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I

BOARD OF DIRECTORS Louis G. Bissell, Chairman E. D. Bransome

Clarkson Potter

George E. Clark

Walter E. Reid

John N. Marshall

C. T. Ruhf

William S. Newell

J. E. Savacool

TRANSFER AGENT OF STOCK Guaranty Trust Company of New York, New York City

R E G I S T R A R O F STOCK Bankers Trust Company, New York City

OFFICERS .

President

J. E. Savacool, .

.

Vice President-Comptroller

A. N. Morton, .

.

Vice President-Operations

.

Vice President-Sales Manager

W. M. Walworth, .

Vice President-Chief Engineer

C. W. Haseltine,

.

Vice President-Secretary-Treasurer

T. V. Homan, .

.

Assistant Secretary-Assistant Treasurer

F. W. Sommer,

.

Assistant Secretary-Assistant Treasurer

F. R. Harrison,

.

Ass& tan t Secretary

C.

A.

T.

C.

Ruhf,

Fetzer,

.

.

W . H. S c h n e i d e r , s

Assistant Con@ troller

H. S. Conklin, .

.

Auditor

.

Branch Auditor

A.

W.

Rice,

.

The Annual Meeting of Stockholders will be held on April 23, 1947. The management will solicit proxies for this meeting and proxy material will be mailed to stockholders about March 17, 1947.

TO THE STOCKHOLDERS OF MACK TRUCKS, INC.

Enclosed herewith is Consolidated Balance Sheet at December 31st, 1946 and Statement of Consolidated Operations for the year ended December 31st, 1946 of our Corporation and its subsidiary companies, certified by Arthur Young & Company. Net Sales for 1946 amounted to $36,714,696 as compared with $122,207,974 for the year 1945, a decrease of $85,493,278 due principally to the strike which occurred during the year and suspended all production for a period of six months. The operations for the year 1946 show a loss of $882,194 after providing for an estimated refund of Federal Income and Excess Profits Taxes under carry-back provisions of the Internal Revenue Code amounting to $7,500,000. This compares with a net income after taxes for the year 1945 amounting to $2,775,559. Dividends aggregating $2.00 per share were paid during 1946 as compared with $3.00 per share paid during 1945. Renegotiation proceedings for the year 1945 have been concluded and no refund of excessive profits was found to be due. Termination claims in respect of war contracts were virtually concluded at December 31, 1946; only $91,650 in such claims remained outstanding at that time. No losses were suffered as a result of the termination of war contracts. Since 1942 we have been carrying a reserve of $200,000 for possible losses on installments receivable. At December 31st this reserve was deemed excessive because the aggregate of such receivables had been reduced to approximately $800,000. Accordingly, $150,000 of such reserve has been restored to surplus. With the lifting of wartime security regulations a more comprehensive report can now be given on Mack’s war production. We are proud to report that as the leading peacetime manufacturer of heavy automotive equipment Mack was given the largest and most difficult assignments in the military heavy truck program, and was assigned other critical war production and engineering tasks. More than 32,000 heavy military trucks were produced by Mack for the United States, British, French and Canadian Governments. Mack had not only the distinction of being the largest producer of military trucks in the 6 ton and over category, but was also the largest manufacturer of trucks powered with Diesel engines ; and was by far the largest producer in this field, that supplied engines and other principal components of its own design and manufacture. Over 50% of the military trucks produced in this country in the category of 6 tons and larger were built by Mack; the remainder were distributed among 16 other truck manufacturers. Mack was called upon to produce the first M-3 tank transmissions. It made two pilot transmissions within a period of 60 days, a signal achievement, and produced altogether a total of 4,937 transmissions. The production methods and testing equipment developed by Mack were used by the Army as a pattern for setting up other manufacturers. Mack also manufactured gun mounts, aircraft parts, fire apparatus, aircraft crash trucks. tank transporters, and special type vehicles and spare parts.

