Condensed consolidating financial statements | Condensed consolidating financial statements As of June 30, 2016 , the majority of EXCO’s subsidiaries were guarantors under the EXCO Resources Credit Agreement and the indentures governing the 2018 Notes and 2022 Notes and the agreements governing the Second Lien Term Loans. All of our unrestricted subsidiaries under the Second Lien Term Loans and the indentures governing the 2018 Notes and 2022 Notes are considered non-guarantor subsidiaries. Set forth below are condensed consolidating financial statements of EXCO, the guarantor subsidiaries and the non-guarantor subsidiaries. The 2018 Notes, 2022 Notes and the Second Lien Term Loans, which were issued by EXCO Resources, Inc., are jointly and severally guaranteed by substantially all of our subsidiaries (referred to as Guarantor Subsidiaries). For purposes of this footnote, EXCO Resources, Inc. is referred to as Resources to distinguish it from the Guarantor Subsidiaries. Each of the Guarantor Subsidiaries is a 100% owned subsidiary of Resources and the guarantees are unconditional as they relate to the assets of the Guarantor Subsidiaries. The following financial information presents consolidating financial statements, which include: • Resources; • the Guarantor Subsidiaries; • the Non-Guarantor Subsidiaries; • elimination entries necessary to consolidate Resources, the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries; and • EXCO on a consolidated basis. Investments in subsidiaries are accounted for using the equity method of accounting for the disclosures within this footnote. The financial information for the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries is presented on a combined basis. The elimination entries primarily eliminate investments in subsidiaries and intercompany balances and transactions. EXCO RESOURCES, INC. CONDENSED CONSOLIDATING BALANCE SHEET (Unaudited) June 30, 2016 (in thousands) Resources Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated Assets Current assets: Cash and cash equivalents $ 36,623 $ (9,060 ) $ — $ — $ 27,563 Restricted cash 4,201 21,284 — — 25,485 Other current assets 15,303 26,937 — — 42,240 Total current assets 56,127 39,161 — — 95,288 Equity investments — — 32,796 — 32,796 Oil and natural gas properties (full cost accounting method): Unproved oil and natural gas properties and development costs not being amortized — 96,147 — — 96,147 Proved developed and undeveloped oil and natural gas properties 330,777 2,644,651 — — 2,975,428 Accumulated depletion (330,777 ) (2,344,306 ) — — (2,675,083 ) Oil and natural gas properties, net — 396,492 — — 396,492 Other property and equipment, net 642 24,600 — — 25,242 Investments in and advances to affiliates, net 396,168 — — (396,168 ) — Deferred financing costs, net 5,891 — — — 5,891 Derivative financial instruments 1,572 — — — 1,572 Goodwill 13,293 149,862 — — 163,155 Total assets $ 473,693 $ 610,115 $ 32,796 $ (396,168 ) $ 720,436 Liabilities and shareholders' equity Current liabilities $ 85,715 $ 202,539 $ — $ — $ 288,254 Long-term debt 1,274,437 — — — 1,274,437 Other long-term liabilities 3,745 44,204 — — 47,949 Payable to parent — 2,302,520 — (2,302,520 ) — Total shareholders' equity (890,204 ) (1,939,148 ) 32,796 1,906,352 (890,204 ) Total liabilities and shareholders' equity $ 473,693 $ 610,115 $ 32,796 $ (396,168 ) $ 720,436 EXCO RESOURCES, INC. CONDENSED CONSOLIDATING BALANCE SHEET December 31, 2015 (in thousands) Resources Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated Assets Current assets: Cash and cash equivalents $ 34,296 $ (22,049 ) $ — $ — $ 12,247 Restricted cash 2,100 19,120 — — 21,220 Other current assets 51,133 65,201 — — 116,334 Total current assets 87,529 62,272 — — 149,801 Equity investments — — 40,797 — 40,797 Oil and natural gas properties (full cost accounting method): Unproved oil and natural gas properties and development costs not being amortized — 115,377 — — 115,377 Proved developed and undeveloped oil and natural gas properties 330,775 2,739,655 — — 3,070,430 Accumulated depletion (330,775 ) (2,296,988 ) — — (2,627,763 ) Oil and natural gas properties, net — 558,044 — — 558,044 Other property and equipment, net 749 27,063 — — 27,812 Investments in and