CatchMark Merger

9 Months Ended

Sep. 30, 2022

NOTE 13. CATCHMARK MERGER

On September 14, 2022, CatchMark and CatchMark Timber Operating Partnership, L.P. (the Partnership) merged into a wholly owned subsidiary (Merger Sub) of PotlatchDeltic, pursuant to the terms of a merger agreement dated May 29, 2022, with the Merger Sub surviving the mergers. CatchMark owned approximately 348,000 acres of superior site index timberlands located in Alabama, Georgia and South Carolina.

Under the terms of the merger agreement, immediately prior to the mergers all outstanding unvested CatchMark equity awards and Partnership Long-term Incentive Plan (LTIP) Units were deemed fully vested, at maximum performance to the extent applicable, and converted to shares of CatchMark common stock and common partnership units of the Partnership (Partnership OP Units), respectively. CatchMark stockholders and the holders of the Partnership OP Units received 0.230 shares of PotlatchDeltic common stock for each share of CatchMark common stock and for each Partnership OP Unit and cash in lieu of fractional shares at the effective time of the merger.

As a result of the merger, we issued approximately 11.5 million shares of PotlatchDeltic common stock, including (i) 11.3 million shares in exchange for the outstanding shares of CatchMark common stock, which included unvested CatchMark share-based awards that fully vested upon closing of the merger; and (ii) 0.2 million shares in exchange for the Partnership OP Units.

Immediately following the merger, we refinanced $277.5 million of CatchMark's $300.0 million outstanding long-term debt and repaid the remaining $22.5 million with cash on hand. We also entered into $277.5 million of interest rate swaps to fix the interest rates on the refinanced long-term debt. Refer to Note 5: Debt and Note 6: Derivative Instruments for further information.

Based on guidance of ASC Topic 805, Business Combinations, we accounted for the transaction as an asset acquisition due to the determination that substantially all of the fair value of the assets acquired was concentrated in the acquired timber and timberlands asset group. See Note 1: Basis of Presentation for information on accounting and significant estimates associated with business combinations and asset acquisitions. The CatchMark timber and timberlands assets and operations are included in our Timberlands segment within the Southern region.

The following table summarizes the cost of the acquisition for accounting purposes:


(in thousands, except shares and per share amounts)
Total CatchMark shares and Partnership OP units outstanding to be converted1		48,688,754
Exchange ratio2		0.23
PotlatchDeltic shares issued as merger consideration		11,198,413
Price per PotlatchDeltic common share3	$	44.95
Value of PotlatchDeltic common shares issued as merger consideration	$	503,369
Attribution to consideration transferred for pre-merger services4		4,945
Total value of equity consideration		508,314
Cash paid in lieu of fractional shares		101
Transaction costs capitalized5		9,341
Purchase consideration	$	517,756

Number of shares of CatchMark common stock and Partnership OP units issued and outstanding as of September 14, 2022, immediately prior to the merger, net of fractional shares. These shares exclude 1.5 million unvested CatchMark share-based awards that fully vested, were exchanged for PotlatchDeltic shares upon closing of the merger and were allocated between the pre-merger and post-merger periods.

Exchange ratio per the merger agreement.

Closing price of PotlatchDeltic common stock on September 14, 2022.

Represents the fair value of CatchMark unvested share-based awards that fully vested upon closing of the merger allocated to the pre-merger period, net of impact from shares withheld to cover employee taxes.

Transaction costs include items such as investment banking fees, legal services, and other professional fees directly attributable to the merger. These costs are capitalized in an asset acquisition.

The following table reflects the fair value of assets acquired and liabilities assumed:


(in thousands)
ASSETS
Cash and cash equivalents	$	23,571
Other current assets		2,764
Intangible assets		3,000
Timber and timberlands		782,258
Other long-term assets1		29,265
Total assets acquired		840,858
LIABILITIES
Accounts payable and accrued liabilities		10,781
Long-term debt		300,000
Deferred tax liabilities, net		795
Other long-term liabilities2		11,526
Total liabilities assumed		323,102
Net assets acquired	$	517,756

Includes $19.2 million for interest rate swap contracts. See Note 6: Derivative Instruments for additional information.

Includes $9.4 million in uncertain tax position liabilities. See Note 9: Income Taxes for additional information.

During the three months ended September 30, 2022, we incurred non-capitalizable merger costs in connection with the CatchMark merger as follows:


(in thousands)
Severance benefits1	$	7,513
Partnership OP Units' tax gross-up2		8,124
Share-based compensation3		9,307
Other		1,063
Total merger expenses	$	26,007

Qualifying change-in-control and termination benefits for CatchMark executive officers and employees.

Tax gross-up payments to holders of Partnership OP Units, as defined in the merger agreement.

Share-based compensation for the acceleration of CatchMark equity awards that fully vested upon closing of the merger and were allocated to the post-merger period.

These costs are included in CatchMark merger related expenses in our Condensed Consolidated Statements of Operations.