This management's discussion and analysis contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements regarding our expected financial position and operating results, our business strategy, our financing plans, forecasted demographic and economic trends relating to our industry and similar matters are forward-looking statements. These statements can sometimes be identified by our use of forward-looking words such as "may," "will," "anticipate," "estimate," "expect," "intend" or similar expressions. We cannot promise you that our expectations in such forward-looking statements will turn out to be correct. Our actual results could be materially different from our expectations because of various factors, including the factors discussed under "Item 1A. Risk Factors" in our Annual Report on Form 10-K for fiscal year 2011 filed with the Securities and Exchange Commission. These statements are also subject to risks and uncertainties that could cause the Company's actual operating results to differ materially. Such risks and uncertainties include the extent of market acceptance of the Company's products; the costs associated with the development and launch of new products and the market acceptance of such new products; the sensitivity of the Company's business to general economic conditions; the Company's ability to obtain raw materials at acceptable prices; the Company's ability to maintain product quality and product performance at an acceptable cost; the level of expenses associated with product replacement and consumer relations expenses related to product quality; and the highly competitive markets in which the Company operates.

Overview

General. Trex Company, Inc. is the largest manufacturer of wood-alternative decking and railing products, which are marketed under the brand name Trex ®. We offer a comprehensive set of aesthetically durable, low maintenance product offerings and believe that the range and variety of our product offerings allow consumers to design much of their outdoor living space using Trex brand products.

We have four principal decking products: Trex Transcend®, Trex Enhance®, Trex Accents®, and Trex Escapes®; two railing products: Trex Designer Series Railing® and Trex Transcend Railing; a porch product, Trex Transcend Porch Flooring and Railing System; a steel deck framing system, Trex Elevations™; two fencing products: Trex Seclusions® and Trex Surroundings®; a deck lighting system, Trex DeckLighting™; and a cellular PVC outdoor trim product, TrexTrim™. In addition, we offer Trex Hideaway ®, which is a hidden fastening system for specially grooved boards.

Highlights related to the second quarter of 2012 include:

• We experienced an increase in net sales of 20.2% in the quarter, compared to the second quarter of 2011, primarily due to increased sales volumes.

• We achieved gross margins of 35.6% in the quarter.

Net Sales. Net sales consists of sales and freight, net of returns and discounts. The level of net sales is principally affected by sales volume and the prices paid for Trex products. Our branding and product differentiation strategy enables us to command premium prices over wood products.

Sales Incentives / Early Buy Program: As part of our normal business practice and consistent with industry practices, we have historically provided our distributors and dealers incentives to build inventory levels before the start of the prime deck-building season to ensure adequate availability of product to meet anticipated seasonal consumer demand and to enable production planning. These incentives, which together we reference as our "early buy program," include prompt payment discounts and favorable payment terms. In addition, from time to time we may offer price discounts or volume rebates on specified products and other incentives based on increases in distributor purchases as part of specific promotional programs.

We launched our early buy program for the 2012 decking season in December 2011. The timing and terms of the 2012 program were generally consistent with the timing and terms of the 2011 program launched in December 2010. To qualify for early buy program incentives, customers must commit to the terms of the program which specify eligible products and quantities, order deadlines and available terms, discounts and rebates. There are no product return rights granted to our distributors except those granted pursuant to the warranty provisions of our agreements with distributors. In addition, our products are not susceptible to rapid changes in technology that may cause them to become obsolete. The early buy program can have a significant impact on our sales, receivables and inventory levels. We have provided further discussion of our receivables and inventory in the liquidity and capital resources section.

Gross Profit. Gross profit represents the difference between net sales and cost of sales. Cost of sales consists of raw materials costs, direct labor costs, manufacturing costs and freight. Raw materials costs generally include the costs to purchase and transport waste wood fiber, reclaimed polyethylene, or "PE material," and pigmentation for coloring Trex products. Direct labor

costs include wages and benefits of personnel engaged in the manufacturing process. Manufacturing costs consist of costs of depreciation, utilities, maintenance supplies and repairs, indirect labor, including wages and benefits, and warehouse and equipment rental activities.

Selling, General and Administrative Expenses. The largest components of selling, general and administrative expenses are branding and other sales and marketing costs, which we use to build brand awareness of Trex. Sales and marketing costs consist primarily of salaries, commissions and benefits paid to sales and marketing personnel, consumer relations, advertising expenses and other promotional costs. General and administrative expenses include salaries and benefits of personnel engaged in research and development, procurement, accounting and other business functions, office occupancy costs attributable to these functions, and professional fees. As a percentage of net sales, selling, general and administrative expenses have varied from quarter to quarter due, in part, to the seasonality of our business.

