C>           <C>            <C>
 
  REVENUES..........................           $13,254,841    $11,519,750    $10,273,619
                                               -----------    -----------    -----------
  OPERATING EXPENSES:
   Salaries and employee benefits...             5,832,363      5,095,462      4,619,990
   Rentals and landing fees.........             1,221,377      1,070,658        959,055
   Depreciation and amortization....               844,606        777,374        719,609
   Maintenance and repairs..........               808,049        691,001        602,631
   Fuel.............................               709,424        690,412        578,614
   Merger expenses..................                14,000              -              -
   Other............................             2,988,289      2,495,801      2,169,896
                                               -----------    -----------    -----------
                                                12,418,108     10,820,708      9,649,795
                                               -----------    -----------    -----------     
  OPERATING INCOME..................               836,733        699,042        623,824
                                               -----------    -----------    -----------
  OTHER INCOME (EXPENSE):
   Interest, net....................              (110,110)       (90,634)       (95,599)
   Other, net.......................                 8,590         19,813         11,734
                                               -----------    -----------    -----------
                                                  (101,520)       (70,821)       (83,865)
                                               -----------    -----------    ----------- 
  INCOME BEFORE INCOME TAXES........               735,213        628,221        539,959
                                               -----------    -----------    -----------
  PROVISION FOR INCOME TAXES........               314,670        266,994        232,182
                                               -----------    -----------    ----------- 
  NET INCOME........................           $   420,543    $   361,227    $   307,777
                                               ===========    ===========    ===========
</TABLE>

  The accompanying Notes to Consolidated Financial Statements are an integral
  part of these statements.


                                       22
<PAGE>
 
 
                  FEDERAL EXPRESS CORPORATION AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
 
ASSETS
                                                                May 31,
                                                       ----------------------   
                                                        1998            1997
                                                       ------          ------
                                                            (In thousands)
<S>                                                   <C>             <C> 
CURRENT ASSETS:
 
  Cash and cash equivalents........................  $   104,606    $  122,023
  Receivables, less allowances of $43,245,000                      
   and $36,175,000.................................    1,669,568     1,512,939
  Spare parts, supplies and fuel...................      338,745       313,337
  Deferred income taxes............................      183,063       149,158
  Prepaid expenses and other.......................       80,696        35,132
                                                     -----------    ---------- 
     Total current assets..........................    2,376,678     2,132,589
                                                     -----------    ---------- 
PROPERTY AND EQUIPMENT, AT COST:

  Flight equipment.................................    4,056,541     3,741,407
  Package handling and ground support equipment....    2,842,874     2,403,806
  Computer and electronic equipment................    1,909,648     1,714,662
  Other............................................    2,254,830     1,959,061
                                                     -----------    ---------- 
                                                      11,063,893     9,818,936
  Less accumulated depreciation and amortization...    5,863,325     5,196,856
                                                     -----------    ---------- 
     Net property and equipment....................    5,200,568     4,622,080
                                                     -----------    ---------- 
Other Assets:                                       
  Goodwill.........................................      351,507       365,327
  Equipment deposits and other assets..............      504,353       505,490
                                                     -----------    ---------- 
     Total other assets............................      855,860       870,817
                                                     -----------    ---------- 
                                                     $ 8,433,106    $7,625,486
                                                     ===========    ========== 
</TABLE>

The accompanying Notes to Consolidated Financial Statements are an integral part
of these balance sheets.

                                       23
<PAGE>
 
 
                  FEDERAL EXPRESS CORPORATION AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS

<TABLE> 
<CAPTION> 
LIABILITIES AND OWNER'S EQUITY
                                                               May 31,
                                                        -------------------
                                                         1998         1997
                                                        ------       ------
                                                           (In thousands)
<S>                                                   <C>          <C> 
   CURRENT LIABILITIES:                              
   Current portion of long-term debt................. $  257,529   $  126,666
   Accounts payable..................................    965,167      828,421
   Accrued expenses..................................  1,178,603    1,007,696
                                                      ----------   ----------
     Total current liabilities.......................  2,401,299    1,962,783
                                                      ----------   ----------
   LONG-TERM DEBT, LESS CURRENT PORTION..............  1,185,180    1,397,954
                                                      ----------   ----------
   DEFERRED INCOME TAXES.............................    218,328      159,165
                                                      ----------   ----------
   OTHER LIABILITIES.................................  1,226,570    1,143,070
                                                      ----------   ----------
   COMMITMENTS AND CONTINGENCIES (NOTES 5, 11 AND 12)
                                                     
   OWNER'S EQUITY:                                   
   Common Stock, $.10 par value; 1,000 shares        
     authorized, issued and outstanding..............          -            -
   Additional paid-in capital........................    893,469      844,499
   Retained earnings.................................  2,508,260    2,118,015
                                                      ----------   ----------
     Total owner's equity............................  3,401,729    2,962,514
                                                      ----------   ---------- 
                                                      $8,433,106   $7,625,486
                                                      ==========   ========== 
</TABLE> 

   The accompanying Notes to Consolidated Financial Statements are an integral
   part of these balance sheets.

                                       24
<PAGE>
 
 
                  FEDERAL EXPRESS CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                  Years ended May 31
                                                        --------------------------------------
                                                          1998           1997           1996
                                                        --------       --------       --------
                                                                    (In thousands)
<S>                                                   <C>            <C>            <C>
OPERATING ACTIVITIES
Net income.........................................   $   420,543    $   361,227    $   307,777
Adjustments to reconcile net income to cash
 provided by operating activities:
   Depreciation and amortization...................       844,606        777,374        719,609
   Provision for uncollectible accounts............        59,616         40,634         38,963
   Provision for deferred income taxes and other...         6,519         45,737         26,489
   Gain from disposals of property and equipment...        (5,166)       (19,567)        (5,397)
   Changes in assets and liabilities, net of
     effects from dispositions of businesses:
       Increase in receivables.....................      (292,837)      (334,448)      (191,334)
       Increase in other current assets............       (93,348)      (450,945)       (41,992)
       Increase in accounts payable, accrued
         expenses and other liabilities............       478,095        597,980        100,515
   Other, net......................................       (20,068)       (10,500)        (8,050)
                                                      -----------    -----------    -----------
Cash provided by operating activities..............     1,397,960      1,007,492        946,580
                                                      -----------    -----------    -----------
INVESTING ACTIVITIES
Purchases of property and equipment, including
   deposits on aircraft of $70,359,000,
   $26,107,000 and $68,202,000.....................    (1,761,963)    (1,470,592)    (1,412,242)
Proceeds from dispositions of property and
   equipment:
 Sale-leaseback transactions.......................       322,852        162,400        176,500
 Reimbursements of A300 deposits...................       106,991         63,039        143,859
 Other dispositions................................        15,757         29,147         26,504
Other, net.........................................       (27,060)        24,612         77,208
                                                      -----------    -----------    -----------
Cash used in investing activities..................    (1,343,423)    (1,191,394)      (988,171)
                                                      -----------    -----------    ----------- 
FINANCING ACTIVITIES
Proceeds from debt issuances.......................       267,105        200,904         17,298
Principal payments on debt.........................      (353,502)        (9,670)      (264,004)
Other, net.........................................        14,443         21,272         24,168
                                                      -----------    -----------    -----------
Cash (used in) provided by financing activities....       (71,954)       212,506       (222,538)
                                                      -----------    -----------    ----------- 
CASH AND CASH EQUIVALENTS
(Decrease) increase during the year................       (17,417)        28,604       (264,129)
Balance at beginning of year.......................       122,023         93,419        357,548
                                                      -----------    -----------    -----------
Balance at end of year.............................   $   104,606    $   122,023    $    93,419
                                                      ===========    ===========    ===========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
                                       25
<PAGE>
 
 
                  FEDERAL EXPRESS CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CHANGES IN
                                 OWNER'S EQUITY

<TABLE>
<CAPTION>
 
In thousands                             Additional                    Total
                                Common    Paid-in      Retained       Owner's
                                Stock     Capital      Earnings       Equity
                                ------   ----------    --------       -------
<S>                             <C>      <C>          <C>           <C>
BALANCE AT MAY 31, 1995.......  $   --     $779,142   $1,466,427    $2,245,569
                              
Net activity under employee   
  incentive plans(1)..........      --       30,419           --        30,419
Foreign currency translation  
  adjustment..................      --           --       (7,626)       (7,626)
Net income....................      --           --      307,777       307,777
                                ------     --------   ----------    ----------
                              
BALANCE AT MAY 31, 1996.......      --      809,561    1,766,578     2,576,139

Equity transaction(2).........      --        5,699       (5,699)           --
Net activity under employee   
  incentive plans(1)..........      --       29,239           --        29,239
Foreign currency translation  
  adjustment..................      --           --       (4,091)       (4,091)
Net income....................      --           --      361,227       361,227
                                ------     --------   ----------    ---------- 
                              
BALANCE AT MAY 31, 1997.......      --      844,499    2,118,015     2,962,514
                              
Net activity under employee   
  incentive plans(1)..........      --       48,970           --        48,970
Foreign currency translation  
  adjustment..................      --           --      (30,298)      (30,298)
Net income....................      --           --      420,543       420,543
                                ------     --------   ----------    ---------- 
BALANCE AT MAY 31, 1998.......  $   --     $893,469   $2,508,260    $3,401,729
                                ======     ========   ==========    ==========
</TABLE>
(1) Represents net activity under employee incentive plans prior to the
    Company's becoming a wholly-owned subsidiary of FDX Corporation as of
    January 27, 1998.

(2) Represents the impact of the Company's stock split on November 4, 1996 prior
    to the Company's becoming a wholly-owned subsidiary of FDX Corporation as of
    January 27, 1998.

The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.

                                       26
<PAGE>
 
 
                  FEDERAL EXPRESS CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: BASIS OF PRESENTATION

  On January 27, 1998, Federal Express Corporation (together with its
subsidiaries, "the Company") became a wholly-owned subsidiary of FDX Corporation
in connection with its acquisition of Caliber System, Inc. ("Caliber").  The
acquisition was accounted for as a pooling of interests.  FDX Corporation
exchanged 0.8 shares of its common stock for each share of Caliber common stock.
Each share of the Company's common stock was automatically converted into one
share of FDX Corporation common stock.  As a part of the transaction, the
Company was recapitalized with 1,000 shares of common stock, $.10 par value.
Owner's equity for prior periods has been restated to reflect the Company's
change in capitalization.

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  Principles of consolidation. The consolidated financial statements include the
accounts of Federal Express Corporation and its subsidiaries. All significant
intercompany accounts and transactions have been eliminated.

