Good morning, everyone, and welcome to the United States Steel Corporation's Third Quarter 2019 Earnings Conference Call and Webcast. As a reminder, today's call is being recorded..

Thank you and good morning. We appreciate your continued interest in U.S. Steel and welcome you to our third quarter earnings call. On the call with me this morning will be U.S.

Steel President and CEO, Dave Burritt; our Executive Vice President and CFO, Kevin Bradley; as well as Christine Breves, who will transition into the CFO role beginning on November 4. Also on today's call is Senior Vice President of Strategic Planning and Corporate Development, Rich Fruehauf.

After the close of business yesterday, we posted our earnings release and earnings presentation under the Investors section of our website. On today's call, we will walk through via webcast, select slides and our second quarter results. The link and slides for today's call can also be found on our website.

Before we start, let me remind you that some information provided during this call may include forward-looking statements that are based on certain assumptions and are subject to a number of risks and uncertainties as described in our SEC filings and actual future results may vary materially.

Forward-looking statements in the press release that we issued yesterday, along with our remarks today, are made as of today, and we undertake no duty to update them as actual events unfold. I would now like to turn the conference call over to U.S. Steel President and CEO, Dave Burritt, who will begin today's presentation on Slide 4..

Thank you, Kevin. Good morning, everyone, and thank you for your interest in U.S. Steel. We've been making big changes over the past few months, positioning U.S. Steel for a brighter future. Our strategy should be coming into focus for you with our investment in Big River Steel which closed yesterday.

But this strategy has been the plan all along, to become the world competitive, best of both, best of the integrated model and the best of the mini mill models. Our investment in Big River helps us to get to where we were going faster. Still, significant market headwinds remain across all three operating segments, but this does not deter us.

It provides clarity that our strategy is the right one for our success. As a result, we are moving quickly towards centering our North American flat-rolled footprint around three world-class assets.

This includes rescoping our asset revitalization program, reducing fixed costs, reprioritizing cash and building a team in support of the business we are becoming, and with ultimately acquiring 100% of Big River our number one strategic priority..

Hey thanks, Dave. Given this is my last call, I just want to take the opportunity to thank you Dave and the Board for giving me the opportunity to serve this great company. I know it has been a privilege for me to work with an incredible leadership team and a truly exceptional global finance team.

In the last couple of years there's been tremendous change in the global landscape for steel, but I've got to say that everything that I've seen and learned over the last couple of years, I couldn’t be more excited about the bold strategy that this company has chosen and committed to.

I think it's an absolute game changer and I am proud to have played a small part in making that happen. I have zero doubt that this leadership team will execute the heck out of this game changing strategy. Dave, I also want to echo your comments related to Christie.

I've had the opportunity to work closely with Christie and what people on this call will come to see in the coming quarters is, she is a true talent and an exceptional individual.

She has been quietly owning and improving a lot of the plumbing that make this place work, from IT and engineering, S&OPERATOR, commercial pricing, so many things Christie that you've been able to touch and improve, I think this company is in great hands going forward and I think it is just a matter of time before everybody on this call gets a chance to see you in action.

So congratulations..

Thank you, Kevin..

Okay, so let's jump into Slide 11. With the announcement of Big River, we've been able to begin financing our world competitive best of both strategy, as Dave referred to earlier, in the last few weeks we've closed on approximately $2.6 billion of financing activity and added an incremental $1.1 billion of capital availability.

The $1.1 billion breakdown as follows; approximately $350 million in senior notes, approximately $275 million in environmental revenue bonds, and approximately $500 million from upsizing our U.S. ABL. The $350 million of senior convertible notes have a 7-year maturity and a 5% coupon. The environmental revenue bonds closed on October 25.

They represent approximately $250 million of unsecured, 30-year new money at coupon of five and three quarters. And last week we closed on our $2 billion ABL facility. We extended the term out to five years and increased availability by $500 million. We were very pleased with the appetite and support we saw from our bank group.

