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Executives

Mark Kowlzan – CEO

Rick West – SVP and CFO

Paul Stecko – Executive Chairman

Tom Hassfurther – EVP, Corrugated Products

Analysts

Chip Dillon – Credit Suisse

Mark Weintraub – Buckingham Research

George Staphos – Merrill Lynch

Richard Skidmore – Goldman Sachs

Mark Connelly – CLSA

Andrew Feinman – Iridian Asset Management

Eric Steve – Goldentree

Jonathan Hirschtritt – Sheffield Asset Management

Packaging Corporation of America (PKG) Q4 2010 Earnings Conference Call January 25, 2010 10:00 AM ET

Operator

Thank you for joining Packaging Corporation of America’s fourth quarter and full year 2010 earnings conference call. Your host today will be Mark Kowlzan, Chief Executive Officer of PCA. Upon conclusion of the narrative, there will be a Q&A session.

I will now turn the conference call over to Mr. Kowlzan. Please go ahead when you’re ready.

Mark Kowlzan

Good morning and welcome to Packaging Corporation of America’s fourth quarter earnings release conference call. I’m Mark Kowlzan, CEO of PCA and with me on the call today are Paul Stecko, Executive Chairman of PCA, Tom Hassfurther, who runs the Corrugated Business; and Rick West, PCA’s Chief Financial Officer. Thanks for participating in this morning’s call and after the presentation, we will be glad to take any questions.

Yesterday, we reported fourth quarter 2010 net income of $55 million or $0.54 per share which included a $5 million or $0.05 per share addition to income from cellulosic biofuel tax credits generated in 2009 and after tax non-cash charges totaling $3 million or $0.03 per share from asset disposals related to the Counce, Tennessee and Valdosta Georgia mills major energy projects and paper machine assets earlier to April 2005 at the Tomahawk mill.

Reported results for the fourth quarter of 2009 were $59 million or $0.57 per share which included income of $44 million or $0.42 per share from alternative fuel mixture tax credits and energy project asset disposal charges of $1 million or $0.01 per share.

Net sales, for the fourth quarter recorded $627 million, up 18% compared to fourth quarter of 2009 net sales of $532 million. Excluding income from biofuel tax credits and asset disposal charges net income was a fourth quarter record of $53 million or $0.52 per share versus fourth quarter of 2009 net income of $16 million or $0.16 per share. This $0.36 per share increase in earnings was driven by higher containerboard and corrugated products price and mix of $0.44 per share and higher volume of $0.05 per share.

These increases were partially offset by higher cost for recycle fiber of $0.05 per share, labor related cost including medical cost of $0.04 per share, transportation cost at $0.02 per share, chemical cost of $0.02 per share and the higher tax rate of $0.01 per share.

Excluding income from biofuel tax credits and for asset disposals and closure charges, earnings for 2010 were $166 million for our record $1.62 per share compared to $96 million or $94 per share in 2009. Net sales were also a record $2.44 billion compared to $2.15 billion in 2009.

Looking at operations, our corrugated products volume was up 3.1% over last year’s very strong fourth quarter setting a record for fourth quarter shipments. Our demand is relatively steady throughout the quarter with shipments per work day up 4.3% in October, 2.2% in November and 2.5% in December over last year.

Since the fourth quarter of 2008, a low point in the economic downturn for us, total shipments are up 11.6%. Our outside sales of containerboard also remained very strong of both domestic and export shipments up 8.6% over last year’s fourth quarter. The increase sales volumes benefited our earnings by about $0.05 per share compared to last year’s fourth quarter.

All of our mills had an outstanding quarter producing 639,000 tons of containerboard up 39,000 tons or 6.4% over the fourth quarter of 2009 driven by exceptional productivity and operating efficiencies.

The high mills productivity enabled us to build half of the containerboard inventory necessary to offset the 2011 production losses related to energy project work at Valdosta and Counce mills including the pines and the rebuild of two of the Counce recovery boilers.

Looking at pricing our containerboard and corrugated products prices were up significantly year-over-year reflecting higher containerboard prices both domestic and export plus a full pass over to boxes of our containerboard price increases which along with mix improved earnings by about $0.44 per share compared to last year’s fourth quarter.

