Question-and-Answer Session
Operator
(Operator instructions) Your first question comes from the line of Steve Ferranti of Stephens, Inc.
Steve Ferranti - Stephens, Inc.
I want to see if you guys might be able to provide us with a little more color on terms of the timing on how the savings from the Dominican Republic facility shutdown might play out over the next say three or four quarters and maybe touch upon the breakout between cost of goods sold and operating expense.
Richard Thompson
Okay, great, Steve. Let me tackle the first part of it and I’ll have Linda break down the cost for you. We would expect to have this transaction completely closed or the factory completely closed and transferred by the end of the first quarter. The factory then will be closed by the end of the second quarter. So we should see a full savings in Q3 of next year. Again, that’s between $14 and $15 million dollars a year. It will be modest in Q3 of this year, building up as we reduce headcounts in Q4, and then into Q1.
So I would suspect in Q3, you would probably see only about 10 to 15% of the run rate savings building up to perhaps 50% of the run rate savings in Q4 and then probably 75 to 80% of the savings in Q1 of next year. Then following Q2, you would see 100% of the savings.
Linda Heller
I’ll give you some generalized. We indicated that there would be $14 to $15 million of annualized savings. Approximately about 70% of that would flow through to the gross margin line and the rest would flow through into the operating expenses.
Steve Ferranti - Stephens, Inc.
Does that do anything to I guess change what you would consider to be your break even run rate on a revenue level?
Richard Thompson
We haven’t really discussed a break even run rate publicly, but obviously this will get us in close to the $100 million range, a sold break even, once we finish the savings plan. So our goal though is to continue to adjust our cost structure to our revenue base. Right now we believe we’re at the low point of that and as you know it’s always difficult for a management team to determine when they’re taking out unnecessary cost and when you’re cutting muscle.
So we’ve been pretty aggressive on the cost. I think you’re seeing that in the gross margin and you’ll continue to see it in OpEx as well.
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