The Cincinnati Enquirer from Cincinnati, Ohio • Page 93

Sunday, September 2. 1 984 THE CINCINNATI ENQUIRER F-3 Dealers Lining Up For Honda Mystery Car i i In Floraf ax Fight, Who Will End Up Smelling Like A Rose Dan Dorfman dealers to sell, fetch among the highest prices for any car make. Honda dealers have received only sketchy details so far about the upscale model, which is referred to as the "HX." Honda officials have said they are looking to supply a front-wheel-drive executive class sedan, built in Japan although designed in cooperation with British Ley-land in Britain. A two-seat sports car with a mid-engine design also Is being considered, although it's the HX that's capturing all the attention. "It's my Impression the car will be In the $16,000 to $18,000 range with the sports car about $20,000 to $23,000," Lucas said, emphasizing these prices were hunches at best.

AMERICAN HONDA Motor Car Co. of Gardena, the U.S. BY RAY POTTER Knlght-Ridder Newspapers SAN JOSE, Calif. It's a new car line without a name and described only In hazy terms of styling and price, but dealers are already anxiously inquiring about their chance to sell this mystery car, which is due to make Its U.S. debut in early 1986.

The car's chief lure is its bloodline to Honda, the motorcycle-and car-maker with a golden touch in building compact cars that produce steady profits for dealers. When Honda announced in February that it planned to add an upscale line to compete with such pricey European imports as BMW and Volvo, the car business took notice. "IT'S ALMOST a can't-miss," said San Jose auto dealer Jim Rimmer, who runs two Honda franchises and expects to be In line for one of the 130 franchises to be named by the end of 1986. "Everybody is just betting that anything they put out will be good," said Mike Mah, a Sunnyvale, auto dealer. The Honda name is magic among car dealers.

Even when unsold cars crowded other dealers' lots during the extended sales slump three years ago, Honda dealers found buyers willing to pay added mark-ups and wait weeks for delivery. "Our two (Honda agencies) are the most profitable of the seven dealerships we have," said Don Lucas, president of the dealership group of the same name. "Honda has yet to make their first mistake." JUST WINNING a franchise may be worth a large sum, Judging from the experience of Honda sales arm of Honda, declined to comment on pricing. Here's one of those quiet, unpublicized Wall Street fights. The adversaries: Church money against one of Wall Street's leading short sellers (a fella who's betting on lower, rather than higher stock prices).

The source of conflict: Florafax International of Tulsa, one of the nation's largest flower-by-wire services. For starters, how do these characteristics strike you? The company's chief executive has been indicted on seven counts of fraud and perjury. The company had a hefty $1.4 million loss in its latest reported fiscal quarter. Serious questions are being raised about the company's accounting. If you're about to say not for me a religious foundation would be quick to take issue with you.

IT'S DE RANCE Inc. of Milwaukee-an outfit funded by the old Miller Brewing money. And it uses much of its assets to fund various Catholic charities, including churches. Obviously, De Ranee likes the investment fragrance of 23-year-old Florafax, which services some 11,000 florists and offers a spirlts-by-wlre service under the name of Whiskeygram International. De Ranee owns nearly 550,000 shares, or just over 15, of Floraf ax's 3.6 million shares of stock.

In fact, De Ranee bought just over 40,000 of its shares during the company's third fiscal quarter (ended May 31) the quarter in which it suffered the big $1.4 million loss. The stock at the time was trading at around $8 a share compared with about $7.50 at press-time. So De Ranee shelled out about $320,000 for its additional Florafax holdings. SINCE THE stock is highly volatile-with a range over the past 12 months of between $6.25 and 16.87 why is a religious foundation playing around with such a speculative investment? 1 No comment from the De Ranee folks; they Jiung up on me twice. On the other hand, our short seller is anything but mum.

He's Alan Gaines, and he's betting about $3 million of his clients' as well as his own-money that the company is a potential disaster. Gaines is the president of Gaines, Berland a small, insitutionally oriented brokerage firm that manages more than $50 million worth of funds. Thus far, so I'm told, Gaines has sold short "close to 400,000 of Florafax's shares. That's clearly a bet, given the relatively limited number "of shares in actual supply. ALL TOLD, insiders and big holders are said to any kind of buying could drive up the stock price quickly and perhaps dramatically.

Adding to the risk is the possibility Florafax may be sold. The company has retained E.F. Hutton to seek a possible sale or merger. Gaines, though, seems unperturbed. "I shorted the stock because I have serious questions about the accounting," he said.