Moving to cost, industry published price for old corrugated containers or OCC, excluding delivery costs increased more than we expected when we provided our earnings guidance and we are up about $75 per ton in the fourth quarter of 2010 compared to the fourth quarter of last year and up $35 per ton compared to the third quarter of 2010. The higher OCC cost reduced our earnings year-over-year by about $0.05 per share and lowered our earnings by about $0.01 per share compared to our fourth quarter earnings guidance. Based on January published prices, OCC is now about $10 a ton above the fourth quarter average.

Wood fiber costs were down slightly with the better weather compared to last year’s very wet fourth quarter, plus we did a very good job of getting winter in and turbine built earlier this year which kept the wood costs down.

Labor related costs were up about $0.04 per share including higher medical costs and higher accruals for incentive compensation based on higher earnings.

Transportation costs were up $0.02 per share compared to last year’s fourth quarter with higher diesel prices and increased demand on the nationwide truck fleet and rail system.

Chemical costs, primarily caustic soda were also up reducing earnings by about $0.02 per share compared to last year’s fourth quarter and higher tax rate reduced earnings by about $0.01 per share.

I’m now going to turn it over to Rick West, our Chief Financial Officer, who’ll give you an update on our cash position, dual tax credits and also our expected capital spending and tax rate for 2011.

Rick West

Thank you, Mark. Looking at cash in the fourth quarter, PCA generated cash from operations of $139 million. Our uses of cash were capital expenditures of $89 million, which included $41 million for the Counce and Valdosta energy optimization projects and $15 million for strategic projects at our box plants. For the year our total capital expenditures were $320 million that included $176 million for our major energy project, $39 million for strategic box plant projects and $105 million for normal capital expenditures.

During the quarter, we also repurchased 496,000 shares of our common stock for about $25.50 per share or $13 million and paid our regular common stock dividends that amounted to approximately $15 million. For the year, we paid dividends of $62 million and repurchased $41 million in common stock. We ended the year with a $197 million cash on hand.

With regard to biofuel credits, our Counce, Valdosta and Tomahawk mills produced cellulosic biofuel in 2009. This quarter we along with outside tax advisors determined that our proprietary biofuel process is the Filer City Corrugated medium mill will also likely qualify for 2009 cellulosic biofuel credits. Based on accounting guidelines in the fourth quarter we recorded an addition to income of $5 million or $0.05 per share for Filer Cities 2009 cellulosic biofuel generated.

The potential exist per higher after tax credits then what we recorded under accounting guidelines because the Filer City biofuel process is unique and internal revenue writ service regulations do not specifically address the process. We expect an expedited review of our amended 2009 tax return that will finalize any additional credits we’re due from Filer City by the end of the year.

During the fourth quarter, we used $15 million in tax credits to offset cash taxes and as of yearend we have estimated tax credits remaining of $104 million including the additional $5 million for the Filer City mill. In terms of 2011 guidance for tax, we expect our effective combined federal and state tax rate for income reporting purposes to be 36% and our cash tax rate to be about 21%. The difference driven by both fuel tax credits and other tax deductions.

Capital expenditures for 2011 are expected to be $255 million down $65 million from 2010. The spending includes a $115 million to complete the major energy projects for Counce and Valdosta, $40 million for our strategic projects in the box plant and a $100 million for normal capital.

With that I will turn it back over to Mark.

Mark Kowlzan

Thank you Rick. 2010 was a very successful and significant year for PCA not only in terms of results but also strategically. In addition to generating record sales and earnings we are very pleased with the performance of box plant and achieving record shipments in the fourth quarter and bringing our volume back to pre-economic downturn levels. The key priority for Tom Hassfurther and his team in 2011 will be to continue our strategic box plant expansions and continue to grow our Corrugated Products volume and increase our integration level. Our mills had an outstanding year running at almost 100% of capacity, setting several new records for productivity.

As you know earlier this month we named Jack Carter, our new Vice President, the mill operations reporting to me. Jack and his team will their plate full in 2011, with normal annual maintenance averages plus downtime and slow backs associated with the energy project work. Fortunately, we made good progress in fourth quarter in building inventory to support the shutdowns and that will take some of the pressure of, but our mills will still need to run exceptionally well in 2011 in order to meet the expected demand and complete the rest of the inventory build for the shutdowns.

Looking ahead to the first quarter, our Counce and Valdosta mills will be down about a week at the end of March for their normal annual maintenance averages. Valdosta shutdown will continue into April making the total shutdown to 11 days. One of our two paper machine at Counce will also be down and additional week in June to install the new electric drive on the machine.

