Condensed consolidating financial statements | Condensed consolidating financial statements As of September 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) September 30, 2016 (in thousands) Resources Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated Assets Current assets: Cash and cash equivalents $ 9,754 $ (6,220 ) $ — $ — $ 3,534 Restricted cash — 18,434 — — 18,434 Other current assets 13,233 75,608 — — 88,841 Total current assets 22,987 87,822 — — 110,809 Equity investments — — 31,973 — 31,973 Oil and natural gas properties (full cost accounting method): Unproved oil and natural gas properties and development costs not being amortized — 93,511 — — 93,511 Proved developed and undeveloped oil and natural gas properties 331,326 2,615,315 — — 2,946,641 Accumulated depletion (330,776 ) (2,359,835 ) — — (2,690,611 ) Oil and natural gas properties, net 550 348,991 — — 349,541 Other property and equipment, net 608 23,450 — — 24,058 Investments in and advances to affiliates, net 452,896 — — (452,896 ) — Deferred financing costs, net 5,000 — — — 5,000 Derivative financial instruments 1,455 — — — 1,455 Goodwill 13,293 149,862 — — 163,155 Total assets $ 496,789 $ 610,125 $ 31,973 $ (452,896 ) $ 685,991 Liabilities and shareholders' equity Current liabilities $ 74,818 $ 167,105 $ — $ — $ 241,923 Long-term debt 1,256,068 — — — 1,256,068 Other long-term liabilities 3,493 22,097 — — 25,590 Payable to parent — 2,360,227 — (2,360,227 ) — Total shareholders' equity (837,590 ) (1,939,304 ) 31,973 1,907,331 (837,590 ) Total liabilities and shareholders' equity $ 496,789 $ 610,125 $ 31,973 $ (452,896 ) $ 685,991 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 September 30, 2016 (in thousands) Resources Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated Revenues: Oil and natural gas $ — $ 70,862 $ — $ — $ 70,862 Purchased natural gas and marketing — 6,324 — — 6,324 Total revenues — 77,186 — — 77,186 Costs and expenses: Oil and natural gas production — 12,608 — — 12,608 Gathering and transportation — 27,979 — — 27,979 Purchased natural gas — 6,586 — — 6,586 Depletion, depreciation and amortization 89 15,821 — — 15,910 Impairment of oil and natural gas properties — — — — — Accretion of discount on asset retirement obligations — 325 — — 325 General and administrative (4,395 ) 15,141 — — 10,746 Other operating items — (1,110 ) — — (1,110 ) Total costs and expenses (4,306 ) 77,350 — — 73,044 Operating income (loss) 4,306 (164 ) — — 4,142 Other income (expense): Interest expense, net (16,997 ) — — (16,997 ) Gain on derivative financial instruments 8,209 — — 8,209 Gain on extinguishment of debt 57,421 — — 57,421 Other income 4 8 — 12 Equity loss — — (823 ) (823 ) Net loss from consolidated subsidiaries (979 ) — — 979 — Total other income (expense) 47,658 8 (823 ) 979 47,822 Income (loss) before income taxes 51,964 (156 ) (823 ) 979 51,964 Income tax expense 1,028 — — — 1,028 Net income (loss) $ 50,936 $ (156 ) $ (823 ) $ 979 $ 50,936 EXCO RESOURCES, INC. CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited) For the three months ended September 30, 2015 (in thousands) Resources Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated Revenues: Oil and natural gas $ — $ 83,744 $ — $ — $ 83,744 Purchased natural gas and marketing — 6,773 — — 6,773 Total revenues — 90,517 — — 90,517 Costs and expenses: Oil and natural gas production 7 18,606 — — 18,613 Gathering and transportation — 23,743 — — 23,743 Purchased natural gas — 6,991 — — 6,991 Depletion, depreciation and amortization 229 51,784 — — 52,013 Impairment of oil and natural gas properties 1,372 338,021 — — 339,393 Accretion of discount on asset retirement obligations — 574 — — 574 General and administrative (2,345 ) 15,738 — — 13,393 Other operating items (3 ) (225 ) — — (228 ) Total costs and expenses (740 ) 455,232 — — 454,492 Operating income (loss) 740 (364,715 ) — — (363,975 ) Other income (expense): Interest expense, net (27,761 ) — — — (27,761 ) Gain on derivative financial instruments 37,348 — — — 37,348 Other income 14 7 — — 21 Equity loss — — (152 ) — (152 ) Net loss from consolidated subsidiaries (364,860 ) — — 364,860 — Total other income (expense) (355,259 ) 7 (152 ) 364,860 9,456 Loss before income taxes (354,519 ) (364,708 ) (152 ) 364,860 (354,519 ) Income tax expense — — — — — Net loss $ (354,519 ) $ (364,708 ) $ (152 ) $ 364,860 $ (354,519 ) EXCO RESOURCES, INC. CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited) For the nine months ended September 30, 2016 (in thousands) Resources Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated Revenues: Oil and natural gas $ — $ 176,732 $ — $ — $ 176,732 Purchased natural gas and marketing — 15,335 — — 15,335 Total revenues — 192,067 — — 192,067 Costs and expenses: Oil and natural gas production 4 39,139 — — 39,143 Gathering and transportation — 79,828 — — 79,828 Purchased natural gas — 17,273 — — 17,273 Depletion, depreciation and amortization 298 63,697 — — 63,995 Impairment of oil and natural gas properties 838 