The ratings and Outlook reflect Fitch's expectations for stable operating performance, consistently positive annual free cash flow (FCF) through the cycle, and solid credit protection measures. For 2014, Fitch expects low-to mid-single digit revenue growth, driven by a modest recovery in
Over the longer-term Fitch expects low single digit revenue growth, driven by mature top line growth for the technology solutions businesses, which represents the vast majority of total revenues.
Fitch expects operating EBITDA margin will remain thin but expand slightly over the intermediate term, driven mainly by operating efficiencies programs and expectations for improving results for the
Fitch expects consistently positive annual free cash flow (FCF), driven by growing profitability in an upturn and the reduction of working capital in a downturn. For 2014, Fitch forecasts
Fitch expects total adjusted leverage (total debt adjusted for capitalized rent expense and off balance sheet receivable sales programs to operating EBITDAR) to remain below 3.5 times (x) over the longer-term but end fiscal 2014 in the 2.25x to 2.5x range, driven by higher probability.
Ratings strengths include:
--Significant customer and geographic diversification; --Substantial competitive advantage from scale of operations, resulting in leading positions across all geographies;
--Importance of wholesale distribution model to both original equipment manufacturers (OEMs) and value added resellers (VARs).
Rating concerns include:
--Low margin and high working capital nature of the wholesale distribution model, which can lead to volatility in profitability and FCF, although working capital has historically provided a substantial source of liquidity during cyclical downturns; --Exposure to cyclical IT demand and general global economic conditions;
--Significant reliance on Hewlett-Packard as a supplier.
Negative rating actions could result from total leverage adjusted for operating leases and off balance sheet receivables sales facilities approaching 3.5 times(x), driven by:
--Structurally lower operating EBITDA from sustained negative revenue growth or competitive pricing; or
--Negative FCF from lower profitability in conjunction with diminished working capital efficiency.
Fitch does not anticipate positive rating action, given
Liquidity was solid as of
Total debt as of
--IDR at 'BBB-';
--Senior unsecured debt at 'BBB-'
--Senior unsecured credit facility at 'BBB-'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Criteria:
--'Corporate Rating Methodology' (
Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage
Jason Pompeii, +1 312-368-3210
Source: Fitch Ratings
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