Mario Longhi - President & Chief Executive Officer David Burritt - Executive Vice President & Chief Financial Officer Dan Lesnak - General Manager of Investor Relations.

David Gagliano - BMO Capital Markets Matthew Murphy - UBS Michael Gambardella - JP Morgan Timna Tanners - Bank of America Matt Vittorioso - Barclays Justine Fisher - Goldman Sachs Phillip Gibbs - KeyBanc Capital Markets Chris Terry - Deutsche Bank Brian Yu - Citi Evan Kurtz - Morgan Stanley Matthew Fields - Bank of America Charles Bradford - Bradford Research Tony Rizzuto - Cowen and Company Chris Olin - Rosenblatt Securities.

Ladies and gentlemen, thank you for standing by and welcome to the United States Steel Corporation's 2015 Fourth Quarter and Full year Earnings Call and Webcast. [Operator Instructions]. As a reminder, today's call is being recorded. I would now like to turn the conference to General Manager of Investor Relations, Dan Lesnak. Please go ahead..

Thank you, Kevin. Good morning and thank you for joining us this morning. For those of you participating by phone, the slides that are included on the webcast are also available under the Investors section of our Web site at www.ussteel.com.

There is also a question-and-answers document addressing frequently asked questions on our Web site for your reference. On the call with me today will be U.S. Steel President and CEO, Mario Longhi; and Executive Vice President and CFO, Dave Burritt. Following our prepared remarks, we'll be happy to take your questions.

Before we begin, I must caution you that today's conference call contains forward-looking statements and that future results may differ materially from statements or projections made on today's call.

For your convenience, the forward-looking statements and risk factors that could affect those statements are referenced at the end of our release in the slide deck posted on our Web site and included in our most recent Annual Report on Form 10-K and updated in our Quarterly Reports on Form 10-Q in accordance with the Safe Harbor provisions.

Now to start the call, I will turn it over to our CFO, Dave Burritt..

Thank you, Dan. Good morning, everyone and thank you for joining us. Turning to Slide 3. We face significant price and volume headwinds, particularly in the second half of the year. We finished 2015 with adjusted EBITDA of $202 million despite a $6 billion decrease in revenues from 2014.

Our flat-rolled segment produced $155 million of EBITDA while operating only at 60% utilization rate, our lowest full year utilization rate since 2009 as high levels of imports had a significant impact on both prices and volumes.

We had another solid performance from our European segment with EBITDA at $162 million in the year when the euro-based selling prices and the U.S. dollar to euro exchange rate both moved against us.

Our tubular segment had a loss for the year as our aggressive cost cutting efforts could not offset a large drop in volumes as oil prices and rig counts fell dramatically and supply chain inventories increased as imported pipe continued to arrive. Turning to cash and liquidity on Slide 4.

We continue to generate cash from operations throughout the year finishing the year at $359 million. We repaid approximately $380 million of debt in 2015 and although down from the end of 2014, our cash and liquidity remains strong.

Maintaining strong cash and liquidity is a competitive advantage for us during a trough in the business cycle, particularly when the timing of a recovery remains uncertain. Accurately forecasting future changes in market conditions is a very difficult in this industry. So we have to be more agile and responsive to economic circumstances.

We do not know how long the industry recession will last but we know we are managing our business to maintain a strong cash position and to be prepared to respond quickly when the recovery begins.

We said last quarter that we will be disciplined on our capital allocation strategies and decisions and will continue to make the investments that support our long-term strategy but we will do so in a manner and at a pace that is appropriate based on our ability to generate cash.

Projects related to the safety of our employees are always our first priority but we took a hard look at both infrastructure and growth projects including smaller high return projects that return benefits and cash quickly and we have set our 2016 capital spending plan at $350 million.

This is down significantly from the $500 million we spent in 2015, a year we entered with much better industry conditions than we are facing now. In addition, we expect other cash payments like interest expense, pension and dividends to be about $350 million.

In 2014 and 2015, we improved our working capital position, particularly as it relates to receivables and payables and we believe we still have opportunities to improve in those areas this year. We also believe we have significant opportunities to improve our inventory management as we have improved our sales and operations planning process.

We currently expect to generate approximately $500 million in cash this year from the improvements we are making in our working capital management. While working capital and capital spending are the two areas that can have the biggest impact on our cash and liquidity position, we are working to identify and maximize cash benefits in all areas.

We are working to strengthen our balance sheet and we are constantly evaluating all potential options to improve our position so that we are prepared to act quickly when the right opportunity presents itself. Our Carnegie Way methodology keeps all possibilities on the table.

Dan will now cover Carnegie Way benefits for 2015 and our starting point for 2016..

