Cummins expects first-quarter sales increase of 3-4 percent to be reflected in pretax profits; second-quarter demand expected to be particularly strong.

COLUMBUS, Ind.--(BUSINESS WIRE)--April 4, 1995--Cummins Engine Co. Inc. (NYSE: CUM) shareholders were told today that an anticipated 3- to 4-percent increase in 1995 first-quarter sales will be reflected in pretax profits for the quarter. Cummins' annual shareholders meeting was held in its headquarters city of Columbus, Ind.

Cummins Chairman and Chief Executive Officer Jim Henderson added that, ``Our tax rate increases from 14 percent in 1994 to 23 percent this year, starting in the first quarter, as tax benefits from previous years are used up. Profit before tax, or operating profit, will reflect our progress this year.'' Looking beyond that, Henderson said, ``We understand that Chairman Greenspan is determined to bring the rate of real growth in the U.S. economy down to 2 1/2 percent-- still a pretty healthy rate. Despite hearing some reports from other companies of a slowing, we can report that at least going into the second quarter, our demand is still very strong. Beyond that, our crystal ball is not very clear.''

Production to Remain High in 1995

Peter Hamilton, vice president and chief financial officer, said that a large backlog of trucks for the North American heavy-duty market suggests that engine production will remain high in 1995. Nearly 70,000 engines were shipped to the market in 1994, reflecting the continued strength of that industry. Sales of the power generation business exceeded $1 billion for the first time, with 60 percent of these revenues coming from outside the United States. Global demand for B and C Series engines resulted in a record 196,000 units being shipped, with sales to customers outside the United States growing by 29 percent, Hamilton said.

In 1994, Cummins' 75th anniversary year, sales exceeded $1 billion in every quarter for the first time in history. Earnings increased 38 percent over the previous year and sales grew by 12 percent, Hamilton said. The improvement in earnings was driven by continuing increases in gross margin and reduction in interest expense, Hamilton said. ``Cummins' financial position continued to strengthen during 1994. Shareholder equity grew to $1.1 billion, while debt decreased modestly. As a result, our debt-to-capital ratio improved to 18 percent at year end, down from 22 percent at year end 1993.''

From Product-Driven to Customer-Driven

President and Chief Operating Officer Tim Solso noted that during 1994, Cummins continued as the leader in worldwide diesel engine production above 200 horsepower, producing twice the engines of its nearest competitor, and moved to third place from sixth among producers above 50 horsepower. ``We continue to diversify internationally every year. Forty-three percent of our sales, 40 percent of our people and more than one half of our operations are now located outside the United States,'' Solso said.

``Cummins is moving from a product-driven to a customer-driven culture. Customer-led quality is the process that helps us serve our customers better while increasing productivity and enabling continuous improvement,'' Solso said. In reviewing Cummins' businesses, he said the worldwide heavy-duty truck market is the largest, representing 30 percent of sales. Most of this sales volume is in the North American heavy-duty truck market, where Cummins' 34.3 percent share is growing as a result of the new M11 and N14 engines. The power generation group is Cummins' second largest business, with sales exceeding $1 billion last year for the first time. In the midrange truck market, representing 11 percent of sales, the company as a result of its partnership with Ford is tied for the market lead with a 35 percent share. Twelve percent of the company's sales come from bus and light commercial markets, where Cummins is the leader in alternate fueled engines for transit buses and where the Dodge Ram - combined with the performance of the B Series - has given Chrysler more than one fourth of the diesel pickup truck market.

At Least One New Product Every Six Months

Joe Loughrey, group vice president - worldwide operations and technology, said Cummins' heavy technical investment in the past decade has resulted in the company's leadership in emissions technology and introduction of new products such as the electronically controlled M11 engine, the leader in heavy-duty truck fuel economy; low-emission natural gas engines for on-highway applications, and INTELECT, Cadec and RoadRelay electronics which enhance the service and diagnostic capability of heavy-duty trucks. These successes have formed the basis for a growing number of joint ventures and associations around the world with leading equipment and engine manufacturers, Loughrey said. ``Over the next five years, Cummins will upgrade or redesign every engine it makes today. In fact, at least one new product will be introduced every six months.''

``Cummins' commitment to customer-led quality has created production and technical systems which drive the way the company pursues new technology and manufactures its products,'' Loughrey said. A key element of the Cummins Technical System is ``product-preceding technology,'' which enables development of advanced technologies that can be applied across more than one product line and can be introduced quickly and reliably into new products and processes. Implementation of the Cummins Production System continues to spread, Loughrey said, with more than 17,000 employees trained and 38 plants in 8 countries now implementing it. As a result, since early 1991 Cummins' 11 engine plants worldwide have seen a 77-percent improvement in inventory turns, 70 percent fewer quality defects, 66 percent fewer safety incidents, 28 percent better people productivity and 27 percent faster throughput time.

Profitable Growth from International Alliances

Jack Edwards, vice president - international, told shareholders that in 1994, sales outside the United States exceeded $2 billion for the first time, with growth averaging 13 percent annually for the past 34 years. ``A new and exciting source of profitable growth for Cummins in the future will come from a series of international alliances which Cummins has been forming,'' Edwards said. These include expansion of Cummins' Chongqing license agreement into a 50/50 joint venture and rapid growth of its Dong Feng license agreement. ``Cummins' entire product line, from B engines up through our K engines at 2,000 horsepower, will be produced locally in China and will be available to our customers through these two alliances,'' he noted.

In March, Cummins signed a 50/50 joint venture agreement with Wartsila Diesel of Finland to produce two new families of engines, enabling Cummins to extend its horsepower range from 2,000 to 6,000. Cummins' position in India continues to grow, with the Kirloskar joint venture formed 33 years ago now the leader in off-highway markets and the new joint venture with major truck maker TELCO set to begin production this summer. The pair of 50/50 joint ventures with Komatsu of Japan are scheduled to begin production next year in Oyama, Japan, and in Seymour, Ind. ``These international alliances alone will account for more than $1 billion sales growth for the joint ventures by the year 2000 and will be an important source of profitable growth for Cummins in the future,'' Edwards said.

At the meeting today, the following directors were elected: Harold Brown, Kenneth R. Dabrowski, Robert J. Darnall, Walter Y. Elisha, Hanna H. Gray, James A. Henderson, Dana G. Mead, J. Irwin Miller, William I. Miller, Donald S. Perkins, William D. Ruckelshaus, Henry B. Schacht, Tim Solso, Franklin A. Thomas and J. Lawrence Wilson. In other actions, shareholders approved the appointment of Arthur Andersen LLP as the company's auditors and approved previously existing bonus and three-year performance plans for senior executives.

Cummins, headquartered in Columbus, Ind., is a leading worldwide designer and manufacturer of diesel engines and related products. These engines provide power for trucking, power generation, bus, industrial, marine and government markets worldwide. Cummins reported record sales of $4.7 billion in 1994.

CONTACT: Cummins Engine Co. Inc., Columbus

Ann C. Smith, 812/377-3524