segments: Trex Residential Products

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

We believe that attracting wholesale distributors, who are committed to our products and marketing approach and can effectively sell higher value products to contractor-oriented lumber yards and other retail outlets, is important to our future growth. Our distributors are able to provide value-added service in marketing our products because they sell premium wood decking products and other innovative building materials that typically require product training and personal selling efforts. We typically appoint two distributors on a non-exclusive basis to distribute Trex products within a specified area.area to sell only Trex Residential decking products on an exclusive basis. The distributor purchases our products at prices in effect at the time we ship the product to the distributor. Sales to two of our distributors, Boise Cascade Company and U.S. Lumber Group, LLC, each exceeded 10% of gross sales in 2016.

2019.

Products manufactured at our Trex Commercial manufacturing facility in Minnesota are primarily manufactured from aluminum and stainless steel. Our primary manufacturing process for these products involves cutting, machining, welding and finishing. We use Six Sigma and Lean Manufacturing methodologies throughout our Company within our plant operations and in the planning and execution of certain projects.

Suppliers

Company.

•

Channelsstrategies to achieve our goals: Innovation : Bring to the market new products that address unmet consumer and trade professional needs. Provide a compelling value proposition through ease of installation, low maintenance, long-term durability and superior aesthetics. Brand : Expand preference and commitment for the Trex brand with both consumers and trade professionals. Deliver on the brand’s promise of superior quality, functionality, pleasing aesthetics and overall performance in outdoor living products and custom-engineered railing and staging systems. Leverage online efforts to extend the Trex brand digital presence, both nationally and globally. Channels : Achieve comprehensive market segment and geographic coverage for Trex products by increasing the number of stocking dealers and retailers and expanding our international presence for 6 Table of Contents our wood-alternative outdoor living products, thereby making our products available wherever our customers choose to purchase their decking, railing, porch, steel deck framing and outdoor lighting products.products, and by continuing to develop our commercial market penetration for our railing and staging systems. • Quality: Continuously advance the quality of all operational and business processes, with the goal of achieving superior product quality and service levels, thereby giving us a sustainable competitive advantage. • Cost: Through capital investments and process engineering, continuously seek to lower the cost to manufacture Trex products. Investments in plastic recycling capabilities will allow us to expand our ability to use a wider breadth of waste materials thereby lowering our raw material costs. We plan to continue to achieve significant improvements in manufacturing productivity by reducing waste and improving our production process, from raw materials preparation through extrusion into finishing and packaging. • Customer Service: Through our commitment to superior customer service, continually deliver consistently outstanding, personalized service to all of our customers and prospects in all target segments. Quality : Continuously advance the quality of all operational and business processes, with the goal of achieving superior product quality and service levels, thereby giving us a sustainable competitive advantage. Cost : Through capital investments and process engineering, continuously seek to lower the cost to manufacture Trex products. Investments in plastic recycling capabilities will allow us to expand our ability to use a wider breadth of waste materials thereby lowering raw material costs of our outdoor living products. We plan to continue to achieve significant improvements in manufacturing productivity by reducing waste and improving our production process. Customer Service : Through our commitment to superior customer service, continually deliver consistently outstanding, personalized service to all of our customers and prospects in all target segments. Competition Our primary competition for our composite decking and residential railing products consists of wood products, which constitutes a substantial majority of decking and railing sales, as measured by linear feet of lumber. Many of the conventional lumber suppliers with which we compete have established ties to the building and construction industry and have well-accepted products. A majority of the lumber used in wood decks is pressure-treated lumber. Southern yellow pine and fir have a porosity that readily allows the chemicals used in the pressure treating process to be absorbed. The same porosity makes southern yellow pine susceptible to absorbing moisture, which causes the lumber to warp, crack, splinter and expel fasteners. In addition to pine and fir, other segments of wood material for decking include redwood, cedar and tropical hardwoods, such as ipe, teak and mahogany. These products are often significantly more expensive than pressure-treated lumber, but do not eliminate manysome of the disadvantages of other wood products. In addition to wood, we also compete with other manufacturers of wood-alternative products. Industry studies indicate that we have the leading market share of the wood-alternative segment of the decking and railing market. Our principal competitors include Advanced Environmental Recycling Technologies,The Azek Building Products, Inc., CPG International LLC and Fiberon LLC. (a division of Fortune Brands, Inc.). Our ability to compete depends, in part, on a number of factors outside our control, including the ability of our competitors to develop new wood-alternative decking and railing products that are competitive with our products. We believe that the principal competitive factors in the decking and railing market include product quality, price, aesthetics, maintenance cost, and distribution and brand strength. We believe we compete favorably with respect to these factors. We believe that our products offer aesthetic and cost advantages over the life of a deck when compared to other types of decking and railing materials. Although a contractor-installed deck built with Trex products using a pressure-treated wood substructure generally costs more than a deck made entirely from pressure-treated wood, Trex products are low maintenance compared to the on-going maintenance required for a pressure-treated deck and are, therefore, less costly over the life of the deck. We believe that our manufacturing process and utilization of relatively low-cost raw material sources provide us with a competitive cost advantage relative to other manufacturers of wood-alternative decking and railing products. The scale of our operations also confers cost efficiencies in manufacturing, sales and marketing. Seasonality Our net sales, gross profitprimary competition for our products in the commercial and incomemulti-family market consists of companies that provide components to assemble guard rails, including C.R. Laurence Co., Inc., a CRH Group company, regional railing and metal fabricators, and Wenger Corporation. Our ability to compete depends on our product design advantages, relationships with architects and general contractors, and competitive manufacturing costs. 7 Table of Contents We believe we have a competitive advantage in products and markets in which we have established a leading market share versus our competition, including the stadium and arena railing market. We do not yet experience those favorable dynamics in markets in which we are a relatively new entrant, including the aluminum balcony market. These dynamics derive from operationsfamiliarity with project and customer requirements, technical product requirements, and contractor and architect relationships. Seasonality Our operating results for Trex Residential have historically varied from quarter to quarter. Such variations are often attributable to seasonal trends in the demand for our products. We have historically experienced lower net sales during the fourth quarter due to the holiday season. Also, seasonal,Seasonal, erratic or prolonged adverse weather conditions in certain geographic regions reduce the level of home improvement and construction activity and can shift net salesdemand for its products to a later period. As part of its normal business practice and consistent with industry practice, Trex Residential Products 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. The operating results for Trex Commercial have not historically varied from quarter to quarter as a result of seasonality. However, they are driven by the timing of individual projects, which may vary significantly each period. Government Regulation We are subject to federal, state and local environmental regulation. The emissions of particulates and other substances from our manufacturing facilities must meet federal and state air quality standards implemented through air permits issued to us by the Department of Environmental Quality of the Commonwealth of Virginia, and the Division of Environmental Protection of Nevada’s Department of Conservation and Natural Resources. Our facilities are regulated by federal and state laws governing the disposal of solid waste and by state and local permits and requirements with respect to wastewater and storm water discharge. Compliance with environmental laws and regulations has not had a material adverse effect on our business, operating results or financial condition. Our operations also are subject to work place safety regulation by the U.S. Occupational Safety and Health Administration, the Commonwealth of Virginia, and the StateStates of Nevada.Nevada, and Minnesota. Our compliance efforts include safety awareness and training programs for our production and maintenance employees. Intellectual Property Our success depends, in part, upon our intellectual property rights relating to our products, production processes and other operations. We rely upon a combination of trade secret, nondisclosure and other contractual arrangements, and patent, copyright and trademark laws, to protect our proprietary rights. We have made substantial investments in manufacturing process improvements that have enabled us to increase manufacturing line production rates, facilitate our development of new products, and produce improvements in our existing products’ dimensional consistency, surface texture and color uniformity. Intellectual property rights may be challenged by third parties and may not exclude competitors from using the same or similar technologies, brands or works. We seek to secure effective rights for our intellectual property, but cannot provide assurance that third parties will not successfully challenge, or avoid infringing, our intellectual property rights. We consider our trademarks to be of material importance to our business plans. The U.S. Patent and Trademark Office has granted us federal registrations for many of our trademarks. Federal registration of trademarks is effective for as long as we continue to use the trademarks and renew their registrations. We do not generally register any of our copyrights with the U.S. Copyright Office, but rely on the protection afforded to such copyrights by the U.S. Copyright Act. This law provides protection to authors of original works, whether published or unpublished, and whether registered or unregistered. 8 Table of Contents We hold a number of U.S. Patents and U.S. Patent Applications for various technologies. We have one current U.S. Patent Application for decking technology and five U.S. Patents for various staging systems, accessories and related technologies. We intend to maintain our existing patents in effect until they expire as well as to seek additional patents as we consider appropriate. We enter into confidentiality agreements with our employees and limit access to and distribution of our proprietary information. If it is necessary to disclose proprietary information to third parties for business reasons, we require that such third parties sign a confidentiality agreement prior to any disclosure. Employees and Corporate Governance At December 31, 2016, we2019, Trex Residential had approximately 8301,173 full-time employees, approximately 630933 of whom were employed in ourits manufacturing operations, and Trex Commercial had 159 full-time employees, 62 of whom were employed in its manufacturing operations. Our employees are not covered by collective bargaining agreements. We believe that our relationships with our employees are favorable. The Company has internal standards related to hiring practices that encourage diversity, formal programs to provide skill development for our employees, and anti-discrimination standards. The Company has not had any serious complaints or claims over the last three years. We have adopted a Human Rights Policy across all of our operations that sets forth our values related to working conditions and human rights and underscores our philosophy about the way we conduct our business. The policy is available at www.trex.com/our-company. Information related to the Company’s governance and related activities and programs may be found in the Company’s Definitive Proxy Statement filed on March 19, 2019 in Schedule 14A. Also, a copy of the Company’s Code of Conduct and Ethics (Code) is maintained on the Company’s web site at www.trex.com/ our-company. The Company has a whistle-blowing policy included in its Code that encourages reporting by employees of activities the employee considers illegal or dishonest. Each employee is notified of the whistle-blower policy and a toll-free hotline is provided for reporting issues directly to the Board of Directors and the Company’s General Counsel. Environmental and Occupational Safety Environmental The Company’s commitment to managing environmental impact includes developing and offering more sustainable products to the market as well as reducing the environmental impact of its corporate activities. From continuous improvement in its manufacturing practices that reduce the use of energy to making products using industry leading high levels of reclaimed and recycled materials, the Company is able to improve its use of resources, its greenhouse gas emissions, and its waste streams. Our Environmental Policy, located on our web site at www.trex.com/our-company, outlines our foundational commitment to conducting business in an ethical and socially responsible manner that respects the environment. Environmental matters relevant to the Company’s operations are the responsibility of members of the executive management team, including the President and Chief Executive Officer, the Executive Vice President and Chief Financial Officer, and the General Counsel. Trex Residential’s eco-friendly composite decking products consist of a blend of 95 percent reclaimed wood and recycled plastic film. In addition, Trex Residential’s proprietary, eco-friendly processing method minimizes greenhouse gas emissions and our bi-coastal factories reduce fuel consumption and CO 2 emissions. Almost 100 percent of our factory runoff and refuse are recycled back into the manufacturing line. Any product that does not meet quality specifications is reprocessed, which eliminates the need for landfill. In addition, it is Trex Commercial’s goal to provide eco-friendly products for the architectural railing market and promote an effort for design innovation that decreases the environmental footprint. The Company’s primary resource usage consists of water, natural gas and electricity. The Company develops budgets and plans that improve shareholder return by ensuring the optimal use of each resource, which 9 Table of Contents promotes resource efficiency and minimal waste of the resource. Water management is of critical importance to us and we prioritize energy savings as part of our ongoing evaluation and optimization of business operations and manufacturing processes. We ensure that all of our manufacturing facilities meet emission standards for the locality in which they operate, and certify to applicable authorities that our emissions are within the relevant locality’s standards. Market Recognition of Trex Brand’s Environmental Characteristics The Company’s internal standards for environmental stewardship and product integrity are recognized year-over-year in the marketplace. In 2019, Trex received the Green Builder Media 2019 Eco Leader award—the highest honor awarded by the publication’s editorial team—and received the Green Builder Media 2019 Readers’ Choice Award for “Greenest Decking—one of the most respected surveys issued by the publication. Trex is the only composite decking manufacturer to hold this title since 2009. Trex Residential decking products meet LEED requirements for builders and our commercial products have contributed to the LEED certifications of some high profile venues. LEED is a point-based system created in part by the U.S. Green Building Council and designed to reward points to building projects that incorporate efficient, and safe eco-friendly products, leading to a building’s designation as LEED Silver, Gold or Platinum. LEED buildings attract higher demand, premium rates and longer occupancy leases, thereby supporting continued and growing demand for products that can facilitate LEED designations. As a U.S. Green Building Council member, Trex works along with council members to transform the way buildings and communities are designed, built and operated with the goal of creating environmentally and socially responsible spaces that improve the quality of life. Trex Commercial railing products also typically contribute to LEED certification points in the Materials and Resources category based on recycled aluminum, steel, stainless steel and glass content. Occupational Safety The Company is committed to plan and perform all operations at all facilities in a manner that is safe for its employees, and has adopted an Occupational Health and Safety Policy, located on our web site at www.trex.com/ our-company, that sets forth our commitment to sustaining a compliant and safety conscious work environment and keeping safety at the forefront of our business. The commitment is based on: A comprehensive understanding of worker expectations and requirements; Compliance to statutory, regulatory and other legal requirements; Prevention considerations in all designs and redesigns of facilities, equipment, processes, work methods and products, and incorporation of safe design methods into all phases of hazard and risk mitigation; Demonstrating employee safety leadership in all of our processes while striving for world class performance; and Continual improvement by analyzing this commitment through the use of leading and lagging key performance indicators, such as safety observation audit completions, attendance at monthly safety training, safety work order completions, and targets related to recordable and lost time incident rates and days away or restricted time. The Company applies industry best-practices for monitoring and reporting near misses, lost days and frequency of incidents and for implementing safety systems similar to OHSAS 18001 including: Management leadership and employee involvement; Worksite analysis; 10 Table of Contents Hazard prevention and control; and Safety and health training. The Company’s “Design for Safety” program incorporates reviewing and building safety into every project from conception through completion, beginning with a Pre-startup Safety Review (PSSR) that ensures safety items are addressed. A fully empowered Plant Safety Committee performs safety audits and observations, reviews and trends all incidents, writes their own Safety Work Orders, and participates in all PSSRs. Each member is required to successfully complete an Occupational Safety and Health Training course in General Industry Safety and Health, which is sanctioned and accredited by the U.S. Department of Labor/Occupational Safety and Health Administration. In addition, each manufacturing operation has an Employee Health and Safety Manager who is a Certified Occupational Safety Specialist and Certified Occupational Safety Manager. The Company is a member of the Voluntary Protection Program Participants Association, the National Safety Council, and the National Fire Protection Association. Web Sites and Additional Information The U. S. Securities and Exchange Commission (SEC) maintains an Internet web site at www.sec.gov that contains reports, proxy statements, and other information regarding our Company. In addition, we maintain an Internet corporate web site atwww.trex.com. www.trex.com/our-company/investor-relations. We make available through our web site our annual reports on Form  10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports, as soon as reasonably practicable after we electronically file with or furnish such material to the SEC. We do not charge any fees to view, print or access these reports on our web site. The contents of our web site are not a part of this report. 11 Table of Contents Item 1A. Risk Factors Our business operates in two reportable segments, Trex Residential and Trex Commercial, and is subject to a number of risks, including the following: We may not be ablefollowing. If applicable to grow unless we increase market acceptance of our products, compete effectively and develop new products and applications. Our primary competition consists of wood products, which constitute a substantial majority of decking, railing, porches, fencing, and deck framing sales. Since wood-alternative products were introduced to the market in the late 1980s, their market acceptance has increased. Our ability to grow will depend, in part, on our success in continuing to convert demand for wood products into demand for wood-alternative Trex products. To increase our market share, we must overcome: lack of awareness of the enhanced value of wood-alternative products in general and Trex brand products in particular; resistance of many consumers and contractors to change from well-established wood products; consumer lack of awareness that the greater initial expense of Trex products compared to wood is a one-time cost that is reduced over time as Trex products have lower maintenance costs and a longer life span than wood; established relationships existing between suppliers of wood products and contractors and homebuilders; actual and perceived quality issues with first generation wood-alternative products; and competition from other wood-alternative manufacturers. Our failure to compete successfully in such markets could have a material adverse effect on our ability to replace wood or increase our market share amongst wood-alternatives. Many of the conventional lumber suppliers with which we compete have established ties to the building and construction industry and have well-accepted products. Our ability to compete depends, in part, upon a number of factors outside our control, including the ability of competitors to develop new alternatives that are more competitive with Trex products. In addition, substantially all of our revenues are derived from sales of our proprietary wood/polyethylene composite material. Althoughparticular segment, we have developed, and continue to develop, new products made from other materials, if we should experience significant problems, real or perceived, with acceptance ofspecified the Trex wood/polyethylene composite material, our lack of product diversification could have a significant adverse impact on our net sales levels. Our prospects for sales growth and profitability may be adversely affected if we fail to maintain product quality and product performance at an acceptable cost. In order to expand our net sales and sustain profitable operations we must maintain the quality and performance of our products. If we are unable to produce high-quality products at standard manufacturing rates and yields, unit costs may be higher. A lack of product performance could impede acceptance of our products in the marketplace and negatively affect our profitability. We continue to receive and settle claims and maintain a warranty reserve related to material produced at our Nevada facility prior to 2007 that exhibits surface flaking. We have limited our financial exposure by settling a nationwide class action lawsuit that lessens our exposure to provide replacement product and partial labor reimbursement. However, because the establishment of reserves is an inherently uncertain process involving estimates of the number of future claims and the average cost of claims, our ultimate losses may differ from our warranty reserve. Increases to the warranty reserve and payments for related claims have had a material adverse effect on our profitability and cash flows. Future increases to the warranty reserve could have a material adverse effect on our profitability and cash flows. A number of class action lawsuits alleging defects in our products have been brought against us, all of which have been settled. In the event future lawsuits relating to alleged product quality issues are brought against us, such lawsuits may be costly and could cause adverse publicity, which in turn could result in a loss of consumer confidence in our products and reduce our sales. Product quality claims could increase our expenses, have a material adverse effect on demand for our products and decrease net sales, net income and liquidity. Our business is subject to risks in obtaining the raw materials we use at acceptable prices. The manufacture of our products requires substantial amounts of wood fiber and scrap polyethylene. Our business strategy is to create a substantial cost advantage over our competitors by using reclaimed wood fibers and scrap polyethylene. Our business could suffer from the termination of significant sources of raw materials, the payment of higher prices for raw materials, the quality of available raw materials, or from the failure to obtain sufficient additional raw materials to meet planned increases in production. Our ability to obtain adequate supplies of reclaimed wood fibers and scrap polyethylene depends on our success in developing new sources that meet our quality requirements, maintaining favorable relationships with suppliers and managing the collection of supplies from geographically dispersed locations. Certain of our customers account for a significant portion of our sales, and the loss of one or more of these customers could have an adverse effect on our business. A limited number of our customers account for a significant percentage of our sales. Specifically, sales through our 15 largest customers accounted for approximately 90% of gross sales during fiscal year 2016, 89% during fiscal year 2015 and 86% during fiscal year 2014. We expect that a significant portion of our sales will continue to be sold through a small number of customers, and certain customers will continue to account for a significant portion of our sales. The loss of a significant customer could have a significant negative impact on our business, results of operations and financial condition. We have limited ability to control or project inventory build-ups in our distribution channel that can negatively affect our sales in subsequent periods. The seasonal nature of, and changing conditions in, our industry can result in substantial fluctuations in inventory levels of Trex products carried in our two-step distribution channel. We have limited ability to control or precisely project inventory build-ups, which can adversely affect our net sales levels in subsequent periods. We make the substantial majority of our sales to wholesale distributors, who, in turn, sell our products to local dealers. Because of the seasonal nature of the demand for our products, our distribution channel partners must forecast demand for our products, place orders for the products, and maintain Trex product inventories in advance of the prime deck-building season, which generally occurs in the latter part of the first calendar quarter through the third calendar quarter. Accordingly, our results for the second and third quarters are difficult to predict and past performance will not necessarily indicate future performance. Inventory levels respond to a number of changing conditions in our industry, including product price increases, increases in the number of competitive producers, the rapid pace of product introduction and innovation, changes in the levels of home-building and remodeling expenditures and the cost and availability of consumer credit. The demand for our products is negatively affected by adverse weather conditions. Our products are generally purchased shortly before installation and used in outdoor environments. As a result, there is a correlation between the amount of product we sell and weather conditions during the time they are to be installed. Adverse weather conditions may interfere with ordinary construction, delay projects or lead to cessation of construction involving our products. These interferences may shift sales to subsequent reporting periods or decrease overall sales, given the limited decking season in many locations. Prolonged adverse weather conditions could have a negative impact on our results of operations and liquidity. We depend on third parties for transportation services and the lack of availability of transportation and/or increases in cost could materially adversely affect our business and operations. Our business depends on the transportation of both finished goods to our distributors and the transportation of raw materials to us. We rely on third parties for transportation of these items. In particular, a significant portion of our finished goods are transported by flatbed trucks, which are occasionally in high demand (especially at the end of calendar quarters) and/or subject to price fluctuations based on market conditions and the price of fuel. If the required supply of transportation services is unavailable when needed, we may be unable to sell our products at full value, or at all. Similarly, if any of these providers were unavailable to deliver raw materials to us in a timely manner, we may be unable to manufacture our products in response to customer demand. This could harm our reputation, negatively impact our customer relationships and have a material adverse effect on our financial condition and results of operations. In addition, a material increase in transportation rates or fuel surcharges could have a material adverse effect on our profitability. The demand for our products is influenced by general economic conditions and could be adversely affected by economic downturns. The demand for our products is influenced by the general health of the economy, the level of home improvement activity and, to a much lesser extent, new home construction. These factors are affected by home equity values, credit availability, consumer confidence and spending habits, employment, interest rates, inflation and general economic conditions. Devaluation in home equity values can adversely affect the availability of home equity withdrawals and result in decreased home improvement spending. We cannot predict general economic conditions or the home remodeling and new home construction environments. Any economic downturn could reduce consumer income or equity capital available for spending on discretionary items, which could adversely affect the demand for our products. We have significant capital invested in property, plant and equipment that may become obsolete or impaired and result in a charge to our earnings. We have made and may continue to make significant capital investments to improve or expand our manufacturing capabilities. These investments sometimes involve the implementation of new technology and replacement of existing equipment at our manufacturing facilities, which may result in charges to our earnings if the existing equipment is not fully depreciated. Significant replacement of equipment or changes in the expected cash flows related to our assets could result in reduced earnings or cash flows in future periods. Our ability to continue to obtain financing on favorable terms, and the level of any outstanding indebtedness, could adversely affect our financial health and ability to compete. Our ability to continue to obtain financing on favorable terms may limit our discretion on some business matters, which could make it more difficult for us to expand, finance our operations and engage in other business activities that may be in our interest. In addition, the operating and financial restrictions imposed by our senior credit facility may limit our ability to: incur additional indebtedness and additional liens on our assets; engage in mergers or acquisitions or dispose of assets; enter into sale-leaseback transactions; pay dividends or make other distributions; voluntarily prepay other indebtedness; enter into transactions with affiliated persons; make investments; and change the nature of our business. Any additional indebtedness we may incur in the future could subject us to similar or even more restrictive conditions. At certain periods during the year, we borrow significant amounts on our senior credit facility for working capital purposes. In addition, we may borrow on the senior credit facility to pursue strategic opportunities or other general business matters. Accordingly, our future level of indebtedness could have important consequences. For example, it may: increase our vulnerability to general adverse economic and industry conditions, including interest rate fluctuations; require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate purposes; limit our ability to borrow additional funds to alleviate liquidity constraints, as a result of financial and other restrictive covenants in our indebtedness; limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; place us at a competitive disadvantage relative to companies that have less indebtedness; and limit our ability to refinance our principal secured indebtedness. Our ability to make future principal and interest payments, borrow and repay amounts under our senior credit facility and continue to comply with our loan covenants will depend primarily on our ability to generate sufficient cash flow from operations. Our failure to comply with our loan covenants might cause our lenders to accelerate our repayment obligations under our senior credit facility, which may be declared payable immediately based on a default. To remain in compliance with our credit facility, we must maintain specified financial ratios based on our levels of debt, fixed charges, and earnings (excluding extraordinary gains and extraordinary non-cash losses) before interest, taxes, depreciation and amortization, all of which arerespective segment subject to the risksrisk factor. Risk Discussion Description: We may not be able to grow unless we increase market acceptance of our products, compete effectively and develop new products and applications. Impact: Our failure to compete successfully could have a material adverse effect on the ability of Trex Residential to replace wood products or increase our market share amongst wood-alternative products. • If our Trex Residential products do not meet emerging demands and preferences, we could lose market share, which could have a material adverse effect on our business. • In addition, substantially all of our revenues are derived from sales of our proprietary wood/polyethylene composite material. Although we have developed, and continue to develop, new products made from other materials, if we should experience significant problems, real or perceived, with acceptance of the Trex wood/polyethylene composite material, our lack of product diversification could have a significant adverse impact on our net sales levels. If our Trex Commercial products do not keep up with consumer trends, demands, and preferences we could lose market share, which could have a material adverse effect on our business. Our primary competition for Trex Residential products consists of wood products, which constitute a substantial majority of decking, railing, fencing, and deck framing sales. Since composite products were introduced to the market in the late 1980s, their market acceptance has increased. Our ability to grow depends, in part, on our success in continuing to convert demand for wood products into demand for composite Trex Residential products. Many of the conventional lumber suppliers with which we compete have established ties to the building and construction industry and have well-accepted products. Our ability to compete depends, in part, upon a number of factors outside our control, including the ability of competitors to develop new alternatives that are more competitive with Trex products. Our ability to identify and respond to emerging consumer demands and preferences for Trex Residential products depends, in part, on how successfully we develop, manufacture and market new products. To increase our market share, we must overcome: • Lack of awareness of the enhanced value of composite products in general and Trex Residential brand products in particular; • Resistance of many consumers and contractors to change from well-established wood products; • Consumer lack of awareness that the greater initial expense of Trex Residential products compared to wood is a one-time cost that is reduced over time as Trex Residential products have lower maintenance costs and a longer life span than wood; • Established relationships existing between suppliers of wood products and contractors and homebuilders; • Actual and perceived quality issues with first generation composite products; and 12 Table of our business. Any expansion into new product markets may be costly and there is no guarantee that the new product market would be successful. In addition to developing enhancements to and new products for the outdoor living market, we may also develop new products that allow us to expand into new product markets. Expansion into new markets and the developmentContents • Competition from other wood-alternative manufacturers. Although Trex Commercial is a leading national provider of custom-engineered railing and staging systems for the commercial and multi-family market, including performing arts venues and sports stadiums, there is significant competition for projects. In order to effectively compete, we must continually produce and install high quality products and innovate with new products. Risk Discussion Description: We may not be able to fully maintain our Trex Residential wholesaler and dealer channels. Impact: If Trex Residential fails to compete successfully for wholesale distributors and dealers, our business could experience material adverse effects, which could negatively impact profitability and cash flows. Trex Residential sells most of our composite decking and railing products through our network of wholesale distributors who, in turn, sell to retail lumber outlets. Our Trex Residential growth strategy depends on maintaining this network and on our ability to compete with other entities for these channels. In order to successfully compete for wholesaler distributors, dealers and retail lumber outlets, we must accurately assess their customers’ needs and preferences. Risk Discussion Description: Certain of our Trex Residential product customers account for a significant portion of our sales, and the loss of one or more of these customers could have an adverse effect on our business. Impact: The loss of a significant customer could have a significant negative impact on our business, results of operations and financial condition. A limited number of our Trex Residential product customers account for a significant percentage of our sales. We expect that a significant portion of our Trex Residential sales will continue to be sold through a small number of customers, and certain customers will continue to account for a significant portion of our sales. 