Hampton Machine Tool Company Essay

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Pages: 10

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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l@ support of his request, Mr. Cowins had submitted a forecast of monthly shipments for 1979 (see Exhibit 1), a balance sheet dated November -',O, 1978 (first column of Exhibit 2), and documentation of Hampton's bacuog of sales orders. Mr. Eckwood felt at the time that the documentation provided by Mr. Cowins was sufficient to support favorable action on the request. Furthermore, Hampton had traditionally kept its ample cash balance--, on deposit at the St. Louis National Bank, and the bank's management knew Mr. Co-wins N%-ell. Mr. Cowins, then 58 years old, had succeeded his father-in-law as president of Hampton in 1963. He was widely respected in the business community as an energetic and successful executive. In mid-December 1978, Mr. Eckwood had approved the loan to Hampton.

Hampton took down the loan at the end of December 1978. The proceeds of the loan, plus $2 million in excess cash were used immediately to repurchase 75,000 shares of Hampton's $10 par value stock from dissident shareholders at an aggregate cost of $3 million.

After the loan was made, Mr. Cowins regularly sent the bank profit and loss statements and balance sheets documenting Hampton's financial condition. In preparing his analysis of Mr. Cowins's request, Mr. Eckwood focused on the documents presented in Exhibits 1, 2, and 3. In examining Hampton's financial statements, Mr. Eckwood recalled that