  Property and equipment. Expenditures for major additions, improvements, flight
equipment modifications, and certain overhaul costs are capitalized. Maintenance
and repairs are charged to expense as incurred, except for B747 airframe and
engine overhaul maintenance which is accrued and charged to expense on the basis
of hours flown. The cost and accumulated depreciation of property and equipment
disposed of are removed from the related accounts, and any gain or loss is
reflected in the results of operations.

For financial reporting purposes, depreciation and amortization of property and
equipment is provided on a straight-line basis over the asset's service life or
related lease term as follows:

Flight equipment                                       5 to 20 years
Package handling and ground support equipment          5 to 30 years
Computer and electronic equipment                      3 to 10 years
Other                                                  2 to 30 years

Aircraft airframes and engines are assigned residual values ranging from 10% to
20% of asset cost.  All other property and equipment have no assigned residual
values. Vehicles, which are included in package handling and ground support
equipment, are depreciated on a straight-line basis over 5 to 10 years.

For income tax purposes, depreciation is generally computed using accelerated
methods.

  Deferred gains. Gains on the sale and leaseback of aircraft and other property
and equipment are deferred and amortized over the life of the lease as a
reduction of rent expense. Included in other liabilities at May 31, 1998 and
1997, were deferred gains of $338,119,000 and $340,166,000, respectively.

  Deferred lease obligations. While certain of the Company's aircraft and
facility leases contain fluctuating or escalating payments, the related rent
expense is recorded on a straight-line basis over the lease term. Included in
other liabilities at May 31, 1998 and 1997, were $324,203,000 and $289,822,000,
respectively, representing the cumulative difference between rent expense and
rent payments.

  Self-insurance reserves. The Company is self-insured up to certain levels for
workers' compensation, employee health care and vehicle liabilities. Reserves
are based on the actuarially estimated cost of claims. Included in other
liabilities at May 31, 1998 and 1997, were $257,000,000 and $256,000,000,
respectively, representing the long-term portion of self-insurance reserves for
the Company's workers' compensation and vehicle liabilities.

                                       27
<PAGE>
 
 
  Capitalized interest. Interest on funds used to finance the acquisition and
modification of aircraft and construction of certain facilities up to the date
the asset is placed in service is capitalized and included in the cost of the
asset. Capitalized interest was $31,443,000, $39,449,000, and $39,254,000 for
1998, 1997 and 1996, respectively.

  Advertising. Advertising costs are generally expensed as incurred and are
included in other operating expenses. Advertising expenses were $176,393,000,
$153,399,000 and $138,408,000 in 1998, 1997 and 1996, respectively.

  Cash equivalents. Cash equivalents are cash in excess of current operating
requirements invested in short-term, interest-bearing instruments with
maturities of three months or less at the date of purchase and are stated at
cost, which approximates market value. Interest income was $7,616,000,
$5,055,000 and $9,850,000 in 1998, 1997 and  1996, respectively.

  Spare parts, supplies and fuel. Spare parts are stated principally at
weighted-average cost; supplies and fuel are stated principally at standard cost
which approximates actual cost on a first-in, first-out basis.  Neither method
values inventory in excess of current replacement cost.

  Goodwill. Goodwill is the excess of the purchase price over the fair value of
net assets of businesses acquired. It is amortized on a straight-line basis over
periods ranging up to 40 years. Accumulated amortization was $141,807,000 and
$129,404,000 at May 31, 1998 and 1997, respectively.

  Foreign currency translation. Translation gains and losses of the Company's
foreign operations that use local currencies as the functional currency are
accumulated and reported, net of related deferred income taxes, as a component
of owner's equity. Transaction gains and losses that arise from exchange rate
fluctuations on transactions denominated in a currency other than the local
functional currency are included in the results of operations.

  Income taxes. Deferred income taxes are provided for the tax effect of
temporary differences between the tax basis of assets and liabilities and their
reported amounts in the financial statements. The Company uses the liability
method to account for income taxes, which requires deferred taxes to be recorded
at the statutory rate expected to be in effect when the taxes are paid.

The Company has not provided for U.S. federal income taxes on its foreign
subsidiaries' earnings deemed to be permanently reinvested. Quantification of
the deferred tax liability, if any, associated with permanently reinvested
earnings is not practicable.

  Revenue recognition. Revenue is generally recognized upon delivery of
shipments. For shipments in transit, revenue is recorded based on the percentage
of service completed.

  Recent pronouncements. In 1999, the Company will adopt the provisions of three
Statements of Financial Accounting Standards ("SFAS") recently issued by the
Financial Accounting Standards Board.  SFAS No. 130, "Reporting Comprehensive
Income," establishes standards for displaying comprehensive income and its
components in a full set of general purpose financial statements.  SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information,"
establishes standards for reporting information about operating segments in
annual financial statements and requires reporting selected information about
operating segments in interim financial reports issued to shareholders.  SFAS
No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits," standardizes the disclosures for pensions and other postretirement
benefits to the extent practicable, requires additional information on changes
in the benefit obligations and fair values of plan assets that will facilitate
financial analysis and eliminates other disclosures no longer useful as
prescribed in previous standards.

                                       28
<PAGE>
 
 
SFAS Nos. 130, 131 and 132 only affect financial disclosures in interim and
annual reports; therefore, the adoption of these accounting standards will not
have an impact on the Company's financial condition or results of operations.

Effective June 1, 1998, the Company adopted Statement of Position ("SOP") 98-1,
"Accounting for the Cost of Computer Software Developed or Obtained for Internal
Use," released by the American Institute of Certified Public Accountants in
March 1998.  SOP 98-1 provides guidance on accounting for these costs and
requires that certain related expenses be capitalized.  The Company estimates
the pre-tax benefit of the adoption of this Statement to be approximately
$30,000,000 in 1999.

  Reclassifications.  Certain prior year amounts have been reclassified to
conform to the 1998 presentation.

  Use of estimates. The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
 
NOTE 3: ACCRUED EXPENSES
                                             May 31,
                                      -------------------
                                       1998         1997
                                      ------       ------
                                         (In thousands)
 
Compensated absences............   $  262,425   $  234,284
Insurance.......................      243,126      207,059
Taxes other than income taxes...      172,290      143,541
Employee benefits...............      160,268      108,679
Salaries........................      125,112      101,694
Aircraft overhaul...............       73,643       84,006
Other...........................      141,739      128,433
                                   ----------   ----------
                                   $1,178,603   $1,007,696
                                   ==========   ==========

 
NOTE 4: LONG-TERM DEBT

<TABLE> 
<CAPTION> 
                                                                       May 31,
                                                              -----------------------
                                                                1998           1997
                                                              --------       --------
                                                                    (In thousands)
<S>                                                           <C>          <C>
 Unsecured notes payable, interest rates of 7.60%
   to 10.57%, due through 2098.........................       $1,053,770   $  928,525
                                                              ----------   ----------
 Unsecured sinking fund debentures, interest rate           
   of 9.63%, due through 2020..........................           98,529       98,461
                                                              ----------   ----------
 Commercial paper......................................               --      200,904
                                                              ----------   ----------
 Capital lease obligations and tax exempt bonds, due        
   through 2017, interest rates of 5.35% to 7.88%......          253,425      255,100
      Less bond reserves...............................            9,024       11,096
                                                              ----------   ----------
                                                                 244,401      244,004
                                                            
 Other debt, interest rates of 9.68% to 9.98%..........           46,009       52,726
                                                              ----------   ----------
                                                               1,442,709    1,524,620
   Less current portion................................          257,529      126,666
                                                              ----------   ----------
                                                              $1,185,180   $1,397,954
                                                              ==========   ==========
</TABLE>

                                       29
<PAGE>
 
     Tax exempt bonds were issued by the Memphis-Shelby County Airport Authority
 ("MSCAA") and the City of Indianapolis. A lease agreement with the MSCAA and a
 loan agreement with the City of Indianapolis covering the facilities and
 equipment financed with the bond proceeds obligate the Company to pay rentals
 and loan payments, respectively, equal to principal and interest due on the
 bonds.

     In July 1997, the MSCAA issued $20,105,000 of 5.35% Special Facilities
 Revenue Bonds.  The proceeds of the bonds in combination with other funds were
 used to refund outstanding MSCAA 1982B 8.3% bonds on September 2, 1997.  The
 1997 bonds have a maturity date of September 1, 2012.  The Company is obligated
 under a lease agreement with MSCAA to pay rentals equal to the principal and
 interest on the bonds.

     In July 1997, the Company issued $250,000,000 of 7.6% unsecured senior
 notes due July 1, 2097, under its July 1996 shelf registration statement filed
 with the Securities and Exchange Commission.

     Scheduled annual principal maturities of long-term debt for the five years
 subsequent to May 31, 1998, are as follows: $257,500,000 in 1999; $14,900,000
 in 2000; $11,300,000 in 2001; $206,900,000 in 2002; and $10,900,000 in 2003.

     The Company's long-term debt, exclusive of capital leases, had carrying
 values of $1,246,000,000 and $1,122,000,000 at May 31, 1998 and 1997,
 respectively, compared with fair values of approximately $1,384,000,000 and
 $1,223,000,000 at those dates. The estimated fair values were determined based
 on quoted market prices or on the current rates offered for debt with similar
 terms and maturities.

 
 NOTE 5: LEASE COMMITMENTS

   The Company utilizes certain aircraft, land, facilities and equipment under
 capital and operating leases which expire at various dates through 2025. In
 addition, supplemental aircraft are leased under agreements which generally
 provide for cancellation upon 30 days' notice.

   Property and equipment recorded under capital leases at May 31 was as
 follows:

 
In thousands                                              1998       1997
                                                        --------   --------
 Package handling and ground support equipment.......   $261,985   $274,017
 Facilities..........................................    133,435    133,435
 Computer and electronic equipment and other.........      6,518      6,520
                                                        --------   --------
                                                         401,938    413,972
 Less accumulated amortization.......................    273,836    276,855
                                                        --------   --------
                                                        $128,102   $137,117
                                                        ========   ========
 
   Rent expense under operating leases for the years ended May 31 was as
follows:
 
 In thousands                                  1998        1997       1996
                                             --------    --------   --------
 Minimum rentals.......................     $1,071,290   $930,977   $820,896
 Contingent rentals....................         60,925     57,806     61,164
                                            ----------   --------   --------
                                            $1,132,215   $988,783   $882,060
                                            ==========   ========   ========

   Contingent rentals are based on mileage under supplemental aircraft leases.


