UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June~~September 30, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________ to ______________

Commission file number 1-41642

Knife River Corporation

(Exact name of registrant as specified in its charter)


Delaware						92-1008893
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

1150 West Century Avenue

P.O. Box 5568

Bismarck, North Dakota 58506-5568

(Address of principal executive offices)

(Zip Code)

(701) 530-1400

(Registrant's telephone number, including area code)

~~Knife River Holding Company~~

~~(Former name, former address and former fiscal year, if changed since last report)~~

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value	KNF	New York Stock Exchange

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 ☐ No ☒.

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.


Large Accelerated Filer	☐	Accelerated Filer	☐
Non-Accelerated Filer	☒	Smaller Reporting Company	☐
		Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒.

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of ~~August 3,~~November 1, 2023: 56,566,214 shares.


Index
			Page
Definitions			3
Introduction			4
Part I -- Financial Information
Item 1. Financial Statements			5
Consolidated Statements of Operations -- Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2023 and 2022			5
Consolidated Statements of Comprehensive Income -- Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2023 and 2022			6
Consolidated Balance Sheets -- ~~June~~September 30, 2023 and December 31, 2022			7
Consolidated Statements of Equity -- Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2023 and 2022			8
Consolidated Statements of Cash Flows -- ~~Six~~Nine Months Ended ~~June~~September 30, 2023 and 2022			910
Notes to Consolidated Financial Statements			1011
1. Background			1011
2. Basis of presentation			1011

3. Receivables and allowance for expected credit losses			1213
4. Inventories			1314
5. Earnings per share			1314
6. Equity			1315
7. Accumulated other comprehensive loss			1415
8. Revenue from contracts with customers			1517
9. Uncompleted contracts			1618


10. Goodwill and other intangible assets			1719
11. Fair value measurements			1719
12. Debt			1921
13. Income taxes			2021
14. Cash flow information			2022
15. Business segment data			2122
16. Employee benefit plans			2224
17. Contingencies			2324
18. Related-party transactions			2325


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			2526
Item 3. Quantitative and Qualitative Disclosures About Market Risk			4344
Item 4. Controls and Procedures			44
Part II -- Other Information
Item 1. Legal Proceedings			4546
Item 1A. Risk Factors			4546
Item 2. Unregistered Sales of Equity Securities, ~~and~~ Use of Proceeds, and Issuer Purchases of Equity Securities			4546
Item 3. Defaults Upon Senior Securities			4546
Item 4. Mine Safety Disclosures			4546
Item 5. Other Information			4546
Item 6. Exhibits			4546
Exhibits Index			4647
Signatures			48

Index

Definitions

The following abbreviations and acronyms used in this Form 10-Q are defined below:


Abbreviation or Acronym
Agency			Publicly-funded work completed for state departments of transportation, as well as cities and counties
ASC			FASB Accounting Standards Codification
~~ASU~~CDL			~~FASB Accounting Standards Update~~Commercial driver's license
Centennial			Centennial Energy Holdings, Inc., a direct wholly owned subsidiary of MDU Resources and the direct parent company of Knife River prior to the spinoff
Company or Knife River			Knife River Corporation
COVID-19			Coronavirus disease 2019
Distribution			The distribution of approximately 90 percent of the outstanding shares of Knife River common stock to MDU Resources stockholders on a pro rata basis of one share of Knife River common stock for every four shares held of MDU Resources common stock
Dodd-Frank Act			Dodd-Frank Wall Street Reform and Consumer Protection Act
EBITDA			Earnings before interest, taxes, depreciation, depletion and amortization
EDGE			"Competitive EDGE" strategy implemented by the Company to improve margins and to execute on other strategic initiatives aimed at generating long-term profitable growth
Exchange Act			Securities Exchange Act of 1934, as amended
FASB			Financial Accounting Standards Board

GAAP			Accounting principles generally accepted in the United States of America



~~KRC Materials, Inc.~~IIJA			~~A direct wholly owned subsidiary of Knife River~~Infrastructure Investment and ~~prior to the Separation, a direct wholly owned subsidiary of Centennial~~Jobs Act
Knife River Corporation			The holding company established in conjunction with the Separation and, prior to the Separation, a direct wholly owned subsidiary of MDU Resources
MDU Resources			MDU Resources Group, Inc., the indirect parent company of Knife River prior to the spinoff
SEC			United States Securities and Exchange Commission
Separation			The separation of Knife River from MDU Resources' other businesses and the creation of an independent, publicly traded company
SOFR			Secured Overnight Financing Rate

Index

Introduction

Knife River is a leading aggregates-based construction materials and contracting services provider in the United States. The Company's aggregate reserves provide the foundation for its vertically integrated business strategy, with approximately 40 percent of its aggregates ~~for the year ended December 31, 2022,~~in 2023 being used internally to support value-added downstream products (ready-mix concrete and asphalt) and contracting services (heavy-civil construction, asphalt paving, concrete construction, site development and grading services). The Company provides construction materials and contracting services for both public and private customers and is focused on being the provider of choice in mid-size, high-growth markets. Knife River is committed to its plan for continued growth and to delivering for its stakeholders — customers, communities, employees and stockholders — by executing on its four core values: people, safety, quality and the environment.

The Company supplies construction materials to customers in 14 states and also provides related contracting services. It has broad access to high-quality aggregates in most of its markets, which forms the foundation of its vertically integrated business model. Knife River shares resources, including plants, equipment and people, across its various locations to maximize efficiency, and it transports its products by truck, rail and barge to complete the vertical value chain, depending on the particular market. The Company's strategically located aggregate sites, ready-mix plants and asphalt plants, along with its fleet of ready-mix and dump trucks, enables Knife River to better serve its customers. The Company believes its vertically integrated business model is a strong competitive advantage that provides scale, efficiency and operational excellence for the benefit of customers, stockholders and the broader communities that it serves.

The Company is organized into six operating regions: Pacific, Northwest, Mountain, North Central, South and Energy Services. These regions are used to determine the Company's reportable segments, which are based on the Company's method of internal reporting and are aligned by key geographic regions due to the production of construction materials and related contracting services following the seasonal nature of the construction industry. Knife River's reportable segments are: Pacific, Northwest, Mountain and North Central, with South and Energy Services included in the All Other category with its corporate services. The internal reporting of these segments is defined based on the reporting and review process used by the Company's chief executive ~~officer.~~and chief operating officers. For more information on the Company's business segments, see Note 15 of the Notes to Consolidated Financial Statements.

On May 31, 2023, ~~(the~~the Separation ~~and Distribution date),~~of Knife River from MDU Resources was completed as a tax-free spin-off for U.S. federal income tax purposes. As a result of the Separation, MDU Resources distributed shares representing approximately 90 percent of Knife River's outstanding common stock to holders of record of MDU Resources' common stock as of the close of business on May 22, ~~2023, in a spin-off that was tax-free for U.S. federal tax purposes.~~2023. Following the Distribution, Knife River became an independent, publicly traded company.

Index

Part I -- Financial Information

Item 1. Financial Statements

																			Knife River Corporation
Consolidated Statements of Operations	Consolidated Statements of Operations									Consolidated Statements of Operations
(Unaudited)	(Unaudited)									(Unaudited)
		Three Months Ended				Six Months Ended					Three Months Ended				Nine Months Ended
		June 30,									September 30,
		2023		2022		2023		2022			2023		2022		2023		2022
		(In thousands, except per share amounts)									(In thousands, except per share amounts)
Revenue:	Revenue:									Revenue:
Construction materials	Construction materials	$	431,752	$	381,131	$	624,669	$	576,829	Construction materials	$	553,057	$	483,221	$	1,177,726	$	1,060,051
Contracting services	Contracting services	353,437		330,682		468,420		444,949		Contracting services	537,315		492,207		1,005,736		937,156
Total revenue	Total revenue	785,189		711,813		1,093,089		1,021,778		Total revenue	1,090,372		975,428		2,183,462		1,997,207
Cost of revenue:	Cost of revenue:									Cost of revenue:
Construction materials	Construction materials	316,179		303,498		510,308		506,355		Construction materials	346,298		340,609		856,606		846,965
Contracting services	Contracting services	316,027		304,974		425,703		410,968		Contracting services	474,685		450,332		900,388		861,300
Total cost of revenue	Total cost of revenue	632,206		608,472		936,011		917,323		Total cost of revenue	820,983		790,941		1,756,994		1,708,265
Gross profit	Gross profit	152,983		103,341		157,078		104,455		Gross profit	269,389		184,487		426,468		288,942
Selling, general and administrative expenses	Selling, general and administrative expenses	59,450		42,933		108,108		88,652		Selling, general and administrative expenses	59,168		41,572		167,276		130,223
Operating income	Operating income	93,533		60,408		48,970		15,803		Operating income	210,221		142,915		259,192		158,719
Interest expense	Interest expense	19,156		7,424		28,651		12,690		Interest expense	15,354		8,817		44,005		21,506
Other income (expense)	Other income (expense)	2,478		(2,842)		3,304		(4,778)		Other income (expense)	7		(1,277)		3,311		(6,056)
Income (loss) before income taxes		76,855		50,142		23,623		(1,665)
Income tax expense (benefit)		20,019		11,580		8,107		(217)
Net income (loss)		$	56,836	$	38,562	$	15,516	$	(1,448)
Income before income taxes										Income before income taxes	194,874		132,821		218,498		131,157
Income tax expense										Income tax expense	48,219		33,164		56,327		32,947
Net income										Net income	$	146,655	$	99,657	$	162,171	$	98,210

Net income (loss) per share:
Net income per share:										Net income per share:
Basic	Basic	$	1.00	$	.68	$	.27	$	(.03)	Basic	$	2.59	$	1.76	$	2.87	$	1.74
Diluted	Diluted	$	1.00	$	.68	$	.27	$	(.03)	Diluted	$	2.58	$	1.76	$	2.86	$	1.74
Weighted average common shares outstanding:	Weighted average common shares outstanding:									Weighted average common shares outstanding:
Basic	Basic	56,566								Basic	56,566
Diluted	Diluted	56,599		56,566		56,583		56,566		Diluted	56,735		56,566		56,633		56,566

The accompanying notes are an integral part of these consolidated financial statements.

Index


Knife River Corporation	Knife River Corporation									Knife River Corporation
Consolidated Statements of Comprehensive Income	Consolidated Statements of Comprehensive Income									Consolidated Statements of Comprehensive Income
(Unaudited)	(Unaudited)									(Unaudited)
		Three Months Ended				Six Months Ended					Three Months Ended				Nine Months Ended
		June 30,									September 30,
		2023		2022		2023		2022			2023		2022		2023		2022
		(In thousands)									(In thousands)
Net income (loss)		$	56,836	$	38,562	$	15,516	$	(1,448)
Net income										Net income	$	146,655	$	99,657	$	162,171	$	98,210
Other comprehensive income:	Other comprehensive income:									Other comprehensive income:
Reclassification adjustment for loss on derivative instruments included in net income (loss), net of tax of $13 and $27 for the three months ended and $28 and $54 for the six months ended in 2023 and 2022, respectively		44		82		90		164
Reclassification adjustment for loss on derivative instruments included in net income, net of tax of $— and $27 for the three months ended and $28 and $80 for the nine months ended in 2023 and 2022, respectively										Reclassification adjustment for loss on derivative instruments included in net income, net of tax of $— and $27 for the three months ended and $28 and $80 for the nine months ended in 2023 and 2022, respectively	—		82		90		246
Postretirement liability adjustment:	Postretirement liability adjustment:									Postretirement liability adjustment:
Postretirement liability gains (losses) arising during the period, net of tax of $(6) and $1,879 for the three months ended and $(6) and $1,879 for the six months ended in 2023 and 2022, respectively		(17)		5,820		(17)		5,820
Amortization of postretirement liability losses included in net periodic benefit cost, net of tax of $15 and $71 for the three months ended and $31 and $142 for the six months ended in 2023 and 2022, respectively		48		220		95		441
Postretirement liability gains (losses) arising during the period, net of tax of $— and $— for the three months ended and $(6) and $1,879 for the nine months ended in 2023 and 2022, respectively										Postretirement liability gains (losses) arising during the period, net of tax of $— and $— for the three months ended and $(6) and $1,879 for the nine months ended in 2023 and 2022, respectively	—		—		(17)		5,820
Amortization of postretirement liability losses included in net periodic benefit cost, net of tax of $16 and $71 for the three months ended and $47 and $213 for the nine months ended in 2023 and 2022, respectively										Amortization of postretirement liability losses included in net periodic benefit cost, net of tax of $16 and $71 for the three months ended and $47 and $213 for the nine months ended in 2023 and 2022, respectively	49		221		144		662
Postretirement liability adjustment	Postretirement liability adjustment	31		6,040		78		6,261		Postretirement liability adjustment	49		221		127		6,482
Other comprehensive income	Other comprehensive income	75		6,122		168		6,425		Other comprehensive income	49		303		217		6,728
Comprehensive income attributable to common stockholders	Comprehensive income attributable to common stockholders	$	56,911	$	44,684	$	15,684	$	4,977	Comprehensive income attributable to common stockholders	$	146,704	$	99,960	$	162,388	$	104,938

The accompanying notes are an integral part of these consolidated financial statements.

Index


Knife River Corporation	Knife River Corporation					Knife River Corporation
Consolidated Balance Sheets	Consolidated Balance Sheets					Consolidated Balance Sheets
(Unaudited)	(Unaudited)					(Unaudited)
		June 30, 2023		December 31, 2022			September 30, 2023		December 31, 2022
Assets	Assets	(In thousands, except shares and per share amounts)				Assets	(In thousands, except shares and per share amounts)
Current assets:	Current assets:					Current assets:
Cash, cash equivalents and restricted cash	Cash, cash equivalents and restricted cash	$	68,489	$	10,090	Cash, cash equivalents and restricted cash	$	116,159	$	10,090
Receivables, net	Receivables, net	418,620		210,157		Receivables, net	491,866		210,157
Costs and estimated earnings in excess of billings on uncompleted contracts	Costs and estimated earnings in excess of billings on uncompleted contracts	58,020		31,145		Costs and estimated earnings in excess of billings on uncompleted contracts	50,545		31,145
Due from related-party	Due from related-party	—		16,050		Due from related-party	—		16,050
Inventories	Inventories	374,377		323,277		Inventories	314,711		323,277
Prepayments and other current assets	Prepayments and other current assets	38,820		17,848		Prepayments and other current assets	38,094		17,848
Total current assets	Total current assets	958,326		608,567		Total current assets	1,011,375		608,567
Noncurrent assets:	Noncurrent assets:					Noncurrent assets:
Property, plant and equipment	Property, plant and equipment	2,533,435		2,489,408		Property, plant and equipment	2,547,577		2,489,408
Less accumulated depreciation, depletion and amortization	Less accumulated depreciation, depletion and amortization	1,221,966		1,174,195		Less accumulated depreciation, depletion and amortization	1,248,042		1,174,195
Net property, plant and equipment	Net property, plant and equipment	1,311,469		1,315,213		Net property, plant and equipment	1,299,535		1,315,213
Goodwill	Goodwill	274,478		274,540		Goodwill	274,478		274,540
Other intangible assets, net	Other intangible assets, net	12,110		13,430		Other intangible assets, net	11,463		13,430
Operating lease right-of-use assets	Operating lease right-of-use assets	45,933		45,873		Operating lease right-of-use assets	44,309		45,873
Investments and other	Investments and other	40,581		36,696		Investments and other	39,722		36,696
Total noncurrent assets	Total noncurrent assets	1,684,571		1,685,752		Total noncurrent assets	1,669,507		1,685,752
Total assets	Total assets	$	2,642,897	$	2,294,319	Total assets	$	2,680,882	$	2,294,319
Liabilities and Stockholders' Equity	Liabilities and Stockholders' Equity					Liabilities and Stockholders' Equity
Current liabilities:	Current liabilities:					Current liabilities:
Long-term debt - current portion	Long-term debt - current portion	$	7,082	$	211	Long-term debt - current portion	$	7,082	$	211
Related-party notes payable - current portion	Related-party notes payable - current portion	—		238,000		Related-party notes payable - current portion	—		238,000
Accounts payable	Accounts payable	174,603		87,370		Accounts payable	148,977		87,370
Billings in excess of costs and estimated earnings on uncompleted contracts	Billings in excess of costs and estimated earnings on uncompleted contracts	44,590		39,843		Billings in excess of costs and estimated earnings on uncompleted contracts	58,785		39,843
Taxes payable	Taxes payable	29,878		8,502		Taxes payable	53,281		8,502
Accrued compensation	Accrued compensation	26,041		29,192		Accrued compensation	37,922		29,192
Due to related-party	Due to related-party	—		20,286		Due to related-party	—		20,286
Current operating lease liabilities	Current operating lease liabilities	14,067		13,210		Current operating lease liabilities	13,702		13,210
Other accrued liabilities	Other accrued liabilities	88,095		80,276		Other accrued liabilities	105,218		80,276
Total current liabilities	Total current liabilities	384,356		516,890		Total current liabilities	424,967		516,890
Noncurrent liabilities:	Noncurrent liabilities:					Noncurrent liabilities:
Long-term debt	Long-term debt	832,047		427		Long-term debt	675,649		427
Related-party notes payable	Related-party notes payable	—		446,449		Related-party notes payable	—		446,449
Deferred income taxes	Deferred income taxes	170,502		175,804		Deferred income taxes	173,989		175,804
Noncurrent operating lease liabilities	Noncurrent operating lease liabilities	31,866		32,663		Noncurrent operating lease liabilities	30,607		32,663
Other	Other	129,274		93,497		Other	132,652		93,497
Total liabilities	Total liabilities	1,548,045		1,265,730		Total liabilities	1,437,864		1,265,730
Commitments and contingencies	Commitments and contingencies					Commitments and contingencies
Stockholders' equity:	Stockholders' equity:					Stockholders' equity:
Common stock, 300,000,000 shares authorized, $0.01 par value, 56,997,350 shares issued and 56,566,214 shares outstanding at June 30, 2023; 80,000 shares authorized, issued and outstanding, $10 par value at December 31, 2022		570		800
Common stock, 300,000,000 shares authorized, $0.01 par value, 56,997,350 shares issued and 56,566,214 shares outstanding at September 30, 2023; 80,000 shares authorized, issued and outstanding, $10 par value at December 31, 2022						Common stock, 300,000,000 shares authorized, $0.01 par value, 56,997,350 shares issued and 56,566,214 shares outstanding at September 30, 2023; 80,000 shares authorized, issued and outstanding, $10 par value at December 31, 2022	570		800
Other paid-in capital	Other paid-in capital	611,562		549,106		Other paid-in capital	613,024		549,106
Retained earnings	Retained earnings	498,530		494,661		Retained earnings	645,185		494,661
MDU Resources common stock held by subsidiary at cost - 538,921 shares at December 31, 2022	MDU Resources common stock held by subsidiary at cost - 538,921 shares at December 31, 2022	—		(3,626)		MDU Resources common stock held by subsidiary at cost - 538,921 shares at December 31, 2022	—		(3,626)
Treasury stock held at cost - 431,136 shares	Treasury stock held at cost - 431,136 shares	(3,626)		—		Treasury stock held at cost - 431,136 shares	(3,626)		—
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(12,184)		(12,352)		Accumulated other comprehensive loss	(12,135)		(12,352)
Total stockholders' equity	Total stockholders' equity	1,094,852		1,028,589		Total stockholders' equity	1,243,018		1,028,589
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity	$	2,642,897	$	2,294,319	Total liabilities and stockholders' equity	$	2,680,882	$	2,294,319

The accompanying notes are an integral part of these consolidated financial statements.

Index

Knife River Corporation
Consolidated Statements of Equity
(Unaudited)
Common Stock Other
Paid-in Capital Retained Earnings MDU Resources' Stock Held
by Subsidiary Accumula-ted Other Comprehe-nsive Loss Treasury Stock
Shares Amount Shares Amount Shares Amount Total
(In thousands, except shares)
At December 31, 2022 80,000 $ 800 $ 549,106 $ 494,661 (538,921) $ (3,626) $ (12,352) — $ — $ 1,028,589
Net loss — — — (41,320) — — — — — (41,320)
Other comprehensive income — — — — — — 93 — — 93
Stock-based compensation — — 453 (39) — — — — — 414
Net transfers to Centennial — — (1,385) (11,622) — — — — — (13,007)
At March 31, 2023 80,000 $ 800 $ 548,174 $ 441,680 (538,921) $ (3,626) $ (12,259) — $ — $ 974,769
Net income — — — 56,836 — — — — — 56,836
Other comprehensive Income — — — — — — 75 — — 75
Stock-based compensation — — 212 14 — — — — — 226
Transfer of MDU Resources' stock held by subsidiary — — — — 538,921 3,626 — — — 3,626
Receipt of treasury stock at cost — — — — — — — (431,136) (3,626) (3,626)
Retirement of historical common stock in connection with the Separation (80,000) (800) 800 — — — — — — —
Issuance of common stock in connection with the Separation 56,997,350 570 (596) — — — — — — (26)
Net transfers from Centennial and MDU Resources including Separation adjustments — — 62,972 — — — — — — 62,972
At June 30, 2023 56,997,350 $ 570 $ 611,562 $ 498,530 — $ — $ (12,184) (431,136) $ (3,626) $ 1,094,852


Knife River Corporation																														Knife River Corporation
Consolidated Statements of Equity																														Consolidated Statements of Equity
(Unaudited)																														(Unaudited)
																															Common Stock			Other Paid-in Capital		Retained Earnings		MDU Resources' Stock Held by Subsidiary			Treasury Stock			Accumula-ted Other Comprehe-nsive Loss
			Shares			Amount			Other Paid-in Capital			Retained Earnings		Shares			Amount			Shares			Amount			Accumula-ted Other Comprehe-nsive Loss			Total
			(In thousands, except shares)

		Common Stock					Other Paid-in Capital							Retained Earnings			MDU Resources' Stock Held by Subsidiary						Accumula-ted Other Comprehe-nsive Loss			Treasury Stock
		Shares		Amount						Shares			Amount				Shares			Amount						Total
		(In thousands, except shares)
At December 31, 2021		80,000		$	800		$	549,714		$	430,446		(538,921)			$	(3,626)		$	(24,490)		—			$	—		$	952,844
At December 31, 2022																														At December 31, 2022	80,000	$	800	$	549,106	$	494,661	(538,921)	$	(3,626)	—	$	—	$	(12,352)	$	1,028,589
Net loss	Net loss	—		—			—			(40,010)			—		—			—			—			—			(40,010)			Net loss	—	—		—		(41,320)		—	—		—	—		—		(41,320)
Other comprehensive income	Other comprehensive income	—		—			—			—			—		—			303			—			—			303			Other comprehensive income	—	—		—		—		—	—		—	—		93		93
Stock-based compensation	Stock-based compensation	—		—			333			(27)			—		—			—			—			—			306			Stock-based compensation	—	—		453		(39)		—	—		—	—		—		414
Net transfers to Centennial	Net transfers to Centennial	—		—			(3,432)			(12,976)			—		—			—			—			—			(16,408)			Net transfers to Centennial	—	—		(1,385)		(11,622)		—	—		—	—		—		(13,007)
At March 31, 2022		80,000		$	800		$	546,615		$	377,433		(538,921)		$	(3,626)		$	(24,187)		—			$	—		$	897,035
At March 31, 2023																														At March 31, 2023	80,000	$	800	$	548,174	$	441,680	(538,921)	$	(3,626)	—	$	—	$	(12,259)	$	974,769
Net income																														Net income	—	—		—		56,836		—	—		—	—		—		56,836
Other comprehensive Income																														Other comprehensive Income	—	—		—		—		—	—		—	—		75		75
Stock-based compensation																														Stock-based compensation	—	—		212		14		—	—		—	—		—		226
Transfer of MDU Resources' stock held by subsidiary																														Transfer of MDU Resources' stock held by subsidiary	—	—		—		—		538,921	3,626		—	—		—		3,626
Receipt of treasury stock at cost																														Receipt of treasury stock at cost	—	—		—		—		—	—		(431,136)	(3,626)		—		(3,626)
Retirement of historical common stock in connection with the Separation																														Retirement of historical common stock in connection with the Separation	(80,000)	(800)		800		—		—	—		—	—		—		—
Issuance of common stock in connection with the Separation																														Issuance of common stock in connection with the Separation	56,997,350	570		(596)		—		—	—		—	—		—		(26)
Net transfers from Centennial and MDU Resources including Separation adjustments																														Net transfers from Centennial and MDU Resources including Separation adjustments	—	—		62,972		—		—	—		—	—		—		62,972
At June 30, 2023																														At June 30, 2023	56,997,350	$	570	$	611,562	$	498,530	—	$	—	(431,136)	$	(3,626)	$	(12,184)	$	1,094,852
Net income	Net income	—		—			—			38,562			—		—			—			—			—			38,562			Net income	—	—		—		146,655		—	—		—	—		—		146,655
Other comprehensive income	Other comprehensive income	—		—			—			—			—		—			6,122			—			—			6,122			Other comprehensive income	—	—		—		—		—	—		—	—		49		49
Stock-based compensation	Stock-based compensation	—		—			333			(27)			—		—			—			—			—			306			Stock-based compensation	—	—		1,462		—		—	—		—	—		—		1,462
Net transfers to Centennial		—		—			(5,063)			(12,974)			—		—			—			—			—			(18,037)
At June 30, 2022		80,000		$	800		$	541,885		$	402,994		(538,921)		$	(3,626)		$	(18,065)		—			$	—		$	923,988

At September 30, 2023																														At September 30, 2023	56,997,350	$	570	$	613,024	$	645,185	—	$	—	(431,136)	$	(3,626)	$	(12,135)	$	1,243,018

The accompanying notes are an integral part of these consolidated financial statements.

