(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated ~~filer”~~filer,” “smaller reporting company,” and ~~“smaller reporting~~“emerging growth company” in Rule12b-2 of the Exchange Act.:

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange ~~Act.~~Act ☐

Indicate by check mark whether the registrant is a shell company (as defined by Rule12b-2 of the Exchange Act): Yes ☐ No ☒

The number of shares of the registrant’s common stock, par value $.01 per share, outstanding at October 17, ~~2017~~2018 was ~~29,424,889~~58,754,240 shares.


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30,					Nine Months Ended September 30,
	2017		2016		2017		2016		2018			2017		2018		2017
Net sales	$	140,194	$	106,168	$	442,941	$	384,294	$	166,380		$	140,194	$	544,279	$	442,941
Cost of sales		84,910		76,223		250,473		235,312		99,170			84,910		309,241		250,473

Gross profit		55,284		29,945		192,468		148,982		67,210			55,284		235,038		192,468
Selling, general and administrative expenses		24,919		19,379		75,409		64,786		28,132			24,919		90,603		75,409

Income from operations		30,365		10,566		117,059		84,196		39,078			30,365		144,435		117,059
Interest expense, net		59		77		515		1,108
Interest (income) expense, net										(222	)		59		377		515

Income before income taxes		30,306		10,489		116,544		83,088		39,300			30,306		144,058		116,544
Provision for income taxes		10,208		2,702		39,715		27,871		9,829			10,208		34,657		39,715

Net income	$	20,098	$	7,787	$	76,829	$	55,217	$	29,471		$	20,098	$	109,401	$	76,829

Basic earnings per common share	$	0.68	$	0.27	$	2.61	$	1.88	$	0.50		$	0.34	$	1.86	$	1.31

Basic weighted average common shares outstanding		29,404,049		29,295,284		29,385,722		29,419,958		58,741,973			58,808,098		58,785,546		58,771,444

Diluted earnings per common share	$	0.68	$	0.26	$	2.60	$	1.86	$	0.50		$	0.34	$	1.85	$	1.30

Diluted weighted average common shares outstanding		29,578,216		29,516,718		29,563,497		29,635,796		59,084,117			59,156,432		59,111,303		59,126,994

Comprehensive income	$	20,098	$	7,787	$	76,829	$	55,217	$	29,471		$	20,098	$	109,401	$	76,829


	September 30, 2017			December 31, 2016			September 30, 2018			December 31, 2017
	(Unaudited)						(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	25,541		$	18,664		$	107,313		$	30,514
Accounts receivable, net		70,802			48,039			87,915			66,882
Contract retainage		1,893			—
Inventories		26,029			28,546			35,451			34,524
Prepaid expenses and other assets		3,912			10,400			18,106			16,878
Revenues in excess of billings		4,706			—

Total current assets		132,883			105,649			248,785			148,798

Property, plant and equipment, net		102,788			103,286			108,233			103,110
Goodwill and other intangibles		72,544			10,523			74,608			71,319
Other assets		2,981			1,972			3,283			3,000

Total assets	$	311,196		$	221,430		$	434,909		$	326,227

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	15,960		$	10,767		$	18,198		$	9,953
Accrued expenses and other liabilities		41,327			34,693			52,244			46,266
Accrued warranty		6,725			5,925			5,400			6,290
Billings in excess of revenues		1,353			—
Customer deposits		953			—
Line of credit								—			—

Total current liabilities		66,318			51,385			75,842			62,509

Deferred income taxes		894			894			1,286			1,286
Non-current accrued warranty		29,733			31,767			27,235			28,709
Other long-term liabilities		2,676			3,223			1,892			2,473

Total liabilities		99,621			87,269			106,255			94,977

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; 34,918,427 and 34,894,233 shares issued and 29,424,746 and 29,400,552 shares outstanding at September 30, 2017 and December 31, 2016, respectively		349			349
Common stock, $0.01 par value, 120,000,000 shares authorized; 69,991,454 and 69,844,222 shares issued and 58,754,048 and 58,856,860 shares outstanding at September 30, 2018 and December 31, 2017, respectively								700			349
Additionalpaid-in capital		120,667			120,082			122,725			122,043
Retained earnings		264,071			187,242			391,770			282,370
Treasury stock, at cost, 5,493,681 shares at September 30, 2017 and December 31, 2016		(173,512	)		(173,512	)
Treasury stock, at cost, 11,237,406 and 10,987,362 shares at September 30, 2018 and December 31, 2017, respectively								(186,541	)		(173,512	)

Total stockholders’ equity		211,575			134,161			328,654			231,250

Total liabilities and stockholders’ equity	$	311,196		$	221,430		$	434,909		$	326,227


	Nine Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2018			2017
Operating Activities
Net income	$	76,829		$	55,217		$	109,401		$	76,829
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		12,065			10,893			13,164			12,065
Stock-based compensation		3,913			3,806			5,045			3,913
Loss (gain) on disposal of property, plant and equipment		1,720			(189	)
Loss on disposal of property, plant and equipment								50			1,720
Othernon-cash adjustments		(405	)		(285	)		(408	)		(405	)
Changes in operating assets and liabilities:
Accounts receivable		(14,407	)		1,580			(21,034	)		(14,407	)
Contract retainage		55			—
Inventories		4,860			6,597			(927	)		4,860
Prepaid expenses and other assets		2,987			(771	)		(3,155	)		1,799
Revenues in excess of billings		(1,243	)		—
Accounts payable		1,203			(6,761	)		8,245			1,203
Accrued expenses and other liabilities		(1,430	)		5,005			619			(2,438	)
Billings in excess of revenues		(399	)		—
Customer deposits		(609	)		—
Income taxes receivable/payable		7,698			8,487			4,369			7,698

Net cash provided by operating activities		92,837			83,579			115,369			92,837

Investing Activities
Expenditures for property, plant and equipment		(11,108	)		(8,534	)
Expenditures for property, plant and equipment and intangibles								(21,611	)		(11,108	)
Proceeds from sales of property, plant and equipment		—			4,349			83			—
Acquisition of business		(71,523	)		—			—			(71,523	)

Net cash used in investing activities		(82,631	)		(4,185	)		(21,528	)		(82,631	)

Financing Activities
Borrowings under line of credit		201,000			242,700			172,250			201,000
Principal payments under line of credit		(201,000	)		(249,700	)		(172,250	)		(201,000	)
Repurchases of common stock		(3,617	)		(55,185	)		(17,723	)		(3,617	)
Financing costs		—			(485	)
Proceeds from employee stock purchase and option plans		288			218			681			288

Net cash used in financing activities		(3,329	)		(62,452	)		(17,042	)		(3,329	)

Net increase in cash and cash equivalents		6,877			16,942			76,799			6,877
Cash and cash equivalents, beginning of period		18,664			5,995			30,514			18,664

Cash and cash equivalents, end of period	$	25,541		$	22,937			107,313		$	25,541

Supplemental Disclosure:
Cash paid for interest	$	416		$	849		$	662		$	416
Cash paid for income taxes, net	$	32,016		$	19,435		$	39,170		$	32,016

Trex Company, Inc. (Company) is the world’s largest manufacturer of wood-alternative decking and railing products, with more than 25 years of product experience, which are marketed under the brand name Trex^®. The Company manufactures and distributes high-performance,low-maintenance wood/plastic composite outdoor living products and related accessories. 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 also become a market leader for the design, engineering and marketing of modular and architectural railing, ~~systems and solutions for the commercial and multifamily markets, and a leading provider of~~ staging, acoustical and seating systems for the commercial ~~markets,~~and multi-family market, including sports stadiums and performing arts venues. Additional information on the acquisition of SC Company is presented in Note 6.5. Subsequent to the acquisition, the Company began operating in two reportable segments, Trex Residential Products and Trex Commercial Products. The Company is incorporated in Delaware. 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 two reportable segments, Trex Residential Products and Trex Commercial Products.~~

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the instructions to Form10-Q and Article 10 of RegulationS-X and, accordingly, the accompanying condensed consolidated financial statements do not include all of the information and ~~footnotes~~notes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal and recurring adjustments except as otherwise described herein) considered necessary for a fair presentation have been included in the accompanying condensed consolidated financial statements.

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned ~~subsidiary,~~subsidiaries, Trex Wood-Polymer Espana, ~~S.L,~~S.L. and Trex Commercial Products, Inc. The accounts of Trex Wood-Polymer Espana, S.L. are included in the condensed consolidated financial statements for all periods presented. The Condensed Consolidated Statements of Comprehensive Income and the Condensed Consolidated Statements of Cash Flows of the Company include the operations and cash flows of Trex Commercial Products, Inc.~~, its newly-formed, wholly-owned subsidiary,~~ for the three and nine months ended September 30, 2018, and from ~~July 31,~~the date of acquisition of SC Company through September 30, 2017 ~~through~~for the three and nine months ended September 30, 2017. The Company’s Condensed Consolidated Balance Sheet includes the assets and liabilities of Trex Commercial Products, Inc. at September 30, 2017. Trex Commercial Products, Inc. was formed to acquire certain assets and assume certain liabilities of SC Company on July 31, 2017. Additional information on the acquisition of SC Company is presented in Note 6.for all periods presented.

The consolidated results of operations for the three and nine months ended September 30, ~~2017~~2018 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, ~~2017.~~2018. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of December 31, ~~2016~~2017 and ~~2015~~2016 and for each of the three years in the period ended December 31, ~~2016~~2017 included in the Annual Report of Trex Company, Inc. on Form10-K, as filed with the U.S. Securities and Exchange Commission.

In ~~addition to the critical accounting policies included in the Company’s Annual Report on Form10-K~~ for the year ended December 31, 2016, the Company’s critical accounting policies also currently include the following policies implemented subsequent to and in connection with the SC Company acquisition:

For Trex Commercial Products, the Company recognizes revenue using the percentage of completion method measured by the ratio of direct costs incurred to date to estimated total costs for each contract. Contract costs include all direct material, labor, subcontract and certain indirect costs. Administrative costs are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are recognized when such losses are determined. Changes in job performance, conditions and estimated profitability may result in revisions to costs and income and are recognized in the period they are determined. Revenues recognized in excess of amounts billed are classified under current assets. Billings in excess of revenues are classified under current liabilities.