13 Table of new products may involve considerable costs and may not generate sufficient revenue to be profitable or coverContents Risk Discussion Description: Our Trex Residential business is dependent on consistently producing a product which is available when needed to meet the demands of our customers. As our business grows, we must adjust capacity to meet customer needs and provide increased throughput on our existing capacity. Impact: Our Trex Residential sales growth and profitability could suffer from our failure to effectively pair supply and demand for our products. Our customers’ demands for varying quantities of products and delivery items throughout the year, and increased demand year to year, require monitoring and the ability to adjust production in accordance with these demands. Failure to do so can lead to lost or reduced sales and have a negative effect on earnings. In order to meet Trex Residential customer demand in a timely manner, we must adjust capacity to meet customer needs and provide increased throughput on our existing capacity. Our sourcing team must obtain raw materials on a timely basis at an appropriate volume. Risk Discussion Description: Our prospects for sales growth and profitability may be adversely affected if we fail to maintain product quality and product performance at an acceptable cost. Impact: If we are unable to produce high-quality products at standard manufacturing rates and yields, unit costs may be higher. A lack of product performance could impede acceptance of our products in the marketplace and negatively affect our profitability. Future increases to our Trex Residential warranty reserve could have a material adverse effect on our profitability and cash flows. In the event lawsuits relating to alleged product quality issues are brought against us in the future, such lawsuits may be costly and could cause adverse publicity, which in turn could result in a loss of consumer confidence in our products and reduce our sales. Product quality claims could increase our expenses, have a material adverse effect on demand for our products and decrease net sales, net income and liquidity. In order to expand our net sales and sustain profitable operations we must maintain the quality and performance of our products. Trex Residential continues to receive and settle claims and maintain a warranty reserve related to decking product produced at our Nevada facility prior to 2007 that exhibits surface flaking. We have limited our financial exposure by settling a nationwide class action lawsuit that provides that a consumer’s remedy is limited to the replacement of product and a partial labor reimbursement. However, because the establishment of reserves is an inherently uncertain process involving estimates of the number of future claims and the average cost of claims, our ultimate losses may differ from our warranty reserve. Increases to the warranty reserve and payments for related claims have had a material adverse effect on our profitability and cash flows. A number of class action lawsuits alleging defects in our products have been brought against us, all of which have been settled. 14 Table of development. Contents Risk Discussion Description: Our business is subject to risks in obtaining the raw materials we use at acceptable prices. Impact: Our business could suffer from the termination of significant sources of raw materials, the payment of higher prices for raw materials, the quality of available raw materials, or from the failure to obtain sufficient additional raw materials to meet planned increases in production. The manufacture of our Trex Residential composite decking and railing products requires substantial amounts of wood fiber and scrap polyethylene. Our business strategy is to create a substantial cost advantage over our competitors by using scrap polyethylene. Our ability to obtain adequate supplies of wood fiber and scrap polyethylene depends on our success in developing new sources that meet our quality requirements, maintaining favorable relationships with suppliers and managing the collection of supplies from geographically dispersed locations. In addition to wood fiber and scrap polyethylene, we also use a small percentage of other materials in making our products, which are sometimes subject to volatility in supply and pricing and could negatively affect our profitability. The manufacture of our Trex Commercial products requires substantial amounts of aluminum, steel, glass and wood. These materials are also sometimes subject to volatility in pricing, which could negatively affect our profitability. Risk Discussion Description: We have limited ability to project inventory build-ups in our Trex Residential distribution channel that can negatively affect our sales in subsequent periods. Impact: We cannot definitively determine the level of inventory in the Trex Residential distribution channels at any time and, therefore, have limited ability to precisely project inventory build-ups in the Trex Residential two-step distribution channel. Significant increases in inventory levels in the distribution channel without a corresponding change in end-use demand could have an adverse effect on the timing of future sales. Trex Residential sells most of our composite decking and railing products through our network of wholesale distributors who, in turn, sell to retail outlets. The seasonal nature of, and changing conditions in, our industry can result in substantial fluctuations in inventory levels of Trex Residential products carried in our two-step distribution channel. Because of the seasonal nature of the demand for our products, our distribution channel partners must forecast demand for our products, place orders for the products, and maintain Trex Residential product inventories in advance of the prime deck-building season, which generally occurs in the latter part of the first calendar quarter through the third calendar quarter. Accordingly, our results for the second and third quarters are difficult to predict and past performance will not necessarily indicate future performance. Inventory levels respond to a number of changing conditions in our industry, including product price increases, increases in the number of competitive producers, the rapid pace of product introduction and innovation, changes in the levels of home-building and remodeling expenditures and the cost and availability of consumer credit. 15 Table of Contents Risk Discussion Description: The demand for our Trex Residential products is negatively affected by adverse weather conditions. Impact: Seasonal, erratic, or prolonged adverse weather conditions may shift sales of Trex Residential products to future periods or decrease overall sales given the limited decking season in many locations, which could have a negative impact on our results of operations and liquidity. Our Trex Residential products are generally purchased shortly before installation and used in outdoor environments. As a result, there is a correlation between the amount of product we sell and weather conditions during the time they are to be installed. Seasonal, erratic or prolonged adverse weather conditions in certain geographic regions may interfere with ordinary construction, delay projects or lead to cessation of construction involving our products. Risk Discussion Description: We depend on third parties for transportation services and the lack of availability of transportation and/or increases in cost could materially adversely affect our business and operations. Impact: If the required supply of third-party transportation services is unavailable when needed, we may be unable to deliver our products in a timely manner and, therefore, unable to sell our products at full value, or at all. Similarly, if any of these providers were unavailable to deliver raw materials to us in a timely manner, we may be unable to manufacture our products in response to customer demand. This could harm our reputation, negatively impact our customer relationships and have a material adverse effect on our financial condition and results of operations. In addition, a material increase in transportation rates or fuel surcharges could have a material adverse effect on our profitability. Our business depends on the transportation by third parties of both raw materials to us and finished goods to our customers. In particular, a significant portion of our finished goods are transported by flatbed trucks, which are occasionally in high demand (especially at the end of calendar quarters) and/or subject to price fluctuations based on market conditions and the price of fuel. 16 Table of Contents Risk Discussion Description: The demand for our products is influenced by the home improvement and commercial construction markets and could be adversely affected by conditions that negatively impact these markets. Impact: We cannot predict conditions that may negatively impact the home remodeling and new home construction environment. Any economic downturn or adverse changes in the home improvement market could reduce consumer income or equity capital available for spending on discretionary items, which could adversely affect the demand for our Trex Residential products. We cannot predict conditions that may negatively impact the commercial construction environment. Any economic downturn could negatively impact the availability of funding for commercial construction projects and the ability of Trex Commercial customers to engage in commercial construction activity, which could adversely affect the demand for Trex Commercial products. The demand for Trex Residential composite decking and railing products is influenced by the general health of the economy, the level of home improvement activity and, to a much lesser extent, new home construction. These factors are affected by home equity values, credit availability and interest rates, consumer confidence, income and spending habits, employment, inflation and general economic conditions. The demand for Trex Commercial railing and staging system products is influenced by the general health of the economy and the level of commercial construction activity, building variances, funding availability for large public use facilities, including sports stadiums and arenas, and the construction schedules of our projects. Risk Discussion Description: We have significant capital invested in assets that may become obsolete or impaired and result in a charge to our earnings. Impact: The recognition of goodwill may result in an impairment charge to our earnings if circumstances change and reduce the fair value of the goodwill acquired below its carrying amount. Significant replacement of equipment or changes in the expected cash flows related to our assets could result in reduced earnings or cash flows in future periods. We have made and may continue to make significant capital investments in order to acquire businesses or operations that allow us to diversify into new product markets. These investments have resulted in, and may in the future result in, the recognition of goodwill. In addition, we have made and may continue to make significant capital investments to our property plant and equipment in order to improve or expand our manufacturing capabilities. These investments sometimes involve the implementation of new technology and replacement of existing equipment at our manufacturing facilities, which may result in charges to our earnings if the existing equipment is not fully depreciated. 17 Table of Contents Risk Discussion Description: Our ability to continue to obtain financing on favorable terms, and the level of any outstanding indebtedness, could adversely affect our financial health and ability to compete. Impact: Our ability to make future principal and interest payments, borrow and repay amounts under our senior credit facility and continue to comply with our loan covenants will depend primarily on our ability to generate sufficient cash flow from operations. Our failure to comply with our loan covenants might cause our lenders to accelerate our repayment obligations under our senior credit facility, which may be declared payable immediately based on a default. Our ability to continue to obtain financing on favorable terms may limit our discretion on some business matters, which could make it more difficult for us to expand, finance our operations and engage in other business activities that may be in our interest. In addition, our senior credit facility may impose operating and financial restrictions. At certain periods during the year, we may borrow significant amounts on our senior credit facility for working capital purposes. In addition, we may borrow on the senior credit facility to pursue strategic opportunities or other general business matters. Accordingly, our future level of indebtedness and the terms of our borrowings could have important consequences. Risk Discussion Description: Cyberattacks and other security breaches could compromise our proprietary and confidential information which could harm our business and reputation. Impact: While we have certain safeguards in place to reduce the risk of and detect cyber-attacks, our information technology networks and infrastructure may be vulnerable to unpermitted access by hackers or other breaches, or employee error or malfeasance. Any such compromise of our data security and access to, or public disclosure or loss of, confidential business or proprietary information could disrupt our operations, damage our reputation, provide our competitors with valuable information and subject us to additional costs, which could adversely affect our business. In the ordinary course of our business, we generate, collect and store confidential and proprietary information, including intellectual property and business information. The secure storage, maintenance, and transmission of and access to this information is important to our operations and reputation. Computer hackers may attempt to penetrate our computer systems and, if successful, misappropriate our proprietary and confidential information including e-mails and other electronic communications. In addition, an employee, contractor, competitor, or other third party with whom we do business may attempt to obtain such information, and may purposefully or inadvertently cause a breach involving such information. We also collect limited information on consumers. Although we do not collect any highly sensitive information, there is a risk that a cybersecurity attack could compromise consumer’s names, addresses and other personal information. 18 Table of Contents Item 1B. Unresolved Staff Comments None. Item 2. Properties We lease our corporate headquarters in Winchester, Virginia, which consists of approximately 36,000 square feet of office space, under a lease that expires in March 2020. In addition, we lease 55,047 square feet of office and storage space in Dulles, Virginia, that we do not occupy. We have sublet all of the office space for the remainder of the term of the lease obligation, which expires in mid-2019. For a description of our financial reporting in connection with the Dulles lease agreement, see Note 13 to our Consolidated Financial Statements appearing elsewhere in this report. We own approximately 92 acres of landand lease certain properties, as noted in Winchester, the below table: Square Footage/ Acres Leased / Owned Lease Expiration Dates Location Purpose Corporate Headquarters 39,250 SF Leased 2025 Virginia Office Space Trex Residential 1,671,852 SF Leased 2020 – 2028 Virginia / Nevada Warehouse, Research and Development, Storage, Training and Manufacturing Facilities Trex Residential 705,000 SF / 129 Acres Owned N/A Virginia / Nevada Manufacturing Facilities, Storage and Office Space Trex Commercial 142,808 SF Leased 2022 – 2028 Minnesota Warehouse, Facility and Office Space We regularly evaluate our various facilities and the buildings on this land. The site includes our researchequipment and development technical facility and manufacturing facility, which contains approximately 465,000 square feet of space, and outside open storage. We own approximately 37 acres of land in Fernley, Nevada and the buildings on this land. The site includes our manufacturing facility, which contains approximately 240,000 square feet of space, and outside open storage. These facilities provide adequate capacity for current and anticipated future consumer demand. make capital investments where necessary. In September 2007,2019, we suspended operations at our Olive Branch, Mississippi facility (Olive Branch facility) and consolidated all of our manufacturing operations into our Winchester and Fernley sites. In January 2016, we sold a portion of the Olive Branch facility that contained the buildings. As of the date of this report, we continue to own approximately 62 acres of undeveloped land at the Olive Branch facility. We leasespent a total of $67 million on capital expenditures, including $60 million related to capacity expansion and general plant cost reduction initiatives, $5 million for other production improvements and $2 million for general support initiatives. In order to keep pace with demand, in June 2019 we announced a new multi-year capital expenditure program projected at approximately 1.4$200 million square feetbetween 2019 and 2021. The program will increase production capacity by at least 70% at our Trex Residential facilities in Virginia and Nevada and will bring further manufacturing efficiencies to our production operations. In the third quarter of warehouse2019, we installed two additional lines in our Nevada facility and facility space under leases with expiration dates ranging from 2017three new lines will begin ramping up in Nevada in the second quarter of 2020. One new production line was operational in Virginia in the fourth quarter of 2019, and a new building being constructed in Virginia is scheduled to 2026. start ramping up production by early 2021 at the latest. These investments will allow us to increase production output for future projected growth related to our strategy of converting wood demand to Trex Residential composite decking. For information about theseour leases, see Note 10 to our Consolidated Financial Statements appearing elsewhere in this report. The equipment and machinery we use in our operations consist principally of plastic and wood conveying and processing equipment. We own all of our manufacturing equipment. We lease some forklift equipment, primarily forklifts, at our facilities under operating leases. We regularly evaluate our various facilities and equipment and make capital investments where necessary. In 2016, we spent a total of $14.6 million on capital expenditures, primarily related to equipment purchases, the purchase of land adjacent to our Winchester, Virginia manufacturing facility, Trex University (our state-of-the-art training facility), general plant cost reduction initiatives, process and productivity improvements . We estimate that our capital expenditures in 2017 will be approximately $15 million to $20 million. We expect to use these expenditures principally to support cost reduction initiatives, new product launches in current and adjacent categories and general business support. Item 3. Legal Proceedings 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. Item 4. Mine Safety Disclosures. Not applicable. 19 Table of Contents PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market for Common Stock Our common stock has been listed on the New York Stock Exchange (NYSE) since April 8, 1999. Between April 8, 1999 and November 22, 2009, it was listed under the symbol “TWP”. Effective November 23, 2009, the symbol changed to “TREX”. The table below shows the reported high and low sale prices of our common stock for each quarter during 2016 and 2015 as reported by the NYSE. 2016    High      Low   First Quarter    $ 48.14       $ 31.11    Second Quarter      50.62         39.74    Third Quarter      64.36         44.38    Fourth Quarter      72.21         50.81    2015    High      Low   First Quarter    $ 55.13       $ 38.05    Second Quarter      57.72         46.72    Third Quarter      50.16         31.73    Fourth Quarter      44.17         33.72    Dividend Policy We have never paid cash dividends on our common stock and our credit agreement places limitations on our ability to pay cash dividends. We intend to retain future earnings to finance the development and expansion of our business or the repurchase of our common shares and, therefore, have no current intention to pay cash dividends. However, we reconsider our dividend policy on a regular basis and may determine to pay dividends in the future. Issuer Purchases of Equity Securities The following table provides information relating to the purchases of our common stock during the three months ended December 31, 2019 in accordance with Item 703 of Regulation S-K:                                   Period   (a) Total Number of Shares (or Units) Purchased (1)     (b) Average Price Paid per Share (or Unit) ($)     (c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (2)     (d) Maximum number of Shares (or Units) that May Yet Be Purchased Under the Plan or Program   October 1, 2019 – October 31, 2019     48,489     $ 88.97       44,919       4,920,640   November 1, 2019 – November 30, 2019     39,060     $ 87.49       39,060       4,881,580   December 1, 2019 – December 31, 2019     40,960     $ 87.68       40,960       4,840,620                                     Quarter ended December 31, 2019     128,509             124,939                                           (1) During the three months ended December 31, 2019, 3,570 shares were withheld by, or delivered to, the Company pursuant to provisions in agreements with recipients of restricted stock granted under the Company’s 2014 Stock Incentive Plan allowing the Company to withhold, or the recipient to deliver to the Company, the number of shares having the fair value equal to tax withholding due. (2) On February 16, 2018, the Company’s Board of Directors authorized a common stock repurchase program of up to 5.8 million shares of the Company’s outstanding common stock (Stock Repurchase Program). The Stock Repurchase Program was publicly announced on February 21, 2018. During the three months ended December 31, 2019, the Company repurchased 124,939 shares under the Stock Repurchase Program. 20 Table of Contents Stockholder Return Performance Graph The following graph and table show the cumulative total stockholder return on the Company’s common stock for the last five fiscal years compared to the Russell 2000 Index and the Standard and Poor’s 600 Building Products Index (S&P 600 Building Products). The graph assumes $100 was invested on December 31, 20112014 in (1) the Company’s common stock, (2) the Russell 2000 Index and (3) the S&P 600 Building Products, and assumes reinvestment of dividends and market capitalization weighting as of December 31, 2012, 2013, 2014, 2015, 2016, 2017, 2018 and 2016. 2019. Comparison of Cumulative Total Return Among Trex Company, Inc., Russell 2000 Index, and S&P 600 Building Products Index      December 31, 2011      December 31, 2012      December 31, 2013      December 31, 2014      December 31, 2015      December 31, 2016   Trex Company, Inc.    $ 100.00       $ 162.53       $ 347.25       $ 371.88       $ 332.23       $ 562.45    Russell 2000 Index    $ 100.00       $ 116.35       $ 161.52       $ 169.42       $ 161.94       $ 196.45    S&P 600 Building Products    $ 100.00       $ 129.86       $ 189.32       $ 188.86       $ 226.58       $ 294.05                                                ��       12/31/2014     12/31/2015     12/31/2016     12/31/2017     12/31/2018     12/31/2019   Trex Company, Inc.   $ 100.00     $ 89.34     $ 151.24     $ 254.53     $ 278.82     $ 422.17   Russell 2000 Index   $ 100.00     $ 95.59     $ 115.96     $ 132.95     $ 118.31     $ 148.52   S&P 600 Building Products   $ 100.00     $ 119.97     $ 155.70     $ 187.18     $ 148.27     $ 210.82   Other Stockholder Matters As of February 7, 2017,10, 2020, there were approximately 181153 holders of record of our common stock, although we believe that there are a significantly larger number of beneficial owners of our common stock. In 2016,2019, we submitted to the NYSE in a timely manner the annual certification that our Chief Executive Officer was not aware of any violation by us of the NYSE corporate governance listing standards. 21 Table of Contents Item 6. Selected Financial Data The following table presents selected financial data as of December 31, 2019, 2018, 2017, 2016, 2015, 2014, 2013, and 2012 and2015 for each year in the five-year period ended December 31, 2016. 2019. The selected financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our Consolidated Financial Statements and related notes thereto appearing elsewhere in this report.     Year Ended December 31, (1)       2016 (2)     2015 (3)     2014     2013 (4)     2012 (5)       (In thousands, except share and per share data)   Statement of Comprehensive Income Data:           Net sales   $ 479,616      $ 440,804      $ 391,660      $ 342,511      $ 307,354    Cost of sales     292,521        285,935        251,464        243,893        222,772                                            Gross profit     187,095        154,869        140,196        98,618        84,582    Selling, general and administrative expenses     83,140        77,463        72,370        73,967        71,907                                            Income from operations     103,955        77,406        67,826        24,651        12,675    Interest expense, net     1,125        619        878        602        8,946                                            Income before income taxes     102,830        76,787        66,948        24,049        3,729    Provision (benefit) for income taxes     34,983        28,689        25,427        (10,549 )      1,009                                            Net income   $ 67,847      $ 48,098      $ 41,521      $ 34,598      $ 2,720                                            Basic earnings per share   $ 2.31      $ 1.53      $ 1.28      $ 1.03      $ 0.08                                            Basic weighted average shares outstanding     29,394,559        31,350,542        32,319,649        33,589,682        32,247,184                                            Diluted earnings per share   $ 2.29      $ 1.52      $ 1.27      $ 1.01      $ 0.08                                            Diluted weighted average shares outstanding     29,612,669        31,682,509        32,751,074        34,273,502        34,129,712                                            Cash Flow Data:           Cash provided by operating activities   $ 85,293      $ 62,634      $ 58,642      $ 45,208      $ 60,443    Cash used in investing activities     (10,202 )      (23,329 )      (12,873 )      (12,697 )      (7,484 )  Cash used in financing activities     (62,422 )      (42,854 )      (39,997 )      (30,898 )      (55,326 )  Other Data (unaudited):           EBITDA (6)   $ 118,136      $ 91,701      $ 82,653      $ 40,597      $ 29,149    Balance Sheet Data:           Cash and cash equivalents and restricted cash   $ 18,664      $ 5,995      $ 9,544      $ 3,772      $ 2,159    Working capital     54,264        38,581        35,787        28,994        10,158    Total assets     221,430        211,998        195,824        188,157        168,615    Total debt     —          7,000        —          —          5,000    Total stockholder’s equity   $ 134,161      $ 116,463      $ 113,385      $ 106,616      $ 93,986                                                Year Ended December 31, (1)     2019 (2)     2018     2017 (3)     2016 (4)     2015 (5)     (In thousands, except share and per share data)   Statement of Comprehensive Income Data:                               Net sales   $ 745,347     $ 684,250     $ 565,153     $ 479,616     $ 440,804   Cost of sales     438,844       389,356       321,780       292,521       285,935                                             Gross profit     306,503       294,894       243,373       187,095       154,869   Selling, general and administrative expenses     118,304       118,225       100,993       83,140       77,463                                             Income from operations     188,199       176,669       142,380       103,955       77,406   Interest (income) expense, net     (1,503 )     (192 )     461       1,125       619                                             Income before income taxes     189,702       176,861       141,919       102,830       76,787   Provision for income taxes     44,964       42,289       46,791       34,983       28,689                                             Net income   $ 144,738     $ 134,572     $ 95,128     $ 67,847     $ 48,098                                             Basic earnings per share   $ 2.48     $ 2.29     $ 1.62     $ 1.15     $ 0.77                                             Basic weighted average shares outstanding     58,430,597       58,739,670       58,785,118       58,789,118       62,701,084                                             Diluted earnings per share   $ 2.47     $ 2.28     $ 1.61     $ 1.15     $ 0.76                                             Diluted weighted average shares outstanding     58,657,749       59,067,302       59,150,920       59,225,338       63,365,018                                             Cash Flow Data:                               Cash provided by operating activities   $ 156,352     $ 138,121     $ 101,865     $ 85,293     $ 62,634   Cash used in investing activities     (67,244 )     (33,733 )     (86,789 )     (10,202 )     (23,329 ) Cash used in financing activities     (45,974 )     (29,203 )     (3,226 )     (62,422 )     (42,854 )                                           Other Data (unaudited):                               EBITDA (non-GAAP) (6)   $ 202,230     $ 193,136     $ 159,110     $ 118,136     $ 91,701                                             Balance Sheet Data:                               Cash and cash equivalents   $ 148,833     $ 105,699     $ 30,514     $ 18,664     $ 5,995   Working capital     224,534       177,450       86,289       54,264       38,581   Total assets     592,239       465,122       326,227       221,430       211,998   Total debt     —         —         —         —         7,000   Total stockholders’ equity   $ 449,175     $ 342,963     $ 231,250     $ 134,161     $ 116,463   1) All common stock share and per share data in the above table are presented on a post-split basis to reflect the two-for-one stock split of our common stock in the form of a stock dividend distributed on May 7, 2014June 18, 2018 to stockholders of record at the close of business on April 7, 2014.May 23, 2018. 2) In January 1, 2019, the Company adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No.  2016-02, “ Leases (Topic 842), ” and subsequent amendments to the initial 22 Table of Contents guidance within ASU Nos. 2018-01, 2018-10, 2018-11, 2018-20, and 2019-01 (collectively, the standard). The standard requires lessees to recognize operating leases on the balance sheet as a right-of-use (ROU) asset and a lease liability (current and non-current). The liability is equal to the present value of the lease payments over the remaining lease term. The asset is based on the liability, subject to certain adjustments. The Company elected the modified retrospective method of adoption, which allowed the Company to apply the standard as of the beginning of the period of adoption. As a result, at December 31, 2019 the Company reported an ROU asset in total assets and included the current portion of the lease liability in working capital. 3) On July 31, 2017, the Company’s newly-formed, wholly-owned subsidiary, Trex Commercial Products, Inc. acquired certain assets and assumed certain liabilities of Staging Concepts Acquisition, LLC. The Consolidated Financial Statements include the accounts of Trex Commercial Products, Inc. from the date of acquisition. Also, the tax legislation H.R.1, “An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018,” known as the Tax Cuts and Jobs Act (Act), was enacted on December 22, 2017. Accordingly, we have recognized the tax effects of the Act in our financial statements and related notes as of and for the year ended December 31, 2017. Deferred tax assets that existed as of the enactment date and that reversed after the Act’s effective date of January 1, 2018 were adjusted to reflect the new Federal statutory tax rate of 21%. The effect of the change in tax rate on the deferred tax assets was allocated to continuing operations as a discrete item. We finalized our analysis of the Act in 2018, which did not give rise to new deferred tax amounts. 4) Year ended December 31, 2016 was materially affected by a pre-tax increase of $9.8 million to the warranty reserve related to surface flaking. Also, during 2016, the Company adopted Financial Accounting Standards Board Accounting Standards Update (ASU)FASB ASU No.  2015-17, “ Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes,” and ASU No. 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.Taxes. ”    Because the Company applied ASU No.  2015-17 prospectively in the quarterly period ended December 31, 2016, prior periods have not been adjusted. As a result, in 2016 deferred tax assets are now reported net of deferred tax liabilities, included as either a non-current asset or liability, and are no longer a component of working capital. Deferred tax assets or liabilities of prior fiscal years that were previously included in current assets or current liabilities continue to be reported as a component of working capital. Adoption of ASU No. 2016-09 did not have a material impact on the Company’s results of operations and financial condition or cash flows for prior periods. Note 2 to our Consolidated Financial Statements appearing elsewhere in this report discusses the method used to apply each provision of ASU No. 2016-09. 3)5) Year ended December 31, 2015 was materially affected by a pre-tax increase of $7.8 million to the warranty reserve, the majority of which related to surface flaking. 4) Year ended December 31, 2013 was materially affected by a pre-tax increase of $20.0 million to the warranty reserve and a $19.9 million income tax benefit resulting from a significant reversal of our valuation allowance, $10.9 million of which was a direct result of the Company’s decision to exit a full valuation allowance. 5) Year ended December 31, 2012 was materially affected by a pre-tax increase of $21.5 million to the warranty reserve. 