Cummins Engine Reports Third-Quarter Earnings of 52 Cents Per Share Before Charge of $149 Million.

COLUMBUS, Ind.--(BUSINESS WIRE)--Oct. 15, 1998--

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                     CUMMINS ENGINE COMPANY, INC.
                 (Millions, except per share amounts)


FOR THE THIRD QUARTER ENDED     September 27, 1998  September 28, 1997
---------------------------     ------------------  ------------------

Net Sales                              $1,525               $1,366

Before special charges
     Earnings before income taxes        $ 31                  -
     Net earnings                          20                  -

     Basic earnings per share           $ .52                  -
     Diluted earnings per share           .52                  -

     Weighted-average number of shares for EPS:
     Basic                               38.5                  -
     Diluted                             38.7                  -

As reported
     Earnings (loss) before
      income taxes                     $ (118)                $ 69
     Net earnings (loss)                  (85)                  54

     Basic earnings (loss) per share  $ (2.21)              $ 1.41
     Diluted earnings (loss) per share  (2.21)                1.38

     Weighted-average number of shares for EPS:
     Basic                               38.5                 38.3
     Diluted                             38.5                 39.0


FOR THE NINE MONTHS ENDED       September 27, 1998  September 28, 1997
-------------------------       ------------------  ------------------

Net Sales                              $4,660               $4,066

Before special charges
     Earnings before income taxes       $ 169                  -
     Net earnings                         111                  -

     Basic earnings per share          $ 2.88                  -
     Diluted earnings per share          2.86                  -

     Weighted-average number of shares for EPS:
     Basic                               38.5                  -
     Diluted                             38.8                  -

As reported
     Earnings (loss) before
      income taxes                      $ (23)               $ 199
     Net earnings (loss)                  (25)                 148

     Basic earnings (loss) per share   $ (.65)              $ 3.87
     Diluted earnings (loss) per share   (.65)                3.82

     Weighted-average number of shares for EPS:
     Basic                               38.5                 38.3
     Diluted                             38.5                 38.7

Cummins Engine Co. Inc. (NYSE:CUM) today reported third-quarter net earnings of $20 million, or 52 cents per share on sales of $1.5 billion, excluding a pre-tax charge of $114 million for restructuring costs and $35 million associated with a methodology change in calculating product coverage costs for extended warranty programs. For the third-quarter of 1997, the company reported net earnings of $54 million, or $1.38 per share, on sales of $1.4 billion. The results had been anticipated by the company in its announcement on September 15.

"We continue to be concerned about the effect of uncertain overseas markets on revenues, particularly in Asia and Latin America. We see no signs that this trend will stabilize in the near term, and are now closely monitoring our North American markets for signs of softening," said Chairman and Chief Executive Officer Jim Henderson. "In addition, lower commodity prices worldwide are having a negative impact on sales of agricultural equipment."

Cummins said that in addition to lower volumes, earnings for the quarter were affected by higher costs associated with the introduction of its new products. The company expects those costs to decrease as it ramps up production. Said Henderson, "We continue to be excited about these new products, and believe that our customers are too", referring to this week's announcements from Mack Trucks Inc. and Volvo Trucks North America Inc. that they intend to increase their usage of Cummins' engines in their products.

Continued Henderson, "Our efforts to reduce selling, administrative and research and engineering costs are paying off. We are working diligently to improve our gross margins even further, and have finalized our restructuring plans for which we will take a charge of $114 million this quarter. Approximately half of the charge is associated with the reduction in our workforce by approximately 1,100 employees worldwide. The remainder is for costs associated with streamlining and consolidating operations, primarily overseas. Benefits of these actions should begin to be realized in early 1999."

Sales of $381 million to the heavy-duty truck market were 14 percent higher than the third quarter of 1997 due to continued strong demand in North America. Sales to the medium-duty truck market of $140 million were 15 percent lower from the year-ago quarter primarily due to lower shipments in the United States and Latin America.

Sales of $212 million to the bus and light commercial vehicle market were 44 percent higher than third-quarter 1997 levels due to continued strong demand for pick-up truck engines.

Power generation sales of $296 million were 2 percent higher than the year-ago quarter primarily as a result of the consolidation of Cummins India Limited, completed in the fourth quarter of 1997. Industrial sales of $245 million were flat compared to the third quarter of 1997 as a result of lower sales in agricultural markets, despite higher demand in construction markets worldwide.

Sales of filtration and other products of $251 million, 35 percent higher than the third quarter of 1997, continue to be favorably affected by the acquisition of Nelson Industries early this year.

For the first nine months of 1998, excluding a charge of $43 million taken in the first quarter and the charge taken in this quarter, Cummins reported net earnings of $111 million, or $2.86 per share, on sales of $4.7 billion. For the same period of 1997, the company's net earnings were $148 million, or $3.82 per share, on sales of $4.1 billion.

Cummins said that discussions with the U.S. Environmental Protection Agency (EPA) and other diesel engine manufacturers, including Cummins, appear to be concluding. Discussions concern the level of nitrogen oxide emissions under certain driving conditions. The company reiterated its earlier statements that it believes it is in full compliance with all EPA standards regarding emissions and is working closely with the EPA to improve emissions standards. Cummins said that it hopes that the matter will be resolved shortly and indicated that resolution of this matter could have a material effect on Cummins' financial results.

Cummins, headquartered in Columbus, Ind., is the world's largest producer of diesel engines above 200 horsepower. The company provides products for customers in its key markets: automotive, power generation, industrial and filtration. Cummins reported record sales of $5.6 billion in 1997. Press releases by fax may be requested by calling News on Demand (toll free) at 888-329-2305. Cummins' home page on the Internet can be found at http://www.cummins.com.

Certain information included in this press release is forward-looking and involves risks and uncertainties, including general economic and competitive conditions that could significantly affect expected results.