Hampton Tool Company, founded in 1915, is in the business of machine tool manufacturing catering to military aircraft and automobile manufacturers in St Louis Area. Until Dec 1978, the company maintained a capital structure of zero debt. In Dec 1978, the company obtained a $1 million loan @ 1.5% monthly from our bank in order to repurchase company's stocks from dissident shareholders. While this loan is due to be repaid within next 15 days, the president of the company Benjamin Cowins is requesting to extend the existing loan for 3 more months and an additional loan of $350,000 for the purpose of equipment purchases in October. The company's conservative financial controls in the past have no doubt contributed to its survival and success in the machine tool industry.
Management.
Since its inception, the company has experienced highs and lows in its business growth. It experienced high profitability in 1960s due to booming automobile market and heavy defense spending associated with the Vietnam War. However, in mid 1970s, the company experienced a severe decline in sales and profitability due to plummeting automobile market affected by Arab oil embargo, high price of gasoline as well as massive reduction in defense spending post-Vietnam War. Hampton's sales had bottomed out in mid 1970s but the company gradually started picking up. It's recovery was due to substantial increase in military aircraft sales, both in domestic and international market. Even though the automobile market was not expanding, Hampton's market had at least stabilized. Hampton's recovery had suffered a mild set back 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. .
In order to repurchase the stocks, our bank had approved a loan of $1 million in Dec 1978 considering the future forecast and backlog of sales order.