Mack vehicles were almost completely designed by Mack engineers, in contrast with the assembled character of the heavy trucks produced by most other manufacturers. Among other Mack engineering developments were half and three-quarter track vehicles, a heavy tank transporter, and a 240 m.m. gun mount for the Army, and a special large welded Diesel engine for the Navy. In recognition of its “high achievement in the production of materials for war” Mack was awarded the Army-Navy “E” pennant in 1942, followed by three successive renewal “star” awards in 1943, 1944 and 1945. It is believed that no other company of comparable size contributed as much to the development and production of critical automotive war materiel, and all concerned with Mack can take justifiable pride in this accomplishment. Mack, in common with many other large employers, has been served with complaints in actions brought under the Fair Labor Standards Act for so called “Portal to Portal” pay. Three actions were begun in the U. S. District Court for the District of New Jersey on January 24, 1947 and one in the same court on February 5, 1947. In the absence of a final determination by the Courts of what constitutes trifling periods of walking or make ready time, your Officers are unable to estimate what liability, if any, may result from the prosecution of these actions. The reconversion of our plants was practically accomplished at the year’s end, and our Allentown bus assembly plant is in full operation. A new light truck assembly line has been placed in operation at the Allentown bus assembly plant and the heavy truck assembly line has also been enlarged and rearranged for greater production volume. During the year a number of assembly and machine operations were realigned and arranged for greater efficiency. The policy of replacement of obsolete machinery by more modern and more productive units continues and during 1946 the sum of $455,799 was expended for that purpose. The problems of material handling also received considerable study and good progress has been made in the direction of more efficient and more expeditious handling of materials. By reason of the strike, production in 1946 was seriously curtailed. Full scale operations have been resumed, and, depending on the ability of our suppliers to make deliveries and stabilized labor conditions, production for 1947 should show a sharp increase. At the end of 1946 unfilled orders aggregated $117,OOO,OOO. Control of prices was lifted at the close of the year and because of increased costs price increases have been effected. At the end of 1946 there were 10,733 employees on the payroll and of this number over 8,500 are covered in the Company’s Insurance and Hospitalization Plans. In addition, over 1,000 employees are members of the Mack Annuity and Pension Plan which was instituted in 1940. To our officers, managers and many of our employees, we express again our appreciation of the work they have accomplished and the contributions they have made to the activities of the Corporation during a particularly difficult year. By order of the Board of Directors. LOUIS G. BISSELL Chairman of the Board

New York, N. Y. March 14, 1947

C. T. RUHF President

Mack Trucks, I&., CONSOLIDATED BALANCE SbE:

A S S E T S CURRENT ASSETS : Cash in banks and on hand __---__-.-_._______.__________

- --.___-__-___-_..__.__I_________________--

_ ___.______

Dominion of Canada Victory Bonds- at cost (approximately market) ___________. Accounts receivable (less reserve $134,985) ________________.___---------------..---------.--------

$ 5,458,233 235,000

, 1’ b

3,086,768

Installments receivable (less reserve $50,000) (Note A) _________._____.__________I _ ______

745,748

Inventories ( Note B ) ______________________ _ _.___._______.______---.---.---------------------------------------- ___

35,137,748

Estimated recovery of Federal income taxes through carry-back-.-,$ 7,500,OOO Less : Fourth installment of 1945 taxes applied thereto -----------.-___--_.

1,821,501

5,678,499

Total Current Assets (Note C) __.__._____-____________________________---------.---.---.--. $50,341,996

SUNDRY INVESTMENTS-at cost or nominal value (less reserve $18,940)......

193,225

FIXED ASSETS-AT COST (Note D) : Real estate ______ ____ ________._.__ ____ _.___ _.____ ___.______ __ ___________________________ _ _____ ___ _.____.. $ 1,65fj,91fj Buildings and building equipment ____ _ ._______.__________ .$14,480,681 Machinery and all other equipment ____ _________________ ___ 19,875,050 $34,355,731 Less : Reserve for depreciation .._._.._.___.__.._._.----.--.--- 24,176,997

