Stock-Based Compensation

9 Months Ended

Sep. 30, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock-Based Compensation

9. STOCK-BASED COMPENSATION

The Company has one stock-based compensation plan, the 2014 Stock Incentive Plan (the “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 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, 2014, the total aggregate number of shares of the Company’s common stock that may be issued under the Plan is 6,420,000.

In 2014, the Company began granting performance-based restricted stock in addition to the time-based restricted stock it previously granted. The performance-based restricted shares have a three-year vesting period, vesting one-third each year based on target earnings before interest, taxes, depreciation and amortization, or “EBITDA”, for 1 year, cumulative 2 years and cumulative 3 years, respectively. With respect to each vesting, the number of shares that will vest will be between 0% and 200% of the target number of shares.

The fair value of each SAR is estimated on the date of grant using a Black-Scholes option-pricing formula. For SARs issued in the nine months ended September 30, 2014 and 2013, respectively, the assumptions shown in the following table were used:

	Nine Months Ended September 30,
	2014			2013
Weighted-average fair value of grants	$	18.02		$	11.68
Dividend yield		0	%		0	%
Average risk-free interest rate		1.7	%		0.7	%
Expected term (years)		5			5
Expected volatility		53	%		64	%

The following table summarizes the Company’s stock-based compensation grants for the nine months ended September 30, 2014:

	Stock Awards Granted		Weighted-Average Grant Price Per Share
Stock appreciation rights		3,623	$	38.17
Time-based restricted stock		66,409	$	32.69
Performance-based restricted stock		42,676	$	33.72

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, 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 for the three and nine months ended September 30, 2014 and 2013 (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Stock appreciation rights	$	222	$	307	$	813	$	945
Time-based restricted stock		769		667		2,247		1,790
Performance-based restricted stock		205		—		570		—
Employee stock purchase plan		21		10		42		46
Total stock-based compensation	$	1,217	$	984	$	3,672	$	2,781

Total unrecognized compensation cost related to unvested awards as of September 30, 2014 was $5.2 million. The cost of these unvested awards is being recognized over the requisite vesting period of each award.