                                       30
<PAGE>
 
 
   A summary of future minimum lease payments under capital leases and non-
 cancellable operating leases (principally aircraft and facilities) with an
 initial or remaining term in excess of one year at May 31, 1998 follows:
 
In thousands                                    Capital     Operating
                                                 Leases      Leases
                                                -------     --------- 
 1999........................................   $ 14,828   $   916,570
 2000........................................     14,828       884,104
 2001........................................     14,828       818,785
 2002........................................     14,828       760,904
 2003........................................     14,828       702,908
 Thereafter..................................    317,332     8,144,331
                                                --------   ----------- 
                                                $391,472   $12,227,602
                                                ========   ===========

   At May 31, 1998, the present value of future minimum lease payments for
 capital lease obligations was $199,401,000.


 NOTE 6: INCOME TAXES

   For 1998, the Company will file a consolidated federal income tax return with
FDX. The Company's tax provision is calculated as if it were a separate company
filing a separate tax return. The components of the provision for income taxes
for the years ended May 31 were as follows:
 
In thousands                1998        1997        1996
                           ------      ------      ------ 
 Current provision:
   Domestic
     Federal...........    $229,661    $144,647    $142,512
     State and local...      30,416      19,827      18,007
   Foreign.............      36,543      44,165      37,759
                           --------    --------    --------
                            296,620     208,639     198,278
                           --------    --------    --------
 
 Deferred provision:
   Domestic
     Federal...........      16,756      50,717      27,962
     State and local...       1,051       5,302       3,591
   Foreign.............         243       2,336       2,351
                           --------    --------    --------
                             18,050      58,355      33,904
                           --------    --------    --------
                           $314,670    $266,994    $232,182
                           ========    ========    ======== 

   The Company's operations included the following income (loss) with respect to
 entities in foreign locations for the years ended May 31:
 
In thousands                          1998         1997         1996
                                     ------       ------       ------ 
 Entities with pre-tax income...   $ 206,000    $ 204,000    $ 153,000
 Entities with pre-tax losses...    (304,000)    (186,000)    (228,000)
                                   ---------    ---------    ---------
                                   $ (98,000)   $  18,000    $ (75,000)
                                   =========    =========    =========

                                       31
<PAGE>
 
   Income taxes have been provided for foreign operations based upon the various
 tax laws and rates of the countries in which the Company's operations are
 conducted. There is no direct relationship between the Company's overall
 foreign income tax provision and foreign pre-tax book income due to the
 different methods of taxation used by countries throughout the world.

   A reconciliation of the statutory federal income tax rate to the Company's
 effective income tax rate for the years ended May 31 is as follows:

                                           1998          1997       1996
                                           ----          ----       ----
 Statutory U.S. income tax rate.........   35.0%        35.0%       35.0%
 Increase resulting from:                                       
  Goodwill amortization.................    0.6          0.8         0.9
  Foreign operations....................    0.9          1.1         1.7
  State income taxes, net of                                    
   federal benefit......................    2.8          2.6         2.6
  Other, net............................    2.7          3.0         2.8
  Non-recurring item (Caliber                                   
   acquisition 1998)....................    0.8          0.0         0.0
                                           ----         ----        ----
 Effective tax rate.....................   42.8%        42.5%       43.0%
                                           ====         ====        ====
 Effective tax rate (excluding                                  
  non-recurring item)...................   42.0%        42.5%       43.0%
                                           ====         ====        ====
 
   The significant components of deferred tax assets and liabilities as of May
31 were as follows:

<TABLE> 
<CAPTION> 
 
 In thousands                                         1998                             1997
                                           ----------------------------    -----------------------------
                                            Deferred        Deferred        Deferred        Deferred
                                           Tax Assets   Tax Liabilities    Tax Assets    Tax Liabilities
                                           ----------   ---------------    ----------    ---------------
<S>                                          <C>               <C>           <C>                <C> 
 Depreciation...........................     $     --          $486,881      $     --           $409,563
 Deferred gains on                   
   sales of assets......................       86,053                --        83,413                 --
 Employee benefits......................      113,904                --        77,590                 --
 Self-insurance                      
   reserves.............................      175,035                --       162,443                 --
 Other..................................      170,436            93,812       171,356             95,246
                                             --------          --------      --------           --------
                                             $545,428          $580,693      $494,802           $504,809
                                             ========          ========      ========           ========
</TABLE>

 NOTE 7: PENSION AND PROFIT SHARING PLANS

   The Company sponsors defined benefit pension plans covering substantially all
 employees. The largest plan covers U.S. domestic employees age 21 and over
 with at least one year of service and provides benefits based on final average
 earnings and years of service. Plan funding is actuarially determined, subject
 to certain tax law limitations.

   International defined benefit pension plans provide benefits primarily based
 on final earnings and years of service and are funded in accordance with local
 laws and income tax regulations.

                                       32
<PAGE>
 
 
   The following table sets forth the funded status of the plans as of May 31:

<TABLE>
<CAPTION>
 
In thousands                                                1998          1997
                                                           ------        ------
<S>                                                      <C>           <C>
 
 Plan assets at fair value............................   $3,989,131    $3,275,641
 Actuarial present value of the projected benefit
   obligation for service rendered to date............    3,848,485     2,911,584
                                                         ----------   -----------
 Plan assets in excess of projected
   benefit obligation.................................      140,646       364,057
 Unrecognized net gains from past experience
   different from that assumed and effects
   of changes in assumptions..........................      (79,929)     (281,274)
 Prior service cost not yet recognized in
   net periodic cost..................................       (7,200)       (2,335)
 Unrecognized transition amount.......................        2,261         3,169
 Adjustment required to recognize minimum liability...         (119)           --
                                                         ----------   -----------
 Net pension asset....................................   $   55,659    $   83,617
                                                         ==========   ===========
 Accumulated benefit obligation.......................   $2,640,933    $1,892,635
                                                         ==========   ===========
 Vested benefit obligation............................   $2,473,772    $1,768,619
                                                         ==========   ===========
</TABLE>

   Net periodic pension cost for the years ended May 31 included the following
components:

In thousands                                1998          1997          1996
                                           ------        ------        ------
Service cost - benefits earned          
 during the period.....................   $ 241,151     $ 232,491     $ 184,305
Interest cost on projected              
 benefit obligation....................     229,947       206,359       165,635
Actual return on plan assets...........    (667,297)     (423,871)     (463,819)
Net amortization and deferral..........     322,587       130,529       256,968
                                          ---------     ---------     ---------
                                          $ 126,388     $ 145,508     $ 143,089
                                          =========     =========     =========
 
   The following actuarial assumptions were used in determining net pension cost
and projected benefit obligations:
 
                                                  1998      1997       1996
                                                  ----      ----       ----
Weighted-average discount rate................     7.0%      8.1%       8.0%
Weighted-average rate of increase in                                
 future compensation levels...................     4.6       5.5        5.5
Weighted-average expected long-term                                 
 rate of return on assets.....................    10.5      10.5        9.5

   Plan assets consist primarily of marketable equity securities and fixed
income instruments.

   The Company also has a profit sharing plan, which covers substantially all
U.S. domestic employees age 21 and over, with at least one year of service with
the Company as of the contribution date. The plan provides for discretionary
employer contributions which are determined annually by the Board of Directors.
The plan also provides for a matching contribution by the Company equal to 50%
of each participant's contribution up to a maximum of $500 per participant
annually.  Profit sharing expense was $105,700,000 in 1998,  $90,800,000 in 1997
and $80,400,000 in 1996.  The 1998 amount consists of contributions to the plan
of $62,600,000 and cash distributions made outside the plan directly to
employees of $43,100,000.  The 1997 amount consists of contributions to the plan
of $62,200,000 and cash distributions made outside the plan directly to
employees of $28,600,000.


                                       33
<PAGE>
 
NOTE 8: POSTRETIREMENT BENEFIT PLANS

   The Company offers medical and dental coverage to all eligible U.S. domestic
retirees and their eligible dependents. Vision coverage is provided for
retirees, but not their dependents. Substantially all of the Company's U.S.
domestic employees become eligible for these benefits at age 55 and older, if
they have permanent, continuous service with the Company of at least 10 years
after attainment of age 45 if hired prior to January 1, 1988, or at least 20
years after attainment of age 35, if hired on or after January 1, 1988. Life
insurance benefits are provided only to retirees of the former Tiger
International, Inc. who retired prior to acquisition.

   The following table sets forth the accrued postretirement benefit cost as of
May 31:
 
In thousands                                               1998        1997
                                                          ------      ------
Accumulated postretirement benefit obligation:                    
 Retirees.............................................   $ 51,925    $ 41,552
 Fully eligible active employees......................     43,510      38,430
 Other active employees, not fully eligible...........    114,053      88,607
                                                         --------    --------
                                                          209,488     168,589
 Unrecognized net gain................................     10,102      24,089
                                                         --------    --------
                                                         $219,590    $192,678
                                                         ========    ========

   Net postretirement benefit cost for the years ended May 31 was as follows:
 
In thousands                                   1998       1997       1996
                                              ------     ------     ------
Service cost..............................   $17,758    $16,952    $12,085
Interest cost.............................    14,359     12,592     11,275
Amortization of accumulated gains.........      (414)        --       (780)
                                             -------    -------    -------
                                             $31,703    $29,544    $22,580
                                             =======    =======    =======

   Future medical benefit costs were estimated to increase at an annual rate of
9.5% during 1999, decreasing to an annual growth rate of 5.25% in 2008 and
thereafter. Future dental benefit costs were estimated to increase at an annual
rate of 8.0% during 1999, decreasing to an annual growth rate of 5.25% in 2010
and thereafter.  The Company's cost is capped at 150% of 1993 employer cost and,
therefore, will not be subject to medical and dental trends after the capped
cost is attained, projected to be in 2000. Primarily because of the cap on the
Company's cost, a 1% increase in these annual trend rates would not have a
significant impact on the accumulated postretirement benefit obligation at May
31, 1998, or 1998 benefit expense. The weighted-average discount rates used in
estimating the accumulated postretirement obligation were 7.2% and 7.8% at May
31, 1998 and 1997, respectively. The Company pays claims as incurred.


NOTE 9: BUSINESS SEGMENT INFORMATION

   The Company is in a single line of business - the worldwide express
transportation and distribution of goods and documents. For reporting purposes,
operations are classified into two geographic areas, U.S. domestic and
international. Shipments which either originate in or are destined to locations
outside the United States are categorized as international.


