Cummins expects first-quarter earnings to be approximately 14 percent higher than fourth quarter of 1995.

COLUMBUS, Ind.--(BUSINESS WIRE)--April 9, 1996--Cummins Engine Co. Inc. (NYSE:CUM) told shareholders today that it expects first-quarter earnings to approximate $1.20 per share, or about 14 percent higher than operating results for the fourth quarter of 1995, on a slightly lower level of sales. Cummins' annual shareholders meeting was held in its headquarters city of Columbus, Ind.

Cummins Chairman and Chief Executive Officer Jim Henderson said, "Our new products and business alliances will continue to broaden our market and geographical base, making us less susceptible to changes in a single market. Although we have considerable opportunity for growth in North America, we continue to believe a higher percentage of future growth will come from international markets."

Investment for Growth and Profitability

Tim Solso, president and chief operating officer, said record 1995 sales of $5.2 billion were 11 percent higher than the year before, consistent with the company's 20-year average annual growth rate of more than 10 percent. Engine shipments exceeding 338,000 units continued Cummins' leadership position as the world's largest producer of diesels over 200 horsepower. He noted that operating profit of $295 million before a restructuring charge also was a record. "Our positive cash flow has provided us with the strongest balance sheet in our 77-year history. We ended 1995 with a debt-to-capital ratio of 16 percent, placing us in position to make future investments, including new products, joint ventures and acquisitions. Our balance sheet also gives us the flexibility to withstand a severe downturn should that occur," Solso said.

Cummins continues to pursue five customer-led quality objectives: to demonstrate a comparative advantage for its customers, to earn a 15-percent return on equity through the economic cycle, to grow earnings, to demonstrate its commitment to help improve the environment and the communities in which it operates, and to recruit, challenge and fully utilize its people at all levels. Specific initiatives, Solso said, will help the company achieve each of these objectives, with an overall goal of increasing shareholder value through profitability and growth. "The company took a $118 million restructuring charge in the fourth quarter of 1995, consisting of $81 million of people costs and $37 million for asset disposals. As a result, we expect to reduce costs at an annualized rate of $80 million by the end of 1997," he noted. Capital spending is expected to increase to $400 million annually this year and next as Cummins funds its new products and new joint ventures, and will average approximately 5.5 percent of sales over the long term, Solso said.

Horsepower Range Expanded to Meet Demand

Jack Edwards, executive vice president, group president - power generation, said the total power generation market worldwide in 1995 was estimated to be $4.5 billion. "The demand for electrical power is growing, especially in Asia, where there is a shortage of electricity so companies and small towns are turning to diesel-powered generator sets," he said. Currently, Cummins has a 17-percent share of the power generation market ranging from 20 kilowatts to 4.5 megawatts, Edwards noted.

To meet customer demand for higher horsepower, Cummins last year signed a joint venture agreement with Wartsila Diesel International of Finland. Wartsila is the leading producer of medium-speed diesel engines, while Cummins is the leading producer of high-speed diesel engines. Production of the first new joint venture engine has just begun in Mulhouse, France, Edwards said, which will extend the Cummins product line from 2,000 to 6,000 horsepower.

Also in 1995, the company signed a joint venture agreement with the China National Heavy Duty Truck Corp. to supply power for growing construction and marine markets there, Edwards said. Earlier this year, Cummins signed another joint venture agreement in China, with Dongfeng Motor Corp. to produce engines for construction, truck, bus, power generation and marine markets.

