Thank you. Andgood morning, ladies and gentlemen. Thank you for joining us for WESCO International's conference call to review our third quarter 2015 financial results. Participating in today's conference call are, John Engel, Chairman, President, CEO; and Ken Parks, Senior Vice President and Chief Financial Officer. This conference call includes forward-looking statements and therefore, actual results may differ materially from expectations. For additional information on WESCO International, please refer to the company's SEC filings, including the risk factors described therein. The following presentation includes a discussion of certain non-GAAP financial measures. Information required by Regulation G of the Exchange Act with respect to such non-GAAP financial measures can be obtained via WESCO's website at wesco.com. Means to access this conference call via webcast were disclosed in the press release and were posted on our corporate website. Replays of this conference call will be archived and available for the next seven days. I would now like to turn the call over to John Engel.

Thank you, Mary Ann. And welcome to WESCO. You are off to a terrific start, I might say. Good morning everyone. Q3 was a challenging quarter with organic sales down 5%, reflecting decreases in both the U.S. and Canada. We continued to see the significant decline in oil and gas that we discussed during our last call, which primarily impacted sales to our industrial and construction customers. We were able to partially offset this at the bottom-line with operating cost savings and much -- and more such actions are underway. We invested $75 million in our share repurchase program in the quarter, bringing our year-to-date buyback to $150 million or approximately 2.5 million shares. Our capital structure is in good shape and we continue to take a disciplined approach to acquisitions that supplement our growth strategy. Now moving to Page 4 for our industrial performance. We experienced a 14% decline in the second quarter, driven by our oil and gas, metals and mining, and OEM customers. U.S. sales were down 10% and Canada sales were down 16% in local currency. As you all know, a reduced demand outlook, weak global commodity prices and a strong U.S. dollar are all weighing on the manufacturing sector. Our customers are responding to these challenges by seeking supply chain process improvements, cost reductions as well as supplier consolidation. And they are finding that we are very well positioned to meet their needs with our full set of WESCO supply chain solutions. As a result our global accounts and integrated supply bidding activity levels remained strong in the quarter and our One WESCO focused value preposition for customers continued to yield wins. For example, we were awarded a multiyear contract to supply electrical and safety MRO products across multiple plants for a global food manufacturer.…

Thanks John and good morning everyone. Let's start out on Page 8. At our last earnings call, we expected consolidated sales to be flat to down 3% from the prior year. And sales actually declined a little bit more than 7% in the quarter, driven by accelerating slowdown across the overall industrial market and that includes the continued weakness in the oil and gas sector which has resulted in delays to maintenance spending and capital projects which has impacted many of our industrial as well as some of our construction customers. Third quarter organic sales declined by 5% and organic sales per workday were lower than the prior year in all three months including an 8% decline in the month of September. Sequentially, organic sales for workdays did grow slightly from the second quarter. Foreign exchange reduced sales by 4%, partially offset by the acquisition of Hill Country which added approximately 2% to the top line. Net pricing was neutral in the quarter overall. Backlog expanded sequentially from Q2 to Q3 and was up 3% from the year end 2014 amount. Over the first nine months of the year, the U.S. backlog is up 4% and Canada backlog is up 9% on a local currency basis. Versus the end of the third quarter last year, our U.S. backlog has declined 2% but Canada backlog has grown 6% on a local currency basis. Gross margin was 19.8% in the quarter and that’s down 50 basis points from the prior year and down 10 basis points sequentially. The gross margin decline versus prior year was driven by lower business mix, lower rebate accruals, and continued competitive market pricing pressures. On a sequential basis, gross margin appears to be stabilizing against the challenging pricing environment. Now, taking a look at SG&A, expenses for…

We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Deane Dray of RBC Capital Markets. Please go ahead.

I was hoping if we could start with broader comments on your -- the conditions you saw in the third quarter. You called it a broader decelerating economy on your markets. Can you be more specific as to what kind of changes you're seeing, because pricing was a net neutral, backlog went up? But clearly there is warning signs, some are calling an industrial recession but for the businesses and markets that you touch, what are you seeing changing at the margin?

