Trex Annual Report 2016 | Quarterlytics

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 OF 1934For the fiscal year ended December 31, 2016 ☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 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 1934 during the preceding 12months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements 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 required to be submitted andposed 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 the best of registrant’sknowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 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. See the definitions of “largeaccelerated 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, 2016, which was the last business day of the registrant’s mostrecently completed second fiscal quarter, was approximately $1.3 billion based on the closing price of the common stock as reported on the New York Stock Exchange on such dateand assuming, for purposes of this computation only, that the registrant’s directors, executive officers and beneficial owners of 10% or more of the registrant’s common stock areaffiliates.The number of shares of the registrant’s common stock outstanding on February 7, 2017 was 29,384,211.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 to Registrant’s2017 Annual Meeting of Stockholders Part III Table of ContentsTABLE OF CONTENTS Page PART I Item 1. Business 1 Item 1A. Risk Factors 7 Item 1B. Unresolved Staff Comments 11 Item 2. Properties 11 Item 3. Legal Proceedings 12 Item 4. Mine Safety Disclosures 12 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 13 Item 6. Selected Financial Data 15 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 18 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 29 Item 8. Financial Statements and Supplementary Data 30 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 30 Item 9A. Controls and Procedures 30 Item 9B. Other Information 33 PART III Item 10. Directors, Executive Officers and Corporate Governance 33 Item 11. Executive Compensation 33 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 33 Item 13. Certain Relationships and Related Transactions, and Director Independence 33 Item 14. Principal Accounting Fees and Services 33 PART IV Item 15. Exhibits and Financial Statement Schedules 34 Index to Consolidated Financial Statements F-1 iTable 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,” “intend” orsimilar expressions. We cannot promise you that our expectations in such forward-looking statements will turn out to be correct. Our actual results could bematerially different from our expectations because of various factors, including the factors discussed under “Item 1A. Risk Factors” in this report. iiTable 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. (Company, we, us or our), was incorporated as a Delaware corporation in 1998, and is the world’s largest manufacturer of wood-alternative decking and railing products, which are marketed under the brand name Trex® and manufactured in the United States. Our principal executiveoffices are located at 160 Exeter Drive, Winchester, Virginia 22603, and our telephone number at that address is (540) 542-6300. We operate in a singlereportable segment.ProductsWe offer a comprehensive set of aesthetically pleasing, high performance and low maintenance outdoor living products in the decking, railing, porch,fencing, steel deck framing and outdoor lighting categories. We believe that the range and variety of our product offerings allow consumers to design muchof their outdoor living space using Trex® brand products. A majority of our products are made in a proprietary process that combines reclaimed wood fibersand scrap polyethylene. Our products come in a wide selection of popular sizes and lengths and are available with several finishes and in numerous colors. Decking Our principal decking products are Trex Transcend®, Trex Enhance® and Trex Select®. Our decking products are comprised of ablend of 95 percent recycled wood and recycled plastic film and feature a protective polymer shell for enhanced protection againstfading, staining, mold and scratching. We also offer Trex Hideaway®, a hidden fastening system for grooved boards. We have aproduct in development, which is a high performance decking product that will be focused on the top end of the market withoutstanding aesthetics and performance capabilities. Railing Our railing products are Trex Transcend Railing, Trex Select Railing, and Trex Signature® aluminum railing. Trex Transcend Railingis available in the colors of Trex Transcend decking and finishes that make it appropriate for use with Trex decking products as wellas other decking materials, which we believe enhances the sales prospects of our railing products. Trex Select Railing is offered in awhite finish and is ideal for consumers who desire a simple clean finished look for their deck. Trex Signature® aluminum railing isavailable in three colors and designed for consumers who want a sleek, contemporary look. Porch Our Trex Transcend Porch Flooring and Railing System is an integrated system of porch components and accessories. Fencing Our Trex Seclusions® fencing product is offered through two specialty distributors. This product consists of structural posts, bottomrail, pickets, top rail and decorative post caps. Steel Deck Framing Our triple-coated steel deck framing system called Trex Elevations® leverages the strength and dimensional stability of steel to createa flat surface for our decking. Trex Elevations provides consistency and reliability that wood does not and is fire resistant. OutdoorLighting Our outdoor lighting systems are Trex DeckLighting™ and Trex LandscapeLighting™. Trex DeckLighting is a line of energy-efficient LED dimmable deck lighting, which is designed for use on posts, floors and steps. The line includes a post cap light, deckrail light, riser light and a recessed deck light. The Trex LandscapeLighting line includes an energy-efficient well light, path light,multifunction light and spotlight. 1Table of ContentsWe are a licensor in a number of licensing agreements with third parties to manufacture and sell products under the Trex trademark. Our licensedproducts are: Trex Outdoor Furniture™ A line of outdoor furniture products manufactured and sold by PolyWood,Inc. Trex RainEscape® An above joist deck drainage system manufactured and sold by DriDeckEnterprises, LLC. Trex CustomCurve® A system manufactured and sold by Curvelt, LLC that allows contractorsto heat and bend Trex Products while on the job site. Trex Pergola™ Pergolas made from low maintenance cellular PVC product, manufacturedby Home & Leisure, Inc. dba Structureworks Fabrication. Diablo® Trex Blade A specialty saw blade for wood-plastic composite decking manufacturedand sold by Freud America, Inc. Trex SpiralStairs™ and Structural Steel Posts An ultimate staircase alternative and structural steel posts for use with alldeck substructures manufactured and sold by M. Cohen and Sons, Inc. dbaThe Iron Shop. Trex Outdoor Kitchens, Cabinetry and Storage™ Outdoor kitchens, cabinetry and storage manufactured and sold byNatureKast Products, LLC. 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 qualities result in low maintenance products when compared to the on-goingmaintenance requirements for a wood deck and make Trex products less costly than wood over the life of the deck. Trex products are stain resistant and colorfast. Special characteristics (including resistance to splitting, the ability to bend, and ease and consistency of machining and finishing) facilitate deck,railing, and fencing installation, reduce contractor call-backs and afford customers a wide range of design options. Trex decking products do not have thetensile 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, Trexdoes offer the Trex Elevations steel deck framing system.We have received product building code listings from the major U.S. building code listing agencies for decking and railing and from the majorCanadian building code listing agency for decking. The listings facilitate the acquisition of building permits by deck builders and promote consumer andindustry acceptance of our products as an alternative to wood decking.During the second half of 2014, we entered the specialty materials market. Our specialty product is made from plastic and is a linear low-densitypolyethylene pellet for use in blown film, profile extrusion and molding and compounding applications. Our entry into this adjacent market leverages ourcore recycling and extrusion capabilities. Our initial manufacturing line commenced operations during the second quarter of 2014 and during 2015 we addedthree additional lines. The Company remains in the early stages of specialty market penetration and is working on developing products that it believes willdrive that market. 2Table of ContentsCustomers and DistributionWe distribute our products as follows:Wholesale Distributors/Retail Lumber Dealers. We generate most of our sales through our wholesale distribution network by selling Trex products towholesale distributors, who in turn, sell our products to retail lumber outlets. These retail dealers market to both homeowners and contractors, but theyemphasize sales to professional contractors, remodelers and homebuilders. Contractor-installed decks generally are larger installations with professionalcraftsmanship. Our retail dealers generally provide sales personnel trained in Trex products, contractor training, inventory commitment and point-of-saledisplay 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-addedservice in marketing our products because they sell premium wood decking products and other innovative building materials that typically require producttraining and personal selling efforts. We typically appoint two distributors on a non-exclusive basis to distribute Trex products within a specified area. Thedistributor purchases our products at prices in effect at the time we ship the product to the distributor. Sales to two of our distributors, Boise CascadeCompany and U.S. Lumber Group, LLC, each exceeded 10% of gross sales in 2016.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 us forstocking on their shelves. They also purchase product through our wholesale distributors for special orders placed by consumers. Home Depot and Lowe’sserve both the contractor market and the “do-it-yourself” market. We believe that brand exposure through Home Depot and Lowe’s distribution promotesconsumer acceptance of our products.Manufacturing ProcessTrex products manufactured at our Winchester, Virginia and Fernley, Nevada manufacturing facilities are primarily manufactured from reclaimed woodfiber and scrap polyethylene. Our primary manufacturing process involves mixing wood particles with plastic, heating and then extruding, or forcing, thehighly viscous and abrasive material through a profile die. We use many proprietary and skill-based advantages in our manufacturing process.Our manufacturing process requires significant capital investment, expertise and time to develop. We have continuously invested the capital necessaryto expand our manufacturing throughput and improve our manufacturing processes. We have also broadened the range of raw materials that we can use toproduce a consistent and high-quality finished product. In connection with national building code listings, we maintain a quality control testing program.We utilize Six Sigma and Lean Manufacturing methodologies within our plant operations. We also use these methodologies throughout our Companyin the planning and execution of projects that are important to our success.SuppliersThe production of most of our products requires a supply of reclaimed wood fiber and scrap polyethylene. We fulfill requirements for raw materialsunder both purchase orders and supply contracts. In the year ended December 31, 2016, we purchased substantially all of our reclaimed wood fiberrequirements under purchase orders, which do not involve long-term supply commitments. All of our polyethylene purchases are under short-term supplycontracts that 3Table of Contentsaverage approximately one to two years for which pricing is negotiated as needed, or under purchase orders that do not involve long-term supplycommitments. • Reclaimed Wood Fiber: Cabinet and flooring manufacturers are our preferred suppliers of reclaimed wood fiber because the reclaimed wood fiberproduced by these operations contains little contamination and is low in moisture. These facilities generate reclaimed wood fiber as a byproductof their manufacturing operations. If the reclaimed wood fiber meets our specifications, our reclaimed wood fiber supply agreements generallyrequire us to purchase at least a specified minimum and at most a specified maximum amount of reclaimed wood fiber each year. Depending onour needs, the amount of reclaimed wood fiber that we actually purchase within the specified range under any supply agreement may varysignificantly from year to year. • Scrap Polyethylene: The polyethylene we consumed in 2016 was primarily composed of scrap plastic film and plastic bags. We will continue toseek to meet our future needs for scrap polyethylene from the expansion of our existing supply sources and the development of new sources. Webelieve our use of multiple sources provides us with a cost advantage and facilitates an environmentally responsible approach to ourprocurement of polyethylene. Our ability to source and use a wide variety of polyethylene from third party distribution and manufacturingoperations is important to our cost strategy. We maintain this ability through the continued expansion of our plastic reprocessing operations incombination with the advancement of our proprietary material preparation and extrusion processes.In addition, we outsource the production of certain products to third-party manufacturers.Research and Development and TrainingWe maintain research and development operations in the Trex Technical Center in Winchester, Virginia. Our research and development efforts focus oninnovation and developing new products, lowering the cost of manufacturing our existing products and redesigning existing product lines to increaseefficiency and enhance performance. For the years ended December 31, 2016, 2015 and 2014, research and development costs were $3.7 million, $1.5 millionand $2.3 million, respectively, and have been included in “Selling, general and administrative expenses” in the accompanying Consolidated Statements ofComprehensive Income.During 2016, we launched Trex University, our state-of-the-art training facility located near our Winchester manufacturing plant. Trex University isdesigned to educate and train retailers, contractors and other partners on the benefits of Trex aesthetically pleasing, high performance and low maintenanceoutdoor living products.Growth StrategiesOur long-term goal is to perpetuate our position as the leading producer of branded superior wood-alternative outdoor living products by increasingour market share and expanding into new product categories and geographic markets through the design, creation and marketing of high-performanceoutdoor living products that offer superior aesthetics and quality. Also, we will explore opportunities that leverage our manufacturing and extrusion expertiseand are tied to our recycling heritage. To attain these goals, 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, pleasing aesthetics and overall performance in outdoor living products. Leverage online efforts to extend theTrex brand digital presence, both nationally and globally. 4Table of Contents • 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, steel deck framing and outdoor lighting products. • 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 materials thereby lowering our raw material costs.We plan to continue to achieve significant improvements in manufacturing productivity by reducing waste and improving our productionprocess, from raw materials preparation through extrusion into finishing and packaging. • Customer Service: Through our commitment to superior customer service, continually deliver consistently outstanding, personalized service toall of our customers and prospects in all target segments.CompetitionOur primary competition consists of wood products, which constitutes a substantial majority of decking and railing sales, as measured by linear feet oflumber. Many of the conventional lumber suppliers with which we compete have established ties to the building and construction industry and have well-accepted products. A majority of the lumber used in wood decks is pressure-treated lumber. Southern yellow pine and fir have a porosity that readily allowsthe chemicals 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.In addition to wood, we also compete with other manufacturers of wood-alternative products. Industry studies indicate that we have the leading marketshare of the wood-alternative segment of the decking and railing market. Our principal competitors include Advanced Environmental RecyclingTechnologies, Inc., CPG International LLC and Fiberon, 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 wood-alternative decking and railing products that are competitive with our products. We believe that the principal competitive factors in the decking and railingmarket include product quality, price, aesthetics, maintenance cost, distribution and brand strength. We believe we compete favorably with respect to thesefactors. We believe that our products offer aesthetic and cost advantages over the life of a deck when compared to other types of decking and railingmaterials. Although a contractor-installed deck built with Trex products using a pressure-treated wood substructure generally costs more than a deck madeentirely from pressure-treated wood, Trex products are low maintenance compared to the on-going maintenance required for a pressure-treated deck and are,therefore, less costly over the life of the deck. We believe that our manufacturing process and utilization of relatively low-cost raw material sources provideus with a competitive cost advantage relative to other manufacturers of wood-alternative decking and railing products. The scale of our operations alsoconfers cost efficiencies in manufacturing, sales and marketing.SeasonalityOur net sales, gross profit and income from operations have historically varied from quarter to quarter. Such variations are often attributable to seasonaltrends in the demand for our products. We have historically 5Table of Contentsexperienced lower net sales during the fourth quarter due to the holiday season. Also, seasonal, erratic or prolonged adverse weather conditions in certaingeographic regions reduce the level of home improvement and construction activity and can shift net sales to a later period.Government RegulationWe are subject to federal, state and local environmental regulation. The emissions of particulates and other substances from our manufacturingfacilities must meet federal and state air quality standards implemented through air permits issued to us by the Department of Environmental Quality of theCommonwealth of Virginia, and the Division of Environmental Protection of Nevada’s Department of Conservation and Natural Resources. Our facilities areregulated by federal and state laws governing the disposal of solid waste and by state and local permits and requirements with respect to wastewater and stormwater discharge. Compliance with environmental laws and regulations has not had a material adverse effect on our business, operating results or financialcondition.Our operations also are subject to work place safety regulation by the U.S. Occupational Safety and Health Administration, the Commonwealth ofVirginia and the State of Nevada. Our compliance efforts include safety awareness and training programs for our production and maintenance 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 substantial investments in manufacturing process improvements that have enabled us to increase manufacturing line production rates,facilitate our development of new products, and produce improvements in our existing products’ dimensional consistency, surface texture and coloruniformity.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 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.We enter into confidentiality agreements with our employees and limit access to and distribution of our proprietary information. If it is necessary todisclose proprietary information to third parties for business reasons, we require that such third parties sign a confidentiality agreement prior to anydisclosure.EmployeesAt December 31, 2016, we had approximately 830 full-time employees, approximately 630 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. 6Table of ContentsWeb Sites and Additional InformationThe U. S. Securities and Exchange Commission (SEC) maintains an Internet web site at www.sec.gov that contains reports, proxy statements, and otherinformation regarding our Company. In addition, we maintain an Internet corporate web site at www.trex.com. We make available through our web site ourannual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports, as soon as reasonablypracticable after we electronically file with or furnish such material to the SEC. We do not charge any fees to view, print or access these reports on our website. The contents of our web site are not a part of this report. Item 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, and deck framingsales. Since wood-alternative products were introduced to the market in the late 1980s, their market acceptance has increased. Our ability to grow willdepend, in part, on our success in continuing to convert demand for wood products into demand for wood-alternative Trex products. To increase our marketshare, we must overcome: • lack of awareness of the enhanced value of wood-alternative products in general and Trex brand products in particular; • resistance of many consumers and contractors to change from well-established wood products; • consumer lack of awareness that the greater initial expense of Trex products compared to wood is a one-time cost that is reduced over time asTrex products have lower maintenance costs and a longer life span than wood; • established relationships existing between suppliers of wood products and contractors and homebuilders; • actual and perceived quality issues with first generation wood-alternative products; and • competition from other wood-alternative manufacturers.Our failure to compete successfully in such markets could have a material adverse effect on our ability to replace wood or increase our market shareamongst wood-alternatives. Many of the conventional lumber suppliers with which we compete have established ties to the building and constructionindustry and have well-accepted products. Our ability to compete depends, in part, upon a number of factors outside our control, including the ability ofcompetitors to develop new alternatives that are more competitive with Trex products.In addition, substantially all of our revenues are derived from sales of our proprietary wood/polyethylene composite material. Although we havedeveloped, and continue to develop, new products made from other materials, if we should experience significant problems, real or perceived, withacceptance of the Trex wood/polyethylene composite material, our lack of product diversification could have a significant adverse impact on our net saleslevels.Our prospects for sales growth and profitability may be adversely affected if we fail to maintain product quality and product performance at anacceptable cost.In order to expand our net sales and sustain profitable operations we must maintain the quality and performance of our products. If we are unable toproduce high-quality products at standard manufacturing rates 7Table of Contentsand yields, unit costs may be higher. A lack of product performance could impede acceptance of our products in the marketplace and negatively affect ourprofitability. We continue to receive and settle claims and maintain a warranty reserve related to material produced at our Nevada facility prior to 2007 thatexhibits surface flaking. We have limited our financial exposure by settling a nationwide class action lawsuit that lessens our exposure to providereplacement product and partial labor reimbursement. However, because the establishment of reserves is an inherently uncertain process involving estimatesof the number of future claims and the average cost of claims, our ultimate losses may differ from our warranty reserve. Increases to the warranty reserve andpayments for related claims have had a material adverse effect on our profitability and cash flows. Future increases to the warranty reserve could have amaterial adverse effect on our profitability and cash flows.A number of class action lawsuits alleging defects in our products have been brought against us, all of which have been settled. In the event futurelawsuits relating to alleged product quality issues are brought against us, such lawsuits may be costly and could cause adverse publicity, which in turn couldresult in a loss of consumer confidence in our products and reduce our sales. Product quality claims could increase our expenses, have a material adverseeffect on demand for our products and decrease net sales, net income and liquidity.Our business is subject to risks in obtaining the raw materials we use at acceptable prices.The manufacture of our products requires substantial amounts of wood fiber and scrap polyethylene. Our business strategy is to create a substantial costadvantage over our competitors by using reclaimed wood fibers and scrap polyethylene. Our business could suffer from the termination of significant sourcesof raw materials, the payment of higher prices for raw materials, the quality of available raw materials, or from the failure to obtain sufficient additional rawmaterials to meet planned increases in production.Our ability to obtain adequate supplies of reclaimed wood fibers and scrap polyethylene depends on our success in developing new sources that meetour quality requirements, maintaining favorable relationships with suppliers and managing the collection of supplies from geographically dispersedlocations.Certain of our customers account for a significant portion of our sales, and the loss of one or more of these customers could have an adverse effecton our business.A limited number of our 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 2016, 89% during fiscal year 2015 and 86% during fiscal year 2014.