Trex(TREX) - 2020 Q3 - Quarterly Report

PART I FINANCIAL INFORMATION This section encompasses the company's condensed consolidated financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures Item 1. Condensed Consolidated Financial Statements This section presents the unaudited condensed consolidated financial statements, including statements of comprehensive income, balance sheets, changes in stockholders' equity, and cash flows, along with detailed notes explaining the company's business, accounting policies, financial instruments, and segment information for the periods ended September 30, 2020 and 2019 Condensed Consolidated Statements of Comprehensive Income This statement details the company's revenues, cost of sales, gross profit, operating expenses, and net income for the specified reporting periods Three Months Ended September 30 (in thousands): | Metric | 2020 | 2019 | Change ($) | Change (%) | | :--------------------------------- | :----- | :----- | :--------- | :--------- | | Net sales | $231,502 | $194,551 | $36,951 | 19.0% | | Cost of sales | 146,538 | 112,120 | 34,418 | 30.7% | | Gross profit | 84,964 | 82,431 | 2,533 | 3.1% | | Selling, general and administrative expenses | 28,027 | 27,409 | 618 | 2.3% | | Income from operations | 56,937 | 55,022 | 1,915 | 3.5% | | Provision for income taxes | 14,435 | 13,790 | 645 | 4.7% | | Net income | $42,710 | $41,976 | $734 | 1.7% | | Basic earnings per common share | $0.37 | $0.36 | $0.01 | 2.8% | | Diluted earnings per common share | $0.37 | $0.36 | $0.01 | 2.8% | Nine Months Ended September 30 (in thousands): | Metric | 2020 | 2019 | Change ($) | Change (%) | | :--------------------------------- | :----- | :----- | :--------- | :--------- | | Net sales | $652,545 | $580,575 | $71,970 | 12.4% | | Cost of sales | 385,479 | 345,334 | 40,145 | 11.6% | | Gross profit | 267,066 | 235,241 | 31,825 | 13.5% | | Selling, general and administrative expenses | 91,598 | 93,281 | (1,683) | (1.8)% | | Income from operations | 175,468 | 141,960 | 33,508 | 23.6% | | Provision for income taxes | 43,938 | 33,520 | 10,418 | 31.1% | | Net income | $132,331 | $109,241 | $23,090 | 21.1% | | Basic earnings per common share | $1.14 | $0.94 | $0.20 | 21.3% | | Diluted earnings per common share | $1.14 | $0.93 | $0.21 | 22.6% | Condensed Consolidated Balance Sheets This statement presents a snapshot of the company's assets, liabilities, and stockholders' equity at specific points in time As of (in thousands): | Asset/Liability/Equity | September 30, 2020 | December 31, 2019 | Change ($) | Change (%) | | :--------------------------------- | :----------------- | :---------------- | :--------- | :--------- | | Cash and cash equivalents | $20,081 | $148,833 | $(128,752) | (86.5)% | | Accounts receivable, net | 253,416 | 78,462 | 174,954 | 223.0% | | Inventories | 51,581 | 56,106 | (4,525) | (8.1)% | | Total current assets | 342,900 | 303,204 | 39,696 | 13.1% | | Property, plant and equipment, net | 260,519 | 171,300 | 89,219 | 52.1% | | Total assets | $718,235 | $592,239 | $125,996 | 21.3% | | Accounts payable | $33,345 | $15,227 | $18,118 | 119.0% | | Accrued expenses and other liabilities | 71,164 | 58,265 | 12,899 | 22.1% | | Total current liabilities | 110,109 | 78,670 | 31,439 | 39.9% | | Total liabilities | 174,171 | 143,064 | 31,107 | 21.7% | | Total stockholders' equity | 544,064 | 449,175 | 94,889 | 21.1% | | Total liabilities and stockholders' equity | $718,235 | $592,239 | $125,996 | 21.3% | Condensed Consolidated Statements of Changes in Stockholders' Equity This statement outlines the changes in the company's equity components, including net income, stock-based compensation, and share repurchases Nine Months Ended September 30, 2020 (in thousands): | Item | Amount | | :--------------------------------- | :----- | | Balance, December 31, 2019 | $449,175 | | Net income | 132,330 | | Net impact of employee stock plans and tax withholdings | (4,288) | | Stock-based compensation | 5,919 | | Repurchases of common stock | (39,072) | | Balance, September 30, 2020 | $544,064 | Condensed Consolidated Statements of Cash Flows This statement categorizes the company's cash inflows and outflows from operating, investing, and financing activities for the periods presented Nine Months Ended September 30 (in thousands): | Activity | 2020 | 2019 | Change ($) | Change (%) | | :--------------------------------- | :----- | :----- | :--------- | :--------- | | Net cash provided by operating activities | $12,514 | $98,986 | $(86,472) | (87.4)% | | Net cash used in investing activities | (97,546) | (36,905) | (60,641) | 164.3% | | Net cash used in financing activities | (43,720) | (34,498) | (9,222) | 26.7% | | Net (decrease) increase in cash and cash equivalents | $(128,752) | $27,583 | $(156,335) | (566.8)% | | Cash and cash equivalents, end of period | $20,081 | $133,282 | $(113,201) | (84.9)% | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations of the company's business, significant accounting policies, financial instruments, and segment-specific information 1. BUSINESS AND ORGANIZATION This note describes the company's primary business as a manufacturer of wood-alternative decking and its two distinct reportable segments - Trex Company, Inc. is the world's largest manufacturer of high-performance, low-maintenance wood-alternative decking and residential railing and outdoor living products[22] - The company operates in two reportable segments: Trex Residential Products and Trex Commercial Products[22] 2. BASIS OF PRESENTATION This note outlines the basis of financial statement preparation and addresses the non-material impact of the COVID-19 pandemic on current operations - Unaudited condensed consolidated financial statements are prepared in accordance with GAAP for interim financial information[23] - The company has not experienced material disruptions to operations, production, supply chain, or demand due to the COVID-19 pandemic as of the report date, but the situation remains evolving[24] 3. RECENTLY ADOPTED ACCOUNTING STANDARDS This note details the adoption of new accounting standards and confirms their non-material impact on the company's financial condition or results - The company adopted ASU 2018-15 (cloud computing arrangement costs), ASU 2017-04 (goodwill impairment), and ASU 2016-13 (CECL model) on January 1, 2020[26][29][30] - The adoption of these new accounting standards did not have a material impact on the company's consolidated financial condition or results of operations[28][29][30] 4. NEW ACCOUNTING STANDARDS NOT YET ADOPTED This note discusses new accounting standards not yet adopted and their expected non-material effect on the consolidated financial statements - The company does not expect ASU 2020-04 (Reference Rate Reform) or ASU 2019-12 (Income Taxes) to have a material effect on its consolidated financial statements upon adoption[31][32] 5. INVENTORIES This note details the inventory valuation methods used for Trex Residential and Trex Commercial products and provides a breakdown of inventory balances - Trex Residential products are valued using the LIFO method, while Trex Commercial products use the FIFO method[34][35] - As of September 30, 2020, management estimates no LIFO inventory liquidations or related impact on cost of sales for the nine months ended September 30, 2020[34] Inventories (in thousands): | Category | September 30, 2020 | December 31, 2019 | | :--------------------------------- | :----------------- | :---------------- | | Finished goods | $32,691 | $42,281 | | Raw materials | 36,515 | 31,686 | | Total FIFO inventories | 69,206 | 73,967 | | Reserve to adjust inventories to LIFO value | (19,062) | (19,062) | | Total LIFO inventories | $50,144 | $54,905 | 6. PREPAID EXPENSES AND OTHER ASSETS This note provides a breakdown of prepaid expenses and other current assets, including revenues in excess of billings and contract retainage Prepaid Expenses and Other Assets (in thousands): | Category | September 30, 2020 | December 31, 2019 | | :--------------------------------- | :----------------- | :---------------- | | Revenues in excess of billings | $8,838 | $8,282 | | Prepaid expenses | 6,407 | 6,664 | | Contract retainage | 2,277 | 1,832 | | Income tax receivable | — | 2,675 | | Other | 300 | 350 | | Total prepaid expenses and other assets | $17,822 | $19,803 | 7. GOODWILL AND OTHER INTANGIBLE ASSETS This note details the goodwill allocated to each segment and the value and amortization of other intangible assets - Goodwill at September 30, 2020, was $14.2 million for Trex Residential and $54.3 million for Trex Commercial[37] - Intangible assets, primarily domain names, were $6.3 million at September 30, 2020, and are amortized over 