QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
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(Address of principal executive offices) |
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
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Item 1. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 5. |
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Item 6. |
27 |
Item 1. |
Condensed Consolidated Financial Statements |
Three Months Ended March 31, |
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2020 |
2019 |
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Net sales |
$ | |
$ | |
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Cost of sales |
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Gross profit |
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Selling, general and administrative expenses |
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Income from operations |
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Interest income, net |
( |
) | ( |
) | ||||
Income before income taxes |
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Provision for income taxes |
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Net income |
$ | |
$ | |
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Basic earnings per common share |
$ | |
$ | |
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Basic weighted average common shares outstanding |
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Diluted earnings per common share |
$ | |
$ | |
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Diluted weighted average common shares outstanding |
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Comprehensive income |
$ | |
$ | |
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March 31, 2020 |
December 31, 2019 |
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(Unaudited) |
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Assets |
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Current assets: |
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Cash and cash equivalents |
$ | $ | ||||||
Accounts receivable, net |
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Inventories |
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Prepaid expenses and other assets |
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Total current assets |
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Property, plant and equipment, net |
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Goodwill and other intangible assets, net |
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Operating lease assets |
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Other assets |
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Total assets |
$ | $ | ||||||
Liabilities and Stockholders’ Equity |
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Current liabilities: |
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Accounts payable |
$ | $ | ||||||
Accrued expenses and other liabilities |
||||||||
Accrued warranty |
||||||||
Line of credit |
— |
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Total current liabilities |
||||||||
Operating lease liabilities |
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Deferred income taxes |
||||||||
Non-current accrued warranty |
||||||||
Other long-term liabilities |
— |
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Total liabilities |
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Commitments and contingencies |
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Stockholders’ equity: |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Retained earnings |
||||||||
Treasury stock, at cost, |
( |
) | ( |
) | ||||
Total stockholders’ equity |
||||||||
Total liabilities and stockholders’ equity |
$ | $ | ||||||
Common Stock |
Additional Paid-In Capital |
Retained Earnings |
Treasury Stock |
Total |
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Shares |
Amount |
Shares |
Amount |
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Balance, December 31, 2019 |
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$ | |
$ | |
$ | |
|
$ | ( |
) | $ | |
|||||||||||||||
Net income |
— |
— |
— |
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— |
— |
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|||||||||||||||||||||
Employee stock plans |
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— |
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— |
— |
— |
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|||||||||||||||||||||
Shares withheld for taxes on awards |
( |
) | — |
( |
) | — |
— |
— |
( |
) | ||||||||||||||||||
Stock-based compensation |
|
— |
|
— |
— |
— |
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|||||||||||||||||||||
Repurchases of common stock |
( |
) | — |
— |
— |
|
( |
) | ( |
) | ||||||||||||||||||
Balance, March 31, 2020 |
|
$ | |
$ | |
$ | |
|
$ | ( |
) | $ | |
|||||||||||||||
Common Stock |
Additional Paid-In Capital |
Retained Earnings |
Treasury Stock |
Total |
||||||||||||||||||||||||
Shares |
Amount |
Shares |
Amount |
|||||||||||||||||||||||||
Balance, December 31, 2018 |
|
$ | |
$ | |
$ | |
|
$ | ( |
) | $ | |
|||||||||||||||
Net income |
— |
— |
— |
|
— |
— |
|
|||||||||||||||||||||
Employee stock plans |
|
— |
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— |
— |
— |
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|||||||||||||||||||||
Shares withheld for taxes on awards |
( |
) | — |
( |
) | — |
— |
— |
( |
) | ||||||||||||||||||
Stock-based compensation |
|
|
|
— |
— |
— |
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|||||||||||||||||||||
Repurchases of common stock |
( |
) | — |
— |
— |
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( |
) | ( |
) | ||||||||||||||||||
Balance, March 31, 2019 |
|
$ | |
$ | |
$ | |
|
$ | ( |
) | $ | |
|||||||||||||||
Three Months Ended March 31, |
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2020 |
2019 |
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Operating Activities |
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Net income |
$ | |
$ | |
||||
Adjustments to reconcile net income to net cash used in operating activities: |
||||||||
Depreciation and amortization |
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||||||
Stock-based compensation |
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|
||||||
(Gain) loss on disposal of property, plant and equipment |
( |
) | |
|||||
Other non-cash adjustments |
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||||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable |
( |
) | ( |
) | ||||
Inventories |
( |
) | |
|||||
Prepaid expenses and other assets |
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|
||||||
Accounts payable |
|
( |
) | |||||
Accrued expenses and other liabilities |
( |
) | ( |
) | ||||
Income taxes receivable/payable |
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|
||||||
Net cash used in operating activities |
( |
) | ( |
) | ||||
Investing Activities |
||||||||
Expenditures for property, plant and equipment |
( |
) | ( |
) | ||||
Proceeds from sales of property, plant and equipment |
|
— |
||||||
Net cash used in investing activities |
( |
) | ( |
) | ||||
Financing Activities |
||||||||
Borrowings under line of credit |
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||||||
Principal payments under line of credit |
