UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

 

 

FORM 11-K

 

 

 

 

For the fiscal year ended December 31, 2018

 

OR

 

 

For the transition period from                 to                

 

Commission file number: 1-36780

 

 

A. Full title of the plan and the address of the plan, if different from that of the issuer named below:

 

TopBuild Corp. 401(k) Plan

 

B. Name of issuer of the securities held pursuant to the plan and the address of its principal executive office:

 

TopBuild Corp.

475 North Williamson Boulevard

Daytona Beach, Florida 32114

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOPBUILD CORP. 401(k) PLAN

 

TABLE OF CONTENTS

 

 

Note:  Other schedules required by Section 2520.103-10 of the Department of Labor’s Rules and Regulations for Reporting and Disclosure under ERISA have been omitted because they are not applicable.

Report of Independent Registered Public Accounting Firm

 

To the Plan Administrator and Plan Participants of the TopBuild Corp. 401(k) Plan and the Audit Committee of TopBuild Corp.:

 

Opinion on the Financial Statements

 

We have audited the accompanying statements of net assets available for benefits of the TopBuild Corp. 401(k) Plan (the Plan) as of December 31, 2018 and 2017, and the related statement of changes in net assets available for benefits for the year ended December 31, 2018, and the related notes (collectively referred to as the financial statements).  In our opinion, the financial statements present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 2018 and 2017, and the changes in net assets available for benefits for the year ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These financial statements are the responsibility of the Plan's management.  Our responsibility is to express an opinion on the Plan’s financial statements based on our audits.   We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Plan in accordance with 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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Plan is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Plan’s internal control over financial reporting.  Accordingly, we express no such opinion.

 

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.

 

Supplemental Information

 

The supplemental information in the accompanying Schedule H, Part IV, Line 4i - Schedule of Assets (Held at End of Year) as of December 31, 2018 has been subjected to audit procedures performed in conjunction with the audit of the Plan's financial statements.  The supplemental information is the responsibility of the Plan's management.  Our audit procedures included determining whether the supplemental information reconciles to the financial statements or the underlying accounting and other records, as applicable, and performing procedures to test the completeness and accuracy of the information presented in the supplemental information. In forming our opinion on the supplemental information, we evaluated whether the supplemental information, including its form and content, is presented in conformity with the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974.  In our opinion, the supplemental information is fairly stated in all material respects, in relation to the financial statements as a whole.

 

We have served as the Plan’s auditors since 2017.

 

/s/ FRAZIER & DEETER, LLC

 

 

Tampa, FL

June 25, 2019

TOPBUILD CORP. 401(k) PLAN

STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS

DECEMBER 31, 2018 AND 2017

 

 

The accompanying notes are an integral part of the financial statements.

TOPBUILD CORP. 401(k) PLAN

STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS

FOR THE YEAR ENDED DECEMBER 31, 2018

 

 

The accompanying notes are an integral part of the financial statements.

 

 

1. DESCRIPTION OF PLAN

 

The following description of the TopBuild Corp. (the “Company”, “we”, “our” or “TopBuild”) 401(k) Plan (the “Plan”) provides only general information.  Participants should refer to the Plan document for a more complete description of the Plan’s provisions.

 

General.  The Plan is a defined contribution plan covering hourly and salaried employees of the Company’s operating and administrative subsidiaries, not otherwise covered under a collective bargaining agreement.  Eligible employees may participate in the Plan on their date of hire.  The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”).

 

The Plan is administered by the 401(k) Oversight Committee (the “Committee”).  The Committee has overall responsibility for the operation and administration of the plan.  The Committee determines the appropriateness of the Plan’s investment offerings and monitors investment performance.

 

TopBuild is a Delaware corporation formed on June 30, 2015 and is listed on the NYSE under the ticker symbol “BLD”. The Plan was established effective July 1, 2015.