159,975 — — 160,813 Accretion of discount on asset retirement obligations — 2,006 — — 2,006 General and administrative (6,062 ) 44,688 — — 38,626 Other operating items (406 ) 24,342 — — 23,936 Total costs and expenses (5,328 ) 430,948 — — 425,620 Operating income (loss) 5,328 (238,881 ) — — (233,553 ) Other income (expense): Interest expense, net (54,186 ) — — — (54,186 ) Loss on derivative financial instruments (11,632 ) — — — (11,632 ) Gain on extinguishment of debt 119,374 — — — 119,374 Other income 9 28 — — 37 Equity loss — — (8,824 ) — (8,824 ) Net loss from consolidated subsidiaries (247,677 ) — — 247,677 — Total other income (expense) (194,112 ) 28 (8,824 ) 247,677 44,769 Loss before income taxes (188,784 ) (238,853 ) (8,824 ) 247,677 (188,784 ) Income tax expense 1,775 — — — 1,775 Net loss $ (190,559 ) $ (238,853 ) $ (8,824 ) $ 247,677 $ (190,559 ) EXCO RESOURCES, INC. CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited) For the nine months ended September 30, 2015 (in thousands) Resources Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated Revenues: Oil and natural gas $ 4 $ 264,143 $ — $ — $ 264,147 Purchased natural gas and marketing — 21,012 — — 21,012 Total revenues 4 285,155 — — 285,159 Costs and expenses: Oil and natural gas production 30 58,123 — — 58,153 Gathering and transportation — 74,243 — — 74,243 Purchased natural gas — 21,571 — — 21,571 Depletion, depreciation and amortization 753 175,407 — — 176,160 Impairment of oil and natural gas properties 8,263 1,001,784 — — 1,010,047 Accretion of discount on asset retirement obligations 4 1,694 — — 1,698 General and administrative (6,569 ) 47,796 — — 41,227 Other operating items 2,065 (947 ) — — 1,118 Total costs and expenses 4,546 1,379,671 — — 1,384,217 Operating loss (4,542 ) (1,094,516 ) — — (1,099,058 ) Other income (expense): Interest expense, net (80,822 ) — — — (80,822 ) Gain on derivative financial instruments 54,427 — — — 54,427 Other income 87 32 — — 119 Equity loss — — (1,452 ) — (1,452 ) Net loss from consolidated subsidiaries (1,095,936 ) — — 1,095,936 — Total other income (expense) (1,122,244 ) 32 (1,452 ) 1,095,936 (27,728 ) Loss before income taxes (1,126,786 ) (1,094,484 ) (1,452 ) 1,095,936 (1,126,786 ) Income tax expense — — — — — Net loss $ (1,126,786 ) $ (1,094,484 ) $ (1,452 ) $ 1,095,936 $ (1,126,786 ) EXCO RESOURCES, INC. CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (Unaudited) For the nine months ended September 30, 2016 (in thousands) Resources Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated Operating Activities: Net cash provided by (used in) operating activities $ 9,152 $ (12,892 ) $ — $ — $ (3,740 ) Investing Activities: Additions to oil and natural gas properties, gathering assets and equipment and property acquisitions (1,250 ) (69,205 ) — — (70,455 ) Proceeds from disposition of property and equipment 10 11,232 — — 11,242 Restricted cash — 686 — — 686 Net changes in advances to joint ventures — 2,377 — — 2,377 Equity investments and other — — — — — Advances/investments with affiliates (83,631 ) 83,631 — — — Net cash provided by (used in) investing activities (84,871 ) 28,721 — — (56,150 ) Financing Activities: Borrowings under EXCO Resources Credit Agreement 390,897 — — — 390,897 Repayments under EXCO Resources Credit Agreement (243,797 ) — — — (243,797 ) Payments on Exchange Term Loan (38,056 ) — — — (38,056 ) Repurchases of senior unsecured notes (53,298 ) — — — (53,298 ) Deferred financing costs and other (4,569 ) — — — (4,569 ) Net cash provided by financing activities 51,177 — — — 51,177 Net increase (decrease) in cash (24,542 ) 15,829 — — (8,713 ) Cash at beginning of period 34,296 (22,049 ) — — 12,247 Cash at end of period $ 9,754 $ (6,220 ) $ — $ — $ 3,534 EXCO RESOURCES, INC. CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (Unaudited) For the nine months ended September 30, 2015 (in thousands) Resources Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated Operating Activities: Net cash provided by operating activities $ 27,860 $ 98,996 $ — $ — $ 126,856 Investing Activities: Additions to oil and natural gas properties, gathering assets and equipment and property acquisitions (1,784 ) (275,532 ) — — (277,316 ) Proceeds from disposition of property and equipment 686 6,711 — — 7,397 Restricted cash — 4,016 — — 4,016 Net changes in advances to joint ventures — 8,594 — — 8,594 Equity investments and other — 1,455 — — 1,455 Advances/investments with affiliates (181,813 ) 181,813 — — — Net cash used in investing activities (182,911 ) (72,943 ) — — (255,854 ) Financing Activities: Borrowings under EXCO Resources Credit Agreement 97,500 — — — 97,500 Proceeds from issuance of common shares, net 9,829 — — — 9,829 Deferred financing costs and other (4,125 ) — — — (4,125 ) Net cash provided by financing activities 103,204 — — — 103,204 Net increase (decrease) in cash (51,847 ) 26,053 — — (25,794 ) Cash at beginning of period 86,837 (40,532 ) — — 46,305 Cash at end of period $ 34,990 $ (14,479 ) $ — $ — $ 20,511 |