Cummins Inc. Announces Fourth Quarter Earnings Estimate; Will Take Charge of $160 Million.

Business Editors

COLUMBUS, Ind.--(BUSINESS WIRE)--Dec. 19, 2000

Company Takes Actions to Cut Costs;

Expects to Save $55 Million Per Year

2001 Operating Earnings Expected to be Similar to 2000

Cummins Inc. (NYSE:CUM) announced today that it anticipates that it will lose between 35 and 45 cents per share for the fourth quarter of 2000, and confirmed that it will take a pre-tax charge in the fourth quarter of approximately $160 million. The earnings estimate is exclusive of the charge. Cummins will report final fourth quarter earnings in late January 2001. Further, based on the current market outlook, Cummins now expects that operating earnings for the first quarter of 2001 will be in line with the fourth quarter of this year. The company expects that full year 2001 operating earnings will be similar to or greater than 2000 full year operating earnings.

The company said that the earnings shortfall in the fourth quarter is due to deteriorating demand in a number of North American end markets. Shipments of engines for the heavy-duty truck market are down more than 50 percent below

last year and are now at least 5 to 10 percent below third quarter levels. DaimlerChrysler's recent decision to reduce production of all of its vehicles, including its Dodge Ram pick-up truck, has resulted in the closure of Cummins' midrange engine plant in Walesboro, Indiana effective December 13th for the rest of 2000. Shipments of engines for the Dodge Ram pickup truck are anticipated to be down roughly 20 percent from third quarter levels. Compared to the third quarter of this year, engine shipments to the construction equipment market are anticipated to be down as much as 20 percent; and shipments to the medium-duty truck market will likely be down roughly 15 percent.

Certain consumer markets within both Power Generation and Filtration have also been affected by the economic downturn. Within Power Generation, sales to the recreational vehicle market are expected to be down more than 20 percent. The downturn in the heavy-duty market has continued to affect original equipment exhaust systems demand within the Filtration Business, and exhaust system sales to consumer-oriented small engine markets are anticipated to be down 18 percent compared to the year-ago quarter.

The $160 million pre-tax charge is for costs associated with restructuring actions largely focused within the Engine Business. These actions include the termination of over 350 salaried employees in that business, which the company announced on November 6; as well as layoffs and reduced work hours for hourly employees; the cancellation or delay of a number of new product programs and information technology projects; and the writedown of certain assets. By the second quarter of 2001, Cummins will have reduced the number of full-time equivalent people in its Engine Business by almost 1000. Throughout the company, further cost reduction actions include closing, consolidating, or exiting nine businesses and facilities. Including some reductions taken in the third quarter, the company expects these additional actions will result in staffing reductions of over 500 employees.

The total restructuring actions, when fully implemented, are expected to save the company approximately $55 million per year. The net cash portion of the charge is expected to be approximately $30 million dollars over the next five quarters.

"We continue to pursue our strategy of changing how Cummins participates in the North American heavy-duty truck engine business," said Cummins Chairman and Chief Executive Officer Tim Solso. "In order to sustain growth in our other markets and regions, we are working to fundamentally change the way we operate our heavy-duty truck engine business. These changes will include additional cost reduction actions to further drive out expenses, and may include an additional restructuring charge. We are confident that these actions, combined with alliances like the one we have struck with Volvo Trucks North America, will help us to fundamentally restructure this business," said Solso. Volvo Trucks North America, Inc. announced on November 8 that Cummins would be Volvo's exclusive engine partner in North America beginning in the second quarter of 2001.

Cummins' Power Generation and Filtration businesses continue to experience strength in most end markets and remain solidly profitable. Power Generation sales are expected to grow at 10 to 15 percent annually over the next several years. Increased sales will come from new products, growth in the internet and telecommunications sectors, and a continued shift toward providing power solutions.

Further, despite the softening of demand in the truck and small engine markets for exhaust systems, the Filtration Business is still growing worldwide and remains very profitable. As a result of leveraging relationships formed with OEM engine customers, the Filtration Business has been able to gain significant new business with these customers. Moreover, the aftermarket portion of the Filtration Business continues to grow through both new channels and new product introductions.

The company said it is planning additional cost reduction actions including targeting its administrative, selling and research expenses, as well as continuing to reduce the costs of both direct and indirect materials.

The company's conference call to discuss the earnings report will be webcast at 11 a.m. EST today. The webcast can be accessed through Cummins website at www.cummins.com. Access the investor home page and connect to the link to the conference call.

Cummins, headquartered in Columbus, Ind., is the world's largest producer of diesel engines above 50 horsepower. The company provides products and services for customers in markets worldwide for engines, power generation, and filtration. In 1999, Cummins reported record sales of $6.6 billion. Press releases by fax may be requested by calling News on Demand at 888-329-2305. Cummins' new website on the Internet can be found at www.cummins.com.

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