Thank you, Dave. Including benefits from [projects] [ph] completed during the fourth quarter, our full year benefits in 2015 as compared to 2014 as a base year were $815 million.

An increase from the $575 million of benefits we generated in 2014 and reflects both the tremendous effort from all of our employees as well as our increasing capabilities as we train more employees on how to identify opportunities and then establish, manage and complete value creating projects.

2015 is now our base year for measuring our progress and we are starting 2016 with $250 million in Carnegie Way benefits from projects that we implemented throughout '15.

As we have for the last two years, we will provide an updated 2016 Carnegie Way benefits number each quarter as we continue to implement new projects and generated additional benefits throughout 2016. Our pipeline of projects is strong and our employees are making substantial and sustainable improvements to our business model. Turning to Slide 6.

In adverse market conditions, the real progress we are making can sometimes be difficult to see in our results. Using our flat-rolled segment as an example, this [bridge] [ph] illustrates that our flat-rolled EBITDA decreased by $1 billion as compared with 2014 while [indiscernible] impact from lower prices and volumes of almost $3.4 billion.

While we did have favorable effects more on materials, prices and volumes, we would have an EBITDA loss without the Carnegie Way benefits generated from improving our controllable costs throughout the year.

A $61 per ton improvement in controllable cost over a one year period is certainly not typical in our industry and for your reference we have included in the appendix of this presentation, a Slide that illustrates the equally impressive progress we made in 2015 in both our tubular and European segments.

Now I will turn the call back over to Dave to cover the strategic aspects of our transformation..

Thanks, Dan. As a reminder, the value creation strategy of the Carnegie Way has two phases. First, earning the right to grow by delivering economic profit, meaning real earnings in excess of weighted average cost to capital across the business cycle and remaining profitable at the trough of the cycle.

And second, driving sustainable and profitable growth. Our strategy has not changed as we deal with the very challenging conditions the steel industry is currently facing. While we exceeded our own expectations by delivering economic profit in 2014, the significant headwinds of 2015 remind us that we are still in phase one of our transformation.

A year ago, we created our commercial entities. A more accountable structure focused on enabling better customer solutions. We have realigned our operating structure to get us closer to our customers, provide visibility into value creation and enhance personal and professional accountability.

We recently announced the next step to provide greater accountability within the commercial entities in our North American flat-rolled operations. Our commercial entity leaders now have direct control over plant operations and related personnel at the facilities that service the majority of their customers.

We believe this change will allow us to make better and faster decisions about our operations and improve accountability as our commercial entity leaders oversee how we design, market and sell our products.

With responsibility for the manufacturing operations, each commercial entity leader is fully responsible and accountable for delivering results and creating value. Our customers are critical to the success of our transformation.

We have already had successful experiences with customer collaboration across our commercial entity and we will continue to transform our customer relationships with a focus on providing industry leading quality, superior on-time delivery performance and innovative product and process solutions.

Our structured approach using the Carnegie Way value creation methodology gives us the confidence we can continue to make progress and create value for our customers and when we create value for our customers, we create value for all our stakeholders. From our stockholders to our suppliers, to our employees, to the communities where we do business.

As we make difficult decisions to earn the right to grow, we are improving our processes and our operations. We are making the right investments in our facilities at the right time. We are focusing our research and development spending to provide strong support for our product development and process enhancements.

We have a team that is now more deeply focused on global quality and manufacturing processes, leading standard work practices and process help across all of our flat-rolled, tubular and European operations.

We are creating more reliable and agile operating base that lowers our breakeven point and improves our ability to adapt quickly to changing market conditions while providing superior quality and delivery performance for our customers. We remain focused on what we control and will be ready to drive profitable growth when the industry improves.

The Carnegie Way enables us to review every part of our business in an innovative way to see how we can become more efficient and better serve our customers. Now I will turn the call over to Mario to discuss our operations, markets and outlook..

Thank you, Dave and good morning to all. We made several difficult decisions in 2015 in response to conditions in the markets we serve. Including, the permanent shutdown of our steel making operations at Fairfield Works and the temporary idling of Granite City Works and our Keetac mining operations.

We also had a significant number of layoffs at other facilities that are operating at reduced rates. These decisions have significant impacts on our employees, their families and the communities we operate in and we do not take them lightly.

Our markets continue to be adversely impacted by high levels of imports, many we believe are unfairly traded, and we look forward to having our trade rules in force effectively and seeing the improved and sustainable order rates that will allow us to bring our facilities back on line and put our employees back to work, making some of the highest quality and environmentally friendly steel in the world.