                                       34
<PAGE>
 
   A summary of selected financial information for U.S. domestic and
international operations for the years ended or at May 31 is as follows:
 
In thousands                 U.S.                         Total
                           Domestic    International    Worldwide
                           --------    -------------    ---------
Revenues:
   1998                   $9,665,342      $3,589,499   $13,254,841
   1997                    8,322,037       3,197,713    11,519,750
   1996                    7,466,311       2,807,308    10,273,619
 
Operating Income:
   1998                   $  752,563      $   84,170   $   836,733
   1997                      558,040         141,002       699,042
   1996                      542,168          81,656       623,824
 
Identifiable Assets:
   1998                   $6,872,952      $1,560,154   $ 8,433,106
   1997                    6,122,885       1,502,601     7,625,486

   Identifiable assets used jointly in U.S. domestic and international
operations (principally aircraft) have been allocated based on estimated usage.
International revenues related to services originating in the United States
totaled $1,588,400,000, $1,433,700,000 and $1,316,100,000 for the years ended
May 31, 1998, 1997 and 1996, respectively.


NOTE 10: SUPPLEMENTAL CASH FLOW INFORMATION

   Cash paid for interest expense and income taxes for the years ended May 31
was as follows:
 
In thousands                                      1998       1997       1996
                                                 ------     ------     ------
Interest (net of capitalized interest).......   $111,417   $ 95,364   $108,052
Income taxes.................................    316,718    184,668    204,487
 
   Non-cash investing and financing activities for the years ended May 31 were
as follows:
 
In thousands                                    1998       1997       1996
                                               ------     ------     ------
Fair value of assets surrendered            
   under exchange agreements                
   (with two airlines)......................  $ 90,428   $ 62,018   $     --
Fair value of assets acquired under         
   exchange agreements......................    78,148     46,662         --
Fair value of assets receivable             
   under exchange agreements................    12,280     15,356         --
 

                                       35
<PAGE>
 
NOTE 11: COMMITMENTS AND CONTINGENCIES

   The Company's annual purchase commitments under various contracts as of May
31, 1998, were as follows:
 
In thousands                  Aircraft-
                  Aircraft    Related(1)     Other(2)       Total
                  --------    ----------     --------       ----- 
1999              $530,500    $484,300      $425,500      $1,440,300
2000               584,600     397,200       161,800       1,143,600
2001               269,800     319,700        34,200         623,700
2002               240,600     147,200         9,300         397,100
2003               457,400     156,600            --         614,000

(1) Primarily aircraft modifications, rotables, and spare parts and engines.
(2) Facilities, vehicles, computer and other equipment.


   At May 31, 1998, the Company was committed to purchase 12 Airbus A300s, 35
MD11s and 50 Ayers ALM 200s to be delivered through 2007. Deposits and progress
payments of $94,459,000 had been made toward these purchases.

   During 1997, the Company entered into agreements with two airlines to acquire
53 DC10s, spare parts, aircraft engines and other equipment, and maintenance
services in exchange for a combination of aircraft engine noise reduction kits
and cash.  Delivery of these aircraft began in 1997 and will continue through
2001.  Additionally, these airlines may exercise put options through December
31, 2003, requiring the Company to purchase up to 29 additional DC10s along with
additional aircraft engines and equipment.

   In March 1998, put options were exercised by an airline requiring the Company
to purchase seven MD11s for a total purchase price of $416,000,000. Delivery of
the aircraft will begin in 2000.

   The Company has entered into contracts which are designed to limit its
exposure to fluctuations in jet fuel prices. Under these contracts, the Company
makes (or receives) payments based on the difference between a specified lower
(or upper) limit and the market price of jet fuel, as determined by an index of
spot market prices representing various geographic regions. The difference is
recorded as an increase or decrease in fuel expense. At May 31, 1998, all such
contracts had expired. At May 31, 1997, the Company had contracts with various
financial institutions covering a total notional volume of 396,900,000 gallons
(approximately 54% of the Company's annual jet fuel consumption), with some
contracts extending through May 1998. Based on market prices at May 31, 1997,
the fair value of these contracts was a liability of approximately $418,000 as
of such date. Under jet fuel contracts, the Company made payments of $28,764,000
in 1998, received $15,162,000 (net of payments) in 1997 and received $1,977,000
in 1996.

NOTE 12: LEGAL PROCEEDINGS

   Customers of the Company have filed four separate class-action lawsuits
against the Company generally alleging that the Company has breached its
contract with the plaintiffs in transporting packages shipped by them.  These
lawsuits allege that the Company continued to collect a 6.25% federal excise tax
on the transportation of property shipped by air after the tax expired on
December 31, 1995, until it was reinstated in August 1996.  The plaintiffs seek
certification as a class action, damages, an injunction to enjoin the Company
from continuing to collect the excise tax referred to above, and an award of
attorneys' fees and costs.  Three of those cases were consolidated in Minnesota
Federal District Court.  That court stayed the consolidated cases in favor of a
case filed in Circuit Court of Greene County, Alabama.  The stay was lifted in
July 1998.  The complaint in the Alabama case also alleges that the Company
continued to collect the excise tax on the transportation of property shipped by
air after the tax expired again on December 31, 1996.

                                       36
<PAGE>
   A fifth case, filed in the Supreme Court of New York, New York County,
containing allegations and requests for relief substantially similar to the
other four cases was dismissed with prejudice on the Company's motion on October
7, 1997.  The Court found that there was no breach of contract and that the
other causes of action were preempted by federal law.  The plaintiffs have
appealed.  This case originally alleged that the Company continued to collect
the excise tax on the transportation of property shipped by air after the tax
expired on December 31, 1996.  The New York complaint was later amended to cover
the first expiration period of the tax (December 31, 1995 through August 27,
1996) covered in the original Alabama complaint.

   The air transportation excise tax expired on December 31, 1995, was reenacted
by Congress effective August 27, 1996, and expired again on December 31, 1996.
The excise tax was then reenacted by Congress effective March 7, 1997.  The
expiration of the tax relieved the Company of its obligation to pay the tax
during the periods of expiration.  The Taxpayer Relief Act of 1997, signed by
President Clinton in August 1997, extended the tax for 10 years through
September 30, 2007.

   The Company intends to vigorously defend itself in these cases.  No amount
has been reserved for these contingencies.

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

NOTE 13: UNUSUAL EVENTS

   In 1998, the Company realized a net gain of $17,000,000 from the insurance
settlement and the release from certain related liabilities on a leased MD11
aircraft destroyed in an accident in July 1997.  This gain was recorded in
operating and non-operating income in substantially equal amounts.

   In 1997, operating income included a $15,000,000 pre-tax benefit from the
settlement of a Tennessee personal property tax matter.  Also in 1997, the
Company recorded a $17,100,000 non-operating gain from an insurance settlement
for a DC10 aircraft destroyed by fire in September 1996.

   The Company received $7,800,000 in 1996 from the bankruptcy estate of a firm
engaged by the Company in 1990 to remit payments of employee withholding taxes.
This amount is a partial recovery of a $32,000,000 loss incurred by the Company
in 1991 that resulted from the firm's failure to remit certain of these tax
payments to appropriate authorities. The Company has received $17,900,000 from
the bankruptcy estate of the firm. All major issues pertaining to the bankruptcy
have been resolved, and any additional amounts the Company may receive are
expected to be insignificant.

NOTE 14: SUMMARY OF QUARTERLY OPERATING RESULTS (Unaudited)

<TABLE>
<CAPTION>
 
In thousands                      First        Second       Third        Fourth
                                 Quarter      Quarter      Quarter      Quarter
<S>                             <C>          <C>          <C>          <C>
1998
Revenues                        $3,297,218   $3,299,159   $3,232,799   $3,425,665
Operating income                   264,205      213,805       98,055      260,668
Income before income taxes         246,995      184,509       69,058      234,651
Net income                         143,257      107,015       34,174      136,097
 
1997
Revenues                        $2,692,312   $2,852,369   $2,906,819   $3,068,250
Operating income                   129,918      184,927      132,927      251,270
Income before income taxes         107,739      180,378      109,544      230,560
Net income                          61,950      103,717       62,988      132,572
</TABLE>
                                       37
<PAGE>
 
NOTE 15: RELATED PARTY TRANSACTIONS.

   The Company became a wholly-owned subsidiary of FDX Corporation on
January 27, 1998. As of May 31, 1998, the Company had a receivable balance due
from FDX of $59,800,000, which is included in Equipment deposits and other
assets. Included in the receivable amount is an intercompany operating
receivable of $9,900,000; the remaining balance of $49,900,000 represents funds
transferred from the Company to FDX Corporation for cash management purposes.

                                       38
<PAGE>
 
                    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, 1998
and 1997, and the related consolidated statements of income, common
stockholder's investment and cash flows for each of the three years in the
period ended May 31, 1998.  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 generally accepted auditing
standards. 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, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended May 31,
1998, in conformity with generally accepted accounting principles.
 
 
/s/ ARTHUR ANDERSEN LLP
Arthur Andersen LLP
Memphis, Tennessee
July 8, 1998

 
                                       39
<PAGE>
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

   None.

                                    PART III
                                        
ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

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

ITEM 11. EXECUTIVE COMPENSATION

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

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

                                    PART IV
                                        
ITEM 14. 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.

    2.  FINANCIAL STATEMENT SCHEDULE

   The financial statement schedule required by this item is listed below and
included in this report after the signature page hereto.

   Schedule II - Valuation and Qualifying Accounts for the Fiscal Years Ended
May 31, 1998, 1997 and 1996.

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

                                       40
<PAGE>
 
  3.   EXHIBITS

   The Exhibits required by this item are listed in the Exhibit Index which
immediately precedes the exhibits filed with this Form 10-K or incorporated in
this report by reference, and is incorporated herein by this reference.

(b)  REPORTS ON FORM 8-K

   No reports on Form 8-K were filed during the fourth quarter of the Company's
fiscal year.

                                       41
<PAGE>
 
                                   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, on the
20th day of August, 1998.

                                    FEDERAL EXPRESS CORPORATION
                                    (Registrant)


                                    BY: /s/ MICHAEL W. HILLARD
                                       ------------------------------------
                                         Michael W. Hillard
                                         Vice President and Controller
                                         (Principal Accounting Officer)


   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.

    SIGNATURE                             CAPACITY                      DATE
    ---------                             --------                      ----
/s/ FREDERICK W. SMITH*      Chairman of the Board of Directors
-----------------------
Frederick W. Smith         


/s/ DAVID J. BRONCZEK*        Executive Vice President, Chief
-----------------------       Operating Officer and Director 
David J. Bronczek             
                           
                           
/s/ T. MICHAEL GLENN*                     Director
-----------------------
T. Michael Glenn           
                           
/s/ ALAN B. GRAF, JR.*                    Director
-----------------------
Alan B. Graf, Jr.          
                           
