Condensed consolidating financial statements | Condensed consolidating financial statements As of March 31, 2017, the majority of EXCO’s subsidiaries were guarantors under the EXCO Resources Credit Agreement, the indenture governing the 1.5 Lien Notes, the credit agreement governing the 1.75 Lien Term Loans and the indentures governing the 2018 Notes and 2022 Notes. All of our unrestricted subsidiaries under the 1.5 Lien Notes, 1.75 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 1.5 Lien Notes, 1.75 Lien Term Loans, 2018 Notes and 2022 Notes, 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) March 31, 2017 (in thousands) Resources Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated Assets Current assets: Cash and cash equivalents $ 43,025 $ (10,996 ) $ — $ — $ 32,029 Restricted cash — 15,595 — — 15,595 Other current assets 6,117 59,084 — — 65,201 Total current assets 49,142 63,683 — — 112,825 Equity investments — — 24,682 — 24,682 Oil and natural gas properties (full cost accounting method): Unproved oil and natural gas properties and development costs not being amortized — 101,944 — — 101,944 Proved developed and undeveloped oil and natural gas properties 332,401 2,620,878 — — 2,953,279 Accumulated depletion (330,776 ) (2,382,671 ) — — (2,713,447 ) Oil and natural gas properties, net 1,625 340,151 — — 341,776 Other property and equipment, net 507 22,898 — — 23,405 Investments in and advances to affiliates, net 440,865 — — (440,865 ) — Deferred financing costs, net 4,205 — — — 4,205 Derivative financial instruments - commodity derivatives 662 — — — 662 Goodwill 13,293 149,862 — — 163,155 Total assets $ 510,299 $ 576,594 $ 24,682 $ (440,865 ) $ 670,710 Liabilities and shareholders' equity Current liabilities $ 73,639 $ 147,578 $ — $ — $ 221,217 Long-term debt 1,142,782 — — — 1,142,782 Derivative financial instruments - common share warrants 155,136 — — — 155,136 Other long-term liabilities 4,185 12,833 — — 17,018 Payable to parent — 2,344,583 — (2,344,583 ) — Total shareholders' equity (865,443 ) (1,928,400 ) 24,682 1,903,718 (865,443 ) Total liabilities and shareholders' equity $ 510,299 $ 576,594 $ 24,682 $ (440,865 ) $ 670,710 EXCO RESOURCES, INC. CONDENSED CONSOLIDATING BALANCE SHEET December 31, 2016 (in thousands) Resources Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated Assets Current assets: Cash and cash equivalents $ 24,610 $ (15,542 ) $ — $ — $ 9,068 Restricted cash — 11,150 — — 11,150 Other current assets 6,463 83,936 — — 90,399 Total current assets 31,073 79,544 — — 110,617 Equity investments — — 24,365 — 24,365 Oil and natural gas properties (full cost accounting method): Unproved oil and natural gas properties and development costs not being amortized — 97,080 — — 97,080 Proved developed and undeveloped oil and natural gas properties 331,823 2,608,100 — — 2,939,923 Accumulated depletion (330,776 ) (2,371,469 ) — — (2,702,245 ) Oil and natural gas properties, net 1,047 333,711 — — 334,758 Other property and equipment, net 568 23,093 — — 23,661 Investments in and advances to affiliates, net 430,168 — — (430,168 ) — Deferred financing costs, net 4,376 — — — 4,376 Derivative financial instruments - commodity derivatives 482 — — — 482 Goodwill 13,293 149,862 — — 163,155 Total assets $ 481,007 $ 586,210 $ 24,365 $ (430,168 ) $ 661,414 Liabilities and shareholders' equity Current liabilities $ 90,671 $ 167,692 $ — $ — $ 258,363 Long-term debt 1,258,538 — — — 1,258,538 Other long-term liabilities 3,704 12,715 — — 16,419 Payable to parent — 2,337,585 — (2,337,585 ) — Total shareholders' equity (871,906 ) (1,931,782 ) 24,365 1,907,417 (871,906 ) Total liabilities and shareholders' equity $ 481,007 $ 586,210 $ 24,365 $ (430,168 ) $ 661,414 EXCO RESOURCES, INC. CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited) For the three months ended March 31, 2017 (in thousands) Resources Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated Revenues: Oil and natural gas $ — $ 69,356 $ — $ — $ 69,356 Purchased natural gas and marketing — 7,173 — — 7,173 Total revenues — 76,529 — — 76,529 Costs and expenses: Oil and natural gas production — 11,933 — — 11,933 Gathering and transportation — 27,353 — — 27,353 Purchased natural gas — 6,452 — — 6,452 Depletion, depreciation and amortization 61 11,447 — — 11,508 Impairment of oil and natural gas properties — — — — — Accretion of discount on asset retirement obligations — 212 — — 212 General and administrative (10,667 ) 15,082 — — 4,415 Other operating items 398 671 — — 1,069 Total costs and expenses (10,208 ) 73,150 — — 62,942 Operating income 10,208 3,379 — — 13,587 Other income (expense): Interest