In addition to its trade receivables, the Company assesses the credit risk exposure of its customers’ contracts receivable by considering the length of time receivables may be past due, the customer’s financial condition and ability to repay the obligation, historical and expected credit loss experience, and other factors. Contracts receivable are carried at the original invoice amount in accounts receivable in the Company’s Condensed Consolidated Balance Sheet and are generally due when billed, and contract retainage is generally due at the completion of the construction contract.

~~In March 2016,~~May 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)~~No. 2016-09,~~ “~~Compensation – Stock Compensation (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 was 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 standard requires that 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 be recorded within income tax expense. Prior to adoption this amount would have been recorded as an increase in additional~~paid-in~~ capital. Additionally, the standard requires that 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. The Company applied this guidance prospectively as of January 1, 2016 during the quarterly period ended December 31, 2016, and, accordingly, data previously reported for the three and nine months ended September 30, 2016 have been adjusted, as follows:

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.

~~In May 2017, the FASB issued ASU~~No. 2017-09, “Compensation—Stock Compensation (Topic 718), Scope Modification Accounting.” The guidance clarified when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value (or calculated intrinsic value, if those amounts are being used to measure the award under ASC 718), the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. The guidance iswas effective prospectively for annual periods beginning on or after December 15, 2017. Adoption of the new standard did not have a material impact on the Company’s financial condition or results of operations.

In January 2017, the FASB issued ASUNo. 2017-01, “Business Combinations (Topic 805), Clarifying the Definition of a Business.” The guidance requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets: if so, the set of transferred assets and activities is not a business. The guidance was effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Adoption of the new standard did not have a material impact on the Company’s financial condition or results of operations.

In August 2016, the FASB issued ASUNo. 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 guidance was effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Adoption of the new standard did not have a material impact on the Company’s consolidated financial statements.

In May 2014, the FASB issued ASUNo. 2014-09, “Revenue from Contracts with Customers (Topic 606),” and issued subsequent amendments to the initial guidance in August 2015 within ASUNo. 2015-14, in March 2016 within ASUNo. 2016-08, in April 2016 within ASUNo. 2016-10, in May 2016 within ASUNo. 2016-12, and in December 2016 within ASUNo. 2016-20 (collectively, Topic 606). The Company adopted Topic 606 on January 1, 2018 and applied Topic 606 under the full retrospective method. The Company determined the appropriate revenue recognition for its contracts with customers by analyzing the type, terms and conditions of its contracts with its customers. The Company has consistently applied the accounting policies to all periods presented in these Condensed Consolidated Financial Statements. Adoption of Topic 606 did not have an impact on the Company’s financial condition or results of operations other than increased disclosures. Refer to Note 13, “Revenue,” for a discussion of the Company’s accounting policy related to revenue from contracts with customers.

In June 2018, the FASB issued ASUNo. 2018-07, “Compensation – Stock Compensation (Topic 718).” The ASU 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 Subtopic505-50, “Equity - Equity-Based Payment toNon-Employees.” Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. The ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted. The Company intends to adopt the guidance on ~~the effective date~~January 1, 2019 and does not believe adoption will have a material impact on its financial condition or results of operations.

In January 2017, the FASB issued ASUNo. 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 ~~is to~~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 intends to adopt the guidance on ~~the effective date~~January 1, 2020 and does not believe adoption will have a material impact on its financial condition or results of operations.

In ~~August 2016, the FASB issued ASUNo. 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 guidance is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The guidance requires application using a retrospective transition method. The Company intends to adopt the guidance on the effective date and does not believe adoption will have a material impact on its consolidated financial statements.

In February 2016, the FASB issued ASUNo. 2016-02, “Leases (Topic 842),.” and issued subsequent amendments to the initial guidance in January 2018 within ASUNo. 2018-01 and in July 2018 within ASU Nos.2018-10 and2018-11. The standard requires lessees to recognize leases on the balance sheet as aright-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. Currently, under existing U.S. generally accepted accounting ~~standards,~~principles, the Company does not recognize on the balance sheet aright-of-use asset or lease liability related to its operating leases. 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 standard ~~must be adopted using~~allows an entity to elect to have a date of initial application as of the ~~modified retrospective transition method and~~beginning of the period of adoption. The standard provides for the option to elect a package of practical expedients upon adoption. The Company intends to adopt the standard ~~in the first quarter of fiscal~~on January 1, 2019 and ~~is assessing the impact of adoption of the standard on~~continues to assess its ~~consolidated financial statements~~lease population and ~~related note disclosures. The Company has not made any decision on the option to elect adoption of the practical expedients.~~

~~In May 2014, the FASB issued ASUNo. 2014-09,~~ ~~“Revenue from Contracts with Customers (Topic 606),~~~~” and issued subsequent amendments to the initial guidance in August 2015 within ASUNo. 2015-14,~~ ~~in March 2016 within ASUNo. 2016-08,~~ ~~in April 2016 within ASUNo. 2016-10,~~ ~~in May 2016 within ASUNo. 2016-12,~~ ~~and in December 2016 within ASUNo. 2016-20~~ (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 when it satisfies a performance obligation at an amount that reflects the consideration to which the entity expects to be entitled in exchange for transferring control of 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 theits option to elect certain practical expedients as defined in the new standard. The Company ~~has substantially completed evaluation of its Trex Residential Products segment and believes that~~

adoption of the new standard will not have a significant impact on that segment. The Company continues to evaluate the impact of the new standard on its recently acquired Trex Commercial Products segment and expects to complete the evaluation during the fourth quarter of 2017. The Company expects expanded financial statement note ~~disclosure.~~disclosure in addition to recognizing aright-of-use asset and lease liability for its operating leases on the balance sheet. The Company continues to evaluate the impacts of the pending adoption. As such, the Company’s preliminary assessments are subject to change.

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, subject to adjustment pending final determination of working capital at closing.~~million. The Company used cash on hand and $30.0 million of funding from its existing revolving credit facility, which was fully paid on August 17, 2017, to acquire the assets. The acquired business designs, engineers and markets modular architectural railing, ~~systems and solutions for the commercial and multifamily markets, and provides~~ staging, acoustical and seating systems for the commercial ~~markets,~~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,~~accounting principles generally accepted in the United States, 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 combination of Level 2 and Level 3 inputs as specified in the fair value hierarchy in ~~ASC~~Accounting Standards Codification 820, “Fair Value Measurements and Disclosures.” The Company believes that the fair values assigned to the assets acquired and liabilities assumed are based on reasonable assumptions. The Company’s ~~consolidated~~Condensed Consolidated Statement of Comprehensive Income for the three and nine months ended September 30, 2018 includes the results of operations ~~for the quarterly and nine-month period ended September 30, 2017~~of Trex Commercial Products, Inc. The Company’s Condensed Consolidated Balance Sheets include the ~~operating results of the acquired business from the date of acquisition through quarter end. The Company’s consolidated balance sheet at September 30, 2017 includes the acquired~~ assets and ~~any~~ liabilities ~~assumed.~~of Trex Commercial Products, Inc. for all periods presented.

~~Based on the Company’s preliminary valuation, a total estimated~~Total consideration of $71.8 million ~~has been~~was allocated ~~on a preliminary basis~~ to the assets acquired and liabilities assumed, as follows (in thousands). A final determination of the purchase price and adjustment to the fair values of assets acquired and liabilities assumed and finalization of the valuation report will be completed upon the final determination of working capital at closing::

~~The preliminary goodwill~~Goodwill of $57.9 million is primarily attributable to the potential opportunity for the Company to offer full service railing systems in the growing commercial and multi-family ~~markets,~~market, 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 is expected to be amortized and deductible for tax purposes in ~~2017~~2018 is ~~$1.1~~$3.9 million. All of the goodwill was recorded to the Trex Commercial Products reportable segment. The fair value attributed to intangible assets, which consists of production backlog and trade names and trademarks, ~~is being~~was amortized straight line over 12 months and iswas based on the estimated economics of the assets. The fair value attributed to the intangible assets acquired and goodwill was based on assumptions and other information compiled by management, including independent valuations that utilized established valuation techniques.

During the three and nine months ended September 30, 2018, Trex Commercial Products, Inc. generated $19.4 million and $52.9 million of net sales, respectively, and $1.7 million and $2.0 million of net income, respectively, which included amortization expense of $0.4 million and $2.9 million, respectively. From July 31, 2017 through September ~~31,~~30, 2017, Trex Commercial Products, Inc. generated $9.2 million of revenue and incurred a net loss of $75 ~~thousand. The Company incurred $0.5 million~~thousand, which included amortization expense of ~~acquisition-related expenses during the nine months ended September 30, 2017, which are included in selling, general and administrative expense.~~$0.8 million.

The following pro forma results of Trex Company, Inc. are prepared for comparative purposes only and do not necessarily reflect the results that would have occurred had the acquisition occurred at the beginning of the ~~years~~periods presented or the results which may occur in the future. The following unaudited pro forma results of operations ~~assume~~assumes the acquisition occurred on January 1, ~~2016~~2017 (in thousands, except per share amounts):


	Nine Months Ended September 30
	2017		2016		2017		2016		Nine Months Ended September 30, 2017
	Actual				Pro Forma				Actual		Pro Forma
Net sales	$	442,941	$	384,294	$	475,076	$	427,043	$	442,941	$	475,076
Net income	$	76,829	$	55,217	$	77,570	$	54,978	$	76,829	$	77,570
Basic earnings per common share	$	2.61	$	1.88	$	2.64	$	1.87	$	1.31	$	1.32
Diluted earnings per common share	$	2.60	$	1.86	$	2.62	$	1.86	$	1.30	$	1.31

Significant pro forma adjustments included in the above pro forma information include an adjustment to amortization expense for the intangible assets acquired, ~~(see Note 9),~~ elimination of transaction costs related to the acquisition as such costs are considered to benon-recurring in nature, an adjustment to compensation expense related to restricted stock units granted in connection with the acquisition, and the income tax effects of the adjustments based on a blended statutory rate of 38.0%, and an adjustment to SC Company’s income taxes to the blended statutory rate, as SC Company was treated as a limited liability company for Federal and state income tax purposes.adjustments.