Results of Operations

The following table shows, for the three and six months ended June 30, 2012 and
2011, respectively, selected statement of comprehensive income data as a
percentage of net sales:



                                         Three Months Ended June 30,                Six Months Ended June 30,
                                          2012                  2011                2012                  2011
Net sales                                    100.0 %               100.0 %             100.0 %               100.0 %
Cost of sales                                 64.4                  70.0                63.8                  68.4

Gross profit                                  35.6                  30.0                36.2                  31.6
Selling, general and
administrative expenses                       22.1                  22.1                20.7                  23.1

Income from operations                        13.5                   7.9                15.5                   8.5
Interest expense, net                          4.6                   5.1                 4.6                   5.4

Income before income taxes                     8.9                   2.8                10.9                   3.1
Provision (benefit) for income
taxes                                          0.1                   0.1                 0.1                  (1.8 )

Net income                                     8.8 %                 2.7 %              10.8 %                 4.9 %

Three Months Ended June 30, 2012 Compared With Three Months Ended June 30, 2011

Net Sales. Net sales in the quarter ended June 30, 2012 (the "2012 quarter") increased 20.2% to $94.3 million from $78.4 million in the quarter ended June 30, 2011 (the "2011 quarter"). The increase in net sales was due primarily to a 22.6% increase in sales volume. We attribute the increase in sales volumes in the 2012 quarter compared to the 2011 quarter to various factors, including:

• Favorable weather conditions in the 2012 quarter as compared to the 2011 quarter has allowed for a more favorable deck-building season, and;

• Increased market share.

Gross Profit. Gross profit increased 42.7% to $33.6 million in the 2012 quarter from $23.5 million in the 2011 quarter. Gross profit as a percentage of net sales, gross margin, increased to 35.6% in the 2012 quarter from 30.0% in the 2011 quarter. The increase in gross margin was primarily due to increased manufacturing efficiencies and a shift in sales mix toward our shelled products, offset by a $1.1 million increase to the warranty reserve and $0.8 million related to start up expenses on our shelled products.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $3.5 million, or 20.2% to $20.9 million in the 2012 quarter from $17.4 million in the 2011 quarter. The increase in selling, general and administrative expenses in the 2012 quarter was primarily related to a $3.8 million increase in personnel related expenses due to increased incentive compensation, sales commissions and severance costs. As a percentage of net sales, total selling, general and administrative expenses were 22.1% of net sales in both the 2012 and 2011 quarter.

Interest Expense. Net interest expense increased $0.3 million to $4.3 million in the 2012 quarter from $4.0 million in the 2011 quarter. Net interest expense included $2.9 million and $2.6 million of charges to the 2012 and 2011 quarters, respectively, in non-cash interest related primarily to the amortization of the convertible debt discount and financing costs. As a percentage of net sales, interest expense decreased to 4.6% in the 2012 quarter from 5.1% in the 2011 quarter.

Provision for Income Taxes. The effective tax rate for the 2012 quarter and 2011 quarter was 1.0% and 2.9%, respectively, which resulted in an expense of $86 and $62 thousand for the respective quarters. The effective tax rate was substantially lower than the statutory rate in both quarters due to the effect of the valuation allowance the Company maintains against its net deferred tax assets which substantially offsets statutory income tax.

Six Months Ended June 30, 2012 Compared With Six Months Ended June 30, 2011

Net Sales. Net sales in the six months ended June 30, 2012 (the "2012 six-month period") increased 29.1% to $190.4 million from $147.4 million in the six months ended June 30, 2011 (the "2011 six-month period"). The increase in net sales was due primarily to a 28.5% increase in sales volume. We attribute the increase in sales volumes in the 2012 six-month period compared to the 2011 six-month period to various factors, including:

• Sales volumes in the 2011 six-month period were depressed as a result of customers purchasing product in late 2010 to avoid an announced 2011 Transcend price increase;

• Favorable weather conditions throughout 2012 compared to 2011 has allowed for a more favorable deck-building season, and;

• Increased market share.

Gross Profit. Gross profit increased 48.2% to $69.0 million in the 2012 six-month period from $46.6 million in the 2011 six-month period. Gross profit as a percentage of net sales, gross margin, increased to 36.2% in the 2012 six-month period from 31.6% in the 2011 six-month period. The increase in gross margin was primarily due to increased manufacturing efficiencies, a shift in sales mix toward our shelled products and a LIFO benefit recognized due to inventory liquidations during the 2012 six-month period, offset by increased warranty expense of $1.5 million.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $5.5 million, or 16.0% to $39.5 million in the 2012 six-month period from $34.0 million in the 2011 six-month period. The increase in selling, general and administrative expenses in the 2012 six-month period was primarily related to a $5.3 million increase in personnel related expenses due to increased incentive compensation, sales commissions and severance costs. As a percentage of net sales, total selling, general and administrative expenses decreased to 20.7% in the 2012 six-month period from 23.1% in the 2011 six-month period.

Interest Expense. Net interest expense increased $0.7 million to $8.7 million for the 2012 six-month period from $8.0 million in the 2011 six-month period. Net interest expense included $5.8 million and $5.2 million of charges to the 2012 and 2011 six-month periods, respectively, related primarily to the amortization of the convertible debt discount and financing costs. As a percentage of net sales, interest expense decreased to 4.6% in the 2012 six-month period from 5.4% in the 2011 six-month period.

