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Executives

William Trubeck - Interim Chief Financial Officer, Interim Executive Vice President, Treasurer and Director

William Zollars - Chairman, Chief Executive Officer and President

Paul Liljegren - Chief Accounting Officer, Vice President of Investor Relations and Controller

Analysts

Arthur Hatfield - Morgan Keegan & Company, Inc.

Justin Yagerman - Deutsche Bank AG

Jack Waldo - Stephens Inc.

Christopher Ceraso - Crédit Suisse AG

Scott Group - Wolfe Trahan & Co.

Edward Deaton - BB&T Capital Markets

YRC Worldwide (YRCW) Q2 2011 Earnings Call July 22, 2011 9:30 AM ET

Operator

Good morning. My name is Steve, and I'll be your conference facilitator today. At this time, I would like to welcome everyone to the YRC Worldwide Second Quarter Earnings Conference Call. [Operator Instructions] I will now turn the call over to Paul Liljegren, Corporate Controller and Vice President of Investor Relations.

Paul Liljegren

Good morning. Thanks for joining us for the YRC Worldwide Second Quarter 2011 Earnings Call. Bill Zollars, Chairman, President and CEO of YRC Worldwide; and Bill Trubeck, our CFO, will provide comments this morning. Bill Zollars; Bill Trubeck; Mike Smid, President of YRC and Chief Operations Officer of YRC Worldwide; and Topher Wren, Senior Vice President and Treasurer; and I, will be available for questions following our comments.

Now for our disclaimers. Statements made by management during this call that are not purely historical facts are forward-looking statements. These include statements regarding the company's expectations and intentions on strategies regarding the future. It's important to note the company's future results could differ materially from those projected in such forward-looking statements due to a variety of factors. The format of this call does not allow us to fully discuss all these risk factors. For a full discussion, please refer to this morning's earnings release and our SEC filings, including our 10-K and today's 8-K. Additionally, please see today's release for a reconciliation of our GAAP measures to our non-GAAP measures, such as the reconciliation of operating income or loss to adjusted operating income or loss and adjusted EBITDA, and reconciliation of adjusted EBITDA to net cash flow from operating activities. During this call, we may simply refer to the non-GAAP measure of adjusted EBITDA as EBITDA.

Now, I'll turn the call over to Bill Zollars.

William Zollars

Thanks, Paul. Good morning. The headline here is that we're making money on an operating basis again. But let me start with a few comments on our restructure, which we expect to close later today. This restructure represents the final step of our comprehensive recovery plan and allows us to focus on our future success as opposed to survival, provides more certainty for our customers and our other stakeholders, allows us to invest in the business, and provides the runway for the business to continue its operational improvement and growth. Bill Trubeck will give you more comments on that in a few minutes.

Moving to the operating environment, the economy experienced was being called by some a soft patch during the second quarter. However, the economic recovery is continuing at a modest rate, and the second half outlook, while uncertain, is generally positive. After closing the restructure, we expect customers will continue to return and do so at an increasing rate, which should help us overcome any headwinds from the general economy as it has during the second quarter economic softness. The LTL industry dynamics are gaining traction, with pricing discipline and capacity rationalization, including the recently announced general rate increases and our plan to implement a 6.9% GRI for all of our operating companies in August.

Our business performance improvement is accelerating, as demonstrated by our quarterly results when compared to last year, and on an absolute basis, when you exclude the incremental cost impact of the restructuring. As you look back on our operational recovery over the past few years, we've achieved several meaningful inflection points in our operating performance. Just some examples of that. In the second quarter of last year, we achieved positive EBITDA. With this quarter's results, we have increased our rolling 4-quarter EBITDA by another 20% from the prior rolling 4-quarter performance, which is a demonstration of the rate of improvement in our operating results. In addition to our earnings improvement, we achieved year-over-year consolidated volume growth during the first quarter of this year, and that positive volume trend continued in the second quarter. And with the second quarter results, YRC National joins our regional companies and is now in the black, as it achieved adjusted operating income for the first time since the third quarter of 2008.

