What changed in this filing

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Item 1A. Risk Factors

2025-02-24 compared with 2024-02-26 · 515 added, 5 removed, 152 unchanged (77% of the section changed)

2 unchanged sentences

We may not be able to grow unless we increase market acceptance of our products, compete effectively and develop new products and applications.

Our failure to compete successfully could have a material adverse effect on our ability replace wood products or increase our market share amongst wood-alternative products.

Our failure to compete successfully could have a material adverse effect on our ability to replace wood products or increase our market share amongst wood-alternative products.

• If our products do not meet emerging demands and preferences, we could lose market share, which could have a material adverse effect on our business.

38 unchanged sentences

Past performance will not necessarily indicate future performance.

The demand for our outdoor living products may be negatively affected by seasonal, erratic, or prolonged adverse weather conditions.

Seasonal, erratic, or prolonged adverse weather conditions may shift sales of our products to future periods or decrease overall sales in affected locations, which could have a negative impact on our results of operations and liquidity.

The demand for our outdoor living products may be negatively affected by erratic, or prolonged adverse weather conditions, and our operating results may vary quarter to quarter due to seasonality.

Seasonal, erratic, or prolonged adverse weather conditions may reduce the level of home improvement and construction activity and can shift sales of our products to a later period or decrease overall sales in affected locations, which could have a negative impact on our results of operations and liquidity.

Our products are generally purchased shortly before installation and used in outdoor environments.

As a result, there is a correlation between the amount of product we sell and weather conditions during the time they are to be installed.

Seasonal, erratic or prolonged adverse weather conditions may interfere with ordinary construction, delay projects or lead to cessation of construction involving our products.

Erratic or prolonged adverse weather conditions may interfere with home improvement or ordinary construction, delay projects, or lead to cessation of construction involving our products.

In addition, our operating results have historically varied from quarter to quarter due to seasonality.

As part of normal business practice and consistent with industry practice, we have historically offered incentive programs to our distributors and dealers to build inventory before the start of the prime deck-building season in order to ensure adequate availability of our products to meet anticipated seasonal consumer demand.

The seasonal effects are often offset by the positive effect of the incentive programs.

We depend on third parties for transportation services and the lack of availability of transportation and/or increases in cost could materially adversely affect our business and operations.

84 unchanged sentences

We continue to strive to minimize the environmental impact of Trex operations, remain one of the largest recyclers of polyethylene in the U.S.

and continue to benefit from increasing consumer interest in our environmentally friendly composite product offerings that leverage recycled and reclaimed materials.

and continue to

benefit from increasing consumer interest in our environmentally friendly composite product offerings that leverage recycled and reclaimed materials.

Any significant changes in weather patterns or increases in the frequency, duration and severity of natural disasters are beyond our control and could disrupt our supply chain, increase our product costs, impact demand for our product, or impair our ability to deliver product to our customers.

19 unchanged sentences

Despite these proactive measures, there is no guarantee that these measures will prevent a cybersecurity incident that could have a material adverse effect on the Company.

Unr esolved Staff Comments

Cybersecurity

Cybersecurity Risk Management

The Company has systems and processes for identification, assessment, and management of material risks from cybersecurity threats, as such term is defined in Item 106(a) of Regulation S-K.

The Company’s multi-faceted approach includes deploying applications and control activities to actively monitor and mitigate potential threats to the Company’s IT environment.

These activities include, but are not limited to, engaging an external third-party to monitor information systems security events, conducting annual security training of employees, testing employees via periodic phishing campaigns, conducting system vulnerability scanning, utilizing a patching program to remediate critical patches, and utilizing an external third-party to perform testing to identify gaps in the Company’s security program.

The Company also performs third-party risk management to identify and mitigate risks from third parties such as vendors, suppliers, and other business partners.

Additionally, for providers of software-as-a-service and other services that hold Company data, the Company reviews and assesses industry standard certifications such as System and Organization Controls (SOC) 1 or SOC 2 reports and cybersecurity preparedness questionnaires.

Mitigation of risk efforts are coordinated by the Company’s Director of Information Security, utilizing internal resources and third-party providers.

The Company has not had any cybersecurity risks that have materially affected the Company, including its business strategy, results of operations, or financial condition.

Cybersecurity risks are disclosed in Part I Item 1A.

Risk Factors, incorporated herein by reference.

Cybersecurity Governance

Our cybersecurity programs, including the cross-functional management committees responsible for identifying, assessing, and mitigating cybersecurity risks and incidents, are overseen by our Vice President and Chief Information Officer.

Day-to-day administration of the cybersecurity programs are led by our Director of Information Security, a direct report to the Vice President and Chief Information Officer.

Our Vice President and Chief Information Officer has 27 years of technology leadership experience and a Doctor of Business Administration.

Our Director of Information Security has 27 years of experience in infrastructure and security operations and a degree in Information Technology Management.

Our Director of Information Security is the chair of the Company’s Information Security Committee.

The activities of the Information Security Committee are reviewed by the Executive Information Security Oversight Committee, which is comprised of members of our senior leadership team including our Vice President and Chief Information Officer, Senior Vice President, Chief Financial Officer, Senior Vice President, Chief Legal Officer and Secretary and Senior Vice President, Chief Human Resources Officer .

The Executive Information Security Oversight Committee facilitates notification to the Audit Committee of emerging cybersecurity risks, and threats, the status of projects to strengthen the Company’s information security systems, and updates on any cybersecurity incidents.

The Audit Committee of the Board of Directors oversees cybersecurity related risks.

Members of the Audit Committee receive the above referenced notifications and updates on a quarterly basis from the Company’s Chief Information Officer as the designated representative of the Executive Information Security Oversight Committee .

Additionally, the Company has a written Information Security Policy and a Cybersecurity Incident Response Plan that provides the above-referenced processes by which such committees are informed of and monitor the prevention, detection, mitigation, and remediation of cybersecurity incidents and material risks from cybersecurity threats.

We own and lease certain properties, as noted in the below table:

Corporate Headquarters

Trex Residential

Virginia / West Virginia /

Warehouse, Research and

Development, Storage,

Manufacturing Facilities

Trex Residential

1,525,254 SF /

Manufacturing Facilities,

Storage and Office Space

We regularly evaluate our various facilities and equipment and make capital investments where necessary.