As announced yesterday, we drew on this facility to fund the initial investment in Big River Steel. Bottom line, we've made good progress in the last couple of weeks to raise a meaningful portion of the strategic funding needs of this company.

We will continue to evaluate additional financing opportunities as our cash requirements and market conditions evolve over the investment horizon. So let's talk about financial results on Slide 12. We closed out Q3 stronger than we expected delivering $144 million in adjusted EBITDA.

This was above our initial expectation and at the top of the preliminary range we provided on October 10. Our flat-rolled segment adjusted EBITDA of $167 million was lower than the second quarter, primarily related to market price erosion.

We foreshadowed this on our Q2 earnings call as roughly 60% of our flat-rolled segment is our shipments are directly impacted by short-term changes in market price. We expect the dynamics to occur in the fourth quarter as the market declines have continued into October. Additionally, we are anticipating a shipment decline in Q4.

Weakness across our European markets continue to erode our segments financial performance. This was compounded by seasonal weakness we typically see in Q3. Commercial headwinds will persist in the fourth quarter, but should be largely offset by lower raw material costs, primarily ironwork contract pricing.

Energy costs should also be a tailwind in Europe versus the third quarter. The tubular market continues to be difficult. Commercial market dynamics drove more than 100% of the sequential segment EBITDA decline. This commercial decline was partially offset by lower substrate costs.

We expect to narrow the loss in tubular for the fourth quarter as lower substrate costs should more than offset commercial headwinds. With that, I'll turn it back to Dave..

Thank you, Kevin. Let's turn to Slide 13. We are in a difficult market environment right now. This is not lost on anyone here, but our current reality has proved that our world competitive best of both strategy is the right one. We are focused on what we can control and are taking action.

For example, again, we raised approximately $1.1 billion of incremental capital in support of our strategy and have articulated that ultimately acquiring 100% of Big River is our number one strategic priority. We will remain flexible to manage the pace of our other strategic investments.

We are focusing on what we can control, re-scoping our asset revitalization investment and reducing associated CapEx by approximately $200 million to $250 million and reducing fixed costs by approximately $200 million over the next couple years.

And we have already begun prioritizing cash towards the business we are becoming and remain value focused over the long term. Kevin, let's move to Q&A..

Thank you, Dave. We ask that you each please limit yourself to one question and a follow-up, so everyone has the opportunity to ask a question.

Operator, can you please question the line for questions?.

Thank you. The first question comes from Martin Engler from Jefferies. Please go ahead..

Hi, good morning, everyone..

Good morning, Martin..

Good morning..

Congratulations on completing the Big River acquisitions and better financing there..

Thank you, very much..

Now that it's concluded, if Big River does pursue a greenfield project, can you talk to us a little bit about if U.S.

Steel would be required to provide financing based on its JV share today?.

Sure, we have Rich Fruehauf here who is heavily involved in that strategy and the negotiation, so Rich?.

Yes, thank you, Dave. So as Dave said, we're really excited to be getting this relationship off the ground. We did close on the 49.9% acquisition yesterday.

We're really excited to be a member of the ownership team with coke, minerals, with TPG growth, with the Arkansas Teachers Retirement System, and of course with Dave Steckler and his very talented team, I know they're focused on completing Phase II-A, which is the second line getting to the 3.3 million tons.

And so, that's going to be our focus going forward. But to your question, we do have customary consent rights over certain material actions. And so we're going to have to evaluate any of the projects that Big River may have on the table or bring to the Investor Group going forward. So that's how we're going to approach it..

Okay..

We're very much impressed with the entire Big River team, so we're going to learn from them and work with them and make a much better company together..

Okay, so it sounds like if something were to come to fruition on a Greenfield project, you would have the ability to take a look at it, evaluate at that time and make a decision, whether you want to go along and provide the incremental capital or stay away from it correct?.

I think the way I'd say that yes, we as an investor we will have the customary rights you'd expect any investor to have and we'll use those rights as we evaluate any of the projects that come along..

Okay, thanks I appreciate that detail.

