What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-05-10 compared with 2020-11-02 · 112 added, 167 removed, 223 unchanged (56% of the section changed)

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“Financial Statements” of this quarterly report.

EXPLANATORY NOTE:

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

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

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, par value $0.01, for each share they held as of the record date.

All common stock share and per share data for all periods presented have been retroactively adjusted to reflect the stock split.

NOTE ON FORWARD-LOOKING STATEMENTS

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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 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.

In addition, the extent and duration of the economic fallout from COVID-19

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.

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.

We continue to take precautionary measures, make contingency plans and improve our response to the developing situation.

We have assembled a cross-functional team whose chief charge is to oversee our efforts to ensure the health and safety of all employees and supply product to our customers.

That team constantly monitors the latest CDC, Federal, state and other regulatory guidance, works to secure personal protective equipment, finds new ways to help mitigate risk, and identifies opportunities for us to exceed recommendations.

We have implemented preventative or protective actions at our facilities, our corporate headquarters and with field sales personnel.

In order to mitigate the spread of the virus, we instructed our employees to practice social distancing.

Efforts for social distancing included employees working from home, where possible, revising our production processes to allow for compliance with our social distancing efforts, suspending air travel and enabling technologies to allow employees to effectively perform their functions remotely.

Our sales force worked from home and conducted training sessions with our channel partners by utilizing online audio and visual technologies.

Late in the second quarter, our employees began transitioning back to the workplace and conducting customer visits on a voluntary basis.

In addition, face masks and other protective equipment have been distributed to employees across all of our facilities, handwashing and hand sanitizing stations have been installed, and automated temperature scanners have been provided at the entrances to our manufacturing facilities and corporate office.

We have installed air purifier systems for all enclosed areas in every one of our buildings.

Our internal cleaning crew sanitizes an extensive checklist of high-touch items and areas across work facilities, and our facilities are cleaned repeatedly throughout each shift with CDC-recommended

chemicals and disinfectants by internal and external groups.

In addition, we fabricated face shields, donated the proceeds from decking sample sales to Feeding America, and supported the COVID-19

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

Operations and Products:

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We offer a comprehensive set of aesthetically appealing and durable, low-maintenance

product offerings in the decking, residential railing, fencing, steel deck framing, and outdoor lighting categories.

product offerings in the decking, residential railing, fencing and outdoor lighting categories.

A majority of the products are eco-friendly

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and Trex Enhance ®

Differentiating the Enhance collection is a scalloped profile that is lighter weight for easier handling and installation.

In addition, our Trex Transcend decking product can also be used as cladding.

Our high-performance, low-maintenance,

composite decking products are comprised of a blend of 95 percent reclaimed wood fibers and recycled polyethylene film and feature a protective polymer shell for enhanced protection against fading, staining, mold and scratching.

We also offer Trex Hideaway ®

, a hidden fastening system for grooved boards, and Trex DeckLighting ™

We also offer accessories to our decking products, including Trex Hideaway ®

and Trex DeckLighting ™

, an outdoor lighting system.

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The line includes a post cap light, deck rail light, riser light and a recessed deck light.

Our residential railing products are Trex Transcend Railing, Trex Select Railing, Trex Enhance Railing and Trex Signature ®

Our residential railing products are Trex Transcend ®

Railing, Trex Select ®

Railing, Trex Enhance ®

Railing and Trex Signature ®

aluminum railing.

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This product consists of structural posts, bottom rail, pickets, top rail and decorative post caps.

Steel Deck Framing

Our triple-coated steel deck framing system called Trex Elevations ®

leverages the strength and dimensional stability of steel to create a flat surface for our decking.

Trex Elevations provides consistency and reliability that wood does not and is fire resistant.

Trex Commercial

is a leading national provider of custom-engineered railing and staging systems.

Trex Commercial Products designs and engineers custom solutions, which are prevalent in professional and collegiate sports facilities, commercial and high-rise applications, performing arts, sports, and event production and rentals.

Trex Commercial designs and engineers custom solutions, which are prevalent in professional and collegiate sports facilities, commercial and high-rise applications, performing arts, sports, and event production and rentals.

With a team of devoted engineers, and industry-leading reputation for quality and dedication to customer service, Trex Commercial markets to architects, specifiers, contractors, and building owners.

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Its straightforward, unobtrusive design features traditional balusters and contemporary vertical rods, and can be installed with continuously graspable rail options for added safety, comfort and functionality.

Trex Signature is available in three colors – charcoal black, bronze and classic white – and is available in a variety of stock lengths.

Trex Signature is available in a variety of colors and stock lengths to accommodate project needs.

Staging Equipment and Accessories

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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 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.

Highlights for the three months ended March 31, 2021:

Increase in net sales of 22.5%, or $45.1 million, to $245.5 million for the three months ended March 31, 2021 compared to $200.4 million for the three months ended March 31, 2020.

Increase in net income to $48.5 million, or $0.42 per diluted share, for the three months ended March 31, 2021 compared to $42.4 million, or $0.36 per diluted share, for the three months ended March 31, 2020.

Increase in EBITDA (earnings before interest, income tax and depreciation and amortization) of 20.2%, or $11.9 million, to $70.9 million for the three months ended March 31, 2021 compared to $59.0 million for the three months ended March 31, 2020.

Capital expenditures of $58.1 million, primarily to increase production capacity at the Trex Residential facilities and for cost reduction initiatives and other production improvements.

Repurchase of 504,275 shares of our outstanding common stock during the three months ended March 31, 2021 under our Stock Repurchase Program for a total 3.3 million shares repurchased under the program to date.

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

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

However, the timing and terms of the majority of our programs are generally consistent from year to year.

In addition, the operating results for Trex Commercial are driven by the timing of individual projects, which may vary each quarterly period.

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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 includes 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.

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 may vary from quarter to quarter due, in part, to the seasonality of our business.

Product Warranty.

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

We also warrant our Trex Commercial products for periods ranging from 1 year to 3 years.

We continue to receive and settle claims for decking 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.

Depending on the product and its use, we also warrant our Trex Commercial products will be free of manufacturing defects for periods ranging from 1 year to 3 years.

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

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

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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 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.

The number of incoming claims received in the three months ended March 31, 2021 was higher than the number of claims received in the three months ended March 31, 2020 and exceeded our expectations for the first quarter of 2021.

Average cost per claim experienced in the three months ended March 31, 2021 was higher than that experienced in the three months ended March 31, 2020 but was consistent with 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.

We believe the reserve at March 31, 2021 is sufficient to cover future surface flaking obligations.

Refer to Note 18, Commitments and Contingencies, Product Warranty

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for additional information.

We estimate that the annual number of claims received will decline over time and that the average cost per claim will increase, 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 $2.1 million change in the surface flaking warranty reserve.

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

Nine Months Ended September 30,

Three Months Ended March 31,

Claims open, beginning of period

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Average cost per claim represents the average settlement cost of claims closed with payment during the period.

Selling, General and Administrative Expenses.

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

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 may vary from quarter to quarter due, in part, to the seasonality of our business.

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

pandemic increased the level of volatility and uncertainty globally and 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.

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

Even though vaccines have been approved and are being distributed, the pandemic remains an evolving situation.

The extent and duration of the economic fallout from COVID-19

remains unclear.

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.

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

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

We continue to take precautionary measures, make contingency plans and improve our response to the developing situation.

We have assembled a cross-functional team whose chief charge is to oversee our efforts to ensure the health and safety of all employees and supply product to our customers.

We have implemented preventative or protective actions at our facilities, our corporate headquarters and with field sales personnel.

In order to mitigate the spread of the virus, we instructed our employees to practice social distancing.

In addition, face masks and other protective equipment have been distributed to employees across all of our facilities, and handwashing and hand sanitizing stations have been installed.

We have installed air purifier systems for all enclosed areas in every one of our buildings.

Our internal cleaning crew sanitizes an extensive checklist of high-touch items and areas across work facilities, and our facilities are cleaned repeatedly throughout each shift with CDC-recommended

chemicals and disinfectants by internal and external groups.

Fire at Virginia Facility

On March 13, 2021, an electrical fire occurred at one of the Company’s manufacturing buildings in its Virginia complex.

No injuries occurred from the event.

The building was off-line

while damage to the building’s electrical systems was addressed.

Repairs were substantially completed at the end of March 2021.

The Company has insurance coverage for repairs, incremental direct costs to serve its customers, and losses in operating income from the loss in net sales.

No proceeds from the insurance recovery were received during the three months ended March 31, 2021.

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 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,

Below is the discussion and analysis of our operating results and material changes in our operating results for the three months ended March 31, 2021 (2021 quarter) compared to the three months ended March 31, 2020 (2020 quarter).

Three Months Ended March 31, 2021 Compared To The Three Months Ended March 31, 2020

Three Months Ended

(dollars in thousands)

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Trex Commercial net sales

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,

Total net sales increased by 22.5% in the 2021 quarter compared to the 2020 quarter reflecting a 24.7% increase in Trex Residential net sales and a 7.9% decrease in Trex Commercial net sales.

The increase in Trex Residential net sales was substantially all due to volume growth across all residential product lines.

The sustained broad-based demand continued to reflect strong secular trends, including growth in the outdoor living category, renewed focus on the home, the shift in population from urban to suburban and smaller metropolitan areas and consumers’ increasing preference for environmentally sustainable products.

In addition, we continue to benefit from our long-term growth strategy to convert consumers from wood decking to our eco-friendly

Trex decking, a benefit that we believe is not only continuing but accelerating as we are still in the early stages of executing our strategy, providing us with a significant runway.

As a result of our capacity expansion program at Trex Residential announced in 2019, the production lines at our new Virginia facility started coming online in the first quarter of 2021 and will continue to ramp up through the end of May giving us more available capacity to capture additional growth.

Also, due to inflationary pressures, effective with January orders we took a mid single-digit price increase on certain product lines.

The decrease in Trex Commercial net sales reflects the impact of the COVID-19

pandemic on the commercial construction business due to the delay in and deferral of the startup of new projects.

Three Months Ended March 31,

(dollars in thousands)

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Gross margin for Trex Residential and Trex Commercial was 40.2% and 17.2%, respectively, in the 2021 quarter compared to 45.6% and 33.6%, respectively, in the 2020 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.

Gross margin was unfavorably impacted by inflationary pressures on raw materials, start-up

costs and increased depreciation related to our capacity expansion program at Trex Residential, and reduced overhead absorption due to the fire at the Virginia facility.

The decrease in gross margin was partially offset by the price increase on certain product lines at Trex Residential.

The decrease in Trex Commercial gross margin was due to product mix of lower margin projects and additional project costs.

Selling, General and Administrative Expenses

Three Months Ended September 30,

Three Months Ended March 31,

(dollars in thousands)

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% of total net sales

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.

Selling, general and administrative expenses in the 2021 quarter were slightly lower than those in the 2020 quarter.

The decrease in selling, general and administrative expenses was primarily the result lower branding spend and travel and entertainment expenses.

Provision for Income Taxes

Three Months Ended September 30,

Three Months Ended March 31,

(dollars in thousands)

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

Three Months Ended September 30, 2020

Three Months Ended March 31, 2021

Net income (loss)

Interest income, net

Income tax expense

Income tax expense (benefit)

Depreciation and amortization

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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 September 30, 2019

Three Months Ended March 31, 2020

Interest income, net

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Depreciation and amortization

Three Months Ended September 30,

Three Months Ended March 31,

(dollars in thousands)

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The increase was driven by a 24.6% 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)

Total net sales

Trex Residential net sales

Trex Commercial net sales

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)

Cost of sales

% of total net sales

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

Nine Months Ended September 30,

(dollars in thousands)

Selling, general and administrative expenses

% of total net sales

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

Nine Months Ended September 30,

(dollars in thousands)

Provision for income taxes

Effective tax rate

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.

Net Income and Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) 2

(in thousands)

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

Nine Months Ended September 30, 2020

Interest income, net

Income tax expense

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 it facilitates performance comparison between the Company and its competitors, and management evaluates the performance of its reportable segments using several measures, including EBITDA.

Management considers EBITDA to be an important supplemental indicator of our core operating performance because it eliminates interest, income taxes, and depreciation and amortization charges to net income or loss.

In relation to competitors, EBITDA eliminates differences among companies in capitalization and tax structures, capital investment cycles and ages of related assets.

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

Nine Months Ended September 30, 2019

Interest income, net

Income tax expense

Depreciation and amortization

Nine Months Ended September 30,

(dollars in thousands)

Trex Residential EBITDA

Trex Commercial EBITDA

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%.

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

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

Sources and Uses of Cash

At March 31, 2021 we had $8.2 million of cash and cash equivalents.

S ources and Uses of Cash.

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

Nine Months Ended September 30,

Net cash provided by operating activities

Three Months Ended March 31,

Net cash used in operating activities

Net cash used in investing activities

Net cash used in financing activities

Net (decrease) increase in cash and cash equivalents

Net cash provided by (used in) financing activities

Net decrease in cash and cash equivalents

Operating Activities

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.

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.

Cash used in operations was $142.6 million during the 2021 three-month period compared to cash used in operations of $108.8 million during the 2020 three-month period.

The increase in the use of cash flows in operations was primarily due to higher working capital investment in accounts receivable as a result of the increase in Trex Residential net sales.

Investing Activities

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.

Capital expenditures in the 2021 three-month period were $58.1 million, primarily for capacity expansion at our Trex Residential facilities, general plant cost reduction initiatives and other production improvements.

Financing Activities

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.

At the annual meeting of stockholders of the Company held on April 29, 2020, the Company’s stockholders approved an amendment of the Company’s Restated Certificate of Incorporation (Amendment), effective as of April 29, 2020.

The Company’s Board of Directors unanimously approved the Amendment on February 19, 2020, subject to stockholder approval.

The Amendment increases the number of shares of common stock, par value $0.01 per share, that the Company is authorized to issue from 120 million shares to 180 million shares.

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

Net cash provided by financing activities of $86.9 million in the 2021 quarter consisted of net borrowings on our line of credit of $136 million offset by repurchases of our common stock of $49.6 million.

Stock Repurchase Program.

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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.

As of March 31, 2021, the Company has repurchased 3.3 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.

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

At March 31, 2021, we had $136 million in outstanding borrowings under the revolving credit facilities and borrowing capacity under the facilities of $214 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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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 September 30, 2020.

The Company was in compliance with all covenants as of March 31, 2021.

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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However, as the impact of COVID-19

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

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

Capital Requirements.

In June 2019, we announced a new capital expenditure program to increase production capacity at our Trex Residential facilities in Virginia and Nevada.

The new multi-year capital expenditure program is projected at approximately $200 million through 2021, and involves the construction of a new decking facility at the existing Virginia site and the installation of additional production lines at the Nevada site.

The new multi-year capital expenditure program is projected at approximately $200 million through the second quarter of 2021, and involves the construction of a new decking facility at the existing Virginia site and the installation of additional production lines at the Nevada site.

The investment will allow us to increase production output for future projected growth related to our strategy of converting wood demand to Trex Residential wood-alternative composite decking.

When completed these investments will increase our Trex Residential production capacity by approximately 70 percent.

The production lines at our new Virginia facility started coming online in the first quarter of 2021 and will continue to ramp up through the end of May, one month ahead of schedule.

When completed, our capacity expansion program will increase our Trex Residential production capacity by approximately 70 percent when compared to 2019 volume levels.

Our capital expenditure guidance for 2021 is $130 million to $150 million.

In addition to the above, our capital allocation priorities include expenditures for internal growth opportunities, manufacturing cost reductions, upgrading equipment, 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.

In addition to the above, our capital allocation priorities 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.

Inventory in Distribution Channels

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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 September 30, 2020 compared to inventory levels at September 30, 2019.

We are not aware of any significant increases in the levels of inventory in the distribution channels at March 31, 2021 compared to inventory levels at March 31, 2020.

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

5 unchanged sentences

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