What changed in TREX CO INC's 10-K — 2022 vs 2023
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Paragraph-level year-over-year comparison of TREX CO INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.
+143 added−147 removedSource: 10-K (2024-02-26) vs 10-K (2023-02-27)
Top changes in TREX CO INC's 2023 10-K
143 paragraphs added · 147 removed · 108 edited across 7 sections
- Item 1. Business+86 / −88 · 58 edited
- Item 1A. Risk Factors+45 / −46 · 38 edited
- Item 5. Market for Registrant's Common Equity+4 / −5 · 4 edited
- Item 2. Properties+3 / −3 · 3 edited
- Item 7A. Quantitative and Qualitative Disclosures About Market Risk+3 / −3 · 3 edited
Item 1. Business
Business — how the company describes what it does
58 edited+28 added−30 removed49 unchanged
Item 1. Business
Business — how the company describes what it does
58 edited+28 added−30 removed49 unchanged
2022 filing
2023 filing
Biggest changeFencing Our Trex Seclusions ® composite fencing product is offered through two specialty distributors. This product consists of structural posts, bottom rail, pickets, top rail and decorative post caps. The top and bottom rails of Trex fencing are designed to provide a “picture frame’ element and the deep rich colors have a matte surface to prevent harsh sunlight reflections.
Biggest changeTrex Signature aluminum railing, made from a minimum of 40 percent recycled content, is available in three colors and designed for consumers who want a sleek, contemporary look. Fencing Our Trex Seclusions ® composite fencing product is offered through two specialty distributors. This product consists of structural posts, bottom rails, pickets, top rails and decorative post caps.
Periodically, the Committee reviews the Company’s ESG strategy, initiatives and policies and receives updates from the Vice President, Marketing and ESG Development, who oversees the Company’s ESG initiatives.
Periodically, the Committee reviews the Company’s ESG strategy, initiatives and policies and receives updates from the Group Vice President, Marketing and ESG Development, who oversees the Company’s ESG initiatives.
Securities and Exchange Commission (SEC) maintains an Internet web site at www.sec.gov that contains reports, proxy statements, and other information regarding our Company. In addition, we maintain an Internet corporate web site at www.trex.com/our-company/investor-relations.
Securities and Exchange Commission (SEC) maintains an Internet web site at www.sec.gov that contains reports, proxy statements, and other information regarding our Company. Our website is www.trex.com. In addition, we maintain an Internet corporate web site at www.trex.com/our-company/investor-relations.
Trex Residential products are sold to distributors and home centers for final resale primarily to the residential market. 1 Table of Contents Trex offers the following products through Trex Residential: Decking and Accessories Our principal decking products are Trex Transcend ® Lineage ™ , Trex Transcend ® , Trex Signature ® , Trex Select ® , and Trex Enhance ® .
Trex Residential products are sold to distributors and home centers for final resale primarily to the residential market. 2 Table of Contents Trex offers the following products through Trex Residential: Decking and Accessories Our principal decking products are Trex Signature ® , Trex Transcend ® Lineage ™ , Trex Transcend ® , Trex Select ® , and Trex Enhance ® .
We fulfill requirements for raw materials under both purchase orders and supply contracts. In the year ended December 31, 2022, we purchased our reclaimed wood fiber requirements under purchase orders and long-term supply commitments not exceeding four years.
We fulfill requirements for raw materials under both purchase orders and supply contracts. In the year ended December 31, 2023, we purchased our reclaimed wood fiber requirements under purchase orders and long-term supply commitments not exceeding four years.
The seasonal effects are often offset by the positive effect of the incentive programs. Government Regulation Our business activities are subject to various federal, state and local laws and regulations. Costs and accruals incurred to comply with these governmental regulations are presently not material to our capital expenditures, results of operations and competitive position.
The seasonal effects are often offset by the positive effect of the incentive programs. 7 Table of Contents Government Regulation Our business activities are subject to various federal, state and local laws and regulations. Costs and accruals incurred to comply with these governmental regulations are presently not material to our capital expenditures, results of operations and competitive position.
Trex Latticeworks ™ Outdoor lattice boards manufactured and sold by Structureworks Fabrication. Trex Cornhole ™ Boards Cornhole boards manufactured and sold by IPC Global Marketing LLC. Diablo ® Trex Blade A specialty saw blade for wood-alternative composite decking manufactured and sold by Freud America, Inc.
Trex ® Lattice ™ Outdoor lattice boards manufactured and sold by Structureworks Fabrication. Trex ® Cornhole ™ Cornhole boards manufactured and sold by IPC Global Marketing LLC. Trex ® Blade ™ A specialty saw blade for wood-alternative composite decking manufactured and sold by Freud America, Inc.
Our Virginia and Nevada manufacturing facilities have closed-loop recirculation systems that run water through multiple cycles of re-use before being returned to the municipal wastewater stream. We prioritize energy savings as part of our ongoing evaluation and optimization of business operations and manufacturing processes.
Our Virginia and Nevada manufacturing facilities have closed-loop recirculation systems that run water through multiple 10 Table of Contents cycles of re-use before being returned to the municipal wastewater stream. We prioritize energy savings as part of our ongoing evaluation and optimization of business operations and manufacturing processes.
We do not charge any fees to view, print or access these reports on our web site. The contents of our web site are not a part of this report. 12 Table of Contents
We do not charge any fees to view, print, or access these reports on our web site. The contents of our web site are not a part of this report.
We use Six Sigma and Lean Manufacturing methodologies throughout our Company within our plant operations and in the planning and execution of certain projects. Our manufacturing processes require significant capital investment, expertise and time to develop. We have continuously invested the capital necessary to expand our manufacturing throughput and improve our manufacturing processes.
We use Six Sigma and Lean Manufacturing methodologies throughout our Company within our plant operations and in the planning and execution of certain projects. 5 Table of Contents Our manufacturing processes require significant capital investment, expertise and time to develop. We have continuously invested the capital necessary to expand our manufacturing throughput and improve our manufacturing processes.
Each of our manufacturing sites has a dedicated health and safety (EHS) manager and committee. The Site EHS Managers ensure safety is at the forefront of our manufacturing operations every day. Employee representatives on the Site Safety Committee meet monthly to collect, discuss and act upon safety feedback from their colleagues.
Each of our manufacturing sites has a dedicated health and safety (EHS) coordinator and committee. The Site EHS Managers ensure safety is at the forefront of our manufacturing operations every day. Employee representatives on the Process Safety Committee meet monthly to collect, discuss and act upon safety feedback from their colleagues.
Our active Site Safety Committees perform safety audits and observations, review and trend all incidents, and participate in all Pre-Startup Safety Reviews and are an example of our robust employee engagement in safety.
Our active Process Safety Committees perform safety audits and observations, review and trend all incidents, and participate in all Pre-Startup Safety Reviews and are an example of our robust employee engagement in safety.
The emissions of particulates and other substances from our manufacturing facilities must meet federal and state air quality standards implemented through air permits issued to us by the Department of Environmental Quality of the Commonwealth of Virginia, and the Division of Environmental Protection of Nevada’s Department of Conservation and Natural Resources.
The emissions of particulates and other substances from our manufacturing facilities must meet federal and state air quality standards implemented through air permits issued to us by the Department of Environmental Quality of the Commonwealth of Virginia, the Division of Environmental Protection of Nevada’s Department of Conservation and Natural Resources, and the Division of Environmental Quality of Arkansas’ Department of Energy and Environment.
From continuous improvement in our manufacturing practices that reduce the use of energy to making products using industry leading high levels of reclaimed and recycled materials, the Company is able to improve the use of resources, 10 Table of Contents greenhouse gas emissions, and waste streams.
From continuous improvement in our manufacturing practices that reduce the use of energy to making products using industry leading high levels of reclaimed and recycled materials, the Company is able to improve the use of resources, greenhouse gas emissions, and waste streams.
Long term, the Company is committed to pursuing Occupational Health and Safety Administration Voluntary Protection Program (VPP) recognition and is an active participant in state level VPP development programs. The Company is a member of the Voluntary Protection Program Participants Association, the National Safety Council, and the National Fire Protection Association.
Long term, the Company is committed to pursuing Occupational Health and Safety Administration Voluntary Protection Program (VPP) recognition and is an active participant in state level VPP 11 Table of Contents development programs. The Company is a member of the Voluntary Protection Program Participants Association, the National Safety Council, and the National Fire Protection Association.
As stated above, our Vendor and 5 Table of Contents Customer Code of Conduct and Ethics, our Company Code of Conduct and Ethics, and our Human Rights Policy apply to all suppliers of the Company. The production of most of our decking products requires a supply of reclaimed wood fiber and scrap polyethylene.