In 2024, we spent a total of $232.3 million on capital expenditures, primarily at our Trex Residential facilities, including $174.8 million related to construction of our Arkansas facility, $14.7 million related to capacity expansion at our Virginia facilities, $14.5 million related to general plant cost reduction initiatives at our Virginia and Nevada facilities, and $17.0 million for general support, safety and environmental initiatives.

In October 2021, the Company announced plans to add a third manufacturing facility located in Little Rock, Arkansas (Little Rock).

Construction on the new facility began in the second quarter of 2022.

In connection with the construction of the new facility, during 2024 the Company and Little Rock entered into an agreement in which Little Rock agreed to issue up to $450 million of its industrial revenue bonds (IRBs) for the purpose of constructing a manufacturing facility.

Under the agreement, the Company transferred ownership of the facility to Little Rock and simultaneously leased the related asset from Little Rock.

The Company is also the purchaser of the IRBs and, therefore, is the bondholder as well as the lessee of the Little Rock facility purchased with the IRB proceeds.

As a result of the agreement, the Company was able to reduce the cost of certain state and local tax expenditures for twenty years.

The Company has a purchase option included in the lease agreement for below the fair value of the asset, which prevents the transfer of the asset to Little Rock from being recognized as a sale.

Furthermore, the Company has not derecognized the transferred asset and continues to recognize it in property, plant and equipment in the Consolidated Balance Sheets.

The Company has the right and intends to set-off any obligations to make payments under the finance liability, with proceeds due from the IRBs.

The liability and IRB asset are equal and are reported net in the Consolidated Balance Sheets.

For information about our leases, see Note 10 to our Consolidated Financial Statements appearing elsewhere in this report.

The equipment and machinery we use in our operations consist principally of plastic and wood conveying and processing equipment.

We own all of our manufacturing equipment.

We lease some equipment, primarily forklifts, at our facilities under operating leases.

Leg al Proceedings

The Company has lawsuits, as well as other claims, pending against it which are ordinary routine litigation and claims incidental to the business.

Management has evaluated the merits of these lawsuits and claims and believes that their ultimate resolution will not have a material effect on the Company’s consolidated financial condition, results of operations, liquidity or competitive position.

Mine S afety Disclosures.

Not applicable.

Mark et for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market for Common Stock

Our common stock has been listed on the New York Stock Exchange (NYSE) since April 8, 1999.

Effective November 23, 2009, our common stock is listed under the symbol “TREX”.

Dividend Policy

We have never paid cash dividends on our common stock and our credit agreement places limitations on our ability to pay cash dividends.

We intend to retain future earnings to finance the development and expansion of our business or the repurchase of our common shares and, therefore, have no current intention to pay cash dividends.

However, we reconsider our dividend policy on a regular basis and may determine to pay dividends in the future.

Issuer Purchases of Equity Securities

The following table provides information relating to the purchases of our common stock during the three months ended December 31, 2024 in accordance with Item 703 of Regulation S-K:

Total Number of

Shares (or Units)

Purchased (1)

Average Price Paid

per Share (or Unit)

Total Number of

Shares (or Units)

Purchased as Part of

Publicly Announced

Plans or Programs (2)

Maximum number of

Shares (or Units) that

Purchased Under the

Plan or Program

October 1, 2024 – October 31, 2024

November 1, 2024 – November 30, 2024

December 1, 2024 – December 31, 2024

Quarter ended December 31, 2024

(1) During the three months ended December 31, 2024, 4,219 shares of common stock were withheld by, or delivered to, the Company pursuant to provisions in agreements with recipients of restricted stock granted under the Company’s 2014 and 2023 Stock Incentive Plan allowing the Company to withhold, or the recipient to deliver to the Company, the number of shares having the fair value equal to the tax withholding due.

(2) On May 4, 2023, the Trex Board of Directors adopted a stock repurchase program (2023 Stock Repurchase Program) of up to 10.8 million shares of the Company's outstanding common stock.

The 2023 Stock Repurchase Program has no set expiration date and 758,240 shares were repurchased under the program during the three months ended December 31, 2024.

Stockholder Return Performance Graph

The following graph and table show the cumulative total stockholder return on the Company’s common stock for the last five fiscal years compared to the Russell 2000 Index and the Standard and Poor’s 600 Building Products Index (S&P 600 Building Products).

The graph assumes $100 was invested on December 31, 2019, in (1) the Company’s common stock, (2) the Russell 2000 Index and (3) the S&P 600 Building Products and assumes reinvestment of dividends and market capitalization weighting as of December 31, 2020, 2021, 2022, 2023 and 2024.

Comparison of Cumulative Total Return

Among Trex Company, Inc., Russell 2000 Index, and S&P 600 Building Products Index

Trex Company, Inc.

Russell 2000 Index

S&P 600 Building Products

Other Stockholder Matters

As of February 10, 2025, there were approximately 130 holders of record of our common stock, although we believe that there are a significantly larger number of beneficial owners of our common stock.

In 2024, we submitted to the NYSE in a timely manner the annual certification that our Chief Executive Officer was not aware of any violation by us of the NYSE corporate governance listing standards.

Managem ent’s Discussion and Analysis of Financial Condition and Results of Operations

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.

All statements regarding our expected financial position and operating results, our business strategy, our financing plans, forecasted demographic and economic trends relating to our industry and similar matters are forward-looking statements.

These statements can sometimes be identified by our use of forward-looking words such as “may,” “will,” “anticipate,” “estimate,” “expect,” “intend” or similar expressions.

We cannot promise you that our expectations in such forward-looking statements will turn out to be correct.

Our actual results could be materially different from our expectations because of various factors, including the factors discussed under “Item 1A.

Risk Factors.” These statements are also subject to risks and uncertainties that could cause the Company’s actual operating results to differ materially.

