TREX CO INC 10-K

Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures The Company’s management, with the participation of its President and Chief Executive Officer, who is the Company’s principal executive officer, and its Senior Vice President and Chief Financial Officer, who is the Company’s principal financial officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of December 31, 2020. Based on this evaluation, the President and Chief Executive Officer and the Senior Vice President and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective. 41 Table of Contents Management’s Report on Internal Control Over Financial Reporting We, as members of management of Trex Company, Inc. (Company), are responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate. We assessed the Company’s internal control over financial reporting as of December 31, 2020, based on criteria for effective internal control over financial reporting established in “Internal Control-Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO Framework). Based on this assessment, we concluded that, as of December 31, 2020, our internal control over financial reporting was effective, based on the COSO Framework. The effectiveness of our internal control over financial reporting as of December 31, 2020, has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report, which follows hereafter. TREX COMPANY, INC. February 22, 2021 By: / S / B RYAN H. F AIRBANKS Bryan H. Fairbanks President and Chief Executive Officer (Principal Executive Officer) February 22, 2021 By: / S / D ENNIS C. S CHEMM Dennis C. Schemm Senior Vice President and Chief Financial Officer (Principal Financial Officer) Changes in Internal Control Over Financial Reporting There have been no changes in the Company’s internal control over financial reporting identified in connection with the evaluation described above in “Management’s Report on Internal Control Over Financial Reporting” that occurred during the Company’s fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. 42 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Trex Company, Inc. Opinion on Internal Control over Financial Reporting We have audited Trex Company, Inc.’s internal control over financial reporting as of December 31, 2020, 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). In our opinion, Trex Company, Inc., (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 2020 consolidated financial statements of the Company and our report dated February 22, 2021 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. 43 Table of Contents Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP Richmond, Virginia February 22, 2021 44 Table of Contents Item 9B. Other Information Amendment of Amended and Restated 1999 Incentive Plan for Outside Directors On February 17, 2021, the Board of Directors approved an amendment to the Amended and Restated 1999 Incentive Plan for Outside Directors (Outside Directors Plan), effective February 17, 2021, as follows: • The annual cash retainer for service on the Board was increased from $65,000 to $73,750. • The annual equity award for service on the Board was increased from $100,000 to $110,000. • The annual committee fee for members of the Audit Committee was increased from $8,750 to $10,000. • The annual committee fee for members of the Compensation Committee was increased from $7,500 to $10,000. • The annual committee fee for members of the Nominating and Corporate Governance Committee was increased from $6,250 to $10,000. • The annual committee fee for the chairman of the Audit Committee was increased from $17,500 to $20,000. • The annual committee fee for the chairman of the Compensation Committee was increased from $15,000 to $20,000. • The annual committee fee for the chairman of the Nominating/Corporate Governance Committee was increased from $12,500 to $20,000. • The additional compensation for the Lead Independent Director was increased from $20,000 to $25,000. • The additional compensation for a non-executive Chairman of the Board was increased from $80,000 to $85,000. • The additional compensation for a non-executive Vice Chairman of the Board was increased from $50,000 to $55,000. The Nominating and Corporate Governance Committee and the Board of Directors of the Company amended the Outside Directors Plan as described above based upon a Board of Directors compensation study undertaken by Korn Ferry Hay Group, which is the Company’s independent compensation consultant. The foregoing description of the amendment to the Outside Directors Plan is qualified in its entirety by reference to the full text of the Outside Directors Plan, which is filed as Exhibit 10.3 to this Form 10-K . 45 Table of Contents PART III Item 10. Directors, Executive Officers and Corporate Governance Information responsive to this Item 10 is incorporated herein by reference to our definitive proxy statement for our 2021 annual meeting of stockholders, which we will file with the SEC on or before 120 days after our 2020 fiscal year-end. We have adopted a Code of Conduct and Ethics, which is applicable to all directors, officers and employees, including our Chief Executive Officer 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 make available on our web site, at www.trex.com/our-company/corporate-governance , and in print to any stockholder who requests them, copies of our corporate governance principles and the charters of 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 and ethics, and any waiver of a provision of the code with respect to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, on our web site referred to above within four business days following any such amendment or waiver, or within any other period that may be required under SEC rules from time to time. Item 11. Executive Compensation Information responsive to this Item 11 is incorporated herein by reference to our definitive proxy statement for our 2021 annual meeting of stockholders, which we will file with the SEC on or before 120 days after our 2020 fiscal year-end. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information responsive to this Item 12 is incorporated herein by reference to our definitive proxy statement for our 2021 annual meeting of stockholders, which we will file with the SEC on or before 120 days after our 2020 fiscal year-end. Item 13. Certain Relationships and Related Transactions, and Director Independence Information responsive to this Item 13 is incorporated herein by reference to our definitive proxy statement for our 2021 annual meeting of stockholders, which we will file with the SEC on or before 120 days after our 2020 fiscal year-end. Item 14. Principal Accounting Fees and Services Information responsive to this Item 14 is incorporated herein by reference to our definitive proxy statement for our 2021 annual meeting of stockholders, which we will file with the SEC on or before 120 days after our 2020 fiscal year-end. 46 Table of Contents PART 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-33 of this report and are incorporated by reference in Part II, Item 8: Report of Independent Registered Public Accounting Firm F-2 Consolidated Financial Statements Consolidated Statements of Comprehensive Income for the three years ended December 31, 2020 F-4 Consolidated Balance Sheets as of December 31, 2020 and 2019 F-5 Consolidated Statements of Changes in Stockholders’ Equity for the three years ended December 31, 2020 F-6 Consolidated Statements of Cash Flows for the three years ended December 31, 2020 F-7 Notes to Consolidated Financial Statements F-8 (a)(2) The following financial statement schedule is filed as part of this report: Schedule II—Valuation and Qualifying Accounts and Reserves F-34 All other schedules for which provision is made in the applicable accounting regulations of the SEC are not required under the related instructions or are inapplicable or not material and, therefore, have been omitted. (a)(3) See Exhibit Index at the end of the Annual Report on Form 10-K for the information required by this Item. 47 Table of Contents TREX COMPANY, INC. Index to Consolidated Financial Statements Page Report of Independent Registered Public Accounting Firm F-2 Consolidated Financial Statements Consolidated Statements of Comprehensive Income for the three years ended December 31, 2020 F-4 Consolidated Balance Sheets as of December 31, 2020 and 2019 F-5 Consolidated Statements of Changes in Stockholders’ Equity for the three years ended December 31, 2020 F-6 Consolidated Statements of Cash Flows for the three years ended December 31, 2020 F-7 Notes to Consolidated Financial Statements F-8 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-34 F-1 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Trex Company, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Trex Company, Inc. (the Company) as of December 31, 2020 and 2019, the related consolidated statements of comprehensive income, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 22, 2021 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. F-2 Table of Contents Surface Flaking Warranty Description of the Matter At December 31, 2020, the Company’s surface flaking warranty reserve was $21.3 million. As discussed in Note 18 of the consolidated financial statements, the Company continues to receive and settle claims for decking products manufactured at its Nevada facility prior to 2007 that exhibit surface flaking and maintains a warranty reserve to provide for the settlement of these claims. The Company’s warranty reserve is based on an actuarial analysis of the number of claims to be settled and management’s estimate of the average cost to settle each claim. The actuarial analysis utilized determines a reasonably possible range of claims to be received and the percentage of those claims that will ultimately require payment. Auditing the surface flaking warranty reserve is complex and required the involvement of specialists due to the highly judgmental nature of the actuarially determined number of claims. Auditing the reserve is also complex due to the judgmental nature of the significant assumptions made by management (e.g., the size of the affected decks, the availability and type of replacement material used, the cost of production of replacement material and the method of claim settlement) and used in the measurement process. These determinations, assumptions and judgments have a significant effect on the surface flaking reserve. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of the controls over the Company’s measurement and valuation of the surface flaking warranty reserve. For example, we tested controls over the appropriateness of the assumptions used and the completeness and accuracy of the underlying data. To test the surface flaking warranty reserve, our audit procedures included, among others, evaluating the methodologies and the significant assumptions used. For example, we involved an actuarial specialist to assist us in independently calculating a range of the expected number of claims and compared that to the Company’s range. We also performed sensitivity analyses to evaluate changes in the liability that would result from changes in significant assumptions. In addition, we assessed the historical accuracy of management’s estimates to identify potential changes in the measurement and valuation of the surface flaking reserve. We performed audit procedures on the completeness and accuracy of the underlying data used by the Company in its analysis. /s/ Ernst & Young LLP We have served as the Company’s auditor since 1995. Richmond, Virginia February 22, 2021 F-3 Table of Contents TREX COMPANY, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Year Ended December 31, 2020 2019 2018 (In thousands, except share and per share data) Net sales $ 880,831 $ 745,347 $ 684,250 Cost of sales 521,374 438,844 389,356 Gross profit 359,457 306,503 294,894 Selling, general and administrative expenses 125,822 118,304 118,225 Income from operations 233,635 188,199 176,669 Interest (income) expense, net ( 999 ) ( 1,503 ) ( 192 ) Income before income taxes 234,634 189,702 176,861 Provision for income taxes 59,003 44,964 42,289 Net income $ 175,631 $ 144,738 $ 134,572 Basic earnings per common share $ 1.52 $ 1.24 $ 1.15 Basic weighted average common shares outstanding 115,888,859 116,861,194 117,479,340 Diluted earnings per common share $ 1.51 $ 1.24 $ 1.14 Diluted weighted average common shares outstanding 116,252,866 117,315,498 118,134,604 Comprehensive income $ 175,631 $ 144,738 $ 134,572 See Notes to Consolidated Financial Statements. F-4 Table of Contents TREX COMPANY, INC. CONSOLIDATED BALANCE SHEETS December 31, 2020 2019 (In thousands) ASSETS Current Assets: Cash and cash equivalents $ 121,701 $ 148,833 Accounts receivable, net 106,748 78,462 Inventories 68,238 56,106 Prepaid expenses and other assets 25,310 19,803 Total current assets 321,997 303,204 Property, plant and equipment, net 336,537 171,300 Goodwill and other intangible assets, net 73,665 74,084 Operating lease assets 34,382 40,049 Other assets 3,911 3,602 Total Assets $ 770,492 $ 592,239 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities: Accounts payable $ 38,622 $ 15,227 Accrued expenses and other liabilities 62,331 58,265 Accrued warranty 5,400 5,178 Total current liabilities 106,353 78,670 Operating lease liabilities 28,579 34,242 Non-current accrued warranty 24,073 20,317 