As stated above, our Vendor and Customer Code of Conduct and Ethics, our Company Code of Conduct and Ethics, and our Human Rights Policy apply to all suppliers of the Company. The production of most of our decking products requires a supply of reclaimed wood fiber and scrap polyethylene.
We do not generally register any of our copyrights with the U.S. Copyright Office but rely on the protection afforded to such copyrights by the U.S. Copyright Act. This law provides protection to authors of original works, whether published or unpublished, and whether registered or unregistered. We have one current U.S. Patent for decking technology.
We do not generally register any of our copyrights with the U.S. Copyright Office but rely on the protection afforded to such copyrights by the U.S. Copyright Act. This law provides protection to authors of original works, whether published or unpublished, and whether registered or unregistered. We have two current U.S. Patents for decking technology.
We believe we compete 7 Table of Contents favorably with respect to these factors. We believe that our products offer aesthetic and cost advantages over the life of a deck when compared to other types of decking and railing materials.
We believe we compete favorably with respect to these factors. We believe that our products offer aesthetic and cost advantages over the life of a deck when compared to other types of decking and railing materials.
Intellectual property rights may be challenged by third parties and may not exclude competitors from using the same or similar technologies, brands or works. We seek to secure effective rights for our intellectual property 8 Table of Contents but cannot provide assurance that third parties will not successfully challenge, or avoid infringing, our intellectual property rights.
Intellectual property rights may be challenged by third parties and may not exclude competitors from using the same or similar technologies, brands or works. We seek to secure effective rights for our intellectual property but cannot provide assurance that third parties will not successfully challenge, or avoid infringing, our intellectual property rights.
Special characteristics (including resistance to splitting, the ability to bend, and ease and consistency of machining and finishing) facilitate installation, reduce contractor call-backs and afford consumers a wide range of design options.
Special characteristics (including resistance to splitting, the ability to bend, and ease and consistency of machining and finishing) facilitate installation, reduce contractor call-backs and afford 3 Table of Contents consumers a wide range of design options.
The distributor purchases our products at prices in effect at the time we ship the product to the distributor. 4 Table of Contents Home Depot and Lowe’s. We sell our products through Home Depot and Lowe’s stores. Home Depot and Lowe’s purchase products directly from us for stocking on their shelves.
The distributor purchases our products at prices in effect at the time we ship the product to the distributor. Home Depot and Lowe’s. We sell our products through Home Depot and Lowe’s stores. Home Depot and Lowe’s purchase products directly from us for stocking on their shelves.
In the years ended December 31, 2022, 2021, and 2020, sales to certain customers of Trex Residential accounted for 10% or more of the Company’s total net sales. For the years ended December 31, 2022, 2021, and 2020, three customers of Trex Residential represented approximately 64%, 61%, and 56%, respectively, of the Company’s total net sales.
In the years ended December 31, 2023, 2022, and 2021, sales to certain customers of Trex Residential accounted for 10% or more of the Company’s total net sales. For the years ended December 31, 2023, 2022, and 2021, three customers of Trex Residential represented approximately 72%, 64%, and 61%, respectively, of the Company’s total net sales.
Construction began on the new facility in the second quarter of 2022, and in July 2022, we entered into a design-build agreement. As previously announced, we anticipate spending approximately $400 million on the facility and the budget for the design-build agreement is contained within this amount.
Construction began on the new facility in the second quarter of 2022, and in July 2022, we entered into a design-build agreement. We anticipate spending approximately $450 million on the facility and the budget for the design-build agreement is contained within this amount.
In addition, in the 2022 second quarter we launched Trex Academy, an online multimedia content hub dedicated to helping the Trex Residential Do-It-Yourself customer bring their deck dreams to life by providing how-to content.
In addition, Trex Academy is an online multimedia content hub dedicated to helping the Trex Residential Do-It-Yourself customer bring their deck dreams to life by providing how-to content.
Seasonal, erratic or prolonged adverse weather conditions in certain geographic regions reduce the level of home improvement and construction activity and can shift demand for its products to a later period.
Seasonal, erratic or prolonged adverse weather conditions may reduce the level of home improvement and construction activity and can shift demand for our products to a later period.
Trex Commercial designed and engineered custom railing solutions, which are prevalent in professional and collegiate sports facilities, standardized architectural and aluminum railing systems, which targeted commercial and high-rise applications, and custom staging systems for the performing arts, sports, and event production and rental market.
Trex Commercial designed and engineered custom railing solutions prevalent in professional and collegiate sports facilities, standardized architectural and aluminum railing systems targeted at commercial and high-rise applications, and custom staging systems for the performing arts, sports, and event production and rental market. Trex Commercial marketed to architects, specifiers, contractors, and building owners.
Trex Residential is the world’s largest manufacturer of high-performance, low-maintenance, eco-friendly wood-alternative composite decking and railing, with more than 30 years of product experience. Trex outdoor living products are marketed under the brand name Trex ® and manufactured in the United States.
See related information in Note 3 to the Consolidated Financial Statements to this Form 10-K. Trex Residential is the world’s largest manufacturer of high-performance, low-maintenance, eco-friendly wood-alternative composite decking and railing, with more than 30 years of product experience. Trex outdoor living products are marketed under the brand name Trex ® and manufactured in the United States.
Also, environmental matters relevant to the Company’s operations are the responsibility of the President and Chief Executive Officer, the President of Trex Residential, the President of Trex Commercial, the Senior Vice President and Chief Financial Officer, the Senior Vice President, Chief Legal Officer and Secretary, and the Vice President, General Counsel and Assistant Secretary.
Also, environmental matters relevant to the Company’s operations are the responsibility of the President and Chief Executive Officer, the Executive Vice President and Chief Operating Officer, the Senior Vice President and Chief Financial Officer, and the Senior Vice President, Chief Legal Officer and Secretary.
Trex Select Railing, made from approximately 40 percent recycled content, is offered in a white finish and is ideal for consumers who desire a simple clean finished look for their deck. Trex Signature aluminum railing, made from a minimum of 40 percent recycled content, is available in three colors and designed for consumers who want a sleek, contemporary look.
Trex Select Railing, made from approximately 40 percent recycled content, is offered in a white finish and is ideal for consumers who desire a simple clean finished look for their deck.
We intend to maintain our existing patent in effect until it expires as well as to seek additional patents as we consider appropriate. We enter into confidentiality agreements with our employees and limit access to and distribution of our proprietary information.
We intend to maintain our existing patents in effect until they expire on January 15, 2038 and May 23, 2038, respectively, as well as to seek additional patents as we consider appropriate. We enter into confidentiality agreements with our employees and limit access to and distribution of our proprietary information.
If the reclaimed wood fiber meets our specifications, our reclaimed wood fiber supply agreements generally require us to purchase at least a specified minimum and at most a specified maximum amount of reclaimed wood fiber.
In addition, we purchase scrap select wood chips generated from various farming operations. If the reclaimed wood fiber meets our specifications, our reclaimed wood fiber supply agreements generally require us to purchase at least a specified minimum and at most a specified maximum amount of reclaimed wood fiber.
We believe that our relationships with our employees are favorable, and we have not had any serious complaints or claims over the last three years. Our Human Rights Policy sets forth our values related to working conditions and human rights, and it underscores our philosophy about the way we conduct our business. The policy is available at www.trex.com/our-company.
Our employees are not covered by collective bargaining agreements and we believe that our relationships with our employees are favorable. Our Human Rights Policy sets forth our values related to working conditions and human rights, and it underscores our philosophy about the way we conduct our business. The policy is available at www.trex.com/our-company .
We purchased substantially all of our aluminum, stainless steel and glass under purchase orders, which did not involve long-term supply commitments. Training Trex University is our state-of-the-art training facility located near our Virginia manufacturing plant designed to educate and train retailers, contractors and other partners on the benefits of Trex Residential aesthetically pleasing, high-performance, low-maintenance, eco-friendly outdoor living products.
Training Trex University is our state-of-the-art training facility located near our Virginia manufacturing plant designed to educate and train retailers, contractors and other partners on the benefits of Trex Residential aesthetically pleasing, high-performance, low-maintenance, eco-friendly outdoor living products.
We strive to be an industry leader in terms of hourly wages, salary and total compensation. We use a compensation grade structure as part of our process to determine the appropriate grade level for each position at Trex. As a result, we set the pay range for each position before considering who we might hire to fill that role.
We have a strong track record as an industry leader in terms of hourly wages, salary and total compensation. We use a compensation grade structure as part of our process to determine the appropriate grade level for each position at Trex.
Products Operations and Products: The Company operated in two reportable segments during the three years ended December 31, 2022: Trex Residential Products (Trex Residential), the Company’s principal business based on net sales, and Trex Commercial Products (Trex Commercial).
