...Student ID#: 285 Firm: Hampton Machine Tool Company Nature of business: Machine Tool Manufacturing Overview Hampton Machine Tool Company was founded in 1915 and experienced record production and profitability throughout the years despite hard economic times for the machine manufacturing business. Sales declined throughout the mid 1970’s from the post Vietnam War demand, the declining automobile industry in St. Louis, and the gas embargo of the early 1970’s. Hampton did eventually recover due to an increase in military sales, the automobile industry rising, an overall improvement in the economy. Hampton is looking to take out a line of credit of $1,000,000 and an additional loan of $350,000 to purchase equipment, and an extend payment an additional three months to December 1979. Suppliers have hampered Hampton’s sales with late deliveries of machine parts. Because of this, Hampton is unable to pay its loan on time, which is due in September. Marketing Hampton Machine has bolstered its sales but is, unfortunately, not able to keep up with demand. This can be attributed once again to supply chain problems. The company currently has unfilled orders of $16,500,000 as of August 31. This accounts for 90% of its forecasted sales and the company is in desperate need to fill these orders by December so as to avoid disappointing its customers or sending a signal to the market that the company has severe management problems. Operations This company could possibly have severe...
Words: 758 - Pages: 4
...HAMPTON MACHINE TOOL COMPANY On September 14, 2007, Jerry Eckwood, vice president of the Wellington National Bank was considering a loan request from a customer also located in Wellington, New Zealand. The company, Hampton Machine Tool Company, had requested renewal of an existing $1 million loan originally to be repaid September 30, 2007. In addition to the renewal of the existing loan, Hampton was asking for an additional load 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 2007. Since its establishment in 1915, Hampton Machine Tool Company has successfully weathered the server cyclical fluctuations that characterize the machine tool manufacturing business. In the most recent cycle Hampton had experience record production and profitability during the past decade – primarily due to export sales to Australia. While the economy in Australia continues to boom, the increasing value of the New Zealand dollar was significantly eroding the firm’s ability to export. 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 position as a buffer against economic uncertainty. As a result, the company had no debt on its balance sheet during the 10 years prior to December of 2006. In a meeting in early December 2006, Benjamin...
Words: 2005 - Pages: 9
...On September 12, 1979, Hampton Machine Tool Company (HMTC) requested from St. Louis National Bank a renewal to their loan of $1,000,000 due to be repaid on September 30, 1979 and also to be given an additional loan of $350,000 for new equipment purchases in October 1979. Both loans were to be repaid on December 31, 1979. Hampton M.T. Company wrote a letter to the St. Louis National Bank stating the reasons for the extension of the loan and the need of the additional loan, and giving the current and the predicted future financial position of the company. In order to decide whether to approve the loan extension and the additional new loan, it is most wise to examine the financial position of the company for the following months to come and calculate the forecasted Income Statement and Cash Flow Analysis to find out if the company will have the required cash flows to repay their loan and interest on time. It is important, however, to first examine why HMTC was unable to repay its initial loan. Hampton Machine Tool Company was unable to repay its loan on time due to several factors. One of such factors is the fact that the stock repurchase, for which the loan was initially requested, was a major cash disbursement of $3 million. In the period between November 1978 and August 1979, stock repurchase represented 58% of total expenditures for that period, while inventory purchases represented 42% of total expenditures. They also had a difficult time repaying because of the steep decline...
Words: 1390 - Pages: 6
...Cases in Finance September 26, 2012 Dr. Thomas McCue Case 1: Hampton Machine Tools Evan Cvejkus Hampton Machine Tools is a company that specializes in the production and manufacturing of machine tools. The company has been in existence since 1915 and weathered all economic and internal struggles where most of their competitors met defeat. In order to purchase new equipment, Hampton requires a new loan of $350,000 and also wants to renew their current loan of $1,000,000 that will soon expire. In this case, we must decide whether or not the bank should give Hampton what it needs to succeed. The bank should renew the loan to Hampton Machine Tools as well as giving them the new loan for equipment purchase. The reason for lag in loan payments is due to the fact that Hampton had purchased a larger amount of raw materials than normal in July and August. Also, there was a small halt in production when the company was awaiting a component for one of the electronic control mechanisms. As stated in the case, they had seven machines totaling $1,320,000 completed with the exception of the control mechanism. This was a onetime hiccup by the supplier and Hampton suffered because of it. Hampton is a very transparent company. They offer up any and all financial statements that they have without even being asked. Benjamin Cowins, who is the president of Hampton, is an honest and trusted man. He is known throughout the community for his upstanding character and honesty within the business...