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 significant negative impact on our business, results of operationsand financial condition.We have limited ability to control or project inventory build-ups in our distribution channel that can negatively affect our sales in subsequentperiods.The seasonal nature of, and changing conditions in, our industry can result in substantial fluctuations in inventory levels of Trex products carried inour two-step distribution channel. We have limited ability to control or precisely project inventory build-ups, which can adversely affect our net sales levelsin subsequent periods. We make the substantial majority of our sales to wholesale distributors, who, in turn, sell our products to local dealers. Because of theseasonal nature of the demand for our products, our distribution channel partners must forecast demand for our products, place orders for the products, andmaintain Trex product inventories in advance of the prime deck-building season, which generally occurs in the latter part of the first calendar quarter throughthe third calendar quarter. Accordingly, our results for the second and third quarters are difficult to predict and past performance will not necessarily indicatefuture performance. Inventory levels respond to a 8Table of Contentsnumber of changing conditions in our industry, including product price increases, increases in the number of competitive producers, the rapid pace ofproduct introduction and innovation, changes in the levels of home-building and remodeling expenditures and the cost and availability of consumer credit.The demand for our products is negatively affected by adverse weather conditions.Our products are generally purchased shortly before installation and used in outdoor environments. As a result, there is a correlation between theamount of product we sell and weather conditions during the time they are to be installed. Adverse weather conditions may interfere with ordinaryconstruction, delay projects or lead to cessation of construction involving our products. These interferences may shift sales to subsequent reporting periods ordecrease overall sales, given the limited decking season in many locations. Prolonged adverse weather conditions could have a negative impact on ourresults of operations and liquidity.We depend on third parties for transportation services and the lack of availability of transportation and/or increases in cost could materiallyadversely affect our business and operations.Our business depends on the transportation of both finished goods to our distributors and the transportation of raw materials to us. We rely on thirdparties for transportation of these items. In particular, a significant portion of our finished goods are transported by flatbed trucks, which are occasionally inhigh demand (especially at the end of calendar quarters) and/or subject to price fluctuations based on market conditions and the price of fuel.If the required supply of transportation services is unavailable when needed, we may be unable to sell our products at full value, or at all. Similarly, ifany of these providers were unavailable to deliver raw materials to us in a timely manner, we may be unable to manufacture our products in response tocustomer demand. This could harm our reputation, negatively impact our customer relationships and have a material adverse effect on our financial conditionand results of operations. In addition, a material increase in transportation rates or fuel surcharges could have a material adverse effect on our profitability.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 influenced by the general health of the economy, the level of home improvement activity and, to a much lesser extent,new home construction. These factors are affected by home equity values, credit availability, consumer confidence and spending habits, employment, interestrates, inflation and general economic conditions. Devaluation in home equity values can adversely affect the availability of home equity withdrawals andresult in decreased home improvement spending. We cannot predict general economic conditions or the home remodeling and new home constructionenvironments. Any economic downturn could reduce consumer income or equity capital available for spending on discretionary items, which couldadversely affect the demand for our products.We have significant capital invested in property, plant and equipment that may become obsolete or impaired and result in a charge to ourearnings.We have made and may continue to make significant capital investments to improve or expand our manufacturing capabilities. These investmentssometimes involve the implementation of new technology and replacement of existing equipment at our manufacturing facilities, which may result incharges to our earnings if the existing equipment is not fully depreciated. Significant replacement of equipment or changes in the expected cash flows relatedto our assets could result in reduced earnings or cash flows in future periods. 9Table of ContentsOur ability to continue to obtain financing on favorable terms, and the level of any outstanding indebtedness, could adversely affect our financialhealth and ability to compete.Our ability to continue to obtain financing on favorable terms may limit our discretion on some business matters, which could make it more difficultfor us to expand, finance our operations and engage in other business activities that may be in our interest. In addition, the operating and financialrestrictions imposed by our senior credit facility may limit 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.Any additional indebtedness we may incur in the future could subject us to similar or even more restrictive conditions.At certain periods during the year, we borrow significant amounts on our senior credit facility for working capital purposes. In addition, we may borrowon the senior credit facility to pursue strategic opportunities or other general business matters. Accordingly, our future level of indebtedness could haveimportant consequences. 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 availabilityof our cash flow to fund working capital, capital expenditures and other general corporate purposes; • 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.Our ability to make future principal and interest payments, borrow and repay amounts under our senior credit facility and continue to comply with ourloan 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 senior credit facility, which may be declared payable immediately based on a default. Toremain in compliance with our credit facility, we must maintain specified financial ratios based on our levels of debt, fixed charges, and earnings (excludingextraordinary gains and extraordinary non-cash losses) before interest, taxes, depreciation and amortization, all of which are subject to the risks of ourbusiness. 10Table of ContentsAny expansion into new product markets may be costly and there is no guarantee that the new product market would be successful.In addition to developing enhancements to and new products for the outdoor living market, we may also develop new products that allow us to expandinto new product markets. Expansion into new markets and the development of new products may involve considerable costs and may not generate sufficientrevenue to be profitable or cover the costs of development. Item 1B.Unresolved Staff CommentsNone. Item 2.PropertiesWe lease our corporate headquarters in Winchester, Virginia, which consists of approximately 36,000 square feet of office space, under a lease thatexpires in March 2020. In addition, we lease 55,047 square feet of office and storage space in Dulles, Virginia, that we do not occupy. We have sublet all ofthe office space for the remainder of the term of the lease obligation, which expires in mid-2019. For a description of our financial reporting in connectionwith the Dulles lease agreement, see Note 13 to our Consolidated Financial Statements appearing elsewhere in this report.We own approximately 92 acres of land in Winchester, Virginia and the buildings on this land. The site includes our research and developmenttechnical facility and manufacturing facility, which contains approximately 465,000 square feet of space, and outside open storage. We own approximately37 acres of land in Fernley, Nevada and the buildings on this land. The site includes our manufacturing facility, which contains approximately 240,000square feet of space, and outside open storage. These facilities provide adequate capacity for current and anticipated future consumer demand.In September 2007, we suspended operations at our Olive Branch, Mississippi facility (Olive Branch facility) and consolidated all of ourmanufacturing operations into our Winchester and Fernley sites. In January 2016, we sold a portion of the Olive Branch facility that contained the buildings.As of the date of this report, we continue to own approximately 62 acres of undeveloped land at the Olive Branch facility.We lease a total of approximately 1.4 million square feet of warehouse and facility space under leases with expiration dates ranging from 2017 to 2026.For information about these leases, see Note 10 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 ofour manufacturing equipment. We lease some forklift equipment at our facilities under operating leases.We regularly evaluate our various facilities and equipment and make capital investments where necessary. In 2016, we spent a total of $14.6 million oncapital expenditures, primarily related to equipment purchases, the purchase of land adjacent to our Winchester, Virginia manufacturing facility, TrexUniversity (our state-of-the-art training facility), general plant cost reduction initiatives, process and productivity improvements . We estimate that ourcapital expenditures in 2017 will be approximately $15 million to $20 million. We expect to use these expenditures principally to support cost reductioninitiatives, new product launches in current and adjacent categories and general business support. 11Table of ContentsItem 3.Legal ProceedingsThe Company has lawsuits, as well as other claims, pending against it which are ordinary routine litigation and claims incidental to the business.Management has evaluated the merits of these lawsuits and claims, and believes that their ultimate resolution will not have a material effect on theCompany’s consolidated financial condition, results of operations, liquidity or competitive position. Item 4.Mine Safety Disclosures.Not applicable. 12Table 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 (NYSE) since April 8, 1999. Between April 8, 1999 and November 22, 2009, itwas listed under the symbol “TWP”. Effective November 23, 2009, the symbol changed to “TREX”. The table below shows the reported high and low saleprices of our common stock for each quarter during 2016 and 2015 as reported by the NYSE. 2016 High Low First Quarter $48.14 $31.11 Second Quarter 50.62 39.74 Third Quarter 64.36 44.38 Fourth Quarter 72.21 50.81 2015 High Low First Quarter $55.13 $38.05 Second Quarter 57.72 46.72 Third Quarter 50.16 31.73 Fourth Quarter 44.17 33.72 Dividend PolicyWe have never paid cash dividends on our common stock and our credit agreement places limitations on our ability to pay cash dividends. We intendto retain future earnings to finance the development and expansion of our business and, therefore, have no current intention to pay cash dividends. However,we reconsider our dividend policy on a regular basis and may determine to pay dividends in the future. 13Table of ContentsStockholder Return Performance GraphThe following graph and table show the cumulative total stockholder return on the 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 (S&P 600 Building Products). The graph assumes $100 was invested onDecember 31, 2011 in (1) the Company’s common stock, (2) the Russell 2000 Index and (3) the S&P 600 Building Products, and assumes reinvestment ofdividends and market capitalization weighting as of December 31, 2012, 2013, 2014, 2015 and 2016.Comparison of Cumulative Total ReturnAmong Trex Company, Inc., Russell 2000 Index, and S&P 600 Building Products Index December 31,2011 December 31,2012 December 31,2013 December 31,2014 December 31,2015 December 31,2016 Trex Company, Inc. $100.00 $162.53 $347.25 $371.88 $332.23 $562.45 Russell 2000 Index $100.00 $116.35 $161.52 $169.42 $161.94 $196.45 S&P 600 Building Products $100.00 $129.86 $189.32 $188.86 $226.58 $294.05 Other Stockholder MattersAs of February 7, 2017, there were approximately 181 holders of record of our common stock.In 2016, 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. 14Table of ContentsItem 6.Selected Financial DataThe following table presents selected financial data as of December 31, 2016, 2015, 2014, 2013, and 2012 and for each year in the five-year periodended December 31, 2016.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, (1) 2016 (2) 2015 (3) 2014 2013 (4) 2012 (5) (In thousands, except share and per share data) Statement of Comprehensive Income Data: Net sales $479,616 $440,804 $391,660 $342,511 $307,354 Cost of sales 292,521 285,935 251,464 243,893 222,772 Gross profit 187,095 154,869 140,196 98,618 84,582 Selling, general and administrative expenses 83,140 77,463 72,370 73,967 71,907 Income from operations 103,955 77,406 67,826 24,651 12,675 Interest expense, net 1,125 619 878 602 8,946 Income before income taxes 102,830 76,787 66,948 24,049 3,729 Provision (benefit) for income taxes 34,983 28,689 25,427 (10,549) 1,009 Net income $67,847 $48,098 $41,521 $34,598 $2,720 Basic earnings per share $2.31 $1.53 $1.28 $1.03 $0.08 Basic weighted average shares outstanding 29,394,559 31,350,542 32,319,649 33,589,682 32,247,184 Diluted earnings per share $2.29 $1.52 $1.27 $1.01 $0.08 Diluted weighted average shares outstanding 29,612,669 31,682,509 32,751,074 34,273,502 34,129,712 Cash Flow Data: Cash provided by operating activities $85,293 $62,634 $58,642 $45,208 $60,443 Cash used in investing activities (10,202) (23,329) (12,873) (12,697) (7,484) Cash used in financing activities (62,422) (42,854) (39,997) (30,898) (55,326) Other Data (unaudited): EBITDA (6) $118,136 $91,701 $82,653 $40,597 $29,149 Balance Sheet Data: Cash and cash equivalents and restricted cash $18,664 $5,995 $9,544 $3,772 $2,159 Working capital 54,264 38,581 35,787 28,994 10,158 Total assets 221,430 211,998 195,824 188,157 168,615 Total debt — 7,000 — — 5,000 Total stockholder’s equity $134,161 $116,463 $113,385 $106,616 $93,986 1)All common stock share and per share data in the above table are presented on a post-split basis to reflect the two-for-one stock split of our commonstock, in the form of a stock dividend distributed on May 7, 2014 to stockholders of record at the close of business on April 7, 2014. 15Table of Contents2)Year ended December 31, 2016 was materially affected by a pre-tax increase of $9.8 million to the warranty reserve related to surface flaking. Also,during 2016, the Company adopted Financial Accounting Standards Board Accounting Standards Update (ASU) No. 2015-17, “Income Taxes (Topic740): Balance Sheet Classification of Deferred Taxes,” and ASU No. 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements toEmployee Share-Based Payment Accounting.” Because the Company applied ASU No. 2015-17 prospectively in the quarterly period ended December 31, 2016, prior periods have not been adjusted.As a result, in 2016 deferred tax assets are now reported net of deferred tax liabilities, included as either a non-current asset or liability, and are nolonger a component of working capital. Deferred tax assets or liabilities of prior fiscal years that were previously included in current assets or currentliabilities continue to be reported as a component of working capital. Adoption of ASU No. 2016-09 did not have a material impact on the Company’s results of operations and financial condition or cash flows for priorperiods. Note 2 to our Consolidated Financial Statements appearing elsewhere in this report discusses the method used to apply each provision of ASUNo. 2016-09.3)Year ended December 31, 2015 was materially affected by a pre-tax increase of $7.8 million to the warranty reserve, the majority of which related tosurface flaking.4)Year ended December 31, 2013 was materially affected by a pre-tax increase of $20.0 million to the warranty reserve and a $19.9 million income taxbenefit resulting from a significant reversal of our valuation allowance, $10.9 million of which was a direct result of the Company’s decision to exit afull valuation allowance.5)Year ended December 31, 2012 was materially affected by a pre-tax increase of $21.5 million to the warranty reserve.6)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 (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, capitalinvestment cycles and ages of related assets, as well as some recurring non-cash and non-operating charges to net income or loss. For these reasons,management believes that EBITDA provides important supplemental information to investors regarding the operating performance of the Companyand facilitates comparisons by investors between the operating performance of the Company and the operating performance of its competitors.Management believes that consideration of EBITDA should be supplemental, because EBITDA has limitations as an analytical financial measure.These limitations include the 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 entities in the Company’s industry may calculate EBITDA in the same manner in which the Company calculates EBITDA, which limits itsusefulness as a comparative measure. 16Table of ContentsThe 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 beconsidered as an alternative to net income, 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: Year Ended December 31, 2016 2015 2014 2013 2012 (In thousands) Net income $67,847 $48,098 $41,521 $34,598 $2,720 Plus interest expense, net 1,125 619 878 602 8,946 Plus income tax provision (benefit) 34,983 28,689 25,427 (10,549) 1,009 Plus depreciation and amortization 14,181 14,295 14,827 15,946 16,474 EBITDA $118,136 $91,701 $82,653 $40,597 $29,149 17Table 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 1933 andSection 21E of the Securities Exchange Act of 1934. All statements regarding our expected financial position and operating results, our business strategy,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 “may,” “will,” “anticipate,” “estimate,” “expect,” “intend” or similarexpressions. We cannot promise you that our expectations in such forward-looking statements will turn out to be correct. Our actual results could bematerially different from our expectations because of various factors, including the factors discussed under “Item 1A. Risk Factors.” These statements arealso subject to risks and uncertainties that could cause the Company’s actual operating results to differ materially. Such risks and uncertainties include,but are not limited to, the extent of market acceptance of the Company’s current and newly developed 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 economic conditions; theimpact of seasonal and weather-related demand fluctuations on inventory levels in the distribution channel and sales of the Company’s products; theavailability and cost of third-party transportation services for our products and raw materials; the Company’s ability to obtain raw materials at acceptableprices; the Company’s ability to maintain product quality and product performance at an acceptable cost; the level of expenses associated with productreplacement and consumer relations expenses related to product quality; 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 marketed under the brand nameTrex® and manufactured in the United States. We offer a comprehensive set of aesthetically pleasing, high performance, low maintenance products in thedecking, railing, porch, fencing, steel deck framing and outdoor lighting categories. We believe that the range and variety of our products allow consumers todesign much of their outdoor living space using Trex brand products.We offer the following products: Decking Trex Transcend®Trex Enhance®Trex Select® Railing Trex Transcend RailingTrex Signature™ aluminum railingTrex Select Railing Porch Trex Transcend Porch Flooring and Railing System Fencing Trex Seclusions® Steel Deck Framing System Trex Elevations® Outdoor Lighting Systems Trex DeckLighting™Trex LandscapeLighting™ Hidden Fastening System for Specially Grooved Boards Trex Hideaway® 18Table of ContentsHighlights related to the twelve months ended December 31, 2016 include: • Increase in net sales of 8.8%, or $38.8 million, in the twelve months ended 2016 compared to the twelve months ended 2015. Net sales in 2016were the highest of any year in our history. • Increase in gross profit of 20.8%, or $32.2 million. Gross profit in 2016 was the highest of any year in our history. • Net income of $67.8 million also reflects the highest of any year in our history. • $85.3 million of positive cash flows from operating activities in the twelve months ended 2016 compared to $62.6 million in the twelve monthsended 2015.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 the pricespaid for Trex products. Our branding and product differentiation strategy enables us to command premium prices over wood products. Our operating resultshave historically varied from quarter to quarter, often due to seasonal trends in the demand for outdoor living products. We have historically experiencedlower net sales during the fourth quarter due to the holiday season. Also, seasonal, erratic or prolonged adverse weather conditions in certain geographicregions reduce the level of home improvement and construction activity and can shift net sales to a later period.As part of our normal business practice and consistent with industry practices, we have historically provided our distributors and dealers incentives tobuild inventory levels before the start of the prime deck-building season to ensure adequate availability of product to meet anticipated seasonal consumerdemand and to enable production planning. These incentives include prompt payment discounts and favorable payment terms. In addition, we offer pricediscounts or volume rebates on specified products and other incentives based on increases in purchases as part of specific promotional programs. The timingof sales incentive programs can significantly impact sales, receivables and inventory levels during the offering period. However, the timing and terms of themajority of our programs are generally consistent from year to year.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, warranty costs, and freight. Raw materials costs generally include the costs to purchase and transport reclaimed wood fiber, scrappolyethylene 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 component of selling, general and administrative expenses is personnel related costs, whichinclude salaries, commissions, incentive compensation, and benefits of personnel engaged in sales and marketing, accounting, information technology,corporate operations, research and development, and other business functions. Another component of selling, general and administrative expenses isbranding and other sales and marketing costs, which are used to build brand awareness of Trex. These costs consist primarily of advertising, merchandising,and other promotional costs. Other general and administrative expenses include professional fees, office occupancy costs attributable to the businessfunctions previously referenced, and consumer relations expenses. As a percentage of net sales, selling, general and administrative expenses have varied fromquarter to quarter due, in part, to the seasonality of our business.CRITICAL ACCOUNTING POLICIES AND 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 19Table of Contentsthe information available. These estimates, judgments and assumptions affect the reported amounts of assets and liabilities at the date of the financialstatements and the reported amounts of revenue and expenses during the periods presented. Actual results could be different from these estimates.Product Warranty. We warrant that our products will be free from material defects in workmanship and materials. Generally this warranty period is 25years for residential use and 10 years for commercial use, excluding Trex Signature™ Railing, which has a warranty period of 25 years for both residentialand commercial use. We further warrant that Trex Transcend, Trex Enhance, Trex Select and Universal Fascia products will not fade in color more than acertain amount and will be resistant to permanent staining from food substances or mold, provided the stain is cleaned within seven days of appearance. Thiswarranty extends for a period of 25 years for residential use and 10 years for commercial use. If there is a breach of such warranties, we have an obligationeither to replace the defective product or refund the purchase price.We continue to receive and settle claims for products manufactured at our Nevada facility prior to 2007 that exhibit surface flaking and maintain awarranty reserve to provide for the settlement of these claims. Estimating the warranty reserve for surface flaking claims requires management to estimate(1) the number of claims to be settled with payment and (2) the average cost to settle each claim.To estimate the number of claims to be settled with payment, we utilize actuarial techniques to quantify both the expected number of claims to bereceived and the percentage of those claims that will ultimately require payment (collectively, elements). Estimates for these elements are quantified using arange of assumptions derived from claim count history and the identification of factors influencing the claim counts. The number of claims received hasdeclined each year since peaking in 2009, although the rate of decline has decelerated in recent years. Additionally, events such as the 2009 settlement of aclass action lawsuit covering the surface flaking defect and communications by us in 2013 informing homeowners of potential hazards associated withproducts exhibiting surface flaking that are not timely replaced, have obscured observable trends in historical claims activity. The cost per claim varies dueto a number of factors, including the size of affected decks, the availability and type of replacement material used, the cost of production of replacementmaterial and the method of claim settlement.We monitor surface flaking claims activity each quarter for indications that our estimates require revision. Typically, a majority of surface flakingclaims received in a year are received during the summer outdoor season, which spans the second and third quarters. It has been our practice to utilize theactuarial techniques discussed above during the third quarter, after a significant portion of all claims has been received for the fiscal year and variances toannual claims expectations are more meaningful. The number of claims received in the year ended December 31, 2016 was lower than claims received in theyear ended December 31, 2015, continuing the historical year-over-year decline in incoming claims, but was higher than our expectations. Also, the averagesettlement cost per claim experienced in the year ended December 31, 2016 was higher than the average settlement cost per claim experienced during theyear ended December 31, 2015 and higher than our expectation for 2016. As a result and after actuarial review, we revised our estimate and recorded anincrease to the warranty reserve of $9.8 million during the third quarter of 2016. Based on the facts and circumstances at December 31, 2016, we believe ourreserve is sufficient to cover future surface flaking obligations. We note that our annual cash outflows for surface flaking claims declined by $1.5 million, or21%, in 2016 compared to 2015, and declined by $1.7 million, or 19%, in 2015 compared to 2014.Our analysis is based on currently known facts and a number of assumptions, as discussed above, and current expectations. Projecting future eventssuch as the number of claims to be received, the number of claims that will require payment and the average cost of claims could cause the actual warrantyliabilities to be higher or lower than those projected, which could materially affect our financial condition, results of operations or cash flows. We estimatethat the annual number of claims received will continue to decline over time and that the average cost per claim will increase slightly, primarily due toinflation. If the level of claims received or average cost per claim differs materially from expectations, it could result in additional increases or decreases tothe warranty reserve and a decrease or increase in earnings and cash flows in future periods. We estimate that a 10% 20Table of Contentschange in the expected number of remaining claims to be settled with payment or the expected cost to settle claims may result in approximately a $3.4million change in the surface flaking warranty reserve.The following table details surface flaking claims activity related to our warranty: Year Ended December 31, 2016 2015 2014 Claims unresolved beginning of period 2,500 2,872 4,249 Claims received (1) 2,615 2,968 3,212 Claims resolved (2) (2,360) (3,340) (4,589) Claims unresolved end of period 2,755 2,500 2,872 Average cost per claim (3) $2,639 $2,521 $2,287 (1)Claims received include new claims received or identified during the period.(2)Claims resolved include all claims settled with or without payment and closed during the period.(3)Average cost per claim represents the average settlement cost of claims closed with payment during the period.For additional information about product warranties, see Notes 2 and 13 to the Consolidated Financial Statements appearing elsewhere in this report.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, 2016, the excess of the replacement cost of inventory over the LIFO value of inventory was approximately $21.4million.Income Taxes. We recognize deferred tax assets and liabilities based on the difference between the financial statement basis and tax basis of assets andliabilities using enacted tax rates in effect during the year in which it is expected that the differences reverse. We assess the likelihood that our deferred taxassets will be realized. Deferred tax assets are reduced by a valuation allowance when, after considering all available positive and negative evidence, it isdetermined that it is more likely than not that some portion, or all, of the deferred tax asset will not be realized. As of December 31, 2016, we have a valuationallowance of $4.1 million against the deferred tax assets related to state tax credits we estimate will expire before they are realized. We will analyze ourposition in subsequent reporting periods, considering all available positive and negative evidence, in determining the expected realization of our deferredtax assets.Stock-Based Compensation. The fair value of each stock-based award to officers, directors and certain key employees is established on the date of thegrant. We calculate the grant date fair value of stock options and stock appreciation rights using the Black-Scholes valuation model. Determining the fairvalue of these awards is judgmental in nature and involves the use of significant estimates and assumptions, including the term of the share-based awards,risk-free interest rates over the vesting period, expected dividend rates, and the price volatility of our shares. The Company uses the historical volatility overthe average expected term of the options granted as the expected volatility. The Company recognizes forfeitures as they occur. We base our fair valueestimates on assumptions we believe to be reasonable but that are inherently uncertain. Actual future results may differ from those estimates.We grant performance-based restricted stock units, the vesting of which is subject to holder’s continuing employment and our achievement of certainperformance measures. At each reporting period, we assess actual performance versus the predetermined performance measures, and adjust the stock-basedcompensation expense to reflect the relative performance achievement. Actual distributed shares are calculated upon conclusion of the service andperformance periods. 21Table of ContentsRESULTS OF OPERATIONSBelow we have included a discussion of our operating results and material changes in our operating results for the years ended December 31, 2016compared to December 31, 2015, and December 31, 2015 compared to December 31, 2014.Year Ended December 31, 2016 Compared to Year Ended December 31, 2015Net Sales Year Ended December 31, $ Change % Change 2016 2015 (dollars in thousands) Net sales $479,616 $440,804 $38,812 8.8% The $38.8 million increase in net sales in 2016 compared to 2015 was due primarily to a $53.2 million increase in sales volume growth of our coreTrex branded decking and railing products. Sales volume growth also benefited from the execution of our market growth strategies that we launched in thesecond quarter of this year to highlight the aesthetics, performance and sustainability benefits of Trex composite decking and railing products versus wood.The rollout of our programs in 2016 that aimed to strengthen our brand relationships with consumers and the trade facilitated growth. Such programs includeour online tools that assist the consumer throughout the sales process from design to installation, and the launch of our state-of-the-art training facility, TrexUniversity, that educates retailers, contractors and other Trex partners on the benefits of Trex outdoor living products. The increase in sales volume growthwas offset by $6.8 million due to the impact of mix and sales discounts, and by a $7.6 million decrease in poly film sales. These sales were curtailed early in2016 reflecting a change in management’s procurement strategy for scrap poly film purchases.Gross Profit Year Ended December 31, $ Change % Change 2016 2015 (dollars in thousands) Cost of sales $292,521 $285,935 $6,586 2.3% % of net sales 61.0% 64.9% Gross profit $187,095 $154,869 $32,226 20.8% Gross margin 39.0% 35.1% The increase in gross profit in 2016 compared to 2015 was primarily due to reduced raw materials cost, execution of our manufacturing costimprovement initiatives, and increased sales. The drivers for the increase in gross margin, or gross profit as a percentage of net sales, were lower raw materialscost mainly resulting from our revised procurement strategy, other cost saving initiatives designed to ensure we meet increased market demand moreefficiently and effectively, and from an increase in capacity utilization in order to achieve appropriate inventory levels to support growth, and otheroperating efficiencies. The increase in gross profit was partially offset by a $9.8 million increase to the legacy warranty reserve related to the surface flakingissue that affected a portion of products produced at our Nevada plant before 2007 compared to a $5.4 million adjustment in 2015 that related to surfaceflaking.Selling, General and Administrative Expenses Year Ended December 31, $ Change % Change 2016 2015 (dollars in thousands) Selling, general and administrative expenses $83,140 $77,463 $5,677 7.3% % of net sales 17.3% 17.6% 22Table of ContentsThe increase in selling, general and administrative expenses in 2016 compared to 2015 was attributable to a $2.2 million increase in personnel relatedexpenses of salaries and benefits and incentive compensation due to improved performance against targets, $2.2 million increase in research anddevelopment expenses, and a $1.4 million increase in advertising and branding activities in support of our market growth strategies.Interest Expense Year Ended December 31, $ Change % Change 2016 2015 (dollars in thousands) Interest expense $1,125 $619 $506 81.7% % of net sales 0.2% 0.1% The increase in interest expense in 2016 compared to 2015 was due to an $18.3 million increase in average outstanding borrowings during 2016 and aslight increase in the effective interest rate. The increase in borrowings was due to $53.3 million in stock repurchase activity related to our expanded sharerepurchase program and in support of our seasonal working capital needs.Provision for Income Taxes Year Ended December 31, $ Change % Change 2016 2015 (dollars in thousands) Provision for income taxes $34,983 $28,689 $6,294 21.9% Effective tax rate 34.0% 37.4% During 2016 and 2015, our income tax expense consisted of statutory federal and state taxes, permanent book to tax differences, federal tax credits, andother miscellaneous tax items. The effective tax rate in 2016 decreased 340 basis points compared to the effective tax rate during 2015 due to nondeductiblecompensation expense recognized in the prior year and the adoption of Financial Accounting Standards Board Accounting Standards Codification No. 2016-09, “Compensation – Stock Compensation (Topic718): Improvements to Employee Share-Based Payment Accounting.” As of January 1, 2016, the Companyprospectively applied the guidance related to excess tax benefits and recorded a $1.7 million benefit within income tax expense. Excess tax benefits for 2015were recorded as an increase to additional paid-in capital.Year Ended December 31, 2015 Compared to Year Ended December 31, 2014Net Sales Year Ended December 31, 2015 2014 $ Change % Change (dollars in thousands) Net sales $440,804 $391,660 $49,144 12.5% The increase in net sales in 2015 compared to 2014 was due to a 10.4% increase in sales volumes and a 2.0% increase in the average price per unit dueto a price increase on one line of decking product and, to a lesser extent, product mix. We attribute the increase in sales volumes in 2015 compared to 2014primarily to market share gains and an increase in demand for wood-alternative products. The increase in average price per unit in 2015 was a result of priceincreases on some of our 2015 decking products. 23Table of ContentsGross Profit Year Ended December 31, $ Change % Change 2015 2014 (dollars in thousands) Cost of sales $285,935 $251,464 $34,471 13.7% % of net sales 64.9% 64.2% Gross profit $154,869 $140,196 $14,673 10.5% Gross margin 35.1% 35.8% The increase in gross profit in 2015 compared to 2014 was primarily due to increased sales from market share gains, price increases on some of ourdecking products and increased demand for wood-alternative products. Gross profit as a percentage of net sales, gross margin, decreased in 2015 compared to2014 primarily due to a $7.8 million increase to the warranty reserve, the majority of which related to surface flaking. Excluding the adjustment to thewarranty reserve, gross margin increased 110 basis points in 2015 compared to the gross margin in 2014.Selling, General and Administrative Expenses Year Ended December 31, $ Change % Change 2015 2014 (dollars in thousands) Selling, general and administrative expenses $77,463 $72,370 $5,093 7.0% % of net sales 17.6% 18.5% The increase in selling, general and administrative expenses in 2015 compared to 2014 was primarily attributable to a $5.8 million increase inpersonnel related expenses primarily due to incentive compensation and severance pay and a $2.6 million increase in branding activities, such as the launchof our new marketing campaign, market research and trade show presentations. These increases were partially offset by an increase in sublease receipts ofapproximately $1.2 million during 2015 (refer to Note 13 to the Consolidated Financial Statements), a $1.2 million decrease in service fees and $950,000 inother general cost reductions.Interest Expense Year Ended December 31, $ Change % Change 2015 2014 (dollars in thousands) Interest expense $619 $878 $(259) (29.5)% % of net sales 0.1% 0.2% The decrease in interest expense was driven by an increase in capitalized interest during 2015 and a decrease in the effective interest rate. The increasein capitalized interest in 2015 was primarily due to the addition of three manufacturing lines related to our specialty materials operations and expenditures tosupport potential future expansion.Provision for Income Taxes Year Ended December 31, $ Change % Change 2015 2014 (dollars in thousands) Provision for income taxes $28,689 $25,427 $3,262 12.8% Effective tax rate 37.4% 38.0% 24Table of ContentsDuring 2015 and 2014, our income tax expense consisted of statutory federal and state taxes, permanent book to tax differences, federal tax credits,other miscellaneous tax items and an increase to the valuation allowance on our deferred tax asset. The effective tax rate in 2015 was consistent with theeffective rate in 2014.LIQUIDITY AND CAPITAL RESOURCESWe finance operations and growth primarily with cash flow from operations, borrowings, operating leases and normal trade credit terms from operatingactivities.Sources and Uses of Cash. The following table summarizes our cash flows from operating, investing and financing activities for the years endedDecember 31, 2016, 2015, and 2014 (in thousands): Year Ended December 31, 2016 2015 2014 Net cash provided by operating activities $85,293 $62,634 $58,642 Net cash used in investing activities $(10,202) $(23,329) $(12,873) Net cash used in financing activities $(62,422) $(42,854) $(39,997) Net increase (decrease) in cash and cash equivalents $12,669 $(3,549) $5,772 Operating ActivitiesNet cash provided by operating activities increased $22.7 million in 2016 compared to 2015 primarily due to higher cash receipts from the 8.8%increase in net sales during 2016 compared to 2015 coupled with the 390 basis point increase in gross margin, and a $4.4 million increase due to the timingof income tax payments.Net cash provided by operating activities increased $4 million in 2015 compared to 2014. The increase reflected higher operating cash receipts fromincreased net sales and an increase in accrued expenses and other liabilities, partially offset by an increase in trade accounts receivable. The $15 millionincrease in accrued expenses and other liabilities in 2015 was primarily attributed to increases in accrued marketing and other branding activities of $6million, incentive and other personnel related expenses of $2 million, and miscellaneous other fees and expenses of $6 million. The increase in accruedexpenses and other liabilities was offset by an increase in accounts receivable of $12 million in 2015. The increase in accounts receivable was due to anincrease in net sales.Investing ActivitiesInvesting activities consist principally of capital expenditures directed to new product development and to quick return cost investments to capturemanufacturing cost savings. These investments allow us to meet the market’s increased demand and corresponding volume requirements resulting in greaterprofitability and cash flow. Capital expenditures in 2016 were $14.6 million consisting primarily of $5.6 million for the purchase of, land adjacent to ourWinchester, Virginia manufacturing facility, and Trex University (our state-of-the-art training facility), $5.6 million for investments to capture plant costreduction initiatives, and $2.7 million for process and productivity improvement. Also, in January 2016, the Company sold a portion of the Olive Branchfacility that contained the buildings for $4.2 million and, as of December 31, 2016, continues to own approximately 62 acres of undeveloped land adjacentto the sold properties.During 2015, capital expenditures were $23.3 million compared to $13.0 million for 2014, or an 80% increase. Our 2015 expenditures were primarilycomprised of $6.7 million for equipment for our specialty materials operation, $4.2 million for cost reduction and business support activities, $3.9 million forthe addition of a Fernley, Nevada reprocessing line, $3.2 million for the purchase of land adjacent to our Winchester, Virginia facility to support potentialfuture expansion, and $2.3 million for other manufacturing productivity improvements. 25Table of ContentsFinancing ActivitiesIn January 2016, we increased our borrowing capacity in order to repurchase shares of our common stock and to support our seasonal working capitalneeds. Net cash used in financing activities was $62.4 million in 2016 compared to net cash used in financing activities of $42.9 million in 2015. Theincrease was primarily due to payments on outstanding debt balances earlier and at a higher level in 2016 compared to 2015 due to higher sales and reducedmanufacturing costs.Cash used in financing activities was $42.9 million during 2015 compared to $40.0 million in 2014, a 7.2% increase. The net use of cash in 2015 wasprimarily used to repurchase common stock in the amount of $45.2 million under our October 2014 Stock Repurchase Program, and to fund working capitalneeds and support general business operations.Stock Repurchase Programs.On February 19, 2014, our Board of Directors authorized a common stock repurchase program of up to $50.0 million of our outstanding common stock(February 2014 Stock Repurchase Program). This authorization had no expiration date. During the three months ended June 30, 2014, we repurchased1,657,919 shares for $50.0 million, which completed the authorization under the February 2014 Stock Repurchase Program.On October 23, 2014, our Board of Directors authorized a common stock repurchase program of up to 2.0 million shares of our outstanding commonstock (October 2014 Stock Repurchase Program). This authorization had no expiration date. During the three months ended September 30, 2015, werepurchased 1,134,300 shares for $45.2 million under the October 2014 Stock Repurchase Program.On October 22, 2015, our Board of Directors terminated the October 2014 Stock Repurchase Program and adopted a new stock repurchase program ofup to 3.15 million shares of our outstanding common stock (October 2015 Stock Repurchase Program). In 2016, we repurchased 1,578,952 shares for $53.3million under the October 2015 Stock Repurchase Program. This authorization terminated on December 31, 2016.On February 16, 2017, the Board of Directors authorized a common stock repurchase program of up to 2.961 million shares of our outstanding commonstock (February 2017 Stock Repurchase Program). As of the date of this report, we had not repurchased any shares under the February 2017 Stock RepurchaseProgram.Inventory in Distribution Channels. We sell our products through a tiered distribution system. We have over 50 distributors worldwide and two retailmerchandisers to which we sell our products. The 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, wehave historically provided our distributors and dealers incentives to build inventory levels before the start of the prime deck-building season. Theseincentives include prompt payment discounts and favorable payment terms. In addition, we offer price discounts or volume rebates on specified products andother incentives based on increases in purchases as part of specific promotional programs. We warrant that we will replace defective items for a period of oneyear from the date of shipment to the distributor. While we do not typically receive any information regarding inventory in the distribution channel from anydealers, we occasionally receive limited information from some but not all of our distributors regarding their inventory. Because few distributors provide uswith any information regarding their inventory, we cannot definitively determine the level of inventory in the distribution channels at any time. We are notaware of significant changes in the levels of inventory in distribution channels at December 31, 2016 compared to inventory levels at December 31, 2015.Significant increases in inventory levels in the distribution channel without a corresponding change in end-user demand could have an adverse effect onfuture sales.On occasion, we may need to replace a distributor. Historically, we have had little difficulty replacing a distributor and have experienced little or nodisruption to operations or liquidity. We believe that in the event we need to replace a distributor, it would not have an adverse effect on our profitability orliquidity. 26Table of ContentsProduct Warranty. We continue to receive and settle claims related to material produced at our Nevada facility prior to 2007 that exhibits surfaceflaking, which has had a material adverse effect on cash flow from operations, and regularly monitor the adequacy of the warranty reserve. During the yearended December 31, 2016, we paid approximately $5.7 million to settle surface flaking claims against the warranty reserve, a decrease of 21% from the $7.2million paid in 2015. We estimate that the number of claims received will continue to decline over time and that the average cost per claim will increaseslightly, primarily due to inflation. If the level of claims received or average settlement cost per claim differs materially from expectations it could result inadditional increases or decreases to the warranty reserve and a decrease or increase in earnings and cash flows in future periods.Seasonality. The Company’s operating results have historically varied from quarter to quarter, often attributable to seasonal trends in the demand forTrex products. The Company has historically experienced lower net sales during the fourth quarter due to the holiday season. Also, seasonal, erratic orprolonged adverse weather conditions in certain geographic regions reduce the level of home improvement and construction activity and can shift net salesto a later period.Indebtedness. On January 12, 2016, the Company entered into a Third Amended and Restated Credit Agreement and also the First Amendment to theThird Amended and Restated Credit Agreement (together, the Third Amended Credit Agreement) with Bank of America, N.A. (BOA) as Lender,Administrative Agent, Swing Line Lender and Letter of Credit Issuer; and certain other lenders including Citibank, N.A., Capital One, N.A., and SunTrustBank (collectively, Lenders) arranged by Bank of America Merrill Lynch as Sole Lead Arranger and Sole Bookrunner. The Third Amended Credit Agreementamended and restated the Second Amended Credit Agreement.Under the Third Amended Credit Agreement, the Lenders agree to provide the Company with one or more revolving loans in a collective maximumprincipal amount of $250 million from January 1 through June 30 of each year and a maximum principal amount of $200 million from July 1 throughDecember 31 of each year throughout the term, which ends January 12, 2021. Included within the revolving loan limit are sublimits for a letter of creditfacility in an amount not to exceed $15 million and swing line loans in an aggregate principal amount at any time outstanding not to exceed $5 million. Therevolving loans, the letter of credit facility and the swing line loans are for the purpose of funding working capital needs and supporting general businessoperations.The Company has the option to select interest rates for each loan request at the Base Rate or Eurodollar Rate. Base rate loans under the revolving loansand the swing line loans accrue interest at the Base Rate plus the Applicable Rate. Eurodollar Rate Loans for the revolving loans and swing line loans accrueinterest at the Adjusted London InterBank Offered Rate plus the Applicable Rate. The Base Rate for any day is a fluctuating rate per annum equal to thehighest of (a) the Federal Funds Rate plus 0.50%, (b) the rate of interest in effect for such day as publicly announced from time to time by BOA as its primerate, and (c) the Eurodollar Rate plus 1.0%.Repayment of all then outstanding principal, interest, fees and costs is due on January 12, 2021.The Company will reimburse BOA for all amounts payable, including interest, under a letter of credit at the earlier of (i) the date set forth in theapplication, or (ii) one business day after the payment under such letter of credit by BOA.The Third Amended Credit Agreement is secured by property with respect to which liens in favor of the Administrative Agent, for the benefit of itselfand the other holders of the obligations, are purported to be granted pursuant to and in accordance with the terms of the collateral documents as referenced inthe Third Amended Credit Agreement.At December 31, 2016, the Company had no outstanding borrowings under the Third Amended Credit Agreement and $200 million of availableborrowing capacity. 27Table of ContentsCompliance 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, we are required to maintain specified financial ratios based on levels of debt, 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 the business, some of which are discussed in this report under “Risk Factors.” We were in compliance with all covenants contained inthe Third Amended Credit Agreement at December 31, 2016. Failure to comply with the financial covenants could be considered a default of our repaymentobligations and, among other remedies, could accelerate payment of any amounts outstanding.Contractual Obligations. The following tables show, as of December 31, 2016, 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 Purchase commitments (1) $23,802 $20,208 $3,594 $— $— Operating leases 58,388 9,606 23,953 10,783 14,046 Total contractual cash obligations $82,190 $29,814 $27,547 $10,783 $14,046 (1)Purchase commitments represent supply contracts with raw material vendors. Open purchase orders written in the normal course of business for goodsor services that are provided on demand have been excluded as the timing of which is not certain.Off-Balance Sheet Arrangements. We do not have off-balance sheet financing arrangements other than operating leases.Capital and Other Cash Requirements. Capital expenditures in 2016 were $14.6 million consisting of $5.6 million for the purchase of land adjacent toour Winchester, Virginia manufacturing facility, Trex University (our state-of-the-art training facility), $5.6 million for general plant cost reductioninitiatives, and $2.7 million for process and productivity improvement. We currently estimate that capital expenditures in 2017 will be approximately $15million to $20 million. Capital expenditures in 2017 are expected to be used primarily to support new product launches in current and adjacent categories,cost reduction initiatives, and general business support.We believe that cash on hand, cash flows 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 duringthe next 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 28Table of Contentsseasonal borrowing needs. We may determine that it is necessary or desirable to obtain financing through bank borrowings or the issuance of debt or equitysecurities to address such contingencies or changes to our business plan. Debt financing would increase our level of indebtedness, while equity financingwould 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 suchfinancing, which would be restricted by covenants contained in our existing debt agreements.NEW ACCOUNTING STANDARDSIn May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers,” and issued subsequent amendments to the initialguidance in August 2015 within ASU 2015-14, in March 2016 within ASU 2016-08, in April 2016 within ASU 2016-10, and in May 2016 within ASU 2016-12 (collectively, the new standard). The new standard provides a single, comprehensive model for revenue arising from contracts with customers andsupersedes most current revenue recognition guidance. The new standard requires an entity to recognize revenue at an amount that reflects the considerationto which the company expects to be entitled in exchange for transferring goods or services to a customer. The Company intends to adopt the new standard inthe first quarter of fiscal 2018. Currently, the Company intends to use the retrospective application to each reporting period presented, with the option toelect certain practical expedients as defined in the new standard. The Company does not believe adoption of the new standard will have a material impact onits Consolidated Statements of Comprehensive Income, but expects expanded financial statement footnote disclosure. The Company is continuing toevaluate the impacts of the pending adoption. As such, the Company’s preliminary assessments are subject to change.In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” The new standard requires lessees to recognize leases on the balance sheetas a right-of-use asset and a lease liability, other than leases that meet the definition of a short-term lease. The liability will be equal to the present value ofthe lease payments. The asset will be based on the liability, subject to adjustment. For income statement purposes, the leases will continue to be classified aseither operating or finance. Operating leases will result in straight-line expense (similar to current operating leases) and finance leases will result in a front-loaded expense pattern (similar to current capital leases). The standard is effective for fiscal years, and interim periods within those fiscal years, beginningafter December 15, 2018. Early adoption is permitted. The new standard must be adopted using the modified retrospective transition method and provides forthe option to elect a package of practical expedients upon adoption. The Company is currently assessing the impact of adoption of the new standard on itsconsolidated financial statements and related note disclosures and has not made any decision on the option to elect adoption of the practical expedients.In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash flows (Topic 230): Classification of Certain Cash Receipts and CashPayments.” The guidance is intended to reduce diversity in practice across all industries in how certain transactions are classified in the statement of cashflows. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscalyears. Early adoption is permitted. The guidance requires application using a retrospective translation method. The Company is assessing the impact ofadoption of the new standard on its consolidated financial statements and related note disclosures. Item 7A.Quantitative and Qualitative Disclosures About Market RiskWe are subject to market risks from changing interest rates associated with our borrowings. To meet our seasonal working capital needs, we borrowperiodically on our variable rate revolving line of credit. At December 31, 2016, we had no debt outstanding under our revolving line of credit. Whilevariable 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 ouroverall financial position, results of operations or liquidity. 29Table of ContentsIn certain instances we may use interest rate swap agreements to modify fixed rate obligations to variable rate obligations, thereby adjusting theinterest rates to current market rates and ensuring that the debt instruments are always reflected at fair value. We had no interest rate swap agreementsoutstanding as of December 31, 2016. Item 8.Financial Statements and Supplementary DataThe financial statements listed in Item 15 and appearing on pages F-2 through F-23 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, 2016. 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, 2016. 30Table 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 thereliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accountingprinciples. Internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonabledetail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions arerecorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts andexpenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) providereasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have amaterial effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degreeof compliance with the policies and procedures may deteriorate.We assessed the Company’s internal control over financial reporting as of December 31, 2016, based on criteria for effective internal control overfinancial reporting established in “Internal Control-Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the TreadwayCommission (the “COSO Framework”). Based on this assessment, we concluded that, as of December 31, 2016, 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, 2016, has been audited by Ernst & Young LLP, an independentregistered public accounting firm, as stated in their report, which follows hereafter. TREX COMPANY, INC.February 21, 2017 By: /S/ JAMES E. CLINE James E. ClinePresident and Chief Executive Officer (Principal Executive Officer)February 21, 2017 By: /S/ BRYAN H. FAIRBANKS Bryan H. FairbanksVice President and Chief Financial Officer(Principal Financial Officer)Changes in Internal Control Over Financial ReportingThere have been no changes in the Company’s internal control over financial reporting identified in connection with the evaluation described abovein “Management’s Report on Internal Control Over Financial Reporting” that occurred during the Company’s fourth fiscal quarter that have materiallyaffected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. 31Table of ContentsReport of Ernst & Young LLP,Independent Registered Public Accounting Firm,Regarding Internal Control Over Financial ReportingThe Board of Directors and StockholdersTrex Company, Inc.We have audited Trex Company, Inc.’s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). TrexCompany, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness ofinternal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. 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 require thatwe plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all materialrespects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testingand evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considerednecessary 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 evaluation ofeffectiveness 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, 2016, based onthe COSO criteria.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheetsof Trex Company, Inc., as of December 31, 2016 and 2015, and the related consolidated statements of comprehensive income, stockholders’ equity and cashflows for each of the three years in the period ended December 31, 2016 of Trex Company, Inc. and our report dated February 21, 2017 expressed anunqualified opinion thereon./s/ Ernst & Young LLPMcLean, VirginiaFebruary 21, 2017 32Table of ContentsItem 9B.Other InformationNone.PART III Item 10.Directors, Executive Officers and Corporate GovernanceInformation responsive to this Item 10 is incorporated herein by reference to our definitive proxy statement for our 2017 annual meeting ofstockholders, which we will file with the SEC on or before 120 days after our 2016 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 ExecutiveOfficer and Chief Financial Officer. The code is available on our corporate web site and in print to any stockholder who requests a copy. We also makeavailable on our web site, at www.trex.com, and in print to any stockholder who requests them, copies of our corporate governance principles and the chartersof each standing committee of our board of directors. Requests for copies of these documents should be directed to Corporate Secretary, Trex Company, Inc.,160 Exeter 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 2017 annual meeting ofstockholders, which we will file with the SEC on or before 120 days after our 2016 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 2017 annual meeting ofstockholders, which we will file with the SEC on or before 120 days after our 2016 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 2017 annual meeting ofstockholders, which we will file with the SEC on or before 120 days after our 2016 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 2017 annual meeting ofstockholders, which we will file with the SEC on or before 120 days after our 2016 fiscal year-end. 33Table 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-27 of this report and are incorporated byreference in Part II, Item 8: Report of Ernst & Young LLP, Independent Registered Public Accounting Firm F-2 Consolidated Financial Statements Consolidated Statements of Comprehensive Income for the three years ended December 31, 2016 F-3 Consolidated Balance Sheets as of December 31, 2016 and 2015 F-4 Consolidated Statements of Changes in Stockholders’ Equity for the three years ended December 31, 2016 F-5 Consolidated Statements of Cash Flows for the three years ended December 31, 2016 F-6 Notes to Consolidated Financial Statements F-7 (a)(2) The following financial statement schedule is filed as part of this report: Schedule II—Valuation and Qualifying Accounts and Reserves F-28 All other schedules for which provision is made in the applicable accounting regulations of the SEC are not required under the related instructions orare 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 RegistrationStatement on Form S-1 (No. 333-63287) and incorporated herein by reference. 3.2 Certificate of Amendment to the Restated Certificate of Incorporation of Trex Company, Inc. dated April 30, 2014. Filed as Exhibit 3.2 tothe Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2014 and incorporated herein by reference. 3.3 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 FormS-1 (No. 333-63287) and incorporated herein by reference. 4.2 Second Amended and Restated Credit Agreement dated as of November 20, 2014 between the Company and Branch Banking and TrustCompany, as a Lender, Administrative Agent, Swing Line Lender and Letter of Credit Issuer; Citibank, N.A. as a Lender; Bank of America,N.A. as a Lender; and BB&T Capital Markets, as Lead Arranger. Filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filedNovember 25, 2014 and incorporated herein by reference. 4.3 Revolver Note dated November 20, 2014 payable by the Company to Branch Banking and Trust Company in the amount of the lesser of$80,000,000 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 November 25, 2014 and incorporated herein by reference. 34Table of ContentsExhibitNumber Exhibit Description 4.4 Revolver Note dated November 20, 2014 payable by the Company to Citibank, N.A. in the amount of the lesser of $45,000,000 or theoutstanding revolver advances made by Citibank, N.A. Filed as Exhibit 4.3 to the Company’s Current Report on Form 8-K filedNovember 25, 2014 and incorporated herein by reference. 4.5 Revolver Note dated November 20, 2014 payable by the Company to Bank of America, N.A. in the amount of the lesser of $25,000,000 orthe outstanding revolver advances made by Bank of America, N.A. Filed as Exhibit 4.4 to the Company’s Current Report on Form 8-Kfiled November 25, 2014 and incorporated herein by reference. 4.6 Swing Advance Note dated November 20, 2014 payable by the Company 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 4.5 to theCompany’s Current Report on Form 8-K filed November 25, 2014 and incorporated herein by reference. 4.7 Second Amended and Restated Security Agreement dated as of November 20, 2014 between the Company, as debtor, and Branch Bankingand Trust Company as Administrative Agent for Branch Banking and Trust Company, Citibank, N.A. and Bank of America, N.A. Filed asExhibit 4.6 to the Company’s Current Report on Form 8-K filed November 25, 2014 and incorporated herein by reference. 4.8 Second Modification to Amended and Restated Credit Line Deed of Trust, dated as of November 20, 2014, by and among the Company asgrantor, BB&T-VA Collateral Service Corporation, as trustee, and Branch Banking and Trust Company, as Administrative Agent forBranch Banking and Trust Company, Citibank, N.A. and Bank of America, N.A., as Beneficiaries relating to real property partially locatedin the County of Frederick, Virginia and partially located in the City of Winchester, Virginia. Filed as Exhibit 4.7 to the Company’sCurrent Report on Form 8-K filed November 25, 2014 and incorporated herein by reference. 4.9 Modification to Deed of Trust, dated as of November 20, 2014, by and among the Company as grantor, First American Title InsuranceCompany, as trustee, and Branch Banking and Trust Company, as Administrative Agent for Branch Banking and Trust Company,Citibank, N.A. and Bank of America, N.A., as Beneficiaries relating to real property located in the County of Fernley, Nevada. Filed asExhibit 4.8 to the Company’s Current Report on Form 8-K filed November 25, 2014 and incorporated herein by reference. 4.10 Intellectual Property Security Agreement, dated November 20, 2014, by and between Trex Company, Inc. as debtor; and Branch Bankingand Trust Company, in its capacity as Administrative Agent under the Second Amended and Restated Credit Agreement and acting asagent for itself and the other secured parties. Filed as Exhibit 4.9 to the Company’s Current Report on Form 8-K filed November 25, 2014and incorporated herein by reference. 4.11 Third Amended and Restated Credit Agreement dated as of January 12, 2016 between the Company, as borrower; the subsidiaries of theCompany as guarantors; Bank of America, N.A., as a Lender, Administrative Agent, Swing Line Lender and Letter of Credit Issuer; andcertain other lenders arranged by Bank of America Merrill Lynch as Sole Lead Arranger and Sole Bookrunner. Filed as Exhibit 4.1 to theCompany’s Current Report on Form 8-K filed on January 14, 2016 and incorporated herein by reference. 4.12 Revolver Note dated January 12, 2016 payable by the Company to Bank of America, N.A. in the amount of the lesser of $110,000,000 orthe outstanding revolver advances made by Bank of America, N.A. Filed as Exhibit 4.2 to the Company’s Current Report on Form 8-Kfiled on January 14, 2016 and incorporated herein by reference. 35Table of ContentsExhibitNumber Exhibit Description 4.13 Revolver Note dated January 12, 2016 payable by the Company to Citibank, N.A. in the amount of the lesser of $75,000,000 or theoutstanding revolver advances made by Citibank, N.A. Filed as Exhibit 4.3 to the Company’s Current Report on Form 8-K filed onJanuary 14, 2016 and incorporated herein by reference. 4.14 Revolver Note dated January 12, 2016 payable by the Company to Capital One, N.A. in the amount of the lesser of $35,000,000 or theoutstanding revolver advances made by Capital One, N.A. Filed as Exhibit 4.4 to the Company’s Current Report on Form 8-K filed onJanuary 14, 2016 and incorporated herein by reference. 4.15 Revolver Note dated January 12, 2016 payable by the Company to SunTrust Bank in the amount of the lesser of $30,000,000 or theoutstanding revolver advances made by SunTrust Bank. Filed as Exhibit 4.5 to the Company’s Current Report on Form 8-K filed onJanuary 14, 2016 and incorporated herein by reference. 4.16 Third Amended and Restated Security and Pledge Agreement dated as of January 12, 2016 between the Company, as debtor, and Bank ofAmerica, N.A. as Administrative Agent (including Notices of Grant of Security Interest in Copyrights and Trademarks). Filed as Exhibit 4.6to the Company’s Current Report on Form 8-K filed on January 14, 2016 and incorporated herein by reference. 4.17 Assignment of Amended and Restated Credit Line Deed of Trust, Substitution of Trustee and Amendment, dated as of January 12, 2016,by and among the Company as grantor, PRLAP, INC, as trustee, and Bank of America, N.A., as Administrative Agent for Bank of America,N.A., Citibank, N.A., Capital One, N.A., and SunTrust Bank, as Beneficiaries relating to real property partially located in the County ofFrederick, Virginia and partially located in the City of Winchester, Virginia. Filed as Exhibit 4.7 to the Company‘s Current Report onForm 8-K filed on January 14, 2016 and incorporated herein by reference. 4.18 Amended and Restated Deed of Trust, dated as of January 12, 2016, by and among the Company as grantor, First American Title InsuranceCompany, as trustee, and Bank of America, N.A., Citibank, N.A., Capital One, N.A., and SunTrust Bank, as Beneficiaries relating to realproperty located in the County of Fernley, Nevada. Filed as Exhibit 4.8 to the Company’s Current Report on Form 8-K filed on January 14,2016 and incorporated herein by reference. 10.1 Description of Management Compensatory Plans and Arrangements. Filed herewith. ** 10.2 Trex Company, Inc. 2014 Stock Incentive Plan. Filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterlyperiod ended June 30, 2014 and incorporated herein by reference. ** 10.3 Trex Company, Inc. Amended and Restated 1999 Incentive Plan for Outside Directors. Filed as Exhibit 10.2 to the Company’s QuarterlyReport on Form 10-Q for the quarterly period ended September 30, 2015 and incorporated herein by reference. ** 10.4 Form of Trex Company, Inc. 2014 Stock Incentive Plan Time-Based Restricted Stock Agreement. Filed as Exhibit 10.7 to the Company’sAnnual Report on Form 10-K for the fiscal year ended December 31, 2013 and incorporated herein by reference. ** 10.5 Form of Trex Company, Inc. 2014 Stock Incentive Plan Performance-Based Restricted Stock Agreement. Filed as Exhibit 10.8 to theCompany’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013 and incorporated herein by reference. ** 10.6 Form of Trex Company, Inc. 2014 Stock Incentive Plan Stock Appreciation Rights Agreement. Filed as Exhibit 10.1 to the Company’sQuarterly Report on Form 10-Q for the quarterly period ended September 30, 2015 and incorporated herein by reference. ** 36Table of ContentsExhibitNumber Exhibit Description 10.7 Form of Trex Company, Inc. 2014 Stock Incentive Plan Time-Based Restricted Stock Unit Agreement. Filed as Exhibit 10.3 to theCompany’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2015 and incorporated herein by reference. ** 10.8 Form of Trex Company, Inc. 2014 Stock Incentive Plan Performance-Based Restricted Stock Unit Agreement. Filed as Exhibit 10.4 to theCompany’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2015 and incorporated herein by reference. ** 10.9 Form of Trex Company, Inc. Amended and Restated 1999 Incentive Plan for Outside Directors Stock Appreciation Rights Agreement.Filed as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2006 andincorporated herein by reference. ** 10.10 Form of Trex Company, Inc. Amended and Restated 1999 Incentive Plan for Outside Directors Restricted Stock Agreement. Filed asExhibit 10.10 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011 and incorporated herein byreference. ** 10.11 Form of Trex Company, Inc. Amended and Restated 1999 Incentive Plan for Outside Directors Restricted Stock Unit Agreement. Filed asExhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2015 and incorporated herein byreference. ** 10.12 Change in Control Severance Agreement dated May 6, 2015 by and between Trex Company, Inc. and James E. Cline. Filed as Exhibit 10.1to the Company’s Current Report on Form 8-K filed May 8, 2015 and incorporated herein by reference. ** 10.13 Severance Agreement dated May 6, 2015 by and between Trex Company, Inc. and James E. Cline. Filed as Exhibit 10.2 to the Company’sCurrent Report on Form 8-K filed May 8, 2015 and incorporated herein by reference. ** 10.14 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 andincorporated herein by reference. ** 10.15 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 hereinby reference. ** 10.16 Form of Change in Control Severance Agreement between Trex Company, Inc. and Officers other than the Chief Executive Officer. Filedherewith. ** 10.17 Form of Severance Agreement between Trex Company, Inc. and Officers other than the Chief Executive Officer. Filed as Exhibit 10.1 tothe Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2015 and incorporated herein by reference. ** 10.18 Retention Agreement, dated as of July 24, 2012, between Trex Company, Inc. and Ronald W. Kaplan. Filed as Exhibit 10.3 to theCompany’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2012 and incorporated herein by reference. ** 10.19 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. ** 10.20 Retention Agreement, dated as of July 24, 2012, between Trex Company, Inc. and William R. Gupp. Filed as Exhibit 10.5 to theCompany’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2012 and incorporated herein by reference. *, ** 37Table of ContentsExhibitNumber Exhibit Description 10.21 Retention Agreement, dated as of July 24, 2012, between Trex Company, Inc. and F. Timothy Reese. Filed as Exhibit 10.6 to theCompany’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2012 and incorporated herein by reference. ** 10.22 Form of Indemnity Agreement for Directors. Filed as Exhibit 10.19 to the Company’s Annual Report on Form 10-K for the fiscal yearended December 31, 2008 and incorporated herein by reference. 10.23 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. 10.24 Form of Indemnity Agreement for Director/Officers. Filed as Exhibit 10.21 to the Company’s Annual Report on Form 10-K for the fiscalyear ended December 31, 2008 and incorporated herein by reference. 10.25 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. 10.26 Form of Trex Company, Inc. Fencing Agreement for Installers/Retailers. Filed as Exhibit 10.4 to the Company’s Quarterly Report on Form10-Q for the quarterly period ended September 30, 2006 and incorporated herein by reference. 10.27 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. 10.28 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. 10.29 Amendment, dated November 2, 2016, 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 herewith. 10.30 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 theCompany’s Annual 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. Filedherewith. 31.2 Certification of Chief Financial Officer of the Company pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. Filedherewith. 32 Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(18 U.S.C. § 1350). Furnished herewith.101.INS XBRL Instance Document. Filed.101.SCH XBRL Taxonomy Extension Schema Document. Filed. 38Table of ContentsExhibitNumber Exhibit Description101.CAL XBRL Taxonomy Extension Calculation Linkbase Document. Filed.101.DEF XBRL Taxonomy Extension Definition Linkbase Document. Filed.101.LAB XBRL Taxonomy Extension Label Linkbase Document. Filed.101.PRE XBRL Taxonomy Extension Presentation Linkbase Document. Filed. *Portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidentialtreatment.**Management contract or compensatory plan or agreement. 39Table of ContentsTREX COMPANY, INC.Index to Consolidated Financial Statements Page Report of Ernst & Young LLP, Independent Registered Public Accounting Firm F-2 Consolidated Financial Statements Consolidated Statements of Comprehensive Income for the three years ended December 31, 2016 F-3 Consolidated Balance Sheets as of December 31, 2016 and 2015 F-4 Consolidated Statements of Changes in Stockholders’ Equity for the three years ended December 31, 2016 F-5 Consolidated Statements of Cash Flows for the three years ended December 31, 2016 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-28 F-1Table of ContentsReport of Ernst & Young LLP,Independent Registered Public Accounting Firm,on the Audited Consolidated Financial StatementsThe Board of Directors and StockholdersTrex Company, Inc.We have audited the accompanying consolidated balance sheets of Trex Company, Inc. as of December 31, 2016 and 2015, and the related consolidatedstatements of comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2016. Our audits alsoincluded the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company’smanagement. 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 standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our auditsprovide 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. atDecember 31, 2016 and 2015, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31,2016, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered inrelation 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.’s internalcontrol over financial reporting as of December 31, 2016, based on criteria established in Internal Control-Integrated Framework issued by the Committee ofSponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 21, 2017 expressed an unqualified opinion thereon./s/ Ernst & Young LLPMcLean, VirginiaFebruary 21, 2017 F-2Table of ContentsTREX COMPANY, INC.CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Year Ended December 31, 2016 2015 2014 (In thousands, except share and per share data) Net sales $479,616 $440,804 $391,660 Cost of sales 292,521 285,935 251,464 Gross profit 187,095 154,869 140,196 Selling, general and administrative expenses 83,140 77,463 72,370 Income from operations 103,955 77,406 67,826 Interest expense, net 1,125 619 878 Income before income taxes 102,830 76,787 66,948 Provision for income taxes 34,983 28,689 25,427 Net income $67,847 $48,098 $41,521 Basic earnings per common share $2.31 $1.53 $1.28 Basic weighted average common shares outstanding 29,394,559 31,350,542 32,319,649 Diluted earnings per common share $2.29 $1.52 $1.27 Diluted weighted average common shares outstanding 29,612,669 31,682,509 32,751,074 Comprehensive income $67,847 $48,098 $41,521 See Notes to Consolidated Financial Statements. F-3Table of ContentsTREX COMPANY, INC.CONSOLIDATED BALANCE SHEETS December 31, 2016 2015 (In thousands) ASSETS Current Assets: Cash and cash equivalents $18,664 $5,995 Accounts receivable, net 48,039 47,386 Inventories 28,546 23,104 Prepaid expenses and other assets 10,400 13,409 Deferred income taxes — 9,136 Total current assets 105,649 99,030 Property, plant and equipment, net 103,286 100,924 Goodwill and other intangibles 10,523 10,526 Other assets 1,972 1,518 Total Assets $221,430 $211,998 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities: Accounts payable $10,767 $17,733 Accrued expenses 34,693 28,891 Accrued warranty 5,925 6,825 Line of Credit — 7,000 Total current liabilities 51,385 60,449 Deferred income taxes 894 4,597 Non-current accrued warranty 31,767 26,698 Other long-term liabilities 3,223 3,791 Total Liabilities 87,269 95,535 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, 80,000,000 shares authorized; 34,894,233 and 34,819,259 shares issued and29,400,552 and 30,904,530 shares outstanding at December 31, 2016 and 2015, respectively 349 348 Additional paid-in capital 120,082 116,947 Retained earnings 187,242 119,395 Treasury stock, at cost, 5,493,681 and 3,914,729 shares at December 31, 2016 and 2015, respectively (173,512) (120,227) Total Stockholders’ Equity 134,161 116,463 Total Liabilities and Stockholders’ Equity $221,430 $211,998 See Notes to Consolidated Financial Statements. F-4Table of ContentsTREX COMPANY, INC.CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY Common Stock AdditionalPaid-InCapital RetainedEarnings(Deficit) Treasury Stock Total Shares Amount Shares Amount Balance, December 31, 2013 33,475,614 $346 101,494 $29,776 1,122,510 $(25,000) $106,616 Net income — — — 41,521 — — 41,521 Employee stock purchase and option plans 133,133 1 746 — — — 747 Shares withheld for taxes on share-based payment awards (36,610) — (3,189) — — — (3,189) Stock-based compensation 105,905 1 4,806 — — — 4,807 Excess tax benefits from stock compensation — — 12,883 — — — 12,883 Shares repurchased under our publicly announced share repurchaseprograms (1,657,919) — — — 1,657,919 (50,000) (50,000) Balance, December 31, 2014 32,020,123 348 116,740 71,297 2,780,429 (75,000) 113,385 Net income — — — 48,098 — — 48,098 Employee stock purchase and option plans 113,996 1 314 — — — 315 Shares withheld for taxes on share-based payment awards (115,453) (1) (8,085) — — — (8,086) Stock-based compensation 20,164 — 4,861 — — — 4,861 Excess tax benefits from stock compensation — — 3,117 — — — 3,117 Shares repurchased under our publicly announced share repurchaseprograms (1,134,300) — — — 1,134,300 (45,227) (45,227) Balance, December 31, 2015 30,904,530 348 $116,947 119,395 3,914,729 (120,227) 116,463 Net income — — — 67,847 — — 67,847 Employee stock purchase and option plans 79,175 1 279 — — — 280 Shares withheld for taxes on share-based payment awards (13,193) (1) (1,932) — — — (1,933) Stock-based compensation 8,992 1 4,788 — — — 4,789 Shares repurchased under our publicly announced share repurchaseprograms (1,578,952) — — — 1,578,952 (53,285) (53,285) Balance, December 31, 2016 29,400,552 $349 $120,082 $187,242 5,493,681 $(173,512) $134,161 See Notes to Consolidated Financial Statements. F-5Table of ContentsTREX COMPANY, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2016 2015 2014 (In thousands) Operating Activities Net income $67,847 $48,098 $41,521 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 14,498 14,384 15,204 Deferred income taxes 5,433 1,024 3,574 Stock-based compensation 4,788 4,861 4,807 (Gain) Loss on disposal of property, plant and equipment (185) 649 158 Excess tax benefits from stock compensation — (3,147) (12,898) Other non-cash adjustments (284) (271) (245) Changes in operating assets and liabilities: Accounts receivable (653) (10,995) 867 Inventories (5,442) 643 (1,319) Prepaid expenses and other assets (4,256) 905 (624) Accounts payable (6,966) (2,317) 5,159 Accrued expenses and other liabilities 9,403 7,554 (7,535) Income taxes receivable/payable 1,110 1,246 9,973 Net cash provided by operating activities 85,293 62,634 58,642 Investing Activities Expenditures for property, plant and equipment (14,551) (23,333) (12,974) Proceeds from sales of property, plant and equipment 4,349 35 66 Purchase of acquired company, net of cash acquired — (31) (44) Notes receivable, net — — 79 Net cash used in investing activities (10,202) (23,329) (12,873) Financing Activities Financing costs (485) (3) (453) Borrowings under line of credit 242,700 225,500 143,000 Principal payments under line of credit (249,700) (218,500) (143,000) Repurchases of common stock (55,216) (53,313) (53,189) Proceeds from employee stock purchase and option plans 279 315 747 Excess tax benefits from stock compensation — 3,147 12,898 Net cash used in financing activities (62,422) (42,854) (39,997) Net increase (decrease) in cash and cash equivalents 12,669 (3,549) 5,772 Cash and cash equivalents at beginning of year 5,995 9,544 3,772 Cash and cash equivalents at end of year $18,664 $5,995 $9,544 Supplemental disclosures of cash flow information: Cash paid for interest $852 $625 $520 Cash paid for income taxes, net $28,626 $26,327 $11,919 See Notes to Consolidated Financial Statements. F-6Table 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. A majority of its products are manufactured in a proprietary process that combines reclaimed wood fibers and scrap polyethylene. The Companyoperates in a single reportable 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 venture with a Spanish company responsible for publicenvironmental programs in southern Spain and with an Italian equipment manufacturer. The venture was formed to recycle polyethylene at a facility in ElEjido, Spain. The Company’s investment in Denplax is accounted for using the equity method. During 2010, the Company determined that its investment inDenplax and a related note receivable were no longer recoverable and recorded a $2.4 million charge to earnings to fully reserve the equity investment andnote. Both the equity investment and note remain fully reserved as of December 31, 2016.