In our flat-rolled segment we are currently operating the steel making and finishing facilities at our Gary, Great Lakes, and Mon Valley Works. The operating efficiencies we are realizing from higher utilization rates at these facilities are greater than the fixed and remaining variable costs we continue to incur at Granite City Works.

We also continue to upgrade certain finishing facilities at our Fairfield, Granite City and Fairless Hills locations. We have a similar situation at our mining operations as the increased efficiencies of Minntac give us our lowest pellet costs for current steel making requirements.

Our tubular operations are facing very difficult market conditions as low and volatile oil prices have resulted in a continuing decrease in drilling activity and rig counts and supply chain inventories remain high.

We are making the products our customers need but the operating levels in our facilities remain at the lowest levels we have seen since 2009. Our European operations are facing import pressures similar to those we have been facing in the U.S. negatively impacting both prices and volumes.

We will operate our facilities in line with our order book and are well positioned to respond to our customers requirements as market conditions improve.

Before I discuss what we are seeing in the various markets we serve, I would like to remind you that we have reached a tentative agreement with the United Steel workers on a successor three-year collective bargaining agreement covering represented employees at our operations in the United States.

We currently expect voting on this tentative agreement will be completed early next week and we look forward to moving forward with our employees who have been an integral part of our Carnegie Way achievements.

Out of respect for our employees we are not going to discuss the terms of the tentative agreement until they have had the opportunity to cast their votes. Now I would like to give a brief summary of what we are seeing in our markets and our guidance for 2016.

The automotive market continues to be a very good market for us and we expect it to remain strong throughout the year. We also expect growth in demand in the appliance and construction markets compared with last year.

Industrial equipment market is mixed with a slight improvement in demand for construction equipment, steady demand in the railcar markets and weakness in mining equipment. In the energy markets, low oil prices and rig counts remain a significant headwind.

At this time, we do not see any catalysts other than increase in oil prices that would drive significant improvement in tubular demand and pricing with impacts to both our tubular and flat-rolled segments.

We continue to expect slight growth in the automotive, appliance and construction markets in Europe as compared to last year but tin mill products may be facing increasing challenges from imports. Turning to our guidance for 2016.

At current market conditions which includes spot prices, import volumes and supply chain inventory levels, we expect 2016 adjusted EBITDA to be near breakeven.

Our price realizations will reflect the full effect of both spot and contract transactions due to the dramatic decrease in prices which began more than a year ago fueled by high levels of unfairly traded imports.

We expect to offset a significant amount of these commercial headwinds by continuing to reduce our costs, generating additional Carnegie Way benefits and realizing operating efficiencies from our current operating configuration.

As overall market conditions improve, we expect our adjusted EBITDA to increase consistent with the pace and magnitude of the improvement in market conditions.

Also as Dave mentioned earlier, we expect to generate approximately $0.5 billion of cash from working capital improvements in 2016 and already have $250 million of Carnegie Way carryover benefits..

Thank you, Mario. Kevin, can you please open the line for questions..

[Operator Instructions] First question is from the line of David Gagliano, BMO Capital Markets. Please go ahead..

I did want to drill down a bit more in terms of the future initiatives to preserve cash. In an environment or in a situation where this environment remains in place for a while, I was wondering if you could give us a bit more detail about the next steps that are under consideration in order to preserve cash.

For example, should we expect more potential asset closures? Are you considering tapping the capital markets and if so, preference for debt versus equity.

Are you considering asset sales etcetera, etcetera?.

Yes, Dave. This is Dan. The first and biggest piece that we directly control is the working capital improvements.

You know based on a more efficient facility configuration, based on the improvements we have made through RCM on facility reliability, that’s where we see there will be big, big opportunity to get about $500 million out of really a structural improvement in our inventory position.

And so certainly that’s the biggest piece we control and that’s where we know that we can get some solid progress there. On all the other pieces we are really deeply involving, making sure we understand what our options are and the best move to make.

But we also need to make sure that we do that at the right time because anything we decided to do can have some impact. Currently, our capital structure right now includes debt that has very much investment grade covenant. So the decision to move away from that is a very major and [deliberate] [ph] decision, but we are assessing the options right now.

We want to be ready to move quickly when the time is right. I think as we look at our cash position, particularly the benefits where we expect to get some cash from working capital, we think we are in a position to be deliberate and make the right decision at the right time..

This is Dave. Maybe I can just add a little color to that reinforcing what we said in our opening remarks.

And I guess leveraging the sell side consensus numbers of EBITDA, I think we are on $300 million, if you think about working capital of $500 million improvement and those are in the fact Carnegie Way projects we are focused heavily on inventory management as well as receivables and payables.

