EX-99.1 8 ny20006220x7_ex99-1.htm EXHIBIT 99.1

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Exhibit 99.1

[   ], 2023
Dear MDU Resources Group, Inc. Stockholder:
On August 4, 2022, we announced plans to separate our wholly owned subsidiary Knife River Corporation (“Knife River” or the “Company”) from MDU Resources Group, Inc. (“MDU Resources”). The separation will occur by means of a spinoff, intended to be tax-free, of a newly formed company named Knife River Holding Company, which will own Knife River, including its assets and liabilities.
MDU Resources, our existing company in which you currently own common stock, will continue to own and operate the remaining businesses, including our electric and natural gas utilities, pipeline company and construction services company. On November 3, 2022, the Company announced its intention to create two pure-play publicly traded companies, one focused on regulated energy delivery and the other on construction materials, and that, to achieve this future structure, the board has authorized management to commence a strategic review process of MDU Construction Services Group, Inc. The strategic review is well underway and the Company anticipates completing it during the second quarter of 2023.
The separation will create two publicly traded companies, MDU Resources and Knife River Holding Company, both with proven long-term strategies, sufficient scale and financial strength that will be well positioned to lead in their industries. MDU Resources’ board of directors believes that separating Knife River from our remaining businesses is in the best interest of MDU Resources and our stockholders for a number of reasons, including:
Allowing each business to more effectively pursue its own operating priorities and strategies, and enabling management at each company to pursue unique opportunities for long-term growth and profitability.
Permitting each company to concentrate its financial resources on its own operations, with greater flexibility to invest capital at a time and in a manner appropriate for its distinct strategy and business needs.
Giving each publicly traded company direct access to capital markets.
Allowing investors to separately value MDU Resources and Knife River Holding Company based on each company’s unique investment identities, including their respective merits, strategy, performance and business prospects.
Our board of directors also considered potential concerns when evaluating the separation, including risks associated with creating a new public company, possible cost increases and one-time separation costs. MDU Resources’ board of directors decided the potential benefits of the separation significantly outweighed these possible concerns. The board believes as two distinct publicly traded companies, MDU Resources and Knife River Holding Company will be better positioned, both strategically and operationally, to grow and capitalize on strategic opportunities.
The separation will give MDU Resources stockholders equity ownership in both MDU Resources and Knife River Holding Company and is intended to qualify as tax-free to our stockholders for U.S. federal income tax purposes, except with respect to any cash received in lieu of fractional shares.
The separation will be effected by means of a pro rata distribution of 80.1 percent or more of the outstanding shares of Knife River Holding Company common stock to holders of MDU Resources common stock. Following the distribution, Knife River Holding Company will be a separate public company. Each MDU Resources stockholder will receive [   ] shares of Knife River Holding Company common stock for each share of MDU Resources common stock held at the close of business on [   ], the record date for the distribution. No vote of stockholders is required for the distribution. You do not need to take any action to receive the shares of Knife River Holding Company common stock to which you are entitled. You will not be required to make any payments, or to surrender or exchange your shares of MDU Resources common stock.

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Knife River Holding Company intends to apply to have its common stock authorized for listing on the New York Stock Exchange (“NYSE”) under the symbol “KNF.” Following the distribution, MDU Resources will continue to trade on the NYSE under the symbol “MDU.”
I encourage you to read the attached information statement, which is being provided to all MDU Resources stockholders who held shares on the record date for the distribution. The information statement describes the separation in detail and contains important business and financial information about Knife River Holding Company.
 
Sincerely,
 
 
 
David L. Goodin
President and Chief Executive Officer
MDU Resources Group, Inc.

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[   ], 2023
Dear Future Knife River Holding Company Stockholder:
I am pleased to welcome you as a future stockholder of Knife River Holding Company (“we,” “us,” or “our”). We intend to list Knife River Holding Company common stock on the New York Stock Exchange under the symbol “KNF.” Although we will be newly public, we are the nation’s fifth-largest producer of sand and gravel, and have provided construction materials and related contracting services in the United States for the last 30 years. Knife River Holding Company will continue to be a leading vertically integrated aggregates producer and provider of construction materials and contracting services, focused on serving our customers and growing organically and through acquisitions.
Knife River Holding Company has a successful track record of growth. Since our entry into the construction materials industry in 1992, we have made over 80 acquisitions, with a focus on aggregates and related downstream businesses, including ready-mix concrete, asphalt and related contracting services. In just the past five years, we have increased revenues approximately 40% and completed 13 acquisitions. We believe Knife River Holding Company is poised to benefit from significant investments at the federal and local levels in infrastructure development and upgrades. Along with our financial and geographic growth, we have grown into an industry leader in safety and training, putting an emphasis on our four core values: People, Safety, Quality and the Environment.
Our stockholder value proposition is simple: provide outstanding returns to our stockholders by maintaining a leading position in the construction materials and contracting services industry, investing in the growth of Knife River Holding Company and generating strong cash flows. I invite you to learn more about Knife River Holding Company and our strategic initiatives by reading the attached information statement. I thank you in advance for your support as a future stockholder of Knife River Holding Company.
 