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 and tradeaccounts receivable. The Company from time to time may have bank deposits in excess of insurance limits of the Federal Deposit Insurance Corporation. Asof December 31, 2016, substantially all deposits are maintained in one financial institution. The Company has not experienced any losses in such accountsand believes it is not exposed to any significant credit risk 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. There wasno valuation allowance recorded as of December 31, 2016 and 2015. F-7Table of ContentsIn the years ended December 31, 2016, 2015 and 2014, sales to certain customers accounted for 10% or more of the Company’s total net sales. For theyear ended December 31, 2016, two customers of the Company represented approximately 39% of the Company’s net sales. For the year ended December 31,2015, one customer of the Company represented approximately 27% of the Company’s net sales. For the year ended December 31, 2014, one customer of theCompany represented approximately 24% of the Company’s net sales. At December 31, 2016, four customers represented 30%, 16%, 14%, and 13%,respectively, of the Company’s accounts receivable balance.Approximately 33%, 35%, and 38% of the Company’s materials purchases for the years ended December 31, 2016, 2015 and 2014, respectively, werepurchased 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 for slowmoving or obsolete items and writes down the related products to estimated realizable value. The Company’s reserves for estimated slow moving products orobsolescence are not material. At December 31, 2016, the excess of the replacement cost of inventory over the LIFO value of inventory was approximately$21.4 million. Due to the nature of the LIFO valuation methodology, liquidations of inventories will result in a portion of the Company’s cost of sales beingbased on historical rather than current year costs.A majority of the Company’s products are made in a proprietary process that combines reclaimed wood fibers and scrap 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 3-11 years Furniture and equipment 10 years Forklifts and tractors 5 years Computer equipment and software 5 years Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the asset.The 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 probabilitythat future 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.Long-lived assets held for sale are stated at the lower of cost or fair value less cost to sell. F-8Table of ContentsFair Value MeasurementAssets and liabilities measured at fair value are measured at the amount that would be received for selling an asset or paid to transfer a liability in anorderly transaction between market participants at the measurement date and classified into one of the following fair value hierarchy: • Level 1 – Quoted prices for identical instruments in active markets. • Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active;and model derived valuations in which all significant inputs and significant value drivers are observable in active markets. • Level 3 – Valuations derived from management’s best estimate of what market participants would use in pricing the asset or liability at themeasurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.Contract Termination CostsThe Company leases 55,047 square feet of office and storage space in Dulles, Virginia, that it does not occupy, but has sublet all of the office space forthe remainder of the term of its lease obligation, which ends June 30, 2019. The future sublease receipts are less than the remaining minimum lease paymentobligations under the Company’s lease. Accordingly, the Company has recorded a liability for the present value of the shortfall.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 in accordance with AccountingStandard Codification Topic 350, “Intangibles – Goodwill and Other,” annually or more frequently if an event occurs or circumstances change in the interimthat would more likely than not reduce the fair value of the asset below its carrying amount. Goodwill is considered to be impaired when the net book valueof the reporting unit exceeds its estimated fair value.The Company first assesses qualitative factors to determine if it is more likely than not that the fair value of the reporting unit is less than its carryingamount to determine if it should proceed with the evaluation of goodwill for impairment. If the Company proceeds with the two-step impairment test, theCompany first compares the fair value of the reporting unit to its carrying value. If the carrying value of a reporting unit exceeds its fair value, the goodwill ofthat reporting unit is potentially impaired and step two of the impairment analysis is performed. In step two of the analysis, an impairment loss is recordedequal to the excess of the carrying value of the reporting unit’s goodwill over its implied fair value should 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.For the years ended December 31, 2016, 2015 and 2014, the Company completed its annual impairment test of goodwill and noted no impairment. TheCompany performs the annual impairment testing of its goodwill as of F-9Table of ContentsOctober 31 of each year. However, actual results could differ from the Company’s estimates and projections, which would affect the assessment ofimpairment. As of December 31, 2016, the Company had goodwill of $10.5 million that is reviewed annually for impairment.Product WarrantyThe Company warrants that its products will be free from material defects in workmanship and materials. This warranty generally extends for a periodof 25 years for residential use and 10 years for commercial use. With respect to Trex Signature® Railing, the warranty period is 25 years for both residentialand commercial use. With respect to the Company’s Transcend®, Enhance®, Select® and Universal Fascia product, the Company further warrants that theproduct will not fade in color more than a certain amount and will be resistant to permanent staining from food substances or mold, provided the stain iscleaned within seven days of appearance. This warranty extends for a period of 25 years for residential use and 10 years for commercial use. If there is abreach of such warranties, the Company has an obligation either to replace the defective product or refund the purchase price. The Company establisheswarranty reserves to provide for estimated future expenses as a result of product defects that result in claims. Reserve estimates are based on management’sjudgment, considering such factors as cost per claim, historical experience, anticipated rates of claims, and other available information. Management reviewsand adjusts these estimates, if necessary, on a quarterly basis based on the differences between actual experience and historical estimates.Treasury StockThe Company records the repurchase of shares of its common stock at cost. These shares are considered treasury stock, which is a reduction tostockholders’ equity. Treasury stock is included in authorized and issued shares but excluded from outstanding shares.Revenue RecognitionThe Company recognizes revenue when title is transferred to customers, which is generally upon shipment of the product to the customer. TheCompany does not grant contractual product return rights to customers other than pursuant to its product warranty. The Company does not expect futureproduct returns to 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 sales incentiveprograms to dealers and distributors, including rebates, pricing discounts, favorable payment terms and cooperative advertising, many of which result in cashconsideration made to dealers and distributors. The Company accounts for consideration made pursuant to these programs in accordance with accountingguidance that governs consideration given by a vendor to a customer. With the exception of cooperative advertising, the Company classifies sales incentivesas a reduction in revenue in “Net sales.” Sales incentives are recorded in the period in which they are earned by customers. The Company’s cooperativeadvertising program meets the requirements for exclusion from net sales and the costs are recorded as expenses in “Selling, general and administrativeexpenses” in the accompanying Consolidated Statements of Comprehensive Income. Cooperative advertising costs are expensed as incurred.Stock-Based CompensationThe Company measures stock-based compensation at the grant date of the award based on the fair value. For stock options, stock appreciation rightsand time-based restricted stock and time-based restricted stock units, stock-based compensation is recognized on a straight line basis over the vesting periodsof the award. The Company recognizes forfeitures as they occur. For performance-based restricted stock and performance-based restricted stock units, expenseis recognized ratably over the performance and vesting period of each tranche based on management’s judgment of the ultimate award that is probable to bepaid out based on the achievement F-10Table of Contentsof predetermined performance measures. Stock-based compensation expense is included in “Selling, general and administrative expenses” in theaccompanying Consolidated Statements of Comprehensive Income.Income TaxesThe Company recognizes deferred tax assets and liabilities based on the difference between the financial statement basis and tax basis of assets andliabilities using enacted rates expected to be in effect during the year in which the differences reverse. The Company assesses the likelihood that its deferredtax assets will be realized. Deferred tax assets are reduced by a valuation allowance when, after considering all available positive and negative evidence, it isdetermined that it is more likely than not that some portion, or all, of the deferred tax asset will not be realized. As of December 31, 2016, the Company has avaluation allowance of $4.1 million against these deferred tax assets. The Company analyzes its position in subsequent reporting periods, considering allavailable positive and negative evidence, in determining the expected realization of its deferred tax assets.Research and Development CostsResearch and development costs are expensed as incurred. For the years ended December 31, 2016, 2015 and 2014, research and development costswere $3.7 million, $1.5 million and $2.3 million, respectively, and have been included in “Selling, general and administrative expenses” in theaccompanying Consolidated 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, 2016 and December 31, 2015, $2.4 million and $0.8 million, respectively,were included in prepaid expenses for production costs.For the years ended December 31, 2016, 2015 and 2014, branding expenses, including advertising expenses as described above, were $24.8 million,$23.4 million and $20.8 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, accounts receivable,accounts payable, accrued expenses and other current liabilities to approximate the fair value of the respective assets and liabilities at December 31, 2016and 2015.Recently Adopted Accounting StandardsIn November 2015, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2015-17, “Income Taxes (Topic 740):Balance Sheet Classification of Deferred Taxes.” The standard requires that all deferred tax assets and liabilities for a particular tax-paying component of anentity and within a particular tax jurisdiction, along with any valuation allowance, be offset and classified as a single noncurrent deferred tax asset or liabilityregardless of their nature or expected timing of reversal or recovery. The standard may be applied either prospectively, for all deferred tax assets andliabilities, or retrospectively. The standard is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years.Early adoption is permitted. The Company elected to early adopt the standard in the quarterly period ended December 31, 2016. The Company applied thestandard prospectively in the fourth quarter of fiscal 2016 and, accordingly, prior periods were not adjusted. Adoption of the standard will not impact theCompany’s financial debt covenants or restrictions, and deferred tax assets and deferred tax liabilities are no longer reported in current assets or currentliabilities. F-11Table of ContentsIn March 2016, the FASB issued ASU No. 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-BasedPayment Accounting.” The standard amends certain aspects of accounting for employee share-based payment transactions, including the accounting forincome taxes related to those transactions and forfeitures. The standard requires recognizing excess tax benefits and deficiencies on share-based awards in thetax provision, instead of in equity. Also, the standard requires these amounts to be classified as an operating activity, and shares withheld to satisfy employeetaxes to be classified as a financing activity in the statement of cash flows, rather than as currently classified as financing and operating activities,respectively. The standard is effective for annual reporting periods beginning after December 15, 2016 and interim periods within that reporting period, withearly adoption permitted. The Company elected to early adopt the standard in fiscal year 2016. The impact of the early adoption resulted in the following: • The Company recorded a tax benefit of $1.7 million within income tax expense related to the excess tax benefits of the settlement or vesting oftime-based restricted stock or time-based restricted stock units and performance-based restricted stock or performance-based restricted stockunits. The Company applied this guidance prospectively as of January 1, 2016 and, accordingly, data for the prior years ended December 31,2015 and 2014 were not adjusted. Prior to adoption this amount would have been recorded as an increase in additional paid-in capital. Goingforward, this change could create volatility in the Company’s effective tax rate. • The Company elected to change its policy on accounting for forfeitures and recognize forfeitures as they occur. The Company applied thisguidance on a modified retrospective transition method. The Company determined that the cumulative effect of applying the guidance under themodified retrospective transition method was not material to its Consolidated Financial Statements • Excess tax benefits are now reported as an operating activity in the Company’s Consolidated Statements of Cash Flows, rather than as afinancing activity as was previously reported. As the Company applied this guidance prospectively as of January 1, 2016, excess tax benefits forthe years ended December 31, 2015 and December 31, 2014 were not adjusted and continue to be reported in financing activities in theConsolidated Statements of Cash Flows. • The standard requires the presentation of employee taxes as a financing activity in the Consolidated Statements of Cash Flows. This provisiondid not impact the Company’s Consolidated Financial Statements as the Company currently presents employee taxes as a financing activity inits Consolidated Statements of Cash Flows.The Company excluded the excess tax benefits from the assumed proceeds available to repurchase shares in the computation of diluted earnings pershare for 2016, which did not materially increase the diluted weighted average common shares outstanding. Data reported in Note 14, “Interim FinancialData (Unaudited),“for net income, diluted net income per share and diluted weighted average common shares outstanding for the each quarterly period in thefiscal year ended December 31, 2016, reflect adoption of the new standard.New Accounting Standards Not Yet AdoptedIn May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers,” and issued subsequent amendments to the initialguidance in August 2015 within ASU 2015-14, in March 2016 within ASU 2016-08, in April 2016 within ASU 2016-10, and in May 2016 within ASU 2016-12 (collectively, the new standard). The new standard provides a single, comprehensive model for revenue arising from contracts with customers andsupersedes most current revenue recognition guidance. The new standard requires an entity to recognize revenue at an amount that reflects the considerationto which the company expects to be entitled in exchange for transferring goods or services to a customer. The Company intends to adopt the new standard inthe first quarterly period of fiscal 2018. Currently, the Company intends to use the retrospective application to each reporting period presented, with theoption to elect certain practical expedients as defined in the new standard. The Company does not believe adoption of the new standard will have a materialimpact on its Consolidated Statements of Comprehensive Income, but expects expanded financial statement footnote disclosure. The F-12Table of ContentsCompany is continuing to evaluate the impacts of the pending adoption. As such, the Company’s preliminary assessments are subject to change.In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” The standard requires lessees to recognize leases on the balance sheet as aright-of-use asset and a lease liability, other than leases that meet the definition of a short-term lease. The liability will be equal to the present value of thelease payments. The asset will be based on the liability, subject to adjustment. For income statement purposes, the leases will continue to be classified aseither operating or finance. Operating leases will result in straight-line expense (similar to current operating leases) and finance leases will result in a front-loaded expense pattern (similar to current capital leases). The standard is effective for fiscal years, and interim periods within those fiscal years, beginningafter December 15, 2018. Early adoption is permitted. The standard must be adopted using the modified retrospective transition method and provides for theoption to elect a package of practical expedients upon adoption. The Company intends to adopt the standard in the first quarterly period of fiscal 2019, andis currently assessing the impact of adoption of the standard on its consolidated financial statements and related note disclosures. The Company has not madeany decision on the option to elect adoption of the practical expedients.In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash flows (Topic 230): Classification of Certain Cash Receipts and CashPayments.” The guidance is intended to reduce diversity in practice across all industries in how certain transactions are classified in the statement of cashflows. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscalyears. Early adoption is permitted. The guidance requires application using a retrospective translation method. The Company is assessing the impact ofadoption of the new standard on its consolidated financial statements and related note disclosures.ReclassificationsCertain prior year amounts have been reclassified to conform to the current year presentation. 3.INVENTORIESInventories (at LIFO value) consist of the following as of December 31 (in thousands): 2016 2015 Finished goods $29,686 $24,961 Raw materials 20,231 21,384 Total FIFO (first-in, first out) inventories 49,917 46,345 Reserve to adjust inventories to LIFO value (21,371) (23,241) Total LIFO inventories $28,546 $23,104 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.Under the LIFO method, reductions in inventory cause a portion of the Company’s cost of sales to be based on historical costs rather than current yearcosts. There was no inventory reduction during 2016. There was an inventory reduction in 2015. However, the impact on the Company’s cost of sales was notmaterial due the fact that the historical costs expensed during 2015 closely approximated the current year costs. F-13Table of Contents4.PREPAID EXPENSES AND OTHER ASSETSPrepaid expenses and other assets consist of the following as of December 31 (in thousands): 2016 2015 Prepaid expenses $6,209 $1,897 Income tax receivable 4,024 5,134 Assets held for sale — 6,154 Other 167 224 Total prepaid expenses and other assets $10,400 $13,409 At December 31, 2015, assets held for sale consisted of assets at the idle Olive Branch, Mississippi facility (Olive Branch assets) consisting of land andbuildings and measured at the lower of their carrying amount or fair value less cost to sell. Fair value was determined using the Level 3 fair value hierarchyclassification and was based on management’s best estimate of market participants’ pricing of the assets, including input from broker and industry specialists,and considered the condition of the assets. 