What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-02 compared with 2020-08-03 · 104 added, 117 removed, 286 unchanged (44% of the section changed)

28 unchanged sentences

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

and material adverse impacts from global public health pandemics, including the strain of coronavirus known as COVID-19.

material adverse impacts from global public health pandemics, including the strain of coronavirus known as COVID-19;

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

Our results of operations are affected by economic conditions, including macroeconomic conditions and levels of business and consumer confidence.

pandemic has increased the level of volatility and uncertainty globally and has created economic disruption.

We are actively managing our business to respond to this health crisis and will continue to evaluate the nature and extent of its impact.

As of the date of this report, we have not experienced any material disruptions to our operations due to the COVID-19

pandemic has increased the level of volatility and uncertainty globally and has created macroeconomic disruption.

We are actively managing our business to respond to this health crisis and we continue to evaluate the nature and extent of its impact.

As of the date of this report, we continue to operate at output levels similar to those prior to the COVID-19

pandemic, and the pandemic did not have a material adverse effect on our business, results of operations, cash flows or financial condition.

We have not experienced any material disruptions to our operations, production or our supply chain, and have not experienced any material reduction in demand for our products due to the COVID-19

However, the pandemic remains an evolving situation due to the continuation of the outbreak and any future measures that may be taken to contain the spread of the virus.

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remains unclear.

We are actively managing our business to respond to the impact, such as engaging with our distributor network regarding market demand, ongoing communications with our suppliers, and continuing to ensure the safety of our employees.

Our commitment to stakeholders is to take the appropriate actions to ensure the safety and well-being of our employees and partners, comply with any governmental orders relating to COVID-19,

which may result in a period of disruption to our business, while at the same time leveraging our strengths and ensuring financial flexibility.

As of June 30, 2020, our facilities continue to operate at output levels similar to those prior to the COVID-19

pandemic and we are following or exceeding all Centers for Disease Control and Prevention (CDC) and public officials’ guidelines.

We are following or exceeding all Centers for Disease Control and Prevention (CDC) and public officials’ guidelines.

We have also adopted a business continuity plan and local emergency response plans at each location.

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Relief Fund of our local United Way, supplementing our annual fund-raising campaign.

Since we cannot predict the duration or scope of the pandemic, we cannot fully anticipate or reasonably estimate all the ways in which the current global health crisis and financial market conditions could adversely impact our business in the future.

During the latter part of the first quarter and continuing into the first two months of the second quarter, some jurisdictions into which we sell had deemed the construction industry as non-essential

and ordered the closure of those businesses.

In addition, we experienced areas where the availability of our products was limited due to the closure of certain of our channel partners.

However, during the latter part of the second quarter, jurisdictions began to lift their respective closure restrictions and certain of our channel partners that were closed reopened.

As a result, the slowdown in net sales that we experienced early in the second quarter was offset by the pickup of those sales in the latter part of the quarter when jurisdictions began to lift their closure restrictions.

As of June 30, 2020 we have no significant supply issues and maintain inventories of materials sourced from diversified geographies, allowing us to better tolerate short-term supply chain disruptions.

In May 2020, we amended and restated our revolving credit agreement to provide us with an additional Revolving Line of Credit for Aggregate Revolving B Commitments in the amount of $100 million.

The purpose of the additional $100 million is primarily to reduce risk, if necessary, associated with the COVID-19

pandemic should the Company need to secure additional capital to continue its strategy of accelerating the conversion of wood decking to Trex composite decking and expanding its addressable market.

As of June 30, 2020, we had no outstanding indebtedness under our revolving credit facilities and $350 million in available borrowing capacity.

As the impact of COVID-19

evolves, we will continue to evaluate our financial position and liquidity needs in light of future developments.

Operations and Products:

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Trex Residential Products (Trex Residential) and Trex Commercial Products (Trex Commercial).

Refer to Note 16, Segments

, in the Notes to the Condensed Consolidated Financial Statements in Part I.

Condensed Consolidated Financial Statements

of this Quarterly Report on Form 10-Q

for additional information.

The Company is focused on using renewable resources within both our Trex Residential and Trex Commercial segments.

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Our modular stage equipment is designed to appear seamless, feel permanent, and maximize the functionality of the space.