And moving on also on Big River, regarding the call option to acquire the remaining stake, can you provide some framework on the agreed upon formula to help us understand the potential capital outlay there in the future?.

Yes, so the way it works and I'm not going to get into a lot of detail because some of it is still confidential, but effectively in the first couple of years of the four-year period, the second 50.1% can be acquired based on a fixed formula.

As you get into years three and four that formula can move based on the business's performance against certain metrics it could be adjusted up or down. Those metrics are tied to the business performance and free cash flow, completion of Phase II-A and certain other performance metrics and so that's how it's going to be calculated..

The next question comes from David Gagliano from BMO Capital Markets. Please go ahead..

Hi thanks for taking my questions. I was wondering if we could focus in on the 2020 capital spending for a minute.

If you could just walk through the allocation of that $950 million between the major buckets sustaining CapEx, Mon Valley, asset revitalization and Fairfield?.

Sure this is Dave. Before I get into the details on the 2020 capital spend, I want to make sure I touch on a few key points on this. Everybody should know we strongly believe in this world competitive best of both strategy. We're transforming this business and the investments we have announced are required to position our company for the future.

The second part is, you all agree with this strategy. The strategic logic, the feedback has been all positive and we're committed to delivering on this strategy for our customers, our employees and stockholders. We also know that delivering the strategy requires flexibility. And that's to the $950 million that that you asked about.

Given today's market realities, we know that in order to deliver this strategy, we've got to be flexible. And we're working hard to ensure that we build this optionality into our project management, our engineering, our procurement, and so on. And as I said earlier, we're focused on what we can control.

We're not going to predict what the market fundamentals in U.S. or Europe are going to be or how they're going to change, but we're going to be adaptable. We're going to focus on executing and we believe the $950 million of CapEx in 2020 is the appropriate investment at this point in time in.

So that being said, here are some examples of our flexibility in action and how we're currently thinking about next year. So, if you think about the base capital spending, currently projecting to spend between $550 million to $600 million across our footprint, including the continued investment in the Gary hot strip mill.

Related to the electric arc furnace, this is a great project with attractive returns and, and recently we completed the environmental revenue bond offering that allows us to complete this project next year and we expect to spend around $150 million in 2020 to complete this project.

And then the Endless Casting and Rolling at Mon Valley, this is an investment we continue to be extremely excited about, as this transforms our lowest cost mill into our most capable mill because it is so important to our future.

Our engineering teams have been working hard to develop the 2020 budget that fits within our current spending profile without compromising the business case or our timeline.

So in 2020, we currently expect to spend less than $200 million, with an emphasis on permitting, site development and early phase construction and fabrication and things like that. And then on the dynamo line at USSK, this project delivers, as you know, state of the art electrical steel for our customers in Europe.

And as you also know, we already have partnership in place for some of the volume off this line. But market conditions in Europe are challenging and we're working with our customers to ensure we deliver this project when they need it.

And we have the opportunity to flex this project a bit and delay some of the spending without materially changing the time line. So we're looking at about $35 million or so next year and are working closely with our customers in that region to meet their needs..

Okay, that's helpful, very helpful. Thank you. Now, just to follow up on that, when I look at this versus prior indications, it looks to me like, so for example, Mon Valley, I think there was a $400 million number previously now it's less than $200 million if I'm not mistaken.

And then it doesn't look like there's anything or at least, as best I can tell from this side, allocated to asset revitalization. Whereas, I think historically, which was as much as $600 million at one point, at least as of the second quarter, I know that's come down a bit.

Can you just validate the numbers I just mentioned in terms of the changes, and also what is the timeline - sorry guys?.

You got a second, another question or do you want me to answer the first one?.

Well just to finish the question, just validate those changes if those are accurate.

And then secondly, what does this do to the timeline of the incremental EBITDA target of $390 million by 2022/2023?.

Okay, the first part of that, if you think about the asset revitalization program and factor with the changes that we're making here, the big changes organizationally, and with our desire to ultimately own 100% of Big River and get the best of both strategy, we're doing the pivot towards that strategy.

