| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES |
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES |
Delaware | 54-1910453 | ||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||
160 Exeter Drive, Winchester, ia | 22603-8605 | ||
(Address of principal executive offices) | (Zip Code) | ||
Title of each | Trading Symbol(s) | Name of each exchange on which | ||
Common | TREX | New York Stock Exchange |
Large accelerated filer ☒ | Accelerated filer | ☐ | |||||||
Non-accelerated filer ☐ | Smaller reporting company | ☐ | |||||||
Emerging growth company | ☐ | ||||||||
Document | Part of 10-K into which incorporated | |
Proxy Statement relating to Registrant’s | Corporate governance (under Part I, Item 1) and Part III |
TABLE OF CONTENTS
| Page | ||||||||
Item 1. | Business | |||||||
Item 1A. | Risk Factors | 13 | ||||||
Item 1B. | Unresolved Staff Comments | 22 | ||||||
Item 2. | Properties | 22 | ||||||
Item 3. | Legal Proceedings | 22 | ||||||
Item 4. | Mine Safety Disclosures | 22 | ||||||
| PART II | ||||||||
Item | ||||||||
Item 7. | ||||||||
25 | ||||||||
Item 7A. | ||||||||
Item 8. | ||||||||
Item 9. | ||||||||
Item 9A. | Controls and Procedures | 41 | ||||||
Item 9B. | Other Information | 45 | ||||||
| PART III | ||||||||
Item | ||||||||
Item 11. | Executive Compensation | 46 | ||||||
Item | ||||||||
Item 13. | ||||||||
Item 14. | ||||||||
Item 15. | Exhibits and Financial Statement Schedules | 47 | ||||||
| Index to Consolidated Financial Statements | ||||||||
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NOTE ON FORWARD-LOOKING STATEMENTS
This report, including the information it incorporates by reference, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We intend our forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in these sections. All statements regarding our expected financial position and operating results, our business strategy, our financing plans, forecasted demographic and economic trends relating to our industry and similar matters are forward-looking statements. These statements can sometimes be identified by our use of forward-looking words such as “believe,” “may,” “will,” “anticipate,” “estimate,” “expect,” “intend” or similar expressions. We cannot promise you that our expectations in such forward-looking statements will turn out to be correct. Our actual results could be materially different from our expectations because of various factors, including the factors discussed under “Item 1A. Risk Factors” in this report.
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PART I
Some of the information contained in this report concerning the markets and industry in which we operate is derived from publicly available information and from industry sources. Although we believe that this publicly available information and the information provided by these industry sources are reliable, we have not independently verified the accuracy of any of this information.
| Item 1. | Business |
General
Trex Company, Inc. (Company, we, us or our)(Trex), was incorporated as a Delaware corporation in 1998. Through December 30, 2022, Trex had one wholly-owned subsidiary, Trex Commercial Products, Inc. Together, Trex and Trex Commercial Products, Inc. are referred to as the Company, we or our. The Company is the world’s largest manufacturer of composite decking and railing products, which are marketed under the brand name Trex
Products
Operations and Products:
Trex Residential
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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® . low-maintenance, eco-friendly composite decking products are comprised of a blend of 95 percent reclaimed wood fibers and recycled Trex Transcend Lineage is the next generation of design and performance in composite decking and is available in four luxurious, on-trend hues inspired by some of the most picturesque locales in the United States. 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 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. We also offer accessories to our decking ® , a self-gapping universal hidden ™ , an outdoor lighting 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, ® 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 Transcend Railing, made from approximately 40 percent recycled content, is available in the colors of Trex Transcend decking and finishes that make it appropriate for use with Trex decking products as well as other decking materials, which we believe enhances the sales prospects of our railing products. 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 | ||
Fencing | 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. | ||
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. In addition to resisting fading and surface staining, Trex Residential products require no sanding, staining or sealing, resist moisture damage, provide a splinter-free surface and do not require chemical treatment against rot or insect infestation. 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. 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 decking products do not have the tensile strength of wood and, as a result, are not used as primary structural members in posts, beams or columns used in a deck’s substructure. However, Trex does offer the Trex Elevations steel deck framing system.