Index

Knife River Corporation
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
June 30,
2023 2022
(In thousands)
Operating activities:
Net income (loss) $ 15,516 $ (1,448)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation, depletion and amortization 60,760 58,101
Deferred income taxes (5,355) (975)
Provision for credit losses 1,015 (241)
Amortization of debt issuance costs 2,059 228
Employee stock-based compensation costs 665 666
Pension and postretirement benefit plan net periodic benefit cost 595 654
Unrealized (gains) losses on investments (1,282) 2,631
Gains on sales of assets (3,356) (2,498)
Changes in current assets and liabilities, net of acquisitions:
Receivables (236,395) (215,158)
Due from related-party 16,050 1,013
Inventories (51,100) (66,253)
Other current assets (20,853) (16,782)
Accounts payable 102,566 73,082
Due to related-party (7,310) 9,836
Other current liabilities 25,598 8,749
Pension and postretirement benefit plan contributions (292) (208)
Other noncurrent changes 30,741 794
Net cash used in operating activities (70,378) (147,809)
Investing activities:
Capital expenditures (66,578) (80,254)
Acquisitions, net of cash acquired — (524)
Net proceeds from sale or disposition of property and other 4,117 4,294
Investments (1,655) (1,608)
Net cash used in investing activities (64,116) (78,092)
Financing activities:
Issuance of current related-party notes, net — 100,000
Issuance of long-term related-party notes, net 205,275 154,923
Issuance of long-term debt 855,000 —
Repayment of long-term debt (127) (147)
Debt issuance costs (16,640) (749)
Proceeds from issuance of common stock (26) —
Net transfers to Centennial (850,589) (29,261)
Net cash provided by financing activities 192,893 224,766
Increase (decrease) in cash, cash equivalents and restricted cash 58,399 (1,135)
Cash, cash equivalents and restricted cash -- beginning of year 10,090 13,848
Cash, cash equivalents and restricted cash -- end of period $ 68,489 $ 12,713


Knife River Corporation
Consolidated Statements of Equity
(Unaudited)
	Common Stock			Other Paid-in Capital		Retained Earnings		MDU Resources' Stock Held by Subsidiary			Treasury Stock			Accumula-ted Other Comprehe-nsive Loss
	Shares	Amount						Shares	Amount		Shares	Amount				Total
	(In thousands, except shares)
At December 31, 2021	80,000	$	800	$	549,714	$	430,446	(538,921)	$	(3,626)	—	$	—	$	(24,490)	$	952,844
Net loss	—	—		—		(40,010)		—	—		—	—		—		(40,010)
Other comprehensive income	—	—		—		—		—	—		—	—		303		303
Stock-based compensation	—	—		333		(27)		—	—		—	—		—		306
Net transfers to Centennial	—	—		(3,432)		(12,976)		—	—		—	—		—		(16,408)
At March 31, 2022	80,000	$	800	$	546,615	$	377,433	(538,921)	$	(3,626)	—	$	—	$	(24,187)	$	897,035
Net income	—	—		—		38,562		—	—		—	—		—		38,562
Other comprehensive income	—	—		—		—		—	—		—	—		6,122		6,122
Stock-based compensation	—	—		333		(27)		—	—		—	—		—		306
Net transfers to Centennial	—	—		(5,063)		(12,974)		—	—		—	—		—		(18,037)
At June 30, 2022	80,000	$	800	$	541,885	$	402,994	(538,921)	$	(3,626)	—	$	—	$	(18,065)	$	923,988
Net income	—	—		—		99,657		—	—		—	—		—		99,657
Other comprehensive income	—	—		—		—		—	—		—	—		303		303
Stock-based compensation	—	—		134		(11)		—	—		—	—		—		123
Net transfers (from) to Centennial	—	—		220		(12,975)		—	—		—	—		—		(12,755)
At September 30, 2022	80,000	$	800	$	542,239	$	489,665	(538,921)	$	(3,626)	—	$	—	$	(17,762)	$	1,011,316

The accompanying notes are an integral part of these consolidated financial statements.

Index


Knife River Corporation
Consolidated Statements of Cash Flows
(Unaudited)
	Nine Months Ended
	September 30,
	2023		2022
	(In thousands)
Operating activities:
Net income	$	162,171	$	98,210
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization	92,511		88,551
Deferred income taxes	(1,884)		5,043
Provision for credit losses	1,386		(296)
Amortization of debt issuance costs	2,425		355
Employee stock-based compensation costs	2,127		800
Pension and postretirement benefit plan net periodic benefit cost	889		981
Unrealized (gains) losses on investments	(685)		3,172
Gains on sales of assets	(3,806)		(3,575)
Changes in current assets and liabilities, net of acquisitions:
Receivables	(302,536)		(239,565)
Due from related-party	16,050		1,258
Inventories	8,566		(18,624)
Other current assets	(20,127)		835
Accounts payable	91,663		69,552
Due to related-party	(7,310)		9,829
Other current liabilities	78,006		21,786
Pension and postretirement benefit plan contributions	(1,611)		(313)
Other noncurrent changes	35,092		1,400
Net cash provided by operating activities	152,927		39,399
Investing activities:
Capital expenditures	(86,450)		(121,840)
Acquisitions, net of cash acquired	—		450
Net proceeds from sale or disposition of property and other	5,227		5,716
Investments	(1,764)		(2,226)
Net cash used in investing activities	(82,987)		(117,900)
Financing activities:
Issuance of current related-party notes, net	—		100,000
Issuance of long-term related-party notes, net	205,275		26,872
Issuance of long-term debt	700,000		—
Repayment of long-term debt	(1,891)		(206)
Debt issuance costs	(16,640)		(749)
Proceeds from issuance of common stock	(26)		—
Net transfers to Centennial	(850,589)		(42,236)
Net cash provided by financing activities	36,129		83,681
Increase in cash, cash equivalents and restricted cash	106,069		5,180
Cash, cash equivalents and restricted cash -- beginning of year	10,090		13,848
Cash, cash equivalents and restricted cash -- end of period	$	116,159	$	19,028

The accompanying notes are an integral part of these consolidated financial statements.

Index

Knife River Corporation

Notes to Consolidated

Financial Statements

~~June~~September 30, 2023 and 2022

(Unaudited)

Note 1 - Background

On August 4, 2022, MDU Resources announced that its board of directors approved a plan to pursue the Separation of ~~the~~ Knife River from MDU Resources. On May 31, 2023, ~~the Company settled its net parent investment with Centennial and~~ the Separation was completed by a pro rata distribution of shares representing approximately 90 percent of Knife River's outstanding common stock to MDU Resources' stockholders. MDU Resources' stockholders received one share of Knife River common stock for every four shares of MDU Resources common stock held as of the close of business on May 22, 2023. MDU Resources retained approximately 10 percent of Knife River's common stock. The Distribution was tax-free to its stockholders for U. S. federal income tax purposes. At the time of the Separation, the net parent investment in Knife River held by Centennial was settled between the companies. As a result of the Separation, Knife River is now an independent public company trading on the New York Stock Exchange under the symbol "KNF." More information on the Separation and Distribution, as well as the Company's historical results, can be found within the Company's Registration Statement on Form 10.

Note 2 - Basis of presentation

The accompanying consolidated interim financial statements were prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Interim financial statements do not include all disclosures provided in annual financial statements and, accordingly, these financial statements should be read in conjunction with the Company's Registration Statement on Form 10. The information is unaudited but includes adjustments that are, in the opinion of management, necessary for a fair presentation of the accompanying consolidated interim financial statements and are of a normal recurring nature.

On May 31, 2023, the Company became a stand-alone publicly traded company. Prior to the Separation on May 31, 2023, Knife River operated as a wholly owned subsidiary of Centennial and an indirect, wholly owned subsidiary of MDU Resources and not as a stand-alone company. These consolidated financial statements and footnotes reflect the historical financial position, results of operations and cash flows of the Company as historically managed within MDU Resources for the periods prior to the completion of the Separation and reflect the financial position, results of operations and cash flows as a stand-alone company for the period after the completion of the Separation. The historical consolidated financial statements and footnotes were prepared on a “carve-out” basis in connection with the Separation and were derived from the consolidated financial statements of MDU Resources as if the Company operated on a stand-alone basis during the periods presented, and were prepared utilizing the legal entity approach in conformity with GAAP. The results for the three and ~~six~~nine months ended ~~June~~September 30, 2022, vary from the previously reported MDU Resources' construction materials and contracting services segment due to an adjustment to a cost allocation for interim periods to conform with the Company's current year accounting. This adjustment does not impact the historical annual financial statements included in the Company's Registration Statement on Form 10. This adjustment increased cost of revenue for the three months ended September 30, 2022, by $4.4 million ($3.4 million after tax) and decreased cost of revenue for the nine months ended September 30, 2022, by ~~$6.0~~$1.6 million ($~~4.6~~1.2 million after tax) ~~for the three and six months ended June 30, 2022.~~. The adjustment is not considered material for the three or ~~six~~nine months ended ~~June~~September 30, 2022.

The Company utilized allocations and carve-out methodologies to prepare its historical consolidated financial statements and footnotes. The consolidated financial statements and footnotes herein may not be indicative of the Company's future performance or actual expenses that would have been incurred as a stand-alone company for the periods presented.

All revenues and costs, as well as assets and liabilities, directly associated with the business activity of the Company are included in the consolidated financial statements. In the periods prior to the Separation, the consolidated financial statements include expense allocations for certain functions provided by MDU Resources and Centennial, including, but not limited to certain general corporate expenses related to senior management, legal, human resources, finance and accounting, treasury, information technology, communications, procurement, tax, insurance and other shared services. These general corporate expenses are included in the Consolidated Statements of Operations within selling, general and administrative ~~expenses. The~~expenses and other income (expense). There were no amounts allocated ~~were $4.4 million and $9.0 million~~to Knife River for the three ~~and six~~ months ended ~~June~~September 30, 2023, ~~respectively,~~ and ~~$4.7~~$8.7 million ~~and $9.7 million~~was allocated for the nine months ended September 30, 2023. For the three and ~~six~~nine months ended ~~June~~September 30, 2022, ~~respectively.~~there was $3.8 million and $13.4 million, respectively, allocated to Knife River. These expenses have been allocated to the Company on the basis of direct usage when identifiable, with the remainder principally allocated on the basis of percent of total capital invested or other allocation methodologies that are considered to be a reasonable reflection of the utilization of the services provided to the benefits received, including the following: number of employees paid and stated as cost per check; number of employees served; weighted factor of travel, managed units, national account spending, equipment and fleet acquisitions; purchase order dollars spent and purchase order line count; number of payments, vouchers or unclaimed property reports; labor hours; time tracked; and projected workload.

1011

Index

Prior to the Separation, Knife River historically participated in Centennial’s centralized cash management program, including its overall financing arrangements. This arrangement is not reflective of the manner in which the Company would have been able to finance its operations had it been independent from MDU Resources for the period prior to the completion of the Separation. Knife River had related-party note agreements in place with Centennial for the financing of its capital needs, which are reflected as related-party notes payable on the Consolidated Balance Sheets as of December 31, 2022. The related-party notes payable to Centennial at May 30, 2023, was $889.7 million. As part of the Separation, Centennial made an equity contribution to the Company to release the Company of its obligation related to the outstanding notes payable. Also as part of the Separation, the Company entered into debt agreements and subsequently paid a dividend of $825.0 million from the debt proceeds to Centennial, which Centennial used to repay a portion of the Company's outstanding indebtedness. These transactions resulted in the Company receiving a net equity contribution of $64.7 million and is reflected as "Net transfers from Centennial and MDU Resources including separation adjustments" in the Consolidated Statement of Equity. Interest expense in the Consolidated Statements of Operations includes the allocation of interest on borrowing and funding associated with the related-party note agreements for periods prior to the Separation.

Prior to the Separation, income tax expense and tax balances in the consolidated financial statements were calculated on a separate tax return basis. The separate tax return method applies the accounting guidance for income taxes to the standalone financial statements as if the Company were a separate taxpayer and a standalone enterprise. Management believes the assumptions supporting the allocation and presentation of income taxes on a separate return basis are reasonable. As a stand-alone entity, the Company will file tax returns on its own behalf, and tax balances and effective income tax rate may differ from the amounts reported in the historical periods.

Management has also evaluated the impact of events occurring after ~~June~~September 30, 2023, up to the date of issuance of these consolidated interim financial statements on ~~August 8,~~November 6, 2023, that would require recognition or disclosure in the Consolidated Financial Statements.

Principles of consolidation

For the pre-Separation periods, the accompanying financial statements of the Company were derived from the consolidated financial statements and accounting records of MDU Resources as if the Company and its wholly owned subsidiaries operated on a stand-alone basis during the periods presented. The consolidated financial statements were prepared in accordance with GAAP and include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions between the businesses comprising the Company have been eliminated in the accompanying consolidated financial statements. Related-party transactions between the Company and MDU Resources or Centennial for general operating activities and intercompany debt have been included in the consolidated financial statements for the pre-Separation periods. These related-party transactions were settled in cash and are reflected in the pre-Separation Consolidated Balance Sheets as “Due from related-party” or “Due to related-party” with the aggregate net effect reflected in the Consolidated Statements of Cash Flows within operating activities and “Related-party notes payable” with the aggregate net effect reflected in the Consolidated Statements of Cash Flows within financing activities.

The aggregate net effect of related-party transactions not settled in cash as part of the Separation have been reflected in the pre-Separation Consolidated Balance Sheet within “Other paid-in capital”. See Note 18 for additional information on related-party transactions.

Use of estimates

The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Estimates are used for items such as long-lived assets and goodwill; fair values of acquired assets and liabilities under the acquisition method of accounting; aggregate reserves; property depreciable lives; tax provisions; revenue recognized using the cost-to-cost measure of progress for contracts; expected credit losses; environmental and other loss contingencies; costs on contracting services contracts; actuarially determined benefit costs; asset retirement obligations; lease classification; present value of right-of-use assets and lease liabilities; and the valuation of stock-based compensation. These estimates are based on management’s best knowledge of current events, historical experience, actions that the Company may undertake in the future and on various other assumptions that are believed to be reasonable under the circumstances. As additional information becomes available, or actual amounts are determinable, the recorded estimates are revised. Consequently, operating results can be affected by revisions to prior accounting estimates.

New accounting standards

There have been no recent accounting standards that are expected to materially affect the Company.

Cash, cash equivalents and restricted cash

The Company considers all highly liquid investments with an original maturity of three months or less, when purchased, to be cash and cash equivalents. At ~~June~~September 30, 2023, the ~~$68.5~~$116.2 million of cash, cash equivalents and restricted cash on the Consolidated Statements of Cash Flows is comprised of ~~$40.1~~$84.0 million of cash and cash equivalents and ~~$28.4~~$32.2 million of restricted cash. At ~~June~~September 30, 2022, the Company did not have any restricted cash. Restricted cash represents deposits held by Knife

Index

River's captive insurance company that is required by state insurance regulations to remain in the captive insurance company as cash.

~~Index~~

Seasonality of operations

Some of the Company's operations are seasonal and revenues from, and certain expenses for, such operations may fluctuate significantly among quarterly periods, with lower activity in the winter months and higher activity in the summer months. Accordingly, the interim results for particular segments, and for the Company as a whole, may not be indicative of results for the full fiscal year or other future periods.

Note 3 - Receivables and allowance for expected credit losses

Receivables consist primarily of trade and contract receivables for the sale of goods and services net of expected credit losses. A majority of the Company's receivables are due in 30 days or less. The total balance of receivables past due 90 days or more was ~~$11.6~~$14.4 million and $11.2 million at ~~June~~September 30, 2023 and December 31, 2022, respectively. Receivables were as follows:


		June 30, 2023		December 31, 2022			September 30, 2023		December 31, 2022
		(In thousands)					(In thousands)
Trade receivables	Trade receivables	$	220,948	$	104,347	Trade receivables	$	236,373	$	104,347
Contract receivables	Contract receivables	173,318		82,428		Contract receivables	223,874		82,428
Retention receivables	Retention receivables	30,224		28,859		Retention receivables	37,814		28,859
Receivables, gross	Receivables, gross	424,490		215,634		Receivables, gross	498,061		215,634
Less expected credit loss	Less expected credit loss	5,870		5,477		Less expected credit loss	6,195		5,477
Receivables, net	Receivables, net	$	418,620	$	210,157	Receivables, net	$	491,866	$	210,157

The Company's expected credit losses are determined through a review using historical credit loss experience; changes in asset specific characteristics; current conditions; and reasonable and supportable future forecasts, among other specific account data, and is performed at least quarterly. The Company develops and documents its methodology to determine its allowance for expected credit losses. Risk characteristics used by the Company may include customer mix, knowledge of customers and general economic conditions of the various local economies, among others. Specific account balances are written off when management determines the amounts to be uncollectible. Management has reviewed the balance reserved through the allowance for expected credit losses and believes it is reasonable.

Details of the Company's expected credit losses were as follows:

Pacific Northwest Mountain North
Central All Other Total
(In thousands)
At December 31, 2022 $ 2,045 $ 1,253 $ 1,278 $ 839 $ 62 $ 5,477
Current expected credit loss provision 45 313 164 (89) (1) 432
Less write-offs charged against the allowance 1 68 18 — — 87
At March 31, 2023 $ 2,089 $ 1,498 $ 1,424 $ 750 $ 61 $ 5,822
Current expected credit loss provision 9 74 631 (132) 1 583
Less write-offs charged against the allowance 18 512 3 — 2 535
At June 30, 2023 $ 2,080 $ 1,060 $ 2,052 $ 618 $ 60 $ 5,870


		Pacific		Northwest		Mountain		North Central		All Other		Total			Pacific		Northwest		Mountain		North Central		All Other		Total
		(In thousands)													(In thousands)
At December 31, 2021		$	2,052	$	512	$	1,610	$	1,152	$	80	$	5,406
At December 31, 2022														At December 31, 2022	$	2,045	$	1,253	$	1,278	$	839	$	62	$	5,477
Current expected credit loss provision	Current expected credit loss provision	1		(125)		(130)		6		(5)		(253)		Current expected credit loss provision	45		313		164		(89)		(1)		432
Less write-offs charged against the allowance	Less write-offs charged against the allowance	1		20		4		1		1		27		Less write-offs charged against the allowance	1		68		18		—		—		87

At March 31, 2022		$	2,052	$	367	$	1,476	$	1,157	$	74	$	5,126
At March 31, 2023														At March 31, 2023	$	2,089	$	1,498	$	1,424	$	750	$	61	$	5,822
Current expected credit loss provision	Current expected credit loss provision	11		58		(17)		(37)		(3)		12		Current expected credit loss provision	9		74		631		(132)		1		583
Less write-offs charged against the allowance	Less write-offs charged against the allowance	—		56		4		47		2		109		Less write-offs charged against the allowance	18		512		3		—		2		535

At June 30, 2022		$	2,063	$	369	$	1,455	$	1,073	$	69	$	5,029
At June 30, 2023														At June 30, 2023	$	2,080	$	1,060	$	2,052	$	618	$	60	$	5,870
Current expected credit loss provision														Current expected credit loss provision	46		242		(152)		215		20		371
Less write-offs charged against the allowance														Less write-offs charged against the allowance	26		4		13		3		—		46

At September 30, 2023														At September 30, 2023	$	2,100	$	1,298	$	1,887	$	830	$	80	$	6,195

1213

Index


	Pacific		Northwest		Mountain		North Central		All Other		Total
	(In thousands)
At December 31, 2021	$	2,052	$	512	$	1,610	$	1,152	$	80	$	5,406
Current expected credit loss provision	1		(125)		(130)		6		(5)		(253)
Less write-offs charged against the allowance	1		20		3		1		1		26

At March 31, 2022	$	2,052	$	367	$	1,477	$	1,157	$	74	$	5,127
Current expected credit loss provision	11		58		(17)		(37)		(3)		12
Less write-offs charged against the allowance	—		56		4		47		2		109

At June 30, 2022	$	2,063	$	369	$	1,456	$	1,073	$	69	$	5,030
Current expected credit loss provision	(6)		194		(111)		(141)		9		(55)
Less write-offs charged against the allowance	9		7		40		4		16		76

At September 30, 2022	$	2,048	$	556	$	1,305	$	928	$	62	$	4,899

Note 4 - Inventories

Inventories on the Consolidated Balance Sheets were as follows:


		June 30, 2023		December 31, 2022			September 30, 2023		December 31, 2022
		(In thousands)					(In thousands)
Finished products	Finished products	$	227,683	$	211,496	Finished products	$	213,702	$	211,496
Raw materials	Raw materials	104,689		78,571		Raw materials	63,156		78,571
Supplies and parts	Supplies and parts	42,005		33,210		Supplies and parts	37,853		33,210
Total	Total	$	374,377	$	323,277	Total	$	314,711	$	323,277

Inventories are valued at the lower of cost or net realizable value using the average cost method. Inventories include production costs incurred as part of the Company's aggregate mining activities. These inventoriable production costs include all mining and processing costs associated with the production of aggregates. Stripping costs incurred during the production phase, which represent costs of removing overburden and waste materials to access mineral deposits, are a component of inventoriable production costs.

Note 5 - Earnings per share

The calculation for basic and diluted earnings per share for any period presented prior to the Separation ~~were~~are based on the number of shares outstanding on May 31, 2023, the Separation and Distribution date. For periods prior to the Separation, it is assumed that there are no dilutive equity instruments as there were no Knife River stock-based awards outstanding at the time.

Basic earnings per share is computed by dividing net income ~~(loss)~~ by the weighted average number of shares of common stock outstanding during the applicable period. Diluted earnings per share is computed by dividing net income ~~(loss)~~ by the total of the weighted average number of shares of common stock outstanding during the applicable period, plus the effect of non-vested restricted stock units. Weighted average common shares outstanding is comprised of issued shares of 56,997,350 less shares held in treasury of 431,136, as described in Note 6. Basic and diluted earnings per share are calculated as follows, based on a reconciliation of the weighted-average common shares outstanding on a basic and diluted basis:


		Three Months Ended				Six Months Ended					Three Months Ended				Nine Months Ended
		June 30,									September 30,
		2023		2022		2023		2022			2023		2022		2023		2022
		(In thousands, except per share amounts)									(In thousands, except per share amounts)
Net income (loss)		$	56,836	$	38,562	$	15,516	$	(1,448)
Net income										Net income	$	146,655	$	99,657	$	162,171	$	98,210
Weighted average common shares outstanding - basic	Weighted average common shares outstanding - basic	56,566		56,566		56,566		56,566		Weighted average common shares outstanding - basic	56,566		56,566		56,566		56,566
Effect of dilutive restricted stock units	Effect of dilutive restricted stock units	33		—		17		—		Effect of dilutive restricted stock units	169		—		67		—
Weighted average common shares outstanding - diluted	Weighted average common shares outstanding - diluted	56,599		56,566		56,583		56,566		Weighted average common shares outstanding - diluted	56,735		56,566		56,633		56,566
Shares excluded from the calculation of diluted earnings per share	Shares excluded from the calculation of diluted earnings per share	—		—		—		—		Shares excluded from the calculation of diluted earnings per share	—		—		—		—
Net income (loss) per share - basic		$	1.00	$	.68	$	.27	$	(.03)
Net income (loss) per share - diluted		$	1.00	$	.68	$	.27	$	(.03)
Net income per share - basic										Net income per share - basic	$	2.59	$	1.76	$	2.87	$	1.74
Net income per share - diluted										Net income per share - diluted	$	2.58	$	1.76	$	2.86	$	1.74

Index

Note 6 - Equity

On May 31, 2023, the Company issued 56,997,350 shares of common stock with a par value of $0.01 in connection with the Separation.

The Company historically held 538,921 shares of MDU Resources common stock through one of its subsidiaries. The historical shares are presented as MDU Resources' stock held by subsidiary on the Consolidated Statement of Equity. In connection with the Separation, Knife River entered into an agreement with MDU Resources to transfer the stock of MDU Resources held by its subsidiary to MDU Resources in exchange for 431,136 shares of Knife River common stock. The number of shares transferred to Knife River was based on the value of the stock at the time of the Separation. The historical MDU Resources common stock held by subsidiary at cost of $3.6 million at ~~June~~September 30, 2023, on the Consolidated Balance Sheets reflects the value of the MDU Resources common stock at the time it was granted to Knife River's subsidiary and will remain at the historical value since the exchange was between related parties. The 431,136 shares of Knife River common stock are presented as Treasury stock held at cost in the Consolidated Balance Sheet and reduce the number of common stock shares outstanding.

~~Stock-Based Compensation~~Stock-based compensation

Prior to the Separation, key employees of the Company participated in various ~~MDU Resources~~ stock-based compensation plans authorized and managed by MDU Resources. All awards granted under the plans were based on MDU Resources' common shares, however, Knife River recognized the expense for its participants in its financial statements.

At the time of the Separation, each outstanding MDU Resources time-vested restricted stock unit and performance share award held by a Knife River employee was converted into Knife River time-vested restricted stock units. The converted awards will

~~Index~~

continue to vest over the original vesting period, which is generally three years from the grant date. All performance share awards that were converted at the time of the Separation were first adjusted using a combined performance factor based on MDU Resources' actual performance as of December 31, 2022. The number of restricted stock units was determined by taking the closing per share price of MDU Resources on May 31, 2023, and dividing by the closing per share price of Knife River on June 1, 2023. The ratio used to convert the MDU Resources' share-based awards was designed to preserve the aggregate intrinsic value of the award immediately after the Separation when compared to the aggregate intrinsic value of the award immediately prior to the Separation. The existing unvested stock-based awards issued through MDU Resources' stock-based compensation plans were modified in connection with the Separation to maintain an equivalent value immediately before and after Separation. The impact of this modification will be recorded over the remaining vesting periods and was not material to the Company's stock-based compensation expense for the three or nine months ended ~~June~~September 30, 2023.

Note 7 - Accumulated other comprehensive loss

The after-tax changes in the components of accumulated other comprehensive loss were as follows:

Net Unrealized
Loss on
Derivative
Instruments
Qualifying as
Hedges Postretirement
Liability
Adjustment Total
Accumulated
Other
Comprehensive
Loss
(In thousands)
At December 31, 2022 $ (90) $ (12,262) $ (12,352)
Amounts reclassified from accumulated other comprehensive loss 46 47 93
Net current-period other comprehensive income 46 47 93
At March 31, 2023 $ (44) $ (12,215) $ (12,259)
Other comprehensive loss before reclassification — (17) (17)
Amounts reclassified from accumulated other comprehensive loss 44 48 92
Net current-period other comprehensive income 44 31 75
At June 30, 2023 $ — $ (12,184) $ (12,184)


		Net Unrealized Loss on Derivative Instruments Qualifying as Hedges		Postretirement Liability Adjustment		Total Accumulated Other Comprehensive Loss				Net Unrealized Loss on Derivative Instruments Qualifying as Hedges		Postretirement Liability Adjustment		Total Accumulated Other Comprehensive Loss
		(In thousands)						(In thousands)
At December 31, 2021		$	(418)	$	(24,072)	$	(24,490)
At December 31, 2022									At December 31, 2022	$	(90)	$	(12,262)	$	(12,352)
Amounts reclassified from accumulated other comprehensive loss	Amounts reclassified from accumulated other comprehensive loss	82		221		303			Amounts reclassified from accumulated other comprehensive loss	46		47		93
Net current-period other comprehensive income	Net current-period other comprehensive income	82		221		303			Net current-period other comprehensive income	46		47		93
At March 31, 2022		$	(336)	$	(23,851)	$	(24,187)
Other comprehensive income before reclassification		—		5,820		5,820
At March 31, 2023									At March 31, 2023	$	(44)	$	(12,215)	$	(12,259)
Other comprehensive loss before reclassification									Other comprehensive loss before reclassification	—		(17)		(17)
Amounts reclassified from accumulated other comprehensive loss	Amounts reclassified from accumulated other comprehensive loss	82		220		302			Amounts reclassified from accumulated other comprehensive loss	44		48		92
Net current-period other comprehensive income	Net current-period other comprehensive income	82		6,040		6,122			Net current-period other comprehensive income	44		31		75
At June 30, 2022		$	(254)	$	(17,811)	$	(18,065)
At June 30, 2023									At June 30, 2023	$	—	$	(12,184)	$	(12,184)
Other comprehensive loss before reclassification									Other comprehensive loss before reclassification	—		—		—
Amounts reclassified from accumulated other comprehensive loss									Amounts reclassified from accumulated other comprehensive loss	—		49		49
Net current-period other comprehensive income									Net current-period other comprehensive income	—		49		49
At September 30, 2023									At September 30, 2023	$	—	$	(12,135)	$	(12,135)

1415

Index


	Net Unrealized Loss on Derivative Instruments Qualifying as Hedges		Postretirement Liability Adjustment		Total Accumulated Other Comprehensive Loss
	(In thousands)
At December 31, 2021	$	(418)	$	(24,072)	$	(24,490)
Amounts reclassified from accumulated other comprehensive loss	82		221		303
Net current-period other comprehensive income	82		221		303
At March 31, 2022	$	(336)	$	(23,851)	$	(24,187)
Other comprehensive income before reclassification	—		5,820		5,820
Amounts reclassified from accumulated other comprehensive loss	82		220		302
Net current-period other comprehensive income	82		6,040		6,122
At June 30, 2022	$	(254)	$	(17,811)	$	(18,065)

Amounts reclassified from accumulated other comprehensive loss	82		221		303
Net current-period other comprehensive income	82		221		303
At September 30, 2022	$	(172)	$	(17,590)	$	(17,762)

The following amounts were reclassified out of accumulated other comprehensive loss into net ~~income (loss).~~income. The amounts presented in parenthesis indicate a decrease to net income ~~(loss)~~ on the Consolidated Statements of Operations. The reclassifications were as follows:


		Three Months Ended				Six Months Ended				Location on Consolidated Statements of Operations		Three Months Ended				Nine Months Ended				Location on Consolidated Statements of Operations
		June 30,										September 30,
		2023		2022		2023		2022				2023		2022		2023		2022
		(In thousands)										(In thousands)
Reclassification adjustment for loss on derivative instruments included in net income (loss)		$	(57)	$	(109)	$	(118)	$	(218)	Interest expense
Reclassification adjustment for loss on derivative income											Reclassification adjustment for loss on derivative income	$	—	$	(109)	$	(118)	$	(326)	Interest expense
		13		27		28		54		Income taxes		—		27		28		80		Income taxes
		(44)		(82)		(90)		(164)				—		(82)		(90)		(246)
Amortization of postretirement liability losses included in net periodic benefit cost	Amortization of postretirement liability losses included in net periodic benefit cost	(63)		(291)		(126)		(583)		Other income	Amortization of postretirement liability losses included in net periodic benefit cost	(65)		(292)		(191)		(875)		Other income
		15		71		31		142		Income taxes		16		71		47		213		Income taxes
		(48)		(220)		(95)		(441)				(49)		(221)		(144)		(662)
Total reclassifications	Total reclassifications	$	(92)	$	(302)	$	(185)	$	(605)		Total reclassifications	$	(49)	$	(303)	$	(234)	$	(908)

Index

Note 8 - Revenue from contracts with customers

Revenue is recognized when a performance obligation is satisfied by transferring control over a product or service to a customer. Revenue includes revenue from the sales of construction materials and contracting services. Revenue is measured based on consideration specified in a contract with a customer and excludes any sales incentives and amounts collected on behalf of third parties. The Company is considered an agent for certain taxes collected from customers. As such, the Company presents revenues net of these taxes at the time of sale to be remitted to governmental authorities, including sales and use taxes. Revenue for construction materials is recognized at a point in time when delivery of the products has taken place. Contracting revenue is recognized over time using an input method based on the cost-to-cost measure of progress on a project.

Disaggregation

In the following tables, revenue is disaggregated by category for each segment and includes sales of materials to both third parties and internal customers. Due to consolidation requirements, the internal sales revenues must be eliminated against the construction materials product used in downstream materials and contracting services to arrive at the external operating revenues. The Company believes this level of disaggregation best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. For more information on the Company’s reportable segments, see Note 15.


Three Months Ended June 30, 2023		Pacific		Northwest		Mountain		North Central		All Other		Total
Three Months Ended September 30, 2023														Three Months Ended September 30, 2023	Pacific		Northwest		Mountain		North Central		All Other		Total
		(In thousands)													(In thousands)
Aggregates	Aggregates	$	27,446	$	47,966	$	28,866	$	30,323	$	11,815	$	146,416	Aggregates	$	33,624	$	57,398	$	39,519	$	47,656	$	15,388	$	193,585
Ready-mix concrete	Ready-mix concrete	40,526		44,583		34,506		53,900		11,383		184,898		Ready-mix concrete	39,861		46,785		44,053		73,183		12,157		216,039
Asphalt	Asphalt	6,275		34,518		29,472		46,719		7,953		124,937		Asphalt	14,050		43,462		59,673		95,053		10,539		222,777
Other	Other	60,968		4,335		8		10,907		66,946		143,164		Other	81,081		4,497		11		10,211		118,312		214,112
Contracting services public-sector	Contracting services public-sector	16,848		53,301		80,381		94,548		19,477		264,555		Contracting services public-sector	32,632		68,316		135,700		181,779		23,483		441,910
Contracting services private-sector	Contracting services private-sector	16,575		29,353		37,317		5,249		388		88,882		Contracting services private-sector	17,745		25,144		43,944		8,526		46		95,405
Internal sales	Internal sales	(26,483)		(35,322)		(34,796)		(54,044)		(17,018)		(167,663)		Internal sales	(37,566)		(36,683)		(68,178)		(111,288)		(39,741)		(293,456)
Revenues from contracts with customers	Revenues from contracts with customers	$	142,155	$	178,734	$	175,754	$	187,602	$	100,944	$	785,189	Revenues from contracts with customers	$	181,427	$	208,919	$	254,722	$	305,120	$	140,184	$	1,090,372


Three Months Ended June 30, 2022		Pacific		Northwest		Mountain		North Central		All Other		Total
Three Months Ended September 30, 2022														Three Months Ended September 30, 2022	Pacific		Northwest		Mountain		North Central		All Other		Total
		(In thousands)													(In thousands)
Aggregates	Aggregates	$	24,330	$	43,466	$	26,919	$	26,679	$	14,994	$	136,388	Aggregates	$	28,695	$	52,614	$	31,258	$	45,039	$	14,197	$	171,803
Ready-mix concrete	Ready-mix concrete	33,069		39,156		31,446		47,173		17,283		168,127		Ready-mix concrete	35,395		45,600		37,334		64,496		16,082		198,907
Asphalt	Asphalt	11,504		26,281		31,137		44,719		7,925		121,566		Asphalt	10,935		45,110		45,553		96,830		7,133		205,561
Other	Other	53,248		4,073		9		9,903		57,049		124,282		Other	63,002		4,447		12		8,711		90,539		166,711
Contracting services public-sector	Contracting services public-sector	23,626		46,208		30,626		86,011		21,015		207,486		Contracting services public-sector	30,529		78,664		100,298		184,266		18,874		412,631
Contracting services private-sector	Contracting services private-sector	12,688		19,564		87,786		3,083		75		123,196		Contracting services private-sector	14,512		20,424		38,755		5,664		221		79,576
Internal sales	Internal sales	(30,053)		(27,963)		(37,504)		(50,330)		(23,382)		(169,232)		Internal sales	(30,710)		(42,627)		(49,089)		(110,700)		(26,635)		(259,761)
Revenues from contracts with customers	Revenues from contracts with customers	$	128,412	$	150,785	$	170,419	$	167,238	$	94,959	$	711,813	Revenues from contracts with customers	$	152,358	$	204,232	$	204,121	$	294,306	$	120,411	$	975,428


Nine Months Ended September 30, 2023	Pacific		Northwest		Mountain		North Central		All Other		Total
	(In thousands)
Aggregates	$	79,768	$	147,937	$	78,051	$	81,999	$	35,767	$	423,522
Ready-mix concrete	106,531		125,273		92,929		139,369		33,604		497,706
Asphalt	21,640		84,908		89,955		141,942		22,888		361,333
Other	168,104		11,513		21		22,703		193,528		395,869
Contracting services public-sector	53,450		138,621		244,320		280,853		61,293		778,537
Contracting services private-sector	37,220		80,258		94,706		13,884		1,131		227,199
Internal sales	(75,345)		(84,937)		(108,888)		(167,055)		(64,479)		(500,704)
Revenues from contracts with customers	$	391,368	$	503,573	$	491,094	$	513,695	$	283,732	$	2,183,462

1517

Index

Six Months Ended June 30, 2023 Pacific Northwest Mountain North Central All Other Total
(In thousands)
Aggregates $ 46,143 $ 90,540 $ 38,532 $ 34,343 $ 20,379 $ 229,937
Ready-mix concrete 66,670 78,488 48,876 66,187 21,446 281,667
Asphalt 7,591 41,445 30,282 46,888 12,350 138,556
Other 87,023 7,016 11 12,493 75,214 181,757
Contracting services public-sector 20,819 70,304 108,619 99,074 37,811 336,627
Contracting services private-sector 19,474 55,115 50,762 5,357 1,085 131,793
Internal sales (37,779) (48,290) (40,710) (55,766) (24,703) (207,248)
Revenues from contracts with customers $ 209,941 $ 294,618 $ 236,372 $ 208,576 $ 143,582 $ 1,093,089


Six Months Ended June 30, 2022		Pacific		Northwest		Mountain		North Central		All Other		Total
Nine Months Ended September 30, 2022														Nine Months Ended September 30, 2022	Pacific		Northwest		Mountain		North Central		All Other		Total
		(In thousands)													(In thousands)
Aggregates	Aggregates	$	43,393	$	77,138	$	36,129	$	30,679	$	26,696	$	214,035	Aggregates	$	72,088	$	129,752	$	67,388	$	75,718	$	40,892	$	385,838
Ready-mix concrete	Ready-mix concrete	63,125		75,480		47,616		59,529		30,876		276,626		Ready-mix concrete	98,520		121,079		84,950		124,026		46,959		475,534
Asphalt	Asphalt	15,975		34,691		31,468		44,765		12,753		139,652		Asphalt	26,909		79,801		77,021		141,595		19,886		345,212
Other	Other	80,138		7,356		15		12,055		62,218		161,782		Other	143,140		11,804		26		20,766		152,757		328,493
Contracting services public-sector	Contracting services public-sector	32,921		63,119		53,029		91,531		34,058		274,658		Contracting services public-sector	63,450		141,783		202,495		275,797		52,933		736,458
Contracting services private-sector	Contracting services private-sector	24,410		39,897		102,197		3,144		643		170,291		Contracting services private-sector	38,922		60,321		91,783		8,809		863		200,698
Internal Sales	Internal Sales	(46,201)		(42,106)		(41,566)		(51,641)		(33,752)		(215,266)		Internal Sales	(76,911)		(84,733)		(90,654)		(162,342)		(60,386)		(475,026)
Revenues from contracts with customers	Revenues from contracts with customers	$	213,761	$	255,575	$	228,888	$	190,062	$	133,492	$	1,021,778	Revenues from contracts with customers	$	366,118	$	459,807	$	433,009	$	484,369	$	253,904	$	1,997,207

Note 9 - Uncompleted contracts

The timing of revenue recognition may differ from the timing of invoicing to customers. The timing of invoicing to customers does not necessarily correlate with the timing of revenues being recognized under the cost-to-cost method of accounting. Contracts from contracting services are billed as work progresses in accordance with agreed upon contractual terms. Generally, billing to the customer occurs contemporaneous to revenue recognition. A variance in timing of the billings may result in a contract asset or a contract liability. A contract asset occurs when revenues are recognized under the cost-to-cost measure of progress, which exceeds amounts billed on uncompleted contracts. Such amounts will be billed as standard contract terms allow, usually based on various measures of performance or achievement. A contract liability occurs when there are billings in excess of revenues recognized under the cost-to-cost measure of progress on uncompleted contracts. Contract liabilities decrease as revenue is recognized from the satisfaction of the related performance obligation.

The changes in contract assets and liabilities were as follows:


		June 30, 2023		December 31, 2022		Change		Location on Consolidated Balance Sheets		September 30, 2023		December 31, 2022		Change		Location on Consolidated Balance Sheets
		(In thousands)								(In thousands)
Contract assets	Contract assets	$	58,020	$	31,145	$	26,875	Costs and estimated earnings in excess of billings on uncompleted contracts	Contract assets	$	50,545	$	31,145	$	19,400	Costs and estimated earnings in excess of billings on uncompleted contracts
Contract liabilities	Contract liabilities	(44,590)		(39,843)		(4,747)		Billings in excess of costs and estimated earnings on uncompleted contracts	Contract liabilities	(58,785)		(39,843)		(18,942)		Billings in excess of costs and estimated earnings on uncompleted contracts
Net contract assets (liabilities)		$	13,430	$	(8,698)	$	22,128
Net contract liabilities									Net contract liabilities	$	(8,240)	$	(8,698)	$	458

The Company recognized ~~$11.4~~$3.4 million and ~~$31.7~~$35.1 million in revenue for the three and ~~six~~nine months ended ~~June~~September 30, 2023, respectively, which was previously included in contract liabilities at December 31, 2022. The Company recognized ~~$6.2~~$3.0 million and ~~$26.2~~$29.2 million in revenue for the three and ~~six~~nine months ended ~~June~~September 30, 2022, respectively, which was previously included in contract liabilities at December 31, 2021.

The Company recognized a net increase in revenues of ~~$7.4~~$12.1 million and ~~$8.1~~$10.6 million for the three and ~~six~~nine months ended ~~June~~September 30, 2023, respectively, from performance obligations satisfied in prior periods. The Company recognized a net increase in revenues of ~~$5.7~~$4.9 million and ~~$9.2~~$10.4 million for the three and ~~six~~nine months ended ~~June~~September 30, 2022, respectively, from performance obligations satisfied in prior periods.

~~Index~~

Remaining performance obligations

The remaining performance obligations, also referred to as backlog, include unrecognized revenues that the Company reasonably expects to be realized. These unrecognized revenues can include: projects that have a written award, a letter of intent, a notice to proceed, an agreed upon work order to perform work on mutually accepted terms and conditions and change orders or claims to the extent management believes additional contract revenues will be earned and are deemed probable of collection. The majority of the Company's contracts for contracting services have an original duration of less than one year.

At ~~June~~September 30, 2023, the Company's remaining performance obligations were ~~$1.04 billion.~~$732.2 million. The Company expects to recognize the following revenue amounts in future periods related to these remaining performance obligations: ~~$960.9~~$677.7 million within the next 12 months or less; ~~$58.8~~$38.5 million within the next 13 to 24 months; and ~~$21.2~~$16.0 million in 25 months or more.

Index

Note 10 - Goodwill and other intangible assets

The changes in the carrying amount of goodwill were as follows:


		Balance at January 1, 2023		Goodwill Acquired During the Year		Measurement Period Adjustments		Balance at June 30, 2023			Balance at January 1, 2023		Goodwill Acquired During the Year		Measurement Period Adjustments		Balance at September 30, 2023
		(In thousands)									(In thousands)
Pacific	Pacific	$	38,339	$	—	$	(62)	$	38,277	Pacific	$	38,339	$	—	$	(62)	$	38,277
Northwest	Northwest	90,978		—		—		90,978		Northwest	90,978		—		—		90,978
Mountain	Mountain	26,816		—		—		26,816		Mountain	26,816		—		—		26,816
North Central	North Central	75,879		—		—		75,879		North Central	75,879		—		—		75,879
All Other	All Other	42,528		—		—		42,528		All Other	42,528		—		—		42,528
Total	Total	$	274,540	$	—	$	(62)	$	274,478	Total	$	274,540	$	—	$	(62)	$	274,478

Other amortizable intangible assets were as follows:


		June 30, 2023		December 31, 2022				September 30, 2023		December 31, 2022
		(In thousands)				(In thousands)
Customer relationships	Customer relationships	$	18,540	$	18,540		Customer relationships	$	18,540	$	18,540
Less accumulated amortization	Less accumulated amortization	8,235		7,367			Less accumulated amortization	8,668		7,367
		10,305		11,173				9,872		11,173
Noncompete agreements	Noncompete agreements	4,039		4,039			Noncompete agreements	4,039		4,039
Less accumulated amortization	Less accumulated amortization	3,239		2,985			Less accumulated amortization	3,358		2,985
		800		1,054				681		1,054
Other	Other	2,479		5,279			Other	2,479		5,279
Less accumulated amortization	Less accumulated amortization	1,474		4,076			Less accumulated amortization	1,569		4,076
		1,005		1,203				910		1,203
Total	Total	$	12,110	$	13,430		Total	$	11,463	$	13,430

Amortization expense for amortizable intangible assets for the three and ~~six~~nine months ended ~~June~~September 30, 2023, was ~~$653,000~~$647,000 and ~~$1.3~~$2.0 million, respectively. Amortization expense for amortizable intangible assets for the three and ~~six~~nine months ended ~~June~~September 30, 2022, was ~~$780,000~~$729,000 and ~~$1.4~~$2.1 million, respectively. Estimated amortization expense for identifiable intangible assets as of ~~June~~September 30, 2023, was:

Remainder of 2023 2024 2025 2026 2027 Thereafter
(In thousands)
Amortization expense $ 1,237 $ 2,157 $ 2,042 $ 1,739 $ 1,717 $ 3,218


	Remainder of 2023		2024		2025		2026		2027		Thereafter
	(In thousands)
Amortization expense	$	590	$	2,157	$	2,042	$	1,739	$	1,717	$	3,218

Note 11 - Fair value measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. The fair value ASC establishes a hierarchy for grouping assets and liabilities, based on the significance of inputs. The estimated fair values of the Company's assets and liabilities measured on a recurring basis are determined using the market approach.

~~Index~~

The Company measures its investments in certain fixed-income and equity securities at fair value with changes in fair value recognized in income. The Company anticipates using these investments, which consist of insurance contracts, to satisfy its obligations under its unfunded, nonqualified defined benefit and defined contribution plans for the Company's executive officers and certain key management employees, and invests in these fixed-income and equity securities for the purpose of earning investment returns and capital appreciation. These investments, which totaled ~~$19.1~~$23.5 million and $20.1 million at ~~June~~September 30, 2023 and December 31, 2022, respectively, are classified as investments on the Consolidated Balance Sheets. The net unrealized loss on these investments was $597,000 for the three months ended September 30, 2023 and the net unrealized gain on these investments was ~~$197,000 and $1.1 million~~$685,000 for the ~~three and six~~nine months ended ~~June~~September 30, ~~2023, respectively.~~2023. The net unrealized loss on these investments was ~~$1.6 million~~$541,000 and ~~$2.6~~$3.2 million for the three and ~~six~~nine months ended ~~June~~September 30, 2022, respectively. The change in fair value, which is considered part of the cost of the plan, is classified in other income on the Consolidated Statements of Operations.

As part of the Separation, the Company retired certain insurance contracts used to satisfy its obligations under its unfunded, nonqualified defined contribution plan for the Company's executive officers and certain key management employees. The proceeds of the retired contracts totaled $4.8 million, ~~and was held in a money market account as of June 30, 2023. This amount will be~~which were used to purchase life insurance policies and re-invested in fixed-income and equity securities in the third quarter of 2023.

Index

The Company's assets measured at fair value on a recurring basis were as follows:


		Fair Value Measurements at June 30, 2023, Using									Fair Value Measurements at September 30, 2023, Using
		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at June 30, 2023			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at September 30, 2023
		(In thousands)									(In thousands)
Assets:	Assets:									Assets:
Money market funds	Money market funds	$	—	$	7,529	$	—	$	7,529	Money market funds	$	—	$	3,199	$	—	$	3,199
Insurance contracts*	Insurance contracts*	—		19,141		—		19,141		Insurance contracts*	—		23,483		—		23,483

Total assets measured at fair value	Total assets measured at fair value	$	—	$	26,670	$	—	$	26,670	Total assets measured at fair value	$	—	$	26,682	$	—	$	26,682

* The insurance contracts invest approximately 4741 percent in fixed-income investments, 2019 percent in cash equivalents, 1518 percent in common stock of large-cap companies, 8 percent in common stock of mid-cap companies, 68 percent target date investments, 5 percent in common stock of small-cap companies and 41 percent in ~~target date~~international investments.


	Fair Value Measurements at December 31, 2022, Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at December 31, 2022
	(In thousands)
Assets:
Money market funds	$	—	$	2,448	$	—	$	2,448
Insurance contracts*	—		20,083		—		20,083




Total assets measured at fair value	$	—	$	22,531	$	—	$	22,531

* The insurance contracts invest approximately 63 percent in fixed-income investments, 15 percent in common stock of large-cap companies, 8 percent in common stock of mid-cap companies, 6 percent in common stock of small-cap companies, 6 percent in target date investments and 2 percent in cash equivalents.

The Company’s Level 2 money market funds are valued at the net asset value of shares held at the end of the period, based on published market quotations on active markets, or using other known sources including pricing from outside sources. The estimated fair value of the Company’s Level 2 insurance contracts are based on contractual cash surrender values that are determined primarily by investments in managed separate accounts of the insurer. These amounts approximate fair value. The managed separate accounts are valued based on other observable inputs or corroborated market data.

Though the Company believes the methods used to estimate fair value are consistent with those used by other market participants, the use of other methods or assumptions could result in a different estimate of fair value.

The Company applies the provisions of the fair value measurement standard to its nonrecurring, non-financial measurements, including long-lived asset impairments. These assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances. The Company reviews the carrying value of its long-lived assets, excluding goodwill, whenever events or changes in circumstances indicate that such carrying amounts may not be recoverable.

~~Index~~

The Company's long-term debt is not measured at fair value on the Consolidated Balance Sheets and the fair value is being provided for disclosure purposes only. The fair value was categorized as Level 2 in the fair value hierarchy and was based on discounted cash flows using current market interest rates. The estimated fair value of the Company's Level 2 long-term debt was as follows:


	~~June~~September 30, 2023
	(In thousands)
Carrying amount	$	~~855,000~~698,747
Fair value	$	~~862,420~~700,687

The carrying amounts of the Company's remaining financial instruments included in current assets and current liabilities approximate their fair values.

Index

Note 12 - Debt

Certain debt instruments of the Company contain restrictive covenants and cross-default provisions. In order to borrow under the debt agreements, the Company must be in compliance with the applicable covenants and certain other conditions, all of which management believes the Company, as applicable, was in compliance with at ~~June~~September 30, 2023. In the event the Company does not comply with the applicable covenants and other conditions, alternative sources of funding may need to be pursued.

On April 25, 2023, the Company issued $425.0 million of 7.75 percent senior notes due May 1, 2031, pursuant to an indenture.

On May 31, 2023, the Company entered into a senior secured credit agreement consisting of a $275.0 million term loan and a $350.0 million revolving credit ~~facility,~~facility. As of ~~which $190.0 million was drawn down and $35.0 million was repaid during~~September 30, 2023, the ~~period.~~Company had no outstanding borrowings against the revolving credit facility. Each debt facility has a SOFR-based interest rate and a maturity date of May 31, 2028. The term loan has a mandatory annual amortization of 2.50 percent for years one and two, 5.00 percent for years three and four, and 7.50 percent in the fifth year. The agreement contains customary covenants and provisions, including a covenant of Knife River not to permit, at any time, the ratio of total debt to trailing twelve month EBITDA to be greater than 4.75 to 1.00. The agreement also contains an interest coverage ratio covenant stating that Knife River’s trailing twelve month EBITDA to interest expense is to be no less than 2.25 to 1.00. The covenants also include restrictions on the sale of certain assets, loans and investments.

Knife River's wholly owned subsidiary companies, subject to certain exclusions and exceptions, are named as subsidiary guarantors of the senior notes and the senior secured credit agreement. In addition, Knife River has pledged substantially all of its assets as collateral, subject to certain exclusions and exceptions, for the senior secured credit agreement.

Long-term debt

Long-term Debt Outstanding Long-term debt outstanding was as follows:


		Weighted Average Interest Rate at June 30, 2023		June 30, 2023				Weighted Average Interest Rate at September 30, 2023		September 30, 2023
				(In thousands)		(In thousands)
Term loan agreement due on May 31, 2028	Term loan agreement due on May 31, 2028	7.36	%	$	275,000		Term loan agreement due on May 31, 2028	7.52	%	$	273,281
Revolving credit agreement		7.53	%	155,000

Senior notes due on May 1, 2031	Senior notes due on May 1, 2031	7.75	%	425,000			Senior notes due on May 1, 2031	7.75	%	425,000
Other notes due on January 1, 2061	Other notes due on January 1, 2061	—	%	511			Other notes due on January 1, 2061	—	%	466
Less unamortized debt issuance costs	Less unamortized debt issuance costs			16,382			Less unamortized debt issuance costs			16,016
Total long-term debt	Total long-term debt			839,129			Total long-term debt			682,731
Less current maturities	Less current maturities			7,082			Less current maturities			7,082
Net long-term debt	Net long-term debt			$	832,047		Net long-term debt			$	675,649

Schedule of Debt Maturities Long-term debt maturities, which excludes unamortized debt issuance costs, at ~~June~~September 30, 2023, were as follows:

Remainder of
2023
2024 2025 2026 2027 Thereafter
(In thousands)
Long-term debt maturities $ 3,645 $ 6,977 $ 10,414 $ 13,850 $ 17,187 $ 803,438


	Remainder of 2023		2024		2025		2026		2027		Thereafter
	(In thousands)
Long-term debt maturities	$	1,719	$	7,082	$	10,520	$	13,802	$	17,187	$	648,437

The Company currently borrows under the revolving credit agreement on a short-term basis and can refinance the draws throughout the term of the credit facility, which extends to May 31, 2028. For this reason, the credit agreement has been classified as long-term, given the intent and ability to refinance on a long-term basis.

~~Index~~

Note 13 - Income ~~Taxes~~taxes

Post-Separation, the income tax provisions are calculated based on Knife River's operating footprint, as well as tax return elections and assertions. Current income tax liabilities including amounts for unrecognized tax benefits related to the Company's activities included in MDU Resources' income tax returns were deemed to be immediately settled with MDU Resources' final settlement allocation process as dictated by the MDU Resources' Tax Sharing Agreement.

Prior to the Separation, income tax expense and tax balances in the consolidated financial statements were calculated on a separate tax return basis. The separate tax return method applies the accounting guidance for income taxes to the stand-alone financial statements as if the Company were a separate taxpayer and a stand-alone enterprise. Management believes the assumptions supporting the allocation and presentation of income taxes on a separate return basis are reasonable. As a stand-alone entity, the Company will file tax returns on its own behalf, and tax balances and effective income tax rate may differ from the amounts reported in the historical periods.

Income tax expense is based on reported income before income taxes. Deferred income taxes reflect the tax effect of temporary differences between asset and liability amounts that are recognized for financial reporting purposes and the amounts that are recognized for income tax purposes. These deferred taxes are measured by applying currently enacted tax laws.

Index

Valuation allowances are recognized to reduce deferred tax assets to the amount that will more likely than not be realized. In assessing the need for a valuation allowance, management considers all available evidence for each jurisdiction including past operating results, estimates of future taxable income and the feasibility of ongoing tax planning strategies and actions. When there is a change in determination as to the amount of deferred tax assets that can be realized, the valuation allowance is adjusted with a corresponding impact to provision for income taxes in the period in which such determination is made.

The Company's cash tax payments for the year may vary significantly from prior years as a result of the timing of the Separation and the seasonality of the Company's business.

Other Tax Matters

Tax Matters Agreement In connection with the Separation, the Company entered into a tax matters agreement with MDU Resources. The tax matters agreement governs the respective rights, responsibilities, and obligations between the Company and MDU Resources after the Separation with respect to tax liabilities and benefits, tax attributes, tax returns, tax contests and other tax sharing regarding U.S. federal, state and local income taxes, other tax matters and related tax returns.

Tax Refunds and Attributes The tax matters agreement provides for the allocation of certain pre-closing tax attributes between the Company and MDU Resources. Tax attributes will be allocated in accordance with the principles set forth in the MDU Resources' Tax Sharing Agreement, then existing, unless otherwise required by law. Under the tax matters agreement, the Company will be entitled to refunds for taxes for which the Company is responsible.

Note 14 - Cash flow information

Cash expenditures for interest and income taxes were as follows:


		Six Months Ended					Nine Months Ended
		June 30,					September 30,
		2023		2022			2023		2022
		(In thousands)					(In thousands)
Interest, net		$	24,802	$	10,721
Interest paid, net						Interest paid, net	$	32,028	$	19,472
Income taxes paid, net	Income taxes paid, net	$	558	$	16,470	Income taxes paid, net	$	22,183	$	23,163

Noncash investing and financing transactions were as follows:

Six Months Ended
June 30,
2023 2022
(In thousands)
Right-of-use assets obtained in exchange for new operating lease liabilities $ 7,552 $ 4,758
Property, plant and equipment additions in accounts payable $ 3,359 $ 5,785
Equity contribution from Centennial related to the Separation $ 64,724 $ —
Equity contribution to MDU Resources for asset/liability transfers related to the Separation $ (1,548) $ —
MDU Resources' stock issued prior to spin in connection with a business combination $ 383 $ —


	Nine Months Ended
	September 30,
	2023		2022
	(In thousands)
Right-of-use assets obtained in exchange for new operating lease liabilities	$	9,717	$	5,851
Property, plant and equipment additions in accounts payable	$	2,832	$	4,884

Equity contribution from Centennial related to the Separation	$	64,724	$	—
Equity contribution to MDU Resources for asset/liability transfers related to the Separation	$	(1,548)	$	—
MDU Resources' stock issued prior to spin in connection with a business combination	$	383	$	—

~~Index~~

Note 15 - Business segment data

The Company focuses on the vertical integration of its products and services by offering customers a ~~single-source~~single source for construction materials and related contracting services. The Company operates in 14 states across the United States. Its operating segments include: Pacific, Northwest, Mountain, North Central, South and Energy Services. The operating segments are organized by geographic region in the United States due to the cyclical nature of the construction work performed. The Company’s reportable segments are those that are based on the Company’s method of internal reporting and management of the business and are Pacific, Northwest, Mountain and North Central. The South and Energy Services operating segments do not meet the criteria to be reportable segments and, as such, are combined with its corporate services in All Other. Each segment is led by a segment president that reports to the Company’s chief operating officer. The chief operating officer works directly with the chief executive officer, ~~who is also~~ the ~~Company’s chief operating decision maker. The Company’s~~ chief operating decision maker, ~~evaluates~~to evaluate the performance of the segments using EBITDA and ~~allocates resources to them based on EBITDA.~~the allocation of resources.

All of the reportable segments mine, process and sell construction aggregates (crushed stone and sand and gravel); produce and sell asphalt; and produce and sell ready-mix concrete, as well as in some segments the sale of merchandise and other building materials and related services, as well as vertically integrating their contracting services to support the aggregate-based product lines including heavy-civil construction, asphalt and concrete paving, and site development and grading, and in some segments the manufacturing of prestressed concrete products. The Pacific segment and All Other also produce and sell liquid asphalt products and the Pacific segment sells cement. Although not common to all locations, within All Other is the sale of merchandise and other building materials and related services.

Index

The information below follows the same accounting policies as described in the audited financial statements and notes included in the Company's Registration Statement on Form 10. Information on the Company's segments was as follows:


		Three Months Ended				Six Months Ended					Three Months Ended				Nine Months Ended
		June 30,									September 30,
		2023		2022		2023		2022			2023		2022		2023		2022
		(In thousands)									(In thousands)
External operating revenues:	External operating revenues:									External operating revenues:
Pacific	Pacific	$	142,155	$	128,412	$	209,941	$	213,761	Pacific	$	181,427	$	152,358	$	391,368	$	366,118
Northwest	Northwest	178,734		150,785		294,618		255,575		Northwest	208,919		204,232		503,573		459,807
Mountain	Mountain	175,754		170,419		236,372		228,888		Mountain	254,722		204,121		491,094		433,009
North Central	North Central	187,602		167,238		208,576		190,062		North Central	305,120		294,306		513,695		484,369
All Other	All Other	100,944		94,959		143,582		133,492		All Other	140,184		120,411		283,732		253,904
Total external operating revenues	Total external operating revenues	$	785,189	$	711,813	$	1,093,089	$	1,021,778	Total external operating revenues	$	1,090,372	$	975,428	$	2,183,462	$	1,997,207

Intersegment operating revenues:	Intersegment operating revenues:									Intersegment operating revenues:
Pacific	Pacific	$	26,483	$	30,053	$	37,779	$	46,201	Pacific	$	37,566	$	30,710	$	75,345	$	76,911
Northwest	Northwest	35,322		27,963		48,290		42,106		Northwest	36,683		42,627		84,937		84,733
Mountain	Mountain	34,796		37,504		40,710		41,566		Mountain	68,178		49,089		108,888		90,654
North Central	North Central	54,044		50,330		55,766		51,641		North Central	111,288		110,700		167,055		162,342
All Other	All Other	17,018		23,382		24,703		33,752		All Other	39,741		26,635		64,479		60,386
Total intersegment operating revenues	Total intersegment operating revenues	$	167,663	$	169,232	$	207,248	$	215,266	Total intersegment operating revenues	$	293,456	$	259,761	$	500,704	$	475,026

EBITDA:	EBITDA:									EBITDA:
Pacific	Pacific	$	22,041	$	15,198	$	18,928	$	20,631	Pacific	$	37,558	$	24,563	$	56,486	$	45,194
Northwest	Northwest	40,706		23,196		53,844		35,976		Northwest	48,867		43,797		102,711		79,774
Mountain	Mountain	32,561		28,643		26,014		20,601		Mountain	60,473		39,644		86,486		60,244
North Central	North Central	24,461		16,108		894		(8,160)		North Central	70,508		58,584		71,402		50,424
All Other	All Other	5,346		4,173		11,328		78		All Other	23,994		5,500		35,323		5,578
Total segment EBITDA	Total segment EBITDA	$	125,115	$	87,318	$	111,008	$	69,126	Total segment EBITDA	$	241,400	$	172,088	$	352,408	$	241,214

A reconciliation of reportable segment operating revenues to consolidated operating revenues is as follows:

Three Months Ended Six Months Ended
June 30, June 30,
2023 2022 2023 2022
(In thousands)
Total reportable segment operating revenues $ 834,890 $ 762,704 $ 1,132,052 $ 1,069,800
Other operating revenues 117,962 118,341 168,285 167,244
Elimination of intersegment operating revenues (167,663) (169,232) (207,248) (215,266)
Total consolidated operating revenues $ 785,189 $ 711,813 $ 1,093,089 $ 1,021,778

~~Index~~


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
	(In thousands)
Total reportable segment operating revenues	$	1,203,903	$	1,088,143	$	2,335,955	$	2,157,943
Other operating revenues	179,925		147,046		348,211		314,290
Less:
Elimination of intersegment operating revenues	293,456		259,761		500,704		475,026
Total consolidated operating revenues	$	1,090,372	$	975,428	$	2,183,462	$	1,997,207

A reconciliation of reportable segment EBITDA to consolidated income ~~(loss)~~ before income taxes is as follows:


		Three Months Ended				Six Months Ended					Three Months Ended				Nine Months Ended
		June 30,									Sept. 30,
		2023		2022		2023		2022			2023		2022		2023		2022
		(In thousands)									(In thousands)
Total EBITDA for reportable segments	Total EBITDA for reportable segments	$	119,769	$	83,145	$	99,680	$	69,048	Total EBITDA for reportable segments	$	217,406	$	166,588	$	317,085	$	235,636
Other EBITDA	Other EBITDA	5,346		4,173		11,328		78		Other EBITDA	23,994		5,500		35,323		5,578
Less:										Less:
Depreciation, depletion and amortization	Depreciation, depletion and amortization	31,130		29,752		60,760		58,101		Depreciation, depletion and amortization	31,752		30,450		92,511		88,551

Interest expense, net*	Interest expense, net*	17,130		7,424		26,625		12,690		Interest expense, net*	14,774		8,817		41,399		21,506
Total consolidated income (loss) before income taxes		$	76,855	$	50,142	$	23,623	$	(1,665)
Total consolidated income before income taxes										Total consolidated income before income taxes	$	194,874	$	132,821	$	218,498	$	131,157
*Interest, net is interest expense net of interest income.	*Interest, net is interest expense net of interest income.									*Interest, net is interest expense net of interest income.

Index

Note 16 - Employee benefit ~~plans~~

~~Pension and other postretirement~~ plans

The Company has noncontributory qualified defined benefit pension plans and other postretirement benefit plans for certain eligible employees. Prior to the Separation, Knife River was a participant in the MDU Resources postretirement benefit plan. The Company historically treated its share of the postretirement obligation under that plan as a single employer plan in accordance with ASC 715 - Compensation - Retirement Benefits and recorded the funded status and net periodic benefit cost associated with Knife River employees at Knife River. In connection with the Separation, effective June 1, 2023, Knife River established a new, stand-alone postretirement plan comparable to that of MDU Resources and transferred its obligations of $1.5 million for current participants (inclusive of employees that transferred to the Company from MDU Resources) to that plan. The Company's pension benefit plans were stand-alone for Knife River prior to the Separation.

Components of net periodic benefit cost for the Company's pension benefit plans were as follows:


		Three Months Ended				Six Months Ended					Three Months Ended				Nine Months Ended
		June 30,									September 30,
		2023		2022				2021			2023		2022		2023		2022
		(In thousands)									(In thousands)
Components of net periodic benefit cost:	Components of net periodic benefit cost:									Components of net periodic benefit cost:

Interest cost	Interest cost	$	408	$	282	$	816	$	564	Interest cost	$	408	$	282	$	1,224	$	846
Expected return on assets	Expected return on assets	(450)		(493)		(900)		(986)		Expected return on assets	(450)		(493)		(1,350)		(1,479)

Amortization of net actuarial loss	Amortization of net actuarial loss	128		214		256		428		Amortization of net actuarial loss	128		214		384		642
Net periodic benefit cost	Net periodic benefit cost	$	86	$	3	$	172	$	6	Net periodic benefit cost	$	86	$	3	$	258	$	9

Components of net periodic benefit cost for the Company's other postretirement benefit plans were as follows:


		Three Months Ended				Six Months Ended					Three Months Ended				Nine Months Ended
		June 30,									September 30,
		2023		2022		2023		2022			2023		2022		2023		2022
		(In thousands)									(In thousands)
Components of net periodic benefit cost:	Components of net periodic benefit cost:									Components of net periodic benefit cost:
Service cost	Service cost	$	90	$	131	$	179	$	262	Service cost	$	91	$	131	$	270	$	393
Interest cost	Interest cost	180		128		361		256		Interest cost	180		128		541		384
Expected return on assets	Expected return on assets	5		(3)		12		(6)		Expected return on assets	—		(3)		12		(9)
Amortization of prior service credit	Amortization of prior service credit	(20)		(20)		(40)		(40)		Amortization of prior service credit	(20)		(20)		(60)		(60)
Amortization of net actuarial (gain) loss	Amortization of net actuarial (gain) loss	(44)		88		(89)		176		Amortization of net actuarial (gain) loss	(43)		88		(132)		264
Net periodic benefit cost	Net periodic benefit cost	$	211	$	324	$	423	$	648	Net periodic benefit cost	$	208	$	324	$	631	$	972

The components of net periodic benefit cost, other than the service cost component, are included in other income on the Consolidated Statements of Operations. The service cost component is included in selling, general and administrative expenses on the Consolidated Statements of Operations.

~~Index~~

Note 17 - Contingencies

The Company is party to claims and lawsuits arising out of its business and that of its consolidated subsidiaries, which may include, but are not limited to, matters involving property damage, personal injury, and environmental, contractual and statutory obligations. The Company accrues a liability for those contingencies when the incurrence of a loss is probable and the amount can be reasonably estimated. If a range of amounts can be reasonably estimated and no amount within the range is a better estimate than any other amount, then the minimum of the range is accrued. The Company does not accrue liabilities when the likelihood that the liability has been incurred is probable but the amount cannot be reasonably estimated or when the liability is believed to be only reasonably possible or remote. For contingencies where an unfavorable outcome is probable or reasonably possible and which are material, the Company discloses the nature of the contingency and, in some circumstances, an estimate of the possible loss. Accruals are based on the best information available, but in certain situations management is unable to estimate an amount or range of a reasonably possible loss including, but not limited to when: (1) the damages are unsubstantiated or indeterminate, (2) the proceedings are in the early stages, (3) numerous parties are involved, or (4) the matter involves novel or unsettled legal theories.

At ~~June~~September 30, 2023 and December 31, 2022, the Company accrued contingent liabilities as a result of litigation, which have not been discounted, of ~~$970,000~~$645,000 and $1.0 million, respectively. At ~~June 30, 2023 and~~ December 31, 2022, the Company also recorded corresponding insurance receivables of $325,000 ~~in both periods~~ related to the accrued liabilities. ~~The accruals are for contingencies resulting from litigation and environmental matters.~~ Most of these claims and lawsuits are covered by insurance, thus the Company's exposure is typically limited to its deductible amount. The Company will continue to monitor each matter and adjust accruals as might be warranted based on new information and further developments. Management believes that the outcomes with respect to probable and reasonably possible losses in excess of the amounts accrued, net of insurance

Index

recoveries, while uncertain, either cannot be estimated or will not have a material effect upon the Company's financial position, results of operations or cash flows. Unless otherwise required by GAAP, legal costs are expensed as they are incurred.

Environmental matters

The Company is a party to claims for the cleanup of a superfund site in Portland, Oregon. There were no material changes to the Company's environmental matters that were previously reported in the audited financial statements and notes included in the Company's Registration Statement on Form 10.

Guarantees

Certain subsidiaries of the Company have outstanding obligations to third parties where the Company has guaranteed their performance. These guarantees are related to contracts for contracting services and certain other guarantees. At ~~June~~September 30, 2023, the fixed maximum amounts guaranteed under these agreements aggregated to $11.5 million, all of which have no scheduled maturity date. Certain of the guarantees also have no fixed maximum amounts specified. There were no amounts outstanding under the previously mentioned guarantees at ~~June~~September 30, 2023.

Certain subsidiaries of the Company have outstanding letters of credit to third parties related to insurance policies, cement purchases and other agreements. At ~~June~~September 30, 2023, the fixed maximum amounts guaranteed under these letters of credit aggregated ~~$4.9~~$4.8 million. At ~~June~~September 30, 2023, the amounts of scheduled expiration of the maximum amounts guaranteed under these letters of credit aggregate to ~~$4.5~~$4.0 million in 2023 and ~~$436,000~~$771,000 in 2024. There were no amounts outstanding under the previously mentioned letters of credit at ~~June~~September 30, 2023.

In the normal course of business, the Company has surety bonds related to contracts for contracting services, ~~and~~ reclamation obligations and insurance policies of its subsidiaries. In the event a subsidiary of the Company does not fulfill a bonded obligation, the Company would be responsible to the surety bond company for completion of the bonded contract or obligation. A large portion of the surety bonds is expected to expire within the next 12 months; however, the Company will likely continue to enter into surety bonds for its subsidiaries in the future. At ~~June~~September 30, 2023, approximately ~~$905.4~~$619.2 million of surety bonds were outstanding, which were not reflected on the Consolidated Balance Sheet.

Note 18 - Related-party transactions

Transition services agreements

As part of the Separation, MDU Resources is providing transition services to the Company and the Company is providing transition services to MDU Resources in accordance with the Transition Services Agreement entered into on May 30, 2023. For the three and ~~six~~nine months ended ~~June~~September 30, 2023, the Company paid ~~$599,000~~$1.3 million and ~~received $277,000~~$1.9 million, respectively, related to these ~~activities.~~activities, which were reflected in selling, general and administrative expenses on the Consolidated Statements of Operations. For the three and nine months ended September 30, 2023, the Company received $407,000 and $684,000, respectively, related to these activities, which were reflected in other income (expense) on the Consolidated Statements of Operations. The majority of the transition services are expected to be completed over a period of one year, but no longer than two years after the Separation.

~~Index~~

Related-party notes payable

The related-party notes payable to Centennial at May 30, 2023, was $889.7 million. As part of the Separation, Centennial made an equity contribution to the Company to release the Company of its obligation related to the outstanding notes payable. Also as part of the Separation, the Company issued $425.0 million of 7.75 percent senior notes due May 1, 2031, a credit agreement consisting of a $275.0 million term loan and a $350.0 million revolving credit facility, of which $190.0 million was drawn down at the time of the Separation. On May 31, 2023, the Company paid a dividend of $825.0 million from these proceeds to Centennial, which Centennial used to repay a portion of the Company's outstanding indebtedness. These transactions resulted in the Company receiving a net equity contribution of $64.7 million and is reflected as "Net transfers from Centennial and MDU Resources including separation adjustments" in the Consolidated Statement of Equity. Refer to Note 12 for additional information on the debt facilities entered into in connection with the Separation.

For additional information on the presentation of related-party transactions, see Note 2.

2425

Index

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Knife River is a people-first construction materials and contracting services company. The Company provides construction materials and contracting services to build safe roads, bridges and airport runways that connect people with where they want to go and with the supplies they need. Knife River also champions a positive workplace culture by focusing on safety, training, inclusion, compensation and work-life ~~balance, and focuses on sustainable business practices for the benefit of its team, its stockholders and the public.~~balance.

Knife River is one of the leading providers of crushed stone and sand and gravel in the United States and operates through six ~~operating~~ regions: Pacific, Northwest, Mountain, North Central, South and Energy Services, with operations across 14 states. These regions are used to determine the Company's reportable segments and are based on the Company's method of internal reporting and management of the business. The Company's reportable segments are: Pacific, Northwest, Mountain, and North Central, with South and Energy Services included in All Other with its corporate services. The segments primarily provide aggregates, asphalt and ready-mix concrete, as well as ~~supporting~~related contracting services such as heavy-civil construction, asphalt paving, concrete delivery and paving, site development and grading.

As a leading aggregates-based construction materials and contracting services provider in the United States, the Company's 1.1 billion tons of aggregate reserves provide the foundation for a vertically integrated business strategy, with approximately 40 percent of its aggregates ~~for the year ended December 31, 2022,~~in 2023 being used internally to support value-added downstream products (ready-mix concrete and asphalt) and contracting services (heavy-civil construction, asphalt paving, concrete construction, site development and grading services, and in some segments the manufacturing of prestressed concrete products). Its aggregate sites and associated asphalt and ready-mix plants are primarily in strategic locations near mid-sized, high-growth markets, providing Knife River with a transportation advantage for its materials that supports competitive pricing and increased margins. Knife River provides its products and services to both public and private markets, with public markets tending to be more stable across economic cycles, which helps offset the cyclical nature of the private markets.

~~Each segment~~The Company provides various products and services and operates ~~various~~a variety of facility types, including aggregate quarries and mines, ready-mix concrete plants, asphalt plants and distribution facilities. ~~Each segment~~The Company operates in the following states:

•Pacific: Alaska, California and Hawaii

•Northwest: Oregon and Washington

•Mountain: Idaho, Montana and Wyoming

•North Central: Iowa, Minnesota, North Dakota and South Dakota

•All Other: Iowa, Nebraska, North Dakota, South Dakota, Texas and Wyoming

The following table presents a summary of products and services provided, as well as modes of transporting those ~~products, by each segment:~~products:

Products and Services

Modes of Transportation

Precast/

Ready-Mix

Construction

Prestressed

Liquid

Heavy

Aggregates

Asphalt

Concrete

Services

Concrete

Asphalt

Cement

Equipment

Trucking

Rail

Barge

Pacific

Northwest

Mountain

North Central

All Other

The Separation

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Exchange Act. Forward-looking statements are all statements other than statements of historical fact, including without limitation those statements that are identified by the words "anticipates," "estimates," "expects," "intends," "plans," "predicts" and similar expressions, and include statements concerning plans, trends, objectives, goals, strategies, future events or performance, and

~~Index~~

underlying assumptions (many of which are based, in turn, upon further assumptions) and other statements that are other than

Index

statements of historical facts. From time to time, the Company may publish or otherwise make available forward-looking statements of this nature, including statements related to EDGE, that are contained within the Market Conditions and Outlook and Business Segment Financial and Operating Data sections.

Forward-looking statements involve risks and uncertainties, which could cause actual results or outcomes to differ materially from those expressed. The Company's expectations, beliefs and projections are expressed in good faith and are believed by the Company to have a reasonable basis, including without limitation, management's examination of historical operating trends, data contained in the Company's records and other data available from third parties. Nonetheless, the Company's expectations, beliefs or projections may not be achieved or accomplished and changes in such assumptions and factors could cause actual future results to differ materially.

Any forward-looking statement contained in this document speaks only as of the date on which the statement is made, and the Company undertakes no obligation to update any forward-looking statement or statements to reflect events or circumstances that occur after the date on which the statement is made or to reflect the occurrence of unanticipated events, except as required by law. New factors emerge from time to time, and it is not possible for management to predict all the factors, nor can it assess the effect of each factor on the Company's business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement. All forward-looking statements, whether written or oral and whether made by or on behalf of the Company, are expressly qualified by the risk factors and cautionary statements reported in the section entitled "Risk Factors" in the Company's Registration Statement on Form 10 and subsequent filings with the SEC.

Basis of Presentation

Knife River historically operated as a wholly owned subsidiary of Centennial and an indirect, wholly owned subsidiary of MDU Resources and not as a stand-alone company until the Separation from MDU Resources was completed. The accompanying historical consolidated financial statements and footnotes, which were prepared on a “carve-out” basis in connection with the Separation, were derived from the consolidated financial statements of MDU Resources as if the Company operated on a stand-alone basis during the historical periods presented, and were prepared utilizing the legal entity approach in conformity with GAAP. For additional information related to the basis of presentation, see Note 2.

Prior to the Separation, Knife River historically participated in Centennial’s centralized cash management program, including its overall financing arrangements. Knife River had related-party note agreements in place with Centennial for the financing of its capital needs, which are reflected as related-party notes payable on the Consolidated Balance Sheet at December 31, 2022. Interest expense in the Consolidated Statements of Operations reflects the allocation of interest on borrowing and funding associated with the related-party note agreements. Upon the completion of the Separation, Knife River implemented its own financing agreements with lenders. For additional information on the Company's current debt financing, see Note 12.

