"We also made progress on our second core strategy which is to lower the quality writing instrument cost structure by optimizing our China facility and the supply chain it anchors. While our CAD gross margins declined 180 basis points in the first half of the year, much of the decline was due to a decision to aggressively manage the reduction of our CAD inventory.
As such, we worked hard to move discontinued product and we provided markdown funds to customers to help them move through over inventory to make room for our new products. These actions, in part, resulted in the reduction of CAD inventory by $4.4 million versus June 2007.
While we will continue to work to drive our CAD inventory down, we believe we are through the events that will impact margin in a negative manner. We expect to see margin improvement in the second half of the year in this division. Additionally, we are continuing to look for ways to make our cost structure and supply chain more efficient. We are very pleased with the performance of our China facility and in Q2 took steps to increase utilization of the facility.
Specifically, we decided that by the end of this year, we will move several component operations such as fountain pen nib and ball pen point production from our Lincoln, Rhode Island facility to China.
On an annual basis, our moves will save the Company $2 million beginning in the fourth quarter of 2009. The effort will require a modest restructuring charge, less than $1 million, but we feel the charge is well worth it. We will continue to aggressively pursue opportunities to lower our cost structure. If we could bring processes into the China facility, we will. If we cannot bring the operations in-house, we will look to establish vendor relationships in China. All of this is with the purpose of lowering our cost and shrinking our time-to-market."
