...Good afternoon, everyone, and welcome. Thanks for your interest in UPS and for many of you, your dedication in helping us become the company we are today. The goal of this webcast is to provide you with the same information that we give to our institutional investors. This first slide is the cover of our 2012 annual report that was just released a couple of weeks ago. On the IR website, you'll find a traditional PDF as well as other interactive options. We are creating more electronic content in response to the evolving needs of our stakeholders. The slogan, "We Shrink the Globe," reflects our unique integrated network and comprehensive portfolio of solutions that make it possible for UPS customers around the world to compete.
We are looking forward to telling you about the ways UPS is ensuring that this powerful franchise we've built together continues to produce value for our customers and consistent returns for our shareowners. Go on to the next slide, and I'm going to make my lawyers happy here. But before we get started, let me caution you that we will be making some forward-looking statements in this presentation. The risks associated with these forward-looking statements are covered in our SEC filings. For all non-GAAP measures that we use in this presentation, reconciliations are available for download from the UPS IR website. Now, let's get started. Helping me today cover today's presentation will be Mike Jones. Mike is the VP of Investor Relations. Okay, I'm going to cover the agenda now.
Today's agenda will cover this year's proxy and the migration of our transfer agent from BNY Mellon to Computershare, along with UPS 2012 results. We will also review our growth strategy. We will wrap up with an opportunity to answer any questions you submit during this presentation. At any time during today's call, you can submit a question from the Ask a Question tab on your screen. You'll see it located next to the Slide tab. Simply type your question and click the Submit button. At the end of the webcast, you will be asked to complete a very short survey. Please take the time to provide us some feedback, as well as some topics you want us to cover in future webcasts. Now, I'm going to turn it over to Mike to cover the first part of today's presentation.
Thanks, Andy. In May, we'll be holding the annual UPS Shareowner Meeting in Delaware. Each nominee director must receive a majority of the votes cast, and there's a new name on the ballot this year. It's Kevin Warsh. He was first named to the board in July and is standing for election to a regular one-year term. Kevin is a former member of the Board of Governors of the Federal Reserve System, and previously, he served four years at the White House as President George W. Bush's Special Assistant for Economic Policy and as an Executive Secretary of the National Economic Council. After 12 years of distinguished service, John Thompson, CEO of Virtual Instruments, will not stand for re-election. As in past proxy votes, you will also be asked to approve Deloitte & Touche as our independent, registered public accountants. There will also be two shareowner proposals.
On both, the board recommends a vote against. The first proposal is on lobbying disclosure. The board believes it is not necessary, given UPS's existing policies, the oversight role played by UPS's board, and UPS's extensive disclosure. The second shareowner proposal involves reducing the voting power of Class A stock. For the reasons outlined in the proxy, UPS strongly disagrees with the proposal's characterization of UPS's ownership structure. Our structure aligns the interests of UPS employees and shareowners in building long-term shareowner value. Class A shares are widely held, and in fact, there are more than 156,000 holders as of February of this year. Moreover, our employee ownership tradition dates back to our founders, who believed that employee stock ownership was a vital foundation for a successful business.
The board has evaluated our ownership structure on numerous occasions and believes it continues to be in the best interest of UPS and its shareowners. We encourage all of you to read the board's responses on both shareowner proposals. As always, your vote is extremely important. You may vote your paper ballot through the mail, or you can vote using the proxyvote.com website. In fact, you should have received an email today notifying you that you can now vote via proxy vote. We also want to ask you to consider permanently opting into electronic delivery of proxy materials to help UPS reduce costs, and instructions are in your proxy material on how to do that. Moving on, I'd like to review some enhancements that are coming up to the way you access the BNY Mellon and the Computershare site.
Since 2002, BNY Mellon has served as the stock transfer agent for UPS. BNY Mellon was acquired by Computershare in January 2012. Computershare is the world's largest stock transfer agent, and their best-in-class technology will provide an improved customer experience. While the Mellon website was rebranded in June, its functionality remained the same. We've been working with Computershare since early last year to enable an effective migration from the BNY platform to the Computershare platform. That migration will take effect May 13, when you will notice a new look, new functionality, and, of course, a new login screen. Your existing credentials will be used at the first login, at which time you'll be prompted to set up new credentials.
