Trex Company, Inc.

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Trex Company, Inc.

160 Exeter Drive
Winchester, Virginia 22603
U.S.A.
Telephone: (540) 542-6300
Toll Free: (800) 289-8739
Fax: (540) 542-6885
Web site: http://www.trex.com

Public Company
Incorporated: 1998
Employees: 615
Sales: $253.6 million (2004)
Stock Exchanges: New York
Ticker Symbol: TWP
NAIC: 326122 Plastics Pipe and Pipe Fitting Manufacturing

Trex Company, Inc. manufactures decking and railing using a combination of reclaimed wood and recycled plastic. The company's decking is sold under the Trex brand in three varieties, Trex Origins, Trex Accents, and Trex Brasilia. Its railing systems are sold in three varieties as well, a Traditional Series, an Artisan Series, and a Trex Designer Series. The company's products are manufactured at plants in Winchester, Virginia; Fernley, Nevada; and Olive Branch, Mississippi. Trex materials are sold at more than 3,300 contractor-oriented lumberyards in the United States and Canada. The company's products are also available at Home Depot stores, either directly or via special order, throughout the United States.

Origins

Roger Wittenberg never claimed to be motivated by a need to protect the environment, but his entrepreneurial career reflected a concern for just that. "Recycling is the best way I know to make money," he said in a June 1, 2003 interview with FSB, shrugging off the label of an environmentalist. Wittenberg, an organic chemist by training, made his living by using the waste of others to produce marketable products, something he did with his first company, which converted scrap metal into parts for knitting machinery. His next venture found a use for old baked goods, which were used to make poultry feed and sold to companies such as Perdue and Polly Farms. Wittenberg's poultry-feed business provided the inspiration for another business, a bread-crumb business that, in turn, helped spawn Trex. To make bread crumbs, which were sold to food companies such as Progresso and 4-C, Wittenberg pulverized 20-tractor loads of unwanted bread loaves on a daily basis, a production process that produced a prodigious amount of its own waste: the plastic bags holding the bread loaves. Wittenberg quickly became awash in plastic bags, prompting him to search for a remedy to his problem. The solution became Trex.

Wittenberg, ever ready to find a use for what others no longer wanted, began experimenting with his mounds of plastic bags. He discovered that if he shredded the plastic and mixed it with sawdust, the result, after heating the mixture and pressing it through a die, produced something similar in appearance to wood but superior to wood in numerous ways. "It's like making a great big strand of spaghetti," he remarked in his interview with FSB. Wittenberg perfected his production process in 1988, calling his recycled material Rivenite, a product he believed would perform well as a substitute for fire logs. Rivenite, however, did not burn easily, so Wittenberg thought of other uses for his material, briefly entertaining the idea of making park benches out of Rivenite before abandoning the plan because the market for park benches was too small. Wittenberg's company, Rivenite Corp., eked out a living while its founder searched for a suitable application for the material, selling Rivenite to customers who used it for industrial flooring.

Acquired by Mobil: 1992

Wittenberg's business was small, but his reclaimed polyethylene and wood composite caught the attention of one of the largest companies in the world. Mobil Corporation, through its Mobil Chemical Co. subsidiary, owned the largest plastics operation in the United States, a business that accumulated vast amounts of recycled plastic. As the owner of Hefty, the company also ranked as the largest producer of disposable plastic products in the country. During the early 1990s, the company was searching for a way to commercialize its recycled plastic and it came across Wittenberg's Rivenite Corp. Mobil paid $10 million to acquire Rivenite in 1992, hiring Wittenberg in the process. The company used the acquisition to form its Composite Products Division, attempting to find a synergy connection between waste and a commercial product that mirrored Wittenberg's business philosophy. Initially, Mobil's management experienced the same dilemma that had confronted Wittenberg: company executives struggled to find a suitable application for the technology they had acquired. Mobil officials experimented with different uses for Rivenite, making noise barriers, constructing stop-sign posts, and manufacturing picnic tables. Eventually, the company settled on using Rivenite as a material for residential and commercial decking, a decision that positioned Wittenberg's creation in a $2 billion market.

Rivenite was re-branded as Timbrex under Mobil's control, making its debut as material used in municipal, government, and commercial projects. A production plant was constructed in Winchester, Virginia, to produce the material, yielding the first batch of planks branded under the name Timbrex. After being used by municipalities and, notably, to build walking trails in the Florida Everglades, Timbrex gained exposure, prompting Mobil executives to focus on the market for residential construction in 1994. The name of the material was shortened to Trex in anticipation of the concentration on residential decking, a move that also was supported by a program touting the benefits of using Trex, a message directed at home-builders and contractors. Trex decking was roughly twice the cost of traditional southern yellow pine, but Trex required almost no maintenance. Wittenberg's material did not need to be sealed. It was immune to rot, did not split or splinter, and termites found nothing appetizing about a mash of plastic and sawdust. Mobil backed an effort to preach the advantages of Trex to its targeted audience, placing educational advertisements in trade publications read by contractors and dispatching a sales force to building-supply distributors and professional lumberyards. By the end of 1994, Trex had won nearly $8 million worth of orders, exponentially higher than the $600,000 the Timbrex brand attracted two years earlier.

Independence in 1996

Trex showed promise under Mobil's control, but the business did not have the chance to fully express its potential as a tiny component of a multibillion-dollar company. The brand's greatest success was achieved when it gained independence. Independence arrived after Mobil divested its plastics business, which lessened the company's interest in Trex. In 1996, four Mobil executives, including Wittenberg and Robert Matheny, who would serve as Trex's chief executive officer, completed a leveraged buyout of the decking assets, paying $29.5 million to gain control of a company they named Trex Company, LLC. Matheny, a 26-year Mobil veteran and the general manager of the Composite Products Division, immediately launched a promotional program to increase awareness of Trex. Advertisements were placed in magazines such as Southern Living and Better Homes and Gardens, as the company sought to develop brand identification in a market largely devoid of brand names.

Once on its own, Trex began to record remarkable growth. Trex's most pressing perennial problem was keeping up with the demand for its decking material, a problem that would hound the company during its first decade as a separate entity. To help finance expansion, the company began preparing for an initial public offering (IPO) of stock, taking its first step in September 1998, when Trex Company Inc. was formed to acquire Trex Company, LLC. In December 1998, with its IPO slated for the following spring, the company announced it had acquired a 37-acre parcel of land in Fernley, Nevada, where it planned to build a new, 150,000-square-foot manufacturing facility. The new plant, expected to open in the fall of 1999, promised to increase manufacturing capacity by more than 25 percent and relieve some of the strain at the company's Winchester plant, which was being inundated with orders for Trex decking. The number of lumberyards carrying Trex had increased dramatically in the space of a few years, growing from 500 in 1995 to more than 2,000 in 1998, pushing the Winchester facility to its limits.

On April 7, 1999, Trex Company, Inc. acquired the limited liability company Trex Company, LLC, and organized the acquisition as its wholly owned subsidiary. One week later, Trex Company, Inc. completed its IPO, giving it the financial resources to fund a high-profile print advertising campaign and to help pay for the Fernley plant. The new plant opened before the end of the year, a year in which Trex sales reached $78 million, or more than twice the total collected two years earlier. The company by this point ranked as the largest manufacturer of non-wood decking in the United States, dominating a highly fragmented industry. The company competed against roughly 20 other non-wood decking companies, but less than half of its rivals generated more than $5 million in annual sales.

Key Dates:

1988:: Roger Wittenberg combines sawdust and shredded plastic bags, creating a material he calls Rivenite.
1992:: Mobil Chemical Co. acquires Wittenberg's technology and re-brands the material Timbrex.
1994:: Mobil focuses on the residential decking market, changing the name of the composite to Trex as part of the new market orientation.
1996:: Four Mobil executives complete a leveraged buyout of the decking assets.
1999:: Trex completes its initial public offering (IPO) of stock and opens a second manufacturing facility in Fernley, Nevada.
2004:: Construction begins on a third manufacturing facility in Olive Branch, Mississippi.

Trex management began discussing the establishment of a third manufacturing plant almost immediately after opening the Fernley plant. In May 2000, the company announced it would not build a third plant, but in February 2001 the company renewed its commitment to constructing another facility, announcing it had signed a purchase agreement for 100 acres in Knoxville, Tennessee. Plans for the Knoxville plant were dropped, however, after the costs projected for the construction ran too high. Finally, in early 2004, the company made good on its promise to build a third manufacturing facility, selecting a site in Olive Branch, Mississippi, to help meet escalating demand for Trex products, which had increased 30 percent each year for the previous five years. In a February 2, 2004 interview with the Mississippi Business Journal, Matheny commented on the addition of a third facility. "The Olive Branch site," he said, "offers many of the attributes we have been seeking—an ideal transportation center, an excellent local workforce, and favorable access to raw materials. It will also help us control the various components of our costs, including raw materials. We plan to build the new facility out gradually, in step with our marketing plan, and expect to grow it substantially over time."

Robust Growth in the 21st Century

As Trex went back and forth with the establishment of a third manufacturing plant, the company recorded remarkable growth. Sales eclipsed $100 million in 2000, reaching $117.5 million, and more than doubled by 2004, when the company collected $253.6 million. The company's products by this point were sold in more than 3,300 lumberyards in North America. The company's production plants were consuming prodigious amounts of waste material and converting it into long planks and, a new dimension of the company's business, railing systems. Trex collected 1.3 billion plastic bags each year, about half of all available recycled grocery bags in the country. For its sawdust, the company collected between 200 million and 300 million pounds of wood scraps from furniture and cabinet-makers every year.

As Trex eagerly awaited the completion of its Olive Branch facility, demand for Trex decking continued to grow. Entering the mid-2000s, the company was working to develop a network of retailers to sell decking and railing systems in the United Kingdom, Norway, and Ireland. Domestically, the company forged an important agreement in 2004. After several years of negotiations, the company signed an agreement with Home Depot to sell Trex products in select Home Depot stores. Consumers also were given the opportunity to order Trex products at any Home Depot store in the country by placing a special order. Matheny hailed the agreement, remarking in an April 19, 2004 interview with Home Channel News NewsFax, "Home Depot represents an exciting new opportunity for Trex to expand our distribution channels and reach a whole new set of consumers and contractors." Matheny also said the partnership with Home Depot would "dramatically accelerate" demand for Trex, creating even greater need for the addition of the company's third manufacturing facility. The Olive Branch plant, which was expected to serve markets in the South and Midwest, was slated for its grand opening in mid-2005.