10,178,734 1 1 8 3 5 , 6 5 0

DEFERRED CHARGES (prepaid taxes, insurance premiums, etc.) ._________________

486,546

$62857,417

See notes to haMi

‘c., and Subsidiaries

I6

HEET AT DECEMBER 31, 1946

/

LIABILITIES AND CAPITAL CURRENT LIABILITIES : Notes payable to banks __.___ __._ ____._. ________ _____________ _ _______ _.._ __._._________.___ _ __._ __ ___._ ____ ____ _.__

$ 5,000,000

Accounts payable ________._._._____._ _ _______ _ __.. _ ___ _____ _ ____ _ _____.. ___ ______._. __ __._ _______ _________ _ _._____ _____

6,956,086

Accrued accounts (taxes, except Federal income taxes, wages, commissions, insurance premiums, etc.) _____ _ _-._.___ ________ ______.___ _ _______________-_______

3,763,718

Customers’ deposits __.---_______._--___------.---------------------------------~.----~~~~.~--~-~~~..-~~~~~~~.~~~~.~~~

1,381,726

Provision for Federal income and excess profits taxes (prior years) (Note E ) Total Current Liabilities _____ - _ -.---_-----------_--~-~---~.-------------*~------------~~----------

964,233 $18,065.763

k _____ _____

2,962,165

MINORITY I N T E R E S T S __ ___.._......._. _.._ _________ ___ _.___.. _ ___._.__...__...._____.. _ ..___________.___._______ _

2,300

RESERVE FOR POSTWAR ADJUSTMENTS (Note F) .-____ ________._________

CAPITAL STOCK : Shares Common, no par value: Authorized

817,973

Outstanding

597,335 Stated at $5 per share _______.__._ _ ____ _ .__..____ ____

2,986,675

SURPLUS : Capital surplus paid-in (unchanged during year) ______.___- _ .____.________ $25,874,547 Earned surplus (per accompanying statement) (Note F) ..__________ 12,965,967 38,840,s 14 $62,857,417

MACK TRUCKS, INC., AND SUBSIDIARIES STATEMENT OF CONSOLIDATED OPERATIONS AND EARNED SURPLUS FOR THE YEAR ENDED DECEMBER 31, 1946

Sales, less discounts, returns, and allowances .._ ...... .._._.._.....___ .. ..__._.__.....__................_ _

$36,714,694

Cost of goods sold ________ _..___ _ ___._ ......._ _.__._......____._ _ _______ __ .... _ ____ _____ ___________________ $37700,997 Selling, general, and administrative expenses ____ ..___ . . . .._.____..____...__.._._. ___

P

7,498,427

45,199,424*

Operating loss __________ ____ _____ .______.. _ ___._____ ..________________________. f _.__.._______ ..______ ____ _______ _ _..._.______

$ 8,484,728

. ..__ _.___

260.742

Other income __. ._ _._._________..__

______ _._. .__. .._.. ..___ ._________________..____________. _ _._____..... __. ..__.

$ 8,223,986 Charge for plant reconversion expenses __ __ ._ . _ _ _ __ _____ _ __ ___ __ _ _ _ _ ___ ____ ._________._ $

185,039

Less : Amount charged to reserve for postwar adjustments ___....__..__ _ _._.._

26,83 1 158,208

Balance being reduction in Federal income taxes through. carry-back ___._._._ _._ _._.... ._

$ 8,382,194 7,500,0~

Estimated recovery of Federal income taxes through carry-back ___._____.______ _ _____ _ _____ Net loss for year __._____..____ _ _____ _______ _______ __ _____ _ _____ _ ._______...__ _ ____ .__.__._. _ _____________.______.. ~~~~.~.~~..

$

882,194

Earned surplus at December 3 1, 1945 ____ _____ _____ ____ ____ _ ______ ____ ____. ______ ____________ $14,892,830 Add : Transfer of portion of reserve no longer required for installments receivable ___________. ____ __.__ _.__ ___________ ________ ._________.____ ________ _..___ _ ____ ___ ____________ ___

150,ooo

$15,042,830 1,194,669

13848,161

Earned surplus at December 3 1, 1946 (Note F) ___ .____ _ ___.__._.,_ _._._ ______.___ ___ ___._______________ __

$12,965,967

&h dividends on camnon stock __._ __ ___________ _____ _________._.__.______ _ ____________________

(*) Includes provision for ‘depreciation $955,333.

