Trex
Annual Report 2012

Plain-text annual report

Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 Form 10-K (Mark One) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934For the fiscal year ended December 31, 2012 ¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934For the transition period from to Commission file number: 001-14649 Trex Company, Inc.(Exact name of registrant as specified in its charter) Delaware 54-1910453(State or other jurisdiction ofincorporation or organization) (I.R.S. EmployerIdentification No.)160 Exeter Drive, Winchester, Virginia 22603-8605(Address of principal executive offices) (Zip Code)(540) 542-6300Registrant’s telephone number, including area code: Securities registered pursuant to Section 12(b) of the Act: Title of each class: Name of each exchange on which registered:Common Stock, par value $0.01 per share New York Stock ExchangeSecurities registered pursuant to Section 12(g) of the Act:None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ¨ No Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes  No ¨Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File requiredto be submitted and posed pursuant to Rule 405 of Regulation S-T during the preceding 12 months. Yes  No ¨Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to thebest of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to thisForm 10-K. Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting Company. Seethe definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting Company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ¨ Accelerated filer  Non-accelerated filer ¨ (Do not check if a smaller reporting Company) Smaller reporting Company ¨ Indicate by check mark whether the registrant is a shell Company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No The aggregate market value of the registrant’s common equity held by non-affiliates of the registrant at June 30, 2012, which was the last business day ofthe registrant’s most recently completed second fiscal quarter, was approximately $463.4 million based on the closing price of the common stock as reportedon the New York Stock Exchange on such date and assuming, for purposes of this computation only, that the registrant’s directors, executive officers andbeneficial owners of 10% or more of the registrant’s common stock are affiliates.The number of shares of the registrant’s common stock outstanding on February 8, 2013 was 17,051,008.DOCUMENTS INCORPORATED BY REFERENCEPortions of the following documents are incorporated by reference in this Form 10-K as indicated herein: Document Part of 10-K into which incorporatedProxy Statement relating toRegistrant’s 2013Part IIIAnnual Meeting of Stockholders Table of ContentsTABLE OF CONTENTS Page PART I Item 1. Business 1 Item 1A. Risk Factors 10 Item 1B. Unresolved Staff Comments 13 Item 2. Properties 13 Item 3. Legal Proceedings 14 Item 4. Mine Safety Disclosures 15 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 16 Item 6. Selected Financial Data 18 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 20 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 29 Item 8. Financial Statements and Supplementary Data 29 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 29 Item 9A. Controls and Procedures 29 Item 9B. Other Information 31 PART III Item 10. Directors, Executive Officers and Corporate Governance 32 Item 11. Executive Compensation 32 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 32 Item 13. Certain Relationships and Related Transactions, and Director Independence 32 Item 14. Principal Accounting Fees and Services 32 PART IV Item 15. Exhibits and Financial Statement Schedules 33 Index to Consolidated Financial Statements F-1 iTable of ContentsNOTE ON FORWARD-LOOKING STATEMENTSThis report, including the information it incorporates by reference, contains forward-looking statements within the meaning of Section 27A of theSecurities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We intend our forward-looking statements to be covered by the safe harborprovisions for forward-looking statements in these sections. All statements regarding our expected financial position and operating results, our businessstrategy, our financing plans, forecasted demographic and economic trends relating to our industry and similar matters are forward-looking statements. Thesestatements can sometimes be identified by our use of forward-looking words such as “believe,” “may,” “will,” “anticipate,” “estimate,” “expect” or “intend.”We cannot promise you that our expectations in such forward-looking statements will turn out to be correct. Our actual results could be materially differentfrom our expectations because of various factors, including the factors discussed under “Risk Factors” in this report. iiTable of ContentsPART ISome of the information contained in this report concerning the markets and industry in which we operate is derived from publicly availableinformation and from industry sources. Although we believe that this publicly available information and the information provided by these industry sourcesare reliable, we have not independently verified the accuracy of any of this information. Item 1.BusinessGeneralTrex Company, Inc. (the “Company”), founded as a Delaware corporation in 1998, is the world’s largest manufacturer of wood-alternative decking andrailing products, which are marketed under the brand name Trex. Our principal executive offices are located at 160 Exeter Drive, Winchester, Virginia22603, and our telephone number at that address is (540) 542-6300.ProductsWe offer a comprehensive set of aesthetically durable, low maintenance product offerings in the decking, railing, porch, fencing, trim and steel deckframing categories. We believe that the range and variety of our product offerings allow consumers to design much of their outdoor living space using Trexbrand products. The majority of our products are made in a proprietary process that combines waste wood fibers and reclaimed polyethylene. Our productsare provided in a wide selection of popular sizes and lengths and are available with several finishes and/or numerous colors.Decking. We market our decking products under a number of brand names. Our principal brand names for decking are: • Trex Transcend, Trex Enhance and Trex Select, which each feature a protective shell for enhanced protection against fading, staining andscratching; • Trex Accents, which offers a smooth surface on one side and subtle wood grain on the other; and • Trex Escapes, which is an ultra-low maintenance cellular PVC deck board.We also have Trex Hideaway, which is a hidden fastening system for specially grooved boards.Railing. Our two railing products are Trex Transcend Railing and Trex Designer Series Railing. Trex Transcend Railing is available in the colors ofTrex Transcend decking and finishes that make it appropriate for use with Trex decking products as well as other decking materials, which we believe willenhance the sales prospects of our railing business. This railing product is manufactured with Fibrex material, which is a patented technology that we licensefrom Andersen Corporation. Our Designer Series Railing system consists of a decorative top and bottom rail, refined balusters, our Trex RailPost™, and postcaps and skirts.Porch. Our Trex Transcend Porch Flooring and Railing System is an integrated system of porch components and accessories.Fencing. We offer our Trex Seclusions fencing product through two specialty distributors. This product consists of structural posts, bottom rail,pickets, top rail and decorative post caps.Trim. Our TrexTrim™ product is a low maintenance cellular PVC residential exterior trim product that offers exceptional workability, durability, visualappeal and a low level of required maintenance.Miscellaneous. We offer a steel deck framing system called Trex Elevations. We also offer a line of energy-efficient LED dimmable deck lighting,which is designed for use on posts, floors and steps, called Trex DeckLighting™. The line includes a post cap light, deck rail light, riser light and a recesseddeck light. 1®®®®®®®®®®®Table of ContentsWe are a licensor in a number of licensing agreements with third parties to manufacture and sell products under the Trex trademark. Our principallicensed products are: • Trex Outdoor Furniture™, which is a line of outdoor furniture products manufactured and sold by Poly-Wood, Inc.; • Trex RainEscape, which is an above joist deck drainage system manufactured and sold by Dri-Deck Enterprises, LLC; • Trex CustomCurve, which is an on-site system that allows contractors to heat and bend Trex products manufactured and sold by CurveIt,LLC; • Trex Pergolas™, which are pergolas made from TrexTrim™, our low maintenance cellular PVC trim product, marketed by Home and Leisure,Inc. dba Backyard America; and • Diablo Trex Blade, which is a specialty saw blade for wood-plastic composite decking manufactured and sold by Freud America, Inc.Trex products offer a number of significant aesthetic advantages over wood while eliminating many of wood’s major functional disadvantages, whichinclude warping, splitting and other damage from moisture. Our products require no staining, are resistant to moisture damage, provide a splinter-free surfaceand need no chemical treatment against rot or insect infestation. These features eliminate most of the on-going maintenance requirements for a wood deck andmake Trex products less costly than wood over the life of the deck. Like wood, Trex products are slip-resistant (even when wet) and are less vulnerable todamage from ultraviolet rays. Trex Accents can be painted and stained. Special characteristics (including resistance to splitting, the ability to bend, and easeand consistency of machining and finishing) facilitate deck, railing, fencing and trim installation, reduce contractor call-backs and afford customers a widerange of design options. Trex decking products do not have the tensile strength of wood and, as a result, are not used as primary structural members in posts,beams or columns used in a deck’s substructure. However, Trex does offer the Trex Elevations steel deck framing system.We have received product building code listings from the major U.S. and Canadian building code listing agencies for both our decking and railingsystems. Our listings facilitate the acquisition of building permits by deck builders and promote consumer and industry acceptance of our products as analternative to wood in decking. In addition, Trex Seclusions privacy fencing has passed the Miami/Dade County wind load testing, a widely regardedstandard for assessing a fencing product’s performance under extreme environmental conditions.Growth StrategiesOur long-term goal is to perpetuate our position as the leading producer of branded superior wood-alternative outdoor living products by increasing ourmarket share and expanding into new product categories and geographic markets. To attain this goal, we intend to employ the following long-term strategies: • Innovation: Bring to the market new products that address unmet consumer and trade professional needs. Provide a compelling value propositionthrough ease of installation, low maintenance, long-term durability and superior aesthetics. • Brand: Expand preference and commitment for the Trex brand with both the consumer and trade professional. Deliver on the brand’s promise ofsuperior quality, functionality, aesthetics and overall performance in the outdoor living space. Leverage online efforts to build a bigger Trex brandpresence digitally, extending our footprint nationally and globally. • Channels: Achieve comprehensive market segment and geographic coverage for Trex products by increasing the number of stocking dealers andretailers and expanding our international presence, thereby making our products available wherever our customers choose to purchase theirdecking, railing, porch and trim products. 2®®®Table of Contents • Quality: Continuously advance the quality of all operational and business processes, with the goal of achieving superior product quality andservice levels, thereby giving us a sustainable competitive advantage. • Cost: Through capital investments and process engineering, continuously seek to lower the cost to manufacture Trex products. Investments inplastic recycling capabilities will allow us to expand our ability to use a wider breadth of waste streams and, as a result, lower our raw materialcosts. We plan to concentrate on improving the productivity of our production process, from raw materials preparation through extrusion intofinishing and packaging.Customers and DistributionWe distribute and/or sell our products as follows:Wholesale Distributors/Retail Lumber Dealers. In 2012, we generated most of our sales through our wholesale distribution network by selling Trexproducts to wholesale distributors, who in turn, marketed our products to retail lumber outlets. These retail dealers sell to both homeowners and contractors,but they emphasize sales to professional contractors, remodelers and homebuilders. Contractor-installed decks generally are larger installations withprofessional craftsmanship. Our retail dealers generally provide sales personnel trained in Trex products, contractor training, inventory commitment andpoint-of-sale display support.We believe that attracting wholesale distributors, who are committed to our products and marketing approach and can effectively sell higher valueproducts to contractor-oriented lumber yards and other retail outlets, is important to our future growth. Our distributors are able to provide value-added servicein marketing our products because they sell premium wood decking products and other innovative building materials that typically require product trainingand personal selling efforts. We typically appoint a distributor on a non-exclusive basis to distribute Trex products within a specified area. The distributorgenerally purchases our products at prices in effect at the time we ship the product to the distributor. Based on our 2012 net sales, sales to one of ourdistributors, Boise Cascade, exceeded 10% of our net sales.Home Depot and Lowe’s. We sell our products through Home Depot and Lowe’s stores. Home Depot and Lowe’s purchase products directly from usfor stocking on their shelves. They also purchase product through our wholesale distributors for special orders placed by consumers. Although Home Depotand Lowe’s serve the contractor market, the largest part of their sales are to “do-it-yourself” homeowner customers that shop for their materials at Home Depotand Lowe’s stores rather than at retail lumber dealers. We believe that brand exposure through Home Depot and Lowe’s distribution promotes consumeracceptance and generates sales to contractors that purchase from independent dealers. Based on our 2012 net sales, sales to Lowe’s exceeded 10% of our netsales.Manufacturing ProcessWe have manufacturing facilities in Winchester, Virginia and Fernley, Nevada, which had floor space of approximately 455,000 square feet and250,000 square feet, respectively, at December 31, 2012. In September 2007, we suspended operations at our Olive Branch, Mississippi facility andconsolidated all of our manufacturing operations into our Winchester and Fernley sites. Our manufacturing capacity utilization rate was 32%, excluding theOlive Branch facility, during the year ended December 31, 2012.Trex products are primarily manufactured from waste wood fiber and reclaimed polyethylene, which we sometimes refer to as “PE material” in thisreport. Our primary manufacturing process involves mixing wood particles with plastic, heating and finally extruding, or forcing, the highly viscous andabrasive material through a profile die. We have many proprietary and skill-based advantages in this process.Production of a non-wood decking alternative such as ours requires significant capital investment, special process expertise and time to develop. Wehave continuously invested the capital necessary to expand our 3Table of Contentsmanufacturing capacity and improve our manufacturing processes. We have also broadened the range of raw materials that we can use to produce a consistentand high-quality finished product. We maintain research and development operations in the Trex Technical Center adjacent to our Winchester, Virginiamanufacturing facilities. In connection with our building code listings, we maintain a quality control testing program that is monitored by an independentinspection agency.We utilize Six Sigma practices and Standard Lean Manufacturing methodology within our plant operations. We also incorporate the use of these toolsthroughout our Company in the planning and execution of those projects that are the most important to our success.SuppliersThe production of most of our products requires the supply of waste wood fiber and PE material.We fulfill requirements for raw materials under both purchase orders and supply contracts. In the year ended December 31, 2012, we purchasedsubstantially all of our waste wood fiber requirements under purchase orders, which do not involve long-term supply commitments. Substantially all of ourPE material purchases are under short-term supply contracts that average approximately two years, for which pricing is negotiated as needed. The PE materialsupply contracts have not had a material adverse effect on our business.Waste Wood Fiber. Woodworking plants or mills are our preferred suppliers of waste wood fiber because the waste wood fiber produced by theseoperations contains little contamination and is low in moisture. These facilities generate waste wood fiber as a byproduct of their manufacturing operations.If the waste wood fiber meets our specifications, our waste wood fiber supply agreements generally require us to purchase at least a specified minimumand at most a specified maximum amount of waste wood fiber each year. Depending on our needs, the amount of waste wood fiber that we actually purchasewithin the specified range under any supply agreement may vary significantly from year to year.PE Material. The PE material we consumed in 2012 was primarily composed of recovered plastic film and plastic bags. Approximately two billionpounds of polyethylene resin are used in the manufacture of stretch film and plastic bags in the United States each year. We will continue to seek to meet ourfuture needs for plastic from the expansion of our existing supply sources and the development of new sources, including post-industrial waste and plasticcoatings. We believe our use of multiple sources provides us with a cost advantage and facilitates an environmentally responsible approach to our procurementof PE material.Our ability to source and use a wide variety of PE material is important to our cost strategy. We maintain this ability through the continued expansion ofour plastic reprocessing operations in combination with the advancement of our proprietary material preparation and extrusion processes.Third-Party Manufacturing. We outsource the production of certain products to third-party manufacturers under supply contracts that commit us topurchase minimum levels for each year extending through 2015. The Company has purchase commitments under the third-party manufacturing contracts of$7.3 million, $4.4 million and $1.9 million for the years ending December 31, 2013, 2014 and 2015, respectively.CompetitionIn decking, we compete with wood and other manufacturers of wood alternative decking products. Many of the conventional lumber suppliers withwhich we compete have established ties to the building and construction industry and have well-accepted products. In railing, we compete with wood and othermanufacturers of composite, non-wood and plastic products, as well as with railings using metal, glass, vinyl and other materials. 4Table of ContentsIn privacy fencing, we compete with wood, vinyl and other manufacturers of composites. In trim, we compete against wood, engineered wood, fiber cement,and other manufacturers of cellular PVC and similar plastic products.Our primary competition consists of wood products, which constituted a substantial majority of 2012 decking and railing sales, as measured by linearfeet of lumber. A majority of the lumber used in wooden decks is pressure-treated lumber. Southern yellow pine and fir have a porosity that readily allows thechemicals used in the pressure treating process to be absorbed. The same porosity makes southern yellow pine susceptible to absorbing moisture, whichcauses the lumber to warp, crack, splinter and expel fasteners. In addition to pine and fir, other segments of wood material for decking include redwood, cedarand tropical hardwoods, such as ipe, teak and mahogany. These products are often significantly more expensive than pressure-treated lumber, but do noteliminate many of the disadvantages of other wood products.Industry studies indicate that we have the leading market share of the wood-plastic composite / PVC segment of the decking and railing market. Ourprincipal competitors include Advanced Environmental Recycling Technologies, Inc., Azek Building Products, Inc. and Fiber Composites, LLC.Our ability to compete depends, in part, on a number of factors outside our control, including the ability of our competitors to develop new non-wooddecking and railing alternatives that are competitive with our products. We believe that the principal competitive factors in the decking and railing marketinclude product quality, price, aesthetics, maintenance cost, distribution and brand strength. We believe we compete favorably with respect to these factors.We believe that our products offer aesthetic and cost advantages over the life of a deck when compared to other types of decking and railing materials.Although a contractor-installed deck built with Trex products in 2012 using a pressure-treated wood substructure generally costs more than a deck madeentirely from pressure-treated wood, Trex products eliminate most of the on-going maintenance required for a pressure-treated deck and are, therefore, lesscostly over the life of the deck. We believe that our manufacturing process and utilization of relatively low-cost raw material sources provide us with acompetitive cost advantage relative to other wood/plastic composite and 100% plastic decking products. The scale of our operations also confers costefficiencies in manufacturing, sales and marketing.Government RegulationWe are subject to federal, state and local environmental regulation. The emissions of particulates and other substances from our manufacturing facilitiesmust meet federal and state air quality standards implemented through air permits issued to us by the Department of Environmental Quality of theCommonwealth of Virginia, the Division of Environmental Protection of Nevada’s Department of Conservation and Natural Resources and the MississippiDepartment of Environmental Quality. Our facilities are regulated by federal and state laws governing the disposal of solid waste and by state and localpermits and requirements with respect to wastewater and storm water discharge. Compliance with environmental laws and regulations has not had a materialadverse effect on our business, operating results or financial condition.Our operations also are subject to work place safety regulation by the U.S. Occupational Safety and Health Administration, the Commonwealth ofVirginia, the State of Nevada and the State of Mississippi. Our compliance efforts include safety awareness and training programs for our production andmaintenance employees.Intellectual PropertyOur success depends, in part, upon our intellectual property rights relating to our products, production processes and other operations. We rely upon acombination of trade secret, nondisclosure and other contractual arrangements, and patent, copyright and trademark laws, to protect our proprietary rights.We have made 5Table of Contentssubstantial investments in manufacturing process improvements that have enabled us to increase manufacturing line production rates, facilitated ourdevelopment of new products, and produced improvements in our existing products’ dimensional consistency, surface texture and color uniformity.Intellectual property rights may be challenged by third parties and may not exclude competitors from using the same or similar technologies, brands orworks. We seek to secure effective rights for our intellectual property, but cannot provide assurance that third parties will not successfully challenge, or avoidinfringing, our intellectual property rights.We have obtained two patents for complementary methods of preparing the raw materials for the manufacturing phase of production, one patent on anapparatus for implementing one of the methods, and one patent on a tool for use with the installation of the decking board. We intend to maintain our existingpatents in effect until they expire, beginning in 2015, as well as to seek additional patents as we consider appropriate.We consider our trademarks to be of material importance to our business plans. The U.S. Patent and Trademark Office has granted us federalregistrations for many of our trademarks. Federal registration of trademarks is effective for as long as we continue to use the trademarks and renew theirregistrations. We do not generally register any of our copyrights with the U.S. Copyright Office, but rely on the protection afforded to such copyrights by theU.S. Copyright Act. This law provides protection to authors of original works, whether published or unpublished, and whether registered or unregistered. Weenter into confidentiality agreements with our employees and limit access to and distribution of our proprietary information. If it is necessary to discloseproprietary information to third parties for business reasons, we require that such third parties sign a confidentiality agreement prior to any disclosure.EmployeesAt December 31, 2012, we had approximately 550 full-time employees, approximately 400 of whom were employed in our manufacturing operations.Our employees are not covered by collective bargaining agreements. We believe that our relationships with our employees are favorable.Web Sites and Additional InformationThe SEC maintains an Internet web site at www.sec.gov that contains reports, proxy statements, and other information regarding our Company. Inaddition, we maintain an Internet corporate web site at www.trex.com. We make available through our web site our annual reports on Form 10-K, quarterlyreports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports, as soon as reasonably practicable after we electronically file orfurnish such material with or to the SEC. We do not charge any fees to view, print or access these reports on our web site. The contents of our web site are nota part of this report. 