Sincerely,
 
 
 
Brian R. Gray
 
President and Chief Executive Officer
 
Knife River Holding Company

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Information contained herein is subject to completion or amendment. A Registration Statement on Form 10 relating to these securities has been filed with the U.S. Securities and Exchange Commission under the U.S. Securities Exchange Act of 1934, as amended.
PRELIMINARY AND SUBJECT TO COMPLETION, DATED APRIL 7, 2023
INFORMATION STATEMENT
Knife River Holding Company
Common Stock
(par value $0.01 per share)
This information statement is being furnished in connection with the distribution by MDU Resources Group, Inc. (“MDU Resources”) to its stockholders of shares of common stock of Knife River Holding Company, a Delaware corporation (“Knife River Holding Company,” “we,” “us” or “our”) that will hold, directly or indirectly, the historical business and operations of Knife River Corporation (“Knife River” or the “Company”), a direct subsidiary of Centennial Energy Holdings, Inc. (“Centennial” or the “Parent”) and an indirect, wholly owned subsidiary of MDU Resources, and the assets and liabilities associated with it and its business. MDU Resources will distribute 80.1 percent or more of the outstanding shares of Knife River Holding Company common stock on a pro rata basis to MDU Resources stockholders in a transaction intended to qualify as generally tax-free to MDU Resources stockholders for U.S. federal income tax purposes, except with respect to any cash received in lieu of fractional shares. Following the distribution, Knife River Holding Company will be a separate public company. Immediately after the distribution becomes effective, MDU Resources will own up to 19.9 percent of the outstanding shares of Knife River Holding Company common stock. Prior to completing the separation, MDU Resources may adjust the percentage of Knife River Holding Company common stock to be distributed to MDU Resources stockholders and retained by MDU Resources in response to market and other factors, and it will amend this information statement to reflect any such adjustment. The distribution is subject to certain conditions, as described in this information statement. You should consult your tax advisor as to the particular consequences of the distribution to you, including the applicability and effect of any U.S. federal, state and local and non U.S. tax laws.
For each share of MDU Resources common stock held of record by you as of the close of business on [   ], the record date for the distribution, you will receive [   ] shares of Knife River Holding Company common stock. You will receive cash in lieu of any fractional shares of Knife River Holding Company common stock that you would have received after application of the above ratio. As discussed under “The Separation and Distribution—Trading Between the Record Date and Distribution Date,” if you sell your shares of MDU Resources common stock in the “regular-way” market after the record date and before the distribution, you also will be selling your right to receive shares of Knife River Holding Company common stock in the distribution. Knife River Holding Company expects the shares of Knife River Holding Company common stock to be distributed by MDU Resources to you at [   ] Eastern Time, on [   ]. Knife River Holding Company refers to the date of the distribution of its shares of common stock as the “distribution date.”
No vote of MDU Resources stockholders is required for the distribution. You are not, therefore, being asked for a proxy and you are requested not to send MDU Resources a proxy in connection with the distribution. You do not need to pay any consideration or exchange or surrender your existing shares of MDU Resources common stock or take any other action to receive your shares of Knife River Holding Company common stock.
There is no current trading market for Knife River Holding Company common stock, although Knife River Holding Company expects that a limited market, commonly known as a “when-issued” trading market, will develop on or about the record date for the distribution, and Knife River Holding Company expects “regular-way” trading of its common stock to begin on the first trading day following the completion of the distribution. Knife River Holding Company intends to apply to have its common stock authorized for listing on the New York Stock Exchange (“NYSE”) under the symbol “KNF.” MDU Resources common stock will continue to trade on the NYSE under the symbol “MDU.”
In reviewing this information statement, you should carefully consider the matters described under the caption “Risk Factors” beginning on page 19.
Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or determined if this information statement is truthful or complete. Any representation to the contrary is a criminal offense.
This information statement does not constitute an offer to sell or the solicitation of an offer to buy any securities.
The date of this information statement is [   ].
This information statement will be made publicly available on or about [   ]. Notice of this information statement’s availability will be first sent to MDU Resources stockholders on or about [   ].

