Annual Report (Form 10-K), fiscal year 1994

Item 1. BUSINESS
(a) General Development of Business.
Kysor Industrial Corporation ("Kysor", the "Company" or the "Registrant") is a Michigan corporation. It is the successor to a Delaware corporation of the same name organized in 1970 and also previously a Michigan corporation of the same name originally organized in 1925.
In April 1988, Kysor purchased an 80 percent interest in Kysor/Warren Refrigeration GmbH of Limburg, Germany. In January 1989 the remaining 20 percent interest was acquired. Kysor/Warren Refrigeration GmbH designs, manufactures and markets refrigerated display cases for the European market.
In February 1994, Kysor acquired Kalt Manufacturing Co., Inc., located in Portland, Oregon and Goodyear, Arizona. Kalt manufactures walk-in coolers and panels for the supermarket, convenience store, and food service industries.
(b) Segment Information.
Kysor's operations include two segments: commercial products and transportation products. Operations in the commercial products segment design, manufacture and market refrigerated display cases, energy control systems, refrigerated building systems, and heating and air-conditioning systems.
	 Operations in the transportation products segment design, manufacture and market engine performance systems, engine protection systems, and components and accessories for heavy-duty trucks, other commercial vehicles and marine equipment. Financial information related to the industry segments is included in Item 8, Financial Statements and Supplementary Data, under Note 11 - Segment Information - in the Notes to Consolidated Financial Statements.
(c) Narrative Description of Business.
At December 31, 1994, Kysor had approximately 2,236 employees. Information as of December 31, 1994 concerning Kysor's two industry segments is presented below. Certain financial information related to the individual industry segments is incorporated in response to Item 1(b) above.
There were no material expenditures for compliance with federal, state or local provisions regulating the discharge of materials into the environment except with respect to ongoing proceedings relating to soil and groundwater contamination at the Cadillac Industrial Park in Cadillac, Michigan which is explained further under Note 10, Contingent Liabilities, to the Consolidated Financial Statements included in Part II, Item 8.
Commercial Products
The principal products of the commercial products group include supermarket refrigerated display cases, condensing units, insulated panels for refrigerated building systems and walk-in coolers. The principal markets for Kysor's commercial products group include supermarkets, convenience stores, food processors and restaurants. Refrigerated display equipment, refrigerated building systems, and sundry food store, food processing and restaurant equipment are sold directly to supermarkets and convenience stores, as well as through independent commercial refrigeration distributors.
The basic raw materials used by Kysor in this group are galvanized sheet and other types of steel, aluminum, glass, copper tubing, foam insulation, refrigerants, brass, copper, plastics and a variety of purchased electronic components. All raw materials used in this segment are readily available in adequate quantities from a number of sources.
Kysor holds or is licensed under a number of patents and trademarks relating to its commercial products. While none of these patents or trademarks are considered individually to be material, collectively these patents and trademarks are important to the business of the commercial products group.
There are no significant seasonal factors for the business of this group. Backlogs at year-end 1994 were approximately $64.0 million compared to $42.0 million in 1993 (restated to reflect the transfer of the Kysor/Westran operation to the Transportation Products Group) and no material portion of this business is subject to renegotiation or termination by the government. There are no working capital requirements peculiar to this industry segment.
The commercial products industry is highly competitive. Kysor competes with numerous companies in this group, some of which are larger and have greater financial resources than Kysor. Kysor believes that it competes primarily on the basis of quality, service, product performance, and price for most of its products, and warrants the majority of its products in accordance with general industry practices.
The commercial products group generated $29.0 million and $48.4 million of sales and revenues from Food Lion Stores in the years ended December 31, 1993 and 1992 respectively. No single customer generated in excess of 10 percent of consolidated sales and revenues in 1994.
Transportation Products
	 The principal products of this group include engine-performance systems consisting of radiator shutters, fan clutches and plastic fans, engine-protection systems consisting of various engine-monitoring devices, truck fuel tanks, marine instruments and heating, ventilating, and air-conditioning for commercial vehicles. The principal markets for Kysor's transportation products group are original equipment manufacturers of such vehicles as medium- and heavy-duty trucks, buses, off-highway equipment and the marine industry. The majority of the group's sales are made directly to manufacturers. Additionally, Kysor utilizes a network of independent distributors to provide aftermarket and replacement parts service to end users.
The basic raw materials used by Kysor in this group are steel, brass, copper, aluminum, plastics and a variety of purchased electronic components which are widely available in adequate quantities from a number of sources.
Kysor holds or is licensed under a number of patents and trademarks relating to its transportation products. While none of these patents or trademarks are considered individually to be of material value, collectively these patents and trademarks are important to the business of the transportation products group.
There are no significant seasonal factors for the business of this group. Backlogs at year-end 1994 were approximately $31.0 million compared to $22.0 million in 1993 and no material portion of this business is subject to renegotiation or termination by the government. There are no working capital requirements peculiar to this industry segment. The Transportation Products Group generated $32.1 million and $26.5 million of sales and revenues from Ford Motor Company in the years ended December 31, 1994 and 1993 respectively.
The transportation products industry is highly competitive. Kysor competes with numerous companies in this group, some of which are larger and have greater financial resources than Kysor. Kysor believes that it competes primarily on the basis of quality, service, product performance, and price for most of its products, and warrants the majority of its products in accordance with general industry practices.
(d) Financial Information About Foreign and Domestic Operations and Export Sales
This information is included in Item 8 - Financial Statements and Supplementary Data - in Note 11 to the Consolidated Financial Statements. The "Financial Information by Segment" does not include separately reported export sales because they are not significant.
Item 2.



Item 2. PROPERTIES
Kysor and its subsidiaries owned or leased the following offices and manufacturing facilities as of December 31, 1994:
COMMERCIAL PRODUCTS GROUP
Location Description Interest
Georgia:
Conyers Plant & office; 480,000 Owned in fee simple sq. ft. on 50-acre site
Columbus Plant & office; 295,826 Owned in fee simple sq. ft. on 22.7-acre site
Texas:
Fort Worth Plant & office; 100,162 Owned in fee simple sq. ft. on 11-acre site
Oregon:
Portland Plant & office; 84,000 Leased sq. ft. on 5.65-acre site
Arizona:
Goodyear Plant & office; 50,000 Leased sq. ft. on 5.0-acre site
Germany:
Limburg Plant & office; 52,096 sq. Owned in fee simple ft. on 6.9-acre site
TRANSPORTATION PRODUCTS GROUP
Illinois:
Byron Plant, warehouse & office; Owned in fee simple 176,716 sq. ft. on 31-acre site
Indiana:
Scottsburg Plant & office; 42,048 Owned in fee simple sq. ft. on 10.7-acre site
Michigan:
Cadillac Plant, warehouse & office; Owned in fee simple 131,426 sq. ft. on 12.4- acre site
Spring Plant & office; 80,000 sq. Owned in fee simple Lake ft. on 8.1-acre site
Rothbury Plant, warehouse & office; Owned in fee simple 18,543 sq. ft. on 3.4-acre site
Walker Plant & office; 49,188 Owned in fee simple sq. ft. on 3-acre site
White Plant & office;42,000 sq. Owned in fee simple Pigeon ft. on 5-acre site
North Carolina:
Charlotte Plant & office; 91,150 Owned in fee simple sq. ft. on 3.5-acre site
South Wales:
Hengoed Plant & office; 50,000 Leased sq. ft.
CORPORATE
Michigan:
Cadillac Executive office; 23,000 Owned in fee simple sq. ft. on 102-acre site
Oklahoma:
Duncan Vacant plant, warehouse & Owned in fee simple office; 93,000 sq. ft. on 22.1-acre site
It is believed that Kysor's facilities are generally adequate for its operations and such properties are maintained in a good state of repair.
Item 3.

Item 3. LEGAL PROCEEDINGS.
As previously reported, the Company is involved in the following legal proceedings:
The Company is involved in a US EPA environmental proceeding with respect to a site in Cadillac, Michigan. The description of such proceeding is set forth in Part II, Item 8 of this report, Note 10 to the Consolidated Financial Statements.