So maybe I’ll just quickly touch upon what the big change is, maybe starting with industrial. Let me hit that head on Deane by saying, clearly we’re seeing customers being very cautious. They’re adjusting stocking levels. They continue to slow down their capital spending and discretionary spending, both for projects and MRO. And they’re cutting costs. But I am going to leave to the economist on whether “it’s technically an industrial recession.” All that I can speak to is really what we're seeing with our customers. So when you look at our four big end market segments Deane that’s our largest as you know, we’re still seeing some challenges there. With that said, our bidding activity levels remain very strong and at record levels quite frankly when you look at the number of proposals we’re submitting, and it has been at those levels as we’ve moved through the year but that continued in the third quarter. And if we were to parse out global accounts and integrated supply, integrated supply -- industrial integrated supply, is a small handful of customers that are not oil and gas or metals and mining, it includes automotive and variety of other sectors, that actually grew in the quarter. But all in, I would say industrial, clearly the challenges are around customers and reducing their spending levels and taking those actions and we’re seeing that. Construction, all in all remain -- it's challenging, you saw that organically we’re down 5% in the U.S., 5% in Canada. And we’re clearly seeing the declines with contractors that serve industrial and market customers, not just oil and gas, metals and mining because there is a general industrial slowdown. And so those contractors are being impacted obviously with the decline in their demand profile, we’re seeing. We are seeing…

Yes, it does. And maybe if you could give some more specifics around the cost actions that you are taking. So 400 positions, I'm surprised at the 13 branches, that seems -- that’s a bigger number but maybe you can share with us what criteria you are using to decide what branches might be closed?

Sure. On the 400 positions, they’re across the entire organization and that they’re at all levels. So it is -- we are looking at taking out management structure as well as addressing headcount due to volume declines that we've been talking about as we move through the year. As far as the branch closures, I'll make sure and use the words closures and consolidations because part of what we’re doing and one of the reasons that the numbers may sound bigger than what you had anticipated is in certain locations where we have multiple locations that can be leveraged, we’re actually putting those together. So part of the closures are the impact of us consolidating multiple locations into one. So, we are not necessarily exiting markets but leveraging our footprint in some markets while some of the more challenged markets we are taking our branch out at this point in time. But that's what makes up the 13. And as I talked about in my comments, we’re continuing to look at that. We see these trends that we’re dealing with across our end markets continue through the balance of the years as our expectation. And we’re continuing to look at management structure refinement and de-layering to make this business continue to be more efficient and more effective as we move forward.

And Deane, I think you will recall that this year we put a new organization design in place a year ago, January very much focused on the front end and those initiatives continue this year, obviously very -- of utmost important. But we increased the priority and emphasis on the backend of our business, operations and supply chain. And this is a natural outcome and it’s what we were targeting. And those branches included branches both in the U.S. and Canada.

And our next question comes from David Manthey of Robert W. Baird. Please go ahead.

First off, on the cost actions, I know over the past two quarters you've announced $0.40 in cost actions, how much of that benefit have you seen so far to-date? And second, of the additional cost actions you noted today, I don’t know if you can put a magnitude on those and how should we see those realized over the next few quarters?

Yes. So probably on the $0.40 that we’ve talked about, I would tell you that we've seen through the first nine months of this year a bit more than half of that number. We talked about in the second quarter that we incurred cost to do a piece of the 300% headcount reduction and the benefits that were generated pretty much neutralized a big chunk of the costs that were incurred in the second quarter. And as anticipated we expected to begin to see the benefits -- net benefits both during the second half. So, I would say year-to-date basis, we've probably seen about half of that $0.40. And the reality is, we will probably run a little bit north of the $0.40 for the year in net savings. On the actions that we’re currently defining, we will give you more clarification on it in December. And one of the reasons that we will do that is it will have more of an impact from a savings perspective on 2016. I would fully anticipate that what we're doing in the quarter will, like in the second quarter bring along some costs to implement; it will generate some savings, so we will have no real material impact on the balance of the year for 2015. It will have a positive impact, both cost perspective and efficiency next year.

And then Ken, in your commentary you mention that pricing was net zero for the company overall but when you were talking about gross margin, you mentioned the pricing pressures. I'm wondering if you can square those. And overall, I was wondering for the company, could you discuss kind of mix in rebate, I think you kind of mention and that makes sense. I don’t know if you can outline pricing trends by segment to help us understand kind of where the net shakes out.

So, let me start with the pricing commentary. The net impact of pricing was neutral on the business in the quarter. That means effectively what we received is price increases we were able to pass along. The reason I referenced a more competitive pricing environment, as you know and you’ve watched us for a long time is when we are in a more inflationary environment, we are able to recover more price than we actually have flow into us on a cost basis. So, the competitive pricing pressure has a result of keeping our net impact neutral. The good news is, we don’t want to go negative in that scenario; we want to pass along what we get; we want to do that appropriately and timely and as effectively as we can. And that's exactly what we have been doing for the first three quarters of this year each of the quarters you're seeing a neutral impact. But it is a competitive environment out there. As far as the mix and rebate, good question. If you think about it in a couple of ways, year-over-year we talked about a gross margin decline of around 50 basis points. I would tell you that about half of that comes from supplier volume rebates in the world where we're looking at declining top-line that obviously puts pressures on supplier volume rebates. So about half of that margin impact year-over-year is due to supplier volume rebates and the other half is really driven by mix, no different -- and when I say mix I'll talk about business mix, no different than what we talked about in the second quarter which is we've continued to see growth in businesses like our utility business while our most profitable business which is Canada has continued to be under pressure. Then on -- I'll give you one last point to close that sequential, going from the second quarter to the third quarter which we were pleased to see that rate of gross margin decline start to stabilize. We only saw about 10 basis points of margin deterioration from the second quarter to the third quarter. And I'll tell you that most of that was driven really more by the business mix again. Utility continues to grow, Canada continued to decelerate a little bit; those are the biggest chunks.

And then, can you give us what the impact on top-line was by segment for price?

No, we really can't. We don't really track it that way because in many cases the price in it comes through goes, the products go to multiple segments, so we really track it by product line and that's the closest that we can get at. And you know in the distribution, tracking pricing is our end-science. So sometimes, it is a little bit harder to get it perfectly matched by end-market.

Right, particularly in a big business.

Correct.

And our next question comes from Robert Barry of Susquehanna. Please go ahead.

Just wanted to clarify some items on the margin side. So in 4Q, are you expecting that the net benefit from cost actions is actually higher than in 3Q? You mentioned some spending related to the new actions?

I would say -- I would anticipate that the net benefit is probably comparable to what we saw in the third quarter because of the spending on new actions and the increased actions that we've already implemented as we moved through the third quarter. Those will neutralize each other in the fourth overall.

So, would we expect SG&A to decline at about the same rate in the fourth quarter as in 3Q?

I don't want to get into forecasting SG&A but the reality is that what I would say as you can look at the trend of how our SG&A flows and there is a piece that's variable with sales line, so as sales move, you’ve obviously got a little bit of lesser SG&A to come through and then you layer the benefits on which we kind of outlined to you. It should sequentially tick down but to give you the kind of rate of decline probably not the right thing to do.

It just seems to be implying what the 5.1% op margin that the gross margin would have to get worse sequentially. Is that true and if so what's driving that?

My -- our expectations is the gross margins will probably stay -- fairly well stable with where they are on a year-to-date basis as we move through the remaining part of the year.

And then maybe just finally, if you could comment on the non-resident market; I know you touched on with Deane's question but you mentioned only a modest uptrend. It seems like a bit of a softening in the language versus the last couple of quarters. I don't know if that's a correct interpretation or not but that’s kind of outside oil and gas. So, I think that was the comment, outside oil and gas modest uptrend?

I think what I would say there is -- as I responded to Deane's question, there are pockets of very nice growth, nice being mid single-digits, high single-digits, double-digits as I -- and using Hill Country as an example. I'm making an overall comment about everything outside of kind of oil and gas, metals and mining and we're beginning -- just kind of setting the expectation with the industrial slowdown, the effects -- effect kind of the broader non-resi market. We will in our upcoming outlook call for -- that's held in December for next year, we'll go through that Rob, in a much more detail in terms of what our outlook is by end market and exactly our position in those and what we do -- what we expect to do relative to share capture.

And our next question comes from Josh Pokrzywinski of Buckingham Research. Please go ahead.

A follow-up on some of the earlier questions about price and mix in the business. I understand that by segment -- by end markets it’s a little harder to track, but is there anything going on kind of under the hood there from a mix perspective where the growth in certain customers or customer types are kind of adding to some of the margin pressure beyond just kind of price headwind?

