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Fitch Affirms Hasbro's IDR at 'BBB'; Outlook Revised to Positive
NEW YORK-(Business Wire)-July 3, 2008 - Fitch Ratings has affirmed the following ratings on Hasbro, Inc. (Hasbro):
—Issuer Default Rating (IDR) at 'BBB';
—Unsecured bank facility at 'BBB',
—Senior notes at 'BBB'.
Approximately $1,145 million of debt and debt facilities are affected by the affirmation. The Rating Outlook has been revised to Positive from Stable.
Hasbro's rating reflects its leading position in the traditional toy industry with revenues of $3.8 billion, improving operating performance as shown by an EBITDA margin which has increased steadily from 14.7% at the fiscal year ended December 2004 (FY04) to 17.6% at FY07. Hasbro's top line has some volatility related to theatrical releases although Fitch notes that core revenues are also growing. The company has a broad and diverse portfolio of brands, strong free cash flow which averaged $300 million over the past four years, and modest leverage of 1.3 times (x).
The rating also incorporates the volatility inherent in the toy industry. These include: fashion risk; energy related commodity cost increases; customer concentration in the U.S. to Wal-Mart, Toys 'R' Us and Target; age compression; declining to flat domestic revenues — down 2% to $22.1 billion in 2007 per NPD Group; and increased seasonality particularly regarding profitability. Given this, the larger players in the industry maintain clean balance sheets and a broad product portfolio.
The revision in Outlook to Positive encompasses Hasbro's positive operating trends, a strong line-up of activities for the next several years with licensees and theatrical releases to support its brands and the top line at more robust levels, and management's commitment to maintaining moderate leverage at a maximum debt to EBITDA of 1.5x and interest coverage of at least 12x at the end of each fiscal year.
The first quarter ended March 30, 2008 was up 13% (9% excluding foreign exchange) to $704 million. Growth was broad based with Littlest Pet Shop and Transformers continuing to have strong growth. Leverage was flat at 1.3x and with interest coverage at 17.1x. For the last twelve months free cash flow was an eight year record at $507 million.
Hasbro is a worldwide leader in children and family entertainment products including a broad variety of games — both board and electronic games, puzzles, boys' action figures and an increasing focus on girls and tween toys. Key toy brands include G.I. Joe, Transformers, Playskool, My Little Pony, Littlest Pet Shop, Play-Doh and Tonka. The Games segment makes products under its Milton Bradley, Parker Brothers, Tiger and Wizards of the Coast brands. Hasbro also holds the license for Star Wars and Marvel products.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
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