/s/ SCOTT E. HANSEN*                      Director
-----------------------
Scott E. Hansen            
                           
/s/ GEORGE W. HEARN*                      Director
-----------------------
George W. Hearn            
                           
/s/ MICHAEL W.  HILLARD        Vice President and Controller
-----------------------        (Principal Accounting Officer)   August 20, 1998 
Michael W. Hillard                                                              
                           
/s/ DENNIS H. JONES*                      Director
-----------------------
Dennis H. Jones
<PAGE>
 
/s/ KENNETH R. MASTERSON*                    Director
-------------------------
Kenneth R. Masterson           
                               
/s/ TRACY G. SCHMIDT*            Senior Vice President and Chief
-------------------------               Financial Officer      
Tracy G. Schmidt                  (Principal Financial Officer) 
                                  
                               
/s/ THEODORE L. WEISE*          President, Chief Executive Officer
-------------------------                  and Director        
Theodore L. Weise                 (Principal Executive Officer) 
                                  
 
*By: /s/ MICHAEL W. HILLARD
---------------------------
     Michael W. Hillard
      Attorney-in-Fact                                          August 20, 1998
<PAGE>
 
                                                                             S-1


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
                        ON FINANCIAL STATEMENT SCHEDULE



To Federal Express Corporation:

We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of Federal Express Corporation set forth in
Item 8 of Part II of this Form 10-K, and have issued our report thereon dated
July 8, 1998.  Our audit was made for the purpose of forming an opinion on those
statements taken as a whole.  The financial statement schedule on page S-2 is
the responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements.  The financial statement schedule has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.



/s/  ARTHUR ANDERSEN LLP
   Arthur Andersen LLP

Memphis, Tennessee,
July 8, 1998
<PAGE>
 
                                                                             S-2
                                                                     SCHEDULE II


                  FEDERAL EXPRESS CORPORATION AND SUBSIDIARIES
                       VALUATION AND QUALIFYING ACCOUNTS
                FOR THE YEARS ENDED MAY 31, 1998, 1997 AND 1996
                                 (In thousands)


<TABLE>
<CAPTION>
                                                                             
                                                        ADDITIONS            
                                             -------------------------------                                             
                           BALANCE AT         CHARGED TO         CHARGED TO                                  BALANCE AT  
                           BEGINNING          COSTS AND            OTHER                                       END OF    
DESCRIPTION                 OF YEAR            EXPENSES           ACCOUNTS            DEDUCTIONS(A)             YEAR     
-----------                ----------        ------------       ------------         --------------          ----------
     Accounts
  Receivable Allowances
<S>                        <C>                <C>                <C>                <C>                       <C>
1998.................            $36,175            $59,616             $    -                $52,546              $43,245
                                 =======            =======             ======                =======              ======= 

1997.................            $30,809            $38,711             $    -                $33,345              $36,175
                                 =======            =======             ======                =======              ======= 

1996.................            $31,173            $38,963             $1,700                $41,027              $30,809
                                 =======            =======             ======                =======              ======= 
</TABLE>

(A)  Write-offs, net of recoveries.
<PAGE>
 
                                 EXHIBIT INDEX

<TABLE> 
<CAPTION> 

  EXHIBIT
  NUMBER                                   DESCRIPTION OF EXHIBIT
  -------                                  ---------------------- 
<S>           <C>
    2.1       Agreement and Plan of Merger dated as of October 5, 1997 among FDX Corporation (formerly known as
              Fast Holding Inc.), the Registrant, Caliber System, Inc., Fast Merger Sub Inc. and Tires Merger
              Sub Inc. (Filed as Annex A to Joint Proxy Statement/Prospectus contained in Amendment No. 1 to
              FDX Corporation's Registration Statement No. 333-39483 on Form S-4, and incorporated herein by 
              reference.)
 
    2.2       Amendment No. 1, dated as of January 21, 1998, to Agreement and Plan of Merger dated as of October 5,
              1997 among FDX Corporation, the Registrant, Caliber System, Inc., Fast Merger Sub Inc. and Tires
              Merger Sub Inc.  (Filed as Exhibit 2.2 to FDX Corporation's Current Report on Form 8-K dated
              January 27, 1998, Commission File No. 333-39483, and incorporated herein by reference.)
 
    3.1       Restated Certificate of Incorporation of Registrant as amended (Filed as Exhibit 3.1 to
              Registrant's FY98 Third Quarter Report on Form 10-Q, Commission File No. 1-7806, and incorporated
              herein by reference.)
 
    3.2       By-laws of Registrant (Filed as Exhibit 3.2 to Registrant's FY93 Annual Report on Form 10-K,
              Commission file No. 1-7806, and incorporated herein by reference.)
 
    4.1       Indenture dated as of April 1, 1987 between Registrant and The Bank of New York ("BONY"), as
              Trustee, relating to Registrant's 10% Senior Notes due April 15, 1999.  (Filed as Exhibit 10.36
              to Registrant's FY88 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated
              herein by reference.)
 
    4.2       Supplemental Indenture No. 2 dated as of April 18, 1989 between Registrant and BONY, relating to
              Registrant's 10% Senior Notes due April 15, 1999.  (Filed as Exhibit 4(a) to Registrant's Current
              Report on Form 8-K dated April 25, 1989, Commission File No. 1-7806, and incorporated herein by
              reference.)
 
    4.3       Supplemental Indenture No. 3 dated as of April 21, 1989 between Registrant and BONY and form of
              note relating to Registrant's 10% Senior Notes due April 15, 1999.  (Filed as Exhibit 4(b) to
              Registrant's Current Report on Form 8-K dated April 25, 1989, Commission File No. 1-7806, and
              incorporated herein by reference.)
 
    4.4       Indenture dated as of May 15, 1989 between Registrant and BONY relating to Registrant's unsecured
              debt securities.  (Filed as an exhibit to Registrant's Registration Statement No. 33-28796 on
              Form S-3 and incorporated herein by reference.)

    4.5       Supplemental Indenture No. 2 dated as of August 11, 1989 between Registrant and BONY.  (Filed as
              Exhibit 4.2 to Registrant's Registration Statement No. 33-30415 on Form S-3 and incorporated
              herein by reference.)
 
</TABLE>

                                      E-1
<PAGE>
 
<TABLE> 
<CAPTION> 

  EXHIBIT
  NUMBER                                   DESCRIPTION OF EXHIBIT
  -------                                  ---------------------- 
<S>           <C>
    4.6       Supplemental Indenture No. 3 dated as of October 15, 1989 between Registrant and BONY relating
              to Registrant's 9 5/8% Sinking Fund Debentures due October 15, 2019.  (Filed as Exhibit 4.2 to
              Registrant's Current Report on Form 8-K dated October 16, 1989, Commission File No. 1-7806, and
              incorporated herein by reference.)
 
    4.7       Supplemental Indenture No. 5 dated as of August 15, 1990 between Registrant and BONY.  (Filed as
              Exhibit 4(c) to Registrant's Current Report on Form 8-K dated August 28, 1990, Commission File
              No. 1-7806, and incorporated herein by reference.)
 
    4.8       Indenture dated May 15, 1989 including Supplemental Indenture Nos. 2, 3 and 5 dated as described
              above, between Registrant and BONY, relating to Registrant's Medium-Term Notes, Series B, the
              last of which is due August 15, 2006, Registrant's 9 7/8% Notes due April 1, 2002, Registrant's
              9.65% Notes due June 15, 2012 and Registrant's 6 1/4% Notes due April 15, 1998.  (Filed as
              described above.)
 
    4.9       Form of Fixed Rate Medium-Term Note, Series B, the last of which is due August 15, 2006.  (Filed
              as Exhibit 4.4 to Registrant's Registration Statement No. 33-40018 on Form S-3 and incorporated
              herein by reference.)
 
   4.10       Form of Floating Rate Medium-Term Note, Series B, the last of which is due August 15, 2006.
              (Filed as Exhibit 4.5 to Registrant's Registration Statement No. 33-40018 on Form S-3 and
              incorporated herein by reference.)
 
   4.11       Form of 9 7/8% Note due April 1, 2002.  (Filed as Exhibit 4.1 to Registrant's Current Report on
              Form 8-K dated March 23, 1992, Commission File No. 1-7806, and incorporated herein by reference.)
 
   4.12       Form of 9.65% Note due June 15, 2012.  (Filed as Exhibit 4.1 to Registrant's Current Report on
              Form 8-K dated June 18, 1992, Commission File No. 1-7806, and incorporated herein by reference.)
 
   4.13       Form of 6 1/4% Note due April 15, 1998.  (Filed as Exhibit 4.1 to Registrant's Current Report on
              Form 8-K dated April 21, 1993, Commission File No. 1-7806, and incorporated herein by reference.)
 
   4.14       Indenture dated as of July 1, 1996 between Registrant and The First National Bank of Chicago, as
              Trustee, relating to Registrant's unsecured debt securities. (Filed as Exhibit 4.14 to
              Registrant's FY96 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated
              herein by reference.)

   4.15       Supplemental Indenture No. 1 dated as of July 1, 1997 between Registrant and The First National
              Bank of Chicago relating to Registrant's 7.60% Notes due July 1, 2097.  (Filed as Exhibit 4.1 to
              Registrant's Current Report on Form 8-K dated July 7, 1997, Commission File No. 1-7806, and
              incorporated herein by reference.)

</TABLE>

                                      E-2
<PAGE>
 
<TABLE> 
<CAPTION> 

  EXHIBIT
  NUMBER                                   DESCRIPTION OF EXHIBIT
  -------                                  ---------------------- 
<S>           <C>
   4.16       Form of 7.60% Note due July 1, 2097.  (Filed as Exhibit 4.2 to Registrant's Current Report on
              Form 8-K dated July 7, 1997, Commission File No. 1-7806, and incorporated herein by reference.)
 
   4.17       Pass Through Trust Agreement dated as of February 1, 1993, as amended and restated as of October
              1, 1995, between Registrant and BONY, as Pass Through Trustee, relating to Registrant's 1993
              Pass Through Certificates, Series A1, A2, B1, B2, C1 and C2, 1995 Pass Through Certificates,
              Series A1, A2, B1, B2 and B3 and 1996 Pass Through Certificates, Series A1 and A2.  (Filed as
              Exhibit 4.a.1 to Registrant's Current Report on Form 8-K dated October 26, 1995, Commission File
              No. 1-7806, and incorporated herein by reference.)
 
   4.18       Form of 8.04% and 8.76% 1993 Pass Through Certificates, Series A1 and A2 due November 22, 2007
              and May 22, 2015, respectively.  (Filed as Exhibit 4(a)(2) to Registrant's Current Report on
              Form 8-K dated February 4, 1993, Commission File No. 1-7806, and incorporated herein by
              reference.)
 
