Moody's cuts Motorola

Moody's Investors Service downgraded Motorola, Inc. including lowering its senior unsecured debt to Baa3 from Baa2 and subordinated debt to Ba1 from Baa3 and Motorola Capital Trust I's trust preferred stock to Ba1 from Baa3. The outlook is negative.

Moody's said the action reflects the significant operating and market challenges the company continues to face, which have been manifested in the company's struggle to increase its low profitability and returns.

The action concludes a review begun in July and precipitated by concerns that revenue growth and a return to meaningful levels of profitability would remain challenged, Moody's noted.

Despite significant cost reduction efforts, margin improvement across most operating units is expected to be modest. Market share of the core personal communications segment continues to face intense competition from rivals such as Nokia, Samsung and Sony Ericsson. While Moody's expects operating improvement in the remaining half of the year, challenges to the business and a number of the company's end markets remain.

The downgrade considers the weakened outlook for most of Motorola's business segments and likely strategic changes following the recent resignation of the chief executive officer.

In nearly every quarter since 1997, the company has taken reorganization and special charges, totaling $14 billion (including cash and non-cash charges) over the period, reflecting the difficult operating environment and volatile markets in which it participates. In the past four quarters, however, the company has dramatically reduced the level of reorganization and special charges, including reversals of prior accruals, and generated positive net income.

More recently, Motorola announced that it intends to separate its semiconductor operations into a publicly traded company. Moody's believes the proposed separation indicates acknowledgement of the difficulties the company has encountered in responding to a rapidly changing market environment given its legacy operating and cost structure. While separation of the semiconductor business should improve consolidated margins and reduce future capital expenditures, the amount and use of proceeds from any sale and the amount of net debt that may be transferred with the spin-off are undetermined.

Moody's notes the company's liquid balance sheet of $6.6 billion of cash and cash equivalents at June 30, 2003, modest improvement in consolidated margins over the past several quarters, the expected equity injection in late 2004 related to its outstanding $1.2 billion of equity units, and its balanced debt maturity schedule over the next several years. Moody's also notes that the company has generated positive cash from operations each quarter since the beginning of 2001.

Moody's confirms Four Seasons

Moody's Investors Service confirmed Four Seasons Hotels Inc. including its Liquid Yield Option Notes at Ba1 with a stable outlook.

Moody's said the confirmation reflects its expectation that the company's earnings, cash flow and cash balances will continue to increase and that the company will address the near-term expiry date of its currently undrawn C$212.5 million revolving credit facility and the potential put of its zero-coupon subordinated notes in September 2004.

The confirmation further reflects Moody's expectation that the company would be willing to settle the potential put with approximately 3.463 million shares at a strike price of $62.21, if necessary.

Moody's noted that through the first half of 2003, Four Seasons has been able to fund its capital expenditures, loan commitments and hotel investments from internally generated cash flow.

Moody's said it expects that the company can cover all of its spending needs in 2003 from internally generated cash flow and that cash balances will increase from current levels. Four Season's cash balance at June 30, 2003 was C$153 million relative to its total debt balance of about C$278 million.

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