16.

SEGMENT INFORMATION

Prior to July 31, 2017, the Company operated in one reportable segment. Subsequent to the acquisition of certain assets and assumption of certain liabilities of SC Company on July 31, 2017, the Company operates in two reportable segments:

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Trex Residential Products manufactures wood-alternative decking and railing and related products marketed under the brand name Trex^®. The products are sold to its distributors and national retailers who, in turn, sell primarily to the residential market, which includes replacement, remodeling and new construction related to outdoor living products. Net sales of Trex Residential Products were $155.2 million and $144.8 million in the three months ended March 31, 2018 and 2017, respectively.

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Trex Commercial Products designs, engineers, and markets modular and architectural railing, staging, acoustical and seating systems for the commercial and multi-family market, including sports stadiums and performing arts venues. The segment’s products are sold through architects, specifiers, contractors, and others doing business within the segment’s commercial and multi-family market. Net sales of Trex Commercial products were $16.0 million in the three months ended March 31, 2018.

The Company’s operating segments have been determined in accordance with its internal management structure, which is organized based on residential and commercial sales activities. The Company evaluates performance of each segment primarily based on net sales and earnings before interest, taxes, depreciation and amortization (EBITDA). The Company uses net sales to assess performance and allocate resources as this measure represents the amount of business the segment engaged in during a given period of time, is an indicator of market growth and acceptance of segment products, and represents the segment’s customers’ spending habits along with the amount of product the segment sells relative to its competitors. The Company uses EBITDA to assess performance and allocate resources because it believes that EBITDA facilitates performance comparison between the segments by eliminating interest, taxes, and depreciation and amortization charges to income. The below segment data for the three months ended March 31, 2018, includes data for Trex Residential Products and Trex Commercial Product (in thousands):


	Three Months Ended March 31, 2018
	Residential		Commercial			Total
Net sales	$	155,200	$	16,007		$	171,207
Net income (loss)	$	37,580	$	(470	)	$	37,110
EBITDA	$	51,834	$	653		$	52,487
Depreciation and amortization	$	3,453	$	1,280		$	4,733
Income tax expense (benefit)	$	10,572	$	(157	)	$	10,415
Capital expenditures	$	5,043	$	392		$	5,435
Total assets	$	366,400	$	78,984		$	445,384

Reconciliation of net income to EBITDA (in thousands):


	Three Months Ended March 31, 2018
	Residential		Commercial			Total
Net income (loss)	$	37,580	$	(470	)	$	37,110
Interest		229		—			229
Taxes		10,572		(157	)		10,415
Depreciation and amortization		3,453		1,280			4,733

EBITDA	$	51,834	$	653		$	52,487