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Page
Presentation of Information
Except as otherwise indicated or unless the context otherwise requires, the information included in this information statement about Knife River Holding Company assumes the completion of all of the transactions referred to in this information statement in connection with the separation and distribution. Unless the context otherwise requires, references in this information statement to “Knife River Holding Company,” “we,” “us” or “our” refer to Knife River Holding Company, a Delaware corporation, and its consolidated subsidiaries. References in this information statement to “MDU Resources” refer to MDU Resources Group, Inc., a Delaware corporation, and its consolidated subsidiaries (other than, after the distribution, Knife River Holding Company and its consolidated subsidiaries), unless the context otherwise requires. References in this information statement to “Centennial” or the “Parent” refer to Centennial Energy Holdings, Inc., a direct wholly owned subsidiary of MDU Resources. References to Knife River Holding Company’s historical business and operations refer to the business and operations of Knife River Corporation (“Knife River” or the “Company”) that will be transferred to Knife River Holding Company in connection with the separation and distribution. References in this information statement to the “separation” refer to the separation of Knife River from MDU Resources’ other businesses and the creation, as a result of the distribution, of an independent, publicly traded company, Knife River Holding Company, to hold Knife River and the assets and liabilities associated with it and its business after the distribution. References in this information statement to the “distribution” refer to the distribution of 80.1 percent or more of the outstanding shares of Knife River Holding Company common stock to MDU Resources stockholders on a pro rata basis.
The data included in this information statement regarding industry size and relative industry position is derived from a variety of sources, including company research, third-party studies and surveys, industry and general publications, and estimates based on Knife River Holding Company’s knowledge and experience in the industries in which it operates. Knife River Holding Company’s estimates have been based on information obtained from its customers, suppliers, trade and business organizations, and other contacts in the industry. This information may prove to be inaccurate due to the method by which Knife River Holding Company obtained some of the data for its estimates or because this information cannot always be verified with complete certainty due to the limits on the availability and reliability of raw data, the voluntary nature of the data-gathering process and other limitations and uncertainties.
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QUESTIONS AND ANSWERS ABOUT THE SEPARATION AND DISTRIBUTION
What is Knife River Holding Company, and why is MDU Resources separating Knife River Holding Company’s business and distributing Knife River Holding Company stock?
Knife River Holding Company, which is currently a wholly owned subsidiary of MDU Resources, was formed to hold Knife River. The separation of Knife River Holding Company from MDU Resources and the distribution of Knife River Holding Company common stock are intended to provide you with equity ownership in two separate publicly traded companies that will be able to focus exclusively on each of their respective businesses. Knife River Holding Company and MDU Resources expect that the separation will result in enhanced long-term performance of each business for the reasons discussed in the section entitled “The Separation and Distribution—Reasons for the Separation.”
 
 
Why am I receiving this document?
MDU Resources is delivering this document to you because you are a holder of MDU Resources common stock. If you are a holder of MDU Resources common stock as of the close of business on [   ], the record date for the distribution, you will be entitled to receive [   ] shares of Knife River Holding Company common stock for each share of MDU Resources common stock that you held at the close of business on such date. If you sell your shares of MDU Resources common stock in the “regular-way” market after the record date and before the distribution, you also will be selling your right to receive shares of Knife River Holding Company common stock in the distribution. See “The Separation and Distribution—Trading Between the Record Date and Distribution Date.” This document will help you understand how the separation and distribution will affect your post-separation ownership in Knife River Holding Company and MDU Resources, respectively.
 
 
How will the separation of Knife River Holding Company from MDU Resources work?
MDU Resources will distribute 80.1 percent or more of the outstanding shares of Knife River Holding Company common stock to MDU Resources stockholders on a pro rata basis in a distribution intended to be generally tax-free to MDU Resources stockholders for U.S. federal income tax purposes. As a result of the distribution, Knife River Holding Company will become a separate public company. The number of shares of MDU Resources common stock you own will not change as a result of the separation and distribution.
 
 
What is the record date for the distribution?
The record date for the distribution will be [   ].
 
 
When will the distribution occur?
It is expected that 80.1 percent or more of the outstanding shares of Knife River Holding Company common stock will be distributed by MDU Resources at [   ] Eastern Time, on [   ], to holders of record of MDU Resources common stock at the close of business on [   ], the record date for the distribution.
 
 
What do stockholders need to do to participate in the distribution?
Stockholders of MDU Resources as of the record date for the distribution will not be required to take any action to receive shares of Knife River Holding Company common stock in the
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distribution, but you are urged to read this entire information statement carefully. No stockholder approval of the distribution is required. You are not being asked for a proxy. You do not need to pay any consideration, exchange or surrender your existing shares of MDU Resources common stock or take any other action to receive your shares of Knife River Holding Company common stock. The distribution will not affect the number of outstanding shares of MDU Resources common stock or any rights of MDU Resources stockholders, although it will affect the market value of each outstanding share of MDU Resources common stock.
 
 
How will shares of Knife River Holding Company common stock be issued?
You will receive shares of Knife River Holding Company common stock through the same channels that you currently use to hold or trade MDU Resources common stock, whether through a brokerage account or another channel. Receipt of Knife River Holding Company’s shares will be documented for you in the same manner that you typically receive stockholder updates, such as monthly broker statements.
 
 
 
If you own MDU Resources common stock as of the close of business on [   ], the record date for the distribution, MDU Resources, with the assistance of EQ Shareowner Services (“Equiniti”), the distribution agent for the distribution, will electronically distribute shares of Knife River Holding Company common stock to you or to your brokerage firm on your behalf in book-entry form.
 
 
 
Equiniti will mail you a book-entry account statement that reflects your shares of Knife River Holding Company common stock, or your bank or brokerage firm will credit your account for the shares.
 
 
How many shares of Knife River Holding Company common stock will I receive in the distribution?
MDU Resources will distribute to you [   ] shares of Knife River Holding Company common stock for each share of MDU Resources common stock held by you as of close of business on the record date for the distribution. Based on approximately [   ] million shares of MDU Resources common stock outstanding as of [   ], and assuming a distribution of 80.1 percent or more of the outstanding shares of Knife River Holding Company common stock, a total of approximately [   ] million shares of Knife River Holding Company common stock will be distributed. For additional information on the distribution, see “The Separation and Distribution.”
 
 
Will Knife River Holding Company issue fractional shares of its common stock in the distribution?
No. Knife River Holding Company will not issue fractional shares of its common stock in the distribution. Fractional shares that MDU Resources stockholders would otherwise have been entitled to receive will be aggregated and sold in the public market by the distribution agent on behalf of MDU Resources stockholders. The aggregate net cash proceeds of these sales will be distributed pro rata (based on the fractional share such holder would otherwise be entitled to receive) to those stockholders who would otherwise have been entitled to receive fractional shares. Recipients of cash in lieu of fractional shares will not be entitled to any interest on the amounts of payment made in lieu of fractional shares.
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What are the conditions to the distribution included in the separation and distribution agreement?
The separation and distribution agreement provides that the distribution is subject to final approval by the MDU Resources board of directors, as well as to the satisfaction (or waiver by MDU Resources in its sole discretion) of the following conditions:
 
 
 
• the transfer of Knife River and the assets and liabilities associated with it and its business from MDU Resources to Knife River Holding Company shall be completed in accordance with the separation and distribution agreement that Knife River Holding Company and MDU Resources will enter into prior to the distribution;
 
 
 
• MDU Resources shall have received a private letter ruling from the Internal Revenue Service (the “IRS”), satisfactory to the MDU Resources board of directors, regarding certain U.S. federal income tax matters relating to the separation and distribution;
 
 
 
• MDU Resources shall have received one or more opinions from its tax advisors, in each case satisfactory to the MDU Resources board of directors, regarding certain U.S. federal income tax matters relating to the separation and distribution;
 
 
 
• an independent appraisal firm acceptable to MDU Resources shall have delivered one or more opinions to the board of directors of MDU Resources at the time or times requested by the board of directors of MDU Resources confirming the solvency and financial viability of MDU Resources before the consummation of the distribution (and each of Knife River Holding Company and MDU Resources after consummation of the distribution), and such opinions shall have been acceptable to MDU Resources in form and substance in MDU Resources’ sole discretion and such opinions shall not have been withdrawn or rescinded;
 
 
• the U.S. Securities and Exchange Commission (the “SEC”) shall have declared effective the registration statement of which this information statement forms a part, and this information statement shall have been made available to MDU Resources stockholders;
 
 
 
• all actions or filings necessary or appropriate under applicable U.S. federal, U.S. state or other securities laws shall have been taken and, where applicable, have become effective or been accepted by the applicable governmental entity;
 
 
 
• the actions and filings necessary or appropriate with respect to applicable state insurance and residential service contract regulators, shall have been taken or made, and, where applicable, have become effective or been accepted by the applicable governmental authority;
 
 
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• the transaction agreements relating to the separation shall have been duly executed and delivered by the parties;
 
 
 
• no order, injunction or decree issued by any court of competent jurisdiction, or other legal restraint or prohibition preventing the consummation of the separation, distribution or any of the related transactions, shall be in effect;
 
 
 
• the shares of Knife River Holding Company common stock to be distributed shall have been approved for listing on the NYSE, subject to official notice of distribution;
 
 
 
• Knife River Holding Company shall have entered into the financing transactions described in this information statement that are contemplated to occur on or prior to the separation and distribution; and
 
 
 
• no other event or development shall exist or have occurred that, in the judgment of MDU Resources’ board of directors, in its sole discretion, makes it inadvisable to effect the separation, distribution and other related transactions.
 
 
Neither Knife River Holding Company nor MDU Resources can assure you that any or all of these conditions will be met. In addition, MDU Resources can decline at any time to go forward with the separation and distribution. For a complete discussion of all of the conditions to the distribution provided under the separation and distribution, see “The Separation and Distribution—Conditions to the Distribution.”
 
