Dan Lesnak - GM, IR Dave Burritt - EVP and CFO Mario Longhi - President and CEO

Luke Folta - Jefferies & Company Evan Kurtz - Morgan Stanley Phillip Gibbs - KeyBanc Capital Markets Matt Murphy - UBS Brett Levy - CRT Capital Jorge Beristain - Deutsche Bank Tony Rizzuto - Cowen and Company Timna Tanners - Bank of America Merrill Lynch Brian Yu - Citigroup Gordon Johnson - Wolfe Research Michael Gambardella - JPMorgan Aldo Mazzaferro - Macquarie Research Matthew Fields - Bank of America Merrill Lynch

Ladies and gentlemen, thank you for standing by. Welcome to the United States Steel Corporation 2015 Second Quarter Earnings Call and Webcast. At this time all participants are in a listen-only mode. And later we will conduct a question-and-answer session and instructions will be given at that time. [Operator instructions] And as a reminder this conference is being recorded. I would now like to turn the conference over to our host, General Manager of Investor Relations, Mr. Dan Lesnak. Please go ahead.

Thank you, Dan. Good morning and thanks all you for participating in United States Steel Corporation's second quarter 2015 earnings conference call and webcast. 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-answer 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, the Executive Vice President and CFO, Dave Burritt. Following their 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 and are 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'll turn it over to our CFO, Dave Burritt.

Thank you, Dan. Good morning everyone, and thank you for joining us. Turning to Slide 3, the aggressive actions we have taken to get our cost structure in line with our low utilization levels is starting to be reflected in our result for the second quarter and our flat rolled segment successfully offset the impact of a significant decrease in average realized prices. We reported an operating loss in the second quarter of $104 million at the segment level. EBITDA adjusted to exclude restructuring charges was $20 million for the second quarter resulting in first half adjusted EBITDA of $130 million. We continue to face extremely difficult conditions in the second quarter with high levels of imports and supply chain inventories and low spot prices and rig counts through most of the quarter, but later in the quarter we did see market conditions for our flat rolled segment start to improve as supply chain inventories began to rebalance and spot prices started to increase. Turning to cash and liquidity on Slide 4. We generated $79 million in cash from operations in the second quarter under some very challenging conditions and we remain focused on cash management and continue to build on the working capital gains we made last year. Earlier this week, we completed a new $1.5 billion asset backed 5 year revolving credit agreement that makes more effective use of our inventory and receivables to support fuller availability under this facility on a more consistent basis. This new facility replaces the $875 million inventory-backed facility and the $625 million accounts receivable facilities that were both scheduled to mature in July 2016. We currently have no outstanding borrowings against this facility. With a strong cash and liquidity position of almost $2.7 billion, we're well positioned to deal with the current difficult conditions and make the investments we need to execute on our long-term value creation strategy, including investments in our facilities and increase funding for the research, innovation and technology needed to develop the steel solutions that will create value for both our customers and our stockholders. Dan, will now provide additional details about our segment results.

Thank you, Dave. Our flat rolled operating margin improved as the combination of our aggressive actions to get our operating cost aligned with our low utilization levels and our increasing utilization of funding these benefits resulted in a significant decrease in costs and we were able to more than offset a $73 per tonne decrease in our average selling price. Flat rolled results improved in the second quarter, despite the adverse impact of significant and increasing volumes of unfairly traded sheathing cores, in addition to elevated import activity caused by the continued strength of the U.S. dollar. We have served to addressing the price of those spot and contract prices in the second quarter. Second quarter results for our Tubular segment decreased significantly as compared to first quarter primarily due to considerably lower shipments. Shipments continue to be adversely impacted by reduced drilling activity caused by low crude oil prices and the near record levels of tubular imports much of which we believe are unfairly traded. The decrease in results is also attributable to operating inefficiencies as our aggressive comping efforts did not offset the effective operating at less than 15% of our production capabilities. On Slide 7 for our European segment, results remain but decreased compared to the first quarter. Planned maintenance outages in the second quarter resulted in reduced shipments and higher repairs and maintenance costs. Leasing effects were partially offset by slight increase in average realized euro based prices and a reduction in raw materials costs. Now I’ll turn the call back to Dave for some additional comments on our Carnegie Way transformation and the favorable impact as they continue to grow.

