Hampton Machine Tool Company

2311 Words Apr 9th, 2011 10 Pages
Hampton Machine Tool Company

On September 14, 1979, Mr. Jerry Eckwood, vice president of the St. Louis National Bank was considering a loan request from a customer located in a nearby city. The company, Hampton Machine Too] Company, had requested renewal of an existing $1 million loan originally due to be repaid on September 30. In addition to the renewal of the existin- loan, Hampton was asking for an additional loan of $350,000 for planned equipment purchases in October. Under the terms of the company's request, both loans, totaling $1.35 million, would be repayable at the end of 1979. Since its establishment in 1915, Hampton Machine Tool Company had successfully weathered the severe cyclical fluctuations characteristic of
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Secondly, though the automobile manufacturers in the area were not expanding, this segment of Hampton's market had at least stabilized. Finahy, the adverse economic conditions in the rrdd-1970s had taken their toll in the regional capital goods industry. Consequently, Hampton's market share increased as many tl-dnly capitalized competitors had been forced out of the industry. Hampton's recovery had suffered a n-dld setback, as 1978 sales were far below capacity. However, with a substantial backlog of firm sales orders, Hampton entered 1979 expecting its first year of capacity sales since 1972. Hampton's conservative financial policies had contributed to its survival and success in the volatile capital goods industry. The company had traditionally maintained a strong working capital positic,n as a buffer against economic uncertainty. As a result, the company had no debt on its balance sheet during the ten years prior to December 1978. In a meeting in early December 1978, Mr. Benjan-dn G. Cowins, president of Hampton, requested the initial loan of $1 million to facilitate purchasing the stock of several dissident shareholders. While Hampton had some cash in excess of that required for normal operations, excess cash was not sufficient to effect the stock redemption. Therefore, \lr. Cowins had asked Mr. Eckwood for a loan from the St. Louis National Bank. The loan of $1 million %N-as to be taken down at the end of December 1978. Hampton