   4.19       Form of 6.68% and 7.63% 1993 Pass Through Certificates, Series B1 and B2 due January 1, 2008 and
              January 1, 2015, respectively.  (Filed as Exhibit 4.a.2 to Registrant's Current Report on Form
              8-K dated September 23, 1993, Commission File No. 1-7806, and incorporated herein by reference.)
 
   4.20       Form of 7.15% and 7.96% 1993 Pass Through Certificates, Series C1 and C2 due September 28, 2012
              and March 28, 2017, respectively.  (Filed as Exhibit 4.a.2 to Registrant's Current Report on
              Form 8-K dated December 2, 1993, Commission File No. 1-7806, and incorporated herein by
              reference.)
 
   4.21       Form of 7.63% and 8.06% 1995 Pass Through Certificates, Series A1 and A2 due January 5, 2014 and
              January 5, 2016, respectively.  (Filed as Exhibit 4.a.2 to Registrant's Current Report on Form
              8-K dated August 16, 1995, Commission File No. 1-7806, and incorporated herein by reference.)
 
   4.22       Form of 6.05%, 7.11% and 7.58% 1995 Pass Through Certificates, Series B1, B2 and B3 due March
              19, 1996, January 2, 2014 and July 2, 2019, respectively.  (Filed as Exhibit 4.a.2 to
              Registrant's Current Report on Form 8-K dated October 26, 1995, Commission File No. 1-7806, and
              incorporated herein by reference.)
 
   4.23       Form of 7.85% and 8.17% 1996 Pass Through Certificates, Series A1 and A2 due January 30, 2015
              and January 30, 2018, respectively.  (Filed as Exhibit 4.a.2 to Registrant's Current Report on
              Form 8-K dated June 5, 1996, Commission File No. 1-7806, and incorporated herein by reference.)

   4.24       Pass Through Trust Agreement dated as of March 1, 1994 between FedEx and BONY, as Pass Through
              Trustee, relating to Registrant's 1994 Pass Through Certificates, Series A310-A1, A310-A2 and
              A310-A3.  (Filed as Exhibit 4.a.1 to Registrant's Current Report on Form 8-K dated March 16,
              1994, Commission File No. 1-7806, and incorporated herein by reference.)

</TABLE>

                                      E-3
<PAGE>
 
<TABLE> 
<CAPTION> 

  EXHIBIT
  NUMBER                                   DESCRIPTION OF EXHIBIT
  -------                                  ---------------------- 
<S>           <C>
 
   4.25       Form of 7.53%, 7.89% and 8.40% 1994 Pass Through Certificates, Series A310-A1, A310-A2 and
              A310-A3 due September 23, 2006, September 23, 2008 and March 23, 2010, respectively.  (Filed as
              Exhibit 4.a.2 to Registrant's Current Report on Form 8-K dated March 16, 1994, Commission File
              No. 1-7806, and incorporated herein by reference.)
 
   4.26       Pass Through Trust Agreement dated as of June 1, 1996 between Registrant and State Street Bank
              and Trust Company, as Pass Through Trustee, relating to Registrant's 1996 Pass Through
              Certificates, Series B1 and B2.  (Filed as Exhibit 4(a)(1) to Registrant's Registration
              Statement No. 333-07691 on Form S-3 and incorporated herein by reference.)
 
   4.27       Form of 7.39% and 7.84% 1996 Pass Through Certificates, Series B1 and B2 due January 30, 2013
              and January 30, 2018, respectively.  (Filed as Exhibit 4.a.2 to Registrant's Current Report on
              Form 8-K dated October 17, 1996, Commission File No. 1-7806, and incorporated herein by
              reference.)
 
   4.28       Pass Through Trust Agreement dated as of May 1, 1997 between Registrant and First Security Bank,
              National Association, as Pass Through Trustee.  (Filed as Exhibit 4.a.3 to Registrant's Current 
              Report on Form 8-K dated May 12, 1997, Commission File No. 1-7806, and incorporated herein by 
              reference.)
 
   4.29       Form of 7.50%, 7.52% and 7.65% 1997-1 Pass Through Certificates, Class A, B and C due January
              15, 2018, January 15, 2018 and January 15, 2014, respectively.  (Filed as Exhibit 4.a.2 to
              Registrant's Current Report on Form 8-K dated May 22, 1997, Commission File No. 1-7806, and
              incorporated herein by reference.)
 
   4.30       Form of 6.72%, 6.845% and 7.02% 1998-1 Pass Through Certificates, Class A, B and C due January
              15, 2022, January 15, 2019 and January 15, 2016, respectively.  (Filed as Exhibit 4.a.3 to the
              Registrant's Current Report on Form 8-K dated June 30, 1998, Commission File No. 1-7806, and
              incorporated herein by reference.)
 
   10.1       Indenture dated as of August 1, 1979 between the Memphis-Shelby County Airport Authority (the
              "Authority") and BONY, as Trustee.  (Refiled as Exhibit 10.1 to Registrant's FY90 Annual Report
              on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.)
 
   10.2       Second Supplemental Indenture dated as of May 1, 1982 between the Authority and BONY.  (Refiled
              as Exhibit 10.2 to Registrant's FY93 Annual Report on Form 10-K, Commission File No. 1-7806, and
              incorporated herein by reference.)
 
   10.3       Third Supplemental Indenture dated as of November 1, 1982 between the Authority and BONY.
              (Refiled as Exhibit 10.3 to Registrant's FY93 Annual Report on Form 10-K, Commission File No.
              1-7806, and incorporated herein by reference.)

</TABLE>

                                      E-4
<PAGE>
 
<TABLE> 
<CAPTION> 

  EXHIBIT
  NUMBER                                   DESCRIPTION OF EXHIBIT
  -------                                  ---------------------- 
<S>           <C>

   10.4       Fourth Supplemental Indenture dated as of December 1, 1984 between the Authority and BONY
              relating to 7 7/8% Special Facilities Revenue Bonds, Series 1984 due September 1, 2009.
              (Refiled as Exhibit 10.4 to Registrant's FY95 Annual Report on Form 10-K, Commission File No.
              1-7806, and incorporated herein by reference.)
 
   10.5       Fifth Supplemental Indenture dated as of July 1, 1992 between the Authority and BONY relating to
              6 3/4% Special Facilities Revenue Bonds, Refunding Series 1992 due September 1, 2012.  (Filed as
              Exhibit 10.5 to Registrant's FY92 Annual Report on Form 10-K, Commission File No. 1-7806, and
              incorporated herein by reference.)
 
   10.6       Sixth Supplemental Indenture dated as of July 1, 1997 between the Authority and BONY relating to
              5.35% Special Facilities Revenue Bonds, Refunding Series 1997 due September 1, 2012.  (Filed as
              Exhibit 10.6 to Registrant's FY97 Annual Report on Form 10-K, Commission File No. 1-7806, and
              incorporated herein by reference.)
 
   10.7       Guaranty dated as of August 1, 1979 from FedEx to BONY.  (Refiled as Exhibit 10.5 to
              Registrant's FY90 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated
              herein by reference.)
 
   10.8       Reaffirmation of Guaranty dated as of May 1, 1982 from Registrant to BONY.  (Refiled as Exhibit
              10.7 to Registrant's FY93 Annual Report on Form 10-K, Commission File No. 1-7806, and
              incorporated herein by reference.)
 
   10.9       Reaffirmation of Guaranty dated as of December 1, 1984 from Registrant to BONY relating to
              Special Facilities Revenue Bonds, Series 1984.  (Refiled as Exhibit 10.10 to Registrant's FY93
              Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.)
 
   10.10      Reaffirmation of Guaranty dated as of July 30, 1992 from Registrant to BONY relating to Special
              Facilities Revenue Bonds, Refunding Series 1992.  (Filed as Exhibit 10.11 to Registrant's FY92
              Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.)
 
   10.11      Reaffirmation of Guaranty dated as of July 1, 1997 from Registrant to BONY relating to Special
              Facilities Revenue Bonds, Refunding Series 1997.  (Filed as Exhibit 10.11 to Registrant's FY97
              Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.)
 
   10.12      Consolidated and Restated Lease Agreement dated as of August 1, 1979 between the Authority and
              Registrant.  (Refiled as Exhibit 10.12 to Registrant's FY90 Annual Report on Form 10-K,
              Commission File No. 1-7806, and incorporated herein by reference.)

</TABLE>

                                      E-5
<PAGE>
 
<TABLE> 
<CAPTION> 

  EXHIBIT
  NUMBER                                   DESCRIPTION OF EXHIBIT
  -------                                  ---------------------- 
<S>           <C>

   10.13      First Supplemental Lease Agreement dated as of April 1, 1981 between the Authority and
              Registrant.  (Filed as Exhibit 10.13 to Registrant's FY92 Annual Report on Form 10-K, Commission
              File No. 1-7806, and incorporated herein by reference.)
 
   10.14      Second Supplemental Lease Agreement dated as of May 1, 1982 between the Authority and
              Registrant.  (Refiled as Exhibit 10.14 to Registrant's FY93 Annual Report on Form 10-K,
              Commission File No. 1-7806, and incorporated herein by reference.)
 
   10.15      Third Supplemental Lease Agreement dated November 1, 1982 between the Authority and Registrant.
              (Filed as Exhibit 28.22 to Registrant's FY93 Second Quarter Report on Form 10-Q, Commission File
              No. 1-7806, and incorporated herein by reference.)
 
   10.16      Fourth Supplemental Lease Agreement dated July 1, 1983 between the Authority and Registrant.
              (Filed as Exhibit 28.23 to Registrant's FY93 Second Quarter Report on Form 10-Q, Commission File
              No. 1-7806, and incorporated herein by reference.)
 
   10.17      Fifth Supplemental Lease Agreement dated February 1, 1984 between the Authority and Registrant.
              (Filed as Exhibit 28.24 to Registrant's FY93 Second Quarter Report on Form 10-Q, Commission File
              No. 1-7806, and incorporated herein by reference.)
 
   10.18      Sixth Supplemental Lease Agreement dated April 1, 1984 between the Authority and Registrant.
              (Filed as Exhibit 28.25 to Registrant's FY93 Second Quarter Report on Form 10-Q, Commission File
              No. 1-7806, and incorporated herein by reference.)
 
   10.19      Seventh Supplemental Lease Agreement dated June 1, 1984 between the Authority and Registrant.
              (Filed as Exhibit 28.26 to Registrant's FY93 Second Quarter Report on Form 10-Q, Commission File
              No. 1-7806, and incorporated herein by reference.)
 
