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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read together with our audited consolidated financial statements and related notes included elsewhere in this Annual Report. Among other things, those financial statements include more detailed information regarding the basis of presentation for the financial data included in the following discussion. Certain percentages presented in this discussion and analysis are calculated from the underlying whole-dollar amounts and therefore may not recalculate from the rounded numbers used for disclosure purposes. This discussion contains forward-looking statements about our business, operations and industry that involve risks and uncertainties, such as statements regarding management’s plans, objectives, expectations and intentions. Future results and financial condition may differ materially from those currently anticipated as a result of the factors described under the sections entitled “Forward-Looking Statements” and “Item 1A. Risk Factors.”

Overview

At Knife River, we are a people-first construction materials and contracting services company. We provide construction materials and contracting services to build safe roads, bridges and 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, compensation and work-life balance.

We are one of the leading providers of crushed stone and sand and gravel in the United States and, as of December 31, 2024, operated through six operating segments across 14 states: Pacific, Northwest, Mountain, North Central, South and Energy Services. These operating segments are used to determine our reportable segments and are based on our method of internal reporting and management of our business, as discussed in Item 8 - Note 15. Our 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 1.2 billion tons of aggregate reserves provide the foundation for a vertically integrated business strategy, with

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approximately 37 percent of our aggregates in 2024 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.

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, Oregon, South Dakota, Texas, Washington 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

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, we became a stand-alone publicly traded company. Prior to the Separation, we operated as a wholly owned subsidiary of Centennial and an indirect, wholly owned subsidiary of MDU Resources and not as a stand-alone company. The accompanying audited 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 audited consolidated financial statements of MDU Resources as if we operated on a stand-alone basis during these periods. For periods subsequent to the Separation, the financial statements are presented on a consolidated basis in conformity with GAAP. For additional information related to the basis of presentation, see Item 8 - Note 1.

Prior to the Separation, we participated in Centennial’s centralized cash management program, including its overall financing arrangements. We also had related party note agreements in place with Centennial for the financing of our capital needs. Interest expense in the Consolidated Statements of Operations, for the periods prior to the Separation, reflects the allocation of interest on the borrowings associated with the related-party note agreements. Upon the completion of the Separation, we implemented our own financing agreements with lenders. For additional information on our current debt financing, see Item 8 - Note 9.

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

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Market Conditions and Outlook

Our markets remain resilient, and construction activity remains generally strong. 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 our business, see the section entitled "Item 1A. Risk Factors."

Backlog. Contracting services backlog was as follows as of December 31:

(In millions)

Backlog as of December 31, 2024, is 13 percent higher than the prior period and expected margins are comparable. Of the $745.6 million of backlog at December 31, 2024, we expect to complete an estimated $630.5 million during 2025. Approximately 86 percent of our backlog as of December 31, 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, which is expected to provide bidding opportunities in our markets throughout 2025.

Period-over-period increases or decreases in backlog may not be indicative of future revenues, margins, net income or EBITDA. For a discussion of EBITDA and EBITDA margin, see “Non-GAAP Financial Measures” later in this section. 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” for a list of factors that can cause revenues or margins 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 IIJA, which is authorized to provide $1.2 trillion in funding from 2022 through 2026. As of November 2024, approximately 43 percent of IIJA formula funding has yet to be obligated to projects in our market areas. Also in 2024, six of the 14 states where we operate have passed ballot measures to increase their transportation investment. Additionally, DOT budgets in the states where we operate remain strong, which favorably affects our bidding season in early 2025. We continue to monitor the implementation and impact of these legislative items and the state DOT budgets.

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 and to create shareholder value. 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, as well as identifying ways to increase efficiencies and reduce costs. In 2023, its first year of operation, the Materials Process Improvement Team (Materials PIT Crew) traveled to 10 locations throughout our operational footprint, visiting 67 individual aggregate, asphalt and ready-mix concrete plants. In 2024, the team traveled to eight additional locations and 58 individual plants, in addition to follow-up trips to sites visited in the prior year. The Materials PIT Crew also hosted a Plant Equipment Best Practices training seminar at our training center in Oregon in December of 2024. This training was attended by approximately 150 front line plant operators and maintenance personnel and was supported by our internal subject matter experts and a number of plant equipment manufacturers. Also in 2024, a broader process improvement framework was established with teams focused on standardization, commercial excellence and operational excellence, due in part to the success of the Materials PIT Crew.

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Acquisitions.Our management team has also continued to evaluate growth opportunities, both through organic growth and acquisitions they believe will generate shareholder value. In 2024, we invested $131.0 million of capital to close on six acquisitions. The acquisitions include aggregate-specific purchases in key markets and expanding our ready-mix and liquid asphalt operations. In November 2024, we purchased the business of Albina Asphalt, which has operations in Washington, Oregon and California and expanded the footprint of our high-margin liquid asphalt materials product line. In December 2024, we also entered into a definitive agreement to acquire Strata Corporation, a leading construction materials and contracting services provider in North Dakota and northwestern Minnesota. The acquisition of Strata is expected to close in the first half of 2025, subject to customary closing conditions. In addition to cash on hand, we intend to use a portion of the proceeds from the issuance of a new $500 million Term Loan B facility to fund the purchase of Strata.

Workforce. As a people-first company, we continually take steps to address safety, recruitment and retention of our employees. Safety is one of our core values, and as part of our safety culture, we believe that all incidents and injuries are preventable. We continue to advance our culture of safety through engagement, and empowering our team members to take action and make meaningful changes that improve the well-being of themselves and others.

Focusing on the development and retention of our employees is key to our success. We continue to deploy resources to attract, develop and retain qualified and diverse talent. As the United States faces shortages in the availability of individuals to fill careers in our industry, 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 classroom education and hands-on experience. One of the most popular courses at the Knife River Training Center is the commercial driver's license 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 our employees.

We employ professional instructors as part of our Training and Development team, which is based out of the Knife River Training Center. This team has a long-standing tradition of offering quality training to both frontline and leadership-level employees. In 2024, the team provided training to nearly 1,100 students through 74 separate courses. Training courses include: commercial driver’s license/new truck driver, experienced truck driver, new and experienced equipment operator, sales, leadership/facilitator development and construction industry engagement.

Consolidated Overview

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 our 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, interest expense and other expenses.

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; healthcare; allowance for expected credit losses; gains or losses on the sale of assets; expenses for the transition services agreement with MDU Resources; and other miscellaneous expenses.

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Other income (expense) includes net periodic benefit costs for our benefit plan expenses, other than service costs; interest income; realized and unrealized gains and losses on our nonqualified benefit plan investments; earnings or losses on joint venture arrangements; and other miscellaneous income or expenses, including income related to the transition services agreement with MDU Resources.

Income tax expense consists of corporate income taxes related to our net income. 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 our overall levels of income before income tax.

The discussion that follows focuses on the key financial measures we use to evaluate the performance of our business at the consolidated level, which include revenue, EBITDA and EBITDA margin. EBITDA and EBITDA margin are non-GAAP financial measures as these are measures of profitability used by management and our chief operating decision maker to assess operating results. For more information and reconciliations to the nearest GAAP measures, see the section entitled "Non-GAAP Financial Measures."

Comparison for the Years Ended December 31, 2024, 2023 and 2022.

(In millions)

__________________

*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.”

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The following tables summarize our operating results for the years ended December 31, 2024, 2023 and 2022.

Revenues EBITDA1 EBITDA margin1

(In millions)

__________________

1EBITDA 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.”

2N.M: not meaningful

Revenues Gross profit Gross margin

(In millions)

__________________

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

Sales (thousands):

Average selling price:

__________________

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

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2024 Compared to 2023

Revenue

Revenue increased $68.7 million as increased pricing added $122.9 million during the year as a result of our pricing initiatives across all product lines, except liquid asphalt. In 2024, we saw price increases of low-double-digits for ready-mix concrete, high-single-digits for aggregates and low-single digits for asphalt. Our contracting services revenue also increased in most regions, particularly in the Mountain, Northwest and Pacific regions, as we benefited from additional public-agency work and timing of projects. Partially offsetting these increases were decreased ready-mix, aggregate and asphalt sales volumes of $120.5 million, primarily due to EDGE-related initiatives of quality over quantity of work, timing of projects and lower demand for private projects. Liquid asphalt revenue decreased due to lower pricing as a result of reduced supply input costs across our market areas.

Gross Profit and Gross Margin

Gross profit improved $30.9 million while gross margin improved 70 basis points. Contracting services margins increased 160 basis points as we saw an increase in revenues along with improved bid margins and favorable project execution during the year. Also contributing to the improvement was higher margins on asphalt, aggregates and ready-mix concrete as higher sales prices outpaced costs while volumes declined as we continue to choose quality of work over quantity of work. Liquid asphalt continued to see a reduction in gross profit, as a result of lower revenues due to the pricing decrease.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $11.1 million. Our reportable segments had higher costs of $4.1 million, which was primarily related to higher payroll-related costs, largely due to additional staffing, competitive wage increases, and higher professional services. These increases were offset in part by higher asset sale gains of $3.4 million and the absence of non-cash asset impairments of $5.8 million on aggregate sites discussed in Item 8 - Note 2.

Corporate Services had increased costs of $7.0 million. The increase in costs for non-Separation related expenses totaled $7.4 million, which was primarily higher due diligence and integration costs related to corporate development and completed acquisitions of $7.5 million and higher information technology costs of $3.4 million. These costs were partially offset by lower payroll-related costs of $2.4 million, largely due to lower bonus accruals, and a reduction in insurance loss reserves at our captive insurer of $2.6 million. As a result of the Separation, we experienced higher recurring costs as a publicly traded company of $6.3 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 $1.8 million; and fees of $750,000 primarily related to fees on new debt issued in conjunction with the Separation, partially offset by a reduction in general corporate expenses from MDU Resources of $8.9 million. We also incurred less one-time costs of $6.5 million primarily consisting of insurance costs related to the Separation and the transition services agreement with MDU Resources.

Interest Expense

Interest expense decreased $2.9 million due primarily to lower average debt balances, offset by higher average interest rates.

Other Income (Expense)

Other income (expense) increased $3.0 million, primarily due to increased interest income on higher cash balances.

Income Tax Expense

Income tax expense increased $6.9 million corresponding with higher income before income taxes.

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2023 Compared to 2022

Revenue

Revenue improved $295.6 million as increased pricing added $217.3 million across all regions and product lines, supported by demand, increased market pricing and EDGE-related pricing initiatives. We also saw increased contracting services revenue in most regions, especially in the Mountain and Northwest regions that benefited from strong demand and more available work. Higher liquid asphalt sales volumes also contributed to the increased revenue. Partially offsetting these increases were decreased asphalt, ready-mix concrete and aggregate sales volumes of $69.2 million, primarily attributable to the absence in 2023 of certain impact projects, lower internal sales volumes resulting from the strategy to target improved bid margins, project timing and the sale of non-strategic assets in southeast Texas in December 2022.

Gross Profit and Gross Margin

Gross profit improved by $178.0 million while gross margin improved 480 basis points. Higher sales prices outpacing costs across our materials product lines contributed $126.0 million in gross profit, which was largely the result of increased market pricing and EDGE-related initiatives, including operating efficiencies and pricing optimization. Higher contracting services margins contributed $48.9 million to gross profit, primarily related to improved bid margins, certain impact projects and job productivity gains. Additionally, liquid asphalt margins benefited from cost improvements and higher sales volumes.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $75.9 million. As a result of the Separation, we experienced increased recurring costs, including payroll-related costs of $12.3 million, largely due to additional staff and stock-based compensation expense for the management team and board of directors; insurance costs of $2.8 million; and professional services of $2.6 million, which were offset in part by a reduction in general corporate expenses from MDU Resources of $7.6 million, as discussed in Item 8 - Note 1. Also, as part of the Separation, we incurred one-time costs of $10.0 million primarily related to professional services, insurance costs and the transition services agreement with MDU Resources. Further contributing to the higher selling, general and administrative costs were increased payroll-related costs of $27.7 million, due in part to higher incentive accruals across the segments based on our performance; non-cash asset impairments of $5.8 million on aggregate sites discussed in Item 8 - Note 2; absence of a gain of $6.7 million recognized in 2022 on the sale of non-strategic assets in southeast Texas; higher office expenses of $2.6 million; increased expected credit losses of $1.5 million directly associated with an increase in receivable balances over 90 days and the absence of bad debt recoveries in 2022; and higher information technology and other costs.

Interest Expense

Interest expense increased $28.0 million due primarily to higher average interest rates. Interest rates were higher as a result of settling related-party notes payable as part of the Separation and entering into new debt agreements with higher interest rates, which resulted in additional interest expense in the period of $29.5 million. Partially offsetting the increase was lower average debt balances. For additional information, see Item 8 - Notes 9 and 19.

Other Income (Expense)

Other income (expense) increased $12.4 million, due in part to improved returns on our nonqualified benefit plan investments of $5.5 million; increased interest income of $5.2 million on higher cash balances and on the cash held in escrow for the $425.0 million of senior notes issued prior to the completion of the Separation; and income resulting from the transition services agreement with MDU Resources, as discussed in Item 8 - Note 19.

Income Tax Expense

Income tax expense increased $19.8 million corresponding with higher income before income taxes.

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Business Segment Financial and Operating Data

A discussion of key financial data from our business segments follows. We provide segment level information by revenue, EBITDA and EBITDA margin as these are measures of profitability used by management and our chief operating decision maker to assess operating results.

On January 1, 2025, we completed a reorganization of our operating segments, including the management of the segments, to align with our business strategy. In the first quarter of 2025, we will begin reporting our financial information under four operating segments: West, Mountain, Central and Energy Services. Under the new operating structure, the previous Pacific and Northwest operating segments will become the West operating segment and the North Central and South operating segments will become the Central operating segment.

Results of Operations – Pacific

(In millions)

(In millions)

Revenues:

__________________

*Other includes cement, precast/prestressed concrete, merchandise, and other products that individually are not considered to be a major line of business for the segment.

2024 Compared to 2023

Our revenue increased $30.9 million in 2024. Price increases across all product lines as a result of EDGE-related initiatives and aggregate product mix contributed $36.9 million of additional revenue in 2024. We also had a $15.5 million increase in contracting services, primarily driven by large public agency-related construction projects in northern California. Partially offsetting the increased revenue was reduced volumes of $27.6 million across the remaining product lines, partly due to increased competition in the California market as well as reduced demand in marine construction.

We saw an increase in EBITDA of $3.7 million, while EBITDA margin decreased 10 basis points. The increase in EBITDA was due in part to additional gross profit in northern California’s contracting services, primarily related to increased public agency-related construction projects and operational efficiencies recognized during the year. Also contributing to the increase was lower selling, general and administrative expenses of $2.3 million due to a gain of $2.2 million on equipment sales in California and the absence of a non-cash impairment in 2023 of $2.2 million on a leased aggregate site, as discussed in Item 8 - Note 2, offset in part by higher professional services. Gross profit on our construction materials decreased $4.6 million in 2024 as a result of lower volumes and higher production costs.

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2023 Compared to 2022

Our revenue increased $44.1 million in 2023. This increase was across most product lines and was the result of increased prices to cover rising costs and the early stages of EDGE-related pricing implementation, as well as increased sales of higher priced products, adding $32.0 million. We saw strong cement product sales volumes to third-party customers in Alaska and strong aggregate sales volumes of $6.0 million, primarily from increased demand in Hawaii as the local economy continues to regain momentum for public and private work. Ready-mix concrete sales volumes increased in northern California as a result of an acquisition in December 2022, which were offset in part by lower sales volumes in Alaska due to fewer projects over the prior year. Partially offsetting the increased revenues was the absence in 2023 of an impact project in California of $11.2 million, which affected both contracting services workloads and asphalt volumes. Northern California experienced mild weather in the fourth quarter which also contributed to a strong finish to the year.

We saw an increase in EBITDA of $12.2 million and EBITDA margin of 170 basis points in 2023. These improvements are the direct result of increased pricing outpacing costs and strong demand, as previously discussed. We also experienced lower fuel and asphalt oil costs. Partially offsetting the increase was higher selling, general and administrative expenses of $11.6 million and lower contracting services gross profit of $1.9 million as a result of cost overruns on a project in California. The increased selling, general and administrative expenses includes higher payroll-related costs of $5.9 million, due in part to higher incentive accruals based on the our performance; a non-cash asset impairment of $2.2 million on a leased aggregate site, as discussed in Item 8 - Note 2; higher rent expense of $700,000; increased building repairs of $500,000; and other miscellaneous expenses.

Results of Operations – Northwest

(In millions)

(In millions)

Revenues:

__________________

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

2024 Compared to 2023

Our revenue increased $26.3 million in 2024, most of which was due to large public agency-related construction projects driving an increase in contracting services and asphalt sales volumes. In addition, improved pricing on ready-mix concrete and aggregates provided $38.1 million more in revenue. Offsetting the increases were a decrease

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in ready-mix and aggregates sales volumes due to EDGE-related pricing initiatives and lower demand in the residential and commercial markets.

We saw an increase in both EBITDA of $28.7 million and EBITDA margin of 340 basis points. These improvements resulted from higher construction gross profit of $15.5 million due to favorable job execution, efficiencies gained at our Spokane prestress facility and more available public agency work. We also benefited from improved ready-mix concrete margins as a result of increased pricing and favorable project execution in southern Oregon and increased asphalt margins due to lower asphalt oil and variable production costs. In addition, our selling, general and administrative expenses decreased $3.0 million due to the absence of a non-cash asset impairment in 2023 of $3.6 million on an aggregate site, as discussed in Item 8 - Note 2; higher gains on the sale of equipment; lower bad debt expense of $500,000; and lower professional services, offset in part by higher payroll-related costs of $3.6 million due to additional staffing.

2023 Compared to 2022

Our revenue increased $65.9 million in 2023, largely the result of EDGE-related pricing initiatives on all product lines, which together contributed $52.0 million. In addition, higher demand for contracting services work related to public agencies and railroad projects, as well as prestress data center and other projects, accounted for an increase in revenues of $37.7 million. Partially offsetting the increases were lower sales volumes across all product lines of $22.2 million, due in large part to the timing of impact projects in 2023 and decreased demand for asphalt paving and residential work.

We saw an increase in EBITDA of $17.2 million and EBITDA margin of 90 basis points in 2023. These improvements are the result of higher sales prices outpacing costs across all product lines by $26.1 million, largely resulting from EDGE-related pricing initiatives and product mix, and lower fuel, asphalt oil and equipment costs, which were offset in part by lower volumes across all product lines. Contracting services improved $8.0 million, largely due to the strong backlog of work established and the reduction of job losses as compared to the prior year, which were offset in part by startup costs related to the new prestress facility. We also had higher selling, general and administrative expenses which includes $3.9 million of higher payroll-related costs largely related to higher wages and performance-based incentives; a non-cash asset impairment of $3.6 million on an aggregate site, as discussed in Item 8 - Note 2; and $3.0 million lower asset sale gains.

Results of Operations – Mountain

(In millions)

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(In millions)

Revenues:

2024 Compared to 2023

Our revenue increased $29.1 million in 2024, primarily from an increase in Idaho public agency construction work and airport work, which drove increases in both contracting services revenue and asphalt volumes. We also benefited from the continued implementation of our EDGE-related pricing initiative throughout all product lines, which contributed $24.6 million in additional revenue. Offsetting these increases were lower ready-mix concrete volumes of $14.4 million due to a decrease in demand for residential and commercial work, as well as lower aggregates sales volumes of $11.0 million, largely due to the timing of wind energy projects and lower internal sales from the lack of large aggregate projects in 2024.

We saw an increase in EBITDA of $10.3 million and EBITDA margin of 80 basis points in 2024. These increases are the result of higher pricing across all product lines from our EDGE-related pricing initiatives outpacing cost increases. Gross profit on contracting services and asphalt also benefited from the increase in public agency construction work and airport work, as previously mentioned. Partially offsetting the increase were lower aggregates and ready-mix concrete volumes of $4.9 million, as previously discussed. In addition, selling, general and administrative expenses increased $3.2 million, largely due the absence of asset sale gains in 2023 and higher payroll-related costs.

2023 Compared to 2022

Our revenue improved $92.0 million in 2023, 70 percent of which was derived from contracting services from strong demand for public agency, airport and commercial work throughout the region. Pricing momentum across all product lines and throughout the region contributed $40.3 million. The increased pricing was in response to rising costs, demand and growing markets, as well as the early stages of EDGE-related pricing implementation. Aggregate volumes increased in the majority of locations with Wyoming recognizing an increase due to a number of wind energy projects throughout the state and certain areas of Montana saw higher volumes due to four airport projects. Wyoming also experienced wetter weather conditions in 2023 which negatively impacted both ready-mix concrete and asphalt sales volumes, partially contributing to a $7.3 million decrease to revenue.

We saw an increase in EBITDA of $30.6 million and EBITDA margin of 290 basis points in 2023. The improvement was the result of higher contracting services revenues and margins contributing profit of $19.7 million due to strong markets for public agency, airport and commercial work, as well as cost savings and job efficiencies. Higher sales prices outpaced costs across all product lines by $11.9 million. In addition, we also experienced lower fuel and equipment costs and had higher gains on asset sales. Partially offsetting the increase was higher selling, general and administrative expenses, as a result of higher payroll-related costs of $2.4 million, including increased incentive accruals based on our performance.

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Results of Operations – Central

(In millions)

(In millions)

Revenues:

__________________

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

2024 Compared to 2023

Our revenue decreased $6.9 million in 2024 as a result of lower asphalt and ready-mix concrete volumes and $15.1 million less contracting services revenues, largely due to our EDGE-related initiative of quality of work over quantity of work. The north central region also saw less contracting services work and asphalt sales volumes in 2024 related to the timing of projects with more work completed in late 2023 due to favorable weather later in the construction season. Partially offsetting the decrease in volumes was the benefit of higher prices on ready-mix concrete and asphalt of $24.4 million with the continued implementation of EDGE-related pricing initiatives. Overall, our aggregate sales volumes across the segment increased $4.7 million.

We saw an increase in EBITDA of $15.0 million and EBITDA margin of 200 basis points in 2024. These improvements are the result of increased margins across all product lines, largely due to continued EDGE-related pricing initiatives. Our contracting services work contributed an additional $4.9 million of gross profit, largely due to higher margin work, disciplined project bidding and favorable project execution. Offsetting these increases were higher selling, general and administrative expenses of $5.4 million, largely due to additional payroll-related costs of $5.7 million, due in part to additional staffing, and increased professional services fees, offset by higher gains on the sale of non-strategic assets in Texas of $2.3 million.

2023 Compared to 2022

Our revenue increased $45.2 million in 2023, as a result of higher selling prices across all product lines providing $76.1 million of additional revenue, largely due to EDGE-related pricing initiatives. Contracting services saw a benefit of $20.8 million from improved bid margins and favorable weather across the regions, a large concrete and asphalt paving job in the north central region and increased paving work in Texas. Partially offsetting these increases were lower sales volumes of $33.0 million across most product lines largely as the regions continue to target improved bid margins on projects which also impacts internal sales volumes and the absence of an impact project in South Dakota. Also, decreased ready-mix concrete and aggregates sales due to a sale of non-strategic assets in southeast Texas in December 2022 impacted revenue.

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We saw an increase in EBITDA of $30.0 million and EBITDA margin of 300 basis points in 2023. The increase in EBITDA was largely due to higher sales prices across all product lines which contributed $30.0 million and higher contracting services margins of $22.5 million related to improved bid margins, impact projects and job productivity gains. The increase was offset in part by higher selling, general and administrative expenses and decreased sales volumes. Selling, general and administrative expenses increased $14.6 million, largely the absence of a gain of $6.7 million recognized in 2022 on the sale of non-strategic assets in southeast Texas; additional payroll-related costs of $6.0 million, due in part to higher incentive accruals based on our performance; and increased insurance costs of $1.4 million.

Results of Operations – Energy Services

(In millions)

(In millions)

Revenues:

__________________

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

2024 Compared to 2023

Our revenue decreased $16.6 million in 2024, largely due to lower pricing as a result of reduced supply input costs across our market areas. Liquid asphalt sales volumes were up 4 percent, primarily from strong demand in California and Texas, which were partially offset by decreased volumes in the Midwest due to less carryover jobs year-over-year. The acquisition of Albina during the fourth quarter of 2024 also contributed additional liquid asphalt sales volumes.

Our EBITDA decreased $17.9 million and EBITDA margin decreased 490 basis points in 2024. The decrease in EBITDA was driven by reduced market pricing bringing our margins back within a normal range and an increase in operating costs, primarily $1.5 million in plant repairs at our California terminal. Higher selling, general and administrative expenses of $735,000, largely due to higher payroll-related costs with the addition of Albina employees in the fourth quarter of 2024, also reduced EBITDA.

2023 Compared to 2022

Our revenue improved $53.9 million in 2023, largely driven by higher liquid asphalt sales volumes from additional sales opportunities across most of our primary markets, higher sales to other reportable segments and sales late in the year due to favorable weather conditions. Higher liquid asphalt sales prices also positively impacted revenue.

We saw an increase inEBITDA of $49.8 million and EBITDA margin of 1,480 basis points in 2023. This increase was primarily related to increased market pricing and higher sales volumes. Partially offsetting these increases were higher operating costs for scheduled tank repair and maintenance costs and higher selling, general and administrative expenses, primarily $1.4 million of payroll-related costs.

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Corporate Services and Eliminations

Corporate Services includes all expenses related to the corporate functions of our company, as well as insurance activity of our captive insurer; interest expense on a majority of our long-term debt; interest income; and unrealized gains and losses on investments for our nonqualified benefit plans.

2024 Compared to 2023

Corporate Services had negative EBITDA of $60.7 million, or $7.5 million less EBITDA in 2024, compared to the prior year. Corporate Services had increased selling, general and administrative expenses of $7.0 million. The increase in costs for non-Separation related expenses totaled $7.4 million, which was primarily due to higher due diligence and integration costs related to corporate development and completed acquisitions of $7.5 million and higher information technology costs of $3.4 million. These costs were partially offset by lower payroll-related costs of $2.4 million, largely due to lower bonus accruals, and a reduction in insurance loss reserves at our captive insurer of $2.6 million. As a result of the Separation, we experienced higher recurring costs as a publicly traded company of $6.3 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 $1.8 million; and fees of $750,000 primarily related to fees on new debt issued in conjunction with the Separation, partially offset by a reduction in general corporate expenses from MDU Resources of $8.9 million. We also incurred less one-time costs of $6.5 million primarily consisting of insurance costs related to the Separation and the transition services agreement with MDU Resources.

2023 Compared to 2022

Corporate Services contributed negative EBITDA of $53.2 million, or $24.5 million less EBITDA in 2023 than the prior year. The decrease was due primarily to higher selling, general and administrative expenses of $31.8 million directly related to the Separation from MDU Resources. In 2023, we experienced increased recurring costs, including payroll-related costs of $12.3 million, largely due to additional staff and stock-based compensation expense for the management team and board of directors; professional services of $2.6 million; fees of $1.2 million, primarily related to fees on the new debt issued in conjunction with the Separation; and insurance costs of $400,000. These recurring costs were offset in part by a reduction in general corporate expenses from MDU Resources of $7.6 million, as discussed in Item 8 - Note 1. Also, as part of the Separation, we incurred one-time costs of $10.0 million primarily related to professional services, insurance costs and the transition services agreement with MDU Resources. Further contributing to higher selling, general and administrative costs were increased payroll-related costs due to higher incentive accruals based on our performance. Partially offsetting these increased costs were improved returns on our nonqualified benefit plan investments of $5.5 million.

Liquidity and Capital Resources

At December 31, 2024, we had unrestricted cash and cash equivalents of $236.8 million and working capital of $617.6 million. Working capital is calculated as current assets less current liabilities. We have a centralized cash management model and intend to use cash on hand and third-party credit facilities to fund day-to-day operations. We believe 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 equipment and facilities and other start-up costs for our construction season. Working capital levels then typically decrease as the construction season winds down and we collect on receivables.

Our ability to fund our cash needs will depend on the ongoing ability to generate cash from operations and obtain debt financing with competitive rates. We rely 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.

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Debt Financing Activities

Facility Facility Limit Amount Outstanding Letters of Credit Expiration Date

(In millions)

On April 25, 2023, we issued $425.0 million of 7.75 percent senior notes due May 1, 2031, pursuant to an indenture. On May 31, 2023, we entered into a senior secured credit agreement consisting of a $275.0 million term loan and a $350.0 million revolving credit facility, each with a SOFR-based interest rate and a maturity date of May 31, 2028. Outstanding letters of credit reduce the amount available under the revolving credit agreement. In addition, in the first half of 2025 we expect to enter into a new senior secured Term Loan B facility of $500 million, increase the total commitments under our existing revolving credit facility from $350 million to $500 million and extend the maturity date of our existing senior secured credit facilities from 2028 to 2030.

In order to borrow under the debt instruments, we must be in compliance with the applicable covenants and certain other conditions, all of which we are in compliance at December 31, 2024. In the event that we do not comply with the applicable covenants and other conditions, we would be in default on our agreements and alternative sources of funding may need to be pursued and there can be no assurance that, if needed, we will be able to secure additional debt or equity financing on terms acceptable to us or at all. For additional information on our debt, see Item 8 - Note 9.

Off-Balance Sheet Arrangements

As of December 31, 2024, we had aggregate outstanding letters of credit issued under our revolving credit facility in the amount of $20.6 million. Other than these letters of credit further discussed in Item 8 - Note 18, we do not currently have any off-balance sheet arrangements that have, or are reasonably likely to have, a material impact on current or future financial conditions, results of operations or cash flows.

Capital Expenditures

We are committed to disciplined capital allocation, including reinvesting in our company to maintain fixed assets, improve operations and grow our business.

In 2024, we spent $170.5 million, compared to $124.3 million in 2023, on the replacement of depleting aggregate reserves, construction equipment, plant improvements and buildings. In 2024, we spent $132.9 million on six acquisitions, which include aggregate, ready-mix and liquid asphalt operations, and initial greenfield projects. Capital expenditures for 2024 and 2023 were funded by internally generated funds and borrowings under credit facilities.

For 2025, we have estimated capital expenditures for maintenance and improvement to be between $155 million and $215 million and approximately $522 million for the pending acquisition of Strata and organic growth projects. Capital expenditures for future acquisitions and future organic growth opportunities would be incremental to our outlined capital program; these opportunities are dependent upon economic and other competitive conditions. It is anticipated that capital expenditures for 2025 will be funded by various sources, including internally generated cash and debt. In addition to cash on hand, we intend to use a portion of the proceeds from the issuance of a new $500 million Term Loan B facility to fund the purchase of Strata. Separately, we also intend to increase the total commitments under our existing revolving credit facility from $350 million to $500 million and extend the maturity date of our existing senior secured credit facilities from 2028 to 2030.

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Cash Flows

(In millions)

Net cash provided by (used in)

Cash, cash equivalents and restricted cash – beginning of year 262.3 10.1 13.8

Cash, cash equivalents and restricted cash – end of year $ 281.1 $ 262.3 $ 10.1

Operating activities

(In millions)

Changes in current assets and current liabilities, net of acquisitions:

Due from related-party — 16.1 (8.0)

Other current assets 10.9 (19.6) —

Due to related-party — (7.3) 3.6

Other current liabilities (4.0) 49.0 21.4

Pension and postretirement benefit plan contributions (2.7) (1.8) (.4)

Other noncurrent changes 1.9 5.6 8.3

Net cash provided by operating activities $ 322.3 $ 335.7 $ 207.5

Cash provided by operating activities for the year ended December 31, 2024, decreased $13.4 million, largely related to higher working capital needs. Cash used by working capital components increased $36.1 million in 2024. This increased usage of cash was driven largely by higher accrued compensation due in part to additional employees associated with the Separation; higher liquid asphalt and aggregate volumes as well as higher costs of aggregate inventory; timing of prepaid insurance due to Separation; the removal of all related-party balances due to the Separation; and fluctuations in the timing of payment on accounts payable. In addition, stronger collections on receivable balances during 2024 and higher net income partially offset the decrease in cash.

Cash provided by operating activities for the year ended December 31, 2023, increased $128.2 million, largely related to increased earnings in 2023 and lower working capital needs. Cash provided by working capital components totaled $20.2 million in 2023, compared to $29.0 million in 2022. This decreased usage of cash was driven largely by lower payments on operating expenses at the end of the period and decreased liquid asphalt inventory balances, partially offset by increased accounts receivable balances at the end of the year associated with higher revenues during 2023. In addition, the timing of insurance costs associated with the captive insurer had a positive impact on cash.

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Investing activities

(In millions)

Acquisitions, net of cash acquired (131.0) — 1.7

Net proceeds from sale or disposition of property and other 12.0 8.3 22.9

Net cash used in investing activities $ (294.8) $ (117.9) $ (155.9)

The increase in cash used in investing activities from 2024 to 2023 was primarily due to the completion of six acquisitions in 2024 and higher capital expenditures, including a liquid asphalt expansion project, aggregate reserve replacements and routine replacement of construction equipment. The increase in cash usage was offset in part by additional proceeds from asset sales, largely as a result of the sale of non-strategic assets in Texas in 2024.

The decrease in cash used in investing activities from 2023 to 2022 was primarily due to a reduction in capital expenditures for the prestress facility in Washington that was completed during the third quarter of 2023, offset in part by decreased proceeds from asset sales as a result of the sale of non-strategic assets in southeast Texas in December 2022.

Financing activities

(In millions)

Issuance of current related-party notes, net $ — $ — $ 208.0

Issuance (repayment) of long-term related-party notes, net — 205.3 (207.0)

Issuance of long-term debt — 700.0 —

Repayment of long-term debt (7.0) (3.6) (.3)

Debt issuance costs — (16.7) (.8)

Tax withholding on stock-based compensation (1.7) — —

Net transfers to Centennial — (850.6) (55.2)

Net cash provided by (used in) financing activities $ (8.7) $ 34.4 $ (55.3)

The increase in cash flows used in financing activities from 2024 to 2023 was largely related to changes in our debt structure in 2023 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. For further information, see Item 8 - Note 9.

The increase in cash flows provided by financing activities from 2023 to 2022 was largely related to the changes in debt 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.

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Material Cash Requirements

For more information on our contractual obligations on long-term debt, operating leases and purchase commitments, see Item 8 - Notes 9, 10 and 18. At December 31, 2024, our material cash requirements under these obligations were as follows:

Less than 1 year 1-3 years 3-5 years More than5 years Total

(In millions)

__________________

1Unamortized debt issuance costs are excluded from the table.

2Represents the estimated interest payments using our long-term debt outstanding at December 31, 2024, assuming current interest rates and consistent amounts outstanding until their respective maturity dates over the periods indicated in the table above.

Material short-term cash requirements include repayment of outstanding borrowings and interest payments on those agreements, payments on operating lease agreements, payment of obligations on purchase commitments and asset retirement obligations. At December 31, 2024, the current portion of asset retirement obligations was $7.1 million and was included in other accrued liabilities on the Consolidated Balance Sheets.

Our material long-term cash requirements include repayment of outstanding borrowings and interest payments on those agreements, payments on operating lease agreements, payment of obligations on purchase commitments and asset retirement obligations. At December 31, 2024, we had total liabilities of $59.4 million related to asset retirement obligations that are excluded from the table above. Due to the nature of these obligations, we cannot determine precisely when the payments will be made to settle these obligations. For more information, see Item 8 - Note 11.

Defined Benefit Pension Plans

Our company has noncontributory qualified defined benefit pension plans for certain employees. Plan assets consist of investments in equity and fixed income securities. Various assumptions are used in calculating the benefit expense (income) and liability (asset) related to the pension plans. Actuarial assumptions include assumptions about the discount rate and expected return on plan assets. For 2024, we assumed a discount rate of 5.4 percent and long-term rate of return on our qualified defined pension plan assets of 6.0 percent. Increased discount rates for 2024 compared to 2023 resulted in actuarial gains. Differences between actuarial assumptions and actual plan results are deferred and amortized into expense when the accumulated differences exceed 10 percent of the greater of the projected benefit obligation or the market-related value of plan assets. Therefore, this change in asset values will be reflected in future expenses of the plans beginning in 2025. The funded status of the plans did not change significantly with the gains on the assets because the liabilities decreased as well due to the increase in the discount rate.

At December 31, 2024, the pension plans’ accumulated benefit obligations exceeded the plans’ assets by approximately $345,000. Pretax pension expense (income) reflected in the Consolidated Statements of Operations for the years ended December 31, 2024, 2023 and 2022, was $289,000, $343,000 and $10,000, respectively. Our pension expense is currently projected to be approximately $350,000 in 2025. We do not expect to make any pension plan contributions in 2025, as the plan is fully funded and is based on using a full yield curve. During 2024, we contributed $2.1 million to our pension plans which was driven by additional discretionary contributions to increase the funded status of the plans. There were no minimum required contributions for the years ended December 31, 2023 and 2022. For more information on our pension plans, see Item 8 - Note 17.

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New Accounting Standards

For information regarding new accounting standards, see Item 8 - Note 2, which is incorporated herein by reference.

Critical Accounting Estimates

We have prepared our financial statements in conformity with GAAP. The preparation of our financial statements requires management 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 financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Management reviews these estimates and assumptions based on historical experience, changes in business conditions and other relevant factors believed to be reasonable under the circumstances.

Critical accounting estimates are defined as estimates that require management to make assumptions about matters that are uncertain at the time the estimate was made, and changes in the estimates could have a material impact on our financial position or results of operations. Our critical accounting estimates are subject to judgments and uncertainties that affect the application of the significant accounting policies discussed in Item. 8 - Note 2. As additional information becomes available, or actual amounts are determinable, the recorded estimates are revised. Consequently, our financial position or results of operations may be materially different when reported under different conditions or when using different assumptions in the application of the following critical accounting estimates.

Revenue Recognition

Revenue is recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The recognition of revenue requires us to make estimates and assumptions that affect the reported amounts of revenue. The accuracy of revenues reported on the audited consolidated financial statements depends on, among other things, management’s estimates of total costs to complete projects because we use the cost-to-cost measure of progress on contracting services contracts for revenue recognition.

To determine the proper revenue recognition method for contracts, we evaluate whether two or more contracts should be combined and accounted for as one single contract and whether the combined or single contract should be accounted for as more than one performance obligation. For most contracts, the customer contracts with us to provide a significant service of integrating a complex set of tasks and components into a single project. Hence, our contracts are generally accounted for as one performance obligation.

We recognize contracting services revenue over time using an input method based on the cost-to-cost measure of progress for contracts because it best depicts the transfer of assets to the customer which occurs as we incur costs on the contract. Under the cost-to-cost measure of progress, the costs incurred are compared with total estimated costs of a performance obligation. Revenues are recorded proportionately to the costs incurred. This method depends largely on the ability to make reasonably dependable estimates related to the extent of progress toward completion of the contract, contract revenues, and contract costs. Since contract prices are generally set before the work is performed, the estimates pertaining to every project could contain significant unknown risks such as volatile labor, material and fuel costs, weather delays, adverse project site conditions, unforeseen actions by regulatory agencies, performance by subcontractors, job management and relations with project owners. Changes in estimates could have a material effect on our results of operations, financial position and cash flows. For the years ended December 31, 2024, 2023 and 2022, our total contracting services revenue was $1.4 billion, $1.3 billion and $1.2 billion, respectively.

Several factors are evaluated in determining the bid price for contract work. These include, but are not limited to, the complexities of the job, past history performing similar types of work, seasonal weather patterns, competition and market conditions, job site conditions, workforce safety, reputation of the project owner, availability of labor, materials and fuel, project location and project completion dates. As a project commences, estimates are continually

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monitored and revised as information becomes available and actual costs and conditions surrounding the job become known. If a loss is anticipated on a contract, the loss is immediately recognized.

Contracts are often modified to account for changes in contract specifications and requirements. We consider contract modifications to exist when the modification either creates new or changes the existing enforceable rights and obligations. Generally, contract modifications are for goods or services that are not distinct from the existing contract due to the significant integration of services provided in the context of the contract and are accounted for as if they were part of that existing contract. The effect of a contract modification on the transaction price and the measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue on a cumulative catch-up basis.

Our contracts for contracting services generally contain variable consideration including liquidated damages, performance bonuses or incentives, claims, unpriced change orders and penalties or index pricing. The variable amounts usually arise upon achievement of certain performance metrics or change in project scope. We estimate the amount of revenue to be recognized on variable consideration using one of the two prescribed estimation methods, the expected value method or the most likely amount method, depending on which method best predicts the most likely amount of consideration we expect to be entitled to or expect to incur. Assumptions as to the occurrence of future events and the likelihood and amount of variable consideration are made during the contract performance period, using estimates of variable consideration and assessment of anticipated performance and all information (historical, current and forecasted) that is reasonably available to management. We only include variable consideration in the estimated transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur or when the uncertainty associated with the variable consideration is resolved. Changes in circumstances could impact management’s estimates made in determining the value of variable consideration recorded. When determining if the variable consideration is constrained, we consider if factors exist that could increase the likelihood or the magnitude of a potential reversal of revenue. We update our estimate of the transaction price each reporting period and the effect of variable consideration on the transaction price is recognized as an adjustment to revenue on a cumulative catch-up basis.

We believe our estimates surrounding the cost-to-cost method are reasonable based on the information that is known when the estimates are made. We have contract administration, accounting and management control systems in place that allow our estimates to be updated and monitored on a regular basis. Because of the many factors that are evaluated in determining bid prices, it is inherent that our estimates have changed in the past and will continually change in the future as new information becomes available for each job.

Business Combinations

We account for acquisitions on the audited consolidated financial statements starting from the date of the acquisition, which is the date that control is obtained. The acquisition method of accounting requires acquired assets and liabilities assumed be recorded at their respective fair values as of the date of the acquisition. The excess of the purchase price over the fair value of the assets acquired and liabilities assumed is recorded as goodwill. The estimation of fair values of acquired assets and liabilities assumed requires significant judgment and various assumptions. Although independent appraisals may be used to assist in the determination of the fair value of certain assets and liabilities, the appraised values may be based on significant estimates provided by management. The amounts and useful lives assigned to depreciable and amortizable assets compared to amounts assigned to goodwill, which is not amortized, can affect the results of operations in the period of and periods subsequent to a business combination.

In determining fair values of acquired assets and liabilities assumed, we use various observable inputs for similar assets or liabilities in active markets and various unobservable inputs, which includes the use of valuation models. Fair values are based on various factors including, but not limited to, age and condition of property, maintenance records, auction values for equipment with similar characteristics, recent sales and listings of comparable properties, data collected from drill holes and other subsurface investigations and geologic data. We primarily use the market and cost approaches in determining the fair value of land and property, plant and equipment. A combination of the market and income approaches are used for aggregate reserves and intangibles, primarily a discounted cash flow model. Although we may engage independent third-party consultants to assist with

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the valuation of aggregate reserves and intangibles, the valuations are based on significant estimates that are approved by management. The process is highly subjective and requires a large degree of management judgement. Assumptions used may vary for each specific business combination due to unique circumstances of each transaction. Assumptions may include discount rate, time period, terminal value and growth rate. The values generated from the discounted cash flow model are sensitive to the assumptions used. Inaccurate assumptions can lead to deviations from the values generated.

There is a measurement period after the acquisition date during which we may adjust the amounts recognized for a business combination. Any such adjustments are recorded in the period the adjustment is determined with the corresponding offset to goodwill. These adjustments are typically based on obtaining additional information that existed at the acquisition date regarding the assets acquired and the liabilities assumed. The measurement period ends once we have obtained all necessary information that existed as of the acquisition date, but does not extend beyond one year from the date of the acquisition. Once the measurement period has ended, any adjustments to assets acquired or liabilities assumed are recorded in income from continuing operations.

Goodwill

We perform our goodwill impairment testing annually in the fourth quarter. In addition, the test is performed on an interim basis whenever events or circumstances indicate that the carrying amount of goodwill may not be recoverable. Examples of such events or circumstances may include a significant adverse change in business climate, weakness in an industry in which our reporting units operate or recent significant cash or operating losses with expectations that those losses will continue.

We have determined that the reporting units for our goodwill impairment test are our operating segments as they constitute a business for which discrete financial information is available and for which segment management regularly reviews the operating results. Goodwill impairment, if any, is measured by comparing the fair value of each reporting unit to its carrying value. If the fair value of a reporting unit exceeds its carrying value, the goodwill of the reporting unit is not impaired. If the carrying value of a reporting unit exceeds its fair value, we must record an impairment loss for the amount that the carrying value of the reporting unit, including goodwill, exceeds the fair value of the reporting unit. For the years ended December 31, 2024, 2023 and 2022, there were no impairment losses recorded. At October 31, 2024, the fair value of each of our reporting units substantially exceeded the carrying value.

Determining the fair value of a reporting unit requires judgment and the use of significant estimates, which include assumptions about our future revenue, profitability and cash flows, long-term growth rates, amount and timing of estimated capital expenditures, inflation rates, weighted average cost of capital, operational plans, and current and future economic conditions, among others. The fair value of each reporting unit is determined using a weighted combination of income and market approaches. We believe the estimates and assumptions used in our impairment assessments are reasonable and based on available market information.

A discounted cash flow methodology is used for our income approach. Under the income approach, the discounted cash flow model determines fair value based on the present value of projected cash flows over a specified period and a residual value related to future cash flows beyond the projection period. Both values are discounted using a rate that reflects the best estimate of our weighted average cost of capital.

Under the market approach, we estimate fair value using various multiples derived from enterprise value to EBITDA for comparative peer companies as well as comparable market transaction multiples to EBITDA for each respective reporting unit. These multiples are applied to operating data for each reporting unit to arrive at an indication of fair value. In addition, we add a reasonable control premium when calculating the fair value utilizing the peer multiples, which is estimated as the premium that would be received in a sale in an orderly transaction between market participants.

Significant judgment is used in estimating our five-year forecast. The assumptions underlying cash flow projections are in sync as applicable with our strategy and assumptions. Future projections are heavily correlated with the current year results of operations. Future results of operations may vary due to economic and financial impacts. The long-term growth rates used in the five-year forecast are developed by management based on industry

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data, management’s knowledge of the industry and management’s strategic plans. The long-term growth rate used was 3 percent in 2024, 2023 and 2022.

Long-Lived Assets Excluding Goodwill

Long-lived assets, which include aggregate reserves and related assets, represent 55 percent of our total assets as of December 31, 2024. We review the carrying values of our long-lived assets when events or changes in circumstances indicate that such carrying values may not be recoverable.

We test long-lived assets for impairment at a level significantly lower than that of goodwill impairment testing. Long-lived assets or groups of assets are evaluated for impairment at the lowest level of largely independent identifiable cash flows at an individual operation or group of operations collectively serving a local market.

When indications of or triggers for impairment are noted, impairment testing is completed. The impairment testing requires the use of significant estimates, judgements and uncertainties by management, which may vary from actual results. Estimates and judgements may include, among other things, whether triggering events have occurred, estimates of future cash flows, the asset’s useful life, disposal activity obligations, growth and production.

The determination of whether an impairment has occurred is based on an estimate of undiscounted future cash flows attributable to the assets, compared to the carrying value of the assets. If impairment has occurred, the amount of the impairment recognized is determined by estimating the fair value of the assets and recording a loss if the carrying value is greater than the fair value.

No impairment losses were recorded in 2024 or 2022. During the year ended December 31, 2023, we recognized non-cash asset impairments of $5.8 million as a result of certain aggregate sites no longer being economically feasible to mine and having no remaining value. Unforeseen events and changes in circumstances could require the recognition of impairment losses at some future date.

Non-GAAP Financial Measures

This Annual Report includes financial information prepared in accordance with GAAP, as well as EBITDA, EBITDA margin, Adjusted EBITDA and Adjusted EBITDA margin, as well as total segment measures, as applicable, that 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.

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 our 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 total segment measures, as applicable, are useful performance measures because they provide clarity as to our operational results. Our management uses these non-GAAP financial measures in conjunction with GAAP results when evaluating our operating results internally and calculating employee incentive compensation.

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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 and 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 consolidated net income 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 (expense) on the Consolidated Statements of Operations.

(In millions)

Unrealized (gains) losses on benefit plan investments (2.9) (2.7) 4.0

Stock-based compensation expense 7.8 3.1 2.7

One-time separation costs 3.8 10.0 —

Net income margin 7.0 % 6.5 % 4.6 %

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to certain market risks arising from transactions that are entered into in the normal course of business. 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 December 31, 2024, we had $264.7 million in term loans outstanding which bear interest at a variable rate. As of December 31, 2024, the rate in effect was 6.18 percent, therefore, a hypothetical increase of 1.00 percent to the interest rate at December 31, 2024, would have increased the all-in rate to 7.18 percent, the effect of which would increase our interest expense by $2.6 million over the next 12 months based on the balances outstanding for these borrowings as of December 31, 2024.

We use fixed and variable rate long-term debt to partially finance capital expenditures, including acquisitions, and mandatory debt retirements. These debt agreements expose us to market risk related to changes in interest rates. We manage this risk by attempting to take advantage of favorable market conditions when timing the placement of long-term financing. We may take advantage of interest rate swap agreements in the future to minimize our interest rate risk. For additional information on our long-term debt, see Item 8 - Notes 8 and 9. At December 31, 2024 and 2023, we had no outstanding interest rate hedges.

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Commodity price risk

We are subject to commodity price risk with respect to price changes in diesel fuel, liquid asphalt and cement. While we generally use price increases, escalation clauses in construction services contracts, fuel surcharges and purchase commitments to mitigate the impacts of higher costs, these measures may not be sufficient to offset these increased costs. For the year ended December 31, 2024, our costs associated with diesel fuel, liquid asphalt and cement were $394.7 million. Accordingly, a hypothetical 10 percent increase or decrease would have increased or decreased, respectively, our operating results over the next 12 months by $39.5 million based on the costs associated with diesel fuel, liquid asphalt and cement for the year ended December 31, 2024.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Management’s Report on Internal Control Over Financial Reporting

The management of Knife River Corporation is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Company’s internal control system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may be inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2024. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013).

Based on our evaluation under the framework in Internal Control-Integrated Framework (2013), management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2024.

The scope of our assessment of the effectiveness of our internal control over financial reporting did not include Albina Asphalt as we acquired them on November 2, 2024. The assets acquired from Albina were 4% of consolidated assets as of December 31, 2024 and revenues were less than 1% of consolidated revenue during the year ended December 31, 2024. We excluded Albina from the scope of our assessment in accordance with the Securities and Exchange Commission’s guidance that allows a recently acquired business to be omitted from the scope of the assessment for one year from the date of its acquisition.

The effectiveness of the Company’s internal control over financial reporting as of December 31, 2024, has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report.

/s/ Brian R. Gray /s/ Nathan W. Ring

Brian R. Gray Nathan W. Ring

President and Chief Executive Officer Vice President and Chief Financial Officer

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the Board of Directors of Knife River Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Knife River Corporation and subsidiaries (the “Company”) as of December 31, 2024 and 2023, the related consolidated statements of operations, comprehensive income, equity, and cash flows, for each of the three years in the period ended December 31, 2024, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 21, 2025, expressed an unqualified opinion on the Company’s internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

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Revenue from Contracts with Customers—Contracting Services Revenue—Refer to Notes 1, 2, 4 and 5 to the financial statements

Critical Audit Matter Description

The Company recognizes contracting services revenue over time using an input method based on the cost-to-cost measure of progress for contracts because it best depicts the transfer of assets to the customer which occurs as Knife River incurs costs on the contract. Under the cost-to-cost measure of progress, the costs incurred are compared with total estimated costs of a performance obligation. Revenues are recorded proportionately to the costs incurred. This method depends largely on the ability to make reasonably dependable estimates related to the extent of progress toward completion of the contract, contract revenues, contract costs. The accounting for these contracts involves judgment, particularly as it relates to the process of estimating total costs and profit for the performance obligation. For the year ended December 31, 2024, the Company recognized $1.4 billion of contracting services revenue.

Given the judgments necessary to estimate total costs and profit for the performance obligations used to recognize revenue for construction contracts, auditing such estimates required extensive audit effort due to the volume and complexity of construction contracts and a high degree of auditor judgment when performing audit procedures and evaluating the results of those procedures.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to management’s estimates of total costs and profit for the performance obligations used to recognize revenue for contracts included the following, among others:

•We tested the operating effectiveness of management’s controls over contracting services revenue, including controls over management’s estimation of total costs and profit for the performance obligations.

•For certain contracts, we developed an expectation of the amount of contracting services revenue based on prior year markups, and taking into account current year events, applied to the contracting services contract costs in the current year and compared our expectation to the amount of contracting services revenue recorded by management.

•For certain contracts, we selected a sample of contracting services contracts and performed the following:

–Evaluated whether the contracts were properly included in management’s calculation of contracting services revenue based on the terms and conditions of each contract, including whether continuous transfer of control to the customer occurred as progress was made toward fulfilling the performance obligation.

–Compared the transaction prices to the consideration expected to be received based on current rights and obligations under the contracts and any modifications that were agreed upon with the customers.

–Tested management’s identification of distinct performance obligations by evaluating whether the underlying goods and services were highly interdependent and interrelated.

–Tested the accuracy and completeness of the costs incurred to date for the performance obligation.

–Evaluated the estimates of total cost and profit for the performance obligation by:

◦Comparing total costs incurred to date to the costs management estimated to be incurred to date and selecting specific cost types to compare costs incurred to date to management’s estimated costs at completion.

◦Evaluating management’s ability to achieve the estimates of total cost and profit by performing corroborating inquiries with the Company’s project managers and engineers, and comparing the estimates to management’s work plans, engineering specifications, and supplier contracts.

◦Comparing management’s estimates for the selected contracts to costs and profits of similar performance obligations, when applicable.

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–Tested the mathematical accuracy of management’s calculation of contracting services revenue for the performance obligation.

•For certain contracts, we evaluated management’s ability to estimate total costs and profits accurately by comparing actual costs and profits to management’s historical estimates for performance obligations that have been fulfilled.

/s/ Deloitte & Touche LLP

Minneapolis, Minnesota

February 21, 2025

We have served as the Company's auditor since 2002.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the Board of Directors of Knife River Corporation

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Knife River Corporation and subsidiaries (the “Company”) as of December 31, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2024, of the Company and our report dated February 21, 2025, expressed an unqualified opinion on those financial statements.

As described in Management’s Report on Internal Control Over Financial Reporting, management excluded from its assessment the internal control over financial reporting at Albina Asphalt, which was acquired on November 2, 2024, and whose financial statements constitute 4% of total assets and less than 1% of revenues of the consolidated financial statement amounts as of and for the year ended December 31, 2024. Accordingly, our audit did not include the internal control over financial reporting at Albina Asphalt.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Deloitte & Touche LLP

Minneapolis, Minnesota

February 21, 2025

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KNIFE RIVER CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations

(In thousands, except per share amounts)

Revenue:

Cost of revenue:

Net income per share:

Weighted average common shares outstanding:

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KNIFE RIVER CORPORATION AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(In thousands)

Other comprehensive income:

Pension and postretirement liability adjustment:

Pension and postretirement liability adjustment 2,017 943 11,810

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KNIFE RIVER CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

(In thousands, except shares and per share amounts)

Assets

Current assets:

Cash, cash equivalents and restricted cash $ 281,134 $ 262,320

Noncurrent assets:

Liabilities and Stockholders’ Equity

Current liabilities:

Long-term debt - current portion $ 10,475 $ 7,082

Noncurrent liabilities:

Noncurrent operating lease liabilities 34,534 31,758

Commitments and contingencies

Stockholders’ equity:

Accumulated other comprehensive loss (9,302) (11,319)

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KNIFE RIVER CORPORATION AND SUBSIDIARIES

Consolidated Statements of Equity

Shares Amount Shares Amount Shares Amount

(In thousands, except shares)

Other comprehensive income — — — — — — — — 12,138 12,138

Other comprehensive income — — — — — — — — 1,033 1,033

Stock-based compensation — — 2,888 (37) — — — — — 2,851

Common stock issued for board of director fees 12,192 — 702 — — — — — — 702

Other comprehensive income — — — — — — — — 2,017 2,017

Stock-based compensation — — 8,057 (6) — — — — — 8,051

Common stock issued for board of director fees 3,001 — — — — — — — — —

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KNIFE RIVER CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands)

Operating activities:

Unrealized (gains) losses on investments (2,918) (2,202) 2,525

Equity in (loss) earnings of unconsolidated affiliates (279) (286) 438

Changes in current assets and liabilities, net of acquisitions:

Pension and postretirement benefit plan contributions (2,651) (1,756) (426)

Investing activities:

Acquisitions, net of cash acquired (130,981) — 1,745

Net proceeds from sale or disposition of property and other 11,996 8,284 22,878

Financing activities:

Issuance of current related-party notes — — 208,000

Issuance (repayment) of long-term related-party notes, net — 205,275 (207,007)

Issuance of long-term debt — 700,000 —

Tax withholding on stock-based compensation (1,673) — —

Net cash provided by (used in) financing activities (8,709) 34,393 (55,324)

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KNIFE RIVER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2024, 2023 and 2022

Note 1 – Organization and Basis of Presentation

Knife River is a people-first construction materials and contracting services company. We provide construction materials and contracting services to build safe roads, bridges and airport runways and other critical infrastructure needs that connect people with where they want to go and with the supplies they need. We are one of the leading providers of crushed stone and sand and gravel in the United States and operate across 14 states. As of December 31, 2024, we conducted our operations through five reportable segments: Pacific, Northwest, Mountain, Central and Energy Services.

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.

The Separation was completed pursuant to a separation and distribution agreement and other agreements with MDU Resources related to the Separation, including, but not limited to, a tax matters agreement, an employee matters agreement and a transition services agreement. For an interim period following the Separation, certain functions continued to be provided by MDU Resources under a transition services agreement. For more information on the transition services agreement, see Note 19.

Basis of Presentation

Prior to the Separation, we operated as a wholly owned subsidiary of Centennial and an indirect, wholly owned subsidiary of MDU Resources and not as a stand-alone company. The accompanying audited 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 audited consolidated financial statements of MDU Resources as if we operated on a stand-alone basis during these periods.

All revenues and costs as well as assets and liabilities directly associated with the business activity of Knife River are included in the financial statements. In the periods prior to the Separation, the audited 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 (expense). The amounts allocated to us were $10.7 million and $18.0 million for the years ended December 31, 2023 and 2022, respectively. These expenses were allocated to us 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 expense we would have incurred as a 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.

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KNIFE RIVER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2024, 2023 and 2022

Prior to the Separation, we participated in Centennial’s centralized cash management program, including its overall financing arrangements. Interest expense in the Consolidated Statements of Operations for the periods prior to the Separation reflects the allocation of interest on borrowing and funding associated with the related-party note agreements. Upon the completion of the Separation, we implemented our own financing agreements with lenders. For additional information on our current debt financing, see Note 9.

Related-party transactions between us and MDU Resources or Centennial for general operating activities and intercompany debt have been included in the audited consolidated financial statements for periods prior to the Separation. The cash settlement of these transactions are included in the Consolidated Statements of Cash Flows as operating or financing activities following the nature of the transactions. The aggregate net effect of related-party transactions not settled in cash as part of the Separation have been reflected in the Consolidated Balance Sheets and Statements of Stockholders’ Equity within “Other paid-in capital” and within the Consolidated Statements of Cash Flows following the nature of the transactions with a majority included in the financing section. See Note 19 for additional information on related-party transactions.

Management has also evaluated the impact of events occurring after December 31, 2024, up to the date of issuance of these audited consolidated financial statements on February 21, 2025, that would require recognition or disclosure in the audited Consolidated Financial Statements.

Principles of consolidation

For all periods, the audited consolidated financial statements were prepared in accordance with GAAP and include the accounts of Knife River and our wholly owned subsidiaries. All intercompany accounts and transactions between our businesses have been eliminated in the accompanying audited consolidated financial statements.

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 audited 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; estimated total 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.

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KNIFE RIVER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2024, 2023 and 2022

Note 2 – Significant Accounting Policies

New accounting standards

The following table provides a brief description of the accounting pronouncements applicable to us and the potential impact on our audited consolidated financial statements and/or disclosures:

Recently adopted ASU’s

Recently issued ASU’s not yet adopted

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KNIFE RIVER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2024, 2023 and 2022

Cash, cash equivalents and restricted cash

We consider all highly liquid investments with an original maturity of three months or less, when purchased, to be cash and cash equivalents. Restricted cash represents deposits held by our captive insurance company that is required by state insurance regulations to remain in the captive insurance company. Cash, cash equivalents and restricted cash at December 31 was comprised of:

(In thousands)

Cash, cash equivalents and restricted cash $ 281,134 $ 262,320

Business combinations

For all business combinations, we preliminarily allocate the purchase price of the acquisitions to the assets acquired and liabilities assumed based on their estimated fair values as of the acquisition dates and are considered provisional until final fair values are determined, or the measurement period has passed. We expect to record adjustments as we accumulate the information needed to estimate the fair value of assets acquired and liabilities assumed, including working capital balances, estimated fair value of identifiable intangible assets, property, plant and equipment, total consideration and goodwill. The excess of the purchase price over the aggregate fair value is recorded as goodwill. We calculated the fair value of the assets acquired in 2024 using a market or cost approach (or a combination of both). Fair values for some of the assets were determined based on Level 3 inputs including estimated future cash flows, discount rates, growth rates, sales projections, retention rates and terminal values, all of which required significant management judgment and are susceptible to change. The final fair value of the net assets acquired may result in adjustments to the assets and liabilities, including goodwill, and will be made as soon as practical, but no later than 12 months from the respective acquisition dates. Any subsequent measurement period adjustments are not expected to have a material impact on our results of operations.

Revenue recognition

Revenue is recognized when a performance obligation is satisfied by transferring control over a product or service to a customer. We are considered an agent for certain taxes collected from customers. As such, we present revenues net of these taxes at the time of sale to be remitted to governmental authorities, including sales and use taxes.

We generate revenue from contracting services and construction materials sales. We focus on the vertical integration of our contracting services with our construction materials to support the aggregate-based product lines. We provide contracting services to a customer when a contract has been approved by both the customer and a representative of Knife River, obligating a service to be provided in exchange for the consideration identified in the contract. The nature of the services provided generally include integrating a set of services and related construction materials into a single project to create a distinct bundle of goods and services, which we have determined are generally a single performance obligation. We determine the transaction price to include the fixed consideration required pursuant to the original contract price together with any additional consideration, to which we expect to be entitled to, associated with executed change orders plus the estimate of variable consideration to which we expect to be entitled, subject to the constraint discussed below.

The nature of our contracts gives rise to several types of variable consideration. Examples of variable consideration include: liquidated damages; performance bonuses or incentives and penalties; claims; unpriced change orders; and index pricing. The variable amounts usually arise upon achievement of certain performance metrics or change in project scope. We estimate the amount of revenue to be recognized on variable consideration using the most likely amount method, which best predicts the most likely amount of consideration we expect to be entitled to or expect to incur. Assumptions as to the occurrence of future events and the likelihood and amount of

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2024, 2023 and 2022

variable consideration are made during the contract performance period. Estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on the assessment of anticipated performance and all information (historical, current and forecasted) that is reasonably available to management. We only include variable consideration in the estimated transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur or when the uncertainty associated with the variable consideration is resolved. Changes in circumstances could impact management’s estimates made in determining the value of variable consideration recorded. When determining if the variable consideration is constrained, we consider if factors exist that could increase the likelihood or the magnitude of a potential reversal of revenue. We update our estimate of the transaction price each reporting period and the effect of variable consideration on the transaction price is recognized as an adjustment to revenue on a cumulative catch-up basis.

Contracting services revenue is recognized over time using an input method based on the cost-to-cost measure of progress on a project. We have determined this method to be appropriate for measuring revenue because the costs incurred have been determined to represent the best indication of the overall progress toward the transfer of such goods or services promised to a customer. Under the cost-to-cost measure of progress, the costs incurred are compared with total estimated costs of a performance obligation. Revenues are recorded proportionately to the costs incurred. The percentage of completion is determined on a performance obligation basis.

We also sell construction materials to external customers and internal customers. The contract for material sales is the use of a sales order or an invoice, which includes the pricing and payment terms. All material contracts contain a single performance obligation for the delivery of a single distinct product or a distinct separately identifiable bundle of products and services. Revenue is recognized at a point in time when the performance obligation has been satisfied with the delivery of the products or services. The warranties associated with the sales are those consistent with a standard warranty that the product meets certain specifications for quality or those required by law. For most contracts, amounts billed to customers are due within 30 days of receipt. There are no material obligations for returns, refunds or other similar obligations.

Receivables and allowance for expected credit losses

Receivables consist primarily of trade and contract receivables from the sale of goods and services net of expected credit losses. A majority of our receivables are due in 30 days or less. The total balance of receivables past due 90 days or more was $14.3 million and $16.7 million at December 31, 2024 and 2023, respectively. Receivables, net consisted of the following at December 31:

(In thousands)

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

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KNIFE RIVER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2024, 2023 and 2022

Details of our expected credit losses were as follows:

Pacific Northwest Mountain Central Energy Services Total

(In thousands)

__________________

*Includes the impact of businesses acquired.

Inventories

Inventories at December 31 consisted of:

(In thousands)

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.

Property, plant and equipment

Additions to property, plant and equipment are recorded at cost. Gains or losses resulting from the retirement or disposal of assets are recognized as a component of operating income. Generally, property, plant and equipment are depreciated on a straight-line basis over the average useful lives of the assets with the exception of large marine equipment, which is computed using units-of-production.

Aggregate mining development costs are capitalized and classified as land improvements and depreciated over the lower of the estimated life of the reserves or the life of the associated improvement. We begin capitalizing development costs at a point when reserves are determined to be proven or probable and economically mineable. Capitalization of these costs ceases when production commences. The cost of acquiring reserves in connection with a business combination are valued at fair value. Aggregate reserves, from both owned and leased mining sites, are a component within property, plant and equipment and are depleted using the units-of-production method. We use proven and probable aggregate reserves as the denominator in our units-of production calculation. Exploration costs are expensed as incurred in cost of revenue and production costs are either expensed or capitalized to inventory.

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KNIFE RIVER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2024, 2023 and 2022

Capitalized interest

The interest cost on capital projects is capitalized and included in the cost of the project. Capitalization commences in the pre-acquisition or construction stage of the project and continues until the project is substantially complete and ready for its intended use. When no debt is incurred specifically for a project, interest is capitalized using the weighted average cost of our outstanding borrowings. For the year ended December 31, 2024, the amount we capitalized into net property, plant and equipment on the Consolidated Balance Sheet was immaterial.

Impairment of long-lived assets, excluding goodwill

We review the carrying values of our long-lived assets, including mining and related assets, whenever events or changes in circumstances indicate that such carrying values may not be recoverable. We test long-lived assets for impairment at a level significantly lower than that of goodwill impairment testing. Long-lived assets or groups of assets that are evaluated for impairment at the lowest level of largely independent identifiable cash flows at an individual operation or group of operations collectively serving a local market. The determination of whether an impairment has occurred is based on an estimate of undiscounted future cash flows attributable to the assets, compared to the carrying value of the assets. If impairment has occurred, the amount of the impairment recognized is determined by estimating the fair value of the assets and recording a loss if the carrying value is greater than the fair value.No impairment losses were recorded in 2024 or 2022. During the year ended December 31, 2023, we recognized non-cash asset impairments of $5.8 million as a result of certain aggregate sites no longer being economically feasible to mine and having no remaining value.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of identifiable net tangible and intangible assets acquired in a business combination. Goodwill is required to be tested for impairment annually, which we complete in the fourth quarter, or more frequently if events or changes in circumstances indicate that goodwill may be impaired.

We have determined the reporting units for our goodwill impairment test are our operating segments as they each constitute a business for which discrete financial information is available and for which management regularly reviews the operating results. For more information on our operating segments, see Note 15. Goodwill impairment, if any, is measured by comparing the fair value of each reporting unit to its carrying value. If the fair value of a reporting unit exceeds its carrying value, the goodwill of the reporting unit is not impaired. If the carrying value of a reporting unit exceeds its fair value, we must record an impairment loss for the amount that the carrying value of the reporting unit, including goodwill, exceeds the fair value of the reporting unit. For the years ended December 31, 2024, 2023 and 2022, there were no impairment losses recorded. Our annual goodwill impairment test was performed in the fourth quarter of 2024 and determined the fair value of each of our reporting units substantially exceeded the carrying value as of October 31, 2024.

We use a weighted average combination of both an income approach and a market approach to estimate the fair value of our reporting units for our goodwill impairment analysis. Determining the fair value of a reporting unit requires judgment and the use of significant estimates, which include assumptions about our future revenue, profitability and cash flows, amount and timing of estimated capital expenditures, inflation rates, weighted average cost of capital, operational plans, and current and future economic conditions, among others. We believe the estimates and assumptions used in our impairment assessments are reasonable and based on available market information.

Investments

Our investments include the cash surrender value of life insurance policies and insurance contracts. We measure our investment in the insurance contracts at fair value with any unrealized gains and losses recorded on the Consolidated Statements of Operations.

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KNIFE RIVER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2024, 2023 and 2022

Government Assistance

We account for government assistance received for capital projects by reducing the cost of the project by the amount of assistance received. We record government assistance received as taxable income and write-up the tax basis of the asset to include the amount of the assistance received.

Government assistance received for the years ended December 31, 2024, 2023 and 2022, was not material.

Joint Ventures

We account for unconsolidated joint ventures using either the equity method or proportionate consolidation. As of December 31, 2024, we held an interest of 25 percent in a joint venture formed primarily for the purpose of pooling resources on construction contracts. Proportionate consolidation is used for joint ventures that include unincorporated legal entities and activities of the joint venture which are construction-related. For those joint ventures accounted for under proportionate consolidation, only our pro rata share of assets, liabilities, revenues and expenses are included in the Consolidated Balance Sheets and Consolidated Statements of Operations.

For those joint ventures accounted for using proportionate consolidation, we recorded in our Consolidated Statements of Operations revenue of $0, $4.9 million, and $9.1 million for the years ended December 31, 2024, 2023 and 2022, respectively. Also for the years ended December 31, 2024 and 2023, we reported operating losses of $3,000 and $1.9 million, respectively, and operating income of $823,000 for the year ended December 31, 2022. We had interest in assets from these joint ventures of $45,000 for both December 31, 2024 and 2023 and $912,000 as of 2022.

For joint ventures accounted for under the equity method, our investment balances for the joint ventures are included in Investments in the Consolidated Balance Sheets and our pro rata share of net income is included in Other income in the Consolidated Statements of Operations. Our investments in equity method joint ventures were a net asset of $1.9 million and $68,000 for December 31, 2024 and 2023, respectively. In 2024 and 2023, we recognized income from equity method joint ventures of $279,000 and $55,000, respectively, and a loss from equity method joint ventures of $426,000 in 2022.

Leases

The recognition of leases requires us to make estimates and assumptions that affect the lease classification and the assets and liabilities recorded. The accuracy of lease assets and liabilities reported on the audited Consolidated Financial Statements depends on, among other things, management’s estimates of interest rates used to discount the lease assets and liabilities to their present value, as well as the lease terms based on the unique facts and circumstances of each lease.

Lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected lease term. We recognize leases with an original lease term of 12 months or less in income on a straight-line basis over the term of the lease and do not recognize a corresponding right-of-use asset or lease liability. We determine the lease term based on the non-cancelable and cancelable periods in each contract. The non-cancelable period consists of the term of the contract that is legally enforceable and cannot be canceled by either party without incurring a significant penalty. The cancelable period is determined by various factors that are based on who has the right to cancel a contract. If only the lessor has the right to cancel the contract, we will assume the contract will continue. If the lessee is the only party that has the right to cancel the contract, we look to asset, entity and market-based factors. If both the lessor and the lessee have the right to cancel the contract, we assume the contract will not continue.

The discount rate used to calculate the present value of the lease liabilities is based upon the implied rate within each contract. If the rate is unknown or cannot be determined, we use an incremental borrowing rate, which is determined by the length of the contract, asset class and our borrowing rates, as of the commencement date of the contract.

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Index

KNIFE RIVER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2024, 2023 and 2022

Insurance

Our wholly-owned captive insurance company, Spring Creek Insurance Company, which is subject to applicable insurance rules and regulations, insures our exposure related to workers’ compensation, general liability and automobile liability on a primary basis. We also purchase excess coverage from unrelated insurance carriers and obtain third-party coverage for other forms of insurance including, but not limited to, excess liability, contractor’s pollution liability, marine liability, directors and officers liability and employment practices liability.

Spring Creek Insurance Company establishes a reserve for estimated ultimate losses on reported claims and those incurred but not yet reported utilizing actuarial projections. The reserves are classified within other accrued liabilities or noncurrent liabilities - other on the Consolidated Balance Sheets based on projections of when the estimated loss will be paid. The estimates that are utilized to record potential losses on claims are inherently subjective, and actual claims could differ from amounts recorded, which could result in increased or decreased expense in future periods.

Additionally, we maintain a self-insurance reserve for health insurance programs offered to eligible employees, included within other accrued liabilities on the Consolidated Balance Sheets. The reserve includes an estimate for losses on reported claims as well as for amounts incurred but not yet reported, based on historical trends.

Asset retirement obligations

We record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, we capitalize a cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, we either settle the obligation for the recorded amount or incur a gain or loss.

Net income per share

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

Basic net income per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the applicable period. Diluted net income per share is computed by dividing net income by the total of the weighted average number of shares of common stock outstanding during the applicable period, plus the effect of non-vested performance share awards and restricted stock units. Weighted average common shares outstanding is comprised of issued shares of 57,043,841 less shares held in treasury of 431,136. Basic and diluted net income per share are calculated as follows, based on a reconciliation of the weighted-average common shares outstanding on a basic and diluted basis:

(In thousands, except per share amounts)

Effect of dilutive performance share awards and restricted stock units 237 100 —

Shares excluded from the calculation of diluted earnings per share — — —

Net income per share - basic $ 3.56 $ 3.23 $ 2.05

Net income per share - diluted $ 3.55 $ 3.23 $ 2.05

82

Index

KNIFE RIVER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2024, 2023 and 2022

Stock-based compensation

We determine compensation expense for stock-based compensation awards based on the estimated fair values at the grant date and recognize the related compensation expense over the vesting period. We use the straight-line amortization method to recognize compensation expense related to restricted stock units, which only has a service condition. This method recognizes stock compensation expense on a straight-line basis over the requisite service period for the entire award. We recognize compensation expense related to performance awards that vest based on performance metrics and service conditions on a straight-line basis over the service period. Inception-to-date expense is adjusted based upon the determination of the potential achievement of the performance target at each reporting date. We recognize compensation expense related to performance awards with market-based performance metrics on a straight-line basis over the requisite service period. Forfeitures are recognized as they occur, and expenses are adjusted on a cumulative catch-up basis at the time of any forfeitures.

Prior to the Separation, key employees participated in various stock-based compensation plans authorized and managed by MDU Resources. All awards granted under the plans were based on MDU Resources’ common shares, however, we recognized the expense for our participants in our financial statements.

At the time of the Separation, each outstanding MDU Resources’ time-vested restricted stock unit and performance share awards held by a Knife River employee was converted into Knife River time-vested restricted stock units. The converted awards continue to vest over the original vesting period, which is generally three years from the grant date. All performance share awards that were converted at the time of the Separation were first adjusted using a combined performance factor based on MDU Resources’ actual performance as of December 31, 2022. The number of restricted stock units was determined by taking the closing per share price of MDU Resources on May 31, 2023, and dividing by the closing per share price of Knife River on June 1, 2023. The ratio used to convert the MDU Resources’ stock-based compensation awards was designed to preserve the aggregate intrinsic value of the award immediately after the Separation when compared to the aggregate intrinsic value of the award immediately prior to the Separation. The existing unvested stock-based awards issued through MDU Resources’ stock-based compensation plans were modified in connection with the Separation to maintain an equivalent value immediately before and after Separation. Incremental fair value for unvested awards will be recorded over the remaining vesting periods.

Income taxes

Knife River and its subsidiaries file consolidated federal income tax returns and combined and separate state income tax returns. Pursuant to the tax sharing agreement that exists between Knife River and its subsidiaries, federal income taxes paid by Knife River, as parent of the consolidated group, are allocated to the individual subsidiaries based on separate company computations of tax. However, all income tax expense is reported within the Corporate Services segment. We make a similar allocation for state income taxes paid in connection with combined state filings.

We provide deferred federal and state income taxes on all temporary differences between the book and tax basis of our assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

We record uncertain tax positions in accordance with accounting guidance on accounting for income taxes on the basis of a two-step process in which (1) we determine whether it is more-likely-than-not that the tax position will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of the tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. Tax positions that do not meet the more-likely-than-not criteria are reflected as a tax liability. We recognize interest and penalties accrued related to unrecognized tax benefits in income taxes.

83

Index