On July 3, 1991, the Michigan Attorney General and the Michigan Department of Natural Resources ("MDNR") filed a lawsuit against the Company and various other parties in the United States Federal District Court for the Western District of Michigan relating to the Cadillac, Michigan site described in the preceding paragraph. The preceeding is also described in Note 10 to the Consolidated Financial Statements included in Part II, Item 8 of this report. On December 28, 1994 a series of consent judgments were entered by the court in which the Company and other defendants settled claims for past costs incurred by the State in its investigation of the site, known damages for injury to natural resources, and fines and penalties. The Company's share of that settlement was $2.5 million, including interest.
On December 31, 1991, General Electric filed a third-party claim against the Company in the United States District Court for the Western District of Michigan. The description of such proceeding is set forth in Part I, Item 3 of the Company's 1993 Annual Report on Form 10-K filed with the Commission on March 30, 1994. All third-party claims by General Electric against the Company in this matter were settled by an agreement dated February 18, 1995, and the parties are in the process of obtaining an order of dismissal from the court. Under the settlement agreement, Kysor has agreed to pay $1.6 million as its share of past response costs and expenses incurred by GE in connection with the remediation of environmental contamination and defense of the underlying claims against GE. Kysor has also agreed to pay 55 percent of future environmental response costs related to the site. The anticipated cost associated with Kysor's liability has previously been accrued.
On March 30, 1993, the Company received a notification from the MDNR that it has been named as a PRP with respect to a site commonly referred to as the SCA Independent Landfill Superfund Site, located in Muskegon County, Michigan. The notice alleges that the Company, together with numerous other parties, was an owner, generator or transporter of waste materials deposited at the site. The PRP notice requests the Company and the other named PRPs to conduct a Remedial Investigation and Feasibility Study ("RI/FS") to determine the extent of contamination at the site, and seeks recovery of investigative costs expended by the MDNR to date. No significant discovery has taken place with respect to this matter. On September 30, 1993, SC Holdings, Inc. signed an Administrative Order By Consent For Response Activity with MDNR. The remaining named PRPs (including the company) have been negotiating with SC Holdings, Inc. to arrive at terms for an acceptable Participation Agreement among the presently named PRPs.
The U.S. EPA has identified three past or present divisions of Kysor as de minimis PRPs at the Thermo Chem Superfund Site in Muskegon, Michigan. This proceeding is described in Part II, Item 1 of the Company's Form 10-Q Quarterly Report filed with the Commission on November 14, 1994. The Company recently agreed to participate with other PRPs to fund remedial activities at the site. Under that agreement, the Company will be responsible for approximately .83 percent of the costs incurred in connection with the remediation. The referenced percentage is subject to change as parties join or leave the group facilitating the cleanup. The anticipated cost associated with Kysor's liability has previously been accrued.
Other contingent liabilities include various legal actions, proceedings and claims which are pending or which may be instituted or asserted in the future against the Company. Litigation is subject to many uncertainties, the outcome of individual matters is not predictable with assurance and it is reasonably possible that some of these other legal actions, proceedings and claims could be decided unfavorable to the Company. Although the liability with regard to these matters at December 31, 1994 cannot be ascertained, it is the opinion of management, after conferring with counsel, that any liability resulting from these other matters should not materially affect the consolidated financial position of the Company and its subsidiaries at December 31, 1994.
Item 4.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
Item 5.

Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
As of December 31, 1994, Kysor Industrial Corporation had a total of 5,640,881 shares of Common Stock issued and outstanding and 1,294 shareholders of record. A large number of shares are held by brokerage firms and banks for the benefit of other shareholders in all 50 states of the United States and several foreign countries. In addition, the Corporation had 803,553 shares of Series A Convertible Voting Preferred Stock outstanding, all of which are owned by the Kysor Industrial Corporation Employee Stock Ownership Plan.
Kysor Industrial Corporation's Common Stock is traded on the New York Stock Exchange under the trading symbol KZ. A Quarterly summary of the high and low sales price of its Common Stock and dividends declared is as follows:
Item 6.

Item 6. SELECTED FINANCIAL DATA
KYSOR INDUSTRIAL CORPORATION AND SUBSIDIARIES (Dollars in Thousands except per share data) 1994 1993 OPERATING RESULTS Commercial Products Sales 164,606 151,158 Transportation Products Sales 147,907 121,449 Net Sales 312,513 272,607 Other Revenues 1,866 1,251 Total sales and revenues 314,379 273,858 Commercial Products Operating Profit 15,440 17,077 Transportation Products Operating Profit 20,138 14,283 Total Operating Profit 35,578 31,360 Interest Expense 1,961 2,162 Income Before Tax & Actg Change from Cont' Oper 21,725 18,008 Income (Loss) from Cont' Oper before Actg Change 13,275 10,098 Accounting Change / Discontinued Operations -7,628 Net Income (Loss) 13,275 2,470 Earnings (Loss) Applicable to Common Stock 12,295 1,487 _________ _________ ERNINGS (LOSS) PER COMMON SHARE AND DIVIDENDS Before Acccounting Change from Continuing Operations $2.12 $1.62 Net Earnings (Loss) 2.12 0.27 Dividends Declared 0.51 0.44 _________ _________ FINANCIAL INFORMATION Current Assets 107,986 93,210 Working Capital 51,312 45,062 Property, Plant and Equipment 42,913 42,823 Capital Expenditures 8,485 8,653 Depreciation & Amortization 8,979 7,654 Intangible Assets 4,616 2,806 Total Assets 177,540 156,455 Long-Term Debt 30,394 33,673 Retained Earnings 53,443 43,997 Shareholders' Equity 67,918 54,693 _________ _________ FINANCIAL RATIOS Current Ratio 1.9 1.9 Debt to Invested Capital 30.9% 38.1% Net Income Return on Beginning Equity 24.3% 4.7% Pretax Income Coverage of Interest and Preferred Divid 7.1 5.8 _________ _________ OTHER Price Range of Common Stock - High $22.375 $21.75 - Low $15.00 $14.50 Number of Shareholders 1,294 1,396 Net Outstanding Common Shares 5,640,881 5,467,840
				 KYSOR INDUSTRIAL CORPORATION AND SUBSIDIARIES (Dollars in Thousands except per share data) 1992 1991 OPERATING RESULTS Commercial Products Sales 156,243 127,452 Transportation Products Sales 105,931 96,191 Net Sales 262,174 223,643 Other Revenues 1,623 1,255 Total sales and revenues 263,797 224,898 Commercial Products Operating Profit 19,753 9,663 Transportation Products Operating Profit 9,163 4,751 Total Operating Profit 28,916 14,414 Interest Expense 2,595 3,748 Income Before Tax & Actg Change from Cont' Oper 16,027 -66 Income (Loss) from Cont' Oper before Actg Change 9,127 -726 Accounting Change / Discontinued Operations Net Income (Loss) 9,127 -726 Earnings (Loss) Applicable to Common Stock 8,077 -1,779 _________ _________ ERNINGS (LOSS) PER COMMON SHARE AND DIVIDENDS Before Acccounting Change from Continuing Operations $1.52 ($0.35) Net Earnings (Loss) 1.52 (0.35) Dividends Declared 0.40 0.55 _________ _________ FINANCIAL INFORMATION Current Assets 80,515 74,668 Working Capital 41,609 40,115 Property, Plant and Equipment 41,898 45,760 Capital Expenditures 3,919 4,956 Depreciation & Amortization 7,650 7,713 Intangible Assets 3,046 3,365 Total Assets 135,850 133,010 Long-Term Debt 36,521 45,540 Retained Earnings 44,908 38,914 Shareholders' Equity 52,905 44,572 _________ _________ FINANCIAL RATIOS Current Ratio 2.1 2.2 Debt to Invested Capital 40.8% 50.5% Net Income Return on Beginning Equity 20.5% -1.5% Pretax Income Coverage of Interest and Preferred Divid 4.8 1.0 _________ _________ OTHER Price Range of Common Stock - High $19.125 $12.75 - Low $6.875 $5.75 Number of Shareholders 1,429 1,432 Net Outstanding Common Shares 5,332,201 5,151,186
KYSOR INDUSTRIAL CORPORATION AND SUBSIDIARIES (Dollars in Thousands except per share data) OPERATING RESULTS Commercial Products Sales 123,241 Transportation Products Sales 108,410 Net Sales 231,651 Other Revenues 2,478 Total sales and revenues 234,129 Commercial Products Operating Profit 9,246 Transportation Products Operating Profit 10,091 Total Operating Profit 19,337 Interest Expense 3,586 Income Before Tax & Actg Change from Cont' Oper 8,664 Income (Loss) from Cont' Oper before Actg Change 5,064 Accounting Change / Discontinued Operations Net Income (Loss) 5,064 Earnings (Loss) Applicable to Common Stock 4,009 _________ ERNINGS (LOSS) PER COMMON SHARE AND DIVIDENDS Before Acccounting Change from Continuing Operations $0.72 Net Earnings (Loss) 0.72 Dividends Declared 0.60 _________ FINANCIAL INFORMATION Current Assets 87,564 Working Capital 50,504 Property, Plant and Equipment 49,322 Capital Expenditures 4,773 Depreciation & Amortization 7,080 Intangible Assets 3,668 Total Assets 148,070 Long-Term Debt 53,393 Retained Earnings 44,948 Shareholders' Equity 49,260 _________ FINANCIAL RATIOS Current Ratio 2.4 Debt to Invested Capital 52.0% Net Income Return on Beginning Equity 9.7% Pretax Income Coverage of Interest and Preferred Divid 2.7 _________ OTHER Price Range of Common Stock - High $12.875 - Low $6.750 Number of Shareholders 1,441 Net Outstanding Common Shares 5,264,094
Segment results for 1990 through 1993 have been restated to include the Kysor/Westran division in the Transportaion Products Group and to remove it from the Commercial Products Segment where it was previously reported.