Automotive Business Achieved Excellent Growth

Roberto Cordaro, executive vice president, group president - automotive, told shareholders the Automotive Business Group, including the bus and light commercial vehicle as well as medium- and heavy-duty truck sectors, grew 10 percent in 1995 and represented 53 percent of Cummins' net sales. In North America, Cummins now holds a 60-percent share of the transit-style school bus market and 38-percent share of the transit bus market. "The bus business also has been a focal point for the development of Cummins' alternate-fuel product line," he said. "Cummins is now the market leader in natural gas sales with approximately one-third of our transit bus engine shipments being alternate fueled products." Cummins continued to enjoy success in the Dodge Ram pickup in 1995 and currently has a 34-percent share of the diesel-powered full-size pickup market in the United States and Canada with 64,000 units shipped to Chrysler in 1995. The medium-duty truck market is the most global area of Cummins' automotive business with a presence in most major countries, Cordaro said. "We remain optimistic about more growth opportunities for the medium-duty automotive business around the world." In the North American medium-duty truck market, Cummins has grown from a relatively small presence a few years ago to become one of the leading players, he said, and this trend is expected to continue as the next generation of midrange engines is introduced later this year.

The largest section of the Automotive Business Group is the heavy-duty truck market, Cordaro said. Cummins led this market in North America for the 23rd consecutive year in 1995. Cummins' market share gain of more than one percentage point allowed it to capitalize on a record market in North America. Cummins' improvement in market share was the result of increased penetration of the fleet portion of the market, largely the result of the M11 Plus engine introduction in 1995, and of the premium fleet and owner-operator portions, due primarily to introduction of the N14 Plus engine last year. "We are now forecasting a market size of 165,000 to 170,000 trucks for 1996, another above-average year in terms of volume, but with a further contraction in the second half of the year from the current production level," Cordaro added.

Customer satisfaction surveys first conducted in 1995 triggered a number of initiatives, Cordaro said. Cummins introduced the "Support Plus" program to improve customer responsiveness when a failure occurs and became the first diesel manufacturer to provide customer assistance and information on products and services through an award- winning home page on the Internet. Under the new "Satisfaction Guaranteed" program, the first in the industry, if an owner/operator purchases a high-horsepower N14 engine and is not satisfied for any reason in the first six months of ownership, Cummins will do whatever it takes to provide complete satisfaction up to and including replacement of the engine.

Record Industrial Year - New Products Extend Leadership

Joe Loughrey, executive vice president, group president - industrial, which includes marine and government markets, said sales to the traditional industrial markets of construction, logging, agricultural, mining and rail grew 22 percent over the prior year. "This growth is due primarily to a broad product offering, targeted growth segments, improved global customer support and the creation of partnerships with leading global original equipment manufacturers," he pointed out. The first of a pair of joint ventures with Komatsu began production of the Cummins B Series engine last September in Japan and the second will begin production of a Komatsu-designed 30-litre engine this month in Seymour, Ind.

In reviewing Cummins' technical program, Loughrey said, "Cummins' long-term success depends upon its ability to innovatively develop and apply technology that delivers comparative advantage to our customers faster and better than the competition." He added that technical spending has risen over the last four years due to a significant increase in development of new engines and fuel systems to support market diversification and differentiation. Loughrey described several improvement efforts now underway, adding, "By 1999, it is our goal to be capable of introducing even more new products better and faster while reducing technical spending from 5 percent to 4 percent of sales." -0-

At the meeting today, the following directors were elected: Harold Brown, Kenneth R. Dabrowski, Robert J. Darnall, Walter Y. Elisha, Hanna H. Gray, Jim Henderson, J. Irwin Miller, William I. Miller, Donald S. Perkins, William D. Ruckelshaus, Henry B. Schacht, Tim Solso, Franklin A. Thomas and J. Lawrence Wilson. Dana G. Mead previously had indicated his decision not to seek re-election to the board. In other action, shareholders approved the appointment of Arthur Andersen LLP as the company's auditors.

Cummins, headquartered in Columbus, Ind., is a leading worldwide designer and manufacturer of diesel engines and related products. These engines provide power for its key markets: automotive, power generation, industrial and filtration. Cummins reported record sales of $5.2 billion in 1995.

CONTACT: Cummins Engine Co. Inc.

Ann C. Smith, 812/377-3524