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, 2004
[__] 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
FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULE
Ingles Markets, Incorporated Investment/Profit Sharing Plan
As of December 31, 2004 and 2003 and for the year ended December 31, 2004 with
Report of Independent Registered Public Accounting Firm
Ingles Markets, Incorporated Investment/Profit Sharing Plan
Financial Statements and Supplemental Schedule
As of December 31, 2004 and 2003
and for the Year Ended December 31, 2004
Contents
Report of Independent Registered Public Accounting Firm.................................1
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 Schedule
Schedule H, Line 4i - Schedule of Assets (Held at End of Year)-December 31, 2004.......12
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 Ingles Markets, Incorporated Investment/Profit Sharing Plan as of December
31, 2004 and 2003 and the related statement of changes in net assets available
for benefits for the year ended December 31, 2004. 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, 2004 and 2003, and the changes in its net assets available for
benefits for the year ended December 31, 2004, 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 schedule of assets
(held at end of year) as of December 31, 2004 is presented for the purpose of
additional analysis and is not a required part of the financial statements but
is 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. This supplemental schedule is the responsibility of the
Plan's management. The supplemental schedule has been subjected to the auditing
procedures applied in our audit of the financial statements and, in our opinion,
is fairly stated in all material respects in relation to the financial
statements taken as a whole.
/s/ ERNST & YOUNG LLP
Greenville, South Carolina
June 27, 2005
1
Ingles Markets, Incorporated Investment/Profit Sharing Plan
Statements of Net Assets Available for Benefits
December 31, 2004 and 2003
2004 2003
---------------- ----------------
Assets
Investments at fair value:
Employer securities $21,325,767 $17,948,584
Collective trust funds 16,402,138 15,677,579
Mutual funds 16,371,224 14,063,251
Loans to participants 3,142,219 2,507,763
---------------- ----------------
57,241,348 50,197,177
Cash 70,834 -
Receivables:
Employer contributions - 9,177
Participant contributions - 51,239
---------------- ----------------
- 60,416
---------------- ----------------
Total assets 57,312,182 50,257,593
---------------- ----------------
Liabilities
Due to broker, net 70,982 -
---------------- ----------------
Net assets available for benefits $57,241,200 $50,257,593
================ ================
See accompanying notes.
2
Ingles Markets, Incorporated Investment/Profit Sharing Plan
Statement of Changes in Net Assets Available for Benefits
Year Ended December 31, 2004
Additions
Net realized and unrealized appreciation in fair value of
investments $ 7,035,121
Dividends 380,509
Interest on participant loans 149,056
---------------
7,564,686
---------------
Contributions:
Participants 3,216,957
Employer 410,408
---------------
3,627,365
---------------
Total additions 11,192,051
Deductions
Distributions to participants 3,918,147
Administrative expenses 205,862
Corrective distributions 84,435
---------------
Total deductions 4,208,444
---------------
Net increase 6,983,607
Net assets available for benefits at beginning of year 50,257,593
---------------
Net assets available for benefits at end of year $57,241,200
===============
See accompanying notes.
3
Ingles Markets, Incorporated Investment/Profit Sharing Plan
Notes to Financial Statements
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 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").
Contributions
The Plan provides for three types of contributions: (i) employer profit sharing
plan contributions to the Ingles Stock Fund (Class B) made by the Company -
discretionary in nature; (ii) employee 401(k) contributions by participating
employees from 1% to 50% of their pre-tax annual compensation as defined in the
Plan (in increments of 1%), and (iii) employer 401(k) matching contributions,
discretionary in nature and determined by the Company for each payroll period,
limited to a maximum of 5% of an employee's compensation as defined in the Plan.
In 2004, the Company made discretionary 401(k) matching contributions, but did
not make any discretionary profit sharing contributions.
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, or participant contributions.
The benefit to which a participant is entitled is the benefit that can be
provided from the participant's account.
Upon enrollment in the Plan, participants may direct employee and employer
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.
4
Ingles Markets, Incorporated Investment/Profit Sharing Plan
Notes to Financial Statements (continued)
Vesting
Contributions by employees 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 employer 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.
Unallocated forfeitures at December 31, 2004 and 2003 were $1,280,744 and
$1,377,114, 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.
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.
5
Ingles Markets, Incorporated Investment/Profit Sharing Plan
Notes to Financial Statements (continued)
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 is not diversified, it
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.
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 common and collective trust funds held by the 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.
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.
6
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 2004, the Plan's investments (including investments purchased, sold, as
well as held during the year) appreciated in value as follows:
Net Realized and Unrealized
Appreciation in Fair Value of
Investments
----------------------------------------
Employer securities $ 4,704,399
Mutual funds 1,211,203
Collective trust funds 1,119,519
-----------------
Total $7,035,121
=================
Investments that represent 5% or more of the fair value of the Plan's net assets
are as follows:
December 31, December 31,
2004 2003
-------------------- -------------------
Employer Securities:
Ingles Stock Fund - Class B* $20,890,692 $17,729,508
Mutual Funds:
Evergreen Short Intermediate Bond Fund Class I 3,850,906 4,039,734
Van Kampen Equity Income Fund Class A 5,703,557 5,299,875
Collective Trust Funds:
Stable Portfolio Group Trust Fund of Wachovia 8,276,406 8,071,812
Enhanced Stock Market Fund of Wachovia 8,125,732 7,605,767
* Nonparticipant-directed.
7
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,
2004 2003
-------------- -------------
Net assets:
Employer securities:
Ingles Stock Fund - Class B $20,890,692 $17,729,508
Year ended
December 31,
2004
---------------------
Changes in net assets:
Net realized and unrealized
appreciation in fair value $ 4,635,492
Distributions to participants (1,389,096)
Transfers to other plan funds (51,418)
Administrative expenses (33,794)
---------------------
Total $ 3,161,184
=====================
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.
8
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,
2004 2003
------------------- -------------------
Net assets available for benefits per the financial
statements $57,241,200 $50,257,593
Contributions receivable - (60,416)
------------------- -------------------
Net assets available for benefits per the Form 5500 $57,241,200 $50,197,177
=================== ===================
The following is a reconciliation of contributions per the financial statements
to the Form 5500:
Year Ended December
31, 2004
-------------------
Contributions per the financial statements $3,627,365
Plus: contributions receivable at beginning of year 60,416
-------------------
Contributions per the Form 5500 $3,687,781
===================
7. Voluntary Correction Program
During the 2001 plan year, the Plan Sponsor discovered various errors in the
administration of the Plan. The errors consisted of failure to obtain the proper
Qualified Joint and Survivor Annuity waivers, failure to use forfeitures,
failure to restore forfeited employer contributions for rehires and failure to
make payments to terminated participants with small account balances. The Plan
filed the "Request for Consideration Under the Employee Plans Voluntary
Correction Program" with the Internal Revenue Service in 2002. In March of 2004,
the Plan Sponsor received a Compliance Statement from the Internal Revenue
Service. The Internal Revenue Service accepted the Plan's proposed corrections
to the errors noted above. The Plan made all corrections in accordance with the
Compliance Statement by August 2004, the deadline required by the IRS. All costs
were borne by the Plan Sponsor and there was no effect on the Plan's financial
statements. The Plan administrator believes that the Plan has taken appropriate
action to prevent these matters from reoccurring.
9
Ingles Markets, Incorporated Investment/Profit Sharing Plan
Notes to Financial Statements (continued)
8. Subsequent Event
On March 31, 2005, the Plan Sponsor advanced the Plan $1,241,000 for the purpose
of making distributions of participants' holdings in the Ingles Stock Fund. Due
to restrictions on the trading periods of the Ingles stock, a temporary loan was
made to alleviate these cash flow needs. This loan is 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.
10
Supplemental Schedule
11
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, 2004
(b) Identity of Issue,
Borrower, Lessor or (c) Description of Investment, Including Maturity Date, (e) Current
(a) Similar Party Rate of Interest, Collateral, Par or Maturity Value (d) Cost Value
------------------------------------------------------------------------------------------------------------------------------------
Collective Trust Funds:
* Wachovia Bank, N.A. Stable Portfolio Group Trust Fund of Wachovia ** $ 8,276,406
* Wachovia Bank, N.A. Enhanced Stock Market Fund of Wachovia ** 8,125,732
-------------------
16,402,138
Mutual Funds:
* Wachovia Bank N.A. Evergreen Short Intermediate Bond Fund Class I ** 3,850,906
* Wachovia Bank N.A. AIM Basic Value Fund Class A ** 470,373
* Wachovia Bank N.A. Goldman Sachs Small Cap Value Fund Class A ** 1,132,558
* Wachovia Bank N.A. American Funds Growth Fund of America Class A ** 511,653
* Wachovia Bank N.A. Dreyfus MidCap Index Fund, Inc. ** 2,166,127
* Wachovia Bank N.A. Van Kampen Equity Income Fund Class A ** 5,703,557
* Wachovia Bank N.A. Templeton Foreign Fund Class A ** 2,536,050
-------------------
16,371,224
Employer Securities:
* Ingles Markets, Ingles Stock Fund - Class B
Incorporated $ 11,640,118 20,890,692
* Ingles Markets, Ingles Class A Stock Fund
Incorporated ** 435,075
-------------------
21,325,767
* Loans to participants Interest rates of 5.0% to 10.5%; maturity dates of
2005-2014 ** 3,142,219
-------------------
$57,241,348
===================
----------
* Represents a party-in-interest.
** Cost information has been included only for all non-participant directed
investments.
12
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, 2005 By: /s/ Robert P. Ingle
-----------------------------------------
Robert P. Ingle
Plan Administrative Committee Chairman
By: /s/ James W. Lanning
-----------------------------------------
James W. Lanning
Plan Administrative Committee Member
13
EXHIBIT INDEX
Exhibit 23 Consent of Ernst & Young LLP
14