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EXCO RESOURCES, INC. INDEX

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

Commission File Number 0-9204

EXCO RESOURCES, INC.
(Exact name of registrant as specified in its charter)

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        The number of shares of common stock, par value $0.02 per share, outstanding at October 31, 2002 was 6,993,420 shares (excludes 248,434 treasury shares)

EXCO RESOURCES, INC.

INDEX

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

EXCO RESOURCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)

See accompanying notes.

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EXCO RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share amounts)

See accompanying notes.

4

EXCO RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited, in thousands)

See accompanying notes.

5

EXCO RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited, in thousands)

See accompanying notes.

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EXCO RESOURCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002
(Unaudited)

1.    Basis of Presentation

        In management's opinion, the accompanying consolidated financial statements contain all adjustments (consisting solely of normal recurring accruals) necessary to present fairly the financial position of EXCO Resources, Inc. as of December 31, 2001 and September 30, 2002, and the results of operations and cash flows for the three and nine month periods ended September 30, 2001 and 2002.

        We have prepared the accompanying unaudited financial statements pursuant to the rules and regulations of the Securities and Exchange Commission. We have omitted certain information and disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States pursuant to those rules and regulations, although we believe that the disclosures we have made are adequate to make the information presented not misleading. You should read these financial statements in conjunction with our financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2001. The accompanying condensed consolidated financial statements include the financial statements of EXCO Resources, Inc., and its subsidiaries. The financial statements of Pecos-Gomez, L.P., which ceased operations during 2001 with all remaining assets distributed to the partners, have been consolidated proportionally based on EXCO's aggregate ownership interest in the partnership.

        The results of operations for the three and nine month periods ended September 30, 2002, are not necessarily indicative of the results we expect for the full year.

        Certain prior year amounts have been reclassified to conform to current year presentation.

2.    Stock Transactions

        On June 29, 2001, we closed our rights offering to existing shareholders that resulted in the sale of 5,004,869 shares of 5% convertible preferred stock at $21.00 per share. We raised a total of approximately $105.1 million in gross proceeds (approximately $101.2 million in net proceeds after fees and commissions), through the exercise of 4,466,869 rights and the sale of 538,000 shares of preferred stock by dealer managers. We applied approximately $97.6 million of the offering proceeds to pay off acquisition financing, and have used the remaining proceeds for general corporate purposes. Each share of 5% convertible preferred stock is convertible into one share of our common stock, at the option of the holder, on or before June 30, 2003. Any share of 5% convertible preferred stock still outstanding on June 30, 2003, will be automatically converted into our common stock.

        As part of the consideration paid for the acquisition of the Central Resources properties, we issued a warrant to Central Resources, Inc. to purchase 200,000 shares of our common stock for $11.00 per share. This warrant was assigned and then exercised by a new registered holder on May 21, 2001, for the full 200,000 shares at which time we received $2.2 million cash. We filed a registration statement on Form S-3 with the SEC to register the resale of the 200,000 shares of common stock issued upon the exercise of the warrant. The registration statement was declared effective by the SEC on October 15, 2001.

        During the three month period ended September 30, 2002, we acquired 88,000 shares of our common stock through several open market transactions. The total amount paid for the shares was approximately $1.3 million, or an average of $14.81 per share. For the nine month period ended September 30, 2002, we have acquired 188,500 shares of our common stock through open market

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transactions. The total amount paid for the shares was approximately $2.8 million, or an average of $14.87 per share. The shares may be reissued in the future through the exercise of stock options, under the board of directors compensation plan or for other corporate purposes. We made the last purchase of our common shares on July 30, 2002. We have suspended the purchase of shares of our common stock pending the outcome of our chairman's announced proposal to acquire all of the outstanding shares of our common and preferred stock that he does not already own (See Note 10.—Acquisition Proposal).

3.    Earnings Per Share

        Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share", requires presentation of two calculations of earnings per common share. Basic earnings per common share equals net income less preferred stock dividends divided by weighted average common shares outstanding during the period. Diluted earnings per common share equals net income divided by the sum of weighted average common shares outstanding during the period plus any dilutive common stock equivalents. Common stock equivalents are shares assumed to be issued if (1) outstanding stock options or warrants were in-the-money and exercised, and (2) our outstanding convertible preferred stock was converted to common stock.

        Since we reported a loss on common stock for the three and nine month periods ended September 30, 2001 and 2002, our common stock equivalents are considered to be anti-dilutive and are not considered in the diluted earnings per share calculation. Employee and director stock options and our convertible preferred stock would have increased the diluted weighted average number of shares outstanding by 447,000 shares and 5,004,869 shares, respectively, for the three month period ended September 30, 2002 and 458,000 shares and 5,004,869 shares, respectively, for the nine month period ended September 30, 2002.

4.    Oil and Natural Gas Properties

        We have recorded oil and natural gas properties at cost using the full cost method of accounting. Under the full cost method, all costs associated with the acquisition, exploration or development of oil and natural gas properties are capitalized as part of the full cost pool.

        Unproved oil and natural gas properties are excluded from the calculation of depreciation, depletion and amortization until it is determined whether or not proved reserves can be assigned to such properties. At December 31, 2001 and September 30, 2002, the $6.6 million and $5.2 million, respectively, in unproved oil and natural gas properties resulted from the allocation of a portion of the purchase price of Canadian properties to undeveloped acreage and to possible and probable reserves. We assess our unproved oil and natural gas properties on a quarterly basis. During the three and nine months ended September 30, 2002, we reclassified $178,000 and $1.5 million, respectively, from unproved oil and natural gas properties to proved oil and natural gas properties.

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        Depreciation, depletion and amortization of evaluated oil and natural gas properties is provided using the unit-of-production method based on total proved reserves, as determined by independent petroleum reservoir engineers.

        Sales, dispositions and other oil and natural gas property retirements are accounted for as adjustments to the full cost pool, with no recognition of gain or loss unless the disposition would significantly alter the amortization rate.

        At the end of each quarterly period, the unamortized cost of oil and natural gas properties, net of related deferred income taxes, is limited to the sum of the estimated future net revenues from proved properties using current period-end prices discounted at 10%, adjusted for related income tax effects. This ceiling test calculation is done separately for the United States and Canadian full cost pools.

        The calculation of the ceiling test is based upon estimates of proved reserves. There are numerous uncertainties inherent in estimating quantities of proved reserves and in projecting the future rates of production and plan of development. The accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. Results of drilling, testing and production subsequent to the date of the estimate may justify revision to the estimate. Accordingly, reserve estimates are often different from the quantities of oil and natural gas that are ultimately recovered.

        As a result of low natural gas prices for Canadian production on June 30, 2002, we recorded a non-cash ceiling test write-down of $17.5 million pre-tax ($9.7 million after-tax) to the Canadian full cost pool during the quarter ended June 30, 2002. Natural gas prices were higher at September 30, 2002 so no additional write-down was required. During the three month and nine month periods ended September 30, 2001, we recorded a pre-tax non-cash ceiling test write-down of $45.9 million (of which $25.0 million was from the United States full cost pool and $20.9 million was from the Canadian full cost pool).

5.    Geographic Operating Segment Information

        The only industry segment in which we operate is the oil and natural gas exploration and production industry; however, we are organizationally structured along geographic operating segments. We have reportable operations in the United States and Canada. The following tables provide our interim geographic operating segment data. Operating segment data represents Canadian activity beginning April 26, 2001, when we acquired our Canadian subsidiary, Addison Energy Inc. Geographic

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operating segment income tax expenses have been determined based on expected effective tax rates for the various tax jurisdictions where we have oil and natural gas producing activities.