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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. 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. 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 | |||
Pergolas made from low maintenance cellular PVC and all-aluminum product, manufactured by Home & Leisure, Inc. dba Structureworks Fabrication. | |||
Trex Latticeworks | Outdoor lattice boards manufactured and sold by Structureworks Fabrication. | ||
Trex Cornhole | Cornhole boards manufactured and sold by IPC Global Marketing LLC. | ||
Diablo | A specialty saw blade for wood-alternative composite decking manufactured and sold by Freud America, Inc. | ||
Trex SpiralStairs | 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 | ||
Kitchens. | |||
Trex Commercial
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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. Trex Commercial | ||
Aluminum Railing Systems | The Trex Signature aluminum railings, made from a minimum of low-maintenance choice for a variety of interior and exterior applications that | |
Staging Equipment and Accessories | The advanced modular, lightweight custom staging systems, |
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. Our Vendor and Customer Code of Conduct and Ethics (Code), available at www.trex.com/our-company, applies to all parties providing goods and services to the Company, and all channel partners who distribute, sell and/or install our products (collectively, Business Partners). We expect all Business Partners, and all of their employees, agents and subcontractors to follow our high ethical standards set forth in the Code while they are conducting business with us or on our behalf. In addition, we expect our Business Partners to understand and comply with the Trex Company Code of Conduct and Ethics, available at www.trex.com/our-company, to do business with Business Partners who share the same commitment to human rights that we have and as set forth in our Human Rights Policy, available at www.trex.com/our-company.
Trex Residential:
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Home Depot and Lowe’s.
In the years ended December 31, 2022, 2021, and 2020, sales to Lowe’s stores exceededcertain customers of Trex Residential accounted for 10% or more of sales in 2019.
Trex Commercial:
Manufacturing Process
Products manufactured at our Trex Residential manufacturing facilities in Winchester, Virginia (Virginia) and Fernley, Nevada (Nevada) manufacturing facilities 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. We use many proprietary and skill-based advantages in our
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.
In October 2021, we announced plans to add a third U.S.-based Trex Residential manufacturing facility located in Little Rock, Arkansas, that will sit on approximately 300 acres of land. The development approach for the new campus will be modular and calibrated to demand trends for Trex Residential outdoor living products. 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 for the new facility will be funded primarily through our ongoing cash generation or our line of credit.
In addition, we prioritize cost reduction projects and continuous improvement opportunities, primarily related to automation, modernization, energy efficiency and raw material processing, and remain focused on innovation and new product development. We have also broadened the range of raw materials that we can use to produce a consistent and high-quality finished product. In connection with national building code listings, we maintain a quality control testing program.
Suppliers
We conduct supply chain assessments when considered necessary in relation to the significance of the purchase and business opportunity for the Company. Assessments include
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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 fulfill requirements for raw materials under both purchase orders and supply contracts. In the year ended December 31, 2019,2022, we purchased substantially all of our reclaimed wood fiber requirements under purchase orders which do not involveand long-term supply commitments.commitments not exceeding four years. 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. 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. 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. Depending on our needs, the amount of reclaimed wood fiber that we actually purchase within the specified range under any supply agreement may vary significantly from year to year. |
| • | Scrap Polyethylene: The polyethylene we consume is primarily composed of scrap plastic film and plastic bags. We will continue to seek to meet our future needs for scrap polyethylene from the expansion of our existing supply sources and the development of new sources. We believe our use of multiple sources provides us with a cost advantage and facilitates an environmentally responsible approach to our procurement of polyethylene. 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. |
In addition, we outsource the production of certain products to third-party manufacturers.