5.PROPERTY, PLANT AND EQUIPMENTProperty, plant and equipment consist of the following as of December 31 (in thousands): 2016 2015 Building and improvements $47,859 $47,209 Machinery and equipment 223,450 210,880 Furniture and fixtures 2,710 2,221 Forklifts and tractors 10,167 7,607 Computer equipment 10,481 9,575 Construction in process 4,172 11,032 Land 11,417 8,532 Total property, plant and equipment 310,256 297,056 Accumulated depreciation (206,970) (196,132) Total property, plant and equipment, net $103,286 $100,924 The Company had construction in process as of December 31, 2016 of approximately $4.2 million. The Company expects that the construction inprocess will be completed and put into service in the year ending December 31, 2017.Depreciation expense for the years ended December 31, 2016, 2015, and 2014 totaled $14.2 million, $14.3 million and $14.8 million, respectively.During December 2015, the Company reclassified the Olive Branch assets from “Property, plant and equipment, net,” to assets held for sale in “Prepaidexpenses and other assets” in the Consolidated Balance Sheet. The transfer to a held for sale category was due to the signing of letters of intent to sell certainof the Olive Branch assets. Upon transfer during December 2015, the Company measured the Olive Branch assets at the lower of their carrying amount or fairvalue less cost to sell, and recognized a loss of $0.5 million, which is reported in “Selling, general and administrative expenses” in the ConsolidatedStatements of Comprehensive Income for the year ended December 31, 2015. In January 2016, the Company sold a portion of the Olive Branch facility thatcontained the buildings for $4.2 million and recognized a $0.1 million gain on sale, which is reported in “Selling, general and administrative expenses” inthe Consolidated Statements of Comprehensive Income. As of December 31, 2016, the Company continues to own approximately 62 acres of undevelopedland that is reported in “Property, plant and equipment, net” in the Consolidated Balance Sheet. F-14Table of Contents6.ACCRUED EXPENSESAccrued expenses consist of the following (in thousands): 2016 2015 Sales and marketing costs $16,707 $11,928 Compensation and benefits 13,298 11,217 Manufacturing costs 1,799 1,732 Rent obligations 632 664 Other 2,257 3,350 Total accrued expenses $34,693 $28,891 7.DEBTThe Company’s debt consists of a revolving credit facility. At December 31, 2016, the Company had no outstanding indebtedness. Availableborrowing capacity at December 31, 2016, was $200 million. At December 31, 2015, the Company had $7.0 million of outstanding indebtedness, and theinterest rate on the revolving credit facility was 1.39%.Revolving Credit FacilityIndebtedness after December 31, 2015. On January 12, 2016, the Company entered into a Third Amended and Restated Credit Agreement and also theFirst Amendment to the Third Amended and Restated Credit Agreement (together, the Third Amended Credit Agreement) with Bank of America, N.A. (BOA)as Lender, Administrative Agent, Swing Line Lender and Letter of Credit Issuer; and certain other lenders including Citibank, N.A., Capital One, N.A., andSunTrust Bank (collectively, Lenders) arranged by Bank of America Merrill Lynch as Sole Lead Arranger and Sole Bookrunner. The Third Amended CreditAgreement amended and restated the Second Amended Credit Agreement.Under the Third Amended Credit Agreement, the Lenders agree to provide the Company with one or more revolving loans in a collective maximumprincipal amount of $250 million from January 1 through June 30 of each year and a maximum principal amount of $200 million from July 1 throughDecember 31 of each year throughout the term, which ends January 12, 2021. Included within the revolving loan limit are sublimits for a letter of creditfacility in an amount not to exceed $15 million and swing line loans in an aggregate principal amount at any time outstanding not to exceed $5 million. Therevolving loans, the letter of credit facility and the swing line loans are for the purpose of funding working capital needs and supporting general businessoperations. Additionally, within the Revolving Loan Limit, the Company could borrow, repay, and reborrow, at any time or from time to time while the ThirdAmended Credit Agreement is in effect.The Company has the option to select interest rates for each loan request at the Base Rate or Eurodollar Rate. Base rate loans under the revolving loansand the swing line loans accrue interest at the Base Rate plus the Applicable Rate. Eurodollar Rate Loans for the revolving loans and swing line loans accrueinterest at the Adjusted London InterBank Offered Rate plus the Applicable Rate. The Base Rate for any day is a fluctuating rate per annum equal to thehighest of (a) the Federal Funds Rate plus 0.50%, (b) the rate of interest in effect for such day as publicly announced from time to time by BOA as its primerate, and (c) the Eurodollar Rate plus 1.0%. Repayment of all then outstanding principal, interest, fees and costs is due on January 12, 2021.The Company shall reimburse BOA for all amounts payable, including interest, under a letter of credit at the earlier of (i) the date set forth in theapplication, or (ii) one business day after the payment under such letter of credit by BOA.The Third Amended Credit Agreement is secured by property with respect to which liens in favor of the Administrative Agent, for the benefit of itselfand the other holders of the obligations, are purported to be granted F-15Table of Contentspursuant to and in accordance with the terms of the collateral documents as referenced in the Third Amended Credit Agreement.Indebtedness through December 31, 2015. On November 20, 2014, the Company entered into a Second Amended and Restated Credit Agreement(Second Amended Credit Agreement) with Branch Banking and Trust Company (BB&T), as a Lender, Administrative Agent, Swing Line Lender and Letter ofCredit Issuer; Citibank, N.A. and Bank of America, N.A., each as a Lender, and BB&T Capital Markets, as Lead Arranger. The Second Amended CreditAgreement amended and restated the Amended and Restated Credit Agreement (Prior Credit Agreement) dated as of January 6, 2012 by and among theCompany, as borrower; BB&T as Lender, Administrative Agent, Swing Line Lender, Letter of Credit Issuer and a Collateral Agent; Wells Fargo CapitalFinance, LLC, as a Lender and a Collateral Agent; and BB&T Capital Markets, as Lead Arranger, and as further amended. Under the Prior Credit Agreement,BB&T and Wells Fargo provided the Company with one or more revolving loans in a collective maximum principal amount of $100 million. The SecondAmended Credit Agreement terminated the Revolver Notes and Swing Advance Notes under the Prior Credit Agreement. No additional fees were due orowing as a result of the termination of the aforementioned agreements.The Second Amended Credit Agreement provided the Company with one or more revolving loans in a collective maximum principal amount of $150million from January 1 through June 30 of each year and a maximum principal amount of $100 million from July 1 through December 31 of each year(Revolving Loan Limit) throughout the term of November 20, 2019.Included within the Revolving Loan Limit were sublimits for a letter of credit facility in an amount not to exceed $15 million and swing advances inan aggregate principal amount at any time outstanding not to exceed $5 million. The Revolver Loans, the Letter of Credit Facility and the Swing Advanceloans were for the purpose of raising working capital and supporting general business operations. The Company was not obligated to borrow any amountunder the Revolving Loan Limit. Additionally, within the Revolving Loan Limit, the Company could borrow, repay, and reborrow, at any time or from timeto time while the Second Amended Credit Agreement is in effect.Base Rate Advances (as defined in the Second Amended Credit Agreement) under the Revolver Loans and the Swing Advances accrued interest at theBase Rate plus the Applicable Margin (as defined in the Second Amended Credit Agreement) and Euro-dollar Advances for the Revolver Loans and SwingAdvances accrued interest at the Adjusted London InterBank Offered Rate plus the Applicable Margin (as defined in the Second Amended CreditAgreement).The Company was required to reimburse BB&T for all amounts payable, including interest, under a Letter of Credit at the earlier of (i) the date set forthin the application, or (ii) one business day after the payment under such Letter of Credit by BB&T.The Second Amended Credit Agreement was secured by interest in real property owned by us and certain collateral (as described in the SecondAmended and Restated Security Agreement and Intellectual Property Security Agreement).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 its ability to generatesufficient cash flows from operations. To remain in compliance with financial covenants, the Company is required to maintain specified financial ratios basedon levels of debt, fixed charges, and earnings (excluding extraordinary gains and extraordinary non-cash losses) before interest, taxes, depreciation andamortization, all of which are subject to the risks of the business, some of which are discussed in this report under “Risk Factors.” The material financialcovenants and restrictions do not permit the Company’s fixed charge coverage ratio to be less than 1.5 to 1.0 and do not permit the Company’s consolidateddebt to consolidated EBITDA ratio to exceed 3.0 to 1.0, measured as F-16Table of Contentsof the end of each fiscal quarter (and in the case of Consolidated EBITDA, for the four-quarter period ending on such date). The Company was in compliancewith all covenants contained in the Third Amended Credit Agreement at December 31, 2016. Failure to comply with the financial covenants could beconsidered a default of repayment obligations and, among other remedies, could accelerate payment of any amounts outstanding. 8.STOCKHOLDERS’ EQUITYEarnings 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, 2016 2015 2014 Numerator: Net income $67,847 $48,098 $41,521 Denominator: Basic weighted average shares outstanding 29,394,559 31,350,542 32,319,649 Effect of dilutive securities: SARS and options 125,119 197,299 262,730 Restricted stock 92,991 134,668 168,695 Diluted weighted average shares outstanding 29,612,669 31,682,509 32,751,074 Basic earnings per share $2.31 $1.53 $1.28 Diluted earnings per share $2.29 $1.52 $1.27 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 earnings per share excludes the followingpotentially dilutive securities because the effect would be anti-dilutive: Year Ended December 31, 2016 2015 2014 Restricted stock and stock options 12 501 2,633 Stock appreciation rights 4,631 5,828 1,969 Stock Repurchase ProgramsOn February 19, 2014, the Board of Directors authorized a common stock repurchase program of up to $50 million shares of the Company’soutstanding common stock (February 2014 Stock Repurchase Program). This authorization had no expiration date. During 2014, the Company repurchased1,657,919 shares for $50.0 million, which completed the authorization under the February 2014 Stock Repurchase Program.On October 23, 2014, the Board of Directors authorized a common stock repurchase program of up to 2.0 million shares of the Company’s outstandingcommon stock (October 2014 Stock Repurchase Program). This authorization had no expiration date. During 2015, the Company repurchased 1,134,300shares for $45.2 million under the October 2014 Stock Repurchase Program. On October 22, 2015, the Board of Directors terminated the October 2014 StockRepurchase Program and adopted a new stock repurchase program of up to 3.15 million shares of the Company’s outstanding common stock (October 2015Stock Repurchase Program). This authorization terminated on December 31, 2016. During 2016, the Company repurchased 1,578,952 shares for $53.3million under the October 2015 Stock Repurchase Program. F-17Table of ContentsOn February 16, 2017, the Board of Directors authorized a common stock repurchase program of up to 2.961 million shares of the Company’soutstanding common stock (February 2017 Stock Repurchase Program). As of the date of this report, the Company has made no repurchases under theFebruary 2017 Stock Repurchase Program. 9.STOCK-BASED COMPENSATIONOn April 30, 2014, the Company’s stockholders approved the Trex Company, Inc. 2014 Stock Incentive Plan (Plan), which was previously approvedby the Board of Directors on February 19, 2014. The Plan amended and restated in its entirety the Trex Company, Inc. 2005 Stock Incentive Plan, aspreviously disclosed. The Plan is administered by the Compensation Committee of the Company’s Board of Directors. Stock-based compensation is grantedto officers, directors and certain key employees in accordance with the provisions of the Plan. The Plan provides for grants of stock options, restricted stock,restricted stock units, stock appreciation rights (SARs), and unrestricted stock. The total aggregate number of shares of the Company’s common stock thatmay be issued under the Plan is 6,420,000.In 2014, the Company began granting performance-based restricted stock in addition to the time-based restricted stock it previously granted. Theperformance-based restricted shares have a three-year vesting period, vesting one-third each year based on target earnings before interest, taxes, depreciationand amortization for 1 year, cumulative 2 years and cumulative 3 years, respectively. The number of shares that vest, with respect to each vesting, will bebetween 0% and 200% of the target number of shares.In 2015, the Company began issuing restricted stock units in lieu of restricted stock. Accordingly, time-based restricted stock units replaced time-basedrestricted stock and performance-based restricted stock units replaced performance-based restricted stock. The vesting terms of the restricted stock units areidentical to the vesting provisions of the restricted stock.The Company recognizes stock-based compensation expense ratably over the period from grant date to the earlier of (1) the vesting date of the award,or (2) the date the grantee is eligible to retire without forfeiting the award. For performance-based restricted stock and performance-based restricted stockunits, expense is recognized ratably over the performance and vesting period of each tranche based on management’s judgment of the ultimate award that isprobable to be paid out based on the achievement of the predetermined performance measures. For the employee stock purchase plan, compensation expenseis recognized related to the discount on purchases. The following table summarizes the Company’s stock-based compensation expense for the years endedDecember 31, 2016, 2015 and 2014 (in thousands): Year Ended December 31, 2016 2015 2014 Time-based restricted stock and time-based restricted stock units $2,281 $2,704 $2,974 Performance-based restricted stock and performance-based restricted stock units 2,210 1,562 727 Stock appreciation rights 184 525 1,035 Employee stock purchase plan 113 70 71 Total stock-based compensation $4,788 $4,861 $4,807 Stock-based compensation expense is included in “Selling, general and administrative expenses” in the accompanying Consolidated Statements ofComprehensive Income. F-18Table of ContentsTime-Based Restricted Stock and Time-Based Restricted Stock UnitsThe fair value of time-based restricted stock and time-based restricted stock units is determined based on the closing price of the Company’s shares onthe grant date. Time-based restricted stock and time-based restricted stock units vest based on the terms of the awards. Unvested time-based restricted stockand unvested time-based restricted stock units are generally forfeitable upon the resignation of employment or termination of employment with cause. Thetotal fair value of vested time-based restricted shares and vested time-based restricted stock units for the years ended December 31, 2016, 2015 and 2014 was$1.7 million, $9.8 million, and $3.9 million, respectively. At December 31, 2016, there was $1.5 million of total compensation expense related to unvestedtime-based restricted stock and unvested time-based restricted stock units remaining to be recognized over a weighted-average period of approximately 1.6years.Time-based restricted stock activity under the Plan and all predecessor stock incentive plans is as follows: Time-basedRestricted Stock Weighted-AverageGrant PricePer Share Nonvested at December 31, 2013 382,974 $13.78 Granted 66,511 $32.70 Vested (116,641) $33.73 Forfeited (3,282) $16.61 Nonvested at December 31, 2014 329,562 $18.89 Granted 57,598 $43.81 Vested (230,704) $42.37 Forfeited (48,549) $20.20 Nonvested at December 31, 2015 107,907 $29.43 Granted 57,874 $37.64 Vested (43,848) $42.34 Forfeited (133) $43.89 Nonvested at December 31, 2016 121,800 $31.59 Performance-based Restricted Stock and Performance-Based Restricted Stock UnitsThe fair value of performance-based restricted stock and performance-based restricted stock units is determined based on the closing price of theCompany’s shares on the grant date. Unvested performance-based restricted stock and unvested performance-based restricted stock units are generallyforfeitable upon the resignation of employment or termination of employment with cause. The performance-based restricted shares and performance-basedrestricted stock units have a three-year vesting period, vesting one-third each year based on target earnings before interest, taxes, depreciation andamortization (EBITDA) for 1 year, cumulative 2 years and cumulative 3 years, respectively. The number of shares that will vest, with respect to each vesting,will be between 0% and 200% of the target number of shares. At December 31, 2016 and 2015, there was $1.2 million and $0.6 million, respectively, of totalcompensation expense related to unvested performance-based restricted stock and unvested performance-based restricted stock units remaining to berecognized over a weighted-average period of approximately 2.0 years. F-19Table of ContentsPerformance-based restricted stock activity under the Plan is as follows: Performance-basedRestricted Stock andPerformance-basedRestricted StockUnits Weighted-AverageGrant PricePer Share Nonvested at December 31, 2014 42,676 $33.72 Granted 34,638 $43.89 Vested (35,679) $41.91 Forfeited (12,538) $38.12 Nonvested at December 31, 2015 29,097 $39.38 Granted 44,925 $35.83 Vested (14,949) $ 35.71 Forfeited (657) $33.72 Nonvested at December 31, 2016 58,416 $36.63 Stock Appreciation RightsSARs are granted with a grant price equal to the closing market price of the Company’s common stock on the date of grant. These awards expire tenyears after the date of grant and vest based on the terms of the individual awards. The SARs are generally forfeitable upon the resignation of employment ortermination of employment with cause. The Company recognizes compensation cost on a straight-line basis over the vesting period for the award.As of December 31, 2016, there was no unrecognized compensation cost related to SARs. The fair value of each SAR is estimated on the date of grantusing a Black-Scholes option-pricing model. There were no SARs issued in the year ended December 31, 2016. For SARs issued in the years endedDecember 31, 2015 and 2014, respectively, the assumptions shown in the following table were used: December 31, 2015 2014 Dividend yield 0% 0% Average risk-free interest rate 1.6% 1.7% Expected term (years) 5 5 Expected volatility 42.9% 52.6% Dividend Yield. The Company has never paid cash dividends on its common stock.Average Risk-Free Interest Rate. The Company uses 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 are expected to remain unexercised. SARs granted during the year endedDecember 31, 2015 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.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 optionsgranted as the expected volatility. F-20Table of ContentsThe Company recognizes forfeitures as they occur.The weighted-average grant date fair value of SARs granted during the years ended December 31, 2015 and 2014 was $16.26, and $17.78, respectively.SAR activity under the Plan and all predecessor stock incentive plans is as follows: SARs Weighted-AverageGrant PricePer Share Weighted-AverageRemainingContractualLife (Years) AggregateIntrinsicValue as ofDecember 31,2016 Outstanding at December 31, 2013 739,194 $12.93 Granted 3,866 $37.88 Exercised (218,826) $10.96 Canceled (8,404) $4.74 Outstanding at December 31, 2014 515,830 $13.98 Granted 15,585 $41.19 Exercised (263,626) $ 13.86 Canceled (5,712) $21.94 Outstanding at December 31, 2015 262,077 $13.13 Granted — $— Exercised (124,352) $11.09 Canceled — $— Outstanding at December 31, 2016 137,725 $19.57 5.6 $6,174,886 Vested at December 31, 2016 127,469 $17.83 5.4 $5,936,639 Exercisable at December 31, 2016 127,469 $17.83 5.4 $5,936,639 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 of up to 15% of gross compensation for each payroll period. On the last dayof each quarter, each participant’s contribution account is used to purchase the maximum number of whole shares of common stock determined by dividingthe contribution account balance by the purchase price. The aggregate number of shares of common stock that may be purchased under the plan is 600,000.Through December 31, 2016, employees had purchased approximately 422,687 shares under the plan.Stock OptionsStock options are granted with an exercise price equal to the closing market price of the Company’s common stock on the date of grant. These awardsexpire ten years after the date of grant and vest based on the terms of the individual awards. The options are generally forfeitable upon termination of aholder’s service as an employee or director, unless the individual’s service is terminated due to retirement, death or permanent disability. The fair value ofeach stock option award is estimated on the date of grant using a Black-Scholes option-pricing model. The Company recognizes compensation cost on astraight-line basis over the vesting period for the award. All outstanding options were exercised during fiscal 2015 and there were no stock optionsoutstanding at December 31, 2015 and 2016. F-21Table of ContentsStock option activity under the Plan and all predecessor stock incentive plans is as follows: Options Weighted-AverageExercise PricePer Share Outstanding at December 31, 2013 42,288 $20.05 Granted — $— Exercised (27,942) $35.73 Canceled (1,188) $17.92 Outstanding at December 31, 2014 13,158 $23.36 Granted — $— Exercised (13,158) $50.37 Canceled — $— Outstanding at December 31, 2015 — $— 10.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, 2016 were as follows (in thousands): Year Ending December 31, 2017 $9,606 2018 9,271 2019 8,205 2020 6,477 2021 6,170 Thereafter 18,659 Total minimum lease payments $58,388 For the years ended December 31, 2016, 2015 and 2014, the Company recognized rental expenses of approximately $9.9 million, $7.7 million and$7.5 million, respectively.For information related to the Company’s reconsidered corporate headquarters lease agreement, see Note 13. 11.EMPLOYEE BENEFIT PLANSThe Company has a 401(k) Profit Sharing Plan for the benefit of all employees who meet certain eligibility requirements. The plan covers substantiallyall of the Company’s full-time employees. The plan documents provide for the Company to match contributions equal to 100% of an employee’scontribution to the plan up to 6% of base salary. The Company’s contributions to the plan totaled $2.5 million, $2.2 million and $2.0 million for the yearsended December 31, 2016, 2015 and 2014. F-22Table of Contents12.INCOME TAXESIncome tax provision (benefit) for the years ended December 31, 2016, 2015 and 2014 consists of the following (in thousands): Year Ended December 31, 2016 2015 2014 Current income tax provision: Federal $26,752 $25,105 $18,722 State 2,798 2,560 3,131 29,550 27,665 21,853 Deferred income tax provision: Federal 5,217 987 3,118 State 216 37 456 5,433 1,024 3,574 Total income tax provision $34,983 $28,689 $25,427 The income tax provision differs from the amount of income tax determined by applying the U.S. Federal statutory rate to income before taxes as aresult of the following (in thousands): Year Ended December 31, 2016 2015 2014 U.S. Federal statutory taxes $35,990 $26,876 $23,432 State and local taxes, net of U.S. Federal benefit 3,747 2,806 2,856 Permanent items 396 1,308 249 Excess tax benefits from vesting or settlement of stock compensation awards (1,749) — — Domestic production activities deduction (2,740) (2,262) (1,117) Federal credits (488) (328) (214) Other (173) 289 221 Total income tax provision $34,983 $28,689 $25,427 F-23Table of ContentsDeferred tax assets and liabilities as of December 31, 2016 and 2015 consist of the following (in thousands): As of December 31, 2016 2015 Deferred tax assets: Net operating losses $93 $138 Warranty reserve 14,510 12,904 Stock-based compensation 2,186 1,554 Accruals not currently deductible and other 2,261 6,195 Inventories 5,785 4,406 State tax credit carryforwards 4,020 4,350 Gross deferred tax assets, before valuation allowance 28,855 29,547 Valuation allowance (4,061) (4,582) Gross deferred tax assets, after valuation allowance 24,794 24,965 Deferred tax liabilities: Depreciation and other (25,688) (20,426) Gross deferred tax liabilities (25,688) (20,426) Net deferred tax (liability) asset $(894) $4,539 The Company recognizes deferred tax assets and liabilities based on the difference between the financial statement basis and tax basis of assets andliabilities using enacted rates expected to be in effect during the year in which the differences reverse. In accordance with accounting standards, the Companyassesses the likelihood that its deferred tax assets will be realized. Deferred tax assets are reduced by a valuation allowance when, after considering allavailable positive and negative evidence, it is determined that it is more likely than not that some portion, or all, of the deferred tax asset will not be realized.As of December 31, 2016, the Company had a valuation allowance of $4.1 million against deferred tax assets it estimates will not be realized. TheCompany will analyze its position in subsequent reporting periods, considering all available positive and negative evidence, in determining the expectedrealization of its deferred tax assets.In 2016, the Company adopted ASU No. 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-BasedPayment Accounting,” and, accordingly, recognizes excess tax benefits for stock-based awards within income tax expense when realized. The Companyapplied the guidance in the new standard prospectively as of January 1, 2016. Excess tax benefits for the years ended December 31, 2015 and 2014 arerecorded in additional paid-in-capital. The Company realized $1.7 million of excess tax benefits during 2016.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, 2016, the Company has identified no uncertain tax position and,accordingly, has not recorded any unrecognized tax benefits or associated interest and penalties.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 itis not 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 accounting standards. As of December 31, 2016, Federal tax years 2013 through 2016 remain subject toexamination. The Company believes that adequate provisions have been made for all tax returns subject to examination. Sales made to foreign distributorsare not taxable in any foreign jurisdictions as the Company does not have a taxable presence. F-24Table of Contents13.COMMITMENTS AND CONTINGENCIESLegal MattersThe Company has 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 lawsuits and claims, and believes that their ultimate resolution will not have a material effect on theCompany’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, 2016, theCompany purchased substantially all of its reclaimed wood fiber requirements under purchase orders which do not involve long-term supply commitments.All of the Company’s scrap polyethylene purchases are under short-term supply contracts that average approximately one to two years, for which pricing isnegotiated as needed, or under purchase orders that do not involve long-term supply commitments.The wood and polyethylene supply contracts generally provide that the Company is obligated to purchase all of the wood or polyethylene a supplierprovides, if the wood or polyethylene meets certain specifications. The amount of wood and polyethylene the Company is required to purchase under thesecontracts varies with the production of its suppliers and, accordingly, is not fixed or determinable. As of December 31, 2016, the Company has purchasecommitments under material supply contracts of $20.2 million, $3.2 million, $0.35 million and $0.05 million for the years ending December 31, 2017, 2018,2019 and 2020, respectively.Contract Termination CostsThe Company leases 55,047 square feet of office and storage space in Dulles, Virginia, that it does not occupy, but has sublet all of the office space forthe remainder of the term of its lease obligation, which ends June 30, 2019. The future sublease receipts are less than the remaining minimum lease paymentobligations under the Company’s lease. Accordingly, the Company has recorded a liability for the present value of the shortfall.As of December 31, 2016, the minimum payments remaining under the Company’s lease over the years ending December 31, 2017, 2018, and 2019 are$1.9 million, $2.0 million, and $1.0 million, respectively. The net minimum receipts remaining under the Company’s existing subleases over the yearsending December 31, 2017, 2018, and 2019 are $1.3 million, $1.3 million, and $0.7 million, respectively.The following table provides information about the Company’s liability under the lease (in thousands): 2016 2015 Beginning balance, January 1 $2,106 $3,033 Net rental payments (691) (1,352) Accretion of discount 145 220 (Decrease) increase in net estimated contract termination costs (85) 205 Ending balance, December 31 $1,475 $2,106 Product WarrantyThe Company warrants that its products will be free from material defects in workmanship and materials. This warranty generally extends for a periodof 25 years for residential use and 10 years for commercial use, excluding Trex Signature™ Railing, which has a warranty period of 25 years for bothresidential and commercial F-25Table of Contentsuse. The Company further warrants that Trex Transcend®, Trex Enhance®, Trex Select® and Universal Fascia products will not fade in color more than acertain amount and will be resistant to permanent staining from food substances or mold, provided the stain is cleaned within seven days of appearance. Thiswarranty extends for a period of 25 years for residential use and 10 years for commercial use. If there is a breach of such warranties, the Company has anobligation either to replace the defective product or refund the purchase price.The Company continues to receive and settle claims for products manufactured at its Nevada facility prior to 2007 that exhibit surface flaking andmaintains a warranty reserve to provide for the settlement of these claims. Estimating the warranty reserve for surface flaking claims requires management toestimate (1) the number of claims to be settled with payment and (2) the average cost to settle each claim.To estimate the number of claims to be settled with payment, the Company utilizes actuarial techniques to determine a reasonable possible range ofclaims to be received and the percentage of those claims that will ultimately require payment. Management utilizes a range of assumptions derived fromclaim count history and the identification of factors influencing the claim counts to determine its best estimate of future claims for which to record a relatedliability. The number of claims received has declined each year since peaking in 2009, although the rate of decline has decelerated in recent years.Additionally, events such as the 2009 settlement of a class action lawsuit covering the surface defect and communications by the Company in 2013informing homeowners of potential hazards associated with products exhibiting surface flaking that are not timely replaced, have obscured observable trendsin historical claims activity. The cost per claim varies due to a number of factors, including the size of affected decks, the availability and type of replacementmaterial used, the cost of production of replacement material and the method of claim settlement.The Company monitors surface flaking claims activity each quarter for indications that its estimates require revision. Typically, a majority of surfaceflaking claims received in a year are received during the summer outdoor season, which spans the second and third quarters. It has been the Company’spractice to utilize the actuarial techniques discussed above during the third quarter, after a significant portion of all claims has been received for the fiscalyear and variances to annual claims expectations are more meaningful. The number of claims received in the year ended December 31, 2016 was lower thanclaims received in the year ended December 31, 2015, continuing the historical year-over-year decline in incoming claims, but was higher than theCompany’s expectations. Also, the average settlement cost per claim experienced in the year ended December 31, 2016 was higher than the averagesettlement cost per claim experienced during the year ended December 31, 2015 and higher than the Company’s expectation for 2016. As a result and afteractuarial review, the Company revised its estimate and recorded an increase to the warranty reserve of $9.8 million during the third quarter of 2016. Based onthe facts and circumstances at December 31, 2016, the Company believes its reserve is sufficient to cover future surface flaking obligations. The Companynotes that its annual cash outflows for surface flaking claims declined by $1.5 million, or 21%, in 2016 compared to 2015, and declined by $1.7 million, or19%, in 2015 compared to 2014.The Company’s analysis is based on currently known facts and a number of assumptions, as discussed above, and current expectations. Projectingfuture events such as the number of claims to be received, the number of claims that will require payment and the average cost of claims could cause theactual warranty liabilities to be higher or lower than those projected, which could materially affect the Company’s financial condition, results of operationsor cash flows. The Company estimates that the annual number of claims received will continue to decline over time and that the average cost per claim willincrease slightly, primarily due to inflation. If the level of claims received or average cost per claim differs materially from expectations, it could result inadditional increases or decreases to the warranty reserve and a decrease or increase in earnings and cash flows in future periods. The Company estimates that a10% change in the expected number of remaining claims to be settled with payment or the expected cost to settle claims may result in approximately a $3.4million change in the surface flaking warranty reserve. F-26Table of ContentsThe following is a reconciliation of the Company’s warranty reserve that represents amounts accrued for surface flaking claims (in thousands): 2016 2015 Beginning balance, January 1 $29,673 $31,419 Changes in estimates related to pre-existing warranties 9,835 5,426 Settlements made during the period (5,661) (7,172) Ending balance, December 31 $33,847 $29,673 The remainder of the Company’s warranty reserve represents amounts accrued for non-surface flaking claims. 