And so, when you think about the base capital spending, as I mentioned, it's in the $550 million to $600 million range. And you're right, the project icon we'd said before is around 400, so less than the 200. And we're looking at the dynamo line, so that would be a drop from roughly $100 million or so.

EAF I think was about the same, but on the asset revitalization portion, we obviously have an opportunity to do that pivot. We hit all our targets on that in terms of the safety, quality, delivery and cost targets, and so we're actually pivoting to the future and focusing on the company that we want to become and doing that right now..

Yes and Dave just to add to that, if you think about revitalization, we previously announced the $200 million to $250 million reduction the remaining spending on that program. If we think about where we were through 2018 we were just shy of $600 million spent on asset revitalization.

And we suggested that we were looking at $300 million to $350 million in 2019 as part of revitalization. With the new budget, that would imply kind of a remaining revitalization spend of $375 million or so. That is largely now directed towards the Gary hot strip mill. And we expect to spend about $100 million at the Gary hot strip mill next year.

So, you're right, the revitalization spend is obviously down as we indicated, and we're really aligning remaining spend around the capability and cost differentiation that's required. On the Endless Casting and Rolling line at the Mon Valley, $400 million was our initial estimate when we communicated the project previously.

But as Dave mentioned, and maybe I'll ask Christie to expand upon here in a moment, one of the things we're always looking for when we design growth projects is optionality. So we work very hard through the engineering, the procurement, and the project management process to make sure that we can be flexible.

So as Dave mentioned, if we spend just shy of $200 million this year on endless casting and rolling, we do not believe we're compromising the timeline or the business case in any way. So the EBITDA expectations remain intact and the timeline we don't expect to materially change as a result of the pacing of the investment. Our goal is to get it done.

We know the value it creates for our customers and for the business how important is to our strategy, so we're going to do what's needed to be flexible, but ultimately we will deliver the outcomes required..

Hey Kevin, I would just add, yes, we are looking at that project and the way engineering works on the stage gates. So we really look to build flexibility and right up front. And so, even though we're going to not spend this much in 2020 we don't expect the completion of the project to change.

And we also - one other thing, all of our projects, I mean we really try to build in flexibility and think about if we have to flex them as we're designing them. Procurement also writes contracts where they try to build optionality and flexibility into those contracts. And we also have really good relationships with our suppliers.

Our suppliers are very helpful working with us to get these projects done, because we're always looking at the market and understanding what our cash looks like and flexing accordingly. But, so that's kind of the thought process behind the pacing of the projects..

The next question comes from Chris Terry from Deutsche Bank. Please go ahead..

Good morning, everyone. Yes, just to follow up a little bit further on the CapEx angle for next year. I think you said $550 million to $600 million for the portfolio including the Gary hot strip mill of a $100 million. So that would imply around $450 million to $500 million of sustaining.

Just wondered if you could comment if this is the new normal for sustaining we can expect and whether this level is based on what you see as your core or key assets or your total assets that you currently have operating? Thanks..

Yes, thanks Chris. This is Kevin. So a few quarters ago we did share a chart with you all about the kind of the long-term sustaining capital requirements of the business. That suggested about $550 million to $600 million.

The important thing to note on that chart is that that's a three cycle estimate and obviously things will change each and every year, but we are using that as a proxy for an average over a multiyear period.

So, where we're coming in here for next year, initially at least, I don't think it is anywhere inconsistent with that and speaks to the flexibility and the responsiveness we have to the marketplace to deploy capital within our business in the most efficient manner possible.

I think we're clearly focused on making sure that the capital we are deploying across the enterprise aligns with the strategy dedicated towards assets that have a cost and capability advantage. Our reduction and revitalization spreads and our focus on the Gary hot strip mill is a great proof of that.

So, that is an enterprise number, the number we talked about for sustaining CapEX and we think it's consistent with what we've said and where we will find ourselves in the future as our strategy progresses..

