Cummins Expects to Earn 96 Cents Per Share Before Special Charge of $43 Million; Earnings Expected to be 18 Cents Per Share After Charge.

COLUMBUS, Ind.--(BUSINESS WIRE)--April 7, 1998--

1997 Saw Signature 600 Heavy-duty Engine Launched,

Nelson Industries Acquired, Power Generation Group Positioned for

Profitability and Industrial Group Sales Top $1 Billion for

First Time

Cummins Engine Co. Inc. (NYSE:CUM) told shareholders today that it expects to report first-quarter earnings of approximately 96 cents per share, or $37 million profit after taxes, before a one-time charge of $43 million pre-tax for product coverage costs relating to previously produced engines. This reflects the company's improved operating performance compared to its expectations earlier in the quarter. "We now expect the one-time charge to be about $43 million pre-tax, which is 78 cents per share after tax," said Cummins Chairman and Chief Executive Officer, Jim Henderson. He added that if these preliminary estimates hold, reported earnings would be approximately $7 million after tax or 18 cents per share. "We continue to expect that earnings per share will approach those of the second quarter a year ago."

1997 A year of solid progress

"1997 was a year of solid progress for Cummins. Sales were $5.6 billion, which was a record for the sixth consecutive year," said Cummins President and Chief Operating Officer, Tim Solso. "More important, while sales were up 7 percent, profit before interest and taxes was up 34 percent, also a record." Cummins saw 1997 engine shipments reach a record of 370,000 units, a number which increases to 500,000 units when shipments to joint ventures and licensees are added. In 1997, Cummins' share price increased 28 percent; earnings per share increased 37 percent, and the dividend increased by 10 percent. "We achieved record international sales of $2.5 billion, 44 percent of our total revenues. Today's balance of international versus domestic sales and the expansion of our products and markets puts Cummins in a more financially diversified position compared to recent years," he added. "Our acquisition of Nelson Industries, an air and exhaust filtration company, helps by adding a higher-margin, less cyclical business with relatively low capital requirements to our portfolio. This acquisition will be neutral to Cummins' earnings this year and accretive in 1999," Solso said. He added that the addition of Nelson also allows the Filtration Group opportunities to access customers across the other three business units.

Instability in international markets affected Cummins in the fourth quarter, Solso said, when the company began to see the impact of the economic problems of Southeast Asia which have continued through the first quarter of this year. In addition, the economic difficulties in Korea have reduced Cummins' business there by approximately 50 percent. Cummins also is experiencing some slowdown in growth in both China and India due to their governments' fiscal and political policies. "Overall, however, we still see the Asian markets as a very important, long-term growth opportunity and remain committed to our strategy in the region," he said.

In 1997, Solso said, Cummins invested over $400 million in capital to introduce new engines, with capital spending expected to decrease this year and next. "1997 through 1999 are the critical years where we begin to harvest the $1.7 billion investment in product development and capital begun in 1993," Solso said. "This investment is creating the most advanced engines, product support and information technology available anywhere in the world. These product introductions are expensive, particularly now, but they represent the key to our future growth and financial success. Our challenge is to introduce these products on time, at cost targets, and with the highest quality."

Automotive Group to launch revolutionary new Signature 600 engine, leads North American heavy-duty truck market for 25 years

"In 1997, Automotive Group sales reached $2.6 billion, more than 7 percent growth over 1996," said Executive Vice President and Group President - Automotive, Roberto Cordaro. "Around the world, 290,000 Cummins-powered trucks and buses were delivered to customers - a new record. Cummins leads the North American heavy-duty truck market with a 32 percent share, and has held this leadership position for 25 consecutive years." Heavy-duty engine sales grew 11 percent, medium-duty increased slightly, and in the bus and light commercial market shipments were a record - 78,300 for the Dodge Ram pickup - as were shipments to bus customers worldwide.

"Our most memorable new product introduction to date is our revolutionary new engine, the Signature 600, targeted at the growing high-horsepower owner-operator and high-performance fleet markets. We involved the customer in the design from the earliest stages, and it shows," Cordaro said. Other recent product introductions include new electronic ISB, ISC and ISM engine models. "We believe the product is only one piece of the package. Today, it is equally important to offer information and support to the customer," Cordaro said, and Cummins offers a full array of information management products and "PowerCare" customer support services.

