16.

SEGMENT INFORMATION

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:

•

Trex Residential Products manufactures wood-alternative decking and railing and related products marketed under the brand name Trex^®. The products are sold to its distributors and two national retailers who, in turn, sell primarily to the residential market, which includes replacement, remodeling and new construction related to outdoor living products. Trex Residential Products net sales were $543.3 million, $479.6 million, and $440.8 million, in the years ended December 31, 2017, 2016, and 2015, respectively.

•

Trex Commercial Products designs, engineers, and markets modular and architectural railing systems and solutions for the commercial and multifamily markets, and staging, acoustical and seating systems for commercial markets, including sports stadiums and performing arts venues. The segment’s products are sold through architects, specifiers, contractors, and others doing business within the segment’s commercial market. Trex Commercial Products net sales were $21.8 million from the date of acquisition through December 31, 2017.

The Company’s operating segments have been determined in accordance with its internal management structure, which is organized based on residential and commercial operations. The Company evaluates performance of each segment primarily based on net sales and earnings before interest, taxes, depreciation and amortization (EBITDA). The Company uses net sales to assess performance and allocate resources as this measure represents the amount of business the segment engaged in during a given period of time, is an indicator of market growth and acceptance of segment products, and represents the segment’s customers’ spending habits along with the amount of product the segment sells relative to its competitors. The Company uses EBITDA to assess performance and allocate resources because it believes that EBITDA facilitates performance comparison between the segments by eliminating interest, taxes, and depreciation and amortization charges to income. The below segment data for the year ended December 31, 2017, includes data for Trex Residential Products for the year ended December 31, 2017, and data for Trex Commercial Products from the date of the acquisition of SC Company through December 31, 2017 (in thousands):


	Year ended December 31, 2017
	Residential		Commercial			Total
Net sales	$	543,346	$	21,807		$	565,153
Net income (loss)	$	97,412	$	(2,284	)	$	95,128
EBITDA	$	160,382	$	(1,272	)	$	159,110
Depreciation and amortization	$	14,598	$	2,132		$	16,730
Income tax expense (benefit)	$	47,911	$	(1,120	)	$	46,791
Capital expenditures	$	14,989	$	51		$	15,040
Total assets	$	247,817	$	78,410		$	326,227

Reconciliation of net income to EBITDA:


	Year Ended December 31, 2017
	Residential		Commercial			Total
Net income (loss)	$	97,412	$	(2,284	)	$	95,128
Interest		461		—			461
Taxes		47,911		(1,120	)		46,791
Depreciation and amortization		14,598		2,132			16,730

EBITDA	$	160,382	$	(1,272	)	$	159,110