Words: 546 - Pages: 3
...1978, Hampton Machine Tool took out a $1 million loan from the St. Louis National Bank. On September 14, 1979, the company asked for an extension of the loan to the end of December 1979. Moreover, Hampton has asked for an additional $350,000 loan to be repaid at the same time as the previous loan. Both loans are to be repaid with monthly interest payments at the rate of 1.5%. The underlying problem affecting Hampton Machine Tools is its ability to payback its current loan and the requested one on time. Indeed, according to Exhibit 1, if Hampton carries forward as forecasted, the company will be short $331,500. The company could restructure its loan by paying interests ahead of time. However, while it would lessen the company’s cash shortage, Hampton would still have a negative balance by December. The issue is that the company should be able to repay the debt in January. Thus, the company should have asked for an extension up to January instead of December: the company neglected its selling terms of 30 days. While it would be wise for Mr.Eckwood to reject the proposal because his main concern should be the borrower’s repayment of the loan, which Hampton Machine Tool is unable to do on time, I would advise him to modify the terms of the loan. Indeed, Mr. Eckwood should renegotiate the terms of the loan in order to allow Hampton to extend its payment for one month. However, the modification should not come for free: if I were Mr. Eckwood, I would penalize Hampton Machine Tool...
Words: 300 - Pages: 2
...Hampton Machine Tool Company, a profitable machine tool manufacturer, is trying to renew a 1 million dollar loan due September 30, 1979 until December 31, 1979. Through examination of the case, it is clear that Hampton will be unable to repay the loan; however, at first glance Hampton seems to be a profitable company that would be able to pain the loan on time and would not need more bank financing. Unfortunately, that is not the case. Hampton, by making a stock repurchase for which the loan was taken, forced a major cash expenditure onto the company a year prior- costing Hampton almost a 3 million dollar loss forcing Hampton to push back the date on the loan. Since a whole year went by with less cash on hand, it was nearly impossible for Hampton to be able to pay its loan on time. For example, in the period between November 1978 and August 1979, stock repurchase represented 58% of total expenditures for that period, while inventory purchases represented 42% of total expenditures. Furthermore, Hampton needs more bank financing ($350,00) because they had not been in contact with new equipment since the recession hit; it is important to the success of a company to be up to date on the newest equipment, especially dealing such important equipment. Moreover, Hampton needs more bank financing because of the vast amount of backorders and lack of current cash. Hampton claims the request is vital because it will improve the operational efficiency of the company, but cannot afford the...
Words: 1105 - Pages: 5
...Study Case: Hampton Machine Tool Background. Hampton Machine Tool Company, a machine tool manufacturer, was founded in 1915. Hampton's customers are military aircraft and automobile manufacturers in the St. Louis area. Machine Tool Company felt the boom in the 1960`s with record setting profits in the mid- to late- 1960`s. The company slowed down in the 1970`s economic recession caused by Vietnam War and the oil embargo. Hampton stabilized by the late 1970`s and now has a “strong working capital position”. The company also didn`t have a debt during 10 years until December 1978. 1. Why can`t a profitable company like Hampton repay its Bank Loan on time and why does it need more bank financing? The excising $1 million loan was due September 30, 1979, but Mr. Cowins requested to renew it until the end of 1979. The main cause why Hampton can`t repay its Bank Loan on time is that the company made a stock repurchase, for which loan was taken. That was major cash expenditure for the company of $3 million ($1million of loan+ $2 million of excess cash) in December 1978; this was a main reason why company had a delay in repaying of the loan. The president of the company, Mr. Cowins wishes to borrow an additional $350,000 “for planned equipment purchases in October”, they didn`t buy or renew an equipment since the economic recession. He also mentioned this loan in total $1,350,000 will be repaid at the end of December 1979. 2. What...