We also have CapEx spend of $350 million, debt service, pension and dividends $350 million. So if you are looking at the $300 million that you guys have put out that would mean that we would be favorable cash, just doing the math. If market conditions wouldn’t improve at all, that would mean there would be a cash burn of about $200 million.

So based upon where you see the market is going or where we see the market is going, we are going to adapt to whatever economic circumstances are out there and our Carnegie Way as we say it, everything is on the table. And so we are going to look at opportunities.

We don’t talk about financing, we don’t talk about M&A, we are not going to talk about divestitures. We do look at all aspects of our business and we have some intelligent choices to make. If conditions get worse or if conditions get better, we have to see how things play out throughout the year..

Okay. I understand that and I appreciate that and that’s actually the number we came up with too. Breakeven EBITDA and maybe a burn of $200 million because of the working capital benefit. But really what I am getting at is contingency planning beyond that.

In case this environment somehow magically stays in place beyond the next 12 months, I think the working capital improvements may potentially fade. There is risk if that cash burn potentially increases significantly and then there is concern about liquidity, in my opinion.

And so I am just wondering what the timing is when those contingency plans start to [take effect] [ph]..

That’s an interesting way to ask the same question. But would just say again, everything is on the table. We are going to be watching this. We are managing cash extraordinarily closely. We look at it daily. We have rolling forecasts. We are on it, we got this.

We are going to adapt to whatever the economic circumstances are and we will have the trigger points that will tell us what we need to do. We are still in great cash position. Paying of $300 million worth of debt and we have still got $2.4 billion worth of liquidity.

So we feel extraordinarily comfortable where we are today but living in this paranoid world of steel we certainly have to adapt whatever is there. We are not going to tell you what the next steps are but you can understand that we are on it and we got it..

Thank you. And our next question is from the line of Matthew Murphy, UBS. Please go ahead..

Thanks for some of that color around the cash side of things. Two more questions on that. At the $350 million in CapEx, pretty low number. Just wondering, does that have any sort of maintenance spend that how would that differ from what you had in '15 or '14. And I am also wondering if there is any cash restructuring cost this year..

Yes, Matt, it's Dan. That CapEx, we said certainly anything that’s safety related has priority and gets done. There is no negotiation on it. Safety first. When we look at that number, there is an infrastructure component and there is a growth component and they are probably pretty balanced actually at that level.

The trouble we have with, unfortunately some facilities shutdown and some facilities idle, we have less infrastructure demands than we would normally have. But that number is a pretty balanced number between infrastructure and growth type projects..

And any cash restructuring costs in there?.

Really, no. When we talk about Carnegie Way benefits, those are really [net off] and in cash but for the most part where we -- you know we generate benefits by finding efficiencies, improving production processes. Those really don’t involve a lot of investment.

So from that standpoint, unless we are getting in some big facility footprint changes, it's not a lot of cash out the door related to the Carnegie Way activities..

Our next question is from the line of Michael Gambardella, JP Morgan. Please go ahead..

I have a question regarding your guidance of near breakeven given the current market conditions. I just want to make it clear.

What are you assuming for the contract pricing changes for this year?.

Well, I think most, all of our contracts, a majority have rolled over. So that’s built into our assumptions. Certainly the farther you go up the value chain, on value-added products, the less direct co-relation there is to the big change we saw in spot. But certainly they were all impacted to various levels.

So we still have some contracts that rollover a fair amount, maybe in the April 1 timeframe. Based on where we are today we had to make our assessment on where we expect those. But certainly all of our contracts that rolled over did roll over at lower prices by varying degrees depending on what type of products you are looking at..

And that’s embedded in the guidance you are saying?.

Absolutely, yes..

Okay. Second question. Just in terms of the import trade cases that are rolling off as we see the preliminary results coming up. And with the exception of China which has gotten slammed, a number of the other countries, the numbers are coming in a bit late, we are still waiting on some of the anti-dumping preliminary decisions.

But on what you have seen so far and what you and the rest of the domestic industry and your attorneys had thought would be the dumping duties, what's the big difference between what you had anticipated, you not just being U.S. Steel but the entire U.S.

industry and their legal teams, and what has actually been rolling off on some of these other countries?.

Well, Mike, as you properly stated, it's a combination of the two fronts that will determine the true impact to the number of imports that we are going to see coming.

And as a matter of fact, you have seen that we have agreed to extend the dates for final determination so that we can have the investigators at the commerce department properly do their job and have the conditions to assess what the agreements actually should be.

And we are going to have a few more preliminary determinations coming for within the next two weeks. But then hopefully by may we should be able to have the ultimate determinations delivered. And our expectation is that it's going to be more meaningful than what would seem with some of those players.

As you see, one of the biggest heavy hitters over there is China and in that particular case we have been prevailing quite significantly. It's a complicated process, you know, and commerce has limited resources at this time.

So we have to make sure that they do have all the proper information and then they don’t succumb to the devious approaches in the way in which some of the other countries and companies have articulated their answers.

So I think that what we see is that we do have the condition to come out in the end with very meaningful margins on all of the major fronts that we have engaged and that should have a meaningful impact coming into the second half of this year..

Thank you. Next question is from Timna Tanners, Bank of America. Please go ahead..

I wanted to ask two questions. One is, clearly the guidance was helpful, I appreciate all that inputs that you gave us around that. Just want to get a little sense of sensitivity. So prices go up from the current levels that you assume. I think we can do the math around that. But if prices -- if the last price hike, for example, doesn’t stick.

How do we think about how you might adjust your production levels? Should we assume that you have some ability to pullback a little bit so maybe the downside leverage would be a little less. If you can give some color on that..

Well, the flexibility is a centerpiece into much of the work that we have been doing.

If you look at the realignment of the footprint, the reconfiguration, the realignment between the commercial activities with the logistics and planning and all that, we do have now less facilities which increases the flexibility and how we react to market conditions.

So you really should consider that if there is a need, we are going to be prepared to adjust to the order book we get..

Okay. Got you. And then just wondering if you could help us with any further cost that you might need to incur in this market environment. I know AK said that they would need to make a decision on Ashland maybe by the end of the year.

So would there be any exit costs? Would you have to make a decision on Granite City or the Fairfield cost behind you? Thanks..

Yes. Timna, the Fairfield costs are behind us. That was accomplished last year on the flat-rolled section piece of Fairfield. Granite City is temporary idling so right now it's really a cost absorption that we are dealing with there. The fixed costs for that plant are still -- on our books. But it's a temporary idling.

And there's some trailing variables, don’t go away quickly. So we need to absorb those costs but there is no other unique cost or a new cost that we see beyond that..

Our next question is from the line of Matt Vittorioso, Barclays. Please go ahead..

Just a couple of quick questions on your liquidity. Obviously a very strong position today. Could you just discuss real quickly on your asset backed revolver. Is there any risk of, while you reduce your working capital and reduce inventory, I guess the question being, do you expect that full access to that revolver through '16 and '17.

I mean does reducing working capital get to a point where you start to impact your availability on that asset backed revolver or is there a fairly sizable cushion there..

We do have some excess collateral now. A lot of depends how working capital moves in relation to receivables. So we do have some excess passing out. We can't cut working capital, still maintain availability from where we are right now.

But I mean at some point you would cross the line but I don’t know that we could speculate on when we get to that point..

Okay. Could you provide any color on your ability to incur additional secured debt beyond your revolver? What does the credit agreement for that revolver says as far as incurring additional secured debt..

They take consolidated net tangible assets measurement there in the revolver. There is also one of our senior notes. So those would be the limiting factor. Right now we are, our kind of thought process is that when we look at all the moving parts, that would could be in somewhere in the range of $1 billion..

Of additional secured debt, yes?.

Yes..

Okay. And then last question, more of an accounting question. And I know we have sort of discussed this with AK Steel. But within your 2015 results, you guys say that you use 80% LIFO with your inventory accounting.

In the 2015 results can you tell us how much LIFO income or what the change in the LIFO reserve was for the 2015 period?.

We never made any comment on any percentage of LIFO. And LIFO is not a cost we break out, that’s just part of the doing business as part of our cost structure. And there will be some very different color in your 10-K Matt Vittorioso as we get there. But beyond what we will have for our 10-K, we are not going to go any farther than that..

Well, you do use LIFO, so in a deflationary environment we should assume that there is LIFO income, yes..

There could be. I mean there won't be -- you won't expect to be an expense in that environment, no..

Our next question is from the line of Justine Fisher, Goldman Sachs. Please go ahead..

My first question is on the interplay of the EBITDA and working capital and guidance. So obviously if car market conditions persist and EBITDA, you got it to breakeven and $500 million of working capital if current market conditions persist.

But if we expect prices to improve and maybe from Dave's question initially, if you have 350 of EBITDA, maybe that implies market conditions improve.

Should we assume then that the working capital benefit could decline? I mean I know that there are Carnegie Way benefits in there but also as prices tend to increase, it tends, to use up some working capital.

So I know it's not as simple as this but should we assume that either it's somewhere between zero of EBITDA and $500 million of cash and working capital or $500 million of EBITDA and zero of cash and working capital are somewhere in between but that there should be an offset in working capital if we expect EBITDA to be above breakeven because of higher pricing..

Well, Justine, I mean your normal working capital fluctuations that happen with change in business levels will still be there.