This summary should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in Part II Item 8 of this report.
Item 7.

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Comparison of 1994 and 1993 Kysor Industrial Corporation's sales and revenues in 1994 were $314.4 million, up 14.8% from 1993. The Transportation Products Group sales increased 21.8% to $147.9 million. The increase relates primarily to additional unit sales volume associated with the record build year for North American Class-8 trucks and Kysor's increased market penetration. The Commercial Products Group sales increased 8.9% to $164.6 million. This group was positively impacted by the acquisition of Kalt Manufacturing Company, Inc. (renamed Kysor/Kalt) in February 1994. Without Kysor/Kalt, the Commercial Products Group's sales would have been down 7.7% as a result of a reduction in unit sales volume at the Kysor/Warren operations. The lower unit sales volume is attributable to a reduction in expansion plans of a major customer. The impact of this reduction is expected to decrease in future periods as additional volume from new customers is realized.
Total Company operating profits increased to $35.2 million, or 11.3% of sales in 1994, from $31.4 million, or 11.5% of sales, in 1993. The slight decline in income as a percentage of sales during 1994 resulted from a combination of factors. The most significant reason for the percentage reduction was the continued trimming of expansion plans by a major customer of the Commercial Products Group. The effects of this were offset by the acquisition of Kysor/Kalt and the record year experienced by the Transportation Products Group. Another factor which positively impacted income was the decline in selling and administrative expenses as a percentage of sales due to certain cost-containment programs and the relatively fixed nature of these costs.
Interest and other revenues increased to $1.9 million in 1994, up from $1.3 million in 1993 as a result of the increase in interest rates during 1994 and the sale of certain fixed assets. Interest expense was down $201,000 as a result of lower average debt outstanding during 1994.
The Company is presently involved in certain environmental proceedings with respect to soil and groundwater contamination in Cadillac, Michigan, as described in Note 10, Contingent Liabilities. In addition, as disclosed in Note 10, the Company is involved in various other legal proceedings including certain proceedings involving allegedly contaminated sites to which the Company has been named a potentially responsible party ("PRP") under the Federal Superfund law or comparable state laws. Although discovery in certain of these proceedings has not been completed, subject to the contingencies discussed in Note 10, management does not believe, based on the information presently available to it, that the ultimate aggregate cost to the Company of such proceedings would have a material adverse effect on its financial condition, results of operations, or liquidity.
Net income before the cumulative effect of the accounting change for Statement of Financial Accounting Standards #106 ("SFAS #106") was $13.3 million in 1994, up 31.5% from $10.1 million in 1993. Primary earnings per share increased to $2.12 in 1994 compared to $1.62 per share in 1993, before the effect of the accounting change for SFAS #106.
Comparison of 1993 and 1992 Kysor Industrial Corporation's 1993 total sales and revenues were $273.9 million, up 3.8 percent from 1992. Net income, before the accounting change for postretirement benefits, was $10.1 million compared to $9.1 million reported in 1992. Primary earnings per share before the accounting change was $1.62 in 1993 compared to $1.52 per share in 1992. Primary earnings per share after the accounting change was $.27 per share in 1993. Included in the 1993 results is a provision for environmental matters amounting to $.14 per share, which was described in greater detail in Note 11 of the 1993 Annual Report, while 1992 results include a provision for litigation equaling $.18 per share. The increase in 1993 profitability resulted primarily from increases in the Transportation Products Group where they benefited from the best Class-8 heavy-duty truck market since 1979 and the increased market penetration of Kysor's injection molded polymer engine fans.
In the first quarter of 1993, the Company adopted SFAS #106 which required employers to accrue the cost of postretirement benefits other than pensions during the working careers of active employees, instead of expensing the benefits when paid as allowed under prior rules. The cumulative effect of this change was to reduce net income by $7.6 million.
International Operations Kysor Industrial Corporation has two foreign manufacturing subsidiaries which were operational during 1994 Kysor/Warren Refrigeration GmbH, which is part of the Commercial Products Group, and Kysor/Europe, part of the Transportation Products Group.
Kysor/Warren Refrigeration GmbH, with manufacturing operations in Limburg, Germany, experienced an 8.2% decrease in sales and the losses continued. The decline in sales is primarily due to the selective elimination of unprofitable business through more aggressive pricing.
Kysor/Europe, serving the European commercial vehicle market with manufacturing operations located in Hengoed, South Wales, experienced a 45.6% increase in sales in 1994 compared to 1993. The increase in sales is due to improvement in the European truck and off-highway markets and to sales of polymer engine fans which Kysor/Europe began to manufacture in 1994. The improvement in sales, along with enhanced internal controls and cost-containment programs, allowed Kysor/Europe to report operating profit of $110,000 in 1994 compared to operating losses of $412,000 in 1993.
In the first quarter of 1995, Kysor/Asia Ltd. commenced operations. The subsidiary, located in Changwon, South Korea, will manufacture injection molded polymer engine fans for the Far East commercial vehicle market.
Liquidity and Capital Resources Net cash generated from operations was $13.9 million in 1994 compared to $27.6 million in 1993. Net working capital increased to $51.2 million at December 31, 1994 from $45.1 million at December 31, 1993. The reduction in cash provided by operations is due mainly to the changes in accounts receivable and inventory which increased 29.1% and 27.7%, respectively, from 1993 to 1994 as a result of the increase in sales volume. Inventory turns decreased from 1993 to 1994 due in large part to the increase in inventory necessary to meet backlog levels at the end of 1994, which were up 33.8% from record levels at year-end 1993.
Included in the reported assets of the Company are deferred income tax charges of $12.6 million. This asset represents the future tax effect of temporary differences between financial reporting and tax laws and regulations. The temporary differences are expected to reverse in future years resulting in the asset being realized. This is supported by the historical profitability of the Company which is expected to continue in the future.
The Company's debt to invested capital ratio decreased to 30.9% at December 31, 1994 from 38.1% at December 31, 1993. At December 31, 1994, the Company had current maturities of long-term debt amounting to $6.6 million. All temporary borrowings are executed under a $20 million, long-term, revolving credit facility of which none was utilized at December 31, 1994.