( |
) | — |
|||||
Repurchases of common stock |
( |
) | ( |
) | ||||
Proceeds from employee stock purchase and option plans |
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||||||
Net cash (used in) provided by financing activities |
( |
) | |
|||||
Net decrease in cash and cash equivalents |
( |
) | ( |
) | ||||
Cash and cash equivalents, beginning of period |
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|
||||||
Cash and cash equivalents, end of period |
$ | |
$ | |
||||
Supplemental Disclosure: |
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Cash paid for interest |
$ | |
$ | |
||||
Cash paid for income taxes, net |
$ | |
$ | |
1. |
BUSINESS AND ORGANIZATION |
2. |
BASIS OF PRESENTATION |
3. |
RECENTLY ADOPTED ACCOUNTING STANDARDS |
4. |
NEW ACCOUNTING STANDARDS NOT YET ADOPTED |
5. |
INVENTORIES |
March 31, 2020 |
December 31, 2019 |
|||||||
Finished goods |
$ | |
$ | |
||||
Raw materials |
|
|
||||||
Total FIFO (first-in, first-out) inventories |
|
|
||||||
Reserve to adjust inventories to LIFO value |
( |
) | ( |
) | ||||
Total LIFO inventories |
$ | |
$ | |
||||
6. |
PREPAID EXPENSES AND OTHER ASSETS |
March 31, 2020 |
December 31, 2019 |
|||||||
Prepaid expenses |
$ | $ | ||||||
Revenues in excess of billings |
||||||||
Contract retainage |
||||||||
Income tax receivable |
||||||||
Other |
||||||||
Total prepaid expenses and other assets |
$ | $ | ||||||
7. |
GOODWILL AND OTHER INTANGIBLE ASSETS |
8. |
ACCRUED EXPENSES AND OTHER LIABILITIES |
March 31, 2020 |
December 31, 2019 |
|||||||
Sales and marketing |
$ | $ | ||||||
Income taxes |
||||||||
Compensation and benefits |
||||||||
Operating lease liabilities |
||||||||
Customer deposits |
||||||||
Manufacturing costs |
||||||||
Billings in excess of revenues |
||||||||
Other |
||||||||
Total accrued expenses and other liabilities |
$ | $ | ||||||
9. |
DEBT |
10. |
LEASES |
Three Months Ended |
||||||||
Supplemental cash flow information |
March 31, 2020 |
March 31, 2019 |
||||||
Cash paid for amounts included in the measurement of operating lease liabilities |
$ |
$ |
||||||
Operating ROU assets obtained in exchange for lease liabilities |
$ |
$ |
Supplemental balance sheet information |
March 31, 2020 |
December 31, 2019 |
||||||
Operating lease ROU assets |
$ | $ | ||||||
Operating lease liabilities: |
||||||||
Accrued expenses and other current liabilities |
$ | $ | ||||||
Operating lease liabilities |
||||||||
Total operating lease liabilities |
$ | $ | ||||||
Maturities of operating lease liabilities |
||||
2020 |
$ | |||
2021 |
||||
2022 |
||||
2023 |
||||
2024 |
||||
Thereafter |
||||
Total lease payments |
||||
Less imputed interest |
( |
) | ||
Total operating liabilities |
$ | |||
11. |
FINANCIAL INSTRUMENTS |
12. |
STOCKHOLDERS’ EQUITY |
Three Months Ended March 31, |
||||||||
2020 |
2019 |
|||||||
Numerator: |
||||||||
Net income available to common shareholders |
$ | $ | ||||||
Denominator: |
||||||||
Basic weighted average shares outstanding |
||||||||
Effect of dilutive securities: |
||||||||
Stock appreciation rights and options |
||||||||
Restricted stock |
||||||||
Diluted weighted average shares outstanding |
||||||||
Basic earnings per share |
$ | $ | ||||||
Diluted earnings per share |
$ | $ | ||||||
Three Months Ended March 31, |
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2020 |
2019 |
|||||||
Stock appreciation rights |
13. |
REVENUE FROM CONTRACTS WITH CUSTOMERS |
Three Months Ended March 31, 2020 |
Reportable Segment |
|||||||||||
Trex Residential |
Trex Commercial |
Total |
||||||||||
Timing of Revenue Recognition and Type of Contract |
||||||||||||
Products transferred at a point in time and variable consideration contracts |
$ | $ | — |
$ | ||||||||
Products transferred over time and fixed price contracts |
— |
|||||||||||
$ | $ | $ | ||||||||||
Three Months Ended March 31, 2019 |
Reportable Segment |
|||||||||||
Trex Residential |
Trex Commercial |
Total |
||||||||||
Timing of Revenue Recognition and Type of Contract |
||||||||||||
Products transferred at a point in time and variable consideration contracts |
$ | $ | — |
$ | ||||||||
Products transferred over time and fixed price contracts |
— |
|||||||||||
$ | $ | $ | ||||||||||
14. |
STOCK-BASED COMPENSATION |
Stock Awards Granted |
Weighted-Average Grant Price Per Share |
|||||||
Time-based restricted stock units |
$ | |||||||
Performance-based restricted stock units (a) |
$ | |||||||
Stock appreciation rights |
$ |
(a) | Includes |
Three Months Ended March 31, 2020 |
Three Months Ended March 31, 2019 |
|||||||
Weighted-average fair value of grants |
$ | $ | ||||||
Dividend yield |
% | % | ||||||
Average risk-free interest rate |
% | % | ||||||
Expected term (years) |
||||||||
Expected volatility |
% | % |
Three Months Ended March 31 |
||||||||
2020 |
2019 |
|||||||
Stock appreciation rights |
$ | $ | ||||||
Time-based restricted stock and restricted stock units |
||||||||
Performance-based restricted stock and restricted stock units |
||||||||
Employee stock purchase plan |
||||||||
Total stock-based compensation |
$ | $ | ||||||
15. |
INCOME TAXES |
16. |
SEGMENT INFORMATION |
• | Trex Residential manufactures wood-alternative decking and residential railing and related products marketed under the brand name Trex ® . Trex Residential products are sold to distributors and home centers for final resale primarily to the residential market, which includes replacement, remodeling and new construction related to outdoor living products. |
• | Trex Commercial designs, engineers, and markets modular and architectural railing and staging systems for the commercial and multi-family market, including sports stadiums and performing arts venues. Trex Commercial products are marketed to architects, specifiers, contractors, and others doing business within the commercial and multi-family market. |
Three Months Ended March 31, 2020 |
Three Months Ended March 31, 2019 |
|||||||||||||||||||||||
Trex Residential |
Trex |
Total |
Trex |
Trex |
Total |
|||||||||||||||||||
Net sales |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
Net income |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
EBITDA |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
Depreciation and amortization |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
Income tax expense |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
Capital expenditures |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
Total assets |
$ | $ | $ | $ | $ | $ |
Three Months Ended March 31, 2020 |
Three Months Ended March 31, 2019 |
|||||||||||||||||||||||
Trex Residential |
Trex |
Total |
Trex |
Trex |
Total |
|||||||||||||||||||
Net income |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
Interest income, net |
( |
) | — |
( |
) | ( |
) | — |
( |
) | ||||||||||||||
Income tax expense |
||||||||||||||||||||||||
Depreciation and amortization |
||||||||||||||||||||||||
EBITDA |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
17. |
SEASONALITY |
18. |
COMMITMENTS AND CONTINGENCIES |
Three Months Ended March 31, 2020 |
||||||||||||
Surface Flaking |
Other Residential |
Total |
||||||||||
Beginning balance, January 1 |
$ | $ | $ | |||||||||
Provisions and changes in estimates |
— |
|||||||||||
Settlements made during the period |
( |
) | ( |
) | ( |
) | ||||||
Ending balance, March 31 |
$ | $ | $ | |||||||||
Three Months Ended March 31, 2019 |