The downtime will resolve the lower production and increased costs, higher fiber, energy, timing related benefit cost, and higher effective tax rate are also expected in the first quarter. Considering these items, we currently estimate our first quarter earnings at $0.42 per share. With that we would be happy to entertain any questions, but I must remind you that some of the statements we’ve made on the call constituted forward-looking statements. These statements were based on current estimates, expectations and projections of the company and involve inherent risks and uncertainties, including the direction of the economy and those identified as risk factors in our annual report on Form 10-K on file with the SEC. The actual results could differ materially from those expressed in these forward-looking statements.

And with that operator, I’d like to open it for queue for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question comes from Chip Dillon of Credit Suisse.

Chip Dillon – Credit Suisse

Yes, good morning.

Mark Kowlzan

Good morning, Chip.

Chip Dillon – Credit Suisse

Just clarify so we get the whole downtime situation set for the year because obviously you’re hooking up these energy projects. You mentioned obviously the maintenance down at Valdosta and Counce at the end of March, beginning of April. I think you also said there will be a Counce machine down in June, if I heard you right.

Rick West

Correct.

Chip Dillon – Credit Suisse

And then, in the press release you mentioned some I guess some other downtime in Counce in the second half of ‘11. If you could elaborate a little bit on that and maybe give us some idea what the cost would be?

Rick West

Good question. The normal annual shutdowns will take place during this first quarter at Counce and Valdosta but with the electric drive replacement we’re going to be able to take advantage of some of the recovery boiler rebuild time when the mill is making less pop so we’re going to use that week on the first part of June to take care of number one paper machine drive. Also during the April, May period, during the second quarter we’ll see the Tomahawk and Filer mills go through their annual shutdown. But then later in the year when you go through the remainder of the recovery boiler or rebuilt at Counce, the number one recovery will be down during the June, July period. It will come back up and run through August, once we’re satisfied that the boiler is performing as we expect, the number two recovery will come down during the month of September and October. So during that period which carries into the fourth quarter we’ll see some continued slow back which impacts the tons for the year. So that’s why you’re seeing some of this impact carry over into the fourth quarter with the recovery boiler rebuilt completing at Counce.

Chip Dillon – Credit Suisse

Got you. And then, I guess as we think about your sort of point to different, stages of downtime throughout the year I would imagine –

Mark Kowlzan

Chip, go ahead and finish that last question.

Chip Dillon – Credit Suisse

Sure. I guess just to make sure we get our models right. Obviously this is an unusual year and we’ll see the payoff we expect next year from the energy projects. But it sounds to me that we probably versus normal should build in. I mean, you tell me $0.05, $0.06 a quarter or maybe extra downtime in the second, third and fourth that – or at least in the third and fourth that we normally wouldn’t see in a typical year as you all hook up the energy projects. I guess what I’m asking the question. Is it fair to say that as you bring the final count boiler number 2 back on, then we should see the full benefits starting in the first quarter of ‘12 from the energy projects or is it just from ramp up period?

Rick West

That’s correct. As far as the last part of the question, first quarter of 2012 will see the full benefits of all of these projects and Valdosta boiler will be ramped up by then, Counce will be well behind us and so for the first quarter everything is delivering full results.

Paul Stecko

Hey Chip, this is Paul. Good to hear from you. Let me just chip in on your first question, there is just still lot of moving parts on the shutdowns and what it’s going to cost us, we’ve got an estimate, but we don’t release full year estimates. But, we will try to get you in a right church, if you take all of these downtimes that we are going to experience because of the outages, etcetera, etcetera, it’s probably going to amount to on an order of magnet to $0.10 a share over the year. So, not as big numbers you thought, but it’s about $0.10 a share in 2011. But that’s going to be offset in most part but we will get some early savings from the project in 2011. Okay, for example Mark got the turbine up and running in the fourth quarter of last year account where we are banging at about 7 megawatts of electricity as we speak, that’s going to give us some savings.

In addition although the section 45 electric credits never got the Congress last year, we’re hopefully they might get there this year. We did get an incentive from the utility, I don’t know what they call that, that electricity reduction program and we are going to get about $2 million this year from that, which will help earnings and that was not even put into the project. So, we will get benefits from the project some of it this year probably amounting close to $0.10 which will offset the downtimes. So net, net, it should net out.