 
What is the expected date of completion of the distribution?
The completion and timing of the distribution are dependent upon a number of conditions. It is expected that the shares of Knife River Holding Company common stock will be distributed by MDU Resources at [   ] Eastern Time, on [   ], to holders of record of MDU Resources common stock at the close of business on [   ], the record date for the distribution. However, no assurance can be provided as to the timing of the distribution or that all conditions to the distribution will be met.
 
 
Can MDU Resources decide to cancel the distribution of Knife River Holding Company common stock even if all the conditions provided under the separation and distribution agreement have been met?
Yes. Pursuant to the separation and distribution agreement, the distribution is subject to the satisfaction or waiver of certain conditions. See the section entitled “The Separation and Distribution—Conditions to the Distribution.” Until the distribution has occurred, MDU Resources has the right to terminate the distribution, even if all of the conditions are satisfied.
 
 
What if I want to sell my MDU Resources common stock or my Knife River Holding Company common stock?
If you sell your shares of MDU Resources common stock prior to or on the distribution date, you may also be selling your right to receive shares of Knife River Holding Company common stock. See “The Separation and Distribution—Trading Between the Record Date and Distribution Date.” You are encouraged to consult with your financial advisor regarding the specific implications of selling your MDU Resources common stock prior to or on the distribution date.
 
 
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What is “regular-way” and “ex-distribution” trading of MDU Resources common stock?
Beginning on or shortly before the record date for the distribution and continuing up to and through the distribution date, it is expected that there will be two markets in MDU Resources common stock: a “regular-way” market and an “ex-distribution” market. MDU Resources common stock that trades in the “regular-way” market will trade with an entitlement to shares of Knife River Holding Company common stock distributed pursuant to the distribution. Shares that trade in the “ex-distribution” market will trade without an entitlement to shares of Knife River Holding Company common stock distributed pursuant to the distribution. If you hold shares of MDU Resources common stock on the record date and then decide to sell any MDU Resources common stock before the distribution date, you should make sure your stockbroker, bank or other nominee understands whether you want to sell your MDU Resources common stock with or without your entitlement to Knife River Holding Company common stock pursuant to the distribution.
 
 
Where will I be able to trade shares of Knife River Holding Company common stock?
Knife River Holding Company intends to list its common stock on the NYSE under the symbol “KNF.” Knife River Holding Company anticipates that trading in shares of its common stock will begin on a “when-issued” basis on or about [   ], the record date for the distribution, and will continue up to and through the distribution date, and that “regular-way” trading in Knife River Holding Company common stock will begin on the first trading day following the completion of the distribution. If trading begins on a “when-issued” basis, you may purchase or sell shares of Knife River Holding Company common stock up to and through the distribution date, but your transaction will not settle until after the distribution date. Knife River Holding Company cannot predict the trading prices for its common stock before, on or after the distribution date.
 
 
What will happen to the listing of MDU Resources common stock?
MDU Resources common stock will continue to trade on the NYSE under the symbol “MDU.”
 
 
Will the number of shares of MDU Resources common stock that I own change as a result of the distribution?
No. The number of shares of MDU Resources common stock that you own will not change as a result of the distribution.
 
 
Will the distribution affect the market price of my shares of MDU Resources common stock?
Yes. As a result of the distribution, MDU Resources expects the trading price of MDU Resources common stock immediately following the distribution to be lower than the “regular-way” trading price of such stock immediately prior to the distribution because the trading price will no longer reflect the value of Knife River. There can be no assurance that the aggregate market value of shares of MDU Resources common stock and Knife River Holding Company common stock following the distribution will be higher or lower than the market value of shares of MDU Resources common stock if the separation and distribution did not occur. This means, for example, that the combined trading prices of one share of MDU Resources common stock and one share of Knife River Holding Company common stock after the distribution may be equal to, greater than or less than the trading price of one share of MDU Resources common stock before the distribution.
 
 
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What are the material U.S. federal income tax consequences of the separation and distribution?
It is a condition to the distribution that MDU Resources receive a private letter ruling from the IRS and one or more opinions from its tax advisors, in each case satisfactory to the MDU Resources board of directors, regarding certain U.S. federal income tax matters relating to the separation and distribution. Accordingly, it is expected that MDU Resources stockholders generally will not recognize any gain or loss upon receipt of Knife River Holding Company common stock pursuant to the distribution, except with respect to any cash received in lieu of fractional shares. You should carefully read the section entitled “Material U.S. Federal Income Tax Consequences” and should consult your own tax advisor about the particular consequences of the distribution to you, including the application of U.S. federal, state and local and non-U.S. tax laws.
 
 
What will happen to my tax basis in my MDU Resources stock?
If you do not sell your MDU Resources stock in advance of the distribution, your tax basis will be adjusted and the aggregate tax basis of the MDU Resources common stock and Knife River Holding Company common stock received in the distribution (including any fractional share interest in Knife River Holding Company common stock for which cash is received) will equal the aggregate tax basis of MDU Resources common stock immediately prior to the distribution, allocated between the MDU Resources common stock and Knife River Holding Company common stock (including any fractional share interest in Knife River Holding Company common stock for which cash is received) in proportion to the relative fair market value of each on the date of the distribution. You should carefully read the section entitled “Material U.S. Federal Income Tax Consequences” and should consult your own tax advisor about the particular consequences of the distribution to you, including the application of U.S. federal, state and local and non-U.S. tax laws.
 
 
What will Knife River Holding Company’s relationship be with MDU Resources following the separation and distribution?
Following the distribution, MDU Resources stockholders will own directly 80.1 percent or more of the outstanding shares of Knife River Holding Company common stock, and Knife River Holding Company and MDU Resources will be separate companies with separate management teams and separate boards of directors. MDU Resources will retain up to 19.9 percent of the outstanding shares of Knife River Holding Company common stock following the distribution. Prior to the distribution, Knife River Holding Company will enter into a separation and distribution agreement with MDU Resources to effect the separation and distribution and provide a framework for our relationship with MDU Resources after the separation and will enter into certain other agreements, such as a transition services agreement, a tax matters agreement, an employee matters agreement and a stockholder and registration rights agreement with respect to MDU Resources’ continuing ownership of shares of Knife River Holding Company common stock. These agreements will provide for the allocation between Knife River Holding Company and MDU Resources of MDU Resources’ assets, employees, liabilities and obligations (including its investments, property, employee benefits assets and liabilities and tax liabilities) and its subsidiaries attributable to periods prior to, at and after Knife River Holding Company’s separation from MDU Resources and will govern the relationship between Knife River Holding Company and
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MDU Resources subsequent to completion of the separation. For additional information regarding the separation and distribution agreement, other transaction agreements and certain other commercial agreements between Knife River Holding Company and MDU Resources, see the sections entitled “Risk Factors—Risks Related to the Separation and the Distribution” and “Certain Relationships and Related Person Transactions.”
 
 
How will MDU Resources vote any shares of Knife River Holding Company common stock it retains?
It is expected that MDU Resources will agree to vote any shares of Knife River Holding Company common stock that it retains in proportion to the votes cast by Knife River Holding Company’s other stockholders and grant Knife River Holding Company a proxy to vote its shares of Knife River Holding Company common stock in such proportion. For additional information on these voting arrangements, see “Certain Relationships and Related Person Transactions—Stockholder and Registration Rights Agreement.”
 
 
What does MDU Resources intend to do with any shares of Knife River Holding Company common stock it retains?
MDU Resources currently plans to dispose of all shares of Knife River Holding Company common stock that it retains; such dispositions may include one or more subsequent exchanges for debt, distributions to MDU Resources stockholders, exchanges for MDU Resources shares or sales of such shares for cash.
 
 
Who will manage Knife River Holding Company after the separation?
Knife River Holding Company has assembled a management team of highly experienced leaders who have track records of producing profitable growth in a wide variety of industries and economic conditions, led by Brian R. Gray, who will be its President and Chief Executive Officer after the separation. Knife River Holding Company’s management team is highly focused on execution and driving growth and profitability. Further, Knife River Holding Company believes that it has a deep pool of talent across the organization, including long-tenured individuals with significant expertise and knowledge of its business. For more information regarding Knife River Holding Company’s management, see “Management.”
 
 
Are there risks associated with owning Knife River Holding Company common stock?
Yes. Ownership of Knife River Holding Company common stock is subject to both general and specific risks relating to Knife River Holding Company’s business, the industry in which it operates, its ongoing contractual relationships with MDU Resources and its status as a separate, publicly traded company. Ownership of Knife River Holding Company common stock is also subject to risks relating to the separation and the distribution. These risks are described in the “Risk Factors” section of this information statement, beginning on page 19. You are encouraged to read that section carefully.
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Does Knife River Holding Company plan to pay dividends?
The declaration and payment of any dividends in the future will be subject to the sole discretion of Knife River Holding Company’s board of directors and will depend on many factors. See “Dividend Policy.”
 
 
Will Knife River Holding Company incur any indebtedness prior to or at the time of the distribution?
In connection with the separation and distribution, Knife River Holding Company anticipates that it will incur indebtedness in an aggregate principal amount of up to $890 million, which Knife River Holding Company expects may consist of some combination of term loans, revolving credit facilities and other debt. Knife River Holding Company expects that all or a portion of the net proceeds of such indebtedness will be used to repay debt owed to Centennial. Knife River Holding Company expects that Centennial will use such net proceeds to repay a portion of its existing third-party indebtedness. Additional details regarding such financing arrangements will be included in an amendment to this information statement. See “Description of Material Indebtedness” and “Risk Factors—Risks Related to the Separation and the Distribution.”
 
 
Who will be the distribution agent, transfer agent and registrar for shares of Knife River Holding Company common stock?
The distribution agent, transfer agent and registrar for shares of Knife River Holding Company common stock will be Equiniti. For questions relating to the transfer or mechanics of the stock distribution, you should contact Equiniti’s toll free number at 1-800-468-9716.
 
 
Where can I find more information about MDU Resources and Knife River Holding Company?
Before the distribution, if you have any questions relating to MDU Resources, you should contact:
 
MDU Resources Group, Inc.
1200 West Century Avenue
P.O. Box 5650
Bismarck, North Dakota 58506-5650
Attention: Investor Relations
Phone: (701) 530-1000
 
 
 
After the distribution, stockholders who have any questions relating to Knife River Holding Company should contact Knife River Holding Company at:
 
 
 
Knife River Holding Company
1150 West Century Avenue
Bismarck, ND 58503
Attention: Investor Relations
Phone: (701) 530-1400
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INFORMATION STATEMENT SUMMARY
Except as otherwise indicated or unless the context otherwise requires, the information included in this information statement about Knife River Holding Company assumes the completion of all of the transactions referred to in this information statement in connection with the separation and distribution. Unless the context otherwise requires, references in this information statement to “Knife River Holding Company,” “we,” “us” or “our” refer to Knife River Holding Company, a Delaware corporation, and its combined subsidiaries. References in this information statement to “MDU Resources” refer to MDU Resources Group, Inc., a Delaware corporation, and its consolidated subsidiaries (other than, after the distribution, Knife River Holding Company and its consolidated subsidiaries), unless the context otherwise requires. References in this information statement to “Centennial” or the “Parent” refer to Centennial Energy Holdings, Inc., a direct wholly owned subsidiary of MDU Resources. References to Knife River Holding Company’s historical business and operations refer to the business and operations of Knife River Corporation (“Knife River” or the “Company”) that will be transferred to Knife River Holding Company in connection with the separation and distribution. References in this information statement to the “separation” refer to the separation of Knife River from MDU Resources’ other businesses and the creation, as a result of the distribution, of an independent, publicly traded company, Knife River Holding Company, to hold Knife River and the assets and liabilities associated with it and its business after the distribution. References in this information statement to the “distribution” refer to the distribution of 80.1 percent or more of the outstanding shares of Knife River Holding Company common stock to MDU Resources stockholders on a pro rata basis.
Knife River Holding Company
Overview
Knife River is a leading aggregates-based construction materials and contracting services provider in the U.S. The Company’s 1.1 billion tons of aggregate reserves provide the foundation for a vertically integrated business strategy with approximately 40% of its aggregates being used internally to support value-added downstream products (ready-mix concrete and asphalt) and contracting services (heavy-civil construction, asphalt paving, concrete construction, site development and grading services). The Company provides construction materials and contracting services for both public and private customers. For the year ended December 31, 2022, approximately 62% of revenue was derived from construction materials and 38% from contracting services. Knife River is strategically focused on being the provider of choice in mid-size, high-growth markets. The Company is committed to continued growth and to delivering for its stakeholders—customers, communities, employees and stockholders—by executing on its four core values: People, Safety, Quality and the Environment.
Through its network of 188 active aggregate sites, 101 ready-mix plants and 56 asphalt plants, Knife River supplies construction materials and contracting services to customers in 14 states. The Company has broad access to high-quality aggregates in most of its markets, which forms the foundation of its vertically integrated business model. Knife River shares resources, including plants, equipment and people, across its various locations to maximize efficiency, and it transports its products by truck, rail and barge to complete the vertical value chain, depending on the particular market. Knife River’s strategically located aggregate sites, ready-mix plants and asphalt plants, along with its fleet of ready-mix and dump trucks, enables the Company to better serve its customers. Knife River believes its integrated business model is a strong competitive advantage that provides scale, efficiency and operational excellence for the benefit of customers, stockholders and the broader communities that it serves.
Business Segments
Knife River operates through six operating segments: Pacific, Northwest, Mountain, North Central, South and Energy Services. These segments are used to determine the Company’s reportable segments, which are determined based on how the Company organizes and manages the business and are aligned by key geographic regions due to the production of construction materials and related contracting services following the seasonal nature of the construction industry. The Company’s reportable segments are: Pacific, Northwest, Mountain and North Central, with South and Energy Services included in All Other with its corporate services.
End Markets
The Company’s public-sector customers include federal, state, and municipal governments for various projects, such as highways, bridges, airports, schools, public buildings, and other public-infrastructure projects. Knife River believes public-sector funding is subject to fewer fluctuations in spending, as government funding tends to be less
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correlated with economic cycles and more reliant on approvals of government appropriation bills toward infrastructure initiatives. Some of these initiatives include the American Rescue Plan Act and the Infrastructure Investment and Jobs Act. Based on this recent wave of government funding and the current state of America’s infrastructure, which received a “C-” assessment from the American Society of Civil Engineers in 2021, Knife River believes there are strong public-market factors favorably affecting the outlook in this end market.