Provision for Income Taxes. The Company's effective tax rate for the 2012 and 2011 six-month periods was 0.9% and (56.5%), respectively, which resulted in an expense of $0.2 million and a benefit of $2.6 million, in the respective six-month periods. The effective tax rate for the 2011 six-month period was primarily the result of benefits recorded in the first quarter related to the favorable resolution of uncertain tax positions. Excluding these benefits, the effective tax rate for the six-months ended June 30, 2011 was approximately 3.0%. The effective tax rate was substantially lower than the statutory rate in both six-month periods due to the effect of the valuation allowance the Company maintains against its net deferred tax assets which substantially offsets statutory income tax.

Liquidity and Capital Resources

We finance operations and growth primarily with cash flow from operations, borrowings under our revolving credit facility and other loans, operating leases and normal trade credit terms from operating activities.

At June 30, 2012, we had $96.5 million of cash on hand, $45.9 million of which is restricted cash set aside to pay off our convertible notes due on July 2, 2012.

Sources and Uses of Cash. Cash provided by operating activities for the 2012 six-month period was $35.9 million compared to cash provided by operating activities of $3.3 million for the 2011 six-month period. The $32.6 million increase in cash provided by operating activities was primarily related to higher net income and a decrease of $25.5 million in inventory. Furthermore, an additional $17.2 million in cash was used to pay accrued expenses during the 2011 six-month period compared to the 2012 six-month period. These favorable effects were partially offset by an increase of $19.7 million in accounts receivable balances during the first six months of 2012. We expect to collect substantially all outstanding accounts receivable balances during the third quarter of 2012.

Cash used in investing activities totaled $2.9 million in the 2012 six-month period compared to cash used in investing activities of $6.8 million in the 2011 six-month period. The decrease is attributable to the acquisition of substantially all of the assets of Iron Deck Corporation in the 2011 six-month period and a decrease in capital expenditures in the 2012 six-month period compared to the 2011 six-month period. Capital expenditures in the 2012 six-month period consisted primarily of manufacturing equipment for process and productivity improvements, including retrofitting lines to produce new products.

Cash provided by financing activities was $13.0 million in the 2012 six-month period compared to cash used in financing activities of $4.3 million in the 2011 six-month period. Our net borrowings from the revolving credit facility were $25.0 million in the 2012 six-month period compared to no borrowings in the 2011 six-month period. In the 2012 six-month period, the restricted deposit account increased $8.9 million in order to maintain on deposit a balance of 50% of the outstanding principal balance of the convertible notes until the notes were retired in full on July 2, 2012.

Capital Requirements. Capital expenditures in the 2012 six-month period totaled $2.9 million, primarily for manufacturing equipment. We currently estimate that our capital expenditures in 2012 will be approximately $10 to $15 million.

Indebtedness. At June 30, 2012, our indebtedness totaled $116.9 million and the annualized weighted average interest rate of such indebtedness was 5.3%.

Our ability to borrow under our revolving credit facility is tied to a borrowing base that consists of certain accounts receivables, inventories, machinery and equipment and real estate. At June 30, 2012, we had $25.0 million of outstanding borrowings under the revolving credit facility and additional available borrowing capacity of approximately $55.8 million.

Following the end of our second quarter, on July 2, 2012, we used cash on hand (including amounts classified as restricted cash at June 30, 2012) to repay the $91.9 million principal balance on our convertible notes.

Debt Covenants. To remain in compliance with covenants contained within our debt agreements, we must maintain specified financial ratios based on levels of debt, capital, net worth, fixed charges, and earnings before interest, taxes, depreciation and amortization. At June 30, 2012, we were in compliance with these covenants. Failure to comply with our loan covenants might cause our lenders to accelerate our repayment obligations under our credit facility, which may be declared payable immediately based on a default and which could result in a cross-default under our convertible notes.

We believe that cash on hand, cash from operations and borrowings expected to be available under our revolving credit facility will provide sufficient funds to fund planned capital expenditures, make scheduled principal and interest payments, fund the warranty reserve and meet other cash requirements. We currently expect to fund future capital expenditures from operations and financing activities. The actual amount and timing of future capital requirements may differ materially from our estimate depending on the demand for Trex and new market developments and opportunities.

Inventory in Distribution Channels. We sell our products through a tiered distribution system. We have approximately 20 distributors and two mass merchandisers to which we sell our products. These distributors in turn sell the products to approximately 3,100 dealers who in turn sell the products to end users. While we do not typically receive information regarding inventory in the distribution channel from dealers, we occasionally receive limited information from some but not all of our distributors regarding their inventory. Because few distributors provide us with any information regarding their inventory, we cannot definitively determine the level of inventory in the distribution channels at any time. We believe that distributor inventory levels as of June 30, 2012 are generally lower than distributor inventory levels as of June 30, 2011. Significant changes in inventory levels in the distribution channel without a corresponding change in end-use demand could have an adverse effect on future sales.

Product Warranty. We continue to receive and settle claims related to material produced at our Nevada facility prior to 2007 that exhibit surface flaking, which has had a material adverse effect on cash flow from operations. We estimate that the number of claims received will continue to decline over time. If the level of claims does not diminish consistent with our expectations, it could result in additional increases to the warranty reserve and reduced earnings and cash flow in future periods.