Cummins expects first-quarter profit before tax to exceed that of fourth quarter 1996.

COLUMBUS, Ind.--(BUSINESS WIRE)--April 1, 1997--

Common Stock Dividend To Increase 2.5 Cents

To 27.5 Cents Per Quarter

Cummins Engine Co. Inc. (NYSE:CUM) told shareholders today that it expects first quarter earnings to approach $1 per share with profit before tax higher than that of the fourth quarter on somewhat lower sales. The company also announced a 10 percent increase in its quarterly common stock dividend, from 25 cents to 27.5 cents. Cummins' annual shareholders meeting was held in its headquarters city of Columbus, Ind.

Cummins Chairman and Chief Executive Officer, Jim Henderson, said, "We are much more diversified now and business conditions are favorable in most of our markets at this time. Our international revenues are 44 percent of our total. If business conditions continue as they are now, we expect higher earnings in the second quarter than the first."

Largest product introduction in history

"1996 was an important transition year for Cummins, and was a year of significant change," said Cummins President and Chief Operating Officer, Tim Solso. "It was a year in which we earned respectable profits, despite a 23-percent decline in the North American heavy-duty truck market. These profits recognize the hard work of lowering our costs, improving quality and productivity, and diversifying into new and different markets." Solso said 1996 marked the beginning of the largest new product introduction in the history of the company, with investments of more than $1 billion from 1996 through 1999 in capital and product development. "By the year 2000, we will replace today's entire product line with the most advanced engines, product support and information technology in the world."

The largest restructuring effort in the history of Cummins occurred during 1996, Solso said, involving a $118 million charge and absorption of an additional $25 million in costs. Gross savings in 1996 were $50 million and will grow to $80 million annually by 1998. Through this program, Cummins closed eight plants and five distribution centers, eliminated six businesses, and reduced employment by 2,300 people. Solso reminded shareholders that Cummins is making a $500 million investment in Southern Indiana, including the new block line at the Columbus Midrange Engine Plant, the joint venture with Komatsu at Seymour, the new Fuel Systems Plant in Columbus, and renovation of the Columbus Engine Plant, all of which will guarantee employment and growth for this area. Solso added that Cummins' "constellation" of growing international partnerships should produce revenues in excess of $2 billion by the year 2000. He noted that the productivity of Cummins employees has doubled in the last five years through several quality programs in manufacturing, marketing, technology and distribution. As a result, since 1991 Cummins has achieved a 63-percent reduction in quality defects, a 55-percent reduction in the number of safety-related incidents, and a 76-percent increase in inventory turns.

Record sales for fifth consecutive year

Vice President and Chief Financial Officer, Kiran M. Patel, said Cummins' 1996 sales were a record for the fifth consecutive year. "Our compound annual growth rate is more than 10 percent for the past 25 years. This puts us in the top quartile of Fortune 500 companies." While sales to the North American heavy-duty truck market declined, other key markets improved last year. Bus and light commercial vehicles, power generation, and industrial markets all achieved record levels of sales, he said. Fleetguard performed well again in 1996, setting new records for both sales and profits, and continuing the 15-percent annual growth rate it has maintained for more than two decades. Cummins' second largest market outside the United States is Asia, representing 17 percent of the company's sales. "Our future growth potential in Asia is enhanced by our joint ventures and alliances in India, China, Japan and Indonesia."

While 1996 was a profitable year, Patel said, earnings declined because of the lower heavy-duty truck market sales which were offset by power generation and industrial sales, but at lower margins. Earnings also declined because of increased new product spending, increased product coverage expenses, and restructuring costs. Patel concluded by noting that Cummins has completed the repurchase of 2.5 million shares of common stock in 1996 and announced a program to repurchase an additional 3 million shares. "With 1.3 million shares already purchased in January 1997, the number of shares outstanding has been reduced by 3.4 million over the last few years." Five years of strong financial performance have allowed Cummins to improve its debt-to-capital ratio to 24 percent, Patel said. "From this strong base, the company is pursuing profitable growth opportunities through product line expansions and international growth via alliances and joint ventures, and has the capacity to acquire new businesses."