The Company operated in two reportable segments during the years ended December 31, 2022, and December 31, 2021: Trex Residential Products (Trex Residential), the Company’s principal business based on net sales, and Trex Commercial Products (Trex Commercial). On December 30, 2022, the Company sold substantially all of the assets of its wholly-owned subsidiary and reportable segment, Trex Commercial Products, Inc.
Trex Residential’s high-performance, low-maintenance composite decking is made from 95% recycled and reclaimed materials. The Company’s commitment to improving our environmental footprint includes developing and offering more sustainable products to the market as well as advancing sustainability and efficiency in our operations.
The Company’s commitment to improving our environmental footprint includes developing and offering more sustainable products to the market as well as advancing sustainability and efficiency in our operations.
Our Trex Transcend decking provides elevated aesthetics paired with the highest level of performance and is available in eight multi-tonal monochromatic classical earth tones and premium tropical colors. Trex Signature decking offers realistic woodgrain aesthetics that raises the bar for beauty, performance and sustainability and is available in two luxurious hues inspired by stunning natural settings.
Trex Signature decking offers realistic woodgrain aesthetics that raises the bar for beauty, performance and sustainability and is available in two luxurious hues inspired by stunning natural settings.
Combined, these aspects yield significant aesthetic advantages and lower maintenance than wood decking and railing and ultimately render Trex Residential products less costly than wood over the life of the deck. 2 Table of Contents We have received product building code listings from the major U.S. building code listing agencies for decking and railing and from the major Canadian building code listing agency for decking.
Combined, these aspects yield significant aesthetic advantages and lower maintenance than wood decking and railing and ultimately render Trex Residential products less costly than wood over the life of the deck.
Trex Residential decking products 11 Table of Contents meet LEED requirements for builders and our commercial products have contributed to the LEED certifications of some high-profile venues. LEED is a point-based system designed to reward points to building projects that incorporate efficient, and safe eco-friendly products, leading to a building’s designation as LEED Silver, Gold or Platinum.
LEED is a point-based system designed to reward points to building projects that incorporate efficient, and safe eco-friendly products, leading to a building’s designation as LEED Silver, Gold or Platinum.
All of our polyethylene purchases are under short-term supply contracts that generally have a term of approximately one to two years for which pricing is negotiated as needed, or under purchase orders that do not involve long-term supply commitments. • Reclaimed Wood Fiber : Cabinet and flooring manufacturers are our preferred suppliers of reclaimed wood fiber because the reclaimed wood fiber produced by these operations contains little contamination and is low in moisture.
All of our polyethylene purchases are under short-term supply contracts that generally have a term of approximately one year for which pricing is negotiated as needed, or under purchase orders that do not involve long-term supply commitments. • Reclaimed Wood Fiber : Most of our reclaimed wood supply originates in North America through relationships with cabinet makers, wood flooring manufacturers, sawmills, lumberyards and other entities that generate and collect wood byproducts in their operations.
Trex Residential products offer a number of significant aesthetic advantages over wood while eliminating many of wood’s major functional disadvantages, which include warping, splitting and other damage from moisture.
The top and bottom rails of Trex fencing are designed to provide a “picture frame’ element and the deep rich colors have a matte surface to prevent harsh sunlight reflections. Trex Residential products offer a number of significant aesthetic advantages over wood while eliminating many of wood’s major functional disadvantages, which include warping, splitting and other damage from moisture.
Manufacturing Process Products manufactured at our Trex Residential manufacturing facilities in Virginia and Nevada are primarily manufactured from reclaimed wood fiber and scrap polyethylene. Our primary manufacturing process for the products involves mixing wood particles with plastic, heating and then extruding, or forcing, the highly viscous and abrasive material through a profile die.
Our primary manufacturing process for the products involves mixing wood particles with plastic, heating and then extruding, or forcing, the highly viscous and abrasive material through a profile die. We use many proprietary and skill-based advantages in our eco-friendly manufacturing process.
Our ability to source and use a wide variety of polyethylene from third party distribution and manufacturing operations is important to our cost strategy. We maintain this ability through the continued expansion of our plastic reprocessing operations in combination with the advancement of our proprietary material preparation and extrusion processes.
We maintain this ability through the continued expansion of our plastic reprocessing operations in combination with the advancement of our proprietary material preparation and extrusion processes. 6 Table of Contents In addition, we outsource the production of certain products to third-party manufacturers.
Trex Commercial: We sold our modular and architectural railing and staging systems to the commercial and multifamily market, including sports stadiums and performing arts venues, primarily to facility owners and general contractors throughout the country. We marketed these products through our direct sales staff, independent sales representatives, and bidding on projects.
No other customer represented 10% or more of the Company’s total net sales. Trex Commercial: Prior to the sale of Trex Commercial on December 30, 2022, we sold modular and architectural railing and staging systems to the commercial and multifamily market, including sports stadiums and performing arts venues, primarily to facility owners and general contractors throughout the country.
Railing Our railing products are Trex Transcend Railing, Trex Select Railing, and Trex Signature ® aluminum railing. Our high-performance composite and aluminum deck railing kits and systems are sustainably manufactured, easy to install and durable. Trex railing systems are built with the same durability as Trex decking and won’t rot, warp, peel or splinter and resist fading and corrosion.
Trex railing systems are built with the same durability as Trex decking and will not rot, warp, peel or splinter and resist fading and corrosion.
Customers and Distribution We are committed to conducting business activities with the highest standards of business ethics and in accordance with all applicable laws and regulations.
Through the date of sale of Trex Commercial on December 30, 2022, Trex offered the following products through Trex Commercial: • Architectural railing systems; • Aluminum railing systems; and • Staging equipment and accessories. 4 Table of Contents Customers and Distribution We are committed to conducting business activities with the highest standards of business ethics and in accordance with all applicable laws and regulations.
The listings facilitate the acquisition of building permits by deck builders and promote consumer and industry acceptance of our products as an alternative to wood decking. We are a licensor in a number of licensing agreements with third parties to manufacture and sell products under the Trex trademark.
We are a licensor in a number of licensing agreements with third parties to manufacture and sell products under the Trex trademark. Our licensed products are: Trex ® Outdoor Furniture ™ A line of outdoor furniture products manufactured and sold by PolyWood, Inc.
Trex SpiralStairs ™ and Structural Steel Posts and Trex Signature Assembled Stair Panels A staircase alternative and structural steel posts for use with all deck substructures manufactured and sold by M. Cohen and Sons, Inc. dba The Iron Shop. Trex Outdoor Kitchens, Cabinetry and Storage Outdoor kitchens, cabinetry and storage manufactured and sold by Danver Stainless Outdoor Kitchens.
Trex ® SpiralStairs A staircase alternative for use with all deck substructures manufactured and sold by SS Industries dba Paragon Stairs. Trex ® Outdoor Kitchens ™ Outdoor kitchen cabinetry manufactured and sold by Danver Outdoor Kitchens.
Each employee is notified of the whistle-blower policy and a toll-free hotline is provided for reporting issues directly to the Board of Directors and the Company’s General Counsel. Environmental and Occupational Safety Environmental The Company has been committed to sustainability since our inception more than 30 years ago, creating eco-friendly products from reclaimed and recycled materials.
Environmental and Occupational Safety Environmental The Company has been committed to sustainability since our inception more than 30 years ago, creating eco-friendly products from reclaimed and recycled materials. Trex Residential’s high-performance, low-maintenance composite decking is made from 95% recycled and reclaimed materials.
Trex Select decking offers the perfect pairing of price and minimal maintenance and is available in five nature-inspired earth tone colors. Our Trex Enhance boards pair the beauty of authentic wood-grain appearance with the durability of composite with minimal maintenance and the affordability of wood and is available in natural and basic colors.
Our Trex Enhance boards pair the beauty of authentic wood-grain appearance with the durability of composite with minimal maintenance and the affordability of wood and is available in natural and basic colors. We also offer accessories to our decking products. Trex Hideaway ® , a self-gapping universal hidden fastener designed to give a seamless finish to every project.
It can be installed into the railing, stair risers or the deck itself. The line includes a post cap light, deck rail light, riser light, a soffit light and a recessed deck light. Pre-assembled stair panels that allow for easier installation and are designed to save time on the jobsite.
Trex DeckLighting ™ , an outdoor lighting system, is a line of energy-efficient LED dimmable deck lighting designed to use 75% less energy compared to incandescent lighting. It can be installed into the railing, stair risers or the deck itself. The line includes a post cap light, deck rail light, riser light, a soffit light and a recessed deck light.
If it is necessary to disclose proprietary information to third parties for business reasons, we require that such third parties sign a confidentiality agreement prior to any disclosure. Human Capital We are committed to furthering our stature as the highest quality, pre-eminent decking brand in the world, while delivering robust value to our shareholders.
If it is necessary to disclose proprietary information to third parties for business reasons, we require that such third parties sign a confidentiality agreement prior to any disclosure. 8 Table of Contents Human Capital As of December 31, 2023, Trex employed 1,765 full-time employees.
Market Recognition of Trex Brand’s Environmental Characteristics The Company’s internal standards for environmental stewardship and product integrity are recognized year-over-year in the marketplace. Trex was named one of 2022’s 50 Best U.S. Manufacturers by Industry Week and was named to Forbes’ 2021 List of America’s Best Mid-Sized Companies – ranking #12 overall on the list of 100 companies.
Market Recognition of Trex Brand’s Environmental Characteristics The Company’s internal standards for environmental stewardship and product integrity are recognized year-over-year in the marketplace. Trex Transcend ® Lineage ™ was named as a 2023 Sustainable Product of the Year by Green Builder Media.
Our licensed products are: Trex Outdoor Furniture ™ A line of outdoor furniture products manufactured and sold by PolyWood, Inc. Trex RainEscape ® An above joist deck drainage system manufactured and sold by DriDeck Enterprises, LLC. Trex Pergola ™ Pergolas made from low maintenance cellular PVC and all-aluminum product, manufactured by Home & Leisure, Inc. dba Structureworks Fabrication.
Trex RainEscape Soffit Light is a plug-and-play LED Soffit light that is installed in the under-deck ceiling of a two-story deck. Trex Seal Ledger Flashing tape is butyl flashing tape with an aluminum liner. Trex ® Pergola ™ Pergolas made from low maintenance cellular PVC and all-aluminum product, manufactured by Home & Leisure, Inc. dba Structureworks Fabrication.
In addition, Lifestory Research’s America’s Most Trusted ® survey named Trex America’s Most Trusted Outdoor Decking Brand – receiving the only five-star rating in the decking category. Trex environmental benefits are recognized by the receipt of the Leadership in Energy and Environmental Design (LEED) certification by the United States Green Building Council.
Trex environmental benefits are recognized by the receipt of the Leadership in Energy and Environmental Design (LEED) certification by the United States Green Building Council. Trex Residential decking products meet LEED requirements for builders and our commercial products have contributed to the LEED certifications of some high-profile venues.
Our principal executive offices are located at 160 Exeter Drive, Winchester, Virginia 22603, and our telephone number at that address is (540) 542-6300.
The Company is the world’s largest manufacturer of composite decking and railing products, which are marketed under the brand name Trex ® and manufactured in the United States. Our principal executive offices are located at 2500 Trex Way, Winchester, Virginia 22601, and our telephone number at that address is (540) 542-6300.
In addition, we regularly review our compensation structures for signs of emerging inequities along gender or ethnicity lines as well as market competitiveness. Corporate Governance Information related to the Company’s governance and related activities and programs may be found in the Company’s Definitive Proxy Statement filed on March 22, 2022 in Schedule 14A.
As a result, we set the pay range for each position before considering who we might hire to fill that role. In addition, we regularly review our compensation structures for signs of emerging inequities along gender or ethnicity lines as well as market competitiveness.
The strategy also offers opportunities to partner with organizations that appeal to these talent groups, to increase our employer brand exposure, and to help sustain diversity and recruitment efforts. As an equal opportunity employer, Trex is committed to providing fair and equitable pay for all employees across the Company.
We continue to find new ways to increase opportunities for underrepresented team members, including offering English language classes for non-native speakers and partnering with local agencies to provide employment opportunities to neuro-diverse candidates. As an equal opportunity employer, Trex is committed to providing fair and equitable pay for all employees across the Company.
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The Company is the world’s largest manufacturer of composite decking and railing products, which are marketed under the brand name Trex ® and manufactured in the United States. In addition, Trex provided custom-engineered railing and staging systems for the commercial and multi-family market, including sports stadiums and performing arts venues.
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Business and Growth Strategies More than 30 years ago, Trex invented the composite decking category.
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On December 30, 2022, the Company sold substantially all of the assets of its wholly-owned subsidiary and reportable segment, Trex Commercial Products, Inc. See related information in Note 3 to the Consolidated Financial Statements to this Form 10-K.
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Today, Trex continues to reinvent and redefine outdoor living with a commitment to innovation and growth that has made Trex the world’s #1 brand of sustainably made wood-alternative decking and deck railing, along with a comprehensive portfolio of sustainable, high performance, low-maintenance outdoor living products including fencing, cladding, fasteners, and outdoor lighting.
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We also offer accessories to our decking products. Trex Hideaway ® , a self-gapping universal hidden fastener designed to give a seamless finish to every project. Trex DeckLighting ™ , an outdoor lighting system, is a line of energy-efficient LED dimmable deck lighting designed to use 75% less energy compared to incandescent lighting.
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Helping homeowner’s design outdoor spaces that reflect their individual styles and budgets, coupled with products at various price points makes Trex the leading brand for homeowners seeking to invest in their outdoor living spaces.
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Trex Commercial marketed to architects, specifiers, contractors, and building owners. 3 Table of Contents Through the date of sale of Trex Commercial on December 30, 2022, Trex offered the following products through Trex Commercial: Architectural Railing Systems The architectural railing systems were pre-engineered guardrails with options to accommodate styles ranging from classic and elegant wood top rail combined with sleek stainless components and glass infill, to modern and minimalist stainless cable and rod infill choices.
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Trex’s ability to leverage strong brand awareness and a product offering with the advantages of sustainability, low-maintenance, and durability to help fuel conversion from wood decking and railing to Trex positions our Company well within the large and expanding Outdoor Living market. Key to Trex’s leadership and growth is the strength of the Trex brand.
Removed
Trex Commercial also designed, engineered and manufactured custom railing systems tailored to the customer’s specific material, style and finish. Many railing styles included glass, mesh, perforated railing and cable railing.
Added
Marketing investments focused on homeowners’ needs and wants drove brand awareness to its highest level in a decade, with 90% of people surveyed being aware of the Trex brand, while products for every price point help drive profitable growth and wood conversion.
Removed
Aluminum Railing Systems The Trex Signature aluminum railings, made from a minimum of 40 percent recycled content, were a versatile, cost-effective and low-maintenance choice for a variety of interior and exterior applications that blended form, function and style.
Added
Brand strength coupled with an unparalleled distribution and pro-channel dealer network and a leading brand presence at major home improvement retailers ensures that homeowners can find Trex products wherever and whenever they choose. As the inventor of composite decking, Trex is known for delivering innovative products leveraging the proprietary and skill-based advantages in our eco-friendly manufacturing process.
Removed
Its straightforward, unobtrusive design featured traditional balusters and contemporary vertical rods, and could be installed with continuously graspable rail options for added safety, comfort and functionality. Aluminum railings were available in a variety of colors and stock lengths to accommodate project needs.
Added
We continue to extract value from the materials by broadening our material streams, implementing new material processes, and developing the next generation of low-cost materials.
Removed
Staging Equipment and Accessories The advanced modular, lightweight custom staging systems, including portable platforms and other custom applications, provided superior staging product solutions for facilities and venues with custom needs. The modular stage equipment was designed to appear seamless, feel permanent, and maximize the functionality of the space.
Added
Our growth and margin expansion strategy positions us well to expand our leadership position in the category with beautiful, high performance, low-maintenance products and includes the following initiatives: • Accelerate material conversion from wood. • Expand our market by introducing new products that are innovative, eco-friendly and durable. • Leverage brand leadership to drive customer demand. • Increase the number of stocking dealers and retailers by leveraging our market-leading channel relationships. • Drive margin expansion by continually improving our polyethylene recycling capabilities and manufacturing productivity. • Execute strategic acquisitions that expand our product offerings and/or enrich our manufacturing process. 1 Table of Contents Products Operations and Products: The Company operated in one reportable segment during the year ended December 31, 2023: Trex Residential.
Removed
We use many proprietary and skill-based advantages in our eco-friendly manufacturing process. Products manufactured at our Trex Commercial manufacturing facility in Minnesota were primarily manufactured from aluminum and stainless steel. The primary manufacturing process for these products involved cutting, machining, welding and finishing.
Added
Our Trex Transcend decking provides elevated aesthetics paired with the highest level of performance and is available in eight multi-tonal monochromatic classical earth tones and premium tropical colors. Trex Select decking offers the perfect pairing of price and minimal maintenance and is available in five nature-inspired earth tone colors.
Removed
These facilities generate reclaimed wood fiber as a byproduct of their manufacturing operations. In addition, we purchase scrap select wood chips generated from various farming operations.
Added
Pre-assembled stair panels that allow for easier installation and are designed to save time on the jobsite. Railing Our railing products are Trex Transcend Railing, Trex Select Railing, Trex Select T-Rail, and Trex Signature ® aluminum railing. Our high-performance composite and aluminum deck railing kits and systems are sustainably manufactured, easy to install and durable.