Such risks and uncertainties include, but are not limited to, the extent of market acceptance of the Company’s current and newly developed products;

the costs associated with the development and launch of new products and the market acceptance of such new products;

the sensitivity of the Company’s business to general economic conditions;

the impact of seasonal and weather-related demand fluctuations on inventory levels in the distribution channel and sales of the Company’s products;

the availability and cost of third-party transportation services for the Company’s products and raw materials;

the Company’s ability to obtain raw materials, including scrap polyethylene, wood fiber and other materials used in making our products, at acceptable prices;

increasing inflation in the macro-economic environment;

the Company’s ability to maintain product quality and product performance at an acceptable cost;

the Company’s ability to increase throughput and capacity to adequately match supply with demand;

the level of expenses associated with warranty claims, product replacement and consumer relations expenses related to product quality;

the highly competitive markets in which the Company operates;

cyber-attacks, security breaches or other security vulnerabilities;

the impact of current and upcoming data privacy laws and the EU General Data Protection Regulation and the related actual or potential costs and consequences;

material adverse impacts from global public health pandemics and geopolitical conflicts;

and material adverse impacts related to labor shortages or increases in labor costs.

The following MD&A is intended to help the reader understand the operations and current business environment of the Company.

The MD&A is provided as a supplement to — and should be read in conjunction with — our Consolidated Financial Statements and the accompanying notes thereto contained in “ Item 8.

Financial Statements and Supplementary Data ” of this report.

MD&A includes the following sections:

• Our Business — a general description of our business, a brief overview of our products, and highlights for the twelve months ended December 31, 2024.

• Critical Accounting Estimates — a discussion of accounting policies that require critical judgments and estimates.

• Results of Operations — an analysis of our consolidated results of operations for 2024 and 2023 and year-to-year comparisons.

An analysis of our consolidated results of operations for 2023 and 2022 and year-to-year comparisons between 2023 and 2022 can be found in MD&A in Part II, Item 7 of the Company’s Form 10-K for the year ended December 31, 2023.

• Liquidity and Capital Resources — an analysis of cash flows, contractual obligations, and a discussion of our capital and other cash requirements.

• New Accounting Standards — a general description of new accounting standards applicable to our business and a discussion of their expected impact.

The Company is the world’s largest manufacturer of high-performance, low-maintenance wood-alternative decking and residential railing and outdoor living products and accessories, marketed under the brand name Trex ® , with more than 30 years of product experience.

A majority of our products are manufactured in a proprietary process that combines reclaimed wood fibers and recycled polyethylene.

The Company is focused on using renewable resources within our Trex Residential segment.

Also, through December 30, 2022, the Company provided custom-engineered commercial railing and staging systems for the commercial and multi-family market, including sports stadiums and performing arts venues.

During the year ended December 31, 2022, the Company operated in two reportable segments:

Trex Residential Products (Trex Residential), the Company’s principal business based on net sales, and Trex Commercial Products (Trex Commercial).

On December 30, 2022, we completed the sale of substantially all of the assets of our wholly-owned subsidiary and reportable segment, Trex Commercial.

Subsequent to the sale of Trex Commercial, the Company operates in one reportable segment, Trex Residential.

Outdoor living remains one of the fastest growing categories within the repair and remodel sector, and the strength of the Trex Residential brand coupled with our expanded manufacturing capacity, our key competitive advantages, help us to effectively unlock potential market share and drive long term growth.

We continue to benefit from increasing consumer interest in our environmentally friendly, low maintenance product portfolio that transforms and enhances the outdoor living experience.

We continue to focus on cost reduction projects and identifying continuous improvement opportunities to enhance our margins.

Specifically, our efforts are primarily centered on increased automation, modernization, enhanced energy efficiency and improvements to raw material processing.

At the same time, we intend to expand our marketing campaigns, continue highlighting the advantages of Trex Residential decking over wood, as well as focusing on innovation and new product development to further strengthen our consumer brand and distribution advantages.

These initiatives should help drive continued topline and profit growth and accelerated market share conversion.

Trex Residential is the world’s largest manufacturer of wood-alternative composite decking and railing products marketed under the brand name Trex ® and manufactured in the United States.

We offer a comprehensive set of aesthetically pleasing, high-performance, low maintenance, eco-friendly products in the decking, railing, fencing, cladding and outdoor lighting categories.

We believe that the range and variety of our products allow consumers to design much of their outdoor living space using Trex brand products.

We offer the following composite decking and railing products through Trex Residential:

Decking and Accessories

Trex Signature ® decking

Trex Transcend ® Lineage decking

Trex Transcend ® decking

Trex Select ® decking

Trex Enhance ® decking

Trex Hideaway ® Fastener Collection

Trex DeckLighting outdoor lighting system

Trex Signature ® X-Series railing

Trex Signature ® Aluminum railing

Trex Transcend railing

Trex Select ® railing

Trex Select ® T-Rail

Trex Enhance railing

Trex Seclusions ® fencing

Trex Commercial offered modular and architectural railing and staging systems and solutions for the commercial and multifamily market, including sports stadiums and performing arts venues, through the date of divesture on December 30, 2022.

• Trex tops the Rankings of BUILDER magazine’s annual Brand Use Study.

Trex received the highest scores for brand awareness, emerged as the #1 brand used most by Pro Builders and Pro Remodel Contractors in both the Composite/PVC Decking and Deck Railings categories.

• Trex Expands Canadian Reach by partnering with Alexandria Moulding.

The leading North American manufacturer and distributor will bring Trex’s premium decking and railing products to a broader range of Canadian retailers, homeowners, and contractors.

• Trex Team with Weyerhaeuser to Expand Distribution across California, Nevada, Arizona, and New Mexico, significantly expanding Trex’s presence across the Southwest Region.

• Trex Expands Distribution with International Wood Products (IWP) strengthening presence in Northern California and Northern Nevada.

As part of this move IWP will exclusively stock Trex decking and railing at all of its distribution facilities in the Western United States.

• Trex Launches National Drop Off Directory for Plastic Bag and Film Recycling.

The directory is the only online searchable platform dedicated to connecting Americans with Trex recycling partners in their local community.

• Trex Adds Two New Enhance ® Decking Hues with heat mitigating technology.

• Trex Launches New Trex Signature ® X-Series Railing.

Trex has expanded its popular Trex Signature ® Railing line with the introduction of X-Series Cable Rail and X-Series Frameless Glass Rail.

• Trex's 2023 Sustainability Report Showcases Ongoing Progress across the broad spectrum of Company activities.

• Trex Named Most Sustainable Decking Brand by Green Builder Media for 14th Consecutive Year and the only brand to be recognized as a sustainability leader for all 14 years of the program.

• Trex Expands Railing Portfolio with Launch of Trex Signature ® X-Series .

Trex has launched two new specialty railing offerings with Trex Signature ® X-Series Cable Rail and Trex Signature ® X-Series Frameless Glass Rail.