Corporate philosophy is that long-term debt, properly utilized, can contribute to the sustained long-term growth of the Company. In furtherance of this philosophy, the Company will use long-term debt to the point financial flexibility is preserved and undue financial risk is not incurred. The Company's long-term objective is to maintain debt at less than 40 percent of total capitalization.
Capital expenditures during 1994 were financed through internally generated funds. The Company's capital expenditures for the year were $8.5 million relating primarily to the replacement and improvement of manufacturing equipment. Depreciation and amortization were $9.0 million for 1994. Capital expenditures are expected to increase during 1995, while depreciation and amortization should remain at approximately the same levels.
The Company has paid uninterrupted dividends since 1936. Dividends paid in 1994 were $4.4 million compared to $3.9 million in 1993.
The Company believes, that subject to the contingencies described in Note 10, existing cash balances, anticipated cash flow from operations, available borrowings on the revolving line of credit, and other potential sources of borrowing are sufficient to meet its short- and long-term liquidity and capital resource needs.
ITEM 8.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders
Kysor Industrial Corporation
Cadillac, Michigan
We have audited the accompanying consolidated balance sheet of Kysor Industrial Corporation and Subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Kysor Industrial Corporation and Subsidiaries as of December 31, 1994 and 1993, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles.
As discussed in Note 7 to the consolidated financial statements, effective January 1, 1993, the Corporation changed its method of accounting for postretirement benefits other than pensions.
By s\COOPERS & LYBRAND L.L.P.
Coopers & Lybrand L.L.P.
Detroit, Michigan
February 13, 1995
The accompanying notes are an integral part of the financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation The consolidated financial statements include the accounts of Kysor Industrial Corporation and all of its subsidiaries ("Kysor" or "Company").
Foreign Currency Translation Translation adjustments have been accumulated as a separate component of Shareholders' Equity.
Cash and Equivalents Kysor considers all highly-liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.
Inventories Inventories are generally stated at the lower of FIFO (first in, first out) cost or market. Kysor has one subsidiary on LIFO (last in, first out), the inventory value of which was $896,000 and $828,000 lower than it would have been under FIFO at December 31, 1994 and 1993, respectively.
Property, Plant and Equipment and Depreciation Property, plant and equipment are stated at cost. Depreciation is computed by the straight-line method based on the estimated useful lives of the assets.
Buildings are depreciated over lives ranging from 10 to 40 years. Machinery, equipment, and office furniture are depreciated over lives ranging from 3 to 25 years.
When properties are retired, the cost of such properties, net of accumulated depreciation and any salvage proceeds, is reflected in income.
Goodwill Goodwill, resulting from the excess of cost over the net assets of purchased companies, is amortized on a straight-line basis over periods not exceeding 20 years.
Income Taxes In 1993, the Company adopted Statement of Financial Accounting Standards #109, "Accounting for Income Taxes," which requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse (see Note 9).
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Prior to 1993, the provision for income taxes was based on income and expenses included in the accompanying consolidated statements of operations. Differences between taxes so computed and taxes payable under applicable statutes and regulations were classified as deferred taxes arising from timing differences.
Financial Instruments The Company has cash, cash equivalents, and long-term debt which are considered financial instruments. The market values of these financial instruments, as determined through information obtained from banking sources and management estimates, approximate their carrying values.
Pension and Retirement Plans Annual provisions for pension and retirement plan costs recognize amortization of prior service costs over the expected service period of active employees. Accrued pension costs are funded annually to the extent deductible for federal income tax purposes.
In 1993, the Company adopted Financial Accounting Standards #106, "Employers' Accounting for Postretirement Benefits Other than Pensions" which requires the accrual of postretirement benefits such as health care and life insurance during the working careers of active employees instead of expensing the benefits when paid as allowed under prior rules (see Note 7).
Product Warranty Costs Anticipated costs related to product warranty are expensed in the period of sale.
Environmental Costs Environmental expenditures that relate to current or future revenues are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations, and do not contribute to current or future revenues, are expensed. Liabilities are recorded when environmental assessments and/or cleanups are probable and the costs can be reasonably estimated. Generally, the timing of these accruals coincides with Kysor's commitment to a formal plan of action.
Earnings Per Common Share Primary earnings per common share have been computed using the weighted average shares of Common Stock and dilutive Common Stock equivalents outstanding during the year. The Convertible Stock has been determined not to be a Common Stock equivalent. Fully diluted earnings per common share are calculated assuming the conversion of the Convertible Stock to Common Stock, as well as other dilutive assumptions.
NOTE 2. ACCRUED EXPENSES AND CONTINGENT LIABILITIES
Components of Accrued Expenses and Contingent Liabilities are as follows at December 31:
1994 1993
Workers' compensation/liability insurance $ 8,012 $ 6,430 Compensation 7,364 5,744 Litigation 3,527 2,900 Warranty 2,509 4,120 Other 6,419 6,505
Total Accrued Expenses and Contingent Liabilities $ 27,831 $ 25,699
NOTE 3. FINANCING
(amounts in thousands) Years ended December 31, 1994 1993
Long-Term Debt consists of the following:
Long-Term Debt Term note, $750 quarterly principal payments, $ 12,000 $ 15,000 beginning 1994, plus interest at 9.9%
Loan agreement for Kysor Industrial Corporation Employee Stock Ownership Plan, $1,250 semiannual principal payments beginning 1996, plus interest at 8.36% 20,000 20,000
Other, $3,248 principal payments due in 1995, plus interest at rates ranging from 5.0% to 8.0% 4,642 3,646
Loan Guarantee Loan guarantee for Kysor Industrial Corporation Employee Stock Ownership Plan, $174 semiannual principal payments, plus interest at 7.0% 349 697
36,991 39,343 Less current maturities 6,597 5,670
Total Long-Term Debt $ 30,394 $ 33,673
At December 31, 1994, the Company maintained revolving credit agreements with two banks which provide for borrowings up to $20 million. At December 31, 1994, there were no outstanding borrowings under this facility. Interest rates are fixed at the date of borrowing based on current LIBOR rates plus a spread of .50 percent. An annual commitment fee of .25 percent is paid on the unused balance. The Company has an interest rate swap under which the variable rate of interest on the $15 million term note is converted to a fixed rate of 9.4 percent plus a spread of .50 percent. The weighted average variable rate of interest received and paid is equal to the three-month LIBOR in effect at the fixing date and is reset quarterly. The term of the swap matches the maturity of the corresponding term note.
During the years ended December 31, 1994 and 1993, there was no short-term debt.
Aggregate maturities of obligations under long-term debt, during the next five years ended December 31, are as follows:
(amounts in thousands) 1995 1996 1997 1998 1999
Maturities of Long-Term Debt $6,597 $4,446 $5,696 $5,696 $2,597
Under the financing arrangements, Kysor is subject to certain restrictions relating, among other things, to the creation of indebtedness, the maintenance of minimum consolidated working capital, the payment of dividends and the purchase of Common Stock.
Interest paid was $2,105,000, $2,073,000, and $3,039,000 for the years ended December 31, 1994, 1993 and 1992, respectively.
NOTE 4. STOCK OPTION PLANS
As of December 31, 1994, Kysor administered its 1980 Nonqualified Stock Option Plan; 1983 Incentive Stock Option Plan; 1984 Stock Option Plan; 1987 Stock Option and Restricted Stock Plan; and 1993 Long-Term Incentive Plan. Options may be granted to officers, directors and key employees to purchase common shares of the Company's stock at a price equal to the mean market value of such stock at the date of the grant. All options granted prior to January 1, 1990 are currently exercisable. All options granted after January 1, 1990 vest at the rate of 20 percent at date of grant and 20 percent each year thereafter, except for the final 20 percent which vests only upon exercise and retention for one year of the entire vested 80 percent. at the date of grant, except for a nonqualified stock option for 100,000 shares granted to the Chairman of the Board on January 30, 1987, which vested at the rate of 20 percent per year through January 30, 1991. All options granted after January 1, 1990 vest at the rate of 20 percent at date of grant and 20 percent each year thereafter, except for the final 20 percent which vests only upon exercise and retention for one year of the entire vested 80 percent. Changes in options outstanding for the years ended December 31, 1993 and 1994 are as follows:
At December 31, 1994, 1,159,930 of the shares granted were exercisable. The price of options exercised in 1994 ranged from $15.50 to $21.875 per share for a total of $4,053,151. The price of options exercised in 1993 ranged from $15.50 to $20.4375 for a total market value of $2,591,225.
