NEW YORK, March 24 /PRNewswire/ -- Ingram Micro, Inc.'s (Ingram) long-term rating is affirmed at 'BBB+' by Fitch IBCA. The affirmation reflects Ingram's solid execution and leading position in the highly competitive wholesale microcomputer distribution business. Also considered is the potential effect on debtholder protection measures of higher business risk encountered with Ingram's European growth initiatives, Ingram's need for external financing to support its growth and international expansion, and the volatility of the microcomputer market. Fitch IBCA will continue to monitor Ingram's debtholder protection measures going forward.
Fiscal 1997 operating performance was mixed. Despite continued revenue growth and increased net free cash flow, EBITDA margins remained under pressure and leverage increased considerably. Ingram's fiscal 1997 revenues grew by 37.9% over fiscal 1996 to approximately $16.6 billion and net free cash flow (EBITDA less capital expenditures, cash interest and cash taxes) increased to approximately $171 million in fiscal 1997 from $51 million in fiscal 1996. Competitive pressures, a changing business mix incorporating the Ingram Alliance program, and the purchase of the research and development division of Intelligent Electronics contributed to a 10 basis points decline in EBITDA margins to approximately 2.5% in fiscal 1997 from 2.6% in fiscal 1996. Increased borrowing to fund Ingram's expansion increased leverage, measured by total debt to EBITDA, to approximately 2.7 times (x) from 1.0x over the same period. At year end 1996, leverage was unusually low, reflecting the use of initial public offering proceeds to pay down debt.
Ingram operates in the working capital intensive distribution sector where a significant level of critical mass is necessary to achieve economies of scale and remain competitive. In addition, Ingram operates in a volatile industry faced with technology risk. The company is the largest distributor of technology products in the world and manages this volatility by having a broad base of vendors and a highly diversified customer base. Ingram also employs advanced computer systems to monitor and control product inventory positions and customer credit exposure.
In the past, Ingram has been successful in growing market share both organically and by acquiring smaller competitors and increasing their efficiency while folding them into the Ingram structure. More recently, the company has focused its growth efforts on the European market, which is highly fragmented and carries a higher level of business risk than the more mature U.S. market. In Europe, the company faces somewhat more restrictive practices on inventory returns to suppliers and established competitors, as well as cultural differences. It is possible the company could increase borrowing to take advantage of an opportunistic acquisition. Given Ingram's tight EBITDA margins and high leverage, a further significant increase in debt could deteriorate debtholder protection ratios.
Source: Fitch IBCA, Inc.
Contact: Mark L. Swirsky, 212-908-0531, or Peter Jordan, 212-908-0566
both of Fitch IBCA