6) EBITDA represents net income before interest, income taxes, depreciation and amortization. EBITDA is not a measurement of financial performance under accounting principles generally accepted in the United States (GAAP). The Company has included data with respect to EBITDA because management evaluates and projects the performance of the Company’s business using several measures, including EBITDA. Management considers EBITDA to be an important supplemental indicator of the Company’s operating performance, particularly as compared to the operating performance of the Company’s competitors, because this measure eliminates many differences among companies in capitalization and tax structures, capital investment cycles and ages of related assets, as well as some recurring non-cash and non-operating charges to net income or loss. For these reasons, management believes that EBITDA provides important supplemental information to investors regarding the operating performance of the Company and facilitates comparisons by investors between the operating performance of the Company and the operating performance of its competitors. Management believes that consideration of EBITDA should be supplemental, because EBITDA has limitations as an analytical financial measure. These limitations include the following: EBITDA does not reflect the Company’s cash expenditures, or future requirements for capital expenditures, or contractual commitments; EBITDA does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on the Company’s indebtedness; although Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA does not reflect any cash requirements for such replacements; 23 Table of Contents EBITDA does not reflect the effect of earnings or charges resulting from matters the Company considers not to be indicative of its ongoing operations; and not Not all entities in the Company’s industry may calculate EBITDA in the same manner in which the Company calculates EBITDA, which limits its usefulness as a comparative measure. The Company compensates for these limitations by relying primarily on its GAAP results to evaluate its operating performance and by considering independently the economic effects of the foregoing items that are not reflected in EBITDA. As a result of these limitations, EBITDA should not be considered as an alternative to net income, as calculated in accordance with GAAP, as a measure of operating performance, nor should it be considered as an alternative to cash flows as a measure of liquidity. The following table sets forth, for the years indicated, a reconciliation of EBITDA to net income:      Year Ended December 31,        2016      2015      2014      2013     2012        (In thousands)   Net income    $ 67,847       $ 48,098       $ 41,521       $ 34,598      $ 2,720    Plus interest expense, net      1,125         619         878         602        8,946    Plus income tax provision (benefit)      34,983         28,689         25,427         (10,549 )      1,009    Plus depreciation and amortization      14,181         14,295         14,827         15,946        16,474                                                EBITDA    $ 118,136       $ 91,701       $ 82,653       $ 40,597      $ 29,149                                                                                            Year Ended December 31,     2019     2018     2017     2016     2015     (In thousands)   Net income   $ 144,738     $ 134,572     $ 95,128     $ 67,847     $ 48,098   Plus interest (income) expense, net     (1,503 )     (192 )     461       1,125       619   Plus income tax provision     44,964       42,289       46,791       34,983       28,689   Plus depreciation and amortization     14,031       16,467       16,730       14,181       14,295                                             EBITDA (non-GAAP)   $ 202,230     $ 193,136     $ 159,110     $ 118,136     $ 91,701                                             24 Table of Contents Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations This management’s discussion and analysis contains 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. All statements regarding our expected financial position and operating results, our business strategy, our financing plans, forecasted demographic and economic trends relating to our industry and similar matters are forward-looking statements. These statements can sometimes be identified by our use of forward-looking words such as “may,” “will,” “anticipate,” “estimate,” “expect,” “intend” or similar expressions. We cannot promise you that our expectations in such forward-looking statements will turn out to be correct. Our actual results could be materially different from our expectations because of various factors, including the factors discussed under “Item 1A. Risk Factors.” These statements are also subject to risks and uncertainties that could cause the Company’s actual operating results to differ materially. Such risks and uncertainties include, but are not limited to, the extent of market acceptance of the Company’s current and newly developed products; the costs associated with the development and launch of new products and the market acceptance of such new products; the sensitivity of the Company’s business to general economic conditions; the impact of seasonal and weather-related demand fluctuations on inventory levels in the distribution channel and sales of the Company’s products; the availability and cost of third-party transportation services for our products and raw materials; 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 Company’s ability to increase throughput and capacity to adequately match supply with demand; 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. operates; cyber-attacks, security breaches or other security vulnerabilities; and the impact of upcoming data privacy laws and the EU General Data Protection Regulation and the related actual or potential costs and consequences. OVERVIEW General. Trex Company, Inc. currently operates in two reportable segments: Trex Residential Products (Trex Residential) and Trex Commercial Products (Trex Commercial). The Company is focused on using renewable resources within both our Trex Residential and Trex Commercial segments. Trex Residential is the world’s largest manufacturer of wood-alternative composite decking and railing products marketed under the brand name Trex ® and manufactured in the United States. We offer a comprehensive set of aesthetically pleasing, high performance,high-performance, low maintenance, eco-friendly products in the decking, railing, porch, fencing, steel deck framing and outdoor lighting categories. We believe that the range and variety of our products allow consumers to design much of their outdoor living space using Trex brand products. We offer the following products: composite decking and railing products through Trex Residential: Decking   Trex Transcend® Trex Enhance® Trex Select® Railing   Decking and Accessories   Trex Transcend ®  decking Trex Enhance ®  decking Trex Select ®  decking Trex Hideaway ®  hidden fastening system Trex DeckLighting ™  outdoor lighting system   Railing Trex Transcend Railing Trex Signature™ Signature ® aluminum railing Trex Select Railing Trex Enhance Railing Porch   Fencing   Trex Transcend Porch Flooring and Railing System Seclusions ® Fencing Trex Seclusions® Steel Deck Framing System   Trex Elevations ® Outdoor Lighting Systems Trex DeckLighting™ Trex LandscapeLighting™ Hidden Fastening System for Specially Grooved Boards Trex Hideaway® 25 Table of Contents Trex Commercial is a leading national provider of custom-engineered railing and staging systems. We offer modular and architectural railing and staging systems and solutions for the commercial and multifamily market, including sports stadiums and performing arts venues through Trex Commercial. Highlights related to the twelve months ended December 31, 20162019 include: Increase in net sales of 8.8%9%, or $38.8$61.1 million, to $745.3 million in the twelve months ended 2016December 31, 2019 compared to $684.3 million in the twelve months ended 2015.December 31, 2018. Net sales in 20162019 were the highest of any year in our history. Increase Trex Residential net sales increased $81 million, or 13%, in gross profit of 20.8%, or $32.2 million. Gross profit in 2016 was2019 compared to 2018, and were the highest of any year in our history. Net Increase in gross profit of 4%, or $11.6 million, to $306.50 million for the twelve months ended December 31, 2019 compared to $294.9 million for the twelve months ended December 31, 2018. Increase in net income of $67.8to $144.7 million, also reflectsreflecting the highest of any year in our history. $85.3 million of positive cash Cash flows from operating activities in the twelve months ended 2016 compared to $62.6were $156.4 million in the twelve months ended 2015.December 31, 2019 compared to $138.1 million in the twelve months ended December 31, 2018. New capital expenditure program to increase production capacity at the Trex Residential facilities in Virginia and Nevada and projected at approximately $200 million in the aggregate by 2021. Repurchase of 500,059 shares of our outstanding common stock under our Stock Repurchase Program in 2019, for a total of 959,380 shares repurchased under the program to date. Business Acquisition. On July 31, 2017, through our wholly-owned subsidiary, Trex Commercial Products, Inc., we entered into a definitive agreement with Staging Concepts Acquisition, LLC (SC Company) and on that date acquired certain assets and liabilities of SC Company for $71.8 million in cash. The acquisition provides us with the opportunity to offer full service railing systems in the growing commercial and multi-family markets, access to a complementary product category with a track record of substantial revenue growth, the ability to achieve economies of scale around raw material procurement, and an increase in the range of products the Company may offer its core customers. The Consolidated Financial Statements include the accounts of Trex Commercial Products, Inc. from the date of acquisition. Net Sales. Net sales consist of sales and freight, net of returns and discounts. The level of net sales is principally affected by sales volume and the prices paid for Trex products. Our branding and product differentiation strategy enables us to command premium prices over wood products. OurThe operating results for Trex Residential have historically varied from quarter to quarter, often due to seasonal trends in the demand for outdoor living products. We have historically experienced lower net sales during the fourth quarter due to the holiday season. Also, seasonal,Seasonal, erratic or prolonged adverse weather conditions in certain geographic regions reduce the level of home improvement and construction activity and can shift net salesdemand for its products to a later period. As part of ourits normal business practice and consistent with industry practices, we haveTrex Residential has historically provided ouroffered incentive programs to its distributors and dealers incentives to build inventory levels before the start of the prime deck-building season to ensure adequate availability of its product to meet anticipated seasonal consumer demand and to enable production planning. These incentives include prompt payment discounts and favorable payment terms. In addition, we offer price discounts or volume rebates on specified products and other incentives based on increases in purchases as part of specific promotional programs. The timing of sales incentive programs can significantly impact sales, receivables and inventory levels during the offering period. However, the timing and terms of the majority of our programs are generally consistent from year to year. In addition, the operating results for Trex Commercial have not historically varied from quarter to quarter as a result of seasonality, but are driven by the timing of individual projects, which may vary significantly each period. Gross Profit. Gross profit represents the difference between net sales and cost of sales. Cost of sales consists of raw materials costs, direct labor costs, manufacturing costs, warranty costs, and freight. Raw materials costs generally include the costs to purchase and transport reclaimed wood fiber, scrap polyethylene and pigmentation 26 Table of Contents for coloring Trex products. Direct labor costs include wages and benefits of personnel engaged in the manufacturing process. Manufacturing costs consist of costs of depreciation, utilities, maintenance supplies and repairs, indirect labor, including wages and benefits, and warehouse and equipment rental activities. Selling, General and Administrative Expenses. The largest component of selling, general and administrative expenses is personnel related costs, which include salaries, commissions, incentive compensation, and benefits of personnel engaged in sales and marketing, accounting, information technology, corporate operations, research and development, and other business functions. Another component of selling, general and administrative expenses is branding and other sales and marketing costs, which are used to build brand awareness of Trex. These costs consist primarily of advertising, merchandising, and other promotional costs. Other general and administrative expenses include professional fees, office occupancy costs attributable to the business functions previously referenced, and consumer relations expenses. As a percentage of net sales, selling, general and administrative expenses have varied from quarter to quarter due, in part, to the seasonality of our business. CRITICAL ACCOUNTING POLICIES AND ESTIMATES Our significant accounting policies are described in Note 2 to our Consolidated Financial Statements appearing elsewhere in this report. Our critical accounting estimates include the areas where we have made what we consider to be particularly difficult, subjective or complex judgments in making estimates, and where these estimates can significantly affect our financial results under different assumptions and conditions. We prepare our financial statements in conformity with accounting principles generally accepted in the United States. As a result, we are required to make estimates, judgments and assumptions that we believe are reasonable based upon the information available. These estimates, judgments and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the periods presented. Actual results could be different from these estimates. Product Warranty. We warrant that our Trex Residential products will be free from material defects in workmanship and materials. Generally, this warranty period is 25 years for residential use and 10 years for commercial use, excluding Trex Signature™ Signature ® Railing, which has a warranty period of 25 years for both residential and commercial use. We further warrant 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. This warranty extends for a period of 25 years for residential use and 10 years for commercial use. If there is a breach of such warranties, we have an obligation either to replace the defective product or refund the purchase price. Depending on the product and its use, the Company also warrants its Trex Commercial products will be free of manufacturing defects for one to three years. We continue to receive and settle claims for Trex Residential products manufactured at our Nevada facility prior to 2007 that exhibit surface flaking and maintain a warranty reserve to provide for the settlement of these claims. 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, we utilize actuarial techniques to quantify both the expected number 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. The number of claims received has declined each year since peaking in 2009, although the rate of decline has decelerated in recent years. Additionally, events such as the 2009 settlement of a class action lawsuit covering the surface flaking defect and communications by us in 2013 informing homeowners of potential hazards associated with products exhibiting surface flaking that are not timely replaced, have obscured observable trends in historical claims activity.2009. 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. We monitor surface flaking claims activity each quarter for indications that our estimates require revision. Typically, a majority of surface flaking claims received in a year are received during the summer outdoor season, 27 Table of Contents which spans the second and third quarters. It has been our 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, 20162019, was slightly lower than our expectations for 2019 and the number of claims received in the year ended December 31, 2015,2018, continuing the historical year-over-year decline in incoming claims, butclaims. Average settlement cost per claim experienced in 2019 was considerably higher than our expectations. Also,expectations for 2019 and the average settlement cost per claim experienced in the year ended December 31, 2016 was higher than the average settlement cost per claim experienced during the year ended December 31, 2015 and higher than our expectation for 2016. As a result and after actuarial review, we revised our estimate and recorded2018 due to an increase toin larger claims settled and changes in the warrantymix of settlement methods. We believe our reserve of $9.8 million during the third quarter of 2016. Based on the facts and circumstances at December 31, 2016, we believe our reserve2019 is sufficient to cover future surface flaking obligations. We note that our annual cash outflows for surface flaking claims declined by $1.5 million, or 21%,obligations and no adjustments were required in 2016 compared to 2015, and declined by $1.7 million, or 19%, in 2015 compared to 2014. the current year. Our 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 our financial condition, results of operations or cash flows. We estimate 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. We estimate that a 10% change in the expected number of remaining claims to be settled with payment or the expected cost to settle claims may result in approximately a $3.4$1.9 million change in the surface flaking warranty reserve. The following table details surface flaking claims activity related to our residential product warranty:      Year Ended December 31,        2016      2015      2014   Claims unresolved beginning of period      2,500         2,872         4,249    Claims received (1)      2,615         2,968         3,212    Claims resolved (2)      (2,360 )       (3,340 )       (4,589 )                             Claims unresolved end of period      2,755         2,500         2,872                               Average cost per claim (3)    $ 2,639       $ 2,521       $ 2,287                                Year Ended December 31,     2019     2018     2017   Claims unresolved beginning of period     2,021       2,306       2,755   Claims received (1)     1,394       1,481       2,250   Claims resolved (2)     (1,691 )     (1,766 )     (2,699 )                           Claims unresolved end of period     1,724       2,021       2,306                             Average cost per claim (3)   $ 3,447     $ 2,631     $ 2,546   (1) Claims received include new claims received or identified during the period. (2) Claims resolved include all claims settled with or without payment and closed during the period. (3) Average cost per claim represents the average settlement cost of claims closed with payment during the period. For additional information about product warranties, see Notes 2 and 1319 to the Consolidated Financial Statements appearing elsewhere in this report. Inventories. We account for inventories at Goodwill. The Company evaluates the lowerrecoverability of cost (last-in, first-out,goodwill in accordance with Accounting Standard Codification Topic 350, “ Intangibles—Goodwill and Other ,” annually or LIFO)more frequently if an event occurs or market value. We believe that our current inventory of finished goods will be saleablecircumstances change in the ordinary course of business and, accordingly, haveinterim that would more likely than not established significant reserves for estimated slow moving products or obsolescence. At December 31, 2016,reduce the excessfair value of the replacement cost of inventory overasset below its carrying amount. Goodwill is considered to be impaired when the LIFOnet book value of inventory was approximately $21.4 million. Income Taxes.We recognize deferred tax assets and liabilities based on the difference between the financial statement basis and tax basis of assets and liabilities using enacted tax rates in effect during the year in which it is expected that the differences reverse. We assess the likelihood that our 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 thatreporting unit exceeds its estimated fair value. The Company first assesses qualitative factors to determine if it is more likely than not that some portion, or all, of the deferred tax asset will not be realized. As of December 31, 2016, we have a valuation allowance of $4.1 million against the deferred tax assets related to state tax credits we estimate will expire before they are realized. We will analyze our position in subsequent reporting periods, considering all available positive and negative evidence, in determining the expected realization of our deferred tax assets. Stock-Based Compensation.The fair value of each stock-based award to officers, directors and certain key employees is established on the date of the grant. We calculate the grant date fair value of stock options and stock appreciation rights using the Black-Scholes valuation model. Determining the fair value of these awardsthe reporting unit is judgmental in nature and involvesless than its carrying amount to determine if it should proceed with the useevaluation of significant estimates and assumptions, includinggoodwill for impairment. If the termCompany proceeds with the two-step impairment test, the Company first compares the fair value of the share-based awards, risk-free interest ratesreporting unit to its carrying value. If the carrying value of a reporting unit exceeds its fair value, the goodwill of that reporting unit is potentially impaired and step two of the impairment analysis is performed. In step two of the analysis, an impairment loss is recorded equal to the excess of the carrying value of the reporting unit’s goodwill over its implied fair value should such a circumstance arise. The Company measures fair value of the reporting unit based on a present value of future discounted cash flows and a market valuation approach. 28 Table of Contents Revenue Recognition Effective January 1, 2018, we adopted the requirements of Financial Accounting Standards Board Accounting Standards Update 2014-09, “Revenue from Contracts with Customers” (Topic 606) . We determined the appropriate revenue recognition for our contracts with customers by analyzing the type, terms and conditions of our contracts with our 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. Adoption of Topic 606 did not have an impact on the Company’s financial condition or results of operations. The following provides additional information about our contracts with customers. 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 vestingdistinct 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 dividend rates,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 price volatilityperformance obligation is satisfied. Trex Commercial Products Trex Commercial generates revenue from the manufacture and sale of our shares.its modular and architectural railing and staging systems. All of its revenues are from fixed-price contracts with customers. Trex Commercial contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contract and is, therefore, not distinct. Trex Commercial satisfies its performance obligation over time as work progresses because control is transferred continuously to its customers. Revenue and estimated profit is 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 include all direct material, labor, subcontract and certain indirect costs. The Company usesreviews and updates its estimates regularly and recognizes adjustments in estimated profit on contracts under the historical volatility overcumulative catch-up method. Under this method, the average expected termimpact of the options granted asadjustment on revenue and estimated profit to date on a contract is recognized in the expected volatility. Theperiod 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 indicates an anticipated loss on the contract, the Company recognizes forfeitures as they occur. We base our fair value estimatesthe total loss in the period it is identified. During the year ended December 31, 2019, no adjustment to any one contract was material to the Company’s Consolidated Financial Statements and no material impairment loss on assumptions we believe to be reasonable but that are inherently uncertain. Actual future results may differ from those estimates. We grant performance-based restricted stock units, the vesting of which is subject to holder’s continuing employment and our achievement of certain performance measures. At each reporting period, we assess actual performance versus the predetermined performance measures, and adjust the stock-based compensation expense to reflect the relative performance achievement. Actual distributed shares are calculated upon conclusion of the service and performance periods. any contract was recorded. RESULTS OF OPERATIONS Below we have included a discussion of our operating results and material changes in our operating results for the yearsyear ended December 31, 20162019 compared to the year ended December 31, 2015, and December 31, 2015 compared to December 31, 2014. 2018. 29 Table of Contents Year Ended December 31, 20162019 Compared toTo Year Ended December 31, 2015 2018 Net Sales      Year Ended December 31,      $ Change      % Change        2016      2015              (dollars in thousands)   Net sales    $ 479,616       $ 440,804       $ 38,812         8.8 %                                      Year Ended December 31,     $ Change     % Change     2019     2018     (dollars in thousands)   Total net sales   $ 745,347     $ 684,250     $ 61,097       8.9 % Trex Residential net sales   $ 694,267     $ 613,229     $ 81,038       13.2 % Trex Commercial net sales   $ 51,080     $ 71,021     $ (19,941 )     (28.1 )% The $38.8 million9% increase in total net sales in 2019 compared to 2018 was primarily due to an increase in net sales of 13% at Trex Residential, offset by a 28% decrease in 2016 compared to 2015Trex Commercial net sales. The primary driver of Trex Residential net sales was due primarilyincreased volume growth. Through the first quarter of 2019, and to a $53.2 million increase in sales volume growth of our core Trex branded decking and railing products. Sales volume growth also benefited from the execution of our market growth strategies that we launchedmuch lesser extent in the second quarterand third quarters of this year to highlight the aesthetics, performance and sustainability benefits of2019, Trex composite decking and railing products versus wood. The rollout of our programs in 2016 that aimed to strengthen our brand relationships with consumers and the trade facilitated growth. Such programs include our online tools that assist the consumer throughout the sales process from design to installation, and the launch of our state-of-the-art training facility, Trex University, that educates retailers, contractors and other Trex partners on the benefits of Trex outdoor living products. The increase in sales volume growth was offset by $6.8 million due to the impact of mix and sales discounts, and by a $7.6 million decrease in poly film sales. These sales were curtailed early in 2016 reflecting a change in management’s procurement strategy for scrap poly film purchases. Gross Profit      Year Ended December 31,     $ Change      % Change        2016     2015             (dollars in thousands)   Cost of sales    $ 292,521      $ 285,935      $ 6,586         2.3 %  % of net sales      61.0 %      64.9 %       Gross profit    $ 187,095      $ 154,869      $ 32,226         20.8 %  Gross margin      39.0 %      35.1 %       The increase in gross profit in 2016 compared to 2015 was primarily due to reduced raw materials cost, execution of our manufacturing cost improvement initiatives, and increased sales. The drivers for the increase in gross margin, or gross profit as a percentage ofResidential net sales were lower raw materials cost mainly resulting from our revised procurement strategy, other cost saving initiatives designed to ensure we meet increased market demand more efficiently and effectively, and from an increase in capacity utilization in order to achieve appropriate inventory levels to support growth, and other operating efficiencies. The increase in gross profit was partially offset by a $9.8 million increase to the legacy warranty reserve related to the surface flaking issue that affected a portion of products produced at our Nevada plant before 2007 compared to a $5.4 million adjustment in 2015 that related to surface flaking. Selling, General and Administrative Expenses      Year Ended December 31,     $ Change      % Change            2016             2015                 (dollars in thousands)   Selling, general and administrative expenses    $ 83,140      $ 77,463      $ 5,677         7.3 %  % of net sales      17.3 %      17.6 %       The increase in selling, general and administrative expenses in 2016 compared to 2015 was attributable to a $2.2 million increase in personnel related expenses of salaries and benefits and incentive compensationconstrained due to improved performance against targets, $2.2 million increase in research and development expenses, and a $1.4 million increase in advertising and branding activities in support of our market growth strategies. Interest Expense      Year Ended December 31,       $ Change          % Change              2016             2015                 (dollars in thousands)   Interest expense    $ 1,125      $ 619      $ 506         81.7 %  % of net sales      0.2 %      0.1 %       The increase in interest expense in 2016 compared to 2015 was due to an $18.3 million increase in average outstanding borrowings during 2016 and a slight increase in the effective interest rate. The increase in borrowings was due to $53.3 million in stock repurchase activitysupply issues primarily caused by new product startup inefficiencies related to our new Enhance decking product. These inefficiencies resulted in lower throughput than was needed to support market demand. Net sales in 2018 were impacted by a $6 million unfavorable charge related to expanded share repurchase program andstocking positions in support of our seasonal working capital needs. Provision for Income Taxes      Year Ended December 31,       $ Change          % Change              2016             2015                 (dollars in thousands)   Provision for income taxes    $ 34,983      $ 28,689      $ 6,294         21.9 %  Effective tax rate      34.0 %      37.4 %       During 2016 and 2015, our income tax expense consisted of statutory federal and state taxes, permanent bookall residential sales channels. Excluding this impact, Trex Residential net sales increased by 12%. Trex Commercial net sales decreased mainly due to tax differences, federal tax credits, and other miscellaneous tax items. The effective tax rate in 2016 decreased 340 basis pointsfewer large projects compared to the effective tax rate during 2015 due to nondeductible compensation expense recognizedperiod of strong, large project completions experienced in the prior year and the adoption of Financial Accounting Standards Board Accounting Standards Codification No. 2016-09, “Compensation – Stock Compensation (Topic718): Improvements to Employee Share-Based Payment Accounting.” As of January 1, 2016, the Company prospectively applied the guidance related to excess tax benefits and recorded a $1.7 million benefit within income tax expense. Excess tax benefits for 2015 were recorded as an increase to additional paid-in capital. Year Ended December 31, 2015 Compared to Year Ended December 31, 2014 Net Sales      Year Ended December 31,                          2015              2014            $ Change          % Change          (dollars in thousands)   Net sales    $ 440,804       $ 391,660       $ 49,144         12.5 %  The increase in net sales in 2015 compared to 2014 was due to a 10.4% increase in sales volumes and a 2.0% increase in the average price per unit due to a price increase on one line of decking product and, to a lesser extent, product mix. We attribute the increase in sales volumes in 2015 compared to 2014 primarily to market share gains and an increase in demand for wood-alternative products. The increase in average price per unit in 2015 was a result of price increases on some of our 2015 decking products. 2018. Gross Profit      Year Ended December 31,       $ Change          % Change              2015             2014                 (dollars in thousands)   Cost of sales    $ 285,935      $ 251,464      $ 34,471         13.7 %  % of net sales      64.9 %      64.2 %       Gross profit    $ 154,869      $ 140,196      $ 14,673         10.5 %  Gross margin      35.1 %      35.8 %       The increase in gross profit in 2015 compared to 2014 was primarily due to increased sales from market share gains, price increases on some of our decking products and increased demand for wood-alternative products.                                     Year Ended December 31,     $ Change     % Change     2019     2018     (dollars in thousands)   Cost of sales   $ 438,844     $ 389,356     $ 49,488       12.7 % % of total net sales     58.9 %     56.9 %             Gross profit   $ 306,503     $ 294,894     $ 11,609       3.9 % Gross margin     41.1 %     43.1 %             Gross profit as a percentage of net sales, gross margin, decreasedwas 41.1% in 20152019 compared to 201443.1% in 2018. Gross margin for Trex Residential and Trex Commercial products in 2019 totaled 42.4% and 23.5%, respectively, compared to 45.6% and 21.8%, respectively, in 2018. The decrease in gross margin was primarily due to a $7.8 million increasedecrease in Trex Residential gross profit related to new product startup costs and manufacturing inefficiencies associated with the slower than normal production ramp up on those products, including reduced line rates, increased material usage and lower manufacturing yields. During March and through the third quarter, we made numerous changes to improve throughput. As a result, our production rates largely returned to planned levels and associated operating inefficiencies have been reduced. We believe these improvements will continue to result in improved throughput and efficiency. The startup costs are largely behind us and we expect continued improvement in throughput and efficiency in future periods. We have begun to reduce material added to the warranty reserve,Enhance product in the majorityfirst quarter of which related2020 and expect to surface flaking. Excludingbe essentially at the adjustment tooriginal design target by the warranty reserve,end of the third quarter in 2020. Trex Commercial gross margin increased 110 basis points in 2015 comparedprimarily due to initiatives aimed at improving project management, estimating and manufacturing. However, the gross margin in 2014. increase was hampered due to under absorption of manufacturing overhead as a result of lower net sales. Selling, General and Administrative Expenses      Year Ended December 31,       $ Change          % Change              2015             2014                 (dollars in thousands)   Selling, general and administrative expenses    $ 77,463      $ 72,370      $ 5,093         7.0 %  % of net sales      17.6 %      18.5 %       The increase in selling,                                     Year Ended December 31,     $ Change     % Change     2019     2018     (dollars in thousands)   Selling, general and administrative expenses   $ 118,304     $ 118,225     $ 79       0.1 % % of total net sales     15.9 %     17.3 %             30 Table of Contents Selling, general and administrative expenses in 2015 compared2019 were comparable to 2014 was primarily attributable to a $5.8those in 2018. Incentive compensation decreased $4 million increase in personnel related expenses primarily2019. In addition, amortization expense decreased $2.7 million in 2019 due to incentive compensation and severance pay and a $2.6the full amortization of intangible assets acquired as part of the SC Company acquisition in July 2017. The decreases were offset primarily by increases in other personnel expense of $3.6 million, increase$0.7 million in branding activities, such as the launchand advertising spend in support of our new marketing campaign, market growth programs, $0.3 million in research and trade show presentations. These increases were partially offset bydevelopment expenses and an increase in sublease receipts of approximately $1.2 million during 2015 (refer to Note 13 to the Consolidated Financial Statements), a $1.2 million decrease in service fees and $950,000 in other general cost reductions. Interest Expense      Year Ended December 31,       $ Change          % Change              2015             2014                 (dollars in thousands)   Interest expense    $ 619      $ 878      $ (259 )       (29.5 )%  % of net sales      0.1 %      0.2 %       The decrease in interest expense was driven by an increase in capitalized interest during 2015 and a decrease in the effective interest rate. The increase in capitalized interest in 2015 was primarily due to the addition of three manufacturing lines related to our specialty materials operations and expenditures to support potential future expansion. miscellaneous expenses. Provision for Income Taxes      Year Ended December 31,       $ Change        �� % Change              2015             2014                 (dollars in thousands)   Provision for income taxes    $ 28,689      $ 25,427      $ 3,262         12.8 %  Effective tax rate      37.4 %      38.0 %       During 2015 and 2014, our income tax expense consisted of statutory federal and state taxes, permanent book to tax differences, federal tax credits, other miscellaneous tax items and an increase to the valuation allowance on our deferred tax asset.                                     Year Ended December 31,     $ Change     % Change         2019             2018         (dollars in thousands)   Provision for income taxes   $ 44,964     $ 42,289     $ 2,675       6.3 % Effective tax rate     23.7 %     23.9 %             The effective tax rate for 2019 decreased by 0.2% compared to the effective tax rate for 2018 primarily due to an increase in 2015excess tax benefits from the exercise of share-based payments. Net Income and Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) 1 (in thousands) Reconciliation of net income (GAAP) to EBITDA (non-GAAP):                           Year Ended December 31   2019 Trex Residential     2019 Trex Commercial     2019 Trex Consolidated   Net income   $ 142,811     $ 1,927     $ 144,738   Interest income, net     (1,496 )     (7 )     (1,503 ) Income tax expense     44,292       672       44,964   Depreciation and amortization     13,413       618       14,031                             EBITDA   $ 199,020     $ 3,210     $ 202,230                                                       Year Ended December 31   2018 Trex Residential     2018 Trex Commercial     2018 Trex Consolidated   Net income   $ 131,823     $ 2,749     $ 134,572   Interest income, net     (192 )     —         (192 ) Income tax expense     41,421       868       42,289   Depreciation and amortization     13,216       3,251       16,467                             EBITDA   $ 186,268     $ 6,868     $ 193,136                             1 EBITDA represents net income before interest, income taxes, depreciation and amortization. EBITDA is not a measurement of financial performance under accounting principles generally accepted in the United States (GAAP). We have included data with respect to EBITDA because management evaluates the performance of its reportable segments using EBITDA. Management considers EBITDA to be an important supplemental indicator of our core operating performance because it eliminates interest, income taxes, and depreciation and amortization charges to net income and, in relation to its competitors, it eliminates differences among companies in capitalization and tax structures, capital investment cycles and ages of related assets. For these reasons, management believes that EBITDA provides important information regarding the operating performance of the Company and its reportable segments. 31 Table of Contents                                     Year Ended December 31,     $ Change     % Change     2019     2018     (dollars in thousands)   Total EBITDA   $ 202,230     $ 193,136     $ 9,094       4.7 % Trex Residential EBITDA   $ 199,020     $ 186,268     $ 12,752       6.9 % Trex Commercial EBITDA   $ 3,210     $ 6,868     $ (3,658 )     (53.3 )% The Company uses EBITDA to assess performance as it believes EBITDA facilitates performance comparison between the Company and its competitors and between its reportable segments by eliminating interest, income taxes, and depreciation and amortization charges to income. Total EBITDA increased 4.7% to $202 million for 2019 compared to $193 million for 2018. The increase was consistentprimarily driven by a $13 million increase in Trex Residential EBITDA driven by the increase in net sales. The increase was offset by a decrease in EBITDA at Trex Commercial primarily related to a decrease in net sales. Year Ended December 31, 2018 Compared To Year Ended December 31, 2017 The Company hereby incorporates by reference the financial results from fiscal year 2017 and the comparison of financial results from fiscal year 2018 to fiscal year 2017 as set forth in the Company’s Management’s Discussion and Analysis of Financial Condition and Results of Operation in the Annual Report on Form 10-K for the year ended December 31, 2018 and filed with the effective rate in 2014. U.S. Securities and Exchange Commission on February 14, 2019. LIQUIDITY AND CAPITAL RESOURCES We finance operations and growth primarily with cash flow from operations, borrowings, operating leases and normal trade credit terms from operating activities. S ources and Uses of Cash. The following table summarizes our cash flows from operating, investing and financing activities for the years ended December 31, 2016, 2015,2019, 2018, and 20142017 (in thousands):      Year Ended December 31,        2016      2015      2014   Net cash provided by operating activities    $ 85,293       $ 62,634       $ 58,642    Net cash used in investing activities    $ (10,202 )     $ (23,329 )     $ (12,873 )  Net cash used in financing activities    $ (62,422 )     $ (42,854 )     $ (39,997 )                             Net increase (decrease) in cash and cash equivalents    $ 12,669       $ (3,549 )     $ 5,772                                                           Year Ended December 31,     2019     2018     2017   Net cash provided by operating activities   $ 156,352     $ 138,121     $ 101,865   Net cash used in investing activities     (67,244 )     (33,733 )     (86,789 ) Net cash used in financing activities     (45,974 )     (29,203 )     (3,226 )                           Net increase in cash and cash equivalents   $ 43,134     $ 75,185     $ 11,850                             Operating Activities Net cash Cash provided by operating activities increased $22.7$18.2 million in 20162019 compared to 20152018 primarily due to higher cash receiptsthe increase in gross profit and related increase in net income resulting from the 8.8% increase in net sales during 2016 compared to 2015 coupled with the 390 basis point increasevolume growth, offset by a decrease in gross margin, and a $4.4 million increase due to the timingworking capital investment of income tax payments. Net cash provided by operating$2.9 million. Investing Activities Investing activities increased $4in 2019 consisted of $67.3 million in 2015 compared to 2014. The increase reflected higher operating cash receipts from increased net sales and an increase in accrued expenses and other liabilities, partially offset by an increase in trade accounts receivable. The $15 million increase in accrued expenses and other liabilities in 2015 was primarily attributed to increases in accrued marketing and other branding activities of $6 million, incentive and other personnel related expenses of $2 million, and miscellaneous other fees and expenses of $6 million. The increase in accrued expenses and other liabilities was offset by an increase in accounts receivable of $12 million in 2015. The increase in accounts receivable was due to an increase in net sales. Investing Activities Investing activities consist principally of capital expenditures, directedincluding $59.8 million related to new product developmentcapacity expansion and to quick return cost investments to capture manufacturing cost savings. These investments allow us to meet the market’s increased demand and corresponding volume requirements resulting in greater profitability and cash flow. Capital expenditures in 2016 were $14.6 million consisting primarily of $5.6 million for the purchase of, land adjacent to our Winchester, Virginia manufacturing facility, and Trex University (our state-of-the-art training facility), $5.6 million for investments to capturegeneral plant cost reduction initiatives, and $2.7 million for process and productivity improvement. Also, in January 2016, the Company sold a portion of the Olive Branch facility that contained the buildings for $4.2 million and, as of December 31, 2016, continues to own approximately 62 acres of undeveloped land adjacent to the sold properties. During 2015, capital expenditures were $23.3 million compared to $13.0 million for 2014, or an 80% increase. Our 2015 expenditures were primarily comprised of $6.7 million for equipment for our specialty materials operation, $4.2 million for cost reduction and business support activities, $3.9 million for the addition of a Fernley, Nevada reprocessing line, $3.2 million for the purchase of land adjacent to our Winchester, Virginia facility to support potential future expansion, and $2.3$4.9 million for other manufacturing productivity improvements. production improvements and $2.2 million for general support initiatives. 32 Table of Contents Financing Activities In January 2016, we increased our borrowing capacity in order to repurchase shares of our common stock and to support our seasonal working capital needs. Net cash used in financing activities was $62.4in 2019 increased $16.8 million in 2016 compared to net cash used in financing activities of $42.9 million in 2015. The increase was2018 primarily due to payments on outstanding debt balances earlier and at a higher levelthe increase in 2016 compared to 2015 due to higher sales and reduced manufacturing costs. Cash usedstock repurchase activity in financing activities was $42.9 million during 2015 compared to $40.0 million in 2014, a 7.2% increase. The net use2019 of cash in 2015 was primarily used to repurchase common stock in the amount of $45.2 million under our October 2014 $16.5 million. Stock Repurchase Program, and to fund working capital needs and support general business operations. Stock Repurchase Programs. Program. On February 19, 2014, our16, 2018, the Board of Directors authorizedadopted a common stock repurchase program of up to $50.05.8 million shares of ourthe Company’s outstanding common stock (February 2014 Stock Repurchase Program). This authorization had no expiration date. During the three months ended June 30, 2014, we repurchased 1,657,919 shares for $50.0 million, which completed the authorization under the February 2014 Stock Repurchase Program. On October 23, 2014, our Board of Directors authorized a common stock repurchase program of up to 2.0 million shares of our outstanding common stock (October 2014 Stock Repurchase Program). This authorization had no expiration date. During the three months ended September 30, 2015, we repurchased 1,134,300 shares for $45.2 million under the October 2014 Stock Repurchase Program. On October 22, 2015, our Board of Directors terminated the October 2014 Stock Repurchase Program and adopted a new stock repurchase program of up to 3.15 million shares of our outstanding common stock (October 2015 Stock Repurchase Program). In 2016, we repurchased 1,578,952 shares for $53.3 million under the October 2015 Stock Repurchase Program. This authorization terminated on December 31, 2016. On February 16, 2017, the Board of Directors authorized a common stock repurchase program of up to 2.961 million shares of our outstanding common stock (February 2017 Stock(Stock Repurchase Program). As of the date of this report, we had notthe Company has repurchased any959,380 shares under the February 2017 Stock Repurchase Program. Inventory in Distribution Channels . We sell our Trex Residential decking and railing products through a tiered distribution system. We have over 50 distributors worldwide and two national retail merchandisers to which we sell our products. The distributors in turn sell the products to dealers and retail locations who in turn sell the products to the end users. Consistent with industry practices, to ensure adequate availability of product to meet anticipated seasonal consumer demand and to enable production planning, we have historically provided our distributors and dealers incentives to buildSignificant increases in inventory levels before the start of the prime deck-building season. These incentives include prompt payment discounts and favorable payment terms. In addition, we offer price discounts or volume rebates on specified products and other incentives based on increases in purchases as part of specific promotional programs. We warrant that we will replace defective items for a period of one year from the date of shipment to the distributor. While we do not typically receive any information regarding inventory in the distribution channel from any dealers, we occasionally receive limited information from some but not all of our distributors regarding their inventory. Because few distributors provide us with any information regarding their inventory, wewithout a corresponding change in end-use demand could have an adverse effect on future sales. We cannot definitively determine the level of inventory in the distribution channels at any time. We are not aware of significant changesincreases in the levels of inventory in the distribution channels at December 31, 20162019 compared to inventory levels at December 31, 2015. Significant increases2018. Business Acquisition. On July 31, 2017, through our wholly-owned subsidiary, Trex Commercial Products, Inc., we entered into a definitive agreement with SC Company and on that date acquired certain assets and liabilities of SC Company for $71.8 million in inventory levels incash. We used cash on hand and $30.0 million from our existing revolving credit facility to acquire the distribution channel without a corresponding change in end-user demand could have an adverse effect on future sales. On occasion, we may need to replace a distributor. Historically, we have had little difficulty replacing a distributor and have experienced little or no disruption to operations or liquidity. We believe that in the event we need to replace a distributor, it would not have an adverse effect on our profitability or liquidity. Product Warranty. We continue to receive and settle claims related to material produced at our Nevada facility prior to 2007 that exhibits surface flaking, which has had a material adverse effect on cash flow from operations, and regularly monitor the adequacy of the warranty reserve. During the year ended December 31, 2016, we paid approximately $5.7 million to settle surface flaking claims against the warranty reserve, a decrease of 21% from the $7.2 million paid in 2015. We estimate that the 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 settlement 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. business. Seasonality . The Company’s operating results for Trex Residential have historically varied from quarter to quarter, often attributable to seasonal trends in the demand for Trex products. The Company has historically experienced lower net sales during the fourth quarter due to the holiday season. Also, seasonal,quarter. Seasonal, erratic or prolonged adverse weather conditions in certain geographic regions reduce the level of home improvement and construction activity and can shift net salesdemand 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. The operating results for Trex Commercial have not historically varied from quarter to quarter as a result of seasonality. However, they are driven by the timing of individual projects, which may vary significantly each period. Indebtedness . Indebtedness after November 4, 2019 . On January 12, 2016,November 5, 2019, the Company as borrower, Trex Commercial Products, Inc. (TCP), as guarantor; Bank of America, N.A. (BOA), as a Lender, Administrative Agent, Swing Line Lender and L/C Issuer; and certain other lenders including Wells Fargo Bank, N.A. (Wells Fargo), who is also Syndication Agent; SunTrust Bank (SunTrust); and Branch Banking and Trust Company (BB&T) (each, a Lender and collectively, the Lenders), arranged by Bank of America Securities, Inc., as Sole Lead Arranger and Sole Bookrunner, entered into a ThirdFourth Amended and Restated Credit Agreement (Fourth Amended Credit Agreement) to amend and also the First Amendment torestate the Third Amended and Restated Credit Agreement (together, the Thirddated as of January 12, 2016, as amended (Third Amended Credit Agreement) with Bank of America, N.A. (BOA), by and among the Company, as Lender,borrower; BOA, as a lender, Administrative Agent, Swing Line Lender and Letter of CreditL/C Issuer; and certain other lenders including Citibank,CitiBank, N.A., (Citi); Capital One, N.A., (Capital One); and SunTrust, Bank (collectively, Lenders) arranged byeach as a lender; and Bank of America Merrill Lynch, as Sole Lead Arranger and Sole Bookrunner. The Third Amended Credit Agreement amended and restated the Second Amended Credit Agreement. Under the ThirdFourth Amended Credit Agreement, the Lenders agreeagreed to provide 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 (Loan Limit) throughout the term, which ends November 5, 2024 (Term). Previously, under the Third Amended Credit Agreement, BOA, Citi, Capital One and SunTrust agreed to provide the Company with one or 33 Table of Contents 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 endswould have ended on January 12, 2021. 2021 if not replaced by the Fourth Amended Credit Agreement. Included within the revolving loan limitLoan Limit are sublimits for a letterLetter of creditCredit facility in an amount not to exceed $15 million and swing line loansSwing Line Loans in an aggregate principal amount at any time outstanding not to exceed $5 million. The revolving loans,Revolving Loans, the letterLetter of creditCredit facility and the swing line loansSwing Line Loans are for the purpose of fundingraising working capital needs and supporting general business operations. The Notes provide the Company, in the aggregate, the ability to borrow an amount up to the Loan Limit during the Term. The Company hasis not obligated to borrow any amount under the optionLoan Limit. Within the Loan Limit, the Company may borrow, repay and reborrow at any time or from time to select interest rates for each loan request attime while the Notes are in effect. Base Rate or Eurodollar Rate. Base rate loansLoans (as defined in the Fourth Amended Credit Agreement) under the revolving loansRevolving Loans and the swing line loansSwing Line Loans accrue interest at the Base Rate plus the Applicable Rate.Rate (as defined in the Fourth Amended Credit Agreement) and Eurodollar Rate Loans for the revolving loansRevolving Loans and swing line loansSwing Line Loans accrue interest at the Adjusted London InterBank Offered Rate plus the Applicable Rate.Rate (as defined in the Fourth Amended 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 Eurodollar Rate plus 1.0%. Repayment of all then outstanding principal, interest, fees and costs is due on November 5, 2024. Under the terms of the Fourth Amended and Restated Security and Pledge Agreement, the Company and TCP, 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 Fourth Amended and Restated Security and Pledge Agreement. Indebtedness through November 4, 2019 . On January 12, 2021. The2016, the Company will reimburseentered into a Third Amended Credit Agreement with BOA for all amounts payable,as Lender, Administrative Agent, Swing Line Lender and Letter of Credit Issuer; and certain other lenders including interest, under a letterCiti, Capital One, and SunTrust (collectively, Lenders) arranged by Bank of credit at the earlier of (i) the date set forth in the application, or (ii) one business day after the payment under such letter of credit by BOA. America Merrill Lynch as Sole Lead Arranger and Sole Bookrunner. The Third Amended Credit Agreement isamended and restated the Second Amended Credit Agreement. Under the Third Amended Credit Agreement, the Lenders agreed to provide 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 would have ended on January 12, 2021. Included within the revolving loan limit were sublimits for a letter of credit facility in an amount not to exceed $15 million and swing line loans in an aggregate principal amount at any time outstanding not to exceed $5 million. The revolving loans, the letter of credit facility and the swing line loans were for the purpose of funding working capital needs and supporting general business operations. Additionally, within the Revolving Loan Limit, the Company could borrow, repay, and reborrow, at any time or from time to time while the Third Amended Credit Agreement was in effect. The Company had the option to select interest rates for each loan request at the Base Rate or Eurodollar Rate. Base rate loans under the revolving loans and the swing line loans accrued interest at the Base Rate plus the Applicable Rate. Eurodollar Rate Loans for the revolving loans and swing line loans accrued interest at the Adjusted London InterBank Offered Rate plus the Applicable Rate. The Base Rate for any day was 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 Eurodollar Rate plus 1.0%. Repayment of all then outstanding principal, interest, fees and costs would have been due on January 12, 2021. 34 Table of Contents The Third Amended Credit Agreement was secured by property with respect to which liens in favor of the Administrative Agent, for the benefit of itself and the other holders of the obligations, arewere purported to be granted pursuant to and in accordance with the terms of the collateral documents as referenced in the Third Amended Credit Agreement. At December 31, 2016, the Company had no outstanding borrowings under the Third Amended Credit Agreement and $200 million of available borrowing capacity. Compliance with Debt Covenants and Restrictions.Our ability Pursuant to make scheduled principal and interest payments, borrow and repay amounts under any outstanding revolving credit facility and continue to comply with any loan covenants depends primarily on our ability to generate sufficient cash flow from operations. To remain in compliance with financial covenants, we are required to maintain specified financial ratios based on levelsthe terms of debt, fixed charges, and earnings (excluding extraordinary gains and extraordinary non-cash losses) before interest, taxes, depreciation and amortization, all of which arethe Fourth Amended Credit Agreement, the Company, is subject to the risks of the business, some of which are discussed in this report under “Risk Factors.” We werecertain loan compliance covenants. The Company was in compliance with all covenants contained in the Third Amended Credit Agreement atas of December 31, 2016.2019. Failure to comply with the financial covenants could be considered a default of our repayment obligations and, among other remedies, could accelerate payment of any amounts outstanding. Contractual Obligations. The following tables show, as of December 31, 2016,table summarizes our contractual obligations, and commercial commitments, which consist primarily of purchase commitments and operating leases, as of December 31, 2019 (in thousands): Contractual Obligations Payments Due by Period      Total      Less than 1 year      1-3 years      4-5 years      After 5 years   Purchase commitments (1)    $ 23,802       $ 20,208       $ 3,594      $ —         $ —     Operating leases      58,388         9,606         23,953         10,783         14,046                                                 Total contractual cash obligations    $ 82,190       $ 29,814       $ 27,547       $ 10,783       $ 14,046                                                                                             Total     1 year     2-3  years     4-5  years     After 5 years   Purchase obligations (1)   $ 33,051     $ 26,763     $ 6,274     $ 14     $ —     Operating leases, including imputed interest (2)     46,935       8,858       14,743       12,255       11,079                                             Total contractual obligations   $ 79,986     $ 35,621     $ 21,017     $ 12,269     $ 11,079                                             (1) Purchase commitmentsobligations represent supply contracts with raw material vendors.vendors and service contracts for hauling raw materials. Open purchase orders written in the normal course of business for goods or services that are provided on demand have been excluded as the timing of which is not certain. (2) Operating leases represent office space, storage warehouses, manufacturing facilities and certain office and plant equipment under various operating leases, and include operating leases accounted for under Financial Accounting Standards Board Accounting Standards Codification Topic 842 and short-term leases. Off-Balance Sheet Arrangements. We do not have off-balance sheet financing arrangements other than operating leases. arrangements. Capital and Other Cash Requirements.Capital expenditures In order to meet future demand, in 2016 were $14.6June 2019 we announced a new multi-year capital expenditure program projected at approximately $200 million consisting of $5.6 million for the purchase of land adjacentbetween 2019 and 2021. The program will increase production capacity by at least 70% at our Trex Residential facilities in Virginia and Nevada and will bring further manufacturing efficiencies to our Winchester,production operations. In the third quarter of 2019, we installed two additional lines in our Nevada facility and three new lines will begin ramping up there in the second quarter of 2020. One new production line was operational in Virginia manufacturing facility,in the fourth quarter of 2019, and a new building being constructed in Virginia is scheduled to start ramping up production by early 2021 at the latest. The investment will allow us to increase production output for future projected growth related to our strategy of converting wood demand to Trex University (our state-of-the-art training facility), $5.6 million for general plant cost reduction initiatives, and $2.7 million for process and productivity improvement.Residential composite decking. We currently estimate that capital expenditures in 20172020 will be approximately $15$140 million to $20$160 million. Capital expenditures in 2017 are expected to be used primarily to support new product launches in current and adjacent categories, cost reduction initiatives, and general business support. We believe that cash on hand, cash flows from operations and borrowings expected to be available under our revolving credit facility will provide sufficient funds to enable us to fund planned capital expenditures, make scheduled principal and interest payments, fund the warranty reserve, meet other cash requirements and maintain compliance with terms of our debt agreements for at least the next 12 months. We currently expect to fund future capital expenditures from operations and borrowings under the revolving credit facility. The actual amount and timing of future capital requirements may differ materially from our estimate depending on the demand for Trex products and new market developments and opportunities. Our ability to meet our cash needs during the next 12 months and thereafter could be adversely affected by various circumstances, including increases in raw 35 Table of Contents materials and product replacement costs, quality control problems, higher than expected product warranty claims, service disruptions and lower than expected collections of accounts receivable. In addition, any failure to negotiate amendments to our existing debt agreements to resolve any future noncompliance with financial covenants could adversely affect our liquidity by reducing access to revolving credit borrowings needed primarily to fund seasonal borrowing needs. We may determine that it is necessary or desirable to obtain financing through bank borrowings or the issuance of debt or equity securities to address such contingencies or changes to our business plan. Debt financing would increase our level of indebtedness, while equity financing would dilute the ownership of our stockholders. There can be no assurance as to whether, or as to the terms on which, we would be able to obtain such financing, which would be restricted by covenants contained in our existing debt agreements. NEW ACCOUNTING STANDARDS In May 2014,August 2018, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers,”  2018-15, “Intangibles—Goodwill and issued subsequent amendments to the initial guidance Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in August 2015 within ASU 2015-14, in March 2016 within ASU 2016-08, in April 2016 within ASU 2016-10, and in May 2016 within ASU 2016-12 (collectively, the new standard)a Cloud Computing Arrangement That Is a Service Contract (a consensus of FASB Emerging Issues Task Force)”. The new standard providesguidance aligns the requirements for capitalizing implementation costs in a single, comprehensivecloud computing arrangement service contract with the requirements for capitalizing implementation costs incurred for an internal-use software license. Under that model, implementation costs are capitalized or expensed depending on the nature of the costs and the project stage during which they are incurred. Capitalized implementation costs are amortized over the term of the associated hosted cloud computing arrangement service contract on a straight-line basis, unless another systematic and rational basis is more representative of the pattern in which the entity expects to benefit from its right to access the hosted software. Capitalized implementation costs would then be assessed for revenue arising from contracts with customers and supersedes most current revenue recognition guidance.impairment in a manner similar to long-lived assets. The new standard requires an entity to recognize revenue at an amount that reflects the consideration to which the company expects to be entitled in exchange for transferring goods or services to a customer. The Company intends to adopt the new standard in the first quarter of fiscal 2018. Currently, the Company intends to use the retrospective application to each reporting period presented, with the option to elect certain practical expedients as defined in the new standard. The Company does not believe adoption of the new standard will have a material impact on its Consolidated Statements of Comprehensive Income, but expects expanded financial statement footnote disclosure. The Company is continuing to evaluate the impacts of the pending adoption. As such, the Company’s preliminary assessments are subject to change. In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” The new standard requires lessees to recognize leases on the balance sheet as a right-of-use asset and a lease liability, other than leases that meet the definition of a short-term lease. The liability will be equal to the present value of the lease payments. The asset will be based on the liability, subject to adjustment. For income statement purposes, the leases will continue to be classified as either operating or finance. Operating leases will result in straight-line expense (similar to current operating leases) and finance leases will result in a front-loaded expense pattern (similar to current capital leases). The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The new standard must be adopted using the modified retrospective transition method and provides for the option to elect a package of practical expedients upon adoption. The Company is currently assessing the impact of adoption of the new standard on its consolidated financial statements and related note disclosures and has not made any decision on the option to elect adoption of the practical expedients. In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” The guidance is intended to reduce diversity in practice across all industries in how certain transactions are classified in the statement of cash flows. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2017,2019, and interim periods within those fiscal years. Early adoption is permitted. Entities can choose to adopt the new guidance either prospectively to eligible costs incurred on or after the date the guidance is first applied or retrospectively. The Company will adopt the guidance on January 1, 2020, and has determined that adoption will not have a material impact on its financial condition or results of operations. In January 2017, the FASB issued ASU No.  2017-04, “Intangibles—Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment”. The guidance requires application usingremoves Step 2 of the goodwill impairment test and eliminates the need to determine the fair value of individual assets and liabilities to measure goodwill impairment. A goodwill impairment will now be the amount by which a retrospective translation method.reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. Entities will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary. The guidance will be applied prospectively, and is effective for annual and interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for any impairment tests performed on testing dates after January 1, 2017. The Company will adopt the guidance on January 1, 2020. The Company does not believe adoption will have a material impact on its financial condition or results of operations. In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses in Financial Instruments,” and issued subsequent amendments to the initial guidance in November 2018 within ASU No.  2018-09, April 2019 within ASU No.  2019-04, and May 2019 within ASU No.  2019-05. The ASU amends the guidance on the impairment of financial instruments and adds an impairment model, known as the current expected credit loss (CECL) model. The CECL model requires an entity to recognize its current estimate of all expected credit losses, rather than incurred losses, and applies to trade receivables and other receivables. The CECL model is assessingdesigned to capture expected credit losses through the impactestablishment of adoptionan allowance account, which will be presented as an offset to the amortized cost basis of the related financial asset. The new standardguidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and is applied using the modified-retrospective approach. The Company will adopt the guidance on January 1, 2020. The Company has determined that adoption will not have a material impact on its consolidated financial statements and related note disclosures. condition or results of operations. 36 Table of Contents Item 7A. Quantitative and Qualitative Disclosures About Market Risk We are subject to market risks from changing interest rates associated with our borrowings. To meet our seasonal working capital needs, we borrow periodically on our variable rate revolving line of credit. At December 31, 2016,2019, we had no debt outstanding under our revolving line of credit. While variable rate debt obligations expose us to the risk of rising interest rates, an increase of 1% in interest rates would not have a material adverse effect on our overall financial position, results of operations or liquidity. In certain instances, we may use interest rate swap agreements to modify fixed rate obligations to variable rate obligations, thereby adjusting the interest rates to current market rates and ensuring that the debt instruments are always reflected at fair value. We had no interest rate swap agreements outstanding as of December 31, 2016. 2019. Item 8. Financial Statements and Supplementary Data The financial statements listed in Item 15 and appearing on pages F-2 through F-23 F- 33 are incorporated by reference in this Item 8 and are filed as part of this report. Item 9. Changes in and Disagreements Withwith Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures Our The Company’s management, with the participation of ourits President and Chief Executive Officer, who is ourthe Company’s principal executive officer, and ourits Executive Vice President and Chief Financial Officer, who is ourthe Company’s principal financial officer, has evaluated the effectiveness of ourthe Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of December 31, 2016.2019. Based uponon this evaluation, ourthe President and Chief Executive Officer and ourthe Executive Vice President and Chief Financial Officer have concluded that ourthe Company’s disclosure controls and procedures were effective asare effective. 37 Table of December 31, 2016. Contents Management’s Report on Internal Control Over Financial Reporting We, as members of management of Trex Company, Inc. (the “Company”)(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, 2016,2019, 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 (the “COSO Framework”)(COSO Framework). Based on this assessment, we concluded that, as of December 31, 2016,2019, 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, 2016,2019, 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 21, 2017   By:   February 24, 2020 By: /S/    JAMESs/    James E. CLINE Cline     James E. Cline President and Chief Executive Officer (Principal (Principal Executive Officer) February 21, 2017   By:   February 24, 2020 By: /S/    BRYANs/    Bryan H. FAIRBANKS Fairbanks     Bryan H. Fairbanks Executive 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. 38 Table of Contents Report of Ernst & Young LLP, Independent Registered Public Accounting Firm Regarding Internal Control Over Financial Reporting The To the Stockholders and the Board of Directors and Stockholders 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, 2016,2019, 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.’s, (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, 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 2019 consolidated financial statements of the Company and our report dated February 24, 2020 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 Overover Financial Reporting. Our responsibility is to express an opinion on the company’sCompany’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 Public Company Accounting Oversight Board (United States).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. 39 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. In our opinion, Trex Company, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Trex Company, Inc., as of December 31, 2016 and 2015, and the related consolidated statements of comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2016 of Trex Company, Inc. and our report dated February 21, 2017 expressed an unqualified opinion thereon. /s/ Ernst & Young LLP McLean, Richmond, Virginia February 21, 2017 24, 2020 40 Table of Contents Item 9B. Other Information None. 41 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 20172020 annual meeting of stockholders, which we will file with the SEC on or before 120 days after our 20162019 fiscal year-end. We have adopted a codeCode of conductConduct and ethics,Ethics, which is applicable to all of our 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, atwww.trex.com 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 20172020 annual meeting of stockholders, which we will file with the SEC on or before 120 days after our 20162019 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 20172020 annual meeting of stockholders, which we will file with the SEC on or before 120 days after our 20162019 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 20172020 annual meeting of stockholders, which we will file with the SEC on or before 120 days after our 20162019 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 20172020 annual meeting of stockholders, which we will file with the SEC on or before 120 days after our 20162019 fiscal year-end. 42 Table of Contents PART IV Item 15. Exhibits and Financial Statement Schedules (a)(1) The following Consolidated Financial Statements of the Company appear on pages F-2 through F-27 F- 33 of this report and are incorporated by reference in Part II, Item 8: Report of Ernst & Young LLP, Independent Registered Public Accounting Firm     F-2 F- 2   Consolidated Financial Statements   Consolidated Statements of Comprehensive Income for the three years ended December 31, 20162019     F-3 F- 4   Consolidated Balance Sheets as of December 31, 20162019 and 20152018     F-4 F- 5   Consolidated Statements of Changes in Stockholders’ Equity for the three years ended December 31, 20162019     F-5 F- 6   Consolidated Statements of Cash Flows for the three years ended December 31, 20162019     F-6 F- 7   Notes to Consolidated Financial Statements     F-7 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-28 F- 34   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) The following exhibits are either filed withSee Exhibit Index at the end of the Annual Report on Form 10-K for the information required by this Form 10-K or are incorporated herein by reference. The Company’s Securities Exchange Act file number is 001-14649. Exhibit Number Exhibit Description     3.1 Restated Certificate of Incorporation of Trex Company, Inc. (the “Company”). Filed as Exhibit 3.1 to the Company’s Registration Statement on Form S-1 (No. 333-63287) and incorporated herein by reference.     3.2 Certificate of Amendment to the Restated Certificate of Incorporation of Trex Company, Inc. dated April 30, 2014. Filed as Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2014 and incorporated herein by reference.     3.3 Amended and Restated By-Laws of the Company. Filed as Exhibit 3.2 to the Company’s Current Report on Form 8-K filed May 7, 2008 and incorporated herein by reference.     4.1 Specimen certificate representing the Company’s common stock. Filed as Exhibit 4.1 to the Company’s Registration Statement on Form S-1 (No. 333-63287) and incorporated herein by reference.     4.2 Second Amended and Restated Credit Agreement dated as of November 20, 2014 between the Company and Branch Banking and Trust Company, as a Lender, Administrative Agent, Swing Line Lender and Letter of Credit Issuer; Citibank, N.A. as a Lender; Bank of America, N.A. as a Lender; and BB&T Capital Markets, as Lead Arranger. Filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed November 25, 2014 and incorporated herein by reference.     4.3 Revolver Note dated November 20, 2014 payable by the Company to Branch Banking and Trust Company in the amount of the lesser of $80,000,000 or the outstanding revolver advances made by Branch Banking and Trust Company. Filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K filed November 25, 2014 and incorporated herein by reference. Exhibit Number Exhibit Description     4.4 Revolver Note dated November 20, 2014 payable by the Company to Citibank, N.A. in the amount of the lesser of $45,000,000 or the outstanding revolver advances made by Citibank, N.A. Filed as Exhibit 4.3 to the Company’s Current Report on Form 8-K filed November 25, 2014 and incorporated herein by reference.     4.5 Revolver Note dated November 20, 2014 payable by the Company to Bank of America, N.A. in the amount of the lesser of $25,000,000 or the outstanding revolver advances made by Bank of America, N.A. Filed as Exhibit 4.4 to the Company’s Current Report on Form 8-K filed November 25, 2014 and incorporated herein by reference.     4.6 Swing Advance Note dated November 20, 2014 payable by the Company to Branch Banking and Trust Company in the amount of the lesser of $5,000,000 or the outstanding swing advances made by Branch Banking and Trust Company. Filed as Exhibit 4.5 to the Company’s Current Report on Form 8-K filed November 25, 2014 and incorporated herein by reference.     4.7 Second Amended and Restated Security Agreement dated as of November 20, 2014 between the Company, as debtor, and Branch Banking and Trust Company as Administrative Agent for Branch Banking and Trust Company, Citibank, N.A. and Bank of America, N.A. Filed as Exhibit 4.6 to the Company’s Current Report on Form 8-K filed November 25, 2014 and incorporated herein by reference.     4.8 Second Modification to Amended and Restated Credit Line Deed of Trust, dated as of November 20, 2014, by and among the Company as grantor, BB&T-VA Collateral Service Corporation, as trustee, and Branch Banking and Trust Company, as Administrative Agent for Branch Banking and Trust Company, Citibank, N.A. and Bank of America, N.A., as Beneficiaries relating to real property partially located in the County of Frederick, Virginia and partially located in the City of Winchester, Virginia. Filed as Exhibit 4.7 to the Company’s Current Report on Form 8-K filed November 25, 2014 and incorporated herein by reference.     4.9 Modification to Deed of Trust, dated as of November 20, 2014, by and among the Company as grantor, First American Title Insurance Company, as trustee, and Branch Banking and Trust Company, as Administrative Agent for Branch Banking and Trust Company, Citibank, N.A. and Bank of America, N.A., as Beneficiaries relating to real property located in the County of Fernley, Nevada. Filed as Exhibit 4.8 to the Company’s Current Report on Form 8-K filed November 25, 2014 and incorporated herein by reference.     4.10 Intellectual Property Security Agreement, dated November 20, 2014, by and between Trex Company, Inc. as debtor; and Branch Banking and Trust Company, in its capacity as Administrative Agent under the Second Amended and Restated Credit Agreement and acting as agent for itself and the other secured parties. Filed as Exhibit 4.9 to the Company’s Current Report on Form 8-K filed November 25, 2014 and incorporated herein by reference.     4.11 Third Amended and Restated Credit Agreement dated as of January 12, 2016 between the Company, as borrower; the subsidiaries of the Company as guarantors; Bank of America, N.A., as a Lender, Administrative Agent, Swing Line Lender and Letter of Credit Issuer; and certain other lenders arranged by Bank of America Merrill Lynch as Sole Lead Arranger and Sole Bookrunner. Filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on January 14, 2016 and incorporated herein by reference.     4.12 Revolver Note dated January 12, 2016 payable by the Company to Bank of America, N.A. in the amount of the lesser of $110,000,000 or the outstanding revolver advances made by Bank of America, N.A. Filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on January 14, 2016 and incorporated herein by reference. Exhibit Number Exhibit Description     4.13 Revolver Note dated January 12, 2016 payable by the Company to Citibank, N.A. in the amount of the lesser of $75,000,000 or the outstanding revolver advances made by Citibank, N.A. Filed as Exhibit 4.3 to the Company’s Current Report on Form 8-K filed on January 14, 2016 and incorporated herein by reference.     4.14 Revolver Note dated January 12, 2016 payable by the Company to Capital One, N.A. in the amount of the lesser of $35,000,000 or the outstanding revolver advances made by Capital One, N.A. Filed as Exhibit 4.4 to the Company’s Current Report on Form 8-K filed on January 14, 2016 and incorporated herein by reference.     4.15 Revolver Note dated January 12, 2016 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. Filed as Exhibit 4.5 to the Company’s Current Report on Form 8-K filed on January 14, 2016 and incorporated herein by reference.     4.16 Third Amended and Restated Security and Pledge Agreement dated as of January 12, 2016 between the Company, as debtor, and Bank of America, N.A. as Administrative Agent (including Notices of Grant of Security Interest in Copyrights and Trademarks). Filed as Exhibit 4.6 to the Company’s Current Report on Form 8-K filed on January 14, 2016 and incorporated herein by reference.     4.17 Assignment of Amended and Restated Credit Line Deed of Trust, Substitution of Trustee and Amendment, dated as of January 12, 2016, by and among the Company as grantor, PRLAP, INC, as trustee, and Bank of America, N.A., as Administrative Agent for Bank of America, N.A., Citibank, N.A., Capital One, N.A., and SunTrust Bank, as Beneficiaries relating to real property partially located in the County of Frederick, Virginia and partially located in the City of Winchester, Virginia. Filed as Exhibit 4.7 to the Company‘s Current Report on Form 8-K filed on January 14, 2016 and incorporated herein by reference.     4.18 Amended and Restated Deed of Trust, dated as of January 12, 2016, by and among the Company as grantor, First American Title Insurance Company, as trustee, and Bank of America, N.A., Citibank, N.A., Capital One, N.A., and SunTrust Bank, as Beneficiaries relating to real property located in the County of Fernley, Nevada. Filed as Exhibit 4.8 to the Company’s Current Report on Form 8-K filed on January 14, 2016 and incorporated herein by reference.   10.1 Description of Management Compensatory Plans and Arrangements. Filed herewith. **   10.2 Trex Company, Inc. 2014 Stock Incentive Plan. Filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2014 and incorporated herein by reference. **   10.3 Trex Company, Inc. Amended and Restated 1999 Incentive Plan for Outside Directors. Filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2015 and incorporated herein by reference. **   10.4 Form of Trex Company, Inc. 2014 Stock Incentive Plan Time-Based Restricted Stock Agreement. Filed as Exhibit 10.7 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013 and incorporated herein by reference. **   10.5 Form of Trex Company, Inc. 2014 Stock Incentive Plan Performance-Based Restricted Stock Agreement. Filed as Exhibit 10.8 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013 and incorporated herein by reference. **   10.6 Form of Trex Company, Inc. 2014 Stock Incentive Plan Stock Appreciation Rights Agreement. Filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2015 and incorporated herein by reference. ** Exhibit Number Exhibit Description   10.7 Form of Trex Company, Inc. 2014 Stock Incentive Plan Time-Based Restricted Stock Unit Agreement. Filed as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2015 and incorporated herein by reference. **   10.8 Form of Trex Company, Inc. 2014 Stock Incentive Plan Performance-Based Restricted Stock Unit Agreement. Filed as Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2015 and incorporated herein by reference. **   10.9 Form of Trex Company, Inc. Amended and Restated 1999 Incentive Plan for Outside Directors Stock Appreciation Rights Agreement. Filed as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2006 and incorporated herein by reference. **   10.10 Form of Trex Company, Inc. Amended and Restated 1999 Incentive Plan for Outside Directors Restricted Stock Agreement. Filed as Exhibit 10.10 to the Company’s Annual Report onForm 10-K for the fiscal year ended December 31, 2011 and incorporated herein by reference. **   10.11 Form of Trex Company, Inc. Amended and Restated 1999 Incentive Plan for Outside Directors Restricted Stock Unit Agreement. Filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2015 and incorporated herein by reference. **   10.12 Change in Control Severance Agreement dated May 6, 2015 by and between Trex Company, Inc. and James E. Cline. Filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed May 8, 2015 and incorporated herein by reference. **   10.13 Severance Agreement dated May 6, 2015 by and between Trex Company, Inc. and James E. Cline. Filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed May 8, 2015 and incorporated herein by reference. **   10.14 Amendment and Restatement of Employment Agreement, dated as of July 24, 2012, between Trex Company, Inc. and Ronald W. Kaplan. Filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2012 and incorporated herein by reference. **   10.15 Amendment and Restatement of Change in Control Severance Agreement, dated as of August 3, 2011, between Trex Company, Inc. and Ronald W. Kaplan. Filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on August 9, 2011 and incorporated herein by reference. **   10.16 Form of Change in Control Severance Agreement between Trex Company, Inc. and Officers other than the Chief Executive Officer. Filed herewith. **   10.17 Form of Severance Agreement between Trex Company, Inc. and Officers other than the Chief Executive Officer. Filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2015 and incorporated herein by reference. **   10.18 Retention Agreement, dated as of July 24, 2012, between Trex Company, Inc. and Ronald W. Kaplan. Filed as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2012 and incorporated herein by reference. **   10.19 Retention Agreement, dated as of July 24, 2012, between Trex Company, Inc. and James E. Cline. Filed as Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2012 and incorporated herein by reference. **   10.20 Retention Agreement, dated as of July 24, 2012, between Trex Company, Inc. and William R. Gupp. Filed as Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2012 and incorporated herein by reference. *, ** Exhibit Number Exhibit Description   10.21 Retention Agreement, dated as of July 24, 2012, between Trex Company, Inc. and F. Timothy Reese. Filed as Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2012 and incorporated herein by reference. **   10.22 Form of Indemnity Agreement for Directors. Filed as Exhibit 10.19 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008 and incorporated herein by reference.   10.23 Form of Indemnity Agreement for Officers. Filed as Exhibit 10.20 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008 and incorporated herein by reference.   10.24 Form of Indemnity Agreement for Director/Officers. Filed as Exhibit 10.21 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008 and incorporated herein by reference.   10.25 Form of Distributor Agreement of Trex Company, Inc. Filed as Exhibit 10.23 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008 and incorporated herein by reference.   10.26 Form of Trex Company, Inc. Fencing Agreement for Installers/Retailers. Filed as Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2006 and incorporated herein by reference.   10.27 Deed of Lease, dated June 15, 2000, between Trex Company, LLC and Space, LLC. Filed as Exhibit 10.16 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000 and incorporated herein by reference.   10.28 Amendment, dated February 22, 2010, of Deed of Lease dated as of June 15, 2000, between Trex Company, Inc., as successor by merger to Trex Company, LLC, and TC.V.LLC, as successor to Space, LLC. Filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2010 and incorporated herein by reference.   10.29 Amendment, dated November 2, 2016, of Deed of Lease dated as of June 15, 2000, between Trex Company, Inc., as successor by merger to Trex Company, LLC, and TC.V.LLC as successor to Space, LLC. Filed herewith.   10.30 Deed of Lease, dated as of July 27, 2005, between the Company and 1 Dulles Town Center, L.L.C. Filed as Exhibit 10.34 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005 and incorporated herein by reference. *   21 Subsidiaries of the Company. Filed herewith.   23 Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm. Filed herewith.   31.1 Certification of Chief Executive Officer of the Company pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. Filed herewith.   31.2 Certification of Chief Financial Officer of the Company pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. Filed herewith.   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). Furnished herewith. 101.INS XBRL Instance Document. Filed. 101.SCH XBRL Taxonomy Extension Schema Document. Filed. Exhibit Number Exhibit Description 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document. Filed. 101.DEF XBRL Taxonomy Extension Definition Linkbase Document. Filed. 101.LAB XBRL Taxonomy Extension Label Linkbase Document. Filed. 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document. Filed. * Portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment. ** Management contract or compensatory plan or agreement. Item. 43 Table of Contents TREX COMPANY, INC. Index to Consolidated Financial Statements     Page   Page Report of Ernst  & Young LLP, Independent Registered Public Accounting Firm     F-2 F- 2   Consolidated Financial Statements   Consolidated Statements of Comprehensive Income for the three years ended December 31, 20162019     F-3 F- 4   Consolidated Balance Sheets as of December 31, 20162019 and 20152018     F-4 F- 5   Consolidated Statements of Changes in Stockholders’ Equity for the three years ended December 31, 20162019     F-5 F- 6   Consolidated Statements of Cash Flows for the three years ended December 31, 20162019     F-6 F- 7   Notes to Consolidated Financial Statements     F-7 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   Page Schedule II—Valuation and Qualifying Accounts and Reserves     F-28 F- 34   F-1 Table of Contents Report of Ernst & Young LLP, Independent Registered Public Accounting Firm on To the Audited Consolidated Financial Statements TheStockholders and the Board of Directors and Stockholders 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, 20162019 and 2015, and2018, 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, 2016. Our audits also included2019, and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Trexthe Company Inc. at December 31, 20162019 and 2015,2018, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2016,2019, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), Trex Company, Inc.’sthe Company’s internal control over financial reporting as of December 31, 2016,2019, 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 21, 201724, 2020 expressed an unqualified opinion thereon. Adoption of New ASU No.  2016-02 As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for leases in 2019 due to the adoption of ASU No.  2016-02, Leases (Topic 842), as amended, effective January 1, 2019, using the modified retrospective approach. 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 was 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 F-2 Table of Contents audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Surface Flaking Warranty Description of the Matter At December 31, 2019, the Company’s surface flaking warranty reserve was $19.0 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 warranty reserve is based on an actuarial analysis of the number of claims to be settled and management’s estimate of the average cost to settle each claim. The actuarial analysis utilized determines a reasonably possible range of claims to be received and the percentage of those claims that will ultimately require payment. Auditing the surface flaking warranty reserve is complex and required the involvement of a specialist due to the highly judgmental nature of the actuarially determined number of claims. Auditing the reserve is also complex due to the judgmental nature of the significant assumptions made by management (e.g., the size of the affected decks, the availability and type of replacement material used, the cost of production of replacement material and the method of claim settlement) and used in the measurement process. These determinations, assumptions and judgments have a significant effect on the surface flaking 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 measurement and valuation of the surface flaking warranty reserve. For example, we tested controls over the appropriateness of the assumptions used and the completeness and accuracy of the underlying data. To test the surface flaking warranty reserve, our audit procedures included, among others, evaluating the methodologies and the significant assumptions used. For example, we involved an actuarial specialist to assist us in independently calculating a range of the expected number of claims and compared that to the Company’s range. We also performed sensitivity analyses to evaluate changes in the liability that would result from changes in significant assumptions. In addition, we assessed the historical accuracy of management’s estimates to identify potential changes in the measurement and valuation of the surface flaking reserve. We performed audit procedures on the completeness and accuracy of the underlying data used by the Company in its analysis. /s/ Ernst & Young LLP McLean, We have served as the Company’s auditor since 1995. Richmond, Virginia February 21, 2017 24, 2020 F-3 Table of Contents TREX COMPANY, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME      Year Ended December 31,        2016      2015      2014        (In thousands, except share and per share data)   Net sales    $ 479,616       $ 440,804       $ 391,660    Cost of sales      292,521         285,935         251,464                               Gross profit      187,095         154,869         140,196    Selling, general and administrative expenses      83,140         77,463         72,370                               Income from operations      103,955         77,406         67,826    Interest expense, net      1,125         619         878                               Income before income taxes      102,830         76,787         66,948    Provision for income taxes      34,983         28,689         25,427                               Net income    $ 67,847       $ 48,098       $ 41,521                               Basic earnings per common share    $ 2.31       $ 1.53       $ 1.28                               Basic weighted average common shares outstanding      29,394,559         31,350,542         32,319,649                               Diluted earnings per common share    $ 2.29       $ 1.52       $ 1.27                               Diluted weighted average common shares outstanding      29,612,669         31,682,509         32,751,074                               Comprehensive income    $ 67,847       $ 48,098       $ 41,521                                                           Year Ended December 31,     2019     2018     2017     (In thousands, except share and per share data)   Net sales   $ 745,347     $ 684,250     $ 565,153   Cost of sales     438,844       389,356       321,780                             Gross profit     306,503       294,894       243,373   Selling, general and administrative expenses     118,304       118,225       100,993                             Income from operations     188,199       176,669       142,380   Interest (income) expense, net     (1,503 )     (192 )     461                             Income before income taxes     189,702       176,861       141,919   Provision for income taxes     44,964       42,289       46,791                             Net income   $ 144,738     $ 134,572     $ 95,128                             Basic earnings per common share   $ 2.48     $ 2.29     $ 1.62                             Basic weighted average common shares outstanding     58,430,597       58,739,670       58,785,118                             Diluted earnings per common share   $ 2.47     $ 2.28     $ 1.61                             Diluted weighted average common shares outstanding     58,657,749       59,067,302       59,150,920                             Comprehensive income   $ 144,738     $ 134,572     $ 95,128                             See Notes to Consolidated Financial Statements. F-4 Table of Contents TREX COMPANY, INC. CONSOLIDATED BALANCE SHEETS      December 31,        2016     2015        (In thousands)   ASSETS      Current Assets:      Cash and cash equivalents    $ 18,664      $ 5,995    Accounts receivable, net      48,039        47,386    Inventories      28,546        23,104    Prepaid expenses and other assets      10,400        13,409    Deferred income taxes      —          9,136                     Total current assets      105,649        99,030    Property, plant and equipment, net      103,286        100,924    Goodwill and other intangibles      10,523        10,526    Other assets      1,972        1,518                     Total Assets    $ 221,430      $ 211,998                     LIABILITIES AND STOCKHOLDERS’ EQUITY      Current Liabilities:      Accounts payable    $ 10,767      $ 17,733    Accrued expenses      34,693        28,891    Accrued warranty      5,925        6,825    Line of Credit      —          7,000                     Total current liabilities      51,385        60,449    Deferred income taxes      894        4,597    Non-current accrued warranty      31,767        26,698    Other long-term liabilities      3,223        3,791                     Total Liabilities      87,269        95,535                     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, 80,000,000 shares authorized; 34,894,233 and 34,819,259 shares issued and 29,400,552 and 30,904,530 shares outstanding at December 31, 2016 and 2015, respectively      349        348    Additional paid-in capital      120,082        116,947    Retained earnings      187,242        119,395    Treasury stock, at cost, 5,493,681 and 3,914,729 shares at December 31, 2016 and 2015, respectively      (173,512 )      (120,227 )                   Total Stockholders’ Equity      134,161        116,463                     Total Liabilities and Stockholders’ Equity    $ 221,430      $ 211,998                                         December 31,     2019     2018     (In thousands)   ASSETS             Current Assets:             Cash and cash equivalents   $ 148,833     $ 105,699   Accounts receivable, net     78,462       91,163   Inventories     56,106       57,801   Prepaid expenses and other assets     19,803       15,562                     Total current assets     303,204       270,225   Property, plant and equipment, net     171,300       117,144   Goodwill and other intangible assets, net     74,084       74,503   Operating lease assets     40,049       —     Other assets     3,602       3,250                     Total Assets   $ 592,239     $ 465,122                     LIABILITIES AND STOCKHOLDERS’ EQUITY             Current Liabilities:             Accounts payable   $ 15,227     $ 31,084   Accrued expenses and other liabilities     58,265       56,291   Accrued warranty     5,178       5,400                     Total current liabilities     78,670       92,775   Operating lease liabilities     34,242       —      Deferred income taxes     9,831       2,125   Non-current accrued warranty     20,317       25,354   Other long-term liabilities     4       1,905                     Total Liabilities     143,064       122,159                     Commitments and contingencies     —         —                       Stockholders’ Equity:             Preferred stock, $0.01 par value, 3,000,000 shares authorized; 0ne issued and outstanding     —         —     Common stock, $0.01 par value, 120,000,000 shares authorized; 70,187,463 and 69,998,336 shares issued and 58,240,721 and 58,551,653 shares outstanding at December 31, 2019 and 2018, respectively     702       700   Additional paid-in capital     123,996       124,224   Retained earnings     561,680       416,942   Treasury stock, at cost, 11,946,742 and 11,446,683 shares at December 31, 2019 and 2018, respectively     (237,203 )     (198,903 )                   Total Stockholders’ Equity     449,175       342,963                     Total Liabilities and Stockholders’ Equity   $ 592,239     $ 465,122                     See Notes to Consolidated Financial Statements. F-5 Table of Contents TREX COMPANY, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY     Common Stock     Additional Paid-In Capital     Retained Earnings (Deficit)     Treasury Stock     Total       Shares     Amount         Shares     Amount     Balance, December 31, 2013     33,475,614      $ 346        101,494      $ 29,776        1,122,510      $ (25,000 )   $ 106,616    Net income     —          —          —          41,521        —          —          41,521    Employee stock purchase and option plans     133,133        1        746        —          —          —          747    Shares withheld for taxes on share-based payment awards     (36,610 )      —          (3,189 )      —          —          —          (3,189 )  Stock-based compensation     105,905        1        4,806        —          —          —          4,807    Excess tax benefits from stock compensation     —          —          12,883        —          —          —          12,883    Shares repurchased under our publicly announced share repurchase programs     (1,657,919 )      —          —          —          1,657,919        (50,000 )      (50,000 )                                                          Balance, December 31, 2014     32,020,123        348        116,740        71,297        2,780,429        (75,000 )      113,385    Net income     —          —          —          48,098        —          —          48,098    Employee stock purchase and option plans     113,996        1        314        —          —          —          315    Shares withheld for taxes on share-based payment awards     (115,453 )      (1 )      (8,085 )      —          —          —          (8,086 )  Stock-based compensation     20,164        —          4,861        —          —          —          4,861    Excess tax benefits from stock compensation     —          —          3,117        —          —          —          3,117    Shares repurchased under our publicly announced share repurchase programs     (1,134,300 )      —          —          —          1,134,300        (45,227 )      (45,227 )                                                          Balance, December 31, 2015     30,904,530        348      $ 116,947        119,395        3,914,729        (120,227 )      116,463    Net income     —          —          —          67,847        —          —          67,847    Employee stock purchase and option plans     79,175        1        279        —          —          —          280    Shares withheld for taxes on share-based payment awards     (13,193 )      (1 )      (1,932 )      —          —          —          (1,933 )  Stock-based compensation     8,992        1       4,788        —          —          —          4,789    Shares repurchased under our publicly announced share repurchase programs     (1,578,952 )      —          —          —          1,578,952        (53,285 )      (53,285 )                                                          Balance, December 31, 2016     29,400,552      $ 349      $ 120,082      $ 187,242        5,493,681      $ (173,512 )    $ 134,161                                                            (In thousands, except share data)                                                             Common Stock     Additional Paid-In Capital     Retained Earnings     Treasury Stock     Total     Shares     Amount   Shares     Amount   Balance, December 31, 2016     58,801,104     $ 698     $ 119,733     $ 187,242       10,987,362     $ (173,512 )   $ 134,161   Net income     —         —         —         95,128       —         —         95,128   Employee stock plans     33,228       2       391       —         —         —         393   Shares withheld for taxes on awards     (58,470 )     (2 )     (3,617 )     —         —         —         (3,619 ) Stock-based compensation     80,998       —         5,187       —         —         —         5,187                                                             Balance, December 31, 2017     58,856,860       698       121,694       282,370       10,987,362       (173,512 )     231,250   Net income     —         —         —         134,572       —         —         134,572   Employee stock plans     63,448       1       881       —         —         —         882   Shares withheld for taxes on awards     (13,028 )     —         (4,695 )     —         —         —         (4,695 ) Stock-based compensation     103,694       1       6,344       —         —         —         6,345   Repurchases of common stock     (459,321 )     —         —         —         459,321       (25,391 )     (25,391 )                                                           Balance, December 31, 2018     58,551,653       700       124,224       416,942       11,446,683       (198,903 )     342,963   Net income     —         —         —         144,738       —         —         144,738   Employee stock plans     77,141       1       1,088       —         —         —         1,089   Shares withheld for taxes on awards     (108,378 )     —         (8,245 )     —         —         —         (8,245 ) Stock-based compensation     220,364       1       6,929       —         —         —         6,930   Repurchases of common stock     (500,059 )     —         —         —         500,059       (38,300 )     (38,300 )                                                           Balance, December 31, 2019     58,240,721     $ 702     $ 123,996     $ 561,680       11,946,742     $ (237,203 )   $ 449,175                                                             See Notes to Consolidated Financial Statements. F-6 Table of Contents TREX COMPANY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS      Year Ended December 31,        2016     2015     2014        (In thousands)   Operating Activities        Net income    $ 67,847      $ 48,098      $ 41,521    Adjustments to reconcile net income to net cash provided by operating activities:        Depreciation and amortization      14,498        14,384        15,204    Deferred income taxes      5,433        1,024        3,574    Stock-based compensation      4,788        4,861        4,807    (Gain) Loss on disposal of property, plant and equipment      (185 )      649        158    Excess tax benefits from stock compensation      —          (3,147 )      (12,898 )  Other non-cash adjustments      (284 )      (271 )      (245 )  Changes in operating assets and liabilities:        Accounts receivable      (653 )      (10,995 )      867    Inventories      (5,442 )      643        (1,319 )  Prepaid expenses and other assets      (4,256 )      905        (624 )  Accounts payable      (6,966 )      (2,317 )      5,159    Accrued expenses and other liabilities      9,403        7,554        (7,535 )  Income taxes receivable/payable      1,110        1,246        9,973                             Net cash provided by operating activities      85,293        62,634        58,642                             Investing Activities        Expenditures for property, plant and equipment      (14,551 )      (23,333 )      (12,974 )  Proceeds from sales of property, plant and equipment      4,349        35        66    Purchase of acquired company, net of cash acquired      —          (31 )      (44 )  Notes receivable, net      —          —          79                             Net cash used in investing activities      (10,202 )      (23,329 )      (12,873 )                           Financing Activities        Financing costs      (485 )      (3 )      (453 )  Borrowings under line of credit      242,700        225,500        143,000    Principal payments under line of credit      (249,700 )      (218,500 )      (143,000 )  Repurchases of common stock      (55,216 )      (53,313 )      (53,189 )  Proceeds from employee stock purchase and option plans      279        315        747    Excess tax benefits from stock compensation      —          3,147        12,898                             Net cash used in financing activities      (62,422 )      (42,854 )      (39,997 )                           Net increase (decrease) in cash and cash equivalents      12,669        (3,549 )      5,772    Cash and cash equivalents at beginning of year      5,995        9,544        3,772                             Cash and cash equivalents at end of year    $ 18,664      $ 5,995      $ 9,544                             Supplemental disclosures of cash flow information:        Cash paid for interest    $ 852      $ 625      $ 520    Cash paid for income taxes, net    $ 28,626      $ 26,327      $ 11,919                                Year Ended December 31,     2019     2018     2017     (In thousands)   Operating Activities                   Net income   $ 144,738     $ 134,572     $ 95,128   Adjustments to reconcile net income to net cash provided by operating activities:                   Depreciation and amortization     14,031       16,597       16,860   Deferred income taxes     7,706       1,037       194   Stock-based compensation     6,930       6,344       5,187   Loss on disposal of property, plant and equipment     285       47       1,738   Other non-cash adjustments     (218 )     (406 )     (406 ) Changes in operating assets and liabilities:                   Accounts receivable     12,701       (24,281 )     (10,486 ) Inventories     1,695       (23,276 )     (3,635 ) Prepaid expenses and other assets     (1,652 )     (613 )     (2,194 ) Accounts payable     (16,666 )      21,131       (4,804 ) Accrued expenses and other liabilities     (10,823 )      5,040       2,488   Income taxes receivable/payable     (2,375 )      1,929       1,795                             Net cash provided by operating activities     156,352       138,121       101,865                             Investing Activities                   Expenditures for property, plant and equipment and intangibles     (67,265 )     (33,816 )     (15,040 ) Proceeds from sales of property, plant and equipment     21       83       55   Acquisition of business, net of cash acquired     —         —         (71,804 )                           Net cash used in investing activities     (67,244 )     (33,733 )     (86,789 )                           Financing Activities                   Borrowings under line of credit     89,500       172,250       201,000   Principal payments under line of credit     (89,500 )      (172,250 )      (201,000 ) Repurchases of common stock     (46,545 )     (30,085 )     (3,617 ) Proceeds from employee stock purchase and option plans     1,089       882       391   Financing costs     (518 )      —       —                             Net cash used in financing activities     (45,974 )     (29,203 )     (3,226 )                           Net increase in cash and cash equivalents     43,134       75,185       11,850   Cash and cash equivalents at beginning of year     105,699       30,514       18,664                             Cash and cash equivalents at end of year   $ 148,833     $ 105,699     $ 30,514                             Supplemental disclosures of cash flow information:                   Cash paid for interest   $ 321     $ 662     $ 418   Cash paid for income taxes, net   $ 39,612     $ 48,238     $ 44,802   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. (together with its subsidiary,subsidiaries, the Company), a Delaware corporation, was incorporated on September 4, 1998. The Company manufacturesCompany’s principal business based on net sales is the manufacture and distributes wood/distribution of wood and plastic composite products, as well as related accessories, primarily for residential and commercial decking and railing applications. A majority of its products are manufactured in a proprietary process that combines reclaimed wood fibers and scrap polyethylene. On July 31, 2017, through its newly-formed, wholly-owned subsidiary, Trex Commercial Products, Inc., the Company acquired certain assets and assumed certain liabilities of Staging Concepts Acquisition, LLC (SC Company) and thus expanded its markets to include the design, engineering and marketing of modular and architectural railing and staging systems for the commercial and multi-family market, including sports stadiums and performing arts venues. Additional information on the acquisition of SC Company is presented in Note 3. The principal executive offices are located at 160 Exeter Drive, Winchester, Virginia 22603, and the telephone number at that address is (540)  542-6300. Subsequent to the acquisition, the Company operates in a single2 reportable segment. segments, Trex Residential Products (Trex Residential) and Trex Commercial Products (Trex Commercial). 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 andStates. The consolidated financial statements include the accounts of the Company, and its wholly-owned subsidiary, Trex Wood-Polymer Espana, S.L. (TWPE).Commercial Products, Inc. (Trex Commercial Products), from date of acquisition of July 31, 2017. Intercompany accounts and transactions have been eliminated in consolidation. TWPE was formed to hold the Company’s 35% equity interest in Denplax, S.A. (Denplax), a venture with a Spanish company responsible for public environmental programs in southern Spain and with an Italian equipment manufacturer. The venture was formed to recycle polyethylene at a facility in El Ejido, Spain. The Company’s investment in Denplax is accounted for using the equity method. During 2010, the Company determined that its investment in Denplax and a related note receivable were no longer recoverable and recorded a $2.4 million charge to earnings to fully reserve the equity investment and note. Both the equity investment and note remain fully reserved as of December 31, 2016. 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 deposits in excess of insurance limits of the Federal Deposit Insurance Corporation. As of December 31, 2016,2019, substantially all deposits are maintained in one1 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 carriedrecognized at the original invoice amount lessof revenue recognized on each shipment for Trex Residential products and for satisfied performance obligations for Trex Commercial F-8 Table of Contents products as the Company has an estimate made forunconditional right to consideration from the customer and payment discounts and doubtful accounts. is due based solely on the passage of time. A valuation allowance is provided for known and anticipated credit losses and disputed amounts, as determined by management in the course of regularly evaluating individual customer receivables. This evaluation takes into consideration a customer’s financial condition and credit history, as well as current economic conditions. There was no0 material valuation allowance recorded as of December 31, 20162019 and 2015. 2018. In the years ended December 31, 2016, 20152019, 2018 and 2014,2017, 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, 2016, two 2019, 3 customers of the CompanyTrex Residential represented approximately 39%57% of the Company’s total net sales. For the year ended December 31, 2015, one customer2018, 2 customers of Trex Residential represented approximately 42% of the Company represented approximately 27% of the Company’s total net sales. For the year ended December 31, 2014, one customer2017, 2 customers of Trex Residential represented approximately 41% of the Company represented approximately 24% of the Company’s total net sales. At December 31, 2016, four2019, 3 customers of Trex Residential represented 30%, 16%, 14%,24% and 13%10%, respectively, of the Company’s total accounts receivable balance. Approximately For each year ended December 31, 2019, 2018 and 2017, approximately 27%, 33% and 33%, 35%, and 38%respectively, of the Company’s materials purchases for the years ended December 31, 2016, 2015 and 2014, respectively,at Trex Residential were purchased from its four4 largest suppliers. Inventories Inventories for the Company’s composite decking and railing products are stated at the lower of cost (last-in, (last-in, first-out, or LIFO, method) or market value.and market. The Company periodically reviews its inventory for slow moving or obsolete items and writes down the related products to estimated realizable value. The Company’s reserves for estimated slow moving products or obsolescence are not material. At December 31, 2016,2019, the excess of the replacement cost of inventory over the LIFO value of inventory was approximately $21.4$19.1 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. A majority of the Company’s products at Trex Residential are made in a proprietary process that combines reclaimed wood fibers and scrap polyethylene. The Company 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 Company’s railing and staging products at Trex Commercial for the commercial and multi-family market are stated at the lower of cost (first-in, first-out or FIFO method), using actual cost, and net realizable value. Work-in process includes estimated production costs. 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. Unpaid liabilities related to property, plant and equipment are included in accounts payable and were $0.8 million at December 31, 2019. Depreciation is provided using the straight-line method over the following estimated useful lives: Buildings     40 years   Machinery and equipment     3-11  years   Furniture and equipment     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 the estimated useful life of the asset. F-9 Table of Contents 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. 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 hierarchy: 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. Contract Termination Costs The Company leases 55,047 square feet of office and storage space in Dulles, Virginia, that it does not occupy, but has sublet all of the office space for the remainder of the term of its lease obligation, which ends June 30, 2019. The future sublease receipts are less than the remaining minimum lease payment obligations under the Company’s lease. Accordingly, the Company has recorded a liability for the present value of the shortfall. Goodwill Goodwill represents the excess of cost over net assets acquired resulting from the Company’s 1996 purchase of the Mobil Composite Products Division, and the 2011 purchase of the assets of the Iron Deck Corporation.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 first assesses qualitative factors to determine if it is more likely than not that the fair value of the reporting unitunits is less than itsthe carrying amount to determine if it should proceed with the evaluation of goodwill for impairment. The Company identified its reporting units based on the way it manages its operating segments. 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. If the Company proceeds with the two-step impairment test, the Company first compares the fair value of the reporting unit to its carrying value. If the carrying value of a reporting unit exceeds its fair value, the goodwill of that reporting unit is potentially impaired and step two of the impairment analysis is performed. In step two of the analysis, an impairment loss is recorded equal to the excess of the carrying value of the reporting unit’s goodwill over its implied fair value should such a circumstance arise. The Company measures fair value of the reporting unitunits based on a present value of future discounted cash flows and a market valuation approach. The discounted cash flows model indicates the fair value of the reporting unit based on the present value of the cash flows that the reporting unit is expected to generate in the future. Significant estimates in the discounted cash flows model include: the weighted average cost of capital; long-term rate of growth and profitability of the business; and working capital effects. The market valuation approach F-10 Table of Contents indicates the fair value of the business based on a comparison of the Company against certain market information. Significant estimates in the market approach model include identifying appropriate market multiples and assessing earnings before interest, income taxes, depreciation and amortization (EBITDA) in estimating the fair value of the reporting unit. For the years ended December 31, 2016, 20152019, 2018 and 2014,2017, the Company completed its annual impairment test of goodwill utilizing the qualitative assessment and noted no impairment.concluded it was not more likely than 0t that the fair value of the reporting units was less than the carrying amounts. The Company performs the annual impairment testing of its goodwill as of October 31 of each year. However, actual results could differ from the Company’s estimates and projections, which would affect the assessment of impairment. As of December 31, 2016,2019, the Company had goodwill of $10.5$68.5 million that is reviewed annually for impairment. Product Warranty The Company warrants that its Trex Residential decking products will be free from material defects in workmanship and materials. This warranty generally extends for a period of 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. With respect to the Company’s Transcend ® , Enhance ® , Select ® and Universal Fascia product, the Company further warrants that the product 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. This warranty extends for a period of 25 years for residential use and 10 years for commercial use. If there is a breach of such warranties, the Company has an obligation either to replace the defective product or refund the purchase price. Depending on the product and its use, the Company also warrants its Trex Commercial products will be free of manufacturing defects for one to three years. The Company establishes warranty reserves to provide for estimated future expenses as a result of product defects that result in claims. 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, on a quarterly basis 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 Effective January 1, 2018, the Company retrospectively adopted the requirements of Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2014-09, “Revenue from Contracts with Customers” (Topic 606). The Company recognizesdetermined the appropriate revenue recognition for its contracts with customers by analyzing the type, terms and conditions of the 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 titleor as the Company satisfies the performance obligation. Revenue is transferredrecognized 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. Adoption of Topic 606 did not have an impact on the Company’s financial condition or results of operations. The following provides additional information about the Company’s contracts with customers. 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 F-11 Table of Contents 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 generally upona 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. Trex Commercial Products Trex Commercial generates revenue from the manufacture and sale of its modular and architectural railing and staging systems. All of its revenues are from fixed-price contracts with customers. Trex Commercial contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contract and is, therefore, not distinct. Trex Commercial satisfies its performance obligation over time as work progresses because control is transferred continuously to its customers. Revenue and estimated profit is 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 include all direct material, labor, subcontract and certain indirect costs. The Company does not grant contractual product return rights to customers other than pursuant toreviews and updates its product warranty. The Company does not expect future product returns to be materialestimates regularly and consequently, does not maintain an allowance for product returns. The Company records all shipping and handling feesrecognizes adjustments in sales and records allestimated profit on contracts under the cumulative catch-up method. Under this method, the impact of the related costs in cost of sales. The Company offers sales incentive programsadjustment on revenue and estimated profit to dealers and distributors, including rebates, pricing discounts, favorable payment terms and cooperative advertising, many of which result in cash consideration made to dealers and distributors. The Company accounts for consideration made pursuant to these programs in accordance with accounting guidance that governs consideration given bydate on a vendor to a customer. With the exception of cooperative advertising, the Company classifies sales incentives as a reduction in revenue in “Net sales.” Sales incentives are recordedcontract is recognized in the period the adjustment is identified. Revenues and profits in which theyfuture periods are earned by customers. The Company’s cooperative advertising program meetsrecognized using the requirements for exclusion from net sales andadjusted estimate. If at any time the costs are recorded as expenses in “Selling, general and administrative expenses”estimate of contract profitability indicates an anticipated loss on the contract, the Company recognizes the total loss in the accompanyingperiod it is identified. During the year ended December 31, 2019, no adjustment to any one contract was material to the Company’s Consolidated Financial Statements of Comprehensive Income. Cooperative advertising costs are expensed as incurred. and no material impairment loss on any contract was recorded. 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 rates expected to be in effect during the year in which the differences reverse. 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. The tax legislation H.R.1, “An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018,” known as the Tax Cuts and Jobs Act (Act), was enacted on December 22, 2017. The Act reduces the corporate tax rate to 21 percent, effective F-12 Table of Contents January 1, 2018. Accordingly, we recognized the tax effects of the Act in our financial statements and related notes as of and for the year ended December 31, 2017. Accordingly, the Company recognized the tax effects of the Act in its financial statements and related notes. As of December 31, 2016,2019, the Company has a valuation allowance of $4.1$ 3.0 million against these deferred tax assets. 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, 2016, 20152019, 2018 and 2014,2017, research and development costs were $3.7$4.5 million, $1.5$4.2 million, and $2.3$3.8 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. Significant productionProduction costs are deferred and recognized as expense in the period that the related advertisement is first used. At December 31, 2016 and December 31, 2015, $2.42019 $0.5 million and $0.8 million, respectively, werewas included in prepaid expenses for production costs. At December 31, 2018 there were 0 production costs included in prepaid expenses. For the years ended December 31, 2016, 20152019, 2018 and 2014,2017, branding expenses, including advertising expenses as described above, were $24.8$35.7 million, $23.4$35.0 million, and $20.8$31.0 million, respectively. 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, 20162019 and 2015. 2018. Recently Adopted Accounting Standards In November 2015,June 2018, the Financial Accounting Standards BoardFASB issued Accounting Standards Update (ASU)ASU No. 2015-17,  2018-07, “Income TaxesCompensation—Stock Compensation (Topic 740): Balance Sheet Classification of Deferred Taxes718).” The standard requires that all deferred tax assetsASU expands the scope of Topic 718, which currently only includes share-based payments issued to employees, to also include share-based payments issued to nonemployees for goods or services. The ASU supersedes Subtopic 505-50, “Equity — Equity-Based Payment to Non-Employees.” Consequently, the accounting for share-based payments to nonemployees and liabilities for a particular tax-paying component of an entity and within a particular tax jurisdiction, along with any valuation allowance,employees will be offset and classified as a single noncurrent deferred tax asset or liability regardless of their nature or expected timing of reversal or recovery.substantially aligned. The standard may be applied either prospectively, for all deferred tax assets and liabilities, or retrospectively. The standard isASU was effective for fiscal years beginning after December 15, 2016,2018, including interim periods within thosethat fiscal years. Early adoption is permitted.year. The Company elected to early adoptadopted the standard in the quarterly period ended December 31, 2016. The Company applied the standard prospectively in the fourth quarter of fiscal 2016 and, accordingly, prior periods wereguidance on January 1, 2019. Adoption did not adjusted. Adoption of the standard will nothave an impact on the Company’s financial debt covenantscondition or restrictions, and deferred tax assets and deferred tax liabilities are no longer reported in current assets or current liabilities. results of operations. In MarchFebruary 2016, the FASB issued ASU No. 2016-09,  2016-02, “Compensation – Stock CompensationLeases (Topic 718):Improvements to Employee Share-Based Payment Accounting.” The standard amends certain aspects of accounting for employee share-based payment transactions, including the accounting for income taxes related to those transactions and forfeitures. The standard requires recognizing excess tax benefits and deficiencies on share-based awards in the tax provision, instead of in equity. Also, the standard requires these amounts to be classified as an operating activity, and shares withheld to satisfy employee taxes to be classified as a financing activity in the statement of cash flows, rather than as currently classified as financing and operating activities, respectively. The standard is effective for annual reporting periods beginning after December 15, 2016 and interim periods within that reporting period, with early adoption permitted. The Company elected to early adopt the standard in fiscal year 2016. The impact of the early adoption resulted in the following: The Company recorded a tax benefit of $1.7 million within income tax expense related to the excess tax benefits of the settlement or vesting of time-based restricted stock or time-based restricted stock units and performance-based restricted stock or performance-based restricted stock units. The Company applied this guidance prospectively as of January 1, 2016 and, accordingly, data for the prior years ended December 31, 2015 and 2014 were not adjusted. Prior to adoption this amount would have been recorded as an increase in additional paid-in capital. Going forward, this change could create volatility in the Company’s effective tax rate. The Company elected to change its policy on accounting for forfeitures and recognize forfeitures as they occur. The Company applied this guidance on a modified retrospective transition method. The Company determined that the cumulative effect of applying the guidance under the modified retrospective transition method was not material to its Consolidated Financial Statements Excess tax benefits are now reported as an operating activity in the Company’s Consolidated Statements of Cash Flows, rather than as a financing activity as was previously reported. As the Company applied this guidance prospectively as of January 1, 2016, excess tax benefits for the years ended December 31, 2015 and December 31, 2014 were not adjusted and continue to be reported in financing activities in the Consolidated Statements of Cash Flows. The standard requires the presentation of employee taxes as a financing activity in the Consolidated Statements of Cash Flows. This provision did not impact the Company’s Consolidated Financial Statements as the Company currently presents employee taxes as a financing activity in its Consolidated Statements of Cash Flows. The Company excluded the excess tax benefits from the assumed proceeds available to repurchase shares in the computation of diluted earnings per share for 2016, which did not materially increase the diluted weighted average common shares outstanding. Data reported in Note 14, “Interim Financial Data (Unaudited)842),“for net income, diluted net income per share and diluted weighted average common shares outstanding for the each quarterly period in the fiscal year ended December 31, 2016, reflect adoption of the new standard. New Accounting Standards Not Yet Adopted In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers,” and issued subsequent amendments to the initial guidance in August 2015January 2018 within ASU 2015-14,No.  2018-01, in July 2018 within ASU Nos. 2018-10 and 2018-11, in December 2018 within ASU No.  2018-20, and in March 20162019 within ASU 2016-08, in April 2016 within ASU 2016-10, and in May 2016 within ASU 2016-12 (collectively,No.  2019-01 (collectively, the new standard). The new standard provides a single, comprehensive model for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. The new standard requires an entity to recognize revenue at an amount that reflects the consideration to which the company expects to be entitled in exchange for transferring goods or services to a customer. The Company intends to adopt the new standard in the first quarterly period of fiscal 2018. Currently, the Company intends to use the retrospective application to each reporting period presented, with the option to elect certain practical expedients as defined in the new standard. The Company does not believe adoption of the new standard will have a material impact on its Consolidated Statements of Comprehensive Income, but expects expanded financial statement footnote disclosure. The Company is continuing to evaluate the impacts of the pending adoption. As such, the Company’s preliminary assessments are subject to change. In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” The standard requires lessees to recognize operating leases on the balance sheet as a right-of-use asset and a lease liability, other than leases that meet the definition of a short-term lease.liability. The liability will beis equal to the present value of the lease payments.payments over the remaining lease term. The asset will beis based on the liability, subject to adjustment. For income statement purposes, the leases will continue to be classified as either operating or finance.certain adjustments. Operating leases will result in straight-line expense (similar to current operating leases)expense. The Company adopted the standard on January 1, 2019, and finance leases will result in a front-loaded expense pattern (similar to current capital leases). The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The standard must be adopted usingelected the modified retrospective transition method and provides forof adoption that allowed the optionCompany to apply the standard as of the beginning of the period of adoption. The Company opted to elect athe package of practical expedients upon adoption. Theto not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs, and certain other F-13 Table of Contents practical expedients, including the use of hindsight to determine the lease term for existing leases and in assessing impairment of the right-of-use asset, and the exception for short-term leases. For its current classes of underlying assets, the Company intends to adoptdid not elect the standardpractical expedient under which the lease components would not be separated from the nonlease components. Nonlease components include certain maintenance services provided by the lessor and the related consideration is specified on a stand-alone basis in the first quarterly period of fiscal 2019, and is currently assessing the impact of adoptionapplicable lease agreements. Adoption of the standard on its consolidated financial statements and related note disclosures. The Company has not made any decisionhad a significant impact on the optionCompany’s condensed consolidated balance sheet due to elect adoptionthe recognition of a right-of-use asset and lease liability (current and non-current) of $45.8 million and $47.2 million, respectively, upon adoption. As the practical expedients. Company’s leases do not provide an implicit rate that can be readily determined, the Company used its incremental borrowing rate based on the information available at the implementation date in determining the present value of lease payments. New Accounting Standards Not Yet Adopted In August 2016,2018, the FASB issued ASU No. 2016-15,  2018-15, “StatementIntangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of Cash flows (Topic 230): ClassificationFASB Emerging Issues Task Force)”. The new guidance aligns the requirements for capitalizing implementation costs in a cloud computing arrangement service contract with the requirements for capitalizing implementation costs incurred for an internal-use software license. Under that model, implementation costs are capitalized or expensed depending on the nature of Certain Cash Receiptsthe costs and Cash Payments.”the project stage during which they are incurred. Capitalized implementation costs are amortized over the term of the associated hosted cloud computing arrangement service contract on a straight-line basis, unless another systematic and rational basis is more representative of the pattern in which the entity expects to benefit from its right to access the hosted software. Capitalized implementation costs would then be assessed for impairment in a manner similar to long-lived assets. The new guidance is intended to reduce diversity in practice across all industries in how certain transactions are classified in the statement of cash flows. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2017,2019, and interim periods within those fiscal years. Early adoption is permitted. Entities can choose to adopt the new guidance either prospectively to eligible costs incurred on or after the date the guidance is first applied or retrospectively. The Company will adopt the guidance on January 1, 2020, and has determined that adoption will not have a material impact on its financial condition or results of operations. In January 2017, the FASB issued ASU No.  2017-04, “Intangibles—Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment”. The guidance removes Step 2 of the goodwill impairment test and eliminates the need to determine the fair value of individual assets and liabilities to measure goodwill impairment. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. Entities will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary. The guidance will be applied prospectively, and is effective for annual and interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for any impairment tests performed on testing dates after January 1, 2017. The Company will adopt the guidance on January 1, 2020. The Company believes adoption will have no material impact on its financial condition or results of operations. In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses in Financial Instruments,” and issued subsequent amendments to the initial guidance in November 2018 within ASU No.  2018-09, April 2019 within ASU No.  2019-04, and May 2019 within ASU No.  2019-05. The ASU amends the guidance on the impairment of financial instruments and adds an impairment model, known as the current expected credit loss (CECL) model. The CECL model requires applicationan entity to recognize its current estimate of all expected credit losses, rather than incurred losses, and applies to trade receivables and other receivables. The CECL model is designed to capture expected credit losses through the establishment of an allowance account, which will be presented as an offset to the amortized cost basis of the related financial asset. The new guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and is applied using the modified-retrospective approach. The Company will adopt the guidance on January 1, 2020. The Company has determined that adoption will not have a material impact on its financial condition or results of operations. F-14 Table of Contents 3. ACQUISITION On July 31, 2017, through its newly-formed, wholly-owned subsidiary, Trex Commercial Products, Inc., the Company acquired certain assets and assumed certain liabilities of SC Company for $71.8 million in cash. The acquired business designs, engineers and markets modular architectural railing and staging systems for the commercial and multi- family market, including sports stadiums and performing arts venues. As a result of the purchase, the Company gained access to growing commercial markets, expanded its custom design and engineering capabilities, and added the contract architect and specifier communities as new channels for its products. The acquisition was accounted for using the acquisition method of accounting under U.S. Generally Accepted Accounting Principles, which requires, among other things, that the assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. The fair values of consideration transferred and net assets acquired were determined using a retrospective translation method.combination of Level 2 and Level 3 inputs as specified in the fair value hierarchy in ASC 820, “ Fair Value Measurements and Disclosures .” The Company is assessingbelieves that the impactfair values assigned to the assets acquired and liabilities assumed were  based on reasonable assumptions. The Company’s consolidated results of adoptionoperations include the operating results of the new standard on its consolidated financial statements and related note disclosures. Reclassifications Certain prior year amounts have been reclassified to conformacquired business from the date of acquisition. Goodwill of $57.9 million is primarily attributable to the current year presentation. potential opportunity for the Company to offer full service railing systems in the growing commercial and multi-family markets, access to a complementary product category with a track record of substantial revenue growth, the ability to achieve economies of scale around raw material procurement, an increase in the range of products the Company may offer its core customers, and intangible assets that do not qualify for separable or legal criterion, such as an assembled workforce. The amount of goodwill that was amortized and deductible for tax purposes in 2019, 2018 and 2017 was $3.9 million, $3.9 million and $1.6 million, respectively. Primarily all of the goodwill was recorded to Trex Commercial. 3. 4. INVENTORIES Inventories (atat LIFO value)value consist of the following as of December 31 (in thousands):      2016      2015   Finished goods    $ 29,686       $ 24,961    Raw materials      20,231         21,384                      Total FIFO (first-in, first out) inventories      49,917         46,345    Reserve to adjust inventories to LIFO value      (21,371 )       (23,241 )                    Total LIFO inventories    $ 28,546       $ 23,104                        2019     2018   Finished goods   $ 42,281     $ 46,638   Raw materials     31,686       27,321                     Total FIFO inventories     73,967       73,959   Reserve to adjust inventories to LIFO value     (19,062 )     (18,442 )                   Total LIFO inventories   $ 54,905     $ 55,517                     Inventory related to Trex Residential composite decking and railing products is stated at the lower of LIFO cost or net realizable value.market. The Company periodically reviews its inventory for slow moving or obsolete items and writes down the related products to estimated net realizable value. 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 no0 material inventory reduction during 2016. There was an inventory reduction in 2015. However,2019 or 2018. Inventories valued at lower of cost (FIFO method) and net realizable value as of December 31, 2019 and December 31, 2018, consist of $1.2 million and $2.3 million, respectively, of raw materials. The Company utilizes the impact on the Company’s costFIFO method of sales was not material due the fact that the historical costs expensed during 2015 closely approximated the current year costs. accounting related to its Trex Commercial products. F-15 Table of Contents 4. 5. PREPAID EXPENSES AND OTHER ASSETS Prepaid expenses and other assets consist of the following as of December 31 (in thousands):      2016      2015   Prepaid expenses    $ 6,209       $ 1,897    Income tax receivable      4,024         5,134    Assets held for sale      —           6,154    Other      167         224                      Total prepaid expenses and other assets    $ 10,400       $ 13,409                        2019     2018   Prepaid expenses   $ 8,282     $ 3,390   Revenues in excess of billings     6,664       7,987   Contract retainage     1,832       2,469   Income tax receivable     2,675       471   Other     350       1,245                     Total prepaid expenses and other assets   $ 19,803     $ 15,562                     6. GOODWILL AND OTHER INTANGIBLE ASSETS, NET The carrying amount of goodwill by reportable segment at December 31, 2019 and 2018 was $14.2 million for Trex Residential and $54.3 million for Trex Commercial. The Company’s intangible assets consist of domain names purchased in May 2018. At December 31, 2015,2019 and 2018, intangible assets held for sale consistedwere $6.3 million, net of assets at the idle Olive Branch, Mississippi facility (Olive Branch assets) consistingaccumulated amortization of land$0.7 million and buildings and measured at the lower of their carrying amount or fair value less cost to sell. Fair value was$0.3 million, respectively. Intangible asset amounts were determined using the Level 3 fair value hierarchy classification and was based on management’s best estimate of market participants’ pricingthe 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 including input from brokerperiodically and industry specialists,considers events or circumstances that may warrant revised estimates of useful lives or that may indicate an impairment. Intangible asset amortization expense for the years ended December 31, 2019 and consideredDecember 31, 2018, was $0.4 million and $3.1 million, respectively.  Intangible asset amortization expense for the conditionyear ended December 31, 2018 included amortization expense for customer backlog and trade names and trademarks, which were fully amortized as of the assets. December 31, 2018. 5. 7. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following as of December 31 (in thousands):      2016      2015   Building and improvements    $ 47,859       $ 47,209    Machinery and equipment      223,450         210,880    Furniture and fixtures      2,710         2,221    Forklifts and tractors      10,167         7,607    Computer equipment      10,481         9,575    Construction in process      4,172         11,032    Land      11,417         8,532                      Total property, plant and equipment      310,256         297,056    Accumulated depreciation      (206,970 )       (196,132 )                    Total property, plant and equipment, net    $ 103,286       $ 100,924                        2019     2018   Machinery and equipment   $ 248,633     $ 233,464   Building and improvements     51,547       50,240   Forklifts and tractors     10,870       10,872   Computer equipment     10,647       10,142   Furniture and fixtures     1,441       1,625   Construction in process     59,257       16,392   Land     11,417       11,417                     Total property, plant and equipment     393,812       334,152   Accumulated depreciation     (222,512 )     (217,008 )                   Total property, plant and equipment, net   $ 171,300     $ 117,144                     The Company had construction in process as of December 31, 20162019 of approximately $4.2$59.3 million. The Company expects that the construction in process will be completed and put into service in the year ending December 31, 2017. 2021. Depreciation expense for the years ended December 31, 2016, 2015,2019, 2018, and 20142017 totaled $14.2$13.6 million, $14.3$13.4 million, and $14.8$14.7 million, respectively. During December 2015, the Company reclassified the Olive Branch assets from “Property, plant and equipment, net,” to assets held for sale in “Prepaid F-16 Table of Contents 8. ACCRUED EXPENSES AND OTHER LIABILITIES Accrued expenses and other assets” in the Consolidated Balance Sheet. The transfer to a held for sale category was due to the signing of letters of intent to sell certain of the Olive Branch assets. Upon transfer during December 2015, the Company measured the Olive Branch assets at the lower of their carrying amount or fair value less cost to sell, and recognized a loss of $0.5 million, which is reported in “Selling, general and administrative expenses” in the Consolidated Statements of Comprehensive Income for the year ended December 31, 2015. In January 2016, the Company sold a portion of the Olive Branch facility that contained the buildings for $4.2 million and recognized a $0.1 million gain on sale, which is reported in “Selling, general and administrative expenses” in the Consolidated Statements of Comprehensive Income. As of December 31, 2016, the Company continues to own approximately 62 acres of undeveloped land that is reported in “Property, plant and equipment, net” in the Consolidated Balance Sheet. 6. ACCRUED EXPENSES Accrued expensesliabilities consist of the following as of December 31 (in thousands):      2016      2015   Sales and marketing costs    $ 16,707       $ 11,928    Compensation and benefits      13,298         11,217    Manufacturing costs      1,799         1,732    Rent obligations      632         664    Other      2,257         3,350                      Total accrued expenses    $ 34,693       $ 28,891                        2019     2018   Sales and marketing   $ 28,402     $ 25,379   Compensation and benefits     13,475       19,124   Operating lease liabilities     7,079       —     Manufacturing costs     2,564       3,744   Customer deposits     2,905       2,058   Billings in excess of revenues     816       512   Other     3,024       5,474                     Total accrued expenses   $ 58,265     $ 56,291                     7. 9. DEBT The Company’s debt consists of a revolving credit facility. At December 31, 2016,2019 and 2018, the Company had no0 outstanding indebtedness. Available borrowing capacity at December 31, 2016,2019, was $200 million. At December 31, 2015, Revolving Credit Facility Indebtedness after November 4, 2019 . On November 5, 2019, the Company had $7.0 millionas borrower, Trex Commercial Products, Inc. (TCP), as guarantor; Bank of outstanding indebtedness,America, N.A. (BOA), as a Lender, Administrative Agent, Swing Line Lender and L/C Issuer; and certain other lenders including Wells Fargo Bank, N.A. (Wells Fargo), who is also Syndication Agent; SunTrust Bank (SunTrust); and Branch Banking and Trust Company (BB&T) (each, a Lender and collectively, the interest rate on the revolving credit facility was 1.39%. Revolving Credit Facility Indebtedness after December 31, 2015. On January 12, 2016, the CompanyLenders), arranged by BOA Securities, Inc., as Sole Lead Arranger and Sole Bookrunner, entered into a ThirdFourth Amended and Restated Credit Agreement (Fourth Amended Credit Agreement) to amend and also the First Amendment torestate the Third Amended and Restated Credit Agreement (together, the Thirddated as of January 12, 2016, as amended (Third Amended Credit Agreement) with Bank of America, N.A. (BOA), by and among the Company, as Lender,borrower; BOA, as a lender, Administrative Agent, Swing Line Lender and Letter of CreditL/C Issuer; and certain other lenders including Citibank,CitiBank, N.A., (Citi); Capital One, N.A., (Capital One); and SunTrust, Bank (collectively, Lenders) arranged byeach as a lender; and Bank of America Merrill Lynch, as Sole Lead Arranger and Sole Bookrunner. The Third Under the Fourth Amended Credit Agreement, amendedthe Lenders agreed to provide 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 restateda maximum principal amount of $ 200  million from July 1 through December 31 of each year (Loan Limit) throughout the Second Amended Credit Agreement. Underterm, which ends November 5, 2024 (Term). Previously, under the Third Amended Credit Agreement, the Lenders agreeBOA, Citi, Capital One and SunTrust agreed to provide 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 endswould have ended on January 12, 2021 if not replaced by the Fourth Amended Credit Agreement. Included within the Loan Limit are sublimits for a Letter of Credit facility in an amount not to exceed $15 million and Swing Line Loans in an aggregate principal amount at any time outstanding not to exceed $5 million. 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 Notes provide 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 Fourth Amended Credit Agreement) under the Revolving Loans and F -17 Table of Contents the Swing Line Loans accrue interest at the Base Rate plus the Applicable Rate (as defined in the Fourth Amended Credit Agreement) and Eurodollar Rate Loans for the Revolving Loans and Swing Line Loans accrue interest at the Adjusted London InterBank Offered Rate plus the Applicable Rate (as defined in the Fourth Amended 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 Eurodollar Rate plus 1.0 %. Repayment of all then outstanding principal, interest, fees and costs is due on November 5, 2024. Under the terms of the Fourth Amended and Restated Security and Pledge Agreement, the Company and TCP, 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 Fourth Amended and Restated Security and Pledge Agreement. Indebtedness through November 4, 2019 . On January 12, 2016, the Company entered into a Third Amended Credit Agreement with BOA as Lender, Administrative Agent, Swing Line Lender and Letter of Credit Issuer; and certain other lenders including Citi, Capital One, and SunTrust (collectively, Lenders) arranged by Bank of America Merrill Lynch as Sole Lead Arranger and Sole Bookrunner. The Third Amended Credit Agreement amended and restated the Second Amended Credit Agreement. Under the Third Amended Credit Agreement, the Lenders agreed to provide 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 would have ended on January 12, 2021. Included within the revolving loan limit arewere sublimits for a letter of credit facility in an amount not to exceed $15 million and swing line loans in an aggregate principal amount at any time outstanding not to exceed $5 million. The revolving loans, the letter of credit facility and the swing line loans arewere for the purpose of funding working capital needs and supporting general business operations. Additionally, within the Revolving Loan Limit, the Company could borrow, repay, and reborrow, at any time or from time to time while the Third Amended Credit Agreement iswas in effect. The Company hashad the option to select interest rates for each loan request at the Base Rate or Eurodollar Rate. Base rate loans under the revolving loans and the swing line loans accrueaccrued interest at the Base Rate plus the Applicable Rate. Eurodollar Rate Loans for the revolving loans and swing line loans accrueaccrued interest at the Adjusted London InterBank Offered Rate plus the Applicable Rate. The Base Rate for any day iswas 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 Eurodollar Rate plus 1.0%. Repayment of all then outstanding principal, interest, fees and costs iswould have been due on January 12, 2021. The Company shall reimburse BOA for all amounts payable, including interest, under a letter of credit at the earlier of (i) the date set forth in the application, or (ii) one business day after the payment under such letter of credit by BOA. The Third Amended Credit Agreement iswas secured by property with respect to which liens in favor of the Administrative Agent, for the benefit of itself and the other holders of the obligations, arewere purported to be granted pursuant to and in accordance with the terms of the collateral documents as referenced in the Third Amended Credit Agreement. Indebtedness through December 31, 2015. On November 20, 2014, the Company entered into a Second Amended and Restated Credit Agreement (Second Amended Credit Agreement) with Branch Banking and Trust Company (BB&T), as a Lender, Administrative Agent, Swing Line Lender and Letter of Credit Issuer; Citibank, N.A. and Bank of America, N.A., each as a Lender, and BB&T Capital Markets, as Lead Arranger. The Second Amended Credit Agreement amended and restated the Amended and Restated Credit Agreement (Prior Credit Agreement) dated as of January 6, 2012 by and among the Company, as borrower; BB&T as Lender, Administrative Agent, Swing Line Lender, Letter of Credit Issuer and a Collateral Agent; Wells Fargo Capital Finance, LLC, as a Lender and a Collateral Agent; and BB&T Capital Markets, as Lead Arranger, and as further amended. Under the Prior Credit Agreement, BB&T and Wells Fargo provided the Company with one or more revolving loans in a collective maximum principal amount of $100 million. The Second Amended Credit Agreement terminated the Revolver Notes and Swing Advance Notes under the Prior Credit Agreement. No additional fees were due or owing as a result of the termination of the aforementioned agreements. The Second Amended Credit Agreement provided the Company with one or more revolving loans in a collective maximum principal amount of $150 million from January 1 through June 30 of each year and a maximum principal amount of $100 million from July 1 through December 31 of each year (Revolving Loan Limit) throughout the term of November 20, 2019. Included within the Revolving Loan Limit were sublimits for a letter of credit facility in an amount not to exceed $15 million and swing advances in an aggregate principal amount at any time outstanding not to exceed $5 million. The Revolver Loans, the Letter of Credit Facility and the Swing Advance loans were for the purpose of raising working capital and supporting general business operations. The Company was not obligated to borrow any amount under the Revolving Loan Limit. Additionally, within the Revolving Loan Limit, the Company could borrow, repay, and reborrow, at any time or from time to time while the Second Amended Credit Agreement is in effect. Base Rate Advances (as defined in the Second Amended Credit Agreement) under the Revolver Loans and the Swing Advances accrued interest at the Base Rate plus the Applicable Margin (as defined in the Second Amended Credit Agreement) and Euro-dollar Advances for the Revolver Loans and Swing Advances accrued interest at the Adjusted London InterBank Offered Rate plus the Applicable Margin (as defined in the Second Amended Credit Agreement). The Company was required to reimburse BB&T for all amounts payable, including interest, under a Letter of Credit at the earlier of (i) the date set forth in the application, or (ii) one business day after the payment under such Letter of Credit by BB&T. The Second Amended Credit Agreement was secured by interest in real property owned by us and certain collateral (as described in the Second Amended and Restated Security Agreement and Intellectual Property Security Agreement). Compliance with Debt Covenants and Restrictions.The Company’s ability Pursuant to make scheduled principal and interest payments, borrow and repay amounts under any outstanding revolving credit facility and continue to comply with any loan covenants depends primarily on its ability to generate sufficient cash flows from operations. To remain in compliance with financial covenants,the terms of the Fourth Amended Credit Agreement, the Company is required to maintain specified financial ratios based on levels of debt, fixed charges, and earnings (excluding extraordinary gains and extraordinary non-cash losses) before interest, taxes, depreciation and amortization, all of which are subject to the risks of the business, some of which are discussed in this report under “Risk Factors.” The material financial covenants and restrictions do not permit the Company’s fixed charge coverage ratio to be less than 1.5 to 1.0 and do not permit the Company’s consolidated debt to consolidated EBITDA ratio to exceed 3.0 to 1.0, measured as of the end of each fiscal quarter (and in the case of Consolidated EBITDA, for the four-quarter period ending on such date).certain loan compliance covenants. The Company was in compliance with all covenants contained in the Third Amended Credit Agreement atas of December 31, 2016.2019. 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. F-18 Table of Contents 8.10. LEASES The Company leases office space, storage warehouses and certain 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 gives consideration to 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. Our operating leases have remaining lease terms of 1 year to 10 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. For the year ended December 31, 2019, total operating lease cost was $8.4 million. The weighted average remaining lease term and weighted average discount rate at December 31, 2019 were 6.5 years and 3.66%, respectively. The following table includes supplemental cash flow information for the year ended December 31, 2019 and supplemental balance sheet information at December 31, 2019 related to operating leases: Supplemental cash flow information  (in thousands)     Cash paid for amounts included in the measurement of operating lease liabilities   $ 8,479   Operating ROU assets obtained in exchange for lease liabilities   $ 1,319           Supplemental balance sheet information (in thousands)     Operating lease right-of-use assets   $ 40,049   Operating lease liabilities:       Accrued expenses and other current liabilities   $ 7,079   Operating lease liabilities     34,242             Total operating lease liabilities   $ 41,321             F-19 Table of Contents The following table summarizes maturities of operating lease liabilities at December 31, 2019 (in thousands): Maturities of operating lease liabilities     2020   $ 8,472   2021     8,279   2022     6,464   2023     6,109   2024     6,146   Thereafter     11,079             Total lease payments     46,549   Less imputed interest     (5,228 )           Total operating liabilities   $ 41,321             Minimum annual payments under non-cancelable leases as of December 31, 2018 were as follows (in thousands): Year Ending December 31,     2019   $ 10,998   2020     9,317   2021     8,952   2022     6,901   2023     6,576   Thereafter     19,080             Total minimum lease payments   $ 61,824             For the years ended December 31, 2018 and 2017, the Company recognized rental expenses of approximately $10.0 million and $9.1 million, respectively. 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, 2019 and 2018. 12. STOCKHOLDERS’ EQUITY Stock Split On May 2, 2018, the Board of Directors of the Company approved a 2-for-one stock split of the Company’s common stock, par value $0.01. The stock split was in the form of a stock dividend distributed on June 18, 2018, to stockholders of record at the close of business on May 23, 2018. The stock split entitled each stockholder to receive one additional share of common stock, par value $0.01, for each share they held as of the record date. All common stock share and per share data for all periods presented in the accompanying consolidated financial statements and notes thereto have been retroactively adjusted to reflect the stock split. F-20 Table of Contents 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,        2016      2015      2014   Numerator:          Net income    $ 67,847       $ 48,098       $ 41,521                               Denominator:          Basic weighted average shares outstanding      29,394,559         31,350,542         32,319,649    Effect of dilutive securities:          SARS and options      125,119         197,299         262,730    Restricted stock      92,991         134,668         168,695                               Diluted weighted average shares outstanding      29,612,669         31,682,509         32,751,074                               Basic earnings per share    $ 2.31       $ 1.53       $ 1.28                               Diluted earnings per share    $ 2.29       $ 1.52       $ 1.27                                 Year Ended December 31,     2019     2018     2017   Numerator:                   Net income   $ 144,738     $ 134,572     $ 95,128                             Denominator:                   Basic weighted average shares outstanding     58,430,597       58,739,670       58,785,118   Effect of dilutive securities:                   Stock appreciation rights     124,425       176,700       198,642   Restricted stock     102,727       150,932       167,160                             Diluted weighted average shares outstanding     58,657,749       59,067,302           59,150,920                             Basic earnings per share   $ 2.48     $   2.29     $ 1.62                             Diluted earnings per share   $ 2.47     $ 2.28     $ 1.61                             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,        2016      2015      2014   Restricted stock and stock options      12         501         2,633    Stock appreciation rights      4,631         5,828         1,969      Year Ended December 31,     2019     2018     2017   Restricted stock     —       214       166   Stock appreciation rights     20,770       13,347       21,234   Stock Repurchase Programs Program On February 19, 2014,16, 2018, the Board of Directors authorized a commonadopted new stock repurchase program of up to $505.8 million shares of the Company’s outstanding common stock (February 2014 Stock Repurchase Program). This authorization had no expiration date. During 2014, the Company repurchased 1,657,919 shares for $50.0 million, which completed the authorization under the February 2014 Stock Repurchase Program. On October 23, 2014, the Board of Directors authorized a common stock repurchase program of up to 2.0 million shares of the Company’s outstanding common stock (October 2014 Stock Repurchase Program). This authorization had no expiration date. During 2015, the Company repurchased 1,134,300 shares for $45.2 million under the October 2014 Stock Repurchase Program. On October 22, 2015, the Board of Directors terminated the October 2014 Stock Repurchase Program and adopted a new stock repurchase program of up to 3.15 million shares of the Company’s outstanding common stock (October 2015 Stock Repurchase Program). This authorization terminated on December 31, 2016. During 2016, the Company repurchased 1,578,952 shares for $53.3 million under the October 2015 Stock Repurchase Program. On February 16, 2017, the Board of Directors authorized a common stock repurchase program of up to 2.961 million shares of the Company’s outstanding common stock (February 2017 Stock(Stock Repurchase Program). As of the date of this report, the Company has made no repurchasesrepurchased 959,380 shares under the February 2017 Stock Repurchase Program. 9.13. 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 F -21 Table of Contents 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. 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 (contract asset) 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 a payment discount. It estimates the payment discount that it believes will be taken by the customer based on prior history. 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 19, “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 generates revenue from the manufacture and sale of its modular and architectural railing and staging systems. All of its revenues are from fixed-price contracts with customers. Trex Commercial contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contract and is, therefore, not distinct. Trex Commercial satisfies its performance obligation over time as work progresses because control is transferred continuously to its customers. Revenue and estimated profit is 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 include all direct material, labor, subcontract and certain indirect costs. The Company reviews and updates its estimates regularly and recognizes 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 indicates an anticipated loss on the contract, the Company recognizes the total loss in the period it is identified. During the year ended December 31, 2019, no adjustment to any one contract was material to the Company’s Consolidated Financial Statements. The Company discloses only  the transaction price allocated to its remaining performance obligations on contracts with an original duration F-22 Table of Contents greater than one year, which was $51.6 million as of December 31, 2019. The Company will recognize this revenue as performance obligations are satisfied, which is expected to occur within the next 18 months. The Company recognizes an account receivable (contract asset) for satisfied performance obligations as it has an unconditional right to consideration and payment from the customer is due based solely on the passage of time. The Company receives payments from its customers on the accounts receivable based on the payment terms applicable to each individual contract and the customer pays in less than one year. Accounts receivables are included in “Accounts receivable, net” in the Consolidated Balance Sheets. In addition, the timing of revenue recognition, billings and cash collections may result 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 are 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). These assets and liabilities and changes in these assets and liabilities, respectively, were not material as of and for the year ended December 31, 2019. Trex Commercial pays sales commissions that are directly attributable to identifiable contracts to certain of its employees. If the amortization period of the commission is one year or less, then the Company recognizes the commission expense as incurred. Otherwise, the Company capitalizes the commission and amortizes it on a straight-line basis over the life of the contract. Trex Commercial does 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 are included in net sales and the related costs are included in cost of sales. For each year in the three years ended December 31, 2019, net sales were 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, 2019   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   $ 694,267     $ —       $ 694,267   Products transferred over time and fixed price contracts     —         51,080       51,080                               $ 694,267     $ 51,080     $ 745,347                             Year Ended December 31, 2018   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   $ 613,229     $ —       $ 613,229   Products transferred over time and fixed price contracts     —         71,021       71,021                               $ 613,229     $ 71,021     $ 684,250                             F-23 Table of Contents Year Ended December 31, 2017   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   $ 543,346     $ —       $ 543,346   Products transferred over time and fixed price contracts     —         21,807       21,807                               $ 543,346     $ 21,807     $ 565,153                             14. STOCK-BASED COMPENSATION On April 30, 2014, the Company’s 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 amended and restated in its entirety the Trex Company, Inc. 2005 Stock Incentive Plan, as previously disclosed. The Plan is administered by the Compensation Committee of the Company’s 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 Company’s common stock that may be issued under the Plan is 6,420,000. In 2014, the Company began granting performance-based restricted stock in addition to the time-based restricted stock it previously granted. The performance-based restricted shares have a three-year vesting period, vesting one-third each year based on target earnings before interest, taxes, depreciation and amortization for 1 year, cumulative 2 years and cumulative 3 years, respectively. The number of shares that vest, with respect to each vesting, will be between 0% and 200% of the target number of shares. In 2015, the Company began issuing restricted stock units in lieu of restricted stock. Accordingly, time-based restricted stock units replaced time-based restricted stock and performance-based restricted stock units replaced performance-based restricted stock. The vesting terms of the restricted stock units are identical to the vesting provisions of the restricted stock. 12,840,000. 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 for the years ended December 31, 2016, 2015 and 2014 (in thousands):      Year Ended December 31,        2016      2015      2014   Time-based restricted stock and time-based restricted stock units    $ 2,281       $ 2,704       $ 2,974    Performance-based restricted stock and performance-based restricted stock units      2,210         1,562         727    Stock appreciation rights      184         525         1,035    Employee stock purchase plan      113         70         71                               Total stock-based compensation    $ 4,788       $ 4,861       $ 4,807                                 Year Ended December 31,     2019     2018     2017   Time-based restricted stock and restricted stock units   $ 3,676     $ 2,687     $ 1,992   Performance-based restricted stock and restricted stock units     2,399       3,144       2,805   Stock appreciation rights     662       370       251   Employee stock purchase plan     193       143       139                             Total stock-based compensation   $ 6,930     $ 6,344     $ 5,187                             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 the Company’s 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, 2016, 20152019, 2018 and 20142017 was $1.7$6.0 million, $9.8$5.1 million, and $3.9$5.5 million, respectively. At December 31, 2016,2019, there was $1.5$3.2 million of total compensation expense related to unvested F-24 Table of Contents time-based restricted stock and unvested time-based restricted stock units remaining to be recognized over a weighted-average period of approximately 1.62 years. 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      Weighted-Average Grant Price Per Share   Nonvested at December 31, 2013      382,974       $ 13.78    Granted      66,511       $ 32.70    Vested      (116,641 )     $ 33.73    Forfeited      (3,282 )     $ 16.61                Nonvested at December 31, 2014      329,562       $ 18.89    Granted      57,598       $ 43.81    Vested      (230,704 )     $ 42.37    Forfeited      (48,549 )     $ 20.20                Nonvested at December 31, 2015      107,907       $ 29.43    Granted      57,874       $ 37.64    Vested      (43,848 )     $ 42.34    Forfeited      (133 )     $ 43.89                Nonvested at December 31, 2016      121,800       $ 31.59                  Time-based Restricted Stock and Restricted Stock Unit     Weighted-Average Grant Price Per Share   Nonvested at December 31, 2016     243,600     $ 15.80   Granted     72,402     $ 36.27   Vested     (162,372 )   $ 14.45   Forfeited     (512 )   $ 18.68                     Nonvested at December 31, 2017     153,118     $ 26.90   Granted     87,264     $ 54.72   Vested     (84,550 )   $ 26.65   Forfeited     (284 )   $ 35.05                     Nonvested at December 31, 2018     155,548     $ 42.68   Granted     35,650     $ 76.23   Vested     (81,325 )   $ 37.34   Forfeited     (640 )   $ 62.33                     Nonvested at December 31, 2019     109,233     $ 57.49                     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 the Company’s 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, 20162019, 2018, and 2015,2017 there was $1.2$0.8 million, $1.6 million, and $0.6$1.8 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 2.01.7 years. F-25 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, 2014      42,676       $ 33.72    Granted      34,638       $ 43.89    Vested      (35,679 )     $ 41.91    Forfeited      (12,538 )     $ 38.12                Nonvested at December 31, 2015      29,097       $ 39.38    Granted      44,925       $ 35.83    Vested      (14,949 )     $  35.71    Forfeited      (657 )     $ 33.72                Nonvested at December 31, 2016      58,416       $ 36.63                  Performance-based Restricted Stock and Performance-based Restricted Stock Units     Weighted-Average Grant Price Per Share   Nonvested at December 31, 2016     116,832     $ 18.32   Granted     86,614     $ 28.77   Vested     (86,788 )   $ 18.64   Forfeited     —       $ —                       Nonvested at December 31, 2017     116,658     $ 25.85   Granted     80,570     $ 35.26   Vested     (106,022 )   $ 23.52   Forfeited     —       $ —                       Nonvested at December 31, 2018     91,206     $ 36.86   Granted     82,135     $ 47.64   Vested     (111,002 )   $ 31.10   Forfeited     (511 )   $ 58.45                     Nonvested at December 31, 2019     61,828     $ 61.34                     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, 2016,2019, there was no$0.4 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. There were no SARs issued in the year ended December 31, 2016.model . For SARs issued in the years ended December 31, 20152019, December 31, 2018 and 2014,December 31, 2017, respectively, the assumptions shown in the following table were used:      December 31,        2015     2014   Dividend yield      0 %      0 %  Average risk-free interest rate      1.6 %      1.7 %  Expected term (years)      5        5    Expected volatility      42.9 %      52.6 %    Year Ended December 31,       2019         2018         2017     Dividend yield     0 %     0 %     0 % Average risk-free interest rate     2.5 %     2.7 %     2.0 % Expected term (years)     5       5       5   Expected volatility     39.1 %     40.5 %     42.3 % Dividend Yield. The Company 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 yearyears ended December 31, 20152019, December 31, 2018 and December 31, 2017 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-26 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 Company recognizes forfeitures as they occur. The weighted-average grant date fair value of SARs granted during the years ended December 31, 20152019, December 31, 2018 and 2014December 31, 2017 was $16.26,$29.56, $22.09 and $17.78,$13.99, 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, 2016   Outstanding at December 31, 2013      739,194       $ 12.93          Granted      3,866       $ 37.88          Exercised      (218,826 )     $ 10.96          Canceled      (8,404 )     $ 4.74                            Outstanding at December 31, 2014      515,830       $ 13.98          Granted      15,585       $ 41.19          Exercised      (263,626 )     $  13.86          Canceled      (5,712 )     $ 21.94                            Outstanding at December 31, 2015      262,077       $ 13.13          Granted      —         $ —            Exercised      (124,352 )     $ 11.09          Canceled      —         $ —                              Outstanding at December 31, 2016      137,725       $ 19.57         5.6       $ 6,174,886    Vested at December 31, 2016      127,469       $ 17.83         5.4       $ 5,936,639    Exercisable at December 31, 2016      127,469       $ 17.83         5.4       $ 5,936,639      SARs     Weighted-Average Grant Price Per Share     Weighted- Average Remaining Contractual Life (Years)     Aggregate Intrinsic Value as of December 31, 2019   Outstanding at December 31, 2016     275,450     $ 9.79               Granted     37,478     $ 35.38               Exercised     (34,812 )   $ 8.07               Canceled     —       $ —                                                   Outstanding at December 31, 2017     278,116     $ 13.45               Granted     21,260     $ 56.59               Exercised     (60,900 )   $ 5.27               Canceled     —       $ —                                                   Outstanding at December 31, 2018     238,476     $ 19.26               Granted     24,536     $ 77.70               Exercised     (108,764 )   $ 13.89               Canceled     (2,229 )    $ 77.70                                                 Outstanding at December 31, 2019     152,019     $ 31.58       5.5     $ 8,862,501   Vested at December 31, 2019     103,094     $ 18.14       4.1     $ 7,396,470   Exercisable at December 31, 2019     103,094     $ 18.14       4.1     $ 7,396,470   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 600,000.1,200,000. Through December 31, 2016,2019, employees had purchased approximately 422,687891,065 shares under the plan. Stock Options Stock options are granted with an exercise 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 options are generally forfeitable upon termination of a holder’s service as an employee or director, unless the individual’s service is terminated due to retirement, death or permanent disability. The fair value of each stock option award is estimated on the date of grant using a Black-Scholes option-pricing model. The Company recognizes compensation cost on a straight-line basis over the vesting period for the award. All outstanding options were exercised during fiscal 2015 and there were no stock options outstanding at December 31, 2015 and 2016. Stock option activity under the Plan and all predecessor stock incentive plans is as follows:      Options      Weighted-Average Exercise Price Per Share   Outstanding at December 31, 2013      42,288       $ 20.05    Granted      —        $ —     Exercised      (27,942 )     $ 35.73    Canceled      (1,188 )     $ 17.92                Outstanding at December 31, 2014      13,158       $ 23.36    Granted      —        $ —     Exercised      (13,158 )     $ 50.37    Canceled      —         $ —                 Outstanding at December 31, 2015      —         $ —                 10. LEASES The Company leases office space, storage warehouses and certain office and plant equipment under various operating leases. Minimum annual payments under these non-cancelable leases as of December 31, 2016 were as follows (in thousands): Year Ending December 31,        2017    $ 9,606    2018      9,271    2019      8,205    2020      6,477    2021      6,170    Thereafter      18,659             Total minimum lease payments    $ 58,388             For the years ended December 31, 2016, 2015 and 2014, the Company recognized rental expenses of approximately $9.9 million, $7.7 million and $7.5 million, respectively. For information related to the Company’s reconsidered corporate headquarters lease agreement, see Note 13. 11.15. EMPLOYEE BENEFIT PLANS The Company has atwo 401(k) Profit Sharing PlanPlans for the benefit of allits employees who meet certain eligibility requirements. The plan covers substantially all of the Company’s full-time employees. The plan documents provide for the Company to match contributions equal to 100% of an employee’s contribution to the plan up to 6% of base salary.requirements and it matches qualifying employee contributions. The Company’s contributions to the planplans totaled $2.5$4.6 million, $2.2$4.2 million, and $2.0$3.0 million for the years ended December 31, 2016, 20152019, 2018 and 2014. 2017, respectively. F-27 Table of Contents 12. 16. INCOME TAXES Income tax provision (benefit) for the years ended December 31, 2016, 2015 and 2014 consists of the following (in thousands):      Year Ended December 31,        2016      2015      2014   Current income tax provision:          Federal    $ 26,752       $ 25,105       $ 18,722    State      2,798         2,560         3,131                                    29,550         27,665         21,853                               Deferred income tax provision:          Federal      5,217         987         3,118    State      216         37         456                                    5,433         1,024         3,574                               Total income tax provision    $ 34,983       $ 28,689       $ 25,427                                 Year Ended December 31,     2019     2018     2017   Current income tax provision:                   Federal   $ 30,306     $ 33,578     $ 41,177   State     6,952       7,674       5,420                               37,258     41,252     46,597                             Deferred income tax provision:                   Federal     6,928       988       1,177   State     778       49       (983 )                             7,706     1,037     194                             Total income tax provision   $ 44,964     $ 42,289     $ 46,791                             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,        2016      2015      2014   U.S. Federal statutory taxes    $ 35,990       $ 26,876       $ 23,432    State and local taxes, net of U.S. Federal benefit      3,747         2,806         2,856    Permanent items      396         1,308         249    Excess tax benefits from vesting or settlement of stock compensation awards      (1,749 )       —           —      Domestic production activities deduction      (2,740 )       (2,262 )       (1,117 )  Federal credits      (488 )       (328 )       (214 )  Other      (173 )       289         221                               Total income tax provision    $ 34,983       $ 28,689       $ 25,427                                 Year Ended December 31,     2019     2018     2017   U.S. Federal statutory taxes   $ 39,838     $ 37,141     $ 49,671   State and local taxes, net of U.S. Federal benefit     8,412       7,716       5,110   Permanent items     1,266       470       576   Excess tax benefits from vesting or settlement of stock compensation awards     (3,540 )     (2,368 )     (1,454 ) Domestic production activities deduction     —         —         (4,376 ) Federal credits     (654 )     (662 )     (534 ) Other     (358 )     (8 )     (2,202 )                           Total income tax provision   $ 44,964     $ 42,289     $ 46,791                             F -28 Table of Contents Deferred tax assets and liabilities as of December 31, 2016 and 2015 consist of the following (in thousands):      As of December 31,        2016      2015   Deferred tax assets:       Net operating losses    $ 93       $ 138    Warranty reserve      14,510         12,904    Stock-based compensation      2,186         1,554    Accruals not currently deductible and other      2,261         6,195    Inventories      5,785         4,406    State tax credit carryforwards      4,020         4,350                      Gross deferred tax assets, before valuation allowance      28,855         29,547    Valuation allowance      (4,061 )       (4,582 )                    Gross deferred tax assets, after valuation allowance      24,794         24,965                      Deferred tax liabilities:       Depreciation and other      (25,688 )       (20,426 )                    Gross deferred tax liabilities      (25,688 )       (20,426 )                    Net deferred tax (liability) asset    $ (894 )     $ 4,539                        As of December 31,     2019     2018   Deferred tax assets:             Net operating losses   $ 88     $ 79   Residential product warranty reserve     6,486       7,804   Stock-based compensation     1,055       1,725   Accruals not currently deductible and other     2,245       3,928   Inventories     5,780       4,682   Operat ing le ase liability     10,618       —   State tax credit carryforwards     3,461       3,400                     Gross deferred tax assets, before valuation allowance     29,733       21,618   Valuation allowance     (2,988 )     (3,015 )                   Gross deferred tax assets, after valuation allowance     26,745       18,603                     Deferred tax liabilities:             Depreciation     (17,267 )     (13,893 ) Operating lease right-of-use asset     (10,162 )     —   Goodwill amortization     (4,782 )     (3,774 ) Inventories and other     (4,365 )     (3,061 )                   Gross deferred tax liabilities     (36,576 )     (20,728 )                   Net deferred tax liability   $ (9,831 )   $ (2,125 )                   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 rates expected to be in effect during the year in which the differences reverse. 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. As of December 31, 2016,2019, the Company had a valuation allowance of $4.1$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. In 2016, the Company adopted ASU No. 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,” and, accordingly, recognizes excess tax benefits for stock-based awards within income tax expense when realized. The Company applied the guidance in the new standard prospectively as of January 1, 2016. Excess tax benefits for the years ended December 31, 2015 and 2014 are recorded in additional paid-in-capital. The Company realized $1.7$ 3.5  million, $ 2.4  million and $ 1.5  million of excess tax benefits during 2016. 2019, 2018 and 2017, respectively, related to share-based compensation awards. 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, 2016,2019, the Company has identified no 0 uncertain tax position and, accordingly, has not 0 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, 2016,2019 Federal tax years 20132016 through 20162019 remain subject to examination. The Company’s returns filed with the state of Oregon for the tax years 2015 through 2017 are currently under examination. No material adjustments are expected as a result of the audit. 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. F-29 Table of Contents 13. 17. SEGMENT INFORMATION Prior to July 31, 2017, the Company operated in 1 reportable segment. Subsequent to the acquisition of certain assets and assumption of certain liabilities of SC Company on July 31, 2017, the Company operates in 2 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 2 national retailers who, in turn, sell primarily to the residential market, which includes replacement, remodeling and new construction related to outdoor living products. Trex Residential net sales were $694.3 million, $613.2 million, and $543.3 million in the years ended December 31, 2019, December 31, 2018, and December 31, 2017, respectively. Trex Commercial designs, engineers, and markets modular and architectural railing and staging systems for commercial and multi-family market, including sports stadiums and performing arts venues. The segment’s products are sold through architects, specifiers, contractors, and others doing business within the segment’s commercial market. Trex Commercial net sales were $51.1 million and $71.0 million in the year ended December 31, 2019 and December 31, 2018, respectively, and $21.8 million from the date of acquisition through December 31, 2017. 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. The below segment data includes data for Trex Residential for the years ended December 31, 2019, December 31, 2018 and December 31, 2017, and data for Trex Commercial for the years ended December 31, 2019 and December 31, 2018, and from the date of the acquisition of SC Company through December 31, 2017, for the year ended December 31, 2017 (in thousands): Segment Data:   Net Sales     Net Income (Loss)     EBITDA     Depreciation and Amortization     Income Tax Expense (Benefit)     Capital Expenditures     Total Assets   December 31, 2019                                           Trex Residential   $ 694,267     $ 142,811     $ 199,020     $ 13,413     $ 44,292     $ 65,399     $ 503,883   Trex Commercial     51,080       1,927       3,210       618       672       1,866       88,356                                                             Total   $ 745,347     $ 144,738     $ 202,230     $ 14,031     $ 44,964     $ 67,265     $ 592,239                                                             December 31, 2018                                           Trex Residential   $ 613,229     $ 131,823     $ 186,268     $ 13,216     $ 41,421     $ 31,392     $ 380,682   Trex Commercial     71,021       2,749       6,868       3,251       868       2,424       84,440                                                             Total   $ 684,250     $ 134,572     $ 193,136     $ 16,467     $ 42,289     $ 33,816     $ 465,122                                                             December 31, 2017                                           Trex Residential   $ 543,346     $ 97,412     $ 160,382     $ 14,598     $ 47,911     $ 14,989     $ 247,817   Trex Commercial     21,807       (2,284 )     (1,272 )     2,132       (1,120 )     51       78,410                                                             Total   $ 565,153     $ 95,128     $ 159,110     $ 16,730     $ 46,791     $ 15,040     $ 326,227                                                             F-30 Table of Contents Reconciliation of Net Income (Loss) to EBITDA:   Net Income (Loss)     Interest (Income) Expense, Net     Income Tax Expense (Benefit)     Depreciation and Amortization     EBITDA   December 31, 2019                               Trex Residential   $ 142,811     $   (1,496 )    $ 44,292     $ 13,413     $ 199,020   Trex Commercial     1,927       (7 )      672       618       3,210                                             Total   $ 144,738     $ (1,503 )    $ 44,964     $ 14,031     $ 202,230                                             December 31, 2018                               Trex Residential   $ 131,823     $ (192 )   $ 41,421     $ 13,216     $ 186,268   Trex Commercial     2,749       —         868       3,251       6,868                                             Total   $ 134,572     $ (192 )   $ 42,289     $ 16,467     $ 193,136                                             December 31, 2017                               Trex Residential   $ 97,412     $ 461     $ 47,911     $ 14,598     $ 160,382   Trex Commercial     (2,284 )     —         (1,120 )     2,132       (1,272 )                                           Total   $ 95,128     $ 461     $ 46,791     $ 16,730     $ 159,110                                             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. The operating results for Trex Commercial have not historically varied from quarter to quarter as a result of seasonality . H owever, they are driven by the timing of individual projects, which may vary significantly each period. 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, 2016,2019, the Company purchased substantially all of its reclaimed wood fiber requirements under purchase orders which do not involve long-term supply commitments. 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 of the 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 F-31 Table of Contents production of its suppliers and, accordingly, is not fixed or determinable. As of December 31, 2016,2019, the Company has purchase commitments under material supply contracts of $20.2$26.8 million, $3.2 million, $0.35 million and $0.05$6.2 million for the years ending December 31, 2017, 2018, 20192020 and 2020, respectively. Contract Termination Costs The Company leases 55,047 square feet2021, respectively, and a total of office and storage space in Dulles, Virginia, that it does not occupy, but has sublet all of the office space$0.1 million for the remainder of the term of its lease obligation, which ends June 30, 2019. The future sublease receipts are less than the remaining minimum lease payment obligations under the Company’s lease. Accordingly, the Company has recorded a liability for the present value of the shortfall. As of December 31, 2016, the minimum payments remaining under the Company’s lease over the years ending December 31, 2017, 2018,2022 and 2019 are $1.9 million, $2.0 million, and $1.0 million, respectively. The net minimum receipts remaining under the Company’s existing subleases over the years ending December 31, 2017, 2018, and 2019 are $1.3 million, $1.3 million, and $0.7 million, respectively. The following table provides information about the Company’s liability under the lease (in thousands):     2016     2015   Beginning balance, January 1   $ 2,106      $ 3,033    Net rental payments     (691 )      (1,352 )  Accretion of discount     145        220    (Decrease) increase in net estimated contract termination costs     (85 )      205                    Ending balance, December 31   $ 1,475      $ 2,106                    2023. Product Warranty The Company warrants that its Trex Residential products will be free from material defects in workmanship and materials. This warranty generally extends for a period of 25 years for residential use and 10 years for commercial use, excluding Trex Signature™ Signature ® Railing, which has a warranty period of 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. This warranty extends for a period of 25 years for residential use and 10 years for commercial use. If there is a breach of such warranties, the Company has an obligation either to replace the defective product or refund the purchase price. Depending on the product and its use, the Company also warrants its Trex Commercial products will be free of manufacturing defects for one to three years . 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. 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. Management utilizes 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 number of claims received has declined each year since peaking in 2009, although the rate of decline has decelerated in recent years. Additionally, events such as the 2009 settlement of a class action lawsuit covering the surface defect and communications by the Company in 2013 informing homeowners of potential hazards associated with products exhibiting surface flaking that are not timely replaced, have obscured observable trends in historical claims activity. 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, 20162019, was slightly lower than the Company’s expectations for 2019 and the number of claims received in the year ended December 31, 2015,2018, continuing the historical year-over-year decline in incoming claims, butclaims. Average settlement cost per claim experienced in 2019 was considerably higher than the Company’s expectations. Also,expectations for 2019 and the average settlement cost per claim experienced in the year ended December 31, 2016 was higher than the average settlement cost per claim experienced during the year ended December 31, 2015 and higher than the Company’s expectation for 2016. As a result and after actuarial review, the Company revised its estimate and recorded2018 due to an increase toin larger claims settled and changes in the warrantymix of settlement methods. The Company believes its reserve of $9.8 million during the third quarter of 2016. Based on the facts and circumstances at December 31, 2016, the Company believes its reserve2019 is sufficient to cover future surface flaking obligations. The Company notes that its annual cash outflows for surface flaking claims declined by $1.5 million, or 21%,obligations and no adjustments were required in 2016 compared to 2015, and declined by $1.7 million, or 19%, in 2015 compared to 2014. the current year. 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 F -32 Table of Contents 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 $3.4$1.9 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 that represents amounts accrued for surface flaking claims (in thousands):      2016      2015   Beginning balance, January 1    $ 29,673       $ 31,419    Changes in estimates related to pre-existing warranties      9,835         5,426    Settlements made during the period      (5,661 )       (7,172 )                    Ending balance, December 31    $ 33,847       $ 29,673                      The remainder of the Company’s warranty reserve represents amounts accrued for non-surface flaking claims.   Year Ended December 31, 2019     Surface Flaking     Other Residential     Total   Beginning balance, January 1   $ 23,951     $ 6,803     $ 30,754   Provisions and changes in estimates     —         979       979   Settlements made during the period     (4,927 )     (1,312 )     (6,239 )                           Ending balance, December 31   $ 19,024     $ 6,470     $ 25,494                               Year Ended December 31, 2018     Surface Flaking     Other Residential     Total   Beginning balance, January 1   $ 28,158     $ 6,841     $ 34,999   Provisions and changes in estimates     —         1,104       1,104   Settlements made during the period     (4,207 )     (1,142 )     (5,349 )                           Ending balance, December 31   $ 23,951     $ 6,803     $ 30,754                             14.20. INTERIM FINANCIAL DATA (Unaudited)                                   Three Months Ended     Three Months Ended     December 31, 2016   September 30, 2016   June 30, 2016   March 31, 2016   December 31, 2015   September 30, 2015   June 30, 2015   March 31, 2015     December 31, 2019     September 30, 2019     June 30, 2019     March 31, 2019     December 31, 2018     September 30, 2018     June 30, 2018     March 31, 2018     (In thousands, except share and per share data)     (In thousands, except share and per share data)   Net sales   95,322      106,168      146,450      131,676      89,202      94,023      136,779      120,800      $ 164,772     $ 194,551     $ 206,453     $ 179,571     $ 139,971     $ 166,380     $ 206,692     $ 171,207   Gross profit   38,113      29,945      61,410      57,627      31,955      22,143      52,524      48,247      $ 71,263     $ 82,431     $ 83,444     $ 69,365     $ 59,856     $ 67,210     $ 91,115     $ 76,713   Net income   12,629      7,787      23,725      23,706      8,086      3,744      18,715      17,553      $ 35,497     $ 41,976     $ 35,710     $ 31,555     $ 25,171     $ 29,471     $ 42,820     $ 37,110   Basic net income per share   $ 0.43      $ 0.27      $ 0.81      $ 0.80      $ 0.26      $ 0.12      $ 0.59      $ 0.55    Basic earnings per common share   $ 0.61     $ 0.72     $ 0.61     $ 0.54     $ 0.43     $ 0.50     $ 0.73     $ 0.63   Basic weighted average common shares outstanding   29,318,915      29,295,284      29,264,362      29,697,722      30,766,943      31,227,643      31,735,333      31,683,672        58,295,717       58,400,060       58,486,192       58,543,478       58,603,537       58,741,973       58,760,753       58,855,156   Diluted net income per share   $ 0.43      $ 0.26      $ 0.80      $ 0.79      $ 0.26      $ 0.12      $ 0.58      $ 0.55    Diluted earnings per common share   $ 0.61     $ 0.72     $ 0.61     $ 0.54     $ 0.43     $ 0.50     $ 0.73     $ 0.63   Diluted weighted average common shares outstanding   29,543,842      29,516,718      29,477,870      29,910,292      30,966,682      31,537,010      32,142,939      32,094,828        58,512,733       58,604,603       58,687,540       58,829,177       58,936,795       59,084,117       59,051,413       59,199,622   The Company’s net sales, gross profit and income from operationsoperating results for Trex Residential have historically varied from quarter to quarter. Such variations are often attributable to seasonal trends in the demand for Trex products. The Company has historically experienced lower net sales during the fourth quarter because holidays andSeasonal, erratic or prolonged adverse weather conditions in certain geographic regions reduce the level of home improvement and construction activity. activity and can shift demand for its products to a later period. The operating results for Trex Commercial have not historically varied from quarter to quarter as a result of seasonality; however, they are driven by the timing of individual projects, which may vary significantly each period. On May 2, 2018, the Board of Directors of the Company elected to early adopt ASU No. 2016-09, “Compensation – Stock Compensation (Topic 718):Improvements to Employee Share-Based Payment Accounting” (ASU No. 2016-09)approved a two-for-one stock split of the Company’s common stock, par value $0.01. The stock split was in the quarterly period ended December 31, 2016, with adoptionform of a stock dividend distributed on June 18, 2018, to stockholders of record at the close of business on May 23, 2018. The stock split entitled each stockholder to receive one additional share of common stock, par value $0.01, for each share they held as of January 1, 2016. The effect on previously reportedthe record date. All common stock share and per share data for all periods presented have been retroactively adjusted to reflect the quarterly periods ended September 30, June 30, and March 31, 2016 is presented in the below table. Also, see the related discussion in Note 2, “Summarystock split. F-3 3 Table of Significant Accounting Policies: Recently Adopted Accounting Standards,” to these Consolidated Financial Statements.     Three Months Ended       September 30, 2016           June 30, 2016           March 31, 2016       As Reported     Adjusted           As Reported     Adjusted           As Reported     Adjusted       (In thousands, except share and per share data)   Net income   $ 6,898      $ 7,787          $ 23,279      $ 23,725          $ 23,402      $ 23,706    Basic net income per share   $ 0.24      $ 0.27          $ 0.80      $ 0.81          $ 0.79      $ 0.80    Diluted net income per share   $ 0.23      $ 0.26          $ 0.79      $ 0.80          $ 0.78      $ 0.79    Diluted weighted average common shares outstanding     29,457,653        29,516,718            29,423,845        29,477,870            29,860,730        29,910,292    Contents TREX COMPANY, INC. SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (In Thousands) Descriptions    Balance at Beginning of Period      Additions (Reductions) Charged to Cost and Expenses      Deductions     Balance at End of Period   Year ended December 31, 2016:            Warranty reserve    $ 33,522       $ 10,852      $ (6,682 )    $ 37,692                                       Income tax valuation allowance    $ 4,582       $ —        $ (521 )    $ 4,061                                       Year ended December 31, 2015:            Warranty reserve    $ 33,841       $ 8,515      $ (8,834 )    $ 33,522                                       Income tax valuation allowance    $ 4,465       $ 117      $ —        $ 4,582                                       Year ended December 31, 2014:            Warranty reserve    $ 40,812       $ 3,774      $ (10,745 )    $ 33,841                                       Income tax valuation allowance    $ 4,201       $ 388      $ (124 )    $ 4,465                                       thousands)                                   Descriptions   Balance at Beginning of Period     Additions Charged to Cost and Expenses     Deductions     Balance at End of Period   Year ended December 31, 2019:                         Trex Residential product warranty reserve   $ 30,754     $ 979     $ (6,239 )   $ 25,494                                     Income tax valuation allowance   $ 3,015     $ —       $ (27 )   $ 2,988                                     Year ended December 31, 2018:                         Trex Residential product warranty reserve   $ 34,999     $ 1,104     $ (5,349 )   $ 30,754                                     Income tax valuation allowance   $ 3,096     $ —       $ (81 )   $ 3,015                                     Year ended December 31, 2017:                         Trex Residential product warranty reserve   $ 37,692     $ 4,268     $ (6,961 )   $ 34,999                                     Income tax valuation allowance   $ 4,061     $ —       $ (965 )   $ 3,096                                     F-34 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.     Trex Company, Inc. Date: February 24, 2020 By:  /s/ James E. Cline Date: February 21, 2017   By:  /S/ JAMES E. CLINE     James E. Cline 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 21, 201724, 2020 by the following persons on behalf of the registrant and in the capacities indicated. Signature   Title Signature Title /S/    JAMES E. CLINE s/    James E. Cline James E. Cline   President and Chief Executive Officer (Principal Executive Officer); Director /S/    BRYAN H. FAIRBANKS s/    Bryan H. Fairbanks Bryan H. Fairbanks   Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) /s/    Ronald W. Kaplan Ronald W. Kaplan Chairman /s/    Michael F. Golden Michael F. Golden Director /s/    Jay M. Gratz Jay M. Gratz Director /s/    Kristine L. Juster Kristine L. Juster Director /s/    Richard E. Posey Richard E. Posey Director /s/    Patricia B. Robinson Patricia B. Robinson Director /s/    Gerald Volas Gerald Volas Director Table of Contents EXHIBIT INDEX                                 Incorporated by reference Exhibit Number     Description   Form   Exhibit   Filing Date   File No.       2.1     Asset Purchase Agreement by and among Trex Commercial Products, Inc., Staging Concepts Acquisition, LLC and Stadium Consolidation, LLC.   8-K   2.1   July 31, 2017   001-14649                                 3.1     Restated Certificate of Incorporation of Trex Company, Inc.   S-1/A   3.1   March 24, 1999   333-63287                                 3.2     Certificate of Amendment to the Restated Certificate of Incorporation of Trex Company, Inc. dated April 30, 2014.   10-Q   3.2   May 5, 2014   001-14649                                 3.3     Second Certificate of Amendment to the Restated Certificate of Incorporation of Trex company, Inc. dated May 2, 2018.   10-Q   3.3   May 7, 2018   001-14649                                 3.4     Third Certificate of Amendment to the Restated Certificate of Incorporation of Trex Company, Inc. dated May 1, 2019.   8-K   3.1   May 1, 2019   001-14649                                 3.5     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     Third Amended and Restated Credit Agreement dated as of January 12, 2016 between the Company, as borrower; the subsidiaries of the Company as guarantors; Bank of America, N.A., as a Lender, Administrative Agent, Swing Line Lender and Letter of Credit Issuer; and certain other lenders arranged by Bank of America Merrill Lynch as Sole Lead Arranger and Sole Bookrunner.   8-K   4.1   January 14, 2016   001-14649                                 4.3     Revolver Note dated January 12, 2016 payable by the Company to Bank of America, N.A. in the amount of the lesser of $110,000,000 or the outstanding revolver advances made by Bank of America, N.A.   8-K   4.2   January 14, 2016   001-14649                                 4.4     Revolver Note dated January 12, 2016 payable by the Company to Citibank, N.A. in the amount of the lesser of $75,000,000 or the outstanding revolver advances made by Citibank, N.A.   8-K   4.3   January 14, 2016   001-14649                                 4.5     Revolver Note dated January 12, 2016 payable by the Company to Capital One, N.A. in the amount of the lesser of $35,000,000 or the outstanding revolver advances made by Capital One, N.A.   8-K   4.4   January 14, 2016   001-14649 Table of Contents                                 Incorporated by reference Exhibit Number     Description   Form   Exhibit   Filing Date   File No.                                 4.6     Revolver Note dated January 12, 2016 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   4.5   January 14, 2016   001-14649                                 4.7     Third Amended and Restated Security and Pledge Agreement dated as of January 12, 2016 between the Company, as debtor, and Bank of America, N.A. as Administrative Agent (including Notices of Grant of Security Interest in Copyrights and Trademarks).   8-K   4.6   January 14, 2016   001-14649                                 4.8     Assignment of Amended and Restated Credit Line Deed of Trust, Substitution of Trustee and Amendment, dated as of January 12, 2016, by and among the Company as grantor, PRLAP, INC, as trustee, and Bank of America, N.A., as Administrative Agent for Bank of America, N.A., Citibank, N.A., Capital One, N.A., and SunTrust Bank, as Beneficiaries relating to real property partially located in the County of Frederick, Virginia and partially located in the City of Winchester, Virginia.   8-K   4.7   January 14, 2016   001-14649                                 4.9     Amended and Restated Deed of Trust, dated as of January 12, 2016, by and among the Company as grantor, First American Title Insurance Company, as trustee, and Bank of America, N.A., Citibank, N.A., Capital One, N.A., and SunTrust Bank, as Beneficiaries relating to real property located in the County of Fernley, Nevada.   8-K   4.8   January 14, 2016   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     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 Table of Contents                                     Incorporated by reference Exhibit Number     Description   Form   Exhibit   Filing Date   File No.                                 4.12     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                                 4.13     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                                 4.14     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                                 4.15     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                                 4.16*     Description of Securities registered pursuant to Section 12 of the Securities Exchange Act of 1934                                               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   10.1   May 7, 2018   001-14649                               10.3     Trex Company, Inc. Amended and Restated 1999 Incentive Plan for Outside Directors as amended on October 24, 2018. **   10-Q   10.1   October 29, 2018   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                               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 Table of Contents                                 Incorporated by reference Exhibit Number     Description   Form   Exhibit   Filing Date   File No.                               10.8     Change in Control Severance Agreement dated May 6, 2015 by and between Trex Company, Inc. and James E. Cline. **   8-K   10.1   May 8, 2015   001-14649                               10.9     Severance Agreement dated May 6, 2015 by and between Trex Company, Inc. and James E. Cline. **   8-K   10.2   May 8, 2015   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     Retention Agreement dated as of July 24, 2012 between Trex Company, Inc. and James E. Cline **   10-Q   10.4   November 1, 2012   001-14649                               10.13     Form of Retention Agreement for Company Officers dated May 2, 2018. **   10-Q   10.2   May 7, 2018   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                               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.                                       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.         Table of Contents /S/    RONALD W. KAPLAN Ronald W. Kaplan   Chairman /S/    MICHAEL F. GOLDEN Michael F. Golden   Director Incorporated by reference /S/    JAY M. GRATZ Jay M. Gratz Exhibit Number   Director /S/    FRANK H. MERLOTTI, JR. Frank H. Merlotti, Jr. Description   Director /S/    RICHARD E. POSEY Richard E. Posey Form   Director /S/    PATRICIA B. ROBINSON Patricia B. Robinson Exhibit   Director /S/    GERALD VOLAS Gerald Volas Filing Date   Director EXHIBIT INDEX File No. Exhibit Number   Exhibit Description 3.1   Restated Certificate of Incorporation of Trex Company, Inc. (the “Company”). Filed as Exhibit 3.1 to the Company’s Registration Statement on Form S-1 (No. 333-63287) and incorporated herein by reference. 3.2   Certificate of Amendment to the Restated Certificate of Incorporation of Trex Company, Inc. dated April 30, 2014. Filed as Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2014 and incorporated herein by reference. 3.3   Amended and Restated By-Laws of the Company. Filed as Exhibit 3.2 to the Company’s Current Report on Form 8-K filed May 7, 2008 and incorporated herein by reference. 4.1   Specimen certificate representing the Company’s common stock. Filed as Exhibit 4.1 to the Company’s Registration Statement on Form S-1 (No. 333-63287) and incorporated herein by reference. 4.2   Second Amended and Restated Credit Agreement dated as of November 20, 2014 between the Company and Branch Banking and Trust Company, as a Lender, Administrative Agent, Swing Line Lender and Letter of Credit Issuer; Citibank, N.A. as a Lender; Bank of America, N.A. as a Lender; and BB&T Capital Markets, as Lead Arranger. Filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed November 25, 2014 and incorporated herein by reference. 4.3 101.SCH*   Revolver Note dated November 20, 2014 payable by the Company to Branch Banking and Trust Company in the amount of the lesser of $80,000,000 or the outstanding revolver advances made by Branch Banking and Trust Company. Filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K filed November 25, 2014 and incorporated herein by reference. 4.4 Revolver Note dated November 20, 2014 payable by the Company to Citibank, N.A. in the amount of the lesser of $45,000,000 or the outstanding revolver advances made by Citibank, N.A. Filed as Exhibit 4.3 to the Company’s Current Report on Form 8-K filed November 25, 2014 and incorporated herein by reference. 4.5 Revolver Note dated November 20, 2014 payable by the Company to Bank of America, N.A. in the amount of the lesser of $25,000,000 or the outstanding revolver advances made by Bank of America, N.A. Filed as Exhibit 4.4 to the Company’s Current Report on Form 8-K filed November 25, 2014 and incorporated herein by reference. 4.6 Swing Advance Note dated November 20, 2014 payable by the Company to Branch Banking and Trust Company in the amount of the lesser of $5,000,000 or the outstanding swing advances made by Branch Banking and Trust Company. Filed as Exhibit 4.5 to the Company’s Current Report on Form 8-K filed November 25, 2014 and incorporated herein by reference. 4.7 Second Amended and Restated Security Agreement dated as of November 20, 2014 between the Company, as debtor, and Branch Banking and Trust Company as Administrative Agent for Branch Banking and Trust Company, Citibank, N.A. and Bank of America, N.A. Filed as Exhibit 4.6 to the Company’s Current Report on Form 8-K filed November 25, 2014 and incorporated herein by reference. 4.8 Second Modification to Amended and Restated Credit Line Deed of Trust, dated as of November 20, 2014, by and among the Company as grantor, BB&T-VA Collateral Service Corporation, as trustee, and Branch Banking and Trust Company, as Administrative Agent for Branch Banking and Trust Company, Citibank, N.A. and Bank of America, N.A., as Beneficiaries relating to real property partially located in the County of Frederick, Virginia and partially located in the City of Winchester, Virginia. Filed as Exhibit 4.7 to the Company’s Current Report on Form 8-K filed November 25, 2014 and incorporated herein by reference. Exhibit Number Exhibit Description 4.9 Modification to Deed of Trust, dated as of November 20, 2014, by and among the Company as grantor, First American Title Insurance Company, as trustee, and Branch Banking and Trust Company, as Administrative Agent for Branch Banking and Trust Company, Citibank, N.A. and Bank of America, N.A., as Beneficiaries relating to real property located in the County of Fernley, Nevada. Filed as Exhibit 4.8 to the Company’s Current Report on Form 8-K filed November 25, 2014 and incorporated herein by reference. 4.10 Intellectual Property Security Agreement, dated November 20, 2014, by and between Trex Company, Inc. as debtor; and Branch Banking and Trust Company, in its capacity as Administrative Agent under the Second Amended and Restated Credit Agreement and acting as agent for itself and the other secured parties. Filed as Exhibit 4.9 to the Company’s Current Report on Form 8-K filed November 25, 2014 and incorporated herein by reference. 4.11 Third Amended and Restated Credit Agreement dated as of January 12, 2016 between the Company, as borrower; the subsidiaries of the Company as guarantors; Bank of America, N.A., as a Lender, Administrative Agent, Swing Line Lender and Letter of Credit Issuer; and certain other lenders arranged by Bank of America Merrill Lynch as Sole Lead Arranger and Sole Bookrunner. Filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on January 14, 2016 and incorporated herein by reference. 4.12 Revolver Note dated January 12, 2016 payable by the Company to Bank of America, N.A. in the amount of the lesser of $110,000,000 or the outstanding revolver advances made by Bank of America, N.A. Filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on January 14, 2016 and incorporated herein by reference. 4.13 Revolver Note dated January 12, 2016 payable by the Company to Citibank, N.A. in the amount of the lesser of $75,000,000 or the outstanding revolver advances made by Citibank, N.A. Filed as Exhibit 4.3 to the Company’s Current Report on Form 8-K filed on January 14, 2016 and incorporated herein by reference. 4.14 Revolver Note dated January 12, 2016 payable by the Company to Capital One, N.A. in the amount of the lesser of $35,000,000 or the outstanding revolver advances made by Capital One, N.A. Filed as Exhibit 4.4 to the Company’s Current Report on Form 8-K filed on January 14, 2016 and incorporated herein by reference. 4.15 Revolver Note dated January 12, 2016 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. Filed as Exhibit 4.5 to the Company’s Current Report on Form 8-K filed on January 14, 2016 and incorporated herein by reference. 4.16 Third Amended and Restated Security and Pledge Agreement dated as of January 12, 2016 between the Company, as debtor, and Bank of America, N.A. as Administrative Agent (including Notices of Grant of Security Interest in Copyrights and Trademarks). Filed as Exhibit 4.6 to the Company’s Current Report on Form 8-K filed on January 14, 2016 and incorporated herein by reference. 4.17 Assignment of Amended and Restated Credit Line Deed of Trust, Substitution of Trustee and Amendment, dated as of January 12, 2016, by and among the Company as grantor, PRLAP, INC, as trustee, and Bank of America, N.A., as Administrative Agent for Bank of America, N.A., Citibank, N.A., Capital One, N.A., and SunTrust Bank, as Beneficiaries relating to real property partially located in the County of Frederick, Virginia and partially located in the City of Winchester, Virginia. Filed as Exhibit 4.7 to the Company’s Current Report on Form 8-K filed on January 14, 2016 and incorporated herein by reference. 4.18 Amended and Restated Deed of Trust, dated as of January 12, 2016, by and among the Company as grantor, First American Title Insurance Company, as trustee, and Bank of America, N.A., Citibank, N.A., Capital One, N.A., and SunTrust Bank, as Beneficiaries relating to real property located in the County of Fernley, Nevada. Filed as Exhibit 4.8 to the Company’s Current Report on Form 8-K filed on January 14, 2016 and incorporated herein by reference. Exhibit Number Exhibit Description 10.1 Description of Management Compensatory Plans and Arrangements. Filed herewith. ** 10.2 Trex Company, Inc. 2014 Stock Incentive Plan. Filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2014 and incorporated herein by reference. ** 10.3 Trex Company, Inc. Amended and Restated 1999 Incentive Plan for Outside Directors. Filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2015 and incorporated herein by reference. ** 10.4 Form of Trex Company, Inc. 2014 Stock Incentive Plan Time-Based Restricted Stock Agreement. Filed as Exhibit 10.7 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013 and incorporated herein by reference. ** 10.5 Form of Trex Company, Inc. 2014 Stock Incentive Plan Performance-Based Restricted Stock Agreement. Filed as Exhibit 10.8 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013 and incorporated herein by reference. ** 10.6 Form of Trex Company, Inc. 2014 Stock Incentive Plan Stock Appreciation Rights Agreement. Filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2015 and incorporated herein by reference. ** 10.7 Form of Trex Company, Inc. 2014 Stock Incentive Plan Time-Based Restricted Stock Unit Agreement. Filed as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2015 and incorporated herein by reference. ** 10.8 Form of Trex Company, Inc. 2014 Stock Incentive Plan Performance-Based Restricted Stock Unit Agreement. Filed as Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2015 and incorporated herein by reference. ** 10.9 Form of Trex Company, Inc. Amended and Restated 1999 Incentive Plan for Outside Directors Stock Appreciation Rights Agreement. Filed as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2006 and incorporated herein by reference. ** 10.10 Form of Trex Company, Inc. Amended and Restated 1999 Incentive Plan for Outside Directors Restricted Stock Agreement. Filed as Exhibit 10.10 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011 and incorporated herein by reference. ** 10.11 Form of Trex Company, Inc. Amended and Restated 1999 Incentive Plan for Outside Directors Restricted Stock Unit Agreement. Filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2015 and incorporated herein by reference. ** 10.12 Change in Control Severance Agreement dated May 6, 2015 by and between Trex Company, Inc. and James E. Cline. Filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed May 8, 2015 and incorporated herein by reference. ** 10.13 Severance Agreement dated May 6, 2015 by and between Trex Company, Inc. and James E. Cline. Filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed May 8, 2015 and incorporated herein by reference. ** 10.14 Amendment and Restatement of Employment Agreement, dated as of July 24, 2012, between Trex Company, Inc. and Ronald W. Kaplan. Filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2012 and incorporated herein by reference. ** 10.15 Amendment and Restatement of Change in Control Severance Agreement, dated as of August 3, 2011, between Trex Company, Inc. and Ronald W. Kaplan. Filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on August 9, 2011 and incorporated herein by reference. ** 10.16 Form of Change in Control Severance Agreement between Trex Company, Inc. and Officers other than the Chief Executive Officer. Filed herewith. ** Exhibit Number Exhibit Description 10.17 Form of Severance Agreement between Trex Company, Inc. and Officers other than the Chief Executive Officer. Filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2015 and incorporated herein by reference. ** 10.18 Retention Agreement, dated as of July 24, 2012, between Trex Company, Inc. and Ronald W. Kaplan. Filed as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2012 and incorporated herein by reference. ** 10.19 Retention Agreement, dated as of July 24, 2012, between Trex Company, Inc. and James E. Cline. Filed as Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2012 and incorporated herein by reference. ** 10.20 Retention Agreement, dated as of July 24, 2012, between Trex Company, Inc. and William R. Gupp. Filed as Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2012 and incorporated herein by reference. *, ** 10.21 Retention Agreement, dated as of July 24, 2012, between Trex Company, Inc. and F. Timothy Reese. Filed as Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2012 and incorporated herein by reference. ** 10.22 Form of Indemnity Agreement for Directors. Filed as Exhibit 10.19 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008 and incorporated herein by reference. 10.23 Form of Indemnity Agreement for Officers. Filed as Exhibit 10.20 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008 and incorporated herein by reference. 10.24 Form of Indemnity Agreement for Director/Officers. Filed as Exhibit 10.21 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008 and incorporated herein by reference. 10.25 Form of Distributor Agreement of Trex Company, Inc. Filed as Exhibit 10.23 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008 and incorporated herein by reference. 10.26 Form of Trex Company, Inc. Fencing Agreement for Installers/Retailers. Filed as Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2006 and incorporated herein by reference. 10.27 Deed of Lease, dated June 15, 2000, between Trex Company, LLC and Space, LLC. Filed as Exhibit 10.16 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000 and incorporated herein by reference. 10.28 Amendment, dated February 22, 2010, of Deed of Lease dated as of June 15, 2000, between Trex Company, Inc., as successor by merger to Trex Company, LLC, and TC.V.LLC, as successor to Space, LLC. Filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2010 and incorporated herein by reference. 10.29 Amendment, dated November 2, 2016, of Deed of Lease dated as of June 15, 2000, between Trex Company, Inc., as successor by merger to Trex Company, LLC, and TC.V.LLC, as successor to Space, LLC. Filed herewith. 10.30 Deed of Lease, dated as of July 27, 2005, between the Company and 1 Dulles Town Center, L.L.C. Filed as Exhibit 10.34 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005 and incorporated herein by reference. * 21 Subsidiaries of the Company. Filed herewith. 23 Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm. Filed herewith. Exhibit Number Exhibit Description   31.1 Certification of Chief Executive Officer of the Company pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. Filed herewith.   31.2 Certification of Chief Financial Officer of the Company pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. Filed herewith.   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). Furnished herewith. 101.INS XBRL Instance Document. Filed. 101.SCH Inline XBRL Taxonomy Extension Schema Document. Filed. 101.CAL   101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document. Filed. 101.DEF   101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document. Filed. 101.LAB   101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document. Filed. 101.PRE   101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document. Filed. 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. * Portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.Filed herewith. ** Management contract or compensatory plan or agreement. *** Furnished herewith.