Now, we'll move on to second quarter results. National shipments per day grew 7.1% year-over-year, with tonnage per day growing 6.2%. Importantly, the nearly 9% quarter-over-quarter growth rate for National is in excess of any second quarter sequential growth rate over the last decade, which is another tangible sign that customers are returning their business to us. On the Regional side, shipments grew by 4.7% per day, and tonnage per day grew by 8.1%, both compared to last year. Our daily volume so far in July for both National and Regional are continuing to grow.

Now on to yield. Changes in weight per shipment and customer mix affected metrics for both National and Regional in the second quarter. National increased its revenue per shipment by 5% and its revenue per hundredweight by 6%, as its weight per shipment decreased by 0.9% over last year. Regional revenue per shipment grew by 9.9% in the second quarter versus last year, which included a 3.2% increase in weight per shipment.

Now moving on to earnings. National improved second quarter EBITDA by $18 million over last year. This improvement is inclusive of the impact to successfully implement our April and May change of operations to consolidate approximately 40 service centers, which we discussed on our last call. In addition, National's adjusted operating ratio was 99.2, which represents an improvement of 350 basis points versus the second quarter of 2010. Our Regional business reported an adjusted operating ratio of 95.9, which is 180 basis point improvement year-over-year.

In summary, our consolidated operating results in the second quarter delivered the seventh consecutive quarter of year-over-year EBITDA earnings improvement, and our consolidated adjusted operating income was positive for the first time since the third quarter of 2008. Now Bill Trubeck will provide more color on our financial results and our outlook for 2011.

William Trubeck

Thanks, Bill, and good morning, everyone. Let me highlight a few items in the quarter, the restructure and our outlook. As Bill mentioned, we recorded adjusted operating income for the quarter. In addition, when you adjust for restructuring costs, we generated positive cash flow from operations for the quarter. Both achievements are important milestones in our operational recovery.

Our DSO performance at the end of the second quarter of 39 days was consistent with the prior year, as we are maintaining the quality of our receivables on our 12% year-over-year revenue growth. From a liquidity perspective, we ended the second quarter with balance sheet cash of $156 million and $8 million of revolver availability. As you know, the restructure will provide additional liquidity from the new $100 million notes and $400 million ABL facility. From the gross liquidity, which would be provided by the new notes and the ABL, together with our balance sheet cash and revolver availability, we would retire the ABS borrowings of $164 million, postcash of $65 million to collateralized existing ABS letters of credit, deposit $90 million into escrow for the benefit of the ABL lenders and fund transaction costs and original issue discounts of approximately $44 million as disclosed and discussed in our S-1.

After closing restructure and assuming full utilization of the new ABL over time, as we would expect to further grow our revenues and related receivables, our postrestructure liquidity would improve to approximately $300 million. The restructure will extend maturities to 2015 for the credit agreement and contribution deferral agreement. It is also important to highlight that the new $140 million Series A and $100 million Series B notes will have noncash PIK interest and conversion features, which are expected to incent the noteholders to convert to equity at the option of the noteholders.

The approach on the ABL facility changed from our earlier expectations. While the approach changed, it is important to note that this new 3-year ABL facility, with an expected maturity date of September 2014, will allow us to refinance the existing ABS, generate incremental liquidity and successfully complete the restructure. The restructure will provide the company with an improved liquidity position which, combined with expected further improvements in operating results, is expected to allow us to service our new capital structure and fund CapEx as we grow the business.

For 2011, we would expect to fund CapEx of up to $125 million and expect proceeds from asset disposals of up to $40 million, with the majority of those proceeds targeted for debt reduction. Our letters of credit at quarter end decreased by $9 million from the amounts outstanding last year and now total $512 million. As you know, we continue to work with the states and our insurance providers and other vendors to reduce the required letters of credit. We believe there is significant opportunity for a further reduction going forward.

Before turning it back to Bill Zollars, let me comment on guidance. While we are not providing specific earnings guidance, we do expect year-over-year revenue growth and to generate adjusted operating income for the remainder of 2011, consistent with our recent 8-K filing. More importantly, as Bill mentioned, we also expect customers to continue to return at increasing rate and the company to continue its significant improvement in year-over-year operating performance trends as we move through the remainder of the year, driven by continued year-over-year volume growth and year-over-year pricing improvements.

Postrestructure, we expect the run rate for cash interest on our funded debt to be approximately $30 million per quarter. We've not completed the fair value remeasurements of our postrestructure debt. These remeasurements will impact the noncash amortization of debt premiums and discounts included within our postrestructure book interest expense. We would refer you to the $44 million of quarterly book interest shown in our S-1 pro forma financials. In addition to the interest and funded debt, we expect cash letter of credit fees of about $8 million to $10 million per quarter for our letter of credit program, which is recorded as an operating expense, as those letters of credit primarily support our work comp and accident insurance programs.

With that, I'll now turn it back to Bill Zollars for closing.

William Zollars

Thanks, Bill. Before we open it up for questions, most of you may recall that I announced my retirement last September and agreed to stay on to complete the restructuring of our company. With that effort on track for completion by the end of the day, this will mark my last discussion with you as Chairman, President and CEO of YRC Worldwide.

In addition, the closing of the restructure will mark the conclusion of the service of our current Board of Directors and the assignments for Chief Restructuring Officer, John Lamar; and interim CFO, Bill Trubeck, and I want to take a moment here just to thank the board, John and Bill for their countless significant contributions to getting to the point where we're completing our comprehensive recovery plan. I would also like to take a moment to say thank you to all of our employees, both union and nonunion, and to our key stakeholders who worked tirelessly in difficult times to make the restructuring possible.

I'd now like to move on to thank our customers for allowing us to serve you during this difficult time with transportation logistics services. With the positive operating income, customers continuing to return, the economy recovering, pricing discipline reestablished in the market and the restructuring complete sometime today, YRC is now well positioned for long-term success. And with that, I'll turn it over to the moderator for questions.

Question-and-Answer Session

Operator

[Operator Instructions] And your first question comes from the line of Justin Yagerman from Deutsche Bank.

Justin Yagerman - Deutsche Bank AG

I wanted to ask a few questions here and begin a little bit on the level of -- you alluded to customers coming back, the restructuring being an event for that. I want to get a sense of how much and how fast and what kind of indications customers are giving you. How big of a milestone is this from that standpoint? And how much business do you think has been deferred away from you after the -- over the last few quarters? Obviously, there was a big deluge of lost business in '09, but over the last few quarters, we've continued to see attrition. I guess I'm trying to get a sense of what you think is going to come back and what the timing for that is.

William Zollars

Sure, Justin. It's a little bit difficult to quantify, as you might imagine. I think we have been picking up market share over the last couple of quarters. We would expect that to continue. We still have a number of customers that have been waiting for the final piece of the puzzle to be put in place before they either brought back some of the business that they had diverted, or in some cases, all of the business that they have diverted. So we expect that to accelerate with this announcement. We also had some customers that were waiting to see positive operating income again. We think those customers now will bring their business back to us. So it's hard to quantify that, but we expect that, that the business will continue to return on an accelerated basis.

Justin Yagerman - Deutsche Bank AG

Along those lines, I guess I'd be curious to hear, what size company do you think you are today in terms of the revenue that you guys can handle? Obviously, I mean this used to be a $10 billion company. You're now on track to be about a $5 billion company annualized. Where do you think your brick-and-mortar and your network capacity are right now in terms of ability to handle volumes? And then I guess what are you building towards as you lay out your capital plans over the next couple of years?

William Zollars

Sure. Well, we feel pretty good about the networks we have in place now and in terms of their ability not only to handle the current volumes sufficiently but also to grow the business. And I would say 20% to 25% would be business volume that we could handle without really putting a strain on the networks. As you know, Justin, in this business, there is a lot of flex on the upside in terms of adding drivers, vehicles and moving the business in the most efficient way through the network, depending on where you have the most volume so you can work around bottlenecks. So I would say that we can still handle probably an additional 20% volume just across the board. It's going to vary by operating company. We're not going to be constrained as we continue to grow the business. I will say, however, that we have reached the point where our operating leverage will begin to help. We're experiencing incremental margins in the 25% kind of range, which is a little higher than historically we've seen. We expect that to continue. And the combination of having the economy continuing to grow, having customers continue to bring their business back to us, having pricing discipline return to the marketplace, all of those things are going to give us a tailwind going forward, and I believe we'll be able to handle significant volumes of business at the appropriate price without putting a real strain on the networks.

Justin Yagerman - Deutsche Bank AG

Okay. Last question, and it's kind of 2-part but related. Where do you think service levels are right now within the companies? And alongside of that, where is your equipment age at the moment? And how much replacement needs to get done to get it to where you want it to be?

William Zollars

Yes. We feel pretty good about the service. One of the real tricks over the last several years has been to maintain service levels while we took out capacity. That's not an easy thing to do, not trivial. Our operating team has done an outstanding job in making that happen. So we've actually been able to improve service, particularly over the last quarter, which is another reason why customers are continuing to return their business to us. On the fleet side, our linehaul fleet is about 5 years. It's a little bit older than we would like, but not too much, and we would expect that to improve over time now.

Operator

Your next question comes from the line of Scott Group with Wolfe Trahan.

Scott Group - Wolfe Trahan & Co.

Bill, I just want to make sure I'm understanding the liquidity impact from the restructuring. So you've got -- can you help me walk through. You've got $100 million of cash coming in, increased borrowings under the ABL, but there's fees and then the revolver reserve is going away. So what's the net impact on liquidity from the restructure?

Paul Liljegren

Scott, this is Paul. It's really the numbers that Bill Trubeck walked you through. Obviously, the revolver reserves go away as part of the amended credit facility, but you start with the balance sheet cash, an $8 million revolver availability and add $100 million of new notes and $400 million of ABL facility. All you have to do is subtract the transaction costs that we disclosed in the S-1 and then the retirement of the ABS. It's a simple math.

Scott Group - Wolfe Trahan & Co.

Okay. So relative to $236 million of liquidity at the end of first quarter, where are you guys, I guess, today at the end of June, and then where are you today pro forma for the restructuring?

Paul Liljegren

Pro forma basis, it's the number Bill Trubeck mentioned earlier. It's approximately $300 million.

Scott Group - Wolfe Trahan & Co.

Okay. So with the restructuring, you go from $236 million to $300 million?

Paul Liljegren

Approximately, yes.

Scott Group - Wolfe Trahan & Co.

So net $65 million improvement in the liquidity from the restructuring?

Paul Liljegren

Net of the revolver reserves, which are obviously restricted.

Scott Group - Wolfe Trahan & Co.

Okay. And then just a few things on the guidance that you gave. The excess property sales of $30 million to $40 million, how much of that do you keep now?

William Zollars

About $10 million of that.

Scott Group - Wolfe Trahan & Co.

You keep $10 million of that. And what is the amount you have year-to-date on that already?

William Zollars

We'll get that for you.

Paul Liljegren

We're $26 million year-to-date.

Scott Group - Wolfe Trahan & Co.

So -- I'm confused. If you're keeping $10 million, you've already got $26 million?

Paul Liljegren

We booked $26 million of the $40 million year-to-date. So the percentage sharing is the same, 75-25.

Scott Group - Wolfe Trahan & Co.

Okay. And then the cash interest of $30 million per quarter, where was that in the second quarter?

Paul Liljegren

Cash interest in the second quarter was essentially the sale leaseback. It was about $11 million.

Scott Group - Wolfe Trahan & Co.

And this is $30 million on top of the sale leaseback or including the sale leaseback?

Paul Liljegren

Inclusive.

Scott Group - Wolfe Trahan & Co.

Okay. And then the same thing on the letters of credit fee of $8 million to $10 million a quarter, where was that in the second quarter?

Paul Liljegren

Those are being deferred. So this goes from a deferral to a cash back.

Scott Group - Wolfe Trahan & Co.

So goes from 0 to $8 million to $10 million. Okay. And then just really quick, just last quick thing. If I look at the corporate expense, it's much higher than I think it's ever been. Has anything been reclassified from one of the divisions into corporate?

Paul Liljegren

No. What's in there is the advisory fees, professional restructuring fees. The second quarter has an unusually large number in there because of the activity associated with the restructure during the second quarter.

Operator

Your next question comes from the line of Neal Deaton with BB&T Capital Markets.

Edward Deaton - BB&T Capital Markets

I wanted to ask, can you just give us a general sense now that it looks like you are a growing entity[ph], customers are coming back, improvements in the income statement, what's your capital spending going to be like in 2012? Obviously, it's been at a depressed level over the last few years, but you're going to need to reinvest in the fleet and other things like that. Can you give us just a broad range of where it could be?

William Zollars

Neal, I think what we have historically done is given you that kind of insight at the beginning of the year. I think that's going to continue to be our practice. The good news is we're going to be able to reinvest in the business going forward, but we aren't going to give out any specific numbers at this point.

Edward Deaton - BB&T Capital Markets

Okay. And I may have missed this earlier, but I know you talked about capacity, you can handle another 20% to 25% roughly in the network, give or take, but bricks and mortar, what about with regard to the fleet? I'm not sure if you commented on that as far as the group [ph].

William Zollars

Yes, I did mention that, Neal. I think we've got a lot of upside flexibility on the fleet. There's always the opportunity to rent tractors if you need them and rent trailers. So that won't be anything that constricts us.

Edward Deaton - BB&T Capital Markets

Okay. And then, Bill, now that you're going to be heading out to a permanent vacation, do you all have someone in mind to replace you at the helm? If so, are you considering people both externally and internally? Or how's that search going?

William Zollars

Yes, let me talk a little bit about that for a second. The search process is being run by the new Board of Directors, obviously. The way the timing will work on this is that we expect that the restructuring will close some time today. Immediately following the restructuring, the new board will be seated, and their first action will be to name a CEO. So you can expect that to be forthcoming.

Operator

Your next question comes from the line of Chris Ceraso with Crédit Suisse.

Christopher Ceraso - Crédit Suisse AG

So maybe we can pick up where you left off there with the order of events. So if the restructuring closes today, when does the exchange happen? When is the new equity issued?

Paul Liljegren

This is Paul. As part of closing the exchange offer, we would issue the new notes that we talked about earlier. In addition, we'd issue the convertible preferred stock as part of the closing as well.

Christopher Ceraso - Crédit Suisse AG

And were you saying something about the noteholders having the option to convert? Or is there some convert that will happen automatically? I'm trying to get an idea of when and how much we'll see in terms of new equity. And has there been any change to what you outlined in terms of the amount of the enterprise that the existing equity will own? Is it still 2.5% of the enterprise?

Paul Liljegren

That's what's existing -- if you think about the $48 million of outstanding common today, at close, that $48 million will represent 2.5% of outstanding on an as-converted [indiscernible] basis. Now the notes that we're issuing today have equity conversion features in there that allow for the convert over time. Obviously, once authorized, common is sufficient to allow those notes to convert. The $100 million can convert once authorized shares are available on common side. The $140 million note converts after 2 years.

William Zollars

It's convertible after 2 years.

Christopher Ceraso - Crédit Suisse AG

Okay. When the pension -- remind us of the pension level, the contribution, is it $80 million now? And when does that take effect?

Paul Liljegren

On the union side?

Christopher Ceraso - Crédit Suisse AG

Yes.

Paul Liljegren

The union, remember, we resumed entry into the union pension plans in June. The pension expense we booked was $7 million in June. That should normalize to $21 million per quarter. It's a quarterly rate. $80 million annually, yes.

Christopher Ceraso - Crédit Suisse AG

Will the cash match what's going through the P&L?

Paul Liljegren

Yes. In addition to that, we have certain pension funds that are taking their cash contribution as a reduction to debt. That's another $2 million to $3 million per quarter in addition to the $7 million of book expense.

Christopher Ceraso - Crédit Suisse AG

Okay. And then you mentioned what the liquidity was. But if I take a step back, what is -- what do you expect net debt will be? Total new debt less whatever cash is on the balance sheet. What is the net debt position postrestructuring?

Paul Liljegren

Net debt, that will be north of $1 billion. But it's similar to our pro formas on our S-1. It's the best reference for that.

Christopher Ceraso - Crédit Suisse AG

Okay. And then just one on the industry. You mentioned, I think, in your comments, Bill, that July volumes continue to grow. Does that mean you're growing year-over-year, or that you're up versus June, which would be a lot stronger than normal seasonal?

William Zollars

Yes, we're growing year-over-year. Our seasonal pattern is fairly consistent with history, but we are continuing to grow year-over-year.

Operator

Your next question comes from the line of Jack Waldo from Stephens Inc.

Jack Waldo - Stephens Inc.

What is -- I guess in simplistic terms, what is the dilution to current shareholders right now, potential dilution? Like how many shares did you end this quarter with outstanding?

Paul Liljegren

Jack, this is Paul again. We're at 48 million prior to restructure closing. Once the restructure closes on an as-converted basis, we'd be at 1.9 billion at the close of the restructure. We mentioned the 2 convertible notes that we issued. Those notes have conversion rights, which would drive that number to 6 billion fully converted, and obviously, they're subject to further dilution based on the management incentive program and -- but that's the recap in terms of restructure.

Jack Waldo - Stephens Inc.

So if you're a current shareholder owning one of those 48 million, you're about to be materially diluted?

William Zollars

Yes.

Paul Liljegren

Yes, consistent with our disclosure we've made over the last several months.

Jack Waldo - Stephens Inc.

Right. And now you finally put numbers around it.

Paul Liljegren

We've been public with the 2.5% for some time, and so that's consistent [ph]. We're closing the transaction. We expect to on that same basis.

Jack Waldo - Stephens Inc.

Okay. And then I wanted to understand. Okay. I understood what you're saying, Bill, about July, you're up over July from a year ago in volume, right, not from June? That's what you just said, right? I understood that right?

William Zollars

Yes. As you know, Jack, July is historically less robust than June, and we're continuing to see the same trends year-over-year. But July is historically tracking -- or tracking with the historical kind of performance.

Jack Waldo - Stephens Inc.

And then if I look at your revenue per hundredweight, it was up 6% at National and was up 6.5% at Regional. And that's with fuel surcharge, right?

William Zollars

Correct.

Jack Waldo - Stephens Inc.

I guess it seem -- well, those growth rates are below the growth rates we're hearing from a lot of your competitors. Is it right to say that x fuel surcharge, your pricing was down on a year-over-year basis?

William Zollars

No.

Jack Waldo - Stephens Inc.

It's not -- it was up on a year-over-year basis?

William Zollars

Yes.

Jack Waldo - Stephens Inc.

Okay. And where are you seeing contractual rate increases coming in now?

William Zollars

Well, they're continuing to improve. They're approaching 4% now on a blended basis, which is, as you may recall from the last quarter, up another 0.5% or so and more like 0.75%.

Jack Waldo - Stephens Inc.

Got you. And then, Bill, do you guys have any comment on the lawsuit, the appeals that you guys currently or recently lost to Arkansas Best, and what the next steps are?

William Zollars

No, we still feel very confident in the result here. The fact is that this was sent back to the original court on a procedural basis, had nothing to do with the arguments of the case. We still feel very confident that we will prevail there.

Jack Waldo - Stephens Inc.

So what are your -- what are the potential next steps for you guys?

William Zollars

We're going to go back and argue the case in the court where it originated and appeal...

Jack Waldo - Stephens Inc.

Okay. So you're not appealing to the appeals court, you're going to go back to the lower court?

William Zollars

Yes, we're just going to go back to the lower court and win the case.

Operator

Your last question comes from the line of Art Hatfield with Morgan Keegan.

Arthur Hatfield - Morgan Keegan & Company, Inc.

Just a follow-up on a couple of things. Can you give us a breakdown of what your CapEx, the $125 million gross CapEx is going to be this year, one? And two, is that all cash? Or are you including some leases in that number?

Paul Liljegren

It would be an all-cash number. And of course, that represents kind of, at this juncture, the limit that we would have under the existing agreements. And I think it does certainly gives us some flexibility between here and the end of the year.

Arthur Hatfield - Morgan Keegan & Company, Inc.

Do the agreements allow you to go beyond that on a noncash basis, i.e. doing some leases on some extra equipment?

William Zollars

Yes. We have capacity to do the leasing as well.

Arthur Hatfield - Morgan Keegan & Company, Inc.

Okay. Great. And then on the linehaul equipment, Bill, you'd mentioned the average age was 5 years. Can you give us a number of what the size of that fleet is right now?

William Zollars

Yes, we can, Art. Yes, we've got about 16,400 tractors all in and about 54,000 trailers.

Arthur Hatfield - Morgan Keegan & Company, Inc.

Again, I guess back to the CapEx, Bill. I'd ask if you had -- can you give us a breakdown of how the $125 million is going to be spent?

William Zollars

Yes, most of that is replacement equipment, to keep the age of the fleet where we want it, Art. There's obviously some maintenance in there, and there's some technology spend in there, but the preponderance of it is on replacement equipment.

Arthur Hatfield - Morgan Keegan & Company, Inc.

Okay. And you feel pretty good about the quality and the condition of the existing kind of local pickup and delivery equipment?

William Zollars

Sure. I think we've always had a cradle-to-grave philosophy. We do a lot of preventative maintenance when we take vehicles off the road and put them in the city. But all in all, I think we feel pretty good about where the fleet is. We did have that couple of years of hiatus, with the integration of Yellow and Roadway, which allowed us to retire a lot of the old equipment. And that's really helped us out in terms of maintaining the age of the fleet.

Arthur Hatfield - Morgan Keegan & Company, Inc.

Do you know what the age of that fleet is?

William Zollars

Which fleet?

Arthur Hatfield - Morgan Keegan & Company, Inc.

The city fleet.

William Zollars

Yes, it's about 10 years.

Arthur Hatfield - Morgan Keegan & Company, Inc.

Okay. And then just a couple of last things. Paul, on the dilution numbers, you had mentioned with the incremental issues, the dilution could be up to 6 billion shares. That's not an immediate issue though. That won't occur -- that will occur over time; correct?

Paul Liljegren

That's correct. I mean we have -- we're issuing -- upon closing the restructuring transaction, we've issued convertible preferred stock. And so that preferred stock has to convert into common. As I said, the $100 million notes will be convertible as soon as there's available common. But the $140 million note, the conversion features are in 2 years.

Arthur Hatfield - Morgan Keegan & Company, Inc.

Great. And then finally, just, Bill, you guys have made comments about customers coming back, and I understand the importance of that and it shows strength in the company. But one counterargument to that would be sitting back and taking maybe smaller growth in that and really working on getting price up, can you kind of address the counterbalance there? How -- maybe you don't want to get yourself in just growing volume at the expense of price going forward and maybe more focused on price?

William Zollars

Absolutely, Art. I think that's, as you know, constant balance in this business between volume and price. I think, unfortunately, we went through a period of time when the industry lost focus on pricing discipline, and we're in recovery mode as an industry on the yield side. I think we're being very careful to make sure that we improve our book of business as we grow the business. We've had a lot of success recently with some of the customers that left us in terms of having them come back at higher price levels. I think that will continue. You've seen the GRI announcements for most of the members of the industry. I think that's another good sign that the industry has recovered some sanity on the pricing side. So we're being very careful about that and making sure that the incremental business, not only has incremental volume, but is incremental from a bottom line standpoint. I think you can see that in the improvement on the operating ratio in all the companies.

Paul Liljegren

Very good. Thanks. That concludes our call. Thanks to everyone participating. We'll talk to you again next quarter. If you have any follow-up questions, feel free to contact me. Operator, I'll turn back to you.

Operator

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.

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