"The company's earnings are shoddy, if not nonexistent, and I regard the stock as virtually valueless. "I'd put the value of the Florafax business at no more than about $5 million, or $1.50 a share. And it's only a matter of time before the stock collapses." Why so bearish? FOR STARTERS, Gaines looked at the latest retained earnings $3.2 million as of last May 31, down more than $600,000 from the company's Aug. 31, 1983, fiscal year when It showed an operating profit of $2.1 million, or 57 cents a share, on sales of $48.5 million. Retained earnings are the earnings you accumulate over a period of time and Gaines raises the question: If Florafax earned a total of about $7.1 million over the past three fiscal years (before the latest reported loss), how come the retained earnings are so low? To Gaines, this is an immediate red light.

The question: Are the reported earnings over the past three years, as well as previous years, real cash earnings or simply book entries? Another big negative, as Gaines sees it, is capitalizing, rather than immediately expensing (or writing off) costs against earnings associated with the floral operation. Florafax capitalized some $2 million worth of costs associated with its purchase of 70 florist shops on military bases. GAINES HAS a number of other criticisms. But the bottom line, he tells me, is "the balance sheet Is bloated and the book value is overstated." And If all questionable items were expensed and charged immediately against earnings, "it would wipe out all of the company's retained earnings." Richard Tucker, Florafax's president and chief operating officer, regards Gaines' conclusions as "negative hype" designed to depress the price of the stock. He characterizes Florafax, which lost $563,000 in its latest nine months, as a sound, growing and financially strong company.

He points to a debt reduction over the past year from $9.5 million to $5 million also to cash reserves of $1.3 million. Moreover, he tells me the company is currently operating profitably and the bad debt problem is "adequately covered" by the $1.4 million of reserves. i y. is ti! I is -1, 1 1 Ml i Engine CONTINUED FROM PAGE F-l the Boeing 727s of the mid-1960s bypassed about twice as much air as was heated, the engines on modern airliners bypass five or six times the air that is heated. In a sense, conventional Jet engines are very much like propeller engines in that both get most of the work done by using blades to push air.

One difference is that in conventional Jet engines, the fans are contained inside the engine housing. These are called ducted fans. GE's new engine takes the whole concept one step further, retaining the Jet turbine for power but putting the fans outside the engine (making them unducted fans, hence the name). That allows longer, larger fan blades, which can move more air. GE's Adamson said these engines will bypass 35 times more air than is heated allowing huge savings of fuel.

THE FAN blades on the UDF are very much different than traditional propeller blades, because they will rotate at much faster speeds. They are curved and thinner, stealing some design concepts from the wings of supersonic Jets, Adamson said. The fan blades will be made of carbon fiber, Kev-lar fiber (invented by Dupont for more swirl. Adamson said the second set of fans, rotating in direction opposite that of the first, pulls the swirling air away from the first set of fans, and also creates a swirl In the opposite direction. The net result, he said, Is no swirl at all.

ADAMSON SAID three developments have made the UDF possible. One is the development of low-speed turbines, which allowed the fans to be linked directly to the turbines, eliminating the need for gear boxes. The second is propeller technology. Adamson gave much credit to NASA, which has been studying new propeller designs for five years. GE's contribution was the idea of counter-rotating fans, and that's why NASA helped pay for GE's research.

The third factor is the energy crisis, which gave impetus to development of more fuel-efficient engines, Adamson said. If anything could kill the UDF, it's propeller noise. "That's at the top of my list of worries," Adamson said. The airlines, who stress quiet, comfortable are equally concerned, he said. Noise is the result of shock waves created from the tips of the propellers.

Adamson said noise can be reduced by curving the tips of the blades and making them thinner, and by adding more blades. Also It will be Important to turn the fans no faster than necessary to move the airplane. use in belted tires), or other high-strength lightweight material. The UDF will be driven by one engine with two low-speed jet turbines turning around the same axis. Each set of blades will be powered by one of the turbines.

Adamson said the two turbines working in tandem have a kind of multiplier effect, producing far more power than two turbines working separately. The blades will be linked directly to the turbines, so that one turn of the turbines produces one turn of the blades. This one-to-one setup will mean the engine will not need the large and heavy gear boxes to transfer power from engine to propeller, as seen in traditional turboprop engines, Adamson said. ONE REASON why a high-power propeller engine wasn't invented sooner was the difficulty of building gearboxes to withstand the stress of operating at such high speed and power, he said. The UDF sidesteps that problem.

Why two sets of propellers? When a propeller creates an airflow, there is an amount of swirling air behind it. That's wasted energy, because it's an airflow created by the propeller but which doesn't help drive the airplane. That means the engine works harder and uses more fuel. Swirl would have been a huge problem with a single set of propellers on a UDF engine, because faster propeller produce about two million shares. That means Jaines and his clients are short more than 20 of 3the floating supply of Florafax's stock.

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