Related Party Transactions

6 Months Ended

Jun. 25, 2022

Related Party Transactions

Related Party Transactions

16. Related Party Transactions

The Company has two related party leases for a manufacturing facility and land. The facility and land are leased from Morning Fresh Dairy (“Morning Fresh”), a related party entity owned and controlled by an employee, board member of the Company and major equity holder of the Ultimate Parent. The facility lease and land lease are classified as a finance lease and operating lease, respectively, based on the original lease term and reasonably certain renewal options. As of June 25, 2022, the facility has a lease liability balance of $6.8 million which is primarily recognized as long-term debt in our Condensed Consolidated Balance Sheets. As of June 25, 2022, the land lease has a liability balance of $0.5 million which is primarily recognized as long-term operating lease liabilities in our Condensed Consolidated Balance Sheets.

The facility and land lease contained total payments of approximately $143 thousand and $124 thousand for the 13 weeks ended June 25, 2022 and June 26, 2021, respectively, and $285 thousand and $248 thousand for the 26 weeks ended June 25, 2022 and June 26, 2021, respectively. In addition, $45 thousand and $53 thousand was paid for the 13 weeks ended June 25, 2022 and June 26, 2021, respectively, and $91 thousand and $95 thousand was paid for the 26 weeks ended June 25, 2022 and June 26, 2021, respectively, for a proportionate share of utilities, taxes and insurance.

Morning Fresh regularly purchases finished goods inventory from the Company for sale to its customers. Additionally, Morning Fresh regularly supplies milk used in the Company’s manufacturing process.

Sales to and purchases from Morning Fresh were as follows:

	13 Weeks Ended				26 Weeks Ended
(In thousands)	June 25, 2022		June 26, 2021		June 25, 2022		June 26, 2021
Sales	$	124	$	123	$	241	$	235
Purchases	$	2,296	$	1,530	$	4,266	$	2,841

Amounts outstanding in respect to Morning Fresh transactions were as follows:

(In thousands)	June 25, 2022		December 25, 2021
Receivables	$	9	$	26
Payables	$	2,622	$	354

The Company has a milk supply agreement with Morning Fresh for a base term ending December 31, 2027, with the option available for extension for a total of fifteen additional 2-year periods to December 31, 2057. Four years’ advance written notice is required to terminate the agreement. Milk will be priced on a month-to-month basis by USDA Central Federal Order No. 32 for Class II milk, plus surcharges and premiums, provided that the final price of the milk shall be 23.24 cents per hundred weight less than the published Dairy Farmers of America bill for that month. The Company will accept up to 3,650,000 gallons as determined by Morning Fresh in 2020, and for each year of the term thereafter. As of June 25, 2022, the Company has future commitments to purchase approximately $42.6 million of milk from Morning Fresh, approximated at current market price. In addition, the Company has agreed to pay an additional $33 thousand monthly through December 31, 2027 to cover the landowner’s incremental costs relating to capital improvements necessary to support increased milk production required by the Company over the term of this agreement. If the agreement is terminated before December 1, 2027, the Company will be required to pay an early termination penalty, which declines from $3.0 million at the inception of the agreement to $0 over the ten-year term, based on an amortization table outlined in the agreement.

In January 2019, the Company entered into an agreement with a stockholder, to sell and issue 5,217 Class A units in exchange for a $6 million stockholder note receivable, which was recorded within stockholders’ equity. In accordance with the agreement, interest on the note accrued and compounded quarterly at a rate equal to the long-term applicable federal rate per annum on date of issuance on the unpaid principal amount of the note. The federal rate used on the date of issuance was the January 2019 long-term applicable federal rates for purposes of IRC 1274(d), which was 3.12%. On February 26, 2021, the stockholder note receivable plus accrued and unpaid interest was paid in full in the amount of $6.4 million.

Advent International Corporation (“Advent”) is a private equity firm which has invested funds in our common stock. Although no individual fund owns a controlling interest in us, together the funds represent our current majority owners.

Advent and its affiliates have ownership interests in a broad range of companies. We have entered and may in the future enter into commercial transactions in the ordinary course of our business with some of these companies, including the sale of goods and services and the purchase of goods and services.

The Company pays legal expenses and tax preparation fees on behalf of the Limited Partnership and carries balances within other long-term assets that reflects the amount due from the Limited Partnership. As of June 25, 2022 and December 25, 2021, the receivable balance was $0.5 million and $0.4 million, respectively.