We've made every effort to make the transition to the new system seamless, but should you encounter any problems, contact Computershare directly at the same phone number you can reach them at today, which is 1-888-663-8325. Now let's switch gears, and talk about some of UPS's business performance and future opportunities. During this presentation, we're going to discuss UPS's cash generation and industry-leading margins. How do we do it? Why is our business model so successful? What are our competitive advantages? First, our employees are the ambassadors of our brand and well regarded by our customers and communities. The integrated network is the efficiency engine that contributes to UPS's industry-leading margin. The UPS innovation cycle is a key differentiator, enabling optimized operations and unique customer solutions. We have a rich culture of employee ownership.
97% of all management and more than 30% of the drivers in the U.S. are shareowners. Our compensation and incentive plans reward accountability and results. And as many of you on this call know and can attest to, we are always constructively dissatisfied, creating an environment of continuous improvement. Now, let's quickly review our 2012 business results. We had record earnings per share in 2012. The U.S. domestic segment led the way with 6.4% growth in operating profit. 2012, though, was a challenging year for our international segment, given the weakness in global trade, the European debt concerns, and declining shipment weight from high-volume shippers. Still, UPS generated $1.8 billion in operating profit, and our operating margin of 14.9% led the industry.
During the year, we continued investing in our capabilities and our brand. As the official logistics and express delivery supporter of the 2012 London Games, UPS staged the largest peacetime logistical undertaking in the world. Additionally, the multiyear expansion of our Cologne hub continued and is on track for completion in 2013. It will increase capacity by 70%. Last year, we acquired the European consumer delivery company, Kiala, whose e-commerce technology platform broadens our service portfolio for business-to-consumer deliveries. We introduced new returns services to 30 countries throughout Europe. In North America, we expanded across eight cities in Canada, and in Asia, we launched a new flight between Zhengzhou, China, and Incheon, South Korea, to meet customer needs in growing markets. While the supply chain and freight segment also faced challenges, UPS Freight and distribution units performed well.
UPS Freight increased revenue and tonnage and expanded its operating margin, while the forwarding unit was pressured by weak global trade. In our distribution unit, we continued to invest in new technology and facilities. In fact, in 2012, we increased our global healthcare presence in eight locations in North America as well as Asia Pacific, expanding our distribution capabilities by more than 1 million sq ft. UPS also began to implement a global state-of-the-art warehouse management system that further integrates supply chains for our healthcare customers. Looking at our financial position, during 2012, UPS generated $5.4 billion in free cash flow after CapEx of $2.2 billion. We ended the year with almost $8 billion in cash and marketable securities, but keep in mind that $1.75 billion was used in January to pay off maturing debt.
For the year, UPS paid $2.1 billion in dividends, an increase of almost 10% per share. In addition, we repurchased 21.8 million shares for approximately $1.6 billion. We generated a return on invested capital of 25%. So, as you can see, the UPS business model is very strong. Now, let's spend a few minutes talking about how we're positioned for growth going forward.
Good job, Mike. You might have noticed that missing from Mike's review of 2012 was any mention of TNT. We all know that our bid to acquire TNT was top of mind throughout the year. We had all hands on deck working to make it happen. It would be an understatement to say that we were disappointed by the decision of the European Commission to block the acquisition. While we view the TNT transaction as part of a compelling growth platform, UPS is moving on. Our financial strength enables us to both evaluate future prospects and continue to invest in our portfolio. We intend to pursue growth opportunities, both organically and through acquisitions, and continue to roll out innovative solutions. Let's talk about it on the next slide. What are the growth catalysts for UPS? For starters, the rising middle class.
It is projected that by 2020, more than 1 billion consumers will come from China and India alone. These emerging economies offer great opportunities. They have dynamic and diverse economies, sound financial systems, and young, growing populations. These markets provide an excellent option for sourcing, as well as growing middle classes that will increase consumption within the countries. The direct-to-consumer business model plays a huge part in serving the next generation.... We've seen this trend occurring in the U.S., and it will continue to evolve in other parts of the world. As supply chains increase in complexity and manufacturers look to diversify and spread out risk, they are seeking value-added solutions to integrate their supply chains and solve complex business challenges. Leveraging our broad portfolio and logistics expertise, UPS can continue to deliver consistent and sustainable results for our shareowners. Now turning to the next slide.
The strength of our people, our brand, and our financial position enables UPS to develop and execute four transformative strategies to streamline our customer supply chains and grow UPS revenues and profits. Technology is changing how we pick up and deliver packages. For example, making it possible to more efficiently serve the growth in online shipping. Developing industry-specific expertise will help customers capitalize on opportunities and strengthens their supply chains. We continue to enhance our network, connecting global markets through our existing capabilities, along with new ones developed internally or acquired via acquisition. For example, in Asia, over the last few years, we have improved time and transit in well over 100 intra-Asia lane pairs. We've added new flights, and most recently, we acquired our joint stock company, making UPS the first 100% foreign-owned global integrator to operate in Vietnam.