15 years[38] 8. ACCRUED EXPENSES AND OTHER LIABILITIES This note provides a detailed breakdown of accrued expenses and other current liabilities, including sales and marketing, compensation, and operating lease obligations Accrued Expenses and Other Liabilities (in thousands): | Category | September 30, 2020 | December 31, 2019 | | :--------------------------------- | :----------------- | :---------------- | | Sales and marketing | $32,645 | $28,402 | | Compensation and benefits | 14,485 | 13,475 | | Operating lease liabilities | 7,961 | 7,079 | | Manufacturing costs | 3,309 | 2,564 | | Customer deposits | 3,179 | 2,905 | | Income taxes | 2,696 | — | | Billings in excess of revenues | 1,498 | 816 | | Other | 5,391 | 3,024 | | Total accrued expenses and other liabilities | $71,164 | $58,265 | 9. DEBT This note details the company's revolving credit facility, available borrowing capacity, and confirms compliance with all loan covenants - As of September 30, 2020, the company had no outstanding borrowings under its revolving credit facility and $300 million in available borrowing capacity[41] - A First Amendment to the credit agreement was entered into on May 26, 2020, providing an additional $100 million line of credit primarily to reduce risk associated with the COVID-19 pandemic and support growth strategy[43] - The company was in compliance with all loan compliance covenants as of September 30, 2020[50] 10. LEASES This note outlines operating lease expenses, the weighted average remaining lease term, and the maturity schedule of operating lease liabilities - Total operating lease expense was $6.3 million for both the nine months ended September 30, 2020, and 2019[52] - The weighted average remaining lease term was 5.7 years at September 30, 2020, down from 6.5 years at December 31, 2019[52] Maturities of Operating Lease Liabilities at September 30, 2020 (in thousands): | Year | Amount | | :--------------------------------- | :----- | | 2020 | $2,301 | | 2021 | 9,024 | | 2022 | 7,155 | | 2023 | 6,553 | | 2024 | 6,224 | | Thereafter | 11,078 | | Total lease payments | 42,335 | | Less imputed interest | (4,192) | | Total operating lease liabilities | $38,143 | 11. FINANCIAL INSTRUMENTS This note states that the recorded values of the company's financial assets and liabilities closely approximate their fair values - The recorded value of financial assets and liabilities, including cash, accounts receivable, accounts payable, and debt, approximates their fair value[55] 12. STOCKHOLDERS' EQUITY This note covers diluted earnings per share, the status of the stock repurchase program, and details of the recent two-for-one stock split Diluted Earnings Per Share: | Period | 2020 | 2019 | | :--------------------------------- | :----- | :----- | | Three Months Ended September 30 | $0.37 | $0.36 | | Nine Months Ended September 30 | $1.14 | $0.93 | - The stock repurchase program was suspended on March 12, 2020, due to COVID-19 market volatility and lifted on October 30, 2020[58] - The number of authorized common shares increased from 120 million to 180 million on April 29, 2020, and a two-for-one stock split was approved on July 29, 2020, distributed on September 14, 2020[59][60] 13. REVENUE FROM CONTRACTS WITH CUSTOMERS This note explains the revenue recognition policies for Trex Residential and Trex Commercial segments, including performance obligations and net sales by segment - Trex Residential recognizes revenue at a point in time upon product shipment, primarily from short-term purchase orders[61] - Trex Commercial generates revenue from fixed-price contracts for modular and architectural railing and staging systems, with a single performance obligation recognized over time[63] - The transaction price allocated to remaining performance obligations for Trex Commercial contracts with original durations greater than one year was $60.1 million as of September 30, 2020, expected to be recognized within 24 months[63] Net Sales by Segment and Revenue Recognition (in thousands): | Period | Trex Residential | Trex Commercial | Total | | :--------------------------------- | :--------------- | :-------------- | :---- | | Three Months Ended Sep 30, 2020 | $218,435 | $13,067 | $231,502 | | Nine Months Ended Sep 30, 2020 | $614,187 | $38,358 | $652,545 | | Three Months Ended Sep 30, 2019 | $182,775 | $11,776 | $194,551 | | Nine Months Ended Sep 30, 2019 | $541,722 | $38,853 | $580,575 | 14. STOCK-BASED COMPENSATION This note describes the company's stock incentive plan, total stock-based compensation expense, and unrecognized compensation costs related to unvested awards - The company's 2014 Stock Incentive Plan allows for grants of stock options, restricted stock, restricted stock units, SARs, and unrestricted stock to officers, directors, and key employees[66][67] - Total stock-based compensation expense for the nine months ended September 30, 2020, was $5.9 million, compared to $5.8 million in the prior year[68] - Unrecognized compensation cost related to unvested awards was $6.7 million as of September 30, 2020[68] 15. INCOME TAXES This note details the effective tax rate, the reasons for its change, and the non-material impact of the CARES Act on the company's financial results - The effective tax rate for the nine months ended September 30, 2020, was 24.9%, an increase from 23.5% in 2019, primarily due to a decrease in excess tax benefits from share-based payments and an increase in non-deductible executive compensation[69] - The CARES Act did not have a material impact on the company's consolidated financial condition or results of operations as of September 30, 2020[72] 16. SEGMENT INFORMATION This note provides financial data for the Trex Residential and Trex Commercial segments, with performance evaluated primarily based on net sales and EBITDA - The company operates in two reportable segments: Trex Residential (wood-alternative decking and residential railing) and Trex Commercial (modular and architectural railing and staging systems)[76] - Segment performance is evaluated primarily based on net sales and EBITDA[74] Segment Data - Three Months Ended September 30 (in thousands): | Metric | Trex Residential (2020) | Trex Commercial (2020) | Total (2020) | Trex Residential (2019) | Trex Commercial (2019) | Total (2019) | | :--------------------------------- | :---------------------- | :--------------------- | :----------- | :---------------------- | :--------------------- | :----------- | | Net sales | $218,435 | $13,067 | $231,502 | $182,775 | $11,776 | $194,551 | | Net income | $42,225 | $485 | $42,710 | $41,381 | $595 | $41,976 | | EBITDA | $60,619 | $853 | $61,472 | $57,639 | $970 | $58,609 | | Capital expenditures | $36,887 | $197 | $37,084 | $17,766 | $99 | $17,865 | | Total assets | $624,904 | $93,331 | $718,235 | $482,825 | $87,945 | $570,770 | Segment Data - Nine Months Ended September 30 (in thousands): | Metric | Trex Residential (2020) | Trex Commercial (2020) | Total (2020) | Trex Residential (2019) | Trex Commercial (2019) | Total (2019) | | :--------------------------------- | :---------------------- | :--------------------- | :----------- | :---------------------- | :--------------------- | :----------- | | Net sales | $614,187 | $38,358 | $652,545 | $541,722 | $38,853 | $580,575 | | Net income | $129,157 | $3,174 | $132,331 | $107,859 | $1,382 | $109,241 | | EBITDA | $183,064 | $4,854 | $187,918 | $150,058 | $2,282 | $152,340 | | Capital expenditures | $98,913 | $783 | $99,696 | $35,584 | $1,342 | $36,926 | | Total assets | $624,904 | $93,331 | $718,235 | $482,825 | $87,945 | $570,770 | 17. SEASONALITY This note explains the historical seasonal nature of Trex Residential's operating results and the non-seasonal characteristics of Trex Commercial's operations - Trex Residential's operating results are historically seasonal, affected by weather conditions and incentive programs to build distributor inventory before the prime deck-building season[80] - Trex Commercial's operating results are driven by the timing of individual projects and do not historically vary due to seasonality[80] 18. COMMITMENTS AND CONTINGENCIES This note discusses the warranty reserve for surface flaking claims, recent claim trends, and the expected non-material impact of routine legal matters - The company maintains a warranty reserve for surface flaking claims related to products manufactured at its Nevada facility prior to 2007, with warranty periods ranging from 10 to 25 years[81][82] - Incoming surface flaking claims in the nine months ended September 30, 2020, were higher than in 2019 and exceeded expectations, leading to a $6.5 million provision to the warranty reserve in Q3 2020[85][86] - Legal matters are routine and not