Words: 1484 - Pages: 6
...Hampton Case Study Study Case: Hampton Machine Tool Background. Hampton Machine Tool Company, a machine tool manufacturer, was founded in 1915. Hampton's customers are military aircraft and automobile manufacturers in the St. Louis area. Machine Tool Company felt the boom in the 1960`s with record setting profits in the mid- to late- 1960`s. The company slowed down in the 1970`s economic recession caused by Vietnam War and the oil embargo. Hampton stabilized by the late 1970`s and now has a “strong working capital position”. The company also didn`t have a debt during 10 years until December 1978. 1. Why can`t a profitable company like Hampton repay its Bank Loan on time and why does it need more bank financing? The excising $1 million loan was due September 30, 1979, but Mr. Cowins requested to renew it until the end of 1979. The main cause why Hampton can`t repay its Bank Loan on time is that the company made a stock repurchase, for which loan was taken. That was major cash expenditure for the company of $3 million ($1million of loan+ $2 million of excess cash) in December 1978; this was a main reason why company had a delay in repaying of the loan. The president of the company, Mr. Cowins wishes to borrow an additional $350,000 “for planned equipment purchases in October”, they didn`t buy or renew an equipment since the economic recession. He also mentioned this loan in total $1,350,000 will be repaid at the end of December 1979. 2. What major developments...
Words: 342 - Pages: 2
...6/1/16 Short form analysis – Hampton Machine Tool Company Business and Strategy Hampton Machine Tool Company is in the capital goods industry supplying aircraft and automobile manufacturers with machine tools. Located in St. Louis and founded in 1915, Hampton is a direct supplier of military purchasers, both domestic and abroad, while also supporting regional automobile companies. This industry, and Hampton’s customer segment is often affected by economic factors from gasoline prices and government spending, and while both are unpredictable, their conservative financial policies have enabled Hampton to survive and thrive amid uncertainty in the market. Hampton’s conservative position enabled it to weather the recession of the mid-1970s while it eliminated some of its competitors, thus increasing its market share. The most recent loan from St. Louis National Bank was the first debt that Hampton had added to its balance sheet since 1968. Due to the recent recession, Hampton has been unable to purchase new equipment which has contributed to its issues in producing at capacity. Profits have been high, there is a backlog of sales orders representing about 90% of annual capacity in August, most from respected and trustworthy customers. Hampton currently retains a high cash position, but 99.5% of it is obligated as a cash advance to a customer whose order is expected to ship over the next three months. Reflecting this inflated cash position, Hampton truly holds only $7,000 in...
Words: 2032 - Pages: 9
...Introduction Hampton Machine Tool Company, a machine tool manufacturer, was founded in 1915. Hampton's customer base is made up primarily of military aircraft manufactures and automobile manufacturers in the St. Louis area. Hampton felt the boom in the 1960 with record setting profits in the mid to late 1960. Hampton slowed down in the 1970s with the withdrawal from Vietnam War and the oil embargo. Hampton stabilized by the late 1970s and now has a larger market share, as other competitors were unable to make it through those tough times. Hampton’s conservative financial policy helped the firm to weather the business cyclical fluctuation in capital goods industry, and had no debts on its balance sheet during ten years prior to 1978. Traditionally, the company had kept its cash balances at St. Louis National Bank. President of Hampton is Mr. Benjamin G. Cowins. He is 58 years old, widely respected, energetic, successful and was a successor to his father in law. Problem It is now September 14, 1979; President of Hampton Mr. Benjamin G. Cowins has asked Mr. Eckwood for an extension to the end December 1979 on the $1 million loan they took out from the St. Louis National Bank at the end of December 1978. The loan was originally taken out on the terms of monthly interest payment at a rate of 1.5% with the principle to be paid back at the end of September 1979. Hampton also has asked for an additional $350,000 loan to also be repaid at the end of December 1979 with interest payments...
Words: 1386 - Pages: 6
...On September 12, 1979, Hampton Machine Tool Company (HMTC) requested from St. Louis National Bank a renewal to their loan of $1,000,000 due to be repaid on September 30, 1979 and also to be given an additional loan of $350,000 for new equipment purchases in October 1979. Both loans were to be repaid on December 31, 1979. Hampton M.T. Company wrote a letter to the St. Louis National Bank stating the reasons for the extension of the loan and the need of the additional loan, and giving the current and the predicted future financial position of the company. In order to decide whether to approve the loan extension and the additional new loan, it is most wise to examine the financial position of the company for the following months to come and calculate the forecasted Income Statement and Cash Flow Analysis to find out if the company will have the required cash flows to repay their loan and interest on time. It is important, however, to first examine why HMTC was unable to repay its initial loan. Hampton Machine Tool Company was unable to repay its loan on time due to several factors. One of such factors is the fact that the stock repurchase, for which the loan was initially requested, was a major cash disbursement of $3 million. In the period between November 1978 and August 1979, stock repurchase represented 58% of total expenditures for that period, while inventory purchases represented 42% of total expenditures. They also had a difficult...