6Table of ContentsExecutive Officers and DirectorsThe table below sets forth information concerning our executive officers and directors as of February 19, 2013. Name Age Positions with CompanyRonald W. Kaplan 61 Chairman, President and Chief Executive Officer; DirectorJames E. Cline 61 Vice President and Chief Financial OfficerChristopher P. Gerhard 40 Vice President, SalesWilliam R. Gupp 53 Chief Administrative Officer, General Counsel and SecretaryF. Timothy Reese 60 Vice President, OperationsAdam D. Zambanini 36 Vice President, MarketingWilliam F. Andrews 81 DirectorPaul A. Brunner 77 DirectorMichael F. Golden 59 DirectorJay M. Gratz 60 Director, Lead Independent DirectorFrank H. Merlotti, Jr. 62 DirectorRichard E. Posey 66 DirectorPatricia B. Robinson 60 DirectorRonald W. Kaplan has served as Chairman, President and Chief Executive Officer of the Company since May 2010. From January 2008 to May 2010,Mr. Kaplan served as a director and President and Chief Executive Officer of the Company. From February 2006 through December 2007, Mr. Kaplan servedas Chief Executive Officer of Continental Global Group, Inc., a manufacturer of bulk material handling systems. For 26 years prior to this, Mr. Kaplan wasemployed by Harsco Corporation, an international industrial services and products company, at which he served in a number of capacities, including asSenior Vice President-Operations, and, from 1994 through 2005, as President of Harsco’s Gas Technologies Group, which manufactures containment andcontrol equipment for the global gas industry. Mr. Kaplan received a B.A. degree in economics from Alfred University and an M.B.A. degree from theWharton School of Business, University of Pennsylvania.James E. Cline has served as Vice President and Chief Financial Officer of the Company since March 2008. Mr. Cline served from July 2005 throughDecember 2007 as the President of Harsco GasServ, a subsidiary of Harsco Corporation and a manufacturer of containment and control equipment for theglobal gas industry. From January 2008 through February 2008, in connection with the purchase of Harsco GasServ by Taylor-Wharton International LLC,which is owned by Windpoint Partners Company, Mr. Cline served as a consultant to the buyers by providing transition management and financial services.From April 1994 through June 2005, Mr. Cline served as the Vice President and Controller of Harsco GasServ. Mr. Cline served in various capacities withHuffy Corporation from June 1976 to February 1994, including as the Director of Finance of its True Temper Hardware subsidiary, a manufacturer of lawncare and construction products with nine manufacturing locations in the United States, Canada and Ireland. Mr. Cline received a B.S.B.A. degree inaccounting from Bowling Green State University.Christopher P. Gerhard has served as Vice President, Sales of the Company since June 2012. From May 2006 through June 2012, Mr. Gerhard servedin a number of capacities at the Company, most recently as Director, Field Sales. From 2002 to May 2006, Mr. Gerhard served in various capacities withKraft Foods North America, a manufacturer of food and beverages, most recently as Southeast Region Customer Category Manager. Mr. Gerhard received aB.A. in English from the University of North Carolina—Greensboro, and a Masters in Science from Ohio University.William R. Gupp has served as Chief Administrative Officer, General Counsel and Secretary of the Company since October 2009. From May 2001 toOctober 2009, Mr. Gupp served as Vice President and General Counsel of the Company. From March 1993 to May 2001, Mr. Gupp was employed by HarscoCorporation, an international industrial services and products company, most recently as Senior Counsel and Director-Corporate 7Table of ContentsDevelopment. From August 1985 to March 1993, Mr. Gupp was employed by the law firm of Harter, Secrest & Emery. Mr. Gupp received a B.S. degree inaccounting from Syracuse University and a J.D. from the University of Pennsylvania Law School.F. Timothy Reese has served as Vice President, Operations of the Company since February 2008. From March 2007 through January 2008, Mr. Reeseserved as Operations Director for the Americas Region of DuPont Teijin Films, a DuPont Teijin Films U.S. Limited Partnership and producer of polyesterfilms. From 1979 to March 2007, Mr. Reese served in various positions with DuPont, including Global Director, Business and Integrated Operations, DuPontHigh Performance Films, from November 1995 through November 1998; Director/Plant Manager, Global Operations, Cyrel Packaging Graphics Products,from December 1998 through May 2000; Director, Global Operations and Six Sigma Champion, Cyrel Packaging Graphics Products, from June 2000through February 2001; and Director/Plant Manager in multiple assignments from March 2001 through February 2007, including in Corporate Operations,Human Resources and DuPont Chemical Solutions Enterprise. Mr. Reese served in the U.S. Navy and received a B.S. in ocean engineering with an emphasison mechanical engineering from the U.S. Naval Academy.Adam D. Zambanini has served as Vice President, Marketing of the Company since January 2011. From September 2005 through December 2010,Mr. Zambanini served in a number of capacities at the Company, most recently as Director, Marketing. From January 2000 through September 2005,Mr. Zambanini was employed by Rubbermaid Commercial Products, most recently as Product Manager. Mr. Zambanini received a B.S. in mechanicalengineering from Penn State University, and a M.B.A. degree from Averett University.William F. Andrews has served as a director of the Company since April 1999. Mr. Andrews has served as Chairman of Katy Industries, Inc., amanufacturer of maintenance and electrical products, since October 2001. Mr. Andrews served as Chairman of Corrections Corporation of America fromAugust 2000 to July 2008 and has served as Chairman of the Executive Committee of the Board since July 2008. Mr. Andrews served as Chairman of theSinger Sewing Company, a manufacturer of sewing machines, from 2004 to 2010, and continues to serve on the Board. Mr. Andrews has been a Principal ofKohlberg & Company, a venture capital firm, since 1994, and served as Chairman of Allied Aerospace Company from 2000 to 2006. Prior to 2002, heserved in various positions, including Chairman of Scovill Fasteners Inc.; Chairman of Northwestern Steel and Wire Company; Chairman of Schrader-Bridgeport International, Inc.; Chairman, President and Chief Executive Officer of Scovill Manufacturing Co., where he worked for over 28 years; Chairmanand Chief Executive Officer of Amdura Corporation; Chairman of Utica Corporation; and Chairman, President and Chief Executive Officer of Singer SewingCompany. Mr. Andrews also serves as a director of Black Box Corporation, O’Charley’s Restaurants and Thomas Nelson Publishing Co. Mr. Andrewsreceived a B.S. degree in business administration from the University of Maryland and an M.B.A. degree in marketing from Seton Hall University.Paul A. Brunner has served as a director of the Company since February 2003. Mr. Brunner is President and Chief Executive Officer of Spring CapitalInc., a merchant bank, which he founded in 1985. From 1982 to 1985, Mr. Brunner served as President and Chief Executive Officer of U.S. Operations ofAsea-Brown Boveri, a multi-national Swiss manufacturer of high technology products. In 1967, he joined Crouse Hinds Company, a manufacturer ofelectronics and electronic equipment, and through 1982 held various positions with that company, including President and Chief Operating Officer, ExecutiveVice President of Operations, Vice President of Finance and Treasurer, and Director of Mergers and Acquisitions. Mr. Brunner served as a director of JohnsonControls, Inc. from 1983 through 2007, and as Chairman of its Audit Committee from 1989 to 2005. From 1959 to 1967, he worked for Coopers &Lybrand, an international accounting firm, as an audit supervisor. Mr. Brunner is a Certified Public Accountant. He received a B.S. degree in accounting fromthe University of Buenos Aires and an M.B.A. degree in management from Syracuse University.Michael F. Golden has served as a director of the Company since February 2013. Mr. Golden currently serves as Co-Vice Chairman of the Board ofDirectors of Smith and Wesson Holding Corporation, a manufacturer of firearms and firearms-related products and accessories, and served as President andChief 8®®Table of ContentsExecutive Officer of such company from December 2004 until his retirement in September 2011. Mr. Golden was employed in various executive positions withthe Kohler Company, which manufactures kitchen and bath plumbing fixtures, furniture, tile, engines, and generators, and operates resorts, from February2002 until December 2004, with his most recent position being the President of its Cabinetry Division. Mr. Golden was the President of Sales for theIndustrial/Construction Group of the Stanley Works Company, which manufactures tools and hardware, from 1999 until 2002; Vice President of Sales forKohler’s North American Plumbing Group from 1996 until 1998; and Vice President, Sales and Marketing for a division of The Black & DeckerCorporation, which manufactures tools and hardware, where he was employed from 1981 until 1996. Mr. Golden also serves on the Board of Directors ofInfinity Resources Holding Company. Mr. Golden received a B.S. degree in Marketing from Pennsylvania State University and a M.B.A. degree from EmoryUniversity.Jay M. Gratz has served as a director of the Company since February 2007, and Lead Independent Director since May 2010. Mr. Gratz has served asthe Chief Financial Officer of VisTracks, Inc., an application enabling platform service provider, since March 2010, and a director of such company sinceApril 2010. Mr. Gratz was a partner in Tatum LLC, a national executive services and consulting firm that focuses on the needs of the Office of the CFObetween February 2010 and March 2010. From October 2007 through February 2010, Mr. Gratz was an independent consultant. From 1999 through October2007, Mr. Gratz served as Executive Vice President and Chief Financial Officer of Ryerson Inc., a metals processor and distributor, and as President ofRyerson Coil Processing Division from November 2001 until October 2007. Mr. Gratz served as Vice President and Chief Financial Officer of Inland SteelIndustries, a steel company, from 1994 through 1998, and served in various other positions, including Vice President of Finance, within that company since1975. Mr. Gratz is a Certified Public Accountant. He received a B.A. degree in economics from State University of New York in Buffalo and an M.B.A.degree from Northwestern University Kellogg Graduate School of Management.Frank H. Merlotti, Jr. has served as a director of the Company since February 2006. Mr. Merlotti has served as President of the Coalesse business unitof Steelcase, Inc., a manufacturer of office furniture and furniture systems, since October 2006, and served as President of Steelcase North America fromSeptember 2002 through September 2006. Mr. Merlotti served as President and Chief Executive Officer of G&T Industries, a manufacturer and distributor offabricated foam and soft-surface materials for the marine, office furniture and commercial building industries, from August 1999 to September 2002. From1991 through 1999, Mr. Merlotti served as President and Chief Executive Officer of Metropolitan Furniture Company, a Steelcase Design Partnershipcompany. From 1985 through 1999, Mr. Merlotti served as General Manager of the Business Furniture Division of G&T Industries.Richard E. Posey has served as a director of the company since May 2009. He served as President and Chief Executive Officer of Moen Incorporated, amanufacturer of faucets, for six years before retiring in 2007. Prior to joining Moen, Mr. Posey was President and Chief Executive Officer of Hamilton Beach /Proctor Silex, Inc., a manufacturer of small kitchen appliances, for five years. Mr. Posey began his career at S.C. Johnson & Son, a supplier of cleaning andother household products, where for 22 years he served in a series of increasingly responsible management positions, both overseas and in the U.S.,culminating with Executive Vice President, Consumer Products, North America. Mr. Posey is a Founding Trustee, Virginia Commonwealth University Schoolof Engineering Foundation. He received a B.A. degree in English from The University of Southern California and an M.B.A. degree from The University ofMichigan.Patricia B. Robinson has served as a director of the Company since November 2000. Ms. Robinson has been an independent consultant since 1999.From 1977 to 1998, Ms. Robinson served in a variety of positions with Mead Corporation, a forest products company, including President of Mead Schooland Office Products, Vice President of Corporate Strategy and Planning, President of Gilbert Paper, Plant Manager of a specialty machinery facility andProduct Manager for new packaging product introductions. Ms. Robinson received a B.A. degree in economics from Duke University and an M.B.A. degreefrom the Darden School at the University of Virginia. 9Table of ContentsItem 1A.Risk FactorsOur business is subject to a number of risks, including the following:We may not be able to grow unless we increase market acceptance of our products, compete effectively and develop new products andapplications.Our primary competition consists of wood products, which constitute a substantial majority of decking, railing, porches, fencing, trim and deckframing sales. Since wood/plastic composite products were introduced to the market in the early 1990’s, their market acceptance has increased, but during thelast few years, the rate of conversion from purchasing wood products to purchasing wood/plastic composite products has slowed. Our ability to grow willdepend largely on our success in continuing to convert demand for wood in decking, railing, fencing, trim and deck framing applications into a demand forTrex products. To increase our market share, we must overcome: • the consumer lack of awareness of the enhanced value of non-wood decking, railing, fencing, trim and deck framing alternatives in general andTrex brand products in particular; • the resistance of many consumers and contractors to change from well-established wood products; • the consumer lack of awareness that the greater initial expense of Trex products compared to wood is a one-time cost that is realized over time asTrex products have a longer life span than wood; • the established relationships existing between suppliers of wood decking, railing, fencing, trim and deck framing products and contractors andhomebuilders; • actual and perceived quality issues with first generation wood/plastic composite products; and • the competition from other wood-alternative manufacturers.We must also compete with a number of companies in the wood/plastic composites segment of the decking, railing, fencing and trim markets and withwood producers that currently have more production capacity than is required to meet the demand for such products. Our failure to compete successfully insuch markets could have a material adverse effect on our ability to replace wood or increase the market share of wood/plastic composites compared to wood.Many of the conventional lumber suppliers with which we compete have established ties to the building and construction industry and have well-acceptedproducts. Our ability to compete depends, in part, upon a number of factors outside our control, including the ability of competitors to develop new non-woodalternatives that are more competitive with Trex products.In addition to the above, substantially all of our revenues are derived from sales of our proprietary wood/plastic composite material. Although we havedeveloped, and continue to develop, new products made from other materials, if we should experience significant problems, real or perceived, with productquality or acceptance of the Trex wood/polyethylene composite material, our lack of product diversification could have a significant adverse impact on our netsales levels.Our prospects for sales growth and profitability may be adversely affected if we fail to maintain product quality and product performanceat an acceptable cost.We will be able to expand our net sales and to sustain and enhance profitable operations only if we succeed in maintaining the quality and performanceof our products. If we should not be able to produce high-quality products at standard manufacturing rates and yields, unit costs may be higher. A lack ofproduct performance would negatively affect our profitability by impeding acceptance of our products in the marketplace and by leading to higher productreplacement and consumer relations expenses. In recent periods, we have experienced significant warranty expenses related to a small portion of our productionmanufactured at our Fernley, Nevada facility prior to 2007 and have increased our warranty reserve accordingly. We have limited our financial exposure byagreeing to settle a nationwide class action lawsuit which fixes our obligation in each claim to provide replacement product and provide a partial laborreimbursement. However, because the establishment of 10Table of Contentsreserves is an inherently uncertain process involving estimates of the number of future claims, our ultimate losses may exceed our warranty reserve. Increaseswe have made to the warranty reserve and payments for related claims in recent years have had a material adverse effect on our profitability and cash flows.Future increases to the warranty reserve could have a material adverse effect on our profitability and cash flows should we make such increases and pay suchclaims.In addition, our products are used outdoors and are sometimes subject to heavy use and harsh exposure to the environment. Although our LimitedWarranty excludes any conditions attributable to “any act of God (such as flooding, hurricane, earthquake, lightning, etc., ), environmental condition (suchas air pollution, mold, mildew, etc.), staining from foreign substances (such as dirt, grease, oil, etc.), or normal weathering (defined as exposure to sunlight,weather and atmosphere which may cause any colored surface to gradually fade, chalk, or accumulate dirt or stains”), to the extent that our products areaffected in any way, this may lead to an increased risk of product liability claims or litigation.We are currently defending a number of class action lawsuits based upon mold growth on our products. These claims, as well as other potential claims,are a potential financial exposure to us and could cause adverse publicity, which in turn could result in a loss of consumer confidence in our products andalso reduce our sales. Product quality claims could increase our expenses and have a material adverse effect on demand for our products and, consequently,reduce our net sales, net income and liquidity.Our business is subject to risks in obtaining the raw materials we use at acceptable prices.The production of our product requires substantial amounts of wood fiber and PE material. Our business strategy is to create a substantial costadvantage over our competitors by using recycled plastic and reclaimed wood. Our business could suffer from the termination of significant sources of rawmaterials, the payment of higher prices for raw materials or from the failure to obtain sufficient additional raw materials to meet planned increases inproduction. Our ability to obtain adequate supplies of PE material depends on our success in developing new sources that meet our quality requirements,maintaining favorable relationships with suppliers and managing the collection of supplies from geographically dispersed locations.We sell to certain customers that account for a significant portion of our sales, and the loss of one or more of these customers could have anadverse effect on our business.A limited number of customers account for a significant percentage of our sales. Specifically, sales through our 15 largest customers accounted forapproximately 90% of gross sales during fiscal year 2012, 89% during fiscal year 2011 and 92% during fiscal year 2010.We expect that a significant portion of our sales will continue to be sold through a small number of customers, and certain customers will continue toaccount for a significant portion of our sales. The loss of a significant customer could have a negative impact on our business, financial condition and resultsof operations.We have limited ability to control or project inventory build-ups in our distribution channel that can negatively affect our sales insubsequent periods.The dynamic nature of our industry can result in substantial fluctuations in inventory levels of Trex products carried in our two-step distributionchannel. We have limited ability to control or precisely project inventory build-ups, which can adversely affect our net sales levels in subsequent periods. Wemake the substantial majority of our sales to wholesale distributors, who, in turn, sell our products to local lumber yards. Because of the seasonal nature ofthe demand for decking, railing, fencing and trim, our distribution channel partners must forecast demand for our products, place orders for the products,and maintain Trex product inventories in advance of the prime deck-building season, which generally occurs in our late first through third fiscal quarters.Accordingly, our results for the second and third fiscal quarters are difficult to predict and past performance will 11Table of Contentsnot necessarily indicate future performance. Inventory levels respond to a number of changing conditions in our industry, including product price increasesresulting from escalating raw materials costs, increases in the number of competitive producers and in the production capacity of those competitors, the rapidpace of product introduction and innovation, changes in the levels of home-building and remodeling expenditures, and the cost and availability of credit.Weather-related demand fluctuations can also affect inventory levels. Unexpected cool weather or extraordinary rainfall can result in inventory build-ups,which adversely affects sales of our products.The demand for our products is influenced by general economic conditions and could be adversely affected by economic downturns.The demand for our products is correlated to changes in the health of the economy in general, and the level of activity in home improvements and, to amuch lesser extent, new home construction. These activity levels, in turn, are affected by such factors as home equity values, consumer spending habits,employment, interest rates and inflation. Market conditions in the housing industry slowed significantly in 2008 and subsequent periods thereafter,particularly in new home construction. Home equity values in many markets that decreased significantly during those time periods have not recovered or haveonly begun to recover. This devaluation in home equity values has adversely affected the availability of home equity withdrawals, which have resulted indecreased home improvement spending. Beginning in 2008, the economy has suffered an unprecedented downturn. We cannot predict when the economy andthe home remodeling and new home construction environments will fully recover. Any continued economic downturn could reduce consumer income or equitycapital available for spending on discretionary items such as decking, railing, porches, fencing and trim, which could adversely affect the demand for ourproducts.We have significant capital invested in property, plant and equipment that may become obsolete or impaired and result in a charge to ourearnings.At December 31, 2012, we had $104.4 million of net property, plant and equipment. The improvement we seek to make to our manufacturing processessometimes involves the implementation of new technology and replacement of equipment at our manufacturing facilities, which may result in charges to ourearnings if the existing equipment is not fully depreciated. In September 2007, we suspended operations at our Olive Branch facility and consolidated all of ourmanufacturing operations into our Winchester and Fernley sites. In September 2009, we recorded a pre-tax impairment charge of $23.3 million related to thelong-lived assets held at the facility. Of our net property, plant and equipment at December 31, 2012, approximately $8.7 million is located at our OliveBranch, Mississippi manufacturing facility. We do not currently anticipate further impairments on the remaining assets. However, changes in the expectedcash flows related to the facility could result in additional impairment charges and reduced earnings in future periods.Our level of indebtedness, and ability to continue to obtain financing on favorable terms, could adversely affect our financial health andability to compete.As of December 31, 2012, we had $5.0 million of total indebtedness. This amount has been substantially reduced from its level on December 31, 2011due to our repayment on July 1, 2012 of the remaining $91.9 million principal balance on our 6% Convertible Senior Subordinated Notes, which matured asof such date. It is foreseeable that we will need to borrow on our current senior secured credit facility in 2013 for working capital purposes. In addition, wemay borrow money in the event we elect to pursue an acquisition or other transaction. Accordingly, our future level of indebtedness could have importantconsequences. For example, it may: • increase our vulnerability to general adverse economic and industry conditions, including interest rate fluctuations; • require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability ofour cash flow to fund working capital, capital expenditures and other general corporate purposes; 12Table of Contents • limit our ability to borrow additional funds to alleviate liquidity constraints, as a result of financial and other restrictive covenants in ourindebtedness; • limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; • place us at a competitive disadvantage relative to companies that have less indebtedness; and • limit our ability to refinance our principal secured indebtedness.In addition, our senior secured credit facility imposes operating and financial restrictions that may limit our discretion on some business matters, whichcould make it more difficult for us to expand, finance our operations and engage in other business activities that may be in our interest. These restrictions maylimit our ability to: • incur additional indebtedness and additional liens on our assets; • engage in mergers or acquisitions or dispose of assets; • enter into sale-leaseback transactions; • pay dividends or make other distributions; • voluntarily prepay other indebtedness; • enter into transactions with affiliated persons; • make investments; and • change the nature of our business.We may incur indebtedness in addition to our current indebtedness. Any additional indebtedness we may incur in the future could subject us to similaror even more restrictive conditions.Our ability to make future principal and interest payments, borrow and repay amounts under our revolving credit facility and continue to comply withour loan covenants will depend primarily on our ability to generate sufficient cash flow from operations. Our failure to comply with our loan covenants mightcause our lenders to accelerate our repayment obligations under our credit facility, which may be declared payable immediately based on a default. Our abilityto borrow under our revolving credit facility is tied to a borrowing base consisting of certain accounts receivables, inventories, machinery and equipment andreal estate. To remain in compliance with our credit facility, we must maintain specified financial ratios based on our levels of debt, capital, net worth, fixedcharges, and earnings (excluding extraordinary gains and extraordinary non-cash losses) before interest, taxes, depreciation and amortization, all of which aresubject to the risks of our business. Item 1B.Unresolved Staff CommentsNone. Item 2.PropertiesWe lease our corporate headquarters in Winchester, Virginia, which consists of approximately 32,000 square feet of office space, under a lease thatexpires in March 2020. In 2005, in anticipation of relocating our corporate headquarters, we entered into an agreement to lease approximately 55,000 squarefeet of office space in Dulles, Virginia. The lease expires in mid-2019. Subsequently, we reconsidered our decision to relocate our corporate headquarters anddecided not to move. We have executed subleases for the entire space we currently lease. The terms of the existing subleases expire in years 2013 to 2019. For adescription of our financial reporting in connection with the Dulles lease agreement, see Note 12 to our consolidated financial statements appearing elsewhere inthis report. 