 

Contributions.  Participants may contribute up to 50 percent of their annual compensation, as defined in the Plan. Newly eligible employees are automatically enrolled in the Plan at a deferral rate of three percent of eligible compensation until the employee changes this election. All employees who are eligible to participate under this Plan and who have attained the age of 50 before the close of the Plan year shall be eligible to make catch-up contributions.  Participants may also make rollover contributions representing distributions from individual IRAs, SEPs, 403(b) and 457 plans or other employers’ tax-qualified plans.  The Company may make matching and/or profit sharing contributions in accordance with the provisions of the Plan.  These Company contributions, if applicable, may vary by division or subsidiary and are invested pursuant to the participant’s investment election.  Contributions are subject to certain Internal Revenue Service (“IRS”) limitations.  Participants may direct contributions in one percent increments in any of the various investment options.  These options include professionally managed mutual funds, a stock fund, collective trust funds, and a brokerage account which allows participants to buy, sell, or trade most publicly listed common stocks, corporate and government bonds or certificates of deposit.  These options vary in their respective strategies, risks and goals.  Participants may change their investment options daily. 

 

Participant Accounts.  Each active participant’s account is credited with the participant’s contributions and allocations of (a) the Company’s contributions (if applicable), and (b) investment earnings, as defined in the Plan.  Plan administrative expenses are currently paid from fees generally collected from plan investments.  Certain expenses may be incurred by individual participants for special services relating to their accounts.  These costs are charged directly to the individual participant’s account.  The benefit to which a participant is entitled is the benefit that can be provided from the participant’s vested account.

 

Vesting and Forfeited Employer Contributions.  Participants are immediately vested in their contributions plus actual earnings thereon.  Vesting conditions for Company contributions may vary by division or subsidiary, but generally, Company matching contributions, plus earnings thereon, are subject to one-year cliff-vesting for employees who started on or after April 1, 2016.  Participants are also immediately 100 percent vested upon death or disability while employed by the Company, or at retirement.  Any forfeited amounts are used to reduce administrative expenses or employer contributions.    Accumulated forfeitures at December 31, 2018, and 2017, were $249,905 and $235,288, respectively. During the year ended December 31, 2018, the Plan utilized $258,701 of forfeited nonvested accounts to reduce employer contributions and $87,578 to pay administrative and consulting fees.

 

Stock Fund.  The Plan allows participants to invest in the common stock of the Company through the TopBuild Corp. company stock fund (the “TopBuild Stock Fund”).  Participants may not direct more than 25 percent of their contributions into the TopBuild Stock Fund and may not exchange more than 25 percent of their investments into the TopBuild Stock Fund.  The TopBuild Stock Fund may also hold cash or other short-term securities, although these are expected to be a small percentage of the fund. 

 

Each participant who has an interest in the TopBuild Stock Fund is entitled to exercise voting rights attributable to the shares allocated to his or her TopBuild Stock Fund account and is notified by the Trustee, Fidelity Management Trust Company (“Fidelity”) as defined by the Plan, prior to the time that such rights are to be exercised.  If the Trustee does not receive timely instructions, the Trustee itself or by proxy shall vote all such shares in the same ratio as the shares with respect to which instructions were received from participants.

 

Notes Receivable from Participants.  Generally, participants may borrow from their account a minimum of $1,000 up to a maximum equal to the lesser of $50,000 or 50 percent of their vested account balance at the time of the loan.  Loan terms generally range from 1-5 years, or up to 15 years in the case of a principal residence loan.  Loans are collateralized by the balance in the participant's account and generally bear interest at a rate equal to the Prime Rate on the last business day of the month prior to the date of the loan application.  Principal and interest are paid ratably through payroll deductions.

 

Payment of Benefits.  Generally, after separation from service due to termination, death, disability, or retirement, a participant may elect to receive an amount equal to the value of the participant’s vested interest in his or her account either in a single lump-sum amount or in annual installments over a period not to exceed five years.  In-service and hardship withdrawals are distributed in a single payment.

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The Plan’s financial statements and accompanying footnotes and schedules are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

 

Basis of Accounting.  The accompanying financial statements are prepared on the accrual basis of accounting.

 

Use of Estimates.    The preparation of the financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements, and reported amounts of additions and deductions during the reporting period.  Actual results could differ from these estimates and assumptions.

 

Risks and Uncertainties.    The Plan provides for various investment options in mutual funds and other investment securities.  Investment securities are exposed to various risks, including interest rate, market, and credit risks.  Due to the level of risk associated with certain investment securities and the level of uncertainty related to changes in the value of certain investment securities, it is reasonably possible that changes in risks in the near term could materially affect participants' account balances and the amounts reported in the Statements of Net Assets Available for Benefits and the Statement of Changes in Net Assets Available for Benefits.

 

Investment Valuation and Income Recognition.    Investments are stated at fair value using quoted market prices at December 31, 2018, and 2017.