Removed
In addition, we outsource the production of certain products to third-party manufacturers. The production of our commercial products required a supply of aluminum, stainless steel and glass components. We used multiple sources for each material to ensure consistent availability of material and competitive pricing.
Added
Trex Select T-Rail, made from a minimum of 40 percent recycled materials, is available in square composite balusters in Classic White for a cohesive, coordinated look, or round aluminum balusters in Charcoal Black for a more modern contrast.
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Item 1A. Risk Factors
Risk Factors — what could go wrong, per management
38 edited+7 added−8 removed38 unchanged
Item 1A. Risk Factors
Risk Factors — what could go wrong, per management
38 edited+7 added−8 removed38 unchanged
2022 filing
2023 filing
Biggest changeThe recognition of goodwill may result in an impairment charge to our earnings if circumstances change and reduce the fair value of the goodwill acquired below its carrying amount. We have made and may continue to make significant investments in new manufacturing facilities, upgrading our existing facilities and acquiring businesses or operations.
Biggest changeWe have made and may continue to make significant investments in new manufacturing facilities, upgrading our existing facilities and acquiring businesses or operations. These investments sometimes involve the implementation of new technologies and replacement of existing equipment.
Our ability to compete depends, in part, upon a number of factors outside our control, including the ability of competitors to develop new alternatives that are more competitive with Trex products. Our ability to identify and respond to emerging consumer demands and preferences for Trex Residential products depends, in part, on how successfully we develop, manufacture and market new products.
Our ability to compete depends, in part, upon a number of factors outside our control, including the ability of competitors to develop new alternatives that are more competitive with Trex products. Our ability to identify and respond to emerging consumer demands and preferences for our products depends, in part, on how successfully we develop, manufacture and market new products.
Accordingly, our future level of indebtedness and the terms of our borrowings could have important consequences. 19 Table of Contents Risks Related to Other Matters Risk Discussion Description Our business, results of operations and financial condition may be disrupted and adversely affected by global public health pandemics or geopolitical conflicts.
Accordingly, our future level of indebtedness and the terms of our borrowings could have important consequences. 18 Table of Contents Risks Related to Other Matters Risk Discussion Description Our business, results of operations and financial condition may be disrupted and adversely affected by global public health pandemics or geopolitical conflicts.
Any increased energy or compliance costs and expenses may cause disruptions in, or an increase in the costs associated with, the manufacturing and distribution of our products. 20 Table of Contents Risk Discussion Description Cyberattacks and other security breaches could compromise our proprietary and confidential information which could harm our business and reputation.
Any increased energy or compliance costs and expenses may cause disruptions in, or an increase in the costs associated with, the manufacturing and distribution of our products. 19 Table of Contents Risk Discussion Description Cyberattacks and other security breaches could compromise our proprietary and confidential information which could harm our business and reputation.
Risks Related to the Manufacture of Our Product Risk Discussion Description Our Trex Residential business is dependent on consistently producing a product which is available when needed to meet the demands of our customers. As our business grows, we must adjust capacity to meet customer needs and provide increased throughput on our existing capacity.
Risks Related to the Manufacture of Our Product Risk Discussion Description Our business is dependent on consistently producing a product which is available when needed to meet the demands of our customers. As our business grows, we must adjust capacity to meet customer needs and provide increased throughput on our existing capacity.
Impact Our Trex Residential sales growth and profitability could suffer from our failure to effectively pair supply and demand for our products. Our customers’ demands for varying quantities of products and delivery items throughout the year, and increased demand year to year, require monitoring and the ability to adjust production in accordance with these demands.
Impact Our sales growth and profitability could suffer from our failure to effectively pair supply and demand for our products. Our customers’ demands for varying quantities of products and delivery items throughout the year, and increased demand year to year, require monitoring and the ability to adjust production in accordance with these demands.
Our ability to grow depends, in part, on our success in continuing to convert demand for wood products into demand for composite Trex Residential products. Many of the conventional lumber suppliers with which we compete have established ties to the building and construction industry and have well-accepted products.
Our ability to grow depends, in part, on our success in continuing to convert demand for wood products into demand for our composite products. Many of the conventional lumber suppliers with which we compete have established ties to the building and construction industry and have well-accepted products.
Our Trex Residential products are generally purchased shortly before installation and used in outdoor environments. As a result, there is a correlation between the amount of product we sell and weather conditions during the time they are to be installed.
Our products are generally purchased shortly before installation and used in outdoor environments. As a result, there is a correlation between the amount of product we sell and weather conditions during the time they are to be installed.
Failure to do so can lead to lost or reduced sales and have a negative effect on earnings. In order to meet Trex Residential customer demand in a timely manner, we must adjust capacity to meet customer needs and provide increased throughput on our existing capacity.
Failure to do so can lead to lost or reduced sales and have a negative effect on earnings. In order to meet customer demand in a timely manner, we must adjust capacity to meet customer needs and provide increased throughput on our existing capacity.
Impact Our failure to compete successfully could have a material adverse effect on the ability of Trex Residential to replace wood products or increase our market share amongst wood-alternative products. • If our Trex Residential products do not meet emerging demands and preferences, we could lose market share, which could have a material adverse effect on our business. • In addition, substantially all of our revenues are derived from sales of our proprietary wood/polyethylene composite material.
Impact Our failure to compete successfully could have a material adverse effect on our ability replace wood products or increase our market share amongst wood-alternative products. • If our products do not meet emerging demands and preferences, we could lose market share, which could have a material adverse effect on our business. • In addition, substantially all of our revenues are derived from sales of our proprietary wood/polyethylene composite material.
Impact If we are unable to produce high-quality products at standard manufacturing rates and yields, unit costs may be higher. A lack of product performance could impede acceptance of our products in the marketplace and negatively affect our profitability. Future increases to our Trex Residential warranty reserve could have a material adverse effect on our profitability and cash flows.
Impact If we are unable to produce high-quality products at standard manufacturing rates and yields, unit costs may be higher. A lack of product performance could impede acceptance of our products in the marketplace and negatively affect our profitability. Future material increases to our warranty reserve could have a significant adverse effect on our profitability and cash flows.
At the same time, we would expand our marketing campaigns, including campaigns to highlight the advantages of Trex Residential decking over wood, as well as campaigns focused on innovation and new product development that further strengthens our consumer brand and distribution advantages. 18 Table of Contents In general, we believe that an effect of inflation would be a short-term disruption and that, over time, we would offset increased input costs through cost reduction projects, purchasing strategies, and increased production efficiencies and improvement opportunities to enhance our margins.
At the same time, we would expand our marketing campaigns, including campaigns to highlight the advantages of our decking over wood, as well as campaigns focused on innovation and new product development that further strengthens our consumer brand and distribution advantages. 17 Table of Contents In general, we believe that an effect of inflation would be a short-term disruption and that, over time, we would offset increased input costs through cost reduction projects, purchasing strategies, and increased production efficiencies and improvement opportunities to enhance our margins.
The demand for Trex Residential composite decking and railing products is influenced by the general health of the economy, the level of home improvement activity and, to a much lesser extent, new home construction. These factors are affected by home equity values, credit availability and interest rates, consumer confidence, income and spending habits, employment, inflation and general economic conditions.
The demand for our composite decking and railing products is influenced by the general health of the economy, the level of home improvement activity and, to a much lesser extent, new home construction. These factors are affected by home equity values, credit availability and interest rates, consumer confidence, income and spending habits, employment, inflation, and general economic conditions.
Any economic downturn or adverse changes in the home improvement market could reduce consumer income or equity capital available for spending on discretionary items, which could adversely affect the demand for our Trex Residential products.
Any economic downturn or adverse changes in the home improvement market could reduce consumer income or equity capital available for spending on discretionary items, which could adversely affect the demand for our products.
The manufacture of our Trex Residential composite decking and railing products requires substantial amounts of wood fiber and scrap polyethylene. Our business strategy is to create a substantial cost advantage over our competitors by using scrap polyethylene.
The manufacture of our composite decking and railing products requires substantial amounts of wood fiber and scrap polyethylene. Our business strategy is to create a substantial cost advantage over our competitors by using scrap polyethylene.
To increase our market share, we must overcome: • Lack of awareness of the enhanced value of composite products in general and Trex Residential brand products in particular; • Resistance of many consumers and contractors to change from well-established wood products; • Consumer lack of awareness that the greater initial expense of Trex Residential products compared to wood is a one-time cost that is reduced over time as Trex Residential products have lower maintenance costs and a longer life span than wood; • Established relationships existing between suppliers of wood products and contractors and homebuilders; 13 Table of Contents • Actual and perceived quality issues with first generation composite products; and • Competition from other wood-alternative manufacturers.