Highlights for the three months ended June 30, 2020:

Increase in net sales of 6.9%, or $14.2 million, to $220.6 million for the three months ended June 30, 2020 compared to $206.5 million for the three months ended June 30, 2019.

Increase in gross profit of 10.7%, or $9.0 million, to $92.4 million for the three months ended June 30, 2020 compared to $83.4 million for the three months ended June 30, 2019.

Increase in net income to $47.2 million, or $0.81 per diluted share, for the three months ended June 30, 2020 compared to $35.7 million, or $0.61 per diluted share, for the three months ended June 30, 2019.

Capital expenditures of $39.9 million primarily to increase production capacity at the Trex Residential facilities in Virginia and Nevada and for general plan cost reduction initiatives and other production improvements.

Highlights for the three months ended September 30, 2020:

Increase in net sales of 19%, or $37.0 million, to $231.5 million for the three months ended September 30, 2020 compared to $194.6 million for the three months ended September 30, 2019.

Increase in gross profit of 3.1%, or $2.5 million, to $85.0 million for the three months ended September 30, 2020 compared to $82.4 million for the three months ended September 30, 2019.

Increase in net income to $42.7 million, or $0.37 per diluted share, for the three months ended September 30, 2020 compared to $42.0 million, or $0.36 per diluted share, for the three months ended September 30, 2019.

Capital expenditures of $37.1 million, primarily to increase production capacity at the Trex Residential facilities in Virginia and Nevada and for cost reduction initiatives and other production improvements.

Net sales consist of sales and freight, net of discounts.

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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.

The number of incoming claims received in the six months ended June 30, 2020 was higher than the number of claims received in the six months ended June 30, 2019 and exceeded our expectations for the current year.

Average settlement cost per claim experienced in the six months ended June 30, 2020 was considerably higher than the average settlement cost per claim experienced in the six months ended June 30, 2019, due to an increase in larger claims settled and changes in the mix of settlement methods that occurred in the second half of 2019, but was consistent with our expectations for the current year, and lower than that experienced for the full year ended December 31, 2019.

We believe that our reserve at June 30, 2020 is sufficient to cover future surface flaking obligations.

The number of incoming claims received in the nine months ended September 30, 2020 was higher than the number of claims received in the nine months ended September 30, 2019 and exceeded our expectations for the current year.

Prior to 2020, the number of incoming claims received declined each year since 2009.

After evaluating the rise in incoming claims in our actuarial analysis, we increased our estimate of the number of future claims to be settled with payment.

Average cost per claim experienced in the nine months ended September 30, 2020 was lower than that experienced in the nine months ended September 30, 2019 but higher than expectations for the current year.

We estimate that average cost per claim will increase in future years, primarily due to inflation.

As a result of the increase in estimated future claims and expected rise in future average cost per claim, in the three-month period ended September 30, 2020, we recorded a provision of $6.5 million to the warranty reserve for the future settlement of surface flaking claims.

We believe the reserve at September 30, 2020 is sufficient to cover future surface flaking obligations.

Refer to Note 18, Commitments and Contingencies, Product Warranty

, in the Notes to the Condensed Consolidated Financial Statements in Part I.

Condensed Consolidated Financial Statements

of this Quarterly Report on Form 10-Q

for additional information.

The following table details surface flaking claims activity related to our warranty:

Six Months Ended June 30,

Nine Months Ended September 30,

Claims open, beginning of period

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RESULTS OF OPERATIONS

Below is our discussion and analysis of our operating results and material changes in our operating results for the three months ended June 30, 2020 (2020 quarter) compared to the three months ended June 30, 2019 (2019 quarter), and for the six months ended June 30, 2020 (2020 six-month

period) compared to the six months ended June 30, 2019 (2019 six-month

Three Months Ended June 30, 2020 Compared To The Three Months Ended June 30, 2019

Three Months Ended June 30,

Below is our discussion and analysis of our operating results and material changes in our operating results for the three months ended September 30, 2020 (2020 quarter) compared to the three months ended September 30, 2019 (2019 quarter), and for the nine months ended September 30, 2020 (2020 nine-month period) compared to the nine months ended September 30, 2019 (2019 nine-month period).

Three Months Ended September 30, 2020 Compared To The Three Months Ended September 30, 2019

Three Months Ended September 30,

(dollars in thousands)

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Trex Commercial net sales

Total net sales increased by 6.9% in the 2020 quarter compared to the 2019 quarter reflecting an increase in Trex Residential net sales, offset by a small decrease in Trex Commercial net sales.

The increase of 8.0% in Trex Residential net sales was primarily driven by volume growth of our residential decking and railing products, strong demand for our outdoor living products, a strong residential repair and remodeling sector and our initiatives to accelerate conversion from wood.

The 9.4% decrease in Trex Commercial net sales during the 2020 quarter was due primarily to fewer large projects compared to the 2019 quarter.

Three Months Ended June 30,

Total net sales increased by 19% in the 2020 quarter compared to the 2019 quarter reflecting a 19.5% increase in Trex Residential net sales and an 11% increase in Trex Commercial net sales.

The increase in Trex Residential net sales was substantially all due to volume growth of our residential decking and railing products, resulting from strong demand for our outdoor living products, a strong residential repair and remodeling sector and our initiatives to accelerate conversion from wood.

The increase in Trex Commercial net sales during the 2020 quarter was primarily due to underlying growth in the commercial segment.

Three Months Ended September 30,

(dollars in thousands)

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% of total net sales

Gross profit as a percentage of net sales, gross margin, was 41.9% in the 2020 quarter compared to 40.4% in the 2019 quarter and reflects the increase in gross margin for Trex Residential and Trex Commercial to 42.5% and 30.7%, respectively, in the 2020 quarter compared to 41.7% and 21.4%, respectively, in the 2019 quarter.

The increase in Trex Residential gross margin in the 2020 quarter compared to the 2019 quarter was primarily due to the non-recurrence

of Enhance startup costs related to reduced throughput, equipment failures and other inefficiencies at Trex Residential manufacturing facilities in 2019.

Also, a number of manufacturing lines were retrofitted to allow production of the reduced weight Enhance profile.

We expect to be essentially at the original design target for Enhance by the end of the third quarter of 2020.

The increase in Trex Residential gross margin was offset by startup costs associated with the expansion of capacity at our Nevada facility.

The increase in gross margin at Trex Commercial was primarily due to non-recurrence

of legacy low margin contracts coupled with a mix of higher margin contracts in the 2020 quarter, and initiatives aimed at improving project estimating, project management, and manufacturing cost savings initiatives.

Gross profit as a percentage of net sales, gross margin, was 36.7% in the 2020 quarter compared to 42.4% in the 2019 quarter.

Gross margin for Trex Residential and Trex Commercial was 37.4% and 24.4%, respectively, in the 2020 quarter compared to 43.4% and 26.5%, respectively, in the 2019 quarter.

Excluding a $6.5 million provision to the Trex Residential

legacy warranty reserve, gross margin was 39.5% for the 2020 quarter period compared to 42.4% in the 2019 quarter.

This charge related to the surface flaking issue that affected a portion of products produced at our Nevada plant before 2007.

In addition to the warranty reserve provision, gross margin was unfavorably impacted by increased labor costs related to our announced capacity expansion program, COVID-19

management and depreciation due to capital expansion expenditures, partially offset by favorable material costs due to managing our Enhance profile to the lower weight target.

Selling, General and Administrative Expenses

Three Months Ended June 30,

Three Months Ended September 30,

(dollars in thousands)

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% of total net sales

The $6.7 million decrease in selling, general and administrative expenses in the 2020 quarter compared to the 2019 quarter resulted primarily from a decrease of $4.9 million in branding and advertising spend and a $2.0 million decrease in personnel related expenses.

The decrease in personnel related expenses included a decrease in executive severance benefits compared to 2019, a decrease in meals and entertainment expenses and a reduction in medical claims, offset primarily by an increase in incentive compensation.

Selling, general and administrative expenses in the 2020 quarter were comparable to those in the 2019 quarter.

The increase in selling, general and administrative expenses was primarily the result of higher operating expenses offset by lower branding.

Provision for Income Taxes

Three Months Ended June 30,

Three Months Ended September 30,

(dollars in thousands)

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Effective tax rate

The effective tax rate for the 2020 quarter of 25.6% was relatively unchanged compared to the effective tax rate of 25.2% for the 2019 quarter.

The effective tax rate for the 2020 quarter of 25.3% was relatively unchanged with an increase of 0.6% compared to the effective tax rate of 24.7% for the 2019 quarter.

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

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

Three Months Ended June 30, 2020

Three Months Ended September 30, 2020

Interest income, net

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

Three Months Ended June 30, 2019

Interest expense (income), net

Three Months Ended September 30, 2019

Interest income, net

Income tax expense

Depreciation and amortization

Three Months Ended June 30,

Three Months Ended September 30,

(dollars in thousands)

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Total EBITDA increased 4.9% to $61.5 million for the 2020 quarter compared to $58.6 million for the 2019 quarter.

The increase was primarily driven by a 30.1% increase in Trex Residential EBITDA due to net sales and gross margin and by an increase in Trex Commercial EBITDA primarily related to an increase in gross margin.

Six Months Ended June 30, 2020 Compared To The Six Months Ended June 30, 2019

Six Months Ended June 30,

The increase was driven by a 5.2% increase in Trex Residential EBITDA, primarily due to the volume growth in net sales.

The increase was offset by the decrease in Trex Commercial EBITDA related to a decrease in gross margin.

Excluding the impact of the $6.5 million surface flaking reserve, the growth in EBITDA was 15.9%.

Nine Months Ended September 30, 2020 Compared To The Nine Months Ended September 30, 2019

Nine Months Ended September 30,

(dollars in thousands)

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Trex Commercial net sales

The 9.1% increase in total net sales in the 2020 six-month

period compared to the 2019 six-month

period was due primarily to volume growth at Trex Residential for both our legacy and new decking and residential railing products.

The increase of 10.3% in Trex Residential net sales during the 2020 six-month

period was primarily driven by volume growth, strong demand for our outdoor living products, a strong residential repair and remodeling sector and our initiatives to accelerate conversion from wood.

The 6.6% decrease in Trex Commercial net sales during the 2020 six-month

period was due primarily to fewer large projects compared to the 2019 six-month

Six Months Ended June 30,

The 12.4% increase in total net sales in the 2020 nine-month period compared to the 2019 nine-month period was primarily due to increased net sales at Trex Residential.

The increase of 13.4% in Trex Residential net sales during the 2020 nine-month period was substantially all due to volume growth, resulting from the strong broad-based demand for our outdoor living products, positive momentum in the residential repair and remodeling sector and our initiatives to expand our addressable market and accelerate conversion from wood.

Nine Months Ended September 30,

(dollars in thousands)

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% of total net sales

Gross profit as a percentage of net sales, gross margin, was 43.3% in the 2020 six-month

period compared to 39.6% in the 2019 six-month

Gross margin for Trex Residential and Trex Commercial products in the 2020 six-month

period were 44.0% and 32.3%, respectively, compared to 41.0% and 21.0%, respectively, in the 2019 six-month

The increase in Trex Residential gross margin in the 2020 six-month

period compared to the 2019 six-month

period was primarily due to non-recurrence

of Enhance startup costs related to reduced throughput, equipment failures and other inefficiencies at Trex Residential manufacturing facilities in 2019.

Also, a number of manufacturing lines were retrofitted to allow production of the reduced weight Enhance profile.

We expect to be essentially at the original design target for Enhance by the end of the third quarter of 2020.

The increase in Trex Residential gross margin was offset by startup costs associated with the expansion of capacity at our Nevada facility.

The increase in gross margin at Trex Commercial was primarily due to non-recurrence

Gross profit as a percentage of net sales, gross margin, was 40.9% in the 2020 nine-month period, comparable to 40.5% in the 2019 nine-month period.

Gross margin for Trex Residential and Trex Commercial in the 2020 nine-month period were 41.6% and 29.6%, respectively, compared to 41.8% and 22.6%, respectively, in the 2019 nine-month period.

Excluding a $6.5 million provision to the Trex Residential legacy warranty reserve, gross margin was 41.9% for the 2020 nine-month period compared to 40.5% in the 2019 nine-month period.

This charge related to the surface flaking issue that affected a portion of products produced at our Nevada plant before 2007.

Gross margin was favorably impacted by the non-recurrence

startup costs in 2019 experienced at Trex Residential in the 2019 nine-month period.

Also, an increase in gross

margin at Trex Commercial, primarily due to non-recurrence

of legacy low margin contracts coupled with a mix of higher margin contracts in the 2020 nine-month period, and initiatives aimed at improving project estimating, project management, and manufacturing cost savings, contributed to the increase in gross margin.

Selling, General and Administrative Expenses

Six Months Ended June 30,

Nine Months Ended September 30,

(dollars in thousands)

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% of total net sales

The $2.3 million decrease in selling, general and administrative expenses in the 2020 six-month

period compared to the 2019 six-month

period resulted primarily from a decrease of $3.8 million in branding and advertising spend and a $1.4 million decrease in research and development expenses.

The decreases were offset by a $1.3 million increase in personnel related expenses and an increase of $1.6 million in other operating expenses.

The $1.7 million decrease in selling, general and administrative expenses in the 2020 nine-month period compared to the 2019 nine-month period was primarily driven by disciplined branding and advertising spending, which decreased by $4.4 million during the 2020 nine-month period, as the effects of COVID-19

played out during the second and third quarters.

The decreases were offset by increases in personnel related expenses of $1.2 million and a net increase in information technology and other operating expenses of $2.3 million.

Provision for Income Taxes

Six Months Ended June 30,

Nine Months Ended September 30,

(dollars in thousands)

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Effective tax rate

The effective tax rate for the 2020 six-month

period increased by 2.1% compared to the effective tax rate for the 2019 six-month

period primarily due to a current year decrease in excess tax benefits from the exercise of share-based payments and an increase in non-deductible

The effective tax rate for the 2020 nine-month period increased by 1.4% compared to the effective tax rate for the 2019 nine-month period primarily due to a current year decrease in excess tax benefits from the exercise of share-based payments and an increase in non-deductible

executive compensation.

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

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020

Interest income, net

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

Six Months Ended June 30, 2019

Nine Months Ended September 30, 2019

Interest income, net

1 unchanged sentence

Depreciation and amortization

Six Months Ended June 30,

Nine Months Ended September 30,

(dollars in thousands)

1 unchanged sentence

Trex Commercial EBITDA

Total EBITDA increased 34.9% to $126.4 million for the 2020 six-month

period compared to $93.7 million for the 2019 six-month

The increase was primarily driven by a 32.5% increase in Trex Residential EBITDA due to net sales and gross margin and by an increase in Trex Commercial EBITDA primarily related to an increase in gross margin.

Total EBITDA increased 23.4% to $187.9 million for the 2020 nine-month period compared to $152.3 million for the 2019 nine-month period.

The increase was primarily driven by a 22% increase in Trex Residential EBITDA due to volume growth in net sales and by a $2.6 million increase in Trex Commercial EBITDA primarily related to an increase in gross margin.

Excluding the impact of the $6.5 million surface flaking reserve, the growth in EBITDA was 27.6%.

LIQUIDITY AND CAPITAL RESOURCES

We finance operations and growth primarily with cash flows from operations, borrowings under our revolving credit facilities, operating leases and normal trade credit terms from operating activities.

At June 30, 2020 we had $12.2 million of cash and cash equivalents.

S ources and Uses of Cash.

At September 30, 2020 we had $20.1 million of cash and cash equivalents.

Sources and Uses of Cash

The following table summarizes our cash flows from operating, investing and financing activities (in thousands):

Six Months Ended June 30,

Net cash (used in) provided by operating activities

Nine Months Ended September 30,

Net cash provided by operating activities

Net cash used in investing activities

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Operating Activities

Cash used in operations was $32.3 million during the 2020 six-month

period compared to cash provided by operations of $43.1 million during the 2019 six-month

Cash provided by operations was $12.5 million during the 2020 nine-month period compared to cash provided by operations of $99.0 million during the 2019 nine-month period.

The use of cash flows in operations was primarily due to higher working capital investment in accounts receivable as a result of the timing of sales within the period and related payment discounts offered to our Trex Residential decking and railing customers.

The majority of the accounts receivable balance at June 30, 2020, will be collected in the third quarter.

The decrease was primarily by offset increased net income, increase in accounts payable and the timing of payment for Federal income taxes.

Substantially all of the accounts receivable balance at September 30, 2020, will be collected in the fourth quarter.

The decrease in cash flows from operating activities was offset primarily by increased net income and increases in accounts payable and accrued expenses.

Investing Activities

Capital expenditures in the 2020 six-month

period were $62.6 million, consisting primarily of $52.6 million for capacity expansion at our Virginia and Nevada facilities and $8.8 million for general plant cost reduction initiatives and other production improvements.

Capital expenditures in the 2020 nine-month period were $99.7 million, consisting primarily of $82 million for capacity expansion at our Virginia and Nevada facilities and $12.5 million for general plant cost reduction initiatives and other production improvements.

Financing Activities

Net cash used in financing activities was $43.8 million in the 2020 six-month

period primarily for repurchases of our common stock of $44.1 million.

Net cash used in financing activities was $43.7 million in the 2020 nine-month period primarily for repurchases of our common stock of $44.4 million.

Amendment of Restated Certificate of Incorporation.

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The Amendment was filed with the Delaware Secretary of State on April 29, 2020.

Stock Repurchase Programs.

Stock Repurchase Program.

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

As of the June 30, 2020, the Company has repurchased 1.4 million shares of the Company’s outstanding common stock under the Stock Repurchase Program.

Due to the volatility and uncertainty in the stock market associated with the COVID-19

pandemic, we suspended repurchases of our common stock under the Stock Repurchase Program on March 12, 2020.

As of the date of this report, the Stock Repurchase Program remains in effect with repurchases suspended.

However, we may determine to resume repurchases at any time.

On March 12, 2020, the Company suspended repurchases of its common stock under the Stock Repurchase Program due to the volatility and uncertainty in the stock market associated with the COVID-19

As of September 30, 2020, the Company has repurchased 2.8 million shares of the Company’s outstanding common stock under the Stock Repurchase Program.

On October 30, 2020, the Company lifted the suspension of repurchases of its common stock under the Stock Repurchase Program.

On July 29, 2020, the Company’s Board of Directors approved a two-for-one

stock split of the Company’s common stock, par value, $0.01.

The stock split will be in the form of a stock dividend to be distributed on September 14, 2020, to stockholders of record at the close of business on August 19, 2020.

The condensed consolidated financial statements presented in this Form 10-Q

appropriately do not reflect the effects of the stock split.

The stock split was in the form of a stock dividend distributed on September 14, 2020, to stockholders of record at the close of business on August 19, 2020.

The stock split entitled each stockholder to receive one additional share of common stock for each share they held as of the record date.

All common stock share and per share data for all periods presented in the accompanying unaudited condensed consolidated financial statements and notes thereto have been retroactively adjusted to reflect the stock split.

Indebtedness.

Our Fourth Amended and Restated Credit Agreement (Fourth Amended Credit Agreement) provides us with revolving loan capacity in a collective maximum principal amount of $250 million from January 1 through June 30 of each year, and a maximum principal amount of $200 million from July 1 through December 31 of each year throughout the term, which ends November 5, 2024.

At June 30, 2020, we had no outstanding indebtedness under the revolving credit facilities and borrowing capacity under the facilities of $350 million, and $300 million from July 1, 2020 through December 31, 2020.

At September 30, 2020, we had no outstanding indebtedness under the revolving credit facilities and borrowing capacity under the facilities of $300 million.

On May 26, 2020, the Company entered into a First Amendment to the Original Credit Agreement (the First Amendment) to provide for an additional $100 million line of credit.

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as Sole Lead Arranger and Sole Bookrunner.

The First Amendment further provides that the New Credit Agreement is amended and restated by changing Schedule 2.01 to add applicable Lender percentages related to the Revolving B Commitment for BOA of 47.5%, Wells Fargo of 28.0% and Regions of 24.5%.

Compliance with Debt Covenants.

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

The Company was in compliance with all covenants as of June 30, 2020.

The Company was in compliance with all covenants as of September 30, 2020.

Failure to comply with the financial covenants could be considered a default of repayment obligations and, among other remedies, could accelerate payment of any amounts outstanding.

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We cannot definitively determine the level of inventory in the distribution channels at any time.

We are not aware of any significant increases in the levels of inventory in the distribution channels at June 30, 2020 compared to inventory levels at June 30, 2019.

We are not aware of any significant increases in the levels of inventory in the distribution channels at September 30, 2020 compared to inventory levels at September 30, 2019.

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

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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-Q

Item 2. Management’s Discussion and Analysis