Chip Dillon – Credit Suisse

Got you. That’s very helpful. Thank you.

Rick West

And also Chip, just to review first quarter we are talking about a 25,000 tons impact from early outages, second quarter we are talking about 40,000 ton impact and then into the third and fourth 25,000 tons. So, for the year it’s 90,000 tons of downtime impact.

Chip Dillon – Credit Suisse

And lastly, would you say you are missing the offsetting benefits, that’s probably more of a second, third and fourth quarter issue then the first or we are seeing some of those offsets or full offsets in the first quarter in that $0.42 guidance.

Rick West

It’s a little bit in each quarter but it ramps up. In other words we are getting more and more as the year goes on. For example once we get that one of those recovery boilers up, we have got more, you will have – we will be able to generate more energy.

Chip Dillon – Credit Suisse

Got you.

Rick West

Because it’s a more efficient boiler and we will have, I mean, higher efficiency means higher steam production, higher steam production needs more electricity. So, it’s not linear, but over the course of the year we think we will get about 10%, $0.10 this year from the project. The other thing that skews, which makes us a difficult year to forecast is that although Mark said we got about 90,000 tons of downtime, we have already built 25,000 tons of inventory to offset some of that 90,000. So paper made in 2010 we get the sale and take the profit in 2011 and if we continue to run exceptionally well, we will build another 20,000 or so between now and those outages which may be made in the first quarter but not sold until later in the year when we have downtime, so as I said a lot of moving parts on this thing.

Chip Dillon – Credit Suisse

Got you. Thanks very much.

Paul Stecko

All right, thanks. Next question please.

Operator

Sir, our next question comes from Mark Weintraub of Buckingham Research.

Paul Stecko

Good morning, Mark.

Mark Weintraub – Buckingham Research

Good morning. I just think to clarify that the 90,000 is that specific to the recovery, the boiler projects or is that total?

Paul Stecko

That’s total for the year, again the entire impact of – put it this way, the normal annual maintenance outages are typically 45,000 to 50,000 tons. So, this year you will see about 50,000 tons of normal type activity, regular outages at our four mills and then 40000 tons of incremental activity on top of that from the different rebuilds, Counce number one drive and the recovery boilers, so –

Mark Weintraub – Buckingham Research

Okay, perfect. I am trying to understand the first quarter guidance, I was looking back and my sense was that the seasonal drop for Q1 it is normally not quite as big as $0.10 and I know that waste paper costs are a little bit higher, am I just getting that wrong or are there other things that play here to help explain why that 1Q guidance basically $0.10 lower than 4Q?

Paul Stecko

Well again, if you look at the 10 year history, 4 out of the 10 years were $0.10 or greater. So, 7 out of the 10 were greater than $0.08. Now, this particular quarter as happened before we have both Counce and Valdosta down during the first quarter which is a significant impact on the system that’s approximately 60% of our tonnage and so it has a bigger proportional impact on our cost and profit capability.

Rick West

The other point Mark is that, as Mark pointed out, if you look at a 10 year average, we are $0.07 to $0.08 is the typical down and so that’s normal, I would assume that everybody that follows us closely would build a number like that in. What’s difference this year in addition to what Mark said is paper prices are near all-time highs or at all-time highs, which means for every ton the downtime you take, you lose more profit than you did before prices are roughly order of magnitude number, a 100 all at high as they were last year before the price increases of last year. So, we are making a $100 a ton more on every ton we sell, which means that the downtime cost you more and that’s on the order of two and two and a half cents and that makes up the difference.

Mark Weintraub – Buckingham Research

Okay. And so presumably as you go through the year and you are selling the inventory you built to offset the downtime you should presumably have a bigger seasonal pick up as the year goes on, would that be a fair assessment.

Paul Stecko

You got it right on.

Mark Weintraub – Buckingham Research

Okay. Thank you.

Paul Stecko

Next question?

Operator

Our next question comes from George Staphos of Merrill Lynch.

Paul Stecko

Good morning, George.

George Staphos – Merrill Lynch

Hi guys, good morning. Couple of quick questions, one, could you give us an update on how the early trends are for 2011 realizing that January is not – most relevant month of the year? And then secondly, if possible on this kind of forum could you give us a bit more color in terms of the strategic spending you do within the box plants?

Paul Stecko

We are going to let Tom go ahead and talk about those two items.