Automotive looks to the 21st century

Executive Vice President, Group President - Automotive, Roberto Cordaro, told shareholders that Cummins has held a leadership position in the North American heavy-duty truck market for 24 consecutive years, and its presence in the medium-duty truck market has remained strong by being the power of choice at Ford, Freightliner and PACCAR. "To continue this success in the future, we are working closely with partners on every continent to grow our sales of product and information and to expand our network of customer support." Cordaro cited as examples Cummins' M11 electronic "Euro 2" engines which are best in class in fuel economy, the new joint venture with Iveco and New Holland to design and manufacture the next generation engines based on the successful B Series, and continued growth in bus and light commercial vehicle markets due in large measure to the popular Dodge Ram pickup truck.

Cordaro also told shareholders about Interact, Cummins' system of new products, information and support developed to interact with customers and designed with their business success in mind. This technology interacts with customers on several different levels, he said, adding that the ISB engine is the first in a family of new products that will use this technology. "All of these subsystems interact to produce an ISB engine that offers up to a 20-percent improvement in performance, with increased reliability and durability versus today's B Series engine." An important element of the Interact System is providing outstanding customer support, made possible by the opening last fall of a new centralized parts distribution center in Memphis, Tennessee. "Quickserve" is a new program which offers a guaranteed diagnostic and service response to customers, minimizing downtime and improving customers' operating results.

Industrial group achieves record sales

Executive Vice President, Group President - Industrial, Joe Loughrey, told shareholders that 1996 was a record year for the industrial group, with sales increasing 11 percent over 1995. "Cummins' emissions and electronics technology, global alliances and strong distribution systems have us positioned well to continue to grow at rates faster than the markets themselves. Since 1993, units sold have grown from 48,000 to 78,000, while sales have increased 47 percent."

During 1996, Loughrey said, Cummins and Komatsu officially opened their joint ventures in Oyama, Japan, and in Seymour, Indiana. "Since these joint ventures were created in 1993, Cummins' commercial sales to Komatsu have grown about 140 percent, and Komatsu has become our largest industrial customer." Loughrey added that Cummins' joint venture with Case, Consolidated Diesel Co., produced 170,000 engines in 1996 while commercial sales to Case were the second highest for the industrial group. Joint teams are working on global growth opportunities, differentiated products and cost reduction. To better communicate with 1,000 construction and 250 agricultural manufacturers worldwide, the company has developed the "Cummins Advisor," enabling distributors and manufacturers to obtain electronic access to all the information needed to develop the best possible match between engine and equipment. Cummins introduced the Quantum QSK 19 and QST 30 engines in 1996, and late this year will begin limited release of the new Quantum QSK 45 and 60. These engines have a remarkable new monitoring and reporting tool called CENSE, which enables operators to confidently predict engine durability and stretch maintenance intervals without endangering their equipment.

Power generation sales represent 23 percent of Cummins total

Executive Vice President, Group President - Power Generation, Jack Edwards, said Cummins' joint venture with Wartsila expands the power generation product line-up to the 4.5 megawatt range. "This expansion is significant because while the under-1-megawatt market has enjoyed a 10-percent annual growth rate, the fastest growing and more profitable segment is from 1 to 4.5 megawatts, which has been growing at 28 percent annually." With the expansion of its product line, Edwards said, Cummins is developing a powerful strategy to position itself to take advantage of growing worldwide power demand. Cummins currently has a 17-percent global market share, strong partners including Wartsila and Komatsu, a strong global presence, and critical power systems technologies.

"Sales of power generation represented 23 percent of Cummins' net sales in 1996. Record sales of $1.2 billion in 1996 were an 11-percent increase over 1995 and 23 percent more than 1994," Edwards said. In order to take advantage of the growth opportunities in a profitable way, significant restructuring is underway, including closing a manufacturing facility in Huntsville, Ala., and restructuring in Minneapolis, Minn., at the headquarters of Onan Corp., a Cummins subsidiary. Major markets for primary power are India as well as China, where Cummins' power generation business grew from $10 million in 1990 to $110 million in 1996. Another major market is mobile power generation, where Onan has enjoyed more than an 80-percent share of the U.S. recreational vehicle market for the past decade. Power generation products also provide standby power for a variety of operations.

At the meeting today, the following directors were elected: Henderson, Solso, Harold Brown, Robert J. Darnall, 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. J. Irwin Miller 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 customers in its key markets: automotive, power generation, industrial and filtration. Cummins' home page on the Internet can be found at http://www.cummins.com .

CONTACT: Cummins Engine Co. Inc.

Ann C. Smith, 812/377-3524