expected to have a material effect on the company's financial condition, results of operations, liquidity, or competitive position[90] Residential Product Warranty Reserve (in thousands): | Category | Surface Flaking (9M 2020) | Other Residential (9M 2020) | Total (9M 2020) | Surface Flaking (9M 2019) | Other Residential (9M 2019) | Total (9M 2019) | | :--------------------------------- | :------------------------ | :-------------------------- | :-------------- | :------------------------ | :-------------------------- | :-------------- | | Beginning balance, January 1 | $19,024 | $6,470 | $25,494 | $23,951 | $6,803 | $30,754 | | Provisions and changes in estimates | 6,479 | 1,932 | 8,411 | — | 1,571 | 1,571 | | Settlements made during the period | (3,078) | (1,178) | (4,256) | (4,027) | (1,004) | (5,031) | | Ending balance, September 30 | $22,425 | $7,224 | $29,649 | $19,924 | $7,370 | $27,294 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance, condition, and operational results for the three and nine months ended September 30, 2020, compared to the prior year, covering the impact of COVID-19, detailed segment operations, and a comprehensive analysis of net sales, gross profit, expenses, and liquidity OVERVIEW This section provides a general business description, the current impact of COVID-19, and key financial highlights for the third quarter of 2020 - The COVID-19 pandemic has not had a material adverse effect on the company's business, results of operations, cash flows, or financial condition as of the report date, with operations continuing at pre-pandemic output levels[94][159] - The company implemented various preventative measures against COVID-19, including social distancing, remote work, PPE distribution, air purifiers, and enhanced cleaning protocols[97] - Trex Residential is the world's largest manufacturer of high-performance composite decking and residential railing, utilizing 95% reclaimed wood fibers and recycled polyethylene film[99] - Trex Commercial is a leading national provider of custom-engineered railing and staging systems for commercial and multi-family markets[101] - Highlights for Q3 2020 include a 19% increase in net sales to $231.5 million, a 3.1% increase in gross profit to $85.0 million, and net income of $42.7 million ($0.37 diluted EPS)[102][109] RESULTS OF OPERATIONS This section analyzes the company's financial performance, including net sales, gross profit, and expenses, for the three and nine months ended September 30, 2020 Three Months Ended September 30, 2020 Compared To The Three Months Ended September 30, 2019 This section compares the company's financial performance for the third quarter of 2020 against the same period in 2019, detailing changes in sales, profit, and expenses Net Sales (in thousands): | Metric | Q3 2020 | Q3 2019 | $ Change | % Change | | :---------------------- | :------ | :------ | :------- | :------- | | Total Net Sales | $231,502 | $194,551 | $36,951 | 19.0% | | Trex Residential Net Sales | $218,435 | $182,775 | $35,660 | 19.5% | | Trex Commercial Net Sales | $13,067 | $11,776 | $1,291 | 11.0% | - Trex Residential net sales increased primarily due to volume growth driven by strong demand for outdoor living products, a robust residential repair and remodeling sector, and initiatives to accelerate conversion from wood[114] Gross Profit (in thousands): | Metric | Q3 2020 | Q3 2019 | $ Change | % Change | | :---------------- | :------ | :------ | :------- | :------- | | Cost of Sales | $146,538 | $112,120 | $34,418 | 30.7% | | Gross Profit | $84,964 | $82,431 | $2,533 | 3.1% | | Gross Margin | 36.7% | 42.4% | -5.7% pts | -13.5% | - Gross margin was unfavorably impacted by a $6.5 million provision to the Trex Residential legacy warranty reserve for surface flaking issues, and increased labor costs and depreciation due to capacity expansion[116] Selling, General and Administrative Expenses (in thousands): | Metric | Q3 2020 | Q3 2019 | $ Change | % Change | | :----------------------------------- | :------ | :------ | :------- | :------- | | SG&A Expenses | $28,027 | $27,409 | $618 | 2.3% | | % of Total Net Sales | 12.1% | 14.1% | -2.0% pts | -14.2% | Provision for Income Taxes (in thousands): | Metric | Q3 2020 | Q3 2019 | $ Change | % Change | | :---------------------- | :------ | :------ | :------- | :------- | | Provision for Income Taxes | $14,435 | $13,790 | $645 | 4.7% | | Effective Tax Rate | 25.3% | 24.7% | +0.6% pts | +2.4% | EBITDA (in thousands): | Metric | Q3 2020 | Q3 2019 | $ Change | % Change | | :-------------------- | :------ | :------ | :------- | :------- | | Total EBITDA | $61,472 | $58,609 | $2,863 | 4.9% | | Trex Residential EBITDA | $60,619 | $57,639 | $2,980 | 5.2% | | Trex Commercial EBITDA | $853 | $970 | $(117) | (12.1)% | - Excluding the $6.5 million surface flaking reserve, EBITDA growth for Q3 2020 was 15.9%[121] Nine Months Ended September 30, 2020 Compared To The Nine Months Ended September 30, 2019 This section compares the company's financial performance for the first nine months of 2020 against the same period in 2019, analyzing sales, profit, and expense trends Net Sales (in thousands): | Metric | 9M 2020 | 9M 2019 | $ Change | % Change | | :---------------------- | :------ | :------ | :------- | :------- | | Total Net Sales | $652,545 | $580,575 | $71,970 | 12.4% | | Trex Residential Net Sales | $614,187 | $541,722 | $72,465 | 13.4% | | Trex Commercial Net Sales | $38,358 | $38,853 | $(495) | (1.3)% | - The increase in Trex Residential net sales was primarily due to volume growth from strong broad-based demand, positive momentum in the residential repair and remodeling sector, and initiatives to expand market and accelerate wood conversion[122] Gross Profit (in thousands): | Metric | 9M 2020 | 9M 2019 | $ Change | % Change | | :---------------- | :------ | :------ | :------- | :------- | | Cost of Sales | $385,479 | $345,334 | $40,145 | 11.6% | | Gross Profit | $267,066 | $235,241 | $31,825 | 13.5% | | Gross Margin | 40.9% | 40.5% | +0.4% pts | +1.0% | - Gross margin was favorably impacted by the non-recurrence of Enhance startup costs in 2019 and an increase in gross margin at Trex Commercial due to a mix of higher margin contracts and cost savings initiatives[124] Selling, General and Administrative Expenses (in thousands): | Metric | 9M 2020 | 9M 2019 | $ Change | % Change | | :----------------------------------- | :------ | :------ | :------- | :------- | | SG&A Expenses | $91,598 | $93,281 | $(1,683) | (1.8)% | | % of Total Net Sales | 14.0% | 16.1% | -2.1% pts | -13.0% | - The decrease in SG&A expenses was primarily due to disciplined branding and advertising spending, partially offset by increases in personnel-related and other operating expenses[125] Provision for Income Taxes (in thousands): | Metric | 9M 2020 | 9M 2019 | $ Change | % Change | | :---------------------- | :------ | :------ | :------- | :------- | | Provision for Income Taxes | $43,938 | $33,520 | $10,418 | 31.1% | | Effective Tax Rate | 24.9% | 23.5% | +1.4% pts | +6.0% | - The increase in the effective tax rate was primarily due to a decrease in excess tax benefits from share-based payments and an increase in non-deductible executive compensation[126] EBITDA (in thousands): | Metric | 9M 2020 | 9M 2019 | $ Change | % Change | | :-------------------- | :------ | :------ | :------- | :------- | | Total EBITDA | $187,918 | $152,340 | $35,578 | 23.4% | | Trex Residential EBITDA | $183,064 | $150,058 | $33,006 | 22.0% | | Trex Commercial EBITDA | $4,854 | $2,282 | $2,572 | 112.7% | - Excluding the $6.5 million surface flaking reserve, EBITDA growth for 9M 2020 was 27.6%[129] LIQUIDITY AND CAPITAL RESOURCES This section discusses the company's cash position, operating and investing activities, financing activities, and strategic capital expenditure plans - Cash and cash equivalents were $20.1 million at September 30, 2020[130] - Net cash provided by operating activities decreased significantly to $12.5 million in 9M 2020 from $99.0 million in 9M 2019, primarily due to higher working capital investment in accounts receivable[132] - Capital expenditures in 9M 2020 were $99.7 million, primarily for capacity expansion ($82 million) at Virginia and Nevada facilities and production improvements ($12.5 million)[133] - Net cash used in financing activities was $43.7 million in 9M 2020, mainly for common stock repurchases of $44.4 million[134] - The stock repurchase program was suspended on March 12, 2020, due to COVID-19 volatility and uncertainty, and subsequently lifted on October 30, 2020[136][168] - The company increased its authorized common stock to 180 million shares and completed a two-for-one stock split in July 2020[135][137] - An additional $100 million line of credit was secured in May 2020 to reduce COVID-19 related risk and support the strategy of accelerating wood decking conversion[139] - A multi-year capital expenditure program of approximately $200 million through 2021 aims to increase Trex Residential production capacity by about 70%[145] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that there were no material changes to the company's market risk exposure during the nine months ended September 30, 2020, and refers to the Annual Report on Form 10-K for detailed disclosures - No material changes to the company's market risk exposure occurred during the nine months ended September 30, 2020[148] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2020, with no material changes to internal control over financial reporting during the period - The company's disclosure controls and procedures were evaluated and deemed effective as of September 30, 2020[149] - There have been no material changes in the company's internal control over financial reporting during the nine-month period ended September 30, 2020[149] PART II OTHER INFORMATION This section covers legal proceedings, risk factors, unregistered sales of equity securities, other information, and a comprehensive list of exhibits Item 1. Legal Proceedings The company is involved in routine litigation and claims, which management believes will not have a material adverse effect on its consolidated financial condition, results of operations, liquidity, or competitive position - Routine litigation and claims are not expected to materially affect the company's financial condition, results of operations, liquidity, or competitive position[90][152] Item 1A. Risk Factors This section outlines supplemental risk factors, primarily focusing on the potential adverse impacts of global public health pandemics like COVID-19 and the risks associated with labor shortages or increased labor costs, while COVID-19 has not materially affected the company to date, its future impact remains uncertain - The company's business, results of operations, and financial condition may be disrupted and adversely affected by global public health pandemics, including COVID-19, potentially leading to reduced operations or inability to supply customers[154][155][156] - As of the report date, the COVID-19 pandemic has not had a material adverse effect on the company's business, results of operations, cash flows, or financial condition, with operations continuing at pre-pandemic output levels[159] - Labor shortages or increases in labor costs could adversely impact the business by decreasing production ability and reducing profitability[161][162] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company did not purchase shares under its publicly announced stock repurchase program during the third quarter of 2020, as the program was suspended in March 2020 due to market volatility from the COVID-19 pandemic and was subsequently lifted on October 30, 2020 - No shares were purchased under the Stock Repurchase Program during the three months ended September 30, 2020[167] - The Stock Repurchase Program was suspended on March 12, 2020, due to COVID-19 related market volatility and uncertainty, and the suspension was lifted on October 30, 2020[168] - As of September 30, 2020, 8,797,222 shares remained available for repurchase under the program[166] Item 5. Other Information The company's Board of Directors approved a two-for-one stock split on July 29, 2020, which was distributed as a stock dividend on September 14, 2020, and all common stock share and per share data in the financial statements have been retroactively adjusted to reflect this split - A two-for-one stock split of the company's common stock was approved on July 29, 2020, and distributed on September 14, 2020[169] - All common stock share and per share data presented in the unaudited condensed consolidated financial statements have been retroactively adjusted to reflect the stock split[169] Item 6. Exhibits This section provides an index of exhibits filed with the Quarterly Report on Form 10-Q, including corporate governance documents, credit agreements, and certifications, which are incorporated by reference - The exhibit index includes various corporate documents such as the Restated Certificate of Incorporation, Credit Agreements, and certifications[177][178]