Finally, we are focused on enabling consistent and sustainable growth as we serve the dynamic needs of end consumers around the world. Turning to the next slide. To deliver goods to the right place, at the right time, in the right quantity, takes a great deal of effort and the mobilization of a global workforce, expansive assets, and complex processes. At UPS, we promote the power of innovation broadly across our organization. The UPS innovation cycle is a key competitive advantage. Technologies developed for an operation serve as a catalyst for innovative advances in other areas, enabling us to offer unique customer solutions and experiences. Customers want to tap into our operational systems to control package delivery. That's what UPS My Choice and the acquisition of Kiala is all about, convenience.
Looking ahead, you can count on UPS to continue to make significant investments in technology and to help customers streamline their supply chains. Going on to the next slide. In addition to technology, UPS has been investing in understanding and developing solutions for customers in specific industries. Today, all our business segments are aligned to address the specific needs of six industry verticals: government, industrial and automotive, professional and consumer services, healthcare, high tech, and retail. Looking specifically at healthcare, we have built out a global healthcare logistics network that today includes nearly 6 million sq ft of space in 37 dedicated facilities around the world, and more expansions are in the works. The final component of our strategy is all about serving end consumers. The advantages of shopping online are driving more and more consumers to move away from traditional brick-and-mortar stores.
Shippers are revisiting their strategies as their customers are looking for a seamless experience, regardless of where they buy: in the store, online, or through mobile devices. This has led to an omni-channel distribution strategy, creating the need for complex integrated solutions. Consumers want flexibility, they want visibility, which UPS can provide through our innovative technology. Moving on to the next slide. One common thread that runs through many of our strategies is the end consumer, not only in the U.S., but around the world. Online sales are the catalyst for driving earnings growth well into the future. As this chart demonstrates, there is opportunity in all geographies, and clearly, this will evolve further as middle classes around the globe continue to develop. Today, there is some concentration.
14 countries outside the U.S. represent 64% of online sales as the U.S., and they collectively make up 85% of online sales. In Europe, 59% of online sales are concentrated in countries where we have a strong value proposition, and that proposition is getting even stronger. Next slide. The needs of these end consumers outside the U.S., though, are different. A great example of how we're meeting them is through the Kiala acquisition we made a year ago. This model has great potential. Through an innovative online application, consignees choose to have packages delivered to a neighborhood retail location for pickup at their convenience. This enables the consolidation of multiple door-to-door deliveries into a single B2B stop. Fewer stops and increased package densities translates into more profits.
With innovative technology and more than 6,500 delivery locations in five European countries, we saw a path to developing a scalable and adaptable way to serve the high-growth European e-commerce market. Over the last year, we've been working hard to developing and executing an expansion plan. Recently, we launched this model in the U.K. as UPS Access Points. So as you can see, there are some powerful growth catalysts for UPS, and the execution of our strategies will enable us to continue to deliver consistent and sustainable earnings growth for our shareowners. Now, let me turn it back to Mike.
Thanks, Andy. We're going to start wrapping things up here with a review of our financial hallmarks. After all, no discussion on UPS as an investment would be complete without talking about some of the key financial performances, measures that have become trademarks of investing in UPS. And, oh, by the way, a couple of questions have already come in through the webcast, so just a reminder, anytime you can submit a question from the Ask a Question tab on your screen. You'll see it located next to the Slide tab. Simply type your question, click the Submit button, and we'll address questions at the end of the presentation. Let's continue looking at our financial hallmarks, moving to the next slide. What metrics suggest UPS is a compelling investment? Probably the first place to start is talking about our ability to generate cash.
From working capital to capital budgeting, efficiency is something ingrained in all UPS managers, and it shows in our results. We pride ourselves on the ability to turn profit into cash, consistently delivering a free cash flow conversion in excess of 100%. Free cash flow makes it possible to make acquisitions, execute opportunistic and strategic investments without affecting the long-term health of the company, raise dividends, and repurchase shares. UPS long-term investors clearly value our ability to consistently generate cash. We generated $5.4 billion of free cash flow in 2012, which is 122% of adjusted net income. Quite frankly, it's not always appreciated in the market. This is evident when you look at the trend of our price to free cash flow. We are trading at a discount to previous years.
