December 20, 2012 / 6:55 PM / in 5 years

TEXT - Fitch affirms Motorola Solutions

Dec 20 - Fitch Ratings has affirmed Motorola Solutions, Inc.'s     
(Motorola Solutions; NYSE: MSI) 'BBB' long-term Issuer Default Rating (IDR) and
'F2' short-term IDR. Fitch's actions affect $3.4 billion of total debt,
including the undrawn $1.5 billion revolving credit facility (RCF). The 
Rating Outlook is Stable. A full list of ratings for Motorola Solutions is 

The ratings and Outlook reflect Fitch's expectations for solid operating 
performance overall over the near-term, despite macroeconomic headwinds. 
Motorola Solutions is on track to achieve mid-single digit annual revenue growth
through the intermediate-term, driven by broad based strength within the 
Government segment. 

Spending on public safety networks remains a priority, despite still constrained
state and local government budgets, resulting in a healthy demand environment. 
Solid backlogs and services for existing contracts add revenues and greater 
visibility. International markets increasingly will drive growth, although North
America still represents two-thirds of segment sales. 

Macroeconomic uncertainty has weakened demand among enterprise customers. 
Negative Enterprise revenue growth expectations are being exacerbated by iDEN's 
anticipated revenue roll-off and unfavorable currency movements. Revenues from 
recently acquired Psion will offset some of this weakness and should enable 
expansion into adjacent enterprise markets. 

Revenue growth should drive further operating profit margin expansion, given the
company's substantial operating leverage. Fitch expects operating profit margin 
will approach record levels of 17% over the intermediate term, despite the 
anticipation for a growing mix of lower gross margin Services sales. 

Higher profit levels should drive $500 million to $1 billion of annual 
pre-dividend free cash flow (FCF) through the intermediate-term, including 
approximately $300 million of estimated annual pension contributions. 
Nonetheless, the company's use of cash for acquisitions and share repurchases 
will continue meaningfully exceeding annual FCF through 2014.

Fitch anticipates Motorola will reach a net debt position over the near-term, 
given the company's appetite for tuck-in acquisitions and $1.8 billion remaining
under the prevailing $5 billion share repurchase authorization as of Sept. 29, 
2012, which has no expiration date. Nonetheless, Fitch believes the anticipated 
reduction in cash reduces event risk for the company.

The ratings and Outlook contemplate Motorola Solutions moderating stock buybacks
to maintain $500 million to $1 billion of domestic cash balances. FCF in the 
U.S. and the company's ability to efficiently repatriate foreign earnings and 
existing overseas cash will drive the pacing of share repurchases. 

Credit protection measures should remain solid for the rating, despite 
expectations for higher debt levels to support acquisitions and share 
repurchases. Fitch estimates total leverage (total debt to operating EBITDA) was
just over 1 time (x) for the LTM ended Sept. 29, 2012 and believes Motorola 
Solutions will maintain adjusted total leverage below 2.5x, which accounts for 
pension obligations.

Fitch estimates interest coverage (operating EBITDA to gross interest expense) 
exceeded 15x for the LTM ended Sept. 29, 2012 and the company will maintain 
interest coverage above 10x. FCF to debt also should be more than 10% through 
the intermediate term.

The ratings and Outlook are supported by Motorola Solutions': i) leading market 
positions in public safety and enterprise markets, driven in part by a solid 
intellectual property portfolio and brand name; ii) consistent pre-dividend 
annual FCF of $500 million to $1 billion; and iii) revenue visibility from 
mission critical nature of served end markets.

Ratings concerns center on: i) next generation public safety markets that may 
limit longer-term organic growth opportunities; ii) strained government budgets 
and a tepid macroeconomic growth environment, which could mute intermediate-term
revenue growth; and iii) lower domestic cash balances from the resumption of 
aggressive cash deployment to shareholders via stock buybacks and dividends.


Positive rating actions could result from meaningfully greater than expected 
FCF, likely driven by robust new product adoption leading to stronger than 
anticipated revenue growth and gross profit margin expansion.

Negative rating actions could result from:

--Pre-dividend annual FCF meaningfully below $500 million, likely due to 
meaningful deterioration in the macroeconomic environment or more significant 
than anticipated municipal and state budget spending cuts; 

--The company does not maintain total adjusted leverage below 2.5x, likely from 
intensified profit margin contraction. 

As of Sept. 29, 2012, Fitch believes liquidity was solid and supported by: 

--$1.8 billion of cash and cash equivalents ($385 million of which was in the 

--$1.8 billion of short-term investments and Sigma Funds (approximately half of 
which was in the U.S.); and

--An undrawn $1.5 billion senior unsecured revolving credit facility (RCF) 
expiring 2014.

Fitch's expectation for pre-dividend annual FCF of $500 million to $1 billion 
also supports liquidity. Fitch estimates a little over half of FCF is generated 
within the U.S., consistent with the company's geographic sales mix. The company
also resumed paying a dividend during 2012, which should reduce quarterly free 
cash flow by $70 million - $75 million in 2013.

As of Sept. 29, 2012, total debt was approximately $1.9 billion, consisting of 
various tranches of senior notes. Motorola Solutions has a clear debt maturity 
schedule until the company's $1.5 billion revolving credit facility expiring 
June 30, 2014 and $400 million of senior notes mature on Nov. 15, 2017. 

Fitch affirms Motorola Solutions' ratings as follows:

--Long-term Issuer Default Rating (IDR) at 'BBB'; 
--Senior unsecured bank revolving credit facility (RCF) at 'BBB';
--Senior unsecured notes at 'BBB'; 
--Short-term IDR and commercial paper program at 'F2'.

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