Okay, thanks for the color there. I'm just wondering now that you've closed on Big River officially on the transaction, if you could comment a little bit more on the actual performance of the business, maybe on the profitability, the tonnage, just anything you could provide to give some color? Thanks..

Yes, unfortunately the closing of the transaction was really not the limiting factor in sharing financial performance. So we're not able to give a lot of color - additional color. But I'll just emphasize. I think what Dave and Rich said, I mean this is a great team that is running state-of-the-art assets.

Their financial performance has been well diligence by our team, by our advisors. And I think the typical mini mill profitability that you see through the cycle, these are newer assets, a great team. We have no reason to believe that this won't generate those same types of returns. But maybe I'll ask Rich to add a little bit more color..

Yes. The only other thing I'd add Kevin to what you said is, I mean, you have to be really impressed with how fast and quickly and without a hitch that team brought the original line online, the original 1.65 million tons online. They did it in record time without a hitch. I mean that's just really impressive.

And so, when we look at what they're working on now in phase II-A, getting that second line up, getting to that 3.3 million, we have high confidence, they're going to hit their targets on that.

And then when you think about 3.3 million tons of steel made by roughly 600 people, the operating leverage that they're going to achieve is going to be really impressive. So I think that's about what we can say right now on the performance of the business..

They are impressive. We have to all remember there were a startup business.

They've only been at this a short time, and that's why we're incredibly excited about this marriage we're ultimately going to have with them and get to 100% of the business, because together we will be able to leverage our commercial capabilities and our R&D and other attributes to work with them, learn from them, work together to create an incredible company..

The next question comes from Timna Tanners from Bank of America Merrill Lynch. Please go ahead..

Hey, good morning. So my first question is just to review if we could Kevin's comments on the fourth quarter. So if I understood just to go through, so conditions can worsen at least on the pricing and volume side for U.S.

flat-rolled, conditions may be bottoming it sounds like for Europe and then conditions maybe improving sequentially into the fourth quarter on tubular given lower substrate costs.

Is that a fair summary?.

Yes. And this is Kevin.

We have made comments that we feel that we've seen bottom in North American flat-rolled, but it is that same dynamic that we saw on Q3 with our adjustable tons, our spot, our monthlies, our quarterlies, given what's happened over the last couple of months on price that is going to flow in and impact the fourth quarter negatively on a go forward basis, though we're more optimistic about the pricing environment.

Unfortunately, we can't change what's happened on the adjustable tons..

And Timna it does feel like we're seeing a bottom here, but obviously the fourth quarter is not going to be a good quarter, but as we move forward into next year, we should see that prices could come back, but we're not going to really be forecasting what's going to be happening with these things.

We're going to adapt, we're going to be flexible, and we'll make sure that the spending that we have for the future of this company making it healthy is the right amount of spend at the right time. If business conditions worsened, we will certainly adapt to that, and if they get better, we're going to adapt to that as well.

We're committed to this best of both strategy..

Got you, so….

And European and tubular side, I think, you know, you summed it up correctly. Narrowing the loss in tubular, a largely on better substrate costs in, and then in Europe also difficult market continues. But we do expect to see a little bit more tailwind from lower material costs..

Okay, thanks. And then just a follow up on that question, I wanted to make sure I understood it. If you have any further comments on how you're seeing the annual contracts, and if you could remind us your exposure there? But, I really wanted to ask about the CapEx question earlier, but in a different way.

I know you have a good relationship with your unions, but given that you've said that you're prioritizing some of these electric arc furnaces and of course, Big River is non-union, and deemphasizing and spending less on some of the union operations. Can you characterize the dialogue you have with the union regarding that switch? Thanks..

Well, we have an excellent relationship with our union, our union leadership. We work with them frequently, especially on areas related to safety, areas related to trade, and I think they understand the market dynamics very well. And so, we're going to continue to work with them and with our employees to position this company for a better future.

We have not had detailed discussions about Big River Steel. We've been involved in a lot of discussions about the electric arc furnace at Fairfield and they've been very helpful in terms of getting that up and running.

But I think it's premature to be thinking about what the impact will or won't be related to the ultimate full acquisition of Big River at this stage..

Yes and Timna just to address the first question you had related to annual contracts. We're in the middle of those discussions right now. We respect that process and relationships with our customers. We'll update you at the appropriate time, but no additional color to share with you right now..

The next question comes from the line of Karl Blunden from Goldman Sachs. Please go ahead..

Hi, good morning, guys. Thanks for the time. I just wanted to do see if I can get a bit more clarity on your cash and financing needs. I think it was in a context - I think last year we described $750 million as a cash balance that was comfortable and may have been described as $500 million this year as a minimum level.

So I'm wondering does that change with the more focused portfolio? And then I guess the second one is, we haven't seen an explicit update of the financing slides that you put out with the Big River acquisition and then in 2Q. Now some things have changed, right? Steel prices have gone down, but your CapEx needs and timing has also come down.

So interested in that $700 million plus number of financing needs you've raised $300 million convertibles now, should we think of the rest as $400 million plus? Is that what the slide would look like today?.

Okay, so Karl, thanks for the question. Yes the 500 is where we feel comfortable today and then going forward through this investment period you can kind of see us more or less solving for between our ABL and cash from operations and CapEx about a $500 million cash balance, that's where we feel comfortable.

And then we also said we're going to be maintaining $1 billion in availability on our new ABL and so we're still kind of committed to that level of liquidity. I would say things have changed. Our CapEx expectations right now given market conditions as we've just gone through with Dave, that's a little bit different.

But as I said in my opening remarks, we're going to continue to watch the cash flow, the business, and the capital markets and their level of receptivity to us, and be opportunistic to go in when and where we can. So we've got some time here. We're going to be patient, and we're going to look for good opportunities to fund the strategy.

I'm just happy to be able to say after new numerous calls, where we've been kind of on the sidelines, due to the Big River deal, that now we've been able to get out there and execute.

I think the Treasury team under leadership has done a nice job working with our partners to get a lot of capital in a pretty efficient manner over the last couple of weeks..

That's helpful and does look like you have some - built in some flexibility now, especially on that CapEx flexibility that you've discussed. This is a smaller item just on cash, you had some restructuring charges in the quarter and that was added back to EBITDA.

Do you have a sense of how that might trend going forward, both from the cost perspective and then from the cash outlay perspective?.

Yes, the restructuring charges were largely related to actions we took within a couple of our business units USSK, to be naming a few. So we expect those to be kind of isolated in the third quarter and we'll keep you updated of such changes. But this is largely isolated in the third quarter..

Great, thanks Kevin..

The next caller is Nick Jarmoszuk from Stifel. Please go ahead..

Hi, good morning. With the ongoing business transformation, I was hoping you could talk about any steelmaking portfolio review, and whether you view that as being a proactive exercise or a more reactionary process to adverse market conditions? Thanks..

I'm sorry, I didn't understand it. Could you say it again, start over..

You got the business transformation you're bringing in Big River Steel, you're investing in the EAF and Mon Valley, obviously you’re trying to move down on a lower fixed cost in the business. Some assets are not being invested in obviously, higher cost, lower margin operations.

How do you view this overall steelmaking portfolio and is this the steelmaking operations are they going to be adjusted in a proactive manner to market or is the steelmaking portfolio going to be adjusted when steel pricing moves against you and they start burning cash?.

I’ll just say, I'm still not sure. I am going to turn it to Kevin Bradley here in a minute. Just to be clear here, we are moving in the direction of this best of both strategy with the focus on Big River, on Mon Valley and Gary with the hot strip mill. So we're going to have the mini mill technology with Big River.

We're going to go endless casting and rolling with Mon Valley and we get this other great capability at Gary. That's where the primary focus is going to be.

We're moving in the direction of that strategy and we're focused on moving down the cost curve and elevating capabilities at our other sites as well, but that for right now with a heavy emphasis on our strategy those are the top priorities..

Yes, I think part of your question, are we being reactive or proactive. I think it's a little bit of both right. And I think it’s more as responsive. We are like toggling down on our blast furnaces that we did over the summer. Those are things that we’re just reflecting the reality of demand that we see in our book of business.

Those are short-term responsive actions that we take. In terms of long term investments, in our in our footprint, in our capabilities, we look at that more on a through cycle basis.

So those are proactive, we're looking at through cycle economics and as David pointed out several times, with a real priority based on differentiated cost and capability, across our footprint. So it's a little bit of both..

Yes and to add to what Kevin said, I mean the strategy that we are now able to talk to you about publicly was largely developed last summer, almost over a year ago, and we've been executing on it kind of purposefully and stage by stage. So you heard us resume the Fairfield, EAF in the winter.

We launched project icon, which is the endless casting and rolling in May and obviously, we're in negotiations for Big River. We couldn't say anything about that, but once we got a deal done, we announced that at the beginning of October. So, we've been purposely executing on that strategy.

We have to make tactical adjustments as we go in response to market conditions. But when Dave articulated, those three key facilities has been the goal, has been the strategy and we've been rolling it out methodically over the past year..

Yes so, this strategy should be clear to everybody that's listening on this call, best of both world competitive. And then we deal with the market conditions, we respond, I would say we don't react because we have resilience plans, trough plans in place. And also pick the trough and everything in between I'd say more robust than we've ever had them.

And so, we're going to be responsive to what comes our way, but we're having a purposeful, deliberate walk to completion of this world competitive best of both strategy.

Does that answer your question?.

No the only thing I would add to that is, we every single month look at the demand signal. We routinely review where the market is. I mean, that's just normal operations. The other we're talking about is a very proactive march towards our strategy..

The next question comes from John Tumazos from John Tumazos Very Independent Research. Please go ahead..

Thank you very much. Your disclosures are very clear about volume, price, et cetera. Could you review how mix changed in each of the three businesses, particularly Europe? It looks like the mix got richer by $30/$35 a ton as commercial fell, but the realize price rose $4.

And it looks like a big chunk of the 239,000 fewer tons we're not profitable tons. I'm very pleased that the performance wasn't worse.

It looks like you dropped hot rolled tons that weren't doing much for you?.

I think that's a fair assessment. I think the team, as Christy mentioned monitoring the order book, one of the things we always monitor the economics of the order book as well. And we are - we don't hesitate to make changes to our commercial strategy and how we sell to customers and make sure we optimize the mix profile.

So when you look at Europe, I think you're absolutely right. The mix did improve even though selling prices were down. And North American flat-rolled, because we had blast furnaces we’re more selective in the tons that we took and the mix profile of the order book improved.

In tubular really, if you look at the mix of kind of seamless CRW it did weaken in the third quarter relative to the second quarter. So that drove some of the mix change in that segment..

Did the workforce fall by at least 100 in each segment?.

John, I'm not sure if I have that information readily available to share with you, but as part of any of – as evidenced by restructuring charges, and anytime we take footprint actions there are changes to employment levels, but I don't have specifics to share with you at this time..

Thank you for your service and the good results..

Thank you..

The next question comes from the line of Matt Fields from Bank of America/Merrill Lynch. Please go ahead..

Hey, everyone. I appreciate your flexibility taking down CapEx for responding to market conditions. But at the same time, in a quarter where you burned over $300 million in free cash flow, you bought back 18 million of shares.

I know it's not a big number, but what's the rationale for share buybacks at this time?.

So, yes this is Kevin. We had a program in place, in a 10B obviously, we stepped in as we got really close on the Big River deal, and we terminated that 10B, but we had a program going and we let it run..

So will there be no more share buybacks going forward for the foreseeable future?.

We still continued any purchasing right now, under that approval. This is going to be part of our long-term strategy. We need to make sure we're focused on the best of both in getting this done. But again, this is part of the flexibility. We intend to have this part of our strategy moving forward, but we need to understand what the market dynamics are.

And again, our first priority is to make sure that we complete the acquisition of Big River..

Okay, great. And then next, just kind of big picture balance sheet, you are at $2.6 billion of debt now. You incurred about $1.1 in the fourth quarter, that's $3.7. You're committing to pay another $700 million, $800 million or $900 million to buy the second 50%.

That's like 4.5 and then you're going to consolidate Big River’s debt on your balance sheet.

So sort of solving for kind of the EBITDA and cash flow generation that makes it all work, what's your base case assumption on kind of the steel market, volumes and pricing that kind of makes it all work?.

Yes, so - as I've said in the past, we tend to evaluate these kinds of investments and our looking forward strategy is, we're considering through cycle, average deal environment. As Dave pointed out, we're always doing sensitivities around trough and peak and everything in between as we evaluate it.

I'm not going to speculate on expectations around EBITDA generation over the investment period, but I think the main point we've been trying to make today is flexibility, right? We're going to be acutely aware of the market dynamics and the realities and what we're permitted to do. We're committed to this strategy.

We're going to execute it fully, but that will be with a keen eye on the current markets, our cash flow capabilities and the realities of the markets we serve. We're excited about it. We're going to get it right. We're not going to take any shortcuts and it will respect the reality of the markets we're in from a balance sheet and leverage perspective.

Please go ahead..

I think – I will just say the only thing I think I would add is, if you look at the funds that have been raised to advance our strategic projects, you have to take into consideration also, where are the values coming from within each of the projects. The tubular, that's a great example.

You know, it took on - we're successful in our completion of environmental revenue bonds, but we look at the value contribution from – and it's largely de-risked. It's not market-driven at all. It's the in sourcing of rounds, and an absolute cost reduction.

So, certainly as Kevin mentioned, we look at everything through the cycle, but we're also looking to diversify the benefits streams. And not all - none of these projects are 100% dependent on a certain commercial outcome..

Yes, I think the way everybody should think about this, you know what the average steel prices are through the cycle. You also know how ugly steel prices have gotten even in the recent past. You know what the peaks could be. So we actually do this resilience planning from peak to trough and anywhere in between. Obviously we're at the low end of that.

So we're doing a lot of resilience planning. We have black hat teams, we do outside in looks and we beat up the numbers and there's nothing that tells us that we can't get this strategy done through cycle.

We're investing here in what seems to be a trough and we're able to, get this strategy done and we've looked it a lot of different ways and we couldn't be more excited about the future..

And the next question comes from Charles Bradford from Bradford Research. Please go ahead..

Good morning.

Does your current labor contract continue the neutrality clause that was in the previous contracts?.

Those are current labor contract and neutrality clause.

Could you explain that a little bit more what you mean by that?.

In your labor contract in the past, there was section that required you to allow the union access on a neutral basis to employees at anything you were to buy..

Well, let me just say this. The way we approach these types of situations, if our employees want to have union representation, they're certainly welcome to have union representation. But it's certainly not something that is absolutely essential to have. We allow them to be represented, which is what the law tells us to do.

So clearly, it's something that will be - as we get further in the process we'll be talking about and working through..

Okay. The current political situation raises a lot of issues about fracking.

Can you tell us how much of your tubular products are related to fracking as far as current shipping levels and so on?.

Yes, we don't - I don't have that information readily available for you, but happy to provide that in the follow up..

Okay. There are no further questions at this time. I will now turn the call back to you. Please continue with your presentation or closing remarks..

Thank you very much.

Dave, any closing remarks for today?.

Yes, thanks everyone for your interest in U.S. Steel. But before signing off, I want to reinforce a few key messages. We are executing on our strategy purposefully, thoughtfully, with a focus on cash and long-term stockholder value.

Today's market conditions are just another proof point why we are accelerating changing to the company we are becoming, and that's just what we are doing. And finally, to our employees, we have undergone unprecedented change in a short period of time. I know change is hard and there are a lot of uncertainties.

Well, we continue to have to make difficult decisions about our future. I am very, very thankful for all you've accomplished. Now let's get back to work safely..

That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines..