EXHIBIT 99b
Unaudited Pro Forma Combined Condensed Financial Statements
The accompanying unaudited pro forma combined condensed balance sheet as of June
30, 2001 gives effect to the Panhandle Royalty Company (Panhandle) merger of
Wood Oil Company (Wood) as if it had occurred on June 30, 2001. The unaudited
pro forma combined condensed statements of operations for the nine months ended
June 30, 2001 and the year ended September 30, 2000 give effect to the merger of
Wood as if the merger had occurred on October 1, 1999. Such unaudited pro forma
financial information has been prepared based on estimates and assumptions
deemed by Panhandle to be appropriate and is not necessarily indicative of the
results of operation that might have occurred had the merger actually closed on
October 1, 1999, or the actual financial position that might have resulted had
the merger actually closed on June 30, 2001. The information is also not
indicative of the future results of operation or financial position of
Panhandle.
The unaudited pro forma financial information should be read in conjunction with
the historical financial statements of Panhandle and historical financial
statements of Wood included herein.
1
Panhandle Royalty Company
Unaudited Pro Forma Combined Condensed Balance Sheet
June 30, 2001
(In Thousands)
<Table>
<Caption>
HISTORICAL
---------------------- PRO FORMA
PANHANDLE WOOD ADJUSTMENTS PRO FORMA
--------- -------- ----------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 755 $ 4,678 $ (2,976)(a) $ 2,457
Oil and gas sales receivables 1,874 1,075 -- 2,949
Assets held for sale -- -- 900(a) 900
Prepaid expenses and other 13 7 -- 20
--------- -------- ----------- ---------
Total current assets 2,642 5,760 (2,076) 6,326
Property and equipment, at cost, based on
successful efforts
Producing oil and gas properties 33,234 14,601 196(a) 48,031
Nonproducing oil and gas properties 6,694 2,539 414(a) 9,647
Other 283 1,115 (1,069)(a) 329
--------- -------- ----------- ---------
40,211 18,255 (459) 58,007
Less accumulated depreciation, depletion and
amortization 21,714 11,039 (11,039)(a) 21,714
--------- -------- ----------- ---------
Net property and equipment 18,497 7,216 10,580 36,293
Goodwill -- -- 3,969(a) 3,969
Other assets, net 108 1,397 (35)(a) 1,470
--------- -------- ----------- ---------
Total assets $ 21,247 $ 14,373 $ 12,438 $ 48,058
========= ======== =========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 829 $ 267 $ 315(a) $ 1,411
Accrued liabilities 600 170 -- 770
Deferred income taxes payable 23 755 -- 778
Long-term debt due within one year -- -- 4,000(b) 4,000
--------- -------- ----------- ---------
Total current liabilities 1,452 1,192 4,315 6,959
Long-term debt -- -- 16,000(b) 16,000
Deferred income taxes 2,882 960 4,344(a) 8,186
Other 34 -- -- 34
STOCKHOLDERS' EQUITY
Common stock 69 616 (616)(a) 69
Capital in excess of par value 606 -- -- 606
Retained earnings 16,204 11,605 (11,605)(a) 16,204
--------- -------- ----------- ---------
16,879 12,221 (12,221) 16,879
--------- -------- ----------- ---------
Total stockholders' Equity $ 21,247 $ 14,373 $ 12,438 $ 48,058
========= ======== =========== =========
</Table>
See accompanying notes.
2
Panhandle Royalty Company
Unaudited Pro Forma Condensed Combined Statement of Operations
Nine Months Ended June 30, 2001
(In thousands, except per share data)
<Table>
<Caption>
HISTORICAL
---------------------- PRO FORMA
PANHANDLE WOOD ADJUSTMENTS PRO FORMA
--------- -------- ----------- ---------
REVENUES
Oil and gas sales $ 10,185 $ 7,164 $ -- $ 17,349
Gain (loss) on sales -- 113 -- 113
Other income 149 592 -- 741
--------- -------- ----------- ---------
10,334 7,869 -- 18,203
EXPENSES
Operating costs 1,357 1,230 -- 2,587
Exploration costs 515 342 -- 857
Depreciation, depletion,
amortization and impairment 1,323 946 1,206(c) 3,475
General and administrative 1,484 914 (334)(d) 2,064
Interest 1 34 625(e) 660
--------- -------- ----------- ---------
4,680 3,466 1,497 9,643
--------- -------- ----------- ---------
Income before provision for income
taxes 5,654 4,403 (1,497) 8,560
Provision for income taxes 1,550 985 (374)(f) 2,161
--------- -------- ----------- ---------
Net income $ 4,104 $ 3,418 $ (1,123) $ 6,399
========= ======== =========== =========
Earnings per share:
Basic $ 1.99 $ 3.11
========= =========
Diluted $ 1.97 $ 3.07
========= =========
Weighted average shares used
in calculation:
Basic 2,060 2,060
========= =========
Diluted 2,083 2,083
========= =========
</Table>
See accompanying notes.
3
Panhandle Royalty Company
Unaudited Pro Forma Condensed Combined Statement of Operations
Year Ended September 30, 2000
(In thousands, except per share data)
<Table>
<Caption>
HISTORICAL
---------------------- PRO FORMA
PANHANDLE WOOD ADJUSTMENTS PRO FORMA
--------- -------- ----------- ---------
REVENUES
Oil and gas sales $ 9,092 $ 5,254 $ -- $ 14,346
Other income 186 334 -- 520
--------- -------- ----------- ---------
9,278 5,588 -- 14,866
EXPENSES
Operating costs 1,459 1,239 -- 2,698
Exploration costs 515 274 -- 789
Depreciation, depletion,
amortization and impairment 2,052 757 1,668(c) 4,477
General and administrative 1,450 1,022 (445)(d) 2,027
Interest 16 163 1,035(e) 1,214
--------- -------- ----------- ---------
5,492 3,455 2,258 11,205
--------- -------- ----------- ---------
Income before provision for income
taxes 3,786 2,133 (2,258) 3,661
Provision for income taxes 925 567 (565)(f) 927
--------- -------- ----------- ---------
Net income $ 2,861 $ 1,566 $ (1,693) $ 2,734
========= ======== =========== =========
Earning per share:
Basic $ 1.39 $ 1.33
========= =========
Diluted $ 1.38 $ 1.32
========= =========
Weighted average shares in
calculation:
Basic 2,055 2,055
========= =========
Diluted 2,077 2,077
========= =========
</Table>
See accompanying notes.
4
Panhandle Royalty Company
Notes to Unaudited Pro Forma Combined Condensed Financial Statements
(In thousands)
1. BASIS OF PRESENTATION
On October 1, 2001, Panhandle acquired privately held Wood of Tulsa, Oklahoma.
The merger was made pursuant to an Agreement and Plan of Merger among Panhandle
Royalty Company, PHC, Inc., and Wood Oil Company, dated August 9, 2001. Wood
merged with Panhandle's wholly owned subsidiary PHC, Inc., on October 1, 2001,
with Wood being the surviving Company. Prior to the merger, Wood was a privately
held company engaged in oil and gas exploration and production and fee mineral
ownership and owned interests in certain oil and gas and real estate
partnerships and an office building in Tulsa. Wood will continue to operate as a
subsidiary of Panhandle. Wood and its shareholders were unrelated parties to
Panhandle.
The preliminary adjusted purchase price (including deferred income taxes) was
$28,223, which included working capital assumed of $4,196. Funding for the
acquisition was obtained from BankFirst of Oklahoma City, Oklahoma in the form
of a $20,000 five-year term loan. Three million of Wood's cash was used to
reduce Panhandle's debt on the date of closing.
The merger will be accounted for as a purchase, accordingly, Wood's financial
results will be consolidated with Panhandle's beginning October 1, 2001. Under
the purchase method, identifiable assets and liabilities of Wood will be
recorded at their fair values. The remaining difference between the purchase
price of Wood, including direct costs of the acquisitions, will be recorded as
goodwill. Allocations included in the unaudited pro forma combined condensed
financial statements are based on preliminary analysis. Accordingly, the final
value of the purchase price and its allocation may differ, perhaps
significantly, from the amount included in these pro forma financial statements.
The preliminary allocation of the purchase price includes approximately $3.9
million of goodwill. In July 2001, the Financial Accounting Standards Board
issued Statement No. 141, Business Combinations, and Statement No. 142, Goodwill
and Other Intangible Assets. As a result of these two recent pronouncements,
goodwill recorded in connection with business combinations completed after June
30, 2001 (including the merger) will not be amortized but, instead, will be
tested for impairment at least annually. Accordingly, the accompanying unaudited
pro forma combined condensed statements of operations include no amortization of
the goodwill recorded in the merger.
Statement No. 142 will be adopted by Panhandle as of October 1, 2001. As
indicated, the allocation of the purchase price presented is preliminary.
Panhandle expects to finalize the purchase price allocation in early fiscal
2002.
5
Panhandle Royalty Company
Notes to Unaudited Pro Forma Combined Condensed Financial Statements
(continued)
(In thousands)
2. PRO FORMA ENTRIES
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET - JUNE 30, 2001
The unaudited pro forma combined condensed balance sheet includes Panhandle's
historical condensed consolidated balance sheet as of June 30, 2001 and Wood's
historical condensed balance sheet as of July 31, 2001, giving effect to the
merger as if it had occurred on June 30, 2001 and includes the following
adjustments:
(a) To adjust assets and liabilities under the purchase method of accounting
based on the purchase price. Such purchase price has been allocated to the
assets and liabilities of Wood based on preliminary estimates of fair
values with the remainder recorded as goodwill.
The preliminary purchase price has been determined as follows:
<Table>
Cash consideration to Wood shareholders $ 22,604
Estimated transaction costs 315
Deferred income taxes assumed 5,304
--------
$ 28,223
========
</Table>
The preliminary allocation of the purchase price included in the unaudited
pro forma combined condensed balance sheet is summarized as follows (in
thousands):
<Table>
Working capital assumed $ 4,196
Assets held for sale - land and building 900
Oil and gas properties - proved 14,427
Minerals:
Producing 370
Nonproducing 2,953
Other property and equipment 46
Goodwill 3,969
Other assets 1,362
--------
$ 28,223
========
</Table>
(b) To reflect the $20 million term loan entered into with a bank to fund the
acquisition.
6
Panhandle Royalty Company
Notes to Unaudited Pro Forma Combined Condensed Financial Statements
(continued)
(In thousands)
2. PRO FORMA ENTRIES (CONTINUED)
PRO FORMA STATEMENTS OF OPERATIONS - NINE MONTHS ENDED JUNE 30, 2001 AND YEAR
ENDED SEPTEMBER 30, 2000
The accompanying unaudited combined condensed pro forma statements of operations
for the nine months ended June 30, 2001 and the year ended September 30, 2000
have been prepared as if the merger had occurred on October 1, 1999. The
unaudited pro forma combined condensed statement of operations for the nine
months ended June 30, 2001 includes the historical consolidated statement of
operations of Panhandle for the nine months ended June 30, 2001, and the
historical statement of operations of Wood for the nine months ended April 30,
2001. For the year ended September 30, 2000, the unaudited pro forma combined
condensed statement of operations includes the historical consolidated statement
of operations of Panhandle for the year ended September 30, 2000, and the
historical statement of operations of Wood for the year ended July 31, 2000.
These pro forma combined condensed statements of operations do not reflect
approximately $1.8 million of severance due to certain officers and employees of
Wood, paid immediately prior to the closing of the merger.
Such statements include the following adjustments:
(c) To record the estimated adjustment to depreciation, depletion and
amortization expense attributable to the allocation of the purchase price
using the successful efforts method of accounting.
(d) To reflect reduced salaries and benefits resulting from the contractual
termination of certain officers of Wood effective on closing. The unaudited
pro forma combined condensed statements of operations do not give effect to
Panhandle supplemental plan to reduce general and administrative expense
that includes closing the Tulsa office. Prior to the Tulsa office closing,
general and administrative expenses for Wood are expected to decrease to
approximately $35 per month and following the anticipated closing of the
Tulsa office, general and administrative expense is expected to be further
reduced for Wood to $20 per month.
7
Panhandle Royalty Company
Notes to Unaudited Pro Forma Combined Condensed Financial Statements
(continued)
(In thousands)
2. PRO FORMA ENTRIES (CONTINUED)
(e) To reflect the net adjustment to interest expense for the incremental
interest to be incurred attributable to the $20 million term loan obtained
to fund the cash consideration at closing. The term loan provides for
interest at prime less .25% (aggregate rate of 5.75% at closing). An
increase or decrease of the interest rate of .125% would impact interest
expense by approximately $35 annually.
(f) To record income taxes on pro forma pretax net income at the average
effective income tax rate of Panhandle and Wood of 25%. This rate is below
the statutory rate due primarily to the availability of percentage
depletion.
CHANGES IN PRO FORMA ESTIMATED PROVED RESERVES
The following table sets forth the combined changes in estimated proved reserves
for the year ended September 30, 2000 for Panhandle and the year ended July 31,
2000 for Wood on a pro forma basis.
<Table>
<Caption>
YEAR ENDED 2000
-------------------------
OIL GAS
(MBbls) (Mmef)
----------- ----------
Proved reserves
Beginning of year 878 18,346
Purchases of reserves in place 6 147
Extensions and discoveries 161 3,744
Revisions of previous estimates (103) 697
Production (124) (3,906)
----------- ----------
End of year 818 19,028
=========== ==========
</Table>
8
Panhandle Royalty Company
Notes to Unaudited Pro Forma Combined Condensed Financial Statements
(continued)
(In thousands)
2. PRO FORMA ENTRIES (CONTINUED)
PRO FORMA STANDARDIZED MEASURE OF FUTURE NET CASH FLOWS
The following table reflects the combined pro forma standardized measure of
discounted future net cash flows of proved oil and gas reserves for PRC as of
September 30, 2000, and Wood Oil as of July 31, 2000.
<Table>
<Caption>
YEAR ENDED 2000
---------------------
(in thousands)
Future cash inflows $ 94,181
Future production costs 18,062
Future development costs 1,298
Future net cash flows before future income tax expense 74,821
Future income taxes 20,538
-----------
54,283
Discount at 10 percent per year 17,776
-----------
Standardized measure of discounted future net cash flows
$ 36,507
===========
</Table>
The standardized measure information in the preceding table was derived from
estimates of Panhandle's and Wood's proved oil and gas reserves contained in
studies prepared by petroleum engineers. The standardized measure calculation,
prepared pursuant to the provisions of Statement of Financial Accounting
Standards No. 69, does not purport to represent the fair market value of the pro
forma oil and gas reserves. The foregoing information is presented for
comparative purposes as of the dates indicated and is not intended to reflect
any changes in value which may result from future price fluctuations.
CHANGES RELATING TO THE PRO FORMA STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET
CASH FLOWS
The principal changes in the combined pro forma standardized measure of
discounted future net cash flows attributable to pro forma proved oil and gas
reserves for Panhandle for the year ended September 30, 2000 for Wood for the
year ended July 31, 2000 are as follows:
9
Panhandle Royalty Company
Notes to Unaudited Pro Forma Combined Condensed Financial Statements
(continued)
(In thousands)
2. PRO FORMA ENTRIES (CONTINUED)
<Table>
<Caption>
YEAR ENDED
2000
----------------
(in thousands)
Balance, beginning of year $ 23,470
Purchases of reserves-in-place 439
Extensions and discovers 10,343
Revisions of previous quantity estimates (25)
Oil and gas sales, net of production costs (11,648)
Net change in sales price and production costs 13,880
Net change in future development costs (111)
Net change in income taxes (5,155)
Accretion of discount 2,347
Changes in timing of production and other 2,967
---------
Balance, end of year $ 36,507
=========
</Table>
10