To increase our market share, we must overcome: • Lack of awareness of the enhanced value of composite products in general and our products in particular; 12 Table of Contents • Resistance of many consumers and contractors to change from well-established wood products; • Consumer lack of awareness that the greater initial expense of our products compared to wood is a one-time cost that is reduced over time as our products have lower maintenance costs and a longer life span than wood; • Established relationships existing between suppliers of wood products and contractors and homebuilders; • Actual and perceived quality issues with first generation composite products; and • Competition from other wood-alternative manufacturers.
Our primary competition for Trex Residential products consists of wood products, which constitute a substantial majority of decking, railing, fencing, and deck framing sales. Since composite products were introduced to the market in the late 1980s, their market acceptance has increased.
Our primary competition consists of wood products, which constitute a substantial majority of decking, railing, fencing, and deck framing sales. Since composite products were introduced to the market in the late 1980s, their market acceptance has increased.
Seasonal, erratic or prolonged adverse weather conditions in certain geographic regions may interfere with ordinary construction, delay projects or lead to cessation of construction involving our products. 15 Table of Contents Risk Discussion Description We depend on third parties for transportation services and the lack of availability of transportation and/or increases in cost could materially adversely affect our business and operations.
Seasonal, erratic or prolonged adverse weather conditions may interfere with ordinary construction, delay projects or lead to cessation of construction involving our products. 14 Table of Contents Risk Discussion Description We depend on third parties for transportation services and the lack of availability of transportation and/or increases in cost could materially adversely affect our business and operations.
Risk Discussion Description We may not be able to fully maintain or expand our Trex Residential wholesaler and dealer channels. Impact If Trex Residential fails to compete successfully for wholesale distributors and dealers, our business could experience material adverse effects, which could negatively impact profitability and cash flows.
Risk Discussion Description We may not be able to fully maintain or expand our wholesaler and dealer channels. Impact If we fail to compete successfully for wholesale distributors and dealers, our business could experience material adverse effects, which could negatively impact profitability and cash flows.
Our sourcing team must obtain raw materials on a timely basis at an appropriate volume. 16 Table of Contents Risk Discussion Description We have made and may continue to make significant capital investments in new and existing manufacturing facilities, and in acquired businesses or operations that may become impaired or obsolete and result in a charge to our earnings.
Our sourcing team must obtain raw materials on a timely basis at an appropriate volume. 15 Table of Contents Risk Discussion Description We have made and may continue to make significant capital investments in new and existing manufacturing facilities, that may become impaired or obsolete and result in a charge to our earnings.
Impact The loss of a significant customer could have a significant negative impact on our business, results of operations and financial condition. A limited number of our Trex Residential product customers account for a significant percentage of our sales.
Impact The loss of a significant customer could have a significant negative impact on our business, results of operations and financial condition. A limited number of our customers account for a significant percentage of our sales.
In order to successfully compete for wholesaler distributors, dealers and retail lumber outlets, we must accurately assess their customers’ needs and preferences. Risk Discussion Description Certain of our Trex Residential product customers account for a significant portion of our sales, and the loss of one or more of these customers could have an adverse effect on our business.
In order to successfully compete for wholesaler distributors, dealers and retail lumber outlets, we must accurately assess their customers’ needs and preferences. 13 Table of Contents Risk Discussion Description Certain of our customers account for a significant portion of our sales, and the loss of one or more of these customers could have an adverse effect on our business.
Trex Residential sells most of our composite decking and railing products through our network of wholesale distributors who, in turn, sell to retail lumber outlets. Our Trex Residential growth strategy depends on maintaining this network and on our ability to compete with other entities for these channels.
We sell most of our composite decking and railing products through our network of wholesale distributors who, in turn, sell to retail lumber outlets. Our growth strategy depends on maintaining and expanding this network and on our ability to compete with other entities for these channels.
Risk Discussion Description Periods of significant or prolonged inflation could affect our ability to obtain raw materials and transportation at acceptable prices and may negatively impact our profitability.
Risk Discussion Description Periods of significant or prolonged inflation could affect our ability to obtain manufacturing inputs at acceptable prices and may negatively impact our profitability.
These investments sometimes involve the implementation of new technologies and replacement of existing equipment. While we anticipate that these investments will increase production, improve efficiency, achieve cost savings or allow us to diversify into new product markets, we cannot be certain we will realize the benefits of these initiatives when anticipated or at all.
While we anticipate that these investments will increase production, improve efficiency, achieve cost savings, or allow us to diversify into new product markets, we cannot be certain we will realize the benefits of these initiatives when anticipated or at all.
In addition, the increasing concern over climate change may result in additional laws or regulations designed to reduce or mitigate the effects of carbon dioxide and other greenhouse gas emissions on the environment that could negatively impact our financial condition and results of operations.
In addition, the increasing concern over climate change may result in additional laws or regulations designed to reduce or mitigate the effects of carbon dioxide and other greenhouse gas emissions on the environment. Compliance with newly enacted laws and regulations could impose operational and compliance burdens which may negatively impact our financial condition and results of operations.
Risk Discussion Description The demand for our Trex Residential products is negatively affected by adverse weather conditions. Impact Seasonal, erratic, or prolonged adverse weather conditions may shift sales of Trex Residential products to future periods or decrease overall sales given the limited decking season in many locations, which could have a negative impact on our results of operations and liquidity.
Risk Discussion Description The demand for our outdoor living products may be negatively affected by seasonal, erratic, or prolonged adverse weather conditions. Impact Seasonal, erratic, or prolonged adverse weather conditions may shift sales of our products to future periods or decrease overall sales in affected locations, which could have a negative impact on our results of operations and liquidity.
Risk Discussion Description Our business is subject to risks in obtaining the raw materials we use. Impact Our business could suffer from the termination of significant sources of raw materials, the payment of higher prices for raw materials, the quality of available raw materials, or from the failure to obtain sufficient additional raw materials to meet planned increases in production.
Impact Our business could suffer from the termination of significant sources of raw materials, the payment of higher prices for raw materials, the quality of available raw materials, or from the failure to obtain sufficient additional raw materials to meet planned increases in production.
If the actual results differ from our estimates and assumptions, we may not achieve the benefits from the investments within the estimated time frame or not at all, which could adversely affect our financial condition and results of operations. In addition, our acquisitions have resulted in, and may in the future result in, the recognition of goodwill.
If the actual results differ from our estimates and assumptions, we may not achieve the benefits from the investments within the estimated time frame, if at all, which could adversely affect our financial condition and results of operations.
In addition to wood fiber and scrap polyethylene, we also use a small percentage of other materials in making our products, which are sometimes subject to volatility in supply and could negatively affect our profitability.
In addition to wood fiber and scrap polyethylene, we also use a small percentage of other materials in making our products, which are sometimes subject to volatility in supply and could negatively affect our profitability. We procure certain of the raw materials we use in the manufacturing of our products from suppliers located outside of the United States.
As of December 31, 2023, our business is subject to a number of risks, including the following: Risks Related to the Distribution and Sale of Our Product Risk Discussion Description We may not be able to grow unless we increase market acceptance of our products, compete effectively and develop new products and applications.
Item 1A. Risk Factors Our business operates in one reportable segment, Trex Residential, and is subject to a number of risks, including the following. Risks Related to the Distribution and Sale of Our Product Risk Discussion Description We may not be able to grow unless we increase market acceptance of our products, compete effectively and develop new products and applications.
Despite these proactive measures, there is no guarantee that these measures will prevent a cybersecurity incident. 21 Table of Contents Item 1B. Unresolved Staff Comments None.
Despite these proactive measures, there is no guarantee that these measures will prevent a cybersecurity incident that could have a material adverse effect on the Company. 20 Table of Contents Item 1B. Unresolved Staff Comments None.
Increases to the warranty reserve and payments for related claims have had a material adverse effect on our profitability and cash flows. 17 Table of Contents In the event lawsuits relating to alleged product quality issues are brought against us in the future, such lawsuits may be costly and could cause adverse publicity, which in turn could result in a loss of consumer confidence in our products and reduce our sales.
In the event lawsuits relating to alleged product quality issues are brought against us in the future, such lawsuits may be costly and could cause adverse publicity, which in turn could result in a loss of consumer confidence in our products and reduce our sales.
However, because the establishment of reserves is an inherently uncertain process involving estimates of the number of future claims and the average cost of claims, our ultimate losses may differ from our warranty reserve.
However, because the establishment of reserves is an inherently uncertain process involving estimates of the number of future claims and the average cost of claims, our ultimate losses may differ from our warranty reserve. Increases to the warranty reserve and payments for related claims have had a material adverse effect on our profitability and cash flows.
We have limited our financial exposure by settling a nationwide class action lawsuit that provides that a consumer’s remedy is limited to the replacement of product and a partial labor reimbursement.
We continue to receive and settle claims and maintain a warranty reserve related to decking product produced at our Nevada facility prior to 2007 that exhibits surface flaking. We have limited our financial exposure by settling a nationwide class action lawsuit that provides that a consumer’s remedy is limited to the replacement of product and a partial labor reimbursement.
