United Parcel Service, Inc.

Andy Dolny - Vice President of Investor Relations Scott Davis - Chairman, Chief Executive Officer and Chairman of Executive Committee Kurt Kuehn - Chief Financial Officer, Principal Accounting Officer, Senior Vice President and Treasurer Alan Gershenhorn - Senior Vice President of Worldwide Sales, Marketing and Strategy Daniel Brutto - Senior Vice President and President of UPS International Myron Gray - President of U.S. Operations David Abney - Chief Operating Officer of UPS International

Justin B. Yagerman – Deutsche Bank AG Tom Wadewitz - JPMorgan David Vernon - Sanford C.

Bernstein Benjamin J. Hartford –Robert W.

Baird & Co. Inc.

Christopher J. Ceraso - Crédit Suisse AG Ken Hoexter – Bank of America Merrill Lynch Bill Greene - Morgan Stanley Scott Group - Wolfe Trahan Arthur W.

Hatfield – Raymond James & Associates, Inc. Christian Wetherbee – Citigroup Inc.

Kevin Sterling - BB&T Capital Markets Nathan Brochmann - William Blair & Company Jeff Kauffman – Sterne Agee Brandon Oglenski – Barclays Helane Becker - Dahlman Rose & Company Peter Nesvold - Jeffries & Company Tom Kim - Goldman Sachs

Well, thanks David and good morning everyone. On a consolidated basis UPS fundamentals are strong as ever.

We wrapped up the year with free cash flow of approximately $5.4 billion and although we feel short of our target for the year, UPS generated record earnings per share of $4.53. This was achieved in the face of weak global trade and in spite of superstorm Sandy which cost us about $0.05 a share.UPS annual revenue of $54.1 billion was our highest ever, as were the 4.1 billion packages we delivered globally.

Pricing improvements, along with the efficiencies that David highlighted, led to margin expansion. For the quarter, consolidated package volume grew 3% per day.

Revenue of $14.6 billion set a record as did operating profit at $2 billion.While the U.S domestic segment improved profitability, international experienced a slight decline and faced with a margin squeeze in forwarding, the supply chain and freight segment also exhibited lower profit.Now let’s review our results in detail, starting with the U.S domestic segment. In the U.S, we fired on all cylinders.

Operating profit was nearly $1.4 billion, a new high. Average daily volume grew 3% with Next Day Air up almost 8% and Ground up 3%, driven by expansion in B2C shipments.Despite slightly weaker than forecast holiday retail sales, shoppers went online like never before.

We experienced strong growth in Next Day Air Saver and traditional UPS Ground and of course our lightweight solution SurePost, was also popular this holiday season. We continued to see strong growth there, even though we wrapped last year’s rollout of this product.Revenue for the segment grew 3%, with Next Day Air and Ground up 5.4% and 3.4% respectively.

Revenue per piece increased 1.7%, driven by base rate improvements in both Ground and Air. As a result of increased demand for our Saver products, Next Day Air revenue per piece declined 60 basis points.Operating profit of almost $1.4 billion was up 4.4% and operating margin expanded to 15.4%.

Hurricane Sandy was a challenge in the quarter, but our operations expertise and integrated network mitigated some of its impact. In addition, rising healthcare benefit costs continues to be a headwind, but its impact on the quarter was partially offset by some onetime items.Moving on to our international segment, UPS delivered 1.1 million export packages per day, up 5.5%, although that was boosted about 1% by global operating day differences.

Leading the growth was Asia, where export volume grew in the mid-teens, aided strongly by tech sector product launches.During the quarter, export revenue per piece declined 3.5% on a currency neutral basis. Typically, Asia growth would be a great story, but during the holidays this growth was concentrated in lower weight packages from high volume shippers using less premium products.Europe exports improved as a result of growth in non-premium products.

Companies there continue to streamline their supply chains and lever UPS solutions to meet their needs. Germany, Italy and the U.K all showed solid export increases.

We are confident in the opportunities created by a developing European small package market and we’ll continue to aggressively pursue growth strategies there.Domestic revenue in the international segment increased 1.3% on flat daily volume growth. Revenue per piece increased more than 4% on a currency neutral basis, reflecting our focus on revenue management.Overall, total UPS international revenue grew 1.5% to $3.2 billion.

Operating profit was $499 million, down slightly. Changes in customer and product mix lowered profits.

However, operating margin of 15.6% continues to set the bar in the industry. Acquisition related expenses of approximately $30 million were higher than anticipated and negatively impacted earnings per share by about $0.01 more than originally expected.Now for supply chain and freight.

Revenue increased 4% over last year to $2.4 billion. Our forwarding and logistics group improved $40 million or 2.5%, while UPS freight revenue increased by $39 million or 6.2%.

In the forwarding business, tonnage and yield improvements led to revenue growth, though this growth was somewhat offset by reductions in other transportation solutions. Increases in transportation expense were a challenge for profit.

In the Asia air freight market there was a short term volume surge which exceeded capacities and drove up buy rates. As a result our margin was squeezed and profit declined.

However, UPS Ocean products did very well. Revenue and profit increased year-over-year and the popularity of our less than container load offering exceeded expectations.

The UPS distribution business increased revenue by providing healthcare and high-tech customers effective solutions to better manage their supply chains. In fact, healthcare revenue increased by more than (inaudible).

During the quarter we opened three new healthcare facilities and more are scheduled for 2013.At UPS Freight, LTL revenue was up 6.5% and gross weight hauled increased by almost five. For the quarter, operating margin was similar to last year and overall for the year margin expanded by 70 basis points.

Let me shift gears and spend a moment on pensions. First, a reminder that the mark-to-market charge that Andy spoke about does not affect UPS cash flow, benefits paid to plan participants or required pension funding.

Funding requirements for UPS sponsored pension plans were modified by recent legislation and as a result UPS plans are fully funded and we have no required cash contributions in 2013.As for pension expense in 2013, the lower discount rates do cause higher service and interest costs. As a result, we expect pension expense for these plans to increase about $225 million compared to last year.

This will be a significant drag in 2013 although when discount rates go back up, we will see decreases in pension expense. Looking now at our cash and balance sheet.During 2012, UPS generated $5.4 billion in free cash flow after capital expenditures of $2.2 billion.

We ended the year with almost $8 billion in cash and marketable securities. Although keep in mind that $1.75 billion has already been used this month to pay up maturing debt.

For the year, UPS paid $2.1 billion in dividends, an increase of 9.6% per share. In addition, we repurchased 21.8 million shares for approximately $1.6 billion.

Looking ahead to 2013, UPS expects strong free cash flow to continue, again exceeding 100% of net income.As a result of our strong financial position and reflecting our commitment to share on the distributions, UPS is increasing our 2013 guidance for share repurchases by an additional $2.5 billion, up to a total of $4 billion. As always, dividends will also continue to be a priority.

Looking at guidance beyond cash, as Scott alluded to, the global economic shows that we remain in the cycle of mixed recovery with more improvement in some places than others. We are confident that the strategies outlined by Scott position UPS well.

As a result, we expect another good year of earnings growth. We are anticipating earnings per share in the range of $4.80 to $5.06, an increase of 6% to 12%.Looking at the segments.

For the full year, U.S. domestic average daily volume is projected to grow around 2% to 3%, slightly above GDP estimates.

Revenue is expected to be up mid-single digits with base rate improvements of 2% to 3%. We are pleased with the momentum in our domestic business although UPS does expect increased healthcare and pension expense to limit margin expansion.

We anticipate an operating margin approaching 14%, resulting in profit growth at a mid-single digit pace. In our international business, UPS expects revenue to increase at a mid-single digit rate with domestic and export daily volume growing faster than global GDP.Exports yields will continue to be pressured by both changing customer mix and increased reliance on non-premium products.

We expect operating margin will expand slightly in spite of an estimated currency headwind of $125 million. In supply chain and freight, for the full year, we expect revenue to increase at a mid to high single-digit pace with some margin expansion, resulting in profit growth of approximately 10%.

The segment is expected to maintain a strong operating margin of at least 8%, despite continued investments in healthcare solutions and facilities.Looking specifically at expectations for first quarter, there are a number of items that will negatively impact year-over-year comparisons, most notably, one less operating day and the timing of an early Easter. Even though UPS expects full year earnings per share growth in the range of 6% to 12%, for the first quarter, we anticipate that earnings per share growth will be relatively flat.

Reviewing segments for the first quarter, both U.S domestic and international are expected to generate results similar to Q1 of last year. Supply chain and freight profits end margins should be down on a year-over-year basis because of investments in technology and the gain recognized last year on the sale of the surplus facility.To wrap up the income statement, our overall tax rate for 2013 should be between 34% and 35%.

Regarding CapEx, for the full year, we expect our spending to be $2.4 billion, keeping us at approximately 4% of revenue.In summary, 2012 had its challenges. UPS set some records, but we also fell short in some areas.

We are always constructively dissatisfied at UPS, seeking to attain new highs and this year will be no different. Despite another year of mixed global economic conditions, and approximately $350 million in headwinds from pension and currency, UPS will continue to raise the bar, with expected full year earnings per share growth of 6% to 12%.

And as Scott mentioned earlier, we remain confident in our ability to achieve the UPS long term target of 10% to 15% earnings per share growth.Thanks and now we’ll be happy to answer your questions.

Well, thanks David and good morning everyone. On a consolidated basis UPS fundamentals are strong as ever.

We wrapped up the year with free cash flow of approximately $5.4 billion and although we feel short of our target for the year, UPS generated record earnings per share of $4.53. This was achieved in the face of weak global trade and in spite of superstorm Sandy which cost us about $0.05 a share.UPS annual revenue of $54.1 billion was our highest ever, as were the 4.1 billion packages we delivered globally.

Pricing improvements, along with the efficiencies that David highlighted, led to margin expansion. For the quarter, consolidated package volume grew 3% per day.

Revenue of $14.6 billion set a record as did operating profit at $2 billion.While the U.S domestic segment improved profitability, international experienced a slight decline and faced with a margin squeeze in forwarding, the supply chain and freight segment also exhibited lower profit.Now let’s review our results in detail, starting with the U.S domestic segment. In the U.S, we fired on all cylinders.

Operating profit was nearly $1.4 billion, a new high. Average daily volume grew 3% with Next Day Air up almost 8% and Ground up 3%, driven by expansion in B2C shipments.Despite slightly weaker than forecast holiday retail sales, shoppers went online like never before.

We experienced strong growth in Next Day Air Saver and traditional UPS Ground and of course our lightweight solution SurePost, was also popular this holiday season. We continued to see strong growth there, even though we wrapped last year’s rollout of this product.Revenue for the segment grew 3%, with Next Day Air and Ground up 5.4% and 3.4% respectively.

Revenue per piece increased 1.7%, driven by base rate improvements in both Ground and Air. As a result of increased demand for our Saver products, Next Day Air revenue per piece declined 60 basis points.Operating profit of almost $1.4 billion was up 4.4% and operating margin expanded to 15.4%.

Hurricane Sandy was a challenge in the quarter, but our operations expertise and integrated network mitigated some of its impact. In addition, rising healthcare benefit costs continues to be a headwind, but its impact on the quarter was partially offset by some onetime items.Moving on to our international segment, UPS delivered 1.1 million export packages per day, up 5.5%, although that was boosted about 1% by global operating day differences.

Leading the growth was Asia, where export volume grew in the mid-teens, aided strongly by tech sector product launches.During the quarter, export revenue per piece declined 3.5% on a currency neutral basis. Typically, Asia growth would be a great story, but during the holidays this growth was concentrated in lower weight packages from high volume shippers using less premium products.Europe exports improved as a result of growth in non-premium products.

Companies there continue to streamline their supply chains and lever UPS solutions to meet their needs. Germany, Italy and the U.K all showed solid export increases.

We are confident in the opportunities created by a developing European small package market and we’ll continue to aggressively pursue growth strategies there.Domestic revenue in the international segment increased 1.3% on flat daily volume growth. Revenue per piece increased more than 4% on a currency neutral basis, reflecting our focus on revenue management.Overall, total UPS international revenue grew 1.5% to $3.2 billion.

Operating profit was $499 million, down slightly. Changes in customer and product mix lowered profits.

However, operating margin of 15.6% continues to set the bar in the industry. Acquisition related expenses of approximately $30 million were higher than anticipated and negatively impacted earnings per share by about $0.01 more than originally expected.Now for supply chain and freight.

Revenue increased 4% over last year to $2.4 billion. Our forwarding and logistics group improved $40 million or 2.5%, while UPS freight revenue increased by $39 million or 6.2%.

In the forwarding business, tonnage and yield improvements led to revenue growth, though this growth was somewhat offset by reductions in other transportation solutions. Increases in transportation expense were a challenge for profit.

In the Asia air freight market there was a short term volume surge which exceeded capacities and drove up buy rates. As a result our margin was squeezed and profit declined.

However, UPS Ocean products did very well. Revenue and profit increased year-over-year and the popularity of our less than container load offering exceeded expectations.

The UPS distribution business increased revenue by providing healthcare and high-tech customers effective solutions to better manage their supply chains. In fact, healthcare revenue increased by more than (inaudible).

During the quarter we opened three new healthcare facilities and more are scheduled for 2013.At UPS Freight, LTL revenue was up 6.5% and gross weight hauled increased by almost five. For the quarter, operating margin was similar to last year and overall for the year margin expanded by 70 basis points.

Let me shift gears and spend a moment on pensions. First, a reminder that the mark-to-market charge that Andy spoke about does not affect UPS cash flow, benefits paid to plan participants or required pension funding.

Funding requirements for UPS sponsored pension plans were modified by recent legislation and as a result UPS plans are fully funded and we have no required cash contributions in 2013.As for pension expense in 2013, the lower discount rates do cause higher service and interest costs. As a result, we expect pension expense for these plans to increase about $225 million compared to last year.

This will be a significant drag in 2013 although when discount rates go back up, we will see decreases in pension expense. Looking now at our cash and balance sheet.During 2012, UPS generated $5.4 billion in free cash flow after capital expenditures of $2.2 billion.

We ended the year with almost $8 billion in cash and marketable securities. Although keep in mind that $1.75 billion has already been used this month to pay up maturing debt.

For the year, UPS paid $2.1 billion in dividends, an increase of 9.6% per share. In addition, we repurchased 21.8 million shares for approximately $1.6 billion.

Looking ahead to 2013, UPS expects strong free cash flow to continue, again exceeding 100% of net income.As a result of our strong financial position and reflecting our commitment to share on the distributions, UPS is increasing our 2013 guidance for share repurchases by an additional $2.5 billion, up to a total of $4 billion. As always, dividends will also continue to be a priority.

Looking at guidance beyond cash, as Scott alluded to, the global economic shows that we remain in the cycle of mixed recovery with more improvement in some places than others. We are confident that the strategies outlined by Scott position UPS well.

As a result, we expect another good year of earnings growth. We are anticipating earnings per share in the range of $4.80 to $5.06, an increase of 6% to 12%.Looking at the segments.

For the full year, U.S. domestic average daily volume is projected to grow around 2% to 3%, slightly above GDP estimates.

Revenue is expected to be up mid-single digits with base rate improvements of 2% to 3%. We are pleased with the momentum in our domestic business although UPS does expect increased healthcare and pension expense to limit margin expansion.

We anticipate an operating margin approaching 14%, resulting in profit growth at a mid-single digit pace. In our international business, UPS expects revenue to increase at a mid-single digit rate with domestic and export daily volume growing faster than global GDP.Exports yields will continue to be pressured by both changing customer mix and increased reliance on non-premium products.

We expect operating margin will expand slightly in spite of an estimated currency headwind of $125 million. In supply chain and freight, for the full year, we expect revenue to increase at a mid to high single-digit pace with some margin expansion, resulting in profit growth of approximately 10%.

The segment is expected to maintain a strong operating margin of at least 8%, despite continued investments in healthcare solutions and facilities.Looking specifically at expectations for first quarter, there are a number of items that will negatively impact year-over-year comparisons, most notably, one less operating day and the timing of an early Easter. Even though UPS expects full year earnings per share growth in the range of 6% to 12%, for the first quarter, we anticipate that earnings per share growth will be relatively flat.

Reviewing segments for the first quarter, both U.S domestic and international are expected to generate results similar to Q1 of last year. Supply chain and freight profits end margins should be down on a year-over-year basis because of investments in technology and the gain recognized last year on the sale of the surplus facility.To wrap up the income statement, our overall tax rate for 2013 should be between 34% and 35%.

Regarding CapEx, for the full year, we expect our spending to be $2.4 billion, keeping us at approximately 4% of revenue.In summary, 2012 had its challenges. UPS set some records, but we also fell short in some areas.

We are always constructively dissatisfied at UPS, seeking to attain new highs and this year will be no different. Despite another year of mixed global economic conditions, and approximately $350 million in headwinds from pension and currency, UPS will continue to raise the bar, with expected full year earnings per share growth of 6% to 12%.

And as Scott mentioned earlier, we remain confident in our ability to achieve the UPS long term target of 10% to 15% earnings per share growth.Thanks and now we’ll be happy to answer your questions.