TREX CO INC 10-K

Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures The Company’s management, with the participation of its President and Chief Executive Officer, who is the Company’s principal executive officer, and its Senior Vice President and Chief Financial Officer, who is the Company’s principal financial officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of December 31, 2022. Based on this evaluation, the President and Chief Executive Officer and the Senior Vice President and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective. 41 Table of Contents Management’s Report on Internal Control Over Financial Reporting We, as members of management of Trex Company, Inc. (Company), are responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate. We assessed the Company’s internal control over financial reporting as of December 31, 2022, based on criteria for effective internal control over financial reporting established in “Internal Control-Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO Framework). Based on this assessment, we concluded that, as of December 31, 2022, our internal control over financial reporting was effective, based on the COSO Framework. The effectiveness of our internal control over financial reporting as of December 31, 2022, has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report, which follows hereafter. TREX COMPANY, INC. February 27, 2023 By: /S/ B RYAN H. F AIRBANKS Bryan H. Fairbanks President and Chief Executive Officer (Principal Executive Officer) February 27, 2023 By: /S/ D ENNIS C. S CHEMM Dennis C. Schemm Senior Vice President and Chief Financial Officer (Principal Financial Officer) Changes in Internal Control Over Financial Reporting There have been no changes in the Company’s internal control over financial reporting identified in connection with the evaluation described above in “Management’s Report on Internal Control Over Financial Reporting” that occurred during the Company’s fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. 42 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Trex Company, Inc. Opinion on Internal Control over Financial Reporting We have audited Trex Company, Inc.’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Trex Company, Inc., (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 2022 consolidated financial statements of the Company and our report dated February 27, 2023 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. 43 Table of Contents Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP Tysons, Virginia February 27, 2023 44 Table of Contents Item 9B. Other Information Trex Residential Arkansas Manufacturing Facility In October 2021, we announced plans to add a third U.S.-based Trex Residential manufacturing facility located in Little Rock, Arkansas. The new campus will sit on approximately 300 acres of land and will address increased demand for Trex Residential outdoor living products. The development approach for the new campus will be modular and calibrated to demand trends for Trex Residential outdoor living products. Construction began on the new facility in the second quarter 2022, and in July 2022, the Company entered into a design-build agreement. As previously announced, the Company anticipates spending approximately $400 million on the facility and the budget for the design-build agreement is contained within this amount. Construction for the new facility will be funded primarily through the Company’s ongoing cash generation or its line of credit. Sale of Trex Commercial Products, Inc. On December 30, 2022, we completed the sale of substantially all of the assets of our wholly-owned subsidiary and reportable segment, Trex Commercial, for net proceeds of $7.3 million. The divestiture reflects our decision to focus on driving the most profitable growth strategy for the Company and its shareholders through the execution of our outdoor living strategy. With the sale complete, we will dedicate our resources to accelerating conversion to composites from wood and further strengthen our leadership position in the outdoor living category. The divestiture of this segment did not represent a strategic shift with a major effect on the Company’s operations and financial results. As such, the results of operations of Trex Commercial are consolidated in the Company’s results of operations for the year ended December 31, 2022, through the date of sale. Refer to Note 17, Segment Information, for additional information on the Trex Commercial segment. 45 Table of Contents PART III Item 10. Directors, Executive Officers and Corporate Governance Information responsive to this Item 10 is incorporated herein by reference to our definitive proxy statement for our 2023 annual meeting of stockholders, which we will file with the SEC on or before 120 days after our 2022 fiscal year-end. We have adopted a Code of Conduct and Ethics, which is applicable to all directors, officers and employees, including our Chief Executive Officer and Chief Financial Officer. The code is available on our corporate web site and in print to any stockholder who requests a copy. We also make available on our web site, at www.trex.com/our-company/corporate-governance , and in print to any stockholder who requests them, copies of our corporate governance principles and the charters of each standing committee of our board of directors. Requests for copies of these documents should be directed to Corporate Secretary, Trex Company, Inc., 160 Exeter Drive, Winchester, Virginia 22603-8605. To the extent required by SEC rules, we intend to disclose any amendments to our code of conduct and ethics, and any waiver of a provision of the code with respect to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, on our web site referred to above within four business days following any such amendment or waiver, or within any other period that may be required under SEC rules from time to time. Item 11. Executive Compensation Information responsive to this Item 11 is incorporated herein by reference to our definitive proxy statement for our 2023 annual meeting of stockholders, which we will file with the SEC on or before 120 days after our 2022 fiscal year-end. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information responsive to this Item 12 is incorporated herein by reference to our definitive proxy statement for our 2023 annual meeting of stockholders, which we will file with the SEC on or before 120 days after our 2022 fiscal year-end. Item 13. Certain Relationships and Related Transactions, and Director Independence Information responsive to this Item 13 is incorporated herein by reference to our definitive proxy statement for our 2023 annual meeting of stockholders, which we will file with the SEC on or before 120 days after our 2022 fiscal year-end. Item 14. Principal Accounting Fees and Services Information responsive to this Item 14 is incorporated herein by reference to our definitive proxy statement for our 2023 annual meeting of stockholders, which we will file with the SEC on or before 120 days after our 2022 fiscal year-end. 46 Table of Contents PART IV Item 15. Exhibits and Financial Statement Schedules (a)(1) The following Consolidated Financial Statements of the Company are incorporated by reference in Part II, Item 8 of this Form 10-K: Report of Independent Registered Public Accounting Firm (PCAOB ID 42) F-2 Consolidated Financial Statements Consolidated Statements of Comprehensive Income for the three years ended December 31, 2022 F-4 Consolidated Balance Sheets as of December 31, 2022 and 2021 F-5 Consolidated Statements of Changes in Stockholders’ Equity for the three years ended December 31, 2022 F-6 Consolidated Statements of Cash Flows for the three years ended December 31, 2022 F-7 Notes to Consolidated Financial Statements F-8 (a)(2) The following financial statement schedule is filed as part of this report: Schedule II—Valuation and Qualifying Accounts and Reserves F-35 All other schedules for which provision is made in the applicable accounting regulations of the SEC are not required under the related instructions or are inapplicable or not material and, therefore, have been omitted. (a)(3) See Exhibit Index at the end of the Annual Report on Form 10-K for the information required by this Item. 47 Table of Contents TREX COMPANY, INC. Index to Consolidated Financial Statements Page Report of Independent Registered Public Accounting Firm (PCAOB ID 42 ) F-2 Consolidated Financial Statements Consolidated Statements of Comprehensive Income for the three years ended December 31, 2022 F-4 Consolidated Balance Sheets as of December 31, 2022 and 2021 F-5 Consolidated Statements of Changes in Stockholders’ Equity for the three years ended December 31, 2022 F-6 Consolidated Statements of Cash Flows for the three years ended December 31, 2022 F-7 Notes to Consolidated Financial Statements F-8 The following Consolidated Financial Statement Schedule of the Registrant is filed as part of this Report as required to be included in Item 15(a)(2): Page Schedule II—Valuation and Qualifying Accounts and Reserves F-35 F-1 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Trex Company, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Trex Company, Inc. (the Company) as of December 31, 2022 and 2021 the related consolidated statements of comprehensive income, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and the financial statement schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 27, 2023 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. F-2 Table of Contents Surface Flaking Warranty Reserve Description of the Matter At December 31, 2022, the Company’s surface flaking warranty reserve was $15.9 million. As discussed in Note 19 of the consolidated financial statements, the Company continues to receive and settle claims for decking products manufactured at its Nevada facility prior to 2007 that exhibit surface flaking and maintains a warranty reserve to provide for the settlement of these claims. The Company’s surface flaking warranty reserve is based on management’s estimate of the number of claims to be settled with payment and the average cost to settle each claim. Auditing the surface flaking warranty reserve is complex because it involves the estimation of the number of claims to be settled with payment and requires the use of actuarial specialists. This estimate has a significant effect on the surface flaking warranty reserve. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of the controls over the Company’s process to estimate the number of claims to be settled with payment. To test the estimated number of claims to be settled with payment, our audit procedures included, among others, evaluating the methodologies and the significant assumptions used by management. We also involved an actuarial specialist to assist us in independently calculating a range of the expected number of claims to be settled with payment and compared that to the Company’s range. /s/ Ernst & Young LLP We have served as the Company’s auditor since 1995. Tysons, Virginia February 27, 2023 F-3 Table of Contents TREX COMPANY, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Year Ended December 31, 2022 2021 2020 (In thousands, except share and per share data) Net sales $ 1,106,043 $ 1,196,952 $ 880,831 Cost of sales 702,054 736,448 521,374 Gross profit 403,989 460,504 359,457 Selling, general and administrative expenses 141,831 139,624 125,822 Goodwill impairment — 54,245 — Loss on sale 15,423 — — Gain on insurance proceeds — ( 8,741 ) — Income from operations 246,735 275,376 233,635 Interest income, net ( 103 ) ( 15 ) ( 999 ) Income before income taxes 246,838 275,391 234,634 Provision for income taxes 62,212 66,654 59,003 Net income $ 184,626 $ 208,737 $ 175,631 Basic earnings per common share $ 1.65 $ 1.81 $ 1.52 Basic weighted average common shares outstanding 111,710,676 115,461,016 115,888,859 Diluted earnings per common share $ 1.65 $ 1.80 $ 1.51 Diluted weighted average common shares outstanding 111,880,488 115,762,843 116,252,866 Comprehensive income $ 184,626 $ 208,737 $ 175,631 See Notes to Consolidated Financial Statements. F-4 Table of Contents TREX COMPANY, INC. CONSOLIDATED BALANCE SHEETS December 31, 2022 2021 (In thousands) ASSETS Current Assets: Cash and cash equivalents $ 12,325 $ 141,053 Accounts receivable, net 98,057 151,096 Inventories 141,355 83,753 Prepaid expenses and other assets 35,105 25,152 Total current assets 286,842 401,054 Property, plant and equipment, net 589,892 460,365 Operating lease assets 30,991 34,571 Goodwill and other intangible assets, net 18,582 19,001 Other assets 7,398 5,330 Total Assets $ 933,705 $ 920,321 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities: Accounts payable $ 19,935 $ 24,861 Accrued expenses and other liabilities 44,064 58,041 Accrued warranty 4,600 5,800 Line of credit 222,000 — Total current liabilities 290,599 88,702 Deferred income taxes 68,224 43,967 Operating lease liabilities 23,974 28,263 Non-current accrued warranty 20,999 22,795 Other long-term liabilities 11,560 11,560 Total Liabilities 415,356 195,287 Commitments and contingencies — — Stockholders’ Equity: Preferred stock, $ 0.01 par value, 3,000,000 shares authorized; none issued and outstanding — — Common stock, $ 0.01 par value, 360,000,000 shares authorized; 140,841,833 and 140,734,753 shares issued and 108,743,423 and 115,148,152 shares outstanding at December 31, 2022 and December 31, 2021, respectively 1,408 1,407 Additional paid-in capital 131,539 127,787 Retained earnings 1,130,674 946,048 Treasury stock, at cost, 32,098,410 and 25,586,601 shares at December 31, 2022 and December 31, 2021, respectively ( 745,272 ) ( 350,208 ) Total Stockholders’ Equity 518,349 725,034 Total Liabilities and Stockholders’ Equity $ 933,705 $ 920,321 See Notes to Consolidated Financial Statements. F-5 Table of Contents TREX COMPANY, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (In thousands, except share data) Common Stock Additional Paid-In Capital Retained Earnings Treasury Stock Total Shares Amount Shares Amount Balance, December 31, 2019 116,481,442 $ 1,404 $ 123,294 $ 561,680 23,893,484 $ ( 237,203 ) $ 449,175 Net income — — — 175,631 — — 175,631 Employee stock plans 68,061 — 1,446 — — — 1,446 Shares withheld for taxes on awards ( 111,433 ) — ( 5,784 ) — — — ( 5,784 ) Stock-based compensation 245,451 2 7,131 — — — 7,133 Repurchases of common stock ( 884,018 ) — — — 884,018 ( 39,070 ) ( 39,070 ) Balance, December 31, 2020 115,799,503 $ 1,406 $ 126,087 $ 737,311 24,777,502 $ ( 276,273 ) $ 588,531 Net income — — — 208,737 — — 208,737 Employee stock plans 113,242 — 1,800 — — — 1,800 Shares withheld for taxes on awards ( 78,626 ) — ( 8,538 ) — — — ( 8,538 ) Stock-based compensation 123,132 1 8,438 — — — 8,439 Repurchases of common stock ( 809,099 ) — — — 809,099 ( 73,935 ) ( 73,935 ) Balance, December 31, 2021 115,148,152 $ 1,407 $ 127,787 $ 946,048 25,586,601 $ ( 350,208 ) $ 725,034 Net income — — — 184,626 — — 184,626 Employee stock plans 38,320 — 1,742 — — — 1,742 Shares withheld for taxes on awards ( 45,834 ) 1 ( 3,319 ) — — — ( 3,318 ) Stock-based compensation 114,594 — 5,329 — — — 5,329 Repurchases of common stock ( 6,511,809 ) — — — 6,511,809 ( 395,064 ) ( 395,064 ) Balance, December 31, 2022 108,743,423 $ 1,408 $ 131,539 $ 1,130,674 32,098,410 $ ( 745,272 ) $ 518,349 See Notes to Consolidated Financial Statements. F-6 Table of Contents TREX COMPANY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2022 2021 2020 (In thousands) Operating Activities Net income $ 184,626 $ 208,737 $ 175,631 Adjustments to reconcile net income to net cash provided by operating activities: Goodwill impairment — 54,245 — Depreciation and amortization 44,298 35,946 17,939 Deferred income taxes 24,256 21,012 13,125 Loss on sale 15,423 — — Stock-based compensation 5,329 8,438 7,131 Gain on disposal of property, plant and equipment ( 27 ) ( 45 ) ( 56 ) Other non-cash adjustments ( 117 ) 40 51 Changes in operating assets and liabilities: Accounts receivable 42,513 ( 44,349 ) ( 28,286 ) Inventories ( 64,454 ) ( 15,515 ) ( 12,132 ) Prepaid expenses and other assets 7,925 ( 8,715 ) ( 358 ) Accounts payable ( 5,595 ) ( 3,473 ) 11,353 Accrued expenses and other liabilities ( 14,385 ) ( 5,285 ) 7,655 Income taxes receivable/payable ( 23,572 ) 7,028 ( 4,759 ) Net cash provided by operating activities 216,220 258,064 187,294 Investing Activities Expenditures for property, plant and equipment ( 176,228 ) ( 159,394 ) ( 172,823 ) Proceeds from sale of assets 7,290 — — Proceeds from sales of property, plant and equipment 54 1,355 2,165 Net cash used in investing activities ( 168,884 ) ( 158,039 ) ( 170,658 ) Financing Activities Borrowings under line of credit 425,000 494,500 276,000 Principal payments under line of credit ( 203,000 ) ( 494,500 ) ( 276,000 ) Repurchases of common stock ( 398,382 ) ( 82,473 ) ( 44,854 ) Proceeds from employee stock purchase and option plans 1,742 1,800 1,446 Financing costs ( 1,424 ) — ( 360 ) Net cash used in financing activities ( 176,064 ) ( 80,673 ) ( 43,768 ) Net decrease increase in cash and cash equivalents ( 128,728 ) 19,352 ( 27,132 ) Cash and cash equivalents at beginning of year 141,053 121,701 148,833 Cash and cash equivalents at end of year $ 12,325 $ 141,053 $ 121,701 Supplemental disclosures of cash flow information: Cash paid for interest, net of capitalized interest $ — $ — $ — Cash paid for income taxes, net $ 59,934 $ 38,614 $ 50,744 Capital expenditures in accounts payable $ 1,814 $ 2,564 $ 12,853 See Notes to Consolidated Financial Statements. F-7 Table of Contents TREX COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BUSINESS AND ORGANIZATION Trex Company, Inc. (Trex), a Delaware corporation, was incorporated on September 4, 1998. Through December 30, 2022, Trex had one wholly-owned subsidiary, Trex Commercial Products, Inc. Together, Trex and Trex Commercial Products, Inc. are referred to as the Company. During the three years ended December 31, 2022, the Company operated in two reportable segments, Trex Residential Products (Trex Residential) and Trex Commercial Products (Trex Commercial). On December 30, 2022, the Company completed the sale of substantially all of the assets of its wholly-owned subsidiary and reportable segment, Trex Commercial. Refer to Note 3 below for more information on the sale . The Company’s principal business based on net sales is the manufacture and distribution of Trex Residential high-performance, low-maintenance wood-alternative decking and residential railing and outdoor living products and accessories, marketed under the brand name Trex ® . A majority of its products are manufactured in a proprietary process that combines reclaimed wood fibers and recycled polyethylene. Trex Commercial designed, engineered and marketed modular and architectural railing and staging systems for the commercial and multi-family market, including sports stadiums and performing arts venues. The principal executive offices are located at 160 Exeter Drive, Winchester, Virginia 22603, and the telephone number at that address is (540) 542-6300. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The consolidated financial statements include the accounts of the Company. Intercompany accounts and transactions have been eliminated in consolidation. The Company’s 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, consumer spending and preferences, interest rates, the impact of any supply chain disruptions, economic conditions, and/or any adverse effects from pandemics and geopolitical conflicts. Towards the end of June 2022, we experienced a reduction in demand from our distribution partners, spurred by concerns over a potential easing in consumer demand due to rising interest rates, declining consumer sentiment and expectations of a general slowing in the economy. As a result, beginning in the third quarter our channel partners met demand partially through inventory drawdown rather than reordering products and maintaining current inventories. The drawdown negatively impacted third quarter and fourth quarter sales. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes. Actual results could differ from those estimates. Cash and Cash Equivalents Cash equivalents consist of highly liquid investments purchased with original maturities of three months or less. Concentrations and Credit Risk The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents and trade accounts receivable. The Company from time to time may have bank F-8 Table of Contents deposits in excess of insurance limits of the Federal Deposit Insurance Corporation. As of December 31, 2022, substantially all deposits are maintained in one financial institution. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk related to its cash and cash equivalents. The Company routinely assesses the financial strength of its customers and believes that its trade receivables credit risk exposure is limited. Trade receivables are recognized at the amount of revenue recognized on each shipment for Trex Residential products and for satisfied performance obligations for Trex Commercial products as the Company has an unconditional right to consideration from the customer and payment is due based solely on the passage of time. An estimate of expected credit losses is recognized as a valuation allowance and adjusted each reporting period. The estimate is based on the current expected credit loss model and is determined using an aging schedule, including past events, current conditions and reasonable and supportable forecasts about the future. There was no material valuation allowance recorded as of December 31, 2022 and December 31, 2021. In the years ended December 31, 2022, 2021, and 2020 sales to certain customers of Trex Residential accounted for 10 % or more of the Company’s total net sales. For the year ended December 31, 2022 three customers of Trex Residential represented 64 % of the Company’s total net sales. For the year ended December 31, 2021, three customers of Trex Residential represented approximately 61 % of the Company’s total net sales. For the year ended December 31, 2020, three customers of Trex Residential represented approximately 56 % of the Company’s total net sales. At December 31, 2022, two customers represented 35 % and 26 %, respectively, of the Company’s total accounts receivable balance. At December 31, 2021, two customers represented 29 % and 25 %, respectively, of the Company’s total accounts receivable balance. For each year ended December 31, 2022, 2021, and 2020, approximately 17.5 %, 26 %, and 28 %, respectively, of the Company’s materials purchases at Trex Residential were purchased from its four largest suppliers. Inventories Inventories for the composite decking and railing products at Trex Residential are valued at the lower of cost (last-in, first-out, or LIFO, method) and market as this method results in a better matching of costs and revenues. The Company periodically reviews its inventory for slow moving or obsolete items and writes down the related products to the lower of cost or market. The Company’s reserves for estimated slow moving products or obsolescence are not material. At December 31, 2022, the excess of the replacement cost of inventory over the LIFO value of inventory was approximately $ 35.1 million. Due to the nature of the LIFO valuation methodology, liquidations of inventories will result in a portion of the Company’s cost of sales being based on historical rather than current year costs. There were no LIFO inventory liquidations or related impact on cost of sales in 2022. A majority of the products at Trex Residential are made in a proprietary process that combines reclaimed wood fibers and scrap polyethylene. Trex Residential grinds up scrap materials generated from its manufacturing process and inventories deemed no longer salable and reintroduces the reclaimed material into the manufacturing process as a substitute for raw materials. The reclaimed material is valued at the costs of the raw material components of the material. Inventories for the railing and staging products at Trex Commercial for the commercial and multi-family market were valued at the lower of cost (first-in, first-out or FIFO method), using actual cost, and net realizable value. Property, Plant and Equipment Property, plant and equipment are stated at historical cost. The costs of additions and improvements are capitalized, while maintenance and repairs are expensed as incurred. Cash flows for capital expenditures as F-9 Table of Contents reported in cash flows from investing activities in the Consolidated Statements of Cash Flows are adjusted to exclude unpaid amounts accrued at period end. Depreciation is provided using the straight-line method generally over the following estimated useful lives: Buildings 40 years Machinery and equipment 3 - 11 years Furniture and fixtures 10 years Forklifts and tractors 5 years Computer equipment and software 5 years Leasehold improvements are amortized over the shorter of the lease term or 15 years. The Company reviews its long-lived assets, including property, plant and equipment, whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. To determine the recoverability of its long-lived assets, the Company evaluates the probability that future estimated undiscounted net cash flows will be less than the carrying amount of the long-lived assets. If the estimated cash flows are less than the carrying amount of the long-lived assets, the assets are written down to their fair value. The Company’s estimates of anticipated cash flows and the remaining estimated useful lives of long-lived assets could be reduced in the future. As a result, the carrying amount of long-lived assets could be reduced in the future. Long-lived assets held for sale are stated at the lower of cost or fair value less cost to sell. Leases The Company leases office space, storage warehouses, training and manufacturing facilities, and certain office and plant equipment under various operating leases. At inception of an arrangement, the Company evaluates, among other things, whether it has the right to control the use of an identified asset in order to determine if the arrangement is or contains a lease. Operating leases are included in operating lease right-of-use (ROU) assets, accrued expenses and other current liabilities, and operating lease liabilities in the consolidated balance sheets. Operating leases with an initial term of 12 months or less are not included in the consolidated balance sheet. The Company recognizes lease expense for these leases on a straight-line basis over the lease term. ROU assets represent the right to use an underlying asset for the lease term and operating lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The Company considers instruments with similar characteristics when calculating its incremental borrowing rate. Certain events, such as a modification to the arrangement or a change in the lease term, are assessed by the Company to determine if it is required to reassess estimates and judgments and remeasure the lease liability and ROU asset. The Company reviews its ROU asset for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be fully recoverable. The carrying amount of the ROU asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use of the asset. An impairment loss is measured as the amount by which the carrying amount of the ROU asset exceeds its fair value. The Company’s operating leases have remaining lease terms of 1 year to 7 years. Lease terms may include options to extend or terminate the lease when the Company determines that it is reasonably certain it will exercise the option. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term. The Company has lease agreements with lease and non-lease components, which are accounted for separately. Consideration for non-lease components is stated on a stand-alone basis in the applicable agreements. F-10 Table of Contents Fair Value Measurement Assets and liabilities measured at fair value are measured at the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and classified into one of the following fair value hierarchies: • Level 1 – Quoted prices for identical instruments in active markets. • Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model derived valuations in which all significant inputs and significant value drivers are observable in active markets. • Level 3 – Valuations derived from management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. Goodwill Goodwill represents the excess of cost over net assets acquired resulting from the Company’s 1996 purchase of the Mobil Composite Products Division, the 2011 purchase of the assets of the Iron Deck Corporation, and the 2017 purchase of certain assets and the assumption of certain liabilities of SC Company. The Company evaluates the recoverability of goodwill in accordance with Accounting Standard Codification 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. Goodwill is considered to be impaired when the net book value of the reporting unit exceeds its estimated fair value. The Company assigned its goodwill to reporting units and tests each reporting unit’s goodwill for impairment at least on an annual basis, or more frequently if an event occurs or circumstances change in the interim that indicate the carrying amount of reporting unit goodwill exceeds the implied fair value of that goodwill. The Company identified its reporting units based on the way it manages its operating segments. The Company has determined that it has 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. Each reporting unit constitutes a business with discrete financial information and operating segment management, at a level below the Company’s chief operating decision maker, regularly reviews the operating results of the reporting unit. The Company assigned goodwill to the reporting units based on the excess of the fair values acquired over the fair value of the sum of the individual assets acquired and liabilities assumed that were assigned to the reporting units. In testing for goodwill impairment, the Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. If the qualitative assessment indicates that the carrying amount of the reporting unit exceeds its fair value, including goodwill, the Company is 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 exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. The Company measures fair value of the reporting units based on a combination of the Income Approach (i.e., the Discounted Cash Flow Method) and a Market Approach. The Discounted Cash Flow Method is a multiple period discounting model in which the fair value of the reporting units are determined by discounting the projected free cash flows using an appropriate discount rate and indicates the fair value of the reporting units based on the present value of the cash flows that the reporting unit is expected to generate in the future. F-11 Table of Contents Significant assumptions in the Discounted Cash Flow Method include: the weighted average cost of capital (or discount rate); residual growth rate; future cash flow projections; and working capital effects. The Market Approach uses prices and other relevant information generated by market transactions involving identical or comparable assets, liabilities or a group of assets and liabilities, such as a business. Significant estimates in the Market Approach model may include identifying appropriate market multiples and assessing earnings before interest, income taxes, depreciation and amortization (EBITDA) in estimating the fair value of the reporting units. The use of different assumptions, estimates or judgements, including estimated future cash flows and the discount rate used to discount estimated cash flows to their net present value, could materially increase or decrease the fair value of the reporting unit and impact our assessment of any goodwill impairment charges. Also, if different conditions exist in future periods, future impairment charges could result. The Company performs the annual impairment testing of its goodwill as of October 31 of each year. For fiscal years 2022 2021 and 2020, the Company completed its annual impairment test of goodwill for its residential reporting unit utilizing the qualitative assessment and concluded it was not more likely than not that the fair value of the residential reporting unit was less than its carrying amount. Qualitative factors the Company considered include events and circumstances such as macroeconomic conditions, industry and market considerations, cost factors, overall financial performance and other relevant Company-specific events, as applicable. For the fiscal year 2020, the Company completed its annual impairment test of goodwill for its commercial railing reporting unit and its staging reporting unit utilizing the qualitative assessment and concluded that it was not more likely than no t that the fair value of the respective reporting unit was less than its carrying amount. For fiscal year 2021, the Company determined that it was necessary to perform the goodwill impairment test for its railing and staging reporting units utilizing the quantitative assessment. The Company performed a quantitative assessment primarily due to a reduction in project commitments, which adversely impacted project backlog and forecasted net sales and EBITDA. The reduction in project commitments was influenced by a continued delay in new projects due to lingering uncertainty created in the commercial railing and staging markets by the COVID-19 virus. The delay in new projects, coupled with the Company’s successful fulfillment of its pre-pandemic projects, resulted in lower project backlog and reduced forecasted net sales and EBITDA, which became apparent in the fourth quarter of 2021. As a result, the Company recognized an impairment charge at its commercial railing reporting unit and at its staging reporting unit of $ 42.5 million and $ 11.8 million, respectively, which was the amount by which the carrying amount of the respective reporting unit exceeded its fair value. The Company also considered the income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss. The Company uses assumptions that are consistent with those it believes a market participant would use. However, the use of different events and circumstances or different assumptions, estimates or judgements, including estimated future cash flows, and the discount rate used to discount estimated cash flows to their net present value and the residual growth rate, could materially increase or decrease the fair value of the reporting unit and impact our assessment of any goodwill impairment charge. Product Warranty The Company warrants that for the applicable warranty period its Trex Residential products, when properly installed, used and maintained, will be free from material defects in workmanship and materials and its 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. The Company further warrants F-12 Table of Contents 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, the Company has 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. The Company further warrants 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, the Company has an obligation either to replace the defective product or refund the purchase price. Reserve estimates are based on management’s judgment, considering such factors as cost per claim, historical experience, anticipated rates of claims, and other available information. Management reviews and adjusts these estimates, if necessary, based on the differences between actual experience and historical estimates. Treasury Stock The Company records the repurchase of shares of its common stock at cost. These shares are considered treasury stock, which is a reduction to stockholders’ equity. Treasury stock is included in authorized and issued shares but excluded from outstanding shares. Revenue Recognition Trex Residential Products. Trex Residential principally generates revenue from the manufacture and sale of its high-performance, low-maintenance, eco-friendly composite decking and railing products and 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 these Consolidated Financial Statements. Trex Commercial Products. Trex Commercial generated revenue from the manufacture and sale of its 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 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 F-13 Table of Contents 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. Insurance Proceeds The Company maintains insurance coverage for losses it may incur from identifiable insurable events resulting in facility repairs, incremental direct costs to serve its customers and losses in operating income from the loss in net sales. The Company recognizes a gain in the amount of any related insurance proceeds received in excess of any losses incurred. The gain on insurance proceeds is presented in a separate line item in the Consolidated Statements of Comprehensive Income. During the year ended December 31, 2021, the Company recognized gains on insurance proceeds of $ 8.7 million primarily related to the fire at its Virginia Facility. Stock-Based Compensation The Company measures stock-based compensation at the grant date of the award based on the fair value. For stock options, stock appreciation rights and time-based restricted stock and time-based restricted stock units, stock-based compensation is recognized on a straight-line basis over the vesting periods of the award. The Company recognizes forfeitures as they occur. For performance-based restricted stock and performance-based restricted stock units, expense is recognized ratably over the performance and vesting period of each tranche based on management’s judgment of the ultimate award that is probable to be paid out based on the achievement of predetermined performance measures. Stock-based compensation expense is included in “Selling, general and administrative expenses” in the accompanying Consolidated Statements of Comprehensive Income. Income Taxes The Company recognizes deferred tax assets and liabilities based on the difference between the financial statement basis and tax basis of assets and liabilities using enacted tax laws and statutory tax rates. The Company assesses the likelihood that its deferred tax assets will be realized. Deferred tax assets are reduced by a valuation allowance when, after considering all available positive and negative evidence, it is determined that it is more likely than not that some portion, or all, of the deferred tax asset will not be realized. As of December 31, 2022, the Company has a valuation allowance of $ 3.0 million against these deferred tax assets related to certain state tax credits. The Company analyzes its position in subsequent reporting periods, considering all available positive and negative evidence, in determining the expected realization of its deferred tax assets. Research and Development Costs Research and development costs are expensed as incurred. For the years ended December 31, 2022, 2021, and 2020, research and development costs were $ 0.5 million, $ 6.0 million, and $ 3.4 million, respectively, and have been included in “Selling, general and administrative expenses” in the accompanying Consolidated Statements of Comprehensive Income. Advertising Costs The Company expenses its branding and advertising communication costs as incurred. Production costs are deferred and recognized as expense in the period that the related advertisement is first used. At December 31, 2022 and December 31, 2021, $ 1.6 million and $ 3.1 million was included in prepaid expenses for production costs, respectively. For the years ended December 31, 2022, 2021, and 2020, branding expenses, including advertising expenses as described above, were $ 43.3 million, $ 30.7 million, and $ 31.7 million, respectively. F-14 Table of Contents Fair Value of Financial Instruments The Company considers the recorded value of its financial assets and liabilities, consisting primarily of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other current liabilities, and debt to approximate the fair value of the respective assets and liabilities on the Consolidated Balance Sheets at December 31, 2022 and 2021. Recently Adopted Accounting Standards In November 2021, the FASB issued ASU No. 2021-10, “ Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance ”. The guidance requires business entities to make annual disclosures about transactions with a government they account for by analogizing to a grant or contribution accounting model, such as IAS 20, ASC 958-605. The annual disclosure requirements include: the nature of the transactions, the entities related accounting policy used, the line items on the balance sheet and income statement that are affected and the amounts applicable to each financial statement line item, and significant terms and conditions of the transactions. The disclosure requirements could be applied either prospectively to all transactions in the scope of the amendments that are reflected in the financial statements at the date of initial application and new transactions that are entered into after the date of initial application, or retrospectively. The guidance was effective for fiscal years beginning after December 15, 2021, with early application permitted. Adoption of the guidance did not have a material effect on the Company’s consolidated financial statements. In March 2020, the FASB issued ASU No. 2020-01, “ Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting ”. The guidance provides temporary optional expedients and exceptions related to contract modifications and hedge accounting to ease entities’ financial reporting burdens as the market transitions from the London Interbank Offered Rate and other interbank offered rates to alternative reference rates. The new guidance allows entities to elect not to apply certain modification accounting requirements, if certain criteria are met, to contracts affected by what the guidance calls reference rate reform. An entity that makes this election would consider changes in reference rates and other contract modifications related to reference rate reform to be events that do not require contract remeasurement at the modification date or reassessment of a previous accounting determination. The ASU notes that changes in contract terms that are made to effect the reference rate reform transition are considered related to the replacement of a reference rate if they are not the result of a business decision that is separate from or in addition to changes to the terms of a contract to effect that transition. The guidance is effective upon issuance and generally can be applied as of March 12, 2020 through December 31, 2022. The guidance did not have a material effect on the Company’s consolidated financial statements. 3. SALE OF TREX COMMERCIAL PRODUCTS, INC. On December 30, 2022, the Company completed the sale of substantially all of the assets of its wholly-owned subsidiary and reportable segment, Trex Commercial, for net proceeds of $ 7.3 million. The divestiture reflects the Company’s decision to focus on driving the most profitable growth strategy for the Company and its shareholders through the execution of its outdoor living strategy. With the sale complete, the Company will dedicate its resources to accelerating conversion to composites from wood and further strengthen its leadership position in the outdoor living category. The sale resulted in a loss on sale of $ 15.4 million and is reported in the Consolidated Statements of Comprehensive Income. The divestiture did not represent a strategic shift with a major effect on the Company’s operations and financial results and therefore is not reported as a discontinued operation. As such, the results of operations of Trex Commercial are consolidated in the Company’s results of operations for the year ended December 31, 2022, through the date of sale. Refer to Note 17, Segment Information, for additional information on the Trex Commercial segment. F-15 Table of Contents 4. INVENTORIES Inventories at LIFO value consist of the following as of December 31 (in thousands): 2022 2021 Finished goods $ 107,114 $ 58,401 Raw materials 69,292 56,441 Total FIFO inventories 176,406 114,842 Reserve to adjust inventories to LIFO value ( 35,051 ) ( 36,467 ) Total LIFO inventories $ 141,355 $ 78,375 Inventory related to Trex Residential composite decking and railing products is stated at the lower of LIFO cost or market. The Company periodically reviews its inventory for slow moving or obsolete items and writes down the related products to estimated market. Under the LIFO method, reductions in inventory cause a portion of the Company’s cost of sales to be based on historical costs rather than current year costs. There was no inventory reduction during 2022 or 2021. Inventories valued at lower of cost (FIFO method) and net realizable value as of December 31, 2021, were $ 5.4 million consisting primarily of raw materials. The Company utilized the FIFO method of accounting related to its Trex Commercial products. 5. PREPAID EXPENSES AND OTHER ASSETS Prepaid expenses and other assets consist of the following as of December 31 (in thousands): 2022 2021 Prepaid expenses $ 10,787 $ 15,061 Revenues in excess of billings — 9,109 Income tax receivable 23,979 406 Other 339 576 Total prepaid expenses and other assets $ 35,105 $ 25,152 6. GOODWILL AND OTHER INTANGIBLE ASSETS, NET The carrying amount of goodwill at December 31, 2022, and December 31, 2021, was $ 14.2 million for Trex Residential. For fiscal years 2022, 2021 and 2020, the Company completed its annual impairment test of goodwill for its residential reporting unit in Trex Residential utilizing the qualitative assessment and concluded it was not more likely than not that the fair value of the residential reporting unit was less than its carrying amount. For fiscal year 2020, the Company completed its annual impairment test of goodwill for its commercial railing reporting unit and its staging reporting unit in Trex Commercial utilizing the qualitative assessment and concluded that it was not more likely than not that the fair value of the respective reporting unit was less than its carrying amount. For fiscal year 2021, the Company elected to perform the impairment test of goodwill for its commercial railing reporting unit and its staging reporting unit utilizing the quantitative assessment. The Company performed a quantitative assessment primarily due to a reduction in project commitments, which adversely impacted project backlog and forecasted net sales and EBITDA. The reduction in project commitments was influenced by a continued delay in new projects due to lingering uncertainty created in the commercial railing and staging F-16 Table of Contents markets by the COVID-19 virus. The delay in new projects, coupled with the Company’s successful fulfillment of its pre-pandemic projects, resulted in lower project backlog and reduced forecasted net sales and EBITDA, which became apparent in the fourth quarter of 2021. In performing the quantitative assessment, the Company employed a combination of the Income Approach (i.e., Discounted Cash Flow Method) and the Market Approach. The Discounted Cash Flow Method is a multiple period discounting model in which the fair values of the reporting units are determined by discounting the projected free cash flows using an appropriate discount rate. The Market Approach uses prices and other relevant information generated by market transactions involving identical or comparable assets, liabilities or a group of assets and liabilities, such as a business. Using these methodologies resulted in the recognition of an impairment loss of the total amount of goodwill of $ 42.5 million and $ 11.8 million at its commercial railing and staging reporting units, respectively. The impairment loss was the amount by which the carrying amount exceeded the fair value of each reporting unit, not to exceed the amount of goodwill of each reporting unit. The Company also considered the income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss. Level 3 inputs used to determine the fair value of each reporting unit include management’s future cash flow projections, a weighted average cost of capital and a residual growth rate. The cash flows used to determine fair value are dependent on a number of significant management assumptions, such as expectations of future performance and the expected future economic environment, which are partly based on historical experience. Differences between actual and expected results may be material and dependent on future actions and plans. The discount rate and the residual growth rate are based on management’s judgment of the rates that would be utilized by a hypothetical market participant. The use of different assumptions, estimates or judgments, including the estimated future cash flows, the discount rate used to discount estimated cash flows to their net present value, and the residual growth rate, could materially increase or decrease the fair value of the reporting unit and, accordingly, could materially increase or decrease related impairment charges. The Company’s intangible assets, purchased in 2018, consist of domain names for Trex Residential. At December 31, 2022, and December 31, 2021, intangible assets were $ 6.3 million and accumulated amortization was $ 1.9 million and $ 1.5 million, respectively. Intangible asset amounts were determined based on the estimated economics of the asset and are amortized over the estimated useful lives on a straight-line basis over 15 years, which approximates the pattern in which the economic benefits are expected to be received. The Company evaluates the recoverability of intangible assets periodically and considers events or circumstances that may warrant revised estimates of useful lives or that may indicate an impairment. Intangible asset amortization expense for the year ended December 31, 2022 and December 31, 2021, was $ 0.4 million and $ 0.4 million, respectively. 7. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following as of December 31 (in thousands): 2022 2021 Machinery and equipment $ 529,975 $ 471,667 Building and improvements 120,116 101,609 Forklifts and tractors 24,516 18,584 Computer equipment 16,182 15,022 Furniture and fixtures 6,180 2,283 Construction in process 161,035 87,700 Land 24,886 22,911 Total property, plant and equipment 882,890 719,776 Accumulated depreciation ( 292,998 ) ( 259,411 ) Total property, plant and equipment, net $ 589,892 $ 460,365 F-17 Table of Contents The Company had construction in process as of December 31, 2022 of approximately $ 161 million. The Company expects that substantially all of the above noted construction in process will be completed and put into service in the year ending December 31, 2025. Depreciation expense for the years ended December 31, 2022, 2021, and 2020, totaled $ 43.9 million, $ 35.5 million, and $ 17.5 million, respectively. 8. ACCRUED EXPENSES AND OTHER LIABILITIES Accrued expenses and other liabilities consist of the following as of December 31 (in thousands): 2022 2021 Sales and marketing $ 19,194 $ 16,439 Compensation and benefits 8,646 25,450 Op erating lease liabilities 7,488 7,066 Manufacturing costs 3,425 4,110 Billings in excess of revenues — 1,401 Customer deposits — 35 Other 5,311 3,540 Total accrued expenses and other liabilities $ 44,064 $ 58,041 9. DEBT Revolving Credit Facility Indebtedness prior to May 18, 2022 . On November 5, 2019, the Company entered into a Fourth Amended and Restated Credit Agreement (Fourth Amended Credit Agreement) as borrower, Trex Commercial Products, Inc., as guarantor; Bank of America, N.A. as a Lender, Administrative Agent, Swing Line Lender and L/C Issuer; and certain other lenders including Wells Fargo Bank, N.A., who is also Syndication Agent, and Truist Bank, arranged by BOA Securities, Inc., as Sole Lead Arranger and Sole Bookrunner, to amend and restate the Third Amended and Restated Credit Agreement (Third Amended Credit Agreement), dated as of January 12, 2016, as amended. The Fourth Amended Credit Agreement provides the Company with one or more Revolving Loans in a collective maximum principal amount of $ 250 million from January 1 through June 30 of each year and a maximum principal amount of $ 200 million from July 1 through December 31 of each year throughout the term, which ends November 5, 2024 . 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 through May 26, 2022. As a matter of convenience, the parties incorporated the amendments to the Original Credit Agreement made by the First Amendment into a new Fourth Amended and Restated Credit Agreement (New Credit Agreement). In the New Credit Agreement, the revolving commitments under the Original Credit Agreement are referred to as Revolving A Commitments and the new $ 100 million line of credit is referred to as Revolving B Commitments. In the New Credit Agreement, all of the material terms and conditions related to the original line of credit (Revolving A Commitments) remained unchanged from the Original Credit Agreement. The Company’s revolving credit facility executed November 5, 2019, was completely replaced by the Company’s revolving credit facility executed May 18, 2022. Indebtedness on and after May 18, 2022 . On May 18, 2022, the Company, as borrower; Trex Commercial Products, Inc. (Trex Commercial), as guarantor; Bank of America, N.A. (BOA), as a Lender, Administrative Agent, Swing Line Lender and L/C Issuer; Wells Fargo Bank, National Association (Wells Fargo), as lender and F-18 Table of Contents Syndication Agent; Regions Bank, PNC Bank, National Association, and TD Bank, N.A. (each, a Lender and collectively, the Lenders), arranged by BofA Securities, Inc. as Sole Lead Arranger and Sole Bookrunner, entered into a Credit Agreement (Credit Agreement) 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. The Credit Agreement provides the Company, in the aggregate, the ability to borrow an amount up to the Loan Limit during the Term. The Company is not obligated to borrow any amount under the Loan Limit. Within the Loan Limit, the Company may borrow, repay and reborrow at any time or from time to time while the Notes are in effect. Base Rate Loans (as defined in the Credit Agreement) under the Revolving Loans 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. The Company and BofA Securities, Inc. as a sustainability coordinator, are entitled to establish specified key performance indicators (KPIs) with respect to certain environmental, social and governance targets of the Company and its subsidiaries. The sustainability coordinator and the Company may amend the Credit Agreement for the purpose of incorporating the KPIs and other related provisions, unless the Lenders object to such amendment on or prior to the date that is ten business days after the date on which such amendment is posted for review by the Lenders. Based on the performance of the Company and its subsidiaries against the KPIs, certain adjustments (increase, decrease or no adjustment) to otherwise applicable pricing will be made; provided that the amount of such adjustments shall not exceed certain aggregate caps as in the definitive loan documentation. Under the terms of the Security and Pledge Agreement, the Company and Trex Commercial, 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 to BOA, as Administrative Agent for the Lenders, 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 December 22, 2022 . As of December 22, 2022, the Company entered into a First Amendment to the Credit Agreement (First Amendment) by and among the Company, as borrower, the guarantors party thereto; Bank of America, N.A. (BOA), as a Lender, Administrative Agent, Swing Line Lender and L/C Issuer; TD Bank, N.A. as lender and Syndication Agent; Regions Bank, PNC Bank, National Association, and Wells Fargo Bank, National Association (each, a Lender and collectively, the Lenders), arranged by BofA Securities, Inc. as Sole Lead Arranger and Sole Bookrunner, amending that certain Credit Agreement dated as of May 18, 2022, by and among the Company, as borrower, the guarantors party thereto, BOA, as a Lender, Administrative Agent, Swing Line Lender and L/C Issuer and the other lenders identified therein (as so amended, the “Credit Agreement”). As a part of the First Amendment, the Credit Agreement was amended and restated to provide for an additional Revolving B Loan (as hereinafter defined). 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 F-19 Table of Contents B Loan Limit) throughout the term, which ends 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. As of December 22, 2022, the Credit Agreement was amended and restated to refer to this 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 Credit Agreement continues to include sublimits under the Revolving A Loan 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 under Revolving A Loan are for the purpose of raising working capital and supporting general business operations. The Notes provide the Company, in the aggregate, the ability to borrow an amount up to the Revolving A Loan Limit during the Revolving A Loan Term 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 are in effect. With respect to Revolving B Loans, 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 %. The Company had $ 222 million in borrowings outstanding under its revolving credit facility and available borrowing capacity of $ 328 million at December 31, 2022. The weighted average interest rate on the revolving credit facility was 5.22 % as of December 31, 2022. 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 as of December 31, 2022. 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. 10. LEASES For the years ended December 31, 2022 and December 31, 2021, total operating lease cost was $ 8.4 million and $ 8.1 million, respectively. The weighted average remaining lease term at December 31, 2022 and December 31, 2021 was 5.2 years and 5.8 years, respectively. The weighted average discount rate at December 31, 2022 and December 31, 2021 was 2.10 % and 2.47 %, respectively. The following table includes supplemental cash flow information for the years ended December 31, 2022 and December 31, 2021 and December 31, 2020 and supplemental balance sheet information at December 31, 2022 and December 31, 2021 related to operating leases (in thousands): Supplemental Cash Flow Information For the Year Ended December 31, 2022 2021 2020 Cash paid for amounts included in the measurement of operating lease liabilities $ 8,688 $ 8,280 $ 8,736 Operating ROU assets obtained in exchange for lease liabilities $ 8,064 $ 7,295 $ 1,427 F-20 Table of Contents Supplemental Balance Sheet Information December 31, 2022 December 31, 2021 Operating lease ROU assets $ 30,991 $ 34,571 Operating lease liabilities: Accrued expenses and other current liabilities $ 7,488 $ 7,066 Operating lease liabilities 23,974 28,263 Total operating lease liabilities $ 31,462 $ 35,329 The following table summarizes maturities of operating lease liabilities at December 31, 2022 (in thousands): Maturities of operating lease liabilities 2023 $ 7,591 2024 6,746 2025 5,155 2026 4,476 2027 4,318 Thereafter 4,840 Total lease payments 33,126 Less imputed interest ( 1,664 ) Total operating liabilities $ 31,462 11. FINANCIAL INSTRUMENTS The Company considers the recorded value of its financial assets and liabilities, consisting primarily of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other current liabilities, and debt to approximate the fair value of the respective assets and liabilities on the Consolidated Balance Sheets at December 31, 2022 and 2021. 12. STOCKHOLDERS’ EQUITY Earnings Per Share The following table sets forth the computation of basic and diluted earnings per share (in thousands, except share and per share data): Year Ended December 31, 2022 2021 2020 Numerator: Net income $ 184,626 $ 208,737 $ 175,631 Denominator: Basic weighted average shares outstanding 111,710,676 115,461,016 115,888,859 F-21 Table of Contents Year Ended December 31, 2022 2021 2020 Effect of dilutive securities: Stock appreciation rights 94,859 180,875 192,579 Restricted stock 74,953 120,952 171,428 Diluted weighted average shares outstanding 111,880,488 115,762,843 116,252,866 Basic earnings per share $ 1.65 $ 1.81 $ 1.52 Diluted earnings per share $ 1.65 $ 1.80 $ 1.51 Diluted earnings per share is computed using the weighted average number of shares determined for the basic earnings per share computation plus the dilutive effect of common stock equivalents using the treasury stock method. The computation of diluted earnings per share excludes the following potentially dilutive securities because the effect would be anti-dilutive: Year Ended December 31, 2022 2021 2020 Restricted stock 48,851 6,296 — Stock appreciation rights 52,107 12,602 14,697 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). During 2022, the Company repurchased 6.5 million shares of the Company’s outstanding common stock under the Stock Repurchase Program. 13. REVENUE FROM CONTRACTS WITH CUSTOMERS Topic 606 provides a single, comprehensive model for revenue recognition arising from contracts with customers. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in Topic 606. A contract’s transaction price is allocated to each distinct performance obligation and revenue is recognized when or as the Company satisfies the performance obligation. Revenue is recognized at an amount that reflects the consideration to which the entity expects to be entitled in exchange for transferring control of the goods or services to a customer. Trex Residential Products Trex Residential principally generates revenue from the manufacture and sale of its high-performance, low-maintenance, eco-friendly wood-alternative composite decking and residential railing products and accessories. Substantially all of its revenues are from contracts with customers, which are purchase orders of short-term duration of less than one year. Its customers, in turn, sell primarily to the residential market, which includes replacement, remodeling and new construction related to outdoor living products. Trex Residential satisfies its performance obligations at a point in time. The shipment of each product is a separate performance obligation as the customer is able to derive benefit from each product shipped and no performance obligation remains after shipment. Upon shipment of the product, the customer obtains control over the distinct product and Trex Residential satisfies its performance obligation. Any performance obligation that remains unsatisfied at the end of a reporting period is part of a contract that has an original expected duration of one year or less. Any variable consideration related to the unsatisfied performance obligation is allocated wholly to the unsatisfied performance obligation and recognized when the product ships and the performance obligation is satisfied and is F-22 Table of Contents included in “Accrued expenses and other liabilities, Sales and marketing” in Note 8 to the Consolidated Financial Statements. For each product shipped, the transaction price by product is specified in the purchase order. The Company recognizes revenue on the transaction price less any amount offered under a sales incentive program. The Company recognizes an account receivable for the amount of revenue recognized as it has an unconditional right to consideration at the time of shipment and payment from the customer is due based solely on the passage of time. The Company receives payments from its customers based on the payment terms applicable to each individual contract and the customer pays in accordance with the billing terms specified in the purchase order, which is less than one year. The related accounts receivables are included in “Accounts receivable, net” in the Consolidated Balance Sheets. 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. 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 Residential pays commissions to certain employees. However, the sales commissions are not directly attributable to identifiable contracts, are discretionary in nature and are based on other factors not related to obtaining a contract, such as individual performance, profitability of the entity, annual sales targets, etc. These costs are included in selling, general and administrative expenses as incurred. Trex Residential does not grant contractual product return rights to customers other than pursuant to its assurance product warranty (see related disclosure on product warranties in Note 18, “Commitments and Contingencies”. Trex Residential accounts for all shipping and handling fees invoiced to the customer in net sales and the related costs in cost of sales. Trex Commercial Products Trex Commercial generated revenue from the manufacture and sale of its 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. On December 30, 2022, the Company completed the sale of Trex Commercial. Trex Commercial satisfied its performance obligation over time as work progressed because control transferred continuously to its customers. Revenue and estimated profit was 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. Revenues and profits in future periods are recognized using the adjusted estimate. 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 is identified. During the year ended December 31, 2022, no adjustment to any one contract was material to the Company’s Consolidated Financial Statements. The Company recognized an account receivable for satisfied performance obligations as it had an unconditional right to consideration and payment from the customer was due based solely on the passage of time. F-23 Table of Contents The Company received payments from its customers on the accounts receivable based on the payment terms applicable to each individual contract and the customer paid in less than one year. In addition, the timing of revenue recognition, billings and cash collections resulted in revenues in excess of billings and contract retainage (contract assets), and billings in excess of revenues and customer deposits (contract liabilities). These assets and liabilities were reported on a contract-by-contract basis at the end of each reporting period in prepaid expenses and other assets (contract assets), and accrued expenses and other liabilities (contract liabilities). Trex Commercial paid sales commissions that were directly attributable to identifiable contracts to certain of its employees. If the amortization period of the commission was one year or less, then the Company recognized the commission expense as incurred. Otherwise, the Company capitalized the commission and amortized it on a straight-line basis over the life of the contract. Trex Commercial did not grant contractual product return rights to customers other than pursuant to its assurance product warranty. All shipping and handling fees invoiced to the customer were included in net sales and the related costs were included in cost of sales. For each year in the three years ended December 31, 2022, net sales are disaggregated in the following tables by (1) market (2) timing of revenue recognition, and (3) type of contract. The tables also include a reconciliation of the respective disaggregated net sales with the Company’s reportable segments (in thousands): Year Ended December 31, 2022 Reportable Segment Trex Residential Trex Commercial Total Timing of Revenue Recognition and Type of Contract Products transferred at a point in time and variable consideration contracts $ 1,059,536 $ — $ 1,059,536 Products transferred over time and fixed price contracts — 46,507 46,507 $ 1,059,536 $ 46,507 $ 1,106,043 Year Ended December 31, 2021 Reportable Segment Trex Residential Trex Commercial Total Timing of Revenue Recognition and Type of Contract Products transferred at a point in time and variable consideration contracts $ 1,139,266 $ — $ 1,139,266 Products transferred over time and fixed price contracts — 57,686 57,686 $ 1,139,266 $ 57,686 $ 1,196,952 F-24 Table of Contents Year Ended December 31, 2020 Reportable Segment Trex Residential Trex Commercial Total Timing of Revenue Recognition and Type of Contract Products transferred at a point in time and variable consideration contracts $ 827,792 $ — $ 827,792 Products transferred over time and fixed price contracts — 53,039 53,039 $ 827,792 $ 53,039 $ 880,831 14. STOCK-BASED COMPENSATION On April 30, 2014, Trex stockholders approved the Trex Company, Inc. 2014 Stock Incentive Plan (Plan), which was previously approved by the Board of Directors on February 19, 2014. The Plan is administered by the Compensation Committee of the Trex Board of Directors. Stock-based compensation is granted to officers, directors and certain key employees in accordance with the provisions of the Plan. The Plan provides for grants of stock options, restricted stock, restricted stock units, stock appreciation rights (SARs), and unrestricted stock. The total aggregate number of shares of the Trex common stock that may be issued under the Plan is 25,680,000 and as of December 31, 2022, the total number of shares available for future issuance was 11,047,894 . The Company recognizes stock-based compensation expense ratably over the period from grant date to the earlier of (1) the vesting date of the award, or (2) the date the grantee is eligible to retire without forfeiting the award. For performance-based restricted stock and performance-based restricted stock units, expense is recognized ratably over the performance and vesting period of each tranche based on management’s judgment of the ultimate award that is probable to be paid out based on the achievement of the predetermined performance measures. For the employee stock purchase plan, compensation expense is recognized related to the discount on purchases. The following table summarizes the Company’s stock-based compensation expense (in thousands): Year Ended December 31, 2022 2021 2020 Time-based restricted stock and restricted stock units $ 3,783 $ 2,892 $ 3,219 Performance-based restricted stock and restricted stock units 540 4,681 2,881 Stock appreciation rights 792 485 648 Employee stock purchase plan 214 381 383 Total stock-based compensation $ 5,329 $ 8,439 $ 7,131 Stock-based compensation expense is included in “Selling, general and administrative expenses” in the accompanying Consolidated Statements of Comprehensive Income. Time-Based Restricted Stock and Time-Based Restricted Stock Units The fair value of time-based restricted stock and time-based restricted stock units is determined based on the closing price of Trex shares on the grant date. Time-based restricted stock and time-based restricted stock units vest based on the terms of the awards. Unvested time-based restricted stock and unvested time-based restricted stock units are generally forfeitable upon the resignation of employment or termination of employment with cause. The total fair value of vested time-based restricted shares and vested time-based restricted stock units for the years ended December 31, 2022, 2021 and 2020 was $ 3.7 million, $ 8.2 million, and $ 6.1 million, respectively. At December 31, 2022, there was $ 3.5 million of total compensation expense related to unvested time-based restricted stock and unvested time-based restricted stock units remaining to be recognized over a weighted-average period of approximately 1.6 years. F-25 Table of Contents Time-based restricted stock and restricted stock unit activity under the Plan and all predecessor stock incentive plans is as follows: Time-based Restricted Stock and Restricted Stock Unit Weighted- Average Grant Price Per Share Nonvested at December 31, 2019 218,466 $ 28.75 Granted 54,406 $ 53.97 Vested ( 111,036 ) $ 30.94 Forfeited ( 1,114 ) $ 40.34 Nonvested at December 31, 2020 160,722 $ 35.68 Granted 33,703 $ 100.50 Vested ( 78,081 ) $ 37.81 Forfeited ( 4,798 ) $ 66.00 Nonvested at December 31, 2021 111,546 $ 52.91 Granted 57,094 $ 75.06 Vested ( 56,719 ) $ 58.13 Forfeited ( 1,286 ) $ 86.84 Nonvested at December 31, 2022 110,635 $ 61.28 Performance-based Restricted Stock and Performance-Based Restricted Stock Units The fair value of performance-based restricted stock and performance-based restricted stock units is determined based on the closing price of Trex shares on the grant date. Unvested performance-based restricted stock and unvested performance-based restricted stock units are generally forfeitable upon the resignation of employment or termination of employment with cause. The performance-based restricted shares and performance-based restricted stock units have a three-year vesting period, vesting one-third each year based on target earnings before interest, taxes, depreciation and amortization (EBITDA) for 1 year, cumulative 2 years and cumulative 3 years, respectively. The number of shares that will vest, with respect to each vesting, will be between 0 % and 200 % of the target number of shares. At December 31, 2022, 2021 and 2020 there was $ 0.3 million, $ 2.8 million, and $ 1.7 million, respectively, of total compensation expense related to unvested performance-based restricted stock and unvested performance-based restricted stock units remaining to be recognized over a weighted-average period of approximately one year . F-26 Table of Contents Performance-based restricted stock activity under the Plan is as follows: Performance-based Restricted Stock and Performance-based Restricted Stock Units Weighted-Average Grant Price Per Share Nonvested at December 31, 2019 123,656 $ 30.67 Granted 78,404 $ 39.60 Vested ( 128,762 ) $ 28.87 Forfeited ( 728 ) $ 41.12 Nonvested at December 31, 2020 72,570 $ 43.42 Granted 36,522 $ 86.26 Vested ( 45,051 ) $ 39.41 Forfeited ( 6,273 ) $ 65.30 Nonvested at December 31, 2021 57,768 $ 71.21 Granted 72,152 $ 76.14 Vested ( 57,875 ) $ 64.43 Forfeited ( 562 ) $ 82.95 Nonvested at December 31, 2022 71,483 $ 81.57 Stock Appreciation Rights SARs are granted with a grant price equal to the closing market price of the Company’s common stock on the date of grant. These awards expire ten years after the date of grant and vest based on the terms of the individual awards. The SARs are generally forfeitable upon the resignation of employment or termination of employment with cause. The Company recognizes forfeitures as they occur. The Company recognizes compensation cost on a straight-line basis over the vesting period for the award. As of December 31, 2022, there was $ 1.1 million of unrecognized compensation cost related to SARs. The fair value of each SAR is estimated on the date of grant using a Black-Scholes option-pricing model . For SARs issued in the years ended December 31, 2022, December 31, 2021 and December 31, 2020, respectively, the assumptions shown in the following table were used: Year Ended December 31, 2022 2021 2020 Dividend yield 0 % 0 % 0 % Average risk-free interest rate 1.9 % 0.6 % 1.3 % Expected term (years) 5 5 5 Expected volatility 44.9 % 58.7 % 38.3 % Dividend Yield. Trex has never paid cash dividends on its common stock. Average Risk-Free Interest Rate. The Company uses the U.S. Treasury rate having a term that most closely resembles the expected term of the option. Expected Term. The expected term is the period of time that the SARs granted are expected to remain unexercised. SARs granted during the years ended December 31, 2022, December 31, 2021 and December 31, 2020 had a maximum term of ten years. The Company used historical exercise behavior with further consideration given to the class of employees to whom the equity awards were granted to estimate the expected term of the SAR. F-27 Table of Contents Expected Volatility. Volatility is a measure of the amount by which a financial variable such as a share price has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period. The Company has used the historical volatility over the average expected term of the options granted as the expected volatility. The weighted-average grant date fair value of SARs granted during the years ended December 31, 2022, December 31, 2021 and December 31, 2020 was $ 33.90 , $ 51.84 , and $ 17.81 , respectively. SAR activity under the Plan and all predecessor stock incentive plans is as follows: SARs Weighted-Average Grant Price Per Share Weighted-Average Remaining Contractual Life (Years) Aggregate Intrinsic Value as of December 31, 2021 Outstanding at December 31, 2019 304,038 $ 15.79 Granted 43,830 $ 50.39 Exercised ( 54,592 ) $ 9.41 Canceled — $ — Outstanding at December 31, 2020 293,276 $ 22.15 Granted 15,029 $ 104.56 Exercised ( 102,562 ) $ 9.45 Canceled ( 4,745 ) $ 61.66 Outstanding at December 31, 2021 200,998 $ 33.86 Granted 32,971 $ 82.01 Exercised — $ — Canceled — $ — Outstanding at December 31, 2022 233,969 $ 40.64 5.5 $ 2,885,217 Vested at December 31, 2022 184,563 $ 30.11 4.6 $ 2,885,517 Exercisable at December 31, 2022 184,563 $ 30.11 4.6 $ 2,885,217 Employee Stock Purchase Plan The Company has an employee stock purchase plan (ESPP) that permits eligible employees to purchase shares of common stock of the Company at a purchase price which is the lesser of 85 % of the market price on either the first day of the calendar quarter or the last day of the calendar quarter. Eligible employees may elect to participate in the plan by authorizing payroll deductions of up to 15 % of gross compensation for each payroll period. On the last day of each quarter, each participant’s contribution account is used to purchase the maximum number of whole shares of common stock determined by dividing the contribution account balance by the purchase price. The aggregate number of shares of common stock that may be purchased under the plan is 2,400,000 . Through December 31, 2022, employees had purchased approximately 1,870,151 shares under the plan. 15. EMPLOYEE BENEFIT PLANS The Company has two 401(k) Profit Sharing Plans for the benefit of its employees who meet certain eligibility requirements and it matches qualifying employee contributions. The Company’s contributions to the plans totaled $ 8.1 million, $ 6.6 million, and $ 5.7 million, for the years ended December 31, 2022, 2021 and 2020, respectively. F-28 Table of Contents 16. INCOME TAXES Income tax provision (benefit) consists of the following (in thousands): Year Ended December 31, 2022 2021 2020 Current income tax provision: Federal $ 28,830 $ 30,450 $ 35,423 State 9,126 15,192 10,455 37,956 45,642 45,878 Deferred income tax provision: Federal 20,000 21,607 12,603 State 4,256 ( 595 ) 522 24,256 21,012 13,125 Total income tax provision $ 62,212 $ 66,654 $ 59,003 The Company’s effective tax rate for the year ended December 31, 2022 was 25.2 % and was comparable to the effective tax rate for the year ended December 31, 2021, which resulted in income tax expense of $ 62.2 million and $ 66.7 million, respectively. The income tax provision differs from the amount of income tax determined by applying the U.S. Federal statutory rate to income before taxes as a result of the following (in thousands): Year Ended December 31, 2022 2021 2020 U.S. Federal statutory taxes $ 51,836 $ 57,832 $ 49,273 State and local taxes, net of U.S. Federal benefit 10,608 12,174 10,641 Permanent items ( 208 ) 1,208 1,198 Excess tax benefits from vesting or settlement of stock compensation awards ( 11 ) ( 2,868 ) ( 1,635 ) Federal credits ( 598 ) ( 686 ) ( 565 ) Other 585 ( 1,006 ) 91 Total income tax provision $ 62,212 $ 66,654 $ 59,003 F-29 Table of Contents Deferred tax assets and liabilities consist of the following (in thousands): As of December 31, 2022 2021 Deferred tax assets: Net operating losses $ 132 $ 64 Tax Cut and Jobs Act capitalization of research and development costs 2,152 — Residential product warranty reserve 6,469 7,260 Stock-based compensation 1,146 1,305 Accruals not currently deductible and other 373 1,371 Inventories 2,965 2,210 Operating lease liability 7,941 8,965 Deferred revenue 2,921 2,935 Goodwill amortization — 6,858 State tax credit carryforwards 4,084 3,394 Gross deferred tax assets, before valuation allowance 28,183 34,362 Valuation allowance ( 3,026 ) ( 2,232 ) Gross deferred tax assets, after valuation allowance 25,157 32,130 Deferred tax liabilities: Depreciation ( 74,604 ) ( 63,483 ) Operating lease right-of-use asset ( 7,687 ) ( 8,635 ) Inventories ( 6,749 ) ( 2,485 ) Goodwill amortization ( 2,879 ) — Other ( 1,462 ) ( 1,494 ) Gross deferred tax liabilities ( 93,381 ) ( 76,097 ) Net deferred tax liability $ ( 68,224 ) $ ( 43,967 ) The Company recognizes deferred tax assets and liabilities based on the difference between the financial statement basis and tax basis of assets and liabilities using enacted tax laws and statutory tax rates. In accordance with accounting standards, the Company assesses the likelihood that its deferred tax assets will be realized. Deferred tax assets are reduced by a valuation allowance when, after considering all available positive and negative evidence, it is determined that it is more likely than not that some portion, or all, of the deferred tax asset will not be realized, primarily certain state income tax credits. As of December 31, 2022, the Company had a valuation allowance of $ 3.0 million against deferred tax assets it estimates will not be realized. The Company will analyze its position in subsequent reporting periods, considering all available positive and negative evidence, in determining the expected realization of its deferred tax assets. The Company recognizes interest and penalties related to tax matters as a component of “Selling, general and administrative expenses” in the accompanying Consolidated Statements of Comprehensive Income. As of December 31, 2022, the Company has identified no uncertain tax position and, accordingly, has no t recorded any unrecognized tax benefits or associated interest and penalties. The Company operates in multiple tax jurisdictions and, in the normal course of business, its tax returns are subject to examination by various taxing authorities. Such examinations may result in future assessments by these taxing authorities, and the Company has accrued a liability when it believes that it is not more likely than not that it will realize the benefits of tax positions that it has taken or for the amount of any tax benefit that exceeds the cumulative probability threshold in accordance with accounting standards. As of December 31, 2022, F-30 Table of Contents for certain tax jurisdictions, tax years 2018 through 2022 remain subject to examination. The Company believes that adequate provisions have been made for all tax returns subject to examination. Sales made to foreign distributors are not taxable in any foreign jurisdictions as the Company does not have a taxable presence. 17. SEGMENT INFORMATION Through December 30, 2022, the Company operated in two reportable segments: • Trex Residential manufactures composite decking and railing and related products marketed under the brand name Trex ® . The products are sold to its distributors and two national retailers who, in turn, sell primarily to the residential market, which includes replacement, remodeling and new construction related to outdoor living products. • Trex Commercial designed, engineered, and marketed modular and architectural railing and staging systems for the commercial and multi-family market, including sports stadiums and performing arts venues. The segment’s products were sold through architects, specifiers, contractors, and others doing business within the segment’s commercial market. On December 30, 2022, the Company completed the sale of Trex Commercial. Refer to Note 3 to these consolidated financial statements for additional information on the sale of Trex Commercial. The Company’s reportable segments have been determined in accordance with its internal management structure, which is organized based on residential and commercial operations. The Company evaluates performance of each segment primarily based on net sales and earnings before interest, taxes, depreciation and amortization (EBITDA). The Company uses net sales to assess performance and allocate resources as this measure represents the amount of business the segment engaged in during a given period of time, is an indicator of market growth and acceptance of segment products and represents the segment’s customers’ spending habits along with the amount of product the segment sells relative to its competitors. The Company uses EBITDA to assess performance and allocate resources because it believes that EBITDA facilitates performance comparison between the segments by eliminating interest, taxes, and depreciation and amortization charges to income. Segment Data (in thousands): Net Sales Net Income (Loss) (1) EBITDA Depreciation and Amortization Income Tax Expense / (Benefit) Capital Expenditures Total Assets December 31, 2022 Trex Residential $ 1,059,536 $ 200,876 $ 311,259 $ 43,173 $ 67,313 $ 175,904 $ 933,705 Trex Commercial 46,507 ( 16,250 ) ( 20,226 ) 1,125 ( 5,101 ) 324 — Total $ 1,106,043 $ 184,626 $ 291,033 $ 44,298 $ 62,212 $ 176,228 $ 933,705 December 31, 2021 Trex Residential $ 1,139,266 $ 247,059 $ 361,485 $ 34,941 $ 79,500 $ 157,568 $ 881,225 Trex Commercial 57,686 ( 38,322 ) ( 50,163 ) 1,005 ( 12,846 ) 1,826 39,096 Total $ 1,196,952 $ 208,737 $ 311,322 $ 35,946 $ 66,654 $ 159,394 $ 920,321 December 31, 2020 Trex Residential $ 827,792 $ 171,197 $ 244,817 $ 17,131 $ 57,488 $ 171,784 $ 676,948 Trex Commercial 53,039 4,434 6,758 809 1,515 1,039 93,544 Total $ 880,831 $ 175,631 $ 251,575 $ 17,940 $ 59,003 $ 172,823 $ 770,492 (1) For the year ended December 31, 2022, total consolidated net income and net loss at Trex Commercial includes a loss on sale of Trex Commercial on December 30, 2022 of $ 15.4 million. For the year ended December 31, 2021, total consolidated net income and net loss at Trex Commercial includes a goodwill impairment charge of $ 54.2 million. F-31 Table of Contents Reconciliation of Net Income (Loss) to EBITDA (in thousands): Net Income / (Loss) Interest (Income), Net Income Tax Expense / (Benefit) Depreciation and Amortization EBITDA December 31, 2022 Trex Residential $ 200,876 $ ( 103 ) $ 67,313 $ 43,173 $ 311,259 Trex Commercial ( 16,250 ) — ( 5,101 ) 1,125 ( 20,226 ) Total $ 184,626 $ ( 103 ) $ 62,212 $ 44,298 $ 291,033 December 31, 2021 Trex Residential $ 247,059 $ ( 15 ) $ 79,500 $ 34,941 $ 361,485 Trex Commercial ( 38,322 ) — ( 12,846 ) 1,005 ( 50,163 ) Total $ 208,737 $ ( 15 ) $ 66,654 $ 35,946 $ 311,322 December 31, 2020 Trex Residential $ 171,197 $ ( 999 ) $ 57,488 $ 17,131 $ 244,817 Trex Commercial 4,434 — 1,515 809 6,758 Total $ 175,631 $ ( 999 ) $ 59,003 $ 17,940 $ 251,575 18. SEASONALITY The operating results for Trex Residential have historically varied from quarter to quarter. Seasonal, erratic or prolonged adverse weather conditions in certain geographic regions reduce the level of home improvement and construction activity and can shift demand for its products to a later period. As part of its normal business practice and consistent with industry practice, Trex Residential has historically offered incentive programs to its distributors and dealers to build inventory levels before the start of the prime deck-building season in order to ensure adequate availability of its product to meet anticipated seasonal consumer demand. The seasonal effects are often offset by the positive effect of the incentive programs 19. COMMITMENTS AND CONTINGENCIES Legal Matters 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. Purchase Commitments The Company fulfills requirements for raw materials under both purchase orders and supply contracts. In the year ended December 31, 2022, the Company purchased reclaimed wood fiber requirements under purchase orders and long-term supply commitments not exceeding four years. All of the Company’s scrap polyethylene, aluminum and stainless-steel purchases are under short-term supply contracts that may average approximately one to two years , for which pricing is negotiated as needed, or under purchase orders that do not involve long-term supply commitments. The wood and polyethylene supply contracts generally provide that the Company is obligated to purchase all wood or polyethylene a supplier provides, if the wood or polyethylene meets certain specifications. The amount of wood and polyethylene the Company is required to purchase under these contracts varies with the production of its suppliers and, accordingly, is not fixed or determinable. As of December 31, 2022, the Company has purchase commitments under material supply contracts of $ 53 million for the year ending December 31, 2023, and a total of $ 45 million for the years ending December 31, 2024 through 2026. F-32 Table of Contents Product Warranty The Company warrants that for the applicable warranty period its Trex Residential products, when properly installed, used and maintained, will be free from material defects in workmanship and materials and its 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. The Company further warrants 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, the Company has 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. The Company further warrants 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, the company has an obligation either to replace the defective product or refund the purchase price. Trex Residential continues to receive and settle claims for decking products manufactured at its Nevada facility prior to 2007 that exhibit surface flaking and maintains 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 claims to be settled with payment, the Company utilizes actuarial techniques to determine a reasonable possible range 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 to determine its best estimate of future claims for which to record a related liability. 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. The Company monitors surface flaking claims activity each quarter for indications that its 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 the Company’s 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. The number of incoming claims received in the year ended December 31, 2022 was significantly lower than the number of claims received in the year ended December 31, 2021, and lower than the Company’s expectations for 2022. Average cost per claim experienced in the year ended December 31, 2022 was significantly higher than that experienced in the year ended December 31, 2021, and higher than the Company’s expectations for 2022. The elevated average cost per claim experienced in the year ended December 31, 2022, was primarily the result of the closure of three large claims, which were considered in the Company’s estimation of the surface flaking reserve. The Company believes the reserve at December 31, 202 2 is sufficient to cover future surface flaking obligations. F-33 Table of Contents The Company’s 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 the Company’s financial condition, results of operations or cash flows. The Company estimates 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. The Company estimates 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 $ 1.6 million change in the surface flaking warranty reserve. The Company also maintains a warranty reserve for the settlement of other residential product warranty claims and records the provision at the time of product sale. The following is a reconciliation of the Company’s residential product warranty reserve (in thousands): Year Ended December 31, 2022 Surface Flaking Other Residential Total Beginning balance, January 1 $ 18,542 $ 10,053 $ 28,595 Provisions and changes in estimates — 1,914 1,914 Settlements made during the period ( 2,637 ) ( 2,273 ) ( 4,910 ) Ending balance, December 31 $ 15,905 $ 9,694 $ 25,599 Year Ended December 31, 2021 Surface Flaking Other Residential Total Beginning balance, January 1 $ 21,325 $ 8,148 $ 29,473 Provisions and changes in estimates — 3,846 3,846 Settlements made during the period ( 2,783 ) ( 1,941 ) ( 4,724 ) Ending balance, December 31 $ 18,542 $ 10,053 $ 28,595 Trex Residential Arkansas Manufacturing Facility In October 2021, the Company announced plans to add a third U.S.-based Trex Residential manufacturing facility located in Little Rock, Arkansas, that will sit on approximately 300 acres of land. The development approach for the new campus will be modular and calibrated to demand trends for Trex Residential outdoor living products. Construction began on the new facility in the second quarter of 2022, and in July 2022, the Company entered into a design-build agreement. As previously announced, the Company anticipates spending approximately $ 400 million on the facility and the budget for the design-build agreement is contained within this amount. Construction for the new facility will be funded primarily through the Company’s ongoing cash generation or its line of credit. F-34 Table of Contents TREX COMPANY, INC. SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (In thousands) Descriptions Balance at Beginning of Period Additions Charged to Cost and Expenses Deductions Balance at End of Period Year ended December 31, 2022: Trex Residential product warranty reserve $ 28,595 $ 1,914 $ ( 4,910 ) $ 25,599 Income tax valuation allowance $ 2,232 $ 794 $ — $ 3,026 Year ended December 31, 2021: Trex Residential product warranty reserve $ 29,473 $ 3,846 $ ( 4,724 ) $ 28,595 Income tax valuation allowance $ 2,775 $ — $ ( 543 ) $ 2,232 Year ended December 31, 2020: Trex Residential product warranty reserve $ 25,494 $ 9,861 $ ( 5,882 ) $ 29,473 Income tax valuation allowance $ 2,988 $ 1 $ ( 214 ) $ 2,775 F-35 Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Trex Company, Inc. Date: February 27, 2023 By: /S/ B RYAN H. F AIRBANKS Bryan H. Fairbanks President and Chief Executive Officer (Duly Authorized Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed as of February 27, 2023 by the following persons on behalf of the registrant and in the capacities indicated. Signature Title /S/ B RYAN H. F AIRBANKS Bryan H. Fairbanks President and Chief Executive Officer (Principal Executive Officer); Director /S/ D ENNIS C. S CHEMM Dennis C. Schemm Senior Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) /S/ J AMES E. C LINE James E. Cline Chairman /S/ R ONALD W. K APLAN Ronald W. Kaplan Vice Chairman /S/ M ICHAEL F. G OLDEN Michael F. Golden Director /S/ J AY M. G RATZ Jay M. Gratz Director /S/ K RISTINE L. J USTER Kristine L. Juster Director /S/ G ENA C. L OVETT Gena C. Lovett Director /S/ P ATRICIA B. R OBINSON Patricia B. Robinson Director /S/ G ERALD V OLAS Gerald Volas Director Table of Contents EXHIBIT INDEX Incorporated by reference Exhibit Number Description Form Exhibit Filing Date File No. 3.1 Restated Certificate of Incorporation of Trex Company, Inc. dated July 28, 2021. 10-Q 3.6 August 2, 2021 001-14649 3.2 First Certificate of Amendment to the Restated Certificate of Incorporation of Trex Company, Inc. dated May 5, 2022 10-Q 3.2 May 9, 2022 001-14649 3.3 Amended and Restated By-Laws of the Company. 8-K 3.2 May 1, 2019 001-14649 4.1 Specimen certificate representing the Company’s common stock. S-1/A 4.1 March 24, 1999 333-63287 4.2 First Amendment to Credit Agreement dated as of December 22, 2022 to the Credit Agreement dated May 18, 2022 by and among the Company, as borrower; the guarantors party thereto; Bank of America, N.A. (BOA), as a Lender, Administrative Agent, Swing Line Lender and L/C Issuer; TD Bank, N.A. as lender and Syndication Agent; Regions Bank, PNC Bank, National Association, and Wells Fargo Bank, National Association (each, a Lender and collectively, the Lenders), arranged by BofA Securities, Inc. as Sole Lead Arranger and Sole Bookrunner. 8-K 4.1 December 23, 2022 001-14649 4.3 Credit Agreement dated as of May 18, 2022 between the Company, as borrower; Trex Commercial Products, Inc., as guarantor, Bank of America, N.A., as a Lender, Administrative Agent, Swing Line Lender and L/C Issuer; Wells Fargo Bank, National Association, as lender and Syndication Agent, Regions Bank, PNC Bank, National Association, and TD Bank, N.A., arranged by BofA Securities, Inc. as Sole Lead Arranger and Sole Bookrunner. 8-K 4.1 May 20, 2022 001-14649 4.4 Note dated May 18, 2022 payable by the Company to Bank of America, N.A. in the amount of the lesser of $180,000,000 or the outstanding revolver advances made by Bank of America, N.A. 8-K 4.2 May 20, 2022 001-14649 4.5 Note dated May 18, 2022 payable by the Company to Wells Fargo Bank, National Association in the amount of the lesser of $120,000,000 or the outstanding revolver advances made by Wells Fargo Bank, N.A. 8-K 4.3 May 20, 2022 001-14649 4.6 Note dated May 18, 2022 payable by the Company to Regions Bank in the amount of the lesser of $40,000,000 or the outstanding revolver advances made by Regions Bank. 8-K 4.4 May 20, 2022 001-14649 Table of Contents Incorporated by reference Exhibit Number Description Form Exhibit Filing Date File No. 4.7 Note dated May 18, 2022 payable by the Company to PNC Bank, National Association in the amount of the lesser of $30,000,000 or the outstanding revolver advances made by PNC Bank, National Association. 8-K 4.5 May 20, 2022 001-14649 4.8 Note dated May 18, 2022 payable by the Company to TD Bank, N.A. in the amount of the lesser of $30,000,000 or the outstanding revolver advances made by TD Bank, N.A. 8-K 4.6 May 20, 2022 001-14649 4.9 Security and Pledge Agreement dated as of May 18, 2022 between the Company, as debtor, Trex Commercial Products, Inc., as additional obligor; and Bank of America, N.A. as Administrative Agent (including Notices of Grant of Security Interest in Copyrights and Trademarks). 8-K 4.7 May 20, 2022 001-14649 4.10 Fourth Amended and Restated Credit Agreement dated as of November 5, 2019 between the Company, as borrower; Trex Commercial Products, Inc., as guarantor, Bank of America, N.A., as a Lender, Administrative Agent, Swing Line Lender and L/C Issuer; and certain other lenders including Wells Fargo Bank, N.A., who is also Syndication Agent, SunTrust Bank, and Branch Banking and Trust Company arranged by BofA Securities, Inc. as Sole Lead Arranger and Sole Bookrunner. 8-K 4.1 November 6, 2019 001-14649 4.11 First Amendment to the Credit Agreement by and among Trex Company, Inc. as borrower; Trex Commercial Products, Inc. as guarantor; Bank of America, N.A. as a Lender, Administrative Agent, Swing Line Lender and L/C Issuer; and certain other lenders including Wells Fargo Bank, N.A., who is also Syndication Agent; Truist Bank; and Regions Bank, arranged by BofA Securities, Inc. as Sole Lead Arranger and Sole Bookrunner dated May 26, 2020. 8-K 4.1 May 28, 2020 001-14649 4.12 Fourth Amended and Restated Credit Agreement between the Company, as borrower; Trex Commercial Products, Inc., as guarantor, Bank of America, N.A., as a Lender, Administrative Agent, Swing Line Lender and L/C Issuer; and certain other lenders including Wells Fargo Bank, N.A., who is also Syndication Agent, Truist Bank; and Regions Bank, arranged by BofA Securities, Inc. as Sole Lead Arranger and Sole Bookrunner, dated May 26, 2020. 8-K 4.2 May 28, 2020 001-14649 Table of Contents Incorporated by reference Exhibit Number Description Form Exhibit Filing Date File No. 4.13 Note dated November 5, 2019 payable by the Company to Bank of America, N.A. in the amount of the lesser of $125,000,000 or the outstanding revolver advances made by Bank of America, N.A. 8-K 4.2 November 6, 2019 001-14649 4.14 Note dated November 5, 2019 payable by the Company to Wells Fargo Bank, N.A. in the amount of the lesser of $70,000,000 or the outstanding revolver advances made by Wells Fargo Bank, N.A. 8-K 4.3 November 6, 2019 001-14649 4.15 Note dated November 5, 2019 payable by the Company to SunTrust Bank in the amount of the lesser of $30,000,000 or the outstanding revolver advances made by SunTrust Bank. 8-K 4.4 November 6, 2019 001-14649 4.16 Note dated November 5, 2019 payable by the Company to Branch Banking and Trust Company in the amount of the lesser of $25,000,000 or the outstanding revolver advances made by Branch Banking and Trust Company. 8-K 4.5 November 6, 2019 001-14649 4.17 Note dated May 26, 2020 payable by the Company to Regions Bank. 8-K 4.6 May 28, 2020 001-14649 4.18 Fourth Amended and Restated Security and Pledge Agreement dated as of November 5, 2019 between the Company, as debtor, Trex Commercial Products, Inc., as additional obligor; and Bank of America, N.A. as Administrative Agent (including Notices of Grant of Security Interest in Copyrights and Trademarks). 8-K 4.6 November 6, 2019 001-14649 4.19 Description of Securities registered pursuant to Section 12 of the Securities Exchange Act of 1934. 10-K 4.19 February 22, 2021 001-14649 10.1** Description of Management Compensatory Plans and Arrangements. 10-K 10.1 February 14, 2019 001-14649 10.2** Trex Company, Inc. Amended and Restated 2014 Stock Incentive Plan. 10-Q 10.4 November 2, 2020 001-14649 10.3** Trex Company, Inc. Amended and Restated 1999 Incentive Plan for Outside Directors as amended on February 23, 2022. 10-K 10.3 February 28, 2022 001-14649 10.4** Form of Trex Company, Inc. 2014 Stock Incentive Plan Stock Appreciation Rights Agreement. 10-Q 10.1 July 29, 2019 001-14649 10.5** Form of Trex Company, Inc. 2014 Stock Incentive Plan Time-Based Restricted Stock Unit Agreement. 10-Q 10.2 July 29, 2019 001-14649 Table of Contents Incorporated by reference Exhibit Number Description Form Exhibit Filing Date File No. 10.6** Form of Trex Company, Inc. 2014 Stock Incentive Plan Performance-Based Restricted Stock Unit Agreement. 10-Q 10.3 July 29, 2019 001-14649 10.7** Form of Trex Company, Inc. Amended and Restated 1999 Incentive Plan for Outside Directors Restricted Stock Unit Agreement. 10-Q 10.2 August 3, 2015 001-14649 10.8** Change in Control Severance Agreement dated February 21, 2020 by and between Trex Company, Inc. and Bryan H. Fairbanks. 8-K 10.2 February 25, 2020 001-14649 10.9** Amended and Restated Severance Agreement dated February 21, 2020 by and between Trex Company, Inc. and Bryan H. Fairbanks. 8-K 10.3 February 25, 2020 001-14649 10.10** Form of Change in Control Severance Agreement between Trex Company, Inc. and Officers other than the Chief Executive Officer. 10-K 10.16 February 21, 2017 001-14649 10.11** Form of Severance Agreement between Trex Company, Inc. and Officers other than the Chief Executive Officer. 10-Q 10.1 May 8, 2015 001-14649 10.12** Form of Retention Agreement for Company Officers dated May 2, 1018. 10-Q 10.2 May 7, 2018 001-14649 10.13 AIA document A141 – 2014 Agreement dated July 7, 2022 by and between Trex Company, Inc. and Gray Construction, Inc. 8-K 10.1 July 12, 2022 001-14649 10.14 Form of Indemnity Agreement for Directors. 10-K 10.19 March 12, 2009 001-14649 10.15 Form of Indemnity Agreement for Officers. 10-K 10.20 March 12, 2009 001-14649 10.16 Form of Indemnity Agreement for Director/Officers. 10-K 10.21 March 12, 2009 001.14649 10.17 Form of Distributor Agreement of Trex Company, Inc. 10-K 10.23 March 12, 2009 001-14649 10.18 Form of Trex Company, Inc. Fencing Agreement for Installers/Retailers. 10-Q 10.4 November 9, 2006 001-14649 10.19 Asset Purchase Agreement dated as of December 30, 2022 by and between Trex Commercial Products, Inc., Trex Company, Inc. and Sightline Commercial Solutions, LLC. 8-K 10.1 December 30, 2022 001-14649 21* Subsidiaries of the Company. 23* Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm. 31.1* Certification of Chief Executive Officer of the Company pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. Table of Contents Incorporated by reference Exhibit Number Description Form Exhibit Filing Date File No. 31.2* Certification of Chief Financial Officer of the Company pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. 32*** Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350). 101.INS* Inline XBRL Instance Document—the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. 101.SCH* Inline XBRL Taxonomy Extension Schema Document. 101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document. 101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document. 101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document. 101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document. 104.1 Cover Page Interactive Data File—The cover page interactive data file does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document. * Filed herewith. ** Management contract or compensatory plan or agreement. *** Furnished herewith.