Tom Hassfurther

Good morning. Let me just first talk about volume. It remains very good but I got to tell the measurement for the first 12 days is a little complicated. Last in the third of our box plants actually worked on January 3rd, due a plant holiday and a lot of our customers didn’t work that day either. However the FBA has designated January 3rd as a work day. So, just briefly with January 3rd shipments would be down 3%, but excluding January 3rd, we were up 6%. And our bookings with January 3rd included we were flat, however, excluding January 3rd we were up 9%.

Now of course, over the course of the 21 workdays, I mean that, missing that one work day won’t mean that much and again just to summarize, volume remains very good and has remained consistent.

With regard to the box plant strategic expansions and capital spent, I think we initiated this expansion because as we mentioned before, we are out of capacity at some of our plants or will be out in the very near future. Additionally we need some capability at some plants to better local markets and we will have just a very small amount of plant rationalization that will go along with this.

Now, I am not going really go into any other great details because what we are doing as proprietary and it’s not something we want to share with our competitors, but I will add that the returns are very good.

George Staphos – Merrill Lynch

If I could, in terms of the converting equipment or capability that you are building in for the local account, is this PKG proprietary technology that you worked with machinery suppliers on or is this more less off the shelf?

Tom Hassfurther

No, it’s more or less off the shelf, but I think it’s proprietary in terms of how we apply it and what we do from the manufacturing position.

George Staphos – Merrill Lynch

Okay.

Paul Stecko

And George, this is Paul. I would just like to amplify on what Tom said. The numbers are little misleading the first 10 days because we didn’t work on January 3rd except for may be less than a third of our plant which is probably fairly typical for other people, but when you exclude that, you exclude that day our volume is very strong and over the month even counting that day if the current trend continues will have a pretty good month and even though we set a record for volume in December, we are up about 3%, 3.5% over that December run rate as of right now.

George Staphos – Merrill Lynch

Okay. That’s all for Paul. I guess the last question I will turn it over, capital spending is declining this year perhaps not as much as we have been forecasting, but some of that is I think the strategic spending on the box plant, you are obviously building cash as this question comes up periodically on the call, when do you think you will reach a point where you feel you have the ability to return valid shareholders in one form or another, what mile post should we look to in terms of trying to gauge the timing?

Paul Stecko

Yeah George, this is Paul, I will take that. When we told, I think everybody that we were going to spend about $70 million to $75 million on these strategic box plant expansions and about a $100 million on acquisitions for box plants over the next say three years and that’s still the number. I think we will probably spend a little more on internal strategic box plants than acquisitions because quite frankly and keep your fingers crossed. It looks like things are bouncing back a little quicker than we thought. I think, everybody thought even manufacturing activity is picking up. So we feel we got to move a little quicker on somebody’s internal projects because of capacity constraints. And we’ve pulled forward a little bit of capital on that. But once we get through the box plant acts, we’ll go back to the $110 million dollar a year number.

George Staphos – Merrill Lynch

Okay. Thanks. I’ll turn it over.

Mark Kowlzan

Next question.

Operator

Next question comes from Richard Skidmore of Goldman Sachs.

Richard Skidmore – Goldman Sachs

Hi, good morning. Mark, can you just talk about – just maybe remind us what your returns expectations are from the recovery boiler spends that you’re doing? And has that changed it or given where natural gas prices are?

Mark Kowlzan

We’re still looking at that 25% return range which is very close to what we originally anticipated. So the returns are still looking good. We’re very excited about the project.

Rick West

The only change is again there is a lot of moving pieces, things go up and down. And as you know, when you get savings, it’s really two elements of savings. In this project, it’s mostly cost reduction. We will reduce our cost of electricity because we’re making it all. But there is also cost avoidance and cost avoidance basically says it may not improve your earnings but it offsets inflation. Your earnings won’t go down if things like natural gas and electricity spikes in prices.

And quite frankly, starting energy prices with the recession has not escalated as much as we thought but they’re starting to. And so by 2012, we may get to exactly what we thought our energy prices. But even if we don’t, there are some other pluses than minuses that kind of bring this thing back to what we thought it would be. We think our efficiencies are going to be higher based on some of the boiler work we did already at counts. And that would help the project. The only negative I would say on the project to date is the section 45 of liquor credits never got inactive last year as the comprehensive energy bill never came forward and Congress spent a lot of time, as you know, on health care. We haven’t given up on that. We think Congress will get to a comprehensive energy program. And we’re optimistic that will go through and that’s on the order of 5 to $6 million in savings. But inflation is starting to come back. Mark was just giving me an anecdote yet, today on coal prices. Mark, I think it’s just a pretty good proxy for things.

