Question-and-Answer Session
Operator
Thank you, sir. (Operator Instructions) Your first question comes from Timna Tanners - UBS.
Timna Tanners - UBS
I wanted to just nail down a few things on the cost side. What lingering costs might you have related to the Tulsa and Bellwood moves or are those pretty much behind us?
Jack Hockema
Well, we took reserves for the downsizing of those facilities in the fourth quarter, but we'll have some continuing costs here in the first quarter as we implement that manufacturing inefficiencies and rebalancing throughout the system. But we think most of that will be wrapped up in the first quarter.
Timna Tanners - UBS
So when you refer to first quarter continuing manufacturing inefficiencies, that's the kind of thing that you're referring to that could linger for a quarter or so?
Jack Hockema
Yes, that's a component, but we're still continuing the Chandler startup. I think they pushed their first billet in late January. Sherman is upgrading their 2,500 ton; the 4,000 ton press at Los Angeles started up late in the year and is still ramping up. So we still have a few items where we're just refining the system and getting launched.
So it's a combination of strategic projects and the continued downsizing of our operations because we will have lower volume in the first quarter than the fourth quarter.
Timna Tanners - UBS
But are there a lot of economies of scale when you have pretty high variable costs? How do we think about that?
Jack Hockema
Well, there's a lag in us, especially when the decline in volume is a precipitous as it has been in this recession. There's a lag in getting those costs out, and that's why we expect we'll have inefficiencies through the first quarter and perhaps into the second quarter. It's really a function of when the destocking wraps up and demand actually stabilizes.
That's why we were saying that by the second half of the year we expect that we're going to see significant improvements in our efficiency, but it's difficult to predict exactly when that will happen.
Timna Tanners - UBS
So you are a high variable cost company; however, given the precipitous decline in volume, it doesn't happen on a dime. It takes awhile to adjust.
Jack Hockema
Exactly.
Timna Tanners - UBS
Switching a little more to your balance sheet and trying to think about cash going forward, how flexible is CapEx? Could you if you needed to put off or delay the Kalamazoo project, which seems to be the biggest source of CapEx? How much is your maintenance versus gross CapEx?
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