14.INTERIM FINANCIAL DATA (Unaudited) Three Months Ended December 31,2016 September 30,2016 June 30,2016 March 31,2016 December 31,2015 September 30,2015 June 30,2015 March 31,2015 (In thousands, except share and per share data) Net sales 95,322 106,168 146,450 131,676 89,202 94,023 136,779 120,800 Gross profit 38,113 29,945 61,410 57,627 31,955 22,143 52,524 48,247 Net income 12,629 7,787 23,725 23,706 8,086 3,744 18,715 17,553 Basic net income per share $0.43 $0.27 $0.81 $0.80 $0.26 $0.12 $0.59 $0.55 Basic weighted average commonshares outstanding 29,318,915 29,295,284 29,264,362 29,697,722 30,766,943 31,227,643 31,735,333 31,683,672 Diluted net income per share $0.43 $0.26 $0.80 $0.79 $0.26 $0.12 $0.58 $0.55 Diluted weighted average commonshares outstanding 29,543,842 29,516,718 29,477,870 29,910,292 30,966,682 31,537,010 32,142,939 32,094,828 The Company’s net sales, gross profit and income from operations have historically varied from quarter to quarter. Such variations are oftenattributable to seasonal trends in the demand for Trex products. The Company has historically experienced lower net sales during the fourth quarter becauseholidays and adverse weather conditions in certain regions reduce the level of home improvement and construction activity.The Company elected to early adopt ASU No. 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-BasedPayment Accounting” (ASU No. 2016-09) in the quarterly period ended December 31, 2016, with adoption as of January 1, 2016. The effect on previouslyreported data for the quarterly periods ended September 30, June 30, and March 31, 2016 is presented in the below table. Also, see the related discussion inNote 2, “Summary of Significant Accounting Policies: Recently Adopted Accounting Standards,” to these Consolidated Financial Statements. Three Months Ended September 30, 2016 June 30, 2016 March 31, 2016 As Reported Adjusted As Reported Adjusted As Reported Adjusted (In thousands, except share and per share data) Net income $6,898 $7,787 $23,279 $23,725 $23,402 $23,706 Basic net income per share $0.24 $0.27 $0.80 $0.81 $0.79 $0.80 Diluted net income per share $0.23 $0.26 $0.79 $0.80 $0.78 $0.79 Diluted weighted average common shares outstanding 29,457,653 29,516,718 29,423,845 29,477,870 29,860,730 29,910,292 F-27Table of ContentsTREX COMPANY, INC.SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS AND RESERVES(In Thousands) Descriptions Balance atBeginningof Period Additions(Reductions)Charged toCost andExpenses Deductions Balanceat Endof Period Year ended December 31, 2016: Warranty reserve $33,522 $10,852 $(6,682) $37,692 Income tax valuation allowance $4,582 $— $(521) $4,061 Year ended December 31, 2015: Warranty reserve $33,841 $8,515 $(8,834) $33,522 Income tax valuation allowance $4,465 $117 $— $4,582 Year ended December 31, 2014: Warranty reserve $40,812 $3,774 $(10,745) $33,841 Income tax valuation allowance $4,201 $388 $(124) $4,465 F-28Table 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 21, 2017 By: /S/ JAMES E. CLINE James E. ClinePresident 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 21, 2017 by the following persons onbehalf of the registrant and in the capacities indicated. Signature Title/S/ JAMES E. CLINEJames E. Cline President and Chief Executive Officer (Principal Executive Officer); Director/S/ BRYAN H. FAIRBANKSBryan H. Fairbanks Vice President and Chief Financial Officer (Principal Financial Officer andPrincipal Accounting Officer)/S/ RONALD W. KAPLANRonald W. Kaplan Chairman/S/ MICHAEL F. GOLDENMichael F. Golden Director/S/ JAY M. GRATZJay M. Gratz Director/S/ FRANK H. MERLOTTI, JR.Frank H. Merlotti, Jr. Director/S/ RICHARD E. POSEYRichard E. Posey Director/S/ PATRICIA B. ROBINSONPatricia B. Robinson Director/S/ GERALD VOLASGerald Volas DirectorTable 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 RegistrationStatement on Form S-1 (No. 333-63287) and incorporated herein by reference.3.2 Certificate of Amendment to the Restated Certificate of Incorporation of Trex Company, Inc. dated April 30, 2014. Filed as Exhibit 3.2 tothe Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2014 and incorporated herein by reference.3.3 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 Second Amended and Restated Credit Agreement dated as of November 20, 2014 between the Company and Branch Banking and TrustCompany, as a Lender, Administrative Agent, Swing Line Lender and Letter of Credit Issuer; Citibank, N.A. as a Lender; Bank of America,N.A. as a Lender; and BB&T Capital Markets, as Lead Arranger. Filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filedNovember 25, 2014 and incorporated herein by reference.4.3 Revolver Note dated November 20, 2014 payable by the Company to Branch Banking and Trust Company in the amount of the lesser of$80,000,000 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 November 25, 2014 and incorporated herein by reference.4.4 Revolver Note dated November 20, 2014 payable by the Company to Citibank, N.A. in the amount of the lesser of $45,000,000 or theoutstanding revolver advances made by Citibank, N.A. Filed as Exhibit 4.3 to the Company’s Current Report on Form 8-K filedNovember 25, 2014 and incorporated herein by reference.4.5 Revolver Note dated November 20, 2014 payable by the Company to Bank of America, N.A. in the amount of the lesser of $25,000,000 orthe outstanding revolver advances made by Bank of America, N.A. Filed as Exhibit 4.4 to the Company’s Current Report on Form 8-Kfiled November 25, 2014 and incorporated herein by reference.4.6 Swing Advance Note dated November 20, 2014 payable by the Company 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 4.5 to theCompany’s Current Report on Form 8-K filed November 25, 2014 and incorporated herein by reference.4.7 Second Amended and Restated Security Agreement dated as of November 20, 2014 between the Company, as debtor, and Branch Bankingand Trust Company as Administrative Agent for Branch Banking and Trust Company, Citibank, N.A. and Bank of America, N.A. Filed asExhibit 4.6 to the Company’s Current Report on Form 8-K filed November 25, 2014 and incorporated herein by reference.4.8 Second Modification to Amended and Restated Credit Line Deed of Trust, dated as of November 20, 2014, by and among the Company asgrantor, BB&T-VA Collateral Service Corporation, as trustee, and Branch Banking and Trust Company, as Administrative Agent forBranch Banking and Trust Company, Citibank, N.A. and Bank of America, N.A., as Beneficiaries relating to real property partially locatedin the County of Frederick, Virginia and partially located in the City of Winchester, Virginia. Filed as Exhibit 4.7 to the Company’sCurrent Report on Form 8-K filed November 25, 2014 and incorporated herein by reference.Table of ContentsExhibitNumber Exhibit Description4.9 Modification to Deed of Trust, dated as of November 20, 2014, by and among the Company as grantor, First American Title InsuranceCompany, as trustee, and Branch Banking and Trust Company, as Administrative Agent for Branch Banking and Trust Company, Citibank,N.A. and Bank of America, N.A., as Beneficiaries relating to real property located in the County of Fernley, Nevada. Filed as Exhibit 4.8 tothe Company’s Current Report on Form 8-K filed November 25, 2014 and incorporated herein by reference.4.10 Intellectual Property Security Agreement, dated November 20, 2014, by and between Trex Company, Inc. as debtor; and Branch Bankingand Trust Company, in its capacity as Administrative Agent under the Second Amended and Restated Credit Agreement and acting as agentfor itself and the other secured parties. Filed as Exhibit 4.9 to the Company’s Current Report on Form 8-K filed November 25, 2014 andincorporated herein by reference.4.11 Third Amended and Restated Credit Agreement dated as of January 12, 2016 between the Company, as borrower; the subsidiaries of theCompany as guarantors; Bank of America, N.A., as a Lender, Administrative Agent, Swing Line Lender and Letter of Credit Issuer; andcertain other lenders arranged by Bank of America Merrill Lynch as Sole Lead Arranger and Sole Bookrunner. Filed as Exhibit 4.1 to theCompany’s Current Report on Form 8-K filed on January 14, 2016 and incorporated herein by reference.4.12 Revolver Note dated January 12, 2016 payable by the Company to Bank of America, N.A. in the amount of the lesser of $110,000,000 orthe outstanding revolver advances made by Bank of America, N.A. Filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K filedon January 14, 2016 and incorporated herein by reference.4.13 Revolver Note dated January 12, 2016 payable by the Company to Citibank, N.A. in the amount of the lesser of $75,000,000 or theoutstanding revolver advances made by Citibank, N.A. Filed as Exhibit 4.3 to the Company’s Current Report on Form 8-K filed onJanuary 14, 2016 and incorporated herein by reference.4.14 Revolver Note dated January 12, 2016 payable by the Company to Capital One, N.A. in the amount of the lesser of $35,000,000 or theoutstanding revolver advances made by Capital One, N.A. Filed as Exhibit 4.4 to the Company’s Current Report on Form 8-K filed onJanuary 14, 2016 and incorporated herein by reference.4.15 Revolver Note dated January 12, 2016 payable by the Company to SunTrust Bank in the amount of the lesser of $30,000,000 or theoutstanding revolver advances made by SunTrust Bank. Filed as Exhibit 4.5 to the Company’s Current Report on Form 8-K filed onJanuary 14, 2016 and incorporated herein by reference.4.16 Third Amended and Restated Security and Pledge Agreement dated as of January 12, 2016 between the Company, as debtor, and Bank ofAmerica, N.A. as Administrative Agent (including Notices of Grant of Security Interest in Copyrights and Trademarks). Filed as Exhibit 4.6to the Company’s Current Report on Form 8-K filed on January 14, 2016 and incorporated herein by reference.4.17 Assignment of Amended and Restated Credit Line Deed of Trust, Substitution of Trustee and Amendment, dated as of January 12, 2016, byand among the Company as grantor, PRLAP, INC, as trustee, and Bank of America, N.A., as Administrative Agent for Bank of America, N.A.,Citibank, N.A., Capital One, N.A., and SunTrust Bank, as Beneficiaries relating to real property partially located in the County of Frederick,Virginia and partially located in the City of Winchester, Virginia. Filed as Exhibit 4.7 to the Company’s Current Report on Form 8-K filedon January 14, 2016 and incorporated herein by reference.4.18 Amended and Restated Deed of Trust, dated as of January 12, 2016, by and among the Company as grantor, First American Title InsuranceCompany, as trustee, and Bank of America, N.A., Citibank, N.A., Capital One, N.A., and SunTrust Bank, as Beneficiaries relating to realproperty located in the County of Fernley, Nevada. Filed as Exhibit 4.8 to the Company’s Current Report on Form 8-K filed on January 14,2016 and incorporated herein by reference.Table of ContentsExhibitNumber Exhibit Description10.1 Description of Management Compensatory Plans and Arrangements. Filed herewith. **10.2 Trex Company, Inc. 2014 Stock Incentive Plan. Filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterlyperiod ended June 30, 2014 and incorporated herein by reference. **10.3 Trex Company, Inc. Amended and Restated 1999 Incentive Plan for Outside Directors. Filed as Exhibit 10.2 to the Company’s QuarterlyReport on Form 10-Q for the quarterly period ended September 30, 2015 and incorporated herein by reference. **10.4 Form of Trex Company, Inc. 2014 Stock Incentive Plan Time-Based Restricted Stock Agreement. Filed as Exhibit 10.7 to the Company’sAnnual Report on Form 10-K for the fiscal year ended December 31, 2013 and incorporated herein by reference. **10.5 Form of Trex Company, Inc. 2014 Stock Incentive Plan Performance-Based Restricted Stock Agreement. Filed as Exhibit 10.8 to theCompany’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013 and incorporated herein by reference. **10.6 Form of Trex Company, Inc. 2014 Stock Incentive Plan Stock Appreciation Rights Agreement. Filed as Exhibit 10.1 to the Company’sQuarterly Report on Form 10-Q for the quarterly period ended September 30, 2015 and incorporated herein by reference. **10.7 Form of Trex Company, Inc. 2014 Stock Incentive Plan Time-Based Restricted Stock Unit Agreement. Filed as Exhibit 10.3 to theCompany’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2015 and incorporated herein by reference. **10.8 Form of Trex Company, Inc. 2014 Stock Incentive Plan Performance-Based Restricted Stock Unit Agreement. Filed as Exhibit 10.4 to theCompany’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2015 and incorporated herein by reference. **10.9 Form of Trex Company, Inc. Amended and Restated 1999 Incentive Plan for Outside Directors Stock Appreciation Rights Agreement. Filedas Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2006 and incorporated hereinby reference. **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 Form of Trex Company, Inc. Amended and Restated 1999 Incentive Plan for Outside Directors Restricted Stock Unit Agreement. Filed asExhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2015 and incorporated herein byreference. **10.12 Change in Control Severance Agreement dated May 6, 2015 by and between Trex Company, Inc. and James E. Cline. Filed as Exhibit 10.1 tothe Company’s Current Report on Form 8-K filed May 8, 2015 and incorporated herein by reference. **10.13 Severance Agreement dated May 6, 2015 by and between Trex Company, Inc. and James E. Cline. Filed as Exhibit 10.2 to the Company’sCurrent Report on Form 8-K filed May 8, 2015 and incorporated herein by reference. **10.14 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. **10.15 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. **10.16 Form of Change in Control Severance Agreement between Trex Company, Inc. and Officers other than the Chief Executive Officer. Filedherewith. **Table of ContentsExhibitNumber Exhibit Description10.17 Form of Severance Agreement between Trex Company, Inc. and Officers other than the Chief Executive Officer. Filed as Exhibit 10.1 to theCompany’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2015 and incorporated herein by reference. **10.18 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. **10.19 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. **10.20 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. *, **10.21 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. **10.22 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.10.23 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.10.24 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.10.25 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.10.26 Form of Trex Company, Inc. Fencing Agreement for Installers/Retailers. Filed as Exhibit 10.4 to the Company’s Quarterly Report on Form10-Q for the quarterly period ended September 30, 2006 and incorporated herein by reference.10.27 Deed of Lease, dated June 15, 2000, between Trex Company, LLC and Space, LLC. Filed as Exhibit 10.16 to the Company’s Annual Reporton Form 10-K for the fiscal year ended December 31, 2000 and incorporated herein by reference.10.28 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-Q forthe quarterly period ended March 31, 2010 and incorporated herein by reference.10.29 Amendment, dated November 2, 2016, 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 herewith.10.30 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.Table of ContentsExhibitNumber Exhibit Description 31.1 Certification of Chief Executive Officer of the Company pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. Filedherewith. 31.2 Certification of Chief Financial Officer of the Company pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. Filedherewith. 32 Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(18 U.S.C. § 1350). Furnished herewith.101.INS XBRL Instance Document. Filed.101.SCH XBRL Taxonomy Extension Schema Document. Filed.101.CAL XBRL Taxonomy Extension Calculation Linkbase Document. Filed.101.DEF XBRL Taxonomy Extension Definition Linkbase Document. Filed.101.LAB XBRL Taxonomy Extension Label Linkbase Document. Filed.101.PRE XBRL Taxonomy Extension Presentation Linkbase Document. Filed. *Portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidentialtreatment.**Management contract or compensatory plan or agreement.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 compensation, and long-term equity incentive compensationissued under the Trex Company, Inc. 2014 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 competitivelevels in the market for executives with comparable responsibilities and job scope based on the Company’s peer group and the results of executivecompensation surveys, as well as the Company’s internal equity considerations. Each year, at its December meeting, the Compensation Committee reviewsand establishes the base salaries of the Company’s executive officers for the next calendar year. Salary increases, if any, are based on individual performance,market conditions and Company performance. To gauge market conditions, the Compensation Committee evaluates the peer group and market datacompiled by its independent compensation consultant. Base salaries are set upon review of the peer group and market data provided to the CompensationCommittee upon consideration of the executive officer’s experience, tenure, performance and potential.Annual Cash Incentive Compensation. The Company pays annual cash incentive compensation to its chief executive officer, other executive officers, andother key employees generally based upon the achievement of the Company’s planned pretax earnings and cash-flow objectives for the fiscal year, which areapproved by the Compensation Committee no later than the first quarter of the year. For each fiscal year, each participant in the plan is assigned a “targetincentive,” which is expressed as a percentage of the participant’s annual base salary. The cash incentive amount paid to a participant is determined bymultiplying their target incentive by a performance percentage, which is calculated based on the extent to which the planned pretax earnings and cash flowobjectives are achieved (excluding any items determined by the Compensation Committee to be extraordinary and not considered in the establishment ofsuch targets), subject to the discretion of the Compensation Committee to increase or decrease such amount. Cash incentive payments are conditional uponthe participant’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.In 2016, such awards consisted of a mix of 50% time-based restricted stock units and 50% performance-based restricted stock units. In 2017, such awardsconsisted of a mix of 50% performance-based restricted stock units, 35% time-based restricted stock units, and 15% stock appreciation rights, or “SARS”. Therestricted stock units and SARS each have a three-year vesting period, vesting one-third each year equally, with the vesting of the performance-basedrestricted stock units based on performance against target earnings before interest, taxes, depreciation and amortization, or “EBITDA,” for 1 year, cumulative2 years and cumulative 3 years, respectively (in each case excluding any items determined by the Compensation Committee to be extraordinary and notconsidered in the establishment of such targets). The total target long-term incentive award for each participant in the plan is expressed as a percentage of theparticipant’s base salary. The grant of any long-term equity is conditional upon the attainment of positive pretax earnings target for the prior year (excludingany items determined by the Compensation Committee to be extraordinary and not considered in the establishment of such targets), subject to the discretionof the Compensation Committee to increase or decrease 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 compensationpackage approved by the Compensation Committee at the time of an executive officer’s hiring or promotion, as part of the Compensation Committee’sreview of each executive officer’s annual 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 10.16TREX COMPANY, INC.CHANGE IN CONTROL SEVERANCE AGREEMENTTHIS AGREEMENT (the “Agreement”) is entered into as of (the “Effective Date”) by and between TREX COMPANY, INC., a Delawarecorporation (the “Company”), and , a key employee of the Company (the “Eligible Employee”).RECITALS:WHEREAS, the Eligible Employee has been important in developing and expanding the business and operations of the Company and possessesvaluable knowledge and skills with respect to such business;WHEREAS, the Compensation Committee of the Board of Directors of the Company (the “Committee”) believes that it is in the best interests of theCompany to encourage the Eligible Employee’s continued employment with and dedication to the Company and has authorized the Company to enter intothis Agreement;WHEREAS, the parties desire to enter into this Agreement setting forth the terms and conditions for the payment of compensation to the EligibleEmployee in the event of a termination of the Eligible Employee’s employment in connection with a Change in Control (as defined herein) during the termof this Agreement;NOW, THEREFORE, in consideration of the foregoing, the agreements and covenants set forth herein, and other valuable consideration, the receiptand sufficiency of which is hereby acknowledged, the parties hereby agree as follows:1. Definitions. Except as otherwise provided in this Agreement, capitalized terms in this Agreement shall have the meanings set forth in this Section 1. (a)“Administrator” means the Committee or such other person or persons appointed from time to time by the Committee. (b)“Affiliate” means any “parent corporation” and any “subsidiary corporation” of the Company, as such terms are defined in Section 424 of theCode. (c)“Board” means the Board of Directors of the Company. (d)“Cause” means one of the following reasons for which the Eligible Employee’s employment with the Employer is terminated: (1) willful orgrossly negligent misconduct that is materially injurious to the Employer; (2) embezzlement or misappropriation of funds or property of theEmployer; (3) conviction of a felony or the entrance of a plea of guilty or nolo contendere to a felony; (4) conviction of any crime involvingfraud, dishonesty, moral turpitude or breach of trust or the entrance of a plea of guilty or nolo contendere to such a crime; or (5) failure or refusalby the Eligible Employee to devote full business time and attention to the performance of his duties and responsibilities if such breach has notbeen cured within 15 days after notice thereof is given to the Eligible Employee. (e)“Change in Control” means the first of the following events to occur after the Effective Date:(1) The consummation of a transaction in which any “person” (as such term is used in Sections 13(d) and 14(d) of the SecuritiesExchange Act of 1934, as amended) becomes, within the 12-month period ending on the date of such person’s most recent acquisition, a“beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities representing more than 35% of thevoting power of the then outstanding securities of the Company; provided that a Change in Control shall not be deemed to occur as a result of atransaction in which the Company becomes a subsidiary of another corporation and in which the stockholders of the Company, immediatelyprior to the transaction, will beneficially own, immediately after the transaction, shares entitling such stockholders to more than 50% of all votesto which all stockholders of the other corporation would be entitled in the election of directors (without consideration of the rights of any classof stock to elect directors by a separate class vote);(2) The consummation of (a) a merger, consolidation, or similar extraordinary event involving the Company and another entitywhere the stockholders of the Company, immediately prior to the merger, consolidation or similar extraordinary event, will not beneficially own,immediately after the merger, consolidation or similar extraordinary event, securities entitling such stockholders to more than 50% of all votes towhich all stockholders of the surviving corporation would be entitled in the election of directors (without consideration of the rights of any classof stock to elect directors by a separate class vote), or (b) a sale or other disposition of all or substantially all of the assets of the Company; or(3) During any 24-month period, individuals who at the beginning of any such period constitute the Board cease for any reason toconstitute at least a majority thereof, unless the election, or the nomination for election by the Company’s stockholders, of each director of theCompany first elected during such period was approved by a vote of at least two-thirds of the directors of the Company then still in office whowere directors of the Company at the beginning of such 24-month period. (f)“Change in Control Severance Benefits” means the benefits payable pursuant to Section 3 of this Agreement. (g)“Change in Control Protection Period” means the period commencing on the later of (1) the date that is 90 days before the date a Change inControl occurs or (2) the Effective Date, and ending on the second anniversary of the date the Change in Control occurs. (h)“Code” means the Internal Revenue Code of 1986, as amended. (i)“Disability” shall have the meaning given that term under the Trex Company, Inc. Disability Plan, as in effect at the time a determination ofDisability is to be made. (j)“Employer” means the Company or an Affiliate. (k)“ERISA” means the Employee Retirement Income Security Act of 1974, as amended. (l)“Final Pay” means the sum of (1) the greater of (A) the Eligible Employee’s annual base salary in effect immediately prior to the Change inControl, or (B) the Eligible Employee’s annual base salary in effect at the time employment terminates, and (2) the greater of (A) the EligibleEmployee’s targeted cash bonus for the year immediately prior to the year in which the Change in Control occurs, (B) the Eligible Employee’stargeted cash bonus for the year in which employment terminates or (C) the actual cash bonus earned by the Eligible Employee for the yearimmediately prior to the year in which employment terminates. (m)“Good Reason” means, without the specific written consent of the Eligible Employee, any of the following:(1) A material and adverse change in the Eligible Employee’s status or position(s) as an officer or management employee of theEmployer as in effect immediately prior to the Change in Control, including, without limitation, any adverse change in his status or position asan employee of the Employer as a result of a material diminution in his duties or responsibilities or the assignment to him of any duties orresponsibilities which are materially inconsistent with such status or position(s) (other than any isolated and inadvertent failure by the Employerthat is cured promptly upon his giving notice), or any removal of the Eligible Employee from or any failure to reappoint or reelect him to suchposition(s) (except in connection with the Eligible Employee’s Severance other than for Good Reason).