Knife River Corp 10-Q for FY2023 Q2
Knife River Corp (KNF)
10-Q
2023-08-08
For: 2023-06-30
View Original
Added on
April 10, 2026
About this 10-Q
Knife River Corp filed this 10-Q on August 8, 2023, covering the quarter ended June 30, 2023 (FY2023 Q2).
Headline figures
Quarter ended June 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $785.19M
- up 10.3% from $711.81M a year earlier
- Net income
- $56.84M
- up 47.4% from net income of $38.56M a year earlier
- Diluted EPS
- $1.00
- up 47.1% from $0.68 a year earlier
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 30, 2023
OR
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
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
(Address of principal executive offices)
(Zip Code)
(701 ) 530-1400
(Registrant's telephone number, including area code)
(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 | ||||||
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 | ☐ | ||||||||
☒ | 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, 2023: 56,566,214 shares.
1
| Index | |||||
| Page | |||||
2
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 | FASB Accounting Standards Update | ||||
| 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 | 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. | A direct wholly owned subsidiary of Knife River and, prior to the Separation, a direct wholly owned subsidiary of Centennial | ||||
| 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 | ||||
3
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, 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. For more information on the Company's business segments, see Note 15 of the Notes to Consolidated Financial Statements.
On May 31, 2023 (the Separation and Distribution date), 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. Following the Distribution, Knife River became an independent, publicly traded company.
4
Part I -- Financial Information
Item 1. Financial Statements
Knife River Corporation | ||||||||||||||
| Consolidated Statements of Operations | ||||||||||||||
| (Unaudited) | ||||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||
| June 30, | June 30, | |||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||
| (In thousands, except per share amounts) | ||||||||||||||
| Revenue: | ||||||||||||||
| Construction materials | $ | $ | $ | $ | ||||||||||
| Contracting services | ||||||||||||||
| Total revenue | ||||||||||||||
| Cost of revenue: | ||||||||||||||
| Construction materials | ||||||||||||||
| Contracting services | ||||||||||||||
| Total cost of revenue | ||||||||||||||
| Gross profit | ||||||||||||||
| Selling, general and administrative expenses | ||||||||||||||
| Operating income | ||||||||||||||
| Interest expense | ||||||||||||||
| Other income (expense) | ( | ( | ||||||||||||
| Income (loss) before income taxes | ( | |||||||||||||
| Income tax expense (benefit) | ( | |||||||||||||
| Net income (loss) | $ | $ | $ | $ | ( | |||||||||
| Net income (loss) per share: | ||||||||||||||
| Basic | $ | $ | $ | $ | ( | |||||||||
| Diluted | $ | $ | $ | $ | ( | |||||||||
| Weighted average common shares outstanding: | ||||||||||||||
| Basic | ||||||||||||||
| Diluted | ||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
| Knife River Corporation | |||||||||||||||||
| Consolidated Statements of Comprehensive Income | |||||||||||||||||
| (Unaudited) | |||||||||||||||||
| Three Months Ended | Six Months Ended | ||||||||||||||||
| June 30, | June 30, | ||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||
| (In thousands) | |||||||||||||||||
| Net income (loss) | $ | $ | $ | $ | ( | ||||||||||||
| Other comprehensive income: | |||||||||||||||||
Reclassification adjustment for loss on derivative instruments included in net income (loss), net of tax of $ | |||||||||||||||||
| Postretirement liability adjustment: | |||||||||||||||||
Postretirement liability gains (losses) arising during the period, net of tax of $( | ( | ( | |||||||||||||||
Amortization of postretirement liability losses included in net periodic benefit cost, net of tax of $ | |||||||||||||||||
| Postretirement liability adjustment | |||||||||||||||||
| Other comprehensive income | |||||||||||||||||
| Comprehensive income attributable to common stockholders | $ | $ | $ | $ | |||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
6
| Knife River Corporation | ||||||||
| Consolidated Balance Sheets | ||||||||
| (Unaudited) | ||||||||
| June 30, 2023 | December 31, 2022 | |||||||
| Assets | (In thousands, except shares and per share amounts) | |||||||
| Current assets: | ||||||||
| Cash, cash equivalents and restricted cash | $ | $ | ||||||
| Receivables, net | ||||||||
| Costs and estimated earnings in excess of billings on uncompleted contracts | ||||||||
| Due from related-party | ||||||||
| Inventories | ||||||||
| Prepayments and other current assets | ||||||||
| Total current assets | ||||||||
| Noncurrent assets: | ||||||||
| Property, plant and equipment | ||||||||
| Less accumulated depreciation, depletion and amortization | ||||||||
| Net property, plant and equipment | ||||||||
| Goodwill | ||||||||
| Other intangible assets, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Investments and other | ||||||||
| Total noncurrent assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders' Equity | ||||||||
| Current liabilities: | ||||||||
| Long-term debt - current portion | $ | $ | ||||||
| Related-party notes payable - current portion | ||||||||
| Accounts payable | ||||||||
| Billings in excess of costs and estimated earnings on uncompleted contracts | ||||||||
| Taxes payable | ||||||||
| Accrued compensation | ||||||||
| Due to related-party | ||||||||
| Current operating lease liabilities | ||||||||
| Other accrued liabilities | ||||||||
| Total current liabilities | ||||||||
| Noncurrent liabilities: | ||||||||
| Long-term debt | ||||||||
| Related-party notes payable | ||||||||
| Deferred income taxes | ||||||||
| Noncurrent operating lease liabilities | ||||||||
| Other | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders' equity: | ||||||||
Common stock, issued and | ||||||||
| Other paid-in capital | ||||||||
| Retained earnings | ||||||||
MDU Resources common stock held by subsidiary at cost - December 31, 2022 | ( | |||||||
Treasury stock held at cost - | ( | |||||||
| Accumulated other comprehensive loss | ( | ( | ||||||
| Total stockholders' equity | ||||||||
| Total liabilities and stockholders' equity | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
7
| 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 | $ | $ | $ | ( | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||
| Net loss | — | — | — | ( | — | — | — | — | — | ( | ||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Stock-based compensation | — | — | ( | — | — | — | — | — | ||||||||||||||||||||||||
| Net transfers to Centennial | — | — | ( | ( | — | — | — | — | — | ( | ||||||||||||||||||||||
| At March 31, 2023 | $ | $ | $ | ( | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||
Net income | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| Other comprehensive Income | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | — | — | — | |||||||||||||||||||||||||
| Transfer of MDU Resources' stock held by subsidiary | — | — | — | — | — | — | — | |||||||||||||||||||||||||
| Receipt of treasury stock at cost | — | — | — | — | — | — | — | ( | ( | ( | ||||||||||||||||||||||
| Retirement of historical common stock in connection with the Separation | ( | ( | — | — | — | — | — | — | ||||||||||||||||||||||||
| Issuance of common stock in connection with the Separation | ( | — | — | — | — | — | — | ( | ||||||||||||||||||||||||
| Net transfers from Centennial and MDU Resources including Separation adjustments | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| At June 30, 2023 | $ | $ | $ | $ | $ | ( | ( | $ | ( | $ | ||||||||||||||||||||||
| 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 | $ | $ | $ | ( | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||
| Net loss | — | — | — | ( | — | — | — | — | — | ( | ||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Stock-based compensation | — | — | ( | — | — | — | — | — | ||||||||||||||||||||||||
| Net transfers to Centennial | — | — | ( | ( | — | — | — | — | — | ( | ||||||||||||||||||||||
| At March 31, 2022 | $ | $ | $ | ( | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||
Net income | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Other comprehensive income | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Stock-based compensation | — | — | ( | — | — | — | — | — | ||||||||||||||||||||||||
| Net transfers to Centennial | — | — | ( | ( | — | — | — | — | — | ( | ||||||||||||||||||||||
| At June 30, 2022 | $ | $ | $ | ( | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
8
| Knife River Corporation | ||||||||
| Consolidated Statements of Cash Flows | ||||||||
| (Unaudited) | ||||||||
| Six Months Ended | ||||||||
| June 30, | ||||||||
| 2023 | 2022 | |||||||
| (In thousands) | ||||||||
| Operating activities: | ||||||||
| Net income (loss) | $ | $ | ( | |||||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
| Depreciation, depletion and amortization | ||||||||
| Deferred income taxes | ( | ( | ||||||
| Provision for credit losses | ( | |||||||
| Amortization of debt issuance costs | ||||||||
| Employee stock-based compensation costs | ||||||||
| Pension and postretirement benefit plan net periodic benefit cost | ||||||||
| Unrealized (gains) losses on investments | ( | |||||||
| Gains on sales of assets | ( | ( | ||||||
| Changes in current assets and liabilities, net of acquisitions: | ||||||||
| Receivables | ( | ( | ||||||
| Due from related-party | ||||||||
| Inventories | ( | ( | ||||||
| Other current assets | ( | ( | ||||||
| Accounts payable | ||||||||
| Due to related-party | ( | |||||||
| Other current liabilities | ||||||||
| Pension and postretirement benefit plan contributions | ( | ( | ||||||
| Other noncurrent changes | ||||||||
| Net cash used in operating activities | ( | ( | ||||||
| Investing activities: | ||||||||
| Capital expenditures | ( | ( | ||||||
| Acquisitions, net of cash acquired | ( | |||||||
| Net proceeds from sale or disposition of property and other | ||||||||
| Investments | ( | ( | ||||||
| Net cash used in investing activities | ( | ( | ||||||
| Financing activities: | ||||||||
| Issuance of current related-party notes, net | ||||||||
| Issuance of long-term related-party notes, net | ||||||||
| Issuance of long-term debt | ||||||||
| Repayment of long-term debt | ( | ( | ||||||
| Debt issuance costs | ( | ( | ||||||
| Proceeds from issuance of common stock | ( | |||||||
| Net transfers to Centennial | ( | ( | ||||||
| Net cash provided by financing activities | ||||||||
| Increase (decrease) in cash, cash equivalents and restricted cash | ( | |||||||
| Cash, cash equivalents and restricted cash -- beginning of year | ||||||||
| Cash, cash equivalents and restricted cash -- end of period | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
9
Knife River Corporation
Notes to Consolidated
Financial Statements
June 30, 2023 and 2022
(Unaudited)
Note 1 - Background
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 months ended June 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 decreased cost of revenue by $6.0 4.6
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 amounts allocated were $4.4 million and $9.0 million for the three and six months ended June 30, 2023, respectively, and $4.7 million and $9.7 million for the three and six months ended June 30, 2022, respectively. 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.
10
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 30, 2023, up to the date of issuance of these consolidated interim financial statements on August 8, 2023, that would require recognition or disclosure in the Consolidated Financial Statements.
Principles of consolidation
Use of estimates
New accounting standards
Cash, cash equivalents and restricted cash
11
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
| June 30, 2023 | December 31, 2022 | |||||||
| (In thousands) | ||||||||
| Trade receivables | $ | $ | ||||||
| Contract receivables | ||||||||
| Retention receivables | ||||||||
| Receivables, gross | ||||||||
| Less expected credit loss | ||||||||
| Receivables, net | $ | $ | ||||||
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 | $ | $ | $ | $ | $ | $ | ||||||||||||||
| Current expected credit loss provision | ( | ( | ||||||||||||||||||
| Less write-offs charged against the allowance | ||||||||||||||||||||
| At March 31, 2023 | $ | $ | $ | $ | $ | $ | ||||||||||||||
| Current expected credit loss provision | ( | |||||||||||||||||||
| Less write-offs charged against the allowance | ||||||||||||||||||||
| At June 30, 2023 | $ | $ | $ | $ | $ | $ | ||||||||||||||
| Pacific | Northwest | Mountain | North Central | All Other | Total | |||||||||||||||
| (In thousands) | ||||||||||||||||||||
| At December 31, 2021 | $ | $ | $ | $ | $ | $ | ||||||||||||||
| Current expected credit loss provision | ( | ( | ( | ( | ||||||||||||||||
| Less write-offs charged against the allowance | ||||||||||||||||||||
| At March 31, 2022 | $ | $ | $ | $ | $ | $ | ||||||||||||||
| Current expected credit loss provision | ( | ( | ( | |||||||||||||||||
| Less write-offs charged against the allowance | ||||||||||||||||||||
| At June 30, 2022 | $ | $ | $ | $ | $ | $ | ||||||||||||||
12
Note 4 - Inventories
Inventories on the Consolidated Balance Sheets were as follows:
| June 30, 2023 | December 31, 2022 | |||||||
| (In thousands) | ||||||||
| Finished products | $ | $ | ||||||
| Raw materials | ||||||||
| Supplies and parts | ||||||||
| Total | $ | $ | ||||||
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 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.
| Three Months Ended | Six Months Ended | |||||||||||||
| June 30, | June 30, | |||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||
| (In thousands, except per share amounts) | ||||||||||||||
| Net income (loss) | $ | $ | $ | $ | ( | |||||||||
| Weighted average common shares outstanding - basic | ||||||||||||||
| Effect of dilutive restricted stock units | ||||||||||||||
| Weighted average common shares outstanding - diluted | ||||||||||||||
Shares excluded from the calculation of diluted earnings per share | ||||||||||||||
| Net income (loss) per share - basic | $ | $ | $ | $ | ( | |||||||||
| Net income (loss) per share - diluted | $ | $ | $ | $ | ( | |||||||||
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 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
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
13
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 | $ | ( | $ | ( | $ | ( | ||||||||
| Amounts reclassified from accumulated other comprehensive loss | ||||||||||||||
| Net current-period other comprehensive income | ||||||||||||||
| At March 31, 2023 | $ | ( | $ | ( | $ | ( | ||||||||
| Other comprehensive loss before reclassification | ( | ( | ||||||||||||
| Amounts reclassified from accumulated other comprehensive loss | ||||||||||||||
| Net current-period other comprehensive income | ||||||||||||||
At June 30, 2023 | $ | $ | ( | $ | ( | |||||||||
| Net Unrealized Loss on Derivative Instruments Qualifying as Hedges | Postretirement Liability Adjustment | Total Accumulated Other Comprehensive Loss | ||||||||||||
| (In thousands) | ||||||||||||||
| At December 31, 2021 | $ | ( | $ | ( | $ | ( | ||||||||
| Amounts reclassified from accumulated other comprehensive loss | ||||||||||||||
| Net current-period other comprehensive income | ||||||||||||||
| At March 31, 2022 | $ | ( | $ | ( | $ | ( | ||||||||
| Other comprehensive income before reclassification | ||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss | ||||||||||||||
| Net current-period other comprehensive income | ||||||||||||||
At June 30, 2022 | $ | ( | $ | ( | $ | ( | ||||||||
14
The following amounts were reclassified out of accumulated other comprehensive loss into net income (loss). 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 | |||||||||||||||
| June 30, | June 30, | ||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||
| (In thousands) | |||||||||||||||||
| Reclassification adjustment for loss on derivative instruments included in net income (loss) | $ | ( | $ | ( | $ | ( | $ | ( | Interest expense | ||||||||
| Income taxes | |||||||||||||||||
| ( | ( | ( | ( | ||||||||||||||
| Amortization of postretirement liability losses included in net periodic benefit cost | ( | ( | ( | ( | Other income | ||||||||||||
| Income taxes | |||||||||||||||||
| ( | ( | ( | ( | ||||||||||||||
| Total reclassifications | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||
Note 8 - Revenue from contracts with customers
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 | ||||||||||||||
| (In thousands) | ||||||||||||||||||||
| Aggregates | $ | $ | $ | $ | $ | $ | ||||||||||||||
| Ready-mix concrete | ||||||||||||||||||||
| Asphalt | ||||||||||||||||||||
| Other | ||||||||||||||||||||
| Contracting services public-sector | ||||||||||||||||||||
| Contracting services private-sector | ||||||||||||||||||||
| Internal sales | ( | ( | ( | ( | ( | ( | ||||||||||||||
Revenues from contracts with customers | $ | $ | $ | $ | $ | $ | ||||||||||||||
| Three Months Ended June 30, 2022 | Pacific | Northwest | Mountain | North Central | All Other | Total | ||||||||||||||
| (In thousands) | ||||||||||||||||||||
| Aggregates | $ | $ | $ | $ | $ | $ | ||||||||||||||
| Ready-mix concrete | ||||||||||||||||||||
| Asphalt | ||||||||||||||||||||
| Other | ||||||||||||||||||||
| Contracting services public-sector | ||||||||||||||||||||
| Contracting services private-sector | ||||||||||||||||||||
| Internal sales | ( | ( | ( | ( | ( | ( | ||||||||||||||
Revenues from contracts with customers | $ | $ | $ | $ | $ | $ | ||||||||||||||
15
| Six Months Ended June 30, 2023 | Pacific | Northwest | Mountain | North Central | All Other | Total | ||||||||||||||
| (In thousands) | ||||||||||||||||||||
| Aggregates | $ | $ | $ | $ | $ | $ | ||||||||||||||
| Ready-mix concrete | ||||||||||||||||||||
| Asphalt | ||||||||||||||||||||
| Other | ||||||||||||||||||||
| Contracting services public-sector | ||||||||||||||||||||
| Contracting services private-sector | ||||||||||||||||||||
| Internal sales | ( | ( | ( | ( | ( | ( | ||||||||||||||
| Revenues from contracts with customers | $ | $ | $ | $ | $ | $ | ||||||||||||||
| Six Months Ended June 30, 2022 | Pacific | Northwest | Mountain | North Central | All Other | Total | ||||||||||||||
| (In thousands) | ||||||||||||||||||||
| Aggregates | $ | $ | $ | $ | $ | $ | ||||||||||||||
| Ready-mix concrete | ||||||||||||||||||||
| Asphalt | ||||||||||||||||||||
| Other | ||||||||||||||||||||
| Contracting services public-sector | ||||||||||||||||||||
| Contracting services private-sector | ||||||||||||||||||||
| Internal Sales | ( | ( | ( | ( | ( | ( | ||||||||||||||
| Revenues from contracts with customers | $ | $ | $ | $ | $ | $ | ||||||||||||||
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 | |||||||||||
| (In thousands) | ||||||||||||||
Contract assets | $ | $ | $ | Costs and estimated earnings in excess of billings on uncompleted contracts | ||||||||||
| Contract liabilities | ( | ( | ( | Billings in excess of costs and estimated earnings on uncompleted contracts | ||||||||||
| Net contract assets (liabilities) | $ | $ | ( | $ | ||||||||||
The Company recognized $11.4 million and $31.7 million in revenue for the three and six months ended June 30, 2023, respectively, which was previously included in contract liabilities at December 31, 2022. The Company recognized $6.2 million and $26.2 million in revenue for the three and six months ended June 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 million and $8.1 million for the three and six months ended June 30, 2023, respectively, from performance obligations satisfied in prior periods. The Company recognized a net increase in revenues of $5.7 million and $9.2 million for the three and six months ended June 30, 2022, respectively, from performance obligations satisfied in prior periods.
16
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 30, 2023, the Company's remaining performance obligations were $1.04 billion. The Company expects to recognize the following revenue amounts in future periods related to these remaining performance obligations: $960.9 million within the next 12 months or less; $58.8 million within the next 13 to 24 months; and $21.2 million in 25 months or more.
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 | |||||||||||
| (In thousands) | ||||||||||||||
| Pacific | $ | $ | $ | ( | $ | |||||||||
| Northwest | ||||||||||||||
| Mountain | ||||||||||||||
| North Central | ||||||||||||||
| All Other | ||||||||||||||
| Total | $ | $ | $ | ( | $ | |||||||||
Other amortizable intangible assets were as follows:
| June 30, 2023 | December 31, 2022 | ||||||||||
| (In thousands) | |||||||||||
| Customer relationships | $ | $ | |||||||||
| Less accumulated amortization | |||||||||||
| Noncompete agreements | |||||||||||
| Less accumulated amortization | |||||||||||
| Other | |||||||||||
| Less accumulated amortization | |||||||||||
| Total | $ | $ | |||||||||
Amortization expense for amortizable intangible assets for the three and six months ended June 30, 2023, was $653,000 and $1.3 million, respectively. Amortization expense for amortizable intangible assets for the three and six months ended June 30, 2022, was $780,000 and $1.4 million, respectively. Estimated amortization expense for identifiable intangible assets as of June 30, 2023, was:
| Remainder of 2023 | 2024 | 2025 | 2026 | 2027 | Thereafter | |||||||||||||||
| (In thousands) | ||||||||||||||||||||
| Amortization expense | $ | $ | $ | $ | $ | $ | ||||||||||||||
Note 11 - Fair value measurements
17
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 used to purchase life insurance policies and re-invested in fixed-income and equity securities in the third quarter of 2023.
The Company's assets measured at fair value on a recurring basis were as follows:
| Fair Value Measurements at June 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 | |||||||||||
| (In thousands) | ||||||||||||||
| Assets: | ||||||||||||||
| Money market funds | $ | — | $ | $ | — | $ | ||||||||
| Insurance contracts* | — | — | ||||||||||||
| Total assets measured at fair value | $ | — | $ | $ | — | $ | ||||||||
* The insurance contracts invest approximately 47 percent in fixed-income investments, 20 percent in cash equivalents, 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 and 4 percent in target date 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 | $ | — | $ | $ | — | $ | ||||||||
| Insurance contracts* | — | — | ||||||||||||
| Total assets measured at fair value | $ | — | $ | $ | — | $ | ||||||||
* 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.
18
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 30, 2023 | ||||||||
| (In thousands) | ||||||||
| Carrying amount | $ | |||||||
| Fair value | $ | |||||||
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 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, of which $190.0 million was drawn down and $35.0 million was repaid during the period. 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.
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 | |||||||||||||
| (In thousands) | ||||||||||||||
Term loan agreement due on May 31, 2028 | % | $ | ||||||||||||
| Revolving credit agreement | % | |||||||||||||
Senior notes due on May 1, 2031 | % | |||||||||||||
Other notes due on January 1, 2061 | % | |||||||||||||
| Less unamortized debt issuance costs | ||||||||||||||
| Total long-term debt | ||||||||||||||
| Less current maturities | ||||||||||||||
| Net long-term debt | $ | |||||||||||||
Schedule of Debt Maturities Long-term debt maturities, which excludes unamortized debt issuance costs, at June 30, 2023, were as follows:
Remainder of 2023 | 2024 | 2025 | 2026 | 2027 | Thereafter | |||||||||||||||
| (In thousands) | ||||||||||||||||||||
| Long-term debt maturities | $ | $ | $ | $ | $ | $ | ||||||||||||||
19
Note 13 - Income Taxes
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.
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.
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.
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 | ||||||||
| June 30, | ||||||||
| 2023 | 2022 | |||||||
| (In thousands) | ||||||||
| Interest, net | $ | $ | ||||||
| Income taxes paid, net | $ | $ | ||||||
| Six Months Ended | |||||||||||
| June 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| (In thousands) | |||||||||||
Right-of-use assets obtained in exchange for new operating lease liabilities | $ | $ | |||||||||
Property, plant and equipment additions in accounts payable | $ | $ | |||||||||
| Equity contribution from Centennial related to the Separation | $ | $ | |||||||||
| Equity contribution to MDU Resources for asset/liability transfers related to the Separation | $ | ( | $ | ||||||||
| MDU Resources' stock issued prior to spin in connection with a business combination | $ | $ | |||||||||
20
Note 15 - Business segment data
The Company focuses on the vertical integration of its products and services by offering customers a 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 executive officer who is also the Company’s chief operating decision maker. The Company’s chief operating decision maker evaluates the performance of the segments and allocates resources to them based on EBITDA.
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.
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 | |||||||||||||
| June 30, | June 30, | |||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||
| (In thousands) | ||||||||||||||
| External operating revenues: | ||||||||||||||
| Pacific | $ | $ | $ | $ | ||||||||||
| Northwest | ||||||||||||||
| Mountain | ||||||||||||||
| North Central | ||||||||||||||
| All Other | ||||||||||||||
| Total external operating revenues | $ | $ | $ | $ | ||||||||||
| Intersegment operating revenues: | ||||||||||||||
| Pacific | $ | $ | $ | $ | ||||||||||
| Northwest | ||||||||||||||
| Mountain | ||||||||||||||
| North Central | ||||||||||||||
| All Other | ||||||||||||||
| Total intersegment operating revenues | $ | $ | $ | $ | ||||||||||
| EBITDA: | ||||||||||||||
| Pacific | $ | $ | $ | $ | ||||||||||
| Northwest | ||||||||||||||
| Mountain | ||||||||||||||
| North Central | ( | |||||||||||||
| All Other | ||||||||||||||
| Total segment EBITDA | $ | $ | $ | $ | ||||||||||
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 | $ | $ | $ | $ | ||||||||||
| Other operating revenues | ||||||||||||||
| Elimination of intersegment operating revenues | ( | ( | ( | ( | ||||||||||
| Total consolidated operating revenues | $ | $ | $ | $ | ||||||||||
21
A reconciliation of reportable segment EBITDA to consolidated income (loss) before income taxes is as follows:
| Three Months Ended | Six Months Ended | |||||||||||||
| June 30, | June 30, | |||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||
| (In thousands) | ||||||||||||||
| Total EBITDA for reportable segments | $ | $ | $ | $ | ||||||||||
| Other EBITDA | ||||||||||||||
| Depreciation, depletion and amortization | ||||||||||||||
| Interest expense, net* | ||||||||||||||
| Total consolidated income (loss) before income taxes | $ | $ | $ | $ | ( | |||||||||
*Interest, net is interest expense net of interest income. | ||||||||||||||
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 | |||||||||||||
| June 30, | June 30, | |||||||||||||
| 2023 | 2022 | 2022 | 2021 | |||||||||||
| (In thousands) | ||||||||||||||
| Components of net periodic benefit cost: | ||||||||||||||
| Interest cost | $ | $ | $ | $ | ||||||||||
| Expected return on assets | ( | ( | ( | ( | ||||||||||
| Amortization of net actuarial loss | ||||||||||||||
| Net periodic benefit cost | $ | $ | $ | $ | ||||||||||
Components of net periodic benefit cost for the Company's other postretirement benefit plans were as follows:
| Three Months Ended | Six Months Ended | |||||||||||||
| June 30, | June 30, | |||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||
| (In thousands) | ||||||||||||||
| Components of net periodic benefit cost: | ||||||||||||||
| Service cost | $ | $ | $ | $ | ||||||||||
| Interest cost | ||||||||||||||
| Expected return on assets | ( | ( | ||||||||||||
Amortization of prior service credit | ( | ( | ( | ( | ||||||||||
| Amortization of net actuarial (gain) loss | ( | ( | ||||||||||||
| Net periodic benefit cost | $ | $ | $ | $ | ||||||||||
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.
22
Note 17 - Contingencies
At June 30, 2023 and December 31, 2022, the Company accrued contingent liabilities, which have not been discounted, of $970,000 and $1.0 million, respectively. At June 30, 2023 and December 31, 2022, the Company also recorded corresponding insurance receivables of $325,000
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 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 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 30, 2023, the fixed maximum amounts guaranteed under these letters of credit aggregated $4.9 million. At June 30, 2023, the amounts of scheduled expiration of the maximum amounts guaranteed under these letters of credit aggregate to $4.5 million in 2023 and $436,000 in 2024. There were no amounts outstanding under the previously mentioned letters of credit at June 30, 2023.
In the normal course of business, the Company has surety bonds related to contracts for contracting services and reclamation obligations 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 30, 2023, approximately $905.4 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 months ended June 30, 2023, the Company paid $599,000 277,000
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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.
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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.
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 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, 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 provides various products and services and operates various facility types, including aggregate quarries and mines, ready-mix concrete plants, asphalt plants and distribution facilities. Each segment 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 and Services | Modes of Transportation | ||||||||||||||||||||||||||||||||||
| Precast/ | |||||||||||||||||||||||||||||||||||
| Ready-Mix | Construction | Prestressed | Liquid | Heavy | |||||||||||||||||||||||||||||||
| Aggregates | Asphalt | Concrete | Services | Concrete | Asphalt | Cement | Equipment | Trucking | Rail | Barge | |||||||||||||||||||||||||
| Pacific | X | X | X | X | X | X | X | X | X | X | X | ||||||||||||||||||||||||
| Northwest | X | X | X | X | X | X | X | X | X | ||||||||||||||||||||||||||
| Mountain | X | X | X | X | X | X | |||||||||||||||||||||||||||||
| North Central | X | X | X | X | X | X | X | X | |||||||||||||||||||||||||||
| All Other | X | X | X | X | X | X | X | X | X | ||||||||||||||||||||||||||
The Separation
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. 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.
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
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underlying assumptions (many of which are based, in turn, upon further assumptions) and other statements that are other than 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.
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 interest rates. With approximately 80 percent of the contracting revenue from public-sector projects, Knife River is 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 as evidenced by record second quarter backlog as it begins to enter its peak construction season.
| June 30, 2023 | June 30, 2022 | |||||||
| (In millions) | ||||||||
| Pacific | $ | 78.3 | $ | 92.5 | ||||
| Northwest | 257.3 | 169.4 | ||||||
| Mountain | 377.3 | 348.9 | ||||||
| North Central | 255.4 | 294.9 | ||||||
| All Other | 72.6 | 71.7 | ||||||
| $ | 1,040.9 | $ | 977.4 | |||||
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Margins on backlog at June 30, 2023, are higher than the margins on backlog at June 30, 2022. Approximately 84 percent of the Company's backlog 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. 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 was enacted in the fourth quarter of 2021 and is providing long-term opportunities by designating $119 billion for the repair and rebuilding of roads and bridges across Knife River’s footprint. In addition, the Inflation Reduction Act provides $369 billion 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 of electric vehicles and build out the infrastructure to support electric vehicles. 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 Company has implemented a strategy called "Competitive 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 initiatives to mitigate the effects of inflation on 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 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 having the most significant impact on results. 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 has experienced some supply-chain constraints, it continues to have good relationships with its suppliers and has not experienced any material adverse impacts of shortages or delays on materials.
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 it operates in can delay the start to construction season or cause temporary delays on specific projects, while unseasonably dry or warm weather in the states 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 western part of the United States had near record levels of precipitation, which negatively impacted results for various segments. 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 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, the 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 facility is helping to address some of the recent labor shortages and trends.
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.
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Consolidated Overview
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Revenue | $ | 785.2 | $ | 711.8 | $ | 1,093.1 | $ | 1,021.8 | |||||||||||||||
| Cost of revenue | 632.2 | 608.5 | 936.0 | 917.3 | |||||||||||||||||||
| Gross profit | 153.0 | 103.3 | 157.1 | 104.5 | |||||||||||||||||||
| Selling, general and administrative expenses | 59.5 | 42.9 | 108.1 | 88.7 | |||||||||||||||||||
| Operating income | 93.5 | 60.4 | 49.0 | 15.8 | |||||||||||||||||||
| Interest expense | 19.1 | 7.4 | 28.7 | 12.7 | |||||||||||||||||||
| Other income (expense) | 2.5 | (2.8) | 3.3 | (4.8) | |||||||||||||||||||
| 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) | |||||||||||||||
| EBITDA* | $ | 125.1 | $ | 87.3 | $ | 111.0 | $ | 69.1 | |||||||||||||||
| Adjusted EBITDA* | $ | 126.3 | $ | 90.4 | $ | 112.5 | $ | 74.5 | |||||||||||||||
*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 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; 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."
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The following tables summarize operating results for the Company.
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||
| Amount | % of Revenues | Amount | % of Revenues | Amount | % of Revenues | Amount | % of Revenues | ||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||
| Revenues by operating segment: | |||||||||||||||||||||||||||||
| Pacific | $ | 142.2 | $ | 128.4 | $ | 209.9 | $ | 213.8 | |||||||||||||||||||||
| Northwest | 179.0 | 151.0 | 294.9 | 256.5 | |||||||||||||||||||||||||
| Mountain | 175.8 | 170.4 | 236.4 | 228.9 | |||||||||||||||||||||||||
| North Central | 187.6 | 167.2 | 208.6 | 190.1 | |||||||||||||||||||||||||
| All Other and internal sales | 100.6 | 94.8 | 143.3 | 132.5 | |||||||||||||||||||||||||
| Total revenues | $ | 785.2 | $ | 711.8 | $ | 1,093.1 | $ | 1,021.8 | |||||||||||||||||||||
| Gross profit by operating segment: | |||||||||||||||||||||||||||||
| Pacific | $ | 27.2 | 19.1% | $ | 18.3 | 14.2% | $ | 28.9 | 13.8% | $ | 26.6 | 12.4% | |||||||||||||||||
| Northwest | 43.1 | 24.0% | 24.2 | 16.1% | 58.8 | 19.9% | 38.3 | 14.9% | |||||||||||||||||||||
| Mountain | 34.4 | 19.6% | 29.5 | 17.3% | 28.6 | 12.1% | 23.8 | 10.4% | |||||||||||||||||||||
| North Central | 28.4 | 15.2% | 17.9 | 10.7% | 8.2 | 4.0% | (3.1) | (1.6)% | |||||||||||||||||||||
| All Other | 19.9 | 19.8% | 13.4 | 14.1% | 32.6 | 22.7% | 18.9 | 14.3% | |||||||||||||||||||||
| Total gross profit | $ | 153.0 | 19.5% | $ | 103.3 | 14.5% | $ | 157.1 | 14.4% | $ | 104.5 | 10.2% | |||||||||||||||||
| EBITDA*: | |||||||||||||||||||||||||||||
| Pacific | $ | 22.0 | 15.5% | $ | 15.2 | 11.8% | $ | 18.9 | 9.0% | $ | 20.6 | 9.7% | |||||||||||||||||
| Northwest | 40.7 | 22.7% | 23.2 | 15.4% | 53.8 | 18.3% | 36.0 | 14.0% | |||||||||||||||||||||
| Mountain | 32.6 | 18.5% | 28.6 | 16.8% | 26.0 | 11.0% | 20.6 | 9.0% | |||||||||||||||||||||
| North Central | 24.4 | 13.0% | 16.1 | 9.6% | .9 | .4% | (8.2) | (4.3)% | |||||||||||||||||||||
| All Other | 5.4 | 5.3% | 4.2 | 4.4% | 11.4 | 7.9% | .1 | .1% | |||||||||||||||||||||
| Total EBITDA* | $ | 125.1 | 15.9% | $ | 87.3 | 12.3% | $ | 111.0 | 10.2% | $ | 69.1 | 6.8% | |||||||||||||||||
*EBITDA, Segment EBITDA, and 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 | ||||||||||||||||
| June 30, | June 30, | ||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||
| Sales (thousands): | |||||||||||||||||
| Aggregates (tons) | 9,181 | 9,521 | 14,049 | 14,491 | |||||||||||||
| Ready-mix concrete (cubic yards) | 1,113 | 1,140 | 1,674 | 1,873 | |||||||||||||
| Asphalt (tons) | 1,913 | 2,101 | 2,092 | 2,417 | |||||||||||||
| Average selling price:* | |||||||||||||||||
| Aggregates (per ton) | $ | 15.95 | $ | 14.33 | $ | 16.37 | $ | 14.77 | |||||||||
| Ready-mix concrete (per cubic yard) | $ | 166.11 | $ | 147.53 | $ | 168.30 | $ | 147.67 | |||||||||
| Asphalt (per ton) | $ | 65.32 | $ | 57.85 | $ | 66.24 | $ | 57.77 | |||||||||
*The average selling price includes freight and delivery and other revenues.
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| Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||
| Amount | % of Revenues | Amount | % of Revenues | Amount | % of Revenues | Amount | % of Revenues | ||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||
| Revenues by product line: | |||||||||||||||||||||||||||||
| Aggregates | $ | 146.4 | $ | 136.4 | $ | 229.9 | $ | 214.0 | |||||||||||||||||||||
| Ready-mix concrete | 184.9 | 168.1 | 281.7 | 276.6 | |||||||||||||||||||||||||
| Asphalt | 125.0 | 121.5 | 138.5 | 139.7 | |||||||||||||||||||||||||
| Other* | 143.2 | 124.3 | 181.8 | 161.8 | |||||||||||||||||||||||||
| Contracting services | 353.4 | 330.7 | 468.4 | 445.0 | |||||||||||||||||||||||||
| Internal sales | (167.7) | (169.2) | (207.2) | (215.3) | |||||||||||||||||||||||||
| Total revenues | $ | 785.2 | $ | 711.8 | $ | 1,093.1 | $ | 1,021.8 | |||||||||||||||||||||
| Gross profit by product line: | |||||||||||||||||||||||||||||
| Aggregates | $ | 36.4 | 24.9% | $ | 29.7 | 21.8% | $ | 38.8 | 16.9% | $ | 30.0 | 14.0% | |||||||||||||||||
| Ready-mix concrete | 28.1 | 15.2% | 23.4 | 13.9% | 36.8 | 13.1% | 32.7 | 11.8% | |||||||||||||||||||||
| Asphalt | 16.4 | 13.1% | 11.4 | 9.4% | 10.3 | 7.5% | 6.3 | 4.5% | |||||||||||||||||||||
| Other* | 34.7 | 24.2% | 13.1 | 10.5% | 28.5 | 15.6% | 1.5 | .9% | |||||||||||||||||||||
| Contracting services | 37.4 | 10.6% | 25.7 | 7.8% | 42.7 | 9.1% | 34.0 | 7.6% | |||||||||||||||||||||
| Total gross profit | $ | 153.0 | 19.5% | $ | 103.3 | 14.5% | $ | 157.1 | 14.4% | $ | 104.5 | 10.2% | |||||||||||||||||
*Other includes cement, liquid asphalt, merchandise, fabric and spreading, and other products and services that individually are not considered to be a major line of business.
Three Months Ended June 30, 2023, Compared to Three Months Ended June 30, 2022
Revenue
Revenue increased $73.4 million, due in large part to higher average selling prices across all product lines. The increase in pricing resulted in $66.5 million more in revenue, which was primarily the result of continued EDGE-related pricing initiatives and increases in commodity pricing. Contracting services revenues increased by $22.7 million due mostly to more available work and a few impact projects in the Northwest and North Central segments. Partially offsetting these increases were decreased asphalt, aggregate and ready-mix concrete sales volumes of $22.1 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 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.
30
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 million, and gross margin increased 420 basis points, primarily due to higher realized prices resulting from EDGE-related pricing initiatives across all product lines of $36.3 million, and lower equipment operating costs of $11.4 million, mainly fuel and timing of costs. In addition, contracting services margins benefited by $8.7 million as strong markets and more available work 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 from higher payroll-related costs of $8.7 million related to both inflationary pressures driving up wages and increased staff after the Separation, as well as higher incentive accruals. In addition, the Company has incurred higher professional service fees of $2.9 million; higher office expenses of $1.2 million; higher dues 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 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 million due primarily to higher average interest rates, which resulted in additional interest expense in the period of $14.6 million. 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. The Company also had higher average debt balances.
Other income (expense)
Other income increased $8.1 million due in part to improved performance on the Company's nonqualified benefit plan investments of $5.7 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 $8.3 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.”
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Results of Operations - Pacific
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||||||
| 2023 | 2022 | % Change | 2023 | 2022 | % Change | ||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Revenue | $ | 142.2 | $ | 128.4 | 11% | $ | 209.9 | $ | 213.8 | (2)% | |||||||||||||
| Gross profit | $ | 27.2 | $ | 18.3 | 49% | $ | 28.9 | $ | 26.6 | 9% | |||||||||||||
| Gross margin | 19.1% | 14.2% | 13.8% | 12.4% | |||||||||||||||||||
| EBITDA | $ | 22.0 | $ | 15.2 | 45% | $ | 18.9 | $ | 20.6 | (8)% | |||||||||||||
| EBITDA margin | 15.5% | 11.8% | 9.0% | 9.7% | |||||||||||||||||||
| Three Months Ended | Six Months Ended | ||||||||||||||||
| June 30, | June 30, | ||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||
| (In millions) | |||||||||||||||||
| Revenues: | |||||||||||||||||
| Aggregates | $ | 27.5 | $ | 24.3 | $ | 46.1 | $ | 43.4 | |||||||||
| Ready-mix concrete | 40.5 | 33.1 | 66.7 | 63.1 | |||||||||||||
| Asphalt | 6.3 | 11.5 | 7.6 | 16.0 | |||||||||||||
| Other* | 61.0 | 53.3 | 87.0 | 80.2 | |||||||||||||
| Contracting services | 33.4 | 36.3 | 40.3 | 57.3 | |||||||||||||
| Internal sales | (26.5) | (30.1) | (37.8) | (46.2) | |||||||||||||
| $ | 142.2 | $ | 128.4 | $ | 209.9 | $ | 213.8 | ||||||||||
*Other includes cement, liquid asphalt, merchandise, fabric and spreading, and other products that individually are not considered to be a major line of business for the segment.
Three Months Ended June 30, 2023, Compared to Three Months Ended June 30, 2022
Revenue
Revenue increased $13.8 million, as increased pricing across most product lines contributed an additional $11.7 million, largely resulting from EDGE-related pricing initiatives. Also contributing to the increase were strong volumes of ready-mix concrete products of $7.2 million from higher demand in Hawaii as the local economy continues to regain momentum through tourism and military spending, as well as higher demand in northern California based in part on an acquisition in December 2022. Partially offsetting the increased revenues were lower asphalt volumes and decreased contracting services revenues of $9.4 million, both resulting from the late start to the construction season and the absence of impact projects in California.
Gross profit and gross margin
Gross profit increased $8.9 million and gross margin increased 490 basis points, largely the result of strong product pricing adding $7.1 million, 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 million and EBITDA margin increased 370 basis points. These increases were the direct result of the previously discussed higher gross profit, partially offset by higher selling, general and administrative costs. The increase in selling, general and administrative costs includes higher payroll-related costs of $1.4 million, due in part to increased personnel from an acquisition in December 2022 and higher incentive accruals; increased rent and overhead expenses of $200,000 each; and higher professional service fees and other miscellaneous expenses.
Six Months Ended June 30, 2023, Compared to Six Months Ended June 30, 2022
Revenue
Revenue decreased $3.9 million as the segment experienced wet weather conditions in California 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, and affected demand for products, which contributed to the decrease in sales volumes of $11.0 million across most of its product lines. The absence in 2023 of an impact project further decreased contracting services revenues. Partially offsetting the decreased revenues were the positive effects of EDGE-related pricing initiatives across all product lines of $20.1 million, and higher volumes in Hawaii supported by the strong economic environment during the second quarter, as previously discussed.
32
Gross profit and gross margin
Gross profit increased $2.3 million and gross margin increased 140 basis points, driven primarily by the previously discussed strong product pricing that more than offset the decreased volumes and contracting services resulting from the wet weather conditions in California, as previously discussed, as well as 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 million and EBITDA margin decreased 70 basis points. These decreases were the result of higher selling, general and administrative costs. The increase in selling, general and administrative costs includes higher payroll-related costs of $2.3 million, due in part to increased personnel from an acquisition in December 2022 and higher incentive accruals; higher legal and other professional services of $500,000; increased rent expense of $400,000; higher overhead expenses and lower asset sale gains 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 | ||||||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||||||
| 2023 | 2022 | % Change | 2023 | 2022 | % Change | ||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Revenue | $ | 179.0 | $ | 151.0 | 19% | $ | 294.9 | $ | 256.5 | 15% | |||||||||||||
| Gross profit | $ | 43.1 | $ | 24.2 | 78% | $ | 58.8 | $ | 38.3 | 54% | |||||||||||||
| Gross margin | 24.0% | 16.1% | 19.9% | 14.9% | |||||||||||||||||||
| EBITDA | $ | 40.7 | $ | 23.2 | 75% | $ | 53.8 | $ | 36.0 | 49% | |||||||||||||
| EBITDA margin | 22.7% | 15.4% | 18.3% | 14.0% | |||||||||||||||||||
| Three Months Ended | Six Months Ended | ||||||||||||||||
| June 30, | June 30, | ||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||
| (In millions) | |||||||||||||||||
| Revenues: | |||||||||||||||||
| Aggregates | $ | 47.9 | $ | 43.5 | $ | 90.5 | $ | 77.1 | |||||||||
| Ready-mix concrete | 44.6 | 39.1 | 78.5 | 75.5 | |||||||||||||
| Asphalt | 34.5 | 26.3 | 41.4 | 34.7 | |||||||||||||
| Other* | 4.4 | 4.0 | 7.1 | 7.4 | |||||||||||||
| Contracting services | 82.7 | 65.8 | 125.4 | 103.0 | |||||||||||||
| Internal sales | (35.1) | (27.7) | (48.0) | (41.2) | |||||||||||||
| $ | 179.0 | $ | 151.0 | $ | 294.9 | $ | 256.5 | ||||||||||
*Other includes merchandise, transportation services and other products that individually are not considered to be a major line of business for the segment.
Three Months Ended June 30, 2023, Compared to Three Months Ended June 30, 2022
Revenue
Revenue increased $28.0 million, largely the result of higher contracting services revenues of $16.9 million and higher average selling prices contributing an additional $14.8 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, due in part to project timing.
Gross profit and gross margin
Gross profit increased $18.9 million and gross margin increased 790 basis points, resulting from the higher realized prices contributing $9.7 million in gross profit, largely from aggregates and asphalt, and the higher available contracting services work adding an additional $5.3 million, as previously discussed. Lower overall equipment operating costs, including fuel costs, also had a positive benefit in the quarter of approximately $3.8 million.
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EBITDA and EBITDA margin
EBITDA increased $17.5 million and EBITDA margin increased 730 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 costs of $1.1 million, lower asset sales gains and higher other miscellaneous expenses.
Six Months Ended June 30, 2023, Compared to Six Months Ended June 30, 2022
Revenue
Revenue increased $38.4 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 higher contracting services revenues of $22.4 million. Contracting services work benefited from more available work than the previous year, including data center, parking garage, railroad and Agency work. Partially offsetting the increases were lower ready-mix concrete and aggregate volumes of $5.2 million, due in part to the absence of impact projects in 2023, colder temperatures and decreased demand for residential work.
Gross profit and gross margin
Gross profit increased $20.5 million and gross margin increased 500 basis points, resulting from higher aggregates 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 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 million and EBITDA margin increased 430 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 higher labor-related costs of $2.0 million related to higher incentive accruals and wages, lower asset sales gains of $1.0 million, higher dues and subscriptions, and higher other expenses.
Results of Operations - Mountain
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||||||
| 2023 | 2022 | % Change | 2023 | 2022 | % Change | ||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Revenue | $ | 175.8 | $ | 170.4 | 3% | $ | 236.4 | $ | 228.9 | 3% | |||||||||||||
| Gross profit | $ | 34.4 | $ | 29.5 | 17% | $ | 28.6 | $ | 23.8 | 20% | |||||||||||||
| Gross margin | 19.6% | 17.3% | 12.1% | 10.4% | |||||||||||||||||||
| EBITDA | $ | 32.6 | $ | 28.6 | 14% | $ | 26.0 | $ | 20.6 | 26% | |||||||||||||
| EBITDA margin | 18.5% | 16.8% | 11.0% | 9.0% | |||||||||||||||||||
| Three Months Ended | Six Months Ended | ||||||||||||||||
| June 30, | June 30, | ||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||
| (In millions) | |||||||||||||||||
| Revenues: | |||||||||||||||||
| Aggregates | $ | 28.9 | $ | 26.9 | $ | 38.5 | $ | 36.1 | |||||||||
| Ready-mix concrete | 34.5 | 31.5 | 48.9 | 47.6 | |||||||||||||
| Asphalt | 29.5 | 31.1 | 30.3 | 31.5 | |||||||||||||
| Contracting services | 117.7 | 118.4 | 159.4 | 155.3 | |||||||||||||
| Internal sales | (34.8) | (37.5) | (40.7) | (41.6) | |||||||||||||
| $ | 175.8 | $ | 170.4 | $ | 236.4 | $ | 228.9 | ||||||||||
Three Months Ended June 30, 2023, Compared to Three Months Ended June 30, 2022
Revenue
Revenue increased $5.4 million, primarily the result of higher average selling prices on all product lines of $8.2 million, supported by demand and EDGE-related pricing momentum. Partially offsetting the increase were lower asphalt volumes and contracting services revenues as a result of the absence 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.
34
Gross profit and gross margin
Gross profit increased $4.9 million and gross margin increased 230 basis points, as a result of higher contracting services margins contributing profit of $2.7 million due to strong markets in most locations, along with higher realized prices for ready-mix concrete and aggregates of $1.9 million, as previously discussed. 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.
EBITDA and EBITDA margin
EBITDA increased $4.0 million and EBITDA margin increased 170 basis points, directly resulting from the increased gross profit previously discussed. Partially offsetting the increase was higher selling, general and administrative expenses, including higher payroll-related costs of $600,000 and higher credit loss provisions of $600,000.
Six Months Ended June 30, 2023, Compared to Six Months Ended June 30, 2022
Revenue
Revenue increased $7.5 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 services revenues increased by $4.1 million due to strong markets in all locations, offset partially by the absence in 2023 of an impact airport project substantially completed during the second quarter of 2022. Aggregate volumes also benefited by $1.1 million due to increased demand in Montana. Partially offsetting these increases were lower ready-mix concrete and asphalt volumes of $10.5 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.
Gross profit and gross margin
Gross profit increased $4.8 million and gross margin increased 170 basis points, as a result of higher contracting services margins contributing profit of $3.4 million due to strong markets in most locations, as well as higher realized prices for ready-mix concrete of $2.7 million. Lower overall equipment operating costs, including fuel, also had a positive impact on the segment of approximately $1.7 million. Partially offsetting these increases 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.
EBITDA and EBITDA margin
EBITDA increased $5.4 million and EBITDA margin increased 200 basis points, directly resulting from the increased gross profit previously discussed.
Results of Operations - North Central
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||||||
| 2023 | 2022 | % Change | 2023 | 2022 | % Change | ||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Revenue | $ | 187.6 | $ | 167.2 | 12% | $ | 208.6 | $ | 190.1 | 10% | |||||||||||||
| Gross profit | $ | 28.4 | $ | 17.9 | 59% | $ | 8.2 | $ | (3.1) | 365% | |||||||||||||
| Gross margin | 15.2% | 10.7% | 4.0% | (1.6)% | |||||||||||||||||||
| EBITDA | $ | 24.4 | $ | 16.1 | 52% | $ | .9 | $ | (8.2) | 111% | |||||||||||||
| EBITDA margin | 13.0% | 9.6% | .4% | (4.3)% | |||||||||||||||||||
| Three Months Ended | Six Months Ended | ||||||||||||||||
| June 30, | June 30, | ||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||
| (In millions) | |||||||||||||||||
| Revenues: | |||||||||||||||||
| Aggregates | $ | 30.3 | $ | 26.7 | $ | 34.4 | $ | 30.7 | |||||||||
| Ready-mix concrete | 53.9 | 47.1 | 66.2 | 59.5 | |||||||||||||
| Asphalt | 46.7 | 44.7 | 46.8 | 44.8 | |||||||||||||
| Other* | 10.9 | 9.9 | 12.5 | 12.0 | |||||||||||||
| Contracting services | 99.8 | 89.1 | 104.4 | 94.7 | |||||||||||||
| Internal sales | (54.0) | (50.3) | (55.7) | (51.6) | |||||||||||||
| $ | 187.6 | $ | 167.2 | $ | 208.6 | $ | 190.1 | ||||||||||
*Other includes merchandise and other products that individually are not considered to be a major line of business for the segment.
35
Three Months Ended June 30, 2023, Compared to Three Months Ended June 30, 2022
Revenue
Revenue increased $20.4 million, largely resulting from higher average selling prices due to EDGE-related pricing initiatives on all product lines contributing an additional $19.0 million in revenue, and higher contracting services revenue of $10.7 million benefiting from impact projects in certain locations and timing of some projects. Ready-mix concrete 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 million, largely related to seasonal heavy-load road restrictions in certain locations, and decreased aggregate volumes of $2.3 million from the absence of an impact project during 2022, as well as lower internal sales volumes due to a late start for paving projects.
Gross profit and gross margin
Gross profit increased $10.5 million and gross margin increased 450 basis points, largely due to higher realized prices on asphalt and aggregates of $4.1 million, and higher contracting services margins contributing profit of $4.1 million related to improved bid margins and impact projects. Lower overall equipment operating costs, largely related to fuel, also had a positive benefit in the quarter of approximately $3.2 million. Partially offsetting these increases were lower aggregates and asphalt margins related to the decreased volumes previously discussed.
EBITDA and EBITDA margin
EBITDA increased $8.3 million and EBITDA margin increased 340 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 million, largely higher labor-related costs for higher incentive and profit sharing accruals.
Six Months Ended June 30, 2023, Compared to Six Months Ended June 30, 2022
Revenue
Revenue increased $18.5 million as a result of higher average selling prices across all product lines of $21.6 million due to EDGE-related pricing initiatives, and contracting services revenue of $9.7 million benefiting from impact projects in certain markets and timing of some projects. Certain areas in Minnesota, North Dakota and South Dakota experienced precipitation rates that were two to three times higher during the first three months of 2023 compared to the same timeframe 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.
Gross profit and gross margin
Gross profit increased $11.3 million and gross margin increased 560 basis points, largely due to higher realized prices on aggregates and asphalt of $4.4 million. Contracting services margins contributed profit of $3.6 million from improved bid margins and impact projects. Lower overall equipment operating costs, largely fuel, also had a positive benefit in the quarter.
EBITDA and EBITDA margin
EBITDA increased $9.1 million and EBITDA margin increased 470 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 million, primarily higher labor-related costs for higher incentive and profit sharing accruals.
Results of Operations - All Other and Intersegment Eliminations
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||||||
| 2023 | 2022 | % Change | 2023 | 2022 | % Change | ||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Revenue | $ | 100.6 | $ | 94.8 | 6% | $ | 143.3 | $ | 132.5 | 8% | |||||||||||||
| Gross profit | $ | 19.9 | $ | 13.4 | 49% | $ | 32.6 | $ | 18.9 | 72% | |||||||||||||
| Gross margin | 19.8 | % | 14.1 | % | 22.7 | % | 14.3 | % | |||||||||||||||
| EBITDA | $ | 5.4 | $ | 4.2 | 29% | $ | 11.4 | $ | .1 | n.m. | |||||||||||||
| EBITDA margin | 5.3 | % | 4.4 | % | 7.9 | % | .1 | % | |||||||||||||||
Three Months Ended June 30, 2023, Compared to Three Months Ended June 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 million due primarily to timing of sales, lower availability of asphalt paving work and competitive market pricing in the geographic areas in which the Company operates. Also offsetting the increases were decreased ready-mix concrete and aggregates sales of $8.1 million due to a partial sale of non-strategic assets in southeast Texas in December 2022.
36
Gross profit and gross margin
Gross profit increased $6.5 million and gross margin increased 570 basis points, resulting from higher realized prices for asphalt products and ready-mix concrete of $13.4 million. Partially offsetting these increases was a decrease in ready-mix concrete margins, which resulted in a reduction to gross profit of $1.1 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 million and EBITDA margin increased 90 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 higher selling, general and administrative costs, including increased payroll-related costs of $2.8 million, higher professional service fees of $1.6 million, higher taxes and licensing fees of $500,000 and other miscellaneous costs, partially as a result of standing itself up as a publicly traded company.
Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022
Revenue
Revenue increased $10.8 million, driven by higher average selling prices for asphalt products and ready-mix concrete of $17.7 million, and contracting services revenues increased $4.2 million due to cost increases and improving margins on contracts. Partially offsetting these increases were decreased aggregate and ready-mix concrete sales of $14.9 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 million and gross margin increased 840 basis points due primarily to higher realized prices for asphalt products and ready-mix concrete of $14.9 million. Partially offsetting these increases were decreased ready-mix concrete margins 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 million and EBITDA margin increased 780 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 higher selling, general and administrative costs, including professional service fees of $2.1 million, insurance of $700,000, payroll-related costs of $400,000 and other miscellaneous costs, partially as a result of standing itself up as a publicly traded company.
37
Liquidity and Capital Resources
At June 30, 2023, Knife River had cash, cash equivalents and restricted cash of $68.5 million and working capital of $574.0 million. Working capital is calculated as current assets less current liabilities. Subsequent to the completion of 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.
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. On May 31, 2023, Knife River entered into a senior secured 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 and $35.0 million was repaid during the period, each with 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, which will primarily be used for 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. It is anticipated that all of the funds required for capital expenditures for 2023 will be funded by various sources, including internally generated funds; credit facilities; and issuance of debt and equity securities if necessary.
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Cash flows
| Six Months Ended | ||||||||
| June 30, | ||||||||
| 2023 | 2022 | |||||||
| (In millions) | ||||||||
| Net cash provided by (used in) | ||||||||
| Operating activities | $ | (70.4) | $ | (147.8) | ||||
| Investing activities | (64.1) | (78.1) | ||||||
| Financing activities | 192.9 | 224.8 | ||||||
| Increase (decrease) in cash, cash equivalents and restricted cash | 58.4 | (1.1) | ||||||
| Cash, cash equivalents and restricted cash -- beginning of year | 10.1 | 13.8 | ||||||
| Cash, cash equivalents and restricted cash -- end of period | $ | $ | 12.7 | |||||
Operating activities
| Six Months Ended | ||||||||||||||
| June 30, | ||||||||||||||
| 2023 | 2022 | Variance | ||||||||||||
| (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) | |||||||||||
| Changes in current assets and liabilities, net of acquisitions: | ||||||||||||||
| Receivables | (236.4) | (215.2) | (21.2) | |||||||||||
| Due from related-party | 16.1 | 1.0 | 15.1 | |||||||||||
| Inventories | (51.1) | (66.3) | 15.2 | |||||||||||
| Other current assets | (20.9) | (16.8) | (4.1) | |||||||||||
| Accounts payable | 102.6 | 73.1 | 29.5 | |||||||||||
| Due to related-party | (7.3) | 9.8 | (17.1) | |||||||||||
| Other current liabilities | 25.6 | 8.9 | 16.7 | |||||||||||
| Pension and postretirement benefit plan contributions | (.3) | (.2) | (.1) | |||||||||||
| Other noncurrent charges | 30.7 | .8 | 29.9 | |||||||||||
| Net cash used in operating activities: | $ | (70.4) | $ | (147.8) | $ | 77.4 | ||||||||
Cash used in operating activities totaled $70.4 million for the six months ended June 30, 2023, compared to $147.8 million for the six months ended June 30, 2022. The decreased cash used in operating activities was largely the result of lower working capital needs. Cash used by working capital components totaled $171.4 million for the six months ended June 30, 2023, compared to $205.5 million for the six months ended June 30, 2022. This decreased 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 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.
Investing activities
| Six Months Ended | ||||||||||||||
| June 30, | ||||||||||||||
| 2023 | 2022 | Variance | ||||||||||||
| (In millions) | ||||||||||||||
| Capital expenditures | $ | (66.6) | $ | (80.3) | $ | 13.7 | ||||||||
| Acquisitions, net of cash acquired | — | (.5) | .5 | |||||||||||
| Net proceeds from sale or disposition of property and other | 4.1 | 4.3 | (.2) | |||||||||||
| Investments | (1.6) | (1.6) | — | |||||||||||
| Net cash used in investing activities | $ | (64.1) | $ | (78.1) | $ | 14.0 | ||||||||
The decrease in cash used in investing activities for the six months ended June 30, 2023, compared to the six months ended June 30, 2022, was primarily due to a reduction in capital expenditures for the prestress facility in Washington that is nearing completion.
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Financing activities
| Six Months Ended | ||||||||||||||
| June 30, | ||||||||||||||
| 2023 | 2022 | Variance | ||||||||||||
| (In millions) | ||||||||||||||
| Issuance of current related-party notes, net | $ | — | $ | 100.0 | $ | (100.0) | ||||||||
| Issuance of long-term related-party notes, net | 205.3 | 154.9 | 50.4 | |||||||||||
| Issuance of long-term debt | 855.0 | — | 855.0 | |||||||||||
| Repayment of long-term debt | (.1) | (.1) | — | |||||||||||
| Debt issuance costs | (16.7) | (.7) | (16.0) | |||||||||||
| Net transfers to Centennial | (850.6) | (29.3) | (821.3) | |||||||||||
| Net cash provided by financing activities | $ | 192.9 | $ | 224.8 | $ | (31.9) | ||||||||
The decrease in cash flows provided by financing activities for the six months ended June 30, 2023, compared to the six months ended June 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 in 2023. The net transfer to Centennial for the payment of dividends at the time 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.
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 30, 2023, the Company's purchase commitments reflected an increase of approximately 95 percent from the balance at December 31, 2022. This increase is primarily due to the Company committing to a three-year cement contract, as well as, the Company still having locked-in commitments from first quarter for the construction season. The Company expects purchase commitments to decrease throughout 2023 as obligations are satisfied during the construction season.
At June 30, 2023, the Company's long-term debt reflected an increase of approximately $378.4 million from the balance at December 31, 2022. This increase is primarily due to the Company paying off the 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 30, 2023, the Company's total estimated interest payments over the life of its debt reflected an increase of approximately $277.4 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% on June 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 | |||||||
*Represents the estimated interest payments associated with the Company's long-term outstanding debt at June 30, 2023, assuming current interest rates and consistent amounts outstanding until their respective maturity dates 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.
40
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 approximately $1.2 million in pension plan contributions in 2023, largely resulting from 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.
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.
41
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 | % | ||||||||||||||||
42
| 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 | % | ||||||||||||||||
| Six months ended June 30, 2022 | Pacific | Northwest | Mountain | North Central | All Other and Intersegment Eliminations | Consolidated | ||||||||||||||
| (In millions) | ||||||||||||||||||||
| Net income (loss) | $ | 10.1 | $ | 18.8 | $ | 9.2 | $ | (20.0) | $ | (19.6) | $ | (1.5) | ||||||||
| Depreciation, depletion and amortization | 10.5 | 17.2 | 11.3 | 11.8 | 7.3 | 58.1 | ||||||||||||||
| Interest expense, net | — | — | .1 | — | 12.6 | 12.7 | ||||||||||||||
| Income taxes | — | — | — | — | (.2) | (.2) | ||||||||||||||
| EBITDA | $ | 20.6 | $ | 36.0 | $ | 20.6 | $ | (8.2) | $ | .1 | $ | 69.1 | ||||||||
| Unrealized (gains) losses on benefit plan investments | 4.0 | 4.0 | ||||||||||||||||||
| Stock-based compensation expense | 1.4 | 1.4 | ||||||||||||||||||
| Adjusted EBITDA | $ | 5.5 | $ | 74.5 | ||||||||||||||||
| Revenue | $ | 213.8 | $ | 256.5 | $ | 228.9 | $ | 190.1 | $ | 132.5 | $ | 1,021.8 | ||||||||
| Net income margin | 4.7 | % | 7.3 | % | 4.0 | % | (10.5) | % | (14.8) | % | (.1) | % | ||||||||
| EBITDA margin | 9.7 | % | 14.0 | % | 9.0 | % | (4.3) | % | .1 | % | 6.8 | % | ||||||||
| Adjusted EBITDA margin | 4.2 | % | 7.3 | % | ||||||||||||||||
New Accounting Standards
For information regarding new accounting standards, see Note 2.
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
43
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 30, 2023, the Company had $430.0 million in term loan and revolving credit borrowings under the credit agreement. The rate in effect at this time was 7.36% and 7.53%, respectively, for the term loan and revolving credit facilities. A hypothetical increase of 1 percent on the interest rate of these facilities would increase interest expense by $4.3 million over the next 12 months.
At June 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 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 30, 2023, that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
44
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 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
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 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.
45
| Exhibits Index | |||||||||||||||||||||||
| Incorporated by Reference | |||||||||||||||||||||||
| Exhibit Number | Exhibit Description | Filed Herewith | Form | Period Ended | Exhibit | Filing Date | File Number | ||||||||||||||||
| *2(a) | 8-K | 2.1 | 6/01/23 | 1-41642 | |||||||||||||||||||
| 3(a) | 8-K | 3.1 | 6/01/23 | 1-41642 | |||||||||||||||||||
| 3(b) | 8-K | 3.2 | 6/01/23 | 1-41642 | |||||||||||||||||||
| **4(a) | 8-K | 4.1 | 6/01/23 | 1-41642 | |||||||||||||||||||
| 4(b) | 10- 12B/A | 4.2 | 4/28/23 | 1-41642 | |||||||||||||||||||
| 4(c) | 8-K | 4.2 | 6/01/23 | 1-41642 | |||||||||||||||||||
| **10(a) | 8-K | 10.1 | 6/01/23 | 1-41642 | |||||||||||||||||||
| 10(b) | 8-K | 10.2 | 6/01/23 | 1-41642 | |||||||||||||||||||
| 10(c) | 8-K | 10.3 | 6/01/23 | 1-41642 | |||||||||||||||||||
| **10(d) | 8-K | 10.4 | 6/01/23 | 1-41642 | |||||||||||||||||||
| +10(e) | 8-K | 10.5 | 6/01/23 | 1-41642 | |||||||||||||||||||
| +10(f) | 8-K | 10.6 | 6/01/23 | 1-41642 | |||||||||||||||||||
| +10(g) | 8-K | 10.7 | 6/01/23 | 1-41642 | |||||||||||||||||||
| **+10(h) | 8-K | 10.8 | 6/01/23 | 1-41642 | |||||||||||||||||||
| **+10(i) | 8-K | 10.9 | 6/01/23 | 1-41642 | |||||||||||||||||||
| +10(j) | 8-K | 10.10 | 6/01/23 | 1-41642 | |||||||||||||||||||
| +10(k) | 8-K | 10.11 | 6/01/23 | 1-41642 | |||||||||||||||||||
| +10(l) | X | ||||||||||||||||||||||
| +10(m) | 10- 12B/A | 10.16 | 4/28/23 | 1-41642 | |||||||||||||||||||
| 31(a) | X | ||||||||||||||||||||||
| 31(b) | X | ||||||||||||||||||||||
| 32 | X | ||||||||||||||||||||||
| 95 | X | ||||||||||||||||||||||
46
| 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. | |||||||||||||||||||||||
47
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, 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 | |||||||||||
48
KNIFE RIVER CORPORATION
401(K) RETIREMENT PLAN
Effective May 1, 2023
161329235.2
TABLE OF CONTENTS
Page
INTRODUCTION 1
ARTICLE I DEFINITIONS 2
ARTICLE II PARTICIPATION 9
2.1 Participation Requirements 9
2.2 Termination of Participation 9
2.3 Reemployment 10
ARTICLE III CONTRIBUTIONS 11
3.1 Deferral Contributions 11
3.2 Changing Deferral Contribution Election 12
3.3 In-Plan Roth Conversion 12
3.4 Matching Contributions.. 13
3.5 Employer Contributions 14
3.6 Special Limitations on Deferral Contributions 14
3.7 Special Matching Contribution Limitations 17
3.8 Contribution Limitation 19
3.9 Rollover Contributions 21
ARTICLE IV ACCOUNTS; VESTING; DISTRIBUTIONS 22
4.1 Participants’ Accounts 22
4.2 Vesting 22
4.3 Distribution 24
4.4 Method of Payment 24
4.5 Withdrawals by Participants 25
4.6 Timing of Distributions 27
4.7 Distributions Made in Accordance with Code Section 401(a)(31) 29
4.8 Loans to Participants 29
ARTICLE IV A MINIMUM DISTRIBUTION REQUIREMENTS 33
4A.1 General Rules 33
4A.2 Time and Manner of Distribution 33
4A.3 Required Minimum Distributions During Participant’s Lifetime 35
4A.4 Required Minimum Distributions After Participant’s Death 35
4A.5 Definitions 37
ARTICLE V INVESTMENT OF CONTRIBUTIONS 39
5.1 Making of Contributions 39
5.2 Investment 39
5.3 Voting of Common Stock of the Company 41
5.4 Tendering of Stock 42
5.5 Dividend Election 42
ARTICLE VI PLAN ADMINISTRATION; CLAIMS FOR BENEFITS 44
6.1 Named Fiduciaries 44
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TABLE OF CONTENTS
(continued)
Page
6.2 Administrative Powers and Duties 44
6.3 Claims Procedures 45
6.4 Applications and Forms 46
6.5 Facility of Distribution and Payment 46
6.6 Beneficiary Designations 46
6.7 Form and Method of Designation 46
6.8 Administrative Expenses 47
ARTICLE VII TRUST FUND 48
7.1 Trust Agreement 48
7.2 Reversion 48
ARTICLE VIII AMENDMENT AND TERMINATION 49
8.1 Amendments 49
8.2 Right to Terminate 50
8.3 Action by the Company 50
8.4 Distribution of Accounts upon Plan Termination 50
ARTICLE IX ADOPTION OF THE PLAN BY AFFILIATES 51
9.1 Adoption 51
9.2 Withdrawal. 51
ARTICLE X GENERAL 52
10.1 No Guarantee of Employment 52
10.2 Nonalienation of Benefits 52
10.3 Missing Persons 52
10.4 Governing Law 52
10.5 Merger or Consolidation of Plan 52
10.6 Distribution to Alternate Payees 53
10.7 Construction 53
ARTICLE XI TOP-HEAVY PROVISIONS 54
11.1 Top-Heavy Plan 54
11.2 Operative Provisions 54
ARTICLE XII SPECIAL RULES FOR CERTAIN OFFICERS 56
EXECUTION 57
SCHEDULE A PLAN SPINOFF 58
SCHEDULE B MATCHING CONTRIBUTIONS 60
SCHEDULE C PROFIT SHARING CONTRIBUTIONS 61
SCHEDULE D.1 RETIREMENT CONTRIBUTIONS— KNIFE RIVER CORPORATION (KRC MATERIALS, INC.) 63
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TABLE OF CONTENTS
(continued)
Page
SCHEDULE D.2 RETIREMENT CONTRIBUTIONS— CERTAIN PENSION PLAN PARTICIPANTS 64
SCHEDULE D.3 RETIREMENT CONTRIBUTIONS— JTL GROUP, INC. 66
SCHEDULE D.4 RETIREMENT CONTRIBUTIONS— HAWAIIAN CEMENT, MAUI CONCRETE AND AGGREGATE DIVISION 67
SCHEDULE E PREVAILING WAGE LAW REQUIREMENTS AND SUPPLEMENTAL CONTRIBUTIONS 68
SCHEDULE F PRIOR PLAN MERGERS 70
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INTRODUCTION
The Company hereby establishes the Knife River Corporation 401(k) Retirement Plan (the “Plan”) effective May 1, 2023, as a spinoff of the MDU Resources Group, Inc. 401(k) Retirement Plan (the “MDU 401(k) Plan”) in connection with the corporate spinoff of MDU Resources Group, Inc.’s construction materials and contracting business, including Knife River Corporation and certain other Affiliates. Plan provisions related to the Plan spinoff are set forth in Schedule A herein. The Plan is intended to provide a means for deferred savings and investment by Eligible Employees and to afford security for their retirement. The Plan is intended to comply with the requirements of ERISA and Sections 401(a) and 401(k) of the Code. The provisions of the Plan effective May 1, 2023, relating to eligibility, vesting, and benefits entitlement, shall apply solely to any person who completes an Hour of Service as an Eligible Employee on or after such date. The rights and benefits of any person generally shall be governed by the terms of the Plan as in effect at the time such person ceases to be an Eligible Employee.
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ARTICLE I
DEFINITIONS
DEFINITIONS
The following terms, when used herein, shall have the meanings stated below unless a different meaning is otherwise indicated or required by the context.
Account – The Pretax Deferral Account, Roth Deferral Account, In-Plan Roth Conversion Account, Matching Contribution Account, ESOP Account, Rollover Account, Profit Sharing Account, and Retirement Contribution Account, respectively, maintained for a Participant (or an Eligible Employee), as applicable. In addition, the Committee may establish additional accounts and subaccounts as it may deem necessary for the proper administration of the Plan, and “Account” may also refer to any or all such additional accounts and subaccounts.
Affiliate –The Company and any other corporation, trade or business that, together with the Company, is treated as a single employer with the Company pursuant to Code Section 414(b), (c), (m), or (o), except that with respect to Section 3.8, “pursuant to Code Section 414(b), (c), (m), or (o), as modified by Code Section 415(h)” shall be substituted for the preceding reference to “pursuant to Code Section 414(b), (c), (m), or (o).
Code – The Internal Revenue Code of 1986, as amended. Reference to any specific Code section shall include such section, any valid regulation promulgated thereunder, and any comparable provision of any future legislation amending, supplementing, or superseding such section.
Committee – The committee that shall be the administrator of the Plan pursuant to Article VI or its delegate as applicable in certain contexts.
Common Stock – Common stock of the MDU Resources Group, Inc., prior to the Knife River Spinoff Effective Date and common stock of Knife River Corporation on and after the Knife River Spinoff Effective Date.
Company – Knife River Holding Company, which shall be renamed as Knife River Corporation on or after the Knife River Spinoff Effective Date, or any successor thereto.
Compensation – The total compensation paid to an Eligible Employee by the Employer (not in excess of $330,000 for the 2023 Plan Year, as adjusted by the Secretary of the Treasury to reflect increases in the cost of living), unreduced by any deferral contributions of the Eligible Employee to the Plan, and any
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161329235.2
amount that is contributed by the Employer pursuant to a salary reduction agreement and that is not includible in the gross income of an Employee under Code Sections 125(a), 132(f)(4), 402(e)(3), 402(h)(1)(B), 402(k), or 457(b), including any differential wage payment (as defined in Code Section 3401(h)(2)), but excluding other contributions to the Plan, contributions to other employee benefit plans, relocation allowances, club membership reimbursements, the cost of group life insurance that is added to taxable income of the Eligible Employee, and any other extra or additional compensation from the Employer that does not constitute base compensation, such as bonuses and other incentive compensation.
Disability – A physical or mental condition of an Eligible Employee that results in permanent and total disability as defined by the Social Security Administration.
Distributee – Distributee means an Employee or former Employee. In addition, the Employee’s (or former Employee’s) surviving Spouse and the Employee’s (or former Employee’s) Spouse or former Spouse who is the alternate payee under a qualified domestic relations order, as defined in Code Section 414(p), are Distributees with regard to the interest of the Spouse or former Spouse. A Distributee also means the Employee’s (or former Employee’s) non-Spouse designated beneficiary, in which case, the distribution can only be transferred to a traditional IRA or Roth IRA established on behalf of the non-Spouse designated beneficiary for the purpose of receiving the distribution.
Effective Date – The effective date of the Plan, which is May 1, 2023.
Eligible Employee – Eligible Employee means each regular full-time Employee or part time Employee scheduled to work at least 1,000 Hours of Service a year who is at least 18 years of age and who is actively employed by the Employer; provided, however, that a part-time Employee scheduled to work less than 1,000 Hours of Service a year who completes at least 1,000 Hours of Service within a 12-month period beginning on the Employee’s employment date or in any subsequent Plan Year shall be an Eligible Employee.
Notwithstanding the foregoing, unless specifically approved as an Eligible Employee by the Committee, an Employee of an Employer shall not be an Eligible Employee during any time when such Employee is (1) eligible to participate in a multiemployer plan as defined in ERISA Section 3(37) to which the Employer contributes, (2) covered by a collectively bargained unit that has not bargained for the Plan for such Employee, (3) classified as a student or intern as defined by the payroll practices of the Employer,
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or (4) classified as a Temporary Employee, except that a Davis-Bacon Employee described in Section E-1 who is a Temporary Employees will become an Eligible Employees upon the completion of one Hour of Service.
A Leased Employee shall not be an Eligible Employee.
Eligible Retirement Plan – Eligible Retirement Plan means (1) an individual retirement account described in Code Section 408(a) or 408A, (2) an individual retirement annuity described in Code Section 408(b), (3) an annuity plan described in Code Section 403(a), (4) an annuity contract described in Code Section 403(b), (5) an eligible plan under Code Section 457(b) that is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state and that agrees to separately account for amounts transferred into such plan from this Plan, or (6) a qualified plan described in Code Section 401(a) that accepts the Distributee’s Eligible Rollover Distribution. This definition shall also apply in the case of a distribution to a surviving Spouse, or to a Spouse or former Spouse who is the alternate payee under a qualified domestic relations order, as defined in Code Section 414(p). If any portion of an Eligible Rollover Distribution is attributable to payments or distributions from a Roth Deferral Account, an Eligible Retirement Plan with respect to such portion shall include only another designated Roth account of the individual from whose Account the payments or distributions were made or a Roth IRA of such individual.
Eligible Rollover Distribution – Eligible Rollover Distribution means any distribution of all or any portion of the balance to the credit of the Distributee, except that an Eligible Rollover Distribution does not include (1) any distribution that is one of a series of substantially equal periodic payments made (not less frequently than annually) for the life (or life expectancy) of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributee’s designated beneficiary, or for a specified period of ten years or more, (2) any distribution to the extent such distribution is required under Code Section 401(a)(9), (3) any hardship distribution described in Code Section 401(k)(2)(B)(i)(iv), (4) the portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities), or (5) a distribution excluded from the definition of an “Eligible Rollover Distribution” under applicable Treasury rulings or regulations.
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A portion of a distribution shall not fail to be an Eligible Rollover Distribution merely because the portion consists of after-tax employee contributions that are not includible in gross income. However, such portion may be paid only to an individual retirement account or annuity described in Code Section 408(a) or 408(b), a Roth IRA described in Code Section 408A, a qualified retirement plan (either a defined contribution plan or a defined benefit plan) described in Code Section 401(a) or 403(a), or an annuity contract described in Code Section 403(b) that agrees to separately account for amounts so transferred (and earnings thereon), including separately accounting for the portion of such distribution that is includible in gross income and the portion of such distribution that is not so includible.
Employee – An individual shall be an Employee of or be employed by the Employer for any Plan Year only if such individual is treated by the Employer for such Plan Year as its employee for purposes of employment taxes and wage withholding for federal income taxes, regardless of any subsequent reclassification by the Employer, any governmental agency, or court.
Employer – The Company and the Participating Affiliates.
ERISA – The Employee Retirement Income Security Act of 1974, as amended. Reference to any specific ERISA section shall include such section, any valid regulation promulgated thereunder, and any comparable provision of any future legislation amending, supplementing, or superseding such section.
ESOP – The portion of the Plan that is designed to invest primarily in Common Stock and is intended to satisfy the requirements of a non-leveraged employee stock ownership plan set forth in Code Sections 401(a), 409, and 4975(e)(7). The ESOP consists of all amounts credited to Participants’ Accounts that are invested in Common Stock from time to time.
ESOP Account – The separate Account or Accounts maintained for a Participant to which is credited the Participant’s interest in the ESOP from time to time.
Highly Compensated Employee or HCE – Includes highly compensated active Employees and highly compensated former Employees. “Highly compensated active Employee” means any Employee who (1) was a 5% owner (as defined in Code Section 416(i)(I)) of the Employer at any time during the current or the preceding year, or (2) for the preceding year had compensation from the Employer in excess of $135,000 (the limit for 2022) (as adjusted by the Secretary of the Treasury pursuant to Code Section 415(d), except that the base period shall be the calendar quarter ending September 30, 1996).
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A former Employee shall be treated as a Highly Compensated Employee if (A) such Employee was a Highly Compensated Employee when he or she separated from service, or (B) such Employee was a Highly Compensated Employee at any time after attaining age 55.
The determination of who is a Highly Compensated Employee will be made in accordance with Code Section 414(q).
For purposes of this definition, the term “compensation” means Section 415 compensation (as defined in Section 3.8).
Hour of Service – Any hour for which an Employee is directly or indirectly paid or entitled to payment by an Employer (1) for the performance of duties, or (2) on account of a period of time during which no duties are performed due to paid vacation, paid holidays, paid illness or incapacity, paid jury duty, or other authorized paid leaves of absence, or (3) for which back pay irrespective of mitigation of damages is either awarded or agreed to by an Employer. The number of Hours of Service, and the period to which such hours shall be credited, will be determined in accordance with Department of Labor Regulations Section 2530.200b-2.
In-Plan Roth Conversion Account – An Account created to hold amounts under the Plan that a Participant, spousal alternate payee, or spousal beneficiary elects to convert to the In-Plan Roth Conversion Account in accordance with Section 3.3. The Committee may establish subaccounts based on the source of the in-Plan Roth conversion.
Investment Funds – Each of the investment funds designated by the Committee in which a Participant’s Accounts may be invested, in accordance with Section 5.2.
Knife River Spinoff Effective Date – The effective date of the corporate spinoff of MDU Resources Group, Inc.’s construction materials and contracting business, including Knife River Corporation and certain other Affiliates, that will result in two independent, publicly traded companies, MDU Resources Group, Inc., and Knife River Corporation.
Leased Employee – An individual, not otherwise an Employee, who, pursuant to an agreement between an Affiliate and a leasing organization, has performed, on a substantially full-time basis, for a period of at least 12 months, services under the primary direction or control of the Affiliate unless (1) the individual is covered by a money purchase pension plan maintained by the leasing organization and
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meeting the requirements of Code Section 414(n)(5)(B), and (2) Leased Employees do not constitute more than 20% of the nonhighly compensated workforce of all Affiliates (within the meaning of Code Section 414(n)(5)(C)(ii)).
Matching Contribution Account – The separate Account to which Employer matching contributions under Section 3.4 are credited.
MDU 401(k) Plan – The MDU Resources Group, Inc. 401(k) Retirement Plan sponsored by MDU Resources Group, Inc., which was established effective January 1, 1984.
Normal Retirement Age – The date a Participant attains age 60.
Participant – An Eligible Employee who participates in the Plan pursuant to Article II.
Participating Affiliate – An Affiliate to which the Committee has extended the Plan and which adopts the Plan by its board of directors or other governing body.
Plan – The Knife River Corporation 401(k) Retirement Plan as set forth herein and as amended from time to time.
Plan Year – The calendar year.
Pretax Deferral Account – The separate Account to which pretax deferral contributions under Section 3.1 are credited.
Profit Sharing Account – A separate account to which profit sharing contributions under Section 3.5(a) are credited.
Retirement Contribution Account – A separate account to which retirement contributions under Section 3.5(b) are credited.
Rollover Account – The separate Account maintained for an Eligible Employee to hold amounts contributed pursuant to Section 3.9.
Roth Deferral Account – The separate Account to which Roth deferral contributions under Section 3.1 are credited.
Section 16 Officer – An officer as described in Section 16 of the Securities Exchange Act of 1934 and the rules thereunder.
Spouse – The person to whom an individual is married for purposes of federal income taxes.
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Temporary Employee – An Employee classified as a temporary Employee by an Employer and assigned employment status code 5 in the Knife River Corporation payroll system, or any successor or equivalent payroll system code.
Trust Agreement – The Trust Agreement between the Company and the Trustee pursuant to which the Trust Fund is maintained, as such agreement may be amended from time to time. The Trust Agreement constitutes a part of the Plan and its terms are incorporated herein by reference.
Trust Fund – The Trust Fund under the Plan in which Plan assets are retained by the Trustee.
Trustee – The Trustee of the Trust Fund, and any successor thereto.
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ARTICLE II
PARTICIPATION
PARTICIPATION
2.1 Participation Requirements. Each Employee shall become a Participant on the date that he or she becomes an Eligible Employee, provided that such Eligible Employee complies with any enrollment procedures established by the Committee.
2.2 Termination of Participation
(a)A Participant shall terminate active participation in the Plan upon any of the following events:
(i)death,
(ii)retirement,
(iii)Disability, or
(iv)other termination of employment with all Affiliates.
(b)A Participant who elects, pursuant to Section 4.5(b), to make a complete or partial withdrawal from the Pre-tax Deferral Account, Roth Deferral Account, Matching Contribution Account, and Rollover Account after age 59½ shall not be deemed to terminate participation in the Plan by such election alone.
(c)A Participant who ceases to be an Eligible Employee (other than by termination of employment), discontinues deferral contributions under Section 3.1, or enters the military service of the United States, shall also be an inactive Participant with respect to the deferral contribution feature of the Plan; provided, however, that, notwithstanding any provision of the Plan to the contrary, (i) contributions, benefits, and service credit with respect to qualified military service will be provided in accordance with Code Section 414(u), and (ii) in the case of a Participant who dies while performing qualified military service (as defined in Code Section 414(u)), the survivors of the Participant are entitled to any benefits (other than benefit accruals relating to the period of qualified military service) provided under the Plan had the Participant resumed and then terminated employment on account of death. Any interest of an inactive Participant in the Plan may be allowed to remain in the Trust Fund, subject to payment as provided in Article IV. Inactive Participants may
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161329235.2
apply for a hardship withdrawal in accordance with Section 4.5(a) but shall not be eligible for loans under Section 4.8.
2.3 Reemployment. An Eligible Employee or Participant who terminates employment with the Employer and who is subsequently reemployed as an Eligible Employee shall become a Participant on the date of his or her reemployment, provided that such Eligible Employee complies with any enrollment procedure established by the Committee. Notwithstanding any provision of the Plan to the contrary, an individual rehired as a student, intern, or Temporary Employee will not be an Eligible Employee and will not become a Participant in the Plan, except that a Davis-Bacon Employee described in Section E-1 who is a Temporary Employees will become an Eligible Employee upon the completion of one Hour of Service.
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ARTICLE III
CONTRIBUTIONS
CONTRIBUTIONS
3.1 Deferral Contributions
(a)Maximum. A Participant may contribute, by payroll deduction, any whole percentage of the Participant’s Compensation not exceeding 75% of Compensation for each pay period to the Participant’s Pretax Deferral Account and/or Roth Deferral Account. The Participant must specify whether the deferral contributions shall be pretax deferral contributions, Roth deferral contributions, or a combination of both. If a Participant fails to specify, then his or her deferral contributions shall be treated as pretax deferral contributions. The election shall be made in such manner and with such advance notice as prescribed by the Committee.
(b)Deferral contributions on behalf of a Participant shall be credited to such Participant’s Pretax Deferral Account and/or Roth Deferral Account, as applicable and subject to Section 3.6.
(c)Upon becoming a Participant, and at any time thereafter, each Participant may elect the percentage of Compensation to be contributed as deferral contributions to the Plan. Any such election will take effect as soon as administratively feasible. Each election by a Participant under this Section 3.1(c) shall be made pursuant to the method established by the Committee for this purpose.
(d)If a Participant fails to make an election within 30 days of becoming a Participant, the Participant shall be deemed to have elected to have 6% of Compensation (the “automatic deferral rate”) withheld and contributed to the Plan as pretax deferral contributions, effective as soon as administratively feasible following the 30-day period. Within a reasonable period prior to the date an automatic deferral election is effective and the first day of each Plan Year thereafter, the Participant shall receive a notice that explains the automatic deferral feature (including the applicable automatic deferral rate and how automatic contributions will be invested in the absence of the Participant’s investment election), the Participant’s right to elect not to have automatic contributions made on the
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Participant’s behalf, and the procedure for making an alternate election. Automatic contributions being made on behalf of a Participant will cease as soon as administratively feasible after the Participant makes an affirmative election regarding deferral contributions.
(e)Notwithstanding a Participant’s election under Section 3.1(c) or deemed election under Section 3.1(d), if a Participant is contributing less than 15% of Compensation to the Plan on January 1 following his or her initial deferral contribution, such a Participant’s deferral rate shall be automatically increased by 1% on such January 1 and each subsequent January 1 (or as soon as administratively feasible thereafter) until his or her deferral rate equals 15% of Compensation; provided, however, that this Section 3.1(e) shall not apply to a Participant who has elected to opt out of the automatic deferral increase feature or has elected to not contribute to the Plan.
(f)Deferral contributions must be contributed to the Trust Fund as soon as they can reasonably be segregated from the Employer’s general assets, but in no event later than the 15th business day of the month following the month in which such amounts otherwise would have been payable to the Participant in cash. Deferral contributions shall be invested pursuant to Section 5.2(a).
3.2 Changing Deferral Contribution Election. A Participant may change his or her deferral contribution election at any time as provided in Section 3.1(c). Such change will take effect as soon as administratively feasible.
3.3 In-Plan Roth Conversion. A Participant, spousal alternate payee, or spousal beneficiary may elect to convert vested amounts from any Account, other than an Account holding Roth Contributions, to an In-Plan Roth Conversion Account in such manner and subject to such rules as the Committee may establish consistent with this Section 3.3 and Code Section 402A(c)(4)(E). The Plan permits conversion of any amounts permissible under the Code, including amounts that are not otherwise distributable. Amounts that are so converted will be subject to the taxation provisions and separate accounting requirements that apply to designated Roth contributions and any distribution constraints applicable to such amounts prior to the conversion. An in-Plan Roth conversion is not
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a Plan distribution. Accordingly, the Plan may not withhold or distribute any amounts for income tax withholding.
3.4 Matching Contributions. The Employer shall make a matching contribution for each pay period equal to 50% of the deferral contribution made by the Participant for such pay period; provided, however, that a Participant’s deferral contributions in excess of 6% of Compensation for such pay period shall not be eligible for matching contributions. Notwithstanding the immediately preceding sentence, an Employer, by resolution of its board of directors or other governing body and subject to the approval of the Committee, may provide for a matching contribution on behalf of Participants employed by such Employer that differs from the matching contribution stated above. In such a case, the matching contribution so adopted by such Employer and approved by the Committee shall be set forth in Schedule B and shall be applicable to such Employer in lieu of the matching contribution stated above until changed by action of such Employer’s board of directors or other governing body and approved by the Committee. Matching contributions on behalf of a Participant shall be made in cash and credited to the Participant’s Matching Contribution Account.
The Employer shall make a true-up matching contribution for each Plan Year on behalf of each Participant who made deferral contributions during such Plan Year. The true-up matching contribution shall be in the amount that, when aggregated with all matching contributions made during the Plan Year on behalf of the Participant, equals 50% of the Participant’s deferral contributions for the Plan Year that do not exceed 6% of the Participant’s Compensation for the Plan Year. A Participant whose employment is terminated during the Plan Year may receive a true-up matching contribution prior to the end of the Plan Year, as determined in the sole discretion of the Participant’s Employer. Notwithstanding the foregoing, for any Participant employed by an Employer who provides a matching contribution that differs from the matching contribution formula stated above, as set forth in Schedule B, the amount of true-up matching contribution shall not exceed the maximum matching contribution made pursuant to Schedule B as determined on a Plan Year basis. Matching contributions described in this Section 3.4 without regard to any matching contributions described in Schedule B are referred to herein as the “standard matching contributions.”
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3.5 Employer Contributions. Each Employer, in its sole discretion, may make either or both of the following types of contributions to the Plan on behalf of Participants employed by that Employer.
(a)Profit Sharing. Each Employer may establish a profit sharing feature by which a contribution to the Plan may be allocated to Participants pursuant to criteria related to the Employer’s annual performance, as established by resolution of its governing body and subject to the approval of the Committee. Each profit sharing feature shall be set forth in Schedule C and shall be applicable to the Employer that established the feature until changed by action of such Employer’s governing body and approved by the Committee. Any such contribution will be made in accordance with Section 5.1 and will be invested pursuant to the Participant’s investment election.
(b)Retirement Contribution. Each Employer may establish a retirement contribution feature by which a contribution to the Plan will be allocated to Participants pursuant to a specific formula established by resolution of its governing body and subject to the approval of the Committee. Each retirement contribution feature shall be set forth in Schedule D and shall be applicable to the Employer that established the feature until changed by action of such Employer’s governing body and approved by the Committee. Any such contribution will be made in accordance with Section 5.1 and will be invested pursuant to the Participant’s investment election.
3.6 Special Limitations on Deferral Contributions
(a)For each Plan Year, the Plan shall comply with Code Section 401(k)(3). Specifically, if the actual deferral percentage or ADP (as defined in Section 3.6(c)) of Compensation for Participants who are HCEs is more than the amount permitted under the special limitations set forth in Section 3.6(b), the deferral contributions made by the HCEs will be reduced (in the order of those HCEs with the highest dollar contribution amount) to the extent necessary to meet the requirements of Section 3.6(b). The Employer shall pay directly to the Participant any excess amounts withheld for contribution. Any excess deferral contributions made to the Trust Fund, plus any related earnings thereon, shall be distributed to the Participants before the end of the Plan Year following the Plan Year in
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which such excess deferral contributions are made. Amounts to be distributed to a Participant pursuant to the previous sentence shall be reduced by the amounts (if any) to be distributed to that Participant pursuant to Section 3.6(g).
In addition, if the Employer or the Committee determines that contributions would be in excess of the special limitations set forth in Section 3.6(b), the Employer may in its sole discretion suspend, in whole or in part, deferral contributions to the Plan made on behalf of Participants who are HCEs. In such case the deferral contributions that would ordinarily be contributed to the Trust Fund on the Participants’ behalf in a payroll period shall be paid directly to such Participants.
(b)The ADP for any Plan Year of all Eligible Employees who are HCEs shall not exceed, alternatively (i) 125% of the ADP for all Eligible Employees who are not HCEs, or (ii) 200% of the ADP for Eligible Employees who are not HCEs, provided that the ADP for all HCEs does not exceed the ADP for all other Eligible Employees by more than 2%.
(c)For purposes of this Section 3.6, the “actual deferral percentage” or “ADP” for a Plan Year shall be the average of the ratios, calculated separately for each Eligible Employee in each group, of the amount of deferral contributions credited to the Pretax Deferral Account and Roth Deferral Account on behalf of each Eligible Employee for such Plan Year to the Eligible Employee’s Section 415 compensation (as defined in Section 3.8) for such Plan Year.
(d)If a reduction in the amount of deferral contributions on behalf of a Participant is required because of the application of Section 3.6(a), the reduction shall be treated as taxable earnings to the Participant for the pay period in which the reduction occurs, and the Employer shall withhold any taxes required by law on such taxable earnings.
(e)If a distribution of excess deferral contributions (and related earnings) is required because of the application of Section 3.6(a), the Employer shall withhold any taxes required by law on such distribution.
(f)In the event that an active Participant is required to reduce deferral contributions to the Plan as a result of the application of Section 3.6(a), the matching contribution under Section
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3.4 made on behalf of the Participant for the remainder of the Plan Year shall be applied to the reduced amount of deferral contributions.
(g)Notwithstanding the foregoing provisions of this Section 3.6, the maximum amount of deferral contributions credited to the Pretax Deferral Account and Roth Deferral Account on behalf of a Participant in any calendar year may not exceed $22,500, as may be adjusted in accordance with regulations prescribed by the Secretary of the Treasury to reflect increases in the cost of living, and any such contributions made to the Pretax Deferral Account and Roth Deferral Account in excess of such limit (as adjusted), plus any related earnings on the excess, shall be distributed to the Participant by no later than April 15 following the close of the calendar year in which the excess deferral contributions are made. The amount of deferral contributions distributed to a Participant pursuant to the immediately preceding sentence shall be reduced by the amount of deferral contributions distributed to such Participant pursuant to Section 3.6(a) for the same Plan Year.
Deferral contributions exceeding the limits of this Section 3.6(g) shall mean the amount of deferral contributions for a calendar year that the Participant designates to the Plan pursuant to the following procedure. The Participant’s designation shall (i) be submitted to the Committee in writing no later than March 1, (ii) specify the Participant’s deferral contributions exceeding the limits of this Section 3.6(g) for the preceding calendar year, and (iii) be accompanied by the Participant’s written statement that if such excess deferral contribution is not distributed, it will, when added to amounts deferred under other plans or arrangements described in Code Section 401(k), 408(k), or 403(b), exceed the limit imposed on the Participant by Code Section 402(g) for the year in which the deferral occurred. Deferral contributions exceeding the limits of this Section 3.6(g) are includible in a Participant’s gross income under Code Section 402(g) to the extent that such Participant’s deferral contributions for a taxable year exceed the dollar limitation under such Code section. Such excess deferral contributions, and the income or loss allocable thereto, may be distributed before the end of the calendar year in which the deferral contributions were made. A Participant who has such excess deferral contributions for a taxable year,
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taking into account only such deferral contributions under the Plan or any other plan of the Affiliates, shall be deemed to have designated the entire amount of such excess deferral contributions.
(h)The earnings allocable to distributions of deferral contributions exceeding the limits of Section 3.6(b) or 3.6(g) shall be the sum of (i) the earnings attributable to the Participant’s deferral contributions for the year multiplied by a fraction, the numerator of which is the applicable excess amount, and the denominator of which is the balances in the Pretax Deferral Account and Roth Deferral Account of the Participant on the last day of such year reduced by gains (or increased by losses) attributable to such Accounts for the year; and (ii) 10% of the amount determined under clause (i) multiplied by the number of whole calendar months between the end of the Plan Year and the date of distribution, counting the month of distribution if distribution occurs after the 15th day of such month.
(i)All Employees who are eligible to make deferral contributions under the Plan and who have attained age 50 before the close of the Plan Year shall be eligible to make catch-up contributions in accordance with, and subject to the limitations of, Code Section 414(v). Such catch-up contributions shall not be taken into account for purposes of implementing the required limitations of Code Sections 402(g) and 415. The Plan shall not be treated as failing to satisfy the requirements of Code Section 401(k)(3), 401(k)(11), 401(k)(12), 410(b), or 416, as applicable, by reason of the making of such catch-up contributions. Deferral contributions are matched up to the maximum deferral limit for the Plan Year, including excess deferrals that are reclassified as catch-up contributions.
3.7 Special Matching Contribution Limitations
(a)For each Plan Year, the Plan shall comply with Code Section 401(m)(2). Specifically, if the actual contribution percentage or ACP (as defined in Section 3.7(c)) for Participants who are HCEs is more than the amount permitted under the special limitations set forth under Section 3.7(b), the matching contributions credited to the Matching Contribution Accounts of those Participants who are HCEs shall be reduced (in the order of the HCEs with the highest dollar amount of matching contributions) to the extent necessary to meet
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the requirements of Section 3.7(b). Any excess matching contributions made to the Trust Fund, plus any related earnings thereof, shall be distributed to such Participants before the end of the Plan Year following the Plan Year in which such excess matching contributions are made. The earnings allocable to distributions of deferral contributions exceeding the limits of Section 3.7(b) shall be the sum of (i) the earnings attributable to the Participant’s deferral contributions for the year multiplied by a fraction, the numerator of which is the applicable excess amount and the denominator of which is the balance in the Pretax Deferral Account and Roth Deferral Account of the Participant on the last day of such year reduced by gains (or increased by losses) attributable to such Accounts for the year; and (ii) 10% of the amount determined under clause (i) multiplied by the number of whole calendar months between the end of the Plan Year and the date of distribution, counting the month of distribution if distribution occurs after the 15th day of such month. In addition, if the Employer or the Committee determines that contributions or matching contributions would be in excess of the special limitations set forth under Section 3.7(b), the Employer may, in its sole discretion, suspend, in whole or in part, deferral contributions to the Plan made on behalf of Participants who are HCEs and, therefore, related matching contributions with respect to such Participants, in which case the deferral contributions that would ordinarily be contributed to the Trust Fund on the Participants’ behalf in a payroll period shall be paid directly to such Participants.
(b)The ACP for any Plan Year of all Eligible Employees who are HCEs shall not exceed, alternatively (i) 125% of the ACP for all Eligible Employees who are not HCEs, or (ii) 200% of the ACP for Eligible Employees who are not HCEs, provided that the ACP for all HCEs does not exceed the ACP for all other Eligible Employees by more than 2%.
(c)For purposes of this Section 3.7, the “actual contribution percentage” or “ACP” for a Plan Year shall be the average of the ratios, calculated separately for each Eligible Employee in each group, of the amount of matching contributions to the Matching Contribution Account on behalf of each Eligible Employee for such Plan Year to the Eligible Employee’s Section 415 compensation (as defined in Section 3.8) for such Plan Year.
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(d)If a reduction in the amount of deferral contributions on behalf of a Participant is required because of the application of Section 3.7(a), the reduction shall be treated as taxable earnings to the Participant for the pay period in which the reduction occurs, and the Employer shall withhold any taxes required by law on such taxable earnings.
(e)If a distribution of excess deferral contributions or excess matching contributions (and related earnings) is required because of the application of Section 3.7(a), the Employer shall withhold any taxes required by law on such distribution.
(f)In the event that an active Participant is required to reduce deferral contributions to the Plan as a result of the application of Section 3.7(a), the matching contribution made on behalf of the Participant for the remainder of the Plan Year shall be applied to the reduced amount of deferral contributions.
3.8 Contribution Limitation. Notwithstanding any provision of the Plan to the contrary, and except to the extent permitted under Code Section 414(v), the annual additions (as defined below) to a Participant’s Accounts shall not exceed the lesser of (a) 100% of the Participant’s total Section 415 compensation (as defined below) or (b) $66,000, as adjusted for cost-of-living increases under Code Section 415(d). Plan benefits shall be paid in accordance with Code Section 415 and applicable Treasury Regulations issued thereunder, the requirements of which are incorporated herein by reference to the extent not specifically provided herein.
“Annual addition” for any Plan Year means the sum of (a) the deferral contributions, matching contributions, and profit sharing contributions, if any, credited to a Participant’s Accounts for that year, and (b) the contributions made by an Affiliate on behalf of such Participant (including contributions made by such Participant pursuant to an election to defer earnings), and any remainders to be credited to his or her Account under any other defined contribution plan maintained by the Affiliates in which such Participant participates. The Committee shall take any actions it deems advisable to avoid an annual addition in excess of the limitations set forth in Code Section 415; provided, however, if a Participant’s annual addition for a Plan Year actually exceeds the limitations of this Section 3.8, the Committee shall correct such excess in accordance with applicable Treasury Regulations or applicable guidance issued by the Internal Revenue Service.
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The term “Section 415 compensation” shall mean the total of all of the wages, salaries, and other amounts received by the Participant from the Employer for services rendered to the Employer as reflected on Form W-2, but only to the extent such amounts are includible as compensation under Code Section 415I(3) and the regulations thereunder (including any amounts includible in a Participant’s income under the rules of Code Section 409A or because the amounts are constructively received by the Participant, and any differential wage payment (as defined in Code Section 3401(h)), plus any elective deferrals (as defined in Code Section 402(g)(3)) and any amount contributed or deferred by the Employer at the Participant’s election that is excludable from income under Code Sections 125, 132(f)(4), or 457.
Notwithstanding the foregoing, Section 415 compensation for a Plan Year shall include compensation paid to the Participant by the later of 2½ months after the Participant’s severance from employment with the Employer or the end of the Plan Year that includes the date of such severance from employment if (i) the payments are regular compensation for services during the Participant’s regular working hours or compensation for services outside the Participant’s regular working hours (such as overtime or shift differential), commissions, bonuses, or other similar payments, and, absent a severance from employment, the payments would have been paid to the Participant while the Participant continued in employment with the Employer; (ii) the payments are for unused accrued bona fide vacation time that the Participant would have been able to use if employment had continued; or (iii) the payment is received by the Participant pursuant to a nonqualified unfunded deferred compensation plan, but only if the payment would have been paid at the same time if employment had continued and only to the extent the payments are includible in gross income. Payments other than those described above shall not be considered compensation if paid after severance from employment, even if they are paid by the later of 2½ months after the date of severance from employment or the end of the Plan Year that includes the date of severance from employment, except (i) payments to an individual who does not currently perform services for the Employer by reason of qualified military service (within the meaning of Code Section 414(u)(1)) to the extent these payments do not exceed the amounts the individual would have received if the individual had continued to perform services for the Employer rather
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than entering qualified military service; or (ii) compensation paid to a Participant who is permanently and totally disabled, as defined in Code Section 22(e)(3), provided that either salary continuation applies to all Participants who are permanently and totally disabled for a fixed or determinable period or the Participant was not an HCE immediately before becoming disabled. Notwithstanding any provision of the Plan to the contrary, Section 415 compensation shall not include amounts in excess of the limitation under Code Section 401(a)(17) in effect for the Plan Year.
3.9 Rollover Contributions. At the direction of the Committee, and in accordance with such uniform rules as the Committee may from time to time establish, rollovers described in Code Section 402(c), rollovers from an annuity contract described in Code Section 403(b), rollovers from an eligible plan under Code Section 457(b) that is maintained by a state, a political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state and that is not tax-exempt, and rollovers from another plan that meets the requirements of Code Section 401(a) or 403(a), including after-tax employee contributions and designated Roth accounts, may be received by the Trustee and will be credited to an Account established in the name of the Eligible Employee. Any rollover contribution made in accordance with the preceding sentence must be made in cash; rollover contributions of property other than cash will not be accepted. Any amount received by the Trustee for an Eligible Employee in accordance with this Section 3.9 shall be adjusted during each accounting period for their pro rata share of any change in the value of the Investment Funds. Eligible Employees shall be fully vested in their Rollover Account. Loans from a terminated plan of an acquired company may be accepted.
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ARTICLE IV
ACCOUNTS; VESTING; DISTRIBUTIONS
ACCOUNTS; VESTING; DISTRIBUTIONS
4.1 Participants’ Accounts
(a)The Employer shall maintain, or cause to be maintained, records that reflect the interest of each Participant’s Pretax Deferral Account, Roth Deferral Account, In-Plan Roth Conversion Account, Matching Contribution Account, ESOP Account, Rollover Account, Profit Sharing Account, and Retirement Contribution Account, as applicable, including all contributions, income, gains or losses, and withdrawals with respect to such Accounts. Records for the Participants’ Accounts shall be maintained in accordance with procedural rules as determined by the Committee. As of such valuation dates as the Committee shall determine, but not less frequently than once each Plan Year, the Committee shall determine the value of each Participant’s Accounts.
(b)At least once each Plan Year (or as frequently as ERISA requires), the Employer shall cause to be furnished to each Participant a statement of the contributions made by the Employer on the Participant’s behalf, and the value of the Participant’s Accounts, as well as such information as may be necessary to set forth earnings, gains, or losses with respect to the Participant’s Accounts.
4.2 Vesting
(a)A Participant will, at all times, have a fully vested right to the value of the Participant’s Pretax Deferral Account, Roth Deferral Account, Matching Contribution Account, Rollover Account, and ESOP Account. As described in Schedule C or Schedule D (which add a profit sharing feature or retirement contribution feature), a number of years of service may be required for the Participant to be fully vested in his or her Profit Sharing Account or Retirement Contribution Account, as applicable. If a Participant terminates employment before becoming fully or partially vested in his or her Profit Sharing Account or Retirement Contribution Account, the non-vested portion in such Account shall be forfeited as of the last day of the Plan Year in which the Participant terminates employment with all Affiliates. Any forfeitures that arise under the terms of this Section 4.2(a) shall be used for any of the
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following: (i) to reinstate the profit sharing contributions or retirement contributions of any reemployed Participants pursuant to the terms of the Plan, (ii) to reduce Employer contributions to the Plan, and (iii) to reduce administrative expenses incurred by the Plan. A Participant who dies while performing qualified military service (as defined in Code Section 414(u)) will receive service credit for vesting purposes for the period of qualified military service.
(b)If a Participant’s employment with all Affiliates terminates before the Participant becomes vested in his or her Profit Sharing Account or Retirement Contribution Account, and such Participant is subsequently reemployed by the an Affiliate, the following special rules shall apply:
(i)A “One-Year Break In Service” means a Plan Year in which a terminated Participant completes less than 500 Hours of Service.
(ii)If the Participant was not vested in his or her Profit Sharing Account or Retirement Contribution Account as of termination of employment, the Participant’s years of vesting service prior to the termination of employment shall be aggregated with years of vesting service accrued upon reemployment only if the number of his or her consecutive One-Year Breaks In Service is less than five.
(iii)In the case of a maternity or paternity absence (as defined below), a Participant shall be credited, for the first Plan Year in which he or she otherwise would have incurred a One-Year Break In Service (and solely for purposes of determining whether such a One-Year Break In Service has occurred), with the Hours of Service that normally would have been credited to the Participant but for such absence (or, if the Committee is unable to determine the hours that would have been so credited, 8 hours for each work day of such absence), but in no event more than 501 hours for any one absence. A “maternity or paternity absence” means an Employee’s absence from work because of the pregnancy of the Employee or birth of a child of the Employee, because of the placement of a child with the Employee in connection with the adoption of such child by the Employee,
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or for purposes of caring for the child immediately following such birth or placement. The Committee may require the Employee to furnish such information as the Committee considers necessary to establish that the Employee’s absence was for one of the reasons specified above.
(iv)If a Participant terminated employment with all Affiliates before the Participant was fully vested in the Participant’s Profit Sharing Account or Retirement Contribution Account, and is reemployed by an Affiliate before incurring five consecutive One-Year Breaks In Service, the forfeiture that resulted from the Participant’s earlier termination of employment (unadjusted by subsequent gains or losses if the Participant received a prior distribution from the Plan) shall be recredited to the Participant’s Profit Sharing Account or Retirement Contribution Account, as applicable, as of the accounting date coincident with or next following the date of his or her reemployment.
4.3 Distribution. The amount credited to a Participant’s Accounts, to the extent such Participant is vested in such Accounts, shall become payable to the Participant (or the beneficiary, as applicable) subject to Section 4.6 upon any of the following events:
(a)retirement;
(b)Disability;
(c)death;
(d)other termination of employment with all Affiliates;
(e)as a hardship withdrawal under Section 4.5(a); or
(f)as an age 59½ withdrawal under Section 4.5(b).
4.4 Method of Payment. Participants (or their beneficiaries), in accordance with such uniform rules as the Committee may establish, shall elect distribution of their Accounts in one of the following methods:
(a)as a single-sum distribution; or
(b)in flexible installments not exceeding nine years.
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Distributions shall generally be paid in cash; provided, however, that distributions from a Participant’s ESOP Account may, at the Participant’s election, be paid in the form of Common Stock.
4.5 Withdrawals by Participants
(a)Hardship Withdrawal. A Participant may apply for a hardship withdrawal at any time. The withdrawal must be for an immediate and heavy financial need of the Participant for which funds are not reasonably available from other resources of the Participant. If approved, such withdrawal shall equal the lesser of (i) the amount required to be distributed to meet the need created by the hardship, (including any amounts necessary to pay any federal, state, or local income taxes or penalties reasonably anticipated to result from the withdrawal), or (ii) the value of the vested portion of the Participant’s Accounts. Immediate and heavy financial needs are limited to amounts necessary for:
(i)Unreimbursed medical expenses (as defined in Code Section 213, determined without regard to whether the expense exceeds 7½% of adjusted gross income) incurred by the Participant, the Participant’s Spouse, or the Participant’s dependents (as defined in Code Section 152 without regard to Code Sections 152(b)(1), (b)(2), and (d)(1)(B)).
(ii)Preventing foreclosure on or eviction from the Participant’s principal residence.
(iii)Costs directly related to the purchase of the Participant’s principal residence, not including mortgage payments.
(iv)Tuition, room and board, and related educational fees for the next 12 months of post-secondary education for the Participant or the Participant’s Spouse, children, or dependents.
(v)Funeral or burial expenses for the Participant’s deceased parent, Spouse, children, or dependents.
(vi)Expenses for repair of damages to the Participant’s principal residence that would qualify for a casualty loss deduction under Code Section 165 (determined without
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regard to Code Section 165(h) and whether the loss exceeds 10% of adjusted gross income).
(vii)Expenses and losses (including loss of income) incurred by the Participant on account of a disaster declared by the Federal Emergency Management Agency under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, Public Law 100–707, provided that the Participant’s principal residence or principal place of employment at the time of the disaster was located in an area designated by the Federal Emergency Management Agency for individual assistance with respect to the disaster.
In addition, a hardship withdrawal may be made only if the following conditions are met:
(i)The Participant has obtained all other currently available distributions (including distributions of ESOP dividends under Code Section 404(k), but not hardship withdrawals or nontaxable loans) under the Plan and all other plans of deferred compensation (whether qualified or nonqualified) maintained by the Affiliates.
(ii)The Participant has provided to the Committee a representation in writing (including by using an electronic medium as defined in Treasury Regulation § 1.401(a)–21(e)(3)), or in such other form as may be prescribed by the Commissioner of the Internal Revenue Service, that he or she has insufficient cash or other liquid assets reasonably available to satisfy the need.
(iii)The Committee does not have actual knowledge that is contrary to the representation described above.
(iv)Any additional conditions, such as those described in 26 C.F.R. 1.401(k)-1(d)(3)(iv)(B) and (C).
A hardship withdrawal shall be paid to the Participant in cash as soon as practicable after approval of the Participant’s written request.
(b)Age 59½ Withdrawal. A Participant who has attained age 59½ may withdraw, by written election to the Committee once per Plan Year, all or any portion of the Participant’s vested Accounts in cash or in the form of Common Stock.
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(c)Rollover Withdrawal. A Participant may withdraw, at any time by written election, all or any portion of the Participant’s Rollover Account.
4.6 Timing of Distributions
(a)When Distributions May Commence. If a Participant has incurred a distribution event described in Section 4.3 and requests a distribution of his or her Account, amounts credited to such Participant’s Account will be paid as soon as practicable after such amounts are ascertained. In accordance with Code Section 414(u)(12), a Participant receiving a differential wage payment (as defined in Code Section 3401(h)(2)) shall be treated as having been severed from employment with all Affiliates for purposes of taking a distribution of his or her Account during any period the Participant performs service in the uniformed services while on active duty for a period of more than 30 days (“deemed severance distribution”). If a Participant elects to receive a deemed severance distribution pursuant to the preceding sentence, such Participant shall not be permitted to make deferral contributions under Section 3.1 during the six-month period beginning on the date of the distribution.
(b)When Distributions Must Commence
(i)Accounts Not Exceeding $5,000. If a Participant incurs a distribution event described in Sections 4.3(a)–(f) and his or her vested Accounts do not exceed $5,000, such vested Accounts shall be distributed as soon as practicable after such amounts are ascertained without the need for the Participant’s consent to such distribution. If the Participant’s vested Accounts exceed $1,000 but do not exceed $5,000, the vested Accounts shall be distributed in a direct rollover to an individual retirement account designated by the Committee unless the Participant elects otherwise. If the Participant’s vested Accounts are $1,000 or less, the vested Accounts shall be distributed to the Participant in a lump sum unless the Participant elects otherwise.
(ii)Accounts in Excess of $5,000. If a Participant incurs a distribution event described in Sections 4.3(a)–(f) and his or her vested Accounts exceed $5,000, then payment
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of the Participant’s vested Accounts shall commence not later than the 60th day after the end of the calendar year in which the latest of the following events occurs:
(A)the Participant attains Normal Retirement Age;
(B)the tenth anniversary of the year in which the Participant commenced participation in the Plan occurs; or
(C)the Participant terminates employment with all Affiliates.
Notwithstanding the foregoing, the Participant may elect to defer distribution of his or her Accounts (by not requesting a distribution) until attainment of age 72. As a result, if the Participant’s vested Accounts exceed $5,000, a distribution will not be made to the Participant before attainment of age 72 without the Participant’s consent. Upon a Participant’s attainment of age 72, distribution of the Accounts shall commence as soon as practicable after such amounts are ascertained. If a Participant dies before age 72 and the Participant’s surviving Spouse is the beneficiary, the surviving Spouse may elect to defer distribution of the Participant’s Accounts until the Participant would have attained age 72.
For purposes of determining the value of the Participant’s vested Accounts under Sections 4.6(b)(i)–(ii), the Participant’s Rollover Account (if any) shall be included.
(c)Minimum Distribution Rules for Employees Who Continue in Service After Attaining Age 72. All distributions under the Plan shall be made in accordance with Code Section 401(a)(9).
(i)5% Owners in Service After Attaining Age 72. With regard to a Participant who is a 5% owner (as defined in Code Section 416), payment of a benefit under the Plan shall commence no later than the April 1 next following the calendar year in which such Participant attains age 72, regardless of whether the Participant has retired or otherwise terminated employment as of such date.
(ii)All Other Participants in Service After Attaining Age 72. With regard to Participants other than 5% owners who continue to be active Employees after attaining age 72, distribution of their Accounts is not required until they terminate employment.
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4.7 Distributions Made in Accordance with Code Section 401(a)(31). Notwithstanding any provision of the Plan to the contrary that would otherwise limit a Distributee’s election under this Section 4.7, a Distributee may elect, at the time and in the manner prescribed by the Committee, to have any portion of an Eligible Rollover Distribution paid directly to an Eligible Retirement Plan specified by the Distributee in a direct rollover. With respect to any portion of a distribution from the Plan on behalf of a deceased Participant, if a direct trustee-to-trustee transfer is made to an individual retirement plan described in Code Section 408(a) or (b) (an “IRA”), which IRA is established for the purpose of receiving the distribution on behalf of an individual who is a designated beneficiary (as defined by Code Section 401(a)(9)(E)) of the Participant and who is not the surviving Spouse of the Participant, then the transfer shall be treated as an Eligible Rollover Distribution for purposes of this Plan and Code Section 402(c). For purposes of this Section 4.7, the IRA of the non-Spouse beneficiary is treated as an inherited IRA within the meaning of Code Section 408(d)(3)(C). The Plan may make a direct rollover to an IRA on behalf of a trust where the trust is the designated beneficiary of a Participant, provided that (a) the beneficiaries of the trust meet the requirements of a designated beneficiary described above; (b) the IRA is established in accordance with Internal Revenue Service guidance, with the trust identified as the beneficiary; and (c) the trust meets the requirements set forth in Treasury Regulation § 1.401(a)(9)-4, Q&A-5. The rules of this Section 4.7 shall be interpreted in a manner consistent with regulations or other guidance prescribed by the Internal Revenue Service under Code Section 402(c)(11). Solely to the extent permitted in Code Sections 408A(c)(3)(B), (d)(3) and (e), an eligible Distributee may elect to roll over any portion of an Eligible Rollover Distribution to a Roth IRA (as defined by Code Section 408A), provided that the rollover requirements of Code Section 402(c) are met, and provided further that, in the case of an Eligible Rollover Distribution to a non-Spouse beneficiary, the Roth IRA is treated as an inherited IRA (within the meaning of Code Section 408(d)(3)(C)).
4.8 Loans to Participants. While it is the primary purpose of the Plan to accumulate retirement funds for Participants, it is recognized that under some circumstances it is in the best interest of Participants to permit loans to be made to them while they continue in the active service of the
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Employer. Accordingly, the Committee, pursuant to such rules as it may from time to time establish and upon application by a Participant supported by such evidence as the Committee requests, may make loans to Participants subject to the following:
(a)Funding, Number, and Amount. Loans are available pro rata from a Participant’s vested Accounts. For each Participant, no more than two loans may be approved and no more than two loans may be outstanding at any time during a Plan Year, except that a third loan may be approved during the period beginning April 1, 2020 and ending September 30, 2020 under the MDU 401(k) Plan (which may be transferred to the Plan as part of the Plan Spinoff defined in Section A-1), and such loan may remain outstanding until it is fully repaid according to its terms and this Section 4.8. The minimum amount of each loan is $1,000. The maximum amount of each loan, when added to the outstanding balance of all other loans made to the Participant from all qualified plans maintained by the Affiliates, shall not exceed the lesser of:
(i)$50,000, reduced by the excess (if any) of:
(A)the highest outstanding balance of plan loans during the one-year period ending immediately preceding the date of the loan, over
(B)the outstanding balance of plan loans on the date the loan is made; or
(ii)one-half of the Participant’s total vested Account balances under the Plan.
(b)Documentation and Interest Rate. Each loan must be evidenced by a promissory note prepared in a form approved by the Committee and shall bear a reasonable rate of interest equal to the Wall Street Journal Prime Rate plus 1% or such other commercially reasonable interest rate as determined by the Committee from time to time; provided however, that the applicable interest rate shall not exceed 6% during any period that the Participant receiving the loan is on military leave, in accordance with the Servicemembers Civil Relief Act. Interest paid by a Participant on a loan made under this Section 4.8 shall be credited to the Participant’s Account as of the accounting date that ends the accounting period of the Plan during which such interest payment is made.
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(c)Repayment and Leaves of Absence. The repayment of any loan must be made in at least quarterly installments of principal and interest; provided, however, that this quarterly amortization requirement shall not apply while a Participant is on a leave of absence for a period not longer than one year, if the following conditions are met: (i) the Participant is on leave either without pay from the Employer, or at a rate of pay (after income and employment tax withholding) that is less than the amount of the installment payments required under the terms of the loan; (ii) the loan must be repaid by the latest date permitted under Section 4.8(e) or 4.8(f), as applicable, and (iii) the installments due after the leave of absence ends (or if earlier, upon the expiration of the first year of the leave of absence) must not be less than those required under the terms of the original loan. The Committee may allow for suspension of loan repayments under the Plan as permitted under Code Section 414(u)(4).
(d)Term of Loan. Each loan shall specify a repayment period that shall not extend beyond five years. If a Participant’s employment is involuntarily terminated in connection with the sale, outsourcing or other divestiture of an Employer, then the Committee may establish uniform rules pursuant to which a Participant may elect a rollover of his or her outstanding loan to an Eligible Retirement Plan. However, the five-year limit shall not apply to any loan used to acquire any dwelling unit that, within a reasonable time, is to be used (determined at the time the loan is made) as the principal residence of the Participant, in which event the time limit shall be 15 years.
(e)Retirement or Termination of Employment. If upon a Participant’s retirement or other termination of employment, any loan or portion of a loan made to the Participant under the Plan, together with the accrued interest thereon, remains unpaid, an amount equal to such loan or any part thereof, together with the accrued interest thereon, shall be charged to the Participant’s Account as soon as practicable after 60 days following the Participant’s retirement or termination of employment.
(f)Failure to Repay. If a Participant fails to make a loan payment by its due date (other than as described in Section 4.8(e)), the total outstanding amount of the loan, together with the
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accrued interest thereon, shall be defaulted as soon as practicable after 90 days following the loan payment due date.
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ARTICLE IV A
MINIMUM DISTRIBUTION REQUIREMENTS
MINIMUM DISTRIBUTION REQUIREMENTS
4A.1 General Rules
(a)Effective Date. The provisions of this Article IV A will apply for purposes of determining required minimum distributions for calendar years beginning with the 2003 calendar year.
(b)Precedence. The requirements of this Article IV A will take precedence over any inconsistent provisions of the Plan; provided, however, that this Article IV A shall not require the Plan to provide any form of benefit, or any option, not otherwise provided under the Plan.
(c)Requirements of Treasury Regulations Incorporated. All distributions required under this Article IV A will be determined and made in accordance with Code Section 401(a)(9), including the incidental death benefit requirement in Code Section 401(a)(9)(G), and the Treasury Regulations thereunder.
(d)TEFRA Section 242(b) Elections. Notwithstanding the other provisions of this Article IV A, distributions may be made under a designation made before January 1, 1984, in accordance with Section 242(b)(2) of the Tax Equity and Fiscal Responsibility Act (“TEFRA”) and the provisions of the Plan that relate to Section 242(b)(2) of TEFRA.
(e)Definitions. For purposes of this Article IV A, capitalized terms shall have the meanings provided in Article I, unless an alternate definition is provided in Section 4A.5, in which case the definition in Section 4A.5 shall control.
4A.2 Time and Manner of Distribution
(a)Required Beginning Date. The Participant’s entire interest will be distributed, or begin to be distributed, to the Participant no later than the Participant’s Required Beginning Date.
(b)Death of Participant Before Distributions Begin. If the Participant dies before distributions begin, the Participant’s entire interest will be distributed, or begin to be distributed, no later than as follows:
(i)If the Participant’s surviving Spouse is the Participant’s sole Designated Beneficiary, distributions to the surviving Spouse will begin by December 31 of the
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calendar year immediately following the calendar year in which the Participant died, or by December 31 of the calendar year in which the Participant would have attained age 72, if later.
(ii)If the Participant’s surviving Spouse is not the Participant’s sole Designated Beneficiary, and if distribution is to be made over the life or over a certain period not exceeding the Life Expectancy of the Designated Beneficiary, distribution to the Designated Beneficiary will begin by December 31 of the calendar year immediately following the calendar year in which the Participant died.
(iii)If there is no Designated Beneficiary as of September 30 of the year following the year of the Participant’s death, or if the provisions of Sections 4A.2(b)(i) and (ii) do not otherwise apply, the Participant’s entire interest will be distributed by December 31 of the calendar year containing the fifth anniversary of the Participant’s death.
(iv)If the Participant’s surviving Spouse is the Participant’s sole Designated Beneficiary and the surviving Spouse dies after the Participant but before distributions to the surviving Spouse begin, this Section 4A.2(b), other than Section 4A.2(b)(i), will apply as if the surviving Spouse were the Participant.
For purposes of Sections 4A.2 and 4A.4, unless Section 4A.2(b)(iv) applies, distributions are considered to begin on the Participant’s Required Beginning Date. If Section 4A.2(b)(iv) applies, distributions are considered to begin on the date distributions are required to begin to the surviving Spouse under Section 4A.2(b)(i). If distributions under an annuity purchased from an insurance company irrevocably commence to the Participant before the Participant’s Required Beginning Date (or to the Participant’s surviving Spouse before the date distributions are required to begin to the surviving Spouse under Section 4A.2(b)(i)), the date distributions are considered to begin is the date distributions actually commence.
(c)Forms of Distribution. Unless the Participant’s interest is distributed in the form of an annuity purchased from an insurance company or in a single sum on or before the Required
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Beginning Date, as of the first Distribution Calendar Year, distributions will be made in accordance with Sections 4A.3 and 4A.4. If the Participant’s interest is distributed in the form of an annuity purchased from an insurance company, distributions thereunder will be made in accordance with the requirements of Code Section 401(a)(9) and the Treasury Regulations thereunder.
4A.3 Required Minimum Distributions During Participant’s Lifetime
(a)Amount of Required Minimum Distribution for Each Distribution Calendar Year. During the Participant’s lifetime, the minimum amount that will be distributed for each Distribution Calendar Year is the lesser of:
(i)the quotient obtained by dividing the Participant’s Account Balance by the distribution period in the Uniform Lifetime Table set forth in Section 1.401(a)(9)-9 of the Treasury Regulations, using the Participant’s age as of the Participant’s birthday in the Distribution Calendar Year; or
(ii)if the Participant’s sole Designated Beneficiary for the Distribution Calendar Year is the Participant’s Spouse, the quotient obtained by dividing the Participant’s Account Balance by the number in the Joint and Last Survivor Table set forth in Section 1.401(a)(9)-9 of the Treasury Regulations, using the Participant’s and Spouse’s attained ages as of the Participant’s and Spouse’s birthdays in the Distribution Calendar Year.
(b)Lifetime Required Minimum Distributions Continue Through Year of Participant’s Death. Required minimum distributions will be determined under this Section 4A.3 beginning with the first Distribution Calendar Year and up to and including the Distribution Calendar Year that includes the Participant’s date of death.
4A.4 Required Minimum Distributions After Participant’s Death
(a)Death on or After Date Distributions Begin.
(i)Participant Survived by Designated Beneficiary. Subject to the provisions of this Article IV A, if the Participant dies on or after the date distributions begin and there is a Designated Beneficiary, the minimum amount that will be distributed for each
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Distribution Calendar Year after the year of the Participant’s death is the quotient obtained by dividing the Participant’s Account Balance by the longer of the remaining Life Expectancy of the Participant or the remaining Life Expectancy of the Participant’s Designated Beneficiary, determined as follows:
(A)The Participant’s remaining Life Expectancy is calculated using the age of the Participant in the year of death, reduced by one for each subsequent year.
(B)If the Participant’s surviving Spouse is the Participant’s sole Designated Beneficiary, the remaining Life Expectancy of the surviving Spouse is calculated for each Distribution Calendar Year after the year of the Participant’s death using the surviving Spouse’s age as of the Spouse’s birthday in that year. For Distribution Calendar Years after the year of the surviving Spouse’s death, the remaining Life Expectancy of the surviving Spouse is calculated using the age of the surviving Spouse as of the Spouse’s birthday in the calendar year of the Spouse’s death, reduced by one for each subsequent calendar year.
(C)If the Participant’s surviving Spouse is not the Participant’s sole Designated Beneficiary, the Designated Beneficiary’s remaining Life Expectancy is calculated using the age of the Beneficiary in the year following the year of the Participant’s death, reduced by one for each subsequent year.
(ii)No Designated Beneficiary. If the Participant dies on or after the date distributions begin and there is no Designated Beneficiary as of September 30 of the year after the year of the Participant’s death, the minimum amount that will be distributed for each Distribution Calendar Year after the year of the Participant’s death is the quotient obtained by dividing the Participant’s Account Balance by the Participant’s remaining Life Expectancy calculated using the age of the Participant in the year of death, reduced by one for each subsequent year.
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(b)Death Before Date Distributions Begin.
(i)Participant Survived by Designated Beneficiary. If the Participant dies before the date distributions begin and there is a Designated Beneficiary, the minimum amount that will be distributed for each Distribution Calendar Year after the year of the Participant’s death is the quotient obtained by dividing the Participant’s Account Balance by the remaining Life Expectancy of the Participant’s Designated Beneficiary, determined as provided in Section 4A.4(a).
(ii)No Designated Beneficiary. If the Participant dies before the date distributions begin and there is no Designated Beneficiary as of September 30 of the year following the year of the Participant’s death, distribution of the Participant’s entire interest will be completed by December 31 of the calendar year containing the fifth anniversary of the Participant’s death.
(iii)Death of Surviving Spouse Before Distributions to Surviving Spouse Are Required to Begin. If the Participant dies before the date distributions begin, the Participant’s surviving Spouse is the Participant’s sole Designated Beneficiary, and the surviving Spouse dies before distributions are required to begin to the surviving Spouse under Section 4A.2(b)(i), this Section 4A.4(b) will apply as if the surviving Spouse were the Participant.
4A.5 Definitions
(a)Designated Beneficiary. The individual who is designated as the Beneficiary under Section 6.6 and is the designated Beneficiary under Code Section 401(a)(9) and Treasury Regulation Section 1.401(a)(9)-1, Q&A-4.
(b)Distribution Calendar Year. A calendar year for which a minimum distribution is required. For distributions beginning before the Participant’s death, the first Distribution Calendar Year is the calendar year immediately preceding the calendar year that contains the Participant’s Required Beginning Date. For distributions beginning after the Participant’s death, the first Distribution Calendar Year is the calendar year in which distributions are required to begin under Section 4A.2(b). The required minimum distribution for the
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Participant’s first Distribution Calendar Year will be made on or before the Participant’s Required Beginning Date. The required minimum distribution for other Distribution Calendar Years, including the required minimum distribution for the Distribution Calendar Year in which the Participant’s Required Beginning Date occurs, will be made on or before December 31 of that Distribution Calendar Year.
(c)Life Expectancy. Life expectancy as computed by use of the Single Life Table in Q&A-1 of Section 1.401(a)(9)-9 of the Treasury Regulations.
(d)Participant’s Account Balance. The Account balance as of the last valuation date in the calendar year immediately preceding the Distribution Calendar Year (valuation calendar year) increased by the amount of any contributions made and allocated or forfeitures allocated to the Account balance as of dates in the valuation calendar year after the valuation date and decreased by distributions made in the valuation calendar year after the valuation date. The Account balance for the valuation calendar year includes any amounts rolled over or transferred to the Plan either in the valuation calendar year or in the Distribution Calendar Year if distributed or transferred in the valuation calendar year.
(e)Required Beginning Date. The date specified in Section 4.6(b).
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ARTICLE V
INVESTMENT OF CONTRIBUTIONS
INVESTMENT OF CONTRIBUTIONS
5.1 Making of Contributions. Once each month, or as otherwise determined by the Committee subject to the Employer’s consent, the Employer will pay over contributions to the Trustee to be held in trust and invested as herein provided and as set out more fully in the Trust Agreement. The Employer’s matching contributions, profit sharing contributions, and retirement contributions for each Plan Year, if any, shall not be made later than the due date for filing the Employer’s federal income tax return for the taxable year with or within which such Plan Year ends, including extensions thereof. The contributions to this Plan when taken together with all other contributions made by the Employer to other qualified retirement plans shall not exceed the maximum amount deductible under Code Section 404.
5.2 Investment
(a)Each Participant’s Accounts and earnings credited to such Accounts on and after the Effective Date will be invested in one or more of the Investment Funds. Each Participant will designate the proportion (expressed as a percentage in multiples of 1%) of such Participant’s Accounts to be invested in each Investment Fund. Such designation, once made, can be changed at any time and will take effect as soon as administratively feasible. Participants may also, at any time and independent of changing their election of investment of future deferral contributions, transfer the amount equivalent to the Participant’s interest or any partial interest (expressed as a percentage in multiples of 1% or in dollars) from one Investment Fund to another. Any designation made under this Section 5.2(a) shall be made pursuant to the method established by the Committee for this purpose.
Notwithstanding any other provision herein to the contrary, during any period in which a Participant has not made an initial election as to the investment of his or her Accounts, the Participant shall be deemed to have elected to have his or her Accounts invested in the age appropriate target date fund, as determined by the Committee. The investment described in the preceding sentence is referred to as the default fund and is
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intended to constitute a qualified default investment alternative within the meaning of ERISA Section 404(c) and the regulations issued thereunder.
(b)Each Participant shall have an interest in each Investment Fund in which the Participant has elected to have invested all or any part of the Participant’s deferral contributions under Section 3.1. The Participant’s interest at any time in the Investment Funds shall be equal to such contributions, adjusted from time to time to reflect the proportionate share of the income and losses realized by such Investment Funds and of the net appreciation or depreciation in the value of such Investment Funds.
(c)In accordance with Code Section 401(a)(35), for any period in which the Plan holds publicly traded employer securities, the following rules shall apply.
(i)Subject to Section 1.401(a)(35)-1(f)(2)(iv)(B) of the Treasury Regulations, if the Company or any member of the controlled group of corporations (as defined in Section 1.401(a)(35)-1(f)(2)(iv)(A) of the Treasury Regulations) that includes the Company has issued a class of stock that is a publicly traded employer security, and the Plan holds employer securities that are not publicly traded employer securities, then the Plan shall be treated as holding publicly traded employer securities.
(ii)With respect to a Participant, an alternate payee with an Account under the Plan, or a Participant’s beneficiary, if any portion of such individual’s Account under the Plan attributable to employee contributions and elective deferrals (as described in Code Section 402(g)(3)(A)) is invested in publicly traded employer securities, then such individual must be offered the opportunity to elect to divest those employer securities and reinvest an equivalent amount in other investment options as described in Section 5.2(c)(iv).
(iii)With respect to a Participant who has completed three years of vesting service, an alternate payee of such Participant with an account under the Plan, or a Participant’s beneficiary, if any portion of such individual’s account attributable to employer contributions is invested in publicly traded employer securities, then such
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individual must be offered the opportunity to elect to divest those employer securities and reinvest an equivalent amount in other investment options as described in Section 5.2(c)(iv).
(iv)With respect to individuals described in Sections 5.2(c)(ii) and (iii):
(A)At least three investment options (other than employer securities) shall be offered to such individuals;
(B)Each investment option shall be diversified and have materially different risk and return characteristics; and
(C)Periodic reasonable divestment and reinvestment opportunities shall be provided at least quarterly.
(v)Except as provided in Sections 1.401(a)(35)-1(e)(2) and (3) of the Treasury Regulations, restrictions (either direct or indirect) or conditions will not be imposed on the investment of publicly traded employer securities if such restrictions or conditions are not imposed on the investment of other Plan assets.
(d)One of the Investment Funds shall be a fund invested primarily in Common Stock (the “Common Stock Investment Fund”). The Common Stock Investment Fund is intended to be a permanent Investment Fund under the Plan, unless the Committee concludes that it is clearly imprudent to continue the Common Stock Investment Fund as an Investment Fund under the Plan. The Committee will evaluate the prudence of maintaining the Common Stock Investment Fund not on the basis of the risk of the Common Stock Investment Fund standing alone but in light of the availability of other Investment Funds under the Plan and the ability of Participants and beneficiaries to construct a diversified investment portfolio consistent with their individual desired level of risk and return.
5.3 Voting of Common Stock of the Company. Each Participant shall have the right to direct the Trustee as to the manner in which shares of Common Stock allocated to the Participant’s Accounts are to be voted. The Company shall furnish the Trustee and the Participants with notices and information statements when voting rights are to be exercised, in such time and manner as may be required by applicable law and the Certificate of Incorporation and Bylaws of the Company. Such
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statements shall be substantially the same for Participants as for holders of Common Stock in general. The Participant may, in the Participant’s discretion, grant proxies for the exercise of the Participant’s voting rights under this Section 5.3 in accordance with proxy provisions of general application. The Trustee shall vote such Common Stock in accordance with the direction of the Participant. Fractional shares of Common Stock allocated to Participants’ Accounts shall be combined to the largest number of whole shares and voted by the Trustee to the extent possible to reflect the voting direction of the Participants holding fractional shares. Subject to the terms of the immediately following sentence, the Trustee shall vote allocated shares of the Company’s Common Stock for which it has not received valid direction proxies and any shares that have not been allocated to Participants’ Accounts in accordance with the recommendation of the Company’s board of directors on all of the matters.
5.4 Tendering of Stock. A Participant (or in the event of the Participant’s death, the beneficiary) shall have the right to instruct the Trustee in writing as to the manner in which to respond to a tender or exchange offer in any and all shares of Common Stock credited to such Participant’s Accounts. The Employer shall notify each Participant (or beneficiary) and utilize its best efforts to distribute or cause to be distributed in a timely fashion such information as will be distributed to shareholders of the Employer in connection with any such tender or exchange offer, together with a form requesting confidential instruction to the Trustee as to the manner in which to respond to the tender or exchange offer for any or all shares of Common Stock credited to such Participant’s Accounts. Upon its receipt of such instructions, the Trustee shall tender such shares of such Common Stock as and to the extent so instructed. If the Trustee does not receive instructions from a Participant (or beneficiary) regarding any such tender or exchange offer for Common Stock, the Trustee shall have no discretion in such matter and shall take no action with respect thereto.
5.5 Dividend Election. Each Participant (or, where applicable, a Participant’s beneficiary or an alternate payee) will have the right to elect to receive a cash payment of the dividends, if any, paid on all shares (vested or unvested) of Common Stock in the Participant’s ESOP Account or to reinvest such vested dividends in Common Stock in the Participant’s ESOP Account. Participants shall be fully vested in all dividends, if any, paid on the shares of Common Stock held in the Participant’s
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ESOP Account. If a Participant (or the Participant’s beneficiary or an alternate payee) does not make an affirmative election under this Section 5.5, the Participant will be deemed to have elected to reinvest vested dividends in the ESOP Account. The Committee will establish rules and procedures for the election, including the procedures for determining the number of shares of Common Stock in each Participant’s ESOP Account on the record date of the dividend. Reinvested dividends will be paid to the Plan and credited to the Participant’s ESOP Account. If a Participant elects to receive dividends in cash, such dividends shall be paid to the Participant by the Plan and shall not constitute Eligible Rollover Distributions under Section 4.7. Partial elections (i.e., electing to receive part of a dividend in cash and to reinvest part) shall not be permitted.
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ARTICLE VI
PLAN ADMINISTRATION; CLAIMS FOR BENEFITS
PLAN ADMINISTRATION; CLAIMS FOR BENEFITS
6.1 Named Fiduciaries. The Plan shall be administered by the Committee, which shall consist of at least one officer of the Company or Affiliate and certain other individuals appointed by the Chief Executive Officer of the Company or Affiliate who are employed by the Company or Affiliate. Notwithstanding the foregoing, the Employee Benefits Committee of MDU Resources Group, Inc., shall serve as the Committee prior to the Knife River Spinoff Effective Date.
The Committee shall be the “plan administrator” under Section 3(16)(A) of ERISA and shall have all of the powers, rights, and duties necessary or advisable in order to fully perform the applicable responsibilities imposed by ERISA upon plan administrators, including the authority to delegate or allocate any of those powers in writing in a prudent and reasonable manner consistent with ERISA. The Committee shall be a “named fiduciary” under ERISA. The Company agrees to maintain adequate fiduciary liability insurance with respect to the Committee and any member or delegate thereof by reason of any act or failure to act on behalf of the Plan or Participants in carrying out the fiduciary obligations.
6.2 Administrative Powers and Duties. In administering the Plan, the Committee shall have such duties and powers as may be necessary to discharge its duties hereunder, including, but not by way of limitation, the following:
(a)To construe and interpret the provisions of the Plan and make factual determinations thereunder, including the discretionary power to determine the rights or eligibility of Employees, Participants and any other persons, as well as the amounts of their benefits under the Plan, and to remedy ambiguities, inconsistencies, or omissions, with such determinations to be binding on all parties;
(b)To prescribe procedures to be followed for the proper and efficient administration of the Plan;
(c)To prepare and distribute information explaining the Plan;
(d)To receive from the Employer and from all Participants such information as shall be necessary for the proper administration of the Plan;
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(e)To prepare such reports with respect to the administration of the Plan as are reasonable and appropriate, including the power and authority to cause to be prepared, to execute, and to deliver any governmental filings related to the Plan including, without limitation, annual reports (Form 5500 series) and Internal Revenue Service determination letter filings;
(f)To furnish each Participant a statement showing the status of that Participant’s Accounts;
(g)To appoint or employ individuals to assist in the administration of the Plan, including the power and authority to establish one or more committees to handle Participant claims under the Plan and to appoint or remove, for any reason, members of any such committee;
(h)To monitor the Plan to meet the applicable nondiscrimination rules of the Code;
(i)To keep such accounts and records as the Committee may deem necessary or proper in the performance of its duties under the Plan; and
(j)As described in Article IX, to extend the Plan to Affiliates.
6.3 Claims Procedures. As required under Section 2560.503-1(b)(2) of the Department of Labor Regulations, the claims procedures are set forth in the Plan’s Summary Plan Description, which claims procedures are incorporated by reference into the Plan. A Participant or a beneficiary, or the authorized representative of either (the “claimant”), may not bring an action under ERISA Section 502(a) or otherwise with respect to his or her claim until he or she has exhausted the claims procedures. Any such action must be filed in a court of competent jurisdiction within 12 months after the date on which the claimant receives the Committee’s written denial of the claimant’s claim on appeal or, if earlier, 12 months after the date of the alleged facts or conduct giving rise to the claim (including, without limitation, the date the claimant alleges he or she became entitled to Plan benefits requested in the suit or legal action), or it shall be forever barred. Any further review, judicial or otherwise, of the Committee’s decision on the claimant’s claim shall be limited to whether, in the particular instance, the Committee abused its discretion. In no event shall such further review, judicial or otherwise, be on a de novo basis, as the Committee has discretionary authority to determine eligibility and benefits and to construe and interpret the terms of the Plan.
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6.4 Applications and Forms. Any action permitted or required to be taken by a Participant or a Participant’s beneficiary shall be made pursuant to one of the following methods: (a) by filing a written election, (b) by telephone through a telephone system established by the Committee for this purpose, or (c) by any other method designated by the Committee. A Participant or a Participant’s beneficiary shall furnish all pertinent information requested by the Committee.
6.5 Facility of Distribution and Payment. Whenever, in the Committee’s opinion, a person entitled to receive any distribution or payment under the Plan is under a legal disability or is so incapacitated as to be unable to manage financial affairs, the Committee may make a distribution or payment to such person or the person’s legal representative or to a relative of such person in such manner as the Committee considers appropriate. Any distribution or payment of a benefit in accordance with the provisions of this Section 6.5 shall be a complete discharge of any liability for the making of such distribution or payment under the provisions of the Plan.
6.6 Beneficiary Designations. A Participant shall designate a beneficiary or multiple or contingent beneficiaries to whom distribution of the Participant’s interest in the Plan shall be made in the event of the Participant’s death prior to the full receipt thereof; provided, however, that in the event that the Participant is married on the date of death, such beneficiary shall be deemed to be the Participant’s surviving Spouse. The Participant may elect to change or revoke a designated beneficiary at any time; provided, however, that in the event that the beneficiary is the Participant’s surviving Spouse, such election shall not be effective unless such surviving Spouse provides written consent that acknowledges the effect of such election and is witnessed by a Plan representative or a notary public. The affirmative designation of any beneficiary and any elected change or revocation thereof by a Participant shall be made on forms provided by the Committee and shall not in any event be effective unless and until filed with the Committee. If no designated or deemed beneficiary survives the Participant or former Participant, or if any unmarried Participant or former Participant fails to designate a beneficiary under the Plan, the amount payable upon the death of the Participant or former Participant shall be paid to the Participant’s estate.
6.7 Form and Method of Designation. The affirmative designation of any beneficiary and any elected change or revocation thereof by a Participant shall be made on forms provided by the Committee
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and shall, not in any event, be effective unless and until filed with the Committee. The Committee and all other parties involved in making payment to a beneficiary may rely on the latest beneficiary designation on file with the Committee at the time of payment or may make payment pursuant to Section 6.6 if an effective designation is not on file, shall be fully protected in doing so, and shall have no liability whatsoever to any person making claim for such payment under a subsequently filed designation of beneficiary or from any other reason.
6.8 Administrative Expenses. Unless paid by the Company and except as otherwise provided below, all reasonable costs, charges, and expenses incurred in the administration of the Plan, including expenses incurred by the Committee, compensation to the Trustee, compensation to an investment manager, and any compensation to agents, attorneys, actuaries, accountants, recordkeepers, and other persons performing services on behalf of this Plan or for the Committee will be paid from the Trust Fund in such portions as the Committee may direct. As directed by the Committee, expenses to be paid from the Trust Fund may be drawn from (a) Participants’ Accounts, in the form of a flat fee, charges for specific services, or a percentage of the value of each Account, (b) earnings or gains in each Investment Fund or (c) forfeitures under Section 4.2. Expenses directly related to the investment of a particular Investment Fund (such as brokerage, postage, express and insurance charges, and transfer taxes) shall be paid from that Investment Fund. The Company, in its discretion, may decide to pay the expenses incurred in operating and administering the Plan for certain Participating Affiliates or certain Participants.
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ARTICLE VII
TRUST FUND
TRUST FUND
7.1 Trust Agreement. All assets of the Plan shall be held under the Trust Agreement between the Company and the Trustee designated by the Company, which shall serve at the pleasure thereof. The Trust Agreement shall provide, among other things, for a Trust Fund to be administered by the Trustee to which all contributions shall be paid, and the Trustee shall have such rights, powers, and duties as the Company shall from time to time determine. All assets of the Trust Fund shall be held, invested, and reinvested in accordance with the provisions of the Trust Agreement.
7.2 Reversion. At no time, prior to the satisfaction of all liabilities with respect to Participants and their beneficiaries, shall any part of the assets of the Plan be used for or diverted to purposes other than for the exclusive benefit of such persons; provided, however, Employer contributions may be returned to the Employer (a) if made by the Employer by a mistake of fact, within one year after the payment of the contribution, or (b) if a contribution is conditioned upon the deductibility of such contribution under Code Section 404, then to the extent the deduction is disallowed, within one year of the disallowance of the deduction. The amount of any contribution that may be returned to the Employer must be reduced by any portion thereof previously distributed from the Trust Fund and by any losses of the Trust Fund allocable thereto, and in no event may the return of such contribution cause any Participant’s Account balances to be less than the amount of such balances had the contribution not been made under the Plan.
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ARTICLE VIII
AMENDMENT AND TERMINATION
AMENDMENT AND TERMINATION
8.1 Amendments. The Company reserves the right to make, from time to time, any amendments to the Plan that do not cause any part of the Accounts to be used for or diverted to any purpose other than the exclusive benefit of Participants or their beneficiaries and that do not operate retroactively so as to adversely affect the rights of any Participant or beneficiary prior to such action. The Company has delegated to the Committee the authority to cause to be prepared, to approve, and to execute any amendments, including for the purpose of merging, consolidating, freezing, or completing the termination of the Plan or Trust; provided, however, approval of the board of directors of the Company is necessary for any amendment that would result in:
(a)The greater of a 5% or $500,000 increase in the cost of funding or administering the Plan, unless:
(i)the Committee reasonably believes that such amendment or action is necessary to bring the Plan into compliance with ERISA, or any other applicable law, or to maintain the Plan’s qualification under, or compliance with, provisions of the Code, or
(ii)such amendment or action is necessary to implement the provisions of any collective bargaining or other agreement validly executed by any Employer;
(b)Disqualification, termination, or partial termination of the Plan or loss of tax-exempt status of the Trust;
(c)Violation of the terms and conditions of any collective bargaining agreement for the Plan subject to such agreement;
(d)The appointment or removal of the Trustee, investment manager, custodian, or other professional firm engaged by the Committee in connection with the investment or management of the Plan’s assets;
(e)A change in the membership or structure, or a material change in the powers, duties, or responsibilities, of the Committee or a change in the indemnification of any fiduciary of the Plan (except that the Committee may amend the Plan to transfer to the Committee any or
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all of the powers, rights, responsibilities, and duties described in Section 6.2 that are currently granted by the Plan to none of the Committee, the Company, or the Company’s board of directors); or
(f)An increase in the duties or responsibilities of the Company’s board of directors under the Plan.
No person has the authority to modify the terms of the Plan, except by means of authorized written amendments to the Plan. No verbal or written representations contrary to the terms of the Plan and its written amendments shall be binding upon the Employer or the Plan.
8.2 Right to Terminate. The Company expects to continue the Plan indefinitely, but the continuance of the Plan and the payment of contributions are not assumed as contractual obligations. If the Plan shall be terminated, the Trustee shall continue to hold, invest, and administer the Trust Fund in accordance with the provisions of the Trust Agreement and shall make distributions therefrom in accordance with the provisions of the Plan, as then in effect, pursuant to instructions filed with the Trustee by the Committee upon such termination or from time to time thereafter, subject to Section 8.4.
8.3 Action by the Company. Any action by the Company to amend or terminate the Plan may be taken by resolution of its board of directors or by any person or persons duly authorized by resolution of its board of directors to take such action.
8.4 Distribution of Accounts upon Plan Termination. The distribution of Participants’ Accounts after termination of the Plan may, in the Company’s discretion, be deferred until a reasonable time after the Company’s receipt of a favorable Internal Revenue Service determination letter regarding the Plan’s termination if the Company applies to the Internal Revenue Service for such letter.
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ARTICLE IX
ADOPTION OF THE PLAN BY AFFILIATES
ADOPTION OF THE PLAN BY AFFILIATES
9.1 Adoption. In the event the Plan is adopted by appropriate action of an Affiliate that the Committee authorizes to adopt the Plan, the Committee may determine the effective date of the Plan as to any such Affiliate, and each such Affiliate shall thereupon be a Participating Affiliate and included within the term “Employer.” The Committee may also determine the extent to which service of the employees of any such Affiliate prior to such effective date, including with a predecessor employer, shall be counted as credited service and may otherwise determine the terms and conditions upon which any such Affiliate may adopt the Plan.
9.2 Withdrawal. The Company may withdraw from the Plan at any time by action of its board of directors. Any Participating Affiliate may withdraw from the Plan by giving at least 30 days’ written notice of its intention to withdraw to the Committee.
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ARTICLE X
GENERAL
GENERAL
10.1 No Guarantee of Employment. Nothing contained in the Plan shall be construed as a contract of employment between the Employer and any Eligible Employee or Participant, as a right of any Eligible Employee or Participant to be continued in the employment of the Employer, or as a limitation of the right of the Employer to discharge any of its Employees.
10.2 Nonalienation of Benefits. Except to the extent otherwise provided by Code Section 401(a)(13)(C) or by the issuance of a qualified domestic relations order (within the meaning of Code Section 414(p)), benefits payable under the Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution, or levy of any kind, either voluntary or involuntary, including any such liability that is for alimony or other payments for the support of a Spouse or former Spouse, or for any other relative of the Participant, prior to actually being received by the person entitled to the benefit under the terms of the Plan; and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge, or otherwise dispose of any right to benefits payable under the Plan, shall be void.
10.3 Missing Persons. If the Committee is unable to locate a Participant or beneficiary whose Account becomes distributable under the Plan or if the Plan has made a distribution, but the Participant or beneficiary for any reason does not cash the distribution check, such Account shall be administered according to the Plan’s missing persons process as then in effect, which is made a part of the Plan and incorporated herein by reference.
10.4 Governing Law. Except as preempted by federal law, the provisions of the Plan will be construed in accordance with the laws of the State of North Dakota.
10.5 Merger or Consolidation of Plan. In the event of any merger or consolidation of the Plan with, or transfer in whole or in part of the assets and liabilities of the Plan to, another plan, the assets and liabilities of the Plan shall be transferred to the other plan only if each Participant would, if the Plan or the other plan then terminated, receive a benefit immediately after the merger, consolidation, or transfer that is equal to or greater than the benefit the Participant would have been entitled to receive if the Plan had been terminated immediately before the merger, consolidation, or transfer.
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10.6 Distribution to Alternate Payees. Benefits may be distributed to an alternate payee on the earliest date specified in a qualified domestic relations order, without regard to whether such distribution is made or commences prior to the Participant’s earliest retirement age (as defined in Code Section 414(p)(4)(B)) or the earliest date that the Participant could commence receiving benefits under the Plan.
10.7 Construction. Whenever any words are used herein in the singular or plural, they shall be construed as though they were used in the plural or singular, as the case may be. The words “hereof,” “herein,” “hereunder,” and other similar compounds containing the word “here” shall mean and refer to this entire document and not to any particular article or section. Headings are included for reading convenience. The text shall control if any ambiguity or inconsistency exists between the headings and the text. References to “Participant” shall include alternate payee or beneficiary when appropriate and even if not otherwise already expressly stated.
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ARTICLE XI
TOP-HEAVY PROVISIONS
TOP-HEAVY PROVISIONS
11.1 Top-Heavy Plan. The Plan shall be deemed “Top-Heavy” with respect to any Plan Year if, as of the last day of the preceding Plan Year (the “Determination Date”), the present value of the cumulative account balances for “Key Employees,” as defined in Code Section 416(i), under the Plan and all other plans in the “Aggregation Group,” as defined below, exceeds 60% of the present value, as of the Determination Date, of the cumulative account balances under all such plans for all employees of the Affiliates. For purposes of this Article XI, (a) the term “Aggregation Group” shall mean each plan of the Affiliates in which a Key Employee participates and each other plan of the Affiliates that enables such plan to meet the requirements of Code Section 401(a)(4) or 410; (b) the present value of such account balances shall be computed in accordance with Code Section 416(g); and (c) the above percentage ratio shall be determined as of the Determination Date by a fraction, the numerator of which is the sum of the present value of the account balances of Key Employees under the Plan and all other plans in the Aggregation Group and the denominator of which is the sum of the present value of the account balances under all such plans, including the Plan, for all employees of the Affiliates. The accrued benefits of a Participant who did not perform any services for an Employer during the one-year period ending on the Determination Date shall be disregarded.
11.2 Operative Provisions
(a)For any Plan Year with respect to which the Plan is deemed Top-Heavy, the Employer shall make a special Employer contribution on behalf of each Participant who is not a Key Employee with respect to such Plan Year in an amount that, when added to the matching contribution, if any, made under the Plan on behalf of such Participant for such Plan Year, equals 3% of the Participant’s Section 415 compensation (as defined in Section 3.8). Any such special Employer contributions that are used to satisfy the minimum contribution requirements shall be treated as matching contributions for purposes of the actual contribution percentage test and other requirements of Code Section 401(m). Notwithstanding the foregoing provisions of this Section 11.2, if a Participant in the Plan is
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also a Participant in a defined benefit plan of the Employer, then for each Plan Year with respect to which the Plan is Top-Heavy, such Participant’s accrual of a minimum benefit under such other defined benefit plan in accordance with Code Section 416(c)(1) shall be deemed to satisfy the special Employer contribution requirements of this Section 11.2(a).
(b)In the event the Plan is deemed “Top-Heavy” pursuant to Section 11.1, each Participant shall have a nonforfeitable right to the Participant’s entire Account balances, including those amounts attributable to the special Employer contributions under this Section 11.2.
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ARTICLE XII
SPECIAL RULES FOR CERTAIN OFFICERS
SPECIAL RULES FOR CERTAIN OFFICERS
Notwithstanding the provisions set forth herein, Section 16 Officers are subject to special limitations on their ability to effect certain transactions under the Plan, as follows: The Section 16 Officer may effect “Discretionary Transactions,” as defined below, only in compliance with Rule 16b-3(f) of the Securities Exchange Act of 1934, as amended.
A “Discretionary Transaction” is a transaction pursuant to the Plan that (a) is at the volition of the Participant; (b) is not made in connection with the Participant’s death, retirement, or termination of employment; (c) is not required to be made available to the Participant pursuant to a provision of the Code; and (d) results in either an intra-Plan transfer involving an issuer equity securities fund, or a cash distribution funded by a volitional disposition of an issuer equity security. A Discretionary Transaction shall be exempt from Section 16(b) of the Securities and Exchange Act of 1934, as amended, only if effected pursuant to an election made at least six months following the date of the most recent election, with respect to any plan of the Company that effected a Discretionary Transaction that was (i) an acquisition, if the transaction to be exempted would be a disposition; or (ii) a disposition, if the transaction to be exempted would be an acquisition.
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EXECUTION
The Plan is established effective as of May 1, 2023, and executed by a duly authorized individual on the date set forth below.
KNIFE RIVER HOLDING COMPANY
Date: April 5, 2023 By: /s/ Nancy K. Christenson
Nancy K. Christenson
Treasurer
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SCHEDULE A
PLAN SPINOFF
PLAN SPINOFF
A-1 Plan Spinoff. The portion of the MDU 401(k) Plan attributable to the Affiliates identified in Section A-2 (the “Spinoff Affiliates”) shall be spun off into the Plan in accordance with Code Section 414(l) (the “Plan Spinoff”) effective May 1, 2023, or as soon as administratively practicable thereafter (the “Plan Spinoff Effective Date”). The participants and beneficiaries whose accounts make up the portion of the MDU 401(k) Plan that will be spun off into the Plan are referred to in this Schedule A as the “Spinoff Participants.” The Spinoff Participants’ accounts (including loans) under the MDU 401(k) Plan shall transfer in-kind to the Plan as of the Plan Spinoff Effective Date. The Spinoff Participants’ benefits under the MDU 401(k) Plan and their rights and obligations with respect to such benefits shall be governed by the Plan, as modified by this Schedule A, effective as of the Plan Spinoff Effective Date, provided that any protected benefits applicable to the Spinoff Participants’ accounts under the MDU 401(k) Plan shall remain in effect as to their Accounts under the Plan. Each Spinoff Participant who is an Eligible Employee on the Plan Spinoff Effective Date shall participate in the Plan as of the Plan Spinoff Effective Date. The terms of this Schedule A supersede the other provisions of the Plan to the extent necessary to eliminate inconsistencies between this Schedule A and such other provisions.
A-2 Spinoff Affiliates. The following Affiliates shall cease participation in the MDU 401(k) Plan and shall commence participation in the Plan (i.e., become Participating Affiliates) effective as of the Plan Spinoff Effective Date:
•Anchorage Sand and Gravel Company, Inc.
•Baldwin Contracting Company, Inc. (dba Knife River Construction–Northern California Chico Division)
•Concrete, Inc. (dba Knife River–Northern California Ready Mix Division)
•Connolly-Pacific Co.
•DSS Company (dba Knife River Construction–Northern California Stockton Division)
•Ellis & Eastern Company
•Fairbanks Materials, Inc.
•Granite City Ready Mix, Inc. (dba Knife River Materials–Central Minnesota Division)
•Hawaiian Cement
•Jebro Incorporated
•JTL Group, Inc., Montana (dba Knife River–Mountain Region)
•JTL Group, Inc., Wyoming (dba Knife River–Mountain Region)
•Kent’s Oil Service (dba Pacific Northwest Oil)
•Knife River Corporation (which shall be renamed as KRC Materials, Inc., on or after the Knife River Spinoff Effective Date)
•Knife River Corporation–Mountain West
•Knife River Corporation–North Central (dba Knife River–Central Minnesota Division)
•Knife River Corporation–North Central (dba Knife River–North Dakota Division)
•Knife River Corporation–Northwest
•Knife River Corporation–South
•Knife River Midwest, LLC
•LTM, Incorporated (dba Knife River Materials–Southern Oregon Division)
•Northstar Materials, Inc. (dba Knife River Materials–Northern Minnesota Division)
•Rail to Road, Inc.
•Sweetman Const. Co.
•WHC, Ltd.
A-3 Deferral and Catch-Up Contribution Elections. A Spinoff Participant’s elections for deferral contributions (including deemed elections under an automatic contribution arrangement) and catch-
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up contributions in effect under the MDU 401(k) Plan immediately prior to the Plan Spinoff Effective Date shall transfer to the Plan as of the Plan Spinoff Effective Date and shall remain in effect under the Plan until the Spinoff Participant changes his or her elections in accordance with Section 3.2.
A-4 Matching Contributions. The matching contribution adopted by a Spinoff Affiliate that is in effect under the MDU 401(k) Plan immediately prior to the Plan Spinoff Effective Date shall continue to be provided by the Spinoff Affiliate under the Plan on and after the Plan Spinoff Effective Date as set forth in Section 3.4 or Schedule B until changed by the Spinoff Affiliate and approved by the Committee in accordance with Section 3.4.
A-5 Profit Sharing Contributions. The profit sharing contribution adopted by a Spinoff Affiliate that is in effect under the MDU 401(k) Plan immediately prior to the Plan Spinoff Effective Date shall continue to be provided by the Spinoff Affiliate under the Plan on and after the Plan Spinoff Effective Date as set forth in Schedule C until changed by the Spinoff Affiliate and approved by the Committee in accordance with Section 3.5(a).
A-6 Retirement Contributions. The retirement contribution adopted by a Spinoff Affiliate that is in effect under the MDU 401(k) Plan immediately prior to the Plan Spinoff Effective Date shall continue to be provided by the Spinoff Affiliate under the Plan on and after the Plan Spinoff Effective Date as set forth in Schedule D until changed by the Spinoff Affiliate and approved by the Committee in accordance with Section 3.5(b).
A-7 Investment Designations. A Spinoff Participant’s investment designations in effect under the MDU 401(k) Plan immediately prior to the Plan Spinoff Effective Date shall transfer to the Plan effective as of the Plan Spinoff Effective Date and shall remain in effect under the Plan until the Spinoff Participant changes such designations in accordance with Section 5.2(a).
A-8 Beneficiary Designations. A Spinoff Participant’s Beneficiary designations in effect under the MDU 401(k) Plan immediately prior to the Plan Spinoff Effective Date shall transfer to the Plan as of the Plan Spinoff Effective Date and shall remain in effect under the Plan until the Spinoff Participant changes such designations in accordance with Section 6.6.
A-9 MDU KRC Transfer Employees. The employment of certain employees of MDU Resources Group, Inc., shall be transferred to Knife River Corporation (i.e., they will become Employees of Knife River Corporation) in May 2023. (Knife River Corporation shall be renamed as KRC Materials, Inc., on or after the Knife River Spinoff Effective Date.) For purposes of this Section A-9, such an individual shall be referred to as a “Transfer Employee” and the date on which his or her employment is transferred from MDU Resources Group, Inc., to Knife River Corporation (i.e., his or her first day of employment with Knife River Corporation) shall be referred to as the “Transfer Date.” A Transfer Employee shall become a Participant effective as of his or her Transfer Date, provided that he or she is an Eligible Employee on such date. A Transfer Employee’s deferral contribution election, catch-up contribution election, investment designations, and beneficiary designations in effect under the MDU 401(k) Plan immediately prior to his or her Transfer Date shall transfer to the Plan effective as of the Transfer Date and shall remain in effect under the Plan until the Transfer Employee changes such elections or designations in accordance with the relevant terms of the Plan. The Transfer Employee’s accounts (including loans) under the MDU 401(k) Plan shall transfer in-kind to the Plan as of the Transfer Date or as soon as administratively practicable thereafter in accordance with Code Section 414(l), and his or her benefits under the MDU 401(k) Plan and his or her rights and obligations with respect to such benefits shall then be governed by the Plan, as modified by this Section A-9, provided that any protected benefits applicable to the Transfer Employee’s accounts under the MDU 401(k) Plan shall remain in effect as to his or her Accounts under the Plan.
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SCHEDULE B
MATCHING CONTRIBUTIONS
MATCHING CONTRIBUTIONS
Each Employer identified in this Schedule B provides for matching contributions in lieu of the standard matching contributions provided in Section 3.4 to the extent described in this Schedule B.
B-1 Anchorage Sand & Gravel Company, Inc. The Employer shall not make matching contributions on behalf of its collective bargaining unit Employees. (The Employer’s non-bargaining unit Employees are eligible for the standard matching contributions.)
B-2 Hawaiian Cement. The Employer shall make matching contributions equal to 100% of deferral contributions limited to 3% of Compensation each pay period on behalf of its collective bargaining unit Employees hired before July 1, 2010, and shall not make matching contributions on behalf of its collective bargaining unit Employees hired on or after such date. (The Employer’s non-bargaining unit Employees are eligible for the standard matching contributions.)
B-3 JTL Group, Inc. Montana. The Employer shall not make matching contributions, except that it will make the standard matching contributions on behalf of its Employees hired or classified as salaried Employees after December 31, 2014.
B-4 JTL Group, Inc. Wyoming. The Employer shall not make matching contributions, except that it will make the standard matching contributions on behalf of Casper hourly Employees and all other Employees hired or classified as salaried Employees after December 31, 2014.
B-5 Knife River Corporation–South. The Employer shall make matching contributions equal to 100% of deferral contributions limited to 3% of Compensation each pay period.
B-6 LTM, Incorporated. The Employer shall not make matching contributions on behalf of its collective bargaining unit Employees. (The Employer’s non-bargaining unit Employees are eligible for the standard matching contributions.)
B-7 WHC, Ltd. The Employer shall make matching contributions equal to 50% of deferral contributions limited to 6% of Compensation each pay period on behalf of its Employees hired on or after May 1, 2010. In addition, the Employer shall make matching contributions equal to 100% deferral contributions limited to 5% of Compensation each pay period on behalf of its Employees hired prior to May 1, 2010.
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SCHEDULE C
PROFIT SHARING CONTRIBUTIONS
PROFIT SHARING CONTRIBUTIONS
C-1 Introduction. Pursuant to Section 3.5(a) of the Plan, certain Participating Affiliates hereby establish profit sharing features as described in this Schedule C and will hereafter be referred to individually as a “Schedule C Employer” and collectively as “Schedule C Employers.” The profit sharing features shall be in addition to all other contributions provided pursuant to the Plan. The terms of this Schedule C supersede the other provisions of the Plan to the extent necessary to eliminate inconsistencies between this Schedule C and such other provisions.
C-2 Eligibility. Participation in the profit sharing features for any Plan Year is limited to Employees of the Schedule C Employers who satisfy the Plan’s definition of Eligible Employee (unless otherwise specified below). Schedule C Employers include:
•Anchorage Sand & Gravel Company, Inc. (non-union Employees)
•Baldwin Contracting Company, Inc. (dba Knife River Construction–Northern California Chico Division)
•Concrete, Inc. (dba Knife River–Northern California Ready Mix Division)
•Connolly-Pacific Co.
•DSS Company (dba Knife River Construction–Northern California Stockton Division)
•Ellis & Eastern Company
•Fairbanks Materials, Inc.
•Granite City Ready Mix, Inc. (dba Knife River Materials–Central Minnesota Division)
•Hawaiian Cement (non-union Employees hired after December 31, 2005)
•Jebro Incorporated
•JTL Group, Inc. (dba Knife River–Mountain Region) (Eligible JTL Casper hourly Employees (both union and nonunion), including Employees who participate in the Operating Engineers Local No. 800 & The Wyoming Contractors’ Association, Inc. Pension Trust Fund for Wyoming (JTL MEP Employees); eligible salaried Employees of JTL hired after December 31, 2014, or any other JTL Employee who transfers to a salaried position after December 31, 2014)
•Kent’s Oil Service (dba Pacific Northwest Oil)
•Knife River Corporation (which shall be renamed as KRC Materials, Inc., on or after the Knife River Spinoff Effective Date)
•Knife River Corporation–Mountain West
•Knife River Corporation–North Central (dba Knife River–Central Minnesota Division)
•Knife River Corporation–North Central (dba Knife River–North Dakota Division)
•Knife River Corporation–Northwest
•Knife River Corporation–South
•Knife River Midwest, LLC
•LTM, Incorporated (dba Knife River Materials–Southern Oregon Division) (non-union Employees)
•Northstar Materials, Inc. (dba Knife River Materials–Northern Minnesota Division)
•Rail to Road, Inc.
•Sweetman Const. Co.
•WHC, Ltd.
To share in the allocation of any profit sharing contribution made by a Schedule C Employer for a Plan Year, Participants employed by a Schedule C Employer must be credited with 1,000 Hours of Service (prorated for the Plan Year in which the profit sharing feature becomes effective) in that Plan Year, must be an active Employee of the Schedule C Employer on the last day of the Plan Year, and must not be covered by a collectively bargained unit to which the profit sharing feature has not been extended.
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However, an Eligible Employee of any Knife River Corporation Participating Affiliate who transfers employment during the Plan Year and remains employed by a Knife River Corporation Participating Affiliate on the last day of the Plan Year will be eligible to receive a prorated profit sharing contribution from each Knife River Corporation Participating Affiliate.
For purposes of this Schedule C, “active Employee” means an Employee who is still on the payroll, has been temporarily laid off, or who terminated employment due to Disability, death, or after attaining Normal Retirement Age during the Plan Year, but does not mean an Employee whose employment has been terminated effective on or before December 31 of the Plan Year. In addition, for purposes of applying the requirement of completing 1,000 Hours of Service for the Plan Year, such requirement shall not apply to Employees terminating after attaining Normal Retirement Age, provided they are not terminated for cause.
Participants who meet the preceding requirements are referred to herein as “Schedule C Participants.”
C-3 Amount and Allocation. For each Plan Year, the governing body of each Schedule C Employer, in its discretion, shall determine the amount (if any) of profit sharing contributions to be made to the Plan based upon its own profitability. The amount of any such contribution for a Plan Year by any Schedule C Employer shall be allocated to its Schedule C Participants based upon those Participants’ Compensation, excluding bonuses, received while employed by that Schedule C Employer for that Plan Year.
Compensation for the first effective Plan Year of each Schedule C Employer shall include Compensation paid to the Schedule C Participant by the Schedule C Employer on and after such Employer’s effective date shown above.
C-4 Vesting. Notwithstanding anything in Section 4.2 to the contrary, Schedule C Participants shall be vested in their Profit Sharing Accounts upon completing three Years of Vesting Service. For this purpose, a “Year of Vesting Service” means a Plan Year in which the Schedule C Participant is credited with at least 1,000 Hours of Service. Service with a Schedule C Employer and Affiliates shall be recognized for purposes of this Section C-4, including, but not limited to, service that occurred prior to the Effective Date, applying these rules as if the Schedule C Employer and its affiliates at that time were Affiliates under the Plan. Schedule C Participants who were employed with Ideal Builders, Inc. on the date of acquisition on August 29, 2008, by Knife River Corporation–Northwest (the Southern Idaho Division) will have prior years of service recognized for Years of Vesting Service. Notwithstanding the foregoing, a Schedule C Participant shall be fully vested in his or her Profit Sharing Account upon death, Disability, or attainment of Normal Retirement Age.
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SCHEDULE D.1
RETIREMENT CONTRIBUTIONS—
KNIFE RIVER CORPORATION (KRC MATERIALS, INC.)
RETIREMENT CONTRIBUTIONS—
KNIFE RIVER CORPORATION (KRC MATERIALS, INC.)
D.1-1 Introduction. Knife River Corporation (which shall be renamed as KRC Materials, Inc., on or after the Knife River Spinoff Effective Date) hereby establish a retirement contribution feature as described in this Schedule D.1. The retirement contribution feature shall be in addition to all other contributions provided pursuant to the Plan.
D.1-2 Eligibility. Participation in the retirement contribution for any Plan Year is limited to Eligible Employees hired after December 31, 2005, by Knife River Corporation.
To share in the allocation of any retirement contribution made by Knife River Corporation for a Plan Year, Eligible Employees described above must be credited with at least 1,000 Hours of Service in that Plan Year; provided, however, that if the Participant’s failure to be credited with 1,000 Hours of Service in that Plan Year is due to the Participant’s (i) Disability, (ii) death, or (iii) termination of employment on or after attaining Normal Retirement Age during such Plan Year (provided the Participant is not terminated for cause), such Participant shall nevertheless be entitled to share in the allocation of the retirement contribution for such Plan Year. Any Participant who is not a Highly Compensated Employee who has met the eligibility requirements above as of June 30 each Plan Year shall receive a pro rata allocation mid-year based on Compensation paid through June 30. The final annual allocation shall be reduced by any such mid-year allocation. Participants who meet the requirements of this Section D.1-2 are referred to herein as “Schedule D.1 Participants.”
For the avoidance of doubt, a Schedule D.1 Participant who (1) is a Transfer Employee (defined in Section A-9), (2) is not a Highly Compensated Employee, and (3) has met the eligibility requirements described above as of June 30, 2023, shall receive a pro rata allocation mid-year in 2023 based on Compensation paid from his or her Transfer Date (defined in Section A-9) through June 30, 2023.
D.1-3 Amount and Allocation. For each Plan Year, Knife River Corporation will make a retirement contribution equal to 5% of Compensation for each Eligible Employee. The amount of any such retirement contribution for a Plan Year shall be allocated to Schedule D.1 Participants based on their Compensation, excluding bonuses received while employed by Knife River Corporation.
D.1-4 Vesting. Notwithstanding anything in Section 4.2 to the contrary, Schedule D.1 Participants shall be vested in their Retirement Contribution Accounts upon completing three years of Vesting Service. For this purpose, a “Year of Vesting Service” means a Plan Year in which the Schedule D.1 Participant is credited with at least 1,000 Hours of Service. Service with Knife River Corporation and Affiliates shall be recognized for purposes of this Section D.1-4, including, but not limited to, service that occurred prior to the Effective Date, applying these rules as if Knife River Corporation and its affiliates at that time were Affiliates under the Plan. Notwithstanding the foregoing, a Schedule D.1 Participant shall be fully vested in his or her Retirement Contribution Account upon death, Disability, or attaining Normal Retirement Age.
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SCHEDULE D.2
RETIREMENT CONTRIBUTIONS—
CERTAIN PENSION PLAN PARTICIPANTS
RETIREMENT CONTRIBUTIONS—
CERTAIN PENSION PLAN PARTICIPANTS
D.2-1 Introduction. Participating Affiliates that employ the individuals described in Section D.2-2 (each a “Schedule D.2 Employer” and collectively “Schedule D.2 Employers”) hereby establish a retirement contribution feature as described in this Schedule D.2. The retirement contribution feature shall be in addition to all other contributions provided pursuant to the Plan.
D.2-2 Eligibility. Participation in the retirement contribution for a Plan Year is limited to individuals who were active participants in one of the following plans as of December 31, 2009:
MDU Resources Group, Inc. Pension Plan for Non-Bargaining Unit Employees
Knife River Corporation Salaried Employees’ Pension Plan
Williston Basin Interstate Pipeline Company Pension Plan
To share in the allocation of any retirement contribution made by a Schedule D.2 Employer for a Plan Year, Eligible Employees described above must be credited with at least 1,000 Hours of Service in the Plan Year; provided, however, that if the Participant’s failure to be credited with 1,000 Hours of Service in the Plan Year is due to the Participant’s (i) Disability, (ii) death, or (iii) termination of employment on or after attaining Normal Retirement Age during the Plan Year (provided the Participant is not terminated for cause), such Participant shall nevertheless be entitled to a retirement contribution for such Plan Year. Any Participant who is not a Highly Compensated Employee who has met the above eligibility requirements as of June 30 each Plan Year shall receive a pro rata allocation mid-year based on compensation paid through June 30. The final annual allocation shall be reduced by any such mid-year allocation. Participants who meet the requirements of this Section D.2-2 are referred to herein as “Schedule D.2 Participants.”
D.2-3 Amount and Allocation. For each Plan Year, Schedule D.2 Participants eligible to participate in this feature on January 1, 2010, will be credited with the following retirement contribution based on their age as of December 31, 2009. The retirement contribution is also based on such a Participant’s Compensation, excluding bonuses for the Plan Year, paid on and after the initial effective date of the provision.
| Age as of December 31, 2009 | Retirement Contribution Percentage | ||||
| Less than 30 | 5.0% | ||||
| 30 but less than 35 | 7.0% | ||||
| 35 but less than 40 | 9.0% | ||||
| 40 but less than 45 | 10.5% | ||||
| 45 and over | 11.5% | ||||
Notwithstanding the foregoing, if the retirement contribution percentage above for Participants who are Highly Compensated Employees is more than the amount permitted under Code Section 415, the Participant’s retirement contributions shall be reduced to the extent necessary to comply with Code Section 415. The retirement contribution percentage above may also be reduced for Participants who are Highly Compensated Employees, as necessary, to pass nondiscrimination testing.
D.2-4 Vesting. Notwithstanding anything in Section 4.2 to the contrary, Schedule D.2 Participants shall be vested in their Retirement Contribution Accounts upon completing three years of Vesting Service. For this purpose, a “Year of Vesting Service” means a Plan Year in which the Schedule D.2 Participant is credited with at least 1,000 Hours of Service. Service with a Schedule D.2 Employer and Affiliates shall be recognized for purposes of this Section D.2-4, including, but not limited to, service that occurred prior to the Effective Date, applying these rules as if the Schedule D.2
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Employer and affiliates shall be recognized for purposes of this Section D.2-4, including, but not limited to, service that occurred prior to the Effective Date, applying these rules as if the Schedule D.2 Employer and its affiliates at that time were Affiliates under the Plan. Notwithstanding the foregoing, a Schedule D.2 Participant shall be fully vested in his or her Retirement Contribution Account upon death, Disability, or attaining Normal Retirement Age.
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161329235.2
SCHEDULE D.3
RETIREMENT CONTRIBUTIONS—
JTL GROUP, INC.
RETIREMENT CONTRIBUTIONS—
JTL GROUP, INC.
D.3-1 Introduction. JTL Group, Inc. (“JTL”) hereby establishes the retirement contribution feature as described in this Schedule D.3. The retirement contribution feature shall be in addition to all other contributions provided by JTL pursuant to the Plan.
D.3-2 Eligibility. To share in the allocation of any retirement contribution made by JTL for a Plan Year, a Participant must be an Eligible Employee of JTL. Unless specifically bargained for, Employees covered by a collective bargaining agreement shall not be eligible to share in this retirement contribution feature. Participants who meet the preceding requirements are referred to herein as “Schedule D.3 Participants.”
D.3-3 Amount and Allocation. For each Plan Year, JTL shall provide hourly Schedule D.3 Participants $1.55 per Hour of Service as a retirement contribution. The amount of any such retirement contribution for a Plan Year will be allocated to such Participants for each Hour of Service for which the Participant receives Compensation, excluding Hours of Service pursuant to a prevailing wage agreement. In addition, JTL will credit salaried Schedule D.3 Participants with a retirement contribution equal to 8% of Compensation. Such salaried Participants must have been hired and classified as a salaried Employee prior to January 1, 2015, to receive a retirement contribution allocation. The amount of any such retirement contribution for a Plan Year shall be allocated to such salaried Participants based on their Compensation, excluding bonuses received while employed by JTL.
D.3-4 Vesting. Notwithstanding anything in Section 4.2 to the contrary, Schedule D.3 Participants shall be vested in their Retirement Contribution Accounts upon completing three years of Vesting Service; provided, however that Schedule D.3 Participants who were employed by Star Aggregates, Inc. on August 31, 2007, shall be fully vested. For this purpose, a “Year of Vesting Service” means a Plan Year in which the Schedule D.3 Participant is credited with at least 1,000 Hours of Service. Service with JTL and Affiliates shall be recognized for purposes of this Section D.3-4, including, but not limited to, service that occurred prior to the Effective Date, applying these rules as if JTL and its affiliates at that time were Affiliates under the Plan. Notwithstanding the foregoing, a Schedule D.3 Participant shall be fully vested in his or her Retirement Contribution Account upon death, Disability, or attaining Normal Retirement Age.
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SCHEDULE D.4
RETIREMENT CONTRIBUTIONS—
HAWAIIAN CEMENT, MAUI CONCRETE AND AGGREGATE DIVISION
RETIREMENT CONTRIBUTIONS—
HAWAIIAN CEMENT, MAUI CONCRETE AND AGGREGATE DIVISION
D.4-1 Introduction. Hawaiian Cement (“HC”) hereby establishes the retirement contribution feature as described in this Schedule D.4. This retirement contribution shall be in addition to all other contributions provided by HC pursuant to the Plan.
D.4-2 Eligibility. To share in the allocation of any retirement contribution made by HC for a Plan Year, a Participant must be an Eligible Employee of HC who was an active participant in the Pension Plan for Bargaining Unit Employees of Hawaiian Cement, Maui Concrete and Aggregate Division as of June 30, 2015. Participants who meet the preceding requirements are referred to herein as “Schedule D.4 Participants.”
D.4-3 Amount and Allocation. For each Plan Year, Schedule D.4 Participants will be credited with the retirement contributions below for each Hour Worked. For this purpose, “Hour Worked” shall mean all hours where the Employee is on HC property performing bargaining unit work, not to include vacation, sick leave, or other non-worked hours for which the Employee may receive Compensation from HC.
| Date | Rate per Hour Worked | ||||
| April 16, 2023 – April 15, 2024 | $5.64 | ||||
| April 16, 2024 – April 15, 2025 | $5.84 | ||||
D.4-4 Vesting. Notwithstanding anything in Section 4.2 to the contrary, Schedule D.4 Participants shall be vested in their Retirement Contribution Accounts upon completing three years of Vesting Service. For this purpose, a “Year of Vesting Service” means a Plan Year in which the Schedule D.4 Participant is credited with at least 1,000 Hours of Service. Service with HC and Affiliates shall be recognized for purposes of this Section D.4-4, including, but not limited to, service that occurred prior to the Effective Date, applying these rules as if HC and its affiliates at that time were Affiliates under the Plan. Notwithstanding the foregoing, a Schedule D.4 Participant shall be fully vested in his or her Retirement Contribution Account upon death, Disability, or attaining Normal Retirement Age.
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161329235.2
SCHEDULE E
PREVAILING WAGE LAW REQUIREMENTS AND SUPPLEMENTAL CONTRIBUTIONS
PREVAILING WAGE LAW REQUIREMENTS AND SUPPLEMENTAL CONTRIBUTIONS
E-1 Introduction. The Plan covers certain Eligible Employees who perform services for an Employer under a public contract that is subject to the Davis-Bacon Act or similar prevailing state wage law (a “Davis-Bacon Employee”). The portion of a Davis-Bacon Employee’s service with an Employer that is subject to the Davis-Bacon Act or similar prevailing state wage law (the “Prevailing Wage Law”) is referred to in this Schedule E as “Davis-Bacon Service.” The provisions of this Schedule E are intended to modify the terms of the Plan as applied to Davis-Bacon Employees and to allow the Plan to qualify as a bona fide fringe benefit plan in accordance with Title 29, Part 5 of the Code of Federal Regulations and the Department of Labor guidance issued thereunder.
E-2 Eligibility and Participation. A Davis-Bacon Employee who is employed on an occasional or temporary basis and who otherwise meets the definition of an Eligible Employee shall become a Participant upon the completion of one Hour of Service.
E-3 Prevailing Wage Compensation. While employed in Davis-Bacon Service, Compensation paid to a Davis-Bacon Employee and used in determining contributions under the Plan shall be the prevailing wage required by the Prevailing Wage Law.
E-4 Supplemental Contributions. An Employer, in its sole discretion, may make a supplemental contribution on behalf of any Davis-Bacon Employee, other than a Davis-Bacon Employee who is a Highly Compensated Employee, (a “supplemental contribution”) (i) in such amount as may be necessary to satisfy the Prevailing Wage Law’s required fringe cost to the extent that the sum of the matching contributions and profit sharing contributions for a period are insufficient to satisfy the Prevailing Wage Law’s required fringe cost, or (ii) in such amount as may be necessary to satisfy the Prevailing Wage Law’s required fringe cost without regard to any matching contributions and profit sharing contributions made on behalf of such Davis-Bacon Employee. Any supplemental contributions made on behalf of a Davis-Bacon Employee shall be credited to a “Davis-Bacon Supplemental Contribution Account” established for the Davis-Bacon Employee. Except as otherwise provided in this Schedule, a Davis-Bacon Supplemental Contribution Account shall be treated as an “Account” for all purposes of the Plan and the amounts credited thereto shall be subject to the same restrictions as applicable to amounts credited to a Participant’s Profit Sharing Account.
E-5 Depositing of Employer Contributions. Any Employer contribution made on behalf of a Davis-Bacon Employee under the Plan that is intended to satisfy the Prevailing Wage Law’s required fringe cost, including, but not limited to, any matching contributions and any supplemental contributions, will be contributed to the Trust Fund not less frequently than quarterly.
E-6 Vesting. A Davis-Bacon Employee will, at all times, have a fully vested and nonforfeitable right to the value of his or her Matching Contribution Account and Davis-Bacon Supplemental Contribution Account.
E-7 Davis-Bacon Match Subaccount. The Committee shall maintain as part of each Davis-Bacon Employee’s Matching Contribution Account a subaccount to reflect the matching contributions, if any, made on behalf of the Davis-Bacon Employee that are intended to satisfy the Prevailing Wage Law’s required fringe cost.
E-8 Contribution Limitation. If the annual additions that would otherwise be allocated to a Davis-Bacon Employee’s Accounts would exceed the limitations described in Section 3.8 of the Plan for any Plan Year, any portion of the excess amount that is attributable to contributions made on behalf of the Davis-Bacon Employee with respect to Davis Bacon Service shall be corrected in accordance with Section 3.8 of the Plan.
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161329235.2
E-9 Supplemental Contributions. The following Employers shall make supplemental contributions on behalf of its Davis-Bacon Employees as provided below.
| Employer | Section E-4(i) Supplemental Contribution | Section E-4(ii) Supplemental Contribution | ||||||
| Concrete, Inc. (dba Knife River–Northern California Ready Mix Division) | X | |||||||
| JTL Group, Inc. (dba Knife River–Mountain Region) | X | |||||||
| Kent’s Oil Service (dba Pacific Northwest Oil) | X | |||||||
| Knife River Corporation–Mountain West | X | |||||||
| Knife River Corporation–North Central (dba Knife River–Central Minnesota Division and Knife River–North Dakota Division) | X | |||||||
| Knife River Midwest, LLC | X | |||||||
| Northstar Materials, Inc. (dba Knife River Materials–Northern Minnesota Division) | X | |||||||
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161329235.2
SCHEDULE F
PRIOR PLAN MERGERS
PRIOR PLAN MERGERS
The plans identified in this Schedule F (each a “merged plan”) merged with and into the MDU 401(k) Plan as of the merger dates provided below. Each plan merger and resulting transfer of assets were designed to comply with Code Sections 401(a)(12), 411(d)(6), and 414(l). This Schedule F sets forth the special provisions of the merged plans that may affect a Participant on or after the Effective Date to the extent the Participant participated in the merged plan and his or her accounts in the merged plan transferred to the MDU 401(k) Plan in connection with the plan merger (identified in this Schedule F) and then transferred from the MDU 401(k) Plan to the Plan in connection with the Plan Spinoff (defined in Section A-1) or employment transfer (described in Section A-9).
F-1 Morse Bros., Inc. Employee’s Profit-Sharing Plan and Trust
(a) Merger Date: September 1, 2004.
(b) Vesting: Notwithstanding anything in Section 4.2 of the Plan to the contrary and except as otherwise provided with respect to Normal Retirement Age or Disability, an affected Participant who terminates employment on or after September 1, 2004, shall be vested in his or her Profit Sharing Account in accordance with the following schedule:
| Years of Vesting Service | Vested Percentage | ||||
| Less than 2 years | 0% | ||||
| 2 years but less than 3 years | 20% | ||||
| 3 years or more | 100% | ||||
For this purpose, a “Year of Vesting Service” means a Plan Year in which the affected Participant is compensated for 1,000 or more Hours of Service. For this purpose, an affected Participant shall be credited with any years of vesting service credited under the merged plan.
F-2 Montana Contractors’ Association, Inc. Money Purchase Retirement Plan and Trust, as Adopted by JTL Group, Inc. (the “Money Purchase Plan”) and Montana Contractors’ Association, Inc. 401(k) Retirement Plan and Trust, as Adopted by JTL Group, Inc.
(a) Merger Date: December 29, 2004.
(b) Distribution: Any distribution requests shall be made in accordance with Section 4.4 of the Plan, provided, however, an affected Participant’s Account attributable to the Money Purchase Plan may be distributed in the form of a 50% joint and survivor annuity (for a married Participant) or single life annuity (for an unmarried Participant or married Participant with spousal written and notarized consent).
F-3 Bauerly Brothers, Inc. Davis-Bacon Pension Plan
(a) Merger Date: December 1, 2005.
(b) Vesting: An affected Participant shall be fully vested in the amounts transferred from the merged plan in connection with the plan merger, with the balance of such Participant’s Account being vested in accordance with Section 4.2 of the Plan.
(c) Distribution: Distribution shall be made in accordance with Section 4.4 of the Plan, provided, however, that an affected Participant’s Account attributable to the merged plan
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161329235.2
may be distributed in the form of a 50% joint and survivor annuity (for a married Participant) or single life annuity (for an unmarried Participant or married Participant with spousal written and notarized consent).
(d) Withdrawals: An affected Participant who requests and is approved for a withdrawal pursuant to Section 4.5 of the Plan, shall have excluded from the available amount any portion of the affected Participant’s Account that was transferred from the merged plan in connection with the plan merger. In addition, if the affected Participant is married and a portion of his or her Account is attributable to the merged plan, the Participant must obtain spousal written consent, which must be either notarized or witnessed by a Plan representative.
(e) Loans: If an affected Participant is married, and a portion of his or her Account is attributable to the merged plan, the affected Participant must obtain spousal written consent in order to obtain a loan under Section 4.8 of the Plan, which consent must either be notarized or witnessed by a Plan representative.
F-4 Buffalo Bituminous, Inc. Davis-Bacon Pension Plan
(a) Merger Date: December 1, 2005.
(b) Vesting: An affected Participant shall be fully vested in the amounts transferred from the merged plan in connection with the plan merger, with the balance of such Participant’s Account being vested in accordance with Section 4.2 of the Plan.
(c) Distribution: Distribution shall be made in accordance with Section 4.4 of the Plan, provided, however, that an affected Participant’s Account attributable to the merged plan may be distributed in the form of a 50% joint and survivor annuity (for a married Participant) or single life annuity (for an unmarried Participant or married Participant with spousal written and notarized consent).
(d) Withdrawals: An affected Participant who requests and is approved for a withdrawal pursuant to Section 4.5 of the Plan, shall have excluded from the available amount any portion of the affected Participant’s Account that was transferred from the merged plan in connection with the plan merger. In addition, if the affected Participant is married and a portion of his or her Account is attributable to the merged plan, the Participant must obtain spousal written consent, which must be either notarized or witnessed by a Plan representative.
(e) Loans: If an affected Participant is married, and a portion of his or her Account is attributable to the merged plan, the affected Participant must obtain spousal written consent in order to obtain a loan under Section 4.8 of the Plan, which consent must either be notarized or witnessed by a Plan representative.
F-5 Granite City Ready Mix 401(k) Plan for Union Employees
(a) Merger Date: December 1, 2006.
(b) Vesting: An affected Participant shall be fully vested in the amounts transferred from the merged plan in connection with the plan merger, with the balance of such Participant’s Account being vested in accordance with Section 4.2 of the Plan. Notwithstanding Section 4.2 of the Plan, however, each affected Participant shall become fully vested in his or her Accounts upon attainment of age 55.
(c) Distribution: Distribution shall be made in accordance with Section 4.4 of the Plan, provided, however, that an affected Participant’s Account attributable to the merged plan
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161329235.2
may be distributed in the form of a 50% joint and survivor annuity (for a married Participant) or single life annuity (for an unmarried Participant or married Participant with spousal written and notarized consent).
F-6 Bauerly Brothers, Incorporated 401(k) Plan
(a) Merger Date: March 20, 2009.
(b) Vesting: An affected Participant shall be fully vested in the amounts transferred from the merged plan in connection with the plan merger, with the balance of such Participant’s Account being vested in accordance with Section 4.2 of the Plan. Any profit sharing contributions made on the behalf of an affected Participant shall be subject to a three-year cliff vesting schedule.
(c) Distribution: Distribution shall be made in accordance with Section 4.4 of the Plan, provided, however, that an affected Participant’s Account attributable to the merged plan may be distributed in the form of a 50% joint and survivor annuity (for a married Participant) or single life annuity (for an unmarried Participant or married Participant with spousal written and notarized consent).
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161329235.2
CERTIFICATION
I, Brian R. Gray, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Knife River Corporation;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: August 8, 2023
/s/ Brian R. Gray
Brian R. Gray
President and Chief Executive Officer
CERTIFICATION
I, Nathan W. Ring, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Knife River Corporation;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: August 8, 2023
/s/ Nathan W. Ring
Nathan W. Ring
Vice President and Chief Financial Officer
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
Each of the undersigned, Brian R. Gray, the President and Chief Executive Officer, and Nathan W. Ring, the Vice President and Chief Financial Officer of Knife River Corporation (the "Company"), DOES HEREBY CERTIFY that:
1. The Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2023 (the "Report"), fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and
2. Information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
IN WITNESS WHERE OF, each of the undersigned has executed this statement this 8th day of August, 2023.
/s/ Brian R. Gray
Brian R. Gray
President and Chief Executive Officer
/s/ Nathan W. Ring
Nathan W. Ring
Vice President and Chief Financial Officer
A signed original of this written statement required by Section 906 has been provided to Knife River Corporation and will be retained by Knife River Corporation and furnished to the Securities and Exchange Commission or its staff upon request.
MDU RESOURCES GROUP, INC.
MINE SAFETY INFORMATION
The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) requires issuers to include in periodic reports filed with the SEC certain information relating to citations or orders for violations of standards under the Federal Mine Safety and Health Act of 1977 (Mine Act), as amended by the Mine Improvement and New Emergency Response Act of 2006 (Mine Safety Act). The Dodd-Frank Act requires reporting of the following types of citations or orders:
1. Citations issued under Section 104 of the Mine Safety Act for violations that could significantly and substantially contribute to the cause and effect of a coal or other mine safety or health hazard.
2. Orders issued under Section 104(b) of the Mine Safety Act. Orders are issued under this section when citations issued under Section 104 have not been totally abated within the time period allowed by the citation or subsequent extensions.
3. Citations or orders issued under Section 104(d) of the Mine Safety Act. Citations or orders are issued under this section when it has been determined that the violation is caused by an unwarrantable failure of the mine operator to comply with the standards. An unwarrantable failure occurs when the mine operator is deemed to have engaged in aggravated conduct constituting more than ordinary negligence.
4. Citations issued under Section 110(b)(2) of the Mine Safety Act for flagrant violations. Violations are considered flagrant for repeat or reckless failures to make reasonable efforts to eliminate a known violation of a mandatory health and safety standard that substantially and proximately caused, or reasonably could have been expected to cause, death or serious bodily injury.
5. Imminent danger orders issued under Section 107(a) of the Mine Safety Act. An imminent danger is defined as the existence of any condition or practice in a coal or other mine which could reasonably be expected to cause death or serious physical harm before such condition or practice can be abated.
6. Notice received under Section 104(e) of the Mine Safety Act of a pattern of violations or the potential to have such a pattern of violations that could significantly and substantially contribute to the cause and effect of mine health and safety standards.
During the three months ended June 30, 2023, none of the Company's operating subsidiaries received citations or orders under the following sections of the Mine Safety Act: 104(b), 104(d), 110(b)(2), 107(a) or 104(e). The Company did not have any mining-related fatalities during this period.
| MSHA Identification Number/Contractor ID | Section 104 S&S Citations (#) | Total Dollar Value of MSHA Assessments Proposed ($) | Legal Actions Pending as of Last Day of Period (#) | Legal Actions Initiated During Period (#) | |||||||||||||||||||||||||
| 04-01698 | 2 | $ | 2,190 | — | — | ||||||||||||||||||||||||
| 13-02222 | — | 143 | — | — | |||||||||||||||||||||||||
| 21-03127 | — | 143 | — | — | |||||||||||||||||||||||||
| 32-00777 | — | 143 | — | — | |||||||||||||||||||||||||
| 35-00426 | — | 143 | — | — | |||||||||||||||||||||||||
| 35-00463 | — | 143 | — | — | |||||||||||||||||||||||||
| 35-00512 | — | 155 | — | — | |||||||||||||||||||||||||
| 35-03022 | — | 286 | — | — | |||||||||||||||||||||||||
| 35-03581 | — | 286 | — | — | |||||||||||||||||||||||||
| 35-03595 | — | 143 | — | — | |||||||||||||||||||||||||
| 35-03678 | — | 143 | — | — | |||||||||||||||||||||||||
| 35-00503 | — | 143 | — | — | |||||||||||||||||||||||||
| 48-01383 | — | 4,088 | — | — | |||||||||||||||||||||||||
| 51-00036 | — | 1,337 | — | — | |||||||||||||||||||||||||
| 51-00192 | — | 429 | — | — | |||||||||||||||||||||||||
| 39-00008 | — | 2,435 | — | — | |||||||||||||||||||||||||
| 48-01518 | — | 1,409 | 4 | 4 | |||||||||||||||||||||||||
| 48-01598 | — | 286 | — | — | |||||||||||||||||||||||||
| 2 | $ | 14,045 | 4 | 4 | |||||||||||||||||||||||||
1
Legal actions pending before the Federal Mine Safety and Health Review Commission (the Commission) may involve, among other questions, challenges by operators to citations, orders and penalties they have received from the Federal Mine Safety and Health Administration (MSHA) or complaints of discrimination by miners under section 105 of the Mine Act. The following is a brief description of the types of legal actions that may be brought before the Commission.
•Contests of Citations and Orders - A contest proceeding may be filed with the Commission by operators, miners or miners' representatives to challenge the issuance of a citation or order issued by MSHA.
•Contests of Proposed Penalties (Petitions for Assessment of Penalties) - A contest of a proposed penalty is an administrative proceeding before the Commission challenging a civil penalty that MSHA has proposed for the alleged violation contained in a citation or order.
•Complaints for Compensation - A complaint for compensation may be filed with the Commission by miners entitled to compensation when a mine is closed by certain withdrawal orders issued by MSHA. The purpose of the proceeding is to determine the amount of compensation, if any, due miners idled by the orders.
•Complaints of Discharge, Discrimination or Interference - A discrimination proceeding is a case that involves a miner's allegation that he or she has suffered a wrong by the operator because he or she engaged in some type of activity protected under the Mine Act, such as making a safety complaint.
•Applications for Temporary Relief - Applications for temporary relief from any modification or termination of any order or from any order issued under section 104 of the Mine Act.
•Appeals of Judges' Decisions or Orders to the Commission - A filing with the Commission for discretionary review of a judge's decision or order by a person who has been adversely affected or aggrieved by such decision or order.
The following table reflects the types of legal actions pending before the Commission as of June 30, 2023:
| MSHA Identification Number | Contests of Citations and Orders | Contests of Proposed Penalties | Complaints for Compensation | Complaints of Discharge, Discrimination or Interference | Applications for Temporary Relief | Appeals of Judges' Decisions or Orders to the Commission | ||||||||||||||
| 48-01518 | 4 | — | — | — | — | — | ||||||||||||||
2