In 1989, optionees executed 4.5 percent nonrecourse installment purchase agreements of $2,090,793 with respect to 157,128 shares previously granted under the nonqualified plans. During 1991, three optionee participants relinquished their stock option loans in the amount of $589,383 and forfeited the attendant 41,150 common shares. Under the terms of the installment purchase agreements, the shares are pledged as collateral and the extension of credit is subject to Federal Reserve Bank Regulation G. Required annual payments are calculated using a 15-year amortization with a balloon payment due within the original life of the option being exercised. The participants have limited rights of principal deferral in cases of hardship. The Board of Directors, in January 1992, passed a resolution to permit participants to defer the 1992 principal payments to the end of the loan. Dividends paid, in respect to the shares, are received by the Company and first applied to accrued interest and then to principal.
NOTE 5. ACQUISITION
On February 4, 1994, Kysor acquired certain assets and assumed certain liabilities of Kalt Manufacturing Co., Inc. (Kalt). Kalt manufactures insulated panels and doors for the supermarket and convenience store industries and has manufacturing facilities in Portland, Oregon and Goodyear, Arizona.
The transaction was accounted for as a purchase and, accordingly, Kalt's results of operations have been included in the consolidated statement of income since the effective date of the acquisition. The excess of the purchase price over the estimated fair value of the net assets acquired is being amortized on a straight-line basis over 10 years. The acquisition did not have a material impact on the operations of the Company.
NOTE 6. PREFERRED STOCK
On February 24, 1989, Kysor sold 820,513 shares of newly issued 8 percent cumulative Series A Convertible Voting Preferred Stock, $24.375 stated value per share (the "Convertible Stock"), to the Kysor Industrial Corporation Employee Stock Ownership Plan (the "ESOP"). The Convertible Stock may be voluntarily converted at the option of the holder, unless previously redeemed, into shares of Kysor Industrial Corporation Common Stock (the "Common Stock") on a one-for-one basis, subject to certain antidilution adjustments, and will convert automatically into Common Stock (in certain instances subject to a conversion floor equal to liquidation value of $24.375 per share plus accrued and unpaid dividends) if transferred to a holder other than the ESOP or another Kysor Industrial Corporation employee benefit plan. The Convertible Stock is subject to redemption by the Company. Each share of Convertible Stock entitles its holder to one vote on all matters submitted for a vote of shareholders, again subject to possible antidilution adjustments. The Convertible Stock ranks senior to the Common Stock and is at least on a parity with any other series of Preferred Stock that may be subsequently issued.
Preferred Stock issued and outstanding was 803,553 and 810,163 shares at December 31, 1994 and 1993, respectively. Preferred shares allocated to ESOP participants were 35,463 for each of the years ended December 31, 1994 and 1993.
NOTE 7. PENSION AND RETIREMENT PLANS
Kysor has several noncontributory defined benefit pension plans and defined contribution plans covering substantially all of its domestic employees. The defined benefit plans provide benefits based on the participants' years of service and compensation or stated amounts for each year's service. The Company's funding policy is to make annual contributions as required by contract or applicable regulations.
The pension cost components were:
(amounts in thousands) Years Ended December 31, 1994 1993 1992
Defined Benefit Plans: Service cost benefits earned during period $2,176 $1,905 $1,497 Interest cost on projected benefit obligation3,758 3,388 3,024 Actual investment return on plan assets 1,461 (6,001) (3,434) Net amortization and deferral (4,871) 2,967 670
$2,524 $2,259 $1,757
Assumptions used in the accounting were:
Years Ended December 31, 1994 1993 1992
Discount rates 8.0% 8.0% 8.0% Rates of increase in compensation levels 4.9% 5.4% 5.3% Expected long-term rate of return on assets 8.0% 8.0% 8.0%
The following table sets forth the funded status and amounts recognized in the Company's statement of financial position for defined benefit plans:
NOTE 7. PENSION AND RETIREMENT PLANS (continued)
(amounts in thousands) Years Ended December 31, 1994 1993 Plans in Which Plans in Which Assets Accum. Assets Accum. Exceed Benefits Exceed Benefits Accum. Exceed Accum. Exceed Benefits Assets Benefits Assets
Actuarial present value of benefit obligations:
Vested benefit obligation $(32,865) $ (5,162) $(30,503) $ (3,239)
Accumulated benefit obligation $(35,134) $ (7,530) $(32,955) $ (5,804)
Projected benefit obligation $(40,598) $(10,211) $(38,434) $ (7,432)
Plan assets at fair market value 48,072 - 49,267 -
Projected benefit obligation (in excess of) or less than plan assets 7,474 (10,211) 10,833 (7,432) Unrecognized net (gain) or loss (2,539) 2,298 (6,782) 1,678 Prior service cost not yet recognized in net periodic pension cost 1,376 795 778 82 Unrecognized net (asset) obligation at January 1, (1,731) 645 (1,980) 779
Pension asset (liability) recognized in the statement of financial position $ 4,580 $(6,473) $ 2,849 $(4,893)
At both December 31, 1994 and 1993, 100 percent of plan assets was invested in publicly traded stocks, bonds, and money market investments.
In 1985, Kysor adopted a nonqualified, unfunded supplemental executive retirement plan for senior management. Kysor has purchased life insurance policies on the lives of participants and is the sole owner and beneficiary of such policies. The amount of coverage is designed to provide sufficient revenues to cover all costs of the plan if the assumptions made as to mortality experience, policy earnings, and other factors are realized. The Company is charging earnings with the present value of the future cost of the plan over the remaining working life of the participants.
In September 1985, Kysor established an Employee Stock Ownership Plan ("ESOP") and trust for its domestic salaried employees. The ESOP authorized the trust to borrow $3,487,000 from a bank in September 1985. The proceeds were used to purchase 357,668 shares of Common Stock at $9.75 per share, that being the mean market price on the New York Stock Exchange on August 22, 1985, the day preceding the date the transaction was agreed upon. The Company has guaranteed the loan and is obligated to contribute sufficient cash to the ESOP to enable it to repay the loan principal ($349,000 annually) plus interest.
In February 1989, Kysor expanded the ESOP with the sale to the ESOP of $20 million of newly issued Series A Convertible Voting Preferred Stock from the Company (see Note 6). The ESOP purchase of Preferred Stock was financed by a loan from the Company which issued a $20 million, 15-year ESOP note to raise the necessary funds. In 1994, 1993, and 1992, dividends on Preferred Stock of $1,578,000, $1,584,000, and $1,591,000 plus interest expense of $101,000, $88,000, and $81,000, respectively, were used to service the debt obligation related to the ESOP. The Company amortized $864,000 in 1994, 1993, and 1992, of unearned deferred compensation relating to the shares allocated for the year as a percentage of the total shares to be allocated.
Postretirement Health and Life Insurance Benefits
Kysor provides certain defined health care and life insurance benefits for retired employees. All salaried and certain hourly employees may become eligible for these benefits if they reach retirement age while working for the Company. Effective January 1, 1993, the Company adopted Statement of Accounting Standards #106, "Employers accounting for Postretirement Benefits other than Pensions" ("SFAS #106"). SFAS #106 requires the accrual method of accounting for postretirement health care and life insurance benefits. At January 1, 1993, the Company recognized the full amount of its estimated accumulated postretirement benefit obligation which resulted in a pretax charge to 1993 earnings for this transition obligation of $12,063,000 ($7,628,000 net of income tax benefit) or $1.35 per share. This amount has been reflected in the Consolidated Statement of Income as the cumulative effect of an accounting change.