With regard to operating efficiency, we set the bar high among our competitors. We have a highly skilled group of employees and managers that know our business inside and out. They're guided by a philosophy handed down by previous UPS generations, always be constructively dissatisfied. The investments we've made, not only in building out our unmatched global integrated network, but also in operating technology, enable UPS to maintain and even expand the gap over our competitors. To the next slide. Obviously, our consistent capital efficiency matters to investors. It enables UPS to return cash to the people who have entrusted us to manage it wisely. The dividend is a UPS hallmark, which I cannot overemphasize. For more than four decades, we've either increased or maintained the dividend, and since 2000, the dividend has more than tripled.
Both our employee and outside shareowners place great value on the consistency of our dividend and therefore, the UPS board as well. After reinvesting in the business, the dividend is a top priority. Though there is no stated dividend policy, UPS does target to return approximately 100% of net income back to shareowners. As you can see on this slide, capital efficiency and strong free cash flows also enable a share repurchase program that is meaningful, increasing shareowner value. Earlier this year, we announced an increase in 2013 share repurchases from $1.5 billion-$4 billion. This returns us to the level of activity we outlined in our long-term targets set back in September 2011. As you can see, UPS is as strong as ever, and our historical trend reflects consistency.
We are a company committed to financial discipline and have a business model built upon efficiency and innovation. As we come to the last two slides, what can you expect from UPS in 2013? When we reported earnings back in January, we said that despite below-trend GDP, we expected 2013 EPS growth of 6%-12%. Domestic margin would approach 14%, international margin would expand slightly, in spite of some pretty challenging currency headwinds, and supply chain and freight margin would be at least 8%. All in all, we expect another strong year of growth with solid returns to shareowners, considering the year-over-year dividend increase of 9% and $4 billion in share repurchases.
Going on to the next slide. So to conclude, I'll leave you with these thoughts. UPS's financial metrics make us a compelling investment: cash generation, operations excellence, and return to shareowners. UPS business model is successful because of our people, our technology, the integrated network, and portfolio of solutions. Lastly, we make it consistent and sustainable by capitalizing on the catalysts and strategies that will enable continued strong returns to our investors. And that brings us to the Q&A portion of the webcast. Let me take a look, and let's see what we have in queue. And, you just keep on sending your questions. Again, I won't read off names or anything, but I just want to read off the questions and, make sure we get them answered here.
So the first one that I see is: Can you talk about how we prioritize the uses of cash? And I guess I'll take that one. You know, our goal is to maintain a strong balance sheet, clearly, and preserve our financial flexibility.... Primary first focus is reinvesting in the business, pursuing growth opportunities, either that through, you know, organic growth or through acquisition. Following that, we clearly have a priority to dividends. Mike talked about our dividend growth, and you'll always see the balancing factor as our share purchases. You know, we usually want to return 100% of net income to investors, but you'll see that we have a 45-50-year history of maintaining or increasing that dividend, and the fluctuation will occur with our share purchases.
So as you know, and you followed us for a long time, we are committed to the dividend, and you can see that in our history. The next question I see is: how is UPS responding to the B2C market? I'll let Mike answer that one.
Sure. And that's definitely a question we get all the time from investors, and, because obviously, that's where a big part of the market is going. And we see this as the end consumer, as a catalyst for growth, not only in the U.S., but around the world, as Andy talked about a moment ago. There's, when you look at some of the different things we've rolled out, whether it's UPS SurePost, My Choice, our returns portfolio, our acquisition of Kiala, the rollout of UPS Access Points, these are all just a few specific examples of solutions for this market, and we continue to develop more innovative products. Obviously, the goal is to, to stay ahead of the market, actually, to lead the market, be a thought leader out there, as well as to stay ahead of the demands of our customers.
We are supplementing our products with industry-specific expertise. And again, as I said, really becoming this thought leader to help customers identify the right B2C solution for their end customers, depending on the industry. Because what we do in the U.S. may not, and most likely will not, be what we do in all parts of Asia or parts of Europe. And so we have to make sure we're matching the solution with what the market demands. And as we continue to leverage advances in operational technology, we're able to drive continual improvements in the operating margins associated with B2C deliveries.
Something, quite frankly, that we weren't able to say four or five years ago, but we do continue to see that our margins get better each quarter after quarter with our B2C, and this is definitely where the market's going, and we continue to roll out new solutions for it.
Okay, I see I see a few TNT questions, so I'm going to kind of put them together. One I see is: can you share some additional insight on the TNT deal? What went wrong? And then I see, read today that they're selling their interest in Brazil and elsewhere. Are we considering buying these interests, especially in Brazil? So let me try to answer those. I think first, some additional insight. You know, yeah, the regulatory approval process in Europe is quite complicated, and given the number of times we looked at the transaction and the competition concerns that they might raise, we were pretty confident we'd get this thing approved.