   10.20      Eighth Supplemental Lease Agreement dated July 1, 1988 between the Authority and Registrant.
              (Filed as Exhibit 28.27 to Registrant's FY93 Second Quarter Report on Form 10-Q, Commission File
              No. 1-7806, and incorporated herein by reference.)
 
   10.21      Ninth Supplemental Lease Agreement dated July 12, 1989 between the Authority and Registrant.
              (Filed as Exhibit 28.28 to Registrant's FY93 Second Quarter Report on Form 10-Q, Commission File
              No. 1-7806, and incorporated herein by reference.)
 
   10.22      Tenth Supplemental Lease Agreement dated October 1, 1991 between the Authority and Registrant.
              (Filed as Exhibit 28.29 to Registrant's FY93 Second Quarter Report on Form 10-Q, Commission File
              No. 1-7806, and incorporated herein by reference.)
 
   10.23      Eleventh Supplemental Lease Agreement dated as of July 1, 1994 between the Authority and
              Registrant.  (Filed as Exhibit 10.21 to Registrant's FY96 Annual Report on Form 10-K, Commission
              File No. 1-7806, and incorporated herein by reference.)

</TABLE>

                                      E-6
<PAGE>
 
<TABLE> 
<CAPTION> 

  EXHIBIT
  NUMBER                                   DESCRIPTION OF EXHIBIT
  -------                                  ---------------------- 
<S>           <C>
   10.24      Twelfth Supplemental Lease Agreement dated July 1, 1993 between the Authority and Registrant.
              (Filed as Exhibit 10.23 to Registrant's FY93 Annual Report on Form 10-K, Commission File No.
              1-7806, and incorporated herein by reference.)
 
   10.25      Thirteenth Supplemental Lease Agreement dated as of June 1, 1995 between the Authority and
              Registrant. (Filed as Exhibit 10.23 to Registrant's FY96 Annual Report on Form 10-K, Commission
              File No. 1-7806, and incorporated herein by reference.)
 
   10.26      Fourteenth Supplemental Lease Agreement dated as of January 1, 1996 between the Authority and
              Registrant. (Filed as Exhibit 10.24 to Registrant's FY96 Annual Report on Form 10-K, Commission
              File No. 1-7806, and incorporated herein by reference.)
 
   10.27      Fifteenth Supplemental Lease Agreement dated as of January 1, 1997 between the Authority and
              Registrant.  (Filed as Exhibit 10.1 to Registrant's FY97 Third Quarter Report on Form 10-Q,
              Commission File No. 1-7806, and incorporated herein by reference.)
 
   10.28      Sixteenth Supplemental Lease Agreement dated as of April 1, 1997 between the Authority and
              Registrant.  (Filed as Exhibit 10.28 to Registrant's FY97 Annual Report on Form 10-K, Commission
              File No. 1-7806, and incorporated herein by reference.)
 
   10.29      Seventeenth Supplemental Lease Agreement dated as of May 1, 1997 between the Authority and
              Registrant. (Filed as Exhibit 10.29 to Registrant's FY97 Annual Report on Form 10-K, Commission
              File No. 1-7806, and incorporated herein by reference.)
 
   10.30      Special Facility Lease Agreement dated as of August 1, 1979 between the Authority and
              Registrant.  (Refiled as Exhibit 10.15 to Registrant's FY90 Annual Report on Form 10-K,
              Commission File No. 1-7806, and incorporated herein by reference.)
 
   10.31      First Special Facility Supplemental Lease Agreement dated as of May 1, 1982 between the
              Authority and Registrant.  (Filed as Exhibit 10.25 to Registrant's FY93 Annual Report on Form
              10-K, Commission File No. 1-7806, and incorporated herein by reference.)
 
   10.32      Second Special Facility Supplemental Lease Agreement dated as of November 1, 1982 between the
              Authority and Registrant.  (Filed as Exhibit 10.26 to Registrant's FY93 Annual Report on Form
              10-K, Commission File No. 1-7806, and incorporated herein by reference.)
 
   10.33      Third Special Facility Supplemental Lease Agreement dated as of December 1, 1984 between the
              Authority and Registrant.  (Refiled as Exhibit 10.25 to Registrant's FY95 Annual Report on Form
              10-K, Commission File No. 1-7806, and incorporated herein by reference.)
 
   10.34      Fourth Special Facility Supplemental Lease Agreement dated as of July 1, 1992 between the
              Authority and Registrant. (Filed as Exhibit 10.20 to Registrant's FY92 Annual Report on Form
              10-K, Commission File No. 1-7806, and incorporated herein by reference.)

</TABLE>

                                      E-7
<PAGE>
 
<TABLE> 
<CAPTION> 

  EXHIBIT
  NUMBER                                   DESCRIPTION OF EXHIBIT
  -------                                  ---------------------- 
<S>           <C>

   10.35      Fifth Special Facility Supplemental Lease Agreement dated as of July 1, 1997 between the
              Authority and Registrant.  (Filed as Exhibit 10.35 to Registrant's FY97 Annual Report on Form
              10-K, Commission File No. 1-7806, and incorporated herein by reference.)
 
   10.36      Special Facility Lease Agreement dated as of July 1, 1993 between the Authority and Registrant.
              (Filed as Exhibit 10.29 to Registrant's FY93 Annual Report on Form 10-K, Commission File No.
              1-7806, and incorporated herein by reference.)
 
   10.37      Special Facility Ground Lease Agreement dated as of July 1, 1993 between the Authority and
              Registrant.  (Filed as Exhibit 10.30 to Registrant's FY93 Annual Report on Form 10-K, Commission
              File No. 1-7806, and incorporated herein by reference.)
 
   10.38      Indenture dated as of July 1, 1993 between the Authority and BONY, as Trustee, relating to 6.20%
              Special Facility Revenue Bonds, Series 1993, due July 1, 2014.  (Filed as Exhibit 10.31 to
              Registrant's FY93 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated
              herein by reference.)
 
   10.39      Guaranty dated as of July 1, 1993 from FedEx to BONY relating to 6.20% Special Facility Revenue
              Bonds, Series 1993.  (Filed as Exhibit 10.32 to Registrant's FY93 Annual Report on Form 10-K,
              Commission File No. 1-7806, and incorporated herein by reference.)
 
   10.40      Lease Agreement dated as of May 7, 1985 between the City of Oakland and Registrant.  (Filed as
              Exhibit 28.5 to Registrant's FY93 Second Quarter Report on Form 10-Q, Commission File No.
              1-7806, and incorporated herein by reference.)
 
   10.41      Affirmative Action Agreement dated as of May 14, 1985, to Lease Agreement dated May 7, 1985,
              between the City of Oakland and Registrant.  (Filed as Exhibit 28.6 to Registrant's FY93 Second
              Quarter Report on Form 10-Q, Commission File No. 1-7806, and incorporated herein by reference.)
 
   10.42      First Supplemental Agreement dated August 5, 1986, to Lease Agreement dated May 7, 1985, between
              the City of Oakland and Registrant.  (Filed as Exhibit 28.7 to Registrant's FY93 Second Quarter
              Report on Form 10-Q, Commission File No. 1-7806, and incorporated herein by reference.)
 
   10.43      Second Supplemental Agreement dated February 17, 1987, to Lease Agreement dated May 7, 1985,
              between the City of Oakland and Registrant.  (Filed as Exhibit 28.8 to Registrant's FY93 Second
              Quarter Report on Form 10-Q, Commission File No. 1-7806, and incorporated herein by reference.)
 
   10.44      Third Supplemental Agreement dated February 1989, to Lease Agreement dated May 7, 1985, between
              the City of Oakland and Registrant.  (Filed as Exhibit 28.9 to Registrant's FY93 Second Quarter
              Report on Form 10-Q, Commission File No. 1-7806, and incorporated herein by reference.)

</TABLE>

                                      E-8
<PAGE>
 
<TABLE> 
<CAPTION> 

  EXHIBIT
  NUMBER                                   DESCRIPTION OF EXHIBIT
  -------                                  ---------------------- 
<S>           <C>

   10.45      Amendment dated August 1, 1989, to Lease Agreement dated May 7, 1985, between the City of
              Oakland and Registrant.  (Refiled as Exhibit 10.40 to Registrant's FY95 Annual Report on Form
              10-K, Commission File No. 1-7806, and incorporated herein by reference.)
 
   10.46      Lease and First Right of Refusal Agreement dated July 22, 1988 between the State of Alaska,
              Department of Transportation and Public Facilities and Registrant.  (Filed as Exhibit 28.10 to
              Registrant's FY93 Second Quarter Report on Form 10-Q, Commission File No. 1-7806, and
              incorporated herein by reference.)
 
   10.47      Development Agreement dated July 22, 1988, to Lease and First Right of Refusal Agreement dated
              July 22, 1988, between the State of Alaska, Department of Transportation and Public Facilities
              and Registrant.  (Filed as Exhibit 28.11 to Registrant's FY93 Second Quarter Report on Form
              10-Q, Commission File No. 1-7806, and incorporated herein by reference.)
 
   10.48      Supplement No. 1 dated May 19, 1989, to Development Agreement dated July 22, 1988, between the
              State of Alaska, Department of Transportation and Public Facilities and Registrant.  (Filed as
              Exhibit 28.12 to Registrant's FY93 Second Quarter Report on Form 10-Q, Commission File No.
              1-7806, and incorporated herein by reference.)
 
   10.49      Supplement No. 1 dated July 19, 1989, to Lease and First Right of Refusal Agreement dated July
              22, 1988, between the State of Alaska, Department of Transportation and Public Facilities and
              Registrant.  (Filed as Exhibit 28.13 to Registrant's FY93 Second Quarter Report on Form 10-Q,
              Commission File No. 1-7806, and incorporated herein by reference.)
 
   10.50      Right-of-Way Agreement dated September 19, 1989, to Lease and First Right of Refusal Agreement
              dated July 22, 1988, between the State of Alaska, Department of Transportation and Public
              Facilities and Registrant.  (Filed as Exhibit 28.14 to Registrant's FY93 Second Quarter Report
              on Form 10-Q, Commission File No. 1-7806, and incorporated herein by reference.)
 
   10.51      Supplement No. 2 dated April 23, 1991, to Lease and First Right of Refusal Agreement dated July
              22, 1988, between the State of Alaska, Department of Transportation and Public Facilities and
              Registrant.  (Filed as Exhibit 28.15 to Registrant's FY93 Second Quarter Report on Form 10-Q,
              Commission File No. 1-7806, and incorporated herein by reference.)
 
   10.52      Lease Agreement dated October 1, 1983 between The Port Authority of New York and New Jersey and
              Registrant.  (Filed as Exhibit 28.16 to Registrant's FY93 Second Quarter Report on Form 10-Q,
              Commission File No. 1-7806, and incorporated herein by reference.)
 