Words: 324 - Pages: 2
...Executive Summary Statement of the Problem Hampton Machine Tool Company is a manufacturing company located in the St. Louis area that supplies industrial tools to manufacturers in both the automobile and military defense industries. St. Louis National Bank is considering a loan request from Hampton on September 14, 1979. The loan request consists of the renewal of a previously granted loan of $1 million, used to repurchase stock, and an additional $350 thousand, needed to upgrade machinery. Both loans would be due at year’s end with 1.5% monthly interest on principal. Discussion The decision St. Louis National faces is whether or not to loan Hampton the requested $1.350 million. Issues concerning this decision are (a) can Hampton fulfill its promise to repay the debt obligation at year’s end as promised, (b) will Hampton increase its operational efficiency as promised, (c) should Hampton’s $150 thousand dividend obligation be provided through the requested loan, and (d) is Hampton’s current method of revenue recognition optimal. Each of these issues should be addressed after factual consideration. A. Hampton’s balance sheet is strong enough to repay the requested loan, if granted. However, Hampton’s balance sheet also shows that a renewal of the outstanding loan is not a necessity as it has enough assets to liquidate in order to retire its current obligation. St. Louis National must be aware that granting Hampton’s request does not eliminate similar requests in...
Words: 499 - Pages: 2
... |1604 |2265 | |bank loan | | | |350 | | | |total cash inflow | |$2,243 |$2,022 |$2,136 |$2,370 |$1,934 | | | | | | | | | |account payment | |948 |600 |600 |600 |600 | |expences(not include interest and raw materials) |400 |400 |400 |400 |400 | |machine purchase | | | |350 | | | |tax | |181 | | |181 | | |interest | |15 |15 |20.25 |20.25 | | |loan principal | | | | |1350 | | |dividends | | | | |150 | | |total cash outflow | ...
Words: 361 - Pages: 2
...Sands Corporation has one main plant and two branch plants which are in small towns 60 miles apart and approximately 200 miles from the main plant. In August 1961 Sands Corporation won a bid for the contract of military aircraft parts manufacturing. This has led to the decision of setting up a new plant to satisfy the contract given to them. So Sands Corporation came up with two plant sites, one is in the industrial area of Clairmont and the other option they have looked up for as a site is Hampton. The main motive of the Corporation is to select a site which is competent enough, has abundant amount of resources and produce higher margin of profits. SITUATIONAL ANALYSIS In 1962 Sands Corporation won a very competitive bidding of the contract of manufacturing military aircrafts. Due to the size of the contract and the government specifications of the machines realized the corporation that, it is not possible to manufacture the parts with the company owned machine tools. This made the company realize the need of a new plant which is solely dedicated to this...
Words: 1069 - Pages: 5
...Problems Facing Hampton • Hampton seeks to renew its current $I million note payable by 3 months, whilst securing an additional $350,000 in loans payable in 3 months. • Some issues faced by Hampton as it seeks the new loan and renews the current loan o Monthly interest rate of 1½ % on the Principal and additional $350,000 (if secured) and ability to repay loan with these interest payment commitments o Old machinery requiring upgrade to effectively meet capacity production. o Limited free cash flow to enable Hampton to fulfill business relevant activities, vital to the company’s success. • In relating and identifying symptoms and problems in this case, a key point noted from studying the case is that Hampton’s lack of idle cash to service its soon due loan payments is a true problem whilst its current inventory procurement practices as well as collection and revenue recognition practices may be symptoms of a similar problem reoccurring in the future, even if this loan is granted. Analysis of the Case • Assumption: Hampton is a resilient machine tool manufacturer which owns majority of the market share in its industry compared to competitors, currently operates in a recovering to thriving economy and also enjoys the business of pretty stable, trustworthy clients who are mainly in the automobile and defense industry in the St. Louis area. Judging my financial statement numbers, Hampton sales numbers look to be at healthy ranges as well. Company currently has limited...
Words: 826 - Pages: 4