See notes to financial statements. .

MACK TRUCKS, INC., AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS AT DECEMBER 31, 1946

Note A: Installments receivable, of which $152,056 are due at dates subsequent to December 31, 1947, are secured by chattel mortgages, conditional sales agreements, or leases. Note B: Inventories are stated at average cost with proper provision for obsolete items. Such inventory values are less than the selling market after allowing for selling expenses. Note C: Current assets include $247,193 of cash, $235,000 of Dominion of Canada securities and $15 1,706 of other current assets in respect of the Company’s Canadian subsidiary, converted at par. Such assets are realizable in United States currency only under permit from the Canadian Foreign Exchange Control Board. There is included in the statement of consolidated operations the net profit of such subsidiary which is not material in amount. Note D: Fixed assets include emergency facilities of $1,341,642 fully reserved for. Note E: The Federal income tax returns filed for all years up to and including 1941 have been reviewed by the Bureau of Internal Revenue and final settlement made. Note F: During the year there has been charged to the reserve for postwar adjustments $185,039 in respect of expenditures incurred in connection with plant rehabilitation, etc., less applicable reduction in taxes of $158,208. No further disposition has been made of this reserve ; it has been retained in connection with contingencies, the ultimate liability in respect of which is not now ascertainable. Such contingencies include liability, if any, that may arise in respect of four suits which have been commenced against the Company by certain groups of employees claiming in each case in excess of $5,000,000 for overtime pay, plus an additional equal amount as liquidated damages, plus attorneys’ fees. These suits are based upon so-called portal-to-portal claims under the Fair Labor Standards Act of 1938. Similar suits may be commenced by other employees. It is impossible to forecast the ultimate liability, if any, that may arise under such suits, particularly in view of the uncertainty of the extent, if any, to which claims of this sort may be finally upheld. Note G: Renegotiation proceedings for the year 1945 have been concluded and no refund was required. Note H: The cost of purchasing, under the annuity plan, the balance of retirement benefits, in respect of past services, at December 31, 1946 is estimated at $506,300. The Company has the right to modify, suspend, or discontinue the plan in whole or in part at any time but payments made by the Company under the plan are not recoverable.

A RTHUR Y OUNG &

NEW YORK CHICAGO DALLAS KANSAS CITY LOS ANGELES MILWAUKEE PITTSBURGH TULSA

ACCOUNTANTS

AND

CO M P A N Y

AUDITORS

1 CEDAR STREET

N EW Y ORK 5,N.Y.

TORONTO MONTREAL LONDON PARIS

CERTIFICATE OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders Mack Trucks, Inc. New York, N. Y.

We have examined the consolidated balance sheet of MACK TRUCKS, INC., AND SUBSIDIARIES at December 31, 1946 and the statement of consolidated operations and earned surplus for the year then ended, have reviewed the system of internal control and the accounting procedures of the Companies and, without making a detailed audit of the transactions, have examined or tested accounting records of the Companies and other supporting evidence, by methods and to the extent we deemed appropriate. Our examination was made in accordance with generally accepted auditing standards applicable in the circumstances and included all procedures which we considered necessary except as set forth in the following paragraph. Owing to conditions resulting from the strike, it was not practicable for the Company to arrange for the taking of physical inventories of service parts at the general warehouse at Plainfield, N. J., and accordingly, to the extent of $2,907,617 the inventories included in the accounts are book inventories. Based on our knowledge and verification of the book records relating thereto, we are satisfied that such book inventories fairly state the amount thereof at December 31, 1946. In our opinion, the accompanying consolidated balance sheet and statement of consolidated operations and earned surplus present fairly the position of Mack Trucks, Inc., and Subsidiaries at December 31, 1946, and the results of their operations for the year then ended, in conformity with generally accepted accounting principles applied on .a basis consistent with that of the preceding year. ARTHUR YOUNG & C O M P A N Y New York, N. Y. March 7, 1947