SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 11-K
ANNUAL REPORT
PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 2006
[__] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ______ to _________
Commission file number: 0-14706-
A. Full title of the plan and the address of the plan, if different
from that of the issuer named below:
Ingles Markets, Incorporated
Investment/Profit Sharing Plan
B. Name of issuer of the securities held pursuant to the plan and
the address of its principal executive office:
Ingles Markets, Incorporated
P.O. Box 6676
Asheville, North Carolina 28816
AUDITED FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULES
Ingles Markets, Incorporated Investment/Profit Sharing Plan
As of December 31, 2006 and 2005 and for the year ended December 31, 2006 with
Report of Independent Registered Public Accounting Firm
Ingles Markets, Incorporated Investment/Profit Sharing Plan
Audited Financial Statements and Supplemental Schedules
As of December 31, 2006 and 2005
and for the Year Ended December 31, 2006
Contents
Report of Independent Registered Public Accounting Firm........................1
Audited Financial Statements
Statements of Net Assets Available for Benefits................................2
Statement of Changes in Net Assets Available for Benefits......................3
Notes to Financial Statements..................................................4
Supplemental Schedules
Schedule H, Line 4i - Schedule of Assets
(Held at End of Year)-December 31, 2006.......................................12
Schedule H, Line 4j - Schedule of Reportable Transactions.....................14
Report of Independent Registered Public Accounting Firm
The Plan Administrative Committee
Ingles Markets, Incorporated Investment/Profit Sharing Plan
We have audited the accompanying statements of net assets available for benefits
of the Ingles Markets, Incorporated Investment/Profit Sharing Plan as of
December 31, 2006 and 2005, and the related statement of changes in net assets
available for benefits for the year ended December 31, 2006. These financial
statements are the responsibility of the Plan's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform an
audit of the Plan's internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, 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. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan at
December 31, 2006 and 2005, and the changes in its net assets available for
benefits for the year ended December 31, 2006, in conformity with U.S. generally
accepted accounting principles.
Our audits were performed for the purpose of forming an opinion on the financial
statements taken as a whole. The accompanying supplemental schedules of assets
(held at end of year) as of December 31, 2006 and reportable transactions for
the year ended December 31, 2006 are presented for purposes of additional
analysis and are not a required part of the financial statements but are
supplementary information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974. These supplemental schedules are the responsibility of the
Plan's management. The supplemental schedules have been subjected to the
auditing procedures applied in our audits of the financial statements and, in
our opinion, are fairly stated in all material respects in relation to the
financial statements taken as a whole.
/s/ ERNST & YOUNG LLP
Greenville, South Carolina
June 26, 2007
1
Ingles Markets, Incorporated Investment/Profit Sharing Plan
Statements of Net Assets Available for Benefits
December 31
2006 2005
-------------------------
Assets
Investments at fair value:
Employer securities $44,514,504 $25,471,802
Collective trust funds 18,449,283 17,313,683
Mutual funds 20,701,600 17,951,849
Loans to participants 3,838,001 3,362,097
-------------------------
87,503,388 64,099,431
Cash 307,027 115,410
Receivables:
Participant contributions - 157,588
-------------------------
Total assets 87,810,415 64,372,429
-------------------------
Liabilities
Due to broker, net 288,316 85,040
-------------------------
Net assets available for benefits $87,522,099 $64,287,389
=========================
See accompanying notes.
2
Ingles Markets, Incorporated Investment/Profit Sharing Plan
Statement of Changes in Net Assets Available for Benefits
Year Ended December 31, 2006
Additions
Net appreciation in fair value of investments $ 25,716,168
Dividends 1,202,563
Interest on participant loans 244,156
---------------
27,162,887
Contributions:
Participants 3,849,422
---------------
Total additions 31,012,309
Deductions
Distributions to participants 7,305,382
Administrative expenses 398,293
Corrective distributions 73,924
---------------
Total deductions 7,777,599
---------------
Net increase 23,234,710
Net assets available for benefits at beginning of year 64,287,389
---------------
Net assets available for benefits at end of year $ 87,522,099
===============
See accompanying notes.
3
Ingles Markets, Incorporated Investment/Profit Sharing Plan
Notes to Financial Statements
December 31, 2006
1. Description of the Plan
The following description of the Ingles Markets, Incorporated Investment/Profit
Sharing Plan (the "Plan") provides only general information. Participants should
refer to the Plan document for a more complete description of the Plan's
provisions. Copies of the Plan document are available from the Plan
Administrative Committee.