The biggest piece of that probably at the moment we are talking about is really what we expect to be a structural improvement by better inventory management opportunities from more efficient operating configuration and better facility performance based on the work we have done on the reliabilities in our maintenance.

So a big piece of that we view as a structural improvement in working capital. But certainly we would still have normal working capital changes to follow volumes up and down. I mean if we are having some working capital increase from increasing runs of prices I think that could be net favorable in everybody eyes..

Okay. Thanks. And then the next question is just on your comment previously about the covenants in your [interest] [ph] bonds. And clearly, they do give the company a lot more room than maybe a new deal with them in a tougher market.

Does that mean that the company might prefer to just draw on the revolver to meet the bond maturities as opposed to kind of going on putting in a bond deal that had much tighter covenants? Or do the banks take issue with using revolver capacity to repay unsecured debt?.

Well, we have that option to use the revolver if we want to but I think as Dave said, we are looking at our options. And what the conditions we would see for new debt are certainly one of the factors we consider.

So I think we are being very deliberate and we think based on our projections we have a little bit of time to make sure we make the right decisions. But those are all possibilities, absolutely..

Okay. Thanks. And then I just have one last accounting question too. So you have mentioned that between dividend and interest and pension, that was this $350 million amount and so interest is -- I think [LTM] [ph] it was $250 million. And your dividend is about $30 million. So that makes pension much lower than we had expected.

Is that your net pension amount or is that just the contribution? Can you give us a number for the cash pension contribution?.

Well, we have no mandatory to defined pension plan and we did make a voluntary in 2015. Now that number of about $350 million includes some debt service, some small maturities like the revenue bonds. But when get our new labor contract ratified, we are going to have a remeasurement of pension [indiscernible] plans as a result of that.

So normally, and I think we have guidance in the deck on that, but we need to defer on that guidance until we get the contract ratified. We didn’t feel the necessity of guidance based on numbers that could really change within about a week or so. But we will give you some color on that once we have the labor contract.

Cut currently the pension [OPEB] [ph] numbers are an improvement from last year. It's just a question of how much and we don’t want to speculate on how much until we have a real accurate measurement..

Thank you. Next question is from Phillip Gibbs, KeyBanc Capital Markets. Please go ahead..

Just had a couple of questions. First on the order book right now for the various sheet products and what you are seeing there in terms of maybe some incremental tightness where we are seeing some lead times move out on some of the downstream products. And I am wondering if what you are seeing is more of a reflection of demand or supply or both..

I think it's both Phil. You know our lead times are being a bit longer. The capacity utilization that we are forecasting is better than what we have seen throughout the last quarter. And I see that what is taking place is pretty sustainable at this point in time..

Okay. And then secondarily, I know you had those shorter term cost benefits outside of Carnegie. I am trying to think about how those may or may not come back into the fold into 2016..

I mean those are all built into our projection, our guidance projection for '16, Phil. There is nothing new to add to that at this point. But certainly, if you think of, if we get the opportunity in the market that allow us to bring the facilities back online, we bring our employees back to work and that would, so cost would follow them.

But that will be tied to improvement in business..

Okay.

So for those to come back into the fold, we would probably need to see some capacity restarted, is that a good way to look at it?.

Yes, it is..

Next question is from Chris Terry, Deutsche Bank. Please go ahead..

Just wanted to talk about Europe a little bit.

What are your plans there on the operational side and is there a potential to add a little there or how are you looking into that business?.

That business is running extremely well, Chris. They are under pressure, the overall European segment is under pressure pretty similar to what we see happening here in the United States from imports. But the order book is very solid, the operations are solid.

Especially with the customers that we have around the -- they are also forecasting pretty solid business environment going into the rest of the year. So I do not expect -- we have no perception that there is going to be a need for reduction and adjustment in the operating capacity over there..

Okay. Thanks very much. And just a question trying to break down the cost benefits you might get in 2016.

Can you quantify how your annual coking coal contracts work and percentages that you might be picking up in 2016?.

Chris, you are referring to our U.S.

operations?.

Yes, that’s right..

Yes. We actually, we are still in the process of finalizing some more contracts. But where we stand now our best assessment is that we expect our coal costs to be down about $10 a ton in '16 versus '15..

Okay. Thanks very much. And anything else on the cost side that you wanted to highlight that you think you can get in 2016 that you haven't already talked about..

I think the other thing is we do expect maintenance to be down. Certainly with some facilities down, we are not doing maintenance there. Probably somewhere in the range of $50 million..

Question, Brian Yu, Citi. Please go ahead..

I want to -- there was a question about the contract business and the pricing adjustments. And I was wondering what's on the resets that you saw? Did the economics still make sense where you would continue to service the same customers you did last year or were there instances where maybe you decided otherwise..

