The ratings reflect Harbor Freight Tools USA Inc.'s (HFT) vulnerable business profile characterized by its still relatively weak market position in the intensely competitive and fragmented tools and equipment retailing industry, its vulnerability to commodity prices, and Standard&Poor's Ratings Services' expectation that sales growth will decelerate in the near term. In our opinion, the proposed debt-financed $235 million dividend is indicative of a very aggressive financial policy, which results in increased leverage and weaker cash flow protection measures. Following a very weak performance during the fiscal year that ended July 2009, HFT's operations have since improved. The company was hurt by increasing prices of steel and copper, which led to inadequate inventory levels, and to some extent store