13Table of ContentsWe own approximately 74 contiguous acres of land in Winchester, Virginia and the buildings on this land. The site includes our manufacturingfacilities, which contain approximately 455,000 square feet of space, and our research and development technical facility. We own the land and themanufacturing facility on the Fernley, Nevada site, which contains approximately 250,000 square feet of manufacturing space. Our Fernley site is located onapproximately 37 acres, which includes outside open storage. We own approximately 102 acres of land in Olive Branch, Mississippi and the buildings on thisland. The site contains four buildings with approximately 200,000 square feet for manufacturing and raw material handling operations. In September 2007, wesuspended operations at our Olive Branch facility and consolidated all of our manufacturing operations into our Winchester and Fernley sites.We lease a total of approximately 1.0 million square feet of storage warehouse space under leases with expiration dates ranging from 2014 to 2025. Forinformation about these leases, see Note 9 to our consolidated financial statements appearing elsewhere in this report.The equipment and machinery we use in our operations consist principally of plastic and wood conveying and processing equipment. We own all of ourmanufacturing equipment. We lease forklift equipment at our facilities under operating leases.We regularly evaluate our various facilities and equipment and make capital investments where necessary. In 2012, we spent a total of $7.6 million oncapital expenditures, primarily to make process and productivity improvements. We estimate that our capital expenditures in 2013 will be in approximately$10 to $15 million. We expect to use these expenditures principally to make process and productivity improvements and upgrade systems. Item 3.Legal ProceedingsOn January 19, 2009, a purported class action case was commenced against the Company in the Superior Court of California, Santa Cruz County, bythe lead law firm of Lieff, Cabraser, Heimann & Bernstein, LLP and certain other law firms (the “Lieff Cabraser Group”) on behalf of Eric Ross and BradleyS. Hureth and similarly situated plaintiffs. These plaintiffs generally allege certain defects in the Company’s products, and that the Company has failed toprovide adequate remedies for defective products. On February 13, 2009, the Company removed this case to the United States District Court, NorthernDistrict of California. On January 21, 2009, a purported class action case was commenced against the Company in the United States District Court, WesternDistrict of Washington by the law firm of Hagens Berman Sobol Shapiro LLP (the “Hagens Berman Firm”) on behalf of Mark Okano and similarly situatedplaintiffs, generally alleging certain product defects in the Company’s products, and that the Company has failed to provide adequate remedies for defectiveproducts. This case was transferred by the Washington Court to the California Court as a related case to the Lieff Cabraser Group’s case.On July 30, 2009, the U.S. District Court for the Northern District of California preliminarily approved a settlement of the claims of the lawsuitcommenced by the Lieff Cabraser Group involving surface flaking of the Company’s product, and on March 15, 2010, it granted final approval of thesettlement. On April 14, 2010, the Hagens Berman Firm filed a notice to appeal the District Court’s ruling to the United States Court of Appeals for the NinthCircuit. On July 9, 2010, the Hagens Berman Firm dismissed their appeal, effectively making the settlement final.On March 25, 2010, the Lieff Cabraser Group amended its complaint to add claims relating to alleged defects in the Company’s products and allegedmisrepresentations relating to mold growth. The Hagens Berman firm has alleged similar claims in its original complaint. In its Final Order approving thesurface flaking settlement, the District Court consolidated these pending actions relating to the mold claims, and appointed the Hagens Berman Firm as leadcounsel in this case. 14Table of ContentsOn December 15, 2010, a purported class action case was commenced against the Company in the United States District Court, Western District ofKentucky, by the lead law firm of Cohen & Malad, LLP (“Cohen & Malad”) on behalf of Richard Levin and similarly situated plaintiffs, and on June 13,2011, a purported class action was commenced against the Company in the Marion Circuit/Superior Court of Indiana by Cohen & Malad on behalf of EllenKopetsky and similarly situated plaintiffs. On June 28, 2011, the Company removed the Kopetsky case to the United States District Court, Southern Districtof Indiana. On August 11, 2011, a purported class action was commenced against the Company in the 50 Circuit Court for the County of Chippewa,Michigan on behalf of Joel and Lori Peffers and similarly situated plaintiffs. On August 26, 2011, the Company removed the Peffers case to the United StatesDistrict Court, Western District of Michigan. On April 4, 2012, a purported class action was commenced against the Company in Superior Court of NewJersey, Essex County on behalf of Caryn Borger, M.D. and similarly situated plaintiffs. On May 1, 2012, the Company removed the Borger case to theUnited States District Court, District of New Jersey. The plaintiffs in these purported class actions generally allege certain defects in the Company’s productsand alleged misrepresentations relating to mold growth.The Company believes that the claims discussed above relating to mold growth are without merit and denies all liability with respect to the facts andclaims alleged. However, the Company is aware of the substantial burden, expense, inconvenience and distraction of continued litigation. During the threemonths ended December 31, 2012, the Company recorded $1.5 million to expense related to these claims. It is reasonably possible that the Company mayincur costs in excess of the recorded amounts; however, the Company expects that the total net cost to resolve the lawsuit will not exceed $10 million.The Company has other lawsuits, as well as other claims, pending against it which are ordinary routine litigation and claims incidental to thebusiness. Management has evaluated the merits of these other lawsuits and claims, and believes that their ultimate resolution will not have a material effect onthe Company’s consolidated financial condition, results of operations, liquidity or competitive position. Item 4.Mine Safety DisclosuresNot applicable. 15thTable of ContentsPART II Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesMarket for Common StockOur common stock has been listed on the New York Stock Exchange, or NYSE, since April 8, 1999. Between April 8, 1999 and November 22,2009, it was listed under the symbol “TWP”. Effective November 23, 2009, the symbol changed to “TREX”. The table below shows the reported high andlow sale prices of our common stock for each quarter during 2012 and 2011 as reported by the New York Stock Exchange: 2012 High Low First Quarter $32.76 $22.62 Second Quarter 33.89 25.41 Third Quarter 34.74 24.51 Fourth Quarter 40.81 32.57 2011 High Low First Quarter $33.39 $22.68 Second Quarter 34.00 23.24 Third Quarter 25.97 15.40 Fourth Quarter 23.78 14.53 Dividend PolicyWe have never paid cash dividends on our common stock. We intend to retain future earnings, if any, to finance the development and expansion of ourbusiness and, therefore, do not anticipate paying any cash dividends on the common stock in the foreseeable future. Under the terms of our credit agreement,there are restrictions on our ability to pay dividends. 16Table of ContentsStockholder Return Performance GraphThe following graph and table show the cumulative total stockholder return on Trex Company’s common stock for the last five fiscal years compared tothe Russell 2000 Index and the Standard and Poor’s 600 Building Products Index. The graph assumes $100 was invested on December 31, 2007 in (1) TrexCompany common stock, (2) the Russell 2000 Index and (3) the S&P 600 Building Products Index, and assumes reinvestment of dividends and marketcapitalization weighting as of December 31, 2008, 2009, 2010, 2011 and 2012. December 31,2007 December 31,2008 December 31,2009 December 31,2010 December 31,2011 December 31,2012 Trex Company $100.00 $193.42 $230.32 $281.55 $269.21 $437.49 Russell 2000 $100.00 $66.21 $84.20 $106.81 $102.34 $119.08 S&P 600 BPI $100.00 $76.03 $95.38 $108.33 $101.80 $132.20 Other Stockholder MattersAs of February 8, 2013, there were approximately 217 holders of record of our common stock.In 2012, we submitted to the NYSE in a timely manner the annual certification that our Chief Executive Officer was not aware of any violation by us ofthe NYSE corporate governance listing standards. 17Table of ContentsItem 6.Selected Financial DataThe following table presents selected financial data as of December 31, 2012, 2011, 2010, 2009 and 2008 and for each of the years in the five-yearperiod ended December 31, 2012.The selected financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results ofOperations” and our consolidated financial statements and related notes thereto appearing elsewhere in this report. Year Ended December 31, 2012 (1) 2011 (2) 2010 (3) 2009 (4) 2008 (In thousands, except share and per share data) Statement of Comprehensive Income Data: Net sales $307,354 $266,789 $317,690 $272,286 $329,194 Cost of sales 222,772 203,998 244,875 191,759 242,349 Gross profit 84,582 62,791 72,815 80,527 86,845 Selling, general and administrative expenses 71,907 60,620 67,764 65,257 66,958 Impairment of long-lived assets — — — 23,251 — Income (loss) from operations 12,675 2,171 5,051 (7,981) 19,887 Interest expense, net 8,946 16,364 15,288 14,699 15,282 Income (loss) before income taxes 3,729 (14,193) (10,237) (22,680) 4,605 Provision (benefit) for income taxes 1,009 (2,605) (171) (5,811) (750) Net income (loss) $2,720 $(11,588) $(10,066) $(16,869) $5,355 Basic earnings (loss) per share $0.17 $(0.75) $(0.66) $(1.12) $0.36 Basic weighted average shares outstanding 16,123,592 15,388,456 15,187,028 15,061,603 14,956,927 Diluted earnings (loss) per share $0.16 $(0.75) $(0.66) $(1.12) $0.35 Diluted weighted average shares outstanding 17,064,856 15,388,456 15,187,028 15,061,603 15,113,083 Cash Flow Data: Cash provided by operating activities $60,443 $33,847 $18,994 $35,063 $33,042 Cash used in investing activities (7,484) (9,367) (9,773) (6,638) (8,594) Cash used in financing activities (55,326) (47,224) (1,465) (32,100) (1,325) Other Data (unaudited): EBITDA (5) $29,149 $20,589 $24,666 $38,172 $44,763 Balance Sheet Data: Cash and cash equivalents and restricted cash $2,159 $41,526 $27,270 $19,514 $23,189 Working capital 10,158 (18,574) 66,057 49,214 54,086 Total assets 168,615 228,090 247,815 244,543 296,085 Total debt (including derivatives) 5,000 86,425 85,095 77,571 103,563 Total stockholder’s equity $93,986 $92,499 $102,922 $110,198 $122,868 (1)Year ended December 31, 2012 was materially affected by a pre-tax increase of $21.5 million to the warranty reserve. 18Table of Contents(2)Year ended December 31, 2011 was materially affected by a pre-tax increase of $10.0 million to the warranty reserve and a $2.6 million income taxbenefit as a result of the settlement of uncertain tax positions.(3)Year ended December 31, 2010 was materially affected by a pre-tax increase of $15.0 million to the warranty reserve and $3.9 million for minimumpurchase penalties.(4)Year ended December 31, 2009 was materially affected by pre-tax impairment of long-lived assets at idle Olive Branch facility of $23.3 million.(5)EBITDA represents net income before interest, income taxes, depreciation and amortization. EBITDA is not a measurement of financial performanceunder accounting principles generally accepted in the United States, or GAAP. The Company has included data with respect to EBITDA becausemanagement evaluates and projects the performance of the Company’s business using several measures, including EBITDA. Management considersEBITDA to be an important supplemental indicator of the Company’s operating performance, particularly as compared to the operating performance ofthe Company’s competitors, because this measure eliminates many differences among companies in capitalization and tax structures, capital investmentcycles and ages of related assets, as well as some recurring non-cash and non-operating charges to net income or loss. For these reasons, managementbelieves that EBITDA provides important supplemental information to investors regarding the operating performance of the Company and facilitatescomparisons by investors between the operating performance of the Company and the operating performance of its competitors. Management believesthat consideration of EBITDA should be supplemental, because EBITDA has limitations as an analytical financial measure. These limitations includethe following: • EBITDA does not reflect the Company’s cash expenditures, or future requirements for capital expenditures, or contractual commitments; • EBITDA does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on the Company’sindebtedness; • although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in thefuture, and EBITDA does not reflect any cash requirements for such replacements; • EBITDA does not reflect the effect of earnings or charges resulting from matters the Company considers not to be indicative of its ongoingoperations; and • not all of the companies in the Company’s industry may calculate EBITDA in the same manner in which the Company calculates EBITDA,which limits its usefulness as a comparative measure.The Company compensates for these limitations by relying primarily on its GAAP results to evaluate its operating performance and by consideringindependently the economic effects of the foregoing items that are not reflected in EBITDA. As a result of these limitations, EBITDA should not be consideredas an alternative to net income (loss), as calculated in accordance with GAAP, as a measure of operating performance, nor should it be considered as analternative to cash flows as a measure of liquidity. The following table sets forth, for the years indicated, a reconciliation of EBITDA to net income (loss): Year Ended December 31, 2012 2011 2010 2009 2008 (In thousands) Net income (loss) $2,720 $(11,588) $(10,066) $(16,869) $5,355 Plus interest expense, net 8,946 16,364 15,288 14,699 15,282 Plus income tax provision (benefit) 1,009 (2,605) (171) (5,811) (750) Plus depreciation and amortization 16,474 18,418 19,615 22,902 24,876 Plus impairment of long-lived assets — — — 23,251 — EBITDA $29,149 $20,589 $24,666 $38,172 $44,763 19Table of ContentsItem 7.Management’s Discussion and Analysis of Financial Condition and Results of OperationsThis management’s discussion and analysis contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933and Section 21E of the Securities Exchange Act of 1934. All statements regarding our expected financial position and operating results, our businessstrategy, our financing plans, forecasted demographic and economic trends relating to our industry and similar matters are forward-lookingstatements. These statements can sometimes be identified by our use of forward-looking words such as “may,” “will,” “anticipate,” “estimate,”“expect,” “intend” or similar expressions. We cannot promise you that our expectations in such forward-looking statements will turn out to becorrect. Our actual results could be materially different from our expectations because of various factors, including the factors discussed under “Item1A. Risk Factors.” These statements are also subject to risks and uncertainties that could cause the Company’s actual operating results to differmaterially. Such risks and uncertainties include the extent of market acceptance of the Company’s products; the costs associated with the developmentand launch of new products and the market acceptance of such new products; the sensitivity of the Company’s business to general economicconditions; the Company’s ability to obtain raw materials at acceptable prices; the Company’s ability to maintain product quality and productperformance at an acceptable cost; the level of expenses associated with product replacement and consumer relations expenses related to productquality; and the highly competitive markets in which the Company operates.OverviewGeneral. Trex Company, Inc. is the world’s largest manufacturer of wood-alternative decking and railing products, which are marketed under thebrand name Trex. We offer a comprehensive set of aesthetically durable, low maintenance product offerings in the decking, railing, porch, fencing, trim andsteel deck framing categories. We believe that the range and variety of our product offerings allow consumers to design much of their outdoor living spaceusing Trex brand products.We have five principal decking products: Trex Transcend, Trex Enhance, Trex Select, Trex Accents and Trex Escapes; two railing products:Trex Designer Series Railing and Trex Transcend Railing; a porch product, Trex Transcend Porch Flooring and Railing System; a steel deck framingsystem, Trex Elevations; a fencing product, Trex Seclusions; a deck lighting system, Trex DeckLighting™; and a cellular PVC outdoor trim product,TrexTrim™. In addition, we offer Trex Hideaway, which is a hidden fastening system for specially grooved boards.Highlights related to the fourth quarter and full year 2012 include: • Net sales increased 15% in 2012 due primarily to an increase in sales volumes in 2012. • We generated positive cash flow from operations, repaid the $91.9 million principal balance on our convertible notes and ended the year with$5.0 million of outstanding borrowings under our revolving credit facility. • We recorded a $21.5 million increase to the warranty reserve in 2012 to support future warranty claim obligations related to product produced atour Fernley, Nevada facility prior to 2007.Net Sales. Net sales consist of sales and freight, net of returns and discounts. The level of net sales is principally affected by sales volume and theprices paid for Trex products. Our branding and product differentiation strategy enables us to command premium prices over wood products.Sales Incentives / Early Buy Program: As part of our normal business practice and consistent with industry practices, we have historically providedour distributors and dealers incentives to build inventory levels before the start of the prime deck-building season to ensure adequate availability of product tomeet anticipated seasonal consumer demand and to enable production planning. These incentives, which together we reference as our 20®®®®®®®®®®Table of Contents“early buy program,” include payment discounts and favorable payment terms. In addition, from time to time we may offer price discounts or volume rebateson specified products and other incentives based on increases in purchases as part of specific promotional programs.We launched our early buy program for the 2013 decking season in December 2012. The timing and terms of the 2013 program are generally consistentwith the timing and terms of the 2012 program launched in December 2011. To qualify for early buy program incentives, customers must commit to the termsof the program which specify eligible products and quantities, order deadlines and available terms, discounts and rebates. Early Buy shipments in December2012 were lower than in December 2011 due, in part, to the introduction of Select decking and railing as well as our Reveal Aluminum Railing Lines, all ofwhich were not available for shipment until January 2013. There are no product return rights granted to our distributors except those granted pursuant to thewarranty provisions of our agreements with distributors. We generally do not extend the payment terms beyond those offered in the program. In addition, ourproducts are not susceptible to rapid changes in technology that may cause them to become obsolete. The early buy program can have a significant impact onour sales, receivables and inventory levels. We have provided further discussion of our receivables and inventory in the liquidity and capital resources section.Gross Profit. Gross profit represents the difference between net sales and cost of sales. Cost of sales consists of raw materials costs, direct labor costs,manufacturing costs and freight. Raw materials costs generally include the costs to purchase and transport waste wood fiber, reclaimed polyethylene, or “PEmaterial,” and pigmentation for coloring Trex products. Direct labor costs include wages and benefits of personnel engaged in the manufacturing process.Manufacturing costs consist of costs of depreciation, utilities, maintenance supplies and repairs, indirect labor, including wages and benefits, and warehouseand equipment rental activities.Selling, General and Administrative Expenses. The largest components of selling, general and administrative expenses are branding and other salesand marketing costs, which we use to build brand awareness of Trex. Sales and marketing costs consist primarily of salaries, commissions and benefits paidto sales and marketing personnel, consumer relations, advertising expenses and other promotional costs. General and administrative expenses include salariesand benefits of personnel engaged in research and development, procurement, accounting and other business functions, office occupancy costs attributable tothese functions, and professional fees. As a percentage of net sales, selling, general and administrative expenses have varied from quarter to quarter due, inpart, to the seasonality of our business.Critical Accounting EstimatesOur significant accounting policies are described in Note 2 to our consolidated financial statements appearing elsewhere in this report. Our criticalaccounting estimates include the areas where we have made what we consider to be particularly difficult, subjective or complex judgments in makingestimates, and where these estimates can significantly affect our financial results under different assumptions and conditions. We prepare our financialstatements in conformity with accounting principles generally accepted in the United States. As a result, we are required to make estimates, judgments andassumptions that we believe are reasonable based upon the information available. These estimates, judgments and assumptions affect the reported amounts ofassets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the periods presented. Actual results couldbe different from these estimates.Inventories. We account for inventories at the lower of cost (last-in, first-out, or “LIFO”) or market value. We believe that our current inventory offinished goods will be saleable in the ordinary course of business and, accordingly, have not established significant reserves for estimated slow movingproducts or obsolescence. At December 31, 2012, the excess of the replacement cost of inventory over the LIFO value of inventory was approximately $23.7million.Product Warranty. We warrant that our products will be free from material defects in workmanship and material and will not check, split, splinter, rotor suffer structural damage from termites or fungal decay. This 21Table of Contentswarranty extends for a period of 25 years for residential use and 10 years for commercial use. With respect to our Transcend, Enhance and UniversalFascia product, we further warrant that the product will not fade in color more than a certain amount and will be resistant to permanent staining from foodsubstances or mold (provided the stain is cleaned within seven days of appearance). This warranty extends for a period of 25 years for residential use and 10years for commercial use. If there is a breach of such warranties, we have an obligation either to replace the defective product or refund the purchase price.We continue to receive and settle claims related to material produced at our Nevada facility prior to 2007 that exhibits surface flaking and maintain awarranty reserve to provide for the settlement of these claims. Projecting future surface flaking settlement costs requires management to estimate the number ofclaims to be received, the number of claims that will ultimately result in payment and the average cost to settle each claim, all of which are subject to variablesthat are difficult to predict.The average cost per claim may vary due to a number of factors, including the average size of affected decks, the type of replacement material used,changes in the cost of production and the method of claim settlement. Although the cost per claim varies over time, it is less volatile and more predictable thanthe number of claims to be received, which is inherently uncertain. We are not aware of any analogous industry data that might be referenced in predictingfuture claims to be received. We evaluate our historical surface flaking claims activity in developing our estimate of future claims. We anticipated that theeffects of a previously settled class action lawsuit would subside and the number of claims received would substantially diminish. Payments for surfaceflaking claims decreased from $28 million in 2007 to $9 million in 2012, and the number of claims received continues to decline.During the three months ended September 30, 2012, we concluded, based on an analysis of recent claims activity, that the payments for surface flakingclaims and the rate of decline in claims in 2012 would approximate the levels experienced in 2011, falling short of our estimated decline. As a result, werevised our estimate of the future claims to be received to reflect a rate of decline consistent with the trend emerging from the claims activity. The effect ofreducing the anticipated rate of decline both increases the number of claims expected in future years and extends the number of years in which claims will bereceived. As a result of these changes in estimate, we recorded an increase to the warranty reserve of $20 million during the three months ended September 30,2012, and $21.5 million for the year ended December 31, 2012.Our analysis is based on currently known facts and a number of assumptions. However, projecting future events such as new claims to be receivedeach year and the average cost of resolving each claim could cause the actual warranty liabilities to be higher or lower than those projected which couldmaterially affect our financial condition, results of operations or cash flow. We estimate that the number of claims received will continue to decline over time. Ifthe level of claims does not diminish consistent with our expectations, it could result in additional increases to the warranty reserve and reduced earnings infuture periods. We estimate that a 10% change in the expected number of remaining claims or the expected cost to settle claims may result in approximately a$3.0 million change in the warranty reserve. For additional information about product warranties, see Notes 2 and 12 to the consolidated financial statementsappearing elsewhere in this report.Contract Termination Costs. In anticipation of relocating our corporate headquarters, we entered into a lease agreement in 2005. We reconsidered anddecided not to move our headquarters. The lease, which began on January 1, 2006 and extends through June 30, 2019, obligates us to lease 55,047 squarefeet. We have executed subleases for the entire 55,047 square feet we currently lease. The terms of the existing subleases expire in years 2013 to 2019. Weestimate that the present value of the estimated future sublease rental receipts, net of transaction costs, will be less than our remaining minimum lease paymentobligations under our lease for the office space and have recorded a liability for the expected shortfall.To estimate future sublease receipts for the periods beyond the term of the existing subleases, we have assumed that the existing subleases will berenewed or new subleases will be executed at rates consistent with rental rates in the current subleases. However, management cannot be certain that the timingof future subleases 22®®Table of Contentsor the rental rates contained in future subleases will not differ from current estimates. Factors such as the availability of commercial office space, economicconditions and subtenant preferences will influence the terms achieved in future subleases. The inability to sublet the office space in the future or unfavorablechanges to key management assumptions used in the estimate of the future sublease receipts may result in material charges to selling, general andadministrative expenses in future periods.Valuation of Deferred Tax Assets. We account for income taxes and the related accounts in accordance with FASB ASC Topic 740, “Income Taxes.”Deferred tax liabilities and assets are determined based on the difference between the financial statement and tax basis of assets and liabilities using enactedrates expected to be in effect during the year in which the differences reverse. We periodically assess the likelihood that we will be able to recover our deferredtax assets and reflect any changes in estimates in the valuation allowance. Deferred tax assets are reduced by a valuation allowance when, in the opinion ofmanagement, it is more likely than not that some portion, or all, of the deferred tax asset will not be realized. At December 31, 2012, we had a valuationallowance of $24.1 million primarily attributable to the uncertainty related to the realizability of our deferred tax assets. We considered all available evidence,both positive and negative, in determining the need for a valuation allowance. Based upon this analysis, including a consideration of our cumulative losshistory in the three-year period ended December 31, 2012, we determined that it is not more likely than not that our deferred tax assets will be realized. Webelieve that it is reasonably possible that we will no longer be in a cumulative loss position during future periods, which may result in a material change to ourvaluation allowance.Stock-Based Compensation. Under the provisions of FASB ASC Topic 718, “Stock Compensation,” we calculate the grant date fair value of share-based awards using the Black-Scholes valuation model for grants subsequent to the adoption of ASC 718. Determining the fair value of share-based awards isjudgmental in nature and involves the use of significant estimates and assumptions, including the term of the share-based awards, risk-free interest rates overthe vesting period, expected dividend rates, the price volatility of our shares and forfeiture rates of the awards. We base our fair value estimates onassumptions we believe to be reasonable but that are inherently uncertain. Actual future results may differ from those estimates.Results of OperationsThe following table shows, for the last three years, selected statement of comprehensive income data as a percentage of net sales: Year Ended December 31, 2012 2011 2010 Net sales 100.0% 100.0% 100.0% Cost of sales 72.5 76.5 77.1 Gross profit 27.5 23.5 22.9 Selling, general and administrative expenses 23.4 22.7 21.3 Income from operations 4.1 0.8 1.6 Interest expense, net 2.9 6.1 4.8 Income (loss) before taxes 1.2 (5.3) (3.2) Provision (benefit) for income taxes 0.3 (1.0) — Net income (loss) 0.9% (4.3%) (3.2%) 23Table of Contents2012 Compared to 2011Net Sales. Net sales in 2012 increased 15.2% to $307.4 million from $266.8 million in 2011. The increase in net sales was due primarily to a 15%increase in sales volume in 2012 compared to 2011. We attribute the increase in sales volumes in 2012 compared to 2011 to various factors, including: • Sales volumes in 2011 were depressed as a result of customers purchasing product in late 2010 to avoid an announced 2011 Transcend priceincrease; • Favorable weather conditions throughout 2012 compared to 2011 have allowed for a more favorable deck-building season, and; • Execution of growth strategies including introduction of new product lines and increased market share.Gross Profit. Gross profit increased to $84.6 million in 2012 from $62.8 million in 2011. Gross profit as a percentage of net sales increased to 27.5%in 2012 from 23.5% in 2011. Gross profit in 2012 was adversely affected by a $21.5 million increase to the warranty reserve. Gross profit in 2011 wasadversely affected by a $10.0 million increase to the warranty reserve. Excluding the aforementioned charges, gross profit in 2012 was $106.1 million, a$33.3 million increase compared to 2011. Underlying gross margin in 2012 was 34.6%, a 7.3% increase compared to 2011. Our gross margin improvementwas due to improved manufacturing efficiencies, a favorable product mix as we transition decking sales to our shelled products and a favorable inventoryvaluation adjustment related to our significant reduction in inventory. This was offset by start-up costs related to the introduction of our high performanceshelled products.Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $11.3 million, or 18.6%, to $71.9 million in2012 from $60.6 million in 2011. The increase in selling, general and administrative expenses in 2012 was primarily related to a $9.6 million increase inpersonnel related expenses due to increased incentive compensation, sales commissions and severance costs. In 2012, we recorded a $1.9 million loss on thedisposal of equipment made obsolete by improvements in manufacturing technologies and a $1.5 million expense for costs associated with the mold andmildew class action lawsuit. These increases were partially offset by a $1.4 million benefit in 2012 due to a reduction in the provision for future contingentpayments resulting from decreased near-term sales projections of steel deck framing systems. As a percentage of net sales, total selling, general andadministrative expenses increased to 23.4% in 2012 from 22.7% in 2011.Interest Expense. Net interest expense decreased 45.3% to $8.9 million in 2012 compared to $16.4 million in 2011. The decrease was the result of asignificant decrease in debt during 2012, primarily due to the repayment of the $91.9 million principal balance on the convertible notes on July 2, 2012. As apercentage of net sales, interest expense decreased to 2.9% in 2012 from 6.1% in 2011.Provision for Income Taxes. We recorded an expense for income taxes of $1.0 million in 2012 compared to a benefit of $2.6 million in 2011. Therelated effective tax rates were 27.06% in 2012 and 18.35% in 2011. Our effective tax rate for both years is substantially different than the statutory ratebecause we continue to maintain a full valuation allowance on our net deferred tax assets. As a result, our provision for income taxes and correspondingeffective tax rate, are primarily a function of cash taxes paid to various jurisdictions, changes in indefinite-lived deferred tax liabilities and changes to liabilitiesassociated with uncertain tax positions. The benefit recognized in 2011 was primarily related to the effects of favorably settled uncertain federal tax positionspreviously reserved under the provisions of ASC 740. The income tax expense recognized in 2012 was primarily related to cash taxes to various states whereno net operating loss carry-forward is available to offset current year taxable income, unfavorable effect of permanent differences related to employee stockawards and increases in indefinite-lived deferred tax liabilities, primarily related to goodwill amortized for income taxes. We believe that it is reasonablypossible that we will no longer be in a cumulative loss position during future periods, which may result in a material change to our valuation allowance. 24Table of Contents2011 Compared to 2010Net Sales. Net sales in 2011 decreased 16.0% to $266.8 million from $317.7 million in 2010. The decrease in net sales was attributable to a 22%decrease in sales volume which was partially offset by an 8% increase in the average price per unit in 2011 compared to 2010. The increase in average priceper unit was driven by a 2011 price increase for Transcend decking products and a shift in sales mix toward higher priced products. We believe the decreasein sales volume was a result of poor weather conditions in the deck building season in certain regions of the United States, reduced consumer spending due tolower consumer confidence in an unfavorable macroeconomic environment and a shift of Transcend sales from early 2011 into late 2010 as customerspurchased Transcend ahead of the announced 2011 price increase.Gross Profit. Gross profit decreased to $62.8 million in 2011 from $72.8 million in 2010. Gross profit as a percentage of net sales increased to 23.5%in 2011 from 22.9% in 2010. Gross profit in 2011 was adversely affected by a $10.0 million increase to the warranty reserve. Gross profit in 2010 wasadversely affected by $18.9 million of charges including a $15.0 million increase to the warranty reserve and $3.9 million for minimum purchase penalties.Excluding the aforementioned charges, gross profit in 2011 was $72.8 million, an $18.9 million decrease compared to 2010. Underlying gross margin in2011 was 27.3%, a 1.6% decrease compared to 2010. We recognized a combined 8.5% margin improvement from the following two categories in 2011: theelimination of the 2010 Transcend startup earnings drag and improved manufacturing efficiencies. The aforementioned 8.5% margin improvement was fullyoffset by sales related and other items, which decreased margins by 5% and operating at lower levels of capacity utilization, which resulted in 3.6% of margindeterioration.Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased $7.2 million, 10.6% to $60.6 million in 2011from $67.8 million in 2010. Of the $7.2 million decrease, $2.4 million is attributable to the effects of a non-cash charge taken in 2010 that related to ourinvestment in Denplax, a partially-owned Spanish joint venture. The remaining $4.8 million decrease in 2011 was primarily related to lower branding, claimsservicing, facility expenses, and incentive compensation. As a percentage of net sales, total selling, general and administrative expenses increased to 22.7% in2011 from 21.3% in 2010.Interest Expense. Net interest expense increased 7.2% to $16.4 million in 2011 compared to $15.3 million in 2010. The increase in 2011 was due to anincrease in non-cash charges incurred as a result of the debt discount related to the Company’s convertible bonds offset, in part, by a decrease in interestexpense as a result of lower average debt levels in 2011 compared to 2010.Provision for Income Taxes. We recorded a benefit for income taxes of $2.6 million in 2011 compared to a benefit for income taxes of $0.2 million in2010. The related effective tax rates were 18.35% in 2011 and 1.7% in 2010. The higher benefit and related effective tax rate for 2011 resulted, primarily, fromthe net effects of favorably settling uncertain federal tax positions which had been reserved under the provisions of ASC 740.Liquidity and Capital ResourcesWe finance operations and growth primarily with cash flow from operations, borrowings under the credit facility and other loans, operating leases andnormal trade credit terms from operating activities.Sources and Uses of Cash. Net cash provided by operating activities totaled $60.4 million in 2012 compared to net cash provided by operatingactivities of $33.8 million in 2011. The $26.6 million improvement in cash provided by operating activities was primarily a result of increased net sales andan $11 million decrease in inventory balances during 2012.Accounts receivable balances decreased to $26.5 million at December 31, 2012 compared to $29.2 million at December 31, 2011. We launched our pre-decking season early buy incentive program in December 2012. The 25Table of Contentsprogram offers customers discounts and favorable payment terms. Substantially all of the accounts receivable balances at December 31, 2012 were subject tothe terms of our early buy program. We expect to collect all outstanding accounts receivable balances by April 2013.Net cash used in investing activities totaled $7.5 million in 2012 compared to cash used in investing activities of $9.4 million in 2011. The decrease isprimarily attributable to the acquisition of substantially all of the assets of Iron Deck Corporation, a manufacturer of steel deck framing systems, in 2011.Capital expenditures in 2012 consisted primarily of manufacturing equipment for process and productivity improvements, including retrofitting lines toproduce new products. In 2011, net cash used in investing activities totaled $9.4 million compared to $9.8 million in 2010.Net cash used in financing activities was $55.3 million in 2012 compared to cash used in financing activities of $47.2 million in 2011. In 2012, weused cash on hand, including $37.0 million classified as restricted cash in 2011, to repay in full the $91.9 million principal balance on the convertible notes.Our net borrowings from the revolving credit facility were $5.0 million in 2012 compared to no borrowings in 2011. Net cash used in financing activities was$47.2 million in 2011, compared to net cash used in financing activities of $1.5 million in 2010.Inventory in Distribution Channels. We sell our products through a tiered distribution system. We have approximately 20 distributors and two massmerchandisers to which we sell our products. These distributors in turn sell the products to dealers who in turn sell the products to the end users. Consistentwith industry practices, to ensure adequate availability of product to meet anticipated seasonal consumer demand and to enable production planning, we havehistorically provided our distributors and dealers incentives to build inventory levels before the start of the prime deck-building season. These incentivesinclude prompt payment discounts and favorable payment terms. In addition, from time to time, we may offer price discounts on specified products and otherincentives based on increases in distributor purchases as part of specific promotional programs. There are no product return rights granted to our distributorsexcept those granted pursuant to the warranty provisions of our agreements with distributors. While we do not typically receive any information regardinginventory in the distribution channel from any dealers, we occasionally receive limited information from some but not all of our distributors regarding theinventory in the distribution channel. Because only a few distributors provide us with any information regarding their inventory, we cannot definitivelydetermine the level of inventory in the distribution channel at any time. Our sales in the fourth quarter of 2012 were lower than our sales in the fourth quarterof 2011. We believe that the inventory volume in the distribution channel at December 31, 2012 is lower than or comparable to the inventory volume in thedistribution channel at December 31, 2011. Significant changes in inventory levels in the distribution channel without a corresponding change in end-userdemand could have an adverse effect on future sales.We seek to maintain favorable relationships with our distributors. However, it is possible that, on occasion, we may need to replace a distributor.Historically, we have had little difficulty replacing a distributor and have experienced little or no disruption to operations or liquidity. We believe that in theevent we needed to replace a distributor, it would not have an adverse effect on our profitability or liquidity.Product Warranty. We continue to receive and settle claims related to material produced at our Nevada facility prior to 2007 that exhibits surface flakingand regularly monitor the adequacy of the remaining warranty reserve. During 2012, we paid approximately $8.8 million to settle claims against the warrantyreserve, which had a material adverse effect on cash flow from operations, and increased the warranty reserve an additional $21.5 million to reflect a revisionof the estimate of the number and cost of claims. We estimate that the number of claims received will continue to decline over time. If the level of new claimsreceived does not diminish consistent with our expectations, it could result in additional increases to the warranty reserve and reduced earnings and cash flowin future periods.Indebtedness. On January 6, 2012, we entered into an Amended and Restated Credit Agreement (the “Amended Credit Agreement”) with BB&T, as alender, Administrative Agent, Swing Line Lender, Letter of 26Table of ContentsCredit Issuer and a Collateral Agent; Wells Fargo Capital Finance, LLC (“Wells Fargo”) as a lender and a Collateral Agent; and BB&T Capital Markets(“BB&T Capital”), as Lead Arranger to amend the Credit Agreement. BB&T and Wells Fargo are referenced herein as the “Lenders.” These new agreementsreplace our previous revolver note, the swing advance note and the letter of credit facility, in their entireties and account for all of our debt capacity. Noadditional fees were due or owing as a result of the termination of the previous agreements.Under the Amended Credit Agreement, the Lenders agreed to provide us with one or more revolving loans in a collective maximum principal amount of$100,000,000 (the “Revolver Loans”).Included within the Revolver Loan limit are sublimits for a Letter of Credit Facility in an amount not to exceed $15,000,000 (the “Letter of CreditFacility”); and Swing Advances in an aggregate principal amount at any time outstanding not to exceed $5,000,000 (the “Swing Advance Loan”). TheRevolver Loans, the Letter of Credit Facility and the Swing Advance Loan are collectively referred to herein as the “Loans.” The Loans were obtained for thepurpose of raising working capital and refinancing our existing indebtedness.The Revolver Loans, the Swing Advances and the Letter of Credit Facility provide us, in the aggregate, the ability to borrow a principal amount not toexceed $100,000,000 at any one time outstanding (the “Revolving Loan Limit”) (subject to certain Borrowing Base requirements as described in the AmendedCredit Agreement which include limits on Eligible Accounts and Inventory as described in the Amended Credit Agreement and any written agreement whichmay be executed from time to time by us and each of the Collateral Agents). We are not obligated to borrow any amount under the Revolving Loan Limit.Within the Revolving Loan Limit, we may borrow or repay at any time or from time to time while the Revolving Loans are in effect.Base Rate Advances (as defined in the Amended Credit Agreement) under the Revolver Loans and the Swing Advances accrue interest at the Base Rateplus the Applicable Margin (as defined in the Amended Credit Agreement) and Euro-Dollar Advances for the Revolver Loans and Swing Advances accrueinterest at the Adjusted London InterBank Offered Rate plus the Applicable Margin (as defined in the Amended Credit Agreement). Repayment of all thenoutstanding principal, interest, fees and costs is due on January 9, 2015.The Letter of Credit Facility provides that upon our application, BB&T shall issue to our credit one or more letters of credit in the aggregate amount ofup to $15,000,000, or such lesser amount as may be required by law. We shall reimburse BB&T for all amounts payable, including interest, under a Letterof Credit at the earlier of (i) the date set forth in the application or (ii) on business day after the payment under such Letter of Credit by BB&T.Amounts drawn under the Revolver Loans are subject to a borrowing base consisting of certain accounts receivables, inventories, machinery andequipment and real estate. At December 31, 2012, we had $5.0 million of outstanding borrowings under the Revolver Loans and additional availableborrowing capacity of approximately $56.7 million.Compliance with Debt Covenants and Restrictions. Our ability to make scheduled principal and interest payments, borrow and repay amounts underany outstanding revolving credit facility and continue to comply with any loan covenants depends primarily on our ability to generate sufficient cash flowfrom operations. To remain in compliance with financial covenants in the Amended Credit Agreement, we are required to maintain specified financial ratiosbased on levels of debt, capital, net worth, fixed charges, and earnings (excluding extraordinary gains and extraordinary non-cash losses) before interest, taxes,depreciation and amortization, all of which are subject to the risks of the business, some of which are discussed in this report under “Risk Factors.” We werein compliance with all covenants contained in our Loans at December 31, 2012. Under the Amended Credit Agreement, the material financial covenants andrestrictions are as follows: (a)Minimum Consolidated Net Worth. We agreed that we will maintain Consolidated Net Worth, measured as of the end of each Fiscal Quarter,commencing with the Fiscal Quarter ended December 31, 2011, of not less than $85,000,000. 27Table of Contents (b)Fixed Charge Coverage Ratio. We agreed that we will not permit the Fixed Charge Coverage Ratio to be less than 1.15 to 1.0, measured as of theend of each Fiscal Quarter, commencing with the Fiscal Quarter ended December 31, 2011. (c)Consolidated Debt to Consolidated EBITDA Ratio. We agreed that we will not permit the Consolidated Debt to Consolidated EBITDA Ratio toexceed 3.5 to 1.0 measured as of the end of each Fiscal Quarter (and in the case of Consolidated EBITDA, for the four-quarter period ending onsuch date) after the date on which the Senior Subordinated Notes have been redeemed in full.Failure to comply with the financial covenants in our Amended Credit Agreement could be considered a default of our repayment obligations and, amongother remedies, could accelerate payment of any amounts outstanding under our Amended Credit Agreement.At December 31, 2012, our total indebtedness was $5.0 million and the annualized overall weighted average interest rate of such indebtedness wasapproximately 2.2%.Contractual Obligations. The following tables show, as of December 31, 2012, our contractual obligations and commercial commitments, whichconsist primarily of purchase commitments and operating leases (in thousands):Contractual ObligationsPayments Due by Period Total Less than1 year 1-3 years 4-5 years After5 years Line of credit $5,000 $5,000 $— $— $— Purchase commitments (1) 41,164 25,806 15,346 12 — Operating leases 48,848 6,124 12,071 10,179 20,474 Total contractual cash obligations $95,012 $36,930 $27,417 $10,191 $20,474 (1)Purchase commitments represent supply contracts with third-party manufacturers and raw material vendors.We do not have off-balance sheet financing arrangements other than operating leases.Capital and Other Cash Requirements. We made capital expenditures of $7.6 million in 2012, $7.4 million in 2011 and $10.0 million in 2010,primarily to make process and productivity improvements. We currently estimate that capital expenditures in 2013 will be approximately $10 to $15 million.Capital expenditures in 2013 are expected to be used primarily to make process and productivity improvements and upgrade systems.We believe that cash on hand, cash flow from operations and borrowings expected to be available under our revolving credit facility will providesufficient funds to enable us to fund planned capital expenditures, make scheduled principal and interest payments, fund the warranty reserve, meet othercash requirements and maintain compliance with terms of our debt agreements for at least the next 12 months. We currently expect to fund future capitalexpenditures from operations and borrowings under the revolving credit facility. The actual amount and timing of future capital requirements may differmaterially from our estimate depending on the demand for Trex and new market developments and opportunities. Our ability to meet our cash needs during thenext 12 months and thereafter could be adversely affected by various circumstances, including increases in raw materials and product replacement costs,quality control problems, higher than expected product warranty claims, service disruptions and lower than expected collections of accounts receivable. Inaddition, any failure to negotiate amendments to our existing debt agreements to resolve any future noncompliance with financial covenants could adverselyaffect our liquidity by reducing access to revolving credit borrowings needed primarily to fund seasonal borrowing needs. We may determine that it isnecessary or desirable to obtain financing through bank 28Table of Contentsborrowings or the issuance of debt or equity securities to address such contingencies or changes to our business plan. Debt financing would increase our levelof indebtedness, while equity financing would dilute the ownership of our stockholders. There can be no assurance as to whether, or as to the terms on which,we would be able to obtain such financing, which would be restricted by covenants contained in our existing debt agreements. Item 7A.Quantitative and Qualitative Disclosures About Market RiskWe are subject to market risks from changing interest rates associated with our borrowings. At December 31, 2012, we had $5.0 million of debtoutstanding under our variable rate revolving line of credit. While variable rate debt obligations expose us to the risk of rising interest rates, an increase of 1%in interest rates would not have a material adverse effect on our overall financial position, results of operations or liquidity based on balances outstanding atDecember 31, 2012.In certain instances we may use interest rate swap agreements to modify fixed rate obligations to variable rate obligations, thereby adjusting the interestrates to current market rates and ensuring that the debt instruments are always reflected at fair value. We had no interest rate swap agreements outstanding asof December 31, 2012. Item 8.Financial Statements and Supplementary DataThe financial statements listed in Item 15 and appearing on pages F-2 through F-25 are incorporated by reference in this Item 8 and are filed as part ofthis report. Item 9.Changes in and Disagreements With Accountants on Accounting and Financial DisclosureNone. Item 9A.Controls and ProceduresEvaluation of Disclosure Controls and ProceduresOur management, with the participation of our Chief Executive Officer, who is our principal executive officer, and our Chief Financial Officer, who isour principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) underthe Securities Exchange Act of 1934) as of December 31, 2012. Based upon this evaluation, our Chief Executive Officer and our Chief Financial Officerconcluded that our disclosure controls and procedures were effective as of December 31, 2012. 29Table of ContentsManagement’s Report on Internal Control Over Financial ReportingWe, as members of management of Trex Company, Inc. (the “Company”), are responsible for establishing and maintaining adequate internal controlover financial reporting. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliabilityof financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internalcontrol over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately andfairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary topermit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company arebeing made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding preventionor timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluationof effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies and procedures may deteriorate.We assessed the Company’s internal control over financial reporting as of December 31, 2012, based on criteria for effective internal control overfinancial reporting established in “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the TreadwayCommission (the “COSO Framework”). Based on this assessment, we concluded that, as of December 31, 2012, our internal control over financial reportingwas effective, based on the COSO Framework.The effectiveness of our internal control over financial reporting as of December 31, 2012, has been audited by Ernst & Young LLP, an independentregistered public accounting firm, as stated in their report, which follows hereafter. TREX COMPANY, INC.February 19, 2013 By: /s/ RONALD W. KAPLAN Ronald W. Kaplan Chairman, President and Chief Executive Officer (Principal Executive Officer)February 19, 2013 By: /s/ JAMES E. CLINE James E. Cline Vice President and Chief Financial Officer (Principal Financial Officer)Changes in Internal Control Over Financial ReportingThere have been no changes the Company’s internal control over financial reporting identified in connection with the evaluation described above in“Management’s Report on Internal Control Over Financial Reporting’ that occurred during the Company’s fourth fiscal quarter that have materially affected, orare reasonably likely to materially affect, the Company’s internal control over financial reporting. 