We are not signing contracts that don’t improve the bottom line. So the contracts we have are good contracts for us and we are going to keep on taking care of our customers..

Okay. I was kind of wondering because I think in the guidance it said that you are expecting lower utilization rates. In '15 you averaged about of 60% of flat-rolled which is below the industry.

So I was trying to figure out if that was somehow tied maybe where the contracts had reset to a level or customer is asking a certain level that you just think that it didn’t make sense for you guys..

It's tied more to spot market. We did more spot market business in the first half of last year so our overall spot business was probably more last year than this year, right, in our current look..

Okay. And then just on the, again on the utilization rates.

As we tend to think about -- what's the best way to phrase it, what's going to drive an improvement utilization rates? Is that market prices going up, if demand improves and prices don’t necessarily improve enough, would you be more interested in servicing spot markets or does it really have to be a combination of both.

Because you have been very disciplined in how you put product into the marketplace thus far..

Well, Brian, you know when you compare with '14, you got to remember -- sorry, with '15, you got to remember that we are entering 2016 with two full facilities that are either shutdown or idle. And there has been a significant repositioning of where we are going to support our customers from.

So the order book that we are seeing is going to, is already showing good signs that we are going to operate the remaining facilities as I commented in the beginning of the call. It's going to take us to higher capacity utilization of the currently operating facilities and that significantly drives our ability to capture efficiencies.

It's much more difficult for you to run at 60% capacity with five or six facilities. And now we have less and the focus and the ability to plan and the ability to minimize changeovers where it's not necessary will continue stability in the overall flow path, will deliver significant improvements during the course of '16..

Next question is from the line of Evan Kurtz, Morgan Stanley. Please go ahead..

Most of my questions have been asked but I just wanted to clarify one thing. In the guidance for a flat EBITDA at current prices. I just wanted to know exactly what you meant by current prices. Is that the price where you are booking, is it the price where you are shipping? How do we compare that to the indices we see out there..

Well, actually to remember, it's more than just current prices. It's current conditions which includes prices, certainly. Now we are pointing to the market factors that you guys can observe. So it's based on what's observable to you guys on where general pricing assessments are, imports.

We are trying to give you context on things that you can see and work from. .

Okay. So, I mean I hate to delve too much into this but like some price indices, like crude, for example, they are based shipments. Some are more kind of on bookings and kind of give you where prices are if you were to place an order today. And since prices are moving so quickly right now, at least over the last month or so.

I am just trying to get a baseline for how we should think about that because that could make a pretty big difference one way or another..

In the face of what we see today, so actually the things that are more current will be more relevant. So anything that has a lag on it is probably not as relevant..

Next question is from the line of Matthew Fields, Bank of America. Please go ahead..

If you guys could take them all again or have it do over or something and you got to sort of wipe the slate clean with contracts and get out from all of your debt, what would the sort of idle U.S.

Steel footprint look like or what would the company look like?.

Well, I think you have heard me comment the pursuit of flexibility is a significant component of it. And I think we have been demonstrating a pretty good ability no matter how hard it is to move some, make some of these difficult decisions. I think we have been moving pretty diligently in that regard.

Our ability going into this next year to begin to benefit more in earnest of the fact that the commercial entities now have planted their feet inside of their customers, it's not anymore about filling blast furnaces but pursuing value is our full commitment to have real research and development that has already begun to yield.

We have a couple of dozen new products that came out in the second half of last year, there is more to come. And I think that will dictate exactly what we are going to be looking like.

It's more flexible, more efficient, more consistent, more value-added with the products and then ability to react to the market, up or down, in a much more speedy manner. The other thing is we have worked very, very hard in order to establish an environment where trade laws are fully applied and we get a fair environment in front of us.

And we look at our simple strategy, we are working to, we are on the right to grow and find ways to make money even when the markets are difficult.

But if you look at the improvements that are being put in place, it's not going to require us to go back to the full volume to deliver even better results, which is the aim and the purpose of this without any question..

Next question is from the line of Charles Bradford, Bradford Research. Please go ahead..

First question is about your cash. You got $755 million on the books.

Is any of that stranded overseas?.

No. We have full access to all our cash based on the way we are structured..

In Canada there are some rulings coming up on the bankruptcy of USSC.

Do you have any further liability if those rulings were to go against you?.

Right now, Chuck, we have our plans and whatever the process results, we will get some portion of our claims. We do have a -- our number on our book has been reserved down to $180 million. So to the extent we get less, we would have a non-cash charge. To the extent we get more, that will be some benefit. Anything we get will be cash positive.