• Trex Transcend® Lineage recognized by Good Housekeeping as a winner in their 2024 Sustainable Innovation Awards.

• Trex Ranked Among Barron’s 100 Most Sustainable Companies for 2024.

Trex was honored by Baron’s for outstanding leadership in environmental, social, and governance practices and was the only decking brand to be included on this year’s list.

• Trex awarded Morris Tolly National Supplier of the Year by Builders FirstSource , and Supplier of the Year for the Northeast Region.

• Trex Launches Comprehensive Fastener Collection.

In February 2024, Trex launched its Hideaway ® Fastener Collection, providing solutions for every composite deck fastening and finishing need.

• Trex Celebrated with Six Awards for Product Excellence and Innovation for decking and railing products from organizations representing audiences and input from across the building industry.

Financial Performance Highlights for the Twelve Months Ended December 31, 2024:

(000s omitted, except per share data)

Diluted earnings per share

*A reconciliation of Net Income to EBITDA is presented on pages 31 of this document under “Net Income and Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA).”

Capital expenditures .

Repurchase of common shares .

We repurchased 1,580,640 shares of our outstanding common stock in 2024 under our stock repurchase programs.

CRITICAL ACCOUNTING ESTIMATES

Our significant accounting policies are described in Note 2 to our Consolidated Financial Statements appearing elsewhere in this report.

Our critical accounting estimates include the areas where we have made what we consider to be particularly difficult, subjective or complex judgments in making estimates, and where these estimates can significantly affect our financial results under different assumptions and conditions.

We prepare our financial statements in conformity with accounting principles generally accepted in the United States.

As a result, we are required to make estimates, judgments, and assumptions that we believe are reasonable based upon the information available.

These estimates, judgments and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the periods presented.

Actual results could be different from these estimates.

Product Warranty.

We warrant that for the applicable warranty period our Trex Residential products, when properly installed, used and maintained, will be free from material defects in workmanship and materials and our decking, cladding, fascia and railing products will not split, splinter, rot or suffer structural damage from termites or fungal decay.

Products sold on or after January 1, 2023:

The warranty period for residential use is 50 years for Transcend ® decking, 35 years for Select ® decking and Universal Fascia, and 25 years for Enhance ® decking and Transcend, Select, Enhance and Signature ® railing.

The warranty period for commercial use is 10 years, excluding Signature railing and Transcend cladding, which each have a warranty period of 25 years.

We further warrant that Trex Transcend, Trex Enhance and Trex Select decking and cladding and Universal Fascia products will not fade in color from light and weathering exposure more than a certain amount and will be resistant to permanent staining from food and beverage substances or mold and mildew, provided the stain is cleaned within seven days of appearance, for the warranty period referred to above.

If there is a breach of such warranties, we have an obligation either to replace the defective product or refund the purchase price.

Products sold prior to January 1, 2023:

The warranty period is 25 years for residential use and 10 years for commercial use.

With respect to Trex Signature railing, the warranty period is 25 years for both residential and commercial use.

We further warrant that Trex Transcend, Trex Enhance, Trex Select and Universal Fascia products will not fade in color more than a certain amount and will be resistant to permanent staining from food substances or mold, provided the stain is cleaned within seven days of appearance, for the warranty period referred to above.

If there is a breach of such warranties, we have an obligation either to replace the defective product or refund the purchase price.

We maintain a warranty reserve for the settlement of our product warranty claims.

We accrue for the estimated cost of product warranty claims at the time revenue is recognized based on such factors as historical claims experience and future claims experience.

We review and adjust these estimates, if necessary, based on the differences between actual experience and historical estimates.

Additionally, we accrue for warranty costs associated with occasional or unanticipated product quality issues if a loss is probable and can be reasonably estimated.

We continue to receive and settle claims for Trex Residential products manufactured at our Nevada facility prior to 2007 that exhibit surface flaking and maintain a warranty reserve to provide for the settlement of these claims.

Estimating the warranty reserve for surface flaking claims requires management to estimate (1) the number of claims to be settled with payment and (2) the average cost to settle each claim.

To estimate the number of surface flaking claims to be settled with payment, we utilize actuarial techniques to quantify both the expected number of claims to be received and the percentage of those claims that will ultimately require payment (collectively, elements).

Estimates for these elements are quantified using a range of assumptions derived from claim count history and the identification of factors influencing the claim counts.

The cost per claim varies due to a number of factors, including the size of affected decks, the availability and type of replacement material used, the cost of production of replacement material and the method of claim settlement.

We monitor surface flaking claims activity each quarter for indications that our estimates require revision.

Typically, a majority of surface flaking claims received in a year are received during the summer outdoor season, which spans the second and third quarters.

It has been our practice to utilize the actuarial techniques discussed above during the third quarter, after a significant portion of all claims has been received for the fiscal year and variances to annual claims expectations are more meaningful.

Average cost per claim experienced in the year ended December 31, 2024, was lower than that experienced in the year ended December 31, 2023, and lower than our expectations for 2024.

The number of incoming claims received in the year ended December 31, 2024, was lower than the number of claims received in the year ended December 31, 2023, and higher than our expectations for 2024.

After evaluating trends in incoming claims and closures in its actuarial analysis and combining these factors with future cost estimates, the Company recorded a reduction of $1.5 million to its warranty reserve for the future settlement of Surface Flaking claims in 2024.

We believe the reserve at December 31, 2024 is sufficient to cover future surface flaking obligations.

Our analysis is based on currently known facts and a number of assumptions, as discussed above, and current expectations.

Projecting future events such as the number of claims to be received, the number of claims that will require payment and the average cost of claims could cause the actual warranty liabilities to be higher or lower than those projected, which could materially affect our financial condition, results of operations or cash flows.

We estimate that the annual number of claims received will continue to decline over time and that the average cost per claim will increase slightly, primarily due to inflation.

If the level of claims received or average cost per claim differs materially from expectations, it could result in additional increases or decreases to the warranty reserve and a decrease or increase in earnings and cash flows in future periods.

We estimate that a 10% change in the expected number of remaining claims to be settled with payment or the expected cost to settle claims may result in approximately a $0.6 million change in the estimate of the surface flaking warranty reserve.

