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On September 14,1947, 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 Tool Company , had requested renewal of an existing $1Million loan originally due to be repaid on September 30. In addition to the renewal of the existing loan , Hampton was asking for an additional loan of $350000 for planed equipment purchase 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 characteristics of the machine tool manufacturing business. In the most recent cycle,Hampton had experienced record production and profitability during the mid-and late 1960s. Because Hampton’s major customers included the aircraft manufacturers and automobile market and the heavy defense spending associated with the Vietnam War. Hampton rode the 1960s boom into the early 1970’s. Hampton. along with the rest of the capital goods industry ,experienced a severe decline in sales and profitability in the mid-1970s. Precipitous decline in the production of automobiles in St. Louic facilities reflected the Arab Oil embargo ,subsequent increases in the price of gasoline and the 1974-1975 recession.Massive reductions in defense spending in the post Vietnam War period had a severe adverse impact on Hampton’s other major customer segment ,military aircraft manufacturers. Hampton’s sale had bottomed out in the mid-1970’s and the several years prior to 1978 had seen a steady rebuilding of sales. Hampton’s recovery was due primarily to there factors. First,military aircraft sales had increased substantially, reflecting both an expanding export market and a more benign domestic market . Secondly , through the automobile manufacturers in the area were not expanding , this segment of Hampton’s market had at least stabilized.Finally ,the adverse economic conditions in the mid-1970’s had taken their troll in the regional capital goods industry. Consequently ,Hampton’s recovery had suffered a mild 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 position 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.
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