Deferred income taxes 22,956 9,831 Other long-term liabilities — 4 Total Liabilities 181,961 143,064 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, 180,000,000 shares authorized; 140,577,005 and 140,374,926 shares issued and 115,799,503 and 116,481,442 shares outstanding at December 31, 2020 and 2019, respectively 1,406 1,404 Additional paid-in capital 126,087 123,294 Retained earnings 737,311 561,680 Treasury stock, at cost, 24,777,502 and 23,893,484 shares at December 31, 2020 and 2019, respectively ( 276,273 ) ( 237,203 ) Total Stockholders’ Equity 588,531 449,175 Total Liabilities and Stockholders’ Equity $ 770,492 $ 592,239 See Notes to Consolidated Financial Statements. F-5 Table of Contents TREX COMPANY, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (In thousands, except share data) Common Stock Additional Paid-In Capital Retained Earnings Treasury Stock Total Shares Amount Shares Amount Balance, December 31, 2017 117,713,720 $ 1,396 $ 120,996 $ 282,370 21,974,724 $ ( 173,512 ) $ 231,250 Net income — — — 134,572 — — 134,572 Employee stock plans 126,896 2 880 — — — 882 Shares withheld for taxes on awards ( 26,056 ) — ( 4 695 ) — — — ( 4,695 ) Stock-based compensation 207,388 2 6,343 — — — 6,345 Repurchases of common stock ( 918,642 ) — — — 918,642 ( 25,391 ) ( 25,391 ) Balance, December 31, 2018 117,103,306 1,400 123,524 416,942 22,893,366 ( 198,903 ) 342,963 Net income — — — 144,738 — — 144,738 Employee stock plans 154,282 2 1,087 — — — 1,089 Shares withheld for taxes on awards ( 216,756 ) — ( 8,245 ) — — — ( 8,245 ) Stock-based compensation 440,728 2 6,928 — — — 6,930 Repurchases of common stock ( 1,000,118 ) — — — 1,000,118 ( 38,300 ) ( 38,300 ) Balance, December 31, 2019 116,481,442 1,404 123,294 561,680 23,893,484 ( 237,203 ) 449,175 Net income — — — 175,631 — — 175,631 Employee stock plans 68,061 — 1,446 — — — 1,446 Shares withheld for taxes on awards ( 111,433 ) — ( 5,784 ) — — — ( 5,784 ) Stock-based compensation 245,451 2 7,131 — — — 7,133 Repurchases of common stock ( 884,018 ) — — — 884,018 ( 39,070 ) ( 39,070 ) Balance, December 31, 2020 115,799,503 $ 1,406 $ 126,087 $ 737,311 24,777,502 $ ( 276,273 ) $ 588,531 See Notes to Consolidated Financial Statements. F-6 Table of Contents TREX COMPANY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2020 2019 2018 (In thousands) Operating Activities Net income $ 175,631 $ 144,738 $ 134,572 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 17,939 14,031 16,597 Deferred income taxes 13,125 7,706 1,037 Stock-based compensation 7,131 6,930 6,344 (Gain) loss on disposal of property, plant and equipment ( 56 ) 285 47 Other non-cash adjustments 51 ( 218 ) ( 406 ) Changes in operating assets and liabilities: Accounts receivable ( 28,286 ) 12,701 ( 24,281 ) Inventories ( 12,132 ) 1,695 ( 23,276 ) Prepaid expenses and other assets ( 358 ) ( 1,652 ) ( 613 ) Accounts payable 11,353 ( 16,666 ) 21,131 Accrued expenses and other liabilities 7,655 ( 10,823 ) 5,040 Income taxes receivable/payable ( 4,759 ) ( 2,375 ) 1,929 Net cash provided by operating activities 187,294 156,352 138,121 Investing Activities Expenditures for property, plant and equipment and intangibles ( 172,823 ) ( 67,265 ) ( 33,816 ) Proceeds from sales of property, plant and equipment 2,165 21 83 Net cash used in investing activities ( 170,658 ) ( 67,244 ) ( 33,733 ) Financing Activities Borrowings under line of credit 276,000 89,500 172,250 Principal payments under line of credit ( 276,000 ) ( 89,500 ) ( 172,250 ) Repurchases of common stock ( 44,854 ) ( 46,545 ) ( 30,085 ) Proceeds from employee stock purchase and option plans 1,446 1,089 882 Financing costs ( 360 ) ( 518 ) — Net cash used in financing activities ( 43,768 ) ( 45,974 ) ( 29,203 ) Net (decrease) increase in cash and cash equivalents ( 27,132 ) 43,134 75,185 Cash and cash equivalents at beginning of year 148,833 105,699 30,514 Cash and cash equivalents at end of year $ 121,701 $ 148,833 $ 105,699 Supplemental disclosures of cash flow information: Cash paid for interest $ 187 $ 321 $ 662 Cash paid for income taxes, net $ 50,744 $ 39,612 $ 48,238 See Notes to Consolidated Financial Statements. F-7 Table of Contents TREX COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BUSINESS AND ORGANIZATION Trex Company, Inc. (together with its wholly-owned subsidiary, the Company), a Delaware corporation, was incorporated on September 4, 1998. The Company operates in two reportable segments, Trex Residential Products (Trex Residential) and Trex Commercial Products (Trex Commercial). The Company’s principal business based on net sales is the manufacture and distribution of Trex Residential wood and plastic composite products, as well as related accessories, primarily for residential decking and railing applications. Trex Commercial designs, engineers and markets modular and architectural railing and staging systems for the commercial and multi-family market, including sports stadiums and performing arts venues. The principal executive offices are located at 160 Exeter Drive, Winchester, Virginia 22603, and the telephone number at that address is (540) 542-6300. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Trex Commercial Products, Inc. Intercompany accounts and transactions have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes. Actual results could differ from those estimates. Cash and Cash Equivalents Cash equivalents consist of highly liquid investments purchased with original maturities of three months or less. Concentrations and Credit Risk The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents and trade accounts receivable. The Company from time to time may have bank deposits in excess of insurance limits of the Federal Deposit Insurance Corporation. As of December 31, 2020, substantially all deposits are maintained in one financial institution. The Company has not experienced any losses in such accounts and 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. Trade receivables are recognized at the amount of revenue recognized on each shipment for Trex Residential products and for satisfied performance obligations for Trex Commercial products as the Company has an unconditional right to consideration from the customer and payment is due based solely on the passage of time. An estimate of expected credit losses is recognized as a valuation allowance and adjusted each reporting period. The estimate is based on the current expected credit loss model and is determined using an aging schedule, including past events, current conditions and reasonable and supportable forecasts about the future. There was no material valuation allowance recorded as of December 31, 2020 and December 31, 2019. F-8 Table of Contents In the years ended December 31, 2020, 2019, and 2018 sales to certain customers of Trex Residential accounted for 10 % or more of the Company’s total net sales. For the year ended December 31, 2020, three customers represented approximately 56 % of the Company’s total net sales. For the year ended December 31, 2019, three customers of Trex Residential represented approximately 57 % of the Company’s total net sales. For the year ended December 31, 2018, two customers of Trex Residential represented approximately 42 % of the Company’s total net sales. At December 31, 2020 two customers represented 27 % and 15 %, respectively, of the Company’s accounts receivable balance. At December 31, 2019 three customers represented 30 %, 24 % and 10 %, respectively, of the Company’s total accounts receivable balance. For each year ended December 31, 2020, 2019, and 2018, approximately 28 %, 27 %, and 33 %, respectively, of the Company’s materials purchases at Trex Residential were purchased from its four largest suppliers. Inventories Inventories for the Company’s composite decking and railing products are valued at the lower of cost (last-in, first-out, or LIFO, method) and market as this method results in a better matching of costs and revenues. The Company periodically reviews its inventory for slow moving or obsolete items and writes down the related products to estimated realizable value. The Company’s reserves for estimated slow moving products or obsolescence are not material. At December 31, 2020, the excess of the replacement cost of inventory over the LIFO value of inventory was approximately $ 16.8 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 being based on historical rather than current year costs. A majority of the Company’s products at Trex Residential are made in a proprietary process that combines reclaimed wood fibers and scrap polyethylene. The Company grinds up scrap materials generated from its manufacturing process and inventories deemed no longer salable and reintroduces the reclaimed material into the manufacturing process as a substitute for raw materials. The reclaimed material is valued at the costs of the raw material components of the material. Inventories for the Company’s railing and staging products at Trex Commercial for the commercial and multi-family market are valued at the lower of cost (first-in, first-out or FIFO method), using actual cost, and net realizable value. Work-in process includes estimated production costs. Property, Plant and Equipment Property, plant and equipment are stated at historical cost. The costs of additions and improvements are capitalized, while maintenance and repairs are expensed as incurred. Unpaid liabilities related to property, plant and equipment are included in accounts payable and were $ 12.9 million and $ 0.8 million at December 31, 2020 and December 31, 2019, respectively. Cash flows for capital expenditures as reported in cash flows from investing activities in the Consolidated Statements of Cash Flows are adjusted to exclude unpaid amounts accrued at period end. 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. F-9 Table of Contents The Company reviews its long-lived assets, including property, plant and equipment, whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. To determine the recoverability of its long-lived assets, the Company evaluates the probability that 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 the carrying 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 remaining estimated 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. Leases The Company leases office space, storage warehouses and certain plant equipment under various operating leases. At inception of an arrangement, the Company evaluates, among other things, whether it has the right to control the use of an identified asset in order to determine if the arrangement is or contains a lease. Operating leases are included in operating lease right-of-use (ROU) assets, accrued expenses and other current liabilities, and operating lease liabilities in the consolidated balance sheets. Operating leases with an initial term of 12 months or less are not included in the consolidated balance sheet. The Company recognizes lease expense for these leases on a straight-line basis over the lease term. ROU assets represent the right to use an underlying asset for the lease term and operating lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The Company gives consideration to instruments with similar characteristics when calculating its incremental borrowing rate. Certain events, such as a modification to the arrangement or a change in the lease term, are assessed by the Company to determine if it is required to reassess estimates and judgments and remeasure the lease liability and ROU asset. The Company reviews its ROU asset for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be fully recoverable. The carrying amount of the ROU asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use of the asset. An impairment loss is measured as the amount by which the carrying amount of the ROU asset exceeds its fair value. The Company’s operating leases have remaining lease terms of 1 year to 8 years. Lease terms may include options to extend or terminate the lease when the Company determines that it is reasonably certain it will exercise the option. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term. The Company has lease agreements with lease and non-lease components, which are accounted for separately. Consideration for non-lease components is stated on a stand-alone basis in the applicable agreements. Fair Value Measurement Assets 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 an orderly 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 the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. F-10 Table of Contents Goodwill Goodwill represents the excess of cost over net assets acquired resulting from the Company’s 1996 purchase of the Mobil Composite Products Division, the 2011 purchase of the assets of the Iron Deck Corporation, and the 2017 purchase of certain assets and the assumption of certain liabilities of SC Company. The Company evaluates the recoverability of goodwill in accordance with Accounting Standard Codification Topic 350, “ Intangibles – Goodwill and Other ,” annually or more frequently if an event occurs or circumstances change in the interim that would more likely than not reduce the fair value of the asset below its carrying amount. Goodwill is considered to be impaired when the net book value of the reporting unit exceeds its estimated fair value. The Company assigned its goodwill to reporting units and tests each reporting unit’s goodwill for impairment at least on an annual basis, or more frequently if an event occurs or circumstances change in the interim that indicate the carrying amount of reporting unit goodwill exceeds the implied fair value of that goodwill. The Company identified its reporting units based on the way it manages its operating segments. Each reporting unit constitutes a business with discrete financial information and operating segment management, at a level below the Company’s chief operating decision maker, regularly reviews the operating results of the reporting unit. The Company assigned goodwill to the reporting units based on the excess of the fair values acquired over the fair value of the sum of the individual assets acquired and liabilities assumed that were assigned to the reporting units. In testing for goodwill impairment, the Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. If the qualitative assessment indicates that the carrying amount of the reporting unit exceeds its fair value, including goodwill, the Company is then required to perform a quantitative goodwill impairment test. The quantitative goodwill impairment test, used to identify both the existence of impairment and the amount of impairment loss, compares the fair value of a reporting unit with its carrying amount, including goodwill. The fair value of a reporting unit refers to the price that would be received to sell the unit as a whole in an orderly transaction between market participants at the measurement date. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. The Company measures fair value of the reporting units based on a present value of future cash flows (discounted cash flows model) and a market valuation approach. The discounted 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 to generate in the future. Significant estimates in the discounted cash flows model include: the weighted average cost of capital; long-term rate of growth and profitability of the business; and working capital effects. The market valuation approach indicates the fair value of the business based on a comparison of the Company against certain market information. Significant estimates in the market approach model include identifying appropriate market multiples and assessing earnings before interest, income taxes, depreciation and amortization (EBITDA) in estimating the fair value of the reporting unit. For the years ended December 31, 2020, 2019, and 2018, the Company completed its annual impairment test of goodwill utilizing the qualitative assessment and concluded it was not more likely than no t that the fair value of the reporting units was less than the carrying amounts. The Company performs the annual impairment testing of its goodwill as of October 31 of each year. However, actual results could differ from the Company’s estimates and projections, which would affect the assessment of impairment. As of December 31, 2020, the Company had goodwill of $ 68.5 million that is reviewed annually for impairment. Product Warranty The Company warrants that its Trex Residential decking products will be free from material defects in workmanship and materials. This warranty generally extends for a period of 25 years for residential use and F-11 Table of Contents 10 years for commercial use. With respect to Trex Signature ® Railing, the warranty period is 25 years for both residential and commercial use. With respect to the Company’s Transcend ® , Enhance ® , Select ® and Universal Fascia product, the Company further warrants that the product 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 is cleaned 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 a breach of such warranties, the Company has an obligation either to replace the defective product or refund the purchase price. Depending on the product and its use, the Company also warrants its Trex Commercial products will be free of manufacturing defects for one to three years . The Company establishes warranty reserves to provide for estimated future expenses as a result of product defects that result in claims. Reserve estimates are based on management’s judgment, considering such factors as cost per claim, historical experience, anticipated rates of claims, and other available information. Management reviews and adjusts these estimates, if necessary, based on the differences between actual experience and historical estimates. Treasury Stock The Company records the repurchase of shares of its common stock at cost. These shares are considered treasury stock, which is a reduction to stockholders’ equity. Treasury stock is included in authorized and issued shares but excluded from outstanding shares. Revenue Recognition Effective January 1, 2018, the Company retrospectively adopted the requirements of Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2014-09, “Revenue from Contracts with Customers” (Topic 606). The Company determined the appropriate revenue recognition for its contracts with customers by analyzing the type, terms and conditions of the contracts with customers. Topic 606 provides a single, comprehensive model for revenue recognition arising from contracts with customers. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in Topic 606. A contract’s transaction price is allocated to each distinct performance obligation and revenue is recognized when or as the Company satisfies the performance obligation. Revenue is recognized at an amount that reflects the consideration to which the entity expects to be entitled in exchange for transferring control of the goods or services to a customer. Adoption of Topic 606 did not have an impact on the Company’s financial condition or results of operations. The following provides additional information about the Company’s contracts with customers. Trex Residential Products. Trex Residential principally generates revenue from the manufacture and sale of its high-performance, low-maintenance, eco-friendly composite decking and railing products and accessories. Substantially all of its revenues are from contracts with customers, which are individual customer purchase orders of short-term duration of less than one year. Trex Residential satisfies its performance obligations at a point in time. The shipment of each product is a separate performance obligation as the customer is able to derive benefit from each product shipped and no performance obligation remains after shipment. Upon shipment of the product, the customer obtains control over the distinct product and Trex Residential satisfies its performance obligation. Any performance obligation that remains unsatisfied at the end of a reporting period is part of a contract that has an original expected duration of one year or less. Any variable consideration related to the unsatisfied performance obligation is allocated wholly to the unsatisfied performance obligation and recognized when the product ships and the performance obligation is satisfied. Trex Commercial Products. Trex Commercial generates revenue from the manufacture and sale of its modular and architectural railing and staging systems. All of its revenues are from fixed-price contracts with customers. Trex Commercial contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contract and is, therefore, not distinct. F-12 Table of Contents Trex Commercial satisfies its performance obligation over time as work progresses because control is transferred continuously to its customers. Revenue and estimated profit are recognized over time based on the proportion of actual costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying the performance obligation. Incurred costs represent work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. Incurred costs include all direct material, labor, subcontract and certain indirect costs. The Company reviews and updates its estimates regularly and recognizes adjustments in estimated profit on contracts under the cumulative catch-up method. Under this method, the impact of the adjustment on revenue and estimated profit to date on a contract is recognized in the period the adjustment is identified. Revenues and profits in future periods are recognized using the adjusted estimate. If at any time the estimate of contract profitability indicates an anticipated loss on the contract, the Company recognizes the total loss in the period it is identified. During the year ended December 31, 2020, no adjustment to any one contract was material to the Company’s Consolidated Financial Statements and no material impairment loss on any contract was recorded.​​​​​​​ Stock-Based Compensation The Company measures stock-based compensation at the grant date of the award based on the fair value. For stock options, stock appreciation rights and time-based restricted stock and time-based restricted stock units, stock-based compensation is recognized on a straight-line basis over the vesting periods of the award. The Company recognizes forfeitures as they occur. For performance-based restricted stock and performance-based restricted stock units, expense is recognized ratably over the performance and vesting period of each tranche based on management’s judgment of the ultimate award that is probable to be paid out based on the achievement of predetermined performance measures. Stock-based compensation expense is included in “Selling, general and administrative expenses” in the accompanying Consolidated Statements of Comprehensive Income. Income Taxes The Company recognizes deferred tax assets and liabilities based on the difference between the financial statement basis and tax basis of assets and liabilities using enacted rates expected to be in effect during the year in which the differences reverse. The Company assesses the likelihood that its deferred tax assets will be realized. Deferred tax assets are reduced by a valuation allowance when, after considering all available 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, 2020, the Company has a valuation allowance of $ 2.8 million against these deferred tax assets. The Company analyzes its position in subsequent reporting periods, considering all available positive and negative evidence, in determining the expected realization of its deferred tax assets. Research and Development Costs Research and development costs are expensed as incurred. For the years ended December 31, 2020, 2019, and 2018, research and development costs were $ 3.4 million, $ 4.5 million, and $ 4.2 million, respectively, and have been included in “Selling, general and administrative expenses” in the accompanying Consolidated Statements of Comprehensive Income. Advertising Costs The Company expenses its branding and advertising communication costs as incurred. Production costs are deferred and recognized as expense in the period that the related advertisement is first used. At December 31, 2020 and December 31, 2019 $ 0.01 million and $ 0.5 million was included in prepaid expenses for production costs, respectively. For the years ended December 31, 2020, 2019, and 2018, branding expenses, including advertising expenses as described above, were $ 31.7 million, $ 35.7 million, and $ 35.0 million, respectively. F-13 Table of Contents Fair Value of Financial Instruments The 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, and debt to approximate the fair value of the respective assets and liabilities on the Consolidated Balance Sheets at December 31, 2020 and 2019. Recently Adopted Accounting Standards In August 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2018-15, “ Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of FASB Emerging Issues Task Force) ”. The new guidance aligns the requirements for capitalizing implementation costs in a cloud computing arrangement service contract with the requirements for capitalizing implementation costs incurred for an internal-use software license. Under that model, implementation costs are capitalized or expensed depending on the nature of the costs and the project stage during which they are incurred. Capitalized implementation costs are amortized over the term of the associated hosted cloud computing arrangement service contract on a straight-line basis, unless another systematic and rational basis is more representative of the pattern in which the entity expects to benefit from its right to access the hosted software. Capitalized implementation costs would then be assessed for impairment in a manner similar to long-lived assets. The new guidance was effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Entities can adopt the new guidance either prospectively to eligible costs incurred on or after the date the guidance is first applied or retrospectively. The Company adopted the guidance prospectively on January 1, 2020. Adoption did not have a material impact on its consolidated financial condition or results of operations. In January 2017, the FASB issued ASU No. 2017-04, “ Intangibles—Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment ”. The guidance removes Step 2 of the goodwill impairment test and eliminates the need to determine the fair value of individual assets and liabilities to measure goodwill impairment. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. Entities will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary. The guidance was applied prospectively and was effective for annual and interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company adopted the guidance on January 1, 2020. Adoption did not have a material impact on its consolidated financial condition or results of operations. In June 2016, the FASB issued ASU 2016-13, “ Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses in Financial Instruments ,” as amended. The ASU amends the guidance on the impairment of financial instruments and adds an impairment model, known as the current expected credit loss (CECL) model. The CECL model requires an entity to recognize its current estimate of all expected credit losses, rather than incurred losses, and applies to trade receivables and other receivables. The CECL model is designed to capture expected credit losses through the establishment of an allowance account, which will be presented as an offset to the amortized cost basis of the related financial asset. The new guidance was effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and is applied using the modified-retrospective approach. The Company adopted the guidance on January 1, 2020. Adoption did not have a material impact on its consolidated financial condition or results of operations. New Accounting Standards Not Yet Adopted In March 2020, the FASB issued ASU No. 2020-04, “ Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting ”. The guidance provides temporary optional expedients and exceptions related to contract modifications and hedge accounting to ease entities’ financial F-14 Table of Contents reporting burdens as the market transitions from the London Interbank Offered Rate and other interbank offered rates to alternative reference rates. The new guidance allows entities to elect not to apply certain modification accounting requirements, if certain criteria are met, to contracts affected by what the guidance calls reference rate reform. An entity that makes this election would consider changes in reference rates and other contract modifications related to reference rate reform to be events that do not require contract remeasurement at the modification date or reassessment of a previous accounting determination. The ASU notes that changes in contract terms that are made to affect the reference rate reform transition are considered related to the replacement of a reference rate if they are not the result of a business decision that is separate from or in addition to changes to the terms of a contract to affect that transition. The guidance is effective upon issuance and generally can be applied as of March 12, 2020 through December 31, 2022. The Company does not expect adoption of the guidance to have a material effect on its consolidated financial statements. In December 2019, the FASB issued ASU No. 2019-12, “ Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes ”. The guidance eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences related to changes in ownership of equity method investments and foreign subsidiaries. The guidance also simplifies aspects of accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The standard will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company does not intend to early adopt the standard and does not expect the standard to have a material effect on its consolidated financial statements. 3. INVENTORIES Inventories at LIFO value consist of the following as of December 31 (in thousands): 2020 2019 Finished goods $ 39,048 $ 42,281 Raw materials 44,475 31,686 Total FIFO inventories 83,523 73,967 Reserve to adjust inventories to LIFO value ( 16,821 ) ( 19,062 ) Total LIFO inventories $ 66,702 $ 54,905 Inventory related to Trex Residential composite decking and railing products is stated at the lower of LIFO cost or market. The Company periodically reviews its inventory for slow moving or obsolete items and writes down the related products to estimated market. 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 year costs. There was no material inventory reduction during 2020 or 2019. Inventories valued at lower of cost (FIFO method) and net realizable value as of December 31, 2020 and December 31, 2019, were $ 1.5 million and $ 1.2 million, respectively, consisting primarily of raw materials. The Company utilizes the FIFO method of accounting related to its Trex Commercial products. F-15 Table of Contents 4. PREPAID EXPENSES AND OTHER ASSETS Prepaid expenses and other assets consist of the following as of December 31 (in thousands): 2020 2019 Prepaid expenses $ 7,285 $ 8,282 Revenues in excess of billings 6,612 6,664 Contract retainage 2,267 1,832 Income tax receivable 7,823 2,675 Other 1,323 350 Total prepaid expenses and other assets $ 25,310 $ 19,803 5. GOODWILL AND OTHER INTANGIBLE ASSETS, NET The carrying amount of goodwill by reportable segment at December 31, 2020 and 2019 was $ 14.2 million for Trex Residential and $ 54.3 million for Trex Commercial. The Company’s intangible assets consist of domain names purchased in May 2018. At December 31, 2020 and 2019, intangible assets were $ 6.3 million, and accumulated amortization was $ 1.1 million and $ 0.7 million, respectively. Intangible asset amounts were determined based on the estimated economics of the asset and are amortized over the estimated useful lives on a straight-line basis over 15 years, which approximates the pattern in which the economic benefits are expected to be received. The Company evaluates the recoverability of intangible assets periodically and considers events or circumstances that may warrant revised estimates of useful lives or that may indicate an impairment. Intangible asset amortization expense for the years ended December 31, 2020, December 31, 2019 and December 31, 2018, was $ 0.4 million, $ 0.4 million and $ 3.1 million, respectively. Intangible asset amortization expense for the year ended December 31, 2018 included amortization expense for customer backlog and trade names and trademarks, which were fully amortized as of December 31, 2018. 6. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following as of December 31 (in thousands): 2020 2019 Machinery and equipment $ 312,870 $ 248,633 Building and improvements 61,860 51,547 Forklifts and tractors 16,003 10,870 Computer equipment 11,948 10,647 Furniture and fixtures 1,534 1,441 Construction in process 157,465 59,257 Land 11,351 11,417 Total property, plant and equipment 573,031 393,812 Accumulated depreciation ( 236,494 ) ( 222,512 ) Total property, plant and equipment, net $ 336,537 $ 171,300 The Company had construction in process as of December 31, 2020 of approximately $ 157.5 million. The Company expects that the construction in process will be completed and put into service in the year ending December 31, 2021. Depreciation expense for the years ended December 31, 2020, 2019, and 2018, totaled $ 17.5 million, $ 13.6 million, and $ 13.4 million, respectively. F-16 Table of Contents 7. ACCRUED EXPENSES AND OTHER LIABILITIES Accrued expenses and other liabilities consist of the following as of December 31 (in thousands): 2020 2019 Sales and marketing $ 22,938 $ 28,402 Compensation and benefits 21,156 13,475 Operating lease liabilities 6,708 7,079 Manufacturing costs 3,641 2,564 Customer deposits 1,174 2,905 Billings in excess of revenues 1,244 816 Other 5,470 3,024 Total accrued expenses $ 62,331 $ 58,265 8. DEBT The Company’s debt consists of a revolving credit facility. At December 31, 2020 and 2019, the Company had no outstanding indebtedness. Available borrowing capacity at December 31, 2020, was $ 300 million. Revolving Credit Facility On November 5, 2019, the Company entered into a Fourth Amended and Restated Credit Agreement (Fourth Amended Credit Agreement) as borrower, Trex Commercial Products, Inc., as guarantor; Bank of America, N.A. as a Lender, Administrative Agent, Swing Line Lender and L/C Issuer; and certain other lenders including Wells Fargo Bank, N.A., who is also Syndication Agent, and Truist Bank, arranged by BOA Securities, Inc., as Sole Lead Arranger and Sole Bookrunner, to amend and restate the Third Amended and Restated Credit Agreement (Third Amended Credit Agreement), dated as of January 12, 2016, as amended. The Fourth Amended Credit Agreement provides the Company with one or more Revolving Loans in a collective maximum principal amount of $ 250 million from January 1 through June 30 of each year and a maximum principal amount of $ 200 million from July 1 through December 31 of each year throughout the term, which ends November 5, 2024 . On May 26, 2020, the Company entered into a First Amendment to the Original Credit Agreement (the First Amendment) to provide for an additional $ 100 million line of credit through May 26, 2022. The purpose of the additional $ 100 million line of credit is primarily to reduce risk associated with the COVID-19 pandemic should the Company need to secure additional capital to continue its strategy of accelerating the conversion of wood decking to Trex composite decking and expanding its addressable market. As a matter of convenience, the parties incorporated the amendments to the Original Credit Agreement made by the First Amendment into a new Fourth Amended and Restated Credit Agreement (New Credit Agreement). In the New Credit Agreement, the revolving commitments under the Original Credit Agreement are referred to as Revolving A Commitments and the new $100 million line of credit is referred to as Revolving B Commitments. In the New Credit Agreement, all of the material terms and conditions related to the original line of credit (Revolving A Commitments) remain unchanged from the Original Credit Agreement. The Company entered into the First Amendment, as borrower; Trex Commercial Products, Inc. (TCP), as guarantor; Bank of America, N.A. (BOA), as a Lender, Administrative Agent, Swing Line Lender and L/C Issuer; and certain other lenders including Wells Fargo Bank, N.A. (Wells Fargo), who is also Syndication Agent; Truist Bank (Truist); and Regions Bank (Regions) (each, a Lender and collectively, the Lenders), arranged by BofA Securities, Inc. as Sole Lead Arranger and Sole Bookrunner. The First Amendment further provides that the New Credit Agreement is amended and restated by changing Schedule 2.01 to add applicable Lender percentages related to the Revolving B Commitment for BOA of 47.5 %, Wells Fargo of 28.0 % and Regions of 24.5 %. F-17 Table of Contents The Notes and interest rates for the Revolving A Commitments remained unchanged and are the same as previously disclosed. The Notes for Revolving A Commitments and Revolving B Commitments provide the Company, in the aggregate, the ability to borrow an amount up to the respective Revolving A Loan Limit and Revolving B Loan Limit during the respective Revolving A Term and Revolving B Term. The Company is not obligated to borrow any amount under either the Revolving A Loan or the Revolving B Loan. Within either the Revolving A Loan or the Revolving B Loan, the Company may borrow, repay and reborrow at any time or from time to time while the respective Revolving A Loan or Revolving B Loan remains in effect. Base Rate Loans (as defined in the Fourth Amended Credit Agreement) under the Revolving Loans and the Swing Line Loans accrue interest at the Base Rate plus the Applicable Rate (as defined in the Fourth Amended Credit Agreement) and Eurodollar Rate Loans for the Revolving Loans and Swing Line Loans accrue interest at the Adjusted London InterBank Offered Rate plus the Applicable Rate (as defined in the Fourth Amended Credit Agreement). The Base Rate for any day is a fluctuating rate per annum equal to the highest 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 prime rate, and (c) the Eurodollar Rate plus 1.0 %. The Applicable Rate for Revolving B Commitments means the following percentages per annum, based upon the Consolidated Debt to Consolidated EBITDA Ratio as set forth in the most recent Compliance Certificate received by BOA as the Administrative Agent and as set forth in the New Credit Agreement: Pricing Tier Consolidated Debt to Consolidated EBITDA Ratio Eurodollar Rate Loans / LIBOR Index Rate Base Rate Loans Revolving B Commitment Fee 1 > 2.50:1.00 2.75 % 1.75 % 0.60 % 2 < 2.50:1.00 but > 2.00:1.00 2.50 % 1.50 % 0.55 % 3 < 2.00:1.00 but > 1.50:1.00 2.25 % 1.25 % 0.50 % 4 < 1.50:1.00 1.80 % 0.80 % 0.45 % Compliance with Debt Covenants and Restrictions Pursuant to the terms of the Fourth Amended Credit Agreement, the Company is subject to certain loan compliance covenants. The Company was in compliance with all covenants as of December 31, 2020. Failure to comply with the financial covenants could be considered a default of repayment obligations and, among other remedies, could accelerate payment of any amounts outstanding. 