No, I think I mean as Ken mentioned, the mix effect that we’ve seen in the first half is what we saw in Q3. And so there is no material change. The fact that our pricing was flat for the third quarter, we actually look at as a very good result, given the environment we’re in right now. And we continue to slug away at our various pricing, purchasing and sourcing initiatives. So, we think that it’s not easy to maintain just flat pricing in the current low demand environment that’s experiencing slowdowns. Right? Low demand, low inflation very difficult to get price. And suppliers are trying to continue to push their price increases through. And obviously we’re caught in the middle of that vice. And so we have to increasingly do a better job of selling value to hold price and get those price increases pass-through effectively. Obviously we’re trying to pass more than what our suppliers are passing us, we’re trying to increase prices greater and sell value. But it is a particularly challenging environment, Josh. And the way I look at our pricing result in Q3, actually take some comfort in that; we’re gaining some nice traction with the combination of our pricing, sourcing initiatives and how we’re working with customers. And as Ken mentioned, the fact that sequential gross margins sit down just 10 basis points, we also take some comfort into that that we’re hopeful that it looks like margins appear to be stabilizing.

If you had to break out kind of where you’re having more traction versus areas where that pricing is a little bit tougher. Because I think to your point, flat pricing in this environment for a couple of quarters now, seems like a bit of a win. Where is that conversation easier or where are you guys seeing more of that traction show up?

So, I guess the way -- it’s hard to break that apart to say it’s the same answer that Ken gave to Dave earlier, very difficult to break it out by -- and in quick summary, categorize it that represents an accurate representation of our entire business base in the quarter. With that said, we have a series of initiatives focused on our stock and flow businesses, so that business is serviced out of the warehouse, so where we have inventory that’s held. And so there we work very aggressively to use our supplier relationships, our sourcing leverage to get better into stock costs. There is a lot of pressure from customers that they want to see price reduction. That’s particularly true for oil and gas, metals and mining customers and not just on projects but even flows, the MRO. And so we work very hard to sell that value but we work aggressively again to get the lower end of stock cost and then that we work the pricing equation. And I think we’re seeing some traction in pockets there. On the project side of the business, that’s very competitive, always has been. It’s as competitive as ever given the lower demand environment. And way that works is we typically negotiate many times a special price, call it special pricing agreement in concert with the supplier for the product and service solution for that end market customer application. And that is -- the ability to do a good job there is not just us by ourselves; it’s us in conjunction with the supplier. And I know I am probably getting a little bit more detailed, but hopefully this is what you're looking for. To the extent we build a strong end-user customer relationship which is what One WESCO is focused on and we’re able to shape the solution for that customer, and actually create differentiated demand for our supplier partner, we’re able to realize more pricing power in that special pricing agreement relationship. To the extent we haven't done that and the supplier got their product stacked in so to speak, then there is multiple channel partners that may be able to fulfill that demand, and we don't have as much pricing power. So, we’re working very hard at what I just described the former, working end user relationships, creating differentiated demand for our supplier partners, selling that value and we are making progress there too. So net-net, I would say it’ not one area Josh, hopefully this helps, so I took a little bit longer on this answer to give a little more context. We’re working both very aggressively and we’re seeing pockets of success. Our challenge and our objective is to spread that; increase that across the larger portion of our base business. Is that helpful?

That is helpful. And if I can just sneak in one more follow-up, just kind of to point that I think both you and Ken were making earlier about having to offset non-material inflation in the business. If you had to handicap that in the current environment now, what that means on annual basis point perspective; how should we think about that number?

That’s an excellent question. And I guess here is what I would say and I’ll ask Ken to comment, let us reflect on that and be more thoughtful with the answer. It’s an excellent question; it’s a tough question. But I would say, Ken, I think we should be thoughtful about that and respond in the future.

I think that's a fair point and it is a good question. And we do tend to think about it as far as recovering while it gets passed along to us but then you put the variability and of the strength of the markets that we play in and what can we think about as far as incremental. In this environment we are obviously more focused on ensuring we recover our cost increases but we should think about that and reflect back to you on the broader opportunity.

And you may be going, in a higher inflation environment, it's still always a challenge for a distributor to pass those price increases on through. However a rising tide lifts all boat. Customers understand and they do expect it more of the still demanding. But in this low inflation environment, it's exceptionally more difficult, particularly we are in demand; it's not just -- it is low inflation but it's also challenging demand right. You put those two to together and it's increasingly important to sell the value to even hold current price. So, I it's a great question Josh but I think we’ve got to be a bit more thoughtful about how we think about that. And we will do that and I think it will be in the context of when we think about 2016 and how we lay out our outlook, I think we could be a bit more thoughtful about that.

And just one final last comment on that. One of the reasons why it is something that's evolving I would say is that truly what we're trying to do is sell value, not just sell product; we have a value contribution. So, the One WESCO initiative and strategy that we've talked about for the last few years is continuing to evolve and we've laid out the structure to accelerate that. Part of the reason the answer isn’t top of mind is because that strategy is still maturing in our business and we are working to ensure that we not only sell based upon passing things along but also provide value to our customer and sell that value. And that gives a lever up in pricing as well.

Understood. That's all helpful and appreciate the color, look forward to getting back to you on that.

Our next question comes from Matt Duncan of Stephens. Please go ahead.

First thing I want to do, we've talked a little bit about the cost cutting actions and sort of the impact of those, I was hoping maybe we can put this in dollar terms. So, if I'm doing my math right, the $0.40 is roughly $30 million of annual savings and it sounds like you are probably going to go above and beyond that number. Ken is there any help you can give us in terms of what that annual dollar amount of cost savings that you would anticipate that's going to be after the 4Q actions have done?

So let's talk about the $0.40 for a second to make sure that we are all on the same page on that one. The $0.40 is the benefit of cost reduction actions as well as discretionary cost control. So, it's not all driven by employment reductions and branch closures but as we talked about moving into this year and the early parts of the year, we said we are going to start managing the discretionary cost levers very-very tightly. I think the reason I make that point is to say if we think we are getting $0.40 of cost reduction benefit in the current year, there will be pieces of that that will snap back on us as we start to grow again in the future and see the investment needed for some of the discretionary type items. But the point being that the $0.40 is what we're seeing in 2015 that in itself is not an annualized number. We obviously have seen it flow in through the second, third and fourth quarter. There will be a carryover benefit of annualizing the pieces of that $0.40 that are true cost reduction actions and we will quantify that for you as we've said before when you get in to December and take a look at 2016. Now you asked about quantifying the $0.40; and I mentioned already that I think we will be a little bit a north of that, better than that on a net basis for 2015. I would say including the cost of what we know right now that we will incur in the fourth quarter as well as the incremental benefits from things that we've accelerated in the third from the fourth as far as cost reductions, it’s going to be a few pennies more than $0.40 in the current year but it's not going to be significantly higher than that.

And the other thing I wanted to ask about is just in the current environment, how you guys are thinking about cash when you look at acquisitions versus share repurchases versus debt reduction? And then also how you are thinking about tailoring your inventory levels given that you are seeing your customers start to trying destock little bit, are you guys responding with your own inventory; do you have any plans you've put together to try and bring inventory levels down and bring cash out, as we all know you guys obviously cash flow very well when things are declining. So, I'm just trying to frame that up.

Yes. So let's talk about the cash piece first. We saw some expansion in our inventory during the third quarter and you see that -- if you haven’t already, you will see it in our cash flow statement. What is driving that is couple of things. First of all, we've talked over the last couple of years about the growth and the wins in the utility space and some of the larger programs that we’re implementing and ramping up and those require inventory to forward the programs. And we have seen one of our larger programs that we won, ramp as we move through 2015. So that's part of what the growth and inventory is. But what we know is that is there to support the contract. We've also made selected investments in putting new products in certain of our distribution centers and branches where we've been working with our customer again to go back to say, we can provide you broader products and services and sell you value. So, we've put some more inventory in our system to support those growth initiatives. All that said, we should see a typical burn-down in inventory as we move through the end of the third quarter into the end of the year, which is why as we look at our performance year-to-date versus our outlook that we just increased, we were comfortable to say we think that we manage that inventory, we have the right inventory in the right places, all of our other working capital metrics are moving in the right direction, and we're confident that we'll generate a better cash outcome than the 80% of net income in the current year.

And what I would add on top of that is as our customers are adjusting their inventory levels down, they're inherently more reliant on the supply chain to support their current business demand profile. And in the event -- and when it occurs, not in; it's more when -- when it ticks up, it’s pull through whole supply chain. Why do I say that? We're very focused on our inventory availability and our fill rate metrics for customers. And so, it's -- we believe it's incredibly important to be positioned as inventories coming out of the customer end of the value chain that we maintain appropriate inventory levels. Even though right now there's some challenges in the demand profile, we need to maintain appropriate inventory levels to support their current operations. With that said, as there's a natural cyclicality, as Ken said, in Q4 and to the extent the downturn were to become more severe which is not our current view, we historically do a very good job at managing inventory. You’ll recall back in the global recession, we took over a 100 million of inventory out less than four quarters, while still maintaining our inventory availability and customer fill rate metrics. So, that's a muscle we know how to use when needed but right now I think we're positioned properly.