It will be new cash coming in the door..

In regard to your tubular business. A few years ago there was a lot of talk about maybe selling it. That would have been a pretty good time.

Is that business set up as a legal entity so that it could be partnered or sold?.

The Canadian business?.

No, tubular..

The tubular business. It is not. It is a piece of the company. I mean certainly, [indiscernible] your options are. So if we had some thought that there is value, we would have to get to the right structure. But currently it is just part of the corporation..

A final question. A few years ago you used to talk about iron ore costs at $55 per pellet. Your competitors have all brought down their cost. Can you give us a new number..

That was a cost -- this was a full cost including all freight to get it down to the mills..

Yes, understood..

Yes. We talk about Carnegie Way process in the year that we have done to -- that we did that did reduce our pellet costs. We have made progress and we will continue to make progress. Certainly with Keetac idle, Minntac is operating at a better efficiency. So that helps maintain better costs. But we have process to reduce pellet cost we have.

I don’t think we have a new number to throw out at this point but we have made progress on our cost just as well [indiscernible] and hopefully maybe more..

Next question is from the line of Tony Rizzuto, Cowen and Company. Please go ahead..

I had a couple of questions on the cap spending. You mentioned the $350 million and I think I heard you guys say that it's about one half sustaining, one half growth.

What are the major growth programs that you have in there? And then secondly, how sustainable would that be? And then a question just how you feel about your ability to maintain -- do you think you have been able to maintain and grow your market share with automotive or do you think that some of that business that maybe you walked away from, was that less profitable business.

Just generally curious because we have been hearing comments from some of the EAS steelmakers and they seem to be making some inroads, further inroads into business with OEMs. I am just curious as to how you see your competitive position with major customers..

Where our company is headed to a position, Tony, is that we are comfortable with it. I mean many of the new products that we are launching are geared up to more value added products and this you look over time, there has been penetration in automotive not just from the [indiscernible] but there has been penetration from other materials also.

And when we look at the competition in that light and we look at our facilities and we are investing and then what it is that makes sense for us to go pursue. Right now we are operating at a good level.

The negotiations we have had have re-opened doors that they basically were not there for us to participate in most advanced products as early as a couple of years ago. And when we talk about what is to come in the model years of the '18, '19, '20, I think we are positioning ourselves extremely well.

Because it is different than just listening to a customer specify a certain requirement. Right now we have restructured our organization so that we are working close with them in order to help them with their designs and models in order for us to offer them what we believe is the best solution that adds more value to them and adds more value to us.

So this is a pretty fluid environment that we are in. We are very focused into improving the mix that we have and market share is a consequence of where we want to play rather than just look at total volumes and pursue a tonnage of the reference of market share. It's more a value than anything else..

And Tony, going back to your question on CapEx projects. We are being very diligent and conservative in this environment. So there aren't any big large projects. It's a lot of smaller projects but they are projects that have much less risk to implement and return benefits much faster.

As to how we think we would agree, this is not the environment to kick off big, big massive projects and we really aren't going there right now. There are smaller, more executable projects to work with..

How long can you keep that cap spending at this levels?.

There is some flexibility on whether if we had to, whether we would cut back on growth. You know you need to maintain your safety, you need to maintain your infrastructure. We will have to see how the market plays out. It's all to be dictated by our ability to generate cash..

Thank you. And final question today is from the line of Chris Olin, Rosenblatt Securities. Please go ahead..

Just a quick question on the guidance. In terms of how I should think about the sequential movement, the contracts have rolled over lower, you probably booked some lower priced spot quotes in January.

Should I assume that the EBIT results will be significantly weaker in the first quarter and gradually improve as the seasonality comes back? Or how do I think about it from quarter to quarter?.

Yes. Chris, we got to wait from quarter-to-quarter because from our perspective the valuations based on broader periods, nobody is valuing the company on one quarter of results. So we think the forward years is more relevant. That’s more of a basis for valuation.

So you are always going to have quarter-to-quarter flows for a lot of reasons not just commercial. But we are staying with a broader look that we really is consistent with how people value the company. All right. Thanks, Chris and thank you everybody.

Mario, final comment?.

Yes, before I sign off I would like to acknowledge the hard and capable work of our employees and their extraordinary accomplishments to improve our company while remaining fully committed to our core values of ethics, integrity and safety.

We know some of the actions that we take impact our team but these actions are necessary to help us get through these challenging times and create a stronger company.

Slowly but surely, all of the initiatives we are pursuing will deliver value by making us stronger and better positioned to serve our customers and will result in a better and safe work place for all of our employees..

Thank you, Mario. I would like to thank everybody for joining us and we look forward to talking to you again in April. Thank you..

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