The incremental cost in 1993 of accounting for postretirement health care and life insurance benefits under the new accounting method amounted to $564,000, less a deferred tax benefit of $212,000. Prior to 1993, the Company expensed claims for postretirement benefits on a pay-as-you-go method. Retiree benefit payments were $684,000, $788,000 and $862,000 in 1994, 1993, and 1992 respectively. The components of net postretirement periodic expense included the following:
(amounts in thousands) 1994 1993
Service cost - benefits earned during the year $ 317 $ 413 Interest cost on accumulated postretirement benefit obligation						 942 939
Net periodic benefit costs $ 1,259 $ 1,352
At December 31, 1994 and 1993, the actuarial and recorded liabilities for those postretirement benefits, none of which have been funded, were as follows:
(amounts in thousands) 1994 1993
Accumulated postretirement benefit obligation (APBO): Retirees $ 9,639 $ 10,191 Fully eligible active plan participants 1,316 1,146 Other active participants 1,707 1,429
Total APBO 12,662 12,766 Fair market value of plan assets - -
Accumulated postretirement benefit obligation in excess of plan assets 12,662 12,766 Unrecognized net (loss) 375 (138)
Accrued postretirement benefit liability at December 31 $ 13,037 $ 12,628 Assumptions used in accounting were: Discount rate at December 31 8.0 8.0 Present health care trend rate (decreasing uniformly to the year 2005) . Under age 65 9.3 10.0 . Age 65 and older 7.6 8.0 Ultimate trend rate in 2005 5.5 5.5
A one percent increase each year in the health care cost trend rate used would have resulted in a 10.5 percent increase in the aggregate service and interest components of expense for the year ended December 31, 1994, and a 10.1 percent increase in the accumulated postretirement benefit obligation at December 31, 1994.
The Company has a continuing deferred compensation arrangement with Raymond A. Weigel, former chairman, which provides for annual payments of $350,000.
NOTE 8. LEASE COMMITMENTS
Kysor leases some real estate and equipment. In most cases, management expects that in the normal course of business these leases will be renewed and replaced by other leases. Kysor has future minimum rental payments required through 1999 under operating leases that have initial or remaining noncancelable lease terms in excess of one year in the following amounts:
(amounts in thousands) Years Ended December 31,
1995 1996 1997 1998 1999
Future minimum rental payments $999 $842 $784 $594 $550
In addition to fixed rentals, certain of these leases requires Kysor to pay maintenance, property taxes, and insurance.
Rental expense charged to operations is as follows:
(amounts in thousands) Years Ended December 31,
1994 1993 1992
Minimum rentals $2,254 $1,829 $1,909 Contingent rentals 87 53 30
Total $2,341 $1,882 $1,939
NOTE 9. INCOME TAXES
The Company adopted Statement of Financial Accounting Standards #109, "Accounting for Income Taxes" ("SFAS #109"), as of January 1, 1993. The cumulative effect of this change in accounting principle was immaterial. Prior years' financial statements have not been restated to apply the provisions of SFAS #109. The adoption of SFAS #109 changes the Company's method of accounting for income taxes from the deferred method using Accounting Principles Board Opinion #11 ("APB #11") to an asset and liability approach.
The provision (credit) for income tax consists of the following:
(amounts in thousands) Years Ended December 31, 1994 1993 1992
Currently payable Federal $ 8,973 $ 7,733 $ 7,318 State and local 1,263 1,022 800 Foreign 102 55 28
Total currently payable 10,338 8,810 8,146
Deferred Federal (2,013) (790) (1,076) State and local (275) (110) (170) Foreign - - -
Total deferred (2,288) (900) (1,246)
Total provision $ 8,050 $ 7,910 $ 6,900
Deferred income taxes, on a SFAS #109 basis, reflect the estimated future tax effect of temporary differences between the amount of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws and regulations.
The components of deferred income tax assets and liabilities are as follows:
(amounts in thousands) Years Ended December 31, 1994 1993
Gross Deferred Tax Assets: Postretirement health care $ 4,944 $ 4,644 Employee benefit plans 4,273 3,147 Workers' compensation/liability insurance 3,039 2,377 Environmental costs 981 481 Warranty 926 1,100 Service contract 876 896 Bad debts 680 482 Slow-moving inventory 633 704 Vacation pay 574 453 Litigation 357 1,072 Other 851 297
Deferred Tax Assets 18,134 15,653
Gross Deferred Tax Liabilities: Depreciation 3,243 3,693 Pension 1,737 1,053 LIFO reserve at acquisition 548 535 Other 21 75
Deferred Tax Liabilities 5,549 5,356
Net Deferred Income Tax Asset $ 12,585 $ 10,297
Deferred income taxes for 1992 were derived using guidelines in APB #11. Under APB #11 deferred income taxes result from timing differences in the recognition of revenues and expenses between financial statements and tax returns. The sources of these differences and the related effect of each on the Company's provision for income taxes as of December 31, 1992 were as follows:
(amounts in thousands)
Slow-moving inventory $ (496) Workers' compensation/liability insurance (433) Depreciation (395) Warranty (360) Litigation 407 Other 31
Total $ (1,246)
Major differences between the income taxes computed using the United States statutory tax rate and the actual income tax expense were as follows:
(amounts in thousands) Years Ended December 31, 1994 1993 1992
Federal income taxes at statutory rate $ 7,464 $ 6,303 $ 5,449 Net nondeductible losses related to foreign subsidiaries and other foreign expenses 344 1,071 981 State and local income taxes (net of federal benefit) 642 593 472 Life insurance (172) (165) (169) Other (228) 108 167
Provision for Income Taxes $ 8,050 $ 7,910 $ 6,900
Income taxes paid were $10,261,000, $7,427,000, and $6,245,000 for the years ended December 31, 1994, 1993 and 1992, respectively. Income tax refunds were $66,000 in 1994, $71,000 in 1993, and $283,000 in 1992. Domestic operations contributed a profit of $23,321,000, $20,713,000, and $18,261,000 to income before income taxes and before cumulative effect of accounting change for 1994, 1993 and 1992, respectively. Foreign operations sustained a loss of $1,996,000, $2,704,000, and $2,234,000 for the same periods. Income tax benefits of $771,000, $473,000, and $560,000 have been credited to shareholders' equity for the years ended December 31, 1994, 1993, and 1992, respectively, for deemed compensation deductions attributable to stock options. Income tax benefits of $598,000, $601,000, and $541,000 for preferred stock dividends related to the Company's ESOP have been credited to shareholders' equity in 1994, 1993, and 1992, respectively.
NOTE 10. CONTINGENT LIABILITIES
As previously reported, the Company has been involved in ongoing proceedings relating to soil and groundwater contamination at the Cadillac Industrial Park in Cadillac, Michigan (the "Site").
The Company has completed soil and groundwater remedial design work for the Site (undertaken pursuant to a unilateral administrative order issued by the U.S. EPA in 1990) through the 95% completion state, and U.S. EPA has approved that work. The design work is expected to be completed in March 1995. In January 1995, U.S. EPA issued to the Company and other potentially responsible parties ("PRPs") an additional unilateral administrative order (also under CERCLA 106) requiring the parties to perform the soil and groundwater cleanup contemplated by the Company's design work. The Company presently intends to facilitate a cleanup through a joint effort involving a Local Development Finance Authority established by the City of Cadillac ("LDFA") and other PRPs. In that regard, the referenced LDFA recently sold nonrecourse bonds totaling $7 million to pay the anticipated capital costs of constructing an areawide environmental cleanup facility as required by the pending administrative order. A portion of these bond proceeds were used to reimburse the Company for previously incurred design costs relating to the Site. These bonds are to be paid by future property taxes on a cogeneration plant presently operating in the area, in which both the Company and the City of Cadillac are limited partners.
While it is clear that the Company is responsible for the soil contamination at its location and shares a portion of the responsibility for the groundwater contamination, it is presently impossible to provide a precise estimate of the Company's actual liability. The Company believes that the bond proceeds received by the LDFA will be adequate to cover the capital costs of the soil and groundwater areawide cleanup facility. In the event the LDFA funds are inadequate to pay the required capital costs, Kysor and the other PRPs would be responsible for the additional costs pursuant to the pending administrative order. It is anticipated that operating and maintenance costs of the cleanup facility will be shared primarily by the PRPs, including Kysor, as well as other parties within the Cadillac Industrial Park pursuant to a special assessment district proposed by the City of Cadillac. The extent of any assessment to Kysor cannot be determined at the present time. The Company continues to believe that the initial cleanup cost estimate of the U.S. EPA (approximately $15 million) is overstated. The Company also intends to reserve its right to seek mixed funding for certain costs related to the cleanup, and will continue to pursue insurance coverage for any costs it may incur at the Site. There still has been no determination as to the availability or extent of such funding or insurance coverage.
In December 1994, the Company also resolved its legal proceedings with the State of Michigan concerning the State's efforts to recover past response costs, penalties, and natural resource damages concerning the Site. The settlement was within reserves previously established by the Company. The settlement did not affect the State's request for a declaratory judgment that the Company be held jointly and severally liable for cleanup of the Site, and allows the State, upon the occurrence of certain future contingencies, to pursue additional claims for natural resource damages.
Other contingent liabilities include various legal actions, proceedings and claims which are pending or which may be instituted or asserted in the future against the Company. Litigation is subject to many uncertainties, the outcome of individual matters is not predictable with assurance and it is reasonably possible that some of these other legal actions, proceedings and claims could be decided unfavorable to the Company. Although the liability with regard to these matters at December 31, 1994 cannot be ascertained, it is the opinion of management, after conferring with counsel, that any liability resulting from these other matters should not materially affect the consolidated financial position, results of operation, or liquidity of the Company and its subsidiaries at December 31, 1994.
NOTE 11. SEGMENT INFORMATION
Kysor Industrial Corporation's operations include two segments: commercial products and transportation products. Operations in the commercial products segment design, manufacture and market refrigerated display cases, energy control systems, refrigerated building systems, and heating and air-conditioning systems. Operations in the transportation products segment design, manufacture and market engine-performance systems, engine-protection systems, and components and accessories for heavy-duty trucks, other commercial vehicles and marine equipment.
Segment results for 1993 and 1992 have been restated to include the Kysor/Westran division in the Transportation Products Group and to remove it from the Commercial Products Group were it was previously reported. Additionally, year ended 1994 segment information for the Commercial Products Group includes the results of Kysor/Kalt since the date of acquisition. The commercial products segment generated $29.0 million and $48.4 million of sales and revenues from one customer in the years ended December 31, 1993 and 1992, respectively. The transportation products segment generated $32.1 million and $27.3 million of sales and revenues from one customer in the year ended December 31, 1994 and 1993, respectively. Segment information for the years ended December 31, 1994, 1993, and 1992 is furnished on the following page and is incorporated herein by reference.
Item 9.

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable
PART III
Item 10.



Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information under the captions "Directors and Executive Officers" and "Section 16(a) Reporting Delinquencies" in the Company's definitive Proxy Statement for its April 28, 1995 Annual Meeting of Shareholders is here incorporated by reference.
Item 11.

Item 11. EXECUTIVE COMPENSATION.
The information under the captions "Summary Compensation Table", "Retirement Plans", "Stock Option Plans", "Long-Term Incentive Compensation", "Management Transactions, Termination of Employment and Change in Control Arrangements", "Director Compensation", and "Compensation Committee Interlocks and Insider Participation" in the Company's definitive Proxy Statement for its April 28, 1995 Annual Meeting of Shareholders is here incorporated by reference.
Item 12.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information under the caption "Voting Securities" in the Company's definitive Proxy Statement for its April 28, 1995 Annual Meeting of Shareholders is here incorporated by reference.
Item 13.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information under the captions "Indebtedness of Management", and "Compensation Committee Interlocks and Insider Participation", in the Company's definitive Proxy Statement for its April 28, 1995 Annual Meeting of Shareholders is here incorporated by reference.
PART IV
Item 14.

Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
The following financial statements are filed as part of this report: Consolidated Balance Sheet for 1994 and 1993, Consolidated Income Statement for 1994, 1993 and 1992, Consolidated Statement of Cash Flows for 1994, 1993 and 1992, Consolidated Statement of Shareholders' Equity for 1994, 1993 and 1992. Audit Report and Notes to the Consolidated Financial Statements. In addition the financial statements of the Kysor Industrial Corporation Employee Stock Ownership Plan for the years ended 1994, 1993 and 1992 are filed as part of this report.
Individual financial statements of the individual operating subsidiaries are omitted because the Company is primarily an operating Company and the subsidiaries included in the consolidated financial statements are wholly owned subsidiaries and are not indebted to any person other than the Parent or the consolidated subsidiaries in amounts exceeding five percent (5%) of the total assets as shown by the Consolidated Balance Sheet at December 31, 1994.
	 1. The following financial statement schedule is filed as a part 	 	of this report: 		 		VIII. Valuation and Qualifying Accounts and Reserves 		 		Schedules other than that listed above are omitted because 		they are not required, not applicable, or the information is 		disclosed elsewhere in the financial statements.
2. The following exhibits are filed as part of this report:
NUMBER	EXHIBIT							LOCATION
3(a)	 Restated Articles of Incorporation			 (8)
(b)	 Restated Bylaws					 (15)
(c)	 Certificate of Designations, Rights and		 (11) 	 Preferences - Series A Convertible Voting 	 Preferred Stock
4(a)	 Rights Agreement dated as of April 28,			 (5) 	 1986 between Kysor Industrial Corporation 	 and NBD Bank, N.A.
(b)	 Appointment of State Street Bank as successor		 (1) 	 Rights agent as of June 1, 1994.
(c)	 Revolving Credit Agreements between Kysor		 (12) 	 Industrial Corporation and NBD Bank, 	 N.A., and Old Kent Bank and Trust Company
(d)	 Amendment dated January 1994 to the			 (15) 	 Revolving Credit Agreements between NBD 	 Bank, N.A., and Old Kent Bank and Trust 	 Company
(e)	 Term Note Agreement with NBD Bank, N.A.		 (8) 	 dated as of October 4, 1988
(f)	 Note Agreement between Kysor Industrial		 (8) 	 Corporation and Massachusetts Mutual Life 	 Insurance Company dated February 24, 1989
(g)	 Loan Agreement between Kysor Industrial		 (3) 	 Corporation Employee Stock Ownership Plan 	 and NBD Bank, N.A. and Related Guaranty 	 and Note Purchase Agreement
(h)	 The Company has outstanding several 	 classes of long-term debt instruments. 	 None of these classes of debt is 	 registered under the Securities Act of 	 1933. None of these classes of debt 	 outstanding at the date of this report 	 exceeds 10% of the Company's total 	 consolidated assets except for the 	 previously disclosed item included as 	 exhibit 4(d) and 4(f). The Company 	 agrees to furnish copies of the 	 agreements defining the rights of holders 	 of such long-term indebtedness to the 	 Securities and Exchange Commission upon 	 request
The following management contracts of compensatory plans or arrangements are included in the exhibits filed as part of this report:
10(a)	 Stock Option and Stock Appreciation			 (2) 	 Rights Plan of 1980
(b)	 Kysor Industrial Corporation amended 1983		 (6) 	 Incentive Stock Option Plan
(c)	 Kysor Industrial Corporation amended 1984		 (6) 	 Stock Option Plan
(d)	 Kysor Industrial Corporation 1987 Stock		 (4) 	 Option Plan
(e)	 Kysor Industrial Corporation 1993 			 (14) 	 Long-Term Incentive Plan
(f)	 Form of Termination Agreements with			 (3) 	 corporate officers David W. Crooks, 	 Thomas P. Forrestal, Jr., Timothy J. 	 Campbell, Timothy D. Peterson, Peter W. 	 Gravelle, Richard G. De Boer, Ellen E. 	 Hovey, Mary C. Janik, Robert L. Joseph, 	 Terry M. Murphy
(g)	 Employment Contract with corporate			 (4) 	 officer George R. Kempton
(h)	 Service Contract with Raymond A. Weigel		 (3)
(i)	 Form of Supplemental Executive Retirement		 (3) 	 Plan with George R. Kempton, Peter W. 	 Gravelle, Timothy J. Campbell, Thomas P. 	 Forrestal, Jr., David W. Crooks, Timothy 	 D. Peterson, Logan F. Wernz, Wilbert J. 	 Venema, John B. Stevenson, William G. 	 Cobb
(j)	 Amendment dated as of August 15, 1989 to		 (9) 	 Supplemental Executive Retirement Plan 	 dated July 10, 1985
(k)	 Amendment dated as of January 31, 1990 to		 (9) 	 Supplemental Executive Retirement Plan 	 dated July 10, 1985
(l)	 Kysor Industrial Corporation S.E.R.P.			 (9) 	 Irrevocable Trust
(m)	 Form of Indemnity Agreement with			 (6) 	 directors and corporate officers; Stephen 	 I. D'Agostino, William E. Callahan, 	 Timothy J. Campbell, Paul K. Gaston, 	 Grant C. Gentry, Peter W. Gravelle, 	 George R. Kempton, Philip LeBoutillier, 	 Jr., Robert W. Navarre, Robert J. 	 Ratliff, Frederick W. Schwier, John D. 	 Selby, Raymond A. Weigel, David W. 	 Crooks, Terry M. Murphy, Timothy D. 	 Peterson, Richard G. De Boer, Ellen E. 	 Hovey, Mary C. Janik, Robert L. Joseph
(n)	 Kysor Industrial Corporation Pension Plan		 (9) 	 for Directors dated January 1, 1985, 	 amended January, 1989
(o)	 Amendment dated as of July 28, 1989 to			 (8) 	 Kysor Industrial Corporation Pension Plan 	 for Directors dated January 1, 1985
(p)	 Directors Pension Plan Trust				 (9)
(q)	 Kysor Industrial Corporation Corporate			 (12) 	 Management Variable Compensation Program
(r)	 Form of Nonrecourse Promissory Note and		 (12) 	 Pledge Agreement - Stock Option Loan 	 Program; George R. Kempton, Philip 	 LeBoutillier, Jr., Paul K. Gaston
The Following are Other Material Contracts Included in the Exhibits Filed as Part of this Report:
(s)	 AFP Divestiture Agreements				 (10)
(t)	 Beaver Michigan Associates Limited			 (12) 	 Partnership Agreement
(u)	 Development Agreement between Beaver			 (12) 	 Michigan Associates Limited Partnership, 	 The City of Cadillac and the Local 	 Development Finance Authority of the City 	 of Cadillac
(v)	 Kysor Industrial Corporation Employee			 (15) 	 Stock Ownership Plan Amended and Restated 	 effective January 1, 1989
(w)	 Employee Stock Ownership Trust between			 (15) 	 Kysor Industrial Corporation and Old Kent 	 Bank and Trust Co. dated January 1, 1989
(x)	 Note Agreement between Employee Stock			 (7) 	 Ownership Plan and Kysor Industrial 	 Corporation
11 	Computation of Consolidated Earnings Per Share		 (1)
21	 Subsidiaries of the Registrant				 (1)
23	 Consent of Independent Accountants			 (1)
24	 Power of Attorney					 (1)
27	 Financial Data Schedule				 (1)
99	 Report of Coopers & Lybrand, Certified			 (1) 	 Public Accountants, on Examination of 	 Financial Statements and Supplemental 	 Schedule of Reportable Transactions and 	 financial statements of the Kysor Industrial 	 Corporation Employee Stock Ownership Plan
Notes
(1) Filed as a new exhibit to this report.
(2) This exhibit was previously filed as an exhibit to the Registrant's Form 10-K Annual Report for its fiscal year ended December 31, 1981, and is here incorporated by reference.
(3) This exhibit was previously filed as an exhibit to the Registrant's Form 10-K Annual Report for its fiscal year ended December 31, 1985, and is here incorporated by reference.
(4) This exhibit was previously filed as an exhibit to the Registrant's Form 10-K Annual Report for its fiscal year ended December 31, 1986, and is here incorporated by reference.
(5) This exhibit was previously filed as an exhibit to the Registrant's Form 8-K Current Report dated May 1, 1986, and is here incorporated by reference.
(6) This exhibit was previously filed as an exhibit to the Registrant's Form 10-K Annual Report for its fiscal year ended December 31, 1987, and is here incorporated by reference.
(7) This exhibit was filed as an exhibit to the Registrant's Form 8-K Current Report dated March 1, 1989, and is here incorporated by reference.
(8) This exhibit was previously filed as an exhibit to the Registrant's Form 10-K Annual Report for its fiscal year ended December 31, 1988, and is here incorporated by reference.
(9) This exhibit was previously filed as an exhibit to the Registrant's Form 10-K Annual Report for its fiscal year ended December 31, 1989, and is here incorporated by reference.
(10) This exhibit was previously filed as an exhibit to the Registrant's Form 10-K Annual Report for its fiscal year ended December 31, 1990, and is here incorporated by reference.
(11) This exhibit was filed as an exhibit to the Registrant's Form 8-K Current Report dated February 28, 1989, and is here incorporated by reference.
(12) This exhibit was previously filed as an exhibit to the Registrant's Form 10-K Annual Report for its fiscal year ended December 31, 1991, and is here incorporated by reference.
(13) This exhibit was previously filed as an exhibit to the Registrant's Form 10-K Annual Report for its fiscal year ended December 31, 1992, and is here incorporated by reference.
(14) This exhibit was previously filed as an exhibit to the Registrant's Proxy Statement for its fiscal year ended December 31, 1992 and is here incorporated by reference.
(15) This exhibit was previously filed as an exhibit to the Registrant's Form 10-K Annual Report for its fiscal year ended December 31, 1993, and is here incorporated by reference.
The Company will furnish a copy of any exhibit listed above to any shareholder of the Company without charge upon written request to Investor Relations, Kysor Industrial Corporation, One Madison Avenue, Cadillac, Michigan 49601-9785.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
KYSOR INDUSTRIAL CORPORATION
By /s/ Terry M. Murphy
Terry M. Murphy Vice President, Chief Financial Officer
Date: March 2, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
/s/ Raymond A. Weigel * /s/ George R. Kempton * Raymond A. Weigel, Chairman George R. Kempton, Chairman of Emeritus, Director the Board, Chief Executive Officer, 				 Director (Principal Executive Officer)
Date: March 2, 1995 Date: March 2, 1995
/s/ Peter W. Gravelle * /s/ Robert L. Joseph * Peter W. Gravelle, President Robert L. Joseph, Comptroller and Chief Operating Officer (Principal Accounting Officer)
Date: March 2, 1995 Date: March 2, 1995
/s/ William E. Callahan * /s/ Robert J. Ratliff * William E. Callahan, Director Robert J. Ratliff, Director
Date: March 2, 1995 Date: March 2, 1995
/s/ Paul K. Gaston * /s/ Grant C. Gentry * Paul K. Gaston, Director Grant C. Gentry, Director
Date: March 2, 1995 Date: March 2, 1995
/s/ Philip LeBoutillier, Jr. * /s/ Timothy J. Campbell * Philip LeBoutillier, Jr., Timothy J. Campbell, Group Director Vice President, Director
Date: March 2, 1995 Date: March 2, 1995
/s/ Frederick W. Schwier * /s/ John D. Selby * Frederick W. Schwier, Director John D. Selby, Director
Date: March 2, 1995 Date: March 2, 1995
/s/ Robert W. Navarre* /s/ Stephen I. D'Agostino* Robert W. Navarre, Director Stephen I. D'Agostino
Date: March 2, 1995 Date: March 2, 1995
*By /s/ Terry M. Murphy Terry M. Murphy Attorney-in-fact
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES
Kysor Industrial Corporation Cadillac, Michigan
Our report on the consolidated financial statements of Kysor Industrial Corporation and Subsidiaries is included in Item 8 of this Form 10-K. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed in Item 14(a)1 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein.
By s\COOPERS & LYBRAND L.L.P.
Coopers & Lybrand L.L.P.
Detroit, Michigan
February 13, 1995