Thanks, Dan. Turning to Slide 8, including the benefits from projects we implemented during the second quarter our new total for Carnegie Way Benefits for 2015 is $590 million as compared with 2014 as the base year. The large increase in 2015 Carnegie Way Benefits is the result of the completion of almost 800 projects in the second quarter and reflects the tremendous efforts of all of our employees, particularly in the areas of manufacturing and procurement where we have our greatest opportunities for improvement. We are increasing our capabilities in training more of our employees on our Carnegie Way methodology to support our growing pipeline of projects and improve the pace of project completion. This process remains a powerful driver of new Carnegie Way projects as our employees gain better insight into the potential sources of new opportunities. The acceleration of the Carnegie Way transformation has been a key factor and helping to offset the headwinds that have had a substantial impact on our business. The pipeline of projects is strong and we are focused on creating a cost structure that will position us to be profitable. We can see that we are making progress on our cost structure improvements and making more money now than we have in the past under similar market conditions. We compared our second quarter 2015 results to our second quarter 2009 results removing the price and volume impacts and focusing solely on costs. After adjusting for changes in our major raw material cost including iron ore, coal, coke, scrap and natural gas which are market-based cost that are observable to investors, as well as adjusting for changes in depreciation, pension and OPEB cost which we disclosed, a majority of the remaining costs are cost that we have a more direct control over. In 2015, these costs decreased by more than $75 per tonne for our flat rolled segment, $25 per tonne for our tubular segment and $50 per tonne for our European segment, as compared with our cost in the second quarter of 2009. Our pace of progress on the Carnegie Way transformation continues to exceed our expectations and the continuing benefits will improve our capability [Technical Difficulty] and then drive sustainable profitable growth over the long-term as we deal with the cyclicality and volatility of the global steel industry. We still have many opportunities ahead of us. Now turn to Slide 9 for an update on our Carnegie Way transformation process. The Carnegie Way transformation is the way we work to create value for our stockholders by improving our margins across the business cycle through sustainable improvements to our cost structure achieving operational excellence at all of our facilities and providing our customers with differentiated and value created solutions. We are in the second full year of what we see as a multi-year process. But as our current results reflect and in spite of the significant improvement, we are not where we need to be yet, a more nimble, assertive and proactive culture continues to emerge as we determine the specific improvement targets required for manufacturing cost, support cost and commercial priorities based on best-in-class industry standards and the most effective operational footprint to meet our customers’ needs. Numerous opportunities exist to expand our portfolio of differentiated solutions for our customer and are being derived through investments and people, innovation, technologies and facility improvements. An example of the progress we are making in this area is our recent acquisition of the remaining 50% interest in Double Eagle Steel Coating. Double Eagle’s 700,000 tonne per year electrolytic-galvanizing line has become part of our Great Lakes Works’ operational footprint. Operating Double Eagle as a wholly-owned U.S. steel facility will meaningfully improve our ability to develop and commercialize proprietary advanced high strength steels including coated generation three grades. We remain focused on providing our automotive customers with high quality, light weight products to meet increased safety and fuel economy standards and keep steel as their materiel of choice. We are also building the capabilities we will need to be successful in Phase II of our Carnegie Way transformation driving profitable growth. We will create differentiation through higher value-added products, focused customer solutions and process changes that positively impact economic profitability. Collaborating with our commercial and manufacturing entities to develop innovation and technology roadmaps, these roadmaps will be specific to customer requirement and will help identify and maximize our differentiated and proprietary customer solutions portfolio and will continue to be refined and expanded as our commercial entities mature and their capabilities are fully established. We are staying on our plan and disciplined course of creating value and we will not be detoured by short-term market conditions. We will take the appropriate short-term actions without strain from our long-term goals. Value is not created or destroyed in any one quarter. It is created through sustainable improvement in our business model. Stepped by deliberate step day-by-day we make progress it will take time but we are confident that our strategy in the process we have developed to implement that strategy will create value for our stockholders, our customers, our employees and our stakeholders. And now I’ll turn the call over to Mario to cover several important areas.