advances to affiliates, net 616,940 — — (616,940 ) — Deferred financing costs, net 8,408 — — — 8,408 Derivative financial instruments 6,109 — — — 6,109 Goodwill 13,293 149,862 — — 163,155 Total assets $ 733,028 $ 797,241 $ 40,797 $ (616,940 ) $ 954,126 Liabilities and shareholders' equity Current liabilities $ 74,472 $ 178,447 $ — $ — $ 252,919 Long-term debt 1,320,279 — — — 1,320,279 Other long-term liabilities 600 42,651 — — 43,251 Payable to parent — 2,276,594 — (2,276,594 ) — Total shareholders' equity (662,323 ) (1,700,451 ) 40,797 1,659,654 (662,323 ) Total liabilities and shareholders' equity $ 733,028 $ 797,241 $ 40,797 $ (616,940 ) $ 954,126 EXCO RESOURCES, INC. CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited) For the three months ended June 30, 2016 (in thousands) Resources Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated Revenues: Oil and natural gas $ — $ 54,221 $ — $ — $ 54,221 Costs and expenses: Oil and natural gas production 3 12,414 — — 12,417 Gathering and transportation — 26,895 — — 26,895 Depletion, depreciation and amortization 90 18,994 — — 19,084 Impairment of oil and natural gas properties 291 25,923 — — 26,214 Accretion of discount on asset retirement obligations — 769 — — 769 General and administrative 2,300 14,683 — — 16,983 Other operating items — 24,856 — — 24,856 Total costs and expenses 2,684 124,534 — — 127,218 Operating loss (2,684 ) (70,313 ) — — (72,997 ) Other income (expense): Interest expense, net (17,932 ) — — — (17,932 ) Loss on derivative financial instruments (36,432 ) — — — (36,432 ) Gain on extinguishment of debt 16,839 16,839 Other income 4 9 — — 13 Equity loss — — (91 ) — (91 ) Net loss from consolidated subsidiaries (70,395 ) — — 70,395 — Total other income (expense) (107,916 ) 9 (91 ) 70,395 (37,603 ) Loss before income taxes (110,600 ) (70,304 ) (91 ) 70,395 (110,600 ) Income tax expense 747 — — — 747 Net loss $ (111,347 ) $ (70,304 ) $ (91 ) $ 70,395 $ (111,347 ) EXCO RESOURCES, INC. CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited) For the three months ended June 30, 2015 (in thousands) Resources Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated Revenues: Oil and natural gas $ (18 ) $ 93,760 $ — $ — $ 93,742 Costs and expenses: Oil and natural gas production (15 ) 19,753 — — 19,738 Gathering and transportation 24,785 — — 24,785 Depletion, depreciation and amortization 245 61,413 — — 61,658 Impairment of oil and natural gas properties 1,551 392,776 — — 394,327 Accretion of discount on asset retirement obligations — 568 — — 568 General and administrative (3,503 ) 16,100 — — 12,597 Other operating items 1,916 (382 ) — — 1,534 Total costs and expenses 194 515,013 — — 515,207 Operating loss (212 ) (421,253 ) — — (421,465 ) Other income (expense): Interest expense, net (25,571 ) — — — (25,571 ) Loss on derivative financial instruments (6,631 ) — — — (6,631 ) Other income 39 8 — — 47 Equity loss — — (535 ) — (535 ) Net loss from consolidated subsidiaries (421,780 ) — — 421,780 — Total other income (expense) (453,943 ) 8 (535 ) 421,780 (32,690 ) Loss before income taxes (454,155 ) (421,245 ) (535 ) 421,780 (454,155 ) Income tax expense — — — — — Net loss $ (454,155 ) $ (421,245 ) $ (535 ) $ 421,780 $ (454,155 ) EXCO RESOURCES, INC. CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited) For the six months ended June 30, 2016 (in thousands) Resources Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated Revenues: Oil and natural gas $ — $ 105,870 $ — $ — $ 105,870 Costs and expenses: Oil and natural gas production 5 26,530 — — 26,535 Gathering and transportation — 53,525 — — 53,525 Depletion, depreciation and amortization 209 47,876 — — 48,085 Impairment of oil and natural gas properties 838 159,975 — — 160,813 Accretion of discount on asset retirement obligations — 1,681 — — 1,681 General and administrative (1,666 ) 29,546 — — 27,880 Other operating items (407 ) 25,453 — — 25,046 Total costs and expenses (1,021 ) 344,586 — — 343,565 Operating income (loss) 1,021 (238,716 ) — — (237,695 ) Other income (expense): Interest expense, net (37,189 ) — — — (37,189 ) Loss on derivative financial instruments (19,841 ) — — — (19,841 ) Gain on extinguishment of debt 61,953 — — — 61,953 Other income 6 19 — — 25 Equity loss — — (8,001 ) — (8,001 ) Net loss from consolidated subsidiaries (246,698 ) — — 246,698 — Total other income (expense) (241,769 ) 19 (8,001 ) 246,698 (3,053 ) Loss before income taxes (240,748 ) (238,697 ) (8,001 ) 246,698 (240,748 ) Income tax expense 747 — — — 747 Net loss $ (241,495 ) $ (238,697 ) $ (8,001 ) $ 246,698 $ (241,495 ) EXCO RESOURCES, INC. CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited) For the six months ended June 30, 2015 (in thousands) Resources Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated Revenues: Oil and natural gas $ 4 $ 180,058 $ — $ — $ 180,062 Costs and expenses: Oil and natural gas production 23 39,517 — — 39,540 Gathering and transportation — 50,500 — — 50,500 Depletion, depreciation and amortization 524 123,623 — — 124,147 Impairment of oil and natural gas properties 6,891 663,763 — — 670,654 Accretion of discount on asset retirement obligations 4 1,120 — — 1,124 General and administrative (4,224 ) 32,058 — — 27,834 Other operating items 2,068 (722 ) — — 1,346 Total costs and expenses 5,286 909,859 — — 915,145 Operating loss (5,282 ) (729,801 ) — — (735,083 ) Other income (expense): Interest expense, net (53,061 ) — — — (53,061 ) Gain on derivative financial instruments 17,079 — — — 17,079 Other income 73 25 — — 98 Equity loss — — (1,300 ) — (1,300 ) Net loss from consolidated subsidiaries (731,076 ) — — 731,076 — Total other income (expense) (766,985 ) 25 (1,300 ) 731,076 (37,184 ) Loss before income taxes (772,267 ) (729,776 ) (1,300 ) 731,076 (772,267 ) Income tax expense — — — — — Net loss $ (772,267 ) $ (729,776 ) $ (1,300 ) $ 731,076 $ (772,267 ) EXCO RESOURCES, INC. CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (Unaudited) For the six months ended June 30, 2016 (in thousands) Resources Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated Operating Activities: Net cash provided by operating activities $ 16,452 $ 29,473 $ — $ — $ 45,925 Investing Activities: Additions to oil and natural gas properties, gathering assets and equipment and property acquisitions (833 ) (54,130 ) — (54,963 ) Proceeds from disposition of property and equipment 10 11,480 — — 11,490 Restricted cash — (2,164 ) — — (2,164 ) Net changes in advances to joint ventures — 2,404 — — 2,404 Equity investments and other — — — — — Advances/investments with affiliates (25,926 ) 25,926 — — — Net cash used in investing activities (26,749 ) (16,484 ) — — (43,233 ) Financing Activities: Borrowings under EXCO Resources Credit Agreement 297,897 — — — 297,897 Repayments under EXCO Resources Credit Agreement (243,797 ) — — — (243,797 ) Payments on Exchange Term Loan (25,278 ) — — — (25,278 ) Repurchases of senior unsecured notes (13,299 ) — — — (13,299 ) Deferred financing costs and other (2,899 ) — — — (2,899 ) Net cash provided by financing activities 12,624 — — — 12,624 Net increase in cash 2,327 12,989 — — 15,316 Cash at beginning of period 34,296 (22,049 ) — — 12,247 Cash at end of period $ 36,623 $ (9,060 ) $ — $ — $ 27,563 EXCO RESOURCES, INC. CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (Unaudited) For the six months ended June 30, 2015 (in thousands) Resources Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated Operating Activities: Net cash provided by operating activities $ 19,024 $ 89,180 $ — $ — $ 108,204 Investing Activities: Additions to oil and natural gas properties, gathering assets and equipment and property acquisitions (1,174 ) (211,034 ) — — (212,208 ) Proceeds from disposition of property and equipment 686 6,711 — — 7,397 Restricted cash — 6,989 — — 6,989 Net changes in advances to joint ventures — 5,756 — — 5,756 Equity investments and other — (503 ) — — (503 ) Advances/investments with affiliates (124,371 ) 124,371 — — — Net cash used in investing activities (124,859 ) (67,710 ) — — (192,569 ) Financing Activities: Borrowings under EXCO Resources Credit Agreement 90,000 — — — 90,000 Repayments under EXCO Resources Credit Agreement — — — — — Deferred financing costs and other (2,033 ) — — — (2,033 ) Net cash provided by financing activities 87,967 — — — 87,967 Net increase (decrease) in cash (17,868 ) 21,470 — — 3,602 Cash at beginning of period 86,837 (40,532 ) — — 46,305 Cash at end of period $ 68,969 $ (19,062 ) $ — $ — $ 49,907 |