The following table details surface flaking warranty claims activity:

Year Ended December 31,

Claims unresolved beginning of period

Claims received (1)

Claims resolved (2)

Claims unresolved end of period

Average cost per claim (3)

(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.

For additional information about product warranties, see Notes 2 and 19 to the Consolidated Financial Statements appearing elsewhere in this report.

We evaluate the recoverability of goodwill in accordance with Accounting Standard Codification (ASC) Topic 350, “ Intangibles—Goodwill and Other ,” annually or more frequently if an event occurs or circumstances change in the interim that would more likely than not reduce the fair value of the asset below its carrying amount.

We evaluate the recoverability of goodwill at the reporting unit level.

During the year ended December 31, 2022, we determined that the Company had three reporting units:

a residential reporting unit in the Trex Residential reportable segment, and a commercial railing reporting unit and a staging reporting unit in the Trex Commercial reportable segment.

On December 30, 2022, we completed the sale of substantially all of the assets of our wholly-owned subsidiary and reportable segment, Trex Commercial.

Subsequent to the sale of Trex Commercial, the Company has one reporting unit in Trex Residential reportable segment.

Goodwill is considered impaired when the carrying amount of a reporting unit exceeds its fair value, and an impairment loss is recognized in an amount equal to that excess but limited to the total amount of goodwill allocated to that reporting unit.

We first assess qualitative factors to determine if it is more likely than not that the fair value of the reporting unit is less than its carrying amount, including goodwill.

Qualitative factors we consider include events and circumstances such as macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, and other relevant Company-specific events.

We evaluate, based on the weight of evidence, the significance of all identified events and circumstances in the context of determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

Weighing the effect of various positive and negative factors is challenging and requires the use of significant judgment.

The weight we place on each factor depends on certain conditions, including uncertainty about future events.

If different conditions exist in future periods, future impairment charges could result.

If the qualitative assessment indicates that the carrying amount of the reporting unit exceeds its fair value, including goodwill, we are then required to perform a quantitative goodwill impairment test.

The quantitative goodwill impairment test, used to identify both the existence of impairment and the amount of impairment loss, compares the fair value of a reporting unit with its carrying amount, including goodwill.

The fair value of a reporting unit refers to the price that would be received to sell the unit as a whole in an orderly transaction between market participants at the measurement date.

If the carrying amount of a reporting unit is in excess of the estimated fair value of that reporting unit, a goodwill impairment charge is recognized in the amount by which the reporting unit’s carrying amount exceeds its fair value, but not to exceed the total goodwill assigned to the reporting unit.

Revenue Recognition

Trex Residential Products

Trex Residential principally generates revenue from the manufacture and sale of its high-performance, low-maintenance, eco-friendly outdoor living products, consisting of composite decking and railing products, hidden fasteners, and a broad offering of outdoor living accessories.

Substantially all of its revenues are from contracts with customers, which are individual customer purchase orders of short-term duration of less than one year.

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 and 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 Consolidated Financial Statements presented in this Form 10-K.

Trex Residential may offer various sales incentive programs throughout the year.

It estimates the amount of sales incentive to allocate to each performance obligation, or product shipped, based on direct sales to the customer.

The estimate is updated each reporting period and any changes are allocated to the performance obligations on the same basis as at inception.

Changes in estimate allocated to a previously satisfied performance obligation are recognized as a reduction of revenue in the period in which the change occurs under the cumulative catch-up method.

Should estimates change or prove to have been incorrect, it could negatively affect our results of operations and financial condition.

In addition to sales incentive programs, Trex Residential may offer payment discounts.

It estimates the payment discount that it believes will be taken by the customer based on prior history using the most-likely-amount method of estimation.

Trex Commercial Products

Trex Commercial generated revenue from the manufacture and sale of its custom, modular and architectural railing and staging systems.

All of its revenues were from fixed-price contracts with customers.

Trex Commercial contracts had a single performance obligation as the promise to transfer the individual goods or services was not separately identifiable from other promises in the contract and was, therefore, not distinct.

Trex Commercial satisfied its performance obligation over time as work progressed because control was transferred continuously to its customers.

Revenue and estimated profit were recognized over time based on the proportion of actual costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying the performance obligation.

Incurred costs represent work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer.

Incurred costs included all direct material, labor, subcontract and certain indirect costs.

The Company reviewed and updated its estimates regularly and recognized adjustments in estimated profit on contracts under the cumulative catch-up method.

Under this method, the impact of the adjustment on revenue and estimated profit to date on a contract is recognized in the period the adjustment is identified.

If at any time the estimate of contract profitability indicated an anticipated loss on the contract, the Company recognized the total loss in the period it was identified.

During the year ended December 31, 2022, no adjustment to any one contract was material to the Company’s Consolidated Financial Statements and no material impairment loss on any contract was recorded.

RESULTS OF OPERATIONS

Our results of operations are affected by a number of factors, including, but not limited to, the cost to manufacture and distribute products, cost of raw materials, inflation, interest rates, tariffs, consumer spending and preferences, the impact of any supply chain disruptions, economic conditions, and any adverse effects from global health pandemics and geopolitical conflicts.

Net sales consist of sales, net of discounts.

The level of net sales is principally affected by sales volume and the prices paid for Trex products.

The operating results for Trex Residential have historically varied from quarter to quarter, often due to seasonal trends in the demand for outdoor living products.

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 practices, 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 to ensure adequate availability of its product to meet anticipated seasonal consumer demand and to enable production planning.

These incentives include prompt payment discounts and favorable payment terms.

In addition, we offer price discounts or volume rebates on specified products and other incentives based on increases in purchases as part of specific promotional programs.

The timing of sales incentive programs can impact sales, receivables and inventory levels during the offering period.

In addition, the operating results for Trex Commercial have not historically varied from quarter to quarter as a result of seasonality, but are driven by the timing of individual projects, which may vary significantly each period.

Gross Profit.

Gross profit represents the difference between net sales and cost of sales.

Cost of sales consists of raw materials costs, direct labor costs, manufacturing costs, warranty costs, and freight.

Raw materials costs generally include the costs to purchase and transport reclaimed wood fiber, scrap polyethylene and pigmentation for coloring Trex products.

Direct labor costs include wages and benefits of personnel engaged in the manufacturing process.

Manufacturing costs consist of costs of depreciation, utilities, maintenance supplies and repairs, indirect labor, including wages and benefits, and warehouse and equipment rental activities.

Selling, General and Administrative Expenses.

The largest component of selling, general and administrative expenses is personnel related costs, which include salaries, commissions, incentive compensation, and benefits of personnel engaged in sales and marketing, accounting, information technology, corporate operations, research and development, and other business functions.

Another component of selling, general and administrative expenses is branding and other sales and marketing costs, which are used to build brand awareness of Trex.

These costs consist primarily of advertising, merchandising, and other promotional costs.

Other general and administrative expenses include professional fees, office occupancy costs attributable to the business functions previously referenced, and consumer relations expenses.

As a percentage of net sales, selling, general and administrative expenses have varied from quarter to quarter due, in part, to the seasonality of our business.

Below we have included a discussion of our operating results and material changes in our operating results for the year ended December 31, 2024, compared to the year ended December 31, 2023.

Year Ended December 31, 2024 Compared To Year Ended December 31, 2023

Year Ended December 31,

(dollars in thousands)

Total net sales

Total net sales in 2024 increased $56.6 million, or 5.2%, compared to total net sales in 2023, primarily due to the changes to our early-buy program running January to March, rather than our historical December to March timeframe.

Year Ended December 31,

(dollars in thousands)

Cost of sales

% of total net sales

Gross profit as a percentage of net sales, gross margin, was 42.2% in 2024 compared to 41.3% in 2023.

The increase was primarily due to efficiencies resulting from cost saving initiatives.

The increase was partially offset by higher labor costs and overhead expenses.

Selling, General and Administrative Expenses

Year Ended December 31,

(dollars in thousands)

Selling, general and administrative expenses

% of total net sales

Selling, general and administrative expenses decreased slightly year over year as a percentage of net sales, primarily as a result of increased sales offset by a $3.8 million increase in expense.

The increase was due to a $4.7 million increase in branding expenses, a $1.2 million increase in facilities and support, and a $1.0 million increase in depreciation and amortization, partially offset by a decrease of $3.3 million in personnel expenses, due to lower incentive compensation.

Provision for Income Taxes

Year Ended December 31,

(dollars in thousands)

Provision for income taxes

Effective tax rate

The effective tax rate for 2024 of 25.9% was comparable to the effective tax rate for 2023 of 25.6%.

Net Income and Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) 1 (dollars in thousands)

Reconciliation of net income (GAAP) to EBITDA (non-GAAP):

December 31, 2024

Interest (income), net

Income tax expense

Depreciation and amortization

Year Ended December 31, 2023

Net income (loss)

Interest expense, net

Income tax expense (benefit)

Depreciation and amortization

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 the measures facilitate performance comparison between the Company and its competitors.

Management considers EBITDA to be important supplemental indicators of our core operating performance because the measures eliminate interest, income taxes, and depreciation and amortization charges to net income.

In relation to its competitors, EBITDA eliminates differences among companies in capitalization and tax structures, capital investment cycles and ages of related assets, especially when comparing financial results to prior periods.

For these reasons, management believes that EBITDA provides important information regarding the operating performance of the Company.

Non-GAAP measures are not meant to be considered superior to or a substitute for our GAAP results.

Year Ended December 31,

(dollars in thousands)

Total EBITDA increased 10.4% to $360.3 million for 2024 compared to $326.4 million for 2023.

The increase was driven by an increase in net sales and gross profit.

Year Ended December 31, 2023 Compared To Year Ended December 31, 2022

The Company hereby incorporates by reference the financial results from fiscal year 2022 and the comparison of financial results from fiscal year 2023 to fiscal year 2022 as set forth in the Company’s Management’s Discussion and Analysis of Financial Condition and Results of Operation in the Annual Report on Form 10-K for the year ended December 31, 2023 and filed with the U.S.

Securities and Exchange Commission on February 26, 2024.

LIQUIDITY AND CAPITAL RESOURCES

We finance operations and growth primarily with cash flow from operations, borrowings, operating leases, and normal trade credit terms from operating activities.

S ources and Uses of Cash.

The following table summarizes our cash flows from operating, investing and financing activities for the years ended December 31, 2024, 2023, and 2022 (in thousands):

Year Ended December 31,

Net cash provided by operating activities

Net cash used in investing activities

Net cash provided by (used in) financing activities

Net decrease in cash and cash equivalents

Operating Activities

Cash provided by operating activities in 2024 was $143.9 million compared to cash provided by operating activities of $389.4 million in 2023.

The $216.2 million decrease in cash provided by operating activities was primarily a result of an increase in inventories, and to a lesser extent, impacted by increases in accounts receivable.

The increase in inventories is the result of increased production in 2024 compared to 2023 as we prepare for our 2025 early buy program, the launch of new products, and to ensure appropriate product availability during the peak of the season.

Investing Activities

In 2024, cash used in investing activities for capital expenditures was $232.2 million, primarily at our Trex Residential facilities, including $174.8 million related to construction of our Arkansas facility, $14.7 million related to capacity expansion at our Virginia facilities, $14.5 million related to general plant cost reduction initiatives at our Virginia and Nevada facilities, and $17.0 million for general support, safety, and environmental initiatives.

Financing Activities

Net cash provided by financing activities in 2024 consisted primarily of borrowings under our revolving credit facility used to fund our capital expenditures and to a lesser extent share repurchases.

Stock Repurchase Program.

On February 16, 2018, the Trex Board of Directors adopted a stock repurchase program of up to 11.6 million shares of its outstanding common stock (Stock Repurchase Program).

The Company repurchased 10.1 million shares under the Stock Repurchase Program.

On May 4, 2023, the Trex Board of Directors adopted a new stock repurchase program (2023 Stock Repurchase Program) of up to 10.8 million shares of its outstanding common stock, and terminated the existing Stock Repurchase Program.

The 2023 Stock Repurchase Program has no set expiration date and during 2024 the Company repurchased 1,580,640 shares of its common stock under the 2023 Stock Repurchase Program.

Inventory in Distribution Channels .

We sell our Trex Residential decking and railing products through a tiered distribution system.

We have over 50 distributors worldwide and two national retail merchandisers to which we sell our products.

The distributors in turn sell the products to dealers and retail locations who in turn sell the products to end users.

Significant increases in inventory levels in the distribution channel without a corresponding change in end-use demand could have an adverse effect on future sales.

Seasonality .

The operating results for Trex Residential have historically varied from quarter to quarter.

Seasonal, erratic or prolonged adverse weather conditions may 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.

Indebtedness prior to October 10, 2024.

On May 18, 2022, the Company entered into a Credit Agreement (Credit Agreement) with certain lending parties thereto (Lenders) to amend and restate the Fourth Amended and Restated Credit Agreement dated as of November 5, 2019.

Under the Credit Agreement, the Lenders agreed to provide the Company with one or more Revolving Loans in a collective maximum principal amount of $400,000,000 (Loan Limit) throughout the term, which ends May 18, 2027 (Term).

Included within the Loan Limit are sublimits for a Letter of Credit facility in an amount not to exceed $60,000,000;

and Swing Line Loans in an aggregate principal amount at any time outstanding not to exceed $20,000,000.

The Revolving Loans, the Letter of Credit facility and the Swing Line Loans are for the purpose of raising working capital and supporting general business operations.

On December 22, 2022, the Company entered into a First Amendment to the Credit Agreement (First Amendment).

As a part of the First Amendment, the Credit Agreement was amended and restated to provide for an additional Revolving B Loan (as hereinafter

Under the First Amendment, the Lenders agreed to provide the Company with a Revolving B Loan consisting of one or more revolving loans in a collective maximum principal amount of $150,000,000 (Revolving B Loan Limit) throughout the term, which ended December 22, 2024 (Revolving B Loan Term).

Previously, under the Credit Agreement, there was no Revolving B Loan.

The First Amendment also provided that TD Bank, N.A.

would serve as Syndication Agent.

In conjunction with the First Amendment, on December 22, 2022, the Credit Agreement was amended and restated to refer to the original loan as the Revolving A Loan.

The amended and restated Credit Agreement was made an Exhibit A to the First Amendment.

All of the terms of the Credit Agreement apply to the Revolving B Loan.

The amended Credit Agreement provides the Company, in the aggregate, the ability to borrow an amount up to the Revolving A Loan Limit during the Revolving A Loan Term (which ends May 18, 2027) and Revolving B Loan Limit during the Revolving B Loan Term.

The Company is not obligated to borrow any amount under the revolving loans.

Within the respective loan limit, the Company may borrow, repay and reborrow at any time or from time to time while the notes issued pursuant to the Credit Agreement are in effect.

Base Rate Loans (as defined in the Credit Agreement) under the Revolving A Loan and the Swing Line Loans accrue interest at the Base Rate plus the Applicable Rate (as defined in the Credit Agreement) and Term SOFR Loans for the Revolving Loans accrue interest at the rate per annum equal to the sum of Term SOFR for such interest period plus the Applicable Rate (as defined in the Credit Agreement).

The Base Rate for any day is a fluctuating rate per annum equal to the highest of (a) the Federal Funds Rate plus 0.50%, (b) the rate of interest in effect for such day as publicly announced from time to time by BOA as its prime rate, and (c) the Term SOFR plus 1.0% subject to certain interest rate floors.

Repayment of all then outstanding principal, interest, fees and costs is due at the end of the Term.

With respect to Revolving B Loans (as defined in the First Amendment), for any day, the rate per annum is a tiered pricing based upon the Consolidated Debt to Consolidated EBITDA Ratio.

The applicable rate for Revolving B Loans that are Base Rate Loans range between 1.20% and 2.15% and the applicable rate for Revolving B Loans that are Term SOFR/Term SOFR Daily Floating Rate range between 0.20% and 1.15%.

Under the terms of the Security and Pledge Agreement, the Company, subject to certain permitted encumbrances, as collateral security for the above-stated loans and all other present and future indebtedness of the Company owing to the Lenders grants a continuing security interest in certain collateral described and defined in the Security and Pledge Agreement but excluding the Excluded Property (as defined in the Security and Pledge Agreement).

Indebtedness on and after October 10, 2024.

On October 10, 2024, Trex entered into a Second Amendment to the Credit Agreement (Second Amendment) with certain lending parties thereto (Lenders) to amend that Credit Agreement dated as of May 18, 2022, as amended by that certain First Amendment dated as of December 22, 2022.

The Second Amendment provides us with Revolving A Loans in the maximum principal amount of $400,000,000 (Revolving A Loans), Revolving B Loans in the maximum principal amount of $150,000,000 (Revolving B Loans), and Letters of Credit and Swing Line Loans (as defined in the Credit Agreement).

The Second Amendment extends the maturity date of the Revolving B Loans from December 22, 2024 to December 22, 2026.

Repayment of all then outstanding principal, interest, fees and costs is due at the end of the Term (as defined in the Credit Agreement).

With respect to Revolving B Loans (as defined in the Credit Agreement), for any day, the rate per annum is a tiered pricing based upon the Consolidated Debt to Consolidated EBITDA Ratio.

The applicable rate for Revolving B Loans that are Base Rate Loans range between 0.20% and 1.15%.

and the applicable rate for Revolving B Loans that are Term SOFR/Term SOFR Daily Floating Rate range between 1.20% and 2.15%.

At December 31, 2024, we had $202.6 million in outstanding borrowings under the revolving credit facility and borrowing capacity under the facility of $347.4 million.

Compliance with Debt Covenants and Restrictions.

Pursuant to the terms of the Credit Agreement, the Company, is subject to certain loan compliance covenants.

The Company was in compliance with all covenants at December 31, 2024.

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.

Industrial Revenue Bonds.

In October 2021, the Company announced plans to add a third manufacturing facility located in Little Rock, Arkansas (Little Rock).

Construction on the new facility began in the second quarter of 2022.

Under the agreement, the Company transferred ownership of the facility to Little Rock and simultaneously leased the related asset from Little Rock.

The Company is also the purchaser of the IRBs and, therefore, is the bondholder as well as the borrower/lessee of the Little Rock facility purchased with the IRB proceeds.

As a result of the agreement, the Company was able to reduce the cost of certain state and local tax expenditures for twenty years.

The Company has a purchase option included in the lease agreement for below the fair value of the asset, which prevents the transfer of the asset to Little Rock from being recognized as a sale.

Furthermore, the Company has not derecognized the transferred asset and continues to recognize it in property, plant and equipment in the Consolidated Balance Sheets.

The Company has the right and intends to set-off any obligations to make payments under the finance liability, with proceeds due from the IRBs.

The liability and IRB asset are equal and are reported net in the Consolidated Balance Sheets.

As of December 31, 2024, the gross asset and liability associated with the IRBs was $100 million.

Contractual Obligations.

Our contractual obligations consist primarily of purchase commitments and operating leases.

Purchase obligations represent supply contracts with raw material vendors and service contracts for hauling raw materials.

Open purchase orders written in the normal course of business for goods or services that are provided on demand have been excluded as the timing of which is not certain.

As of December 31, 2024, we have purchase obligations under material supply contracts of $50.7 million for the year ending December 31, 2025, $38.5 million in 2026, $27.4 million in 2027, and $20.3 million in 2028.

Please refer to Note 19 to the Consolidated Financial Statements in this filing for additional information on our purchase commitments.

Operating leases represent office space, storage warehouses, manufacturing facilities and certain office and plant equipment under various operating leases, and include operating leases accounted for under Financial Accounting Standards Board Accounting Standards Codification Topic 842 and short-term leases.

As of December 31, 2024, we have operating lease liabilities of $11.1 million for the year ending December 31, 2025, $35.7 million for the years 2026 through 2029 and $15.8 million thereafter.

Please refer to Note 10 to the Consolidated Financial Statements in this filing for additional information on our operating leases.

The Company believes that its cash on hand and cash generated through operating activities, both over the next 12 months and beyond the next 12 months, should be sufficient to cover purchase obligations and operating leases.

Off-Balance Sheet Arrangements.

We do not have off-balance sheet financing arrangements.

Capital and Other Cash Requirements.

Our capital expenditure guidance for 2025 is $190 million to $210 million.

In addition to the construction of the Arkansas facility, our capital allocation priorities for 2025 include expenditures for internal growth opportunities, manufacturing cost reductions, upgrading equipment and support systems, and acquisitions which fit our long-term growth strategy as we continue to evaluate opportunities that would be a good strategic fit for Trex, and return of capital to shareholders.

We believe that cash on hand, cash flows from operations and borrowings expected to be available under our revolving credit facility will provide sufficient funds to enable us to fund planned capital expenditures, make scheduled principal and interest payments, fund the warranty reserve, meet other cash requirements, and maintain compliance with terms of our debt agreements for at least the next 12 months.

We currently expect to fund future capital expenditures from operations and borrowings under the revolving credit facility.

The actual amount and timing of future capital requirements may differ materially from our estimate depending on the demand for Trex products and new market developments and opportunities.

Our ability to meet our cash needs during the next 12 months and thereafter could be adversely affected by various circumstances, including increases in the cost of raw materials and product replacement costs, quality control problems, higher than expected product warranty claims, service disruptions and lower than expected collections of accounts receivable.

In addition, any failure to negotiate amendments to our existing debt agreements to resolve any future noncompliance with financial covenants could adversely affect our liquidity by reducing access to revolving credit borrowings needed primarily to fund seasonal borrowing needs.

We may determine that it is necessary or desirable to obtain financing through bank borrowings or the issuance of debt or equity securities to address such contingencies or changes to our business plan.

Debt financing would increase our level of indebtedness, while equity financing would dilute the ownership of our stockholders.

There can be no assurance as to whether, or as to the terms on which, we would be able to obtain such financing, which would be restricted by covenants contained in our existing debt agreements.

NEW ACCOUNTING STANDARDS

New Accounting Standards Recently Adopted.

In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No.

2023-07, “Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures.” The guidance requires disclosure of significant segment expenses which are regularly provided to the chief operating decision maker (CODM), the composition of and amount of other segment items, the CODM’s title and position within the organization, and how the CODM uses the reported measure(s) of segment’s profit or loss to assess the performance of the segment.

In addition, on an interim basis, all segment profit or loss and asset disclosures currently required on an annual basis must be reported, as well as those required by Topic 280.

The guidance allows for multiple measure of a segment’s profit or loss to be reported.

Entities which have a single reportable segment must apply Topic 280 in its entirety.

The guidance was effective for fiscal years beginning after December 15, 2023, and for interim periods beginning after December 15, 2024.

Early adoption was permitted.

Entities are required to apply the amendments of this update retrospectively for all prior periods presented in the financial statements.

The Company adopted the standard in the quarterly period ended December 31, 2024.

The Company applied the standard retrospectively and accordingly, prior periods were adjusted.

Adoption of this guidance did not impact consolidated results of operations and financial position.

New Accounting Standards Not Yet Adopted.

In November 2024, the FASB issued ASU No.

2024-03, “Income Statement – Reporting Comprehensive Income – Disaggregation Disclosures.” This guidance requires more detailed disclosure about the types of expenses presented within the expense captions of the financial statements.

Specifically, disclosure of purchases of inventory, employee compensation, depreciation, and intangible asset amortization are required on both an interim and annual basis.

In addition, a qualitative description of remaining amounts in relevant expense captions which have not separately been disaggregated will be required on an interim and annual basis.

On an annual basis, disclosure of an entity’s definition of selling expenses and the amount of selling expenses is required.

The amendments to this update are effective for annual reporting periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027.

Early adoption of this update is permitted.

The amendments to this update should be applied prospectively to financial statements issued for reporting periods after the effective date of the update or retrospectively to any or all prior periods presented in the financial statements.

The Company believes adoption will result in expanded financial statement footnote disclosure but does not believe adoption of this update will have a material impact on its consolidated results of operations.

The Company is continuing to evaluate the impacts of the pending adoption.

As such, the Company’s preliminary assessments are subject to change.

In December 2023, the FASB issued ASU No.

2023-09, “Income Taxes (Topic 740):

Improvements to Income Tax Disclosures.” The guidance requires public entities to disclose additional categories of information related to federal, state, and foreign income taxes and additional details related to reconciling items should they meet a quantitative threshold.

The guidance requires disclosure of income taxes paid (net of refunds received) disaggregated by federal, state, and foreign taxes and to disaggregate the information by jurisdiction based on quantitative thresholds.

The guidance is effective for fiscal year beginning after December 15, 2024.

Early adoption is permitted.

The guidance should be applied on a prospective basis, retrospective application is permitted.

The Company does not expect adoption of the guidance to have a material effect on its consolidated results of operations and financial position.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors