Knife River Corp 10-Q for FY2024 Q2
Knife River Corp (KNF)
10-Q
2024-08-06
For: 2024-06-30
View Original
Added on
April 10, 2026
About this 10-Q
Knife River Corp filed this 10-Q on August 6, 2024, covering the quarter ended June 30, 2024 (FY2024 Q2).
Headline figures
Quarter ended June 30, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $806.91M
- up 2.8% from $785.19M a year earlier
- Net income
- $77.93M
- up 37.1% from net income of $56.84M a year earlier
- Diluted EPS
- $1.37
- up 37.0% from $1.00 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, 2024
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)
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 1, 2024: 56,612,705 shares.
| Index | |||||
| Page | |||||
Unless otherwise stated or the context otherwise requires, references in this report to “Knife River,” the “Company,” “we,” “our,” or “us” refer to Knife River Corporation and its consolidated subsidiaries.
2
Introduction
Knife River is an aggregates-led construction materials and contracting services provider in the United States. Our 1.1 billion tons of aggregate reserves provide the foundation for our vertically integrated business strategy, with approximately 37 percent of our aggregates in 2023 being used internally to support value-added downstream products (ready-mix concrete and asphalt) and contracting services (heavy-civil construction, asphalt paving, concrete construction, site development and grading services, and in some segments the manufacturing of prestressed concrete products). We are strategically focused on being the provider of choice in mid-size, high-growth markets and are committed to our plan for continued growth and to delivering for our stakeholders — customers, communities, employees and stockholders — by executing on our four core values: People, Safety, Quality and the Environment.
We supply construction materials to customers from 14 states and also provide related contracting services, which are primarily to public-sector customers for the development and servicing of highways, local roads, bridges and other public-infrastructure projects. We have broad access to high-quality aggregates in most of our markets, which forms the foundation of our vertically integrated business model. We share resources, including plants, equipment and people, across our various locations to maximize efficiency. We also transport our products by truck, rail and barge, depending on the particular market, to complete the vertical value chain. Our strategically located aggregate sites, ready-mix plants and asphalt plants, along with our fleet of ready-mix and dump trucks, enable us to better serve our customers. We believe our integrated and expansive 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 we serve.
Knife River is organized into six operating segments: Pacific, Northwest, Mountain, North Central, South and Energy Services. These operating segments are used to determine the Company's reportable segments: Pacific, Northwest, Mountain, Central and Energy Services, which are based on our method of internal reporting and management of our business. Four of the reportable segments are aligned by key geographic areas due to the production of construction materials and related contracting services and one is based on product line. Each geographic segment offers a vertically integrated suite of products and services, including aggregates, ready-mix concrete, asphalt and contracting services, while the Energy Services segment, which has locations throughout our geographic footprint, produces and supplies liquid asphalt and related services, primarily for use in asphalt road construction. We also provide the details of Corporate Services, which includes accounting, legal, treasury, information technology, human resources and certain corporate expenses that support our operating segments. The internal reporting of these segments is defined based on the reporting and review process used by our chief executive officer and chief operating officer.
In the fourth quarter of 2023, we realigned our reportable segments to better support our operational strategies. The liquid asphalt and related services portion of the Pacific segment’s businesses are now reported under the Energy Services segment. In addition, the North Central and South operating regions have been aggregated into one reportable segment, Central. We also reallocated certain amounts to the operating segments that were previously reported within Corporate Services. All periods have been recast to conform with the revised presentation. For more information on the Company's business segments, see Note 14 of the Notes to Consolidated Financial Statements.
On May 31, 2023, the separation of Knife River from MDU Resources Group, Inc. ("MDU Resources") and its other businesses was completed and Knife River became an independent, publicly traded company ("Separation") listed on the New York Stock Exchange under the symbol "KNF". The Separation was completed as a tax-free spin-off for U.S. federal income tax purposes. As a result of the Separation, MDU Resources distributed shares representing approximately 90 percent of Knife River's outstanding common stock to holders of record of MDU Resources' common stock as of the close of business on May 22, 2023 ("Distribution"). In November 2023, MDU Resources disposed of all retained shares of Knife River.
3
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, | |||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||
| (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 | ||||||||||||||
| Income before income taxes | ||||||||||||||
| Income tax expense | ||||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||
Net income per share: | ||||||||||||||
| Basic | $ | $ | $ | $ | ||||||||||
| Diluted | $ | $ | $ | $ | ||||||||||
| Weighted average common shares outstanding: | ||||||||||||||
| Basic | ||||||||||||||
| Diluted | ||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
| Knife River Corporation | |||||||||||||||||
| Consolidated Statements of Comprehensive Income | |||||||||||||||||
| (Unaudited) | |||||||||||||||||
| Three Months Ended | Six Months Ended | ||||||||||||||||
| June 30, | June 30, | ||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||
| (In thousands) | |||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||
| Other comprehensive income: | |||||||||||||||||
Reclassification adjustment for loss on derivative instruments included in net income, net of tax of $ | |||||||||||||||||
| Postretirement liability adjustment: | |||||||||||||||||
Postretirement liability 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.
5
| Knife River Corporation | |||||||||||
| Consolidated Balance Sheets | |||||||||||
| (Unaudited) | |||||||||||
| June 30, 2024 | June 30, 2023 | December 31, 2023 | |||||||||
| 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 | |||||||||||
| 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 | $ | $ | $ | ||||||||
| Accounts payable | |||||||||||
| Billings in excess of costs and estimated earnings on uncompleted contracts | |||||||||||
| Taxes payable | |||||||||||
| Accrued compensation | |||||||||||
Accrued interest | |||||||||||
| Current operating lease liabilities | |||||||||||
| Other accrued liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Noncurrent liabilities: | |||||||||||
| Long-term debt | |||||||||||
| Deferred income taxes | |||||||||||
| Noncurrent operating lease liabilities | |||||||||||
| Other | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies | |||||||||||
| Stockholders' equity: | |||||||||||
Common stock, | |||||||||||
| Other paid-in capital | |||||||||||
| Retained earnings | |||||||||||
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.
6
| Knife River Corporation | ||||||||||||||||||||||||||||||||
| Consolidated Statements of Equity | ||||||||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||||||||
| Common Stock | Other Paid-in Capital | Retained Earnings | MDU Resources' Stock Held by Subsidiary | Treasury Stock | Accumula-ted Other Comprehe-nsive Loss | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Total | ||||||||||||||||||||||||||
| (In thousands, except shares) | ||||||||||||||||||||||||||||||||
At December 31, 2023 | $ | $ | $ | $ | ( | $ | ( | $ | ( | $ | ||||||||||||||||||||||
| Net loss | — | — | — | ( | — | — | — | — | — | ( | ||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Common stock issued for employee compensation, net of tax withholding | — | ( | — | — | — | — | — | — | ( | |||||||||||||||||||||||
| At March 31, 2024 | $ | $ | $ | $ | ( | $ | ( | $ | ( | $ | ||||||||||||||||||||||
Net income | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| Other comprehensive Income | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Stock-based compensation expense | — | — | ( | — | — | — | — | — | ||||||||||||||||||||||||
Common stock issued for board of director fees | — | ( | — | — | — | — | — | — | ( | |||||||||||||||||||||||
| At June 30, 2024 | $ | $ | $ | $ | ( | $ | ( | $ | ( | $ | ||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| Knife River Corporation | ||||||||||||||||||||||||||||||||
| Consolidated Statements of Equity | ||||||||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||||||||
| Common Stock | Other Paid-in Capital | Retained Earnings | MDU Resources' Stock Held by Subsidiary | Treasury Stock | Accumula-ted Other Comprehe-nsive Loss | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Total | ||||||||||||||||||||||||||
| (In thousands, except shares) | ||||||||||||||||||||||||||||||||
At December 31, 2022 | $ | $ | $ | ( | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||||
| Net loss | — | — | — | ( | — | — | — | — | — | ( | ||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Stock-based compensation expense | — | — | ( | — | — | — | — | — | ||||||||||||||||||||||||
| Net transfers to Centennial | — | — | ( | ( | — | — | — | — | — | ( | ||||||||||||||||||||||
At March 31, 2023 | $ | $ | $ | ( | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||||
Net income | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| Other comprehensive Income | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | — | — | — | |||||||||||||||||||||||||
| 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 | $ | $ | $ | $ | ( | $ | ( | $ | ( | $ | ||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
7
| Knife River Corporation | ||||||||
| Consolidated Statements of Cash Flows | ||||||||
| (Unaudited) | ||||||||
| Six Months Ended | ||||||||
| June 30, | ||||||||
| 2024 | 2023 | |||||||
| (In thousands) | ||||||||
| Operating activities: | ||||||||
| Net income | $ | $ | ||||||
Adjustments to reconcile net income 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 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 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 | ( | |||||||
Tax withholding on stock-based compensation | ( | |||||||
| Net transfers to Centennial | ( | |||||||
| Net cash provided by (used in) 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.
8
Knife River Corporation
Notes to Consolidated
Financial Statements
June 30, 2024 and 2023
(Unaudited)
Note 1 - Background
Knife River is a people-first construction materials and contracting services company. We provide construction materials and contracting services to build safe roads, bridges, airport runways and other critical infrastructure needs that connect people with where they want to go and with the supplies they need. Knife River is one of the leading providers of crushed stone and sand and gravel in the United States and operates across 14 states. We conduct our operations through five reportable segments: Pacific, Northwest, Mountain, Central and Energy Services.
In the fourth quarter of 2023, we realigned our reportable segments to better support our operational strategies. As a result, a portion of the Pacific segment’s businesses are now reported under the Energy Services segment. In addition, the North Central and South operating regions have been aggregated into one reportable segment, Central. We also reallocated certain amounts to the operating segments that were previously reported within Corporate Services. All periods have been recast to conform with the revised presentation. See Note 14 for additional information.
Separation from MDU Resources
On May 31, 2023, MDU Resources completed the previously announced separation of Knife River through the distribution of approximately 90 percent of the outstanding shares of common stock, par value $.01 per share, of Knife River to the stockholders of record of MDU Resources as of the close of business on May 22, 2023. MDU Resources retained approximately 10 percent of the outstanding shares of Knife River common stock. The Distribution was structured as a pro rata distribution of one share of Knife River common stock for every four shares of MDU Resources common stock. In November 2023, MDU Resources disposed of all 5,656,621 retained shares of Knife River common stock in an underwritten public offering. As a result of the Distribution, Knife River is now an independent public company and its common stock is listed under the symbol “KNF” on the New York Stock Exchange.
All share and earnings per share information has been retroactively adjusted for all periods presented to reflect the Distribution.
Note 2 - Basis of presentation
The accompanying consolidated interim financial statements were prepared in accordance with accounting principles generally accepted in the United States of America ("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 2023 Annual Report on Form 10-K ("Annual Report"). 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.
Prior to the Separation, Knife River operated as a wholly owned subsidiary of Centennial Energy Holdings, Inc., a direct wholly owned subsidiary of MDU Resources and the direct parent company of Knife River prior to the spinoff ("Centennial") and an indirect, wholly owned subsidiary of MDU Resources and not as a stand-alone company. The accompanying consolidated financial statements and footnotes for the periods prior to the Separation were prepared on a "carve-out" basis using a legal entity approach in conformity with GAAP and were derived from the consolidated financial statements of MDU Resources as if Knife River operated on a stand-alone basis during these periods.
All revenues and costs, as well as assets and liabilities, directly associated with our business activities 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 and other income. For the three and six months ended June 30, 2023, the amount allocated to Knife River was $4.7 million and $9.6 million, respectively, in selling, general and administrative expenses and $300,000 and $600,000 , respectively, in other income. These items were allocated 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 were 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. The allocations may not, however, reflect the expenses we would have incurred as a
9
stand-alone company for the periods presented. These costs also may not be indicative of the expenses that we will incur in the future or would have incurred if we had obtained these services from a third party.
Management has also evaluated the impact of events occurring after June 30, 2024, up to the date of issuance of these consolidated interim financial statements on August 6, 2024, that would require recognition or disclosure in the Consolidated Financial Statements.
Principles of consolidation
Use of estimates
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Estimates are used for items such as long-lived assets and goodwill; fair values of acquired assets and liabilities under the acquisition method of accounting; aggregate reserves; property depreciable lives; tax provisions; revenue recognized using the cost-to-cost measure of progress for contracts; expected credit losses; environmental and other loss contingencies; costs on contracting services contracts; actuarially determined benefit costs; asset retirement obligations; lease classification; present value of right-of-use assets and lease liabilities; and the valuation of stock-based compensation. These estimates are based on management’s best knowledge of current events, historical experience, actions that we may undertake in the future and on various other assumptions that are believed to be reasonable under the circumstances. As additional information becomes available, or actual amounts are determinable, the recorded estimates are revised. Consequently, operating results can be affected by revisions to prior accounting estimates.
Cash, cash equivalents and restricted cash
| June 30, 2024 | June 30, 2023 | December 31, 2023 | |||||||||
| (In thousands) | |||||||||||
Cash and cash equivalents | $ | $ | $ | ||||||||
Restricted cash | |||||||||||
Cash, cash equivalents and restricted cash | $ | $ | $ | ||||||||
Seasonality of operations
Some of our 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 Knife River as a whole, may not be indicative of results for the full fiscal year or other future periods.
10
Note 3 - New accounting standards
The following table provides a brief description of the accounting pronouncements applicable to Knife River and the potential impact on its consolidated financial statements and/or disclosures:
| Standard | Description | Standard Effective Date | Impact on financial statements/disclosures | ||||||||
Recently issued Financial Accounting Standards Board (FASB) accounting standards updates ("ASU") not yet adopted | |||||||||||
| ASU 2023-07 - Improvements to Reportable Segment Disclosures | In November 2023, the FASB issued guidance on modifying the disclosure requirements to improve reportable segment disclosure requirements through enhanced disclosures about significant segment expenses. The guidance also expands the interim disclosure requirements. The guidance is to be applied on a retrospective basis to the financial statements and footnotes and early adoption is permitted. | Fiscal periods beginning after December 15, 2023 and interim periods beginning after December 31, 2024 | The Company is currently evaluating the impact the guidance will have on its disclosures for the year ended December 31, 2024 and interim periods for fiscal year 2025. | ||||||||
| ASU 2023-09 - Improvements to Income Tax Disclosures | In December 2023, the FASB issued guidance on modifying the disclosure requirements to increase transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. The guidance is to be applied on a prospective basis to the financial statements and footnotes, however, retrospective adoption is also permitted. The guidance also permits early adoption. | Fiscal periods beginning after December 15, 2024 | The Company is currently evaluating the impact the guidance will have on its disclosures for the year ended December 31, 2025. | ||||||||
Note 4 - Receivables and allowance for expected credit losses
| June 30, 2024 | June 30, 2023 | December 31, 2023 | |||||||||
| (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 | Central | Energy Services | Total | |||||||||||||||
| (In thousands) | ||||||||||||||||||||
As of December 31, 2023 | $ | $ | $ | $ | $ | $ | ||||||||||||||
| Current expected credit loss provision | ( | ( | ( | |||||||||||||||||
| Less write-offs charged against the allowance | ( | |||||||||||||||||||
At March 31, 2024 | $ | $ | $ | $ | $ | $ | ||||||||||||||
| Current expected credit loss provision | ||||||||||||||||||||
| Less write-offs charged against the allowance | ||||||||||||||||||||
At June 30, 2024 | $ | $ | $ | $ | $ | $ | ||||||||||||||
11
| Pacific | Northwest | Mountain | Central | Energy Services | Total | |||||||||||||||
| (In thousands) | ||||||||||||||||||||
| As of 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 | $ | $ | $ | $ | $ | $ | ||||||||||||||
Note 5 - Inventories
Inventories on the Consolidated Balance Sheets were as follows:
| June 30, 2024 | June 30, 2023 | December 31, 2023 | |||||||||
| (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 our 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 6 - Net income per share
| Three Months Ended | Six Months Ended | |||||||||||||
| June 30, | June 30, | |||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||
| (In thousands, except per share amounts) | ||||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||
| Weighted average common shares outstanding - basic | ||||||||||||||
Effect of dilutive performance shares and restricted stock units | ||||||||||||||
| Weighted average common shares outstanding - diluted | ||||||||||||||
Shares excluded from the calculation of diluted loss per share | ||||||||||||||
Net income per share - basic | $ | $ | $ | $ | ||||||||||
Net income per share - diluted | $ | $ | $ | $ | ||||||||||
12
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) | ||||||||||||||
| As of December 31, 2023 | $ | $ | ( | $ | ( | |||||||||
| Amounts reclassified from accumulated other comprehensive loss | ||||||||||||||
| Net current-period other comprehensive income | ||||||||||||||
At March 31, 2024 | $ | $ | ( | $ | ( | |||||||||
| Amounts reclassified from accumulated other comprehensive loss | ||||||||||||||
| Net current-period other comprehensive income | ||||||||||||||
At June 30, 2024 | $ | $ | ( | $ | ( | |||||||||
| Net Unrealized Loss on Derivative Instruments Qualifying as Hedges | Postretirement Liability Adjustment | Total Accumulated Other Comprehensive Loss | ||||||||||||
| (In thousands) | ||||||||||||||
| As of 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 | $ | $ | ( | $ | ( | |||||||||
The following amounts were reclassified out of accumulated other comprehensive loss into net income. The amounts presented in parenthesis indicate a decrease to net income 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, | ||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||
| (In thousands) | |||||||||||||||||
Reclassification adjustment for loss on derivative instruments included in net income | $ | $ | ( | $ | $ | ( | Interest expense | ||||||||||
| Income taxes | |||||||||||||||||
| ( | ( | ||||||||||||||||
| Amortization of postretirement liability losses included in net periodic benefit cost | ( | ( | ( | ( | Other income | ||||||||||||
| Income taxes | |||||||||||||||||
| ( | ( | ( | ( | ||||||||||||||
| Total reclassifications | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||
13
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. We believe 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 14.
| Three Months Ended June 30, 2024 | Pacific | Northwest | Mountain | Central | Energy Services | Corporate Services and Eliminations | Total | ||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Aggregates | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||
| Ready-mix concrete | |||||||||||||||||||||||
| Asphalt | |||||||||||||||||||||||
Liquid asphalt | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Contracting services public-sector | |||||||||||||||||||||||
| Contracting services private-sector | |||||||||||||||||||||||
| Internal sales | ( | ( | ( | ( | ( | ( | ( | ||||||||||||||||
Revenues from contracts with customers | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||
| Three Months Ended June 30, 2023 | Pacific | Northwest | Mountain | Central | Energy Services | Corporate Services and Eliminations | Total | ||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Aggregates | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||
| Ready-mix concrete | |||||||||||||||||||||||
| Asphalt | |||||||||||||||||||||||
Liquid asphalt | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Contracting services public-sector | |||||||||||||||||||||||
| Contracting services private-sector | |||||||||||||||||||||||
| Internal sales | ( | ( | ( | ( | ( | ( | |||||||||||||||||
Revenues from contracts with customers | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||
| Six Months Ended June 30, 2024 | Pacific | Northwest | Mountain | Central | Energy Services | Corporate Services and Eliminations | Total | ||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Aggregates | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||
| Ready-mix concrete | |||||||||||||||||||||||
| Asphalt | |||||||||||||||||||||||
Liquid asphalt | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Contracting services public-sector | |||||||||||||||||||||||
| Contracting services private-sector | |||||||||||||||||||||||
| Internal sales | ( | ( | ( | ( | ( | ( | ( | ||||||||||||||||
Revenues from contracts with customers | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||
14
| Six Months Ended June 30, 2023 | Pacific | Northwest | Mountain | Central | Energy Services | Corporate Services and Eliminations | Total | ||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Aggregates | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||
| Ready-mix concrete | |||||||||||||||||||||||
| Asphalt | |||||||||||||||||||||||
Liquid 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, 2024 | December 31, 2023 | 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) | $ | $ | ( | $ | ||||||||||
| 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 $14.4 million and $44.9 million in revenue for the three and six months ended June 30, 2024, respectively, which was previously included in contract liabilities at December 31, 2023. 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 a net increase in revenues of $15.1 million and $21.2 million for the three and six months ended June 30, 2024, respectively, from performance obligations satisfied in prior periods. 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.
15
Remaining performance obligations
The remaining performance obligations, also referred to as backlog, include unrecognized revenues that we reasonably expect 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 our contracts for contracting services have an original duration of less than one year.
At June 30, 2024, the Company's remaining performance obligations were $988.5 million. We expect to recognize the following revenue amounts in future periods related to these remaining performance obligations: $936.7 million within the next 12 months or less; $44.0 million within the next 13 to 24 months; and $7.8 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, 2024 | Goodwill Acquired During the Year | Measurement Period Adjustments | Reallocation of Goodwill | Balance at June 30, 2024 | |||||||||||||
| (In thousands) | |||||||||||||||||
| Pacific | $ | $ | $ | $ | $ | ||||||||||||
| Northwest | |||||||||||||||||
| Mountain | |||||||||||||||||
North Central | |||||||||||||||||
South | |||||||||||||||||
| Energy Services | |||||||||||||||||
| Total | $ | $ | $ | $ | $ | ||||||||||||
Balance at January 1, 2023 | Goodwill Acquired During the Year | Measurement Period Adjustments | Reallocation of Goodwill | Balance at June 30, 2023 | |||||||||||||
| (In thousands) | |||||||||||||||||
| Pacific | $ | $ | $ | ( | $ | $ | |||||||||||
| Northwest | |||||||||||||||||
| Mountain | |||||||||||||||||
North Central | |||||||||||||||||
South | |||||||||||||||||
| Energy Services | |||||||||||||||||
| Total | $ | $ | $ | ( | $ | $ | |||||||||||
Balance at January 1, 2023 | Goodwill Acquired During the Year | Measurement Period Adjustments | Reallocation of Goodwill | Balance at December 31, 2023 | |||||||||||||
| (In thousands) | |||||||||||||||||
| Pacific | $ | $ | $ | ( | $ | ( | $ | ||||||||||
| Northwest | |||||||||||||||||
| Mountain | |||||||||||||||||
North Central | |||||||||||||||||
South | |||||||||||||||||
| Energy Services | |||||||||||||||||
| Total | $ | $ | $ | ( | $ | $ | |||||||||||
16
Other amortizable intangible assets were as follows:
| June 30, 2024 | June 30, 2023 | December 31, 2023 | |||||||||
| (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, 2024, was $526,000 and $1.1 million, respectively. Amortization expense for amortizable intangible assets for the three and six months ended June 30, 2023, was $653,000 and $1.3 million, respectively. Estimated amortization expense for identifiable intangible assets as of June 30, 2024, was:
| Remainder of 2024 | 2025 | 2026 | 2027 | 2028 | Thereafter | |||||||||||||||
| (In thousands) | ||||||||||||||||||||
| Amortization expense | $ | $ | $ | $ | $ | $ | ||||||||||||||
Note 11 - Fair value measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. The fair value guidance establishes a hierarchy for grouping assets and liabilities, based on the significance of inputs. The estimated fair values of the Company's assets and liabilities measured on a recurring basis are determined using the market approach.
Financial instruments measured at fair value on a recurring basis
The Company's assets measured at fair value on a recurring basis were as follows:
| Fair Value Measurements at June 30, 2024, 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, 2024 | |||||||||||
| (In thousands) | ||||||||||||||
| Assets: | ||||||||||||||
| Money market funds | $ | $ | $ | $ | ||||||||||
| Insurance contracts* | ||||||||||||||
| Total assets measured at fair value | $ | $ | $ | $ | ||||||||||
* The insurance contracts invest approximately 36 percent in fixed-income investments, 23 percent in common stock of large-cap companies, 15 percent in cash equivalents, 9 percent in common stock of mid-cap companies, 9 percent target date investments, 5 percent in common stock of small-cap companies, 1 percent in international investments, 1 percent in real estate investments and 1 percent in high yield investments.
17
| 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 target date investments.
| Fair Value Measurements at December 31, 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 December 31, 2023 | |||||||||||
| (In thousands) | ||||||||||||||
| Assets: | ||||||||||||||
| Money market funds | $ | $ | $ | $ | ||||||||||
| Insurance contracts* | ||||||||||||||
| Total assets measured at fair value | $ | $ | $ | $ | ||||||||||
* The insurance contracts invest approximately 40 percent in fixed-income investments, 19 percent in common stock of large-cap companies, 18 percent in cash equivalents, 8 percent in target date investments, 8 percent in common stock of mid-cap companies, 6 percent in common stock of small-cap companies and 1 percent in international investments.
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 is 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 we believe 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.
Nonfinancial instruments measured at fair value on a nonrecurring basis
We apply the provisions of the fair value measurement standard to our 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. We review the carrying value of our long-lived assets, excluding goodwill, whenever events or changes in circumstances indicate that such carrying amounts may not be recoverable.
The assets and liabilities of the acquisitions that occurred during the second quarter of 2024 were calculated using a market or cost approach. The fair value of some of the assets was determined based on Level 3 inputs including estimated future cash flows, discount rates, growth rates and sales projections, all of which require significant management judgment.
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
18
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, 2024 | June 30, 2023 | December 31, 2023 | |||||||||
| (In thousands) | |||||||||||
| Carrying amount | $ | $ | $ | ||||||||
| Fair value | $ | $ | $ | ||||||||
The carrying amounts of our remaining financial instruments included in current assets and current liabilities approximate their fair values.
Note 12 - Debt
Certain debt instruments of the Company contain restrictive covenants and cross-default provisions. In order to borrow under the debt agreements, we must be in compliance with the applicable covenants and certain other conditions, all of which the Company, as applicable, was in compliance with at June 30, 2024. In the event we do not comply with the applicable covenants and other conditions, alternative sources of funding may need to be pursued.
Long-term Debt Outstanding Long-term debt outstanding was as follows:
Weighted Average Interest Rate at June 30, 2024 | June 30, 2024 | June 30, 2023 | December 31, 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, 2024, were as follows:
Remainder of 2024 | 2025 | 2026 | 2027 | 2028 | Thereafter | |||||||||||||||
| (In thousands) | ||||||||||||||||||||
| Long-term debt maturities | $ | $ | $ | $ | $ | $ | ||||||||||||||
19
Note 13 - Cash flow information
Cash expenditures for interest and income taxes were as follows:
| Six Months Ended | ||||||||
| June 30, | ||||||||
| 2024 | 2023 | |||||||
| (In thousands) | ||||||||
Interest paid, net | $ | $ | ||||||
| Income taxes paid, net | $ | $ | ||||||
| Six Months Ended | |||||||||||
| June 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| (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 | $ | $ | |||||||||
Note 14 - Business segment data
We focus on the vertical integration of our products and services by offering customers a single source for construction materials and related contracting services. We operate in 14 states across the United States through our operating segments: Pacific, Northwest, Mountain, North Central, South and Energy Services. These operating segments are used to determine the Company’s reportable segments, Pacific, Northwest, Mountain, Central and Energy Services, which are based on our method of internal reporting and management of our business. Four of the reportable segments are aligned by key geographic areas due to the production of construction materials and related contracting services and one is based on product line. Each segment is led by a segment manager who reports to the Company’s chief operating officer, who is also the Company's chief operating decision maker, along with the chief executive officer. The chief operating decision maker evaluates the performance of the segments and allocates resources to them based on earnings before interest, taxes, depreciation, depletion and amortization ("EBITDA").
In the fourth quarter of 2023, we realigned our reportable segments to better support our operational strategies. The liquid asphalt and related services portion of the Pacific segment's businesses are now reported under the Energy Services segment. In addition, the North Central and South operating regions have been aggregated into one reportable segment, Central. We also reallocated certain amounts to the operating segments that were previously reported within Corporate Services. All periods have been recast to conform with the revised presentation.
Corporate Services represents the unallocated costs of certain corporate functions, such as accounting, legal, treasury, information technology, human resources and other corporate expenses that support the operating segments. We account for intersegment sales and transfers as if the sales or transfers were to third parties. The accounting policies applicable to each segment are consistent with those used in the audited consolidated financial statements.
20
The information below follows the same accounting policies as described in the audited financial statements and notes included in the Company's 2023 Annual Report. Information on the Company's segments was as follows:
| Three Months Ended | Six Months Ended | |||||||||||||||||||
| June 30, | June 30, | |||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||
| (In thousands) | ||||||||||||||||||||
| External operating revenues: | ||||||||||||||||||||
| Pacific | $ | $ | $ | $ | ||||||||||||||||
| Northwest | ||||||||||||||||||||
| Mountain | ||||||||||||||||||||
| Central | ||||||||||||||||||||
| Energy Services | ||||||||||||||||||||
Total reportable segment external operating revenues | $ | $ | $ | $ | ||||||||||||||||
| Intersegment operating revenues: | ||||||||||||||||||||
| Pacific | $ | $ | $ | $ | ||||||||||||||||
| Northwest | ||||||||||||||||||||
| Mountain | ||||||||||||||||||||
| Central | ||||||||||||||||||||
| Energy Services | ||||||||||||||||||||
Total reportable segment intersegment operating revenues | $ | $ | $ | $ | ||||||||||||||||
| EBITDA: | ||||||||||||||||||||
| Pacific | $ | $ | $ | $ | ||||||||||||||||
| Northwest | ||||||||||||||||||||
| Mountain | ||||||||||||||||||||
| Central | ||||||||||||||||||||
| Energy Services | ||||||||||||||||||||
Total reportable segment EBITDA | $ | $ | $ | $ | ||||||||||||||||
A reconciliation of consolidated operating revenues to reportable segment operating revenues is as follows:
| Three Months Ended | Six Months Ended | |||||||||||||
| June 30, | June 30, | |||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||
| (In thousands) | ||||||||||||||
Consolidated operating revenues | $ | $ | $ | $ | ||||||||||
Plus: | ||||||||||||||
Intersegment operating revenues | ||||||||||||||
Less: | ||||||||||||||
| Corporate Services revenue | ||||||||||||||
| Total reportable segment operating revenues | $ | $ | $ | $ | ||||||||||
21
A reconciliation of consolidated net income before income taxes to reportable segment EBITDA is as follows:
| Three Months Ended | Six Months Ended | |||||||||||||
| June 30, | June 30, | |||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||
| (In thousands) | ||||||||||||||
Total consolidated net income before income taxes | $ | $ | $ | $ | ||||||||||
Plus: | ||||||||||||||
| Depreciation, depletion and amortization | ||||||||||||||
| Interest expense, net* | ||||||||||||||
Less: | ||||||||||||||
| Corporate Services EBITDA | ( | ( | ( | ( | ||||||||||
| Total EBITDA for reportable segments | $ | $ | $ | $ | ||||||||||
*Interest, net is interest expense net of interest income. | ||||||||||||||
Note 15 - Commitments and contingencies
The Company is party to claims and lawsuits arising out of its business and that of its consolidated subsidiaries, which may include, but are not limited to, matters involving property damage, personal injury, and environmental, contractual and statutory obligations. We accrue a liability for those contingencies when the incurrence of a loss is probable and the amount can be reasonably estimated. If a range of amounts can be reasonably estimated and no amount within the range is a better estimate than any other amount, then the minimum of the range is accrued. We do not accrue liabilities when the likelihood that the liability has been incurred is probable but the amount cannot be reasonably estimated or when the liability is believed to be only reasonably possible or remote. For contingencies where an unfavorable outcome is probable or reasonably possible and which are material, we disclose the nature of the contingency and, in some circumstances, an estimate of the possible loss. Accruals are based on the best information available, but in certain situations management is unable to estimate an amount or range of a reasonably possible loss including, but not limited to when: (1) the damages are unsubstantiated or indeterminate, (2) the proceedings are in the early stages, (3) numerous parties are involved, or (4) the matter involves novel or unsettled legal theories.
At June 30, 2024 and 2023, and December 31, 2023, we accrued contingent liabilities as a result of litigation, which have not been discounted, of $3.2 million, $970,000 and $873,000 , respectively. At June 30, 2024 and 2023 and December 31, 2023, we also recorded corresponding insurance receivables of $0 , $325,000 and $42,000 , respectively, related to the accrued liabilities. Most of these claims and lawsuits are covered by insurance, thus the Company's exposure is typically limited to its deductible amount. Management will continue to monitor each matter and adjust accruals as might be warranted based on new information and further developments. Management believes that the outcomes with respect to probable and reasonably possible losses in excess of the amounts accrued, net of insurance recoveries, while uncertain, either cannot be estimated or will not have a material effect upon the Company's financial position, results of operations or cash flows. Unless otherwise required by GAAP, legal costs are expensed as they are incurred.
Environmental matters
The Company is a party to claims for the cleanup of a superfund site in Portland, Oregon. There were no material changes to the environmental matters that were previously reported in the audited financial statements and notes included in the Company's 2023 Annual Report.
Guarantees
Knife River and certain of its subsidiaries 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, 2024, 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, 2024.
Knife River and certain of its subsidiaries have outstanding letters of credit to third parties related to insurance policies, cement purchases and other agreements. At June 30, 2024, the fixed maximum amounts guaranteed under these letters of credit aggregated $20.9 million. At June 30, 2024, the amounts of scheduled expiration of the maximum amounts guaranteed under these letters of credit aggregate to $335,000 in 2024, $20.5 million in 2025, $0 in 2026 and $104,000 in 2027. There were no amounts outstanding under the previously mentioned letters of credit at June 30, 2024.
In the normal course of business, we have surety bonds related to contracts for contracting services, reclamation obligations and insurance policies of its subsidiaries. In the event a subsidiary of Knife River 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 are expected to expire within the next 12 months; however, we will likely continue to enter into surety bonds for our
22
subsidiaries in the future. At June 30, 2024, approximately $894.2 million of surety bonds were outstanding, which were not reflected on the Consolidated Balance Sheet.
Note 16 - Related-party transactions
Transition services agreements
As part of the Separation, MDU Resources is providing transition services to Knife River and Knife River is providing transition services to MDU Resources in accordance with the Transition Services Agreement entered into on May 30, 2023. The Company paid $413,000 and $599,000 for the three months ended and $1.2 million and $599,000 for the six months ended June 30, 2024 and 2023, respectively, related to these activities, which were reflected in selling, general and administrative expenses on the Consolidated Statements of Operations. The Company received $62,000 and $277,000 for the three months ended and $138,000 and $277,000 for the six months ended June 30, 2024 and 2023, respectively, related to these activities, which were reflected in other income on the Consolidated Statements of Operations. The majority of the transition services were completed over a period of one year after the Separation. The Company expects minimal continued services by Knife River to MDU Resources through May 2025.
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
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended ("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 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, Knife River Corporation ("Knife River," the "Company," "we," "our," or "us") may publish or otherwise make available forward-looking statements of this nature, including statements related to its Competitive EDGE strategy ("EDGE") implemented to improve margins and to execute on other strategic initiatives aimed at generating long-term profitable growth.
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 "Item 1A. Risk Factors" in Part I of the Company's 2023 Annual Report on Form 10-K ("Annual Report") and subsequent filings with the United States Securities and Exchange Commission ("SEC").
Company Overview
Knife River is a people-first construction materials and contracting services company. We provide construction materials and contracting services to build safe roads, bridges, airport runways and other critical infrastructure needs that connect people with where they want to go and with the supplies they need. We also champion a positive workplace culture by focusing on safety, training, inclusion, compensation and work-life balance.
Knife River is one of the leading providers of crushed stone and sand and gravel in the United States and operates through six operating segments across 14 states: Pacific, Northwest, Mountain, North Central, South and Energy Services. These operating segments are used to determine the Company's reportable segments and are based on our method of internal reporting and management of our business, as discussed in Note 14. The Company's reportable segments are: Pacific, Northwest, Mountain, Central and Energy Services. The geographic segments primarily provide aggregates, asphalt and ready-mix concrete, as well as related contracting services such as heavy-civil construction, asphalt paving, concrete construction, site development and grading. The Energy Services segment produces and supplies liquid asphalt and related services, primarily for use in asphalt road construction.
As an aggregates-led construction materials and contracting services provider in the United States, our 1.1 billion tons of aggregate reserves provide the foundation for a vertically integrated business strategy, with approximately 37 percent of our aggregates in 2023 being used internally to support value-added downstream products (ready-mix concrete and asphalt) and contracting services (heavy-civil construction, laydown, asphalt paving, concrete construction, site development and grading services, bridges and in some segments the manufacturing of prestressed concrete products). Our aggregate sites and associated asphalt and ready-mix plants are primarily in strategic locations near mid-sized, high-growth markets, providing us with a transportation advantage for our materials that supports competitive pricing and increased margins. We provide our 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.
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We provide various products and services and operate a variety of facility types, including aggregate quarries and mines, ready-mix concrete plants, asphalt plants and distribution facilities, in the following states:
•Pacific: Alaska, California and Hawaii
•Northwest: Oregon and Washington
•Mountain: Idaho, Montana and Wyoming
•Central: Iowa, Minnesota, North Dakota, South Dakota and Texas
•Energy Services: California, Iowa, Nebraska, South Dakota, Texas and Wyoming
The following table presents a summary of products and services provided, as well as modes of transporting those products:
| Products and Services | Modes of Transportation | ||||||||||||||||||||||||||||||||||
| Precast/ | |||||||||||||||||||||||||||||||||||
| Ready-Mix | Construction | Prestressed | Liquid | Heavy | |||||||||||||||||||||||||||||||
| Aggregates | Asphalt | Concrete | Services | Concrete | Asphalt | Cement | Equipment | Trucking | Rail | Barge | |||||||||||||||||||||||||
| Pacific | 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 | |||||||||||||||||||||||||||||
| Central | X | X | X | X | X | X | X | X | |||||||||||||||||||||||||||
| Energy Services | X | X | X | ||||||||||||||||||||||||||||||||
Basis of Presentation
On May 31, 2023, Knife River became a stand-alone publicly traded company. Prior to the Separation, Knife River operated as a wholly owned subsidiary of Centennial Energy Holdings, Inc. ("Centennial") and an indirect, wholly owned subsidiary of MDU Resources Group, Inc. ("MDU Resources") and not as a stand-alone company. The accompanying historical consolidated financial statements and footnotes for the periods prior to the Separation were prepared on a “carve-out” basis using the legal entity approach in conformity with accounting principles generally accepted in the United States of America ("GAAP") and were derived from the consolidated financial statements of MDU Resources as if Knife River operated on a stand-alone basis during these periods. For additional information related to the basis of presentation, see Note 2.
All intercompany balances and transactions between the businesses comprising Knife River have been eliminated in the accompanying consolidated financial statements.
In the fourth quarter of 2023, we realigned our reportable segments to better support our operational strategies. The liquid asphalt and related services portion of the Pacific segment’s businesses are now reported under the Energy Services segment. In addition, the North Central and South operating regions have been aggregated into one reportable segment, Central. We also reallocated certain amounts to the operating segments that were previously reported within Corporate Services. All periods have been recast to conform with the revised presentation.
Market Conditions and Outlook
Our markets remain resilient and construction activity remains generally strong, despite ongoing general and economic challenges in the United States. While we experienced inflationary pressures in recent years, price increases for our products and services have generally outpaced these increased costs. Further, approximately 80 percent of our contracting services revenue each year comes from public-sector projects, enhancing stability through market cycles. For more information on factors that may negatively impact Knife River's business, see the section entitled "Item 1A. Risk Factors" in Part I of the Company's 2023 Annual Report.
Backlog. Knife River’s contracting services backlog was as follows:
| June 30, 2024 | June 30, 2023 | December 31, 2023 | |||||||||
| (In millions) | |||||||||||
| Pacific | $ | 101.0 | $ | 78.3 | $ | 51.2 | |||||
| Northwest | 219.8 | 257.3 | 196.2 | ||||||||
| Mountain | 365.5 | 377.3 | 256.7 | ||||||||
| Central | 302.2 | 328.0 | 158.1 | ||||||||
| $ | 988.5 | $ | 1,040.9 | $ | 662.2 | ||||||
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Expected margins on backlog at June 30, 2024, were slightly higher than the expected margins on backlog at June 30, 2023. Of the $988.5 million of expected backlog at June 30, 2024, we expect to complete approximately $936.7 million in the 12 months following June 30, 2024. Approximately 87 percent of our backlog at June 30, 2024 relates to publicly funded projects, including street and highway construction projects, which are driven primarily by public works projects for state departments of transportation. Further, there continues to be infrastructure development, as discussed in the following section on Public Funding, which is expected to continue to provide bidding opportunities in our markets.
Period-over-period increases or decreases in backlog may not be indicative of future revenues, margins, net income or earnings before interest, taxes, depreciation, depletion and amortization ("EBITDA"). While we believe the current backlog of work remains firm, prolonged delays in the receipt of critical supplies and materials, among other things, could result in customers seeking to delay or terminate existing or pending agreements and could reduce expected margins. See the section entitled “Item 1A. Risk Factors” in Part I of the Company's 2023 Annual Report 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. States have moved forward with allocating funds from federal programs, such as the Infrastructure Investment and Jobs Act ("IIJA"), the American Rescue Plan Act and more. At the federal level, funding from IIJA is still being allocated. Approximately 56 percent of IIJA formula funding has yet to be obligated in our market areas. At the state level, eight of the 14 states in which we operate have introduced legislation to fund additional construction projects as of July 1, 2024. We continue to monitor the implementation and impact of these legislative items.
Profitability. Our management team continually monitors our margins and has been proactive in applying strategies to increase margins to support our long-term profitability goals. In 2023, we began implementing EDGE initiatives and established teams to deliver training, assist with targeting higher-margin bidding opportunities across the regions and pursue growth opportunities. The process improvement team ("PIT crew") visited 10 of our largest locations in 2023, including quarries, asphalt plants and ready-mix plants. In 2024, the PIT crew has been expanded to extend its influence to more locations and standardize best practices. The PIT crew has visited 98 sites across 10 states through the second quarter of 2024 and we expect the PIT crew to reach 31 additional sites in the second half of 2024.
Our management team has also continued to evaluate growth opportunities, both through organic growth and acquisitions. During the second quarter of 2024, we continued to advance a number of our strategic investments, including improvements to a number of our sites to increase efficiencies. Also during the second quarter of 2024, we completed two acquisitions that strategically align with our long-term objectives and that complement our existing operations, a small ready-mix operation in South Dakota and an existing aggregate site in Oregon. Our management team continues to focus on growth opportunities they believe will generate shareholder value.
Knife River operates in geographically diverse and competitive markets, and strives to maximize efficiencies, including transportation costs and economies of scale, to maintain strong margins. Our margins can experience negative pressure from competition, as well as impacts from the volatility in the cost of raw materials, such as diesel fuel, gasoline, natural gas, liquid asphalt, cement and steel, with fuel and liquid asphalt costs often having the most significant impact on results. Many of these raw materials are subject to factors that are beyond our control, including global economic and political events and new and changing governmental regulations. The Energy Services segment is particularly susceptible to variability in liquid asphalt costs, which can impact both cost of sales and revenues, for which we cannot reliably predict future pricing. Such variability and inflationary pressures may have an impact on our margins, including fixed-price contracting services contracts that are impacted by the variability of energy and material prices. We mitigate our exposure to these fluctuations by entering into various purchase commitments, as well as by generally including terms in our contracting services agreements that provide for price adjustments related to variations in raw materials costs.
Our operations can also be significantly impacted by both favorable and unfavorable weather conditions. Unseasonably dry or warm weather in the states where we operate can allow for a lengthened construction season or allow for an earlier start on specific projects, while unseasonably wet and/or cold weather in the states where we operate can delay the start or cause an early end to the construction season or cause temporary delays on specific projects. Either of these conditions can impact both our construction materials sales and contracting services revenues. Other variables that can impact margins include the timing of project starts or completions, pre-construction season activities including equipment repair and maintenance costs or equipment mobilization, 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, we continually take steps to address the challenge of recruitment and retention of our employees. We continue to deploy significant resources to attract, develop and retain qualified and diverse talent. As the United States continues to face shortages in the availability of individuals to fill construction careers, we have taken significant steps to showcase construction as a career of choice. We own and operate a state-of-the-art training facility, the Knife River Training Center, which is used corporate-wide to enhance the skills of both our new and existing employees through both classroom education and hands-on experience. One of the most popular courses at the Knife River Training Facility is the commercial driver's license
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training, which is helping to address an industry-wide labor shortage. The training facility also offers a variety of courses around leadership development for all Knife River employees.
Consolidated Overview
| Three Months Ended | Six Months Ended | ||||||||||||||||
| June 30, | June 30, | ||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||
| (In millions) | |||||||||||||||||
| Revenue | $ | 806.9 | $ | 785.2 | $ | 1,136.5 | $ | 1,093.1 | |||||||||
| Cost of revenue | 630.7 | 632.2 | 953.8 | 936.0 | |||||||||||||
| Gross profit | 176.2 | 153.0 | 182.7 | 157.1 | |||||||||||||
| Selling, general and administrative expenses | 59.5 | 59.5 | 119.7 | 108.1 | |||||||||||||
| Operating income | 116.7 | 93.5 | 63.0 | 49.0 | |||||||||||||
| Interest expense | 13.9 | 19.1 | 27.9 | 28.7 | |||||||||||||
| Other income | 1.3 | 2.5 | 5.1 | 3.3 | |||||||||||||
| Income before income taxes | 104.1 | 76.9 | 40.2 | 23.6 | |||||||||||||
| Income tax expense | 26.2 | 20.1 | 9.9 | 8.1 | |||||||||||||
| Net income | $ | 77.9 | $ | 56.8 | $ | 30.3 | $ | 15.5 | |||||||||
| EBITDA* | $ | 151.4 | $ | 125.1 | $ | 130.8 | $ | 111.0 | |||||||||
| Adjusted EBITDA* | $ | 154.3 | $ | 126.3 | $ | 136.6 | $ | 112.5 | |||||||||
*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 services revenue is recognized over time using an input method based on the cost-to-cost measure of progress on a project.
Cost of revenue includes all material, labor and overhead costs incurred in the production process for Knife River's products and services. 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 and administrative 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 includes net periodic benefit costs for the Company’s benefit plan expenses, other than service costs; interest income; realized and unrealized gains and losses on investments for the Company’s nonqualified benefit plans; earnings or losses on joint venture arrangements; and other miscellaneous income or expenses, including income and expenses related to the transition services agreement with MDU Resources.
Income tax expense consists of corporate income taxes related to the net income of the Company. Income taxes are presented at the corporate services level and not at the individual segments. 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, | ||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||||||
Dollars | Margin | Dollars | Margin | Dollars | Margin | Dollars | Margin | ||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||
| Revenues by segment: | |||||||||||||||||||||||||||||
| Pacific | $ | 131.8 | $ | 125.1 | $ | 210.2 | $ | 190.7 | |||||||||||||||||||||
| Northwest | 201.2 | 179.0 | 321.5 | 294.9 | |||||||||||||||||||||||||
| Mountain | 194.0 | 175.8 | 253.8 | 236.4 | |||||||||||||||||||||||||
| Central | 214.7 | 231.0 | 275.7 | 288.7 | |||||||||||||||||||||||||
| Energy Services | 76.2 | 84.1 | 89.0 | 93.5 | |||||||||||||||||||||||||
| Total segment revenues | 817.9 | 795.0 | 1,150.2 | 1,104.2 | |||||||||||||||||||||||||
| Corporate Services and Eliminations | (11.0) | (9.8) | (13.7) | (11.1) | |||||||||||||||||||||||||
| Consolidated revenues | $ | 806.9 | $ | 785.2 | $ | 1,136.5 | $ | 1,093.1 | |||||||||||||||||||||
| Gross profit by segment: | |||||||||||||||||||||||||||||
| Pacific | $ | 22.0 | 16.7% | $ | 22.1 | 17.7% | $ | 25.8 | 12.3% | $ | 26.5 | 13.9% | |||||||||||||||||
| Northwest | 51.5 | 25.6% | 41.2 | 23.0% | 71.7 | 22.3% | 57.9 | 19.6% | |||||||||||||||||||||
| Mountain | 43.8 | 22.6% | 32.1 | 18.3% | 40.1 | 15.8% | 29.1 | 12.3% | |||||||||||||||||||||
| Central | 38.2 | 17.8% | 32.9 | 14.2% | 25.2 | 9.1% | 20.7 | 7.2% | |||||||||||||||||||||
| Energy Services | 20.3 | 26.7% | 23.3 | 27.7% | 19.0 | 21.4% | 21.4 | 23.0% | |||||||||||||||||||||
| Total segment gross profit | 175.8 | 21.5% | 151.6 | 19.1% | 181.8 | 80.9% | 155.6 | 76.0% | |||||||||||||||||||||
| Corporate Services and Eliminations | .4 | (3.8)% | 1.4 | (13.6)% | .9 | (6.4)% | 1.5 | (13.1)% | |||||||||||||||||||||
| Consolidated gross profit | $ | 176.2 | 21.8% | $ | 153.0 | 19.5% | $ | 182.7 | 16.1% | $ | 157.1 | 14.4% | |||||||||||||||||
| Net income (loss) by segment: | |||||||||||||||||||||||||||||
| Pacific | $ | 11.7 | 8.8% | $ | 12.1 | 9.7% | $ | 5.1 | 2.4% | $ | 7.1 | 3.7% | |||||||||||||||||
| Northwest | 39.7 | 19.7% | 29.2 | 16.3% | 50.0 | 15.5% | 34.3 | 11.6% | |||||||||||||||||||||
| Mountain | 36.5 | 18.8% | 24.1 | 13.7% | 24.1 | 9.5% | 14.3 | 6.1% | |||||||||||||||||||||
| Central | 26.9 | 12.5% | 20.0 | 8.6% | (.5) | (.2)% | (5.0) | (1.7)% | |||||||||||||||||||||
| Energy Services | 18.1 | 23.8% | 20.5 | 24.4% | 14.4 | 16.2% | 16.3 | 17.5% | |||||||||||||||||||||
Total segment net income | 132.9 | 16.2% | 105.9 | 13.3% | 93.1 | 8.1% | 67.0 | 6.1% | |||||||||||||||||||||
Corporate Services and Eliminations (a) | (55.0) | N.M. | (49.1) | N.M. | (62.8) | N.M. | (51.5) | N.M. | |||||||||||||||||||||
Consolidated net income | $ | 77.9 | 9.7% | $ | 56.8 | 7.2% | $ | 30.3 | 2.7% | $ | 15.5 | 1.4% | |||||||||||||||||
EBITDA (b): | |||||||||||||||||||||||||||||
| Pacific | $ | 17.8 | 13.5% | $ | 17.4 | 14.0% | $ | 17.0 | 8.1% | $ | 17.6 | 9.2% | |||||||||||||||||
| Northwest | 50.7 | 25.2% | 38.9 | 21.7% | 70.9 | 22.1% | 52.9 | 17.9% | |||||||||||||||||||||
| Mountain | 43.1 | 22.2% | 30.3 | 17.2% | 37.0 | 14.6% | 26.5 | 11.2% | |||||||||||||||||||||
| Central | 36.2 | 16.9% | 28.4 | 12.3% | 17.4 | 6.3% | 11.5 | 4.0% | |||||||||||||||||||||
| Energy Services | 19.4 | 25.4% | 21.8 | 25.9% | 16.9 | 19.0% | 18.8 | 20.1% | |||||||||||||||||||||
Total segment EBITDA (b) | 167.2 | 20.4% | 136.8 | 17.2% | 159.2 | 13.8% | 127.3 | 11.5% | |||||||||||||||||||||
Corporate Services and Eliminations | (15.8) | 143.6% | (11.7) | 119.2% | (28.4) | 208.3% | (16.3) | 146.7% | |||||||||||||||||||||
Consolidated EBITDA (b) | $ | 151.4 | 18.8% | $ | 125.1 | 15.9% | $ | 130.8 | 11.5% | $ | 111.0 | 10.2% | |||||||||||||||||
(a)N.M. - not meaningful
(b)EBITDA, segment EBITDA, EBITDA margin and segment EBITDA margin are non-GAAP financial measures. For more information and a reconciliation to the nearest GAAP measure, see the section entitled "Non-GAAP Financial Measures."
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| Three Months Ended | Six Months Ended | ||||||||||||||||
| June 30, | June 30, | ||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||
| Sales (thousands): | |||||||||||||||||
| Aggregates (tons) | 9,408 | 9,181 | 13,663 | 14,049 | |||||||||||||
| Ready-mix concrete (cubic yards) | 975 | 1,113 | 1,505 | 1,674 | |||||||||||||
| Asphalt (tons) | 1,813 | 1,913 | 2,034 | 2,092 | |||||||||||||
| Average selling price:* | |||||||||||||||||
| Aggregates (per ton) | $ | 16.84 | $ | 15.95 | $ | 17.76 | $ | 16.37 | |||||||||
| Ready-mix concrete (per cubic yard) | $ | 184.12 | $ | 166.11 | $ | 185.63 | $ | 168.30 | |||||||||
| Asphalt (per ton) | $ | 65.82 | $ | 65.32 | $ | 66.76 | $ | 66.24 | |||||||||
*The average selling price includes freight and delivery and other revenues.
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||||||
Dollars | Margin | Dollars | Margin | Dollars | Margin | Dollars | Margin | ||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||
| Revenues by product line: | |||||||||||||||||||||||||||||
| Aggregates | $ | 158.4 | $ | 146.4 | $ | 242.7 | $ | 229.9 | |||||||||||||||||||||
| Ready-mix concrete | 179.5 | 184.9 | 279.4 | 281.7 | |||||||||||||||||||||||||
| Asphalt | 119.3 | 125.0 | 135.7 | 138.5 | |||||||||||||||||||||||||
Liquid Asphalt | 65.3 | 72.9 | 76.3 | 81.2 | |||||||||||||||||||||||||
| Other* | 77.7 | 70.3 | 116.7 | 100.6 | |||||||||||||||||||||||||
| Contracting services | 371.8 | 353.4 | 497.3 | 468.4 | |||||||||||||||||||||||||
| Internal sales | (165.1) | (167.7) | (211.6) | (207.2) | |||||||||||||||||||||||||
| Total revenues | $ | 806.9 | $ | 785.2 | $ | 1,136.5 | $ | 1,093.1 | |||||||||||||||||||||
| Gross profit by product line: | |||||||||||||||||||||||||||||
| Aggregates | $ | 39.6 | 25.0% | $ | 36.4 | 24.9% | $ | 44.4 | 18.3% | $ | 38.8 | 16.9% | |||||||||||||||||
| Ready-mix concrete | 29.8 | 16.6% | 28.1 | 15.2% | 38.5 | 13.8% | 36.8 | 13.1% | |||||||||||||||||||||
| Asphalt | 17.3 | 14.5% | 16.4 | 13.1% | 11.7 | 8.6% | 10.3 | 7.5% | |||||||||||||||||||||
Liquid Asphalt | 15.8 | 24.2% | 19.2 | 26.3% | 14.8 | 19.5% | 18.1 | 22.3% | |||||||||||||||||||||
| Other* | 22.3 | 28.7% | 15.5 | 22.0% | 9.7 | 8.3% | 10.4 | 10.2% | |||||||||||||||||||||
| Contracting services | 51.4 | 13.8% | 37.4 | 10.6% | 63.6 | 12.8% | 42.7 | 9.1% | |||||||||||||||||||||
| Total gross profit | $ | 176.2 | 21.8% | $ | 153.0 | 19.5% | $ | 182.7 | 16.1% | $ | 157.1 | 14.4% | |||||||||||||||||
*Other includes cement, merchandise, fabric and spreading, and other products and services that individually are not considered to be a core line of business.
Three Months Ended June 30, 2024, Compared to Three Months Ended June 30, 2023
Revenue
Revenue increased $21.7 million, largely driven by price increases in our aggregates and ready-mix product lines and increased public agency work contributing additional contracting services revenue. Partially offsetting the increase was a decline in ready-mix concrete volumes across all segments resulting from EDGE-related initiatives of quality over quantity of work and the timing of projects. Asphalt volumes were also lower due in part to our EDGE-related initiatives. Our liquid asphalt revenues were lower as a result of industry-wide reduced market pricing.
Gross profit and gross margin
Gross profit improved $23.2 million and gross margin improved 230 basis points. We recognized higher contracting services margins from improved bid margins and favorable project execution in the quarter. Also contributing to the improvement was higher gross profit in the aggregates, ready-mix concrete and asphalt product lines as higher prices outpaced increased costs. Partially offsetting the increase was reduced market pricing for liquid asphalt.
29
Selling, general and administrative expenses
Selling, general and administrative expenses were consistent year-over-year. Our reportable segments had lower costs of $2.8 million, largely the result of higher asset sale gains in the quarter of $3.7 million, which was partially offset by increased professional services and payroll-related costs.
As a result of the Separation, Corporate Services experienced higher recurring costs as a publicly traded company of $6.9 million, including payroll-related costs of $4.0 million, largely due to additional staff and stock-based compensation expenses for the management team and board of directors; information technology costs of $1.4 million; professional services of $850,000; fees of $350,000, primarily related to new debt issued in conjunction with the Separation; and insurance costs of $200,000. These recurring costs were partially offset by a reduction in general corporate expenses from MDU Resources of $4.7 million, as discussed in Note 2. Also, as part of the Separation, we incurred less one-time costs of $750,000, primarily related to insurance costs and the transition services agreement with MDU Resources.
Interest expense
Interest expense decreased $5.2 million due primarily to lower average debt balances, offset in part by higher average interest rates.
Other income
Other income decreased $1.2 million, largely driven by decreased interest income on lower average cash balances.
Income tax expense
Income tax expense increased $6.1 million, corresponding with higher income before income taxes.
Six Months Ended June 30, 2024, Compared to Six Months Ended June 30, 2023
Revenue
Revenue increased $43.4 million, largely driven by price increases across most product lines and increased public agency work contributing additional contracting services revenue. Partially offsetting the increase was a decline in ready-mix concrete, aggregates and asphalt volumes due to EDGE-related initiatives and the timing of projects. Our liquid asphalt revenues were lower as a result of industry-wide reduced market pricing.
Gross profit and gross margin
Gross profit improved $25.6 million and gross margin improved 170 basis points. We recognized higher margins from contracting services due to improved bid margins and favorable project execution during the year. Also contributing to the improvement was higher gross profit in the aggregates, ready-mix concrete and asphalt product lines as higher prices outpaced higher costs. Partially offsetting the increase was reduced market pricing for liquid asphalt.
Selling, general and administrative expenses
Selling, general and administrative expenses increased $11.6 million. Our reportable segments had higher costs of $400,000, which were largely the result of higher payroll-related costs and professional services, partially offset by higher gains on asset sales of $2.3 million and lower bad debt expense.
As a result of the Separation, Corporate Services experienced higher recurring costs as a publicly traded company of $16.3 million, including payroll-related costs of $9.5 million, largely due to additional staff and stock-based compensation expenses for the management team and board of directors; information technology costs of $2.8 million; professional services of $2.1 million; fees of $870,000 primarily related to fees on new debt issued in conjunction with the Separation; and insurance costs of $600,000. These recurring costs were partially offset by a reduction in general corporate expenses from MDU Resources of $9.6 million, as discussed in Note 2. Also, as part of the Separation, we incurred additional one-time costs of $860,000, primarily related to insurance costs and the transition services agreement with MDU Resources.
Interest expense
Interest expense decreased $800,000 due primarily to lower average debt balances, largely offset by higher average interest rates.
Other income
Other income increased $1.8 million due to increased interest income on higher average cash balances.
Income tax expense
Income tax expense increased $1.8 million, corresponding with higher income before income taxes.
30
Business Segment Financial and Operating Data
A discussion of key financial data from Knife River’s business segments follows. Knife River provides segment-level information by revenue, gross profit, gross margin, EBITDA and EBITDA margin, as these are the measures of profitability used by our management to assess operational results. 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.”
In the fourth quarter of 2023, we realigned our reportable segments to better support our operational strategies. Based on how the chief operating decision maker manages the Company, the reportable segments are: Pacific, Northwest, Mountain, Central and Energy Services. The liquid asphalt and related services portion of the Pacific segment’s businesses are now reported under the Energy Services segment. In addition, the North Central and South operating regions have been aggregated into one reportable segment, Central. We also provide the details of Corporate Services, which includes accounting, legal, treasury, information technology, human resources and certain corporate expenses that support our operating segments. As a result of the segment changes, we reallocated certain amounts to the operating segments that were previously reported within Corporate Services. All periods have been recast to conform with the revised presentation.
Results of Operations - Pacific
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||||||
| 2024 | 2023 | % Change | 2024 | 2023 | % Change | ||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Revenue | $ | 131.8 | $ | 125.1 | 5% | $ | 210.2 | $ | 190.7 | 10% | |||||||||||||
| Gross profit | $ | 22.0 | $ | 22.1 | —% | $ | 25.8 | $ | 26.5 | (3)% | |||||||||||||
| Gross margin | 16.7 | % | 17.7 | % | 12.3 | % | 13.9 | % | |||||||||||||||
| EBITDA | $ | 17.8 | $ | 17.4 | 2% | $ | 17.0 | $ | 17.6 | (3)% | |||||||||||||
| EBITDA margin | 13.5 | % | 14.0 | % | 8.1% | 9.2 | % | ||||||||||||||||
| Three Months Ended | Six Months Ended | ||||||||||||||||
| June 30, | June 30, | ||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||
| (In millions) | |||||||||||||||||
| Revenues: | |||||||||||||||||
| Aggregates | $ | 31.3 | $ | 27.5 | $ | 50.8 | $ | 46.1 | |||||||||
| Ready-mix concrete | 36.6 | 40.5 | 67.9 | 66.7 | |||||||||||||
| Asphalt | 8.6 | 6.3 | 10.9 | 7.6 | |||||||||||||
| Other* | 42.4 | 39.8 | 67.7 | 63.2 | |||||||||||||
| Contracting services | 34.9 | 33.4 | 48.5 | 40.3 | |||||||||||||
| Internal sales | (22.0) | (22.4) | (35.6) | (33.2) | |||||||||||||
| $ | 131.8 | $ | 125.1 | $ | 210.2 | $ | 190.7 | ||||||||||
*Other includes cement, merchandise and other products that individually are not considered to be a core line of business for the segment.
Three Months Ended June 30, 2024, Compared to Three Months Ended June 30, 2023
Revenue
Revenue increased $6.7 million as price increases across all product lines contributed an additional $8.4 million, which was mainly due to pricing initiatives and aggregate product mix sales differences. Public agency-related contracting services activity in Northern California continued to see an uptick in the second quarter, improving contracting services revenues by $1.5 million and leading to an increase in asphalt volumes. Offsetting the increases was a decline in ready-mix concrete volumes of $6.9 million due largely to the timing of projects.
Gross profit and gross margin
Gross profit decreased $100,000 and gross margin decreased 100 basis points, largely driven by lower gross profit on ready-mix concrete and aggregates due to increased costs for repairs and maintenance and higher depletion expense in aggregates. Also impacting gross profit was reduced ready-mix concrete volumes, as discussed above, and higher depreciation expense on equipment. Higher contracting services margins contributed $1.6 million of additional gross profit due to improved project execution during the quarter.
31
EBITDA and EBITDA margin
EBITDA improved $400,000 year-over-year, largely due to improved contracting services margins, as previously discussed. Partially offsetting the increase was higher selling, general and administrative expenses primarily for additional professional services. EBITDA margin resulted in a decrease of 50 basis points, largely the result of the previously discussed lower gross margin.
Six Months Ended June 30, 2024, Compared to Six Months Ended June 30, 2023
Revenue
Revenue increased $19.5 million across all core product lines. This increase resulted from increased prices contributing $14.6 million, strong asphalt sales volumes of $3.4 million and public agency-related construction work contributing to an increase on contracting services revenue of $8.2 million. Partially offsetting the increased revenues were lower aggregate volumes resulting from the absence of some larger projects this year compared to last year in Hawaii and California and lower ready-mix concrete volumes across the segment's markets.
Gross profit and gross margin
Gross profit decreased $700,000 and gross margin decreased 160 basis points, largely the result of increased labor-related costs and repairs and maintenance costs that outpaced higher prices for both the aggregates and ready-mix product lines. Also contributing to lower gross profit was higher depletion expense in aggregates and higher depreciation expense on equipment. Partially offsetting the decrease in gross profit was higher contracting services margins, which contributed $2.5 million of additional gross profit due to improved project execution during the year.
EBITDA and EBITDA margin
EBITDA decreased $600,000 and EBITDA margin decreased 110 basis points. These decreases are the result of the previously discussed lower gross profit and higher selling, general and administrative costs driven mainly by higher professional services.
Results of Operations - Northwest
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||||||
| 2024 | 2023 | % Change | 2024 | 2023 | % Change | ||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Revenue | $ | 201.2 | $ | 179.0 | 12% | $ | 321.5 | $ | 294.9 | 9% | |||||||||||||
| Gross profit | $ | 51.5 | $ | 41.2 | 25% | $ | 71.7 | $ | 57.9 | 24% | |||||||||||||
| Gross margin | 25.6 | % | 23.0 | % | 22.3 | % | 19.6 | % | |||||||||||||||
| EBITDA | $ | 50.7 | $ | 38.9 | 31% | $ | 70.9 | $ | 52.9 | 34% | |||||||||||||
| EBITDA margin | 25.2 | % | 21.7 | % | 22.1 | % | 17.9 | % | |||||||||||||||
| Three Months Ended | Six Months Ended | ||||||||||||||||
| June 30, | June 30, | ||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||
| (In millions) | |||||||||||||||||
| Revenues: | |||||||||||||||||
| Aggregates | $ | 53.1 | $ | 47.9 | $ | 92.5 | $ | 90.5 | |||||||||
| Ready-mix concrete | 45.7 | 44.6 | 77.4 | 78.5 | |||||||||||||
| Asphalt | 32.5 | 34.5 | 40.8 | 41.4 | |||||||||||||
| Other* | 5.5 | 4.4 | 9.1 | 7.1 | |||||||||||||
| Contracting services | 96.9 | 82.7 | 148.0 | 125.4 | |||||||||||||
| Internal sales | (32.5) | (35.1) | (46.3) | (48.0) | |||||||||||||
| $ | 201.2 | $ | 179.0 | $ | 321.5 | $ | 294.9 | ||||||||||
*Other includes merchandise, transportation services and other products that individually are not considered to be a core line of business for the segment.
Three Months Ended June 30, 2024, Compared to Three Months Ended June 30, 2023
Revenue
Revenue increased $22.2 million, largely the result of higher contracting services revenue of $14.2 million due to increased public agency work. Price increases on ready-mix concrete contributed $5.7 million and higher third-party aggregate sales volumes provided an additional $5.1 million in revenue. Partially offsetting the increases were lower ready-mix concrete and asphalt sales volumes due to reduced demand resulting from EDGE-related price initiatives, market conditions and less available paving projects.
32
Gross profit and gross margin
Gross profit improved $10.3 million and gross margin improved 260 basis points mainly due to increased contracting services margins due to disciplined project bidding and favorable execution of projects. Also contributing to the increase was higher gross profit of $3.7 million across its core product lines with price increases outpacing costs. Aggregates gross profit increased from higher volumes, as previously discussed, and lower indirect costs. Ready-mix concrete gross profit increased $1.2 million, largely the result of pricing outpacing costs, and asphalt gross profit increased $1.0 million driven by lower raw material costs. Partially offsetting the increase was higher depreciation expense across all product lines.
EBITDA and EBITDA margin
EBITDA improved $11.8 million and EBITDA margin improved 350 basis points, largely due to improved gross profit, as previously discussed. Also contributing to the improvement was higher asset sale gains of $400,000.
Six Months Ended June 30, 2024, Compared to Six Months Ended June 30, 2023
Revenue
Revenue increased $26.6 million, largely the result of higher contracting services revenue of $22.6 million due to increased public agency work. Also contributing to the increase was improved pricing on ready-mix concrete and aggregates of $12.9 million, which was mostly offset by lower ready-mix sales volumes due to reduced demand resulting from EDGE-related price initiatives and market conditions.
Gross profit and gross margin
Gross profit improved $13.8 million and gross margin improved 270 basis points mainly due to increased contracting services margins resulting from favorable project execution and disciplined project bidding. Higher aggregates gross profit of $3.1 million was primarily due to increased pricing and lower repairs and maintenance costs and higher asphalt gross profit of $2.4 million was recognized due to lower material costs. Ready-mix concrete gross profit increased $760,000, largely the result of pricing outpacing costs which were offset in part by lower volumes. Partially offsetting the increase was higher depreciation expense across all product lines.
EBITDA and EBITDA margin
EBITDA improved $18.0 million and EBITDA margin improved 420 basis points, largely due to improved gross profit, as previously discussed. Also contributing to the improvement was higher asset sale gains of $1.4 million.
Results of Operations - Mountain
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||||||
| 2024 | 2023 | % Change | 2024 | 2023 | % Change | ||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Revenue | $ | 194.0 | $ | 175.8 | 10% | $ | 253.8 | $ | 236.4 | 7% | |||||||||||||
| Gross profit | $ | 43.8 | $ | 32.1 | 36% | $ | 40.1 | $ | 29.1 | 38% | |||||||||||||
| Gross margin | 22.6 | % | 18.3 | % | 15.8 | % | 12.3 | % | |||||||||||||||
| EBITDA | $ | 43.1 | $ | 30.3 | 42% | $ | 37.0 | $ | 26.5 | 39% | |||||||||||||
| EBITDA margin | 22.2 | % | 17.2 | % | 14.6 | % | 11.2 | % | |||||||||||||||
| Three Months Ended | Six Months Ended | ||||||||||||||||
| June 30, | June 30, | ||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||
| (In millions) | |||||||||||||||||
| Revenues: | |||||||||||||||||
| Aggregates | $ | 31.1 | $ | 28.9 | $ | 40.6 | $ | 38.5 | |||||||||
| Ready-mix concrete | 35.0 | 34.5 | 48.8 | 48.9 | |||||||||||||
| Asphalt | 32.9 | 29.5 | 33.7 | 30.3 | |||||||||||||
| Contracting services | 131.6 | 117.7 | 171.2 | 159.4 | |||||||||||||
| Internal sales | (36.6) | (34.8) | (40.5) | (40.7) | |||||||||||||
| $ | 194.0 | $ | 175.8 | $ | 253.8 | $ | 236.4 | ||||||||||
33
Three Months Ended June 30, 2024, Compared to Three Months Ended June 30, 2023
Revenue
Revenue increased $18.2 million due to increased contracting services activity, largely resulting from additional airport work and more Idaho public agency work, which also positively impacted asphalt sales volumes. Improved pricing across its core product lines also contributed $9.6 million. Partially offsetting the increase were lower ready-mix concrete and aggregate sales volumes due to the timing of certain projects.
Gross profit and gross margin
Gross profit improved $11.7 million and gross margin improved 430 basis points resulting from increased pricing across its core products outpacing increased costs, with aggregates being the largest contributor. Contracting services margins also increased mainly due to higher revenues, as previously discussed, and favorable project execution.
EBITDA and EBITDA margin
EBITDA improved $12.8 million and EBITDA margin improved 500 basis points, largely due to improved gross profit, as previously discussed, and lower bad debt expense.
Six Months Ended June 30, 2024, Compared to Six Months Ended June 30, 2023
Revenue
Revenue increased $17.4 million primarily the result of higher average selling prices across all core product lines contributing $13.3 million of additional revenues. Contracting services revenue increased by $11.8 million resulting from additional airport work and more Idaho public agency work, which also positively impacted asphalt sales volumes. These increases were partially offset by a reduction in aggregate and ready-mix concrete sales volumes due to the timing of certain projects.
Gross profit and gross margin
Gross profit improved $11.0 million and gross margin improved 350 basis points. Driving the improvement was higher product pricing outpacing higher costs and increased contracting services margins, mainly due to higher revenues and favorable project execution.
EBITDA and EBITDA margin
EBITDA improved $10.5 million and EBITDA margin improved 340 basis points, largely the result of improved gross profit, as previously discussed, and lower bad debt expense. Partially offsetting the increase was the absence of asset sale gains of $2.0 million in the prior year.
34
Results of Operations - Central
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||||||
| 2024 | 2023 | % Change | 2024 | 2023 | % Change | ||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Revenue | $ | 214.7 | $ | 231.0 | (7)% | $ | 275.7 | $ | 288.7 | (5)% | |||||||||||||
| Gross profit | $ | 38.2 | $ | 32.9 | 16% | $ | 25.2 | $ | 20.7 | 22% | |||||||||||||
| Gross margin | 17.8 | % | 14.2 | % | 9.1 | % | 7.2 | % | |||||||||||||||
| EBITDA | $ | 36.2 | $ | 28.4 | 27% | $ | 17.4 | $ | 11.5 | 52% | |||||||||||||
| EBITDA margin | 16.9 | % | 12.3 | % | 6.3 | % | 4.0 | % | |||||||||||||||
| Three Months Ended | Six Months Ended | ||||||||||||||||
| June 30, | June 30, | ||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||
| (In millions) | |||||||||||||||||
| Revenues: | |||||||||||||||||
| Aggregates | $ | 42.9 | $ | 42.1 | $ | 58.8 | $ | 54.8 | |||||||||
| Ready-mix concrete | 62.2 | 65.3 | 85.3 | 87.6 | |||||||||||||
| Asphalt | 45.3 | 54.7 | 50.3 | 59.2 | |||||||||||||
| Other* | 10.9 | 10.9 | 12.7 | 12.5 | |||||||||||||
| Contracting services | 108.4 | 119.6 | 129.6 | 143.3 | |||||||||||||
| Internal sales | (55.0) | (61.6) | (61.0) | (68.7) | |||||||||||||
| $ | 214.7 | $ | 231.0 | $ | 275.7 | $ | 288.7 | ||||||||||
*Other includes merchandise and other products that individually are not considered to be a core line of business for the segment.
Three Months Ended June 30, 2024, Compared to Three Months Ended June 30, 2023
Revenue
Revenue decreased $16.3 million. The segment had lower revenues across most of its core product lines, which was primarily a result of lower volumes due to EDGE-related initiatives of quality over quantity of work being implemented across the segment and project timing due to heavy rainfall and flooding in June of 2024. This decrease was partially offset by price increases on ready-mix concrete contributing $7.5 million of additional revenue.
Gross profit and gross margin
Gross profit improved $5.3 million and gross margin improved 360 basis points, largely resulting from higher margins on contracting services from EDGE-related initiatives, which contributed an additional $1.9 million in gross profit. Also contributing to the increase was higher ready-mix concrete gross profit, as higher sales prices outpaced increased costs.
EBITDA and EBITDA margin
EBITDA improved $7.8 million and EBITDA margin improved 460 basis points and was driven by increased gross profit, as previously discussed, and higher gains on asset sales of $3.3 million. Partially offsetting the increase was higher selling, general and administrative expenses of $1.7 million, largely due to higher payroll-related costs.
Six Months Ended June 30, 2024, Compared to Six Months Ended June 30, 2023
Revenue
Revenue decreased $13.0 million. The segment had lower revenues across most of its core product lines, which was primarily a result of lower volumes due to EDGE-related initiatives being implemented across the segment, as well as project timing due to heavy rainfall and flooding in June of 2024. This decrease was partially offset by sales price increases on ready-mix concrete of $9.9 million and aggregates of $1.0 million as the segment continues to implement EDGE-related initiatives. Aggregates also contributed $3.1 million in higher sales volumes, which was due mostly to increased demand for base materials.
Gross profit and gross margin
Gross profit improved $4.5 million and gross margin improved 190 basis points. The improvement largely resulted from higher margins on contracting services from EDGE-related initiatives including disciplined project bidding and favorable project execution, which contributed an additional $3.8 million. Also positively impacting gross profit was higher ready-mix concrete gross profit as higher sales prices outpaced higher costs. Partially offsetting the increase was lower asphalt gross profit, primarily in the south operating segment related to higher plant repair costs.
35
EBITDA and EBITDA margin
EBITDA improved $5.9 million and EBITDA margin improved 230 basis points, driven by higher gross profit, as previously discussed, and higher gains on asset sales of $3.0 million. Partially offsetting the increase was higher selling, general and administrative expenses, largely related to higher payroll-related costs.
Results of Operations - Energy Services
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||||||
| 2024 | 2023 | % Change | 2024 | 2023 | % Change | ||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Revenue | $ | 76.2 | $ | 84.1 | (9)% | $ | 89.0 | $ | 93.5 | (5)% | |||||||||||||
| Gross profit | $ | 20.3 | $ | 23.3 | (13)% | $ | 19.0 | $ | 21.4 | (11)% | |||||||||||||
| Gross margin | 26.7 | % | 27.7 | % | 21.4 | % | 23.0 | % | |||||||||||||||
| EBITDA | $ | 19.4 | $ | 21.8 | (11)% | $ | 16.9 | $ | 18.8 | (10)% | |||||||||||||
| EBITDA margin | 25.4 | % | 25.9 | % | 19.0 | % | 20.1 | % | |||||||||||||||
| Three Months Ended | Six Months Ended | ||||||||||||||||
| June 30, | June 30, | ||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||
| (In millions) | |||||||||||||||||
| Revenues: | |||||||||||||||||
Liquid Asphalt | $ | 65.3 | $ | 72.9 | $ | 76.3 | $ | 81.2 | |||||||||
| Other* | 14.4 | 13.8 | 17.5 | 16.0 | |||||||||||||
| Internal sales | (3.5) | (2.6) | (4.8) | (3.7) | |||||||||||||
| $ | 76.2 | $ | 84.1 | $ | 89.0 | $ | 93.5 | ||||||||||
*Other includes fabric and spreading, burner fuels, merchandise and other products that individually are not considered to be a core line of business for the segment.
Three Months Ended June 30, 2024, Compared to Three Months Ended June 30, 2023
Revenue
Revenue decreased $7.9 million due largely to reduced market pricing in all of the segment's markets as a result of lower input costs. Total liquid asphalt sales volumes were consistent with prior year. California continued to see strong demand in the second quarter while the Midwest had a slowdown in volumes due to heavy rainfall.
Gross profit and gross margin
Gross profit decreased $3.0 million and gross margin decreased 100 basis points, driven by the reduced market pricing. Partially offsetting the decrease was increased margins on liquid asphalt spreading, fabric installation services and lower maintenance costs.
EBITDA and EBITDA margin
EBITDA decreased $2.4 million and EBITDA margin decreased 50 basis points, which was related to decreased gross profit, as previously discussed, offset in part by lower selling, general and administrative costs related to lower payroll-related costs.
Six Months Ended June 30, 2024, Compared to Six Months Ended June 30, 2023
Revenue
Revenue decreased $4.5 million due to reduced market pricing across most of the segment's markets as a result of lower input costs. Liquid asphalt sales volumes were up slightly, primarily from strong demand in California and Texas, which were partially offset by decreased volumes in the Midwest due to heavy rainfall in the second quarter of 2024. Also improving revenues were increased spreading rates, as well as higher burner fuels pricing and sales volume related to project timing.
Gross profit and gross margin
Gross profit decreased $2.4 million and gross margin decreased 160 basis points, driven by the reduced market pricing. Partially offsetting the decrease was increased margins on liquid asphalt spreading, fabric installation services and lower maintenance costs.
36
EBITDA and EBITDA margin
EBITDA decreased $1.9 million and EBITDA margin decreased 110 basis points, which was related to decreased gross profit, as previously discussed, offset in part by lower selling, general and administrative costs related to lower payroll-related costs.
Corporate Services and Eliminations
Corporate Services includes all expenses related to the corporate functions of the Company, as well as insurance activity at our captive insurer; interest expense on a majority of the Company's long-term debt; interest income; and unrealized gains or losses on investments for the Company's nonqualified benefit plans.
Three Months Ended June 30, 2024, Compared to Three Months Ended June 30, 2023
During the second quarter of 2024, Corporate Services contributed negative EBITDA of $15.8 million, or $4.1 million less EBITDA compared to the prior year. The decrease was largely due to higher selling, general and administrative costs of $2.8 million primarily resulting from additional costs incurred as a publicly traded company, as well as costs related to the Separation from MDU Resources.
As a result of the Separation, we experienced higher recurring costs of $6.9 million, including payroll-related costs of $4.0 million, largely due to additional staff and stock-based compensation expense for the management team and board of directors; information technology costs of $1.4 million; professional services of $850,000; fees of $350,000, largely related to fees on the new debt issued in conjunction with the Separation; and insurance costs of $200,000. These recurring costs were partially offset by a reduction in general corporate expenses from MDU Resources of $4.7 million, as further discussed in Note 2. Also, as part of the Separation, we incurred less one-time costs of $750,000 in the quarter.
Further increasing selling, general and administrative expenses were higher health care costs in 2024 of $1.0 million as prior year claims for 2023 were paid from the MDU Resources health and welfare trust therefore reducing the Company's expense in 2023.
Six Months Ended June 30, 2024, Compared to Six Months Ended June 30, 2023
Corporate Services contributed negative EBITDA of $28.4 million, or $12.1 million less EBITDA compared to the prior year. The decrease was largely due to higher selling, general and administrative costs of $11.2 million primarily resulting from additional costs incurred as a publicly traded company, as well as costs related to the Separation from MDU Resources.
As a result of the Separation, we experienced higher recurring costs of $16.3 million, including payroll-related costs of $9.5 million, largely due to additional staff and stock-based compensation expense for the management team and board of directors; information technology costs of $2.8 million; professional services of $2.1 million; fees of $870,000, largely related to fees on the new debt issued in conjunction with the Separation; and insurance costs of $600,000. These recurring costs were partially offset by a reduction in general corporate expenses from MDU Resources of $9.6 million, as further discussed in Note 2. Also, as part of the Separation, we incurred additional one-time costs of $860,000 primarily related to insurance costs and the transition services agreement with MDU Resources.
Further increasing selling, general and administrative expenses were higher health care costs in 2024 of $2.8 million as prior year claims for 2023 were paid from the MDU Resources health and welfare trust therefore reducing the Company's expense in 2023.
Liquidity and Capital Resources
At June 30, 2024, we had cash and cash equivalents of $15.5 million, working capital of $571.4 million and borrowing capacity of $329.1 million on our revolving credit agreement, net of our outstanding letters of credit. Working capital is calculated as current assets less current liabilities. As of June 30, 2024, we have sufficient liquid assets, cash flows from operations and borrowing capacity to meet our financial commitments, debt obligations and anticipated capital expenditures for at least the next 12 months.
Given the seasonality of our business, we typically experience significant fluctuations in working capital needs and balances throughout the year. Working capital requirements generally increase in the first half of the year as we build up inventory and focus on preparing our equipment, facilities and crews for our construction season. Working capital levels then decrease as the construction season winds down and we collect 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. Our principal uses of cash in the future will be to fund our operations, working capital needs, capital expenditures, repayment of debt and strategic business development transactions.
37
Capital expenditures
We currently estimate total 2024 capital expenditures to be between $170 million to $180 million for both maintenance and growth projects and excludes acquisitions. As of June 30, 2024, $103.6 million has been spent on routine replacement of vehicles and equipment, plant and building improvements, organic growth projects, a liquid asphalt expansion project and replacement aggregate reserves. These expenditures were funded by internally generated cash.
Our management team remains focused on organic and acquisition growth opportunities they believe align with our EDGE strategies. During the second quarter of 2024, we acquired a small ready-mix operation in South Dakota and an aggregates site in Oregon.
While the 2024 budgeted capital expenditures includes organic growth projects, future acquisitions and other growth opportunities that support our EDGE strategy would be incremental to the outlined capital program; however, these opportunities are dependent upon economic and other competitive conditions. It is anticipated that capital expenditures for 2024 will be funded by various sources, including internally generated cash and debt.
Cash flows
| Six Months Ended | ||||||||
| June 30, | ||||||||
| 2024 | 2023 | |||||||
| (In millions) | ||||||||
| Net cash provided by (used in) | ||||||||
| Operating activities | $ | (89.7) | $ | (70.4) | ||||
| Investing activities | (110.2) | (64.1) | ||||||
| Financing activities | (5.2) | 192.9 | ||||||
| Increase (decrease) in cash, cash equivalents and restricted cash | (205.1) | 58.4 | ||||||
| Cash, cash equivalents and restricted cash -- beginning of year | 262.3 | 10.1 | ||||||
| Cash, cash equivalents and restricted cash -- end of period | $ | 57.2 | $ | 68.5 | ||||
Operating activities
| Six Months Ended | ||||||||||||||
| June 30, | ||||||||||||||
| 2024 | 2023 | Variance | ||||||||||||
| (In millions) | ||||||||||||||
| Components of net cash used in operating activities: | ||||||||||||||
| Net income | $ | 30.3 | $ | 15.5 | $ | 14.8 | ||||||||
Adjustments to reconcile net income to net cash used in operating activities | 70.2 | 55.1 | 15.1 | |||||||||||
| Changes in current assets and liabilities, net of acquisitions: | ||||||||||||||
| Receivables | (178.1) | (236.4) | 58.3 | |||||||||||
| Due from related-party | — | 16.1 | (16.1) | |||||||||||
| Inventories | (65.4) | (51.1) | (14.3) | |||||||||||
| Other current assets | 2.5 | (20.9) | 23.4 | |||||||||||
| Accounts payable | 57.9 | 102.6 | (44.7) | |||||||||||
| Due to related-party | — | (7.3) | 7.3 | |||||||||||
| Other current liabilities | (12.8) | 25.6 | (38.4) | |||||||||||
| Pension and postretirement benefit plan contributions | (.3) | (.3) | — | |||||||||||
| Other noncurrent charges | 6.0 | 30.7 | (24.7) | |||||||||||
| Net cash used in operating activities | $ | (89.7) | $ | (70.4) | $ | (19.3) | ||||||||
Cash used in operating activities at June 30, 2024, increased $19.3 million, largely related to higher working capital needs. Cash used by working capital components totaled $195.9 million for the six months ended June 30, 2024, compared to $171.4 million for the six months ended June 30, 2023. This increase in cash usage in 2024 was primarily the result of higher payroll-related costs due in part to additional employees associated with the Separation. Also impacting working capital were higher liquid asphalt inventory balances largely related to filling a large tank that was out service in the previous year; timing of prepaid insurance due to the Separation; the removal of all related-party balances due to the Separation; and fluctuations in the timing of payment on accounts payable. Partially offsetting these decreases were stronger collections on receivables balances during 2024 and higher net income.
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Investing activities
| Six Months Ended | ||||||||||||||
| June 30, | ||||||||||||||
| 2024 | 2023 | Variance | ||||||||||||
| (In millions) | ||||||||||||||
| Capital expenditures | $ | (103.6) | $ | (66.6) | $ | (37.0) | ||||||||
| Acquisitions, net of cash acquired | (10.2) | — | (10.2) | |||||||||||
| Net proceeds from sale or disposition of property and other | 6.8 | 4.1 | 2.7 | |||||||||||
| Investments | (3.2) | (1.6) | (1.6) | |||||||||||
| Net cash used in investing activities | $ | (110.2) | $ | (64.1) | $ | (46.1) | ||||||||
The increase in cash used in investing activities for the six months ended June 30, 2024, compared to the six months ended June 30, 2023, was primarily due to higher capital expenditures, including a liquid asphalt expansion project and routine replacement of vehicles and equipment. In addition, two acquisitions were completed in the first half of 2024.
Financing activities
| Six Months Ended | ||||||||||||||
| June 30, | ||||||||||||||
| 2024 | 2023 | Variance | ||||||||||||
| (In millions) | ||||||||||||||
| Issuance of long-term related-party notes, net | $ | — | $ | 205.3 | $ | (205.3) | ||||||||
| Issuance of long-term debt | — | 855.0 | (855.0) | |||||||||||
| Repayment of long-term debt | (3.5) | (.1) | (3.4) | |||||||||||
| Debt issuance costs | — | (16.7) | 16.7 | |||||||||||
Tax withholding on stock-based compensation | (1.7) | — | (1.7) | |||||||||||
| Net transfers to Centennial | — | (850.6) | 850.6 | |||||||||||
| Net cash provided by (used in) financing activities | $ | (5.2) | $ | 192.9 | $ | (198.1) | ||||||||
The decrease in cash flows provided by financing activities for the six months ended June 30, 2024, compared to the six months ended June 30, 2023, was largely related to changes in the Company's debt structure as a result of the Separation, which included the issuance of senior notes, term loans and a revolving credit facility, and a transfer of the majority of the proceeds to Centennial.
Material cash requirements
There were no material changes in the contractual obligations related to estimated interest payments, purchase commitments, asset retirement obligations, uncertain tax positions and minimum funding requirements for its defined benefit plans for 2024 from those reported in the 2023 Annual Report. For more information on our contractual obligations on long-term debt, operating leases and purchase commitments, see Part II, Item 7 in the 2023 Annual Report.
Our material short-term and long-term cash requirements include repayment of third-party long-term debt and related interest payments, payments on operating lease agreements, payments of obligations on purchase commitments and asset retirement obligations.
Defined benefit pension plans
We have 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. Costs of providing these benefits are dependent upon assumptions of future conditions and bear the risk of changing.
There were no other material changes to our qualified noncontributory defined benefit pension plans from those reported in the 2023 Annual Report other than increased contributions of approximately $2.1 million made to our pension plans during the third quarter of 2024. The increase was driven by additional discretionary contributions. For more information, see Note 17 and Part II, Item 7 in the 2023 Annual Report.
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. These non-GAAP financial measures, including those measures by segment, as applicable, are considered non-GAAP measures of financial performance. These non-GAAP financial measures are not measures of financial performance under GAAP. The items excluded from these non-GAAP financial measures are significant components in understanding and assessing financial performance. Therefore, these non-GAAP financial measures should not be considered substitutes for the applicable GAAP metric.
39
EBITDA, EBITDA margin, Adjusted EBITDA and Adjusted EBITDA margin are most directly comparable to the corresponding GAAP measures of net income and net income margin. We believe these non-GAAP financial measures, in addition to corresponding GAAP measures, are useful to investors by providing meaningful information about operational efficiency compared to our peers by excluding the impacts of differences in tax jurisdictions and structures, debt levels and capital investment. We believe Adjusted EBITDA and Adjusted EBITDA margin are useful performance measures because they allow for an effective evaluation of our 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 our core operations. We also exclude the one-time, non-recurring costs associated with the Separation as those are not expected to continue. We believe EBITDA and Adjusted EBITDA assist rating agencies and investors in comparing operating performance across operating periods on a consistent basis by excluding items management does not believe are indicative of the Company's operating performance. Additionally, EBITDA and Adjusted EBITDA are important financial metrics for debt investors who utilize debt to EBITDA and debt to Adjusted EBITDA ratios. We believe these non-GAAP financial measures, including those measures by segment, are useful performance measures because they provide clarity as to the operational results of the Company. Our management uses these non-GAAP financial measures in conjunction with GAAP results when evaluating our operating results internally and calculating employee incentive compensation.
EBITDA is calculated by adding back income taxes, interest expense (net of interest income) 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 for both the segment and consolidated metrics 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 our operating performance. Our 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.
The following information reconciles segment and consolidated net income (loss) to EBITDA and 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, 2024 | Pacific | Northwest | Mountain | Central | Energy Services | Corporate Services and Eliminations | Consolidated | ||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Net income (loss) | $ | 11.7 | $ | 39.7 | $ | 36.5 | $ | 26.9 | $ | 18.1 | $ | (55.0) | $ | 77.9 | |||||||||
| Depreciation, depletion and amortization | 6.1 | 11.0 | 6.6 | 9.3 | 1.3 | .2 | 34.5 | ||||||||||||||||
| Interest expense, net | — | — | — | — | — | 12.8 | 12.8 | ||||||||||||||||
| Income taxes | — | — | — | — | — | 26.2 | 26.2 | ||||||||||||||||
| EBITDA | $ | 17.8 | $ | 50.7 | $ | 43.1 | $ | 36.2 | $ | 19.4 | $ | (15.8) | $ | 151.4 | |||||||||
| Unrealized (gains) losses on benefit plan investments | $ | (.4) | $ | (.4) | |||||||||||||||||||
| Stock-based compensation expense | 1.8 | 1.8 | |||||||||||||||||||||
| One-time separation costs | 1.5 | 1.5 | |||||||||||||||||||||
| Adjusted EBITDA | $ | (12.9) | $ | 154.3 | |||||||||||||||||||
| Revenue | $ | 131.8 | $ | 201.2 | $ | 194.0 | $ | 214.7 | $ | 76.2 | $ | (11.0) | $ | 806.9 | |||||||||
| Net income margin | 8.8 | % | 19.7 | % | 18.8 | % | 12.5 | % | 23.8 | % | N.M. | 9.7 | % | ||||||||||
| EBITDA margin | 13.5 | % | 25.2 | % | 22.2 | % | 16.9 | % | 25.4 | % | N.M. | 18.8 | % | ||||||||||
| Adjusted EBITDA margin | N.M. | 19.1 | % | ||||||||||||||||||||
*N.M. - not meaningful
40
| Three Months Ended June 30, 2023 | Pacific | Northwest | Mountain | Central | Energy Services | Corporate Services and Eliminations | Consolidated | ||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Net income (loss) | $ | 12.1 | $ | 29.2 | $ | 24.1 | $ | 20.0 | $ | 20.5 | $ | (49.1) | $ | 56.8 | |||||||||
| Depreciation, depletion and amortization | 5.3 | 9.7 | 6.2 | 8.4 | 1.3 | .2 | 31.1 | ||||||||||||||||
| Interest expense, net | — | — | — | — | — | 17.1 | 17.1 | ||||||||||||||||
| Income taxes | — | — | — | — | — | 20.1 | 20.1 | ||||||||||||||||
| EBITDA | $ | 17.4 | $ | 38.9 | $ | 30.3 | $ | 28.4 | $ | 21.8 | $ | (11.7) | $ | 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 | $ | (10.5) | $ | 126.3 | |||||||||||||||||||
| Revenue | $ | 125.1 | $ | 179.0 | $ | 175.8 | $ | 231.0 | $ | 84.1 | $ | (9.8) | $ | 785.2 | |||||||||
| Net income margin | 9.7 | % | 16.3 | % | 13.7 | % | 8.6 | % | 24.4 | % | N.M. | 7.2 | % | ||||||||||
| EBITDA margin | 14.0 | % | 21.7 | % | 17.2 | % | 12.3 | % | 25.9 | % | N.M. | 15.9 | % | ||||||||||
| Adjusted EBITDA margin | N.M. | 16.1 | % | ||||||||||||||||||||
*N.M. - not meaningful
| Six Months Ended June 30, 2024 | Pacific | Northwest | Mountain | Central | Energy Services | Corporate Services and Eliminations | Consolidated | ||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Net income (loss) | $ | 5.1 | $ | 50.0 | $ | 24.1 | $ | (.5) | $ | 14.4 | $ | (62.8) | $ | 30.3 | |||||||||
| Depreciation, depletion and amortization | 11.9 | 20.9 | 12.9 | 17.9 | 2.5 | .6 | 66.7 | ||||||||||||||||
| Interest expense, net | — | — | — | — | — | 23.9 | 23.9 | ||||||||||||||||
| Income taxes | — | — | — | — | — | 9.9 | 9.9 | ||||||||||||||||
| EBITDA | $ | 17.0 | $ | 70.9 | $ | 37.0 | $ | 17.4 | $ | 16.9 | $ | (28.4) | $ | 130.8 | |||||||||
| Unrealized (gains) losses on benefit plan investments | $ | (1.6) | $ | (1.6) | |||||||||||||||||||
| Stock-based compensation expense | 3.6 | 3.6 | |||||||||||||||||||||
| One-time separation costs | 3.8 | 3.8 | |||||||||||||||||||||
| Adjusted EBITDA | $ | (22.6) | $ | 136.6 | |||||||||||||||||||
| Revenue | $ | 210.2 | $ | 321.5 | $ | 253.8 | $ | 275.7 | $ | 89.0 | $ | (13.7) | $ | 1,136.5 | |||||||||
| Net income margin | 2.4 | % | 15.5 | % | 9.5 | % | (.2) | % | 16.2 | % | N.M. | 2.7 | % | ||||||||||
| EBITDA margin | 8.1 | % | 22.1 | % | 14.6 | % | 6.3 | % | 19.0 | % | N.M. | 11.5 | % | ||||||||||
| Adjusted EBITDA margin | N.M. | 12.0 | % | ||||||||||||||||||||
*N.M. - not meaningful
41
| Six Months Ended June 30, 2023 | Pacific | Northwest | Mountain | Central | Energy Services | Corporate Services and Eliminations | Consolidated | ||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Net income (loss) | $ | 7.1 | $ | 34.3 | $ | 14.3 | $ | (5.0) | $ | 16.3 | $ | (51.5) | $ | 15.5 | |||||||||
| Depreciation, depletion and amortization | 10.5 | 18.6 | 12.1 | 16.5 | 2.5 | .5 | 60.7 | ||||||||||||||||
| Interest expense, net | — | — | .1 | — | — | 26.6 | 26.7 | ||||||||||||||||
| Income taxes | — | — | — | — | — | 8.1 | 8.1 | ||||||||||||||||
| EBITDA | $ | 17.6 | $ | 52.9 | $ | 26.5 | $ | 11.5 | $ | 18.8 | $ | (16.3) | $ | 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 | $ | (14.8) | $ | 112.5 | |||||||||||||||||||
| Revenue | $ | 190.7 | $ | 294.9 | $ | 236.4 | $ | 288.7 | $ | 93.5 | $ | (11.1) | $ | 1,093.1 | |||||||||
| Net income margin | 3.7 | % | 11.6 | % | 6.1 | % | (1.7) | % | 17.5 | % | N.M. | 1.4 | % | ||||||||||
| EBITDA margin | 9.2 | % | 17.9 | % | 11.2 | % | 4.0 | % | 20.1 | % | N.M. | 10.2 | % | ||||||||||
| Adjusted EBITDA margin | N.M. | 10.3 | % | ||||||||||||||||||||
*N.M. - not meaningful
New Accounting Standards
For information regarding new accounting standards, see Note 3, which is incorporated by reference.
Critical Accounting Estimates
Knife River's critical accounting estimates include revenue recognized using the cost-to-cost measure of progress for contracts; impairment testing of goodwill; and impairment testing of long-lived assets excluding goodwill. There were no material changes in the Company's critical accounting estimates from those that were previously reported in the Company's 2023 Annual Report.
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. We have policies and procedures to assist in controlling these market risks and from time to time have utilized derivatives to manage a portion of our risk.
Interest rate risk
As of June 30, 2024, the Company had $268.1 million in term loans outstanding which bear interest at a variable rate. As of June 30, 2024, the rate in effect was 7.20 percent, therefore, a hypothetical increase of 1.00 percent to the interest rate at June 30, 2024 would increase the all-in rate to 8.20 percent, the effect of which would increase the Company's interest expense by $2.7 million over the next 12 months based on the balances outstanding for these borrowings as of June 30, 2024.
At June 30, 2024, 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 2023 Annual Report.
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
42
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, 2024, that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
43
Part II -- Other Information
Item 1. Legal Proceedings
There were no material changes to the Company's legal proceedings that were previously reported in Part 1, Item 3 - Legal Proceedings in the 2023 Annual Report.
Item 1A. Risk Factors
Refer to the Company's risk factors that are disclosed in Part I, Item 1A. Risk Factors in its 2023 Annual Report that could be materially harmful to the Company's business, prospects, financial condition or financial results if they occur. As of June 30, 2024, there were no material changes to the Company's risk factors provided in Part I, Item 1A. Risk Factors in its 2023 Annual Report.
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 Wall Street Reform and Consumer Protection 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, 2024, no director or officer of the Company adopted terminated
Item 6. Exhibits
See the index to exhibits immediately preceding the signature page to this report.
44
| Exhibits Index | ||||||||||||||||||||||||||
| Incorporated by Reference | ||||||||||||||||||||||||||
| Exhibit Number | Exhibit Description | Filed Herewith | Furnished Herewith | Form | Period Ended | Exhibit | Filing Date | File Number | ||||||||||||||||||
| 3(a) | 8-K | 3.1 | 6/01/23 | 1-41642 | ||||||||||||||||||||||
| 3(b) | 8-K | 3.2 | 6/01/23 | 1-41642 | ||||||||||||||||||||||
| +10(a) | X | |||||||||||||||||||||||||
| +10(b) | X | |||||||||||||||||||||||||
| +10(c) | X | |||||||||||||||||||||||||
| 31(a) | X | |||||||||||||||||||||||||
| 31(b) | X | |||||||||||||||||||||||||
| 32 | X | |||||||||||||||||||||||||
| 95 | X | |||||||||||||||||||||||||
| 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. | ||||||||||||||||||||||||||
45
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 6, 2024 | 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 | |||||||||||
46
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 6, 2024
/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 6, 2024
/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, 2024 (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 6th day of August, 2024.
/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.
KNIFE RIVER CORPORATION
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, 2024, 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 ($) | |||||||||||||||||||||||||||
| 10-02170 | 1 | $ | — | ||||||||||||||||||||||||||
| 32-00774 | 1 | — | |||||||||||||||||||||||||||
| 35-00512 | 3 | 1,833 | |||||||||||||||||||||||||||
| 48-01598 | 2 | — | |||||||||||||||||||||||||||
| 51-00036 | 1 | 626 | |||||||||||||||||||||||||||
| 8 | $ | 2,459 | |||||||||||||||||||||||||||
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.
1
•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, 2024:
| 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 | ||||||||||||||
| — | — | — | — | — | — | |||||||||||||||
2
KNIFE RIVER CORPORATION
DIRECTOR COMPENSATION POLICY
This Director Compensation Policy (the “Policy”) was adopted by the Board of Directors (the “Board”) of Knife River Corporation (the “Company”) on May 15, 2024.
Each member of the Board who is not an employee of the Company or any of its subsidiaries (a “Director”) shall receive compensation made up of annual cash retainers and a restricted stock unit (“RSU”) award for shares of the Company’s common stock (“Common Stock”), as set forth in this policy.
Cash Compensation
Annual Cash Retainers | |||||
Base Retainer | $110,000 | ||||
Additional Retainers: | |||||
Non-Executive Chair of the Board | $125,000 | ||||
Chair of Audit Committee | $20,000 | ||||
Chair of Compensation Committee | $15,000 | ||||
Chair of Nominating and Governance Committee | $15,000 | ||||
Such cash retainers shall be paid in monthly installments.
The Knife River Corporation Deferred Compensation Plan for Directors (the “Plan”) permits a Director to defer all or any portion of the annual cash retainers. The amount deferred is recorded in each participant's deferred compensation account and credited with income in the manner prescribed in the Plan.
Equity Compensation
Each person, other than the Non-Executive Chair of the Board, who is then a Director of the Company shall automatically receive an RSU award with a value of $150,000, and any person who is then the Non-Executive Chair of the Board shall automatically receive an RSU award with a value of $175,000, immediately after each Company Annual Meeting of Stockholders (each, an “Annual RSU Award”); provided, however, that for 2024, the Annual RSU Awards shall be automatically granted on May 15, 2024. Any Director who is initially elected or appointed to the Board at any time other than at a Company Annual Meeting of Stockholders will automatically receive on the date of such election or appointment a pro-rated RSU award (the “Initial RSU Award”) determined by multiplying the value of the Annual RSU award by a fraction, the numerator of which is the number of expected months (with a partial month counted as a full month) of service on the Board between the date of initial election or appointment and the date of the next Company Annual Meeting of Stockholders and the denominator of which is twelve. Each RSU award granted under the Policy shall be made under the Company’s Long-Term Performance-Based Incentive Plan (the “LTIP”) and shall be subject to the terms and conditions thereof and the applicable award agreement. The number of shares subject to each RSU award shall be determined by dividing the dollar value of the applicable RSU award by the closing price of the Common Stock on the New York Stock Exchange on the grant date. Any fractional shares shall be paid in cash. Annual RSU awards and Initial RSU awards shall vest on the day immediately prior to the date of the next Company Annual Meeting of Stockholders occurring after the date of grant, in either case, subject to the Director continuing in service on the Board through such vesting date.
By written election a Director may reduce his or her annual cash retainers and have that amount instead delivered in the form of additional shares of Common Stock under the LTIP. The annual election shall specify the percentage of the annual cash retainers to be applied toward the purchase of additional shares and must be received by the Company by December 14 of the year prior to the year in which the election is to be effective. No election may be changed or revoked for the current year but an election may be changed for a subsequent year. The additional stock payments will be made on the last business day of March, June, September, and December. The stock payment shall be made by providing the Director with the number of whole shares of Common Stock determined (i) if the shares are original issue or treasury stock, by dividing the amount of the applicable stock payment by the closing price of the Common Stock on the New York Stock Exchange on the grant date or (ii) if the shares are purchased on the open market, by dividing the amount of the applicable stock payment by the weighted average price paid to purchase shares for the Director for that stock payment, excluding any related brokerage commissions or other service fees. No fractional shares shall be purchased and cash in lieu of any fractional shares shall be paid to the Director.
Travel Expense Reimbursement
All Directors will be reimbursed for reasonable travel expenses incurred while serving as a Director, including spouse’s expenses, in connection with attendance at meetings of the Company’s Board of Directors and its committees. If the travel expense is related to the reimbursement of airfare, such reimbursement will not exceed full-coach rate. Spousal travel expenses paid by the Company are treated as taxable income to the Director. See the paragraph below entitled "Code Section 409A" for further rules relating to travel expense reimbursements.
Life Insurance Coverage
All Directors are protected by a non-contributory group life insurance policy with coverage of $100,000. The coverage begins the day the Director is elected or appointed to the Board of Directors and terminates when the Director ceases to be a Director. A Summary Plan Description (SPD) will be provided to the Director. The beneficiary of the insurance will be the beneficiary recorded on a beneficiary designation provided by the Company. The group life insurance policy is considered taxable compensation under current tax laws. Consequently, the Company will provide each Director annually on Form 1099 the amount of taxable income related to this coverage.
Code Section 409A
To the extent any reimbursements or in-kind benefits provided to a Director pursuant to this policy constitute “deferred compensation” under Internal Revenue Code Section 409A, any such reimbursement or in-kind benefit shall be paid in a manner consistent with Treasury Regulation Section 1.409A-3(i)(1)(iv), including the requirements that the amount of reimbursable expenses or in-kind benefits provided during a year may not affect the expenses eligible for reimbursement or in-kind benefits provided in any other year and that any reimbursement be made on or before the last day of the calendar year following the calendar year in which the expense was incurred.
KNIFE RIVER CORPORATION
RESTRICTED STOCK UNIT AWARD NOTICE
(For Non-Employee Directors)
(For Non-Employee Directors)
This Award Notice evidences the award of restricted stock units (each, an “RSU” or collectively, the “RSUs”) that have been granted to, (XXXXXXXXX), by Knife River Corporation, a Delaware corporation (the “Company”), subject to your acceptance of the terms of this Award Notice, the Restricted Stock Unit Award Agreement, which is attached hereto (the “Agreement”) and the Knife River Corporation Long-Term Performance-Based Incentive Plan (the “Plan”). When vested, each RSU entitles you to receive one share of common stock of the Company (the “Shares”). The RSUs are granted pursuant to the terms of the Plan.
This Award Notice constitutes part of, and is subject to the terms and provisions of, the Agreement and the Plan, which are incorporated by reference herein. Capitalized terms used but not defined in this Award Notice shall have the meanings set forth in the Agreement or in the Plan.
Grant Date: | [ ] | ||||
| Number of RSUs: | [ ], subject to adjustment as provided under Section 4.2 of the Plan. | ||||
| Vesting Schedule: | Subject to the provisions of the Agreement and the Plan, the RSUs shall vest in full on the day immediately prior to the date of the Company’s next Annual Meeting of Stockholders occurring after the Grant Date, provided that you continuously provide services to the Company until such date. Except for termination of service due to death or Disability or a Change in Control, any unvested portion of the Award will be forfeited and/or cancelled on the date you cease to provide services to the Company. | ||||
| Settlement Date: | Each vested RSU will be settled in Shares as soon as practicable following vesting but in no event later than 60 days after such RSUs vest. | ||||
| Acceleration on Death or Disability: | In the case of your death or Disability, the RSUs will vest in full. | ||||
| Dividend Equivalents: | Yes | ||||
THESE RESTRICTED STOCK UNITS ARE SUBJECT TO FORFEITURE AS PROVIDED HEREIN.
Further terms and conditions of the Award are set forth in Annex A hereto, which is an integral part of the Agreement.
You must accept this Award Notice by logging onto your account with Fidelity Investments and accepting this Award Notice and the Agreement. If you fail to do so, the RSUs will be null and void. By accepting the RSUs granted to you in this Award, you agree to be bound by all of the provisions set forth in this Award Notice, the Agreement, and the Plan.
Attachments:
Annex A: Restricted Stock Unit Award Agreement
Annex A
RESTRICTED STOCK UNIT AWARD AGREEMENT UNDER THE KNIFE RIVER CORPORATION
LONG-TERM PERFORMANCE-BASED INCENTIVE PLAN
(For Non-Employee Directors)
Knife River Corporation (the “Company”) has granted to you an Award consisting of restricted stock units, subject to the terms and conditions set forth herein and in the Restricted Stock Unit Award Notice (the “Award Notice”). The Award has been granted to you pursuant to the Knife River Corporation Long-Term Performance-Based Incentive Plan (the “Plan”). Subject to the terms of the Plan, decisions and interpretations of the Compensation Committee of the Company’s Board of Directors (the “Committee”) are binding, conclusive and final upon any questions arising under the Award Notice, this Restricted Stock Unit Award Agreement (the “Agreement”) or the Plan. Unless otherwise defined herein or in the Award Notice, capitalized terms shall have the meanings assigned to such terms in the Plan.
1.Grant of RSUs. On the Grant Date, you were awarded the number of RSUs set forth in the Award Notice.
2.Vesting of RSUs. The RSUs shall become vested and nonforfeitable in accordance with the Vesting Schedule set forth in the Award Notice. Vesting may be accelerated only as described in the Award Notice.
3.Termination of service. Except for termination of service due to death, Disability, or a Change in Control, any unvested portion of the Award will be forfeited and/or cancelled on the date you cease to provide services to the Company.
4.Settlement of RSU. Each RSU, at the discretion of the Committee, will be settled in Shares as soon as practicable after the Vesting Date but in no event later than 60 days after unvested RSUs become vested RSUs. Directors are required to own Shares at a designated multiple of their annual cash base retainer. If you have not achieved the applicable stock ownership requirement, you are required to hold the net after-tax Shares received under this Award until the requirement is met.
5.Voting Rights. Since RSUs do not represent actual Shares, no voting rights or other rights as a stockholder of the Company arise with respect to the RSUs until Shares have been delivered to you upon settlement of the RSUs.
6.Dividend Equivalents. Dividend Equivalents will be earned with respect to any Shares issued pursuant to the Award. The amount of Dividend Equivalents earned shall be equal to the total dividends declared on a Share for stockholders of record between the Grant Date of this Award and the vesting date of the RSUs, multiplied by the number of Shares issued pursuant to the vesting of the RSUs awarded in the Award Agreement. Any Dividend Equivalents earned shall be paid in cash when the Shares to which they relate are issued or as soon thereafter as practicable, but no later than 60 days after the Shares are issued. No Dividend Equivalents will be issued for unvested or forfeited RSUs.
7.Tax Withholding. Pursuant to Article 14 of the Plan, the Committee has the power and the right to deduct or withhold, or require the Participant to remit to the Company, an amount sufficient to satisfy any federal, state and local taxes (including the Participant's FICA obligations) required by law to be withheld with respect to the Award and Dividend
Equivalents. The Committee may condition the delivery of vested Shares upon the Participant's satisfaction of such withholding obligations.
8.Non-Guarantee of Employment or Service Relationship or Future Awards. Nothing in the Plan, the Award Notice or this Agreement will be construed as a contractual right for you to continue to provide services to or become employed by the Company.
9.Non-transferability of RSUs. No RSUs granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution.
10.Personal Information. You agree the Company and its suppliers or vendors may collect, use and disclose your personal information for the purposes of the implementation, management, administration and termination of the Plan.
11.Amendment. The Committee may amend, alter, modify, suspend or terminate the Award Notice or this Agreement at any time and from time to time, in whole or in part; provided, however, no amendment, alteration, modification, suspension or termination of the Award Notice or Agreement shall adversely affect in any material way the Award Notice or this Agreement, without your written consent, except to the extent such amendment, alteration, modification, suspension or termination is reasonably determined by the Committee in its sole discretion to be necessary to comply with applicable laws, rules, regulations, or is necessary for such approvals by any governmental agencies or national securities exchanges as may be required.
12.Binding Effect. This Agreement shall inure to the benefit of the successors and assigns of the Company and, subject to the restrictions on transfer set forth herein, be binding upon you and your heirs, beneficiaries, executors, legal representatives, successors and assigns.
13.Integrated Agreement. The Award Notice, this Agreement and the Plan constitute the entire understanding and agreement between you and the Company with respect to the subject matter contained herein or therein and supersedes any prior agreements, understandings, restrictions, representations, or warranties between you and the Company with respect to such subject matter other than those as set forth or provided for herein or therein.
14.Ratification of Actions. By accepting the Award or other benefit under the Plan, you and each person claiming under or through you shall be conclusively deemed to have indicated your acceptance and ratification of, and consent to, any action taken under the Plan or the Award by the Company, its Board of Directors, or the Committee.
15.Notices. Any notice hereunder to the Company shall be addressed to its office, 1150 West Century Avenue, Bismarck, North Dakota 58503; Attention: Corporate Secretary, and any notice hereunder to you shall be addressed to you at the most recent address you have provided in writing to the Company, subject to the right of either party to designate at any time hereafter in writing some other address.
16.Governing Law. To the extent not preempted by Federal law, the Award Notice and this Agreement shall be governed and construed in accordance with the laws of the State of Delaware, without regard to conflicts of law provisions. In the event any provision of the Award Agreement shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Award Agreement, and the Award Agreement shall be construed and enforced as if the illegal or invalid provision had not been included.
17.Construction. Captions and titles contained in this Agreement are for convenience only and shall not affect the meaning or interpretation of any provision of this Agreement. Except when otherwise indicated by the context, the singular shall include the plural and the plural shall include the singular. Use of the term “or” is not intended to be exclusive, unless the context clearly requires otherwise.
18.Conformity. This Agreement is intended to conform in all respects with, and is subject to all applicable provisions of, the Plan. Any conflict between the terms of the Award Notice, this Agreement and the Plan shall be resolved in accordance with the terms of the Plan. In the event of any ambiguity in the Award Notice or this Agreement or any matters as to which the Award Notice and this Agreement are silent, the Plan shall govern. Any conflict between the terms of the Award Notice and the Agreement shall be resolved in accordance with the terms of the Agreement.
Knife River Corporation
Section 16 Officers and Directors
with Indemnification Agreements
As of June 30, 2024
Section 16 Officers
| Name | Title | Date of Agreement | ||||||
| Nancy K. Christenson | Vice President of Administration | May 30, 2023 | ||||||
| Brian R. Gray | President and Chief Executive Officer | May 30, 2023 | ||||||
| Trevor J. Hastings | Vice President and Chief Operating Officer | May 30, 2023 | ||||||
| Marney L. Kadrmas | Chief Accounting Officer | May 30, 2023 | ||||||
| Karl A. Liepitz | Vice President, Chief Legal Officer and Secretary | May 30, 2023 | ||||||
| Glenn R. Pladsen | Vice President of Support Services | May 30, 2023 | ||||||
| Nathan W. Ring | Vice President and Chief Financial Officer | May 30, 2023 | ||||||
Directors
| Name | Title | Date of Agreement | ||||||
| German Carmona Alvarez | Director | May 30, 2023 | ||||||
| Patricia Chiodo | Director | June 27, 2024 | ||||||
| Karen B. Fagg | Director and Chair of the Board | May 30, 2023 | ||||||
| Thomas W. Hill | Director | May 14, 2024 | ||||||
| Patricia L. Moss | Director | May 30, 2023 | ||||||
| William J. Sandbrook | Director | May 30, 2023 | ||||||