9. LEASES For the years ended December 31, 2020 and December 31, 2019, total operating lease cost was $ 8.5 million and $ 8.4 million, respectively. The weighted average remaining lease term at December 31, 2020 and December 31, 2019 was 5.6 years and 6.5 years, respectively. The weighted average discount rate at December 31, 2020 and December 31, 2020 was 3.47 % and 3.66 %, respectively. F-18 Table of Contents The following table includes supplemental cash flow information for the years ended December 31, 2020 and December 31, 2019 and supplemental balance sheet information at December 31, 2020 and December 31, 2019 related to operating leases: For the Year Ended December 31 Supplemental Cash Flow Information 2020 2019 Cash paid for amounts included in the measurement of operating lease liabilities $ 8,736 $ 8,479 Operating ROU assets obtained in exchange for lease liabilities $ 1,427 $ 1,319 Supplemental Balance Sheet Information December 31, 2020 December 31, 2019 Operating lease ROU assets $ 34,382 $ 40,049 Operating lease liabilities: Accrued expenses and other current liabilities $ 6,708 $ 7,079 Operating lease liabilities 28,579 34,242 Total operating lease liabilities $ 35,287 $ 41,321 The following table summarizes maturities of operating lease liabilities at December 31, 2020 (in thousands): Maturities of operating lease liabilities 2021 $ 7,835 2022 7,345 2023 6,608 2024 6,265 2025 4,480 Thereafter 6,599 Total lease payments 39,132 Less imputed interest ( 3,845 ) Total operating liabilities $ 35,287 10. FINANCIAL INSTRUMENTS The 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, and debt to approximate the fair value of the respective assets and liabilities on the Consolidated Balance Sheets at December 31, 2020 and 2019. F-19 Table of Contents 11. STOCKHOLDERS’ EQUITY Earnings Per Share The 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, 2020 2019 2018 Numerator: Net income $ 175,631 $ 144,738 $ 134,572 Denominator: Basic weighted average shares outstanding 115,888,859 116,861,194 117,479,340 Effect of dilutive securities: Stock appreciation rights 192,579 248,850 353,400 Restricted stock 171,428 205,454 301,864 Diluted weighted average shares outstanding 116,252,866 117,315,498 118,134,604 Basic earnings per share $ 1.52 $ 1.24 $ 1.15 Diluted earnings per share $ 1.51 $ 1.24 $ 1.14 Diluted earnings per share is computed using the weighted average number of shares determined for the basic earnings per share computation plus the dilutive effect of common stock equivalents using the treasury stock method. The computation of diluted earnings per share excludes the following potentially dilutive securities because the effect would be anti-dilutive: Year Ended December 31, 2020 2019 2018 Restricted stock — — 428 Stock appreciation rights 14,697 41,540 26,694 Stock Repurchase Program On February 16, 2018, the Board of Directors adopted a stock repurchase program of up to 11.6 million shares of the Company’s outstanding common stock (Stock Repurchase Program). On March 12, 2020, the Company suspended repurchases of its common stock under the Stock Repurchase Program due to the volatility and uncertainty in the stock market associated with the COVID-19 pandemic. On October 30, 2020, the Company lifted the suspension of repurchases of its common stock under the Stock Repurchase Program. As of December 31, 2020, the Company has repurchased 2.8 million shares of the Company’s outstanding common stock under the Stock Repurchase Program. Amendment of Restated Certificate of Incorporation At the annual meeting of stockholders of the Company held on April 29, 2020, the Company’s stockholders approved an amendment of the Company’s Restated Certificate of Incorporation (Amendment), effective as of April 29, 2020. The Company’s Board of Directors unanimously approved the Amendment on February 19, 2020, subject to stockholder approval. The Amendment increases the number of shares of common stock, par value $ 0.01 per share, that the Company is authorized to issue from 120 million shares to 180 million shares. F-20 Table of Contents Stock Split On July 29, 2020, the Company’s Board of Directors approved a two-for-one stock split of the Company’s common stock, par value, $ 0.01 . The stock split was in the form of a stock dividend distributed on September 14, 2020, to stockholders of record at the close of business on August 19, 2020. The stock split entitled each stockholder to receive one additional share of common stock for each share they held as of the record date. All common stock share and per share data for all periods presented in the accompanying consolidated financial statements and notes thereto have been retroactively adjusted to reflect the stock split. 12. REVENUE FROM CONTRACTS WITH CUSTOMERS Topic 606 provides a single, comprehensive model for revenue recognition arising from contracts with customers. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in Topic 606. A contract’s transaction price is allocated to each distinct performance obligation and revenue is recognized when or as the Company satisfies the performance obligation. Revenue is recognized at an amount that reflects the consideration to which the entity expects to be entitled in exchange for transferring control of the goods or services to a customer. Trex Residential Products Trex Residential principally generates revenue from the manufacture and sale of its high-performance, low-maintenance, eco-friendly wood-alternative composite decking and residential railing products and accessories. Substantially all of its revenues are from contracts with customers, which are purchase orders of short-term duration of less than one year. Its customers, in turn, sell primarily to the residential market, which includes replacement, remodeling and new construction related to outdoor living products. Trex Residential satisfies its performance obligations at a point in time. The shipment of each product is a separate performance obligation as the customer is able to derive benefit from each product shipped and no performance obligation remains after shipment. Upon shipment of the product, the customer obtains control over the distinct product and Trex Residential satisfies its performance obligation. Any performance obligation that remains unsatisfied at the end of a reporting period is part of a contract that has an original expected duration of one year or less. Any variable consideration related to the unsatisfied performance obligation is allocated wholly to the unsatisfied performance obligation and recognized when the product ships and the performance obligation is satisfied. For each product shipped, the transaction price by product is specified in the purchase order. The Company recognizes revenue on the transaction price less any amount offered under a sales incentive program. The Company recognizes an account receivable for the amount of revenue recognized as it has an unconditional right to consideration at the time of shipment and payment from the customer is due based solely on the passage of time. The Company receives payments from its customers based on the payment terms applicable to each individual contract and the customer pays in accordance with the billing terms specified in the purchase order, which is less than one year. The related accounts receivables are included in “Accounts receivable, net” in the Consolidated Balance Sheets. Trex Residential may offer various sales incentive programs throughout the year. It estimates the amount of sales incentive to allocate to each performance obligation, or product shipped, based on direct sales to the customer. The estimate is updated each reporting period and any changes are allocated to the performance obligations on the same basis as at inception. Changes in estimate allocated to a previously satisfied performance obligation are recognized as a reduction of revenue in the period in which the change occurs under the cumulative catch-up method. In addition to sales incentive programs, Trex Residential may offer payment discounts. It estimates the payment discount that it believes will be taken by the customer based on prior history using the most-likely-amount method of estimation. F-21 Table of Contents Trex Residential pays commissions to certain employees. However, the sales commissions are not directly attributable to identifiable contracts, are discretionary in nature and are based on other factors not related to obtaining a contract, such as individual performance, profitability of the entity, annual sales targets, etc. These costs are included in selling, general and administrative expenses as incurred. Trex Residential does not grant contractual product return rights to customers other than pursuant to its assurance product warranty (see related disclosure on product warranties in Note 18, “Commitments and Contingencies”. Trex Residential accounts for all shipping and handling fees invoiced to the customer in net sales and the related costs in cost of sales. Trex Commercial Products Trex Commercial generates revenue from the manufacture and sale of its modular and architectural railing and staging systems. All of its revenues are from fixed-price contracts with customers. Trex Commercial contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contract and is, therefore, not distinct. Trex Commercial satisfies its performance obligation over time as work progresses because control is transferred continuously to its customers. Revenue and estimated profit is recognized over time based on the proportion of actual costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying the performance obligation. Incurred costs represent work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. Incurred costs include all direct material, labor, subcontract and certain indirect costs. The Company reviews and updates its estimates regularly and recognizes adjustments in estimated profit on contracts under the cumulative catch-up method. Under this method, the impact of the adjustment on revenue and estimated profit to date on a contract is recognized in the period the adjustment is identified. Revenues and profits in future periods are recognized using the adjusted estimate. If at any time the estimate of contract profitability indicates an anticipated loss on the contract, the Company recognizes the total loss in the period it is identified. During the year ended December 31, 2020, no adjustment to any one contract was material to the Company’s Consolidated Financial Statements. The Company discloses only the transaction price allocated to its remaining performance obligations on contracts with an original duration greater than one year , which was $ 65.8 million as of December 31, 2020. The Company will recognize this revenue as performance obligations are satisfied, which is expected to occur within the next 18 months. The Company recognizes an account receivable for satisfied performance obligations as it has an unconditional right to consideration and payment from the customer is due based solely on the passage of time. The Company receives payments from its customers on the accounts receivable based on the payment terms applicable to each individual contract and the customer pays in less than one year. Accounts receivables are included in “Accounts receivable, net” in the Consolidated Balance Sheets. In addition, the timing of revenue recognition, billings and cash collections may result in revenues in excess of billings and contract retainage (contract assets), and billings in excess of revenues and customer deposits (contract liabilities). These assets and liabilities are reported on a contract-by-contract basis at the end of each reporting period in prepaid expenses and other assets (contract assets), and accrued expenses and other liabilities (contract liabilities). These assets and liabilities and changes in these assets and liabilities, respectively, were not material as of and for the year ended December 31, 2020. Trex Commercial pays sales commissions that are directly attributable to identifiable contracts to certain of its employees. If the amortization period of the commission is one year or less, then the Company recognizes the commission expense as incurred. Otherwise, the Company capitalizes the commission and amortizes it on a straight-line basis over the life of the contract. Trex Commercial does not grant contractual product return rights to customers other than pursuant to its assurance product warranty. All shipping and handling fees invoiced to the customer are included in net sales and the related costs are included in cost of sales. F-22 Table of Contents For each year in the three years ended December 31, 2020, net sales were disaggregated in the following tables by (1) market (2) timing of revenue recognition, and (3) type of contract. The tables also include a reconciliation of the respective disaggregated net sales with the Company’s reportable segments (in thousands): Year Ended December 31, 2020 Reportable Segment Trex Residential Trex Commercial Total Timing of Revenue Recognition and Type of Contract Products transferred at a point in time and variable consideration contracts $ 827,792 $ — $ 827,792 Products transferred over time and fixed price contracts — 53,039 53,039 $ 827,792 $ 53,039 $ 880,831 Year Ended December 31, 2019 Reportable Segment Trex Residential Trex Commercial Total Timing of Revenue Recognition and Type of Contract Products transferred at a point in time and variable consideration contracts $ 694,267 $ — $ 694,267 Products transferred over time and fixed price contracts — 51,080 51,080 $ 694,267 $ 51,080 $ 745,347 Year Ended December 31, 2018 Reportable Segment Trex Residential Trex Commercial Total Timing of Revenue Recognition and Type of Contract Products transferred at a point in time and variable consideration contracts $ 613,229 $ — $ 613,229 Products transferred over time and fixed price contracts — 71,021 71,021 $ 613,229 $ 71,021 $ 684,250 13. STOCK-BASED COMPENSATION On April 30, 2014, the Company’s stockholders approved the Trex Company, Inc. 2014 Stock Incentive Plan (Plan), which was previously approved by the Board of Directors on February 19, 2014. The Plan amended and restated in its entirety the Trex Company, Inc. 2005 Stock Incentive Plan, as previously disclosed. The Plan is administered by the Compensation Committee of the Company’s Board of Directors. Stock-based compensation is granted to 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 that may be issued under the Plan is 25,680,000 and as of December 31, 2020, the total number of shares available for future issuance was 11,253,930 . 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 F-23 Table of Contents award. For performance-based restricted stock and performance-based restricted stock units, expense is recognized ratably over the performance and vesting period of each tranche based on management’s judgment of the ultimate award that is probable to be paid out based on the achievement of the predetermined performance measures. For the employee stock purchase plan, compensation expense is recognized related to the discount on purchases. The following table summarizes the Company’s stock-based compensation expense (in thousands): Year Ended December 31, 2020 2019 2018 Time-based restricted stock and restricted stock units $ 3,219 $ 3,676 $ 2,687 Performance-based restricted stock and restricted stock units 2,881 2,399 3,144 Stock appreciation rights 648 662 370 Employee stock purchase plan 383 193 143 Total stock-based compensation $ 7,131 $ 6,930 $ 6,344 Stock-based compensation expense is included in “Selling, general and administrative expenses” in the accompanying Consolidated Statements of Comprehensive Income. Time-Based Restricted Stock and Time-Based Restricted Stock Units The 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 on the grant date. Time-based restricted stock and time-based restricted stock units vest based on the terms of the awards. Unvested time-based restricted stock and unvested time-based restricted stock units are generally forfeitable upon the resignation of employment or termination of employment with cause. The total fair value of vested time-based restricted shares and vested time-based restricted stock units for the years ended December 31, 2020, 2019 and 2018 was $ 6.1 million, $ 6.0 million and $ 5.1 million, respectively. At December 31, 2020, there was $ 2.9 million of total compensation expense related to unvested time-based restricted stock and unvested time-based restricted stock units remaining to be recognized over a weighted-average period of approximately 1.7 years. Time-based restricted stock and restricted stock unit activity under the Plan and all predecessor stock incentive plans is as follows: Time-based Restricted Stock and Restricted Stock Unit Weighted-Average Grant Price Per Share Nonvested at December 31, 2017 306,236 $ 13.45 Granted 174,528 $ 27.36 Vested ( 169,100 ) $ 13.33 Forfeited ( 568 ) $ 17.53 Nonvested at December 31, 2018 311,096 $ 21.34 Granted 71,300 $ 38.12 Vested ( 162,650 ) $ 18.67 Forfeited ( 1,280 ) $ 31.17 Nonvested at December 31, 2019 218,466 $ 28.75 Granted 54,406 $ 53.97 Vested ( 111,036 ) $ 30.94 Forfeited ( 1,114 ) $ 40.34 Nonvested at December 31, 2020 160,722 $ 35.68 F-24 Table of Contents Performance-based Restricted Stock and Performance-Based Restricted Stock Units The fair value of performance-based restricted stock and performance-based restricted stock units is determined based on the closing price of the Company’s shares on the grant date. Unvested performance-based restricted stock and unvested performance-based restricted stock units are generally forfeitable upon the resignation of employment or termination of employment with cause. The performance-based restricted shares and performance-based restricted stock units have a three-year vesting period, vesting one-third each year based on target earnings before interest, taxes, depreciation and amortization (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, 2020, 2019 and 2018 there was $ 1.7 million, $ 0.8 million and $ 1.6 million, respectively, of total compensation expense related to unvested performance-based restricted stock and unvested performance-based restricted stock units remaining to be recognized over a weighted-average period of approximately two years . Performance-based restricted stock activity under the Plan is as follows: Performance-based Restricted Stock and Performance-based Restricted Stock Units Weighted- Average Grant Price Per Share Nonvested at December 31, 2017 233,316 $ 12.93 Granted 161,140 $ 17.63 Vested ( 212,044 ) $ 11.76 Forfeited — $ — Nonvested at December 31, 2018 182,412 $ 18.43 Granted 164,270 $ 23.82 Vested ( 222,004 ) $ 15.55 Forfeited ( 1,022 ) $ 29.23 Nonvested at December 31, 2019 123,656 $ 30.67 Granted 78,404 $ 39.60 Vested ( 128,762 ) $ 28.87 Forfeited ( 728 ) $ 41.12 Nonvested at December 31, 2020 72,570 $ 43.42 Stock Appreciation Rights SARs 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 ten years 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 or termination of employment with cause. The Company recognizes forfeitures as they occur. The Company recognizes compensation cost on a straight-line basis over the vesting period for the award. As of December 31, 2020, there was $ 0.6 million of unrecognized compensation cost related to SARs. The fair value of each SAR is estimated on the date of grant using a Black-Scholes option-pricing model. For SARs issued in the years ended December 31, 2020, December 31, 2019 and December 31, 2018, respectively, the assumptions shown in the following table were used: Year Ended December 31, 2020 2019 2018 Dividend yield 0 % 0 % 0 % Average risk-free interest rate 1.3 % 2.5 % 2.7 % Expected term (years) 5 5 5 Expected volatility 38.3 % 39.1 % 40.5 % F-25 Table of Contents 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 years ended December 31, 2020, December 31, 2019 and December 31, 2018 had a maximum term of ten years. The Company used historical exercise behavior with further consideration given to the class of employees 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 is expected to fluctuate (expected volatility) during a period. The Company has used the historical volatility over the average expected term of the options granted as the expected volatility. The weighted-average grant date fair value of SARs granted during the years ended December 31, 2020, December 31, 2019 and December 31, 2018 was $ 17.81 , $ 14.78 and $ 11.05 , respectively. SAR activity under the Plan and all predecessor stock incentive plans is as follows: SARs Weighted-Average Grant Price Per Share Weighted-Average Remaining Contractual Life (Years) Aggregate Intrinsic Value as of December 31, 2020 Outstanding at December 31, 2017 556,232 $ 6.73 Granted 42,520 $ 28.30 Exercised ( 121,800 ) $ 2.64 Canceled — $ — Outstanding at December 31, 2018 476,952 $ 9.63 Granted 49,072 $ 38.85 Exercised ( 217,528 ) $ 6.95 Canceled ( 4,458 ) $ 38.85 Outstanding at December 31, 2019 304,038 $ 15.79 Granted 43,830 $ 50.39 Exercised ( 54,592 ) $ 9.41 Canceled — $ — Outstanding at December 31, 2020 293,276 $ 22.15 5.4 $ 18,058,138 Vested at December 31, 2020 237,323 $ 17.05 4.7 $ 15,821,712 Exercisable at December 31, 2020 237,323 $ 17.05 4.7 $ 15,821,712 Employee Stock Purchase Plan The Company has an employee stock purchase plan (ESPP) that permits eligible employees to purchase shares of common stock of the Company at a purchase 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. Eligible employees may elect to F-26 Table of Contents participate in the plan by authorizing payroll deductions of up to 15 % of gross compensation for each payroll period. On the last day of each quarter, each participant’s contribution account is used to purchase the maximum number of whole shares of common stock determined by dividing the contribution account balance by the purchase price. The aggregate number of shares of common stock that may be purchased under the plan is 2,400,000 . Through December 31, 2020, employees had purchased approximately 1,811,165 shares under the plan. 14. EMPLOYEE BENEFIT PLANS The Company has two 401(k) Profit Sharing Plans for the benefit of its employees who meet certain eligibility requirements and it matches qualifying employee contributions. The Company’s contributions to the plans totaled $ 5.7 million, $ 4.6 million and $ 4.2 million for the years ended December 31, 2020, 2019 and 2018, respectively. 15. INCOME TAXES Income tax provision (benefit) consists of the following (in thousands): Year Ended December 31, 2020 2019 2018 Current income tax provision: Federal $ 35,423 $ 30,306 $ 33,578 State 10,455 6,952 7,674 45,878 37,258 41,252 Deferred income tax provision: Federal 12,603 6,928 988 State 522 778 49 13,125 7,706 1,037 Total income tax provision $ 59,003 $ 44,964 $ 42,289 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 a result of the following (in thousands): Year Ended December 31, 2020 2019 2018 U.S. Federal statutory taxes $ 49,273 $ 39,838 $ 37,141 State and local taxes, net of U.S. Federal benefit 10,641 8,412 7,716 Permanent items 1,198 1,266 470 Excess tax benefits from vesting or settlement of stock compensation awards ( 1,635 ) ( 3,540 ) ( 2,368 ) Federal credits ( 565 ) ( 654 ) ( 662 ) Other 91 ( 358 ) ( 8 ) Total income tax provision $ 59,003 $ 44,964 $ 42,289 F-27 Table of Contents Deferred tax assets and liabilities consist of the following (in thousands): As of December 31, 2020 2019 Deferred tax assets: Net operating losses $ 43 $ 88 Residential product warranty reserve 7,532 6,486 Stock-based compensation 1,071 1,055 Accruals not currently deductible and other 2,041 2,245 Inventories 5,548 5,780 Operating lease liability 9,081 10,618 State tax credit carryforwards 3,345 3,461 Gross deferred tax assets, before valuation allowance 28,661 29,733 Valuation allowance ( 2,775 ) ( 2,988 ) Gross deferred tax assets, after valuation allowance 25,886 26,745 Deferred tax liabilities: Depreciation ( 29,792 ) ( 17,267 ) Operating lease right-of-use asset ( 8,755 ) ( 10,162 ) Goodwill amortization ( 5,775 ) ( 4,782 ) Inventories and other ( 4,520 ) ( 4,365 ) Gross deferred tax liabilities ( 48,842 ) ( 36,576 ) Net deferred tax liability $ ( 22,956 ) $ ( 9,831 ) The Company recognizes deferred tax assets and liabilities based on the difference between the financial statement basis and tax basis of assets and liabilities using enacted rates expected to be in effect during the year in which the differences reverse. In accordance with accounting standards, the Company assesses the likelihood that its deferred tax assets will be realized. Deferred tax assets are reduced by a valuation allowance when, after considering all available 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, 2020, the Company had a valuation allowance of $ 2.8 million against deferred tax assets it estimates will not be realized. The Company will analyze its position in subsequent reporting periods, considering all available positive and negative evidence, in determining the expected realization of its deferred tax assets. The Company recognizes interest and penalties related to tax matters as a component of “Selling, general and administrative expenses” in the accompanying Consolidated Statements of Comprehensive Income. As of December 31, 2020, the Company has identified no uncertain tax position and, accordingly, has no t 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 taxing authorities. Such examinations may result in future assessments by these taxing authorities, and the Company has accrued a liability when it believes that it is 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 cumulative probability threshold in accordance with accounting standards. As of December 31, 2020, for certain tax jurisdictions, tax years 2016 through 2019 remain subject to examination. The Company’s returns filed with the state of Utah for the tax years 2014 through 2018 are currently under examination. No material adjustments are expected as a result of the audit. The Company believes that adequate provisions have been made for all tax returns subject to examination. Sales made to foreign distributors are not taxable in any foreign jurisdictions as the Company does not have a taxable presence. F-28 Table of Contents 16. SEGMENT INFORMATION The Company operates in two reportable segments: • Trex Residential manufactures composite decking and railing and related products marketed under the brand name Trex ® . The products are sold to its distributors and two national retailers who, in turn, sell primarily to the residential market, which includes replacement, remodeling and new construction related to outdoor living products. • Trex Commercial designs, engineers, and markets modular and architectural railing and staging systems for commercial and multi-family market, including sports stadiums and performing arts venues. The segment’s products are sold through architects, specifiers, contractors, and others doing business within the segment’s commercial market. The Company’s reportable segments have been determined in accordance with its internal management structure, which is organized based on residential and commercial operations. The Company evaluates performance of each segment primarily based on net sales and earnings before interest, taxes, depreciation and amortization (EBITDA). The Company uses net sales to assess performance and allocate resources as this measure represents the amount of business the segment engaged in during a given period of time, is an indicator of market growth and acceptance of segment products and represents the segment’s customers’ spending habits along with the amount of product the segment sells relative to its competitors. The Company uses EBITDA to assess performance and allocate resources because it believes that EBITDA facilitates performance comparison between the segments by eliminating interest, taxes, and depreciation and amortization charges to income. Segment Data (in thousands): Net Sales Net Income EBITDA Depreciation and Amortization Income Tax Expense Capital Expenditures Total Assets December 31, 2020 Trex Residential $ 827,792 $ 171,197 $ 244,817 $ 17,131 $ 57,488 $ 171,784 $ 676,948 Trex Commercial 53,039 4,434 6,758 809 1,515 1,039 93,544 Total $ 880,831 $ 175,631 $ 251,575 $ 17,940 $ 59,003 $ 172,823 $ 770,492 December 31, 2019 Trex Residential $ 694,267 $ 142,811 $ 199,020 $ 13,413 $ 44,292 $ 65,399 $ 503,883 Trex Commercial 51,080 1,927 3,210 618 672 1,866 88,356 Total $ 745,347 $ 144,738 $ 202,230 $ 14,031 $ 44,964 $ 67,265 $ 592,239 December 31, 2018 Trex Residential $ 613,229 $ 131,823 $ 186,268 $ 13,216 $ 41,421 $ 31,392 $ 380,682 Trex Commercial 71,021 2,749 6,868 3,251 868 2,424 84,440 Total $ 684,250 $ 134,572 $ 193,136 $ 16,467 $ 42,289 $ 33,816 $ 465,122 F-29 Table of Contents Reconciliation of Net Income (Loss) to EBITDA (in thousands): Net Income Interest (Income) Expense, Net Income Tax Expense Depreciation and Amortization EBITDA December 31, 2020 Trex Residential $ 171,197 $ ( 999 ) $ 57,488 $ 17,131 $ 244,817 Trex Commercial 4,434 — 1,515 809 6,758 Total $ 175,631 $ ( 999 ) $ 59,003 $ 17,940 $ 251,575 December 31, 2019 Trex Residential $ 142,811 $ ( 1,496 ) $ 44,292 $ 13,413 $ 199,020 Trex Commercial 1,927 ( 7 ) 672 618 3,210 Total $ 144,738 $ ( 1,503 ) $ 44,964 $ 14,031 $ 202,230 December 31, 2018 Trex Residential $ 131,823 $ ( 192 ) $ 41,421 $ 13,216 $ 186,268 Trex Commercial 2,749 — 868 3,251 6,868 Total $ 134,572 $ ( 192 ) $ 42,289 $ 16,467 $ 193,136 17. SEASONALITY The operating results for Trex Residential have historically varied from quarter to quarter. Seasonal, erratic or prolonged adverse weather conditions in certain geographic regions reduce the level of home improvement and construction activity and can shift demand for its products to a later period. As part of its normal business practice and consistent with industry practice, Trex Residential has historically offered incentive programs to its distributors and dealers to build inventory levels before the start of the prime deck-building season in order to ensure adequate availability of its product to meet anticipated seasonal consumer demand. The seasonal effects are often offset by the positive effect of the incentive programs. The operating results for Trex Commercial have not historically varied from quarter to quarter as a result of seasonality. However, they are driven by the timing of individual projects, which may vary significantly each period. 18. COMMITMENTS AND CONTINGENCIES Legal Matters The 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 the Company’s consolidated financial condition, results of operations, liquidity or competitive position. Purchase Commitments The Company fulfills requirements for raw materials under both purchase orders and supply contracts. In the year ended December 31, 2020, the Company purchased reclaimed wood fiber requirements under purchase orders and long-term supply commitments not exceeding four years . All of the Company’s scrap polyethylene, aluminum and stainless-steel purchases are under short-term supply contracts that may average approximately one to two years , for which pricing is negotiated 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 wood or polyethylene a supplier provides, if the wood or polyethylene meets certain specifications. The amount F-30 Table of Contents of wood and polyethylene the Company is required to purchase under these contracts varies with the production of its suppliers and, accordingly, is not fixed or determinable. As of December 31, 2020, the Company has purchase commitments under material supply contracts of $ 33.6 million and $ 15.0 million for the years ending December 31, 2021 and 2022, respectively, and a total of $ 22.7 million for the years ending December 31, 2023 and 2024. Product Warranty The Company warrants that its Trex Residential products will be free from material defects in workmanship and materials. This warranty generally extends for a period of 25 years for residential use and 10 years for commercial use, excluding Trex Signature ® Railing, which has a warranty period of 25 years for both residential and commercial use. The Company further warrants that Trex Transcend ® , Trex Enhance ® , Trex Select ® and Universal Fascia products 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 is cleaned 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 a breach of such warranties, the Company has an obligation either to replace the defective product or refund the purchase price. Depending on the product and its use, the Company also warrants its Trex Commercial products will be free of manufacturing defects for one to three years . The Company continues to receive and settle claims for decking products manufactured at its Nevada facility prior to 2007 that exhibit surface flaking and maintains a warranty 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, the Company utilizes actuarial techniques to determine a reasonable possible range of claims to be received and the percentage of those claims that will ultimately require payment (collectively, elements). Estimates for these elements are quantified using a range of assumptions derived from claim count history and the identification of factors influencing the claim counts to determine its best estimate of future claims for which to record a related liability. The cost per claim varies due to a number of factors, including the size of affected decks, the availability and type of replacement material 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 surface flaking claims received in a year are received during the summer outdoor season, which spans the second and third quarters. It has been the Company’s practice to utilize the actuarial techniques discussed above during the third quarter, after a significant portion of all claims has been received for the fiscal year and variances to annual claims expectations are more meaningful. The number of incoming claims received in the year ended December 31, 2020 was higher than the number of claims received in the year ended December 31, 2019 and exceeded the Company’s expectations for 2020. Prior to 2020, the number of incoming claims received declined each year since 2009. After evaluating the rise in incoming claims in its actuarial analysis, the Company increased its estimate of the number of future claims to be settled with payment. Average cost per claim experienced in the year ended December 31, 2020 was lower than that experienced in the year ended December 31, 2019, but slightly higher than the Company’s expectations for 2020. The Company estimates that average cost per claim will increase in future years, primarily due to inflation. As a result of the increase in estimated future claims and expected rise in future average cost per claim, in the three-month period ended September 30, 2020, the Company recorded a provision of $ 6.5 million to its warranty reserve for the future settlement of surface flaking claims. The Company believes its reserve at December 31, 2020 is sufficient to cover future surface flaking obligations. F-31 Table of Contents The Company’s analysis is based on currently known facts and a number of assumptions, as discussed above, and current expectations. Projecting future 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 the actual warranty liabilities to be higher or lower than those projected, which could materially affect the Company’s financial condition, results of operations or 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 will increase slightly, primarily due to inflation. If the level of claims received or average cost per claim differs materially from expectations, it could result in additional increases or decreases to the warranty reserve and a decrease or increase in earnings and cash flows in future periods. The Company estimates that a 10 % 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 $ 2.1 million change in the surface flaking warranty reserve. The Company also maintains a warranty reserve for the settlement of other residential product warranty claims and records the provision at the time of product sale. The following is a reconciliation of the Company’s residential product warranty reserve (in thousands): Year Ended December 31, 2020 Surface Flaking Other Residential Total Beginning balance, January 1 $ 19,024 $ 6,470 $ 25,494 Provisions and changes in estimates 6,479 3,382 9,861 Settlements made during the period ( 4,178 ) ( 1,704 ) ( 5,882 ) Ending balance, December 31 $ 21,325 $ 8,148 $ 29,473 Year Ended December 31, 2019 Surface Flaking Other Residential Total Beginning balance, January 1 $ 23,951 $ 6,803 $ 30,754 Provisions and changes in estimates — 979 979 Settlements made during the period ( 4,927 ) ( 1,312 ) ( 6,239 ) Ending balance, December 31 $ 19,024 $ 6,470 $ 25,494 19. INTERIM FINANCIAL DATA (Unaudited) Three Months Ended December 31, 2020 September 30, 2020 June 30, 2020 March 31, 2020 December 31, 2019 September 30, 2019 June 30, 2019 March 31, 2019 (In thousands, except share and per share data) Net sales $ 228,286 $ 231,502 $ 220,648 $ 200,395 $ 164,772 $ 194,551 $ 206,453 $ 179,571 Gross profit $ 92,392 $ 84,964 $ 92,405 $ 89,696 $ 71,263 $ 82,431 $ 83,444 $ 69,365 Net income $ 43,301 $ 42,710 $ 47,218 $ 42,402 $ 35,497 $ 41,976 $ 35,710 $ 31,555 Basic earnings per common share $ 0.37 $ 0.37 $ 0.41 $ 0.37 $ 0.31 $ 0.36 $ 0.31 $ 0.27 Basic weighted average common shares outstanding 115,791,757 115,773,030 115,733,934 116,259,058 116,591,434 116,800,120 116,972,384 117,086,956 Diluted earnings per common share $ 0.37 $ 0.37 $ 0.41 $ 0.37 $ 0.31 $ 0.36 $ 0.31 $ 0.27 Diluted weighted average common shares outstanding 116,169,754 116,134,623 116,061,988 116,647,442 117,025,466 117,209,206 117,375,080 117,658,354 The operating results for Trex Residential have historically varied from quarter to quarter. Seasonal, erratic or prolonged adverse weather conditions in certain geographic regions reduce the level of home improvement F-32 Table of Contents and construction activity and can shift demand for its products to a later period. The operating results for Trex Commercial have not historically varied from quarter to quarter as a result of seasonality; however, they are driven by the timing of individual projects, which may vary significantly each period. On July 29, 2020, the Company’s Board of Directors approved a two -for-one stock split of the Company’s common stock, par value, $0.01. The stock split was in the form of a stock dividend distributed on September 14, 2020, to stockholders of record at the close of business on August 19, 2020. The stock split entitled each stockholder to receive one additional share of common stock for each share they held as of the record date. All common stock share and per share data for all periods presented in the accompanying unaudited condensed consolidated financial statements and notes thereto have been retroactively adjusted to reflect the stock split. F-33 Table of Contents TREX COMPANY, INC. SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (In thousands) Descriptions Balance at Beginning of Period Additions Charged to Cost and Expenses Deductions Balance at End of Period Year ended December 31, 2020: Trex Residential product warranty reserve $ 25,494 $ 9,861 $ ( 5,882 ) $ 29,473 Income tax valuation allowance $ 2,988 $ 1 $ ( 214 ) $ 2,775 Year ended December 31, 2019: Trex Residential product warranty reserve $ 30,754 $ 979 $ ( 6,239 ) $ 25,494 Income tax valuation allowance $ 3,015 $ — $ ( 27 ) $ 2,988 Year ended December 31, 2018: Trex Residential product warranty reserve $ 34,999 $ 1,104 $ ( 5,349 ) $ 30,754 Income tax valuation allowance $ 3,096 $ — $ ( 81 ) $ 3,015 F-34 Table of Contents SIGNATURES Pursuant 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 its behalf by the undersigned, thereunto duly authorized. Trex Company, Inc. Date: February 22, 2021 By: /S/ B RYAN H. F AIRBANKS Bryan H. Fairbanks President and Chief Executive Officer (Duly Authorized Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed as of February 22, 2021 by the following persons on behalf of the registrant and in the capacities indicated. Signature Title /S/ B RYAN H. F AIRBANKS Bryan H. Fairbanks President and Chief Executive Officer (Principal Executive Officer); Director /S/ D ENNIS C. S CHEMM Dennis C. Schemm Senior Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) /S/ J AMES E. C LINE James E. Cline Chairman /S/ R ONALD W. K APLAN Ronald W. Kaplan Vice Chairman /S/ M ICHAEL F. G OLDEN Michael F. Golden Director /S/ J AY M. G RATZ Jay M. Gratz Director /S/ K RISTINE L. J USTER Kristine L. Juster Director /S/ R ICHARD E. P OSEY Richard E. Posey Director /S/ P ATRICIA B. R OBINSON Patricia B. Robinson Director /S/ G ERALD V OLAS Gerald Volas Director Table of Contents EXHIBIT INDEX Incorporated by reference Exhibit Number Description Form Exhibit Filing Date File No. 3.1 Restated Certificate of Incorporation of Trex Company, Inc. (the “Company”). Filed as Exhibit 3.1 to the Company’s Registration Statement on Form S-1 (No. 333-63287) and incorporated herein by reference. S-1/A 3.1 March 24, 1999 333-63287 3.2 Certificate of Amendment to the Restated Certificate of Incorporation of Trex Company, Inc. dated April 30, 2014. Filed as Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2014 and incorporated herein by reference. 10-Q 3.2 May 5, 2014 001-14649 3.3 Second Certificate of Amendment to the Restated Certificate of Incorporation of Trex company, Inc. dated May 2, 2018. Filed as Exhibit 3.3 to the Company’s Quarter Report on Form 10-Q for the quarterly period ended March 31, 2018 and incorporated herein by reference. 10-Q 3.3 May 7, 2018 001-14649 3.4 Third Certificate of Amendment to the Restated Certificate of Incorporation of Trex Company, Inc. dated May 1, 2019. Filed as exhibit 3.1 to the Company’s Current Report on form 8-K filed May 1, 2019 and incorporated herein by reference. 8-K 3.1 May 1, 2019 001-14649 3.5 Fourth Certificate of Amendment to the Restated Certificate of Incorporation of Trex Company, Inc. dated April 29, 2020. 10-Q 3.5 May 4, 2020 001-14649 3.6 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 1, 2019 and incorporated herein by reference. 8-K 3.2 May 1, 2019 001-14649 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. S-1/A 4.1 March 24, 1999 333-63287 4.2 Third Amended and Restated Credit Agreement dated as of January 12, 2016 between the Company, as borrower; the subsidiaries of the Company as guarantors; Bank of America, N.A., as a Lender, Administrative Agent, Swing Line Lender and Letter of Credit Issuer; and certain other lenders arranged by Bank of America Merrill Lynch as Sole Lead Arranger and Sole Bookrunner. Filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on January 14, 2016 and incorporated herein by reference. 8-K 4.1 January 14, 2016 001-14649 Table of Contents Incorporated by reference Exhibit Number Description Form Exhibit Filing Date File No. 4.3 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 or the 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 filed on January 14, 2016 and incorporated herein by reference. 8-K 4.2 January 14, 2016 001-14649 4.4 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 the outstanding revolver advances made by Citibank, N.A. Filed as Exhibit 4.3 to the Company’s Current Report on Form 8-K filed on January 14, 2016 and incorporated herein by reference. 8-K 4.3 January 14, 2016 001-14649 4.5 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 the outstanding revolver advances made by Capital One, N.A. Filed as Exhibit 4.4 to the Company’s Current Report on Form 8-K filed on January 14, 2016 and incorporated herein by reference. 8-K 4.4 January 14, 2016 001-14649 4.6 Revolver Note dated January 12, 2016 payable by the Company to SunTrust Bank in the amount of the lesser of $30,000,000 or the outstanding revolver advances made by SunTrust Bank. Filed as Exhibit 4.5 to the Company’s Current Report on Form 8-K filed on January 14, 2016 and incorporated herein by reference. 8-K 4.5 January 14, 2016 001-14649 4.7 Third Amended and Restated Security and Pledge Agreement dated as of January 12, 2016 between the Company, as debtor, and Bank of America, N.A. as Administrative Agent (including Notices of Grant of Security Interest in Copyrights and Trademarks). Filed as Exhibit 4.6 to the Company’s Current Report on Form 8-K filed on January 14, 2016 and incorporated herein by reference. 8-K 4.6 January 14, 2016 001-14649 4.8 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 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 filed on January 14, 2016 and incorporated herein by reference. 8-K 4.7 January 14, 2016 001-14649 Table of Contents Incorporated by reference Exhibit Number Description Form Exhibit Filing Date File No. 4.9 Amended and Restated Deed of Trust, dated as of January 12, 2016, by and among the Company as grantor, First American Title Insurance Company, as trustee, and Bank of America, N.A., Citibank, N.A., Capital One, N.A., and SunTrust Bank, as Beneficiaries relating to real property 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. 8-K 4.8 January 14, 2016 001-14649 4.10 Fourth Amended and Restated Credit Agreement dated as of November 5, 2019 between the Company, as borrower; Trex Commercial Products, Inc., as guarantor, Bank of America, N.A., as a Lender, Administrative Agent, Swing Line Lender and L/C Issuer; and certain other lenders including Wells Fargo Bank, N.A., who is also Syndication Agent, SunTrust Bank, and Branch Banking and Trust Company arranged by BofA Securities, Inc. as Sole Lead Arranger and Sole Bookrunner. Filed as exhibit 4.1 to the Company’s Current Report on Form 8-K filed on November 6, 2019 and incorporated herein by reference. 8-K 4.1 November 6, 2019 001-14649 4.11 First Amendment to the Credit Agreement by and among Trex Company, Inc. as borrower; Trex Commercial Products, Inc. as guarantor; Bank of America, N.A. as a Lender, Administrative Agent, Swing Line Lender and L/C Issuer; and certain other lenders including Wells Fargo Bank, N.A., who is also Syndication Agent; Truist Bank; and Regions Bank, arranged by BofA Securities, Inc. as Sole Lead Arranger and Sole Bookrunner dated May 26, 2020. Filed May 28, 2020 on Form 8-K, Exhibit 4.1 8-K 4.1 May 28, 2020 001-14649 4.12 Fourth Amended and Restated Credit Agreement between the Company, as borrower; Trex Commercial Products, Inc., as guarantor, Bank of America, N.A., as a Lender, Administrative Agent, Swing Line Lender and L/C Issuer; and certain other lenders including Wells Fargo Bank, N.A., who is also Syndication Agent, Truist Bank; and Regions Bank, arranged by BofA Securities, Inc. as Sole Lead Arranger and Sole Bookrunner, dated May 26, 2020. Filed May 28, 2020 on Form 8-K, Exhibit 4.2. 8-K 4.2 May 28, 2020 001-14649 Table of Contents Incorporated by reference Exhibit Number Description Form Exhibit Filing Date File No. 4.13 Note dated November 5, 2019 payable by the Company to Bank of America, N.A. in the amount of the lesser of $125,000,000 or the 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 filed on November 6, 2019 and incorporated herein by reference. 8-K 4.2 November 6, 2019 001-14649 4.14 Note dated November 5, 2019 payable by the Company to Wells Fargo Bank, N.A. in the amount of the lesser of $70,000,000 or the outstanding revolver advances made by Wells Fargo Bank, N.A. Filed as exhibit 4.3 to the Company’s Current Report on Form 8-K filed on November 6, 2019 and incorporated herein by reference. 8-K 4.3 November 6, 2019 001-14649 4.15 Note dated November 5, 2019 payable by the Company to SunTrust Bank in the amount of the lesser of $30,000,000 or the outstanding revolver advances made by SunTrust Bank. Filed as exhibit 4.4 to the Company’s Current Report on Form 8-K filed on November 6, 2019 and incorporated herein by reference. 8-K 4.4 November 6, 2019 001-14649 4.16 Note dated November 5, 2019 payable by the Company to Branch Banking and Trust Company in the amount of the lesser of $25,000,000 or the outstanding revolver advances made by Branch Banking and Trust Company. Filed as exhibit 4.5 to the Company’s Current Report on Form 8-K filed on November 6, 2019 and incorporated herein by reference. 8-K 4.5 November 6, 2019 001-14649 4.17 Note dated May 26, 2020 payable by the Company to Regions Bank. Filed May 28, 2020 on form 8-K, Exhibit 4.6. 8-K 4.6 May 28, 2020 001-14649 4.18 Fourth Amended and Restated Security and Pledge Agreement dated as of November 5, 2019 between the Company, as debtor, Trex Commercial Products, Inc., as additional obligor; and Bank of America, N.A. as Administrative Agent (including Notices of Grant of Security Interest in Copyrights and Trademarks). Filed as exhibit 4.6 to the Company’s Current Report on Form 8-K filed on November 6, 2019 and incorporated herein by reference. 8-K 4.6 November 6, 2019 001-14649 4.19* Description of Securities registered pursuant to Section 12 of the Securities Exchange Act of 1934. Filed herewith. Table of Contents Incorporated by reference Exhibit Number Description Form Exhibit Filing Date File No. 10.1** Description of Management Compensatory Plans and Arrangements. 10-K 10.1 February 14, 2019 001-14649 10.2** Trex Company, Inc. Amended and Restated 2014 Stock Incentive Plan. Filed as Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q filed on November 2, 2020 and incorporated herein by reference. 10-Q 10.4 November 2, 2020 001-14649 10.3* / ** Trex Company, Inc. Amended and Restated 1999 Incentive Plan for Outside Directors as amended on February 21, 2020. 10.4** Form of Trex Company, Inc. 2014 Stock Incentive Plan Stock Appreciation Rights Agreement. Filed as Exhibit 10.1 on Form 10-Q filed on July 29, 2019 and incorporated herein by reference. 10-Q 10.1 July 29, 2019 001-14649 10.5** Form of Trex Company, Inc. 2014 Stock Incentive Plan Time-Based Restricted Stock Unit Agreement. Filed as Exhibit 10.2 on Form 10-Q filed July 29, 2019 and incorporated herein by reference. 10-Q 10.2 July 29, 2019 001-14649 10.6** Form of Trex Company, Inc. 2014 Stock Incentive Plan Performance-Based Restricted Stock Unit Agreement. Filed as Exhibit 10.3 on Form 10-Q filed July 29, 2019 and incorporated herein by reference.** 10-Q 10.3 July 29, 2019 001-14649 10.7** Form of Trex Company, Inc. Amended and Restated 1999 Incentive Plan for Outside Directors Restricted Stock Unit Agreement. Filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2015 and incorporated herein by reference.** 10-Q 10.2 August 3, 2015 001-14649 10.8** Change in Control Severance Agreement dated May 6, 2015 by and between Trex Company, Inc. and James E. Cline filed as exhibit 10.1 on Form 8-K on May 8, 2015 and incorporated herein by reference. 8-K 10.1 May 8, 2015 001-14649 10.9** Change in Control Severance Agreement dated February 21, 2020 by and between Trex Company, Inc. and Bryan H. Fairbanks.** 8-K 10.2 February 25, 2020 001-14649 10.10** Severance Agreement dated May 6, 2015 by and between Trex Company, Inc. and James E. Cline filed as Exhibit 10.2 to Form 8-K filed May 8, 2015. 8-K 10.2 May 8, 2015 001-14649 Table of Contents Incorporated by reference Exhibit Number Description Form Exhibit Filing Date File No. 10.11** Amended and Restated Severance Agreement dated February 21, 2020 by and between Trex Company, Inc. and Bryan H. Fairbanks.** 8-K 10.3 February 25, 2020 001-14649 10.12** Form of Change in Control Severance Agreement between Trex Company, Inc. and Officers other than the Chief Executive Officer. Filed as exhibit 10.16 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 and incorporated herein by reference.** 10-K 10.16 February 21, 2017 001-14649 10.13** Form of Severance Agreement between Trex Company, Inc. and Officers other than the Chief Executive Officer. Filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2015 and incorporated herein by reference.** 10-Q 10.1 May 8, 2015 001-14649 10.14** Form of Retention Agreement for Company Officers dated May 2, 1018. Filed as Exhibit 10.2 to the Company’s Quarterly report on Form 10-Q for the quarterly period ended March 31, 2018 and incorporated herein by reference.** 10-Q 10.2 May 7, 2018 001-14649 10.15 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 ended December 31, 2008 and incorporated herein by reference. 10-K 10.19 March 12, 2009 001-14649 10.16 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 ended December 31, 2008 and incorporated herein by reference. 10-K 10.20 March 12, 2009 001-14649 10.17 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 year ended December 31, 2008 and incorporated herein by reference. 10-K 10.21 March 12, 2009 001.14649 10.18 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 fiscal year ended December 31, 2008 and incorporated herein by reference. 10-K 10.23 March 12, 2009 001-14649 10.19 Form of Trex Company, Inc. Fencing Agreement for Installers/Retailers. Filed as Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2006 and incorporated herein by reference. 10-Q 10.4 November 9, 2006 001-14649 Table of Contents Incorporated by reference Exhibit Number Description Form Exhibit Filing Date File No. 21* Subsidiaries of the Company. Filed herewith. 23* Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm. Filed herewith. 31.1* Certification of Chief Executive Officer of the Company pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. Filed herewith. 31.2* Certification of Chief Financial Officer of the Company pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. Filed herewith. 32*** Certifications 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* Inline XBRL Instance Document—the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. 101.SCH* Inline XBRL Taxonomy Extension Schema Document. Filed. 101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document. Filed. 101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document. Filed. 101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document. Filed. 101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document. Filed. 104.1 Cover Page Interactive Data File—The cover page interactive data file does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document. * Filed herewith. ** Management contract or compensatory plan or agreement. *** Furnished herewith.