Thank you, Dave. Good morning everyone. We have taken aggressive actions to get our operating costs aligned with our lower utilization rates. We are attacking every aspect of our cost structure and exercising every opportunity that we have to eliminate, reduce and defer costs. We have the many cost levers that we can pull and we're pulling them appropriately but as quickly and as hard as we can. Last quarter we reported that we had taken aggressive short-term actions to reduce costs. We realized approximately 75 million in cost reductions from these actions in the second quarter and we expect to realize at least $175 million more in the second half of the year. I would like to emphasize that these are the results of short-term actions that will most likely reverse as we eventually return to normal operating levels and bring our people back to work. These cost reductions are in addition to the sustainable improvements to our business model, resulting from our Carnegie Way transformation that Dave discussed a few minutes ago. We continue to operate our facilities in line with our order book and are well-position to respond to our customer's requirements. We are making good progress on the EAF project at Fairfield Works and remain on target for a start up in the second half of 2016. The installation of the new caster at Granite City will be completed in August and we will let our order book tell us when it's time to restart the second blast furnace at that plant. We had temporarily restarted the blast furnace at Fairfield in early June in order to support the rounds requirements of our tubular segment. We now expect to ideal that blast furnace in the middle of August. We will continue to support our flat rolled customers in the Southern market either directly out of Fairfield or from our other flat rolled facilities. All of our other blast furnaces are currently running at levels appropriate to support our order book. While energy markets remain challenging, we are operating our facilities in a manner to ensure we meet our customer needs. While we continue to make operating adjustments to stay aligned with current market conditions, we also continue to pursue the long-term strategic initiatives that are critical to the ultimate success of our transformation and the creation of value for all of our stakeholders. The introduction of commercial entities this year provides on our organizational design that drives customer focus, provides visibility into value creation and enhances accountability. The commercial entities are aligned with the end-market for our goods and services and will create value by developing differentiated solutions that will make us trusted business partners and not just another steel vendor. This structure will enable us to allocate resources to the product and markets required to win in both North America and European steel markets. Only then we will have the ability to develop long-term relationships and solutions that drive sustainable profit. We continue to make new investments to implement our Carnegie Way driven reliability centered maintenance program at all of our facilities. This will result in more consistent, efficient, cost effective and safe operating conditions, as we are focused on achieving operational excellence at not just our production facilities, but in every aspect of our business model. We started a deployment of the reliability centered maintenance program in some of our larger and most critical facilities and are starting to see tangible results. At our steel shop at Gary Works, we have seen a 30% improvement in our unplanned maintenance in operations delay rate, since the third quarter of 2014 and a very strong downward trend on tonnes lost and costs incurred over that time period. We are encouraged by the success we have had so far. Now before we take your questions, I would like to give a brief summary of what we're seeing in our markets, an update on trade related activity and our guidance for 2015. 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 as compared to last year. In the energy markets low rig counts and high levels of import tonnes and supply chain inventories will continue to be strong headwinds against an improvement in domestic order rates. We continue to expect slight growth in steel consumption in Europe with better growth rates in the central European region. Excluding the energy sector, steel consumption in North America is generally good, but extremely high levels of imports, many of which we believe are unfairly traded continue to negatively impact order rates for domestics steel producers. For generations, U.S. Steel has been the industry leader in confronting of fait trade practices in this market, whether advancing legislative change or seeking revisions to policies and practices of the governing authorities, or filing trade cases, we remain vigilant in our efforts to ensure that there is a level of play yield for American industry in this market. The trade adjustment assistance for TAA bill, signed into law at the end of June is a solid start in our efforts to revise our trade loss, to better reflect the original congressional intent and provide necessary tools to counter illegal imports. The changes included in the TAA bill will benefit you in steel and other domestic steel producers, by allowing for more rigorous investigations of dumping in subsidies at the U.S. Department of Commerce and by clarifying the legal standard applied in trade cases by the U.S. International Trade Commission. Specifically, the passage of the TAA bill clarifies the injury standard in dumping and countervailing duties cases. The interpretation and enforcement of which have been weakened and have become a less effective tool to counter unfair 21st century trade practices mastered by foreign companies and governments. In order to obtain the release of anti-dumping or countervailing duties when faced with unfairly traded imports the U.S. industry generally much show that such imports cause or threaten material injury. The injury analysis tended to focus on domestic industries operating income. The new injury language adds additional factors to the lists. Namely, the ability to service debt and return on assets, while also clarifying that return profits includes gross profits, operating profits and net profits. All key economic factors that are necessary to have a realistic understanding of the effects of subsidized or dumping ports in our industry. As the primary proponent and author of the injury standard clarification, U.S. Steel also added specific language to inform the decision makers that injury could be found even when a domestic industry is profitable. This is a good start and we will continue our efforts to achieve the level of playing field that all U.S. manufacturing not just the steel industry deserves. In tandem with our efforts to modernize the trade remedies and enforcement laws when appropriate, we also confront and take action against unfair trade practices. As you recall on June 3rd, a trade case was filed covering corrosion resistant products on which the ITC recently voted unanimously that there was reasonable evidence to support the claims permitting the case to proceed. And yesterday, we were joined by other major U.S. steel producers in filing petitions, charging that unfairly traded imports of certain cold rolled steel flat products from Brazil, China, India, Japan, South Korea, Netherlands, Russia and The United Kingdom are causing material injuries to the domestic industry. The cold rolled steel petitions alleged that producers in each of the eight countries are dumping cold rolled steel in U.S. market at substantial margins and that foreign producer in Brazil, China, India, South Korea, and Russia benefit from numerous countervailable subsidies provided by their governments. This action was filed in response to large and increasing volumes of low priced imports of coal rolled steel from the subject countries. Since 2012, they have injured the U.S. producers. We are constantly monitoring the market and assessing the need for and viability of possible trade actions across all provinces. Now turning to our outlook on Slide 12, while prices and supply chain inventories may not have improved as quickly as many people had anticipated, we have pulled enough cost levers to hold our ground. The three main factors that drive our results are prices, volumes and costs and when prices and volumes are challenged, we need to deliver on costs, the piece of the equation that we control. We currently expect commercial conditions to improve in the second half of 2015 from the conditions we experienced in the first-half. The supply chain inventories continue to rebel it, primarily in our flat rolled market. Based on increasing benefits from our Carnegie Way transformation and our aggressive efforts to reduce operating costs to align them with our utilization levels, we expect to be within our full year adjusted EBITDA guidance range of $700 million to $900 million. While we continue to find additional short-term cost reductions and generate additional Carnegie Way Benefits. If the current pace of commercially proven improvement in our market does not increase, we would expect to be near the low-end of the range. Consistent with our Carnegie Way transformation process, we are focused on converting as much of the short-term cost reductions as possible into permanent improvements in our cost structure. We are in a long-term journey, we are making progress and we will continue to do so.