   10.53      Supplement No. 1 dated October 1, 1983 to Lease Agreement dated October 1, 1983 between The
              Port Authority of New York and New Jersey and Registrant.  (Filed as Exhibit 28.17 to
              Registrant's FY93 Second Quarter Report on Form 10-Q, Commission File No. 1-7806, and
              incorporated herein by reference.)

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  EXHIBIT
  NUMBER                                   DESCRIPTION OF EXHIBIT
  -------                                  ---------------------- 
<S>           <C>

   10.54      Supplement No. 2 dated September 1, 1985 to Lease Agreement dated October 1, 1983 between The
              Port Authority of New York and New Jersey and Registrant.  (Filed as Exhibit 28.18 to
              Registrant's FY93 Second Quarter Report on Form 10-Q, Commission File No. 1-7806, and
              incorporated herein by reference.)
 
   10.55      Supplement No. 3 dated June 1, 1992 to Lease Agreement dated October 1, 1983 between The Port
              Authority of New York and New Jersey and Registrant.  (Filed as Exhibit 28.19 to Registrant's
              FY93 Second Quarter Report on Form 10-Q, Commission File No. 1-7806, and incorporated herein by
              reference.)
 
   10.56      Supplement No. 4 dated March 1, 1993 to Lease Agreement dated October 1, 1983 between The Port
              Authority of New York and New Jersey and Registrant.  (Filed as Exhibit 10.51 to Registrant's
              FY95 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by
              reference.)
 
   10.57      Supplement No. 5 dated February 1, 1994 to Lease Agreement dated October 1, 1983 between The
              Port Authority of New York and New Jersey and Registrant.  (Filed as Exhibit 10.52 to
              Registrant's FY95 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated
              herein by reference.)
 
   10.58      Amended and Restated Land Lease Agreement dated August 1993 between Registrant and the
              Indianapolis Airport Authority.  (Filed as Exhibit 10.52 to Registrant's FY94 Annual Report on
              Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.)
 
   10.59      Indenture dated as of September 1, 1993 between the City of Indianapolis, Indiana and NBD Bank,
              N.A., as Trustee, relating to the City of Indianapolis Airport Facility Revenue Refunding Bonds,
              Series 1994, due April 1, 2017.  (Filed as Exhibit 10.1 to Registrant's FY94 First Quarter
              Report on Form 10-Q, Commission File No. 1-7806, and incorporated herein by reference.)
 
   10.60      Loan Agreement between the City of Indianapolis and Registrant.  (Filed as Exhibit 10.2 to
              Registrant's FY94 First Quarter Report on Form 10-Q, Commission File No. 1-7806, and
              incorporated herein by reference.)
 
   10.61      Form of Promissory Note to the City of Indianapolis.  (Filed as Exhibit 10.3 to Registrant's
              FY94 First Quarter Report on Form 10-Q, Commission File No. 1-7806, and incorporated herein by
              reference.)
 
   10.62      Indenture dated as of October 1, 1994 between Indianapolis Airport Authority and NBD Bank, N.
              A., as Trustee, relating to 7.10% Special Facilities Revenue Bonds, Series 1994 due January 15,
              2017.  (Filed as Exhibit 10.1 to Registrant's FY95 Second Quarter Report on Form 10-Q,
              Commission File No. 1-7806, and incorporated herein by reference.)

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  EXHIBIT
  NUMBER                                   DESCRIPTION OF EXHIBIT
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<S>           <C>

   10.63      Guaranty dated as of October 1, 1994 from FedEx to NBD Bank, N.A. relating to 7.10% Special
              Facilities Revenue Bonds, Series 1994 due January 15, 2017.  (Filed as Exhibit 10.2 to
              Registrant's FY95 Second Quarter Report on Form 10-Q, Commission File No. 1-7806, and
              incorporated herein by reference.)
 
   10.64      Land and Special Facilities Lease Agreement dated as of October 1, 1994 between Registrant and
              the Indianapolis Airport Authority relating to 7.10% Special Facilities Revenue Bonds, Series
              1994 due January 15, 2017.  (Filed as Exhibit 10.3 to Registrant's FY95 Second Quarter Report on
              Form 10-Q, Commission File No. 1-7806, and incorporated herein by reference.)
 
   10.65      Lease Agreement dated October 9, 1994 between Registrant and Subic Bay Metropolitan Authority.
              (Filed as Exhibit 10.62 to Registrant's FY95 Annual Report on Form 10-K, Commission File No.
              1-7806, and incorporated herein by reference.)
 
   10.66      Indenture dated as of April 1, 1996 between Alliance Airport Authority, Inc. and The First
              National Bank of Chicago, as Trustee, relating to AllianceAirport Authority, Inc. Special
              Facilities Revenue Bonds, Series 1996 (Federal Express Corporation Project) due April 1, 2021.
              (Filed as Exhibit 10.66 to Registrant's FY96 Annual Report on Form 10-K, Commission File No.
              1-7806, and incorporated herein by reference.)
 
   10.67      Guaranty dated as of April 1, 1996 from Registrant to The First National Bank of Chicago
              relating to AllianceAirport Authority, Inc. Special Facilities Revenue Bonds, Series 1996
              (Federal Express Corporation Project) due April 1, 2021.  (Filed as Exhibit 10.67 to
              Registrant's FY96 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated
              herein by reference.)
 
   10.68      Land and Special Facilities Lease Agreement dated as of April 1, 1996 between Registrant and
              AllianceAirport Authority, Inc. relating to AllianceAirport Authority, Inc. Special Facilities
              Revenue Bonds, Series 1996 (Federal Express Corporation Project) due April 1, 2021.  (Filed as
              Exhibit 10.68 to Registrant's FY96 Annual Report on Form 10-K, Commission File No. 1-7806, and
              incorporated herein by reference.)
 
   10.69      Assignment and Assumption Agreement dated April 10, 1996 between AllianceAirport Authority, Inc.
              and the City of Fort Worth, Texas relating to AllianceAirport Authority, Inc. Special Facilities
              Revenue Bonds, Series 1996 (Federal Express Corporation Project) due April 1, 2021.  (Filed as
              Exhibit 10.69 to Registrant's FY96 Annual Report on Form 10-K, Commission File No. 1-7806, and
              incorporated herein by reference.)
 
   10.70      Registrant's Amended and Restated Retirement Parity Pension Plan.  (Filed as Exhibit 10.83 to
              Registrant's FY97 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated
              herein by reference.)

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  EXHIBIT
  NUMBER                                   DESCRIPTION OF EXHIBIT
  -------                                  ---------------------- 
<S>           <C>

   10.71      Management Performance Bonus Plan.  (Description of the performance bonus plan contained in the
              Definitive Proxy Statement for FDX Corporation's 1998 Annual Meeting of Stockholders, under the
              heading "Report on Executive Compensation of the Compensation Committee of the Board of
              Directors," is incorporated herein by reference.)
 
   10.72      Long-Term Performance Bonus Plan.  (A description of each long-term performance bonus plan is
              contained in the Definitive Proxy Statement for FDX Corporation's 1998 Annual Meeting of
              Stockholders, under the heading "Long-Term Incentive Plans - Awards in Last Fiscal Year," and is
              incorporated herein by reference.)
 
   10.73      Purchase Agreement between AVSA and Registrant for the purchase of Airbus A300 aircraft.
              Confidential treatment has been granted for confidential commercial and financial information,
              pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.  (Filed as Exhibit 
              10.36 to Registrant's FY91 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated
              herein by reference.)
 
   10.74      Amendment Nos. 1 through 4 to Purchase Agreement dated July 3, 1991 between AVSA and Registrant.
              Confidential treatment has been granted for confidential commercial and financial information
              pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.  (Filed as Exhibits 
              10.1 through 10.5 to Registrant's FY97 Second Quarter Report on Form 10-Q, Commission File No. 
              1-7806, and incorporated herein by reference.)
 
   10.75      Sales Agreement dated April 7, 1995 between Registrant and American Airlines, Inc. for the
              purchase of MD11 aircraft.  Confidential treatment has been granted for confidential commercial
              and financial information pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
              amended. (Filed as Exhibit 10.79 to Registrant's FY95 Annual Report on Form 10-K, Commission File 
              No. 1-7806, and incorporated herein by reference.)
 
   10.76      Amendment No. 1, dated September 19, 1996, to Sales Agreement dated April 7, 1995 between
              Registrant and American Airlines, Inc.  (Filed as Exhibit 10.93 to Registrant's FY97 Annual
              Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.)
 
   10.77      Modification Services Agreement dated September 16, 1996 between McDonnell Douglas Corporation
              and Registrant.  Confidential treatment has been granted for confidential commercial and
              financial information pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as 
              amended.  (Filed as Exhibit 10.6 to Registrant's FY97 Second Quarter Report on Form 10-Q, 
              Commission File No. 1-7806, and incorporated herein by reference.)
 
   10.78      Letter Agreement No. 3 dated July 15, 1997, amending the Modification Services Agreement dated
              September 16, 1996, between McDonnell Douglas Corporation and Registrant.  Confidential 
              treatment has been granted for confidential commercial and financial information pursuant
              to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.  (Filed as Exhibit 10.1 
              to Registrant's FY98 First Quarter Report on Form 10-Q, Commission File No. 1-7806, and
              incorporated herein by reference.)

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<TABLE> 
<CAPTION> 

  EXHIBIT
  NUMBER                                   DESCRIPTION OF EXHIBIT
  -------                                  ---------------------- 
<S>           <C>

   10.79      Letter Agreement Nos. 5-7 dated January 12, 1998, March 16, 1998 and February 26, 1998,
              respectively, amending the Modification Services Agreement dated September 16, 1996, between
              McDonnell Douglas Corporation and Registrant.  Confidential treatment has been granted for
              confidential commercial and financial information pursuant to Rule 24b-2 under the Securities
              Exchange Act of 1934, as amended.  (Filed as Exhibits 10.1 through 10.3 to Registrant's FY98 
              Second Quarter Report on Form 10-Q, Commission File No. 1-7806, and incorporated herein by 
              reference.)
 
   10.80      Aircraft Sales Agreement dated as of April 21, 1998 between Flightlease, Ltd. and Registrant.
              (Filed as Exhibit 10.94 to FDX Corporation's FY98 Annual Report on Form 10-K, Commission File 
              No. 333-39483, and incorporated herein by reference.)
 
    12        Statement re Computation of Ratio of Earnings to Fixed Charges.
 
    23        Consent of Independent Public Accountants.
 
    24        Powers of Attorney.
 
    27        Financial Data Schedule.
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