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 residential railing and related products marketed under the brand name Trex^®. The products are sold to its distributors and national retailers who, in turn, sell primarily to the residential market, which includes replacement, remodeling and new construction related to outdoor living products. Net sales of Trex Residential Products were $491.4 million and $433.8 million in the nine months ended September 30, 2018 and 2017, respectively.

•

Trex Commercial Products designs, engineers, and markets modular and architectural railing, staging, acoustical and seating systems for the commercial and multi-family market, including sports stadiums and performing arts venues. The segment’s products are marketed to architects, specifiers, contractors, and others doing business within the segment’s commercial and multi-family market. Net sales of Trex Commercial products were $52.9 million in the nine months ended September 30, 2018 and $9.2 million from the date of the acquisition of SC Company through September 30, 2017.

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 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 sales	$	146,998	$	19,382	$	166,380
Net income	$	27,755	$	1,716	$	29,471
EBITDA	$	40,067	$	2,780	$	42,847
Depreciation and amortization	$	3,275	$	494	$	3,769
Income tax expense	$	9,259	$	570	$	9,829
Capital expenditures	$	3,693	$	221	$	3,914
Total assets	$	352,014	$	82,895	$	434,909

Reconciliation of net income to EBITDA (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


	Nine Months Ended September 30, 2018
	Residential		Commercial		Total
Net sales	$	491,399	$	52,880	$	544,279
Net income	$	107,449	$	1,952	$	109,401
EBITDA	$	151,839	$	5,663	$	157,502
Depreciation and amortization	$	10,004	$	3,063	$	13,067
Income tax expense	$	34,009	$	648	$	34,657
Capital expenditures	$	14,274	$	1,050	$	15,324
Total assets	$	352,014	$	82,895	$	434,909

Reconciliation of net income to EBITDA (in thousands):


	Nine Months Ended September 30, 2018
	Residential		Commercial		Total
Net income	$	107,449	$	1,952	$	109,401
Interest, net		377		—		377
Taxes		34,009		648		34,657
Depreciation and amortization		10,004		3,063		13,067

EBITDA	$	151,839	$	5,663	$	157,502


	Three Months Ended September 30, 2017
	Residential		Commercial			Total
Net sales	$	131,043	$	9,151		$	140,194
Net income (loss)	$	20,173	$	(75	)	$	20,098
EBITDA	$	34,079	$	806		$	34,885
Depreciation and amortization	$	3,639	$	881		$	4,520
Income tax expense	$	10,208	$	—		$	10,208
Capital expenditures	$	3,943	$	40		$	3,983
Total assets	$	232,663	$	78,533		$	311,196

Reconciliation of net income to EBITDA:


	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


	Nine Months Ended September 30, 2017
	Residential		Commercial			Total
Net sales	$	433,790	$	9,151		$	442,941
Net income (loss)	$	76,904	$	(75	)	$	76,829
EBITDA	$	128,221	$	806		$	129,027
Depreciation and amortization	$	11,087	$	881		$	11,968
Income tax expense	$	39,715	$	—		$	39,715
Capital expenditures	$	11,068	$	40		$	11,108
Total assets	$	232,663	$	78,533		$	311,196

Reconciliation of net income to EBITDA:


	Nine Months Ended September 30, 2017
	Residential		Commercial			Total
Net income (loss)	$	76,904	$	(75	)	$	76,829
Interest, net		515		—			515
Taxes		39,715		—			39,715
Depreciation and amortization		11,087		881			11,968

EBITDA	$	128,221	$	806		$	129,027