Question-and-Answer Session
Operator
(Operator Instructions)
We do have a question from Keng Hock Lim with Credit Suisse.
Keng Hock Lim - Credit Suisse
Maybe I could just start off with a couple of questions on the earnings first. There was a $6.9 million positive item under the lines of others in the P&L. Just wondering where that came from. Maybe you could explain that particular line for us.
Ng Keh Long
This is mainly from exchange gains.
Keng Hock Lim - Credit Suisse
Exchange gains. All right.
Ng Keh Long
Yes, currency.
Keng Hock Lim - Credit Suisse
Yes, okay. There seems to be also a sharp drop in accounts payable. Was that deliberate?
Craig McHugh
They dropped substantially year over year on our accounts payable. Keh Long, would you like to -- let me go ahead and take that. As you noticed, our inventory levels, we dropped our inventory levels significantly, 33% year over year. And I mentioned that we’ve significantly improved our supply chain management and our procurement processes, so we reduced our purchases in line with our expectations going forward. So the lower accounts payable reflects our lower purchases and our lower inventory levels.
Keng Hock Lim - Credit Suisse
Okay, the other questions I have are actually on the operations. You have actually outsourced the European side of the manufacturing concern. I was just wondering, what kind of cost savings could we expect from that particular move?
Separately, you also earlier mentioned about potentially outsourcing or spinning out the manufacturing operations at Cubic. Just wondering whether there is any update on that front.
Craig McHugh
Let me divide that question into elements. The first one is with regard to our steps in Europe. Historically, over the past 10 years, all of our packaging, final product assembly for our European revenues have gone through our facility in Dublin, where we did packaging, they support all the different languages throughout Europe. We’ve now moved the packaging back to our manufacturing facilities, either our direct facilities or a subcontractor’s, in Asia and we’re shipping directly to an outsource warehouse in Europe itself. We believe we have the opportunity to reduce our local costs substantially.
Going forward, there are two elements of cost reductions. One is the area for our local costs, which will be reflected in the improved gross margins, and the other is in the area of reduced operating costs. We’ll have improvements in both areas because of the changes in Europe.
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