Chapter 10 Case 2: Kamikaze Enterprises (Japan) Ray Addis, chairman of the board of Ace Inc., a medium sized airplane manufacturing company, had called Frank Anderson into his office to talk about an investment made by Ace in Japan five years ago. Ray was very upset because Ace’s Japanese affiliate, Kamikaze Enterprises, was owned 40 percent by Ace and 60 percent by the Bansha Group, was not doing well. He expected Frank, the CFO of Ace, to explain what was going on. Ray had been involved in marketing all his life, unlike Frank who came up through the finance route.
Chapter 10 Case 2: Kamikaze Enterprises (Japan) Ray Addis, chairman of the board of Ace Inc., a medium sized airplane manufacturing company, had called Frank Anderson into his office to talk about an investment made by Ace in Japan five years ago. Ray was very upset because Ace’s Japanese affiliate, Kamikaze Enterprises, was owned 40 percent by Ace and 60 percent by the Bansha Group, was not doing well. He expected Frank, the CFO of Ace, to explain what was going on. Ray had been involved in marketing all his life, unlike Frank who came up through the finance route. “How are you doing, Frank?” “Pretty good, I guess, Ray. I gather from your note that you’re not too pleased with Kamikaze Enterprises.” “That’s an understatement. In our last set of statements, I noticed that we picked up a dollar loss from Kamikaze for the fifth year in a row. I wouldn’t mind it so much, but that loss reduced our earnings by nearly 40 percent. Why can’t we get that blasted operation in the black? I thought those Japanese were supposed to be cost efficient. I feel like we’re tapping money down a rat hole.” “I can understand your concern, Ray, but we’ve gotten a healthy yen dividend from Kamikaze every year since we’ve been in operation. Because the yen keeps strengthening, the dollar equivalent of that dividend goes up every year.” “I realize that, Frank, but we report in dollars to our shareholders, and I have to explain those foreign exchange losses at the next annual meeting. What am I going to do? I understand that the book value of our investment has been written down to practically nothing because of those losses. Either that operation becomes profitable or we cut loose. Let me know in three weeks what our plan of action should be.” “OK, Ray. I’ll see what I can do.” “What a circus,” thought Frank as he walked back to his office. “There’s no way I can explain this situation so that he understands.” Ace Inc. had entered into the minority joint venture with the Bansha…
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