SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
August 4, 1999
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(Date of earliest event reported)
ESC MEDICAL SYSTEMS LTD.
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(Exact Name of Registrant as Specified in its charter)
Israel 0-27572 N/A
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(State or Jurisdiction (Commission File No.) (IRS Employer
of Incorporation) Identification No.)
P.O. Box 240, Yokneam 20692, Israel
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(Address of principal executive offices, including zip code)
011-972-4-959-9000
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name or former address, if changed since last report)
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits.
(c) Exhibits.
Exhibit No. Description
99.1 Letter to shareholders dated August 4, 1999.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
ESC MEDICAL SYSTEMS LTD.
By: /s/ Yacha Sutton
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Name: Yacha Sutton
Title: Chief Executive Officer
Dated: August 4, 1999
EXHIBIT INDEX
Exhibit No. Description
99.1 Letter to shareholders dated August 4, 1999.
Dear ESC Medical Systems Shareholder:
A little more than a month ago, a new Board of Directors and Chief
Executive Officer were appointed at ESC Medical. Working together, we have
made considerable progress about which we wanted to apprise you.
The two most important issues we face are to realign our cost structure and
maximize customer satisfaction.
Currently, our cost structure is based on revenue levels exceeding $200
million. Based on first half year results, our annualized revenue level
this year would be approximately $140 million. This misalignment of costs
and revenues is a drain on cash flow and operating earnings. Accordingly,
we have retained McKinsey & Company, Inc. to assist us in developing a
restructuring plan, including product and facilities rationalization, as
well as evaluating the market potential of different applications, with an
eye on future revenue growth. We anticipate that it will take an
additional 60 to 90 days to develop this comprehensive plan, and the
overall costs associated with its implementation, while as yet
undetermined, will likely be charged to earnings in the third quarter of
this year.
We are taking concrete steps to maximize customer satisfaction. We
recently initiated our "Customer Driven/Customer Focused" program to
strengthen our relationships with customers and deliver the highest quality
products and services to meet and exceed the market's needs.
Another key objective is to put in place a proper organizational
infrastructure, including clearly defined policies, processes and financial
controls to improve management information and, in turn, decision making
efficiency and effectiveness.
Currently, we are engaged in too many new technologies and R&D projects
across different fields. We will now focus our operations on our core
competencies, which we are defining as the aesthetic and surgical markets.
We will seek to identify strategic partners and joint ventures for existing
projects in these areas in order to maximize their commercial potential.
We also committed to our shareholders to enhance the Company's corporate
governance. We have now appointed new members to key committees, including
the Executive, Audit and Compensation committees. The Executive Committee
has already met twice and is taking a proactive role in assisting me in
formulating strategic direction and restructuring plans. The Board, which
now stands at ten members following the resignations of Marshall Butler and
Dan Suesskind, has also requested Dr. Darrell Riegel, a Board member who
currently serves as the president of the American Academy of Dermatology,
to form a Medical Advisory Board comprised of leading physicians who will
provide essential feedback in helping us to develop our future direction.
As a result of the re-constitution of the Board effected at the end of
June, ESC Medical no longer qualifies as a foreign private issuer under
U.S. securities laws, and, consequently, will now file quarterly reports on
Form 10Q. The report for the second quarter ended June 30, 1999 is
expected to be filed on or about the middle of August.
We are currently in the process of finalizing second quarter results, and
expect revenues to be approximately $40 million, a significant improvement
from the first quarter. Gross margins, however, have deteriorated for a
number of reasons, including pricing pressures and higher operating
expenses. In addition, we anticipate having to take significant write-offs
related to the solicitation of proxies, inventory and accounts receivable
levels, and warranty expense. As a result, we expect to report a
significant loss for the quarter.
While the Company still has many challenges to overcome, it is equally
clear that we have a very strong competitive position and foundation upon
which to grow and build shareholder value. We have the widest range of
technology and applications in the aesthetic and surgical markets. We also
have the largest installed base, exceeding 18,000 products worldwide, on
which we can capitalize to generate future revenue growth. We have many
new focused products and applications in the pipeline which will also
contribute to our ability to resume our growth track following the
completion of the restructuring.
We are committed to enhancing the value of ESC to our shareholders by
implementing programs that concentrate our efforts on our core capabilities
and, in turn, serving these markets better than competitors.
We look forward to continuing to report our progress to you.
Sincerely,
Yacha Sutton, Chief Executive Officer