Thanks, Mario. Dan, can you please queue the line for questions.

[Operator Instructions] And our first question comes from the line of Luke Folta from Jefferies. Please go ahead.

I guess just to touch on the guidance a bit, so I just want to understand, so you're saying basically that if the commercial situation remains as it is today you think you can still get to the low-end of the $700 million range. And if I take a look at what that implies for the second half it's something around 570 million of EBITDA versus around 130 in the first-half and you called out 175 million of incremental cost savings that you can get in the second half versus the second quarter run rates as given the temporary things that you’ve done. And that’s a pretty good amount of earnings that would be improvement that would be required it to hit the range for the second half. So I am just trying to reconcile like what else is -- what are the moving parts that we’re missing in terms of getting to that number if the market doesn’t improve?

Well remember we also increased the Carnegie Way Benefits for the year, have now increased by 250 million to 590 and that’s based on just the projects that were done. So that number, that 590 number will also continue to grow as we complete projects through the second half. So the 250 million increase in Carnegie Way Benefits plus more, plus the 175 that is a pretty, pretty substantial cost profile change in the second half of the year for us. And we are assuming as spot prices have started to increase supply chain inventories have started to get better, we’re saying that the pace, the slow pace as roll on continues that’s how we get to those numbers.

So you still need improvement to get to the low-end of the range of market conditions just at a slower pace?

Yes, we don’t need an accelerated improvement, we just need the improvement to continue and we need to do more on the cost side.

And I guess as a follow-up, can you just give us some expectations in terms of what you're thinking for shipments for North America flat rolled and the tubular business was pretty nasty in the second quarter I guess as to be expected, just your thought process on when we start to see some recovery in buying patterns in OCTG and sort of what are your expectations for second half?

Yes we do see that it's going to evolve and get little better, not significant changes, but we expect that it is going to begin to improve now in the third quarter.

That’s on both flat rolled and North America flat rolled and OCTG?

Yes both.

And our next question comes from Evan Kurtz from Morgan Stanley. Please go ahead.

So first off congrats on the cost work and I didn’t think I’d ever see a day where you still at 58% operating rates and actually put out positive EBITDA. So obviously it's starting to work but I was hoping to just kind of follow-on that and just get a sense of where you are today on operating rates in flat rolled and how you see some of these mill restarts impacting operating rates in the third quarter?

Evan I mean we're sort of nascent we are seeing some improvement we expected the dense of volumes growth sort of the offer rates are going keep up with them. We still have at this point one first operatic city we are taken one down at Fairfield. So we're keeping in line with the order book probably not a dramatic increase in operating rates. But they should start moving up and I think the other thing that we talked about the cost improvements and the operating rates we have always had very significant leverage to increase volumes. We think about the magnitude of the cost we've taken out in the last couple of years. That benefit from volumes just gets even stronger and certainly incremental volumes now add more dollar number than they would have in the past.

And then just one follow-up if I may on iron ore, I know Keetac has been down for a little while here and Fairfield I guess is going off again and will eventually be permanently off at least as far as iron ore consumption goes at the end of next year, so how do you think about that asset going forward. Are you starting to position that as a third-party provider at some point and maybe an update there will be helpful?

Certainly the fact that we are going stay longer in our production position as to benefit from that additional characteristic we didn’t have before.

Okay would you consider DRI or someway to access an electric blast furnace markets as well. Or are you primarily focused on maybe using that to feed blast furnaces only?

No, we certainly are considering that other possibility Evan for sure.

And we have a question from Phillip Gibbs from KeyBanc Capital. Your line is open.