Mark Kowlzan

Yeah, I want to comment on that. Just at one of our mills – if you look at that, the 2010 coal pricing – what we’re getting close for 2011 deliveries are up 30% over the last year’s coal price. So, obviously, that’s a regional specific but we are starting to see some pressure in terms of 15% to 30% type of increases just on coal alone. Electricity rates are also higher. If you look at Georgia, we’re seeing rates going up in the Balbastric electric grid region. So we’re seeing this pressure on both fuel and electricity now.

Rick West

And I think the important point that we want to make is not only we’re getting cost reduction but strategically, it puts us in a good position going forward for cost avoidance.

Richard Skidmore – Goldman Sachs

And then maybe on that topic of raw material cost, can you just elaborate more about what you might be seeing across the various cost inputs, whether it would be fiber or chemicals?

Rick West

I think, if you go back to 2009 and to 2010, one of the big stories down in the south was the weather conditions that impacted wood fiber cost. That abated during the summer we had a good summer for logging and we were able to build winter inventories. Prices declined, that being said obviously OCC is at record high prices, and chemicals are another point of fact, chemicals are up. Some of the pressure in the southeast obviously is fiber, where you are seeing some of the pressure from power plants as an example starting to move fibers somewhat. So, I think fiber will continue to be a factor on the upward trend, chemicals and energy in general.

There is a good side of it. I had to say costs going up offer some good side, but a little bit into deflation still say the economy is really picking up. Some of the things that have been done in terms of the foolish tax cuts, I think one of the signs of economic activity is a little more inflation. And I hope it’s a little more inflation, not a lot. So we are not all displeased about that.

Richard Skidmore – Goldman Sachs

Okay. Maybe just one last question, just…

Rick West

You’re out of questions. We need to give everybody, excuse me, go ahead. One more.

Richard Skidmore – Goldman Sachs

Well, I just wanted to ask about what are you seeing in the export markets.

Mark Kowlzan

I think coming after fourth quarter we saw that normal seasonal slow back for the first quarter, nothing dramatic, volume is still what we’d expect, we had a great year last year. And right now South America is slowing back. They are getting ready to go into their winter season. But right now we don’t see anything unusual with the export markets.

Richard Skidmore – Goldman Sachs

Thank you.

Mark Kowlzan

Next question.

Operator

Our next question comes from Mark Connelly of CLSA.

Mark Connelly – CLSA

Just two things. The pickup in outside sales, can you tell us why business is picking up outside. I would think that with being so tight in third quarter and coming into the fourth, that you would be struggling to supply your existing customers Mark and I’m just wondering whether it’s a seasonal pattern or whether your integration level is actually falling?

And then my second question to get it other way quickly is what would you say your operating rate was overall in the fourth quarter?

Mark Kowlzan

I think as far as the mill operating rate we are close to a 100%.

Mark Connelly – CLSA

Okay.

Mark Kowlzan

Round it off we are right at a 100% on the mill operating rate. And I think that your first question I think it’s all about the economy. I think the economy is stronger than many people see and we are seeing that with our sales.

Mark Connelly – CLSA

But your – but not from your existing customers. That’s what I’m trying to figure out. I would have thought that your existing customers will be leaning on you more?

Mark Kowlzan

No.

Mark Connelly – CLSA

Go ahead.

Mark Kowlzan

Our existing customer demand was incredibly good and was up significantly and as Paul mentioned, I mean we continue to be up even over the record that we set last month on a per-day basis. So, we’ve got a lot of demand. The other thing that is factored in our outside sales or our export sales we do play some catch up by the end of the year on some of those accounts. So it tends to run a little higher for us in the fourth quarter.

Mark Connelly – CLSA

Okay. Very helpful. Thank you.

Rick West

And I think that the important point just so we make it, or outside sales domestically was up more than our outside sales in export. And basically, our existing customers are buying more. It’s not there we are adding more customers, it’s that they need more paper and we are selling them more paper. And as Mark said, we think their business is better and that’s related to the economy.

Mark Connelly – CLSA

I think your integration rate is falling, overall?