Impact Our ability to achieve the expected benefits from our capital investments, such as increased production, improved efficiency, cost savings, or diversification into new product markets, is subject to estimates and assumptions, including economic, competitive, consumer preference, and other uncertainties.
In addition, underutilization of any such investments may result in reduced profitability through reduced gross profit and lower gross margins. Impact Our ability to achieve the expected benefits and returns from our capital investments, such as increased production, improved efficiency, cost savings, or diversification into new product markets, is subject to estimates, assumptions, and market risks.
We expect that a significant portion of our Trex Residential sales will continue to be sold through a small number of customers, and certain customers will continue to account for a significant portion of our sales. 14 Table of Contents Risk Discussion Description We have limited ability to project inventory build-ups in our Trex Residential distribution channel that can negatively affect our sales in subsequent periods.
We expect that a significant portion of our sales will continue to be sold through a small number of customers, and certain customers will continue to account for a significant portion of our sales. Risk Discussion Description Our operating results may vary quarter to quarter due to the level of inventory maintained in our distribution channel.
Product quality claims could increase our expenses, have a material adverse effect on demand for our products and decrease net sales, net income and liquidity. A number of class action lawsuits alleging defects in our products have been brought against us, all of which have been settled.
Product quality claims could increase our expenses, have a material adverse effect on demand for our products and decrease net sales, net income and liquidity. In order to expand our net sales and sustain profitable operations we must maintain the quality and performance of our products.
Removed
Item 1A. Risk Factors Through December 30, 2022, our Company operated in two reportable segments, Trex Residential and Trex Commercial. On December 30, 2022, we sold substantially all of the assets of our wholly owned subsidiary and reportable segment, Trex Commercial Products, Inc.
Added
For the years ended December 31, 2023, 2022, and 2021, three customers of Trex Residential represented approximately 72%, 64%, and 61%, respectively, of the Company’s total net sales.
Removed
Impact We cannot definitively determine the level of inventory in the Trex Residential distribution channels at any time and, therefore, have limited ability to precisely project inventory build-ups in the Trex Residential two-step distribution channel.
Added
Impact We have limited visibility to project inventory levels in our two-step distribution channel. Any sudden fluctuation in demand from our distribution partners may require us to quickly increase or decrease our manufacturing inputs and outputs. If we are unable to effectively respond in a timely manner our short-term results of operations may be negatively impacted.
Removed
Significant increases in inventory levels in the distribution channel without a corresponding change in end-use demand could have an adverse effect on the timing of future sales. Trex Residential sells most of our composite decking and railing products through our network of wholesale distributors who, in turn, sell to retail outlets.
Added
We sell our composite decking and railing products through our distribution channel who, in turn, sell to end-use consumers. Our distribution partners manage their inventory levels by forecasting demand for our products, placing orders for the products, and maintaining product inventories in order to meet consumer demand.
Removed
The seasonal nature of, and changing conditions in, our industry can result in substantial fluctuations in inventory levels of Trex Residential products carried in our two-step distribution channel.
Added
Inventory levels respond to a number of factors, including, without limitation, changes in product price, the number of competitors, product innovation, and the level of discretionary spending by consumers. Therefore, our operating results are subject to inventory stocking decisions made by our distribution partners and may vary quarter to quarter. Past performance will not necessarily indicate future performance.
Removed
Because of the seasonal nature of the demand for our products, our distribution channel partners must forecast demand for our products, place orders for the products, and maintain Trex Residential product inventories in advance of the prime deck-building season, which generally occurs in the latter part of the first calendar quarter through the third calendar quarter.
Added
A number of class action lawsuits alleging defects in our products have been brought against us, all of which have been settled. 16 Table of Contents Risk Discussion Description Our business is subject to risks in obtaining the raw materials we use.
Removed
Accordingly, our results for the second and third quarters are difficult to predict, and past performance will not necessarily indicate future performance.
Added
In addition, to the extent we source raw materials internationally changes in trade policies, including the imposition of tariffs, could negatively impact our business, financial condition, and results of operations.
Removed
Inventory levels respond to a number of changing conditions in our industry, including product price increases, increases in the number of competitive producers, the rapid pace of product introduction and innovation, changes in the levels of home-building and remodeling expenditures and the cost and availability of consumer credit.
Added
The imposition of tariffs and other potential changes in U.S. trade policy could increase the cost and/or limit the availability of raw materials, which could hurt our competitive position and adversely impact our business, financial condition and results of operations.
Removed
In order to expand our net sales and sustain profitable operations we must maintain the quality and performance of our products. Trex Residential continues to receive and settle claims and maintain a warranty reserve related to decking product produced at our Nevada facility prior to 2007 that exhibits surface flaking.
Item 2. Properties
Properties — owned and leased real estate
3 edited+0 added−0 removed3 unchanged
Item 2. Properties
Properties — owned and leased real estate
3 edited+0 added−0 removed3 unchanged
2022 filing
2023 filing
Biggest changeIn 2022, we spent a total of $176.2 million on capital expenditures, primarily at our Trex Residential facilities, including $85.7 million related to construction of our Arkansas facility, $39.2 million related to general plant cost reduction initiatives at our Virginia and Nevada facilities, $19.1 million related to our new corporate office development, and $17.6 million for general support, safety and environmental initiatives.
Biggest changeIn 2023, we spent a total of $166.1 million on capital expenditures, primarily at our Trex Residential facilities, including $98.0 million related to construction of our Arkansas facility, $23.9 million related to general plant cost reduction initiatives at our Virginia and Nevada facilities, $13.0 million related to our new corporate office development and $29.0 million for general support, safety and environmental initiatives.
Construction began on the new facility in the second quarter of 2022, and in July 2022, we entered into a design-build agreement. As previously announced, we anticipate spending approximately $400 million on the facility and the budget for the design-build agreement is contained within this amount.
Construction began on the new facility in the second quarter of 2022, and in July 2022, we entered into a design-build agreement. We anticipate spending approximately $450 million on the facility and the budget for the design-build agreement is contained within this amount.
Properties We own and lease certain properties, as noted in the below table: Square Footage/ Acres Leased / Owned Lease Expiration Dates Location Purpose Corporate Headquarters 39,250 SF Leased 2023 Virginia Office Space Corporate Headquarters 8 Acres Owned N/A Virginia Land Trex Residential 1,734,589 SF Leased 2023 – 2028 Virginia / Nevada/ Arkansas Warehouse, Research and Development, Storage, Training and Manufacturing Facilities Trex Residential 1,202,660 SF / 455 Acres Owned N/A Virginia / Nevada / Arkansas Manufacturing Facilities, Storage and Office Space We regularly evaluate our various facilities and equipment and make capital investments where necessary.
Properties We own and lease certain properties, as noted in the below table: Square Footage/ Acres Leased / Owned Lease Expiration Dates Location Purpose Corporate Headquarters 62,942 SF Owned N/A Virginia Office Space Corporate Headquarters 8 Acres Owned N/A Virginia Land Trex Residential 1,848,535 SF Leased 2023 – 2029 Virginia / Nevada/ Arkansas Warehouse, Research and Development, Storage, Training and Manufacturing Facilities Trex Residential 1,236,360 SF / 455 Acres Owned N/A Virginia / Nevada / Arkansas Manufacturing Facilities, Storage and Office Space We regularly evaluate our various facilities and equipment and make capital investments where necessary.
Item 4. Mine Safety Disclosures
Mine Safety Disclosures — required of mining issuers
1 edited+0 added−0 removed0 unchanged
Item 4. Mine Safety Disclosures
Mine Safety Disclosures — required of mining issuers
1 edited+0 added−0 removed0 unchanged
2022 filing
2023 filing
Biggest changeItem 4. Mine Safety Disclosures 22 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 23 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 25 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 41 Item 8. Financial Statements and Supplementary Data 41
Biggest changeItem 4. Mine Safety Disclosures 22 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 23 Item 6. Reserved 24 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 25 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 39 Item 8.
Item 5. Market for Registrant's Common Equity
Market for Common Equity — stock, dividends, buybacks
4 edited+0 added−1 removed4 unchanged
Item 5. Market for Registrant's Common Equity
Market for Common Equity — stock, dividends, buybacks
4 edited+0 added−1 removed4 unchanged
2022 filing
2023 filing
Biggest changeThe Company repurchased 1,152,353 shares of its common stock under the Stock Repurchase Program during the three months ended December 31, 2022.
Biggest change(2) On May 4, 2023, the Trex Board of Directors adopted a stock repurchase program (2023 Stock Repurchase Program) of up to 10.8 million shares of its outstanding common stock. The 2023 Stock Repurchase Program has no set expiration date and no shares were repurchased under the program during the three months ended December 31, 2023.