General
The Plan is a defined contribution plan covering substantially all employees of
Ingles Markets, Incorporated (the "Company" and "Plan Sponsor") and its
wholly-owned subsidiary Milkco, Inc. who have completed one year of eligibility
service as defined in the Plan document and are at least 18 years of age. The
Plan is subject to the provisions of the Employee Retirement Income Security Act
of 1974 ("ERISA"), as amended.
Contributions
The Plan provides for three types of contributions: (i) Company profit sharing
plan contributions to the Ingles Stock Fund (Class B) made by the Company -
discretionary in nature; (ii) participant 401(k) contributions from 1% to 50%
(in increments of 1%) of their pre-tax annual compensation as defined in the
Plan document (subject to regulatory limitations), and (iii) Company 401(k)
matching contributions, discretionary in nature and determined by the Company
for each payroll period. During 2006, the Plan document was amended to change
the limit of the discretionary 401(k) matching contribution from a maximum of 5%
to a maximum of 3% of a participant's compensation as defined in the Plan
document. In addition, all participants who have attained age 50 before the
close of the Plan year shall be eligible to make catchup contributions, also
subject to regulatory limitations.
In 2006, the Company made discretionary 401(k) matching contributions of
$1,039,179 which were funded through forfeitures. The Company made no
discretionary profit sharing contributions during 2006.
Participant Accounts
Each participant's account is credited with the participant's contributions and
with allocations of Plan earnings and any Company matching and profit-sharing
contributions. Allocations are based on participant account balances,
participant compensation as defined in the Plan document, or participant
contributions. The benefit to which a participant is entitled is the benefit
that can be provided from the participant's account.
4
Ingles Markets, Incorporated Investment/Profit Sharing Plan
Notes to Financial Statements (continued)
1. Description of the Plan (continued)
Upon enrollment in the Plan, participants may direct participant and Company
matching contributions in 1% increments to any of the Plan's fund options. No
participant 401(k) contributions can be made to the Ingles Stock Fund.
Participants may change their investment options daily.
Vesting and Forfeitures
Contributions by participants plus actual earnings thereon are immediately 100%
vested and nonforfeitable. Participants become vested in the Company's matching
and profit sharing contributions on a graduated basis with 100% vesting
occurring after the completion of six years of service.
Forfeited balances are utilized as follows:
a. First, to restore the nonvested portion of the Company
contribution accounts of certain terminated participants who
subsequently participate in the Plan as a rehire as described in
the Plan document.
b. Second, at the discretion of the Plan Sponsor, to pay Plan
expenses. c. Third, to reduce Plan Sponsor contributions as
described in the Plan document.
Forfeitures of $1,049,075 were used during 2006 to reduce the Company's matching
contributions and to pay certain administrative expenses. Unallocated
forfeitures at December 31, 2006 and 2005 were $181,175 and $970,780,
respectively.
Participant Loans
Participants may borrow from their fund accounts a minimum of $500 to a maximum
equal to the lesser of $50,000 or 50% of their vested balances with the term of
the loan not exceeding five years except for loans to purchase the borrower's
principal residence whose term shall not exceed ten years. The loans are secured
by the balance in the participant's account. The interest rate used will be
comparable to rates charged by local lending institutions for similar loans.
Principal and interest are paid ratably through employee payroll deductions.
Payment of Benefits
Upon termination of service, death, disability or retirement, a participant, or
their beneficiary in the case of death, may receive a lump-sum amount equal to
the vested value of his or her account.
5
Ingles Markets, Incorporated Investment/Profit Sharing Plan
Notes to Financial Statements (continued)
1. Description of the Plan (continued)
Administrative Expenses
Certain legal and accounting fees and certain administrative expenses relating
to the Plan are paid by the Company and will not be reimbursed by the Plan.
Other allowable expenses such as investment advisory fees are paid by the Plan.
Credit Risk
Investment securities are exposed to various risks, such as interest rate,
market and credit risks. Due to the level of risk associated with certain
investment securities, it is at least reasonably possible that changes in the
values of investment securities will occur in the near term and that such
changes could materially affect the amounts reported in the financial statements
and schedule of the Plan. Because the Ingles Stock Fund - Class B and the Ingles
Class A Stock Fund are not diversified, they may experience wider variation in
value than the other Plan funds.