Inventories valued at LIFO(last-in,first-out), consist of the following (in thousands):


	September 30, 2017			December 31, 2016			September 30, 2018			December 31, 2017
Finished goods	$	23,486		$	29,686		$	30,936		$	32,986
Raw materials		21,344			20,231			22,419			19,432

Total FIFO(first-in,first-out) inventories		44,830			49,917			53,355			52,418
Reserve to adjust inventories to LIFO value		(21,371	)		(21,371	)		(20,070	)		(20,070	)

Total LIFO inventories	$	23,459		$	28,546		$	33,285		$	32,348

The Company utilizes the LIFO method of accounting related to its wood-alternative decking and residential railing products, which generally provides for the matching of current costs with current revenues. However, under the LIFO method, reductions in annual inventory balances cause a portion of the Company’s cost of sales to be based on historical costs rather than current year costs (LIFO liquidation). Reductions in interim inventory balances expected to be replenished byyear-end do not result in a LIFO liquidation. Accordingly, interim LIFO calculations are based, in part, on management’s estimates of expectedyear-end inventory levels and costs which may differ from actual results. Since inventory levels and costs are subject to factors beyond management’s control, interim results are subject to the finalyear-end LIFO inventory valuation. There were no LIFO inventory liquidations or related impact on cost of sales in the nine months ended September 30, ~~2017~~2018 or ~~2016.~~2017.

Inventories valued at lower of cost (FIFO method) and net realizable value ~~consist~~were $2.2 million at September 30, 2018 and December 31, 2017, consisting primarily of ~~the following (in thousands):~~

raw materials. The Company utilizes the FIFO method of accounting related to its architectural railing, staging, acoustical and seating systems for the commercial ~~railing~~ and ~~staging products.Work-in-process~~ ~~includes estimated production costs.~~multi-family market.


	September 30, 2017		December 31, 2016		September 30, 2018		December 31, 2017
Revenues in excess of billings					$	8,738	$	4,841
Prepaid expenses	$	3,190	$	6,209		4,228		7,494
Contract retainage						2,449		1,449
Income tax receivable		—		4,024		275		2,230
Other		722		167		2,416		864

Total prepaid expenses and other assets	$	3,912	$	10,400	$	18,106	$	16,878

~~The~~Intangible assets consist of the following ~~table summarizes the activity related to the carrying amount of goodwill during the nine months ended September 30, 2017~~ (in thousands):

~~Intangible assets acquired from SC Company on July 31, 2017 consist of the following at September 30, 2017:~~


	Net Carrying Amount (in thousands)			Amortization Period
				(in months)		September 30, 2018			December 31, 2017
Intangible assets:
Customer backlog	$	4,000			12	$	4,000		$	4,000
Trade names and trademarks		900			12		900			900
Domain names							6,287			—

Total intangible assets		4,900					11,187			4,900

Accumulated amortization:
Customer backlog		(683	)				(4,000	)		(1,666	)
Trade name		(134	)
Trade name and trademarks							(900	)		(376	)
Domain names							(140	)		—

Total accumulated amortization		(817	)				(5,040	)		(2,042	)

Intantible assets, net	$	4,083				$	6,147		$	2,858

Intangible asset amounts were determined based on the estimated economics of the asset and are amortized over the estimated useful lives on a straight-line ~~bases,~~basis over 12 months for customer backlog and trade names and trademarks and 15 years for domain names, which approximates the pattern in which the economic benefits are expected to be received. ~~Amortization~~In May 2018, the Company purchased certain domain names for $6.3 million. We evaluate the recoverability of intangible assets periodically and consider events or circumstances that may warrant revised estimates of useful lives or that may indicate an impairment. Intangible asset amortization expense for the ~~quarterly period~~nine months ended September ~~31, 2017~~30, 2018 was ~~$0.8~~$3.0 million.


	September 30, 2017		December 31, 2016		September 30, 2018		December 31, 2017
Sales and marketing	$	21,013	$	16,707	$	25,567	$	21,964
Compensation and benefits		10,727		13,298		14,058		14,818
Income taxes		3,674		—		2,414		—
Customer deposits						2,225		1,230
Manufacturing costs		1,215		1,799		1,654		1,979
Billings in excess of revenues						961		1,842
Rent obligations		739		632		844		779
Other		3,959		2,257		4,521		3,654

Total accrued expenses and other liabilities	$	41,327	$	34,693	$	52,244	$	46,266

On January 12, 2016, the Company entered into a Third Amended and Restated Credit Agreement, as amended, with Bank of America, N.A. as Lender, Administrative Agent, Swing Line Lender and Letter of Credit Issuer, and certain other lenders including Citibank, N.A., Capital One, N.A., and SunTrust. The Third Amended Credit Agreement, as amended, provides the Company with one or more revolving loans in a collective maximum principal amount of $250 million from January 1 through June 30 of each year, and a maximum principal amount of $200 million from July 1 through December 31 of each year throughout the term, which ends January 12, 2021.

The Company had no outstanding borrowings under its revolving credit facility and remaining available borrowing capacity of ~~$200~~$200.0 million at September 30, ~~2017.~~2018.

The Company’s ability 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 the Company’s ability to generate sufficient cash flow from operations.

As of September 30, ~~2017,~~2018, the Company was in compliance with all of the covenants contained in its debt agreements. Failure to comply with the loan covenants might cause lenders to accelerate the repayment obligations under the credit facility, which may be declared payable immediately based on a default.

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 Condensed Consolidated Balance Sheets at September 30, ~~2017~~2018 and December 31, ~~2016.~~

The Company’s Board of Directors unanimously approved an amendment to the Company’s Restated Certificate of Incorporation (Amendment) on February 14, 2018, subject to stockholder approval. At the annual meeting of stockholders of the Company held on May 2, 2018, the Company’s stockholders approved the Amendment, effective as of May 2, 2018. The Amendment increased the number of shares of common stock, par value $.01 per share, that the Company is authorized to issue from 80,000,000 shares to 120,000,000 shares. The Amendment was filed with the Delaware Secretary of State on May 2, 2018.

On May 2, 2018, the Board of Directors of the Company approved atwo-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 unaudited condensed consolidated financial statements and notes thereto have been retroactively adjusted to reflect the stock split.

The following table sets forth the computation of basic and diluted earnings per share (in thousands, except share and per share data):


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016		2018		2017		2018		2017
Numerator:
Net income available to common shareholders	$	20,098	$	7,787	$	76,829	$	55,217	$	29,471	$	20,098	$	109,401	$	76,829

Denominator:
Basic weighted average shares outstanding		29,404,049		29,295,284		29,385,722		29,419,958		58,741,973		58,808,098		58,785,546		58,771,444
Effect of dilutive securities:
Stock appreciation rights and options		97,315		116,803		98,905		133,907		177,412		194,630		181,680		197,810
Restricted stock		76,852		104,631		78,870		81,931		164,732		153,704		144,077		157,740

Diluted weighted average shares outstanding		29,578,216		29,516,718		29,563,497		29,635,796		59,084,117		59,156,432		59,111,303		59,126,994

Basic earnings per share	$	0.68	$	0.27	$	2.61	$	1.88	$	0.50	$	0.34	$	1.86	$	1.31

Diluted earnings per share	$	0.68	$	0.26	$	2.60	$	1.86	$	0.50	$	0.34	$	1.85	$	1.30

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:


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016		2018		2017		2018		2017
Stock appreciation rights		17,957		—		14,156		6,174		—		35,914		10,709		28,311
Restricted stock		330		46		110		15
Performance-based restricted stock units										—		660		285		220

On October 22, 2015, the Board of Directors adopted a stock repurchase program of up to 3,150,000 shares of the Company’s outstanding common stock (October 2015 Stock Repurchase Program). This authorization terminated on December 31, 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 ~~2,960,000~~5.92 million shares of the Company’s outstanding common stock (February 2017 Stock Repurchase Program). The Company made no repurchases under the February 2017 Stock Repurchase Program. On February 16, 2018, the Board of Directors terminated the February 2017 Stock Repurchase Program and adopted a new stock repurchase program of up to 5.8 million shares of the Company’s outstanding common stock (February 2018 Stock Repurchase Program). As of the date of this report, the Company has ~~made no repurchases~~repurchased 250,044 shares of the Company’s outstanding common stock under the February ~~2017~~2018 Stock Repurchase Program.

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 principally generates revenue from the manufacture and sale of its high performance, low maintenance 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 Products satisfies its performance obligations at a point in time. The shipment of each product is a separate performance obligation as the customer is able to derive benefit from each product shipped and no performance obligation remains after shipment. Upon shipment of the product, the customer obtains control over the distinct product and Trex Residential satisfies its performance obligation. Any performance obligation that remains unsatisfied at the end of a reporting period is part of a contract that has an original expected duration of one year or less. Any variable consideration related to the unsatisfied performance obligation is allocated wholly to the unsatisfied performance obligation and recognized when the product ships and the performance obligation is satisfied.

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 Condensed Consolidated Balance Sheets.

Trex Residential Products 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, using the most-likely-amount method of estimation 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 cumulativecatch-up method. In addition to sales incentive programs, Trex Residential Products may offer a payment discount. It estimates the payment discount that it believes will be taken by the customer based on prior history and using the most-likely-amount method of estimation. The Company believes the most-likely-amount method best predicts the amount of consideration to which it will be entitled.

Trex Residential Products 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 Products does not grant contractual product return rights to customers other than pursuant to its assurance product warranty (see related disclosure on product warranties in Note 18, “Commitments and Contingencies”). Trex Residential Products 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 generates revenue from the manufacture and sale of its modular and architectural railing, staging, acoustical and seating systems. All of its revenues are from fixed-price contracts with customers. Trex Commercial Products 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 Products 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 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 cumulativecatch-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 nine months ended September 30, 2018, no adjustment to any one contract was material to the Company’s Condensed Consolidated Financial Statements. In accordance with ASC606-10-50-15, the Company discloses only the transaction price allocated to its remaining performance obligations on contracts with an original duration greater than one year, which was $49.0 million as of September 30, 2018. The Company will recognize this revenue as contracts are completed, 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 Condensed 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) on the Condensed Consolidated Balance Sheet. These assets and liabilities are reported on acontract-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 nine months ended September 30, 2018.

Trex Commercial Products 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 Products 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 the three and nine months ended September 30, 2018, 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).


Three Months Ended September 30, 2018	Reportable Segment
	*Residential*		*Commercial*		*Total*
Timing of Revenue Recognition and Type of Contract
Products transferred at a point in time and variable consideration contracts	$	146,998	$	—	$	146,998
Products transferred over time and fixed price contracts		—		19,382		19,382

	$	146,998	$	19,382	$	166,380

The Company has one stock-based compensation plan, the 2014 Stock Incentive Plan (Plan), approved by the Company’s stockholders in April 2014. The Plan amended and restated in its entirety the Trex Company, Inc. 2005 Stock Incentive Plan. The Plan was subsequently amended and restated by the Company’s Board of Directors in May 2014 and May 2018. 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. ~~As of September 30, 2017, the~~The total aggregate number of shares of the Company’s common stock that may be issued under the Plan is ~~6,420,000.~~12,840,000 and as of September 30, 2018, the total number of shares available for future issuance are 5,199,789.

The following table summarizes the Company’s stock-based compensation grants for the nine months ended September 30, ~~2017:~~2018:


	Stock Awards Granted		Weighted-Average Grant Price Per Share
Time-based restricted stock units		87,154	$	54.69
Performance-based restricted stock units (a)		80,570	$	35.26
Stock appreciation rights		21,260	$	56.21

The fair value of each SAR is estimated on the date of grant using a Black-Scholes option-pricing formula. ~~There were no SARs issued during the nine months ended September 30, 2016.~~ For SARs issued in the nine months ended September 30, 2018 and 2017 the data and assumptions shown in the following table were used:


	Nine Months Ended September 30, 2017			Nine Months Ended September 30, 2018			Nine Months Ended September 30, 2017
Weighted-average fair value of grants	$	27.97		$	22.09		$	13.99
Dividend yield		0	%		0	%		0	%
Average risk-free interest rate		2.0	%		2.7	%		2.0	%
Expected term (years)		5			5			5
Expected volatility		42.2	%		40.5	%		42.2	%

The Company recognizes stock-based compensation expense ratably over the period from the 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 likely to be paid out based on the achievement of the predetermined performance measures. The following table summarizes the Company’s stock-based compensation expense (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016		2018		2017		2018		2017
Stock appreciation rights	$	28	$	—	$	220	$	184	$	56	$	28	$	314	$	220
Time-based restricted stock		417		368		1,557		1,847
Performance-based restricted stock		538		450		2,044		1,680
Time-based restricted stock and restricted stock units										672		417		2,073		1,557
Performance-based restricted stock and restricted stock units										616		538		2,534		2,044
Employee stock purchase plan		54		43		92		95		57		54		124		92

Total stock-based compensation	$	1,037	$	861	$	3,913	$	3,806	$	1,401	$	1,037	$	5,045	$	3,913

Total unrecognized compensation cost related to unvested awards as of September 30, ~~2017~~2018 was ~~$4.8~~$7.4 million. The cost of these unvested awards is being recognized over the requisite vesting period of each award.

The Company’s effective tax rate for the nine months ended September 30, 2018 and 2017 was 24.1% and ~~2016 was~~ 34.1% ~~and 33.5%~~, respectively, which resulted in expense of ~~$39.7~~$34.7 million and ~~$27.9~~$39.7 million, respectively. The ~~increase~~decrease of ~~0.6%~~10% in the effective tax rate was primarily due to ~~lower excess~~the enactment on December 22, 2017 of tax ~~benefits in 2017 compared~~legislation H.R.1, “An Act to ~~2016. In fiscal year 2016,~~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), which lowered the Federal statutory rate to 21%. The Company ~~adopted FASB ASUNo. 2016-09,~~ “~~Compensation – Stock Compensation (Topic 718): Improvements~~has finalized its analysis of the Act, which did not give rise to ~~Employee Share-Based Payment Accounting.~~~~” The~~ new ~~standard requires excess~~deferred tax ~~benefits on share-based awards be recognized in the tax provision instead of in equity.~~amounts.

During the nine months ended September 30, ~~2017~~2018 and ~~September 30, 2016,~~2017, the Company realized ~~$1.4~~$2.3 million and ~~$1.7~~$1.4 million, respectively, of excess tax benefits from stock-based awards and recorded a corresponding benefit to income tax expense.

The Company analyzes its deferred tax assets each reporting period, considering all available positive and negative evidence in determining the expected realization of those deferred tax assets. As of September 30, ~~2017,~~2018, the Company maintains a valuation allowance of ~~$4.1~~$3.1 million against deferred tax assets primarily related to state tax credits it estimates will expire before they are realized.

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 accrues a liability when it believes that it is more likely than not that benefits of tax positions will not be realized. The Company believes that adequate provisions have been made for all tax returns subject to examination. As of September 30, ~~2017,~~2018, for certain tax jurisdictions tax years ~~2013~~2014 through ~~2016~~2017 remain subject to examination. Sales made to foreign distributors are not taxable in any foreign ~~jurisdictions~~jurisdiction as the Company does not have a taxable presence in any foreign jurisdiction.

Prior to July 31, 2017, the Company operated in one 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 two reportable segments:

The Company’s operating segments have been determined in accordance with its internal management structure, which is organized based on residential and commercial sales activities. 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 for the three and nine months ended September 30, 2018, includes data for Trex Residential Products and Trex Commercial Product and for the three and nine months ended September 30, 2017, includes data for Trex Residential Products ~~for the nine-month period~~ and data for Trex Commercial Products from the date of the acquisition of SC Company through September 30, 2017 (in thousands):


	Three Months Ended September 30, 2018
	Residential			Commercial		Total
Net income	$	27,755		$	1,716	$	29,471
Interest, net		(222	)		—		(222	)
Taxes		9,259			570		9,829
Depreciation and amortization		3,275			494		3,769

EBITDA	$	40,067		$	2,780	$	42,847


	Three Months Ended September 30, 2017
	Residential		Commercial			Total
Net income (loss)	$	20,173	$	(75	)	$	20,098
Interest, net		59		—			59
Taxes		10,208		—			10,208
Depreciation and amortization		3,639		881			4,520

EBITDA	$	34,079	$	806		$	34,885


	Three Months Ended September 30, 2017							Nine Months Ended September 30, 2017
	Residential		Commercial			Total		Residential		Commercial			Total
Net income (loss)	$	20,173	$	(75	)	$	20,098	$	76,904	$	(75	)	$	76,829
Interest		59		—			59
Interest, net									515		—			515
Taxes		10,208		—			10,208		39,715		—			39,715
Depreciation and amortization		3,639		881			4,520		11,087		881			11,968

EBITDA	$	34,079	$	806		$	34,885	$	128,221	$	806		$	129,027

The ~~Company’s~~ operating results for Trex Residential Products 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 ~~Trex~~its products to a later period. As part of its normal business practice and consistent with industry practice, ~~the Company~~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 ~~the Company’s~~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 Products 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 each quarterly period.

The Company leases 55,047 square feet of office and storage space 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 Company estimates that the future sublease receipts will be less than the remaining minimum lease payment obligations under its lease and has recorded a liability for the present value of the expected shortfall.

As of September 30, 2017, minimum payments remaining under the Company’s lease relating to its reconsidered corporate relocation over the years ending December 31, 2017, 2018, and 2019 are $0.5 million, $2.0 million and $1.0 million, respectively. Net minimum receipts remaining under the Company’s existing subleases over the years ending December 31, 2017, 2018 and 2019 are $0.3 million, $1.3 million and $0.7 million, respectively.

~~The following table provides information about the Company’s liability related to the lease (in thousands):~~

The Company warrants that its decking and residential railing products will be free from material defects in workmanship and materials for warranty periods ranging from 10 years to 25 years, depending on the product and its 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. The Company continues to receive and settle claims for 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 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

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 nine months ended September 30, 2018 was lower than the Company’s expectations and considerably lower than the number of claims received in the nine months ended September 30, 2017, ~~was lower than claims received in the nine months ended September 30, 2016,~~ continuing the historical year-over-year decline in incoming claims. The favorable experience in incoming claims ~~and consistent with the Company’s expectations. The~~was offset, in part, by increased average settlement cost per claim experienced in the nine months ended September 30, ~~2017 was lower than~~2018. As a result, the ~~average settlement cost per claim experienced during the nine months ended September 30, 2016 and consistent with the Company’s expectations for 2017. The~~ Company believes its reserve at September 30, ~~2017~~2018 is sufficient to cover future surface flaking ~~obligations.~~obligations and no adjustments were required in the current quarter.

The Company’s analysis is based on currently known facts and a number of assumptions, as discussed above, and current expectations. Projecting future events such as the number of claims to be received, the number of claims that will require payment and the average cost of claims could cause ~~the~~ actual warranty liabilities to be higher or lower than those projected, which could materially affect the Company’s financial condition, results of operations or cash flows. The Company estimates that the annual number of claims received will continue to decline over time and that the average cost per claim will increase slightly, primarily due to inflation. If the level of claims received or average cost per claim differs materially from expectations, it could result in additional increases or decreases to the warranty reserve and a decrease or increase in earnings and cash flows in future periods. The Company estimates that a 10% change in the expected number of remaining claims to be settled with payment or the expected cost to settle claims may result in approximately a ~~$2.9~~$2.5 million change in the surface flaking warranty reserve.

The following is a reconciliation of the Company’s residential product warranty reserve ~~that represents amounts accrued for surface flaking claims~~ (in thousands):


							Nine Months Ended September 30, 2018
	2017			2016			Surface Flaking			Other Residential			Total
Beginning balance, January 1	$	33,847		$	29,673		$	28,157		$	6,842		$	34,999
Changes in estimates related topre-existing warranties		—			9,835
Provisions and changes in estimates								—			1,961			1,961
Settlements made during the period		(4,425	)		(4,188	)		(3,467	)		(858	)		(4,325	)

Ending balance, September 30	$	29,422		$	35,320		$	24,690		$	7,945		$	32,635

~~The remainder of the Company’s warranty reserve represents amounts accrued fornon-surface~~ ~~flaking claims.~~

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 2.~~

~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

EXPLANATORY NOTE:On May 2, 2018, the Board of Directors of the Company approved atwo-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 unaudited condensed consolidated financial statements and notes thereto have been retroactively adjusted to reflect the stock split.

The following management discussion should be read in conjunction with the Trex Company, Inc. (Company, we or our) Annual Report on Form10-K for the year ended December 31, ~~2016~~2017 filed with the U.S. Securities and Exchange Commission (SEC) and the condensed consolidated financial statements and notes thereto included in Part I, Item 1. “Financial Statements” of this quarterly report.

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” in our Annual Report on Form10-K for the year ended December 31, ~~2016~~2017 filed with the SEC. 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 the Company’s products; the Company’s ability to obtain raw materials, including scrap polyethylene, wood fiber, and other materials used in making our products, at acceptable prices; the Company’s ability to maintain product quality and product performance at an acceptable cost; the level of expenses associated with product replacement and consumer relations expenses related to product quality; ~~and~~ the highly competitive markets in which the Company ~~operates.~~operates; and cyber-attacks, security breaches or other security vulnerabilities; and the impact of upcoming data privacy laws and the General Data Protection Regulation and the related actual or potential costs and consequences.

Operations and Products:Trex Company, Inc. currently operates in two ~~business~~reportable segments: Trex Residential Products and Trex Commercial Products. The Company is focused on using renewable resources within both our Residential and Commercial segments.

Trex Residential Products is the world’s largest manufacturer of high-performance composite decking and residential railing products, which are marketed under the brand name Trex^® and manufactured in the United States. We offer a comprehensive set of aesthetically appealing and durable,low-maintenance product offerings in the decking, residential railing, ~~porch,~~ fencing, ~~trim,~~ steel deck framing, and outdoor lighting categories. A majority of the products areeco-friendly and made in a proprietary process that combines reclaimed wood fibers and recycled polyethylene film. In addition to resisting fading and surface staining, Trex Residential products require no sanding and sealing, resist moisture damage, provide a splinter-free surface and do not require chemical treatment against rot or insect infestation. Combined, these aspects yield significant aesthetic advantages and lower maintenance than wood decking and railing and ultimately render Trex products less costly than wood over the life of the deck. Special characteristics (including resistance to splitting, the ability to bend, and ease and consistency of machining and finishing) facilitate installation, reduce contractor call-backs and afford consumers a wide range of design options. Trex Residential products are sold to distributors and ~~two national retailers who, in turn, sell~~home centers for final resell primarily to the residential market.

~~Trex Commercial Products is a leading national provider of custom-engineered railing systems~~ In addition to the reclaimed wood and ~~one~~recycled plastic composite blend used in our Residential decking products, approximately 80 percent of the ~~leading suppliers of staging equipment. Trex Commercial Products designs and engineers custom railing solutions, which are prevalent~~aluminum used in professional and collegiate sports facilities, standardized architectural and aluminum railing systems, which target commercial and high-rise applications, and portable staging equipment for the performing arts, sports, and event production and rental markets. With a team of devoted engineers, and industry-leading reputation for quality and dedication to customer service, Trex Commercial Products are sold through architects, specifiers, and contractors.our Residential line is from recycled sources.



*Railing*		Our residential railing products are Trex Transcend Railing, Trex Enhance^® Railing, Trex Select Railing, and Trex ~~Signature~~^®Signature™ aluminum railing. Trex Transcend Railing is available in the colors of Trex Transcend decking and finishes that make it appropriate for use with Trex decking ~~products as well as other~~products. Trex Enhance Railing complements our Trex Enhance decking ~~materials, which we believe enhances the sales prospects of our railing products.~~and is available in white, saddle, vintage lantern and black. Trex Select Railing is offered in a white finish and is ideal for consumers who desire a simple clean finished look for their deck. Trex Signature^® aluminum railing is available in three colors and designed for consumers who want a sleek, contemporary look.

*~~Porch~~*		~~Our Trex Transcend Porch Flooring and Railing System is an integrated system of porch components and accessories.~~

*Fencing*		Our Trex Seclusions^® fencing product is offered through two specialty distributors. This product consists of structural posts, bottom rail, pickets, top rail and decorative post caps.

*Steel Deck* *Framing*		Our triple-coated steel deck framing system called Trex Elevations^® leverages the strength and dimensional stability of steel to create a flat surface for our decking. Trex Elevations provides consistency and reliability that wood does not and is fire resistant.

*Outdoor Lighting*		Our outdoor lighting systems are Trex DeckLighting™ and Trex LandscapeLighting™. Trex DeckLighting is a line of energy-efficient LED dimmable deck lighting, which is designed for use on posts, floors and steps. The line includes a post cap light, deck rail light, riser light and a recessed deck light. The Trex LandscapeLighting line includes an energy-efficient well light, path light, multifunction light and spotlight.

Trex Commercial Products is a leading national provider of custom-engineered railing systems and staging equipment. Trex Commercial Products designs and engineers custom solutions, which are prevalent in professional and collegiate sports facilities, commercial and high-rise applications, performing arts, sports, and event production and rental markets. With a team of devoted engineers, and industry-leading reputation for quality and dedication to customer service, Trex Commercial Products markets to architects, specifiers, contractors, and building owners. In addition, approximately 75 percent of the aluminum and stainless steel used in the Commercial Products segment is from recycled sources.

Business Acquisition.On July 31, 2017, through our newly-formed, wholly-owned subsidiary, Trex Commercial Products, Inc., we entered into a definitive agreement with SC Company and on that date acquired certain assets and assumed certain liabilities of SC Company for $71.8 ~~million in cash. The purchase price is subject to adjustment pending final determination of working capital.~~million. We used cash on hand and $30.0 million from our existing revolving credit facility to acquire the business. The acquisition provides us with the opportunity to offer full service railing systems in the growing commercial and multi-family ~~markets,~~market, 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 ~~unaudited~~ condensed consolidated ~~financial~~balance sheets as of September 30, 2018 and December 31, 2017, the consolidated statements ~~include~~of comprehensive income for the ~~accounts Trex Commercial Products~~three and nine months ended September 30, 2018, and from the date of acquisition of SC Company through September 30, ~~2017.~~2017, and the condensed consolidated statement of cash flow for the nine months ended September 30, 2018 and from the date of acquisition of SC Company through September 30, 2017, include the accounts of Trex Commercial Products, Inc.

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. Our~~Trex Residential Products operating results have historically varied from quarter to quarter. Seasonal, erratic or prolonged adverse weather conditions in certain geographic regions reduce the level of home and commercial improvement and residential and commercial construction and can shift demand for our products to a later period.

As part of our normal business practice and consistent with industry practices, we have historically provided our distributors and dealers of our Trex Residential Products incentives to build inventory levels before the start of the prime deck-building season to ensure adequate availability of our product to meet anticipated seasonal consumer demand and to enable production planning. These incentives include 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 Products are driven by the timing of individual projects, which may vary each quarterly period.

Gross Profit.Gross profit represents the difference between net sales and cost of sales. Cost of sales consists of raw ~~materials~~material costs, direct labor costs, manufacturing costs, subcontract costs and freight. Raw ~~materials~~material costs generally include the costs to purchase and transport reclaimed wood fiber, reclaimed polyethylene, pigmentation for coloring our products, and commodities used in the production of railing and staging. 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.

Product Warranty. We warrant that our Trex Residential products will be free from material defects in workmanship and materials for warranty periods ranging from 10 years to 25 years, depending on the product and its use. If there is a breach of such warranties, we have an obligation either to replace the defective product or refund the purchase price. We continue to receive and settle claims for 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. 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 2013 communications made by the Company informing homeowners of potential hazards associated with products exhibiting surface flaking that are not timely replaced, have obscured any observable trends in historical claims activity.

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 fiscal year are received during the summer outdoor season, which spans the second and third fiscal quarters. It has been our practice to utilize actuarial techniques 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. Our actuarial analysis is based on currently known facts and a number of assumptions. Projecting future events

number of claims that will require payment and the average cost of claims could cause the actual warranty liabilities to be higher or lower than those projected, which could materially affect our financial condition, results of operations or cash flows. The number of incoming claims received in the nine months ended September 30, ~~2017~~2018 was lower than the Company’s expectations and considerably lower than the claims received in the nine months ended September 30, ~~2016,~~2017, continuing the historical year-over-year decline in incoming claims. The favorable experience in incoming claims ~~and consistent with our expectations. The~~was offset, in part, by increased average settlement cost per claim experienced in the nine months ended ~~June~~September 30, ~~2017 decreased compared to the average settlement cost per claim experienced during the nine months ended June 30, 2016, and was consistent with expectations for 2017.~~2018. We believe that our reserve at September 30, ~~2017~~2018 is sufficient to cover future surface flaking obligations.

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


	Nine Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2018			2017
Claims open, beginning of period		2,755			2,500			2,306			2,755
Claims received (1)		1,931			2,257			1,314			1,931
Claims resolved (2)		(2,003	)		(1,774	)		(1,390	)		(2,003	)

Claims open, end of period		2,683			2,983			2,230			2,683

Average cost per claim (3)	$	2,553		$	2,670		$	2,703		$	2,553

Selling, General and Administrative Expenses.The largest component of selling, general and administrative expenses is personnel related costs, which ~~include~~includes salaries, commissions, incentive compensation, and benefits of personnel engaged in sales and marketing, accounting, information technology, corporate operations, research and development, and other business functions. Another component of selling, general and administrative expenses is branding and other sales and marketing costs, which are used to build brand awareness. These costs consist primarily of advertising, merchandising, and other promotional costs. Other general and administrative expenses include professional fees, office occupancy costs attributable to the business functions previously referenced, and consumer relations expenses. As a percentage of net sales, selling, general and administrative expenses may vary from quarter to quarter due, in part, to the seasonality of our business.

On July 31, 2017, Trex Commercial Products, Inc., our newly-formed, wholly-owned subsidiary, acquired certain assets and assumed certain liabilities of SC Company for $71.8 ~~million in cash, subject to adjustment pending final determination of working capital at closing.~~million. The Company used cash on hand and $30.0 million of funding from its existing revolving credit facility to acquire the assets. The acquired business designs, engineers and markets modular architectural railing, ~~systems and solutions for the commercial and multifamily markets, and provides~~ staging, acoustical and seating systems for the commercial ~~markets,~~and multi-family market, including sports stadiums and performing arts venues. As a result of the purchase, we will gain access to growing commercial markets, expand our custom design and engineering capabilities, and add the contract architect and specifier communities as new channels for ~~its~~our products. ~~Our~~The condensed consolidated ~~results~~balance sheets as of ~~operations include~~September 30, 2018 and December 31, 2017, the ~~operating results~~consolidated statements of comprehensive income for the ~~acquired business following~~three and nine months ended September 30, 2018, and from the date of ~~acquisition. Our consolidated balance sheet at~~acquisition of SC Company through September 30, 2017, ~~includes~~and the ~~acquired assets~~condensed consolidated statement of cash flow for the nine months ended September 30, 2018 and ~~any liabilities assumed.~~from the date of acquisition of SC Company through September 30, 2017, include the accounts of Trex Commercial Products, Inc.

Below is our discussion and analysis of our operating results and material changes in our operating results for the three months ended September 30, ~~2017 (2017~~2018 (2018 quarter) compared to the three months ended September 30, ~~2016 (2016~~2017 (2017 quarter), and for the nine months ended September 30, ~~2017 (2017~~2018 (2018 nine-month period) compared to the nine months ended September 30, ~~2016 (2016~~2017 (2017 nine-month period).

Three Months Ended September 30, ~~2017~~2018 Compared To The Three Months Ended September 30, ~~2016~~2017

The ~~32.0%~~18.7% increase in total net sales in the ~~2017~~2018 quarter compared to the ~~2016~~2017 quarter was due primarily to volume growth ~~in our~~reflecting favorable market conditions and strong consumer demand for Trex branded residential decking and railing products. The volume growth was positively impacted by continued strength in the remodeling sector, our marketing programs aimed at taking market share from wood, and the healthy demand across our full suite of outdoor living products with decking and railing products as the major growth contributors. The ~~remaining~~ increase ~~resulted from~~in net sales in the Residential segment was offset by a $6 million charge related to the expansion of ~~our recently acquired commercial products~~stocking positions in all residential sales channels beginning in 2019. Residential net sales growth excluding the $6 million totaled 16.8%. The Commercial segment operated for three months in the ~~period from~~2018 quarter and contributed $10.2 million to the ~~date of~~increase in total net sales. Commercial net sales were $9.2 million after the acquisition of SC Company in July ~~31, 2017 through quarter end.~~2017.

Gross profit as a percentage of net sales, gross margin, ~~increased~~was 40.4% in the 2018 quarter compared to 39.4% in the 2017 ~~quarter from 28.2%~~quarter. Gross margin for Residential and Commercial products totaled 42.3% and 25.9%, respectively. Excluding the $6 million charge discussed above in ~~the 2016 quarter,~~Net Sales, Residential gross margin was 44.6%, an improvement of ~~11.2%. Gross profit in the 2016 quarter included a $9.8 million increase to the warranty reserve related to surface flaking. Excluding this charge, the 2017~~400 basis points. The 2018 quarter gross margin ~~increased by 2.0%, reflecting a 3.1%~~reflected sustained improvement resulting in part from our ability to identify, qualify and procure new lower cost recycling product streams, manufacturing efficiencies that are part of ongoing programs, higher capacity utilization, favorability in other residential ~~through~~warranty claims, and improved execution and cost reduction initiatives ~~lower sales of excess polyethylene film, lower cost raw materials and increased capacity utilization,~~in our commercial segment. The improvements above were partially offset by ~~the gross margin contribution from commercial products.~~expenses for product innovation costs, and inflationary factors for freight andnon-recycled polyethylene material costs.

The ~~$5.5~~$3.2 million increase in selling, general and administrative expenses in the ~~2017~~2018 quarter compared to the ~~2016~~2017 quarter resulted primarily from an increase ~~resulting from the SC Company acquisition~~in personnel related expenses and ~~an increase~~branding, offset by a $0.3 million decrease in ~~incentive compensation, and $1.2 million related to marketing, branding and advertising spend in support of our market growth strategies.~~amortization expense. As a percentage of net sales, total selling, general and administrative expenses decreased by ~~0.5%~~0.9% in the ~~2017~~2018 quarter compared to the ~~2016~~2017 quarter.

The effective tax rate for the ~~2017~~2018 quarter ~~increased~~decreased by ~~7.9%~~8.7% compared to the effective tax rate for the ~~2016~~2017 quarter primarily due to the ~~tax~~ effects of ~~higher excess~~ tax ~~benefits related~~legislation H.R.1, “An Act to ~~the settlement or vesting of restricted stock or restricted stock units recognized in income tax expense during the 2016 quarter compared~~Provide for Reconciliation Pursuant to ~~the 2017 quarter. In 2016, we adopted Financial Accounting Standards Board Accounting Standards UpdateNo. 2016-09,~~ “~~Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting~~~~.” The standard requires that excess tax benefits~~Titles II and V of the ~~settlement or vesting of time-based restricted stock or time-based restricted stock units~~Concurrent Resolution on the Budget for Fiscal Year 2018,” known as the Tax Cuts and ~~performance-based restricted stock or performance-based restricted stock units be recorded within income~~Jobs Act, which lowered the Federal statutory rate to 21%. The effective tax ~~expense. Prior to adoption this amount would have been recorded as an increase in additionalpaid-in~~ ~~capital. As a result of adoption of the standard, the provision for income taxes~~rate for the ~~2016~~2018 quarter ~~was adjusted to $2.7 million from~~reflects the ~~$3.6 million previously reported.~~new Federal statutory tax rate of 21%.

Net Income and Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)¹ (in thousands)

The Company uses EBITDA to assess performance as it believes EBITDA facilitates performance comparison between its reportable segments by eliminating interest, taxes, depreciation and amortization charges to income. Total EBITDA increased 149% to $34.9 million for the 2017 quarter compared to $14.0 million for the 2016 quarter. EBITDA in the 2016 quarter included a $9.8 million increase to warranty reserve related to surface flaking. Excluding this charge, the 2017 quarter increase in Total EBITDA was 46.5%, with Residential EBITDA growth of 43.1% and Commercial EBITDA contributing 3.4%. The 43.1% Residential EBITDA growth was driven by increased revenue and EBITDA margin expansion.

~~Nine Months Ended September 30, 2017 Compared To The Nine Months Ended September 30, 2016~~

The 15.3% increase in total net sales in the 2017 nine-month period compared to the 2016 nine-month period was primarily due to volume growth of our Trex branded decking and railing products. Volume growth was positively impacted by continued strength in the remodeling sector and the healthy demand across our full suite of outdoor living products, which we believe resulted from our marketing programs aimed at taking market share from wood. The increase in net sales from volume growth of our decking and railing products was offset by the ongoing reduction in the sale of recycled polyethylene film.

Gross profit as a percentage of net sales, gross margin, increased to 43.5% in the 2017 nine-month period compared to 38.8% in the 2016 nine-month period, an improvement of 4.7%. Gross profit in the 2016 nine-month period included a $9.8 million increase to the warranty reserve related to surface flaking. Excluding this charge, the 2017 nine-month gross margin increased 2.2% reflecting a 2.6% improvement in residential through cost reduction initiatives, lower sales of excess polyethylene film, lower cost raw materials and increased capacity utilization, partially offset by the gross margin contribution from commercial products.

As a percentage of net sales, selling, general and administrative expenses increased minimally during the 2017 nine-month period compared to the 2016 nine-month period. The $10.6 million increase was primarily attributable to a $3.7 million increase in marketing, branding and advertising spend, a $1.5 million write off of research and development and other assets, $0.8 million increase in research and development as we continue to support growth, and an increase resulting from the SC Company acquisition.

The effective tax rate increased 0.6% during the 2017 nine-month period compared to the effective tax rate during the 2016 nine-month period primarily due to the effect of lower excess tax benefits in the 2017 nine-month period compared to the 2016 nine-month period.

~~Net Income and Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) (in thousands)~~

The Company uses EBITDA to assess performance as it believes EBITDA facilitates performance comparison between its, reportable segments by eliminating interest, income taxes, and depreciation and amortization charges to income. Total EBITDA increased ~~36.1%~~22.8% to $42.8 million for the 2018 quarter compared to $34.9 million for the 2017 quarter. The improvement was driven primarily by a $6.0 million increase in Residential EBITDA resulting primarily from higher net sales, which were offset by a $6 million charge to Residential net sales related to the expansion of stocking positions in all residential sales channels beginning in 2019, and sustained improvement in gross profit. The 2018 quarter includes Commercial operations for the three months in the quarter with an increase in sales and improved gross profit that contributed $2.0 million to total EBITDA. Commercial EBITDA for the 2017 quarter includes operations after acquisition of the SC Company.

Nine Months Ended September 30, 2018 Compared To The Nine Months Ended September 30, 2017

The 22.9% increase in total net sales in the 2018 nine-month period compared to the 2017 nine-month period was primarily due to a 13.3% increase in our Residential net sales resulting from volume growth in our Trex branded decking and railing products. Residential net sales growth totaled 14.7%, excluding the third quarter $6 million charge related to the expansion of stocking positions in all residential sales channels beginning in 2019. The volume growth was positively impacted by

continued strength in the remodeling sector, our marketing programs aimed at taking market share from wood, and the healthy demand across our full suite of outdoor living products with decking and railing products as the major growth contributors. The remaining increase in total net sales was from our Commercial operations acquired from SC Company in July 2017.

Gross profit as a percentage of net sales, gross margin, was relatively unchanged at 43.2% in the 2018 nine-month period from 43.5% in the 2017 nine-month period. Gross margin for the Residential and Commercial products totaled 45.4% and 23.0%, respectively. Excluding the $6 million charge discussed above in Net Sales, Residential gross margin was 46.0%. Residential gross margin improved by 2.1% resulting in part from our ability to identify, qualify and procure new lower cost recycling product streams, manufacturing efficiencies that are part of ongoing programs, higher capacity utilization. Commercial gross margin increased due to improved execution and cost reduction initiatives. The improvements above were partially offset by expenses for product innovation costs, and inflationary factors for freight andnon-recycled polyethylene material costs.

The $15.2 million increase in selling, general and administrative expenses in the 2018 nine-month period compared to the 2017 nine-month period resulted primarily from an increase in personnel related expenses of $11.9 million, an increase in amortization expense of $2.2 million related to the SC acquisition, and an increase in branding initiatives of $2.7 million. As a percentage of net sales, total selling, general and administrative expenses remained relatively unchanged in the 2018 nine-month period compared to the 2017 nine-month period. Trex Commercial Products accounted for $7.4 million of the overall increase.

The effective tax rate for the 2018 nine-month period decreased by 10% compared to the effective tax rate for the 2017 nine-month period primarily due to the effects of 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, which lowered the Federal statutory rate to 21%. The effective tax rate for the 2018 nine-month period reflects the new Federal statutory tax rate of 21%.

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

The Company uses EBITDA to assess performance as it believes EBITDA facilitates performance comparison between its reportable segments by eliminating interest, income taxes, and depreciation and amortization charges to income. Total EBITDA improved 22.1% to $157.5 million for the 2018 nine-month period compared to $129.0 million for the 2017 nine-month ~~period compared to $94.8 million for the 2016 nine-month~~ period. EBITDA in the 2016 nine-month period included a $9.8 million increase to warranty reserve related to surface flaking. Excluding this charge, the 2017 nine-month period increase in Total EBITDA was 23.3%, with Residential EBITDA growth of 22.5% and Commercial EBITDA contributing 0.8%. The ~~22.5% Residential EBITDA growth~~improvement was driven by ~~increased revenue~~a $23.6 million increase in Residential EBITDA resulting primarily from higher net sales, which were offset by a $6 million charge to Residential net sales related to the expansion of stocking positions in all residential sales channels beginning in 2019, and ~~EBITDA margin expansion.~~sustained improvement in gross profit.

We finance operations and growth primarily with cash flows from operations, borrowings under our revolving credit facility, operating leases and normal trade credit terms from operating activities.

At September 30, ~~2017,~~2018 we had ~~$25.5~~$107.3 million of cash and cash equivalents.

Sources and Uses of Cash.The following table summarizes our cash flows from operating, investing and financing activities (in thousands):


	Nine Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2018			2017
Net cash provided by operating activities	$	92,837		$	83,579		$	115,369		$	92,837
Net cash used in investing activities	$	(82,631	)	$	(4,185	)	$	(21,528	)	$	(82,631	)
Net cash used in financing activities	$	(3,329	)	$	(62,452	)	$	(17,042	)	$	(3,329	)

Net increase in cash and cash equivalents	$	6,877		$	16,942		$	76,799		$	6,877

Net cash provided by operating activities was ~~$92.8~~$115.4 million in the ~~2017~~2018 nine-month period compared to net cash provided by operating activities of ~~$83.6~~$92.8 million in the ~~2016~~2017 nine-month period. ~~The net increase in cash~~Cash provided by operating activities ~~in the 2017 nine-month period compared to the 2016 nine-month period was~~increased primarily due to an increase in ~~working capital of $12.3 million. This increase was~~net sales volume growth and related net income, offset by ~~a $21.6 million~~an increase in accounts receivable related to the increased net ~~income.~~sales volume growth.

Capital expenditures in the 2018 nine-month period were $21.6 million, consisting primarily of $13.4 million for general plant cost reduction initiatives and other production improvements and $6.3 million for the purchase of domain names. Capital expenditures in the 2017 nine-month period were $11.1 million primarily consisting ~~primarily~~ of $8.1 million for general plant cost reduction initiatives and $2.2 million for equipment and new product development. Capital expenditures in the 2016 nine-month period were $8.5 million primarily consisting of $3.3 million for the purchase of equipment, land adjacent to our Winchester, Virginia manufacturing facility, and Trex University (our~~state-of-the-art~~ training facility), $2.6 million for general plant cost reduction initiatives, and $2.3 million for process and productivity improvement. Also, in January 2016, the Company sold a portion of the Olive Branch, Mississippi, facility that contained the buildings for $4.2 million.

On July 31, 2017, through its newly-formed, wholly-owned subsidiary, Trex Commercial Products, the Company acquired certain assets and assumed certain liabilities of SC Company for $71.8 million in cash, subject to adjustment pending final determination of working capital at closing. The Company used cash on hand and $30 million of funding from its existing revolving credit facility to acquire the assets.

Net cash used in financing activities was ~~$3.3~~$17.0 million in the ~~2017~~2018 nine-month period compared to net cash used in financing activities of ~~$62.5~~$3.3 million in the ~~2016~~2017 nine-month period. The ~~$59.1 million decrease~~increase was primarily due to ~~$54.7 million in~~repurchases of our outstanding common stock ~~repurchase activity~~under the February 2018 Stock Repurchase Program.

The Company’s Board of Directors unanimously approved an amendment to the Company’s Restated Certificate of Incorporation (Amendment) on February 14, 2018, subject to stockholder approval. At the annual meeting of stockholders of the Company held on May 2, 2018, the Company’s stockholders approved the Amendment, effective as of May 2, 2018. The Amendment increases the number of shares of common stock, par value $.01 per share, that the Company is authorized to issue from 80,000,000 shares to 120,000,000 shares. The Amendment was filed with the Delaware Secretary of State on May 2, 2018.

Following the annual meeting of stockholders on May 2, 2018, the Board of Directors of the Company approved atwo-for-one stock split of the Company’s common stock, par value $0.01. The stock split was in the ~~2016 nine-month period.~~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 unaudited condensed consolidated financial statements and notes thereto have been retroactively adjusted to reflect the stock split.

On October 22, 2015, the Board of Directors 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. The Company repurchased a total of 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 ~~2.96~~5.92 million shares of the Company’s outstanding common stock (February 2017 Stock Repurchase Program). The Company made no repurchases under the February 2017 Stock Repurchase Program. On February 16, 2018, the Board of Directors terminated the February 2017 Stock Repurchase Program and adopted a new stock repurchase program of up to 5.8 million shares of the Company’s outstanding common stock (February 2018 Stock Repurchase Program). As of the date of this report, the Company has ~~made no repurchases~~repurchased 250,044 shares of the Company’s outstanding common stock under the February ~~2017~~2018 Stock Repurchase Program.

Indebtedness. Our Third Amended and Restated Credit Agreement, as amended, provides us with revolving loan capacity in a collective maximum principal amount of $250 million from January 1 through June 30 of each year, and a maximum principal amount of $200 million from July 1 through December 31 of each year throughout the term, which ends January 12, 2021. At September 30, ~~2017,~~2018, we had no outstanding indebtedness under the revolving credit facility and borrowing capacity under the facility of ~~$200~~$200.0 million.

Debt Covenants. To remain in compliance with covenants contained within our debt agreements, we must maintain specified financial ratios based on levels of debt, fixed charges, and earnings (excluding extraordinary gains and extraordinarynon-cash losses) before interest, taxes, depreciation and amortization. At September 30, ~~2017,~~2018, we were in compliance with these covenants. Failure to comply with our loan covenants might cause our lenders to accelerate our repayment obligations under our credit facility, which may be declared payable immediately based on a default.

We believe that cash on hand, cash from operations and borrowings expected to be available under our revolving credit facility will provide sufficient funds to fund planned capital expenditures, make scheduled principal and interest payments, fund warranty payments, and meet other cash requirements. We currently expect to fund future capital expenditures from operations and financing activities. 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.

Capital Requirements. We currently estimate that our capital expenditures in ~~2017~~2018 will be ~~$15 to $20~~in excess of $30 million. Our capital allocation priorities include expenditures for internal growth opportunities, manufacturing cost reductions, acquisitions which fit out long-term outdoor products growth strategy as we continue to evaluate opportunities that would be a good strategic fit for Trex, and return of capital to shareholders.

Inventory in Distribution Channels.We sell our decking and residential 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 end users. Significant increases in inventory levels in the distribution channel without a corresponding change inend-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 changes in the levels of inventory in the distribution channels at September 30, ~~2017~~2018 compared to inventory levels at September 30, ~~2016.~~2017.

Product Warranty. We continue to receive and settle claims related to residential products manufactured at our Nevada facility prior to 2007 that exhibit surface flaking, which has had a material adverse effect on cash flow from operations, and regularly monitor the adequacy of the warranty reserve.

In the ~~2017~~2018 nine-month period and the ~~2016~~2017 nine-month period we paid ~~$4.4~~$3.5 million and ~~$4.2~~$4.4 million, respectively, to settle surface flaking claims. We estimate that the number of claims received will continue to decline over time and that the average settlement 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 our expectations, it could result in additional increases or decreases to the warranty reserve and a decrease or increase in earnings and cash flow in future periods.

~~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 cash. The purchase price is subject to adjustment pending final determination of working capital. We used cash on hand and $30.0 million from our existing revolving credit facility to acquire the business.

Seasonality. ~~Our~~The operating results for Trex Residential Products 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 ~~our~~its products to a later period. As part of ~~our~~its normal business practice and consistent with industry practice, ~~we have~~Trex Residential Products has historically offered incentive programs to ~~our~~its distributors and dealers to build inventory levels before the start of the prime deck-building season in order to ensure adequate availability of ~~our~~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 Products 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 each quarterly period.

In addition to the critical accounting policies included in the Company’s Annual Report on Form10-K for the year ended December 31, ~~2016,~~2017, critical accounting policies and estimates also include the ~~following policies subsequent to and in connection with the SC Company acquisition:~~following:

Effective January 1, 2018, we adopted the requirements of Financial Accounting Standards Board Accounting Standards Update2014-09, “Revenue from Contracts with Customers” (Topic 606). We ~~recognize~~determined the appropriate revenue ~~using~~recognition for our contracts with customers by analyzing the ~~percentage~~type, terms and conditions of ~~completion method measured by~~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 ~~ratio~~customer and is the unit of ~~direct~~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 principally generates revenue from the manufacture and sale of its high performance, low maintenance 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 Products satisfies its performance obligations at a point in time. The shipment of each product is a separate performance obligation as the customer is able to derive benefit from each product shipped and no performance obligation remains after shipment. Upon shipment of the product, the customer obtains control over the distinct product and Trex Residential satisfies its performance obligation. Any performance obligation that remains unsatisfied at the end of a reporting period is part of a contract that has an original expected duration of one year or less. Any variable consideration related to the unsatisfied performance obligation is allocated wholly to the unsatisfied performance obligation and recognized when the product ships and the performance obligation is satisfied.

Trex Commercial Products generates revenue from the manufacture and sale of its modular and architectural railing systems, staging, acoustical and seating systems. All of its revenues are from fixed-price contracts with customers. Trex Commercial Products 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.

~~in revisions~~profit to ~~costs and income and are~~date on a contract is recognized in the period ~~they~~the adjustment is identified. Revenues and profits in future periods are ~~determined. Revenues~~ recognized ~~in excess~~using the adjusted estimate. If at any time the estimate of amounts billed are classified under current assets as costs and estimated earnings in excess of billings. Billings in excess of revenues are classified under current liabilities as billings in excess of costs and estimated earnings.

~~The~~contract profitability indicates an anticipated loss on the contract, the Company ~~evaluates~~recognizes 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~~total loss 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 ifperiod it is ~~more likely than not that~~identified. During the ~~fair value of~~nine months ended September 30, 2018, no adjustment to any one contract was material to the ~~reporting unit is less than its carrying amount to determine if it should proceed with the evaluation of goodwill for impairment. If the Company proceeds with thetwo-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 impairedCompany’s Condensed Consolidated Financial Statements and ~~step two of the impairment analysis is performed. In step two of the analysis, an~~no 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.~~any contract was recorded.

For information regarding our exposure to certain market risks, see “Quantitative and Qualitative Disclosures about Market Risk,” in Part II, Item 7A of the Company’s Annual Report on Form10-K for the year ended December 31, ~~2016.~~2017. There were no material changes to the Company’s market risk exposure during the nine months ended September 30, ~~2017.~~2018.

The Company’s management, with the participation of its President and Chief Executive Officer, who is the Company’s principal executive officer, and its Vice President and Chief Financial Officer, who is the Company’s principal financial officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of September 30, 2017. We have excluded Trex Commercial Products, Inc., our wholly-owned subsidiary which is included in our consolidated financial statements, from our assessment of internal control over financial reporting as of September 30, 2017, because it was formed to acquire certain assets and assume certain liabilities of Staging Concepts Acquisition, LLC and Stadium Consolidation, LLC in a business combination on July 31, 2017.2018. Based on this evaluation, the President and Chief Executive Officer and the Vice President and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective. In addition, there have been no changes in the Company’s internal control over financial reporting during the nine-month period ended September 30, ~~2017~~2018, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

(c) The following table provides information relating to the purchases of our common stock during the ~~quarter~~three months ended September 30, ~~2017~~2018 in accordance with Item 703 of Regulation~~S-K:~~S-K (share and per share data have been adjusted for thetwo-for-one stock split distributed on June 18, 2018):

On October 24, 2018, the Board of Directors approved an amendment to the Amended and Restated 1999 Incentive Plan for Outside Directors (Outside Directors Plan) effective January 1, 2019, as follows:

The Nominating and Corporate Governance Committee and the Board of Directors of the Company amended the Outside Directors Plan as described above based upon a Board of Directors compensation study undertaken by Korn Ferry Hay Group, which is the Company’s independent compensation consultant.

The foregoing description of the amendment to the Outside Directors Plan is qualified in its entirety by reference to the full text of the Outside Directors Plan, which is filed as Exhibit 10.1 to this Form 10-Q.

~~The number and description~~See Exhibit Index at the end of the ~~following exhibits coincide with Item 601~~Quarterly Report on Form10-Q for the information required by this Item.

Pursuant to the requirements of ~~RegulationS-K:~~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.

~~Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.~~


Delaware		54-1910453
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

160 Exeter Drive Winchester, Virginia		22603-8605
(Address of principal executive offices)		(Zip Code)


		Page

PART I FINANCIAL INFORMATION	2

Item 1. Financial Statements	2

Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, ~~2017~~2018 and ~~2016~~2017 (unaudited)	2
Condensed Consolidated Balance Sheets as of September 30, ~~2017~~2018 (unaudited) and December 31, ~~2016~~2017	3
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2018 and 2017 ~~and~~ ~~2016~~ (unaudited)	4
Notes to Condensed Consolidated Financial Statements (unaudited)	5

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	1719

Item 3. Quantitative and Qualitative Disclosures About Market Risk	2629

Item 4. Controls and Procedures	2629

PART II OTHER INFORMATION	2730

Item 1. Legal Proceedings	2730

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	2730

Item 5. Other Information	2730

Item 6. Exhibits	2831


	Three Months Ended September 30, 2016
	As Reported		Adjusted
	(in thousands, except share and per share data)
Provision for income taxes	$	3,591	$	2,702
Net Income	$	6,898	$	7,787
Basic net income per share	$	0.24	$	0.27
Diluted net income per share	$	0.23	$	0.26
Diluted weighted average common shares outstanding		29,457,653		29,516,718


	Nine Months Ended September 30, 2016
	As Reported			Adjusted
	(in thousands, except share and per share data)
Provision for income taxes	$	29,510		$	27,871
Net Income	$	53,578		$	55,217
Basic net income per share	$	1.82		$	1.88
Diluted net income per share	$	1.81		$	1.86
Diluted weighted average common shares outstanding		29,581,578			29,635,796
Cash flows provided by operating activities	$	81,880		$	83,579
Cash flows used in financing activities	$	(60,573	)	$	(62,452	)


Accounts receivable, net	$	8,357
Contract retainage		1,948
Inventories, net		2,344
Prepaid expenses and other assets		1,223
Revenues in excess of billings		3,463
Fixed assets, net		1,264
Intangible assets		4,900
Goodwill		57,938
Accounts payable		(3,990	)
Accrued liabilities and other expenses		(2,329	)
Billings in excess of revenues		(1,752	)
Customer Deposits		(1,562	)

Total estimated consideration	$	71,804


	September 30, 2017		December 31, 2016
Work-in-process	$	580	$	—
Raw materials		1,990		—

Total FIFO inventories	$	2,570	$	—



*Architectural* *Railing Systems*		Our architectural railing systems arepre-engineered guardrails with options to accommodate styles ranging from classic and elegant wood top rail combined with sleek stainless components and glass infill, to modern and minimalist stainless cable and rod infill choices.

*Aluminum Railing Systems*		Our aluminum railings are a versatile, cost-effective andlow-maintenance choice for a variety of interior and exterior applications that we believe blend form, function and style. They are often used in high-rise condominium and resort projects and offer safety and durability to stairs, public walkways and balconies. They are available in picket or glass infills with a selection of top cap styles, color finishes and mounting capabilities.

*Custom Railing Options*		Trex Commercial can design, engineer and manufacture custom railing systems tailored to the customer’s specific material, style and finish. Many railing styles are achievable, including glass, mesh, perforated railing and cable railing.

*~~Portable Stage Platforms~~Staging Equipment and Accessories*		Our advanced modular, lightweight custom staging systems include portable platforms, orchestra shells, guardrails, stair units, barricades, camera platforms, VIP viewing decks, ADA infills, DJ booths, pool covers, and other custom applications. Our systems provide superior staging product solutions for facilities and venues with custom needs. Our modular stage equipment ~~requires no tools, making it easy and efficient forset-up~~ ~~and take-down, and our staging products are designed to withstand the harshest of weather conditions. Our modular stages are~~is designed to appear seamless, feel permanent, and maximize the functionality of the space.


	Three Months Ended September 30,				$ Change		% Change
	2017		2016		$ Change		% Change
	(dollars in thousands)
Total net sales	$	140,194	$	106,168	$	34,026		32.0	%
Residential net sales	$	131,043	$	106,168	$	24,875		23.4	%
Commercial net sales	$	9,151		—	$	9,151		N/A


Three Months Ended September 30	2017 Residential		2017 Commercial			2017 Total		2016 Total
Net income (loss)	$	20,173	$	(75	)	$	20,098	$	7,787
Interest		59		—			59		77
Taxes		10,208		—			10,208		2,702
Depreciation and amortization		3,639		881			4,520		3,444

EBITDA	$	34,079	$	806		$	34,885	$	14,010


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
July 1, 2018 – July 31, 2018		4,541	$	77.74		—		5,549,956
August 1, 2018 – August 31, 2018		1,731	$	81.07		—		5,549,956
September 1, 2018 – September 30, 2018		—		—		—		5,549,956

Quarter ended September 30, 2018		6,272				—


	TREX COMPANY, INC.

Date: October 29, 2018	By:	/s/ Bryan H. Fairbanks
		Bryan H. Fairbanks
		Executive Vice President and Chief Financial Officer
		(Duly Authorized Officer and Principal Financial Officer)



~~2.1~~ Exhibit Number		~~Asset Purchase Agreement by and among Trex Commercial Products, Inc., Staging Concepts Acquisition, LLC, and Stadium Consolidation, LLC. Filed as~~ Exhibit ~~2.1 to the Company’s Current Report on Form8-K~~ ~~filed July 31, 2017 and incorporated herein by reference.~~Description

3.1		Restated Certificate of Incorporation of Trex Company, Inc. (Company). Filed as Exhibit 3.1 to the Company’s Registration Statement on FormS-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 Form10-Q for the quarterly period ended March 31, 2014 and incorporated herein by reference.

3.3		Second Certificate of Amendment to the Restated Certificate of Incorporation of Trex Company, Inc. dated May 2, 2018. Filed as Exhibit 3.3 to the Company’s Quarterly Report on Form10-Q for the quarterly period ended March 31, 2018 and incorporated herein by reference.

3.4		Amended and RestatedBy-Laws of the Company. Filed as Exhibit 3.2 to the Company’s Current Report on Form8-K filed May 7, 2008 and incorporated herein by reference.

10.1		Trex Company, Inc. Amended and Restated 1999 Incentive Plan for Outside Directors as amended on October 24, 2018. Filed herewith.*

31.1		Certification of Chief Executive Officer of Trex Company, Inc. pursuant to Rule13a-14(a) under the Securities Exchange Act of 1934. Filed herewith.

31.2		Certification of Chief Financial Officer of Trex Company, Inc. pursuant to Rule13a-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. Section 1350). Furnished herewith.

101.INS		XBRL Instance Document. Filed.

101.SCH		XBRL Taxonomy Extension Schema Document. Filed.

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.

*
	~~TREX COMPANY, INC.~~

~~Date: October 30, 2017~~	~~By:~~	~~/s/ Bryan H. Fairbanks~~
		~~Bryan H. Fairbanks~~
		~~Vice President and Chief Financial Officer~~
		~~(Duly Authorized Officer and Principal Financial Officer)~~ Management contract or compensatory plan or agreement.


~~Exhibit~~ ~~Number~~		~~Exhibit Description~~

~~2.1~~		~~Asset Purchase Agreement by and among Trex Commercial Products, Inc., Staging Concepts Acquisition, LLC, and Stadium Consolidation, LLC. Filed as Exhibit 2.1 to the Company’s Current Report on Form8-K~~ ~~filed July 31, 2017 and incorporated herein by reference.~~

~~3.1~~		~~Restated Certificate of Incorporation of Trex Company, Inc. (Company). Filed as Exhibit 3.1 to the Company’s Registration Statement on FormS-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 Form10-Q~~ ~~for the quarterly period ended March 31, 2014 and incorporated herein by reference.~~

~~3.3~~		~~Amended and RestatedBy-Laws~~ ~~of the Company. Filed as Exhibit 3.2 to the Company’s Current Report on Form8-K~~ ~~filed May 7, 2008 and incorporated herein by reference.~~

~~31.1~~		~~Certification of Chief Executive Officer of Trex Company, Inc. pursuant to Rule13a-14(a)~~ ~~under the Securities Exchange Act of 1934. Filed herewith.~~

~~31.2~~		~~Certification of Chief Financial Officer of Trex Company, Inc. pursuant to Rule13a-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. Section 1350). Furnished herewith.~~

~~101.INS~~		~~XBRL Instance Document. Filed.~~

~~101.SCH~~		~~XBRL Taxonomy Extension Schema Document. Filed.~~

~~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.~~

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company