11.

STOCK-BASED COMPENSATION

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 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 June 30, 2017, the total aggregate number of shares of the Company’s common stock that may be issued under the Plan is 6,420,000.

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

In 2015, the Company began issuing restricted stock units in lieu of restricted stock. Accordingly, time-based restricted stock units replaced time-based restricted stock and performance-based restricted stock units replaced performance-based restricted stock. The vesting terms of the restricted stock units are identical to the vesting provisions of the restricted stock.

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 six months ended June 30, 2016. For SARs issued in the six months ended June 30, 2017 the data and assumptions shown in the following table were used:


	Six Months Ended June 30, 2017
Weighted-average fair value of grants	$	27.81
Dividend yield		0	%
Average risk-free interest rate		2.01	%
Expected term (years)		5
Expected volatility		42.4	%

The following table summarizes the Company’s stock-based compensation grants for the six months ended June 30, 2017:


	Stock Awards Granted		Weighted-Average Grant Price Per Share
Time-based restricted stock units		19,516	$	70.05
Performance-based restricted stock units (a)		40,216	$	56.19
Stock appreciation rights		16,340	$	70.09

(a)

Includes 22,895 of target performance-based restricted stock unit awards granted during the six months ended June 30, 2017, and adjustments of 1,071, 5,396 and 10,854 grants due to the actual performance level achieved for restricted stock and restricted stock units awarded in 2014, 2015, and 2016, respectively.

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 June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
Stock appreciation rights	$	25	$	75	$	192	$	184
Time-based restricted stock		403		863		1,139		1,479
Performance-based restricted stock		468		720		1,507		1,230
Employee stock purchase plan		16		11		38		52

Total stock-based compensation	$	912	$	1,669	$	2,876	$	2,945

Total unrecognized compensation cost related to unvested awards as of June 30, 2017 was $4.1 million. The cost of these unvested awards is being recognized over the requisite vesting period of each award.