Plan Termination
Although it has not expressed any intent to do so, the Company has the right
under the Plan to discontinue its contributions at any time and to terminate the
Plan subject to the provisions of ERISA. In the event of Plan termination,
participants will become 100 percent vested in their accounts.
New Accounting Pronouncement
In December 2005, the Financial Accounting Standards Board (FASB) issued FASB
Staff Position AAG INV-1 and SOP 94-4-1, Reporting of Fully Benefit-Responsive
Investment Contracts Held by Certain Investment Companies Subject to the AICPA
Investment Company Guide and Defined-Contribution Health and Welfare and Pension
Plans (the FSP). The FSP defines the circumstances in which an investment
contract is considered fully benefit responsive and provides certain reporting
and disclosure requirements for fully benefit responsive investment contracts in
defined contribution health and welfare and pension plans. The financial
statement presentation and disclosure provisions of the FSP are effective for
financial statements issued for annual periods ending after December 15, 2006
and are required to be applied retroactively to all prior periods presented for
comparative purposes. The Plan has adopted the provisions of the FSP at December
31, 2006.
6
Ingles Markets, Incorporated Investment/Profit Sharing Plan
Notes to Financial Statements (continued)
1. Description of the Plan (continued)
As required by the FSP, investments in the accompanying Statements of Net Assets
Available for Benefits include fully benefit responsive investment contracts
recognized at fair value. AICPA Statement of Position 94-4-1, Reporting of
Investment Contracts Held by Health and Welfare Benefit Plans and Defined
Contribution Pension Plans, as amended, requires fully benefit responsive
investment contracts to be reported at fair value in the Plan's Statement of Net
Assets Available for Benefits with a corresponding adjustment to reflect these
investments at contract value. As of December 31, 2006 and 2005, the contract
value of investments in fully benefit responsive investment contracts
approximates fair value. Adoption of the FSP had no effect on the Statement of
Changes in Net Assets Available for Benefits for any period presented.
2. Summary of Accounting Policies
Basis of Accounting
The financial statements are prepared on the accrual basis of accounting.
Investment Valuation and Income Recognition
The Plan's investments are stated at fair value. Quoted market prices of the
Ingles Markets, Incorporated Class A Common Stock are used to value the Ingles
Markets, Incorporated Class B Common Stock. The fair value of the participation
units owned by the Plan in collective trust funds held by Wachovia Bank, N.A.,
the Plan trustee, are based on quoted redemption values on the last business day
of the Plan year. Securities traded on a national securities exchange are valued
at the closing price on the last business day of the Plan year. The loans to
participants are valued at their outstanding balances, which approximate fair
value. The Plan's investments in the Wachovia Diversified Stable Value Fund and
Stable Investment Fund of Wachovia, collective trust funds, are recorded on the
financial statements at contract value, which approximates fair value.
Purchases and sales of securities are recorded on a trade-date basis. Interest
income is recorded on the accrual basis. Dividends are recorded on the
ex-dividend date.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates that affect
the amounts reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
7
Ingles Markets, Incorporated Investment/Profit Sharing Plan
Notes to Financial Statements (continued)
3. Investments
The primary trustee for the Plan, Wachovia Bank, N.A., is responsible for
maintaining custody of the investment funds, excluding Ingles Markets,
Incorporated stock. The Plan Administrative Committee appoints the trustees
responsible for maintaining custody of the Ingles stock component of the Ingles
Stock Funds.
During 2006, the Plan's investments (including investments purchased, sold, as
well as held during the year) appreciated in value as follows:
Net Appreciation in Fair
Value of Investments
--------------------------
Employer securities (quoted market prices) $ 22,930,009
Mutual funds (quoted market prices) 1,068,695
Collective trust funds (quoted redemption values) 1,717,464
--------------------------
Total $ 25,716,168
==========================
Investments that represent 5% or more of the fair value of the Plan's net assets are as follows:
December 31, December 31,
2006 2005
-------------------------------
Employer Securities:
Ingles Stock Fund - Class B* $ 42,182,524 $ 24,688,427
Mutual Funds:
Evergreen Short Intermediate Bond Fund Class I 3,604,010 3,814,580
Van Kampen Equity Income Fund Class A 6,503,360 6,183,047
Collective Trust Funds:
Stable Portfolio Group Trust Fund of Wachovia - 9,008,595
Wachovia Diversified Stable Value Fund 8,577,071 -
Enhanced Stock Market Fund of Wachovia 8,556,263 8,305,088
Loans to participants 3,838,001 3,362,097
* Nonparticipant-directed.