expense, net (19,952 ) — — — (19,952 ) Gain on derivative financial instruments - commodity derivatives 15,533 — — — 15,533 Gain on derivative financial instruments - common share warrants 6,004 — — — 6,004 Loss on restructuring and extinguishment of debt (6,272 ) — — — (6,272 ) Other income 1 3 — — 4 Equity income — — 317 — 317 Net income from consolidated subsidiaries 3,699 — — (3,699 ) — Total other income (expense) (987 ) 3 317 (3,699 ) (4,366 ) Income before income taxes 9,221 3,382 317 (3,699 ) 9,221 Income tax expense 1,028 — — — 1,028 Net income $ 8,193 $ 3,382 $ 317 $ (3,699 ) $ 8,193 EXCO RESOURCES, INC. CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited) For the three months ended March 31, 2016 (in thousands) Resources Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated Revenues: Oil and natural gas $ — $ 51,649 $ — $ — $ 51,649 Purchased natural gas and marketing — 4,441 — — 4,441 Total revenues — 56,090 — — 56,090 Costs and expenses: Oil and natural gas production 3 14,115 — — 14,118 Gathering and transportation — 25,105 — — 25,105 Purchased natural gas — 5,966 — — 5,966 Depletion, depreciation and amortization 119 28,882 — — 29,001 Impairment of oil and natural gas properties 547 134,052 — — 134,599 Accretion of discount on asset retirement obligations — 912 — — 912 General and administrative (3,967 ) 14,864 — — 10,897 Other operating items (407 ) 597 — — 190 Total costs and expenses (3,705 ) 224,493 — — 220,788 Operating income (loss) 3,705 (168,403 ) — — (164,698 ) Other income (expense): Interest expense, net (19,257 ) — — — (19,257 ) Gain on derivative financial instruments - commodity derivatives 16,591 — — — 16,591 Gain on extinguishment of debt 45,114 — — — 45,114 Other income 2 10 — — 12 Equity loss — — (7,910 ) — (7,910 ) Net loss from consolidated subsidiaries (176,303 ) — — 176,303 — Total other income (expense) (133,853 ) 10 (7,910 ) 176,303 34,550 Loss before income taxes (130,148 ) (168,393 ) (7,910 ) 176,303 (130,148 ) Income tax expense — — — — — Net loss $ (130,148 ) $ (168,393 ) $ (7,910 ) $ 176,303 $ (130,148 ) EXCO RESOURCES, INC. CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (Unaudited) For the three months ended March 31, 2017 (in thousands) Resources Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated Operating Activities: Net cash provided by (used in) operating activities $ (12,106 ) $ 17,302 $ — $ — $ 5,196 Investing Activities: Additions to oil and natural gas properties, gathering assets and equipment and property acquisitions (271 ) (11,586 ) — — (11,857 ) Restricted cash — (4,445 ) — — (4,445 ) Net changes in amounts due to joint ventures — (3,723 ) — — (3,723 ) Advances/investments with affiliates (6,998 ) 6,998 — — — Net cash used in investing activities (7,269 ) (12,756 ) — — (20,025 ) Financing Activities: Borrowings under EXCO Resources Credit Agreement 25,000 — — — 25,000 Repayments under EXCO Resources Credit Agreement (253,592 ) — — — (253,592 ) Proceeds received from issuance of 1.5 Lien Notes, net 295,530 — — — 295,530 Payments on Exchange Term Loan (10,512 ) — — — (10,512 ) Debt financing costs and other (18,636 ) — — — (18,636 ) Net cash provided by financing activities 37,790 — — — 37,790 Net increase in cash 18,415 4,546 — — 22,961 Cash at beginning of period 24,610 (15,542 ) — — 9,068 Cash at end of period $ 43,025 $ (10,996 ) $ — $ — $ 32,029 EXCO RESOURCES, INC. CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (Unaudited) For the three months ended March 31, 2016 (in thousands) Resources Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated Operating Activities: Net cash provided by operating activities $ 7,762 $ 20,219 $ — $ — $ 27,981 Investing Activities: Additions to oil and natural gas properties, gathering assets and equipment and property acquisitions (428 ) (32,058 ) — — (32,486 ) Restricted cash — (5,184 ) — — (5,184 ) Net changes in amounts due to joint ventures — 1,001 — — 1,001 Advances/investments with affiliates (24,343 ) 24,343 — — — Net cash used in investing activities (24,771 ) (11,898 ) — — (36,669 ) Financing Activities: Borrowings under EXCO Resources Credit Agreement 297,897 — — — 297,897 Repayments under EXCO Resources Credit Agreement (232,397 ) — — — (232,397 ) Payment on Exchange Term Loan (12,639 ) — — — (12,639 ) Repurchases of senior unsecured notes (7,863 ) — — — (7,863 ) Debt financing costs and other (2,341 ) — — — (2,341 ) Net cash provided by financing activities 42,657 — — — 42,657 Net increase in cash 25,648 8,321 — — 33,969 Cash at beginning of period 34,296 (22,049 ) — — 12,247 Cash at end of period $ 59,944 $ (13,728 ) $ — $ — $ 46,216 |