The production of our commercial products requiresrequired a supply of aluminum, stainless steel and glass components. We useused multiple sources for each material to ensure consistent availability of material and competitive pricing. We purchasepurchased substantially all of our aluminum, stainless steel and glass under purchase orders, which dodid not involve long-term supply commitments.
Training
Trex University is our
Growth Strategies
Our long-term goals are to perpetuatecontinue leading the category with beautiful, high-performance, low-maintenance Trex products, including our position as the leading producer of branded superior composite decking, railing and other outdoor living products, expand our addressablesuch as composite decking and railing for the residential market to achieve growth against wood and appeal to consumers who have not previously considered composites, and to extend our position as a leading national provider of custom-engineered railing and staging systems for the commercial and multi-family market, including performing arts venues and sports stadiums.market. To achieve our long-term goals,do this, we intend towill increase our market share and expand into new product categories and geographic markets through the design, creation and marketing of high-performance,
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products for a breadth of audiences, whether by converting wood buyers who have not previously considered composite decking or appealing to the most discriminating high-end homeowners seeking superior aesthetics and quality. Additionally, Trex will continue to explore opportunities that leverage our manufacturing and extrusion expertise and are tied to our recycling heritage. We intend to employ the following long-term strategies to achieve our goals:
| • | Innovation: Introduce new products that address unmet consumer and trade professional needs. Provide a compelling value proposition through ease of installation, low maintenance, long-term durability and superior aesthetics. |
| • | Brand: Expand awareness, preference and commitment for the Trex brand with both consumers and trade professionals. Deliver on the brand’s promise of superior quality, functionality, pleasing aesthetics and overall performance in outdoor living products and custom-engineered railing systems. Leverage omnichannel efforts to extend the Trex brand presence, both nationally and globally. |
| • | Channels: Achieve comprehensive market segment and geographic coverage for Trex products by increasing the number of stocking dealers and retailers and expanding our international presence for our eco-friendly wood-alternative outdoor living products, thereby making our products available wherever our customers choose to purchase their decking or railing |
| • | Quality: Continuously advance the quality of all operational and business processes, with the goal of achieving superior product quality and service levels, thereby giving us a sustainable competitive advantage. |
| • | Cost: Through capital investments and process engineering, continuously seek to lower the cost to manufacture Trex residential products. Investments in polyethylene recycling capabilities will allow us to expand our ability to use a wider breadth of waste materials thereby lowering raw material costs of our outdoor living products. We plan to continue to achieve significant improvements in manufacturing productivity by reducing waste and improving our production process. |
| • | Customer Service: Through our commitment to superior customer service, continually deliver consistently outstanding, personalized service to all customers and prospects in all segments. |
Competition
Our primary competition for our composite decking and residential railing products consists of wood products, which constitutesconstitute a substantial majority of decking and railing sales, as measured by linear feet of lumber. Many of the conventional lumber suppliers with which we compete have established ties to the building and construction industry and have well-accepted products. A majority of the lumber used in wood decks is pressure-treated lumber. Southern yellow pine and fir have a porosity that readily allows the chemicals used in the pressure treating process to be absorbed. The same porosity makes southern yellow pine susceptible to absorbing moisture, which causes the lumber to warp, crack, splinter and expel fasteners. In addition to pine and fir, other segments of wood material for decking include redwood, cedar and tropical hardwoods, such as ipe, teak and mahogany. These products are often significantly more expensive than pressure-treated lumber, but do not eliminate some of the disadvantages of other wood products.
In addition to wood, we also compete with other manufacturers of wood-alternative products. Industry studies indicate that we have the leading market share of the wood-alternative segment of the decking and railing market. Our principal competitors include The Azek Building Products,Company Inc., and Fiberon (a division of Fortune Brands, Inc.).
Our ability to compete depends, in part, on a number of factors outside our control, including the ability of our competitors to develop new wood-alternative decking and railing products that are competitive with our products. We believe that the principal competitive factors in the decking and railing market include product quality, price, aesthetics, maintenance cost, and distribution and brand strength. We believe we compete
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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. Although a contractor-installed deck built with Trex products using a pressure-treated wood substructure generally costs more than a deck made entirely from pressure-treated wood, Trex products are low maintenance compared to the
Seasonality
Our operating results for Trex Residential have historically varied from quarter to quarter. 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. As part of its normal business practice and consistent with industry practice, Trex Residential Products has historically offered incentive programs to its distributors and dealers to build inventory levels before the start of the prime deck-building season in order to ensure adequate availability of its product to meet anticipated seasonal consumer demand. The seasonal effects are often offset by the positive effect of the incentive programs. The operating
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. Although there is no assurance that existing or future government laws applicable to our operations or products will not have a material adverse effect on our capital expenditures, results of operations and competitive position, we do not currently anticipate material expenditures for Trex Commercial have not historically varied from quarter to quarter as a result of seasonality. However, they are driven by the timing of individual projects, which may vary significantly each period.
We are also subject to federal, state and local environmental regulation. 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. Our facilities are regulated by federal and state laws governing the disposal of solid waste and by state and local permits and requirements with respect to wastewater and storm water discharge. Compliance with environmental laws and regulations has not had a material adverse effect on our business, operating results or financial condition.
Our operations also are subject to work placeworkplace safety regulation by the U.S. Occupational Safety and Health Administration, the Commonwealth of Virginia, and the States of Nevada, and Minnesota.Arkansas. Our compliance efforts include safety awareness and training programs for our production and maintenance employees.
Intellectual Property
Our success depends, in part, upon our intellectual property rights relating to our products, production processes and other operations. We rely upon a combination of trade secret, nondisclosure and other contractual arrangements, and patent, copyright and trademark laws, to protect our proprietary rights. We have made substantial investments in manufacturing process improvements that have enabled us to increase manufacturing line production rates, facilitate our development of new products, and produce improvements in our existing products’ dimensional consistency, surface texture and color uniformity.
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
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but cannot provide assurance that third parties will not successfully challenge, or avoid infringing, our intellectual property rights.
We consider our trademarks to be of material importance to our business plans. The U.S. Patent and Trademark Office has granted us federal registrations for many of our trademarks. Federal registration of trademarks is effective for as long as we continue to use the trademarks and renew their registrations. 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 Application for decking technology and five U.S. Patents for various staging systems, accessories and related technologies.technology. We intend to maintain our existing patentspatent in effect until they expireit 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. 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. As we continue to grow, a differentiating factor continues to be the caliber of our talent. The Company embraces a culture of diverse thinking and Corporate Governance
Our focus is to attract, develop and retain a highly engaged and diverse workforce. We accomplish this through broad and transparent employment branding efforts, competitive and equitable compensation philosophies, proactive employee relations, and by offering a work environment with meaningful career growth opportunities.
At December 31, 2019,2022, Trex Residential had 1,173employed 1,636 full-time employees, 933 of whom were employed in its manufacturing operations, and Trex Commercial had 159 full-time employees, 62 of whom were employed in its manufacturing operations.employees. Our employees are not covered by collective bargaining agreements. We believe that our relationships with our employees are favorable. The Company has internal standards related to hiring practices that encourage diversity, formal programs to provide skill development for our employees,favorable, and anti-discrimination standards. The Company haswe have not had any serious complaints or claims over the last three years. We have adopted aOur Human Rights Policy across all of our operations that 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
We believe that diversity, equity and inclusion enriches our organization, contributes to our long-term value creation, and fosters an environment of creativity and innovative thinking, which will bring forth new ideas and challenge the status quo. The strategy we have developed aims to advance our efforts to increase the diversity of our workforce, while we continue to be a destination workplace for talent and maximize returns to our shareholders. We are undergoing a new approach for employee communications to further elevate employee engagement while also acting to foster inclusiveness across the organization.
We believe the best candidate or employee is someone who is driven, bold, hard-working, determined and tenacious; embodies our overarching ideals and identity; and who looks, thinks or acts differently than the majority. These differences could be represented by race, ethnicity, gender, or academic and professional backgrounds. When comparing our ethnicity demographics against those in the geographies where we operate, we seek to accurately represent the diversity of our local communities and beyond.
We continue to build our employer brand by accurately and transparently reflecting our work culture to attract candidates with actions that include, but are not limited to:
Further expanding the number of roles for exclusively Spanish speaking employees while offering English as a second language and Spanish as a second language courses;
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Leveraging large, diverse recruiting platforms to reach broader audiences and increasing our presence at regional universities to recruit interns and new graduates to help further diversify our talent pool;
Creating a partnership with NW Works (www.nwworks.com), a local nonprofit that provides counseling and employment services to disabled adults in the Winchester, Virginia area, and providing a number of job opportunities for their clients;
Further developing the Trex culture to improve retention and employee engagement at our manufacturing locations in a variety of ways; and
Expanding our training department to sharpen our focus on the training and development of our employees.
Trex has taken these steps to ensure all employees feel comfortable, and to ensure that we remain an employer of choice, well-known for both innovation and opportunity. We are also looking to expand our focus on developing our existing employees so that Trex is well prepared for the future and our employees know they can grow with us. In addition, we provide Code of Conduct and Ethics training to our employees. We are planning a refreshed version of our employee survey for the first quarter of 2023.
Our recruitment strategy includes advanced education recruitment and veteran recruitment. We recognize the skills learned through these pursuits align with the skills necessary to be a successful employee, and our active involvement with these recruiting paths offers many opportunities to build partnerships and reach candidate pools at various career stages that are both diverse and geographically varied. 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 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. 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 19, 201922, 2022 in Schedule 14A. Also, a copy of the Company’s Code of Conduct and Ethics (Code) is maintained on the Company’s web site at www.trex.com/
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. The Company’s commitment to managingimproving our environmental impactfootprint includes developing and offering more sustainable products to the market as well as reducing the environmental impact of its corporate activities.advancing sustainability and efficiency in our operations. From continuous improvement in itsour 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 itsthe use of resources, its
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greenhouse gas emissions, and its waste streams. The foundation for our commitment to sustainability includes, but is not limited to:
Using recycled, reclaimed and other waste resources whenever possible in our manufacturing process;
Preventing pollution by maintaining environmental management as a core value;
Reducing waste generated in our manufacturing and business operations;
Developing and using environmentally acceptable, safe and efficient production methods; and
Identifying and complying with all legal and statutory requirements.
Our Environmental Policy, located on our web site at
The Nominating / Corporate Governance Committee of the Board of Directors oversees the Company’s environmental, social and governance (ESG) matters that are significant to the Company. 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. Also, environmental matters relevant to the Company’s operations are the responsibility of members of the executive management team, including the President and Chief Executive Officer, the ExecutivePresident 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.
Trex Residential’s proprietary,
The Company’s primary resource usage consists of water, natural gas and electricity. The Company develops budgets and plans that improve shareholder return by ensuring the optimal use of each resource, which
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. In 2019, 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. For the 12th consecutive year, in 2022 Trex earned the designation “greenest” decking in the industry by the readers of Green Builder magazine and received the highest score for decking in the Green Builder Media 2019 Eco Leader award—Brand Index. Trex was also honored with the highest honor awarded2022 Green Builder Sustainable Product of the Year for Trex AR Deck Visualizer. 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 publication’s editorial team—and received the Green Builder Media 2019 Readers’ Choice Award for “Greenest Decking—onereceipt of the most respected surveys issuedLeadership in Energy and Environmental Design (LEED) certification by the publication. Trex is the only composite decking manufacturer to hold this title since 2009.
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meet LEED requirements for builders and our commercial products have contributed to the LEED certifications of some high profilehigh-profile venues. LEED is a point-based system created in part by the U.S. Green Building Council and designed to reward points to building projects that incorporate efficient, and safe
Occupational Health and Safety
The health and safety of our employees is our highest priority. We have a strong Environmental, Health and Safety program that focuses on developing and implementing policies and effective safety training programs, as well as performing internal safety assessments to LEED certification points in the Materialsensure a company-wide culture of safety and Resources category based on recycled aluminum, steel, stainless steel and glass content.
The Company is committed to plan and perform all operations at all facilities in a manner that is safe for its employees, and has adopted anTrex Occupational Health and Safety Policy, located on our web sitewebsite at www.trex.com/that, sets forth our commitment to sustaining a compliant and safety conscioussafety-conscious work environment, and keeping safety at the forefront of our business. The commitmentbusiness, and is based on:
Compliance towith statutory, regulatory and other legal requirements;
A comprehensive understanding of facilities, equipment, processes, work methods and products, and incorporation of safe design methods into all phases of hazard and risk mitigation;worker expectations;
Demonstrating employee safety leadership in all of our processes while striving for world classto consistently improve performance; and
Tracking company and site level safety performance metrics including common lagging key performanceindicators, such as injury rates, but also leading indicators such as safety observation audit completions, attendanceobservations, near-misses, and proactive actions taken at monthlythe sites to ensure worker safety.
Each of our manufacturing sites has a dedicated health and safety training,(EHS) manager and committee. The Site EHS Managers ensure safety work order completions, and targets related to recordable and lost time incident rates and days away or restricted time.
Websites and Additional Information
The U. S. Securities and Exchange Commission (SEC) maintains an Internet web site at
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| 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 andProducts, Inc. As of December 31, 2023, our business is subject to a number of risks, including the following. If applicable to a particular segment, we have specified the respective segment subjectfollowing:
Risks Related to the risk factor.
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. 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. • • | 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 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 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. To increase our market share, we must overcome: • • • 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; | ||
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•Actual and perceived quality issues with first generation composite products; and | ||
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Risk | Discussion | |
Description The demand for our products is influenced by the home improvement market and could be adversely affected by conditions that negatively impact this market. Impact We cannot predict conditions that may negatively impact the home remodeling and new home construction environment. 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. | 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. |
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. | 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. 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. 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. 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. |
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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.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 Residentialtwo-step distribution channel. Significant increases in inventory levels in the distribution channel without a corresponding change inend-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. 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. 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. Accordingly, our results for the second and third quarters are difficult to predict, and past performance will not necessarily indicate future performance. 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. |
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. | 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. 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. |
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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. Impact If the required supply of third-party transportation services is unavailable when needed, we may be unable to deliver our products in a timely manner and, therefore, unable to sell our products at full value, or at all. Similarly, if any of these providers were unavailable to deliver raw materials to us in a timely manner, we may be unable to manufacture our products in response to customer demand. This could harm our reputation, negatively impact our customer relationships and have a material adverse effect on our financial condition and results of operations. In addition, a material increase in transportation rates or fuel surcharges could have a material adverse effect on our profitability. | Our business depends on the transportation by third parties of both raw materials to us and finished goods to our customers. In particular, a significant portion of our finished goods are transported by flatbed trucks, which are occasionally in high demand (especially at the end of calendar quarters) and/or subject to price fluctuations based on market conditions and the price of fuel. |
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. 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 accordance with these demands. Failure to do so can lead to lost or reduced sales and have a negative effect on earnings. | In order to meet Trex Residential timely basis at an appropriate volume. |
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Risk | Discussion | |
Description We have made and may continue to make significant capital 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. 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. The 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 |
Risk | Discussion | ||
Description Our prospects for sales growth and profitability may be adversely affected if we fail to maintain product quality and product performance at an acceptable cost. 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. | 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. 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. 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. | ||
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