Mark Kowlzan

No. No.

Rick West

No, because our box demand is also increasing, we set in December an all-time record….

Mark Kowlzan

For the period.

Mark Connelly – CLSA

Okay. Thanks very much.

Rick West

They are pretty much in parallel and if anything – we are picking up a little on integration level.

Mark Connelly – CLSA

Got it. Thank you.

Mark Kowlzan

Next question.

Operator

[Operator Instructions] Our next question comes from Andrew Feinman of Iridian Asset Management.

Andrew Feinman – Iridian Asset Management

Thank you. Could you tell us what, Rick, what depreciation and amortization was for 2010 and what would be for 2011?

Rick West

Well for 2010, it’s about 156 points – well $156 million. I would say for 2011 because the project is not coming on board, it’s very little up, I would say about $160 million in depreciation for 2011.

Andrew Feinman – Iridian Asset Management

Okay. Thanks. And you guys already answered a question about the returns on the Counce and box project of 25% which I remember from the last call is after-tax, not pre-tax. But I also had in my notes from the last call that on the box plants, spending you thought that the return might be over 40% after-tax. Is that still reasonable?

Rick West

Yeah, that’s still reasonable. We said some of the projects going to be as high as 40% is what I think we said. And they vary in – we’ve got a number of them. And the returns I would say it’s more fair to say they’re going to be from in the 25 on the low side and 40 on the high side.

Andrew Feinman – Iridian Asset Management

Okay.

Rick West

So it’s a combination depending on the project, the particular circumstance and probably it’s more important than anything else the amount of capital required.

Andrew Feinman – Iridian Asset Management

Okay.

Rick West

That’s an after tax number.

Andrew Feinman – Iridian Asset Management

All right. And then the last question. You mentioned coal, what kind of coal do you marine?

Rick West

Well, again, it’s very the Mill up in Filers City requires a low ash coal so it’s a little more expensive in general because of the nature of the boilers and the environmental controls on the boiler. So that coal in general is always more expensive than the coal that would be burned in the Counce mill. It’s basically the ash content is what differs.

Andrew Feinman – Iridian Asset Management

I mean like, met coal, spin coal, I don’t know. I’ll ask you later. Thank you.

Rick West

Next question.

Operator

Our next question comes from Eric Steve of Goldentree.

Eric Steve – Goldentree

Hi, guys. Two clerical questions. What is the current share count outstanding and what’s the year end debt level? Please. Thank you.

Rick West

Well, on the debt level, it still 658 for debt level and we’re at about 102 point – 102 even on shares outstanding at year end.

Eric Steve – Goldentree

Thank you.

Rick West

Next question.

Operator

Our next question comes from Jonathan Hirschtritt of Sheffield Asset Management.

Jonathan Hirschtritt – Sheffield Asset Management

Hey, guys. How are you?

Rick West

Good. Morning.

Jonathan Hirschtritt – Sheffield Asset Management

So just wanted to clarify Paul’s commentary on the $0.10 affects from the energy projects downtime this year. I was a little confused when you said net-net chipping that out in terms of the offsets. Is the $0.10 including any offsets or is that $0.10 to start and then you’ll have some offsets to that?

Paul Stecko

It’s net. In other words, what I’m saying is last number.

Jonathan Hirschtritt – Sheffield Asset Management

Yes.

Paul Stecko

Order back in two numbers. So don’t get overly precised.

Jonathan Hirschtritt – Sheffield Asset Management

Yeah.

Paul Stecko

Estimates are not overly precise at this point. But the downtime that we’re going to take related to the energy projects, not annual outages. It’s going to be about $0.10 a share. However, the energy project, some aspects of it will contribute earnings. And that’s on an order of magnitude of $0.10 a share. So those two taken together wipe each other out.

Jonathan Hirschtritt – Sheffield Asset Management

Got you. So, the things like the electricity subsidy wiped out some of the $0.10 affects.

Paul Stecko

Exactly.

Rick West

You got it.

Jonathan Hirschtritt – Sheffield Asset Management

Got you. Great. Thank you very much.

Operator

Thank you. [Operator Instructions]

Mark Kowlzan

With that, operator, we’d like to end the call. And we’ll see you next quarter. Thank you.

Operator

Thank you. Ladies and gentlemen, thank you for your participation in today’s conference. This does conclude today’s conference. You may all now disconnect. Thank you and have a nice day.

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