In 2022, we submitted to the NYSE in a timely manner the annual certification that our Chief Executive Officer was not aware of any violation by us of the NYSE corporate governance listing standards. 24 Table of Contents
In 2023, we submitted to the NYSE in a timely manner the annual certification that our Chief Executive Officer was not aware of any violation by us of the NYSE corporate governance listing standards.
Issuer Purchases of Equity Securities The following table provides information relating to the purchases of our common stock during the three months ended December 31, 2022 in accordance with Item 703 of Regulation S-K: Period (a) Total Number of Shares (or Units) Purchased (1) (b) Average Price Paid per Share (or Unit) ($) (c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (2) (d) Maximum number of Shares (or Units) that May Yet Be Purchased Under the Plan or Program October 1, 2022 – October 31, 2022 578,753 $ 44.45 578,753 2,049,914 November 1, 2022 – November 30, 2022 581,103 $ 42.33 573,600 1,476,314 December 1, 2022 – December 31, 2022 2,418 $ 42.33 — 1,476,314 Quarter ended December 31, 2022 1,162,274 1,152,353 (1) During the three months ended December 31, 2022, 9,921 shares were withheld by, or delivered to, the Company pursuant to provisions in agreements with recipients of restricted stock granted under the Company’s 2014 Stock Incentive Plan allowing the Company to withhold, or the recipient to deliver to the Company, the number of shares having the fair value equal to tax withholding due.
Issuer Purchases of Equity Securities The following table provides information relating to the purchases of our common stock during the three months ended December 31, 2023 in accordance with Item 703 of Regulation S-K: Period (a) Total Number of Shares (or Units) Purchased (1) (b) Average Price Paid per Share (or Unit) ($) (c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (2) (d) Maximum number of Shares (or Units) that May Yet Be Purchased Under the Plan or Program October 1, 2023 – October 31, 2023 — $ — — 10,535,104 November 1, 2023 – November 30, 2023 — $ — — 10,535,104 December 1, 2023 – December 31, 2023 — $ — — 10,535,104 Quarter ended December 31, 2023 — — (1) During the three months ended December 31, 2023, no shares were withheld by, or delivered to, the Company pursuant to provisions in agreements with recipients of restricted stock granted under the Company’s 2014 and 2023 Stock Incentive Plan allowing the Company to withhold, or the recipient to deliver to the Company, the number of shares having the fair value equal to tax withholding due.
The graph assumes $100 was invested on December 31, 2017 in (1) the Company’s common stock, (2) the Russell 2000 Index and (3) the S&P 600 Building Products and assumes reinvestment of dividends and market capitalization weighting as of December 31, 2018, 2019, 2020, 2021, and 2022. 23 Table of Contents Comparison of Cumulative Total Return Among Trex Company, Inc., Russell 2000 Index, and S&P 600 Building Products Index 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 Trex Company, Inc. $ 100.00 $ 109.52 $ 165.83 $ 308.93 $ 498.27 $ 156.20 Russell 2000 Index $ 100.00 $ 88.99 $ 111.71 $ 134.01 $ 154.09 $ 122.60 S&P 600 Building Products $ 100.00 $ 79.21 $ 112.63 $ 141.98 $ 176.33 $ 146.09 Other Stockholder Matters As of February 6, 2023, there were approximately 142 holders of record of our common stock, although we believe that there are a significantly larger number of beneficial owners of our common stock.
The graph assumes $100 was invested on December 31, 2018, in (1) the Company’s common stock, (2) the Russell 2000 Index and (3) the S&P 600 Building Products and assumes reinvestment of dividends and market capitalization weighting as of December 31, 2019, 2020, 2021, 2022 and 2023. 23 Table of Contents Comparison of Cumulative Total Return Among Trex Company, Inc., Russell 2000 Index, and S&P 600 Building Products Index 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 Trex Company, Inc. $ 100.00 $ 151.42 $ 282.08 $ 454.95 $ 142.62 $ 278.94 Russell 2000 Index $ 100.00 $ 125.53 $ 150.59 $ 173.16 $ 137.76 $ 161.09 S&P 600 Building Products $ 100.00 $ 142.19 $ 179.24 $ 222.61 $ 184.43 $ 276.54 Other Stockholder Matters As of February 12, 2024, there were approximately 138 holders of record of our common stock, although we believe that there are a significantly larger number of beneficial owners of our common stock.
Removed
(2) On February 16, 2018, the Company’s Board of Directors authorized a common stock repurchase program of up to 11.6 million shares of the Company’s outstanding common stock (Stock Repurchase Program). The Stock Repurchase Program was publicly announced on February 21, 2018.
Item 7. Management's Discussion & Analysis
Management's Discussion & Analysis (MD&A) — revenue / margin commentary
1 edited+0 added−0 removed4 unchanged
Item 7. Management's Discussion & Analysis
Management's Discussion & Analysis (MD&A) — revenue / margin commentary
1 edited+0 added−0 removed4 unchanged
2022 filing
2023 filing
Biggest changeSuch risks and uncertainties include, but are not limited to, the extent of market acceptance of the Company’s current and newly developed products; the costs associated with the development and launch of new products and the market acceptance of such new products; the sensitivity of the Company’s business to general economic conditions; the impact of seasonal and weather-related demand fluctuations on inventory levels in the distribution channel and sales of the Company’s products; the availability and cost of third-party transportation services for the Company’s products and raw materials; the Company’s ability to obtain raw materials, including scrap polyethylene, wood fiber, and other materials used in making our products, at acceptable prices; increasing inflation in the macro-economic environment; the Company’s ability to maintain product quality and product performance at an acceptable cost; the Company’s ability to increase throughput and capacity to adequately match supply with demand; the level of expenses associated with product replacement and consumer relations expenses related to product quality; the highly competitive markets in which the Company operates; cyber-attacks, security breaches or other security vulnerabilities; the impact of upcoming data privacy laws and the EU General Data Protection Regulation and the related actual or potential costs and consequences; material adverse impacts from global public health pandemics and geopolitical conflicts; and material adverse impacts related to labor shortages or increases in labor costs.
Biggest changeSuch risks and uncertainties include, but are not limited to, the extent of market acceptance of the Company’s current and newly developed products; the costs associated with the development and launch of new products and the market acceptance of such new products; the sensitivity of the Company’s business to general economic conditions; the impact of seasonal and weather-related demand fluctuations on inventory levels in the distribution channel and sales of the Company’s products; the availability and cost of third-party transportation services for the Company’s products and raw materials; the Company’s ability to obtain raw materials, including scrap polyethylene, wood fiber and other materials used in making our products, at acceptable prices; increasing inflation in the macro-economic environment; the Company’s ability to maintain product quality and product performance at an acceptable cost; the Company’s ability to increase throughput and capacity to adequately match supply with demand; the level of expenses associated with warranty claims, product replacement and consumer relations expenses related to product quality; the highly competitive markets in which the Company operates; cyber-attacks, security breaches or other security vulnerabilities; the impact of current and upcoming data privacy laws and the EU General Data Protection Regulation and the related actual or potential costs and consequences; material adverse impacts from global public health pandemics and geopolitical conflicts; and material adverse impacts related to labor shortages or increases in labor costs.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market Risk — interest-rate, FX, commodity exposure
3 edited+0 added−0 removed1 unchanged
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market Risk — interest-rate, FX, commodity exposure
3 edited+0 added−0 removed1 unchanged
2022 filing
2023 filing
Biggest changeFinancial Statements and Supplementary Data The financial statements listed in Item 15 of this Form 10-K are incorporated by reference in this Item 8 and are filed as part of this report. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.
Biggest changeFinancial Statements and Supplementary Data The financial statements listed in Item 15 of this Form 10-K are incorporated by reference in this Item 8 and are filed as part of this report. 39 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.
In certain instances, we may use interest rate swap agreements to modify fixed rate obligations to variable rate obligations, thereby adjusting the interest rates to current market rates and ensuring that the debt instruments are always reflected at fair value. We had no interest rate swap agreements outstanding as of December 31, 2022. Item 8.
In certain instances, we may use interest rate swap agreements to modify fixed rate obligations to variable rate obligations, thereby adjusting the interest rates to current market rates and ensuring that the debt instruments are always reflected at fair value. We had no interest rate swap agreements outstanding as of December 31, 2023. Item 8.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk We are subject to market risks from changing interest rates associated with our borrowings. To meet our seasonal working capital needs, we borrow periodically on our variable rate revolving line of credit. At December 31, 2022, we had $222 million in debt outstanding under our revolving line of credit.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk We are subject to market risks from changing interest rates associated with our borrowings. To meet our seasonal working capital needs, we borrow periodically on our variable rate revolving line of credit. At December 31, 2023, we had $5.5 million in debt outstanding under our revolving line of credit.