Another thing that was, you know, apparent to us, this, quote, "confidential process" wasn't as confidential as it could have been based on some public comments that were made by the governing authority. But, at the end of the day, you know, it came down to differing views on the competitive landscape and on the definition of the market. You know, my opinion, and I'm not speaking for UPS here, they had a pretty narrow definition of the market. But, you know, they identified three players, us, TNT, and DHL, and they talked about how it was going from three to two. This different in perspectives could not be foreseen at the time, you know, we announced the deal back in March of 2012.
It's important to remember that, you know, this is only part of our growth strategy, and our strategy is not hinging totally on TNT acquisition. The thing regarding Brazil, I said, you know, look, anything that's offered for sale, you know, we got a fairly active M&A group, and I'm not going to just point to TNT, but a number of different things we have going on. So if there's something out there that we think we have interest in, yeah, we'll take a look at it. And specifically, if you're asking me about Brazil, yeah, I'm sure, you know, if it's available, we'll at least take a look. Let's see. Okay, I see one here.
When I retired in 1993, I was advised to sell my UPS stock, which I did not, thank God. That said, however, I noticed the last several years that the FedEx stock has outperformed ours in price. Why is that? I guess I'll start off, and I'll let-- I think Mike's got some numbers here. It's not all about price, it's about total returns. And I think that's where the difference comes in. And, Mike, I don't know if you've got some numbers to share.
Yeah, I do. I mean, obviously, that's a question that we do get a lot because we'd spend a lot of time talking to employees as well, and that's a question that does come up. And yeah, there may be time periods where one stock outperforms another, but I think if you look at over, at least over the last, if we go back, clearly year to date, so far this year, we've outperformed. But if we even go back a little further and just look at over the last three and a half years, you know, we have significantly outperformed, you know, not only FedEx, but other, competitors as well as the broader market.
One of the things that a lot of times when we talk to employees is that they forget about, you really have to look at it from a total returns perspective. You know, price appreciation is one thing, but the other is the dividend. And so just to kind of give you a point of reference, if you look over the last about three and a half years, I mean, our total returns has been over 50%, whereas FedEx is probably closer to about 25%. But again, there's going to be periods where they, where other companies grow faster and other, and periods where we grow faster. But I think long term, when you look at it, the financial fundamentals, the consistency to perform in both up and down markets, that's what starts to differentiate UPS from, from a lot of other investments.
Thanks, Mike. I see two questions regarding debt, so I, I'm going to combine them, and then, Mike and I will tag team. It says: debt has grown a lot. Can you compare debt to revenue for the last five years? And then it says, Please compare UPS debt to equity percent in the last five years. I guess I'll start off by saying, don't forget, equity is impacted by some of these accounting adjustments, for lack of a better term, the mark-to-market adjustment that we had in our pension, that doesn't impact cash flow, doesn't impact what you receive as participants in our retirement plans. It doesn't impact what we're required to fund. Our plans are fully funded, but it's—and I just want to say, it's accounting.
So that's some of the things that brought equity down. But when it comes to our debt, you know, I remember, I bet you in the last four years or so, we issued two tranches of debt, one at the third quarter of, I think, and I'm looking at Mike, 2010, was it? Right. It was, I think it was 2010.
In the third quarter of 2012.
Right, in the third quarter of 2010, and that was to, we looked at the requirements of our, you know, UPS retirement and pension plans over the next five years, what the cash outlay would have to be. And we said, "You know, we're in a better position. We're in a stronger financial position. The rates were pretty darn low. We could, issue debt today, advance that money or put that money in the plans today, have it start working for us, and save at least $1 billion in cash in the future." So that was, that was the debt issuance, or that was behind the debt issuance in the, in the third quarter of 2010.
In the third quarter or so of 2012 was simply this: we had debt that was maturing in January, I think it was like January 15, 2013. We were still going through with the TNT transaction at the time. Interest rates are still low now. Rather than to wait until January 15, when we didn't know where we'd be with TNT, and we clearly would be in possession of a lot of material, non-public information, it would have made issuing debt a little bit more challenging.
So what we decided to do, and I think it was somewhere back in October or so of 2012, October, November, something like that, we issued the debt then, and purely the proceeds from that debt was used to repay the debt that matured just two months later or three months later. So to me, it was just a timing. So if you look at our balance sheet at the end of 2012, you're going to see a tremendous amount of cash. Part of that was the debt used to obviously the money used, the debt we took, we issued, to pay off the debt that was maturing at the beginning of January. In addition, it was money that we were squirreling away that we thought we're going to use to acquire TNT, that now we're going to use...