All intercompany balances and transactions between the businesses comprising Knife River have been eliminated in the accompanying consolidated financial statements.

Market Conditions and Outlook

Knife River’s markets remain resilient and construction activity remains generally strong despite general and economic challenges, such as transportation disruptions, supply-chain constraints, inflation and ~~rising~~higher interest rates. With approximately 80 percent of ~~the~~its contracting revenue from public-sector projects, Knife River ishas been able to balance the cyclical nature of its private-sector customers. While Knife River experienced inflationary pressures in the past year, price increases have generally outpaced the increased costs. For more information on factors that may negatively impact Knife River's business, see the section entitled "Risk Factors" in the Company's Registration Statement on Form 10.

Backlog. ~~There continues to be high demand for~~ Knife River’s contracting services backlog was as ~~evidenced by record second quarter backlog as it begins to enter its peak construction season.~~follows:


		June 30, 2023		June 30, 2022			September 30, 2023		September 30, 2022
		(In millions)					(In millions)
Pacific	Pacific	$	78.3	$	92.5	Pacific	$	69.8	$	79.1
Northwest	Northwest	257.3		169.4		Northwest	227.4		150.6
Mountain	Mountain	377.3		348.9		Mountain	251.1		310.9
North Central	North Central	255.4		294.9		North Central	109.3		181.1
All Other	All Other	72.6		71.7		All Other	74.6		82.0
		$	1,040.9	$	977.4		$	732.2	$	803.7

2627

Index

~~Margins on backlog at June 30, 2023, are higher than the~~Expected margins on backlog at ~~June~~September 30, 2023, were greater than the expected margins on backlog at September 30, 2022. Approximately 8483 percent of the Company's backlog at September 30, 2023, relates to publicly funded projects, including street and highway construction projects, which are driven primarily by public works projects for state departments of transportation. Period-over-period increases or decreases cannot be used as an indicator of future revenues, net income or EBITDA. While the Company believes the current backlog of work remains firm, prolonged delays in the receipts of critical supplies and materials or continued increases to pricing, among other things, could result in customers seeking to delay or terminate existing or pending ~~agreements.~~agreements and could reduce expected margins. See the section entitled “Risk Factors” in the Company's Registration Statement on Form 10 for a list of factors that can cause revenues to be realized in periods and at levels that are different from originally projected.

Public Funding. Funding for public projects is dependent on federal and state funding, such as appropriations to the Federal Highway Administration. The American Rescue Plan Act enacted in the first quarter of 2021 provides $1.9 trillion in COVID-19 relief funding for states, schools and local governments. States are moving forward with allocating these funds based on federal criteria and state needs, and in some cases, funding of infrastructure projects could positively impact Knife River. Additionally, the ~~Infrastructure Investment and Jobs Act~~IIJA was enacted in the fourth quarter of 2021 and is providing long-term opportunities by designating ~~$119~~$131 billion ~~for the repair and rebuilding of roads and bridges~~in funding across Knife River’s footprint. ~~In addition,~~IIJA funding has been making its way to the ~~Inflation Reduction Act provides $369~~14 states where Knife River operates, with a total of nearly $80 billion having been allocated to specific projects in ~~new funding for clean energy programs. These programs include new tax incentives for solar, battery storage and hydrogen development along with funding to expand the production~~those states as of ~~electric vehicles and build out the infrastructure to support electric vehicles.~~August 2023. In addition to federal funding, 12 out of the 14 states in which Knife River operates have implemented new funding mechanisms for public projects, including projects related to highways, airports and other public infrastructure. Knife River continues to monitor the implementation and impact of these legislative items.

Profitability. Knife River’s management continually monitors its margins and has been proactive in applying strategies to address the inflationary impacts seen across the United States. ~~The~~In 2023, the Company ~~has implemented a strategy called "Competitive EDGE"~~began implementing EDGE to improve margins and to execute on other strategic initiatives aimed at generating long-term profitable growth. The EDGE acronym stands for EBITDA Margin Improvement, Discipline, Growth and Excellence. As part of this strategy, Knife River has increased its product pricing ~~in each region~~ over the past year and ~~continues to implement cost savings~~is targeting higher-margin bidding opportunities. In addition, the Company has established dedicated teams that assist with implementing cost-savings initiatives to ~~mitigate the effects of inflation on~~further enhance its gross margin. Due to existing contractual provisions, there can be a lag between announced price increases and the time when they are fully recognized. The Company continues to evaluate future price increases on a regular cadence to help maintain and increase margins to stay ahead of inflationary pressures and enhance stockholder value.

Knife River operates in geographically diverse and competitive markets, ~~yet~~and strives to maximize efficiencies, including transportation costs and economies of scale, to maintain strong margins. Its margins can experience negative pressure from competition, as well as impacts from the volatility in the cost of raw materials, such as diesel fuel, gasoline, natural gas, liquid asphalt, cement and steel, with fuel and liquid asphalt costs often having the most significant impact on results. Many of these raw materials are subject to factors that are beyond the control of the Company, including global economic and political events and new and changing governmental regulations. The energy services business is particularly susceptible to volatility in liquid asphalt costs, which can impact both cost of sales and revenues, for which the Company cannot reliably predict future pricing. Such volatility and inflationary pressures may have an impact on the Company’s margins, including fixed-price contracting services contracts that are particularly vulnerable to the volatility of energy and material prices. ~~While~~The Company mitigates its exposure to these fluctuations by entering into various purchase commitments, as well as by generally including terms in the ~~Company has experienced some supply-chain constraints, it continues~~Company's contracting services agreements that provide for price adjustments related to ~~have good relationships with its suppliers and has not experienced any material adverse impacts of shortages or delays on materials.~~variations in raw materials costs.

Knife River's operations can also be significantly impacted by both favorable and unfavorable weather conditions. Unseasonably wet and/or cold weather in the states where it operates in can delay the start or cause an early end to the construction season or cause temporary delays on specific projects, while unseasonably dry or warm weather in the states where it operates in can allow for an early start to construction season or allow for early completions on specific projects. Either of these conditions can impact both its construction materials sales and contracting services revenues. In early 2023, the Company saw record levels of precipitation in the western part of the United States, ~~had near record levels~~which caused work to be delayed until later in the year. During the third quarter, the Company largely caught up on this work, as reflected in the Pacific segment results of ~~precipitation, which negatively impacted results for various segments.~~operations. Other variables that can impact Knife River’s margins include the timing of project starts or completions, and declines or delays in new and existing projects due to the cyclical nature of the construction industry. Accordingly, operating results in any particular period may not be indicative of the results that can be expected for any other period.

Workforce. As a people-first company, Knife River continually takes steps to address the challenge of recruitment and retention of employees. To help attract new workers to the construction industry and enhance the skills of its current employees, Knife River ~~has constructed and~~ operates a state-of-the-art training facility. The ~~training facility~~Knife River Training Center offers hands-on training for construction-related careers, including heavy-equipment operators and truck drivers in addition to safety and leadership training. ~~In October 2022,~~One of the most popular courses is CDL training, center was presented with the Liberty Mutual Risk Management Excellence Award for its commitment to safety. As an accredited school able to train people to get their commercial driver’s license, the new training facilitywhich is helping to address some of the recent labor shortages and trends. Through September 30, 2023, training center staff have provided 18 entry-level driver's training sessions for 141 CDL students since opening in 2022, including seven classes for 55 students in 2023. Students graduating from the Knife River CDL program have had a 98 percent success rate earning their CDLs.

Today’s labor market includes an aging workforce and labor shortages, including shortages of truck drivers, which has caused increased labor-related costs. Knife River continues to monitor the labor markets and assess additional opportunities to enhance and support its workforce. Despite these efforts, Knife River expects labor costs to continue to ~~increase based on the increased demand for services.~~increase.

2728

Index

Consolidated Overview


		Three Months Ended				Six Months Ended				Three Months Ended						Nine Months Ended
		June 30,				June 30,				September 30,						September 30,
		2023		2022		2023		2022				2023		2022			2023		2022
		(In millions)										(In millions)
Revenue	Revenue	$	785.2	$	711.8	$	1,093.1	$	1,021.8		Revenue	$	1,090.4	$	975.4		$	2,183.5	$	1,997.2
Cost of revenue	Cost of revenue	632.2		608.5		936.0		917.3			Cost of revenue	821.0		790.9			1,757.0		1,708.3
Gross profit	Gross profit	153.0		103.3		157.1		104.5			Gross profit	269.4		184.5			426.5		288.9
Selling, general and administrative expenses	Selling, general and administrative expenses	59.5		42.9		108.1		88.7			Selling, general and administrative expenses	59.2		41.6			167.3		130.2
Operating income	Operating income	93.5		60.4		49.0		15.8			Operating income	210.2		142.9			259.2		158.7
Interest expense	Interest expense	19.1		7.4		28.7		12.7			Interest expense	15.3		8.8			44.0		21.5
Other income (expense)	Other income (expense)	2.5		(2.8)		3.3		(4.8)			Other income (expense)	—		(1.3)			3.3		(6.1)
Income (loss) before income taxes		76.9		50.2		23.6		(1.7)
Income tax expense (benefit)		20.1		11.6		8.1		(.2)
Net income (loss)		$	56.8	$	38.6	$	15.5	$	(1.5)
Income before income taxes											Income before income taxes	194.9		132.8			218.5		131.1
Income tax expense											Income tax expense	48.2		33.1			56.3		32.9
Net income											Net income	$	146.7	$	99.7		$	162.2	$	98.2

EBITDA*	EBITDA*	$	125.1	$	87.3	$	111.0	$	69.1		EBITDA*	$	241.4	$	172.1		$	352.4	$	241.2
Adjusted EBITDA*	Adjusted EBITDA*	$	126.3	$	90.4	$	112.5	$	74.5		Adjusted EBITDA*	$	247.5	$	173.1		$	360.0	$	247.6

*EBITDA and Adjusted EBITDA are non-GAAP financial measures. For more information and reconciliations to the nearest GAAP measures, see the section entitled "Non-GAAP Financial Measures."

Revenue includes revenue from the sale of construction materials and contracting services. Revenue for construction materials is recognized at a point in time when delivery of the products has taken place. Contracting services revenue is recognized over time using an input method based on the cost-to-cost measure of progress on a project.

Cost of revenue includes all material, labor and overhead costs incurred in the production process for Knife River's products and services. These costs are impacted by various drivers, the most significant of which includes changes in raw material costs, energy costs and salary and benefits costs. Cost of revenue also includes depreciation, depletion and amortization attributable to the assets used in the production process.

Gross profit includes revenue less cost of revenue, as defined above, and is the difference between revenue and the cost of making a product or providing a service, before deducting selling, general and administrative expenses, income taxes and interest expense.

Selling, general and administrative expenses include the costs for estimating, bidding and business development, as well as costs related to corporate functions. Selling expenses can vary depending on the volume of projects in process and the number of employees assigned to estimating and bidding activities. Other general and administrative expenses include outside services; information technology; depreciation and amortization; training, travel and entertainment; office supplies; allowance for expected credit losses; gains or losses on the sale of assets; and other miscellaneous expenses.

Other income (expense) includes net periodic benefit costs for the Company’s benefit plan expenses, other than service costs; interest income; realized and unrealized gains and losses on investments for the Company’s nonqualified benefit plans; earnings or losses on joint venture arrangements; and other miscellaneous income or expenses.

Income tax expense ~~(benefit)~~ consists of corporate income taxes related to the sale of the Company's products and services. The effective tax rate can be affected by many factors, including changes in tax laws, regulations or rates, new interpretations of existing laws or regulations and changes to the Company's overall levels of income before income tax.

The discussion that follows focuses on the key financial measures the Company uses to evaluate the performance of its business, which include revenue, gross profit, gross margin, EBITDA and EBITDA margin. Gross margin is calculated by dividing gross profit by revenue. Gross margin reflects the percentage of revenue earned in comparison to cost. EBITDA and EBITDA margin are non-GAAP financial measures. For more information and reconciliations to the nearest GAAP measures, see the section entitled "Non-GAAP Financial Measures."

2829

Index

The following tables summarize operating results for the Company.


		Three Months Ended						Six Months Ended							Three Months Ended						Nine Months Ended
		June 30,						June 30,							September 30,						September 30,
		2023			2022			2023			2022				2023			2022			2023			2022
		Amount		% of Revenues	Amount		% of Revenues	Amount		% of Revenues	Amount		% of Revenues		Amount		% of Revenues	Amount		% of Revenues	Amount		% of Revenues	Amount		% of Revenues
		(In millions)													(In millions)
Revenues by operating segment:	Revenues by operating segment:													Revenues by operating segment:
Pacific	Pacific	$	142.2		$	128.4		$	209.9		$	213.8		Pacific	$	181.4		$	152.4		$	391.4		$	366.1
Northwest	Northwest	179.0			151.0			294.9			256.5			Northwest	209.4			204.7			504.2			461.2
Mountain	Mountain	175.8			170.4			236.4			228.9			Mountain	255.1			204.1			491.5			433.0
North Central	North Central	187.6			167.2			208.6			190.1			North Central	305.1			294.3			513.7			484.4
All Other and internal sales	All Other and internal sales	100.6			94.8			143.3			132.5			All Other and internal sales	139.4			119.9			282.7			252.5
Total revenues	Total revenues	$	785.2		$	711.8		$	1,093.1		$	1,021.8		Total revenues	$	1,090.4		$	975.4		$	2,183.5		$	1,997.2

Gross profit by operating segment:	Gross profit by operating segment:													Gross profit by operating segment:
Pacific	Pacific	$	27.2	19.1%	$	18.3	14.2%	$	28.9	13.8%	$	26.6	12.4%	Pacific	$	42.8	23.6%	$	27.4	18.0%	$	71.7	18.3%	$	54.0	14.7%
Northwest	Northwest	43.1		24.0%	24.2		16.1%	58.8		19.9%	38.3		14.9%	Northwest	50.6		24.1%	44.1		21.5%	109.3		21.7%	82.4		17.9%
Mountain	Mountain	34.4		19.6%	29.5		17.3%	28.6		12.1%	23.8		10.4%	Mountain	60.7		23.8%	40.9		20.0%	89.3		18.2%	64.6		14.9%
North Central	North Central	28.4		15.2%	17.9		10.7%	8.2		4.0%	(3.1)		(1.6)%	North Central	74.5		24.4%	58.9		20.0%	82.8		16.1%	55.7		11.5%
All Other	All Other	19.9		19.8%	13.4		14.1%	32.6		22.7%	18.9		14.3%	All Other	40.8		29.3%	13.2		11.0%	73.4		25.9%	32.2		12.7%
Total gross profit	Total gross profit	$	153.0	19.5%	$	103.3	14.5%	$	157.1	14.4%	$	104.5	10.2%	Total gross profit	$	269.4	24.7%	$	184.5	18.9%	$	426.5	19.5%	$	288.9	14.5%

EBITDA*:	EBITDA*:													EBITDA*:
Pacific	Pacific	$	22.0	15.5%	$	15.2	11.8%	$	18.9	9.0%	$	20.6	9.7%	Pacific	$	37.6	20.7%	$	24.6	16.1%	$	56.5	14.4%	$	45.2	12.3%
Northwest	Northwest	40.7		22.7%	23.2		15.4%	53.8		18.3%	36.0		14.0%	Northwest	48.9		23.3%	43.8		21.4%	102.7		20.4%	79.8		17.3%
Mountain	Mountain	32.6		18.5%	28.6		16.8%	26.0		11.0%	20.6		9.0%	Mountain	60.4		23.7%	39.6		19.4%	86.5		17.6%	60.2		13.9%
North Central	North Central	24.4		13.0%	16.1		9.6%	.9		.4%	(8.2)		(4.3)%	North Central	70.5		23.1%	58.6		19.9%	71.4		13.9%	50.4		10.4%
All Other	All Other	5.4		5.3%	4.2		4.4%	11.4		7.9%	.1		.1%	All Other	24.0		17.2%	5.5		4.6%	35.3		12.5%	5.6		2.2%
Total EBITDA*	Total EBITDA*	$	125.1	15.9%	$	87.3	12.3%	$	111.0	10.2%	$	69.1	6.8%	Total EBITDA*	$	241.4	22.1%	$	172.1	17.6%	$	352.4	16.1%	$	241.2	12.1%

*EBITDA, ~~Segment~~segment EBITDA, EBITDA margin and segment EBITDA margin are non-GAAP financial measures. For more information and a reconciliation to the nearest GAAP measure, see the section entitled "Non-GAAP Financial Measures."


		Three Months Ended				Six Months Ended					Three Months Ended				Nine Months Ended
		June 30,				June 30,					September 30,				September 30,
		2023		2022		2023		2022			2023		2022		2023		2022
Sales (thousands):	Sales (thousands):									Sales (thousands):
Aggregates (tons)	Aggregates (tons)	9,181		9,521		14,049		14,491		Aggregates (tons)	12,022		12,399		26,071		26,891
Ready-mix concrete (cubic yards)	Ready-mix concrete (cubic yards)	1,113		1,140		1,674		1,873		Ready-mix concrete (cubic yards)	1,271		1,306		2,944		3,179
Asphalt (tons)	Asphalt (tons)	1,913		2,101		2,092		2,417		Asphalt (tons)	3,349		3,550		5,441		5,968

Average selling price:*	Average selling price:*									Average selling price:*
Aggregates (per ton)	Aggregates (per ton)	$	15.95	$	14.33	$	16.37	$	14.77	Aggregates (per ton)	$	16.10	$	13.86	$	16.24	$	14.35
Ready-mix concrete (per cubic yard)	Ready-mix concrete (per cubic yard)	$	166.11	$	147.53	$	168.30	$	147.67	Ready-mix concrete (per cubic yard)	$	169.98	$	152.34	$	169.02	$	149.59
Asphalt (per ton)	Asphalt (per ton)	$	65.32	$	57.85	$	66.24	$	57.77	Asphalt (per ton)	$	66.51	$	57.91	$	66.41	$	57.85

*The average selling price includes freight and delivery and other revenues.

2930

Index


		Three Months Ended						Six Months Ended							Three Months Ended						Nine Months Ended
		June 30,						June 30,							September 30,						September 30,
		2023			2022			2023			2022				2023			2022			2023			2022
		Amount		% of Revenues	Amount		% of Revenues	Amount		% of Revenues	Amount		% of Revenues		Amount		% of Revenues	Amount		% of Revenues	Amount		% of Revenues	Amount		% of Revenues
		(In millions)													(In millions)
Revenues by product line:	Revenues by product line:													Revenues by product line:
Aggregates	Aggregates	$	146.4		$	136.4		$	229.9		$	214.0		Aggregates	$	193.6		$	171.8		$	423.5		$	385.8
Ready-mix concrete	Ready-mix concrete	184.9			168.1			281.7			276.6			Ready-mix concrete	216.0			198.9			497.7			475.5
Asphalt	Asphalt	125.0			121.5			138.5			139.7			Asphalt	222.8			205.6			361.3			345.2
Other*	Other*	143.2			124.3			181.8			161.8			Other*	214.1			166.7			395.9			328.5
Contracting services	Contracting services	353.4			330.7			468.4			445.0			Contracting services	537.3			492.2			1,005.8			937.2
Internal sales	Internal sales	(167.7)			(169.2)			(207.2)			(215.3)			Internal sales	(293.4)			(259.8)			(500.7)			(475.0)
Total revenues	Total revenues	$	785.2		$	711.8		$	1,093.1		$	1,021.8		Total revenues	$	1,090.4		$	975.4		$	2,183.5		$	1,997.2

Gross profit by product line:	Gross profit by product line:													Gross profit by product line:
Aggregates	Aggregates	$	36.4	24.9%	$	29.7	21.8%	$	38.8	16.9%	$	30.0	14.0%	Aggregates	$	51.8	26.7%	$	32.7	19.1%	$	90.6	21.4%	$	62.8	16.3%
Ready-mix concrete	Ready-mix concrete	28.1		15.2%	23.4		13.9%	36.8		13.1%	32.7		11.8%	Ready-mix concrete	37.7		17.4%	34.4		17.3%	74.5		15.0%	67.0		14.1%
Asphalt	Asphalt	16.4		13.1%	11.4		9.4%	10.3		7.5%	6.3		4.5%	Asphalt	39.4		17.7%	29.2		14.2%	49.7		13.8%	35.4		10.3%
Other*	Other*	34.7		24.2%	13.1		10.5%	28.5		15.6%	1.5		.9%	Other*	77.9		36.4%	46.3		27.8%	106.3		26.9%	47.8		14.6%
Contracting services	Contracting services	37.4		10.6%	25.7		7.8%	42.7		9.1%	34.0		7.6%	Contracting services	62.6		11.7%	41.9		8.5%	105.4		10.5%	75.9		8.1%
Total gross profit	Total gross profit	$	153.0	19.5%	$	103.3	14.5%	$	157.1	14.4%	$	104.5	10.2%	Total gross profit	$	269.4	24.7%	$	184.5	18.9%	$	426.5	19.5%	$	288.9	14.5%

*Other includes cement, liquid asphalt, merchandise, fabric and spreading, and other products and services that individually are not considered to be a ~~major~~core line of business.

Three Months Ended ~~June~~September 30, 2023, Compared to Three Months Ended ~~June~~September 30, 2022

Revenue

Revenue improved $115.0 million as pricing momentum across the core product lines was supported by continued demand, increased ~~$73.4 million, due in large part to higher average selling prices across all product lines. The increase in~~market pricing ~~resulted in $66.5 million more in revenue, which was primarily the result of continued~~and EDGE-related pricing ~~initiatives and increases~~initiatives. The increased pricing added $90.9 million in ~~commodity pricing. Contracting services revenues increased by $22.7 million due mostly to more available work and a few impact projects~~revenue. The Company also saw strong demand in the ~~Northwest and North Central segments.~~Mountain region, which contributed $40.6 million to its increased contracting services revenues. Partially offsetting these increases were decreased asphalt, aggregate and ready-mix concrete sales volumes of ~~$22.1~~$25.3 million primarily attributable to the absence of impact projects and project timing as the construction season was slow to start in some regions, as well as the partial sale of non-strategic assets in southeast Texas.

~~Gross profit and gross margin~~

Gross profit increased $49.7 million, and gross margin increased 500 basis points, primarily due to higher realized prices resulting from continued EDGE-related pricing initiatives across all product lines of $30.6 million and lower equipment operating costs of $8.1 million, primarily fuel costs. In addition, contracting services margins increased, contributing an additional $11.7 million, primarily attributable to more available work in most areas of operations, allowing for higher bid margins.

~~Selling, general and administrative expenses~~

Selling, general and administrative expenses increased $16.6 million as a result of higher payroll-related costs of $8.5 million related to both inflationary pressures driving up wages and increased staff after the Separation, as well as higher incentive and health insurance accruals. In addition, the Company has incurred higher professional service fees of $2.0 million, higher taxes, dues and subscriptions of $1.3 million, and other miscellaneous costs, including equipment, insurance, office, and information technology expenses, partially as a result of standing itself up as a publicly traded company.

~~Interest expense~~

~~Interest expense increased $11.7 million due primarily to higher average interest rates, which resulted in additional interest expense in the period of $9.9 million. Interest rates were higher~~ as a result of the Company ~~settling historical related-party notes payable as part of the Separation~~continuing to target improved bid margins and ~~entering into new debt arrangements. The Company also had higher average debt balances.~~

~~Other income (expense)~~

Other income increased $5.3 million due in part to improved performance on the Company's nonqualified benefit plan investments of $2.8 million, as discussed in Note 11, as well as interest income of $2.0 million on the cash held in escrow for the $425.0 million of senior notes issued prior to the completion of the Separation.

~~Income tax expense~~

~~Income tax expense increased $8.5 million, corresponding with higher income before income taxes.~~

~~Index~~

~~Six Months Ended June 30, 2023, Compared to Six Months Ended June 30, 2022~~

~~Revenue~~

Revenue increased $71.3 million, as the Company benefited from higher average selling prices across all product lines of $96.4 million, largely the result of EDGE-related pricing initiatives. Contracting services revenues increased by $23.4 million, primarily due to more available work in the Northwest segment. Partially offsetting these increases were decreased asphalt, aggregate and ready-mix concrete sales volumes of $62.4 million, primarily attributable to the absence in 2023 of impact projects, project timing and unseasonably wet weather conditions in certain regions in the early part of the year causing a late start to the construction season, as well as the partial sale of non-strategic assets in southeast Texas in December 2022.

Gross profit and gross margin

Gross profit ~~increased $52.6~~improved $84.9 million and gross margin ~~increased 420~~improved 580 basis ~~points,~~points. This increase was primarily ~~due to~~driven by higher ~~realized~~sales prices ~~resulting from EDGE-related pricing initiatives~~outpacing costs across all product lines by $39.0 million, largely as a result of ~~$36.3~~market pricing and EDGE-related initiatives, including operating efficiencies and pricing optimization. Higher contracting services margins contributed $20.8 million in gross profit, which was related to improved bid margins, job productivity gains and ~~lower~~higher revenues in the Mountain region during the quarter. Additionally, the Company benefited from higher liquid asphalt margins driven by favorable sales price increases, primarily market pricing; cost improvements; and higher sales volumes. Lower overall equipment operating costs, ~~of $11.4 million, mainly~~including fuel, ~~and timing of costs. In addition, contracting services margins benefited by $8.7 million as strong markets and more available work~~also had a positive impact in ~~most areas of operations during~~ the ~~second quarter more than offset the unfavorable weather impacts experienced during the first~~ quarter.

Selling, general and administrative expenses

Selling, general and administrative expenses increased ~~$19.4 million, resulting~~$17.6 million. As a result of the Separation from ~~higher~~MDU Resources, the Company experienced increased recurring costs including payroll-related costs of ~~$8.7~~$6.7 million, ~~related~~largely due to ~~both inflationary pressures driving up wages~~additional staff and ~~increased staff after~~stock-based compensation expense for the management team and board of directors; higher insurance costs of $1.2 million; and higher professional services of $600,000, which were offset by a reduction in general corporate expenses from MDU Resources of $3.8 million, as discussed in Note 2. Also, as part of the Separation, ~~as well as~~the Company incurred one-time costs of $4.4 million, which were offset in part by income from the transition services agreement of $407,000. Further contributing to higher selling, general and administrative costs were increased payroll-related costs of $7.1 million mainly due to higher incentive ~~accruals. In addition,~~accruals based on the ~~Company has incurred higher professional service fees of $2.9 million;~~Company's performance, higher office expenses of ~~$1.2 million; higher dues~~$600,000 and subscriptions of $1.2 million; higher insurance expenses of $1.1 million; and other miscellaneous costs, including equipment and information technology expenses, partially as a result of standing itself up as a publicly traded company. Additionally, the Company increased expected credit losses ~~by $1.4 million~~directly associated with an increase in receivable balances over 90 days and the absence of bad debt recoveries in 2022.

Interest expense

Interest expense increased ~~$16.0~~$6.5 million due primarily to higher average interest ~~rates, which resulted in additional interest expense in the period of $14.6 million.~~rates. Interest rates were higher as a result of the Company settling ~~historical~~ related-party notes payable as part of the Separation and entering into new debt ~~arrangements.~~arrangements, which resulted in additional interest expense in the period of $9.4 million. Partially offsetting the increase was lower average debt balances. For additional information, see Notes 12 and 18.

Index

Other income (expense)

Other income improved $1.3 million due in part to increased interest income on higher cash balances of $600,000; income resulting from the transition services agreement with MDU Resources of $400,000, as discussed in Note 18; and improved returns on the Company's nonqualified benefit plan investments.

Income tax expense

Income tax expense increased $15.1 million corresponding with higher income before income taxes.

Nine Months Ended September 30, 2023, Compared to Nine Months Ended September 30, 2022

Revenue

Revenue improved $186.3 million as pricing momentum across all product lines and regions was supported by demand, increased market pricing and EDGE-related pricing initiatives. The increased pricing added $187.9 million in revenue. The Company also saw increased contracting services revenue, primarily from strong demand in the Mountain region and more available work in the Northwest region. Partially offsetting these increases were decreased ready-mix concrete, asphalt and aggregate sales volumes of $87.8 million, primarily attributable to the absence in 2023 of certain impact projects, lower internal sales volumes resulting from the strategy to target improved bid margins, project timing and the partial sale of non-strategic assets in southeast Texas in December 2022.

Gross profit and gross margin

Gross profit improved $137.6 million and gross margin improved 500 basis points. Higher sales prices outpacing costs across its product lines contributed $66.6 million in gross profit, which was largely as a result of increased market pricing and EDGE-related initiatives, including operating efficiencies and pricing optimization. Higher contracting services margins contributed $29.5 million to gross profit, primarily related to improved bid margins, job productivity gains and higher revenues in the Mountain region. Additionally, the energy services business benefited from higher liquid asphalt margins driven by favorable sales price increases, primarily market pricing; cost improvements; and higher sales volumes. Lower overall equipment operating costs, including fuel, also had a positive impact during the year.

Selling, general and administrative expenses

Selling, general and administrative expenses increased $37.1 million. As a result of the Separation from MDU Resources, the Company experienced increased recurring costs including payroll-related costs of $8.6 million, largely due to additional staff and stock-based compensation expense for the management team and board of directors; insurance costs of $2.3 million; and professional services of $900,000, which were offset in part by a reduction in general corporate expenses from MDU Resources of $4.7 million, as discussed in Note 2. Also, as part of the Separation, the Company incurred one-time costs of $7.1 million, primarily related to professional services, insurance costs and the transition services agreement with MDU Resources, which is offset in part by income from the transition services agreement of $684,000. Further contributing to higher selling, general and administrative costs were increased payroll-related costs of $16.6 million, due in part to higher incentive accruals based on the Company's performance; higher office expenses of $1.9 million; higher information technology; and increased expected credit losses of $1.7 million directly associated with an increase in receivable balances over 90 days and the absence of bad debt recoveries in 2022.

Interest expense

Interest expense increased $22.5 million due primarily to higher average interest rates. Interest rates were higher as a result of the Company settling related-party notes payable as part of the Separation and entering into new debt arrangements, which resulted in additional interest expense in the period of $23.4 million. Partially offsetting the increase was lower average debt balances. For additional information, see Notes 12 and 18.

Other income (expense)

Other income increased ~~$8.1~~$9.4 million due in part to improved ~~performance~~returns on ~~the Company's~~ nonqualified benefit plan investments of ~~$5.7 million, as discussed in Note 11, as well as~~$5.8 million; increased interest income of ~~$2.0~~$2.6 million on higher cash balances and on the cash held in escrow for the $425.0 million of senior notes issued prior to the completion of the ~~Separation.~~Separation; and income resulting from the transition services agreement with MDU Resources, as discussed in Note 18.

Income tax expense

Income tax expense increased ~~$8.3~~$23.4 million corresponding with higher income before income taxes.

Business Segment Financial and Operating Data

A discussion of key financial data from Knife River’s business segments follows. This discussion is focused on the key financial measures the Company uses to evaluate the performance of its business from a segment level, which include revenue, gross profit, gross margin, EBITDA and EBITDA margin. Knife River focuses on gross margin, which is defined as gross profit as a percent of revenue, as a key metric when assessing the performance of the business as management believes that analyzing changes in costs in relation to changes in revenue provides more meaningful insight into the results of operations than examining costs in isolation. EBITDA and EBITDA margin are non-GAAP financial measures. For more information and reconciliations to the nearest GAAP measure, see the section entitled "Non-GAAP Financial Measures.”

3132

Index

Results of Operations - Pacific


		Three Months Ended					Six Months Ended						Three Months Ended							Nine Months Ended
		June 30,					June 30,						September 30,							September 30,
		2023		2022		% Change	2023		2022		% Change		2023			2022			% Change	2023			2022			% Change
		(In millions)											(In millions)
Revenue	Revenue	$	142.2	$	128.4	11%	$	209.9	$	213.8	(2)%	Revenue	$	181.4		$	152.4		19%	$	391.4		$	366.1		7%
Gross profit	Gross profit	$	27.2	$	18.3	49%	$	28.9	$	26.6	9%	Gross profit	$	42.8		$	27.4		56%	$	71.7		$	54.0		33%
Gross margin	Gross margin	19.1%		14.2%			13.8%		12.4%			Gross margin	23.6		%	18.0		%		18.3		%	14.7		%
EBITDA	EBITDA	$	22.0	$	15.2	45%	$	18.9	$	20.6	(8)%	EBITDA	$	37.6		$	24.6		53%	$	56.5		$	45.2		25%
EBITDA margin	EBITDA margin	15.5%		11.8%			9.0%		9.7%			EBITDA margin	20.7		%	16.1		%		14.4%			12.3		%


		Three Months Ended				Six Months Ended					Three Months Ended				Nine Months Ended
		June 30,				June 30,					September 30,				September 30,
		2023		2022		2023		2022			2023		2022		2023		2022
		(In millions)									(In millions)
Revenues:	Revenues:									Revenues:
Aggregates	Aggregates	$	27.5	$	24.3	$	46.1	$	43.4	Aggregates	$	33.6	$	28.7	$	79.7	$	72.1
Ready-mix concrete	Ready-mix concrete	40.5		33.1		66.7		63.1		Ready-mix concrete	39.9		35.4		106.5		98.5
Asphalt	Asphalt	6.3		11.5		7.6		16.0		Asphalt	14.0		10.9		21.7		26.9
Other*	Other*	61.0		53.3		87.0		80.2		Other*	81.1		63.0		168.1		143.1
Contracting services	Contracting services	33.4		36.3		40.3		57.3		Contracting services	50.4		45.1		90.7		102.4
Internal sales	Internal sales	(26.5)		(30.1)		(37.8)		(46.2)		Internal sales	(37.6)		(30.7)		(75.3)		(76.9)
		$	142.2	$	128.4	$	209.9	$	213.8		$	181.4	$	152.4	$	391.4	$	366.1

*Other includes cement, liquid asphalt, merchandise, fabric and spreading, and other products that individually are not considered to be a ~~major~~core line of business for the segment.

Three Months Ended ~~June~~September 30, 2023, Compared to Three Months Ended ~~June~~September 30, 2022

Revenue

Revenue ~~increased $13.8~~improved $29.0 million, largely as project work delayed by weather in the first quarter created additional volumes for asphalt products and aggregates, as well as increased ~~pricing across most product lines contributed an additional $11.7~~workloads for the associated contracting services. Revenue increased $10.2 million ~~largely resulting from EDGE-related pricing initiatives.~~for aggregates, cement and ready-mix concrete as a result of price increases to cover rising costs, increased sales of higher priced products and market improvements. Also contributing to the increase were strong cement product sales volumes to third-party customers in Alaska and strong aggregate and ready-mix concrete sales volumes of ~~ready-mix concrete products of $7.2~~$2.9 million from ~~higher~~increased demand in Hawaii as the local economy continues to regain momentum ~~through tourism~~for Agency and ~~military spending, as well as higher~~residential work. Higher demand for ready-mix concrete products in northern California ~~based in part on~~from an acquisition in December ~~2022. Partially offsetting~~2022 also had a positive impact on the ~~increased revenues~~quarter. These increases were offset somewhat by lower asphalt ~~volumes and decreased contracting services revenues~~products pricing of ~~$9.4~~$3.1 million ~~both resulting from the late start~~due to ~~the construction season and the absence of impact projects in California.~~lower liquid asphalt prices.

Gross profit and gross margin

Gross profit ~~increased $8.9~~improved $15.4 million and gross margin ~~increased 490~~improved 560 basis points, largely the result of ~~strong~~increased volumes across all product lines contributing an additional $9.9 million in gross profit and increased pricing ~~adding $7.1 million,~~outpacing higher costs, as previously discussed. ~~In addition, lower equipment operating costs, mainly fuel, had a positive impact to gross margin.~~

EBITDA and EBITDA margin

EBITDA ~~increased $6.8~~improved $13.0 million and EBITDA margin ~~increased 370~~improved 460 basis points. These increases were the direct result of the previously discussed higher gross profit, partially offset by higher selling, general and administrative ~~costs.~~costs of $2.5 million. The increase in selling, general and administrative costs includes higher payroll-related costs of ~~$1.4~~$1.6 million, ~~due in part~~largely related to ~~increased personnel from an acquisition in December 2022 and~~ higher incentive ~~accruals;~~accruals based on the Company's performance; increased ~~rent and overhead expenses~~insurance costs of ~~$200,000 each;~~$200,000; and higher professional service fees and other miscellaneous expenses.

~~Six~~Nine Months Ended ~~June~~September 30, 2023, Compared to ~~Six~~Nine Months Ended ~~June~~September 30, 2022

Revenue

Revenue ~~decreased $3.9~~improved $25.3 million. Revenue across most product lines was higher as prices increased to cover rising costs and markets improved, together adding $28.8 million asof revenue. Third-party cement product sales volumes also increased due to higher Agency and residential demand. In addition, the ~~segment experienced wet weather conditions~~economic environment in ~~California~~Hawaii continued to regain momentum during the first quarter of 2023. Certain areas in Northern California experienced precipitation rates that were four to five times higher during the first three months of 2023 compared to the drought conditions experienced during the same timeframe in 2022. These weather conditions prevented the Company from executing on contracting services projects of $9.2 million, including asphalt paving work,second and ~~affected demand for products, which contributed to the decrease in~~third quarters contributing additional aggregate and ready-mix sales volumes of ~~$11.0 million across most of its product lines. The~~$13.1 million. Partially offsetting the increased revenues was the absence in 2023 of an impact project ~~further decreased~~in California of $10.9 million that affected contracting services ~~revenues. Partially offsetting~~workloads as well as asphalt volumes. Also, lower aggregate and ready-mix sales volumes experienced earlier in the ~~decreased revenues~~year for work delayed by wet weather conditions in California, were ~~the positive effects of EDGE-related pricing initiatives across all product lines of $20.1 million, and higher volumes~~offset in ~~Hawaii supported~~part by the ~~strong economic environment~~significant progress made on this work during the ~~second quarter, as previously discussed.~~third quarter.

3233

Index

Gross profit and gross margin

Gross profit ~~increased $2.3~~improved $17.7 million and gross margin ~~increased 140~~improved 360 basis points, ~~driven primarily by~~largely the result of increased pricing outpacing higher costs and strong demand, as previously ~~discussed strong product pricing that more than offset~~discussed. In addition, lower equipment operating costs, mainly fuel, had a positive impact on gross profit. Partially offsetting the ~~decreased volumes and~~increase was lower contracting services ~~resulting from the wet weather conditions in California, as previously discussed, as well as~~margins reducing gross profit by $2.4 million on lower revenues and cost overruns on a project in California. ~~In addition, the segment experienced higher utility and labor-related costs, which increased year over year on a cost-per-unit basis.~~

EBITDA and EBITDA margin

EBITDA ~~decreased $1.7~~improved $11.3 million and EBITDA margin ~~decreased 70~~improved 210 basis points. These ~~decreases~~increases were the direct result of the previously discussed higher gross profit, partially offset by higher selling, general and administrative ~~costs.~~costs of $7.1 million. The increase in selling, general and administrative costs includes higher payroll-related costs of ~~$2.3~~$3.9 million, due in part to ~~increased personnel from an acquisition in December 2022 and~~ higher incentive ~~accruals;~~accruals based on the Company's performance; increased rent expense of $600,000; higher legal and other professional services of ~~$500,000; increased rent expense of $400,000;~~$600,000; higher ~~overhead expenses~~insurance costs and ~~lower asset sale gains~~building repair costs of $300,000 each; ~~decreased recovery of bad debt of $200,000;~~ and increased other miscellaneous expenses. ~~Partially offsetting the decreases was higher gross profit, as previously discussed.~~

Results of Operations - Northwest


		Three Months Ended					Six Months Ended						Three Months Ended							Nine Months Ended
		June 30,					June 30,						September 30,							September 30,
		2023		2022		% Change	2023		2022		% Change		2023			2022			% Change	2023			2022			% Change
		(In millions)											(In millions)
Revenue	Revenue	$	179.0	$	151.0	19%	$	294.9	$	256.5	15%	Revenue	$	209.4		$	204.7		2%	$	504.2		$	461.2		9%
Gross profit	Gross profit	$	43.1	$	24.2	78%	$	58.8	$	38.3	54%	Gross profit	$	50.6		$	44.1		15%	$	109.3		$	82.4		33%
Gross margin	Gross margin	24.0%		16.1%			19.9%		14.9%			Gross margin	24.1		%	21.5		%		21.7		%	17.9		%
EBITDA	EBITDA	$	40.7	$	23.2	75%	$	53.8	$	36.0	49%	EBITDA	$	48.9		$	43.8		12%	$	102.7		$	79.8		29%
EBITDA margin	EBITDA margin	22.7%		15.4%			18.3%		14.0%			EBITDA margin	23.3		%	21.4		%		20.4		%	17.3		%


		Three Months Ended				Six Months Ended					Three Months Ended				Nine Months Ended
		June 30,				June 30,					September 30,				September 30,
		2023		2022		2023		2022			2023		2022		2023		2022
		(In millions)									(In millions)
Revenues:	Revenues:									Revenues:
Aggregates	Aggregates	$	47.9	$	43.5	$	90.5	$	77.1	Aggregates	$	57.4	$	52.6	$	147.9	$	129.7
Ready-mix concrete	Ready-mix concrete	44.6		39.1		78.5		75.5		Ready-mix concrete	46.7		45.6		125.3		121.1
Asphalt	Asphalt	34.5		26.3		41.4		34.7		Asphalt	43.5		45.1		84.9		79.8
Other*	Other*	4.4		4.0		7.1		7.4		Other*	4.5				11.5		11.8
Contracting services	Contracting services	82.7		65.8		125.4		103.0		Contracting services	93.5		99.1		218.9		202.1
Internal sales	Internal sales	(35.1)		(27.7)		(48.0)		(41.2)		Internal sales	(36.2)		(42.2)		(84.3)		(83.3)
		$	179.0	$	151.0	$	294.9	$	256.5		$	209.4	$	204.7	$	504.2	$	461.2

*Other includes merchandise, transportation services and other products that individually are not considered to be a ~~major~~core line of business for the segment.

Three Months Ended ~~June~~September 30, 2023, Compared to Three Months Ended ~~June~~September 30, 2022

Revenue

Revenue ~~increased $28.0~~improved $4.7 million ~~largely the~~as a result of higher ~~contracting services revenues of $16.9 million and higher average~~ selling prices contributing an additional ~~$14.8~~$17.2 million of revenue, which was driven by EDGE-related pricing initiatives across all product lines and increased sales of higher-priced aggregate products. Also contributing to higher revenues were increased asphalt sales volumes of $4.6 million in ~~revenue, supported by consistent market demand and EDGE-related pricing initiatives. Contracting services work benefited from more available work than~~ the previous year, including Agency, data center, and parking garage work. Higher asphalt volumes of $4.9 million and higher ready-mix concrete volumes of $1.7 million also benefited from the increased contracting services work, highlighting the Company's successful vertical integration. Partially offsetting the increases were decreased aggregate volumes of $3.2 million,north division, due in part to higher third-party sales. In addition, higher demand for contracting services of $5.8 million in the west division for Agency and railroad work and for prestress data center, manufacturing plant and infrastructure work positively impacted revenues. Partially offsetting these increases were decreased demand for asphalt paving work in the south and central divisions, which affected both asphalt product sales volumes and contracting services work by $21.4 million. Sales volumes for aggregates were also lower, largely due to project ~~timing.~~delays and lower overall demand in certain locations.

Gross profit and gross margin

Gross profit ~~increased $18.9~~improved $6.5 million and gross margin ~~increased 790~~improved 260 basis ~~points, resulting from the~~points. The increase was driven by higher ~~realized~~sales prices ~~contributing $9.7 million in gross profit, largely from aggregates~~outpacing costs on aggregate and asphalt products by $12.5 million, largely as a result of EDGE-related pricing initiatives and aggregates product mix. Partially offsetting the ~~higher available contracting services work adding an additional $5.3 million,~~increase were the impacts of decreased sales volumes across all product lines, as previously ~~discussed. Lower~~discussed, and overall ~~equipment operating costs, including fuel costs, also had a positive benefit in the quarter of approximately $3.8 million.~~product mix.

3334

Index

EBITDA and EBITDA margin

EBITDA ~~increased $17.5~~improved $5.1 million and EBITDA margin ~~increased 730~~improved 190 basis points, directly resulting from the increased gross profit previously discussed. Partially offsetting the increase was higher selling, general and administrative expenses, ~~of $2.1 million,~~ including higher ~~labor-related~~payroll-related costs of $1.1 million, ~~lower~~loss on an asset ~~sales gains~~disposal and higher other miscellaneous expenses.

~~Six~~Nine Months Ended ~~June~~September 30, 2023, Compared to ~~Six~~Nine Months Ended ~~June~~September 30, 2022

Revenue

Revenue ~~increased $38.4~~improved $43.0 million, largely the result of ~~higher average selling prices adding $27.3 million of revenue, primarily due to~~ EDGE-related pricing initiatives on all product lines and increased sales of higher-priced aggregate products together contributing $44.4 million. In addition, higher demand for contracting services ~~revenues of $22.4 million. Contracting services~~ work ~~benefited from more available work than the previous year, including~~related to Agency and railroad projects, as well as prestress data center ~~parking garage, railroad~~ and ~~Agency work.~~other projects, contributed to the increase. Partially offsetting the increases were lower ~~ready-mix concrete and aggregate~~sales volumes across all product lines of ~~$5.2~~$16.9 million, due in part to the ~~absence~~timing of impact projects in 2023, ~~colder temperatures~~weather-related delays from earlier in the year and decreased demand for asphalt paving and residential work.

Gross profit and gross margin

Gross profit ~~increased $20.5~~improved $26.9 million and gross margin ~~increased 500~~improved 380 basis ~~points, resulting from~~points. The increase was driven by higher sales prices outpacing costs across all product lines by $24.2 million, largely as a result of EDGE-related pricing initiatives and aggregates product mix, which was offset in part by decreased volumes across all product lines, as previously discussed. Contracting services gross profit ~~of $7.6 million and higher asphalt gross profit of $4.0 million, due to higher average realized prices and product mix. Contracting services margins~~ improved by ~~$4.8~~$4.5 million due to the strong backlog of work established and the reduction of job losses as compared to the prior year. In addition, lower per unit fuel costs had a positive impact on gross profit.

EBITDA and EBITDA margin

EBITDA ~~increased $17.8~~improved $22.9 million and EBITDA margin ~~increased 430~~improved 310 basis points, directly resulting from the increased gross profit previously discussed. Partially offsetting the increase was higher selling, general and administrative expenses of ~~$4.2 million, including~~$6.1 million. The increase includes higher ~~labor-related~~payroll-related costs of ~~$2.0~~$3.0 million, ~~related to~~primarily higher incentive accruals and ~~wages,~~wages; lower asset ~~sales~~sale gains of ~~$1.0 million,~~$1.5 million; and higher other expenses, including office expenses, dues and subscriptions, professional services and ~~higher other expenses.~~property taxes.

Results of Operations - Mountain


		Three Months Ended					Six Months Ended						Three Months Ended							Nine Months Ended
		June 30,					June 30,						September 30,							September 30,
		2023		2022		% Change	2023		2022		% Change		2023			2022			% Change	2023			2022			% Change
		(In millions)											(In millions)
Revenue	Revenue	$	175.8	$	170.4	3%	$	236.4	$	228.9	3%	Revenue	$	255.1		$	204.1		25%	$	491.5		$	433.0		14%
Gross profit	Gross profit	$	34.4	$	29.5	17%	$	28.6	$	23.8	20%	Gross profit	$	60.7		$	40.9		48%	$	89.3		$	64.6		38%
Gross margin	Gross margin	19.6%		17.3%			12.1%		10.4%			Gross margin	23.8		%	20.0		%		18.2		%	14.9		%
EBITDA	EBITDA	$	32.6	$	28.6	14%	$	26.0	$	20.6	26%	EBITDA	$	60.4		$	39.6		53%	$	86.5		$	60.2		44%
EBITDA margin	EBITDA margin	18.5%		16.8%			11.0%		9.0%			EBITDA margin	23.7		%	19.4		%		17.6		%	13.9		%


		Three Months Ended				Six Months Ended					Three Months Ended				Nine Months Ended
		June 30,				June 30,					September 30,				September 30,
		2023		2022		2023		2022			2023		2022		2023		2022
		(In millions)									(In millions)
Revenues:	Revenues:									Revenues:
Aggregates	Aggregates	$	28.9	$	26.9	$	38.5	$	36.1	Aggregates	$	39.5	$	31.3	$	78.1	$	67.4
Ready-mix concrete	Ready-mix concrete	34.5		31.5		48.9		47.6		Ready-mix concrete	44.1		37.3		93.0		85.0
Asphalt	Asphalt	29.5		31.1		30.3		31.5		Asphalt	59.7		45.6		89.9		77.0

Contracting services	Contracting services	117.7		118.4		159.4		155.3		Contracting services	179.6		139.0		339.0		294.3
Internal sales	Internal sales	(34.8)		(37.5)		(40.7)		(41.6)		Internal sales	(67.8)		(49.1)		(108.5)		(90.7)
		$	175.8	$	170.4	$	236.4	$	228.9		$	255.1	$	204.1	$	491.5	$	433.0

Three Months Ended ~~June~~September 30, 2023, Compared to Three Months Ended ~~June~~September 30, 2022

Revenue

Revenue ~~increased $5.4~~improved $51.0 million, primarily the result of higher ~~average selling prices on~~contracting services revenues from strong demand for commercial, residential, airport and Agency work, which also contributed to volume increases for asphalt and ready-mix concrete products. Pricing momentum across all product lines ~~of $8.2 million, supported by~~in response to rising costs, higher demand and ~~EDGE-related pricing momentum. Partially offsetting~~growing markets contributed $21.7 million to the ~~increase were lower asphalt~~revenue increase. Aggregate sales volumes ~~and contracting services revenues as a result of the absence~~also increased $3.9 million, largely due to wind energy projects in 2023 of an impact airport project substantially completed during the second quarter of 2022. Overall asphalt volumes decreased an additional $3.5 million affected by unfavorable weather conditions in some locations, as were ready-mix concrete volumes.Wyoming.

3435

Index

Gross profit and gross margin

Gross profit ~~increased $4.9~~improved $19.8 million and gross margin ~~increased 230~~improved 380 basis ~~points, as a result of higher~~points. Higher margins on contracting services ~~margins contributing profit of $2.7 million~~work due to ~~strong markets~~higher revenues and higher bid margins contributed an additional $8.5 million in ~~most locations, along with~~gross profit, while higher ~~realized~~sales prices ~~for ready-mix concrete~~outpaced costs across all product lines by $8.4 million partly from EDGE-related initiatives, including operating efficiencies and ~~aggregates of $1.9 million, as previously discussed.~~pricing optimization. Lower overall equipment operating costs, largely related to fuel, also had a positive benefit in the quarter of approximately $2.3 million. Partially offsetting the increase was the absence in 2023 of an impact airport project substantially completed during the second quarter of 2022, which affected both asphalt and contracting services margins.quarter.

EBITDA and EBITDA margin

EBITDA ~~increased $4.0~~improved $20.8 million and EBITDA margin ~~increased 170~~improved 430 basis points, directly resulting from the increased gross profit previously discussed. ~~Partially offsetting the increase~~Also positively impacting EBITDA was ~~higher~~lower selling, general and administrative expenses, ~~including~~largely related to higher ~~payroll-related costs of $600,000 and higher credit loss provisions of $600,000.~~gains on asset sales.

~~Six~~Nine Months Ended ~~June~~September 30, 2023, Compared to ~~Six~~Nine Months Ended ~~June~~September 30, 2022

Revenue

Revenue ~~increased $7.5~~improved $58.5 million, primarily the result of ~~higher average selling prices on all product lines of $11.8 million, supported by demand, EDGE-related pricing and momentum in growing markets. Contracting~~increased contracting services revenues ~~increased by $4.1 million due to~~from strong ~~markets in all locations,~~demand for commercial, residential and Agency work throughout the region, offset partially by the absence in 2023 of an impact airport project substantially completed during the second quarter of 2022. ~~Aggregate~~Pricing momentum across all product lines of $34.1 million, in response to rising costs, demand and growing markets, also had a positive impact on revenues. In addition, aggregate volumes ~~also~~ benefited by ~~$1.1~~$4.8 million, largely due to increased demand in ~~Montana.~~Montana and wind energy projects in Wyoming. Partially offsetting these increases were lower ready-mix concrete and asphalt volumes of ~~$10.5~~$7.4 million, largely the result of unfavorable weather conditions in ~~some locations. Asphalt volumes were also affected by the absence of the impact airport project previously discussed.~~Wyoming.

Gross profit and gross margin

Gross profit ~~increased $4.8~~improved $24.7 million and gross margin ~~increased 170~~improved 330 basis ~~points, as a~~points. The improvement was the result of higher contracting services margins contributing profit of ~~$3.4~~$12.0 million due to strong markets ~~in most locations,~~for commercial, residential and Agency work throughout the region, as well as higher ~~realized~~sales prices ~~for ready-mix concrete of $2.7~~outpacing costs across all product lines by $10.7 million. Lower overall equipment operating costs, including fuel, also had a positive impact on the ~~segment of approximately $1.7 million.~~segment. Partially offsetting these increases was ~~the absence in 2023~~$1.4 million of ~~an impact airport project substantially completed during the second quarter of 2022, which affected both asphalt and contracting services margins.~~higher depreciation expense.

EBITDA and EBITDA margin

EBITDA ~~increased $5.4~~improved $26.3 million and EBITDA margin ~~increased 200~~improved 370 basis points, directly resulting from the increased gross profit previously discussed.

Index

Results of Operations - North Central


		Three Months Ended					Six Months Ended						Three Months Ended							Nine Months Ended
		June 30,					June 30,						September 30,							September 30,
		2023		2022		% Change	2023		2022		% Change		2023			2022			% Change	2023			2022			% Change
		(In millions)											(In millions)
Revenue	Revenue	$	187.6	$	167.2	12%	$	208.6	$	190.1	10%	Revenue	$	305.1		$	294.3		4%	$	513.7		$	484.4		6%
Gross profit	Gross profit	$	28.4	$	17.9	59%	$	8.2	$	(3.1)	365%	Gross profit	$	74.5		$	58.9		26%	$	82.8		$	55.7		49%
Gross margin	Gross margin	15.2%		10.7%			4.0%		(1.6)%			Gross margin	24.4		%	20.0		%		16.1		%	11.5		%
EBITDA	EBITDA	$	24.4	$	16.1	52%	$	.9	$	(8.2)	111%	EBITDA	$	70.5		$	58.6		20%	$	71.4		$	50.4		42%
EBITDA margin	EBITDA margin	13.0%		9.6%			.4%		(4.3)%			EBITDA margin	23.1		%	19.9		%		13.9		%	10.4		%


		Three Months Ended				Six Months Ended					Three Months Ended				Nine Months Ended
		June 30,				June 30,					September 30,				September 30,
		2023		2022		2023		2022			2023		2022		2023		2022
		(In millions)									(In millions)
Revenues:	Revenues:									Revenues:
Aggregates	Aggregates	$	30.3	$	26.7	$	34.4	$	30.7	Aggregates	$	47.7	$	45.0	$	82.0	$	75.7
Ready-mix concrete	Ready-mix concrete	53.9		47.1		66.2		59.5		Ready-mix concrete	73.2		64.5		139.3		124.0
Asphalt	Asphalt	46.7		44.7		46.8		44.8		Asphalt	95.0		96.9		142.0		141.6
Other*	Other*	10.9		9.9		12.5		12.0		Other*	10.2		8.7		22.7		20.8
Contracting services	Contracting services	99.8		89.1		104.4		94.7		Contracting services	190.3		189.9		294.7		284.6
Internal sales	Internal sales	(54.0)		(50.3)		(55.7)		(51.6)		Internal sales	(111.3)		(110.7)		(167.0)		(162.3)
		$	187.6	$	167.2	$	208.6	$	190.1		$	305.1	$	294.3	$	513.7	$	484.4

*Other includes merchandise and other products that individually are not considered to be a ~~major~~core line of business for the segment.

~~Index~~

Three Months Ended ~~June~~September 30, 2023, Compared to Three Months Ended ~~June~~September 30, 2022

Revenue

Revenue ~~increased $20.4~~improved $10.8 million ~~largely~~ resulting from higher ~~average~~ selling prices contributing an additional $30.1 million in revenue, largely due to ~~EDGE-related~~ pricing initiatives on all product lines, ~~contributing an additional $19.0 million in revenue,~~as well as product mix. Asphalt and ~~higher contracting services revenue of $10.7 million benefiting from impact projects in certain locations and timing of some projects. Ready-mix concrete~~aggregate sales volumes ~~also increased $2.2 million due to strong markets in certain locations resulting in more commercial and paving projects. Partially offsetting these increases were lower asphalt volumes of $5.6~~decreased $20.6 million, largely ~~related~~as the segment continues to ~~seasonal heavy-load road restrictions in certain locations, and decreased aggregate~~target improved bid margins on smaller projects which also impacts internal sales volumes, ~~of $2.3 million from~~as well as the absence of an impact project in South Dakota during ~~2022, as well as lower internal~~2022. Overall ready-mix concrete volumes were flat, with strong volumes in South Dakota from commercial and third-party sales ~~volumes due to a late start for paving projects.~~being offset by decreased residential demand in Minnesota.

Gross profit and gross margin

Gross profit ~~increased $10.5~~improved $15.6 million and gross margin ~~increased 450~~improved 440 basis ~~points, largely due to higher realized prices on asphalt and aggregates of $4.1 million, and higher~~points. Higher contracting services margins ~~contributing~~contributed $10.3 million in gross profit, ~~of $4.1 million~~largely related to improved bid margins across the region and ~~impact projects.~~efficient execution of work leading to job productivity gains on a large concrete and asphalt paving job. Also, higher sales prices across all product lines outpaced cost increases by $7.2 million. Lower overall equipment operating costs, largely related to fuel, also had a positive benefit in the quarter of approximately ~~$3.2~~$2.1 million. Partially offsetting these increases were lower aggregates and asphalt ~~margins related to the decreased~~ volumes, as previously discussed.

EBITDA and EBITDA margin

EBITDA ~~increased $8.3~~improved $11.9 million and EBITDA margin ~~increased 340~~improved 320 basis points, directly resulting from the increased gross profit previously discussed. Partially offsetting the increase was higher selling, general and administrative expenses of ~~$2.4~~$3.7 million, largely higher ~~labor-related~~payroll-related costs ~~for~~of $2.5 million, including higher wages and incentive and profit sharing ~~accruals.~~accruals based on the Company's performance; decreased gains on asset sales of $500,000; and increased bad debt expense.

~~Six~~Nine Months Ended ~~June~~September 30, 2023, Compared to ~~Six~~Nine Months Ended ~~June~~September 30, 2022

Revenue

Revenue ~~increased $18.5~~improved $29.3 million as a result of higher ~~average~~ selling prices across all product lines providing $51.8 million of ~~$21.6 million~~additional revenue, largely due to EDGE-related pricing ~~initiatives, and contracting~~initiatives. Contracting services revenue saw a benefit of ~~$9.7~~$10.1 million ~~benefiting~~ from improved bid margins across the region and a large concrete and asphalt paving job. Asphalt and aggregate sales volumes decreased $29.9 million, largely as the segment continues to target improved bid margins on projects which also impacts internal sales volumes, as well as the absence of an impact project in South Dakota. Overall ready-mix concrete volumes were flat, as strong volumes in South Dakota from commercial and paving projects ~~in certain markets~~ and ~~timing of some projects. Certain areas in Minnesota,~~ North Dakota ~~and South Dakota experienced precipitation rates that~~from an impact project were ~~two to three times higher during the first three months of 2023 compared to the same timeframe~~mostly offset by softening residential demand in ~~2022. These weather conditions affected demand for products and resulted in a decrease in sales volumes of $9.3 million for asphalt and aggregates.~~Minnesota.

Index

Gross profit and gross margin

Gross profit ~~increased $11.3~~improved $27.1 million and gross margin ~~increased 560~~improved 460 basis points, largely due to higher ~~realized prices on aggregates and asphalt of $4.4 million. Contracting~~contracting services margins ~~contributed profit~~ of ~~$3.6~~$14.0 million ~~from~~related to improved bid margins, impact projects and ~~impact projects.~~job productivity gains, as well as higher sales prices across all product lines outpacing cost increases by $11.6 million. Lower overall equipment operating costs, largely fuel, also had a positive benefit in the ~~quarter.~~quarter of approximately $6.0 million. Partially offsetting these increases were lower aggregate and asphalt sales volumes, as previously discussed.

EBITDA and EBITDA margin

EBITDA ~~increased $9.1~~improved $21.0 million and EBITDA margin ~~increased 470~~improved 350 basis points, directly resulting from the increased gross profit previously discussed. Partially offsetting the increase was higher selling, general and administrative expenses of ~~$2.6~~$6.3 million, primarily higher ~~labor-related~~payroll-related costs ~~for~~of $4.7 million, including higher incentive and profit sharing ~~accruals.~~accruals based on the Company's performance, as well as decreased gains on asset sales of $500,000; increased insurance costs of $300,000; and increased other miscellaneous expenses.

Results of Operations - All Other and Intersegment Eliminations


		Three Months Ended							Six Months Ended								Three Months Ended							Nine Months Ended
		June 30,							June 30,								September 30,							September 30,
		2023			2022			% Change	2023			2022			% Change		2023			2022			% Change	2023			2022			% Change
		(In millions)															(In millions)
Revenue	Revenue	$	100.6		$	94.8		6%	$	143.3		$	132.5		8%	Revenue	$	139.4		$	119.9		16%	$	282.7		$	252.5		12%
Gross profit	Gross profit	$	19.9		$	13.4		49%	$	32.6		$	18.9		72%	Gross profit	$	40.8		$	13.2		209%	$	73.4		$	32.2		128%
Gross margin	Gross margin	19.8		%	14.1		%		22.7		%	14.3		%		Gross margin	29.3		%	11.0		%		25.9		%	12.7		%
EBITDA	EBITDA	$	5.4		$	4.2		29%	$	11.4		$	.1		n.m.	EBITDA	$	24.0		$	5.5		336%	$	35.3		$	5.6		533%
EBITDA margin	EBITDA margin	5.3		%	4.4		%		7.9		%	.1		%		EBITDA margin	17.2		%	4.6		%		12.5		%	2.2		%

Three Months Ended ~~June~~September 30, 2023, Compared to Three Months Ended ~~June~~September 30, 2022

Revenue

Revenue ~~increased $5.8 million, driven by higher average selling prices for asphalt products and ready-mix concrete of $14.7 million, partially offset by decreased asphalt product volumes of $5.4~~improved $19.5 million, due ~~primarily~~largely to ~~timing~~higher revenues from liquid asphalt. Timing of ~~sales, lower availability~~projects in certain markets, as well as market strength, drove liquid asphalt volumes up, while market pricing provided a benefit of $9.5 million for the quarter. In the South region, additional asphalt paving work and ~~competitive market pricing~~favorable weather in Texas contributed $6.1 million in revenue and higher selling prices across all product lines contributed $3.8 million. Additionally, the South region's Honey Creek quarry contributed additional aggregate volumes in the ~~geographic areas~~quarter as it became fully operational in ~~which~~ the ~~Company operates. Also~~second quarter of 2023. Partially offsetting the increases were decreased ready-mix concrete and aggregates sales of ~~$8.1~~$10.2 million due to a partial sale of non-strategic assets in southeast Texas in December 2022.

~~Index~~

Gross profit and gross margin

Gross profit ~~increased $6.5~~improved $27.6 million and gross margin ~~increased 570~~improved 1,830 basis points, primarily due to higher liquid asphalt margins resulting from cost improvements and favorable sales price increases driven by market pricing, as well as the higher ~~realized~~sales volumes previously mentioned. In addition, higher sales prices ~~for asphalt products and ready-mix concrete of $13.4 million.~~across all product lines in the South region contributed $2.9 million to gross profit, as previously discussed. Partially offsetting ~~these increases~~the increase in the South region was a decrease in aggregates and ready-mix concrete ~~margins,~~volumes, which resulted in a reduction to gross profit of ~~$1.1~~$2.4 million, largely as a result of the partial sale of non-strategic assets in southeast Texas in December 2022.

EBITDA and EBITDA margin

EBITDA ~~increased $1.2~~improved $18.5 million and EBITDA margin ~~increased 90~~improved 1,260 basis points. The increase in EBITDA was the direct result of increased gross profit previously discussed, ~~and improved performance on the Company's nonqualified benefit plan investments of $2.9 million. Partially offsetting the increases were~~partially offset by higher selling, general and administrative costs ~~including~~of $9.8 million. As a result of the Separation from MDU Resources, the Company experienced increased payroll-related costs of ~~$2.8~~$6.7 million, largely due to additional staff and stock-based compensation expense for the management team and board of directors, and higher professional ~~service fees~~services of ~~$1.6~~$600,000, which were offset by a reduction in general corporate expenses from MDU Resources of $3.8 million, as discussed in Note 2. Also, as part of the Separation, the Company incurred one-time costs of $4.4 million, primarily related to professional services, insurance costs and the transition services agreement with MDU Resources, which was offset in part by income from the transition services agreement of $407,000. Further contributing to higher ~~taxes~~selling, general and ~~licensing fees~~administrative costs were increased payroll-related costs of ~~$500,000 and other miscellaneous costs, partially as a result of standing itself up as a publicly traded company.~~$1.9 million due to higher incentive accruals based on the Company's performance.

Index

~~Six~~Nine Months Ended ~~June~~September 30, 2023 Compared to ~~Six~~Nine Months Ended ~~June~~September 30, 2022

Revenue

Revenue ~~increased $10.8~~improved $30.2 million, largely driven by higher ~~average~~liquid asphalt revenue of $19.3 million because of market pricing, along with higher volumes from additional sales opportunities across most of its primary markets. The South region benefited from higher selling prices ~~for asphalt products and ready-mix concrete of $17.7 million, and~~across all product lines, higher contracting services revenues ~~increased $4.2~~of $8.6 million ~~due~~related to ~~cost increases~~asphalt paving work and ~~improving margins on contracts.~~higher aggregate sales volumes as a result of the Honey Creek quarry operations. Partially offsetting these increases were decreased aggregate and ready-mix concrete sales of ~~$14.9~~$22.8 million due to the partial sale of non-strategic assets in southeast Texas in December 2022. In addition, asphalt sales volumes decreased $3.5 million related to a combination of lower availability of asphalt paving work and competitive market pricing in the geographic areas in which the Company operates.

Gross profit and gross margin

Gross profit ~~increased $13.7~~improved $41.2 million and gross margin ~~increased 840~~improved 1,320 basis points, primarily due ~~primarily~~ to higher ~~realized~~liquid asphalt margins resulting from favorable sales price increases driven by market pricing, cost improvements and higher sales volumes. The South region's gross profit increased $5.6 million from higher sales prices for asphalt ~~products~~ and ready-mix concrete while contracting services margins increased as a result of ~~$14.9 million.~~improved bid margins. Partially offsetting ~~these increases were~~the improvements was the impact of decreased ready-mix concrete ~~margins~~volumes as a result of the partial sale of non-strategic assets in southeast Texas in December 2022.

EBITDA and EBITDA margin

EBITDA ~~increased $11.3~~improved $29.7 million and EBITDA margin ~~increased 780~~improved 1,030 basis points. The increase in EBITDA was the direct result of increased gross profit previously discussed, ~~and improved performance on the Company's nonqualified benefit plan investments of $5.7 million. Partially offsetting the increases were~~partially offset by higher selling, general and administrative costs ~~including professional service fees~~ of ~~$2.1 million, insurance~~$17.7 million. As a result of ~~$700,000,~~the Separation from MDU Resources, the Company experienced increased recurring costs including payroll-related costs of ~~$400,000~~$8.6 million, largely due to additional staff and ~~other miscellaneous~~stock-based compensation expense for the management team and board of directors; insurance costs ~~partially~~of $1.5 million; and professional services of $900,000, which were offset in part by a reduction in general corporate expenses from MDU Resources of $4.7 million, as ~~a result~~discussed in Note 2. Also, as part of ~~standing itself up as a publicly traded company.~~the Separation, the Company incurred one-time costs of $7.1 million, primarily related to professional services, insurance costs and the transition services agreement with MDU Resources, which was offset in part by income from the transition services agreement of $684,000. Further contributing to higher selling, general and administrative costs were increased payroll-related costs due to higher incentive accruals based on the Company's performance.

~~Index~~

Liquidity and Capital Resources

At ~~June~~September 30, 2023, Knife River had cash and cash equivalents ~~and restricted cash~~ of ~~$68.5~~$84.0 million and working capital of ~~$574.0~~$586.4 million. Working capital is calculated as current assets less current liabilities. ~~Subsequent to the completion of~~Following the Separation, Knife River’s cash management, capital structure and liquidity sources have changed significantly. Knife River implemented its own centralized cash management model and intends to use cash on hand and third-party credit facilities to fund day-to-day operations. As of September 30, 2023, the Company believes it has sufficient liquid assets, cash flows from operations and borrowing capacity to meet its financial commitments, debt obligations and anticipated capital expenditures for at least the next 12 months.

Given the seasonality of its business, the Company typically experiences significant fluctuations in working capital needs and balances throughout the year. Working capital requirements generally increase in the first half of the year as the Company builds up inventory and focuses on preparing equipment and facilities and other start-up costs for its construction season. Working capital levels then decrease as the construction season winds down and the Company collects on receivables.

Knife River’s ability to fund its cash needs will depend on the ongoing ability to generate cash from operations and obtain debt financing with competitive rates. Knife River relies on access to capital markets as sources of liquidity for capital requirements not satisfied by cash flows from operations, particularly in the first half of the year due to the seasonal nature of the industry. Knife River’s principal uses of cash in the future will be to fund its operations, working capital needs, capital expenditures, repayment of debt and strategic business development transactions.

On April 25, 2023, Knife River issued $425.0 million of 7.75 percent senior notes due May 1, ~~2031, pursuant to an indenture.~~2031. On May 31, 2023, Knife River entered into a senior secured credit agreement consisting of a $275.0 million term loan, with a balance outstanding of $273.3 million at September 30, 2023, and a $350.0 million revolving credit facility, with no outstanding borrowings at September 30, 2023. Each of ~~which $190.0 million was drawn down and $35.0 million was repaid during~~ the ~~period, each with~~agreements under the senior secured credit agreement have a SOFR-based interest rate and a maturity date of May 31, 2028. For more information on the debt agreements and covenant restrictions, see Note 12.

Capital expenditures

~~Capital expenditures for the six months ended June 30, 2023 and 2022, were $56.0 million and $70.7 million, respectively.~~ Knife River currently estimates total 2023 capital expenditures to be $125.0 million, of which ~~will~~there is approximately $50.0 million remaining at September 30, 2023. These expenditures relate primarily ~~be used for~~to routine replacement and maintenance of vehicles and equipment, building improvements, aggregate reserves and storage facilities updates.

The Company continues to evaluate the potential for future acquisitions and other growth opportunities that would be incremental to the outlined capital program; however, these opportunities are dependent upon the availability of economic ~~opportunities.~~conditions. It is anticipated that all of the funds required for capital expenditures for 2023 will be funded by various sources, including internally generated ~~funds;~~funds and credit ~~facilities; and issuance of debt and equity securities if necessary.~~facilities.

3839

Index

Cash flows


		Six Months Ended					Nine Months Ended
		June 30,					September 30,
		2023		2022			2023		2022
		(In millions)					(In millions)
Net cash provided by (used in)	Net cash provided by (used in)					Net cash provided by (used in)
Operating activities	Operating activities	$	(70.4)	$	(147.8)	Operating activities	$	152.9	$	39.4
Investing activities	Investing activities	(64.1)		(78.1)		Investing activities	(82.9)		(117.9)
Financing activities	Financing activities	192.9		224.8		Financing activities	36.1		83.7
Increase (decrease) in cash, cash equivalents and restricted cash		58.4		(1.1)
Increase in cash, cash equivalents and restricted cash						Increase in cash, cash equivalents and restricted cash	106.1		5.2
Cash, cash equivalents and restricted cash -- beginning of year	Cash, cash equivalents and restricted cash -- beginning of year	10.1		13.8		Cash, cash equivalents and restricted cash -- beginning of year	10.1		13.8
Cash, cash equivalents and restricted cash -- end of period	Cash, cash equivalents and restricted cash -- end of period	$	68.5	$	12.7	Cash, cash equivalents and restricted cash -- end of period	$	116.2	$	19.0

Operating activities


		Six Months Ended							Nine Months Ended
		June 30,							September 30,
		2023		2022		Variance			2023		2022		Variance
		(In millions)							(In millions)
Components of net cash used in operating activities:
Earnings (loss)		$	15.5	$	(1.5)	$	17.0
Adjustments to reconcile earnings (loss) to net cash used in operating activities		55.1		58.6		(3.5)
Components of net cash provided by operating activities:								Components of net cash provided by operating activities:
Net income								Net income	$	162.2	$	98.2	$	64.0
Adjustments to reconcile net income to net cash provided by operating activities								Adjustments to reconcile net income to net cash provided by operating activities	93.0		95.0		(2.0)
Changes in current assets and liabilities, net of acquisitions:	Changes in current assets and liabilities, net of acquisitions:							Changes in current assets and liabilities, net of acquisitions:
Receivables	Receivables	(236.4)		(215.2)		(21.2)		Receivables	(302.5)		(239.6)		(62.9)
Due from related-party	Due from related-party	16.1		1.0		15.1		Due from related-party	16.1		1.3		14.8
Inventories	Inventories	(51.1)		(66.3)		15.2		Inventories	8.6		(18.6)		27.2
Other current assets	Other current assets	(20.9)		(16.8)		(4.1)		Other current assets	(20.2)		.8		(21.0)
Accounts payable	Accounts payable	102.6		73.1		29.5		Accounts payable	91.6		69.6		22.0
Due to related-party	Due to related-party	(7.3)		9.8		(17.1)		Due to related-party	(7.3)		9.8		(17.1)
Other current liabilities	Other current liabilities	25.6		8.9		16.7		Other current liabilities	78.0		21.8		56.2
Pension and postretirement benefit plan contributions	Pension and postretirement benefit plan contributions	(.3)		(.2)		(.1)		Pension and postretirement benefit plan contributions	(1.6)		(.3)		(1.3)
Other noncurrent charges	Other noncurrent charges	30.7		.8		29.9		Other noncurrent charges	35.0		1.4		33.6
Net cash used in operating activities:		$	(70.4)	$	(147.8)	$	77.4
Net cash provided by operating activities:								Net cash provided by operating activities:	$	152.9	$	39.4	$	113.5

Cash ~~used in~~provided by operating activities ~~totaled $70.4 million for the six months ended June~~at September 30, 2023, ~~compared~~increased $113.5 million, largely related to ~~$147.8 million for the six months ended June 30, 2022. The decreased cash used~~increased earnings in ~~operating activities was largely the result of~~2023 and lower working capital needs. Cash used by working capital components totaled ~~$171.4~~$135.7 million for the ~~six~~nine months ended ~~June~~September 30, 2023, compared to ~~$205.5~~$154.9 million for the ~~six~~nine months ended ~~June~~September 30, 2022. This ~~decreased~~reduction in cash usage ~~of cash~~ was driven largely by the lower payments on operating expenses at the end of the period, ~~lower payments on taxes payable,~~ higher ~~deferred~~accrued interest payments on long-term debt, and decreased liquid asphalt inventory balances, partially offset by increased accounts receivable balances associated with higher revenues during the quarter. In addition, the timing of insurance costs associated with the captive insurer had a positive impact on ~~cash used in operating activities.~~cash.

Investing activities


		Six Months Ended							Nine Months Ended
		June 30,							September 30,
		2023		2022		Variance			2023		2022		Variance
		(In millions)							(In millions)
Capital expenditures	Capital expenditures	$	(66.6)	$	(80.3)	$	13.7	Capital expenditures	$	(86.4)	$	(121.8)	$	35.4
Acquisitions, net of cash acquired	Acquisitions, net of cash acquired	—		(.5)		.5		Acquisitions, net of cash acquired	—		.4		(.4)
Net proceeds from sale or disposition of property and other	Net proceeds from sale or disposition of property and other	4.1		4.3		(.2)		Net proceeds from sale or disposition of property and other	5.2		5.7		(.5)
Investments	Investments	(1.6)		(1.6)		—		Investments	(1.7)		(2.2)		.5
Net cash used in investing activities	Net cash used in investing activities	$	(64.1)	$	(78.1)	$	14.0	Net cash used in investing activities	$	(82.9)	$	(117.9)	$	35.0

The decrease in cash used in investing activities for the ~~six~~nine months ended ~~June~~September 30, 2023, compared to the ~~six~~nine months ended ~~June~~September 30, 2022, was primarily due to a reduction in capital expenditures for the prestress facility in Washington that ~~is nearing completion.~~was completed during the third quarter of 2023.

3940

Index

Financing activities


		Six Months Ended							Nine Months Ended
		June 30,							September 30,
		2023		2022		Variance			2023		2022		Variance
		(In millions)							(In millions)
Issuance of current related-party notes, net	Issuance of current related-party notes, net	$	—	$	100.0	$	(100.0)	Issuance of current related-party notes, net	$	—	$	100.0	$	(100.0)
Issuance of long-term related-party notes, net	Issuance of long-term related-party notes, net	205.3		154.9		50.4		Issuance of long-term related-party notes, net	205.3		26.9		178.4
Issuance of long-term debt	Issuance of long-term debt	855.0		—		855.0		Issuance of long-term debt	700.0		—		700.0
Repayment of long-term debt	Repayment of long-term debt	(.1)		(.1)		—		Repayment of long-term debt	(1.9)		(.2)		(1.7)
Debt issuance costs	Debt issuance costs	(16.7)		(.7)		(16.0)		Debt issuance costs	(16.7)		(.7)		(16.0)
Net transfers to Centennial	Net transfers to Centennial	(850.6)		(29.3)		(821.3)		Net transfers to Centennial	(850.6)		(42.3)		(808.3)
Net cash provided by financing activities	Net cash provided by financing activities	$	192.9	$	224.8	$	(31.9)	Net cash provided by financing activities	$	36.1	$	83.7	$	(47.6)

The decrease in cash flows provided by financing activities for the ~~six~~nine months ended ~~June~~September 30, 2023, compared to the ~~six~~nine months ended ~~June~~September 30, 2022, was largely related to ~~decreased issuance of short-term related-party notes being offset somewhat by increased issuance of long-term related-party notes~~the changes in ~~2023. The net transfer to Centennial for the payment of dividends at the time~~debt as a result of the ~~Separation were mostly offset by the issuance of third-party debt at the time of the Separation reduced by the associated debt issuance costs.~~Separation. For further information, see Note 18.

Material cash requirements

There were no material changes in the Company's contractual obligations from those reported in the Company's Registration Statement on Form 10 other than as set forth below. For more information on the Company's contractual obligations for related-party notes payable, operating leases and purchase commitments, see the Material Cash Requirements section in the Management's Discussion and Analysis of Financial Condition and Results of Operations section in the Company's Registration Statement on Form 10.

Material short-term and long-term cash requirements of the Company include repayment of third-party long-term debt and related interest payments, related-party notes payable and related interest payments, payments on operating lease agreements, payments of obligations on purchase commitments and asset retirement obligations.

At ~~June~~September 30, 2023, the Company's purchase commitments reflected an increase of approximately 9536 percent from the balance at December 31, 2022. This increase is primarily ~~due to~~from the Company committing to a three-year cement ~~contract, as well as,~~contract. Due to the ~~Company still having locked-in~~seasonality of work and the third quarter being its peak construction season, the Company's purchase commitments saw an expected decrease from ~~first quarter for~~ the ~~construction season.~~balance at June 30, 2023. The Company expects purchase commitments to continue to decrease throughout the remainder of 2023 as obligations ~~are~~continue to be satisfied during the construction season.

At ~~June~~September 30, 2023, the Company's long-term debt reflected an increase of approximately ~~$378.4~~$221.7 million from the balance at December 31, 2022. This increase is ~~primarily~~ due to the Company paying off ~~the~~its short-term debt, and replacing it with long-term debt in preparation of the Separation. ~~Overall, borrowings have decreased as of June 30, 2023, and are expected to decrease as construction season continues.~~

At ~~June~~September 30, 2023, the Company's total estimated interest payments over the life of its debt reflected an increase of approximately ~~$277.4~~$250.5 million from the total estimated interest payments at December 31, 2022. This increase is due to the rising interest rate environment in 2023 and higher rate debt incurred by the Company in preparation of the Separation. The Company's average interest rate has increased from 3.62% on December 31, 2022 to ~~6.55%~~6.90% on ~~June~~September 30, 2023. Estimated interest payments outstanding over the life of the loans was as follows:

Remainder of 2023 1-3 years 3-5 years More than 5 years Total
(In millions)
Estimated interest payments* $ 33.0 $ 128.4 $ 125.0 $ 121.5 $ 407.9


	Remainder of 2023		1-3 years		3-5 years		More than 5 years		Total
	(In millions)
Estimated interest payments*	$	22.2	$	120.1	$	116.5	$	122.3	$	381.1

*~~Represents the~~Includes estimated interest payments ~~associated with~~of the Company's ~~long-term outstanding debt at June 30, 2023,~~revolving credit facility assuming current interest rates and consistent amounts outstanding until ~~their respective~~its maturity ~~dates~~date over the periods indicated above.

At June 30, 2023, the Company expects to contribute approximately $1.2 million to its qualified noncontributory defined benefit pension plans in 2023 to maintain a desired funded status. At December 31, 2022, the Company did not expect to make contributions.

Defined benefit pension plans

The Company has noncontributory qualified defined benefit pension plans for certain employees. Various assumptions are used in calculating the benefit expense (income) and liability (asset) related to these plans, as such costs of providing these benefits bear the risk of changes as they are dependent upon assumptions of future conditions.

~~Index~~

There were no other material changes to the Company's qualified noncontributory defined benefit pension plans from those reported in the Company's Registration Statement on Form 10 other than the Company ~~expects to contribute~~contributed approximately $1.2 million into its pension ~~plan contributions in 2023,~~plans during the third quarter. The contribution was largely ~~resulting from~~as a result of the decline in asset values in 2022 decreasing the funded status of the plans. For more information, see Note 17 of the Audited Annual Consolidated Financial Statements in the Company's Registration Statement on Form 10.

Index

Non-GAAP Financial Measures

The Business Segment Financial and Operating Data includes financial information prepared in accordance with GAAP, as well as EBITDA, EBITDA margin, Adjusted EBITDA and Adjusted EBITDA Margin financial measures. Knife River defines EBITDA as net income before interest expense, taxes and depreciation, depletion and amortization, and EBITDA margin as EBITDA as a percentage of revenues. Knife River defines Adjusted EBITDA as EBITDA, further adjusted to exclude unrealized gains and losses on benefit plan investments, stock-based compensation and one-time Separation costs, and Adjusted EBITDA Margin as Adjusted EBITDA as a percentage of revenues.

EBITDA, EBITDA margin, Adjusted EBITDA and Adjusted EBITDA Margin, including those measures by segment, are considered non-GAAP financial measures and are most directly comparable to the corresponding GAAP measures of net income, net income margin, gross profit and gross margin. Knife River believes these non-GAAP financial measures, in addition to corresponding GAAP measures, are useful to investors by providing meaningful information about operational efficiency compared to its peers by excluding the impacts of differences in tax jurisdictions and structures, debt levels and capital investment. Management believes Adjusted EBITDA is a useful performance measure because it allows for an effective evaluation of the Company's operating performance by excluding stock-based compensation and unrealized gains and losses on benefit plan investments as they are considered non-cash and not part of the Company's core operations. The Company also excludes the one-time, non-recurring costs associated with the Separation as those are not expected to continue. Rating agencies and investors also use EBITDA and Adjusted EBITDA to calculate Knife River’s leverage as a multiple of EBITDA and Adjusted EBITDA. Additionally, EBITDA and Adjusted EBITDA are important financial metrics for debt investors who utilize debt to EBITDA and debt to Adjusted EBITDA ratios. Knife River's management believes EBITDA and EBITDA margin, including those measures by segment, are useful performance measures because they provide clarity as to the operational results of the Company. Knife River’s management uses these non-GAAP financial measures in conjunction with GAAP results when evaluating its operating results internally and calculating employee incentive compensation, and leverage as a multiple of EBITDA and Adjusted EBITDA to determine the appropriate method of funding operations of the Company.

EBITDA is calculated by adding back income taxes, interest expense and depreciation, depletion and amortization expense to net income. EBITDA margin is calculated by dividing EBITDA by revenues. Adjusted EBITDA is calculated by adding back unrealized gains and losses on benefit plan investments, stock-based compensation and one-time Separation costs, to EBITDA. Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by revenues. These non-GAAP financial measures are calculated the same by segment and consolidated and should not be considered as alternatives to, or more meaningful than, GAAP financial measures such as net income or net income margin and are intended to be helpful supplemental financial measures for investors’ understanding of Knife River’s operating performance. Knife River’s non-GAAP financial measures are not standardized; therefore, it may not be possible to compare these financial measures with other companies’ EBITDA, EBITDA margin, Adjusted EBITDA and Adjusted EBITDA Margin measures having the same or similar names.

~~Index~~

The following information reconciles consolidated and segment net income to EBITDA and EBITDA to Adjusted EBITDA and provides the calculation of EBITDA margin and adjusted EBITDA margin. Interest expense, net, is net of interest income that is included in other income on the Consolidated Statements of Operations.

Three Months Ended June 30, 2023 Pacific Northwest Mountain North Central All Other and Intersegment Eliminations Consolidated
(In millions)
Net income (loss) $ 16.5 $ 31.0 $ 26.4 $ 18.3 $ (35.4) $ 56.8
Depreciation, depletion and amortization 5.5 9.7 6.2 6.1 3.6 31.1
Interest expense, net — — — — 17.1 17.1
Income taxes — — — — 20.1 20.1
EBITDA $ 22.0 $ 40.7 $ 32.6 $ 24.4 $ 5.4 $ 125.1
Unrealized (gains) losses on benefit plan investments (.4) (.4)
Stock-based compensation expense (.1) (.1)
One-time separation costs 1.7 1.7
Adjusted EBITDA $ 6.6 $ 126.3
Revenue $ 142.2 $ 179.0 $ 175.8 $ 187.6 $ 100.6 $ 785.2
Net income margin 11.6 % 17.3 % 15.0 % 9.8 % (35.2) % 7.2 %
EBITDA margin 15.5 % 22.7 % 18.5 % 13.0 % 5.3 % 15.9 %
Adjusted EBITDA margin 6.6 % 16.1 %

Three Months Ended June 30, 2022 Pacific Northwest Mountain North Central All Other and Intersegment Eliminations Consolidated
(In millions)
Net income (loss) $ 9.9 $ 14.3 $ 22.8 $ 9.9 $ (18.3) $ 38.6
Depreciation, depletion and amortization 5.3 8.9 5.8 6.2 3.5 29.7
Interest expense, net — — — — 7.4 7.4
Income taxes — — — — 11.6 11.6
EBITDA $ 15.2 $ 23.2 $ 28.6 $ 16.1 $ 4.2 $ 87.3
Unrealized (gains) losses on benefit plan investments 2.4 2.4
Stock-based compensation expense .7 .7
Adjusted EBITDA $ 7.3 $ 90.4
Revenue $ 128.4 $ 151.0 $ 170.4 $ 167.2 $ 94.8 $ 711.8
Net income margin 7.7 % 9.5 % 13.4 % 5.9 % (19.3) % 5.4 %
EBITDA margin 11.8 % 15.4 % 16.8 % 9.6 % 4.4 % 12.3 %
Adjusted EBITDA margin 7.7 % 12.7 %


Three Months Ended September 30, 2023	Pacific			Northwest			Mountain			North Central			All Other and Intersegment Eliminations			Consolidated
	(In millions)
Net income (loss)	$	31.9		$	39.1		$	54.1		$	64.4		$	(42.8)		$	146.7
Depreciation, depletion and amortization	5.7			9.8			6.3			6.1			3.9			31.8


Interest expense, net	—			—			—			—			14.7			14.7
Income taxes	—			—			—			—			48.2			48.2
EBITDA	$	37.6		$	48.9		$	60.4		$	70.5		$	24.0		$	241.4
Unrealized (gains) losses on benefit plan investments													.6			.6
Stock-based compensation expense													1.5			1.5
One-time separation costs													4.0			4.0
Adjusted EBITDA													$	30.1		$	247.5

Revenue	$	181.4		$	209.4		$	255.1		$	305.1		$	139.4		$	1,090.4
Net income margin	17.6		%	18.7		%	21.2		%	21.1		%	(30.7)		%	13.4		%
EBITDA margin	20.7		%	23.3		%	23.7		%	23.1		%	17.2		%	22.1		%
Adjusted EBITDA margin													21.6		%	22.7		%

Index

Six Months Ended June 30, 2023 Pacific Northwest Mountain North Central All Other and Intersegment Eliminations Consolidated
(In millions)
Net income (loss) $ 7.9 $ 35.2 $ 13.8 $ (10.9) $ (30.5) $ 15.5
Depreciation, depletion and amortization 11.0 18.6 12.1 11.8 7.2 60.7
Interest expense, net — — .1 — 26.6 26.7
Income taxes — — — — 8.1 8.1
EBITDA $ 18.9 $ 53.8 $ 26.0 $ .9 $ 11.4 $ 111.0
Unrealized (gains) losses on benefit plan investments (1.7) (1.7)
Stock-based compensation expense .8 .8
One-time separation costs 2.4 2.4
Adjusted EBITDA $ 12.9 $ 112.5
Revenue $ 209.9 $ 294.9 $ 236.4 $ 208.6 $ 143.3 $ 1,093.1
Net income margin 3.8 % 11.9 % 5.8 % (5.2) % (21.3) % 1.4 %
EBITDA margin 9.0 % 18.3 % 11.0 % .4 % 7.9 % 10.2 %
Adjusted EBITDA margin 9.0 % 10.3 %


Three Months Ended September 30, 2022	Pacific			Northwest			Mountain			North Central			All Other and Intersegment Eliminations			Consolidated
	(In millions)
Net income (loss)	$	19.0		$	34.6		$	33.8		$	52.5		$	(40.2)		$	99.7
Depreciation, depletion and amortization	5.6			9.2			5.8			6.1			3.8			30.5


Interest expense, net	—			—			—			—			8.8			8.8
Income taxes	—			—			—			—			33.1			33.1
EBITDA	$	24.6		$	43.8		$	39.6		$	58.6		$	5.5		$	172.1
Unrealized (gains) losses on benefit plan investments													.8			.8
Stock-based compensation expense													.2			.2
Adjusted EBITDA													$	6.5		$	173.1

Revenue	$	152.4		$	204.7		$	204.1		$	294.3		$	119.9		$	975.4
Net income margin	12.5		%	16.9		%	16.6		%	17.8		%	(33.5)		%	10.2		%
EBITDA margin	16.1		%	21.4		%	19.4		%	19.9		%	4.6		%	17.6		%
Adjusted EBITDA margin													5.5		%	17.8		%


Six months ended June 30, 2022		Pacific			Northwest			Mountain			North Central			All Other and Intersegment Eliminations			Consolidated
Nine Months Ended September 30, 2023																				Nine Months Ended September 30, 2023	Pacific			Northwest			Mountain			North Central			All Other and Intersegment Eliminations			Consolidated
		(In millions)																			(In millions)
Net income (loss)	Net income (loss)	$	10.1		$	18.8		$	9.2		$	(20.0)		$	(19.6)		$	(1.5)		Net income (loss)	$	39.8		$	74.3		$	67.9		$	53.5		$	(73.3)		$	162.2
Depreciation, depletion and amortization	Depreciation, depletion and amortization	10.5			17.2			11.3			11.8			7.3			58.1			Depreciation, depletion and amortization	16.7			28.4			18.5			17.9			11.0			92.5

Interest expense, net	Interest expense, net	—			—			.1			—			12.6			12.7			Interest expense, net	—			—			.1			—			41.3			41.4
Income taxes	Income taxes	—			—			—			—			(.2)			(.2)			Income taxes	—			—			—			—			56.3			56.3
EBITDA	EBITDA	$	20.6		$	36.0		$	20.6		$	(8.2)		$	.1		$	69.1		EBITDA	$	56.5		$	102.7		$	86.5		$	71.4		$	35.3		$	352.4
Unrealized (gains) losses on benefit plan investments	Unrealized (gains) losses on benefit plan investments													4.0			4.0			Unrealized (gains) losses on benefit plan investments													(1.1)			(1.1)
Stock-based compensation expense	Stock-based compensation expense													1.4			1.4			Stock-based compensation expense													2.3			2.3
One-time separation costs																				One-time separation costs													6.4			6.4
Adjusted EBITDA	Adjusted EBITDA													$	5.5		$	74.5		Adjusted EBITDA													$	42.9		$	360.0

Revenue	Revenue	$	213.8		$	256.5		$	228.9		$	190.1		$	132.5		$	1,021.8		Revenue	$	391.4		$	504.2		$	491.5		$	513.7		$	282.7		$	2,183.5
Net income margin	Net income margin	4.7		%	7.3		%	4.0		%	(10.5)		%	(14.8)		%	(.1)		%	Net income margin	10.2		%	14.7		%	13.8		%	10.4		%	(25.9)		%	7.4		%
EBITDA margin	EBITDA margin	9.7		%	14.0		%	9.0		%	(4.3)		%	.1		%	6.8		%	EBITDA margin	14.4		%	20.4		%	17.6		%	13.9		%	12.5		%	16.1		%
Adjusted EBITDA margin	Adjusted EBITDA margin													4.2		%	7.3		%	Adjusted EBITDA margin													15.2		%	16.5		%

Index


Nine Months Ended September 30, 2022	Pacific			Northwest			Mountain			North Central			All Other and Intersegment Eliminations			Consolidated
	(In millions)
Net income (loss)	$	29.1		$	53.4		$	43.0		$	32.5		$	(59.8)		$	98.2
Depreciation, depletion and amortization	16.1			26.4			17.1			17.9			11.1			88.6


Interest expense, net	—			—			.1			—			21.4			21.5
Income taxes	—			—			—			—			32.9			32.9
EBITDA	$	45.2		$	79.8		$	60.2		$	50.4		$	5.6		$	241.2
Unrealized (gains) losses on benefit plan investments													4.8			4.8
Stock-based compensation expense													1.6			1.6
Adjusted EBITDA													$	12.0		$	247.6

Revenue	$	366.1		$	461.2		$	433.0		$	484.4		$	252.5		$	1,997.2
Net income margin	8.0		%	11.6		%	9.9		%	6.7		%	(23.7)		%	4.9		%
EBITDA margin	12.3		%	17.3		%	13.9		%	10.4		%	2.2		%	12.1		%
Adjusted EBITDA margin													4.7		%	12.4		%

New Accounting Standards

For information regarding new accounting standards, see Note 2.2, which is incorporated by reference.

Critical Accounting Estimates

Knife River's critical accounting estimates include impairment testing of goodwill; fair values of acquired assets and liabilities under the acquisition method of accounting; revenue recognized using the cost-to-cost measure of progress for contracts; actuarially determined benefit costs; and tax provisions. There were no material changes in the Company's critical accounting estimates from those that were previously reported in the Company's Registration Statement on Form 10.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to the impact of market fluctuations associated with interest rates and commodity prices. The Company has policies and procedures to assist in controlling these market risks and from time to time has utilized derivatives to manage a portion of its risk.

Interest rate risk

Rising interest rates have resulted in, and will likely continue to result in, higher borrowing costs on new debt and existing variable interest rate debt. Knife River entered into a senior secured credit agreement with variable rate debt arrangements at the time of

~~Index~~

the Separation, which could impact the interest expense recognized in future periods. For additional information on the debt agreements the Company has entered into, see the section entitled "Liquidity and Capital Resources". At ~~June~~September 30, 2023, the Company had ~~$430.0~~$273.3 million in term loan ~~and revolving credit~~ borrowings under the credit ~~agreement. The~~agreement at the rate in effect at this time ~~was 7.36% and 7.53%, respectively, for the term loan and revolving credit facilities.~~of 7.52%. A hypothetical increase of 1 percent on the interest rate of ~~these facilities~~the term loan borrowings would increase interest expense by ~~$4.3~~$2.7 million over the next 12 months.

At ~~June~~September 30, 2023, the Company had no outstanding interest rate hedges.

Commodity price risk

There were no material changes to commodity price risk faced by the Company from those reported in the Company's Registration Statement on Form 10.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures

The term "disclosure controls and procedures" is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. The Company's disclosure controls and other procedures are designed to provide reasonable assurance that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. The Company's disclosure controls and other procedures are designed to provide reasonable assurance that information required to be disclosed is accumulated and communicated to management, including the Company's chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure. The Company's management, with the participation of the Company's chief executive officer and chief financial officer, has evaluated the effectiveness of the Company's disclosure controls and other procedures as of the end of the period

Index

covered by this report. Based upon that evaluation, the chief executive officer and the chief financial officer have concluded that, as of the end of the period covered by this report, such controls and procedures were effective at a reasonable assurance level.

Changes in internal controls

No change in the Company's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the three months ended ~~June~~September 30, 2023, that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

4445

Index

Part II -- Other Information

Item 1. Legal Proceedings

There were no material changes to the Company's legal proceedings that were previously reported in the Company's Registration Statement on Form 10.

Item 1A. Risk Factors

Refer to the Company's risk factors that are disclosed within its Registration Statement on Form 10 that could be materially harmful to the Company's business, prospects, financial condition or financial results if they occur. At ~~June~~September 30, 2023, there were no material changes to the Company's risk factors provided in the Company's Form 10.

Item 2. Unregistered Sales of Equity Securities, ~~and~~ Use of Proceeds, and Issuer Purchases of Equity Securities

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

For information regarding mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Act and Item 104 of Regulation S-K, see Exhibit 95 to this Form 10-Q, which is incorporated herein by reference.

Item 5. Other Information

During the three months ended ~~June~~September 30, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

Item 6. Exhibits

See the index to exhibits immediately preceding the signature page to this report.

4546

Index

Exhibits Index

Incorporated by Reference

Exhibit Number

Exhibit Description

Filed
Herewith

Form

Period
Ended

Exhibit

Filing
Date

File Number

*2(a)

~~Separation and Distribution Agreement, dated as of May 30, 2023, by and between Knife River Corporation and MDU Resources Group, Inc.~~

~~8-K~~

~~2.1~~

~~6/01/23~~

~~1-41642~~

3(a)

Amended and Restated Certificate of Incorporation of Knife River Corporation

8-K

3.1

6/01/23

1-41642

3(b)

Amended and Restated Bylaws of Knife River Corporation

8-K

3.2

6/01/23

1-41642

**4(a) +10(a)

~~Stockholder and Registration Rights~~Restricted Stock Unit Award Agreement ~~dated as of May 30, 2023, by and between Knife River Corporation and MDU Resources Group, Inc.~~

~~8-K~~

~~4.1~~

~~6/01/23~~

~~1-41642~~

~~4(b)~~

~~Indenture, dated as of April 25, 2023, among Knife River Holding Company, as issuer, and U.S. Bank Trust Company, National Association, as trustee~~

10-
12B/A

~~4.2~~

~~4/28/23~~

~~1-41642~~

~~4(c)~~

~~Supplemental Indenture, dated as of May 31, 2023, by and among~~under the ~~parties that are signatories thereto as Guarantors, Knife River Corporation and U.S. Bank Trust Company, National Association~~Long-Term Performance

~~8-K~~

~~4.2~~

~~6/01/23~~

~~1-41642~~

**10(a)

~~Transition Services Agreement, dated as of May 30, 2023, by and between Knife River Corporation and MDU Resources Group, Inc~~

~~8-K~~

~~10.1~~

~~6/01/23~~

~~1-41642~~

~~10(b)~~

~~Tax Matters Agreement, dated as of May 30, 2023, by and between Knife River Corporation and MDU Resources Group, Inc~~

~~8-K~~

~~10.2~~

~~6/01/23~~

~~1-41642~~

~~10(c)~~

~~Employee Matters Agreement, dated as of May 30, 2023, by and between Knife River Corporation and MDU Resources Group, Inc~~

~~8-K~~

~~10.3~~

~~6/01/23~~

~~1-41642~~

**10(d)

~~Credit Agreement, dated as of May 31, 2023, by and among Knife River Corporation, JPMorgan Chase Bank, N.A. and Lenders and L/C Issuers party thereto~~

~~8-K~~

~~10.4~~

~~6/01/23~~

~~1-41642~~

~~+10(e)~~

~~Knife River Corporation Long Term Performance-Based~~-Based Incentive Plan,

~~8-K~~

~~10.5~~

~~6/01/23~~

~~1-41642~~

~~+10(f)~~

~~Knife River Corporation Executive Incentive Compensation Plan, including Rules and Regulations~~

~~8-K~~

~~10.6~~

~~6/01/23~~

~~1-41642~~

~~+10(g)~~

~~Knife River Corporation Deferred Compensation Plan—Plan Document and Adoption Agreement~~

~~8-K~~

~~10.7~~

~~6/01/23~~

~~1-41642~~

**+10(h)

~~Knife River Corporation Supplemental Income Security Plan~~

~~8-K~~

~~10.8~~

~~6/01/23~~

~~1-41642~~

**+10(i)

~~Knife River Corporation Nonqualified Defined Contribution Plan~~

~~8-K~~

~~10.9~~

~~6/01/23~~

~~1-41642~~

~~+10(j)~~

~~Knife River Corporation Director Compensation Policy~~

~~8-K~~

~~10.10~~

~~6/01/23~~

~~1-41642~~

~~+10(k)~~

~~Knife River Corporation Deferred Compensation Plan for Directors~~

~~8-K~~

~~10.11~~

~~6/01/23~~

~~1-41642~~

~~+10(l)~~

~~Knife River Corporation, 401(k) Retirement Plan,~~ effective ~~May~~July 1 2 , 2023

~~+10(m)~~

~~Form of Knife River Corporation Director and/or Executive Officer Indemnification Agreement~~

10-
12B/A

~~10.16~~

~~4/28/23~~

~~1-41642~~

31(a)

Certification of Chief Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31(b)

Certification of Chief Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Certification of Chief Executive Officer and Chief Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Mine Safety Disclosures

~~Index~~

101.INS

XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

+ Management contract, compensatory plan or arrangement.

** Certain schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company agrees to furnish
supplementally a copy of any omitted schedule or exhibit to the SEC upon its request.

Index

Signatures

Pursuant to the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		Knife River Corporation

DATE:	~~August 8,~~November 6, 2023	BY:	/s/ Nathan W. Ring
			Nathan W. Ring
			Vice President and Chief Financial Officer


		BY:	/s/ Marney L. Kadrmas
			Marney L. Kadrmas
			Chief Accounting Officer


Six Months Ended June 30, 2023	Pacific		Northwest		Mountain		North Central		All Other		Total
	(In thousands)
Aggregates	$	46,143	$	90,540	$	38,532	$	34,343	$	20,379	$	229,937
Ready-mix concrete	66,670		78,488		48,876		66,187		21,446		281,667
Asphalt	7,591		41,445		30,282		46,888		12,350		138,556
Other	87,023		7,016		11		12,493		75,214		181,757
Contracting services public-sector	20,819		70,304		108,619		99,074		37,811		336,627
Contracting services private-sector	19,474		55,115		50,762		5,357		1,085		131,793
Internal sales	(37,779)		(48,290)		(40,710)		(55,766)		(24,703)		(207,248)
Revenues from contracts with customers	$	209,941	$	294,618	$	236,372	$	208,576	$	143,582	$	1,093,089