30Table of ContentsReport of Ernst & Young LLP, Independent Registered Public Accounting Firm,on Internal Control Over Financial ReportingThe Board of Directors and Stockholders of Trex Company, Inc.We have audited Trex Company, Inc.’s internal control over financial reporting as of December 31, 2012, based on criteria established in InternalControl—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Trex Company,Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internalcontrol over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting in Item 9A. Ourresponsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in allmaterial respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weaknessexists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as weconsidered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal controlover financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluationof effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate.In our opinion, Trex Company, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012,based on the COSO criteria.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balancesheets of Trex Company, Inc., as of December 31, 2012 and 2011, and the related consolidated statements of comprehensive income, changes instockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2012 of Trex Company, Inc. and our report datedFebruary 19, 2013 expressed an unqualified opinion thereon./s/ Ernst & Young LLPRichmond, VirginiaFebruary 19, 2013 Item 9B.Other InformationNone. 31Table of ContentsPART III Item 10.Directors, Executive Officers and Corporate GovernanceSee “Executive Officers and Directors” in Part I, Item 1 of this report for the information about our executive officers, which is incorporated by responsein this Item 10. Other information responsive to this Item 10 is incorporated herein by reference to our definitive proxy statement for our 2013 annual meeting ofstockholders, which we will file with the SEC on or before 120 days after our 2012 fiscal year-end.We have adopted a code of conduct and ethics, which is applicable to all of our directors, officers and employees, including our Chief Executive Officerand Chief Financial Officer. The code is available on our corporate web site and in print to any stockholder who requests a copy. We also make available onour web site, at www.trex.com, and in print to any stockholder who requests them, copies of our corporate governance principles and the charters of eachstanding committee of our board of directors. Requests for copies of these documents should be directed to Corporate Secretary, Trex Company, Inc., 160Exeter Drive, Winchester, Virginia 22603-8605. To the extent required by SEC rules, we intend to disclose any amendments to our code of conduct andethics, and any waiver of a provision of the code with respect to our principal executive officer, principal financial officer, principal accounting officer orcontroller, or persons performing similar functions, on our web site referred to above within four business days following any such amendment or waiver, orwithin any other period that may be required under SEC rules from time to time. Item 11.Executive CompensationInformation responsive to this Item 11 is incorporated herein by reference to our definitive proxy statement for our 2013 annual meeting of stockholders,which we will file with the SEC on or before 120 days after our 2012 fiscal year-end. Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersInformation responsive to this Item 12 is incorporated herein by reference to our definitive proxy statement for our 2013 annual meeting of stockholders,which we will file with the SEC on or before 120 days after our 2012 fiscal year-end. Item 13.Certain Relationships and Related Transactions, and Director IndependenceInformation responsive to this Item 13 is incorporated herein by reference to our definitive proxy statement for our 2013 annual meeting of stockholders,which we will file with the SEC on or before 120 days after our 2012 fiscal year-end. Item 14.Principal Accounting Fees and ServicesInformation responsive to this Item 14 is incorporated herein by reference to our definitive proxy statement for our 2013 annual meeting of stockholders,which we will file with the SEC on or before 120 days after our 2012 fiscal year-end. 32Table of ContentsPART IV Item 15.Exhibits and Financial Statement Schedules(a)(1) The following consolidated financial statements of the Company appear on pages F-2 through F-25 of this report and are incorporated by referencein Part II, Item 8: Report of Independent Registered Public Accounting Firm F-2 Consolidated Financial Statements Consolidated Balance Sheets as of December 31, 2012 and 2011 F-3 Consolidated Statements of Comprehensive Income for the three years ended December 31, 2012 F-4 Consolidated Statements of Changes in Stockholders’ Equity for the three years ended December 31, 2012 F-5 Consolidated Statements of Cash Flows for the three years ended December 31, 2012 F-6 Notes to Consolidated Financial Statements F-7 Schedule II—Valuation and Qualifying Accounts and Reserves F-26 (a)(2) Schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not requiredunder the related instructions, or are inapplicable or not material and therefore have been omitted.(a)(3) The following exhibits are either filed with this Form 10-K or are incorporated herein by reference. The Company’s Securities Exchange Act filenumber is 001-14649. ExhibitNumber Exhibit Description 3.1 Restated Certificate of Incorporation of Trex Company, Inc. (the “Company”). Filed as Exhibit 3.1 to the Company’s Registration Statementon Form S-1 (No. 333-63287) and incorporated herein by reference. 3.2 Amended and Restated By-Laws of the Company. Filed as Exhibit 3.2 to the Company’s Current Report on Form 8-K filed May 7, 2008 andincorporated herein by reference. 4.1 Specimen certificate representing the Company’s common stock. Filed as Exhibit 4.1 to the Company’s Registration Statement on Form S-1(No. 333-63287) and incorporated herein by reference. 4.2 Indenture, dated as of June 18, 2007, between Trex Company, Inc. and The Bank of New York, as trustee. Filed as Exhibit 4.1 to theCompany’s Current Report on Form 8-K filed on June 19, 2007 and incorporated herein by reference. 4.3 Supplemental Indenture, dated as of June 18, 2007, between Trex Company, Inc. and The Bank of New York, as trustee, including the formof 6.00% Convertible Senior Subordinated Note due 2012. Filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K filed onJune 19, 2007 and incorporated herein by reference. 4.4 Credit Agreement dated as of November 4, 2009 between the Company and Branch Banking and Trust Company as Administrative Agentand Letter of Credit Issuer, BB&T Capital Markets as Lead Arranger and the Lenders listed on the signature pages thereof. Filed as Exhibit4.1 to the Company’s Current Report on Form 8-K filed on November 6, 2009 and incorporated herein by reference. 4.5 Swing Advance Note dated November 4, 2009 payable by the Company Inc. to Branch Banking and Trust Company in the amount of thelesser of $5,000,000 or the outstanding swing advances made by Branch Banking and Trust Company. Filed as Exhibit 4.6 to theCompany’s Current Report on Form 8-K filed on November 6, 2009 and incorporated herein by reference. 33Table of ContentsExhibitNumber Exhibit Description 4.6 First Amendment, dated October 28, 2011, of Credit Agreement dated as of November 4, 2009 between the Company and Branch Bankingand Trust Company as Administrative Agent, Letter of Credit Issuer and Lender, and BB&T Capital Markets Letter as Lead Arranger. Filedas Exhibit 4.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2011 and incorporated hereinby reference. 4.7 Revolver Note dated October 28, 2011 payable by the Company to Branch Banking and Trust Company in the amount of the lesser of$40,000,000 or the outstanding revolver advances made by Branch Banking and Trust Company. Filed as Exhibit 4.2 to the Company’sQuarterly Report on Form 10-Q for the quarterly period ended September 30, 2011 and incorporated herein by reference. 4.8 Reducing Revolver Note dated October 28, 2011 payable by the Company to Branch Banking and Trust Company in the amount of thelesser of $15,000,000 or the outstanding revolver advances made by Branch Banking and Trust Company. Filed as Exhibit 4.3 to theCompany’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2011 and incorporated herein by reference. 4.9 Amended and Restated Security Agreement between the Company and Branch Banking and Trust Company as Collateral Agent for theLenders, dated as of November 4, 2009. Filed as Exhibit 4.7 to the Company’s Current Report on Form 8-K filed on November 6, 2009 andincorporated herein by reference. 4.10 Amended and Restated Credit Line Deed of Trust, dated November 4, 2009, by and among the Company, as grantor, BB&T-VA CollateralService Corporation, as trustee, and Branch Banking and Trust Company, as Collateral Agent for the Lenders, as Beneficiary relating to realproperty partially located in the County of Frederick, Virginia and partially located in the City of Winchester, Virginia. Filed as Exhibit 4.8 tothe Company’s Current Report on Form 8-K filed on November 6, 2009 and incorporated herein by reference. 4.11 Deed of Trust, dated November 4, 2009, by and among the Company, as grantor, Eric L. Sappenfield, as trustee, and Branch Banking andTrust Company, as Collateral Agent for the Lenders, as Beneficiary relating to real property located in the County of De Soto, Mississippi.Filed as Exhibit 4.9 to the Company’s Current Report on Form 8-K filed on November 6, 2009 and incorporated herein by reference. 4.12 Amended and Restated Credit Agreement dated as of January 6, 2012 between the Company and Branch Banking and Trust Company, as aLender, Administrative Agent, Swing Line Lender, Letter of Credit Issuer and a Collateral Agent; Wells Fargo Capital Finance, LLC, as aLender and a Collateral Agent; and BB&T Capital Markets, as Lead Arranger. Filed as Exhibit 4.1 to the Company’s Current Report on Form8-K filed on January 12, 2012 and incorporated herein by reference. 4.13 Revolver Note dated January 6, 2012 payable by the Company to Branch Banking and Trust Company in the amount of the lesser of$55,000,000 or the outstanding revolver advances made by Branch Banking and Trust Company. Filed as Exhibit 4.2 to the Company’sCurrent Report on Form 8-K filed on January 12, 2012 and incorporated herein by reference. 4.14 Revolver Note dated January 6, 2012 payable by the Company to Wells Fargo Capital Finance, LLC in the amount of the lesser of$45,000,000 or the outstanding revolver advances made by Wells Fargo Capital Finance, LLC. Filed as Exhibit 4.3 to the Company’s CurrentReport on Form 8-K filed on January 12, 2012 and incorporated herein by reference. 4.15 Swing Advance Note dated January 6, 2012 payable by the Company to Branch Banking and Trust Company in the amount of the lesser of$5,000,000 or the outstanding swing advances made by Branch Banking and Trust Company. Filed as Exhibit 4.4 to the Company’sCurrent Report on Form 8-K filed on January 12, 2012 and incorporated herein by reference. 34Table of ContentsExhibitNumber Exhibit Description 4.16 Amended and Restated Security Agreement dated as of January 6, 2012 between the Company, as debtor, and Branch Banking and TrustCompany as Collateral Agent for Branch Banking and Trust Company and Wells Fargo Capital Finance, LLC. Filed as Exhibit 4.5 to theCompany’s Current Report on Form 8-K filed on January 12, 2012 and incorporated herein by reference. 4.17 Modification to Amended and Restated Credit Line Deed of Trust, dated as of January 6, 2012, by and among the Company as grantor,BB&T-VA Collateral Service Corporation, as trustee, and Branch Banking and Trust Company, as Collateral Agent for Branch Bankingand Trust Company and Wells Fargo Capital Finance, LLC, as Beneficiary relating to real property partially located in the County ofFrederick, Virginia and partially located in the City of Winchester, Virginia. Filed as Exhibit 4.6 to the Company’s Current Report on Form 8-K filed on January 12, 2012 and incorporated herein by reference. 4.18 Deed of Trust, dated as of January 6, 2012, by and among the Company as grantor, First American Title Insurance Company, as trustee,and Branch Banking and Trust Company, as Collateral Agent for Branch Banking and Trust Company and Wells Fargo Capital Finance,LLC, as Beneficiary relating to real property located in the County of Fernley, Nevada. Filed as Exhibit 4.7 to the Company’s Current Reporton Form 8-K filed on January 12, 2012 and incorporated herein by reference.10.1 Description of Management Compensatory Plans and Arrangements. Filed herewith.10.2 Trex Company, Inc. 2005 Stock Incentive Plan. Filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 7, 2008and incorporated herein by reference.10.3 Trex Company, Inc. Amended and Restated 1999 Incentive Plan for Outside Directors. Filed as Exhibit 10.1 to the Company’s QuarterlyReport on Form 10-Q for the quarterly period ended September 30, 2012 and incorporated herein by reference.10.4 Form of Trex Company, Inc. 2005 Stock Incentive Plan Non-Incentive Stock Option Agreement. Filed as Exhibit 10.1 to the Company’sQuarterly Report on Form 10-Q for the quarterly period ended June 30, 2005 and incorporated herein by reference.10.5 Form of Trex Company, Inc. 2005 Stock Incentive Plan Stock Appreciation Rights Agreement. Filed as Exhibit 10.5 to the Company’sAnnual Report on Form 10-K for the fiscal year ended December 31, 2011 and incorporated herein by reference.10.6 Form of Trex Company, Inc. 2005 Stock Incentive Plan Performance Award Agreement. Filed as Exhibit 10.3 to the Company’s QuarterlyReport on Form 10-Q for the quarterly period ended June 30, 2005 and incorporated herein by reference.10.7 Form of Trex Company, Inc. 2005 Stock Incentive Plan Restricted Stock Agreement. Filed as Exhibit 10.7 to the Company’s Annual Reporton Form 10-K for the fiscal year ended December 31, 2011 and incorporated herein by reference.10.8 Form of Trex Company, Inc. Amended and Restated 1999 Incentive Plan for Outside Directors Non-Incentive Stock Option Agreement forDirectors. Filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2006 andincorporated herein by reference.10.9 Form of Trex Company, Inc. Amended and Restated 1999 Incentive Plan for Outside Directors Stock Appreciation Rights Agreement. Filed asExhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2006 and incorporated herein byreference.10.10 Form of Trex Company, Inc. Amended and Restated 1999 Incentive Plan for Outside Directors Restricted Stock Agreement. Filed as Exhibit10.10 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011 and incorporated herein by reference. 35Table of ContentsExhibitNumber Exhibit Description10.11 Amendment and Restatement of Employment Agreement, dated as of July 24, 2012, between Trex Company, Inc. and Ronald W. Kaplan.Filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2012 and incorporatedherein by reference.10.12 Amendment and Restatement of Change in Control Severance Agreement, dated as of August 3, 2011, between Trex Company, Inc. andRonald W. Kaplan. Filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on August 9, 2011 and incorporated herein byreference.10.13 Form of Amendment and Restatement of Change in Control Severance Agreement between Trex Company, Inc. and Officers other than theChief Executive Officer. Filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on August 9, 2011 and incorporated hereinby reference.10.14 Form of Severance Agreement between Trex Company, Inc. and Officers other than the Chief Executive Officer. Filed as Exhibit 10.4 to theCompany’s Current Report on Form 8-K filed on August 9, 2011 and incorporated herein by reference.10.15 Retention Agreement, dated as of July 24, 2012, between Trex Company, Inc. and Ronald W. Kaplan. Filed as Exhibit 10.3 to the Company’sQuarterly Report on Form 10-Q for the quarterly period ended September 30, 2012 and incorporated herein by reference.10.16 Retention Agreement, dated as of July 24, 2012, between Trex Company, Inc. and James E. Cline. Filed as Exhibit 10.4 to the Company’sQuarterly Report on Form 10-Q for the quarterly period ended September 30, 2012 and incorporated herein by reference.10.17 Retention Agreement, dated as of July 24, 2012, between Trex Company, Inc. and William R. Gupp. Filed as Exhibit 10.5 to the Company’sQuarterly Report on Form 10-Q for the quarterly period ended September 30, 2012 and incorporated herein by reference.*10.18 Retention Agreement, dated as of July 24, 2012, between Trex Company, Inc. and F. Timothy Reese. Filed as Exhibit 10.6 to the Company’sQuarterly Report on Form 10-Q for the quarterly period ended September 30, 2012 and incorporated herein by reference.10.19 Form of Indemnity Agreement for Directors. Filed as Exhibit 10.19 to the Company’s Annual Report on Form 10-K for the fiscal year endedDecember 31, 2008 and incorporated herein by reference.10.20 Form of Indemnity Agreement for Officers. Filed as Exhibit 10.20 to the Company’s Annual Report on Form 10-K for the fiscal year endedDecember 31, 2008 and incorporated herein by reference.10.21 Form of Indemnity Agreement for Director/Officers. Filed as Exhibit 10.21 to the Company’s Annual Report on Form 10-K for the fiscal yearended December 31, 2008 and incorporated herein by reference.10.22 Form of Distributor Agreement of TREX Company, Inc. Filed as Exhibit 10.23 to the Company’s Annual Report on Form 10-K for the fiscalyear ended December 31, 2008 and incorporated herein by reference.10.23 Form of Trex Company, Inc. Fencing Agreement for Installers/Retailers. Filed as Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2006 and incorporated herein by reference.10.24 Deed of Lease, dated June 15, 2000, between TREX Company, LLC and Space, LLC. Filed as Exhibit 10.16 to the Company’s AnnualReport on Form 10-K for the fiscal year ended December 31, 2000 and incorporated herein by reference.10.25 Amendment, dated February 22, 2010, of Deed of Lease dated as of June 15, 2000, between Trex Company, Inc, as successor by merger toTrex Company, LLC, and TC.V.LLC, as successor to Space, LLC. Filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Qfor the quarterly period ended March 31, 2010 and incorporated herein by reference. 36Table of ContentsExhibitNumber Exhibit Description 10.26 Deed of Lease, dated as of July 27, 2005, between the Company and 1 Dulles Town Center, L.L.C. Filed as Exhibit 10.34 to the Company’sAnnual Report on Form 10-K for the fiscal year ended December 31, 2005 and incorporated herein by reference.* 21 Subsidiaries of the Company. Filed herewith. 23 Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm. Filed herewith. 31.1 Certification of Chief Executive Officer of the Company pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. Filed herewith. 31.2 Certification of Chief Financial Officer of the Company pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. Filed herewith. 32 Certifications pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. § 1350. Filed herewith.101 The following financial statements from the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012, formattedin Extensible Business Reporting Language (“XBRL”): (i) consolidated balance sheets, (ii) consolidated statements of comprehensive income,(iii) consolidated statements of changes in stockholders’ equity, (iv) consolidated statements of cash flows, and (v) the notes to theconsolidated financial statements. Under Rule 406T of Regulation S-T, this exhibit is deemed not filed or part of a registration statement orprospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of theSecurities and Exchange Act of 1934, as amended, and otherwise is not subject to liability under those sections. Filed herewith. *Portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidentialtreatment. 37Table of ContentsTREX COMPANY, INC.Index to Consolidated Financial Statements Page Report of Independent Registered Public Accounting Firm F-2 Consolidated Financial Statements Consolidated Balance Sheets as of December 31, 2012 and 2011 F-3 Consolidated Statements of Comprehensive Income for the three years ended December 31, 2012 F-4 Consolidated Statements of Changes in Stockholders’ Equity for the three years ended December 31, 2012 F-5 Consolidated Statements of Cash Flows for the three years ended December 31, 2012 F-6 Notes to Consolidated Financial Statements F-7 The following Consolidated Financial Statement Schedule of the Registrant is filed as part of this Report as required to be included in Item 15(a)(2): Page Schedule II—Valuation and Qualifying Accounts and Reserves F-26 F-1Table of ContentsReport of Ernst & Young LLP, Independent Registered Public Accounting FirmThe Board of Directors and Stockholders of Trex Company, Inc.We have audited the accompanying consolidated balance sheets of Trex Company, Inc. as of December 31, 2012 and 2011, and the related consolidatedstatements of comprehensive income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2012. Ouraudits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of theCompany’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standardsrequire that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An auditincludes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe thatour audits provide a reasonable basis for our opinion.In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Trex Company,Inc. at December 31, 2012 and 2011, and the consolidated results of its operations and its cash flows for each of the three years in the period endedDecember 31, 2012, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, whenconsidered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Trex Company, Inc.’sinternal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control-Integrated Framework issued by theCommittee of Sponsoring Organizations of the Treadway Commission and our report dated February 19, 2013 expressed an unqualified opinion thereon./s/ Ernst & Young LLPRichmond, VirginiaFebruary 19, 2013 F-2Table of ContentsTREX COMPANY, INC.CONSOLIDATED BALANCE SHEETS December 31, 2012 2011 (In thousands) ASSETS Current Assets: Cash and cash equivalents $2,159 $4,526 Restricted cash — 37,000 Accounts receivable, net 26,542 29,192 Inventories 17,521 28,896 Prepaid expenses and other assets 2,188 2,118 Income taxes receivable 435 322 Deferred income taxes 3,792 — Total current assets 52,637 102,054 Property, plant and equipment, net 104,425 115,212 Goodwill and other intangibles 10,550 10,558 Other assets 1,003 266 Total Assets $168,615 $228,090 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities: Accounts payable $11,161 $11,892 Accrued expenses 18,818 16,187 Accrued warranty 7,500 6,000 Deferred income taxes — 124 Line of credit 5,000 — Current portion of long-term debt — 86,425 Total current liabilities 42,479 120,628 Deferred income taxes 7,353 2,819 Non-current accrued warranty 21,487 10,345 Other long-term liabilities 3,310 1,799 Total Liabilities 74,629 135,591 Commitments and contingencies Stockholders’ Equity: Preferred stock, $0.01 par value, 3,000,000 shares authorized; none issued and outstanding — — Common stock, $0.01 par value, 40,000,000 shares authorized; 17,010,493 and 15,602,132 shares issued andoutstanding at December 31, 2012 and 2011, respectively 170 156 Additional paid-in capital 98,638 99,885 Retained deficit (4,822) (7,542) Total Stockholders’ Equity 93,986 92,499 Total Liabilities and Stockholders’ Equity $168,615 $228,090 See accompanying notes to financial statements. F-3Table of ContentsTREX COMPANY, INC.CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Year Ended December 31, 2012 2011 2010 (In thousands, except share and per share data) Net sales $307,354 $266,789 $317,690 Cost of sales 222,772 203,998 244,875 Gross profit 84,582 62,791 72,815 Selling, general and administrative expenses 71,907 60,620 67,764 Income from operations 12,675 2,171 5,051 Interest expense, net 8,946 16,364 15,288 Income (loss) before income taxes 3,729 (14,193) (10,237) Provision (benefit) for income taxes 1,009 (2,605) (171) Net income (loss) $2,720 $(11,588) $(10,066) Basic earnings (loss) per common share $0.17 $(0.75) $(0.66) Basic weighted average common shares outstanding 16,123,592 15,388,456 15,187,028 Diluted earnings (loss) per common share $0.16 $(0.75) $(0.66) Diluted weighted average common shares outstanding 17,064,856 15,388,456 15,187,028 Other comprehensive income: Net derivative losses on interest rate swaps, before tax — 312 80 Income tax expense (benefit) related to net derivative losses on interest rate swaps — 128 (1) Other comprehensive income, net of tax — 184 81 Comprehensive income (loss) $2,720 $(11,404) $(9,985) See accompanying notes to financial statements. F-4Table of ContentsTREX COMPANY, INC.CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY Common Stock AdditionalPaid-InCapital AccumulatedOtherComprehensiveLoss RetainedEarnings(Deficit) Total Shares Amount (Dollars in thousands) Balance, December 31, 2009 15,397,093 $154 $96,197 $(265) $14,112 $110,198 Net loss — — — — (10,066) (10,066) Net derivatives losses on interest rate swaps, net of tax — — — 81 — 81 Employee stock purchase and option plans 27,140 1 169 — — 170 Repurchases of common stock (54,922) — (1,089) — — (1,089) Stock-based compensation 88,691 — 3,628 — — 3,628 Balance, December 31, 2010 15,458,002 155 98,905 (184) 4,046 102,922 Net loss — — — — (11,588) (11,588) Net derivatives losses on interest rate swaps, net of tax — — — 184 — 184 Employee stock purchase and option plans 139,228 1 1,426 — — 1,427 Repurchases of common stock (62,543) — (3,092) — — (3,092) Stock-based compensation 67,445 — 3,146 — — 3,146 Repurchases of convertible notes — — (500) — — (500) Balance, December 31, 2011 15,602,132 156 99,885 — (7,542) 92,499 Net income — — — — 2,720 2,720 Employee stock purchase and option plans 234,552 2 820 — — 822 Repurchases of common stock (37,151) 1 (5,525) — — (5,524) Stock-based compensation 149,215 — 3,469 — — 3,469 Common stock issued upon conversion of notes 1,061,745 11 (11) — — — Balance, December 31, 2012 17,010,493 $170 $98,638 $— $(4,822) $93,986 See accompanying notes to financial statements. F-5Table of ContentsTREX COMPANY, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2012 2011 2010 (In thousands) Operating Activities Net income (loss) $2,720 $(11,588) $(10,066) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 17,009 18,170 20,788 Debt discount amortization 5,450 10,538 8,149 Deferred income taxes 618 165 200 Stock-based compensation 3,469 3,146 3,628 Loss on disposal of property, plant and equipment 1,909 711 436 Other non-cash adjustments (314) 621 1,224 Changes in operating assets and liabilities: Accounts receivable 2,660 23,931 (21,915) Inventories 11,376 125 1,083 Prepaid expenses and other assets (405) (19) 2,474 Accounts payable (731) (3,215) (1,407) Accrued expenses and other liabilities 16,784 (8,385) 6,604 Income taxes receivable (payable) (102) (353) 7,796 Net cash provided by operating activities 60,443 33,847 18,994 Investing Activities Expenditures for property, plant and equipment (7,593) (7,419) (9,966) Proceeds from sales of property, plant and equipment 3 28 85 Purchase of acquired company, net of cash acquired (11) (2,075) — Notes receivable, net 117 99 108 Net cash used in investing activities (7,484) (9,367) (9,773) Financing Activities Financing costs (750) (135) — Restricted cash 37,000 (37,000) — Borrowings under line of credit 93,700 — 44,000 Principal payments under line of credit (88,700) — (44,000) Principal payments under mortgages and notes (91,875) (2,542) (545) Repurchases of convertible notes — (5,882) — Repurchases of common stock (5,522) (3,092) (1,089) Proceeds from employee stock purchase and option plans 821 1,427 169 Net cash used in financing activities (55,326) (47,224) (1,465) Net increase (decrease) in cash and cash equivalents (2,367) (22,744) 7,756 Cash and cash equivalents at beginning of year 4,526 27,270 19,514 Cash and cash equivalents at end of year $2,159 $4,526 $27,270 Supplemental disclosures of cash flow information: Cash paid for interest, net of capitalized interest $5,792 $6,349 $6,526 Cash paid (received) for income taxes, net $590 $658 $(7,553) See accompanying notes to financial statements. F-6Table of ContentsTREX COMPANY, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1.BUSINESS AND ORGANIZATIONTrex Company, Inc. (together with its subsidiary, the “Company”), a Delaware corporation, was incorporated on September 4, 1998. The Companymanufactures and distributes wood/plastic composite products, as well as related accessories, primarily for residential and commercial decking and railingapplications. The majority of its products are manufactured in a proprietary process that combines waste wood fibers and reclaimed polyethylene (“PEmaterial”). The Company operates in one business segment. 