Part of it, we're going to distribute through our share repurchases. Okay? And let Mike discuss something to add.
Yeah, another thing is, so you know, we rolled out this, the FFO, funds from operations to total debt metric a few years back. Actually, I think 2008, we rolled that out. And so that's one thing also to keep in mind, that's how we manage the balance sheet. And so we—there is a, you know, the S&P has set a goal out there for us, and we've are manage, you know, we're managing the balance sheet as we see fit. We want to maintain a very, you know, strong, solid financial statement and balance sheet. But the thing is, we're, we are managing our balance sheet to hit about a 40%-50% of funds from operations to total debt. So we're driving kind of towards that 50%.
We ended the year at 46.1, and clearly, that was impacted by what Andy talked about, was the fact of what happened with discount rates. Because last year, we were actually probably closer to we're about 50% is where we ended, I'm sorry, in 2011, about 50%. But because of this drop in the discount rate, last year, in 2012, we ended at about 46.1.
And you folks all know we're a conservative company, and we're going to maintain a conservative balance sheet. We're not going to issue debt to buy back our stock. We're not going to lever the balance sheet for that. And I think our history has shown that. So all in all, we still have a very good rating from the rating agencies, and we continue to maintain a very, very strong balance sheet. The next question I see: How will Obamacare affect UPS stock? Well, we could at least tell you how it will impact our financial results, and I'll throw that at Mike.
One thing is, we look at it, and, and obviously, we will continue to evaluate it as some of the provisions do change. You know, as we move forward, they continue to change at times. But the best estimation that we have is it does hit us for about roughly $60 million of additional expense for this year alone. So we look at it as we cover additional, you know, children up to age 25, you know, so once that was expanded, that hit us for about $60 million, additional $60 million. And we'll continue to evaluate and look at as we go forward. Now, obviously, that's built into our guidance and some of the other things that we're able to do or help to mitigate.
But the bigger concern that we always have when it comes to any type of regulation and legislation is what does it do to the overall market? Does it impede small and medium-sized businesses growing? And as many of you on this call can attest, and that's a big part of our business, is as new companies are spawned and grow, that drives a lot of opportunity for not only UPS, but for the entire market. So that's typically our bigger concern.
Okay, Mike, you're on a roll. How much unit volume must go through a centralized delivery unit like Kiala to have greater density at delivery offset the added cost of operating a delivery storefront?
I think that's a, you know, that's a good question, and the beauty of it is with the Kiala model versus, say, a UPS store model, it's going to be a little different, right? Because, when you think about a Kiala, the model there is the cost of operating the storefront is not UPS's responsibility. It's the shopkeeper. You know, if Andy has a wine store, you know, in London or somewhere in Europe, what will happen is if he signs up as a participant in this, that will drive traffic to his shop. And so he obviously pays for all the operating expenses, and then we pay him, obviously, some slight fee to be able to deliver packages to that. But what happens is we've taken that from being an individual stop.
So if we have six or seven packages that were ready to go to six or seven different locations, and now we can deliver that all to Andy's wine store, that drives down that cost per unit significantly from us. And that's why we see this as a great opportunity, because you think about in urban and super urban areas, particularly where mass transit is used, like throughout many parts of Europe, as someone gets off the train, they can stop in, they can pick their package up. And what we have found is a very high percentage of that foot traffic actually buys something. And so that's why, it, it's really a great model when it comes to urban and super urban environments.
Now, in the U.S., obviously, we can do driver release, and so we may not go down this path in the U.S., but we'll continue to evaluate, you know, different, different ways to serve the market.
Yeah, you know, like Mike says, the Europeans do use mass transit much more than we do. They’re walking to or from those places. So, you know, in London, you could pass by a bodega or a pub or what have you, and you pick up your package on the way home. The other thing that you're finding out, studies are showing that a great number of those people that stop by those retail locations, and let's use my wine store as an example, I guess, would they buy a bottle of wine while they're picking up a package, too? So that's why retailers are very interested in getting in, too. I see. Let's see, are we on target to get our ratified labor agreement before, I'm getting a few questions on the labor stuff.
So, you know, bottom line, hey, look, I've been with this company 31 years. I think this is the least amount of noise I've heard in my 31 years here. You know, I think our relationship is probably as strong as it's ever been. We've got a number of issues already put aside. I think we're all looking forward to an early settlement of this thing, and, you know, you're going to hear some noise, no doubt, and that's typical. But, you know, I think things are going pretty darn good, and we'll see. You know, and that's just based on, you know, what I keep my ear close to the pulse, and bottom line, it's going pretty good. What's the next reporting date?
April 25th.
April 25th. We get that one. With a lot of cash on hand and no TNT deal, will UPS return more money to its shareholders? I guess, I'll say this, this year, you saw the stock buyback go up to $4 billion from $1.6 billion, I think it was the prior year. All that was is catch up because we slowed down the stock buybacks. As Mike said in the presentation, dividend is a priority. The thing that's going to vary with time is the stock buyback. I think the other thing is, the amount of money that we had on hand. Keep in mind, almost $2 billion of it was to pay back the debt that matured on January fifteenth. Will USPS cutbacks affect UPS? I'll give... Mike, why don't you take a shot at that?
Well, the thing is, when you look at it, what they had announced, which now has been postponed, though, obviously, is they were going to eliminate the delivery of mail only on the sixth day, on Saturday. So that probably would have had really no impact, or virtually no impact on UPS. Because if you think about it, it's interesting, the relationship that exists with the USPS. We're a competitor. We are also—we provide service to them, and they provide service to us. So when you look at it, and so when you kind of think about that question is, you know, how does it impact, how will it potentially impact UPS?
But again, with these cutbacks of moving from six days to five days from a mail perspective, would really not have an impact on us. Now, if they go down the path where some of the other alternatives that they've thrown out is eliminating all deliveries on Saturday, that's probably still very minimal, if any, impact on it, probably no impact on UPS. But now, one of the other things that has been kicked out, but is much further down the road, has been, what if they went and closed and weren't doing deliveries on, say, a Wednesday, a midweek? Well, that would be much more of an impact at that point. So the one thing is we continue to look at what the post office is doing, and we'll be making adjustments accordingly.
Obviously, anytime one of our competitors makes adjustments in their deliveries, is going to provide us with an opportunity to continue to grow in the market.
You know, when I think of the USPS, the one thing that comes to my mind is there's that contract out there that I don't use the F word in public, so I'll call them the purple people, that they have with the post office. That contract is due to expire, I think, September 30th. You know, we've been asked to bid on it. We have. The post office should come out with something in the near future, showing how, you know, making a decision on who receives that. So, that's probably something more in the nearer term that could have an impact on our results. Because keep in mind, we do not have one single piece of mail from that contract.
That, that contract was renewed automatically. And so, you know, all in all, it's, you know, we'll see, but it could provide an opportunity for us. How do we compare with the purple people with respect to pricing?
Well, obviously, we're gonna focus on what we need to do from a pricing perspective. You know, when it comes to pricing in the markets, you know, we're going to look at the value that we bring to our customers and the various solutions, and we want to make sure we get compensated for it. And so when it comes to that, I mean, there have been times where customers haven't necessarily placed the same value that we have on the solutions that we give them, and we've said, well, we need to be compensated for that.
So we do focus on making sure that we get paid for what we do for these customers because we bring efficiency to them, we provide greater flexibility, visibility, greater flexibilities, and that's what our focus is going to be. We'll continue to look at pushing and pushing through price increases because, again, every year we're making investments. For example, each year, we'll invest $1 billion-$1.5 billion in technology alone. That technology does something for our customers. It improves the value proposition for them, and so we need to make sure we're being paid for those investments.
That's why, typically, we're going to target somewhere around 2%-3% of real price increases, and that's the approach that we take, because, again, that's going to make sure that we're recouping the investments that we make in our technology, both customer-facing as well as operational, as well as the improvements in reliability and the overall network.
I see a question here, and there's a few questions on, you know, you just recently combined three districts into one. You know, do you see other changes in the operations? You know, we don't have insight into that. I'll just say clearly, you know, technology gives us opportunities, and part of this is the ability to manage a wider footprint, due to the visibility that you get via technology. And maybe I'll leave it as there. I'm not, you know, if there's nothing publicly in the works and, you know, but clearly, you know, the operations technology gives us a wider footprint, enables us to manage a wider footprint. I see another one popped up on TNT. Will we consider TNT in the future? You know, I'll be real.