Purchases and sales of investments are reflected on a trade date basis.  Interest income is recognized on the accrual basis of accounting.  Dividend income is recorded on the ex-dividend date and is allocated to participants’ accounts on the date of payment.  Income from other securities is recorded as earned on an accrual basis.

 

The Plan presents in the Statement of Changes in Net Assets Available for Benefits the net depreciation in the fair value of its investments, which consists of the realized gains or losses and the unrealized appreciation or depreciation of those investments.

 

Fair Value Measurement.  The Plan follows fair value guidance provided in Accounting Statement Codification (“ASC”) 820 – Fair Value Measurement, which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.  The guidance defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.”  Further, it defines a fair value hierarchy, as follows:  Level 1 inputs as unadjusted quoted prices in active markets for identical assets or liabilities; Level 2 inputs as observable inputs other than Level 1 prices, such as quoted market prices for similar assets or liabilities or other inputs that are observable or can be corroborated by market data; and Level 3 inputs as unobservable inputs that are supported by little or no market activity and that are financial instruments whose value is determined using pricing models or instruments for which the determination of fair value requires significant management judgment or estimation.  The asset or liability’s level within the fair value hierarchy is based on the lowest level of any significant input used to measure its fair value.  Valuation techniques maximize the use of relevant observable inputs and minimize the use of unobservable inputs.

 

Excess Contributions Payable.    Amounts payable to participants for contributions in excess of amounts allowed by the IRS are recorded as a liability with a corresponding reduction to contributions.  The Plan distributed substantially all of the 2018 excess contributions to the applicable participants prior to March 15, 2019.

 

Notes Receivable from Participants.    Notes receivable from participants are measured at their unpaid principal balance plus any accrued but unpaid interest.  Interest income is recorded on the accrual basis.  Delinquent notes receivable from participants are recorded as benefit payments based upon the terms of the Plan.

 

Payment of Benefits.  Benefits are recorded when paid.

 

Expenses.  Certain expenses of maintaining the Plan are paid by the Plan, unless otherwise paid by the Company. Expenses that are paid by the Company are excluded from these financial statements.  Investment related expenses are included in net depreciation of fair value of investments.  During 2017, an unallocated revenue credit account was established.  Accumulated amounts in the participant revenue credit account at December 31, 2018 and 2017 were $206,194 and $86,600, respectively.  No amounts were allocated during 2018 or 2017.

 

Recently Issued Accounting Pronouncements.   In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2018-13, “Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.”  The new standard modifies the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, including adjustments to Level 3 fair value measurement disclosures as well as the removal of disclosures around Level 1 and Level 2 transfers.  This update is effective for the fiscal year beginning January 1, 2020 with early adoption permitted.  The amendments to the guidance will be applied on a prospective or retrospective basis, in accordance with the requirements of the new standard.  Plan Management has not yet selected an adoption date, and is currently evaluating the effect of adoption of this standard on the Plan’s net assets or changes in net assets.  

 

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Plan’s net assets or changes in net assets.

 

3.  FAIR VALUE MEASUREMENT

 

Following is a description of the valuation methodologies used for assets measured at fair value:

 

TopBuild Stock Fund.    The TopBuild Stock Fund is valued at the closing price reported on the active market on which the security is traded.

 

Mutual Funds.  Mutual funds are valued at the daily closing price as reported by the fund.  Mutual funds held by the Plan are open-end mutual funds that are registered with the Securities and Exchange Commission.  These funds are required to publish their daily net asset value (“NAV”) and transact at that price.  The mutual funds held by the Plan are deemed to be actively traded.

 

Collective Trust Funds.  Collective trust funds are valued based on NAV, as a practical expedient, which approximates fair value as of December 31, 2018 and 2017.  Such basis is determined by reference to the respective fund’s underlying assets, which are primarily marketable equity and fixed income securities. 

 

Brokerage Accounts.  Participant directed investments could include common stocks, mutual funds, corporate or government bonds, or other investments that are valued on the basis of readily determinable market prices.

 

The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values.  Furthermore, while the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.  There have been no changes in the methodologies used or transfers between levels during the years ended December 31, 2018 and 2017.

