Related Party Transactions

12 Months Ended

Dec. 30, 2023

Note 19. 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 Robert L. Graves, a former member of the Board and a current equity holder of the Company. 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. In September 2023, an amendment to the facility lease was executed to allow for use of additional space, effective as of January 1, 2022. The Company made a cash payment of $44 thousand to Morning Fresh for amounts due on rent and its proportionate share of utilities, taxes and insurance for the period between the effective date and execution of the amendment. As of December 30, 2023, the facility has a lease liability balance of $7.2 million which is primarily recognized as long-term debt in our Consolidated Balance Sheets. As of December 30, 2023, the land lease has a liability balance of $0.5 million which is primarily recognized as long-term operating lease liabilities in our Consolidated Balance Sheets.

The facility lease and land lease contained payments of approximately $0.7 million, $0.6 million and $0.5 million for the fiscal years ended December 30, 2023, December 31, 2022 and December 25, 2021, respectively. In addition, $0.2 million was paid for each of the fiscal years ended December 30, 2023, December 31, 2022 and December 25, 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:


	Fiscal Year Ended
(In thousands)	December 30, 2023		December 31, 2022		December 25, 2021
Sales	$	499	$	528	$	471
Purchases	$	7,446	$	9,041	$	5,443

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


	Fiscal Year Ended
(In thousands)	December 30, 2023		December 31, 2022
Receivables	$	14	$	29
Payables	$	706	$	870

The Company has a milk supply agreement with Morning Fresh (“Milk Supply Agreement”) 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 December 30, 2023, the Company has future commitments to purchase approximately $31.9 million of milk from Morning Fresh, approximated at current market price. In addition, under the Milk Supply Agreement, 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.

As of December 30, 2023, the estimated annual minimum purchase commitments with Morning Fresh are as follows:


Fiscal Year Ending	(In thousands)
2024	$	8,375
2025		8,375
2026		8,375
2027		8,375
2028		—
Thereafter		—
Total	$	33,500

In May 2023, we entered into a consulting agreement with Mr. Graves. The consulting agreement has a term of three years and stipulates that, in exchange for providing advice and support with respect to water treatment and other operational systems, the Company will pay Mr. Graves $100 thousand per year. Additionally, pursuant to the consulting agreement, in June 2023 the Company granted a one-time RSU equity award to Mr. Graves with a grant date fair value of $100 thousand.

Advent International, L.P. (“Advent”) is a private equity firm which has invested funds in our common stock.

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 compliance fees on behalf of the Limited Partnership and carries a balance within each of accounts receivables and other long-term assets that reflects the amount due from the Limited Partnership. The receivable balance was $0.1 million at December 30, 2023 and December 31, 2022, respectively.

- Definition

The entire disclosure for related party transactions. Examples of related party transactions include transactions between (a) a parent company and its subsidiary; (b) subsidiaries of a common parent; (c) and entity and its principal owners; and (d) affiliates.

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
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+ Details

Sovos Brands, Inc. 10-K