Had a question just on the Carnegie Way Benefits in the second half relative in the first half, I know you'd given a pretty wholesale number now for the full year how much of that should we think about being more second half weighted. I know you'd given some color on the shorter term cash cost piece but what on that piece specifically?

That 250 increase is based on all the projects that were completed in the second quarter. So we would have picked up some benefit from some of those projects in the second quarter. But you'd expect it the really the majority of that 250 shows up in the second half.

Okay so the 250 is more of an annualized?

That’s the full year impact from the first and the second quarter. So Evan if you think about this kind of the mid quarter convention may be that implies 50 million realized in 2Q and 100 million realized in each of the next quarters. And it does include the benefit of project that we will complete between now and the end of the year that will be in addition to that number as we give our next update.

So the 250 essentially is what you completed down in this past quarter. Benefit to those moving forward got it.

In this year from those projects yes.

Okay and then on the side of net working capital in terms of the inventory positioning is there still some work to do there in terms of getting a little bit of benefit out of that given some of the reset we've seen in steel prices and raws?

Yes that is correct there is additional value to be captured there too.

And I would to it besides the Carnegie Way Benefits we talked about we do have Carnegie Way projects that are specifically focused on cash, working capital and those types of things. So we're looking for ways to improve our working capital efficiency and put our cash balances higher.

And our next question comes from Matt Murphy from UBS.

Question on the short-term cost reductions, I mean you mentioned that they are likely to reverse but you're going to be trying to hang on to what cost savings you can. I'm just wondering if you can be any more specific on how much of that might be retainable and what it might entail does it mean exiting certain businesses or is it just day to day practices?

In that regard it's mostly day to day practices there were plenty of things that we were able not to have to order because we had enough given the new rate of operations. So there are many things like that we're able to tackle. We have addressed more than in 300,000 different items as we started looking at the short-term. So we were able to contain those expenses the work that takes place from this point on is to assess what really should be the next level of consumption and use of those things that we should put in place. How can it be sustainable, so I expect that there will be improvement to the rate of consumption going forward but potentially the majority of these short-term costs, they would reverse back whenever we get back to high operating rates.

Our next question comes from Brett Levy from CRT Capital.

Is there a headcount number or I mean that you've noted a vast number of projects that goes into that 250, are there some big pieces of that, that have been disclose and headcount amounts or anything else and sort of we can point to there a big piece of that 250 will be?

Brett I mean, well the fact is 800 projects make up 250. So no there is not any big home run here in there, it's just a lot of training a lot more of our people to be able to do a lot more projects, lot more small projects but for the most part these are really operational improvements and efficiencies, headcount is not a big driver to Carnegie Way Benefits. Our headcount is in a pretty good spot Carnegie Way Benefits are being driven on the backs of our employees. It is really driven by a better process, more efficiencies really finding where waste was in ways, that's not about cutting hedge.

And then back to the trade case pieces of puzzle, I mean both you and some of your counterparts in the steel industry have said that these trade cases have teeth obviously the Congress has passed some rules, I think the headwinds for the trade case are going to be where the U.S. dollar is and sort of what the price internationally for your some of the steel is that they are trying to get into our markets, I'm not asking you to sort of try the trade case in a public forum but if you can give us sort of some of the reasons that you're optimistic about this cold rolled case and then the potential hot rolled stainless and plate cases not as relevant to you guys but sort of just the general reasons to be optimistic for the trade cases are?

Well, I'll give you a very simple example. If you look at the number of subsidies that are being given by the different countries, it's not one or two some of those countries have more than 40 dimensions of subsidies that are giving to the foreign steel companies. This dimension of analysis makes the ITC and the Department of Commerce much more capable of addressing the definition of injury. And the other particular very important point in this is it is no longer, just focused on theft practices and past harm that has been delivered to all of us. It addresses the fact that they can analyze these conditions and identify that the certain levels of behavior will lead to significant injury and that will be reason enough for them to act and provide a proper response. So that situation has really changed in this regard. We have now two recent cases that have been filed, it's not a simple thing when you have the ITC unanimously support and validate that there is enough in there for them to proceed with the case and therefore we remain vigilant and our actions should have a lot more traction, should be a lot quicker to get responses and therefore the leveling of the playing field should have a better track going forward. And I want to remind everybody that I have been saying that it's not a matter of if anymore, it’s a matter of when, when these analysis lead to the conclusion that yes, we do have a solid case to just move forward. This is not over.

And we have a question from Jorge Beristain from Deutsche Bank.

