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Rating Action:

MOODY'S ASSIGNS A1 RATING TO TUSCALOOSA COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY SOLID WASTE DISPOSAL REVENUE BONDS (GUARANTEED BY NUCOR CORPORATION)

14 Sep 2004
MOODY'S ASSIGNS A1 RATING TO TUSCALOOSA COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY SOLID WASTE DISPOSAL REVENUE BONDS (GUARANTEED BY NUCOR CORPORATION)

Approximately $20 Million of Debt Securities Affected

New York, September 14, 2004 -- Moody's Investors Service assigned an A1 rating to $20 million of Tuscaloosa Country Industrial Development Authority ("Authority") Solid Waste Disposal Revenue Bonds. The bonds, which mature September 1, 2020, are payable from revenues received under a loan agreement between Nucor Steel Tuscaloosa, Inc., and the Authority. Nucor Steel Tuscaloosa's obligations are unconditionally guaranteed by Nucor Corporation. These bonds, originally issued in 1995, are being remarketed following Nucor's July 2004 acquisition of Tuscaloosa Steel Corporation (Nucor Steel Tuscaloosa) from Corus UK Ltd.

The A1 rating reflects Nucor's strong competitive position in the domestic steel industry, its good productivity from assets employed, favorable cost position, low leverage and strong debt protection coverage ratios.

Nucor has a stable outlook reflecting Moody's expectation that the company will continue to exhibit favorable operating efficiencies, a competitive cost position, and maintain its focus on lean operations. The outlook also considers that Nucor will continue to follow a strong capital structure philosophy, minimizing the level of debt employed given the cyclicality of the industry. Given industry dynamics, the cyclicality inherent in the industry and the essentially one product nature of Nucor's business, upside potential to the rating is limited. Substantive changes to the company's business model, a sustained rise in the cost base together with substantive margin erosion or significant increases in debt for acquisitions, capital investments or share buybacks, could impact the outlook or the rating.

Nucor, the largest steel producer in the United States in terms of shipments, has historically enjoyed a low cost position given that the predominate source of raw material for its steel making processes is steel scrap. Year to date 2004 has seen the convergence of a number of factors impacting both Nucor and the industry: significantly stronger demand, which has pressured the supply side, rising steel prices and sky rocketing scrap prices. While Nucor's scrap costs have steadily increased, and at $214/ton for the first half of 2004 were up roughly 60% over the comparable period in 2003, the company has instituted surcharges to help defray the cost of rising scrap prices. At the same time however, increased productivity and better utilization rates, together with higher average realized prices of $514/ton in the first half of 2004 versus $357/ton for the comparable 2003 period, have enabled the company to show significant improvement in earnings, coverage ratios and cash flow generation, despite the increased cost base. Finally, improved performance at the Decatur sheet mill, and the Hertford County plate mill as well as significantly lower pre-operating and start-up costs at the Castrip mill, versus those incurred in 2003, have contributed to further margin improvement and stronger earnings performance.

Nucor's strong operating fundamentals, reflective also of higher shipments due to recent acquisitions, have contributed to LTM June 30, 2004 EBITDA of $1.0 billion, LTM free cash flow of $301 million and strong coverage ratios as evidenced by the LTM EBIT/interest ratio of 22.9x. Gross leverage, as measured by the debt to capital ratio, remains modest at 24% with no significant maturities until 2009. Approximately 42% of Nucor's debt obligations are low interest bearing industrial revenue bonds, many with long dated maturities. Due to continued strong performance, Nucor has recently increased its guidance for third quarter net earnings to roughly $350 million, announced an increase in its dividend and a 2 for 1stock split.

Notwithstanding the solid performance being evidenced in 2004, Moody's views current industry dynamics as unsustainable. The strong demand fundamentals and price premiums in the US are contributing to increasing imports and the position of China, as an importer or exporter will continue to have an impact on the global industry. While 2004 is expected to be strong, some slowing and price contraction could become evident toward the end of the year and into 2005. Given industry consolidation in recent years and growth in Asian demand however, prices are not likely to return to levels evidenced in 2003 and raw material costs for both mini mill and integrated producers are expected to continue under pressure in 2005. Nonetheless, Moody's expects Nucor to continue to exhibit a strong financial condition and given the methodology of its surcharge mechanism, the company should be able to maintain acceptable margins when realized prices start to decline.

Rating Assigned:

Tuscaloosa County Industrial Development Authority: A1 $20MM Solid Waste Disposal Revenue Bonds due 2020, guaranteed by Nucor Corporation.

Headquartered in Charlotte, North Carolina, Nucor had revenues of $6.3 billion in 2003.

New York
Mark Gray
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Carol Cowan
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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