The first part of your question because we answered the second first, was about the balance and acquisitions and buybacks. As the company has continued to grow, and as I say as the cash flow bucket has gotten larger, very simply put, we think we have a very nice robust acquisition pipeline that we continue to watch. We have the opportunity to effectively do both of those things. We don't need to -- we are not sitting at a point where we need to choose between doing buyback or acquisitions because of the strength of the cash flow of WESCO during both up cycles around down cycles. So I would tell you, you don't need to think about us having -- we will certainly maintain discipline around making decisions but we will not be precluded from doing one or the other based upon on cash performance.

Our next question comes from Ryan Merkel of William Blair. Please go ahead.

So, first question, what are your customers saying about plant shutdowns this holiday season? And I'm wondering does your guidance contemplate potentially more aggressive plant shutdowns than normal.

Right now we've not gotten definitive information yet from our customers on what their plans are. And that's not a typical. I mean we are sitting in October and we've been through this many times, every year to varying degrees. and in many cases they make those decisions and then there's a timing around the communication of those decisions. And so I think we'll get a much better sense of that Ryan as we go through the month of November, because that's when it typically gets communicated and we get insight in that and then they have certain strategies around public communication with their workforce, some are union, some are non-union and such. With all that said, our Q4 outlook today does not include any extraordinary or abnormal high shutdown activity levels in December; it assumes a more normal year. And that's what we're baking in as our current view.

And then just secondly on Canada, people are fairly worried about the next year there. Talking about how did Canada perform in the quarter versus your expectations, does the guidance contemplate a further deceleration in Canada in the fourth quarter? And then may you could possibly tell us what inning you think we're in terms of the downturn in Canada. I know that's a lot there, but…..

That’s a lot there, but I think -- and this is -- thank you for the question because we haven't really expanded upon Canada in detail yet in our -- in the Q&A session. Look, Canada clearly dropped; the declines were greater than what we had seen in the first half. That’s the first point. Second point is we saw declines in both the WESCO side of the business and the EECOL side of the business. And I’ll give a little bit of insight into that. We did expect that clearly. And we did expect that we’d see more declines, much greater declines in the Western provinces that are heavily exposed to oil, gas and mining. For WESCO, when you look at our kind of geographic structure, we saw declines in the Western provinces. And overall, WESCO declined in the high single-digit range on a local currency basis in Q3, sales year-over-year. But that was partially offset by growth in GTA Greater Toronto Area. And we actually had some selective growth in portions of BC and that was due to some -- I think very strong results and taking some share. But fundamentally, we did expect that the lower Canadian dollar would have a positive impact on industrial customers and manufacturing in the center of the country, Ontario plus. And we’re seeing that. And we’re particularly seeing that -- for example, I just saw data point on the Canadian oil industry was up over 20% in August year-over-year. And so we’re seeing -- we're starting to see -- I wouldn’t say that we’re seeing this rotation yet from an energy economy to a manufacturing economy overall in Canada but there is portions of Canada we’re starting to see some rotation there, which is what we expected. On the EECOL side, and we’ve got six regions that are under the EECOL business and we had sales declines in five of the six. So we did have increases in one, which is actually encouraging. And again that was down in the WESCO range in terms of sales being down, so little bit higher actually but still within a rounding area. So, we expected Canada would be a challenge as we move through the year an increasing challenge it has been. And our Q4 outlook is based upon what we experienced in Q3. The October start, which is probably an important thing to go through just to give you a little sense, so far in October, Canada sales are down roughly 5% on a local currency basis, and U.S. sales are down roughly 4%. And so that gives you a little sense of the start. We’ll give a more complete view when we have our December ‘16 outlook call for next year. Does that help?

Our next question comes from Chris Dankert of Longbow Research. Please go ahead.

Just kind of quickly looking at leverage right now, I know you guys are willing to go above the 3.5 range; you’ve done so in the past. But I am just curious, just given the current softness, how far you guys are willing to flex in and can you give us a little bit of gauge around that?

We’d certainly flex above that for the right asset and the right transaction. But a part of that decision is how quickly would we work ourselves back into that desired range of 2 to 3.5 times EBITDA. If that’s within a natural business cycle, that feels better to both of us than if it’s longer that. So, we would go above the 3.5; it wouldn't be significantly higher when it’s especially in this soft environmental but we would need a path to get back reasonably back within it.

Yes. We’re not thinking going above the four, for example. I mean we’re going to -- if it ticks above, it ticks above; we want to stay within the 3.5. If we tick above it and we’ve said this in the past and we delivered against this, we want to be back within 3.5 with a high degree of confidence in less than 12 months. And we tick well above that, above 4.5 with the EECOL acquisition; the market was a bit different then but we did get back underneath 3.5 in less than 12 months. So, I think that gives you some sense of how we think about that.

And not to be too technical but it’s appropriate as you’re thinking about the math around that. We obviously are making these comments based upon pro forma number, pro forma leverage numbers, assuming the business was in the whole time. So it would tick-up a bit. EECOL ticked well above 4 but that was not a pro forma basis.

And then just on those changes you’ve had personnel wise, the reorganization of management wise, is that also restructuring what you did a couple of years ago when you kind of created some business heads and consolidated things; are you kind of further consolidating leadership or can you give us some color around that?

I’ll give you probably -- the best way to summarize it would be -- the answer is yes. The short answer is yes. The organization design that we put in place a year ago January was significant. And I’ve taken you through that in the past and really expanded on that in various investor presentations and the analyst day. And so we’re still building that out. What we have been doing in Q2 and Q3 of this year and it’s continuing in Q4, to set the table for 2016 is we've been operating with this new organization design now for the better part of 18 plus months, right. And so we have much better sense of who is performing better than others. And to put it very simply, we've taken our best and strongest leaders with the greatest potential and we’re expanding them. And those leaders that haven’t been performing to expectation, they are getting contracted or other actions are being taken, to put it correctly. That’s the process we’re going through. Ken alluded to this earlier but we've gone through a very detailed, I'll call it span of control and layer analysis across the organization. And so that is an important input into this equation, along with we have a very comprehensive talent management process. We call it our LOR, leadership and organization review process. It's one of our four core annual business processes and we review that in detail with our board. And that process is carried out in the third quarter; in our board meeting as this in September we've reviewed those results. So, I’ll only go through this in a bit more detail given your question to give you a sense of we feel great about the org design we put in place a year ago January. We’re still building that out on the frontend and backend; we’ve put strong leaders in place; we've run with it for 18 months; we've gone through the detailed talent management review process that occurred over a four to six-week period, in the third quarter. And these changes are result of that. And I think you can see clear evidence staring at the top with the retirement of our COO, Steve Van Oss. And we recently announced, within the last week, some additional significant changes in our U.S. organization where we expanded a number of leaders, some leaders the part of the organization and that process is continuing.

And our final question will come from Christopher Glynn of Oppenheimer. Please go ahead.

Good morning while we still have a couple of minutes left of it. Kind of a technical question here on supplier volume rebate. I think the organic growth magnitude swung about 8 points from the positive level in the first quarter to the negative 5 in the third. And sometimes there has been a big adjustment in the fourth quarter. So wondering is there a wildcard element to the fourth quarter gross margin here?

No. You are exactly right. We began to see the volume decline year-over-year as we moved into the second quarter. We've continued to refine our process and strengthen our outlook around supplier volume rebate. So, we started to assess that build within as we moved into the second half of the year and probably even slightly before we ended the second quarter. In addition to just the fact that the top line is moving around, we have strengthened the supplier relations team over the last couple of years. And we not only are working on the existing programs but we’re constantly putting in stronger and better programs. So, I would say there is no wildcard in the fourth quarter specifically around supplier volume rebates. Assuming the top-line comes in and the way that we expect it right now and then also there is a mix impact on where the volumes move that we think we've assessed as we've assessed those supplier volume rebates for the year.

So it sounds like there is a very different dynamic around that than in the past. Thanks for that explanation.

You bet.

With that we do have a few other folks in the queue. I know Mary Ann is available, Ken is available as am I. And we've got I think a fulsome schedule, a follow-up schedule today and tomorrow. I'd like to conclude the call and thank you very much for your time today and your ongoing support. Have a great day.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.