E.C. Ernst Inc., a major electrical contracting company that shocked stockholders with a $5.8 million loss in the fiscal year ended March 31, will have another dose of bad news in the near future.
Over the weekend, Washington-based Ernst revealed that it will report an operating loss for the first quarter of the new fiscal period, ending June 30. The extent of the loss was not divulged.
New chief executive Charles Scharfe Jr. said only that the first-quarter report now is being reviewed by auditors in connection with a registration statement to be filed with the Securities and Exchange Commission later this month.
Scharfe said Ernst expects to offer new subordinated debentures and warrants to buy common stock as units to stockholders. He did not say what caused the recent loss, which contrasts with year-earlier profits of $869,000 (46 cents a share) on sales of $29 million.
After earlier reporting profits of $2.4 million is the first nine months of the recent fiscal year, Ernst revealed in late July that it would have a steep loss. Shortly thereafter, the Ernst board was overhauled and outside directors (not having Ernst management positions or tied to management) were given a majority.
Then, one month ago, Scharfe was named chief executive to replace Edward Johnson, who continues as chairman. Directors also dropped a quarterly dividend that would have been distributed Aug 31; the most recent payout was 17 cents a share last May.
Ernst has said bank loan agreements do not permit dividends unless there are profits - which would appear to indicate that no payout is possible later this year, either.
Scharfe previously was chief executive of L.K. Comstock Co., which merged into Ernst on July 1.
Ernst's troubles began after a reevaluation of contracts made in connection with its year-end audit. Independent auditor Richard Eisner told the company that reevaluation was required in order to account for some contracts on the basis of costs incurred without the inclusion of estimated profits.
Ernst also announced last month that there had been substantial modifications on these contracts for which the firm submittee prices that could offset losses. Any such excess over costs would be included in future fiscal years, Ernst said at the time.
Contract volume for the Washington company fell in the recent year to $129 million from $137 million.
Ernst stock has been battered in trading on the American Stock Exchange. After trading as high as 15 1/8 earlier in 1978, Ernst closed last week at 8 3/8 after heavy trading of 18,200 shares on Fridey chopped 1 1/2 off the price of Ernst shares. The low for the year has been 8 1/3, whichErnst hit Friday before recovering slightly.