Filtration Group acquires Nelson, becomes major global competitor

"In 1997, Cummins took a major step toward building another $1 billion-sized business unit," said Vice President - Filtration Group and President - Fleetguard, Inc., Dave Jones. "The acquisition of Nelson early this year and its combination with Fleetguard makes the Filtration Group one of the largest global competitors in filtration and exhaust systems in the world. Combined, the sales growth rate has been 12 percent this decade, reaching over $760 million in 1997 and ranking sixth in the world. Our goal is to be number one or number two in all our markets. Now we have the breadth and strength to make that goal achievable."

Jones added that a key strength has been providing a total "value package" to customers. "Now we can supply key components for the entire power system front to back, allowing us to take advantage of the growing trend to reduce the number of suppliers companies have to deal with. The product lines are complementary and now include engine filtration, coolant treatment, exhaust systems and accessories, air systems and a host of other components." Jones noted that, "The financial performance of our business unit has been consistently strong. The combined Fleetguard and Nelson performance compares favorably with the best in our industry. In fact, our operating return on average net assets is higher than any of our publicly traded competitors. We expect our performance to remain strong." Jones said that the filtration unit is now operating as a single integrated organization, with duplications in overhead eliminated and additional synergies and opportunities being implemented.

Power Generation Group restructured, positioned to increase profitability

The Power Generation Group last year continued its drive to become the world's best supplier of power generation equipment and to aggressively reduce its costs, said Executive Vice President and Group President - Power Generation, Jack Edwards. 1997 sales were $1.2 billion and prospects for growth and profitability are excellent, he added. "Onan continued its dominance in the market for small generator sets for recreational vehicles where we have over 80 percent market share. Due to a robust North American economy, there were record recreational vehicle sales. 1997 also was a strong year in the United States for larger Onan generator sets. Our Newage operation continues to be the world's leading supplier of alternators, a key component of the generator set."

Cummins is aggressively reducing costs at both companies, Edwards said. "We've attacked our cost structure at Newage while maintaining our high level of quality and support to be able to compete on price and win business on value." Closure of Onan's Huntsville, Ala., plant was difficult but necessary, he said, and the company helped all 600 employees find other work. "We also are improving the cost structure at our largest Onan operation, in Minnesota. We already have reduced headcount and restructured wages. This, too, has been difficult but has laid the foundation for future success." He added that Cummins' agreement with Wartsila was expanded in 1997 to include sales and marketing activities in addition to engineering and manufacturing. "We are confident the joint venture will become profitable within two years and soon become one of our biggest and most important operations."

Industrial business unit surpasses $1 billion mark on 21% sales growth

"Worldwide industrial markets were strong in 1997 and Cummins' sales growth was even stronger, increasing 21 percent from 1996, and averaged 15 percent per year since 1994. We surpassed the $1 billion mark for the first time. More importantly, profits grew significantly more than sales," said Executive Vice President and Group President - Industrial, Joe Loughrey. He added that sales to the construction market - the group's largest - grew by 23 percent, agricultural by 45 percent, and marine and mining by 9 percent.

New product introductions this year will include the fully electronic QSK60 engine for mining markets and the Quantum C Series engine for construction and agricultural markets. QuickServe, an innovative distributor-based program to provide fast diagnosis and repair, was offered to industrial customers in 1997, Loughrey said. In addition, Cummins announced a third joint venture with Komatsu to develop diesels for the next generation of industrial equipment, and Cummins-Case Credit Financial Services was created to provide financing to purchasers of Cummins-powered industrial equipment.

Board of Directors elected, auditors appointed

At the meeting today, the following directors were elected: Henderson, Solso, Harold Brown, Robert J. Darnall, John M. Deutch, Walter Y. Elisha, Hanna H. Gray, William I. Miller, Donald S. Perkins, William D. Ruckelshaus, Henry B. Schacht, Franklin A. Thomas and J. Lawrence Wilson. In other action, shareholders approved the appointment of Arthur Andersen LLP as the company's auditors.

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. 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.

CONTACT: Cummins Engine Co. Inc.

Ann C. Smith, 812/377-3524