I think, you know, I remember Scott Davis's comments in his opening to last quarter's call. We are moving on, and I think that's how you should think about it. We are moving on. I see somebody's asking me, "TNT, they're laying off people, reducing services. Will they survive, and how will their downsizing, sizing affect UPS?" We know we're doing pretty good in Europe. You know, half of our international revenue originates there. We had a pretty good year last year in Europe. That market continues to grow as it develops. You know, what TNT is going to be? You know, that's part of their... I believe they had a strategy session. It was this week or last week, and they basically provided some insight there, and they're going to execute.
I think that, you know, they're a pretty good company. That's why we looked at them. So, you know, definitely a formidable competitor. And, you know, we'll have to see. Maybe they'll focus more on Europe and maybe the Middle East, who knows? But, I mean, you know, will it create opportunities? It could. Have the pieces per stop increased or decreased in the last four years? I'm going to throw that at Mike Jones.
When we look at it, I'm assuming the question is probably geared more towards the U.S. than outside the U.S. But if we look at it, obviously, with B2C, you know, making up about 40% of our overall volume in the U.S. now, and so four years ago, it was probably just a little north of 30%. And so obviously, as B2C makes up a bigger piece of our overall business in the U.S., the delivery density, the pieces per stop, will overall start to go down a little. So that's really the trend that we've been seeing. But we're working on a lot of different technology. We rolled out different solutions that as we start to...
If we separate the B2B from B2C, and we just talk about B2C for a moment, we have various initiatives in place that's actually helping to improve the density slightly when it comes to B2C. For example, our SurePost Redirect or even SurePost as a whole, these are helping to improve our overall delivery densities when it comes to B2C.
To keep your momentum going, Mike, there's a question on CNG vehicles, and maybe answer that. It says: Will we continue to purchase more, to be less dependent on oil? But really, why don't you take that and broaden it and talk about the whole alternative fuel environment, if you don't mind, and really give an insight to some of the technologies that we find appealing and some of the, maybe concerns or some of the issues.
Yeah. So when we look at it from a... I know that the CNG was mentioned specifically, but the way we look at it is we really employ this rolling laboratory approach, where we look at various different technologies, alternative fuel or advanced technologies that are out there. So, I mean, CNG, we have almost 1,000 vehicles in the U.S. that are CNG. We also have hybrid electric, we have liquid natural, LNGs, electric vehicles, hydraulic hybrid, propane. We have all kinds of different types, and those are just in the U.S. When we look outside the U.S., there are actually a couple of others that we're looking at.
And really, when it comes to, we're going to continue to work with manufacturers, we're going to continue to work with, with various different types of alternative fuels and advanced technologies out there, because eventually there will become one set technology or one set platform. And so we want to make sure we're involved on the front end in creating it. The challenge is right now, when you look at, particularly when it comes to alternative fuel vehicles, even though the gap between alternative fuel and, say, our traditional diesel vehicles, it's getting closer. The thing is, when it comes to alternative fuel vehicles from a financial perspective, it's still cheaper. Even with higher fuel prices, it's still cheaper to operate our diesel vehicles.
But that'll change over time when there's more units produced, when there's an infrastructure in place, because that's the biggest challenge when you think about, you know, if we are converting over to LNG or CNG, to be able to make sure that there's fueling availability wherever we are. So that's a challenge as well. What also makes it a little more difficult for the alternative fuel vehicles to close the gap is diesel engines themselves become more efficient. And in fact, we've been working and testing a new composite vehicle that increases the fuel efficiency significantly from a weight per unit perspective, it's about 10% less or so, and so we've seen a pretty significant increase in the miles per gallon. So that continues to make that gap a little wider, if you will.
But don't get us wrong, we're gonna continue to work on it. We have one of the largest private fleets out there at, you know, over 25, almost approaching 2,600 alternative fuel vehicles.
Yeah, I've seen a few questions popping up about the stock and would the board consider stock split, or what price point would they consider it? Now, I gotta be careful. I can't speak for the board. I think price is one of the determinants that would go into a consideration like that, but there's a lot of other things that would go into it, like the float on the stock and things like that. So, I know I'm not answering your question, but I can't, 'cause I'm not in the board, and I can't speak for the board, just like I couldn't speak to, you know, what kind of dividend pay, you know, increases what I expect to see in the future, you know?
So, you know, I just apologize for not giving you a better answer, but that's the only answer I could truly give you. I guess that ends our questions. So, you know, I wanna thank you all for participating, and we value your support. As a reminder, please, you'll be asked to complete a very short survey. It's very important to us. Please take the time to provide us some feedback on what you liked or disliked about today's webcast, as well as, you know, give us some topics you'd might want us to talk about in the future, all right? So, have a great afternoon. Thanks for your attendance, and, God bless. Thanks.