||||||||||||
Surface Flaking |
Other Residential |
Total |
||||||||||
Beginning balance, January 1 |
$ | $ | $ | |||||||||
Provisions and changes in estimates |
— |
|||||||||||
Settlements made during the period |
( |
) | ( |
) | ( |
) | ||||||
Ending balance, March 31 |
$ | $ | $ | |||||||||
Decking and Accessories |
Our principal decking products are Trex Transcend ® , Trex Select® and Trex Enhance® . Differentiating the Enhance collection is a scalloped profile that is lighter weight for easier handling and installation. Our high-performance, low-maintenance, eco-friendly composite decking products are comprised of a blend of 95 percent reclaimed wood fibers and recycled plastic film and feature a protective polymer shell for enhanced protection against fading, staining, mold and scratching.We also offer Trex Hideaway ® , a hidden fastening system for grooved boards, and Trex DeckLighting™ , an outdoor lighting system. Trex DeckLighting is a line of energy-efficient LED dimmable deck lighting, which is designed for use on posts, floors and steps. The line includes a post cap light, deck rail light, riser light and a recessed deck light. |
Railing |
Our residential railing products are Trex Transcend Railing, Trex Select Railing, Trex Enhance Railing and Trex Signature ® aluminum railing. 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 Enhance, made from approximately 40 percent recycled content, is available in three colors and is offered through home improvement retailers in kits that contain the complete railing system. Trex Signature aluminum railing, made from a minimum of 50 percent recycled content, is available in three colors and designed for consumers who want a sleek, contemporary look. | ||
Fencing |
Our Trex Seclusions ® fencing product is offered through two specialty distributors. This product consists of structural posts, bottom rail, pickets, top rail and decorative post caps. | ||
Steel Deck Framing |
Our triple-coated steel deck framing system called Trex Elevations ® leverages the strength and dimensional stability of steel to create a flat surface for our decking. Trex Elevations provides consistency and reliability that wood does not and is fire resistant. |
Architectural Railing Systems |
Our architectural railing systems are 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 can also design, engineer and manufacture custom railing systems tailored to the customer’s specific material, style and finish. Many railing styles are achievable, including glass, mesh, perforated railing and cable railing. | ||
Aluminum Railing Systems |
Trex Signature ® aluminum railing collection, made from a minimum of 50 percent recycled content, combines superior styling with the unparalleled strength of aluminum – making it an ideal railing choice for a variety of commercial settings. Its straightforward, unobtrusive design features traditional balusters and contemporary vertical rods, and can be installed with continuously graspable rail options for added safety, comfort and functionality. Trex Signature is available in three colors – charcoal black, bronze and classic white – and is available in a variety of stock lengths. | ||
Staging Equipment and Accessories |
Our advanced modular, lightweight custom staging systems include portable platforms, orchestra shells, guardrails, stair units, barricades, camera platforms, VIP viewing decks, ADA infills, DJ booths, pool covers, and other custom applications. Our systems provide superior staging product solutions for facilities and venues with custom needs. Our modular stage equipment is designed to appear seamless, feel permanent, and maximize the functionality of the space. |
• | Increase in net sales of 11.6%, or $20.8 million, to $200.4 million for the three months ended March 31, 2020 compared to $179.6 million for the three months ended March 31, 2019. |
• | Increase in gross profit of 29.3%, or $20.3 million, to $89.7 million for the three months ended March 31, 2020 compared to $69.4 million for the three months ended March 31, 2019. |
• | Increase in net income to $42.4 million, or $0.73 per diluted share, for the three months ended March 31, 2020 compared to $31.6 million, or $0.54 per diluted share, for the three months ended March 31, 2019. |
• | Capital expenditures of $22.7 million to increase production capacity at the Trex Residential facilities in Virginia and Nevada and general plant cost reduction initiatives and other production improvements. |
• | Repurchase of 442,009 shares of our outstanding common stock during the three months ended March 31, 2020 under our Stock Repurchase Program, for a total of 1.4 million shares repurchased under the program as March 31, 2020. |
Three Months Ended March 31, |
||||||||
2020 |
2019 |
|||||||
Claims open, beginning of period |
1,724 |
2,021 |
||||||
Claims received (1) |
205 |
176 |
||||||
Claims resolved (2) |
(195 |
) | (255 |
) | ||||
Claims open, end of period |
1,734 |
1,942 |
||||||
Average cost per claim (3) |
$ | 3,331 |
$ | 2,407 |
(1) | Claims received include new claims received or identified during the period. |
(2) | Claims resolved include all claims settled with or without payment and closed during the period. |
(3) | Average cost per claim represents the average settlement cost of claims closed with payment during the period. |
Three Months Ended March 31, |
$ Change |
% Change |
||||||||||||||
2020 |
2019 |
|||||||||||||||
(dollars in thousands) |
||||||||||||||||
Total net sales |
$ | 200,395 |
$ | 179,571 |
$ | 20,824 |
11.6 |
% | ||||||||
Trex Residential net sales |
$ | 186,874 |
$ | 165,479 |
$ | 21,395 |
12.9 |
% | ||||||||
Trex Commercial net sales |
$ | 13,521 |
$ | 14,092 |
$ | (571 |
) | (4.1 |
)% |
Three Months Ended March 31, |
$ Change |
% Change |
||||||||||||||
2020 |
2019 |
|||||||||||||||
(dollars in thousands) |
||||||||||||||||
Cost of sales |
$ | 110,699 |
$ | 110,206 |
$ | 493 |
0.4 |
% | ||||||||
% of total net sales |
55.2 |
% | 61.4 |
% | ||||||||||||
Gross profit |
$ | 89,696 |
$ | 69,365 |
$ | 20,331 |
29.3 |
% | ||||||||
Gross margin |
44.8 |
% | 38.6 |
% |
Three Months Ended March 31, |
$ Change |
% Change |
||||||||||||||
2020 |
2019 |
|||||||||||||||
(dollars in thousands) |
||||||||||||||||
Selling, general and administrative expenses |
$ | 34,561 |
$ | 30,166 |
$ | 4,395 |
14.6 |
% | ||||||||
% of total net sales |
17.3 |
% | 16.8 |
% |
Three Months Ended March 31, |
$ Change |
% Change |
||||||||||||||
2020 |
2019 |
|||||||||||||||
(dollars in thousands) |
||||||||||||||||
Provision for income taxes |
$ | 13,255 |
$ | 7,700 |
$ | 5,555 |
72.1 |
% | ||||||||
Effective tax rate |
23.8 |
% | 19.6 |
% |
Three Months Ended March 31, 2020 |
||||||||||||
Trex Residential |
Trex Commercial |
Total |
||||||||||
Net income |
$ | 41,020 |
$ | 1,382 |
$ | 42,402 |
||||||
Interest income, net |
(522 |
) | — |
(522 |
) | |||||||
Income tax expense |
12,788 |
467 |
13,255 |
|||||||||
Depreciation and amortization |
3,664 |
187 |
3,851 |
|||||||||
EBITDA |
$ | 56,950 |
$ | 2,036 |
$ | 58,986 |
||||||
Three Months Ended March 31, 2019 |
||||||||||||
Trex Residential |
Trex Commercial |
Total |
||||||||||
Net income |
$ | 31,255 |
$ | 300 |
$ | 31,555 |
||||||
Interest income, net |
(56 |
) | — |
(56 |
) | |||||||
Income tax expense |
7,600 |
100 |
7,700 |
|||||||||
Depreciation and amortization |
3,268 |
126 |
3,394 |
|||||||||
EBITDA |
$ | 42,067 |
$ | 526 |
$ | 42,593 |
||||||
1 |
EBITDA represents net income before interest, income taxes, depreciation and amortization. EBITDA is not a measurement of financial performance under accounting principles generally accepted in the United States (GAAP). We have included data with respect to EBITDA because management believes it facilitates performance comparison between the Company and its competitors, and management evaluates the performance of its reportable segments using several measures, including EBITDA. Management considers EBITDA to be an important supplemental indicator of our core operating performance because it eliminates interest, income taxes, and depreciation and amortization charges to net income or loss. In relation to competitors, EBITDA eliminates differences among companies in capitalization and tax structures, capital investment cycles and ages of related assets. For these reasons, management believes that EBITDA provides important information regarding the operating performance of the Company and its reportable segments. |
Three Months Ended March 31, |
$ Change |
% Change |
||||||||||||||
2020 |
2019 |
|||||||||||||||
(dollars in thousands) |
||||||||||||||||
Total EBITDA |
$ | 58,986 |
$ | 42,593 |
$ | 16,393 |
38.5 |
% | ||||||||
Trex Residential EBITDA |
$ | 56,950 |
$ | 42,067 |
$ | 14,883 |
35.4 |
% | ||||||||
Trex Commercial EBITDA |
$ | 2,036 |
$ | 526 |
$ | 1,510 |
287.1 |
% |
Three Months Ended March 31, |
||||||||
2020 |
2019 |
|||||||
Net cash used in operating activities |
$ | (108,768 |
) | $ | (109,990 |
) | ||
Net cash used in investing activities |
(20,597 |
) | (8,647 |
) | ||||
Net cash used in financing activities |
(14,129 |
) | 20,845 |
|||||
Net decrease in cash and cash equivalents |
$ | (143,494 |
) | $ | (97,792 |
) | ||
Item |
3. Quantitative and Qualitative Disclosures About Market Risk |
Item |
4. Controls and Procedures |
Item |
1A. Risk Factors |
Risk |
Discussion | |||
Description: Our business, results of operations and financial condition may be disrupted and adversely affected by global public health pandemics, including the strain of coronavirus known as COVID-19. Impact: If our employees or the employees of our suppliers or transportation providers are unable to work because of illness related to the COVID-19 pandemic, or if we or our suppliers or transportation providers are forced to temporarily cease operations, either on a voluntary or mandatory basis, then we may have a period of reduced operations and be unable to supply our customers in a timely manner, which could have a material negative impact on our business.If the COVID-19 outbreak disrupts the operations of our distributors and retail outlets and negatively impacts economies in the United States, Canada and the rest of the world, our business, results of operations and financial condition may be adversely affected. |
In December 2019, a novel strain of coronavirus, COVID-19, was reported to have surfaced in Wuhan, China. It spread to other countries, including the United States, and efforts to contain COVID-19 have intensified. In March 2020, the World Health Organization characterized COVID-19 as a pandemic. Our business, results of operations and financial condition may be adversely affected if COVID-19 interferes with the ability of our employees, suppliers and other business partners to perform their respective responsibilities and obligations relative to the conduct of our business.We continue to monitor the recent outbreak of COVID-19 and evaluate its impact on our business, including new information as it emerges concerning its severity and any actions to prevent, contain or treat it, among others. The extent to which COVID-19 may impact our business will depend on future developments, which are highly uncertain and cannot be predicted. |
Item |
2. Unregistered Sales of Equity Securities and Use of Proceeds |
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 |
||||||||||||
January 1, 2020 – January 31, 2020 |
47,062 |
$ | 96.61 |
42,238 |
4,798,382 |
|||||||||||
February 1, 2020 – February 29, 2020 |
71,626 |
$ | 101.46 |
38,292 |
4,760,090 |
|||||||||||
March 1, 2020 – March 31, 2020 |
361,479 |
$ | 86.08 |
361,479 |
4,398,611 |
|||||||||||
Quarterly period ended March 31, 2020 |
480,167 |
442,009 |
||||||||||||||
(1) | Includes shares 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. |
(2) | On February 16, 2018, the Company’s Board of Directors authorized a common stock repurchase program of up to 5.8 million shares of the Company’s outstanding common stock (Stock Repurchase Program). The Stock Repurchase Program was publicly announced on February 21, 2018. During the three months ended March 31, 2020, the Company repurchased 442,009 shares under the Stock Repurchase Program. |
For |
Against |
Abstain |
Broker Non-Votes |
|||||||||||||
Jay M. Gratz |
48,040,385 |
2,538,485 |
62,250 |
4,792,513 |
||||||||||||
Kristine L. Juster |
48,961,427 |
1,175,968 |
503,725 |
4,792,513 |
||||||||||||
Ronald W. Kaplan |
47,377,257 |
3,201,360 |
62,503 |
4,792,513 |
||||||||||||
Gerald Volas |
49,121,078 |
1,010,571 |
509,471 |
4,792,513 |
For |
Against |
Abstain |
Broker Non-Votes | |||
49,322,107 |
946,485 |
372,528 |
4,792,513 |
For |
Against |
Abstain |
Broker Non-Votes | |||
50,004,012 |
5,353,216 |
76,405 |
— |
For |
Against |
Abstain |
Broker Non-Votes | |||
54,467,137 |
904,751 |
61,745 |
— |
TREX COMPANY, INC. | ||||||
Date: May 4, 2020 |
By: |
/s/ Bryan H. Fairbanks | ||||
Bryan H. Fairbanks | ||||||
President and Chief Executive Officer | ||||||
(Duly Authorized Officer) |
Incorporated by reference |
||||||||||||||||||||
Exhibit No. |
Description |
Form |
Exhibit |
Filing Date |
File No. |
|||||||||||||||
3.1 |
S-1/A |
3.1 |
March 24, 1999 |
333-63287 |
||||||||||||||||
3.2 |
10-Q |
3.2 |
May 5, 2014 |
001-14649 |
||||||||||||||||
3.3 |
10-Q |
3.3 |
May 7, 2018 |
001-14649 |
||||||||||||||||
3.4 |
8-K |
3.1 |
May 1, 2019 |
001-14649 |
||||||||||||||||
3.5* |
||||||||||||||||||||
3.6 |
8-K |
3.2 |
May 1, 2019 |
001-14649 |
||||||||||||||||
10.1*** |
8-K |
10.1 |
February 25, 2020 |
001-14649 |
||||||||||||||||
10.2*** |
8-K |
10.2 |
February 25, 2020 |
001-14649 |
||||||||||||||||
10.3*** |
8-K |
10.3 |
February 25, 2020 |
001-14649 |
||||||||||||||||
31.1* |
||||||||||||||||||||
31.2* |
||||||||||||||||||||
32** |
||||||||||||||||||||
101.INS* |
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
|||||||||||||||||||
101.SCH* |
Inline XBRL Taxonomy Extension Schema Document. |
|||||||||||||||||||
101.CAL* |
Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
Incorporated by reference |
||||||||||||||||||||
Exhibit No. |
Description |
Form |
Exhibit |
Filing Date |
File No. |
|||||||||||||||
101.DEF* |
Inline XBRL Taxonomy Extension Definition Linkbase Document. |
|||||||||||||||||||
101.LAB* |
Inline XBRL Taxonomy Extension Label Linkbase Document. |
|||||||||||||||||||
101.PRE* |
Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
|||||||||||||||||||
104.1* |
Cover Page Interactive Data File – The cover page interactive data file does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document. |
* |
Filed herewith |
** |
Furnished herewith |
*** |
Management contract or compensatory plan or agreement |
Exhibit 3.5
FOURTH CERTIFICATE OF AMENDMENT TO
THE RESTATED CERTIFICATE OF INCORPORATION OF
TREX COMPANY, INC.
Trex Company, Inc., a Delaware corporation (the Corporation), does hereby certify:
FIRST: That Article IV of the Certificate of Incorporation of the Corporation is hereby amended to read in its entirety as follows:
The Corporation shall have the authority to issue a total of one hundred eighty-three million (183,000,000) shares of capital stock, each with a par value of $0.01, consisting of one hundred eighty million (180,000,000) shares of common stock and three million (3,000,000) shares of preferred stock.
SECOND: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.
In witness whereof, the Corporation has caused this Certificate to be signed by its duly authorized officer, this 29th day of April, 2020.
By: /s/ William R. Gupp |
Name: William R. Gupp |
Title: Senior Vice President, General Counsel and Secretary |
Exhibit 31.1
CERTIFICATION
I, Bryan H. Fairbanks, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Trex Company, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent function(s)): |
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: May 4, 2020
/s/ Bryan H. Fairbanks |
Bryan H. Fairbanks |
President and Chief Executive Officer |
(Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION
I, Bryan H. Fairbanks, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Trex Company, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent function(s)): |
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: May 4, 2020
/s/ Bryan H. Fairbanks |
Bryan H. Fairbanks |
Acting Chief Financial Officer (Principal Financial Officer) |
Exhibit 32
Certifications of Chief Executive Officer and Chief Financial Officer
Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)
The undersigned, the President and Chief Executive Officer and the Acting Chief Financial Officer of Trex Company, Inc. (the Company), each hereby certifies that, on the date hereof:
(a) | the Quarterly Report on Form 10-Q of the Company for the quarterly period ended March 31, 2020 filed on the date hereof with the U.S. Securities and Exchange Commission (the Report) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(b) | information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: May 4, 2020 | /s/ Bryan H. Fairbanks | |
Bryan H. Fairbanks | ||
President and Chief Executive Officer | ||
Date: May 4, 2020 | /s/ Bryan H. Fairbanks | |
Bryan H. Fairbanks | ||
Acting Chief Financial Officer |
Commitments and Contingencies - Summary of Reconciliation of Company's Residential Product Warranty Reserve (Detail) - Surface Flaking Warranty Reserve [Member] - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
|
Product Warranty Liability [Line Items] | ||
Beginning balance | $ 25,494 | $ 30,754 |
Provisions and changes in estimates | 321 | 505 |
Settlements made during the period | (725) | (925) |
Ending balance | 25,090 | 30,334 |
Surface Flaking [Member] | ||
Product Warranty Liability [Line Items] | ||
Beginning balance | 19,024 | 23,951 |
Settlements made during the period | (557) | (633) |
Ending balance | 18,467 | 23,318 |
Other Residential [Member] | ||
Product Warranty Liability [Line Items] | ||
Beginning balance | 6,470 | 6,803 |
Provisions and changes in estimates | 321 | 505 |
Settlements made during the period | (168) | (292) |
Ending balance | $ 6,623 | $ 7,016 |
Leases - Supplemental Cash flow Information to operating leases (Details) - USD ($) $ in Thousands |
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
Dec. 31, 2019 |
|
Supplemental cash flow information | |||
Cash paid for amounts included in the measurement of operating lease liabilities | $ 2,143 | $ 2,118 | |
Operating ROU assets obtained in exchange for lease liabilities | 0 | $ 388 | |
Supplemental balance sheet information | |||
Operating lease right-of-use assets | 38,329 | $ 40,049 | |
Operating lease liabilities: | |||
Accrued expenses and other current liabilities | 7,111 | 7,079 | |
Operating lease liabilities | 32,440 | 34,242 | |
Total operating lease liabilities | $ 39,551 | $ 41,321 |
Stockholders' Equity - Antidilutive Securities Excluded from Computation of Earnings Per Share (Detail) - shares |
3 Months Ended | |
---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
|
Stock appreciation rights [Member] | ||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
Anti-dilutive securities excluded from the computation of diluted earnings per share | 9,135 | 12,813 |
Inventories (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventory Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Inventories | Inventories valued at LIFO
(last-in, first-out), consist of the following (in thousands):
|
Segment Information |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Information |
The Company operates in two reportable segments:
The Company’s reportable segments have been determined in accordance with its internal management structure, which is organized based on residential and commercial sales activities. The Company evaluates performance of each segment primarily based on net sales and earnings before interest, taxes, depreciation and amortization (EBITDA). The Company uses net sales to assess performance and allocate resources as this measure represents the amount of business the segment engaged in during a given period of time, is an indicator of market growth and acceptance of segment products, and represents the segment’s customers’ spending habits along with the amount of product the segment sells relative to its competitors. The Company uses EBITDA to assess performance and allocate resources because it believes that EBITDA facilitates performance comparison between the segments by eliminating interest, taxes, and depreciation and amortization charges to income. The below segment data for the three months ended March 31, 2020 and 2019 includes data for Trex Residential and Trex Commercial (in thousands): Segment Data:
Reconciliation of Net Income to EBITDA:
|
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Segment Information (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Details of Segment Information | The below segment data for the three months ended March 31, 2020 and 2019 includes data for Trex Residential and Trex Commercial (in thousands): Segment Data:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Reconciliation of Net Income to EBITDA | Reconciliation of Net Income to EBITDA:
|
Inventories - Additional Information (Detail) - USD ($) |
3 Months Ended | |
---|---|---|
Mar. 31, 2020 |
Dec. 31, 2019 |
|
Inventory Disclosure [Abstract] | ||
LIFO inventory liquidations | $ 0 | |
Raw materials | $ 1,300,000 | $ 1,200,000 |
Accrued Expenses and Other Liabilities |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Payables and Accruals [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accrued Expenses and Other Liabilities |
Accrued expenses and other liabilities consist of the following (in thousands):
|
New Accounting Standards Not Yet Adopted |
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2020 | |||
Accounting Changes and Error Corrections [Abstract] | |||
New Accounting Standards Not Yet Adopted |
In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting Debt In December 2019, the FASB issued ASU No.
2019-12, “Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes step-up in the tax basis of goodwill. The standard will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company does not intend to early adopt the standard and does not expect the standard to have a material effect on its consolidated financial condition and results of operations. |
Stockholders' Equity |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stockholders' Equity |
Earnings Per Share The following table sets forth the computation of basic and diluted earnings per share (in thousands, except share and per share data):
Diluted earnings per share is computed using the weighted average number of shares determined for the basic earnings per share computation plus the dilutive effect of common stock equivalents using the treasury stock method. The computation of diluted earnings per share excludes the following potentially dilutive securities because the effect would be anti-dilutive:
Stock Repurchase Program On February 16, 2018, the Board of Directors adopted a stock repurchase program of up to 5.8 million shares of the Company’s outstanding common stock (Stock Repurchase Program). As of March 31, 2020, the Company has repurchased 1.4 million shares of its outstanding common stock under the Stock Repurchase Program. Due to the volatility and uncertainty in the stock market associated with the COVID-19 pandemic, the Company suspended repurchases of its common stock under the Stock Repurchase Program on March 12, 2020. As of the date of this report, the Stock Repurchase Program remains in effect and the Company may determine to resume repurchases at any time. Amendment of Restated Certificate of Incorporation At the annual meeting of stockholders of the Company held on April 29, 2020, the Company’s stockholders approved an amendment of the Company’s Restated Certificate of Incorporation (Amendment), effective as of April 29, 2020. The Company’s Board of Directors unanimously approved the Amendment on February 19, 2020, subject to stockholder approval. The Amendment increases the number of shares of common stock, par value $ per share, that the Company is authorized to issue from 120 million shares to 180 million shares. |
Consolidated Balance Sheets (Parenthetical) - $ / shares |
Mar. 31, 2020 |
Dec. 31, 2019 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Preferred stock, par value | $ 0.01 | $ 0.01 |
Preferred stock, shares authorized | 3,000,000 | 3,000,000 |
Preferred stock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
Common stock, par value | $ 0.01 | $ 0.01 |
Common stock, shares authorized | 120,000,000 | 120,000,000 |
Common stock, shares issued | 70,241,911 | 70,187,463 |
Common stock, shares outstanding | 57,853,160 | 58,240,721 |
Treasury stock, shares | 12,388,751 | 11,946,742 |
Basis of Presentation |
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2020 | |||
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||
Basis of Presentation |
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X and, accordingly, the accompanying unaudited condensed consolidated financial statements do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal and recurring adjustments, except as otherwise described herein) considered necessary for a fair presentation have been included in the accompanying unaudited condensed consolidated financial statements. The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Trex Commercial Products, Inc., for all periods presented. Intercompany accounts and transactions have been eliminated in consolidation.The consolidated results of operations for the three months ended March 31, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2020. The Company’s results of operations are affected by economic conditions, including macroeconomic conditions and levels of business and consumer confidence. The impact that the recent COVID-19 pandemic will have on the Company’s consolidated results of operations and financial condition is uncertain. The Company is actively managing its business to respond to this health crisis and will continue to evaluate the nature and extent of the impact.These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of December 31, 2019 and 2018 and for each of the three years in the period ended December 31, 2019 included in the Annual Report of Trex Company, Inc. on Form
10-K, as filed with the U.S. Securities and Exchange Commission. |
Segment Information - Additional Information (Detail) |
3 Months Ended |
---|---|
Mar. 31, 2020
Segment
| |
Segment Reporting Information [Line Items] | |
Number of reportable segment | 2 |
Stock-Based Compensation - Summary of Assumptions Used to Estimate Fair Value of Each SAR (Detail) - Stock Appreciation Rights [Member] - $ / shares |
3 Months Ended | |
---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
|
Share Based Compensation Arrangement by Share Based Payment Award Fair Value Assumptions and Methodology [Line Items] | ||
Weighted-average fair value of grants | $ 35.65 | $ 29.56 |
Dividend yield | 0.00% | 0.00% |
Average risk-free interest rate | 1.40% | 2.50% |
Expected term (years) | 5 years | 5 years |
Expected volatility | 37.80% | 39.10% |
Stock-Based Compensation (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Stock-Based Compensation Expense | The following table summarizes the Company’s stock-based compensation expense (in thousands):
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Summary of Assumptions Used to Estimate Fair Value of Each SAR | For SARs issued in the three months ended March 31, 2020 and 2019 the data and assumptions shown in the following table were used:
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Summary of Stock-Based Compensation Grants | The following table summarizes the Company’s stock-based compensation grants for the three months ended March 31, 2020:
|
Inventories - Summary of Inventories (Detail) - USD ($) $ in Thousands |
Mar. 31, 2020 |
Dec. 31, 2019 |
---|---|---|
Inventory Disclosure [Abstract] | ||
Finished goods | $ 43,458 | $ 42,281 |
Raw materials | 33,050 | 31,686 |
Total FIFO inventories | 76,508 | 73,967 |
Reserve to adjust inventories to LIFO value | (19,062) | (19,062) |
Total LIFO inventories | $ 57,446 | $ 54,905 |
Revenue From Contracts With Customers |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue from Contract with Customer [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue From Contracts With Customers |
Trex Residential Products Trex Residential principally generates revenue from the manufacture and sale of its high-performance, low-maintenance, eco-friendly wood-alternative decking and residential railing products and accessories. Substantially all of its revenues are from contracts with customers, which are purchase orders of short-term duration of less than one year. Its customers, in turn, sell primarily to the residential market, which includes replacement, remodeling and new construction related to outdoor living products. Trex Residential satisfies its performance obligations at a point in time. The shipment of each product is a separate performance obligation as the customer is able to derive benefit from each product shipped and no performance obligation remains after shipment. Upon shipment of the product, the customer obtains control over the distinct product and Trex Residential satisfies its performance obligation. Any performance obligation that remains unsatisfied at the end of a reporting period is part of a contract that has an original expected duration of one year or less. Any variable consideration related to the unsatisfied performance obligation is allocated wholly to the unsatisfied performance obligation, is recognized when the product ships and the performance obligation is satisfied and is included in “Accrued expenses and other liabilities, Sales and marketing” in Note 8 to the Condensed Consolidated Financial Statements.Trex Commercial Products Trex Commercial generates revenue from the manufacture and sale of its modular and architectural railing and staging systems. All of its revenues are from fixed-price contracts with customers. Trex Commercial contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contract and is, therefore, not distinct. The transaction price allocated to remaining performance obligations on contracts with an original duration greater than one year was $60.1 million as of March 31, 2020. The Company will recognize this revenue as contracts are completed, which is expected to occur within the next 24 months. For the three months ended March 31, 2020 and 2019, net sales were disaggregated in the following tables by (1) market, (2) timing of revenue recognition, and (3) type of contract. The tables also include a reconciliation of the respective disaggregated net sales with the Company’s reportable segments (in thousands):
|
Debt |
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2020 | |||
Debt Disclosure [Abstract] | |||
Debt |
The Company’s outstanding debt consists of a revolving credit facility. The Company had $28.5 million in outstanding borrowings under its revolving credit facility and remaining available borrowing capacity of $221.5 million at March 31, 2020. Revolving Credit Facility On November 5, 2019, the Company entered into a Fourth Amended and Restated Credit Agreement (Fourth Amended Credit Agreement) as borrower, Trex Commercial Products, Inc., as guarantor; Bank of America, N.A. as a Lender, Administrative Agent, Swing Line Lender and L/C Issuer; and certain other lenders including Wells Fargo Bank, N.A., who is also Syndication Agent; SunTrust Bank; and Branch Banking and Trust Company, arranged by BOA Securities, Inc., as Sole Lead Arranger and Sole Bookrunner, to amend and restate the Third Amended and Restated Credit Agreement (Third Amended Credit Agreement), dated as of January 12, 2016, as amended. The Fourth Amended Credit Agreement provides the Company with one or more Revolving Loans in a collective maximum principal amount of $250 million from January 1 through June 30 of each year and a maximum principal amount of $200 million from July 1 through December 31 of each year throughout the term, which ends November 5, 2024. Compliance with Debt Covenants and Restrictions Pursuant to the terms of the Fourth Amended Credit Agreement, the Company is subject to certain loan compliance covenants. The Company was in compliance with all covenants as of March 31, 2020. Failure to comply with the financial covenants could be considered a default of repayment obligations and, among other remedies, could accelerate payment of any amounts outstanding. |
Inventories |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventory Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventories |
Inventories valued at LIFO
(last-in, first-out), consist of the following (in thousands):
The Company utilizes the LIFO method of accounting related to its Trex Residential products, which generally provides for the matching of current costs with current revenues. However, under the LIFO method, reductions in annual inventory balances cause a portion of the Company’s cost of sales to be based on historical costs rather than current year costs (LIFO liquidation). Reductions in interim inventory balances expected to be replenished by year-end do not result in a LIFO liquidation. Accordingly, interim LIFO calculations are based, in part, on management’s estimates of expected year-end inventory levels and costs which may differ from actual results. Since inventory levels and costs are subject to factors beyond management’s control, interim results are subject to the final year-end LIFO inventory valuation. As of March 31, 2020, there were no LIFO inventory liquidations or related impact on cost of sales in the three months ended March 31, 2020.Inventories valued at lower of cost (FIFO method) and net realizable value were $1.3 million at March 31, 2020 and $1.2 million at December 31, 2019, consisting primarily of raw materials. The Company utilizes the FIFO method of accounting related to its Trex Commercial products. |
Recently Adopted Accounting Standards |
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2020 | |||
Accounting Changes and Error Corrections [Abstract] | |||
Recently Adopted Accounting Standards |
In August 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2018-15, “Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of FASB Emerging Issues Task Force) internal-use software license. Under that model, implementation costs are capitalized or expensed depending on the nature of the costs and the project stage during which they are incurred. Capitalized implementation costs are amortized over the term of the associated hosted cloud computing arrangement service contract on a straight-line basis, unless another systematic and rational basis is more representative of the pattern in which the entity expects to benefit from its right to access the hosted software. Capitalized implementation costs would then be assessed for impairment in a manner similar to long-lived assets. The new guidance was effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Entities could adopt the new guidance either prospectively to eligible costs incurred on or after the date the guidance is first applied or retrospectively. The Company adopted the guidance prospectively on January 1, 2020. Adoption did not have a material impact on its consolidated financial condition or results of operations.In January 2017, the FASB issued ASU No. 2017-04, “Intangibles—Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment In June 2016, the FASB issued ASU No.
2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses in Financial Instruments |
Stock-Based Compensation - Summary of Stock-Based Compensation Grants (Detail) |
3 Months Ended |
---|---|
Mar. 31, 2020
$ / shares
shares
| |
Time Based Restricted Stock Units [Member] | |
Stock Awards Granted | shares | 19,769 |
Weighted-Average Grant Price Per Share | $ / shares | $ 101.53 |
Performance Based Restricted Stock Units [Member] | |
Stock Awards Granted | shares | 36,510 |
Weighted-Average Grant Price Per Share | $ / shares | $ 78.18 |
Stock Appreciation Rights [Member] | |
Stock Awards Granted | shares | 19,792 |
Weighted-Average Grant Price Per Share | $ / shares | $ 101.66 |
Leases - Additional Information (Detail) - USD ($) $ in Millions |
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
Dec. 31, 2019 |
|
Weighted average discount rate | 3.66% | ||
Operating lease cost | $ 2.1 | $ 2.1 | |
Weighted average remaining lease term | 6 years 2 months 12 days | 6 years 6 months | |
Minimum [Member] | |||
Operating Lease terms | 1 year | ||
Maximum [Member] | |||
Operating Lease terms | 9 years |
Stockholders' Equity - Computation of Basic and Diluted Earnings Per Share (Detail) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
|
Numerator: | ||
Net income available to common shareholders | $ 42,402 | $ 31,555 |
Denominator: | ||
Basic weighted average shares outstanding | 58,129,529 | 58,543,478 |
Effect of dilutive securities: | ||
Diluted weighted average shares outstanding | 58,323,721 | 58,829,177 |
Basic earnings per share | $ 0.73 | $ 0.54 |
Diluted earnings per share | $ 0.73 | $ 0.54 |
Stock appreciation rights and options [Member] | ||
Effect of dilutive securities: | ||
Dilutive securities | 90,723 | 154,076 |
Restricted stock [Member] | ||
Effect of dilutive securities: | ||
Dilutive securities | 103,469 | 131,623 |
Prepaid Expenses and Other Assets (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Text Block [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Prepaid Expenses and Other Assets | Prepaid expenses and other assets consist of the following (in thousands):
|
Seasonality |
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2020 | |||
Text Block [Abstract] | |||
Seasonality |
The 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 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 results 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. |
Financial Instruments |
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2020 | |||
Investments, All Other Investments [Abstract] | |||
Financial Instruments |
The Company considers the recorded value of its financial assets and liabilities, consisting primarily of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, other current liabilities, and debt to approximate the fair value of the respective assets and liabilities on the Condensed Consolidated Balance Sheets at March 31, 2020 and December 31, 2019. |
Goodwill and Other Intangible Assets |
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2020 | |||
Goodwill and Intangible Assets Disclosure [Abstract] | |||
Goodwill and Other Intangible Assets |
The carrying amount of goodwill by reportable segment at March 31, 2020 and December 31, 2019 was $14.2 million for Trex Residential and $54.3 million for Trex Commercial. The Company’s intangible assets consist of domain names. At March 31, 2020 and December 31, 2019, intangible assets were $6.3 million and accumulated amortization was $0.8 million and $0.7 million, respectively. Intangible asset amounts were determined based on the estimated economics of the asset and are amortized over the estimated useful lives on a straight-line basis over 15 years, which approximates the pattern in which the economic benefits are expected to be received. The Company evaluates the recoverability of intangible assets periodically and considers events or circumstances that may warrant revised estimates of useful lives or that may indicate an impairment. Intangible asset amortization expense for the three months ended March 31, 2020 and March 31, 2019, was $ 0.1 million. |
Prepaid Expenses and Other Assets - Summary of Prepaid Expenses and Other Assets (Detail) - USD ($) $ in Thousands |
Mar. 31, 2020 |
Dec. 31, 2019 |
---|---|---|
Prepaid Expense and Other Assets [Abstract] | ||
Prepaid expenses | $ 6,901 | $ 8,282 |
Revenues in excess of billings | 6,247 | 6,664 |
Contract retainage | 2,273 | 1,832 |
Income tax receivable | 513 | 2,675 |
Other | 648 | 350 |
Total prepaid expenses and other assets | $ 16,582 | $ 19,803 |
Stockholders' Equity (Tables) |
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Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Computation of Basic and Diluted Earnings Per Share | The following table sets forth the computation of basic and diluted earnings per share (in thousands, except share and per share data):
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Antidilutive Securities Excluded from Computation of Earnings Per Share | The computation of diluted earnings per share excludes the following potentially dilutive securities because the effect would be anti-dilutive:
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Commitments and Contingencies (Tables) |
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Mar. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Reconciliation of Company's Residential Product Warranty Reserve | The following is a reconciliation of the Company’s residential product warranty reserve (in thousands):
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Income Taxes - Additional Information (Detail) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
|
Income Tax Contingency [Line Items] | ||
Valuation allowance | $ 3,000 | |
Income tax expense (benefit) | $ 13,255 | $ 7,700 |
Effective tax rate | 23.80% | 19.60% |
Decrease in effective tax rate due to increase in domestic production activities deduction | 4.20% | |
Excess tax benefits from stock based awards | $ 1,000 | $ 2,300 |
Earliest Tax Year [Member] | Federal Tax Jurisdiction [Member] | ||
Income Tax Contingency [Line Items] | ||
Tax years subject to examination | 2016 | |
Latest Tax Year [Member] | Federal Tax Jurisdiction [Member] | ||
Income Tax Contingency [Line Items] | ||
Tax years subject to examination | 2019 |
Stock-Based Compensation - Summary of Stock-Based Compensation Expenses (Detail) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
|
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Stock-based compensation expense | $ 2,775 | $ 2,793 |
Stock Appreciation Rights [Member] | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Stock-based compensation expense | 354 | 295 |
Time-Based Restricted Stock and Restricted Stock Units [Member] | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Stock-based compensation expense | 1,256 | 1,149 |
Performance-Based Restricted Stock and Restricted Stock Units [Member] | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Stock-based compensation expense | 1,135 | 1,314 |
Employee Stock Purchase Plan [Member] | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Stock-based compensation expense | $ 30 | $ 35 |
Commitments and Contingencies - Additional Information (Detail) $ in Millions |
3 Months Ended |
---|---|
Mar. 31, 2020
USD ($)
| |
Schedule Of Commitments And Contingencies [Line Items] | |
Change in warranty reserve for disclosure purposes only | $ 1.8 |
Minimum [Member] | |
Schedule Of Commitments And Contingencies [Line Items] | |
Warranty period | 10 years |
Maximum [Member] | |
Schedule Of Commitments And Contingencies [Line Items] | |
Warranty period | 25 years |
Surface Flaking Warranty Reserve [Member] | |
Schedule Of Commitments And Contingencies [Line Items] | |
Percentage change in warranty claims used as a threshold for disclosure | 10.00% |
Business and Organization |
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2020 | |||
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||
Business and Organization |
Trex Company, Inc. (Company) is the world’s largest manufacturer of wood-alternative decking and railing products, with more than 25 years of product experience, which are marketed under the brand name Trex
® . The Company manufactures and distributes high-performance, low-maintenance, eco-friendly wood and plastic composite outdoor living products and related accessories. A majority of its products are manufactured in a proprietary process that combines reclaimed wood fibers and scrap polyethylene. Also, the Company is a leading national provider of custom-engineered railing and staging systems for the commercial and multi-family market, including sports stadiums and performing arts venues. The Company operates in two reportable segments, Trex Residential Products (Trex Residential) and Trex Commercial Products (Trex Commercial). The Company is incorporated in Delaware. The principal executive offices are located at 160 Exeter Drive, Winchester, Virginia 22603, and the telephone number at that address is (540) 542-6300. |
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