8
Ingles Markets, Incorporated Investment/Profit Sharing Plan
Notes to Financial Statements (continued)
4. Nonparticipant-directed Investments
Information about the net assets and the significant components of the changes
in net assets relating to the nonparticipant-directed investments is as follows:
December 31, December 31,
2006 2005
-------------------------------
Net assets:
Employer securities:
Ingles Stock Fund - Class B $ 42,182,524 $ 24,688,427
Year Ended
December 31,
2006
--------------
Changes in net assets:
Net appreciation in fair value $ 22,105,497
Distributions to participants (3,631,731)
Transfers to other plan funds (818,629)
Administrative expenses (161,040)
--------------
Total $ 17,494,097
==============
5. Income Tax Status
The Plan has received a determination letter from the Internal Revenue Service
dated September 25, 2003 stating that the Plan is qualified under Section 401(a)
of the Internal Revenue Code (the "Code") and, therefore, the related trust is
exempt from taxation. Subsequent to this determination by the Internal Revenue
Service, the Plan was amended. Once qualified, the Plan is required to operate
in conformity with the Code to maintain its qualification. The Plan
administrator believes the Plan is being operated in compliance with the
applicable requirement of the Code and, therefore, believes that the Plan, as
amended, is qualified and the related trust is tax exempt.
9
Ingles Markets, Incorporated Investment/Profit Sharing Plan
Notes to Financial Statements (continued)
6. Differences Between Financial Statements and Form 5500
The following is a reconciliation of net assets available for benefits per the
financial statements to the Form 5500 at:
December 31, December 31,
2006 2005
-------------------------------
Net assets available for benefits per the financial
statements $ 87,522,099 $ 64,287,389
Less: Contributions receivable - 157,588
-------------------------------
Net assets available for benefits per the Form 5500 $ 87,522,099 $ 64,129,801
===============================
The following is a reconciliation of contributions per the financial statements
to the Form 5500:
Year Ended
December 31,
2006
--------------
Contributions per the financial statements $ 3,849,422
Plus: Contributions receivable at end of prior year 157,588
--------------
Contributions per the Form 5500 $ 4,007,010
==============
10
Ingles Markets, Incorporated Investment/Profit Sharing Plan
Notes to Financial Statements (continued)
7. Party-in-interest Transactions
Participants may direct investment of their Plan balance into the AdviceTrack
program where Wachovia, the Plan trustee, is responsible for managing the
investments in Participant accounts. These transactions qualify as
party-in-interest transactions. AdviceTrack investments utilize the following
funds:
Enhanced Stock Market of Wachovia
Diversified Bond Group Trust of Wachovia
Stable Investment Fund of Wachovia
Evergreen International Bond Fund I
Pimco Real Return Fund Inst
Pimco High Yield Fund Inst
American Century Small Company I
T Rowe Price Real Estate Fund
Evergreen Strategic Growth I
T Rowe Price Equity Income
The Boston Company Small Cap Value I
Alger Small Cap Inst
Evergreen International Equity I
Lazard Emerging Markets Fund
Due to restrictions on the trading periods of the Ingles stock, effective May
2007 the Plan Sponsor may advance funds to the Plan for the purpose of making
distributions of participants' holdings in the Ingles Stock Fund. Advances are
interest free and will be repaid through the dividends received on the Ingles
Class B stock and, if necessary, the conversion of the Ingles Class B stock to
Class A stock and subsequent market sale of the Class A shares.
11
Supplemental Schedules
Ingles Markets, Incorporated Investment/Profit Sharing Plan
EIN: 56-0846267 Plan Number: 001
Schedule H, Line 4i -
Schedule of Assets (Held at End of Year)
December 31, 2006
(b) Identity of
Issuer, Borrower, (c) Description of Investment, Including
Lessor or Maturity Date, Rate of Interest, Collateral, (e) Current
(a) Similar Party Par or Maturity Value (d) Cost Value
-----------------------------------------------------------------------------------------------------------------------------------
Collective Trust Funds:
* Wachovia Bank, N.A. Wachovia Diversified Stable Value Fund ** $ 8,577,071
* Wachovia Bank, N.A. Enhanced Stock Market Fund of Wachovia ** 8,556,263
* Wachovia Bank, N.A. Diversified Bond Group Trust of Wachovia ** 628,923
* Wachovia Bank, N.A. Stable Investment Fund of Wachovia ** 687,026
---------------
18,449,283
Mutual Funds:
* Wachovia Bank, N.A. Evergreen Short Intermediate Bond Fund Class I ** 3,604,010
AIM Investments AIM Basic Value Fund Class A ** 562,348
Goldman Sachs Goldman Sachs Small Cap Value Fund Class A ** 1,651,546
American Funds American Funds Growth Fund of America Class A ** 1,094,962
Dreyfus Dreyfus MidCap Index Fund, Inc. ** 2,521,589
Van Kampen Van Kampen Equity Income Fund Class A ** 6,503,360
Franklin Templeton Templeton Foreign Fund Class A ** 3,170,385
* Wachovia Bank, N.A. Evergreen International Bond Fund I ** 116,968
PIMCO Pimco Real Return Fund Inst ** 255,290
PIMCO Pimco High Yield Fund Inst ** 313,267
American Century American Century Small Company I ** 33,703
T. Rowe Price T Rowe Price Real Estate Fund ** 28,910
* Wachovia Bank, N.A. Evergreen Strategic Growth I ** 220,133
T. Rowe Price T Rowe Price Equity Income ** 358,016
Mellon The Boston Company Small Cap Value I ** 30,366
Alger Alger Small Cap Inst ** 13,129
* Wachovia Bank, N.A. Evergreen International Equity I ** 185,384
Lazard Lazard Emerging Markets Fund ** 38,234
20,701,600
12
Ingles Markets, Incorporated Investment/Profit Sharing Plan
EIN: 56-0846267 Plan Number: 001
Schedule H, Line 4i -
Schedule of Assets (Held at End of Year) (continued)
(b) Identity of
Issuer, Borrower, (c) Description of Investment, Including
Lessor or Maturity Date, Rate of Interest, Collateral, (e) Current
(a) Similar Party Par or Maturity Value (d) Cost Value
-----------------------------------------------------------------------------------------------------------------------------------
Employer Securities:
* Ingles Markets, Ingles Stock Fund - Class B
Incorporated $ 9,139,382 42,182,524
* Ingles Markets, Ingles Class A Stock Fund
Incorporated ** 2,331,980
---------------
44,514,504
* Loans to participants Interest rates of 5.0% to 10.5%; maturity dates of
2007-2019 ** 3,838,001
---------------
$ 87,503,388
===============
----------
* Represents a party-in-interest.
** Cost information has been included only for all non-participant directed investments.
13
Ingles Markets, Incorporated Investment/Profit Sharing Plan
EIN: 56-0846267 Plan Number: 001
Schedule H, Line 4j -
Schedule of Reportable Transactions
Year Ended December 31, 2006
(h) Current
(c) Purchase (d) Selling (g) Cost of Value of (i) Net Gain /
(a) Identity of Party Involved (b) Description of Asset Price Price Asset Asset (Loss)
-----------------------------------------------------------------------------------------------------------------------------------
Category (Iii) - Series of Transactions in Excess of Five Percent of Plan Assets.
Ingles Markets, Incorporated Ingles Stock Fund - Class B $ 38,472 $ - $ 38,472 $ 38,472 $ -
Ingles Markets, Incorporated Ingles Stock Fund - Class B - 4,649,872 1,353,084 4,649,872 3,296,788
Columns (e) and (f) have not been presented as this information is not
applicable.
There were no category (i), (ii), or (iv) reportable transactions during the
year ended December 31, 2006.
14
SIGNATURES
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.
Ingles Markets Incorporated
Investment/Profit Sharing Plan
Date: June 29, 2007 By: /s/ Robert P. Ingle
-----------------------------------------
Robert P. Ingle
Plan Administrative Committee Chairman
By: /s/ James W. Lanning
-----------------------------------------
James W. Lanning
Plan Administrative Committee Member
By: /s/ Ronald B. Freeman
-----------------------------------------
Ronald B. Freeman
Plan Administrative Committee Member
EXHIBIT INDEX
Exhibit 23 Consent of Ernst & Young LLP
Exhibit 23
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-74459) pertaining to the Investment/Profit Sharing Plan of Ingles
Markets, Incorporated of our report dated June 26, 2007, with respect to the
financial statements and supplemental schedules of the Ingles Markets,
Incorporated Investment/Profit Sharing Plan included in this Annual Report (Form
11-K) for the year ended December 31, 2006.
/s/ Ernst & Young LLP
Greenville, South Carolina
June 27, 2007