Good morning, Mario and again congratulations on achieving at least a slight positive EBITDA against this historically low utilization. I guess my question has to do with market shares and it would seem that the current problems as well the blast furnace our integrated model is facing is not simply imports but are you facing market share losses to the electric arc furnace competitors in the U.S.? It would seem they have much stronger sequential volumes and is that because clients are starting to grow concerned about your financial situation or are you just simply stepping away from business, if you could just kind of qualify what do you think is happening in the market and therefore do you expect to bounce back maybe in the second half as pricing also recovers, if you could just talk about that?

Well there is I can guarantee you, there is absolutely no issue between ourselves and our customers. Our support to them is highly appreciated and continues to improve and we're not in the market for volume, we're not out here to pursue that we're pursuing value. Our commercial entities are definitely focused in sorting out where is the value resides, how can we strengthen our positions over there and the continues analysis of Carnegie Way improvement that goes into the journey there may be a situation where right now, we should not get some businesses but as we improve our base of competitiveness, those markets can easily come back because we want it, that is the difference.

And could you also just shed a little bit of light as to what's happening in Europe? We've also noticed some trade case action there, you said that the volume should be up slightly it is a low single-digits, I thought but could you just talk about is there a risk in Europe that we start to see an evolution of the imports which get pushed away from the U.S. market just kind of ricochet to Europe and then we start to see some weakness in the second half?

Well the over capacity around the world is the reality that impacts everybody I mean it probably impacts America because we remain the most open country in the world. But what is taking place here is not going unnoticed in other parts of the world, the pressure for of dumped material into all of these countries it is certainly increasing. The Europeans are noticing what’s happening in here, they are seeing the quality of how we are bringing forward trade cases the validity of that and they are seeing the impact that is already happening over there. So I think the Europeans are beginning to realize that the globalized environment can only work fairly well if the rule of what lies the one that prevails over the interactions that take place. They cannot go and ignore it or they are going to be impacted just like we are being so that is the reality that it is going on, we participate with the European community in all of these analysis and you’ll probably see an increase on the amount of cases that are going to be filed by the European union I guess pretty much the same players that we’re fighting over here.

And our next question is from Tony Rizzuto from Cowen and Company.

And it is very good to see the structural changes you're driving throughout in this challenging environment, no question about that. I noticed that your flat rolled price realization although was down $73 sequentially it actually held up better than we thought and I was wondering given you’re the various lags that you have how much further erosion should we expect in the third quarter?

Well Tony, that chart we have in the back of the deck to breakdown those pricing structures, certainly when you look at second quarter CRU versus first, the quarterly chart will have no step down. I think the open impact on our average dollar prices is well get depend on how we do on the spot business and then monthly business moving up and I think it's quite too soon to tell, but you’ll see the quarterly contract step down again, yes.

And then on the tubular side realizations were also higher despite what we’re seeing in Pipelogic and some of the other consultants and is part of that the mix that you're still producing a little bit higher value-added mix there?

It really is all mix and unfortunately it doesn’t take much of a mix shift that only 92,000 tonnes that skew those numbers pretty quickly.

And I was wondering also just to move over to the labor contract a little bit, I was wondering if you could describe the tenure of the labor discussions and does -- and I wanted to know do you think the existing contract gives you the kind of flexibility you need as you continue to drive this transformation?

Look our relationship with our partners in the union is really good. If you look at to what has been accomplished through the Carnegie Way transformation is a great partnership with them. All of our people are in a process of being trained, they are contributing their ideas they are working together like never before. We’ve been working very hard with our supervisors to make sure that they become the supporters and sponsors of all the great qualities that our people have, listen to their ideas, structure to processes, so the relationship is really good and the negotiations there is a proper process established and it has taken its course.

And we have a question from Timna Tanners from Bank of America Merrill Lynch.

I want to follow-up on Tony’s question because I have been studying this Page 18 and it does say 12 months ended June 30th. So if it were to be updated for the most recent environment I imagine that might be skewed away from spot a little bit more. I just want to understand since the OCTG market is not at its best. So I just want to understand, if we were to see a $50 per tonne increase hypothetically or the $40 per tonne you proposed recently, would it show up right away in some of the spot business or is there a lot of spot business do you see impacted or would we really see the thrust of any price increase now more fourth quarter?

Well I think if you see price increases in the near-term. We saw a plenty of spot business, I mean if you look quarter-to-quarter that spot number has moved a little bit up and down, but not drastically. So that’s probably not too far for the current spot volumes and certainly then with just a one month lag, the monthly contracts will start picking up their benefits too. So we have a fair amount of volume that would get some benefits quickly, certainly the more momentum we can get on prices sooner will help those quadruple contracts 4Q if we get some better momentum.

So along those same lines you have 10 months of OCTG inventory but the inventory is on spot rather than coming down nicely, what’s your timing for expecting better market value to be able to affect some of these price hikes that have been announced?

Well we think it's announced and we think the last choice I can put out there is gain some traction, I don’t think anybody sees the full 40 but it is gaining traction and that’s why we have put it out there was we were seeing in spike in inventories and the balance moving in the right direction and we felt it was supportive.

And if I could one, last one, just and if you could provide us an update on what is happening with the U.S., Canada situation, I have been kind of confused trying to follow that situation with more write-downs but also still the promise may be a payment from them in light of your current situation. So just wondering if you could give us an overview of what the status of that is? Thank you.

That’s a long process Timna if you remember all these events that took place early on and it's been over a year now that that has been taken place and situations change and you have to continually monitor do the revisions assess for the reality of the numbers were and what they are. And that’s what the adjustments that you saw that’s where it came from. So there is a still a little bit more to go but I think we're over half of the process already and sooner we should begin to see how that’s going to end up.

We have a question from Brian Yu from Citi. Your line is open.

May be I want to go back just to the guidance Dave and Mario you had emphasized the word pace. And I just want to make sure I understand is that the low-end guidance assumes that we get this steady pace improvement so if see steel prices move up by $20 utilization rate up 2 or 3 percentage points over the last two-three month. Does this imply that the low-end guidance suggests HRC prices perhaps getting a closer to 500 and utilization rates into the higher mid-70s by year-end?

Brian that’s the pace we're talking about exactly, so that is what we were trying to tell everybody yes.

And then second one just on Carnegie. I reckon you said there is a bunch of projects that maybe if I could try tackle it from another way. Is there a way to try to get a sense to what's the main dollar per tonne type savings and broken down into or most of it coming from raw material input, energy, repair and maintenance now maybe labor is not a big component of it?

Anything that is market based like raw materials or energy is not part of those. But that’s not a permanent change in the structure. We're talking about like I said if those are -- it is mostly process driven some are supply chain driven where we are establishing better long-term relationships with that. But it is market based raw materials and things like that that’s not part of that number because we wouldn’t claim to be able to sustain that permanently. And also Brian as there are projects that defiantly improve our yields and our throughputs and these definitely need the yield advantages as a driving factor in a lot of areas too.

Yes I guess that was more the crusher question is raw materials are using less now certain raw materials than were before, before do you mind touching upon this?

If we get better yields and then that reduces material usage that would be a benefit. But just the raw priced materials we will never pick that out as a benefit.

Okay would you be able to breakdown into those particular categories better yields and raw materials even less energy doing less repair and maintenance than before?

I think yes on the table we show what is coming from supply chain sourcing that are kind of impacting us and that is more detail we want to get into because we still don’t want to tell all of our competitors exactly how we're doing this. Because we think we're making better progress than most anybody else is.

Our next question comes from Gordon Johnson from Wolfe Research.

Mario I guess I have a question just looking at history and the current trend when we look back to the early 2000s and we look at Bethlehem Steel. They had a similar cost cutting program intact back then there was a significant protection as measures implemented during that time and the company still faced severe pressure. So can you let us know kind of what's different now versus back then with respect to your business? And then secondly just with respect to the guidance when I look at from 2002 to 2014. The average 2H versus 1H increase in HRC prices is down 4% now look at your reported EBITDA and that number is down 61% 2H versus 1H yet your guiding adjusted EBITDA of over 400% 2H versus 1H. Can you just help us understand what you're seeing that’s going to get you to that guidance? Thank you.

That is a pretty loaded question actually, if you go back to the environment back 15 years ago. I think the difference is that the way and over the past 15 years. The way that cases were judged they didn’t have the kind of base that we've just created. So therefore from this point on I think the effectiveness of trade cases with the exception of what happened with the tool one I believe back in ’04 is something like that. The effectiveness and validity of the way in which commerce and ITC will operate is going to be significantly higher. The timelines will be faster incisive. So I think that that’s the difference I am not familiar with the way in which those organizations tackled cost in those days. I just can tell you that I do not believe that there is best or better structured disciplined approach to improvement in a way that you truly address what is sustainable better than what we are doing. And we generated 0.5 billion in value last year. We just generated 0.5 billion in value in half of this year. And we are not done so I think that without having the specific quantitative comparable facts that you would like to see, I can tell you that what you're seeing from an outcome, tells you a story of the value creation power that the current Carnegie Way approach is poised to deliver.

We have a question from the line of Michael Gambardella from JPMorgan.

Yes good morning and congratulations on the performance given the utilization rates. That is quite an achievement in regards to what historically has happened but just I am having a question again on the guidance. I just want to make sure, I understand the numbers that you're looking and talking about. So, I mean the Company have an adjusted EBITDA in the first half of 130, I think you are saying that you can get an incremental 175 million in cost savings in the second half that would basically bringing it up to 305 and then if we assume that Europe would do kind of flat with the first half just an assumption and the same thing just the underlying of the flat rolled and that the tubular business kind of breaks even in the back half of the year it doesn't lose money that would assume to get to the bottom end of your guidance of 700 million that you're expecting flat rolled to post $1.50 power per tonne improvement in the second half and obviously if you get that all in the first quarter and the third quarter of the second half so you would have to scale it up is that -- are those the right numbers to be thinking about I just want to make sure we have the same numbers that you are talking to.

But a big missing piece of your discussion is the huge increase in Carnegie Way Benefits and the additional Carnegie Way Benefits we will deliver in the second half that's the big piece, the cost piece is the biggest piece of what's going on here. And that is it you talk about the 175, but Carnegie Way Benefits went up 250 and they will go higher, we will complete several 100 more projects easily and drive that number higher. So yes the total Carnegie Way Benefits basically what we have come so far is 590 the full year number will certainly be higher than that.

Right, but I thought I heard you say that the incremental Carnegie Way Benefit in the back half of the year will be $175 million if that is right?

I never said Carnegie Way is the short-term piece that is separate from the Carnegie Way you need to add those two numbers together.

So what is the total number again that you're expecting for the back half of the year?

Well Carnegie Way Benefits is just what we already did should deliver over 200 million, short-term activity should deliver over 175, plus we will have additional Carnegie Way Benefits generated that aren't part of those numbers yet.

So I'm just looking incrementally for the back half of the year, okay, because we're assuming that the first half is already embedded in the results going forward I just want it to be incrementally to try to get an idea of how you're getting to the 700 to the 900, you have incrementally you have 175 million of Carnegie way, what you call short-term benefit?

No, no short-term is not Carnegie Way there are two different categories, Mike. Short-term is not Carnegie Way, short-term is short-term Carnegie Way is a different bucket, and it is a much bigger bucket.

Okay, okay so what are you looking at on the back half for cost benefits then?

Well right now, we've disclosed that Carnegie Way Benefits will be at least 250 higher than we said before, short-term will be 175 more than we accomplished and there will be more Carnegie Way Benefits generated the lag on to those two numbers.

So you're looking at 175 plus 200?

Plus the benefit from all the projects we will complete in the second half of the year that aren’t part of those numbers yet, yes.

Is that about 200 incremental besides the 175?

Mike, call me later, we are going on circles, okay.

We have a question from Aldo Mazzaferro from Macquarie.

I wanted to talk about Fairfield just for a minute. Mario, your strategy there to go to the EAF from the blast furnace I mean, that's going to require a significantly lower headcount to become an efficient operator, I think of EAF versus a blast furnace and I'm wondering like how are you going to deal with the redirection of the people? Is there going to be some kind of early retirement options or can they all be reassigned to other sections? And is this part of your discussion you think with the labor for the upcoming contract?

Well, certainly there will be changes Aldo and there is a very well structured process by which the approach is going to be taken and of course there is very clear and conversation is taking place with the union as this event unfolds.

So can you tell me Mario, how many people are at that site now? I was looking on your Web site, I think you used to disclose employees by site, I couldn't find it anymore, it must be project Carnegie.

I would suggest about 1,500.

Well yes well 1,500 at that plant.

And our last question comes from the line of Matthew Fields from Bank of America. Your line is open.

I actually am a little confused about the breakout to the 700 of the low-end guidance as well. So if we have 130 of EBITDA for the first-half, 175 of short-term structural cost savings?

Our short-term structural actions, short-term actions not structural functions or it freckles.

Short-term is that annualized or is that just in the back half?

The second half impact.

So that’s a 350 annual number?

No, it's a second half impact. These could -- as we ramp-up to higher levels some of these costs will flow back in like when we bring people back to work, when we have to go to the higher levels of maintenance and get around the levels, and so some of those will flow back in. So that is a six-month event that’s all we’re talking about right now, that’s a six-month impact.

And then you have got 250 million of Carnegie Way savings?

Additional flow over last quarter, yes.

And that’s annualized or just in the second half?

That’s the full year, the total Carnegie benefits for the year are now 590. So that 250 increase we were to realize some of that in the second quarter, but most all of that would be in the second half. And we do have to wrap-up, Mario you want to have a final comment here?

Sure. Before we sign off, I would like to acknowledge the hard work of our employees and their extraordinary efforts to improve our Company while remaining fully committed to our core values of ethics, integrity and safety. We know some of the short-term actions we take impact our team, but these actions are necessary to create a stronger company. Slowly but surely all of the initiatives being pursued will make us stronger and better positioned to serve our customers and will result in a better and safer workplace for all of our employees.

I would like to thank everybody for joining us. We certainly appreciate your interest and we will be back next quarter with another update. Thank you.

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