17.

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 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 net sales were $613.2 million, $543.3 million, and $479.6 million in the years ended December 31, 2018, 2017, and 2016, respectively.

•

Trex Commercial designs, engineers, and markets modular and architectural railing and staging systems for commercial and multi-family market, 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 net sales were $71.0 million in the year ended December 31, 2018, and $21.8 million from the date of acquisition through December 31, 2017.

The Company’s reportable 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 includes data for Trex Residential for the years ended December 31, 2018 and December 31, 2017, and data for Trex Commercial for the year ended December 31, 2018, and for the year ended December 31, 2017 from the date of the acquisition of SC Company through December 31, 2017 (in thousands):


	Year ended December 31, 2018
	Trex Residential		Trex Commercial		Total
Net sales	$	613,229	$	71,021	$	684,250
Net income	$	131,823	$	2,749	$	134,572
EBITDA	$	186,268	$	6,868	$	193,136
Depreciation and amortization	$	13,216	$	3,251	$	16,467
Income tax expense	$	41,421	$	868	$	42,289
Capital expenditures	$	31,392	$	2,424	$	33,816
Total assets	$	380,682	$	84,440	$	465,122

Reconciliation of net income to EBITDA:


	Year Ended December 31, 2018
	Trex Residential			Trex Commercial		Total
Net income	$	131,823		$	2,749	$	134,572
Interest (income) expense, net		(192	)		—		(192	)
Taxes		41,421			868		42,289
Depreciation and amortization		13,216			3,251		16,467

EBITDA	$	186,268		$	6,868	$	193,136


	Year ended December 31, 2017
	Trex Residential		Trex 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
	Trex Residential		Trex 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