2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESBasis of AccountingThe accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the UnitedStates and include the accounts of the Company and its wholly-owned subsidiary, Trex Wood-Polymer Espana, S.L. (“TWPE”). Intercompany accounts andtransactions have been eliminated in consolidation.TWPE was formed to hold the Company’s 35% equity interest in Denplax, S.A. (“Denplax”), a joint venture with a Spanish Company responsible forpublic environmental programs in southern Spain and with an Italian equipment manufacturer. The joint venture was formed to recycle polyethylene at afacility in El Ejido, Spain. The Company’s investment in Denplax is accounted for using the equity method. During 2010, the Company determined that itsinvestment in Denplax and a related note receivable were no longer recoverable and recorded a $2.4 million charge to earnings to fully reserve the equityinvestment and note. Both the equity investment and note remain fully reserved as of December 31, 2012.Iron Deck AcquisitionOn May 2, 2011, the Company completed the acquisition of substantially all of the assets of Iron Deck Corporation, a manufacturer of steel deckframing systems located in Denver, Colorado, for approximately $2 million in cash plus the assumption of certain liabilities. As a result of the acquisition,the Company recorded an increase of $3.7 million to Goodwill. No other material tangible or intangible assets were identified. The provisions of the purchaseagreement allow for future payments contingent upon certain future sales targets. The contingent payments were estimated as purchase consideration at theacquisition date and may be revised if actual sales differ from projected sales. As a result of decreased near-term sales projections of steel deck framingsystems, the Company reduced its provision for future contingent payments and recorded a $1.4 million benefit to selling, general and administrative expensesin the year ended December 31, 2012.Use of EstimatesThe preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to makeestimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes. Actual results could differfrom those estimates.Cash and Cash EquivalentsCash equivalents consist of highly liquid investments purchased with original maturities of three months or less.Concentrations and Credit RiskThe Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents, restricted cash,and trade accounts receivable. The Company from time to time may F-7Table of Contentshave bank deposits in excess of insurance limits of the Federal Deposit Insurance Corporation. As of December 31, 2012, substantially all deposits aremaintained in one financial institution. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant creditrisk related to its cash and cash equivalents.The Company routinely assesses the financial strength of its customers and believes that its trade receivables credit risk exposure is limited. Tradereceivables are carried at the original invoice amount less an estimate made for payment discounts and doubtful accounts. A valuation allowance is providedfor known and anticipated credit losses and disputed amounts, as determined by management in the course of regularly evaluating individual customerreceivables. This evaluation takes into consideration a customer’s financial condition and credit history, as well as current economic conditions.In the years ended December 31, 2012, 2011 and 2010, sales to certain customers accounted for 10% or more of the Company’s total net sales. For theyear ended December 31, 2012, two customers of the Company represented approximately 26% and 10% of the Company’s net sales. For the year endedDecember 31, 2011, one customer of the Company represented approximately 24% of the Company’s net sales. For the year ended December 31, 2010, onecustomer of the Company represented approximately 28% of the Company’s net sales. As of December 31, 2012, two customers represented 31% and 20%,respectively, of the Company’s accounts receivable balance.Approximately 40%, 33%, and 41% of the Company’s raw materials purchases for the years ended December 31, 2012, 2011 and 2010, respectively,were purchased from its four largest suppliers.InventoriesInventories are stated at the lower of cost (last-in, first-out, or “LIFO” method) or market value. The Company periodically reviews its inventory forslow moving or obsolete items and writes down the related products to estimated realizable value. The Company has not established significant reserves forestimated slow moving products or obsolescence. At December 31, 2012, the excess of the replacement cost of inventory over the LIFO value of inventory wasapproximately $23.7 million. Due to the nature of the LIFO valuation methodology, liquidations of inventories will result in a portion of the Company’s cost ofsales being based on historical rather than current year costs.The majority of the Company’s products are made in a proprietary process that combines waste wood fibers and reclaimed polyethylene. The Companygrinds up scrap materials generated from its manufacturing process and inventories deemed no longer salable and reintroduces the “reclaimed” material into themanufacturing process as a substitute for raw materials. The reclaimed material is valued at the costs of the raw material components of the material.Property, Plant and EquipmentProperty, plant and equipment are stated at historical cost. The costs of additions and improvements are capitalized, while maintenance and repairs areexpensed as incurred. Depreciation is provided using the straight-line method over the following estimated useful lives: Buildings 40 years Machinery and equipment 5-11 years Furniture and equipment 10 years Forklifts and tractors 5 years Computer equipment and software 3-5 years Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the asset. F-8Table of ContentsThe Company reviews its long-lived assets, including property, plant and equipment, whenever events or changes in circumstances indicate that thecarrying amount of the assets may not be fully recoverable. To determine the recoverability of its long-lived assets, the Company evaluates the probability thatfuture estimated undiscounted net cash flows will be less than the carrying amount of the long-lived assets. If the estimated cash flows are less than thecarrying amount of the long-lived assets, the assets are written down to their fair value. The Company’s estimates of anticipated cash flows and the remainingestimated useful lives of long-lived assets could be reduced in the future. As a result, the carrying amount of long-lived assets could be reduced in the future.Contract Termination CostsIn anticipation of relocating its corporate headquarters, the Company entered into a lease agreement in 2005. The Company reconsidered and decided notto move its headquarters. The lease, which began on January 1, 2006 and extends through June 30, 2019, obligates the Company to lease 55,047 square feet.The Company has executed subleases for the entire 55,047 square feet it currently leases. The terms of the existing subleases expire in years 2013 to 2019.The Company estimates that the present value of the estimated future sublease rental receipts, net of transaction costs, will be less than the Company’sremaining minimum lease payment obligations under its lease for the office space and have recorded a liability for the expected shortfall.To estimate future sublease receipts for the periods beyond the term of the existing subleases, the Company has assumed that the existing subleases willbe renewed or new subleases will be executed at rates consistent with rental rates in the current subleases. However, management cannot be certain that thetiming of future subleases or the rental rates contained in future subleases will not differ from current estimates. Factors such as the availability of commercialoffice space, economic conditions and subtenant preferences will influence the terms achieved in future subleases. The inability to sublet the office space in thefuture or unfavorable changes to key management assumptions used in the estimate of the future sublease receipts may result in material charges to selling,general and administrative expenses in future periods.GoodwillGoodwill represents the excess of cost over net assets acquired resulting from the Company’s 1996 purchase of the Mobil Composite Products Divisionand the 2011 purchase of the assets of the Iron Deck Corporation. The Company evaluates the recoverability of goodwill annually or more frequently if anevent occurs or circumstances change in the interim that would more likely than not reduce the fair value of the asset below its carrying amount. Goodwill isconsidered to be impaired when the net book value of the reporting unit exceeds its estimated fair value.In the evaluation of goodwill for impairment, the Company first compares the fair value of the reporting unit to its carrying value. If the carrying valueof a reporting unit exceeds its fair value, the goodwill of that reporting unit is potentially impaired and step two of the impairment analysis is performed. Instep two of the analysis, an impairment loss is recorded equal to the excess of the carrying value of the reporting unit’s goodwill over its implied fair valueshould such a circumstance arise.The Company measures fair value of the reporting unit based on a present value of future discounted cash flows and a market valuation approach. Thediscounted cash flows model indicates the fair value of the reporting unit based on the present value of the cash flows that the reporting unit is expected togenerate in the future. Significant estimates in the discounted cash flows model include: the weighted average cost of capital; long-term rate of growth andprofitability of the business; and working capital effects. The market valuation approach indicates the fair value of the business based on a comparison of theCompany against certain market information. Significant estimates in the market approach model include identifying appropriate market multiples andassessing earnings before interest, income taxes, depreciation and amortization (EBITDA) in estimating the fair value of the reporting unit. F-9Table of ContentsFor the years ended December 31, 2012, 2011 and 2010, the Company completed its annual impairment test of goodwill and noted no impairment. TheCompany performs the annual impairment testing of its goodwill as of October 31 of each year. However, actual results could differ from the Company’sestimates and projections, which would affect the assessment of impairment. As of December 31, 2012, the Company had goodwill of $10.5 million that issubject to at least annual review of impairment.Product WarrantyThe Company warrants that its products will be free from material defects in workmanship and material and will not check, split, splinter, rot orsuffer structural damage from termites or fungal decay. This warranty extends for a period of 25 years for residential use and 10 years for commercial use.With respect to the Company’s Transcend, Enhance and Universal Fascia product, the Company further warrants that the product will not fade in colormore than a certain amount and will be resistant to permanent staining from food substances or mold (provided the stain is cleaned within seven days ofappearance). This warranty extends for a period of 25 years for residential use and 10 years for commercial use. If there is a breach of such warranties, theCompany has an obligation either to replace the defective product or refund the purchase price. The Company establishes warranty reserves to provide forestimated future expenses as a result of product defects that result in claims. Reserve estimates are based on management’s judgment, considering such factorsas cost per claim, historical experience, anticipated rates of claims, and other available information. Management reviews and adjusts these estimates, ifnecessary, on a quarterly basis based on the differences between actual experience and historical estimates.Revenue RecognitionThe Company recognizes revenue when title is transferred to customers, which is generally upon shipment of the product to the customer. The Companydoes not grant contractual product return rights to customers other than pursuant to its product warranty. The Company does not expect future product returnsto be material and, consequently, does not maintain an allowance for product returns.The Company records all shipping and handling fees in sales and records all of the related costs in cost of sales. The Company offers several salesincentive programs to dealers and distributors, including rebates, pricing discounts, favorable payment terms and cooperative advertising, many of whichresult in cash consideration made to dealers and distributors. The Company accounts for consideration made pursuant to these programs in accordance withaccounting guidance that governs consideration given by a vendor to a customer. With the exception of cooperative advertising, the Company classifies salesincentives as a reduction in revenue in “Net sales.” Sales incentives are recorded in the period in which they are earned by customers. The Company’scooperative advertising program meets the requirements for exclusion from net sales and the costs are recorded as expenses in “Selling, general andadministrative expenses” in the accompanying consolidated statements of comprehensive income. Cooperative advertising costs are accrued as incurred.Stock-Based CompensationThe Company recognizes share-based compensation at the grant date of the award based on the fair value, and is recognized on a straight line basis asexpense in the accompanying consolidated statements of comprehensive income over the vesting periods of the award, net of an estimated forfeiture rate.Income TaxesThe Company accounts for income taxes and the related accounts in accordance with FASB ASC Topic 740, “Income Taxes”. Deferred tax liabilitiesand assets are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted rates expected to be ineffect during the year in which the differences reverse. Management periodically assesses the likelihood that the Company will be able to recover its deferred taxassets and reflects any changes in estimates in the valuation allowance. Deferred F-10®®Table of Contentstax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all, of the deferred taxasset will not be realized. At December 31, 2012, the Company had a valuation allowance of $24.1 million primarily attributable to the uncertainty related tothe realizability of its deferred tax assets. The Company considered all available evidence, both positive and negative, in determining the need for a valuationallowance. Based upon this analysis, including a consideration of the Company’s cumulative loss history in the three-year period ended December 31, 2012,management determined that it is not more likely than not that its deferred tax assets will be realized.Research and Development CostsResearch and development costs are expensed as incurred. For the years ended December 31, 2012, 2011 and 2010, research and development costs were$2.9 million, $2.5 million and $1.9 million, respectively, and have been included in “Selling, general and administrative expenses” in the accompanyingconsolidated statements of comprehensive income.Advertising CostsThe Company expenses its branding and advertising communication costs as incurred. Significant production costs are deferred and recognized asexpense in the period that the related advertisement is first used. At December 31, 2012 and December 31, 2011, $0.6 million and $0.9 million, respectively,were included in prepaid expenses for production costs.For the years ended December 31, 2012, 2011 and 2010, branding expenses, including advertising expenses as described above, were $20.5 million,$19.4 million and $20.6 million, respectively.Fair Value of Financial InstrumentsThe Company considers the recorded value of its financial assets and liabilities, consisting primarily of cash and cash equivalents, restricted cash,accounts receivable, accounts payable, accrued expenses and other current liabilities to approximate the fair value of the respective assets and liabilities atDecember 31, 2012 and 2011.Comprehensive Income (Loss)Comprehensive income (loss) consists of net income (loss) and net unrealized gains and losses on interest rate swap contracts. Amounts related tointerest rate swap contracts that were previously included in “Accumulated other comprehensive loss” and reclassified to “Interest expense, net” wereimmaterial for the years ended December 31, 2011 and 2010.Investment in DenplaxThe Company owns 35% of a joint venture, Denplax, with a Spanish environmental company and an Italian equipment manufacturer to operate a plantin Spain designed to recycle waste polyethylene. Denplax qualifies as a variable interest entity per relevant accounting guidance. Denplax was financed withinitial equity contributions from the Company and the other partners and debt financing. The Company is not contingently liable for any of Denplax’sobligations. The Company does not control Denplax and records its proportional 35% share of Denplax’s operating results using the equity method. During2010, the Company determined that its investment in Denplax and a related note receivable were no longer recoverable and recorded a $2.4 million charge toearnings to fully reserve the equity investment and the note. Both the equity investment and note remain fully reserved as of December 31, 2012.New Accounting StandardsIn June 2011, the FASB issued ASU 2011-05, “Presentation of Comprehensive Income.” ASU 2011-05 requires the components of net income andother comprehensive income to be either presented in one continuous F-11Table of Contentsstatement, referred to as the statement of comprehensive income, or in two separate, but consecutive statements. An entity is also required to present on the faceof the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) wherethe components of net income and the components of other comprehensive income are presented. In December 2011, the FASB issued ASU 2011-12,“Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income inASU No. 2011-05,” which defers the effective date for the portion of ASU 2011-05 that pertains to the presentation of reclassification adjustments out ofaccumulated other comprehensive income. While ASU 2011-05 changes the presentation of comprehensive income, there are no changes to the components thatare recognized in net income or other comprehensive income under current accounting guidance. The Company adopted ASU 2011-05 effective January 1,2012. As this guidance only amends the presentation of the components of comprehensive income, the adoption did not have an impact on the Company’sconsolidated financial position or results of operations. 3.INVENTORIESInventories (at LIFO value) consist of the following as of December 31 (in thousands): 2012 2011 Finished goods $23,172 $29,980 Raw materials 18,068 27,134 Total FIFO inventories 41,240 57,114 Reserve to adjust inventories to LIFO value (23,719) (28,218) Total LIFO inventories $17,521 $28,896 Inventory is stated at the lower of LIFO cost or net realizable value. The Company periodically reviews its inventory for slow moving or obsolete itemsand writes down the related products to estimated net realizable value.During the year ended December 31, 2012, due to the liquidation of inventories, a portion of the Company’s cost of sales is based on prior year costsrather than current year costs. As a result, the Company recognized a benefit of $4.5 million in 2012. The effect of the liquidation of inventories in 2011 and2010 on the Company’s cost of sales was immaterial. 4.PROPERTY, PLANT AND EQUIPMENTProperty, plant and equipment consist of the following as of December 31 (in thousands): 2012 2011 Building and improvements $57,435 $57,512 Machinery and equipment 218,359 224,611 Furniture and fixtures 1,999 2,445 Forklifts and tractors 5,373 5,095 Computer equipment 7,371 5,774 Construction in process 1,855 2,425 Land 8,858 8,858 301,250 306,720 Accumulated depreciation (196,825) (191,508) Total property, plant and equipment, net $104,425 $115,212 The Company had construction in process as of December 31, 2012 of approximately $1.9 million. The Company expects that the construction inprocess will be completed and put into service in the year ending December 31, 2013. F-12Table of ContentsDepreciation expense for the years ended December 31, 2012, 2011 and 2010 totaled $16.5 million, $18.4 million and $19.6 million, respectively. 5.ACCRUED EXPENSESAccrued expenses consist of the following (in thousands): 2012 2011 Accrued compensation and benefits $10,080 $2,116 Accrued sales and marketing costs 3,402 5,831 Accrued rent obligations 1,103 1,821 Accrued interest 8 2,807 Other 4,225 3,612 Total accrued expenses $18,818 $16,187 6.DEBTIndebtedness. At December 31, 2012, the Company’s indebtedness totaled $5.0 million and the annualized overall weighted average interest rate of suchindebtedness was approximately 2.2%.Convertible Notes Offering. On July 2, 2012, the Company repaid the $91.9 million principal balance on the notes and, in accordance with theconversion feature of the notes, issued 1,061,745 shares of common stock to the note-holders.Interest expense relating to the Company’s convertible notes for the years ended December 31, 2012, 2011 and 2010 is as follows (in thousands): December 31,2012 December 31,2011 December 31,2010 Interest expense at coupon rate (6.0%) $2,756 $5,726 $5,850 Non-cash interest in accordance with ASC 470-20 5,450 10,538 8,149 Total interest expense recognized on convertible debt instruments $8,206 $16,264 $13,999 Revolving Credit Facility. On January 6, 2012, the Company entered into an Amended and Restated Credit Agreement (the “Amended CreditAgreement”) with BB&T, as a lender, Administrative Agent, Swing Line Lender, Letter of Credit Issuer and a Collateral Agent; Wells Fargo Capital Finance,LLC (“Wells Fargo”) as a lender and a Collateral Agent; and BB&T Capital Markets (“BB&T Capital”), as Lead Arranger to amend the Credit Agreement.BB&T and Wells Fargo are referenced herein as the “Lenders.” These new agreements replace the previous revolver note, the swing advance note and the letterof credit facility, in their entireties and account for all of the Company’s debt capacity. No additional fees were due or owing as a result of the termination of theprevious agreements.Under the Amended Credit Agreement, the Lenders agreed to provide the Company with one or more revolving loans in a collective maximum principalamount of $100,000,000 (the “Revolver Loans”).Included within the Revolver Loan limit are sublimits for a Letter of Credit Facility in an amount not to exceed $15,000,000 (the “Letter of CreditFacility”); and Swing Advances in an aggregate principal amount at any time outstanding not to exceed $5,000,000 (the “Swing Advance Loan”). TheRevolver Loans, the Letter of Credit Facility and the Swing Advance Loan are collectively referred to herein as the “Loans.” The Loans were obtained for thepurpose of raising working capital and refinancing the Company’s existing indebtedness. F-13Table of ContentsThe Revolver Loans, the Swing Advances and the Letter of Credit Facility provide the Company, in the aggregate, the ability to borrow a principalamount not to exceed $100,000,000 at any one time outstanding (the “Revolving Loan Limit”) (subject to certain Borrowing Base requirements as described inthe Amended Credit Agreement which include limits on Eligible Accounts and Inventory as described in the Amended Credit Agreement and any writtenagreement which may be executed from time to time by the Company and each of the Collateral Agents). The Company is not obligated to borrow any amountunder the Revolving Loan Limit. Within the Revolving Loan Limit, the Company may borrow or repay at any time or from time to time while the RevolvingLoans are in effect.Base Rate Advances (as defined in the Amended Credit Agreement) under the Revolver Loans and the Swing Advances accrue interest at the Base Rateplus the Applicable Margin (as defined in the Amended Credit Agreement) and Euro-Dollar Advances for the Revolver Loans and Swing Advances accrueinterest at the Adjusted London InterBank Offered Rate plus the Applicable Margin (as defined in the Amended Credit Agreement). Repayment of all thenoutstanding principal, interest, fees and costs is due on January 9, 2015.The Letter of Credit Facility provides that upon the Company’s application, BB&T shall issue to the Company’s credit one or more letters of credit inthe aggregate amount of up to $15,000,000, or such lesser amount as may be required by law. The Company shall reimburse BB&T for all amounts payable,including interest, under a Letter of Credit at the earlier of (i) the date set forth in the application or (ii) on business day after the payment under such Letter ofCredit by BB&T.Amounts drawn under the Revolver Loans are subject to a borrowing base consisting of certain accounts receivables, inventories, machinery andequipment and real estate. At December 31, 2012, the Company had $5.0 million of outstanding borrowings under the Revolver Loans and additionalavailable borrowing capacity of approximately $56.7 million.Compliance with Debt Covenants and Restrictions. The Company’s ability to make scheduled principal and interest payments, borrow and repayamounts under any outstanding revolving credit facility, and continue to comply with any loan covenants depends primarily on the Company’s ability togenerate sufficient cash flow from operations. To remain in compliance with financial covenants in the Amended Credit Agreement, the Company is required tomaintain specified financial ratios based on levels of debt, capital, net worth, fixed charges, and earnings (excluding extraordinary gains and extraordinarynon-cash losses) before interest, taxes, depreciation and amortization, all of which are subject to the risks of the business, some of which are discussed in thisreport under “Risk Factors.” The Company was in compliance with all covenants contained in the Loans at December 31, 2012. Under the Amended CreditAgreement, the material financial covenants and restrictions are as follows: (a)Minimum Consolidated Net Worth. The Company agreed that it will maintain Consolidated Net Worth, measured as of the end of each FiscalQuarter, commencing with the Fiscal Quarter ended December 31, 2011, of not less than $85,000,000. (b)Fixed Charge Coverage Ratio. The Company agreed that it will not permit the Fixed Charge Coverage Ratio to be less than 1.15 to 1.0, measured asof the end of each Fiscal Quarter, commencing with the Fiscal Quarter ended December 31, 2011. (c)Consolidated Debt to Consolidated EBITDA Ratio. The Company agreed that it will not permit the Consolidated Debt to Consolidated EBITDARatio to exceed 3.5 to 1.0 measured as of the end of each Fiscal Quarter (and in the case of Consolidated EBITDA, for the four-quarter periodending on such date) after the date on which the Senior Subordinated Notes have been redeemed in full.Failure to comply with the financial covenants in the Amended Credit Agreement could be considered a default of the Company’s repayment obligationsand, among other remedies, could accelerate payment of any amounts outstanding under the Amended Credit Agreement. F-14Table of ContentsLong-Term Debt. The Company’s convertible notes have been reduced by debt discount of $5.5 million as of December 31, 2011 in accordance withthe terms of ASC 470-20.Long-term debt consists of the following as of December 31 (in thousands): 2012 2011 Convertible notes $— $91,875 Less unamortized debt discount — (5,450) — 86,425 Less current portion — (86,425) Long-term debt, excluding current portion $— $— 7.EARNINGS PER SHAREThe following table sets forth the computation of basic and diluted earnings per share (in thousands, except share and per share data): Year Ended December 31, 2012 2011 2010 Numerator: Net income (loss) $2,720 $(11,588) $(10,066) Denominator: Basic weighted average shares outstanding 16,123,592 15,388,456 15,187,028 Effect of dilutive securities: SARS and options 406,482 — — Restricted stock 51,799 — — Convertible notes 482,983 — — Diluted weighted average shares outstanding 17,064,856 15,388,456 15,187,028 Basic earnings (loss) per share $0.17 $(0.75) $(0.66) Diluted earnings (loss) per share $0.16 $(0.75) $(0.66) Diluted earnings per share is computed using the weighted average number of shares determined for the basic earnings per share computation plus thedilutive effect of common stock equivalents using the treasury stock method. The computation of diluted earning per share excludes the following potentiallydilutive securities because the effect would be anti-dilutive: Year Ended December 31, 2012 2011 2010 Restricted stock and stock options 117,322 240,969 394,852 Stock appreciation rights 121,206 618,178 1,057,147 8.STOCK-BASED COMPENSATIONThe Company has one stock-based compensation plan, the 2005 Stock Incentive Plan (the “2005 Plan”), which was amended by its shareholders onMay 7, 2008. The 2005 Plan is administered by the Compensation Committee of the Company’s Board of Directors. Stock-based compensation is granted toofficers, directors and certain key employees in accordance with the provisions of the 2005 Plan. The 2005 Plan provides for grants of stock options, stockappreciation rights (“SARs”), restricted stock and performance share awards. The total F-15Table of Contentsaggregate number of shares of the Company’s common stock that may be issued under the 2005 Plan is 3,150,000 shares. For the years ended December 31,2012, 2011 and 2010, stock compensation expense related to awards under the 2005 Plan was $3.5 million, $3.1 million and $3.6 million, respectively. Thisexpense is included in “Selling, general and administrative expenses” in the accompanying consolidated statements of comprehensive income.Stock Options and Stock Appreciation RightsThe 2005 Plan authorizes the grant of stock options and SARs. Stock options are granted with an exercise price and SARs are granted with a grant priceequal to the closing market price of the Company’s common stock on the date of grant. These awards have ten-year contractual terms and vest based on theterms of the individual awards. The options and SARs are generally forfeitable upon termination of a holder’s service as an employee or director, unless theindividual’s service is terminated due to retirement, death or permanent disability. The Company recognizes compensation cost on a straight-line basis over thevesting period for the award. Prior to 2006, the Company granted stock options and all stock options outstanding at December 31, 2012 are fully vested. In2006, the Company began the use of SARs instead of stock options.As of December 31, 2012, there was $1.3 million of unrecognized compensation cost related to SARs expected to be recognized over a weighted-averageperiod of approximately 1.7 years. The fair value of each stock option award and SAR is estimated on the date of grant using a Black-Scholes option-pricingmodel. For SARs issued in the years ended December 31, 2012, 2011 and 2010, respectively, the assumptions shown in the following table were used: Year Ended December 31, 2012 2011 2010 Dividend yield 0% 0% 0% Average risk-free interest rate 0.8% 2.0% 2.6% Expected term (years) 5 5 5 Volatility 65.9% 65.0% 66.3% Expected Volatility. Volatility is a measure of the amount by which a financial variable such as a share price has fluctuated (historical volatility) or isexpected to fluctuate (expected volatility) during a period. The Company has used the historical volatility over the average expected term of the options grantedas the expected volatility.Risk-Free Interest Rate. This is the U.S. Treasury rate having a term that most closely resembles the expected term of the option.Expected Term. The expected term is the period of time that the SARs granted is expected to remain unexercised. SARs granted during the year endedDecember 31, 2012 had a maximum term of ten years. The Company used historical exercise behavior with further consideration given to the class ofemployees to whom the equity awards were granted to estimate the expected term of the SAR.The forfeiture rate is the estimated percentage of equity awards granted that are expected to be forfeited or canceled before becoming fully vested. TheCompany estimates forfeitures based on historical experience with further consideration given to the class of employees to whom the equity awards weregranted.The weighted-average grant date fair value of SARs granted during the year ended December 31, 2012 was $25.75. F-16Table of ContentsStock option activity under the 2005 Plan and a predecessor stock incentive plan is as follows: Options Weighted-AverageExercisePricePer Share Weighted-AverageRemainingContractualLife AggregateIntrinsicValue as ofDecember 31,2012 Outstanding at December 31, 2009 249,515 $33.22 Granted — $— Exercised (1,483) $23.34 Canceled (25,586) $34.41 Outstanding at December 31, 2010 222,446 $33.20 Granted — $— Exercised (57,027) $27.94 Canceled (20,350) $31.71 Outstanding at December 31, 2011 145,069 $38.08 Granted — $— Exercised (23,189) $31.35 Canceled (1,242) $20.00 Outstanding at December 31, 2012 120,638 $40.37 1.5 $152,058 Vested at December 31, 2012 120,638 $40.37 1.5 $152,058 Exercisable at December 31, 2012 120,638 $40.37 1.5 $152,058 At December 31, 2012, the price range of options outstanding was as follows: OptionsOutstanding Weighted-AverageExercisePrice Weighted-AverageRemainingContractualLife (Years) OptionsExercisable Weighted-AverageExercisePrice $ 0.00 – 19.99 — $— — — $— 20.00 – 29.99 9,807 $25.44 2.6 9,807 $25.44 30.00 – 39.99 54,733 $37.20 0.7 54,733 $37.20 40.00 and over 56,098 $46.07 2.1 56,098 $46.07 Total 120,638 $40.37 1.5 120,638 $40.37 SAR activity under the 2005 Plan is as follows: SARs Weighted-AverageGrant PricePer Share Outstanding at December 31, 2009 1,133,352 $13.25 Granted 136,666 $17.94 Exercised (12,359) $23.27 Canceled (11,164) $24.02 Vested at December 31, 2010 834,175 $14.21 Exercisable at December 31, 2010 799,482 $14.41 Outstanding at December 31, 2010 1,246,495 $13.70 Granted 96,765 $25.76 Exercised (180,555) $28.34 Canceled — $— Vested at December 31, 2011 1,145,996 $13.34 Exercisable at December 31, 2011 930,748 $14.24 Outstanding at December 31, 2011 1,162,705 $13.17 Granted 100,914 $25.75 Exercised (567,953) $13.08 Canceled (8,476) $24.15 Outstanding at December 31, 2012 687,190 $18.56 Vested at December 31, 2012 1,281,648 $12.48 Exercisable at December 31, 2012 502,548 $16.54 F-17Table of ContentsRestricted StockThe fair value of the restricted stock is determined based on the closing price of the Company’s shares on the grant date. Shares of restricted stock vestbased on the terms of the awards. Unvested restricted stock is generally forfeitable upon termination of a holder’s service as an employee, unless theindividual’s service is terminated due to retirement, death or permanent disability. In the years ended December 31, 2012, 2011 and 2010, 156,927, 67,945and 91,845 restricted shares were granted at $27.18, $25.86 and $17.41 per share, respectively. The total fair value of restricted shares vested for the yearsended December 31, 2012, 2011 and 2010 was $2.5 million, $4.1 million, and $2.7 million, respectively. In the years ended December 31, 2012, 2011 and2010, $2.0 million, $1.6 million and $1.7 million of compensation expense, respectively, was recognized related to restricted stock awards. At December 31,2012, there was $3.9 million of total compensation expense related to unvested restricted stock remaining to be recognized over a weighted-average period ofapproximately 2.6 years. Compensation expense related to restricted stock is included in “Selling, general and administrative expenses” in the accompanyingconsolidated statements of comprehensive income.Restricted stock activity under the 2005 Plan is as follows: RestrictedStock Weighted-AverageGrant PricePer Share Nonvested at December 31, 2009 291,780 $11.79 Granted 91,845 $17.41 Vested (136,849) $19.72 Forfeited (2,340) $16.21 Nonvested at December 31, 2010 244,436 $13.65 Granted 67,945 $25.86 Vested (151,706) $27.06 Forfeited (500) $17.41 Nonvested at December 31, 2011 160,175 $22.99 Granted 156,927 $27.18 Vested (94,705) $26.88 Forfeited (7,712) $25.47 Nonvested at December 31, 2012 214,685 $24.16 Employee Stock Purchase PlanThe Company has an employee stock purchase plan (“ESPP”) that permits eligible employees to purchase shares of common stock of the Company at apurchase price which is the lesser of 85% of the market price on either the first day of the calendar quarter or the last day of the calendar quarter. Eligibleemployees may elect to participate in the plan by authorizing payroll deductions from 1% to 15% of gross compensation for each payroll period. On the lastday of each quarter, each participant’s contribution account is used to purchase the maximum number of whole shares of common stock determined bydividing the contribution account’s balance by the purchase price. The aggregate number of shares of common stock that may be purchased under the plan is300,000. Through December 31, 2012, employees had purchased approximately 194,000 shares under the plan. In the years ended December 31, 2012, 2011and 2010, compensation expense of $65.3 thousand, $86.3 thousand and $52.1 thousand, respectively, was recognized related to the discount on ESPPpurchases. Compensation expense related to ESPP purchases is included in “Selling, general and administrative expenses” in the accompanying consolidatedstatements of comprehensive income. F-18Table of Contents9.LEASESThe Company leases office space, storage warehouses and certain office and plant equipment under various operating leases. Minimum annualpayments under these non-cancelable leases as of December 31, 2012 were as follows (in thousands): Year Ending December 31, 2013 $6,124 2014 6,206 2015 5,865 2016 5,027 2017 5,152 Thereafter 20,474 Total minimum lease payments $48,848 For the years ended December 31, 2012, 2011 and 2010, the Company recognized rental expenses of approximately $7.5 million, $8.0 million and $8.4million, respectively. 10.EMPLOYEE BENEFIT PLANSThrough December 31, 2012, the Company had a 401(k) Profit Sharing Plan for the benefit of all employees who meet certain eligibility requirements.The plan covered substantially all of the Company’s full-time employees. The plan documents provide for the Company to match contributions equal to 100%of an employee’s contribution to the plan up to 6% of base salary. The Company’s contributions to the plan totaled $1.6 million, $1.6 million and $1.5million for the years ended December 31, 2012, 2011 and 2010. 11.INCOME TAXESIncome tax provision (benefit) for the years ended December 31, 2012, 2011 and 2010 consists of the following (in thousands): Year Ended December 31, 2012 2011 2010 Current income tax provision (benefit): Federal $303 $(2,738) $(16) State 88 (32) (355) 391 (2,770) (371) Deferred income tax provision (benefit): Federal 510 164 136 State 108 1 64 618 165 200 Total income tax provision (benefit) $1,009 $(2,605) $(171) F-19Table of ContentsThe income tax provision (benefit) differs from the amount of income tax determined by applying the U.S. federal statutory rate to income before taxes asa result of the following (in thousands): Year Ended December 31, 2012 2011 2010 U.S. federal statutory taxes $1,305 $(4,826) $(3,502) State and local taxes, net of U.S. federal benefit (418) (650) (1,971) Permanent items 198 96 (1) Federal credits (54) (59) (66) Other 46 (275) (503) Increase (decrease) in valuation allowance (68) 3,109 5,872 Total income tax provision (benefit) $1,009 $(2,605) $(171) Deferred tax assets and liabilities as of December 31, 2012 and 2011 consist of the following (in thousands): As of December 31, 2012 2011 Deferred tax assets: Net operating losses $9,962 $23,043 Warranty reserve 11,406 6,306 Stock-based compensation 2,654 3,254 Accruals not currently deductible and other 8,193 3,959 Inventories 5,008 4,137 State tax credit carryforwards 4,105 4,252 Gross deferred tax assets, before valuation allowance 41,328 44,951 Valuation allowance (24,131) (24,199) Gross deferred tax assets, after valuation allowance 17,197 20,752 Deferred tax liabilities: Debt discount — (2,103) Depreciation and other (20,758) (21,592) Gross deferred tax liabilities (20,758) (23,695) Net deferred tax asset (liability) $(3,561) $(2,943) The valuation allowance as of December 31, 2012 of $24.1 million is primarily attributable to the uncertainty related to the realizability of theCompany’s deferred tax assets. The Company has considered all available evidence, both positive and negative, in determining the need for a valuationallowance. Based upon this analysis, including a consideration of the Company’s cumulative loss history in the three-year period ended December 31, 2012,management determined that it is not more likely than not that its deferred tax assets will be realized. The Company’s future realization of its deferred taxassets ultimately depends on the existence of sufficient taxable income in the carry-forward periods under the tax laws. The Company will analyze its positionin subsequent reporting periods, considering all available positive and negative evidence, in determining the expected realization of its deferred tax assets.The Company has federal net operating losses of $40.9 million at December 31, 2012 which expire starting 2027. F-20Table of ContentsAs of December 31, 2012, the Company has effectively eliminated all unrecognized tax benefits. The following table illustrates changes to recordedunrecognized tax benefits for the years ended December 31, 2012, 2011 and 2010 (in thousands): Year Ended December 31, 2012 2011 2010 Unrecognized tax benefits balance at January 1 $60 $3,126 $3,752 Gross increases related to prior year tax positions — 1 — Gross decreases related to prior year tax positions (36) (2,760) — Settlements (22) (245) (609) Lapse of statute of limitations (2) (62) (17) Unrecognized tax benefits balance at December 31 $— $60 $3,126 The Company recognizes interest and penalties related to tax matters as a component of “Selling, general and administrative expenses” in theaccompanying consolidated statements of comprehensive income. As of December 31, 2012 and December 31, 2011, the Company had no material amountsaccrued for interest or penalties related to uncertain tax positions.The Company operates in multiple tax jurisdictions and, in the normal course of business, its tax returns are subject to examination by various taxingauthorities. Such examinations may result in future assessments by these taxing authorities and the Company has accrued a liability when it believes that it isnot more likely than not that it will realize the benefits of tax positions that it has taken or for the amount of any tax benefit that exceeds the cumulativeprobability threshold in accordance with ASC 740. The Company believes that adequate provisions have been made for all tax returns subject to examination. 12.COMMITMENTS AND CONTINGENCIESLegal MattersOn January 19, 2009, a purported class action case was commenced against the Company in the Superior Court of California, Santa Cruz County, bythe lead law firm of Lieff, Cabraser, Heimann & Bernstein, LLP and certain other law firms (the “Lieff Cabraser Group”) on behalf of Eric Ross and BradleyS. Hureth and similarly situated plaintiffs. These plaintiffs generally allege certain defects in the Company’s products, and that the Company has failed toprovide adequate remedies for defective products. On February 13, 2009, the Company removed this case to the United States District Court, NorthernDistrict of California. On January 21, 2009, a purported class action case was commenced against the Company in the United States District Court, WesternDistrict of Washington by the law firm of Hagens Berman Sobol Shapiro LLP (the “Hagens Berman Firm”) on behalf of Mark Okano and similarly situatedplaintiffs, generally alleging certain product defects in the Company’s products, and that the Company has failed to provide adequate remedies for defectiveproducts. This case was transferred by the Washington Court to the California Court as a related case to the Lieff Cabraser Group’s case.On July 30, 2009, the U.S. District Court for the Northern District of California preliminarily approved a settlement of the claims of the lawsuitcommenced by the Lieff Cabraser Group involving surface flaking of the Company’s product, and on March 15, 2010, it granted final approval of thesettlement. On April 14, 2010, the Hagens Berman Firm filed a notice to appeal the District Court’s ruling to the United States Court of Appeals for the NinthCircuit. On July 9, 2010, the Hagens Berman Firm dismissed their appeal, effectively making the settlement final.On March 25, 2010, the Lieff Cabraser Group amended its complaint to add claims relating to alleged defects in the Company’s products and allegedmisrepresentations relating to mold growth. The Hagens Berman F-21Table of Contentsfirm has alleged similar claims in its original complaint. In its Final Order approving the surface flaking settlement, the District Court consolidated thesepending actions relating to the mold claims, and appointed the Hagens Berman Firm as lead counsel in this case.On December 15, 2010, a purported class action case was commenced against the Company in the United States District Court, Western District ofKentucky, by the lead law firm of Cohen & Malad, LLP (“Cohen & Malad”) on behalf of Richard Levin and similarly situated plaintiffs, and on June 13,2011, a purported class action was commenced against the Company in the Marion Circuit/Superior Court of Indiana by Cohen & Malad on behalf of EllenKopetsky and similarly situated plaintiffs. On June 28, 2011, the Company removed the Kopetsky case to the United States District Court, Southern Districtof Indiana. On August 11, 2011, a purported class action was commenced against the Company in the 50 Circuit Court for the County of Chippewa,Michigan on behalf of Joel and Lori Peffers and similarly situated plaintiffs. On August 26, 2011, the Company removed the Peffers case to the United StatesDistrict Court, Western District of Michigan. On April 4, 2012, a purported class action was commenced against the Company in Superior Court of NewJersey, Essex County on behalf of Caryn Borger, M.D. and similarly situated plaintiffs. On May 1, 2012, the Company removed the Borger case to theUnited States District Court, District of New Jersey. The plaintiffs in these purported class actions generally allege certain defects in the Company’s productsand alleged misrepresentations relating to mold growth.The Company believes that the claims discussed above relating to mold growth are without merit and denies all liability with respect to the facts andclaims alleged. However, the Company is aware of the substantial burden, expense, inconvenience and distraction of continued litigation. During the threemonths ended December 31, 2012, the Company recorded $1.5 million to expense related to these claims. It is reasonably possible that the Company mayincur costs in excess of the recorded amounts; however, the Company expects that the total net cost to resolve the lawsuit will not exceed $10 million.The Company has other lawsuits, as well as other claims, pending against it which are ordinary routine litigation and claims incidental to thebusiness. Management has evaluated the merits of these other lawsuits and claims, and believes that their ultimate resolution will not have a material effect onthe Company’s consolidated financial condition, results of operations, liquidity or competitive position.Purchase CommitmentsThe Company fulfills requirements for raw materials under both purchase orders and supply contracts. In the year ended December 31, 2012, theCompany purchased substantially all of its waste wood fiber requirements under purchase orders, which do not involve long-term supply commitments.Substantially all of the Company’s PE material purchases are under short-term supply contracts that average approximately two years, for which pricing isnegotiated as needed. The PE material supply contracts have not had a material adverse effect on the Company’s business.The waste wood and PE material supply contracts generally provide that the Company is obligated to purchase all of the waste wood or PE material asupplier provides, if the waste wood or PE material meets certain specifications. The amount of waste wood and PE material the Company is required topurchase under these contracts varies with the production of its suppliers and, accordingly, is not fixed or determinable. As of December 31, 2012, theCompany has purchase commitments under waste wood and PE material supply contracts of $18.5 million, $8.6 million, $0.5 million and $12 thousandfor the years ending December 31, 2013, 2014, 2015 and 2016, respectively.The Company outsources the production of certain products to third-party manufacturers under supply contracts that commit the Company to purchaseminimum levels for each year extending through 2015. The Company has purchase commitments under the third-party manufacturing contracts of $7.3million, $4.4 million, and $1.9 million for the years ending December 31, 2013, 2014 and 2015, respectively. F-22thTable of ContentsContract Termination CostsIn anticipation of relocating the Company’s corporate headquarters, the Company entered into a lease agreement in 2005. The Company reconsideredand decided not to move its headquarters. The lease, which began on January 1, 2006 and extends through June 30, 2019, obligates the Company to lease55,047 square feet. The Company has executed subleases for the entire 55,047 square feet it currently leases. The terms of the existing subleases expire inyears 2013 to 2019. The Company estimates that the present value of the estimated future sublease rental receipts, net of transaction costs, will be less than theCompany’s remaining minimum lease payment obligations under its lease for the office space and has recorded a liability for the expected shortfall.To estimate future sublease receipts for the periods beyond the term of the existing subleases, the Company has assumed that the existing subleases willbe renewed or new subleases will be executed at rates consistent with rental rates in the current subleases. However, management cannot be certain that thetiming of future subleases or the rental rates contained in future subleases will not differ from current estimates. Factors such as the availability of commercialoffice space, poor economic conditions and subtenant preferences will influence the terms achieved in future subleases. The inability to sublet the office spacein the future or unfavorable changes to key management assumptions used in the estimate of the future sublease receipts may result in material charges toselling, general and administrative expenses in future periods.As of December 31, 2012, the minimum payments remaining under the Company’s lease over the years ending December 31, 2013, 2014, 2015, 2016,and 2017 are $1.7 million, $1.7 million, $1.7 million, $1.8 million and $1.8 million, respectively, and $2.7 million thereafter. The minimum receiptsremaining under the Company’s existing subleases over the years ending December 31, 2013, 2014, 2015, 2016, and 2017 are $1.5 million, $1.5 million,$0.6 million, $0.6 million and $0.6 million, respectively, and $1.0 million thereafter. As a result of new leases executed with subtenants, the Companyrecognized an increase in estimated contract termination costs of $0.7 million during the year ended December 31, 2012.The following table provides information about the Company’s liability under the lease (in thousands): 2012 2011 Balance as of January 1, $452 $567 Net rental receipts (payments) (115) (161) Accretion of discount 39 46 Increase in net estimated contract termination costs 727 — Balance as of December 31, $1,103 $452 Product WarrantyThe Company warrants that its products will be free from material defects in workmanship and material and will not check, split, splinter, rot orsuffer structural damage from termites or fungal decay. This warranty extends for a period of 25 years for residential use and 10 years for commercial use.With respect to the Company’s Transcend, Enhance and Universal Fascia product, the Company further warrants that the product will not fade in colormore than a certain amount and will be resistant to permanent staining from food substances or mold (provided the stain is cleaned within seven days ofappearance). This warranty extends for a period of 25 years for residential use and 10 years for commercial use. If there is a breach of such warranties, theCompany has an obligation either to replace the defective product or refund the purchase price.The Company continues to receive and settle claims related to material produced at its Nevada facility prior to 2007 that exhibits surface flaking andmaintains a warranty reserve to provide for the settlement of these claims. Projecting future surface flaking settlement costs requires management to estimate thenumber of claims to be received, the number of claims that will ultimately result in payment and the average cost to settle each claim, all of which are subjectto variables that are difficult to predict. F-23®®Table of ContentsThe average cost per claim may vary due to a number of factors, including the average size of affected decks, the type of replacement material used,changes in the cost of production and the method of claim settlement. Although the cost per claim varies over time, it is less volatile and more predictable thanthe number of claims to be received, which is inherently uncertain. The Company is not aware of any analogous industry data that might be referenced inpredicting future claims to be received. The Company evaluates its historical surface flaking claims activity in developing its estimate of future claims. TheCompany anticipated that the effects of a previously settled class action lawsuit would subside and the number of claims received would substantiallydiminish. Payments for surface flaking claims decreased from $28 million in 2007 to $9 million in 2012, and the number of claims received continues todecline.During the three months ended September 30, 2012, the Company concluded, based on an analysis of recent claims activity, that the payments forsurface flaking claims and the rate of decline in claims in 2012 would approximate the levels experienced in 2011, falling short of the Company’s estimateddecline. As a result, the Company revised its estimate of the future claims to be received to reflect a rate of decline consistent with the trend emerging from theclaims activity. The effect of reducing the anticipated rate of decline both increases the number of claims expected in future years and extends the number ofyears in which claims will be received. As a result of these changes in estimate, the Company recorded an increase to the warranty reserve of $20 millionduring the three months ended September 30, 2012, and $21.5 million for the year ended December 31, 2012.The Company’s analysis is based on currently known facts and a number of assumptions. However, projecting future events such as new claims to bereceived each year and the average cost of resolving each claim could cause the actual warranty liabilities to be higher or lower than those projected which couldmaterially affect our financial condition, results of operations or cash flow. The Company estimates that the number of claims received will continue to declineover time. If the level of claims does not diminish consistent with the Company’s expectations, it could result in additional increases to the warranty reserveand reduced earnings in future periods. The Company estimates that a 10% change in the expected number of remaining claims or the expected cost to settleclaims may result in approximately a $3.0 million change in the warranty reserve.The following is a reconciliation of the Company’s warranty reserve (in thousands): 2012 2011 Beginning balance, January 1 $16,345 $14,472 Provision for estimated warranties 21,487 9,976 Settlements made during the period (8,845) (8,103) Ending balance, December 31 $28,987 $16,345 13.INTERIM FINANCIAL DATA (Unaudited) Three Months Ended December 31,2012 September 30,2012 (a) June 30,2012 March 31,2012 December 31,2011 (b) September 30,2011 June 30,2011 March 31,2011 (In thousands, except per share data) Net sales 46,155 70,819 94,279 96,100 51,462 67,916 78,405 69,006 Gross profit (loss) 13,426 2,146 33,590 35,419 (1,052) 17,272 23,542 23,029 Net income (loss) (3,619) (14,312) 8,339 12,311 (18,255) (496) 2,106 5,057 Basic net income (loss) per share $(0.22) $(0.86) $0.54 $0.80 $(1.18) $(0.03) $0.14 $0.33 Diluted net income (loss) per share $(0.22) $(0.86) $0.48 $0.74 $(1.18) $(0.03) $0.12 $0.30 The Company’s net sales, gross profit and income from operations have historically varied from quarter to quarter. Such variations are principallyattributable to seasonal trends in the demand for Trex. The Company has F-24Table of Contentshistorically experienced lower net sales during the fourth quarter because holidays and adverse weather conditions in certain regions reduce the level of homeimprovement and new construction activity. (a)Three months ended September 30, 2012 was materially affected by a pre-tax increase of $20.0 million to the warranty reserve.(b)Three months ended December 31, 2011 was materially affected by a pre-tax increase of $10.0 million to the warranty reserve. F-25Table of ContentsTREX COMPANY, INC.SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS AND RESERVES(In Thousands) Descriptions Balance atBeginningof Period Additions(Reductions)Charged toCost andExpenses Other Deductions Balanceat Endof Period Year ended December 31, 2012: Allowance for doubtful accounts (a) $292 $(362) $— $77 $7 Warranty reserve $16,345 $21,487 $— $(8,845) $28,987 Income tax valuation allowance $24,199 $(68) $— $— $24,131 Year ended December 31, 2011: Allowance for doubtful accounts (a) $335 $23 $— $(66) $292 Warranty reserve $14,472 $9,976 $— $(8,103) $16,345 Income tax valuation allowance $21,090 $3,109 $— $— $24,199 Year ended December 31, 2010: Allowance for doubtful accounts (a) $1,457 $(185) $— $(937) $335 Warranty reserve $11,524 $14,960 $— $(12,012) $14,472 Income tax valuation allowance $15,218 $5,872 $— $— $21,090 (a)Reserve related to accounts receivable F-26Table of ContentsSIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized. Trex Company, Inc.Date: February 19, 2013 By: /s/ RONALD W. KAPLAN Ronald W. KaplanChairman, President and Chief Executive Officer(Duly Authorized Officer)Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed as of February 19, 2013 by the following persons onbehalf of the registrant and in the capacities indicated. Signature Title/s/ RONALD W. KAPLAN Ronald W. Kaplan Chairman, President and Chief Executive Officer (Principal Executive Officer);Director/s/ JAMES E. CLINE James E. Cline Vice President and Chief Financial Officer (Principal Financial Officer andPrincipal Accounting Officer)/s/ WILLIAM F. ANDREWS William F. Andrews Director/s/ PAUL A. BRUNNER Paul A. Brunner Director/s/ MICHAEL F. GOLDEN Michael F. Golden Director/s/ JAY M. GRATZ Jay M. Gratz Director/s/ FRANK H. MERLOTTI, JR. Frank H. Merlotti, Jr. Director/s/ RICHARD E. POSEY Richard E. Posey Director/s/ PATRICIA B. ROBINSON Patricia B. Robinson DirectorTable of ContentsEXHIBIT INDEX ExhibitNumber Exhibit Description3.1 Restated Certificate of Incorporation of Trex Company, Inc. (the “Company”). Filed as Exhibit 3.1 to the Company’s Registration Statementon Form S-1 (No. 333-63287) and incorporated herein by reference.3.2 Amended and Restated By-Laws of the Company. Filed as Exhibit 3.2 to the Company’s Current Report on Form 8-K filed May 7, 2008and incorporated herein by reference.4.1 Specimen certificate representing the Company’s common stock. Filed as Exhibit 4.1 to the Company’s Registration Statement on Form S-1(No. 333-63287) and incorporated herein by reference.4.2 Indenture, dated as of June 18, 2007, between Trex Company, Inc. and The Bank of New York, as trustee. Filed as Exhibit 4.1 to theCompany’s Current Report on Form 8-K filed on June 19, 2007 and incorporated herein by reference.4.3 Supplemental Indenture, dated as of June 18, 2007, between Trex Company, Inc. and The Bank of New York, as trustee, including theform of 6.00% Convertible Senior Subordinated Note due 2012. Filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K filed onJune 19, 2007 and incorporated herein by reference.4.4 Credit Agreement dated as of November 4, 2009 between the Company and Branch Banking and Trust Company as Administrative Agentand Letter of Credit Issuer, BB&T Capital Markets as Lead Arranger and the Lenders listed on the signature pages thereof. Filed as Exhibit4.1 to the Company’s Current Report on Form 8-K filed on November 6, 2009 and incorporated herein by reference.4.5 Swing Advance Note dated November 4, 2009 payable by the Company Inc. to Branch Banking and Trust Company in the amount of thelesser of $5,000,000 or the outstanding swing advances made by Branch Banking and Trust Company. Filed as Exhibit 4.6 to theCompany’s Current Report on Form 8-K filed on November 6, 2009 and incorporated herein by reference.4.6 First Amendment, dated October 28, 2011, of Credit Agreement dated as of November 4, 2009 between the Company and Branch Bankingand Trust Company as Administrative Agent, Letter of Credit Issuer and Lender, and BB&T Capital Markets Letter as Lead Arranger.Filed as Exhibit 4.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2011 and incorporatedherein by reference.4.7 Revolver Note dated October 28, 2011 payable by the Company to Branch Banking and Trust Company in the amount of the lesser of$40,000,000 or the outstanding revolver advances made by Branch Banking and Trust Company. Filed as Exhibit 4.2 to the Company’sQuarterly Report on Form 10-Q for the quarterly period ended September 30, 2011 and incorporated herein by reference.4.8 Reducing Revolver Note dated October 28, 2011 payable by the Company to Branch Banking and Trust Company in the amount of thelesser of $15,000,000 or the outstanding revolver advances made by Branch Banking and Trust Company. Filed as Exhibit 4.3 to theCompany’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2011 and incorporated herein by reference.4.9 Amended and Restated Security Agreement between the Company and Branch Banking and Trust Company as Collateral Agent for theLenders, dated as of November 4, 2009. Filed as Exhibit 4.7 to the Company’s Current Report on Form 8-K filed on November 6, 2009and incorporated herein by reference.4.10 Amended and Restated Credit Line Deed of Trust, dated November 4, 2009, by and among the Company, as grantor, BB&T-VA CollateralService Corporation, as trustee, and Branch Banking and Trust Company, as Collateral Agent for the Lenders, as Beneficiary relating toreal property partially located in the County of Frederick, Virginia and partially located in the City of Winchester, Virginia. Filed as Exhibit4.8 to the Company’s Current Report on Form 8-K filed on November 6, 2009 and incorporated herein by reference.Table of ContentsExhibitNumber Exhibit Description 4.11 Deed of Trust, dated November 4, 2009, by and among the Company, as grantor, Eric L. Sappenfield, as trustee, and Branch Banking andTrust Company, as Collateral Agent for the Lenders, as Beneficiary relating to real property located in the County of De Soto, Mississippi.Filed as Exhibit 4.9 to the Company’s Current Report on Form 8-K filed on November 6, 2009 and incorporated herein by reference. 4.12 Amended and Restated Credit Agreement dated as of January 6, 2012 between the Company and Branch Banking and Trust Company, as aLender, Administrative Agent, Swing Line Lender, Letter of Credit Issuer and a Collateral Agent; Wells Fargo Capital Finance, LLC, as aLender and a Collateral Agent; and BB&T Capital Markets, as Lead Arranger. Filed as Exhibit 4.1 to the Company’s Current Report on Form8-K filed on January 12, 2012 and incorporated herein by reference. 4.13 Revolver Note dated January 6, 2012 payable by the Company to Branch Banking and Trust Company in the amount of the lesser of$55,000,000 or the outstanding revolver advances made by Branch Banking and Trust Company. Filed as Exhibit 4.2 to the Company’sCurrent Report on Form 8-K filed on January 12, 2012 and incorporated herein by reference. 4.14 Revolver Note dated January 6, 2012 payable by the Company to Wells Fargo Capital Finance, LLC in the amount of the lesser of$45,000,000 or the outstanding revolver advances made by Wells Fargo Capital Finance, LLC. Filed as Exhibit 4.3 to the Company’s CurrentReport on Form 8-K filed on January 12, 2012 and incorporated herein by reference. 4.15 Swing Advance Note dated January 6, 2012 payable by the Company to Branch Banking and Trust Company in the amount of the lesser of$5,000,000 or the outstanding swing advances made by Branch Banking and Trust Company. Filed as Exhibit 4.4 to the Company’sCurrent Report on Form 8-K filed on January 12, 2012 and incorporated herein by reference. 4.16 Amended and Restated Security Agreement dated as of January 6, 2012 between the Company, as debtor, and Branch Banking and TrustCompany as Collateral Agent for Branch Banking and Trust Company and Wells Fargo Capital Finance, LLC. Filed as Exhibit 4.5 to theCompany’s Current Report on Form 8-K filed on January 12, 2012 and incorporated herein by reference. 4.17 Modification to Amended and Restated Credit Line Deed of Trust, dated as of January 6, 2012, by and among the Company as grantor,BB&T-VA Collateral Service Corporation, as trustee, and Branch Banking and Trust Company, as Collateral Agent for Branch Bankingand Trust Company and Wells Fargo Capital Finance, LLC, as Beneficiary relating to real property partially located in the County ofFrederick, Virginia and partially located in the City of Winchester, Virginia. Filed as Exhibit 4.6 to the Company’s Current Report on Form 8-K filed on January 12, 2012 and incorporated herein by reference. 4.18 Deed of Trust, dated as of January 6, 2012, by and among the Company as grantor, First American Title Insurance Company, as trustee,and Branch Banking and Trust Company, as Collateral Agent for Branch Banking and Trust Company and Wells Fargo Capital Finance,LLC, as Beneficiary relating to real property located in the County of Fernley, Nevada. Filed as Exhibit 4.7 to the Company’s Current Reporton Form 8-K filed on January 12, 2012 and incorporated herein by reference.10.1 Description of Management Compensatory Plans and Arrangements. Filed herewith.10.2 Trex Company, Inc. 2005 Stock Incentive Plan. Filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 7, 2008and incorporated herein by reference.10.3 Trex Company, Inc. Amended and Restated 1999 Incentive Plan for Outside Directors. Filed as Exhibit 10.1 to the Company’s QuarterlyReport on Form 10-Q for the quarterly period ended September 30, 2012 and incorporated herein by reference.Table of ContentsExhibitNumber Exhibit Description10.4 Form of Trex Company, Inc. 2005 Stock Incentive Plan Non-Incentive Stock Option Agreement. Filed as Exhibit 10.1 to the Company’sQuarterly Report on Form 10-Q for the quarterly period ended June 30, 2005 and incorporated herein by reference.10.5 Form of Trex Company, Inc. 2005 Stock Incentive Plan Stock Appreciation Rights Agreement. Filed as Exhibit 10.5 to the Company’sAnnual Report on 10-K for the fiscal year ended December 31, 2011 and incorporated herein by reference.10.6 Form of Trex Company, Inc. 2005 Stock Incentive Plan Performance Award Agreement. Filed as Exhibit 10.3 to the Company’s QuarterlyReport on Form 10-Q for the quarterly period ended June 30, 2005 and incorporated herein by reference.10.7 Form of Trex Company, Inc. 2005 Stock Incentive Plan Restricted Stock Agreement. Filed as Exhibit 10.7 to the Company’s Annual Reporton Form 10-K for the fiscal year ended December 31, 2011 and incorporated herein by reference.10.8 Form of Trex Company, Inc. Amended and Restated 1999 Incentive Plan for Outside Directors Non-Incentive Stock Option Agreement forDirectors. Filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2006 andincorporated herein by reference.10.9 Form of Trex Company, Inc. Amended and Restated 1999 Incentive Plan for Outside Directors Stock Appreciation Rights Agreement. Filed asExhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2006 and incorporated herein byreference.10.10 Form of Trex Company, Inc. Amended and Restated 1999 Incentive Plan for Outside Directors Restricted Stock Agreement. Filed as Exhibit10.10 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011 and incorporated herein by reference.10.11 Amendment and Restatement of Employment Agreement, dated as of July 24, 2012, between Trex Company, Inc. and Ronald W. Kaplan.Filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2012 and incorporatedherein by reference.10.12 Amendment and Restatement of Change in Control Severance Agreement, dated as of August 3, 2011, between Trex Company, Inc. andRonald W. Kaplan. Filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on August 9, 2011 and incorporated herein byreference.10.13 Form of Amendment and Restatement of Change in Control Severance Agreement between Trex Company, Inc. and Officers other than theChief Executive Officer. Filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on August 9, 2011 and incorporated hereinby reference.10.14 Form of Severance Agreement between Trex Company, Inc. and Officers other than the Chief Executive Officer. Filed as Exhibit 10.4 to theCompany’s Current Report on Form 8-K filed on August 9, 2011 and incorporated herein by reference.10.15 Retention Agreement, dated as of July 24, 2012, between Trex Company, Inc. and Ronald W. Kaplan. Filed as Exhibit 10.3 to the Company’sQuarterly Report on Form 10-Q for the quarterly period ended September 30, 2012 and incorporated herein by reference.10.16 Retention Agreement, dated as of July 24, 2012, between Trex Company, Inc. and James E. Cline. Filed as Exhibit 10.4 to the Company’sQuarterly Report on Form 10-Q for the quarterly period ended September 30, 2012 and incorporated herein by reference.10.17 Retention Agreement, dated as of July 24, 2012, between Trex Company, Inc. and William R. Gupp. Filed as Exhibit 10.5 to the Company’sQuarterly Report on Form 10-Q for the quarterly period ended September 30, 2012 and incorporated herein by reference.*Table of ContentsExhibitNumber Exhibit Description 10.18 Retention Agreement, dated as of July 24, 2012, between Trex Company, Inc. and F. Timothy Reese. Filed as Exhibit 10.6 to the Company’sQuarterly Report on Form 10-Q for the quarterly period ended September 30, 2012 and incorporated herein by reference. 10.19 Form of Indemnity Agreement for Directors. Filed as Exhibit 10.19 to the Company’s Annual Report on Form 10-K for the fiscal year endedDecember 31, 2008 and incorporated herein by reference. 10.20 Form of Indemnity Agreement for Officers. Filed as Exhibit 10.20 to the Company’s Annual Report on Form 10-K for the fiscal year endedDecember 31, 2008 and incorporated herein by reference. 10.21 Form of Indemnity Agreement for Director/Officers. Filed as Exhibit 10.21 to the Company’s Annual Report on Form 10-K for the fiscal yearended December 31, 2008 and incorporated herein by reference. 10.22 Form of Distributor Agreement of TREX Company, Inc. Filed as Exhibit 10.23 to the Company’s Annual Report on Form 10-K for the fiscalyear ended December 31, 2008 and incorporated herein by reference. 10.23 Form of Trex Company, Inc. Fencing Agreement for Installers/Retailers. Filed as Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2006 and incorporated herein by reference. 10.24 Deed of Lease, dated June 15, 2000, between TREX Company, LLC and Space, LLC. Filed as Exhibit 10.16 to the Company’s AnnualReport on Form 10-K for the fiscal year ended December 31, 2000 and incorporated herein by reference. 10.25 Amendment, dated February 22, 2010, of Deed of Lease dated as of June 15, 2000, between Trex Company, Inc, as successor by merger toTrex Company, LLC, and TC.V.LLC, as successor to Space, LLC. Filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Qfor the quarterly period ended March 31, 2010 and incorporated herein by reference. 10.26 Deed of Lease, dated as of July 27, 2005, between the Company and 1 Dulles Town Center, L.L.C. Filed as Exhibit 10.34 to the Company’sAnnual Report on Form 10-K for the fiscal year ended December 31, 2005 and incorporated herein by reference.* 21 Subsidiaries of the Company. Filed herewith. 23 Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm. Filed herewith. 31.1 Certification of Chief Executive Officer of the Company pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. Filed herewith. 31.2 Certification of Chief Financial Officer of the Company pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. Filed herewith. 32 Certifications pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. § 1350. Filed herewith.101 The following financial statements from the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012, formattedin Extensible Business Reporting Language (“XBRL”): (i) consolidated balance sheets, (ii) consolidated statements of comprehensive income,(iii) consolidated statements of changes in stockholders’ equity, (iv) consolidated statements of cash flows, and (v) the notes to the condensedconsolidated financial statements. Under Rule 406T of Regulation S-T, this exhibit is deemed not filed or part of a registration statement orprospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of theSecurities and Exchange Act of 1934, as amended, and otherwise is not subject to liability under those sections. Filed herewith. *Portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidentialtreatment.Exhibit 10.1Trex Company, Inc.Description of Management Compensatory Plans and ArrangementsComponents of Executive Compensation.In accordance with the rules of the New York Stock Exchange, all components of compensation for the chief executive officer and other executive officers ofTrex Company (the “Company”) are determined by the compensation committee of the board of directors, all of whom meet the independence requirementsprescribed by such rules.The Company’s executive compensation program includes a base salary, annual cash incentive and long-term equity incentive compensation in the form ofstock appreciation right awards and restricted shares issued under the Trex Company, Inc. 2005 Stock Incentive Plan (the “Stock Incentive Plan”).Base Salary. Base salaries are the only non-variable element of the Company’s total compensation. They reflect each executive officer’s responsibilities, theimpact of each executive officer’s position, and the contributions each executive officer delivers to the Company. Salaries are determined by competitive levelsin the market for executives with comparable responsibilities and job scope based on the Company’s peer group and the results of executive compensationsurveys, as well as the Company’s internal equity considerations. Each year, at its December meeting, the compensation committee reviews and establishes thebase salaries of the Company’s executive officers for the next calendar year. Salary increases, if any, are based on individual performance, market conditionsand Company performance. To gauge market conditions, the compensation committee evaluates the peer group and market data compiled by its consultant.Base salaries are set upon review of the peer group and market data provided to the compensation committee upon consideration of the executive officer’sexperience, tenure, performance and potential.Annual Cash Incentive. The Company pays annual cash incentive to its Chief Executive Officer, other executive officers, and other key employees generallybased upon the achievement of the Company’s planned pretax earnings and cash-flow objectives for the fiscal year, which are approved by the compensationcommittee no later than the first quarter of the year.For each fiscal year, each participant in the plan is assigned a “target incentive,” which is expressed as a percentage of the participant’s annual base salary.The cash incentive amount paid to a participant is determined by multiplying their target incentive by a performance percentage, which is calculated based onthe extent to which the planned pretax earnings and cash flow objectives are achieved (excluding any items determined by the Compensation Committee to beextraordinary), subject to the discretion of the compensation committee to increase or decrease such amount. Cash incentive payments are conditional upon theparticipant’s continued employment by the Company through the date of grant, and are pro rated for employees who have served for less than a full year.Long-Term Equity Incentive Compensation. The Company maintains a long-term equity incentive compensation plan for the benefit of its Chief ExecutiveOfficer, other executive officers, and other key employees. Awards under the plan are made under the Stock Incentive Plan by the compensation committee,and are a mix of 50% stock appreciation rights and 50% time-based restricted shares. The total target long-term incentive award for each participant in the planis expressed as a percentage of the participant’s base salary. The grant of restricted shares is conditional upon the attainment of a certain pretax earning target(excluding any items determined by the Compensation Committee to be extraordinary), subject to the discretion of the Compensation Committee to increase ordecrease the award.Personal Benefits and Perquisites. The Company maintains a limited number of benefit programs available solely to the Company’s executive officers. Thepersonal benefits are considered to constitute a part of the Company’s overall program and are presented in this light as part of the total compensation packageapproved bythe compensation committee at the time of an executive officer’s hiring or promotion, as part of the compensation committee’s review of each executive officer’sannual total compensation, and in compensation discussions with executive officers.Other Compensatory PlansThe Company’s executive officers also are eligible to participate in the Company’s 401(k) plan, which is available to all regular Company employees.Exhibit 21Subsidiaries of Trex Company, Inc. Name of the Subsidiary Jurisdiction of FormationTrex Wood Polymer Espana, S.L. SpainExhibit 23Consent of Ernst & Young LLP, Independent Registered Public Accounting FirmWe consent to the incorporation by reference in the following Registration Statements of Trex Company, Inc. • Registration Statement (Form S-8, No. 333-76847), • Registration Statement (Form S-8, No. 333-83998), • Registration Statement (Form S-8, No. 333-124685), • Registration Statement (Form S-8, No. 333-150690), and • Registration Statement (Form S-3, No. 333-161732);of our reports dated February 19, 2013, with respect to the consolidated financial statements and schedule of Trex Company, Inc. and the effectiveness ofinternal control over financial reporting of Trex Company, Inc. included in this Annual Report (Form 10-K) of Trex Company, Inc. for the year endedDecember 31, 2012. /s/ Ernst & Young LLPRichmond, VirginiaFebruary 19, 2013Exhibit 31.1CERTIFICATIONI, Ronald W. Kaplan, certify that: 1.I have reviewed this annual report on Form 10-K of Trex Company, Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respectsthe financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which this report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; (c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonablylikely to materially affect, the registrant’s internal control over financial reporting; and 5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting. Date: February 19, 2013 /s/ RONALD W. KAPLAN Ronald W. Kaplan Chairman, President and Chief Executive Officer (Principal Executive Officer)Exhibit 31.2CERTIFICATIONI, James E. Cline, certify that: 1.I have reviewed this annual report on Form 10-K of Trex Company, Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respectsthe financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which this report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; (c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonablylikely to materially affect, the registrant’s internal control over financial reporting; and 5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function(s)): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting. Date: February 19, 2013 /s/ JAMES E. CLINE James E. Cline Vice President and Chief Financial Officer(Principal Financial Officer)Exhibit 32Written Statement of Chief Executive Officer and Chief Financial OfficerPursuant to Section 906of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)The undersigned, the President and Chief Executive Officer and the Chief Financial Officer of Trex Company, Inc. (the “Company”), each herebycertifies that, on the date hereof:(a) the Annual Report on Form 10-K of the Company for the Period Ended December 31, 2012 filed on the date hereof with the Securities andExchange Commission (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and(b) information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: February 19, 2013 /s/ RONALD W. KAPLAN Ronald W. Kaplan Chairman, President and Chief Executive OfficerDate: February 19, 2013 /s/ JAMES E. CLINE James E. Cline Vice President and Chief Financial Officer

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