 

The following tables set forth by level, within the fair value hierarchy, the Plan’s invested assets at fair value and the Plan’s invested assets measured at NAV as of December 31, 2018 and 2017:

 

 

 

 

 

 

 

 

 

 

The following tables summarize investments measured at fair value based on NAV per share as of December 31, 2018 and 2017.  Were the Plan to initiate a full redemption of the collective trust funds, the investment adviser reserves the right to temporarily delay withdrawal from the trust in order to ensure the securities liquidations will be carried out in an orderly business manner. 

 

 

 

 

 

4. INCOME TAX STATUS

 

The Plan received a determination letter dated October 27, 2016, in which the Internal Revenue Service stated the Plan, as then designed, was in compliance with the applicable requirements of the Internal Revenue Code (“IRC”).  Although the Plan has been amended since receiving the determination letter, the Plan administrator and the Plan’s tax counsel believe that the Plan is designed, and is currently being operated, in compliance with the applicable requirements of the IRC and, therefore, believe that the Plan is qualified, and the related trust is tax-exempt.  Therefore, no provision for income taxes has been included in the Plan’s financial statements.

 

U.S. GAAP requires the Plan’s management to evaluate tax positions taken by the Plan and recognize a tax liability if the Plan has taken an uncertain position that more likely than not would not be sustained upon examination by the IRS.  The Plan administrator has analyzed the tax positions taken by the Plan, and has concluded that as of December 31, 2018 and 2017, there are no uncertain positions taken or expected to be taken that would require recognition of a liability or disclosure in the financial statements.  The Plan is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax period in progress.

 

5. PLAN TERMINATION

 

Although the Company has not expressed an intent to do so, the Company has the right at any time to discontinue its contributions and to terminate the Plan, subject to the provisions of ERISA.  At the date of any such termination, all participants would become fully vested in their accounts and the TopBuild Corp. 401(k) Oversight Committee would direct the Trustee to distribute to the participants all assets of the Plan, net of any termination expenses which would be prorated among the participants’ accounts.

 

6. RELATED PARTY TRANSACTIONS

 

Certain Plan investments are shares of mutual funds and collective trust funds managed by Fidelity.  Fidelity is also the Trustee as defined by the Plan; therefore, transactions with these investments qualify as party-in-interest transactions.  Notes receivable from participants are also considered party-in-interest transactions.

 

The Plan invests in TopBuild Corp. common stock.  As of December 31, 2018, the value of the TopBuild Corp. common stock fund held by the Plan was $1,075,335 (with common stock of $1,073,902 and cash and money market investments of $1,433).  As of December 31, 2017, the value of the TopBuild Corp. common stock fund held by the Plan was $2,193,069 (with common stock of $2,191,584 and cash and money market investments of $1,485).

 

7. PLAN MERGER

 

ADO Products, LLC (“ADO”) was acquired by TopBuild Corp. on January 10, 2018.  Effective December 31, 2018, ADO’s 401(k) plan merged into the Plan with all assets in transit, and settled on January 2, 2019.  A total of $2,832,959 net assets are included on the Plan’s Form 5500 for the 2018 year in Schedule H Line 1a and Line 2l(1).  See Note 9 for reconciliation to Form 5500.  There were no outstanding participant loans included in the transfer of net assets.  The net assets transferred represent primarily investments in mutual funds and one collective trust fund.

 

 

8. SUBSEQUENT EVENTS

 

United Subcontractors Inc. (“USI”) was acquired by TopBuild Corp. on May 1, 2018. On February 11, 2019, USI’s 401(k) plan merged into the Plan. The total net assets transferred in were $13,756,958, which represents a majority of USI’s outstanding assets at such time.  These net assets will be reflected in the Plan’s financial statements and Form 5500 in the 2019 plan year.

 

9. RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500

 

The following is a reconciliation of net assets available for plan benefits per the financial statements to the Form 5500:

 

 

 

 

 

 

 

 

 

The following is a reconciliation of certain contributions to the Plan during 2018 per the financial statements to the Form 5500:

 

 

TOPBUILD CORP. 401(k) PLAN

SCHEDULE H, LINE 4i – SCHEDULE OF ASSETS (HELD AT END OF YEAR)

EIN: 47-3096382

PLAN: 001

DECEMBER 31, 2018

 

 

(*) Indicates a party-in-interest

(**) Historical cost information not required for participant directed investments

EXHIBITS

 

 

 

 

 

SIGNATURE

The Plan.    Pursuant to the requirements of the Securities Exchange Act of 1934, the trustees (or other persons who administer the employee benefit plan) have duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized.