On November 12, 2019 (the “Petition Date”), we and substantially all of our wholly owned subsidiaries (other than our Securitization Subsidiaries) (the “Filing Subsidiaries” and, together with the Company, the “debtors-in-possession”) filed voluntary petitions for reorganization (collectively, the “Bankruptcy Petitions”) under Chapter 11 of Title 11 of the U.S. Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”). The debtors-in-possession’s Chapter 11 Cases are being jointly administered under the caption In re Southern Foods Group, LLC, Case No. 19-36313. Each debtor-in-possession has continued to operate its business as a “debtor in possession” under the jurisdiction of the Court and in accordance with the applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy Court.

The filing of the Bankruptcy Petitions constituted an event of default that accelerated our obligations under the documents governing the Senior Secured Revolving Credit Facility, the Receivables Securitization Facility and our 2023 Notes (collectively, the “Debt Instruments”) and substantially all of our other indebtedness.

On the Petition Date, the debtors-in-possession filed a number of motions with the Court generally designed to stabilize their operations and facilitate the debtors-in-possession’s transition into Chapter 11. Certain of these motions sought authority from the Court for the debtors-in-possession to make payments upon, or otherwise honor, certain prepetition obligations (e.g., obligations related to certain employee wages, salaries and benefits and certain vendors and other providers essential to the debtors-in-possession’s businesses).

Pursuant to Section 362 of the Bankruptcy Code, the filing of the Bankruptcy Petitions automatically stayed most actions against the debtors-in-possession, including actions to collect indebtedness incurred prior to the Petition Date or to exercise control over the debtors-in-possession’s property. Subject to certain exceptions under the Bankruptcy Code, the filing of the debtors-in-possession’s Chapter 11 Cases also automatically stayed the filing of most legal proceedings and other actions against or on behalf of the debtors-in-possession or their property to recover on, collect or secure a claim arising prior to the Petition Date or to exercise control over property of the debtors-in-possession’s bankruptcy estates, unless and until the Court modifies or lifts the automatic stay as to any such claim. Notwithstanding the general application of the automatic stay described above, governmental authorities may determine to continue actions brought under their police and regulatory powers.

On November 22, 2019, the United States Trustee for the Southern District of Texas (the “U.S. Trustee”), appointed an official committee of unsecured creditors (the “Creditors’ Committee”) in the Chapter 11 Cases. The Creditors’ Committee represents all unsecured creditors of the debtors-in-possession and has a right to be heard on all matters that come before the Court.

In connection with the Chapter 11 Cases, Coöperatieve Rabobank U.A., New York Branch (“Rabobank”) agreed to provide the debtors-in-possession with a senior secured, superpriority debtor-in-possession facility (the “DIP Facility”) in an aggregate principal amount of $425,000,000, pursuant to which (i) Rabobank provided a “new money” revolving credit facility in a maximum principal amount of $236,200,000, and (ii) on the Final Order Date, all of the outstanding loans under the Pre-Petition Credit Agreement (the “Pre-Petition Revolving Loans”) were, on a dollar-for-dollar basis, refinanced, and deemed repaid by (and converted into) terms loans (i.e., the “Revolver Refinancing’).

As a result of extremely challenging current market conditions, continuing losses from operations, our current financial condition and the resulting risks and uncertainties surrounding our Chapter 11 proceedings, there is substantial doubt about our ability to continue as a going concern within one year after the date of issuance of these financial statements. Our ability to continue as a going concern is dependent upon, among other things, our ability to become profitable, maintain profitability and successfully implement our Chapter 11 plan of reorganization and/or any sale of all or substantially all of our assets pursuant to Section 363 of the Bankruptcy Code. As a result of the Bankruptcy Petitions, the realization of the debtors-in-possession's assets and the satisfaction of liabilities are subject to significant uncertainty. While operating as debtors-in-possession pursuant to the Bankruptcy Code, we may sell or otherwise dispose of or liquidate assets, or settle liabilities, subject to the approval of the

Bankruptcy Court or as otherwise permitted in the ordinary course of business for amounts other than those reflected in the accompanying Consolidated Financial Statements. Further, a Chapter 11 plan of reorganization is likely to materially change the amounts and classifications of assets and liabilities reported in our Consolidated Balance Sheet as of December 31, 2019. As the progress of these plans and transactions is subject to approval of the Bankruptcy Court and therefore not within our control, successful reorganization and emergence from bankruptcy cannot be considered probable and such plans do not alleviate substantial doubt about our ability to continue as a going concern.

The consolidated financial statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets, and satisfaction of liabilities and commitments in the normal course of business. The consolidated financial statements do not include any adjustments that might result from the outcome of the going concern uncertainty.

Evercore Group L.L.C. (“Evercore”) and the debtors-in-possession have run an extensive marketing process for the potential sale of all or substantially all of the debtors-in-possession’s assets under Section 363 of the Bankruptcy Code. To effectuate the sale, Evercore and the debtors-in-possession have contacted numerous potential purchasers, the debtors-in-possession have executed non-disclosure agreements with a significant number of such parties, and Evercore has provided additional details to these parties, including access to confidential diligence materials.

On February 17, 2020, the debtors-in-possession filed with the Bankruptcy Court the Motion of debtors-in-possession for Entry of Orders (I)(a) Approving Bidding Procedures for Sale of debtors-in-possession’s Assets, (b) Approving the Designation of DFA as the Stalking Horse Bidder for Substantially All of debtors-in-possession’s Assets, (c) Authorizing and Approving Entry into the Stalking Horse Asset Purchase Agreement, (d) Approving Bid Protections, (e) Scheduling Auction for, and Hearing To Approve, Sale of debtors-in-possession’s Assets, (f) Approving Form and Manner Notices of Sale, Auction, and Sale Hearing, (g) Approving Assumption and Assignment Procedures, and (h) Granting Related Relief and (II)(a) Approving Sale of debtors-in-possession’s Assets Free and Clear of Liens, Claims, Interests, and Encumbrances, (b) Authorizing Assumption and Assignment of Executory Contracts and Unexpired Leases, and (c) Granting Related Relief.

On March 18, 2020, the debtors-in-possession filed notice with the Bankruptcy Court of the termination of the Stalking Horse Asset Purchase Agreement described above, while seeking approval of proposed bidding procedures with respect to the sale of the Bid Assets (the “Bidding Procedures”), and on March 19, 2020, the Bankruptcy Court held a hearing with respect to the proposed Bidding Procedures. At this hearing, the parties obtained an order of the Bankruptcy Court (the "Bidding Procedures Order") approving the revised Bidding Procedures.

Pursuant to the Bidding Procedures Order, the debtors-in-possession intend to sell all of their right, title and interest in and to the Bid Assets free and clear of any pledges, liens, security interests, encumbrances, claims, charges, options, and interests thereon (collectively, the “Interests”) to the maximum extent permitted by section 363 of the Bankruptcy Code, with such Interests to attach to the net proceeds of the sale of the Bid Assets with the same validity and priority as such Interests applied against the Bid Assets. The deadline for the submission of bids that satisfy the requirements of the Bidding Procedures Order (each a “Bid,” and those parties who submit a Bid, each a “Bidder”) is March 30, 2020 at 12:00 p.m. (prevailing Central Time) (the “Bid Deadline”).

Immediately following the Bid Deadline, the debtors-in-possession shall, in consultation with the Consultation Parties, (i) review and evaluate each Bid on the basis of financial and contractual terms and other factors relevant to the sale process, including those factors affecting the speed and certainty of consummating the Sale, (ii) determine and identify the highest or otherwise best offer or collection of offers (the “Successful Bid(s)”) and (iii) determine and identify the second best offer or collection of offers (the “Alternate Bid(s)”). The deadline to object to the Successful Bid(s) will be April 1, 2020 at 12:00 p.m. (prevailing Central Time). Following selection of the Successful Bid(s), the debtors-in-possession may, in their discretion, elect to seek approval of the transactions contemplated in the Successful Bid(s) at the hearing to consider and approve the proposed Sale Order (the “Sale Hearing”).

The Sale Hearing is proposed to be held on April 3, 2020 at 9:00 a.m. (prevailing Central time) before the Bankruptcy Court. The Sale Hearing may be adjourned by the debtors-in-possession, in consultation with the Consultation Parties, by an announcement of the adjourned date at a hearing before the Bankruptcy Court or by filing a notice on the Bankruptcy Court’s docket. At the Sale Hearing, the debtors-in-possession will seek the Bankruptcy Court’s approval of the Successful Bid(s) and/or, at the debtors-in-possession’s election, the Alternate Bid(s).

Liabilities subject to compromise refers to prepetition obligations which may be affected by the Chapter 11 process. These amounts represent the Company’s current estimate of known or potential obligations to be resolved in connection with the Chapter 11 Cases. Differences between the liabilities the Company has estimated and the claims filed, or to be filed, will be investigated and resolved in connection with the claims resolution process. The Company will continue to evaluate these liabilities throughout the Chapter 11 Cases and adjust amounts as necessary. Such adjustments may be material.



	December 31, 2019
Debt subject to compromise:
Senior notes due 2023	$	700,000
Accrued interest	7,331
Accounts payable	181,068
Accrued prepetition facility closing and restructuring costs	7,077
Accrued postretirement obligations other than pensions	31,791
Other accrued expenses	100,126
Liabilities subject to compromise	$	1,027,393

The Company has incurred and will continue to incur significant costs associated with the Chapter 11 Case. The amount of these costs, which are being expensed as incurred, are expected to significantly affect the Company's results. Reorganization items represent costs directly associated with the Chapter 11 Cases since the Petition Date. Such costs include professional fees and the elimination of unamortized deferred financing costs associated with debt classified as liabilities subject to compromise.

Operating cash payments for bankruptcy-related transactions were $24.9 million for the year ended December 31, 2019. There were no bankruptcy-related operating cash receipt gains for the year ended December 31, 2019.

The Company has discontinued recording interest on debt instruments classified as liabilities subject to compromise as of the Petition Date. The contractual interest expense on liabilities subject to compromise not accrued or recorded in the Consolidated Statements of Operations was approximately $6.3 million, representing interest expense from the Petition Date through December 31, 2019.

Condensed combined financial statements of the debtors-in-possession are set forth below. These condensed combined financial statements exclude the financial statements of certain non-debtors-in-possession entities and the Securitization Subsidiaries.

Transactions and balances of receivables and payables between debtors-in-possession are eliminated in consolidation. However, the debtors-in-possession’s condensed combined balance sheet includes receivables from related non-debtors-in-possession and payables to related non-debtors-in-possession.

BALANCE SHEET



	December 31, 2019
	(in thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	73,163
Receivables, net of allowances	22,812
Inventories	249,330
Prepaid expenses and other current assets	61,096
Total current assets	406,401
Property, plant and equipment, net	820,268
Operating lease right of use assets	275,596
Identifiable intangible and other assets, net	152,772
Investment in nondebtor subsidiaries	19,191
Amounts due from nondebtor subsidiaries	203,478
Total assets	$	1,877,706
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	237,944
Current maturities of long-term debt and finance leases	260,385
Operating lease liabilities	86,297
Total current liabilities	584,626
Long-term debt, net	4,670
Long-term operating lease liabilities	203,477
Other long-term liabilities	271,905
Liabilities subject to compromise	1,027,393
Commitments and contingencies
Total stockholders’ equity	(214,365		)
Total	$	1,877,706



	Year Ended
	December 31, 2019
	(in thousands)
Net sales	$	7,294,610
Cost of sales	5,864,267
Gross profit	1,430,343
Operating costs and expenses:
Selling and distribution	1,319,050
General and administrative	298,132
Amortization of intangibles	20,314
Prepetition facility closing and restructuring costs, net	17,017
Impairment of goodwill and long-lived assets	177,357
Equity in (earnings) loss of unconsolidated affiliate	(4,835		)
Equity in (earnings) loss of nondebtor subsidiaries	347
Total operating costs and expenses	1,827,382
Operating income (loss)	(397,039		)
Other (income) expense:
Interest expense	69,809
Other expense, net	(2,253		)
Reorganization items	44,527
Total other expense	112,083
Loss from continuing operations before income taxes	(509,122		)
Income tax benefit	(8,532		)
Loss from continuing operations	(500,590		)
Gain (loss) on sale of discontinued operations, net of tax	(70		)
Net loss	$	(500,660	)



	Year Ended
	December 31, 2019
	(in thousands)
Net cash used in operating activities	$	(56,259	)
Cash flows from investing activities:
Payments for property, plant and equipment	(89,402		)
Proceeds from sale of fixed assets	5,987
Net cash used in investing activities	(83,415		)
Cash flows from financing activities:
Repayments of debt	(1,834		)
Payments of financing costs	(40,627		)
Proceeds from DIP senior credit facility	70,000
Proceeds from senior secured revolver	1,294,501
Payments for senior secured revolver	(1,125,001		)
Intercompany loans	(1,250		)
Issuance of common stock, net of share repurchases for withholding taxes	(425		)
Net cash provided by financing activities	195,364
Increase (decrease) in cash and cash equivalents	55,690
Cash and cash equivalents, beginning of period	17,473
Cash and cash equivalents, end of period	$	73,163