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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): November 6, 2007
TREX COMPANY, INC.
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(Exact Name of Registrant as Specified in Charter)
Delaware 001-14649 54-1910453
(State or Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) No.) Identification
160 Exeter Drive
Winchester, Virginia 22603-8605
(Address of Principal Executive Offices) (ZIP Code)
Registrant's telephone number, including area code: (540) 542-6300
Not Applicable
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(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13e-4(c))
Item 2.02. Results of Operations and Financial Condition.
On November 6, 2007, Trex Company, Inc. issued a press release
announcing financial results for the quarter ended September 30, 2007. A copy of
such press release is attached hereto as Exhibit 99.1 and incorporated herein by
reference.
The information contained in this report on Form 8-K shall not be
deemed to be filed for the purposes of Section 18 of the Securities Exchange Act
of 1934 or otherwise subject to the liabilities of that Section.
Item 9.01 Financial Statements and Exhibits
(d) Trex Company herewith files the following exhibit:
Exhibit Description of Exhibit
- -------- ----------------------------------------------------------------------
99.1 Press release dated November 6, 2007
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
TREX COMPANY, INC.
Date: November 6, 2007 /s/ Anthony Cavanna
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Anthony Cavanna
Chairman and Chief Financial Officer
Exhibit 99.1
Trex Company Announces Third Quarter 2007 Results
Reports Increase in Quarterly and Year-to-Date Sales; Increases
Reserve for Product Replacement and Consumer Relations Costs
WINCHESTER, Va.--(BUSINESS WIRE)--Nov. 6, 2007--Trex Company, Inc.
(NYSE: TWP), manufacturer of Trex(R) decking, railing, fencing and
trim, today announced financial results for the third quarter ended
September 30, 2007. The Company's operating results for the 2007 third
quarter and the nine-month period were adversely affected by a $45
million increase to a product defect reserve for future replacement of
decking material manufactured at its Nevada plant between 2003 and
mid-2006. In addition, the Company's operating results were adversely
affected by a $9.4 million inventory adjustment in the 2007 third
quarter for the obsolescence of discontinued product and product that
does not meet the current quality standards that are required in the
market.
Net sales for the 2007 third quarter, which reflected the
increased reserve, totaled $64.0 million compared to net sales of
$78.1 million for the third quarter of 2006. Before giving effect to
the increased reserve, net sales for the 2007 third quarter increased
2.6% over the 2006 third quarter. The Company reported a net loss for
the 2007 third quarter of $41.2 million, or $2.77 per diluted share,
which includes the effects of the increased reserve and inventory
valuation adjustment, compared to net income of $4.6 million, or $0.31
per diluted share, for the 2006 third quarter.
Net sales for the nine months ended September 30, 2007, which
reflect the increased reserve, were $298.7 million compared to net
sales of $304.8 million for the nine months ended September 30, 2006.
Before giving effect to the increased reserve, net sales for the 2007
nine-month period increased 3.5% over the 2006 nine-month period. The
Company reported a net loss for the 2007 nine-month period of $34.9
million, or $2.35 per diluted share, which includes the effects of the
increased reserve and inventory valuation adjustment, compared to net
income of $16.1 million or $1.08 per diluted share, for the same
period in 2006.
The product defect reserve was established for decks that are
subject to surface flaking between two to three years after
installation. Following a detailed analysis of retained production
samples, operating data and the time required after deck installation
for the condition to become evident, and other factors, the Company is
confident that only a small percentage of the product manufactured
from 2003 to mid-2006 at the Nevada plant was affected. No products
manufactured at other Trex facilities have been affected.
The Company is not compliant with certain of its debt covenants as
of September 30, 2007 that are based on EBITDA, specifically the
Leverage ratios (Debt to TTM EBITDA) and Fixed Charge Coverage Ratios.
We have received a waiver on the debt covenants for the September
quarter and are working with each respective lender on the terms and
conditions of the covenants for future quarters. The Company ended the
third quarter with $20 million of cash on hand and we have maintained
a similar cash position thus far through the fourth quarter.
Chief Executive Officer, Andrew U. Ferrari commented, "Trex
Company is making very significant progress despite the severe decline
in the home building and remodeling markets and the financial impact
of the charges to earnings, most notably the increase in the product
defect reserve we announced today. In the toughest market in decades,
we are very proud of our year-to-date sales. Our sales and market
share have increased in all three categories in which we compete:
decking, railing and fencing. Demand for Trex products remains strong
and we are issuing revised guidance for full year 2007 net sales of
$315 million to $335 million, which includes a reduction in net sales
of $17 million due to the product defect reserve. This revised
guidance is consistent with the guidance given at the end of the
second quarter for $330 million to $350 million in net sales.
"We are taking the decisive actions necessary to return Trex
Company to improved profitability and positive operating cash flow.
While several of the actions we have taken, such as right-sizing the
manufacturing footprint, writing down obsolete and slow-moving
inventories, and increasing the product defect reserve, have a
negative impact on short-term profitability, they are the right
actions to promote profitable growth for our Company in the long-term.
"We are very pleased with the improvement we have made in our
manufacturing operations. The Company is now realizing the benefits of
the capital spent over the last year on initiatives to improve overall
product quality and increase productivity. With the exception of
surface flaking claims related to past Nevada production, our overall
product claims on a year-to-year basis have declined by more than 50%.
The number of temporary workers in our plants responsible for sorting
raw materials and inspecting production has been reduced from a high
of 175 earlier in the year to fewer than 30 workers today.
"During the past 60 days, we have realized production rate
increases of more than 10% compared to the first quarter along with
significantly higher production yields. The reduction of temporary
workers, the increase in line rates and yields, and the right-sizing
of our manufacturing footprint, including the suspension of operations
at the Mississippi plant, have enabled the Company to reduce its
manufacturing staffing from 935 workers at the beginning of 2007 to
665 workers today. Another significant cost reduction directly related
to the past year's capital projects is our ability to use lower-cost
plastic feed stocks without sacrificing quality or productivity.
"At the same time that we are improving our manufacturing
operations, Trex Company remains focused on building the pre-eminent
brand in the outdoor living products category. Evidence of our
commitment is the way Trex Company has dealt with the surface flaking
claims, going well beyond standard industry practices to satisfy our
customers. To further our leading brand position, we recently
introduced innovative new products enabling us to reach new and
important customer segments. Both Trex Escapes(TM), an ultra
low-maintenance deck board, and Trex Trim(TM), a new trim product for
house soffits and window surrounds, will be available in 2008. We will
also be introducing enhancements to our current product line in 2008,
including new colors for our Trex Brasilia(R) and Trex Contours(R)
deck boards, a hidden fastening system for our Brasilia(R) board, a
new Trex Accents Fire Defense(TM) deck board, and an improved, more
versatile Trex Artisan Series Railing(R) system. In addition, we are
excited about the growing acceptance of Trex Seclusions(R) fencing, as
we broaden its distribution to include full-line building material
distributors and dealers as well as leading fencing installation
companies. Our new decking, railing, trim and fencing product line-up
was announced to the market last month, and the response has been
overwhelmingly positive."
Mr. Ferrari concluded, "During a challenging time for everyone in
the building materials industry, Trex Company is encouraged by the
progress we are making. We are taking the tough and decisive actions
today to ensure a bright future for our company."
Conference Call and Webcast Information
As previously announced, Trex will hold a conference call to
discuss its 2007 third quarter results on Tuesday, November 6 at 9:00
a.m. ET. A live webcast of the conference call, including a visual
presentation in addition to the audio, will be available to all
investors in the Investor Relations section of the Trex Company
website at www.trex.com. The call will also be simulcast at
www.streetevents.com.
For those who cannot listen to the live broadcast, the webcast and
visual presentation will be available on Trex's website for 30 days. A
telephone replay of the call will also be available for seven days,
beginning at approximately 12:00 p.m. ET on November 6. To listen to
the telephone replay, dial 706-645-9291 and enter conference ID
#22029660.
About Trex Company
Trex Company is the nation's largest manufacturer of composite
decking, railing and fencing, with over 15 years of product
experience. Products are marketed under the brand name Trex(R). Made
from a unique formulation of reclaimed wood and plastic, combined
through a proprietary process, Trex decking, railing and fencing offer
significant design flexibility with fewer ongoing maintenance
requirements than wood. In addition, Trex distributes ultra-low
maintenance PVC decking under the trademark Trex Escapes(TM) and PVC
trim under the trademark Trex Trim(TM). For more information, visit
the Company's website, www.trex.com. Trex(R), Trex Accents(R), Trex
Brasilia(R), Trex Contours(R), Trex Escapes(TM), Trex Accents Fire
Defense(TM), Trex Trim(TM), Trex Seclusions(R), and Trex Artisan
Series Railing(R) are trademarks of Trex Company, Inc., Winchester,
Va.
The statements in this press release regarding the Company's
expected sales performance and operating results, its projections of
net sales, net income, earnings per share and costs, its anticipated
financial condition and its business strategy constitute
"forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. These statements are subject to risks and uncertainties that
could cause the Company's actual operating results to differ
materially. Such risks and uncertainties include the extent of market
acceptance of the Company's products; the sensitivity of the Company's
business to general economic conditions; the Company's ability to
obtain raw materials at acceptable prices; the Company's ability to
maintain product quality and product performance at an acceptable
cost; the level of expenses associated with product replacement and
consumer relations expenses related to product quality; and the highly
competitive markets in which the Company operates. The Company's
report on Form 10-K filed with the Securities and Exchange Commission
on April 2, 2007 and its subsequent filings on Form 10-Q and Form 8-K
discuss some of the important factors that could cause the Company's
actual results to differ materially from those expressed or implied in
these forward-looking statements. The Company expressly disclaims any
obligation to update or revise publicly any forward-looking
statements, whether as a result of new information, future events or
otherwise.
TREX COMPANY, INC.
Condensed Consolidated Statements of Operations
(In thousands, except share and per share data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2006 2007 2006 2007
----------- ------------ ----------- ------------
Net sales $ 78,098 $ 63,971 $ 304,849 $ 298,663
Cost of sales 55,116 73,631 220,928 254,530
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Gross profit (loss) 22,982 (9,660) 83,921 44,133
Selling, general and
administrative
expenses 15,419 52,074 56,738 91,974
----------- ------------ ----------- ------------
Income (loss) from
operations 7,563 (61,734) 27,183 (47,841)
Interest expense,
net 305 2,021 2,151 6,241
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Income (loss) before
income taxes 7,258 (63,755) 25,032 (54,082)
Provision (benefit)
for income taxes 2,679 (22,528) 8,898 (19,168)
----------- ------------ ----------- ------------
Net income (loss) $ 4,579 $ (41,227) $ 16,134 $ (34,914)
=========== ============ =========== ============
Diluted earnings
(loss) per share $ 0.31 $ (2.77) $ 1.08 $ (2.35)
=========== ============ =========== ============
Diluted weighted
average shares
outstanding 14,921,151 14,892,507 14,908,475 14,878,951
=========== ============ =========== ============
TREX COMPANY, INC.
Condensed Consolidated Balance Sheets
(In thousands, except share data)
31-Dec-06 30-Sep-07
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(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 672 $ 19,746
Accounts receivable, net 18,140 27,141
Inventories 111,434 73,643
Prepaid expenses and other assets 3,201 3,436
Income taxes receivable 6,480 8,442
Deferred income taxes 3,180 9,735
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Total current assets 143,107 142,143
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Property, plant and equipment, net 198,525 203,166
Goodwill 6,837 6,837
Debt-related derivatives 359 153
Other assets 3,489 6,652
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Total assets $352,317 $ 358,951
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 57,834 $ 34,983
Accrued warranty 2,467 19,538
Line of credit 44,132 --
Current portion long-term debt 9,115 35,716
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Total current liabilities 113,548 90,237
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Deferred income taxes 17,217 5,089
Accrued taxes -- 2,396
Non-current accrued warranty -- 28,453
Debt-related derivatives 747 705
Long-term debt, net of current portion 51,390 97,500
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Total liabilities 182,902 224,380
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Stockholders' equity:
Preferred stock, $0.01 par value, 3,000,000
shares authorized; none issued and
outstanding -- --
Common stock, $0.01 par value, 40,000,000
shares authorized; 14,913,889 and 15,076,738
shares issued and outstanding at December 31,
2006 and September 30, 2007 149 151
Additional paid-in capital 62,986 65,956
Accumulated other comprehensive income (278) (444)
Retained earnings 106,558 68,908
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Total stockholders' equity 169,415 134,571
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Total liabilities and stockholders' equity $352,317 $ 358,951
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TREX COMPANY, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Nine Months Ended June 30,
2006 2007
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OPERATING ACTIVITIES
Net income (loss) $ 16,134 $ (34,914)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 15,248 16,552
Other non-cash charges (benefits) 3,860 (15,477)
Changes in operating assets and liabilities (10,182) 49,305
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Net cash provided by operating activities $ 25,060 $ 15,466
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INVESTING ACTIVITIES $ (14,533) $ (21,197)
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FINANCING ACTIVITIES $ (9,687) $ 24,805
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Net increase in cash and cash equivalents $ 840 $ 19,074
Cash and cash equivalents at beginning of
period $ 1,395 $ 672
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Cash and cash equivalents at end of period $ 2,235 $ 19,746
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CONTACT: Trex Company, Inc.
Anthony J. Cavanna, 540-542-6300
Chairman & Chief Financial Officer
or
Lippert/Heilshorn & Assoc.
Harriet Fried, 212-838-3777