(2) A 10% or greater reduction in the Eligible Employee’s aggregate base salary and targeted bonus from the aggregate base salaryand targeted bonus that was in effective immediately prior to the occurrence of a Change in Control, but disregarding any reduction in targetedbonus which occurs in accordance with the terms of any written bonus program as it reads immediately prior to the occurrence of a Change inControl.(3) The failure by the Employer or any successor to continue in effect any employee benefit plan (excluding any equitycompensation plan) in which the Eligible Employee is participating at the time of the Change in Control (or plans providing the EligibleEmployee with similar benefits that are not materially reduced in the aggregate) other than as a result of the normal expiration of any such planin accordance with its terms as in effect at the time of the Change in Control; or the taking of any action, or the failure to act, by the Employer orany successor which would adversely affect the Eligible Employee’s continued participation in any of such plans on at least as favorable a basisto him as is the case on the date of the Change in Control or which would materially reduce his benefits under any of such plans.(4) The Employer’s requiring the Eligible Employee to be based at an office that is both more than 50 miles from where his office islocated immediately prior to the Change in Control and further from his then current residence, except for required travel on the Employer’sbusiness to an extent substantially consistent with the business travel obligations which the Eligible Employee undertook on behalf of theEmployer prior to the Change in Control. (n)“Incentive Plan” means the Trex Company, Inc. 2014 Stock Incentive Plan (or a successor plan). (o)“Severance” means (1) the involuntary termination of the Eligible Employee’s employment by the Employer, other than for Cause, death orDisability or (2) a termination of the Eligible Employee’s employment by the Eligible Employee for Good Reason, in each case, during theChange in Control Protection Period; provided, however, that in each case the termination constitutes a “separation from service” within themeaning of Section 409A(a)(2)(A)(i) of the Code and Treasury Regulations thereunder. (p)“Severance Date” means the date on which the Eligible Employee incurs a Severance.2. Term of Agreement. This Agreement shall remain in effect from the Effective Date through December 31, 20___; provided, however, that (a) the Agreementshall automatically extend for additional one-year terms unless the Company provides written notice to the Eligible Employee not less than six monthsbefore the end of the then-current term; and (b) the Agreement shall automatically extend until the end of the Change in Control Protection Period if aChange in Control occurs during the term of the Agreement.3. Change in Control Severance Benefits. (a)Generally. Subject to subsections (h) and (i) below and Section 4, the Eligible Employee shall be entitled to the Change in Control SeveranceBenefits provided in this Section 3 if he or she incurs a Severance during the Change in Control Protection Period. If the Eligible Employeebecomes entitled to receive compensation or benefits under the terms of this Section 3, such compensation or benefits will be reduced by otherseverance benefits payable under any plan, program, policy or practice of or agreement or other arrangement between the Eligible Employee andthe Company. It is intended that the net effect to the Eligible Employee of entitlement to any similar benefits that are contained both in thisAgreement and in any other existing plan, program, policy or practice of or agreement or arrangement between the Eligible Employee and theCompany will be to provide the Eligible Employee with the greater of the benefits under this Agreement or under such other plan, program,policy, practice, or agreement or arrangement. (b)Payment of Accrued Obligations. If the Eligible Employee incurs a Severance during the Change in Control Protection Period, the Companyshall pay to him a lump sum payment in cash, no later than 10 days after the Severance Date (or the date of the Change in Control, if later), equalto the sum of (1) the Eligible Employee’s accrued annual base salary and any accrued vacation pay through the Severance Date, (2) the EligibleEmployee’s annual bonus earned for the fiscal year immediately preceding the fiscal year in which the Severance Date occurs if such bonus hasnot been paid as of the Severance Date; and (3) the Eligible Employee’s targeted cash bonus for the year in which the Severance occurs, pro-ratedbased upon the number of days the Eligible Employee was employed during such year. (c)Payment of Severance. Subject to subsections (h) and (i) below and Section 4, if the Eligible Employee incurs a Severance during the Change inControl Protection Period, the Company shall pay to him a lump sum cash payment, no later than 10 days after the Severance Date (or the date ofthe Change in Control, if later), equal to one and one-half (1 1⁄2) times the Eligible Employee’s Final Pay. (d)[Intentionally Omitted]. (e)[Intentionally Omitted]. (f)Benefit Continuation. Subject to subsections (h) and (i) below and Section 4, if the Eligible Employee incurs a Severance during the Change inControl Protection Period, commencing on the date immediately following such Eligible Employee’s Severance Date and continuing for 18months (or such lesser time as required to avoid the imposition of additional taxes under Section 409A of the Code) (the “Welfare BenefitContinuation Period”), the Company shall cover the Eligible Employee under the same type of Employer-sponsored group health plan anddental plan (e.g., individual or family coverage) and group life insurance in which he was covered as of his Severance Date. The EligibleEmployee shall receive such continued coverage under the same terms and conditions (e.g., any requirement that employees pay all or anyportion of the cost of such coverage) that would apply if the Eligible Employee had continued to be an employee of the Employer during theWelfare Benefit Continuation Period.For each month during the Welfare Benefit Continuation Period in which the Eligible Employee’s continued coverage under an insured plan isnot possible, the Company shall, in lieu of providing the coverage described in the preceding paragraph, make a monthly cash payment to theEligible Employee equal to the monthly premium the Employer would be charged for coverage of a similarly-situated employee. The Companyshall not be obligated to “gross up” or otherwise compensate the Eligible Employee for any taxes due on amounts paid pursuant to the precedingsentence.Notwithstanding any other provision of this subsection (f), the Company’s obligation to provide continued coverage (or, in lieu thereof, make acash payment) pursuant to this subsection (f) shall expire on the date the Eligible Employee becomes covered under one or more plans sponsoredby a new employer (other than a successor to the Company) that, at the sole discretion of the Administrator, are determined to provide coverageat least equivalent in the aggregate to the benefits continued under this subsection (f). The coverage period for purposes of the group healthcontinuation requirements of Section 4980B of the Code shall commence at the expiration of the Welfare Benefit Continuation Period. (g)Outplacement Services. Subject to subsection (i) below and Section 4, if the Eligible Employee incurs a Severance during the Change in ControlProtection Period, the Company shall provide him with reasonable outplacement services for up to 12 months following the Severance Date. (h)Release. The Eligible Employee shall not be eligible to receive any Change in Control Severance Benefits provided in this Section 3 (other thanpayments under Section 3(b)) unless he first executes a written release and agreement provided by the Company and does not revoke suchrelease and agreement within the time permitted therein for such revocation. (i)Restriction on Timing of Distribution. Anything in this Agreement to the contrary notwithstanding, if (1) on the Eligible Employee’s SeveranceDate, any of the Company’s stock is publicly traded on an established securities market or otherwise (within the meaning of Section 409A(a)(2)(B)(i) of the Code) and (2) as a result of such termination, the Eligible Employee would receive any payment that, absent the application of thisSection 3(i), would be subject to interest and additional tax imposed pursuant to Section 409A(a) of the Code as a result of the application ofSection 409A(2)(B)(i) of the Code, then no such payment shall be payable prior to the date that is the earliest of (x) six months after the EligibleEmployee’s Severance Date, (y) the Eligible Employee’s death or (z) such other date as will cause such payment not to be subject to such interestand additional tax. 4.Reduction of Change in Control Severance Benefits. (a)Reduction of Payments. To the extent necessary to avoid imposition of the excise tax under Section 4999 of the Code in connection with aChange in Control, the amounts payable or benefits to be provided to the Eligible Employee shall be reduced such that the reduction ofcompensation to be provided to the Eligible Employee is minimized. In applying this principle, the reduction shall be made in a mannerconsistent with the requirements of Section 409A of the Code, and where two economically equivalent amounts are subject to reduction butpayable at different times, such amounts shall be reduced on a pro rata basis (but not below zero). (b)Determination. The determination that the Eligible Employee’s Payment would cause him to become subject to the excise tax imposed underSection 4999 of the Code and the calculation of the amount of any reduction, shall be made, at the Company’s discretion, by the Company’soutside auditing firm or by a nationally-recognized accounting or benefits consulting firm designated by the Company prior to a Change inControl. The firm’s expenses shall be paid by the Company. (c)Payment of Remaining Benefits. If a determination is made that the Eligible Employee’s Change in Control Severance Benefits provided inSection 3(c) must be reduced, payment of the remaining Change in Control Severance Benefits provided in Section 3(c) shall be made in a lumpsum cash payment no later than 10 days after the latter of the Severance Date or the date the determination is made.5. Taxes; Withholding. The Eligible Employee shall be responsible for the payment of all applicable local, state and federal taxes associated with theEligible Employee’s receipt of Change in Control Severance Benefits hereunder, and the Company shall have the right to deduct from any distributionshereunder any such taxes or other amounts required by law to be withheld therefrom.6. Claims Procedures. (a)Applications for Benefits and Inquiries. Any application for benefits, inquiries about this Agreement or inquiries about present or future rightsunder this Agreement must be submitted to the Administrator in writing. (b)Denial of Claims. In the event that any application for benefits is denied in whole or in part, the Administrator must notify the applicant, inwriting, of the denial of the application, and of the applicant’s right to review the denial. The written notice of denial will be set forth in a manner designed to be understood by the applicant, and will include specific reasons for the denial, specific references tothe provisions of this Agreement upon which the denial is based, a description of any additional material or information necessary for theapplicant to perfect the claim and an explanation of why such material or information is necessary, and an explanation of the review procedure,including the applicant’s right to bring a civil action under Section 502(a) of ERISA following an adverse decision on review. This writtennotice will be given to the applicant within 90 days after the Administrator receives the application, unless special circumstances require anextension of time, in which case, the Administrator has up to an additional 90 days. If an extension of time is required, written notice of theextension will be furnished to the applicant before the end of the initial 90-day period. This notice of extension will describe the specialcircumstances necessitating the additional time and the date by which the Administrator expects to render a decision on the application. (c)Request for a Review. Any person (or that person’s authorized representative) for whom an application for benefits is denied, in whole or in part,may appeal the denial by submitting a written request for a review to the Administrator within 60 days after the application is denied. TheAdministrator will give the applicant (or his or her authorized representative) an opportunity to review pertinent documents in preparing arequest for a review and submit written comments, documents, records and other information relating to the claim. (d)Decision on Review. The Administrator will provide written notice of its decision on review within 60 days after receipt of the request, unlessspecial circumstances require an extension of time (not to exceed an additional 60 days). If an extension for review is required, written notice ofthe extension will be furnished to the applicant within the initial 60-day period. This notice of extension will describe the special circumstancesnecessitating the additional time and the date by which the Administrator expects to render a decision on review. In the event that theAdministrator confirms the denial of the application for benefits in whole or in part, the notice will outline, in a manner calculated to beunderstood by the applicant, the specific reasons for the decision, the specific provisions of this Agreement upon which the decision is based, astatement that the applicant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records andother information relevant to the applicant’s claim for benefits, and a statement of the applicant’s right to bring an action under Section 502(a) ofERISA. (e)Rules and Procedures. The Administrator may establish rules and procedures, consistent with this Agreement and with ERISA, as necessary andappropriate in carrying out its responsibilities in reviewing benefit claims.7. Immediate Vesting of Equity-Based Compensation Awards upon a Change in Control. If a Change in Control occurs during the term of this Agreement,(1) the unexercised portions of all Options and SARs (as defined in the Incentive Plan) granted to the Eligible Employee under the Incentive Plan that havenot expired or been forfeited pursuant to their terms shall automatically accelerate and become fully exercisable, (2) the restrictions and conditions on alloutstanding Restricted Stock and Restricted Stock Units (as defined in the Incentive Plan) granted to the Eligible Employee that have not expired or beenforfeited pursuant to their terms shall immediately lapse and such Restricted Stock and Restricted Stock Units shall vest, and (3) all outstanding RestrictedStock Units and Restricted Stock (as defined in the Incentive Plan) granted to the Eligible Employee that are based upon performance of the Companyover a certain period of time shall become payable at the Eligible Employee’s target payment for the relevant performance period (regardless of the amount ofthe relevant performance period that precedes the Change in Control). Where a Severance precedes the Change in Control (i.e., by operation of clause (1) ofSection 1(g)) and the terms of any award granted to the Eligible Employee under the Incentive Plan would otherwise call for the forfeiture of such award uponthe termination of the Eligible Employee’s employment with the Company, such award shall not be deemed to be forfeited on account of the EligibleEmployee’s Severance and shall remain outstanding (subject to the other terms of the award, including its original term) as if the Change in Control precededthe Severance. 8.General Provisions (a)Amendment and Termination. This Agreement may not be terminated prior to the end of its term without the written consent of the EligibleEmployee. This Agreement may be amended by the Committee at any time; provided, however, that this Agreement may not be amendedwithout the written consent of the Eligible Employee if such amendment would in any manner adversely affect the rights of the EligibleEmployee under this Agreement. (b)Assignment. Except as otherwise provided herein or by law, no right or interest of the Eligible Employee under this Agreement shall beassignable or transferable, in whole or in part, either directly or by operation of law or otherwise, including without limitation by execution,levy, garnishment, attachment, pledge or in any manner; no attempted assignment or transfer thereof shall be effective. Notwithstanding thepreceding sentence, if the Eligible Employee is unable to care for his affairs when a payment is due under this Agreement to the EligibleEmployee, payment may be made directly to his legal guardian or personal representative. (c)Compliance with Law. Notwithstanding subsection (a) above or any other provision of this Agreement to the contrary, the Company may amend,modify or terminate this Agreement, without the consent of the Eligible Employee, as the Company deems necessary or appropriate to ensurecompliance with any law, rule, regulation or other regulatory pronouncement applicable to this Agreement, including, without limitation,Section 409A of the Code and any Treasury Regulations or other guidance thereunder. (d)Governing Law. This Agreement shall be construed and enforced according to the laws of the Commonwealth of Virginia to the extent notpreempted by federal law, without regard to any conflict of laws principles that would apply the law of another jurisdiction. (e)Severability. If any provision of this Agreement shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect anyother provisions hereof, and this Agreement shall be construed and enforced as if such provisions had not been included. (f)Headings and Terms. The headings and captions herein are provided for reference and convenience only, shall not be considered part of theAgreement, and shall not be employed in the construction of the Agreement. Capitalized terms shall have the meanings given herein. Singularnouns shall be read as plural and masculine pronouns shall be read as feminine, and vice versa, as appropriate. (g)No Assurance of Employment. Neither the execution and delivery of this Agreement by the Company and the Eligible Employee nor thecreation of any fund, trust or account, nor the payment of any benefits shall be construed as giving the Eligible Employee the right to be retainedin the service of the Employer, and the Eligible Employee shall remain subject to discharge to the same extent as if this Agreement had neverbeen entered into. (h)Successors. This Agreement shall inure to the benefit of and be binding upon the heirs, executors, administrators, successors and assigns of theparties, including the Eligible Employee and any successor to the Company. If the Eligible Employee incurs a Severance during the Change inControl Protection Period but dies before his Change in Control Severance Benefits have been fully paid, any unpaid amounts shall be paid tothe executor, personal representative or administrators of the Eligible Employee’s estate in a lump sum payment no later than the fifteenth day ofthe third calendar month following the Eligible Employee’s death. (i)Notice. For purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall bedeemed to have been duly given when hand delivered, sent by overnight courier, or mailed by first-class, registered or certified mail, returnreceipt requested, postage prepaid, or transmitted by telegram, telecopy, or telex, addressed, in the case of the Eligible Employee, to the EligibleEmployee’s address as shown on the Company’s records, and, in the case of the Company or the Administrator, to the Company’s principaloffice, to the attention of the Chief Executive Officer or to the Chairman of the Committee, as applicable, or to such other address as either partymay have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. (j)Entire Agreement. This Agreement sets forth the entire agreement of the parties with respect to the subject matter hereof. Any and all prioragreements or understandings with respect to such matters are hereby superseded.[Remainder of page intentionally left blank.]IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed as of the day first above written. TREX COMPANY, INC.By: Name: Title: ELIGIBLE EMPLOYEEName: Exhibit 10.29AMENDMENT TO DEED OF LEASETHIS AMENDMENT TO DEED OF LEASE, dated November 2, 2016, is by and between Trex Company, Inc., successor by merger to Trex Company, LLC,hereinafter referred to as the “Tenant”, and TC.V.LLC, successor to Space, LLC, hereinafter referred to as the “Landlord.”WHEREAS, Tenant and Landlord entered into a Deed of Lease dated June 15, 2000, (the “Lease”) for office space (the second and third floors) located withina building at 160 Exeter Drive, Winchester, Virginia (the “Building”); andWHEREAS, pursuant to an Amendment to Deed of Lease dated February 22, 2010 (the “2010 Amendment”), the term of the Lease was extended, the FixedRent was adjusted, and the Premises was reduced by 3,411 square feet on the second floor of the Building (the “Second Floor Space”).NOW, THEREFORE, the parties hereby agree as follows: 1.Effective January 1, 2017, the Lease is hereby amended in the following respects: (a)The Premises shall be increased to add back to the Lease the Second Floor Space. (b)The Fixed Rent for the Second Floor Space shall be $11.73 per square foot, with $4.73 being allocated to base rent and $7.00 being allocated tooperating costs. For purposes of clarification, the Fixed Rent for the remainder of the Premises other than the Second Floor Space shall be asstated in the 2010 Amendment. (c)The relative sections of the Lease shall be amended to effectuate the amendments described above. In the event of a conflict between the terms ofthe Lease and the terms of this Amendment, the terms of this Amendment shall apply. Except as amended herein, all other terms of the Leaseshall remain in full force and effect. 2.Capitalized terms not otherwise defined herein shall have the meaning given to such terms by the Lease.IN WITNESS WHEREOF, Tenant and Landlord have executed this Amendment as of the day and year first set forth above. Trex Company, Inc. TC.V.LLCBy: /s/ J.T. Rudolph, III By: /s/ Stephen WhiteTitle: Vice President, HR Title: Owner 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: • 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 21, 2017, 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, 2016./s/ Ernst & Young LLPMcLean, VirginiaFebruary 21, 2017Exhibit 31.1CERTIFICATIONI, 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 statementsfor external 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,to the 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 21, 2017 /S/ JAMES E. CLINE James E. Cline President and Chief Executive Officer(Principal Executive Officer)Exhibit 31.2CERTIFICATIONI, Bryan H. Fairbanks, 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 statementsfor external 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,to the 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 21, 2017 /S/ BRYAN H. FAIRBANKS Bryan H. Fairbanks 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. (Company), each hereby certifiesthat, on the date hereof:(a) the Annual Report on Form 10-K of the Company for the Period Ended December 31, 2016 filed on the date hereof with the Securities andExchange Commission (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 21, 2017 /S/ JAMES E. CLINE James E. Cline President and Chief Executive OfficerDate: February 21, 2017 /S/ BRYAN H. FAIRBANKS Bryan H. Fairbanks Vice President and Chief Financial Officer

Continue reading text version or see original annual report in PDF format above