Alternatively, Knife River’s private-sector customers include both residential and nonresidential construction applications. Unlike public-sector customers, spending by private-sector customers is more dependent on both local and national economic cycles. Knife River leverages its diverse geographic footprint to partially offset volatility originating from single local economies, and has the flexibility to reallocate resources from markets experiencing a downturn to markets that may be experiencing an economic upswing.
Strengths
Knife River’s strengths include the following:
(1)
Leading vertically integrated, aggregates-based construction materials and contracting provider.
Knife River is one of the largest aggregates-based construction materials and contracting services providers in the U.S. The Company is recognized as a Top 10 aggregate producer and the fifth-largest sand and gravel producer in the country, per the United States Geological Survey. With its size and scale, Knife River operates a vertically integrated business model and serves its customers across the value chain, from raw materials to finished goods to contracting services.
(2)
Attractive geographic footprint across the western U.S. with exposure to areas demonstrating above-average growth.
In each of the segments where Knife River operates, its markets are supported by long-term economic drivers, which allow the Company to benefit from the population growth and economic build-out those drivers create. In particular, in recent years, Knife River has expanded its presence in both the Northwest and North Central segments, specifically in Oregon and South Dakota, each of which includes rapidly growing markets with strong construction demand. Knife River’s geographic diversity helps insulate it from temporary downturns in any one region’s economy and provides flexibility to shift resources to the areas where it is getting the best returns. Knife River continually looks for growth opportunities in each segment, with a strategic focus on aggregates.
(3)
Diverse public and private customer base.
On the public side, Knife River has extensive experience with federal, state and municipal government agencies, as well as other government customers. In the year ended December 31, 2022, 8 of Knife River’s top 15 contracting services customers were state-level departments of transportation. On the private side, Knife River provides its products and expertise to a broad spectrum of customers across industrial, commercial and residential developers and other private parties. Typically, this includes projects and customers such as large data centers, warehouses and general contractors specializing in commercial buildings and residential developments.
(4)
Large exposure to public-sector customers, providing recession resiliency amidst soft macro environment.
Public projects tend to remain steady over time, largely unaffected by economic cycles, and instead depend on government funding, which bolsters Knife River’s resiliency during recessionary periods. Knife River’s contracting services revenue as of December 31, 2022, was 77% public and 23% private. In addition to their pre-existing funding mechanisms, 11 of the 14 states where Knife River operates have recently implemented new, enhanced or incremental funding sources for public projects.
Knife River believes it is well-positioned to benefit from its greater involvement in public-sector versus private-sector infrastructure contracting services projects.
(5)
Strong backlog and robust pipeline of projects across public and private infrastructure end markets.
As of December 31, 2022, Knife River had a backlog of $935 million, nearly all of which related to outstanding obligations for contracting services. The contracting services backlog at December 31, 2022, was comprised of 79% public and 21% private work. A majority of Knife River’s contracting services projects have a contract value of less than $5.0 million and a contract duration of less than 12 months. Based on its track record, Knife River expects future revenues from infrastructure-related contracting services to be robust.
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(6)
Resilient financial profile with robust free cash flows.
Knife River continues to generate strong revenues, earnings before interest, taxes, depreciation, depletion and amortization (“EBITDA”) and free cash flows that it has historically used for targeted organic growth opportunities, strategic acquisitions, capital expenditures, debt repayment and dividend payments to Parent. Following the separation, Knife River expects to have enhanced flexibility to deploy capital toward its specific growth opportunities, capital expenditures, debt repayment and potential dividends. For a discussion and reconciliation of EBITDA, see the section entitled “Non-GAAP Financial Measures.”
(7)
Proven track record of growth through acquisition and highly effective integration playbook, driving both organic and inorganic growth.
Knife River’s acquisition strategy and completion of over 80 acquisitions has led to the refinement of a highly effective integration playbook, driving both organic and inorganic growth. EBITDA has been driven by strong organic growth and margin expansion, supported by contributions from acquisitions. As Knife River continues to grow through acquisitions, it is able to continue achieving greater scale and synergies. Its centralized and scalable technology platform allows for integration of new companies into its efficient, vertically integrated internal processing network for fleet management, scaling, batching, financial, and operational reporting programs and other software. Knife River is actively pursuing additional acquisition opportunities, with a focus on adding high-quality materials to reserves, improving vertical integration advantage and extending geographic reach.
(8)
Best-in-class management team with a long history of operating success and integration.
Knife River’s senior management team has extensive experience, with an average of 26 years in the industry spanning several business cycles. The management team’s strategic decision to acquire and develop into a vertically integrated construction materials and contracting services business and the team’s decision to enter select geographies has proven to be important to the sustained growth of the business over several decades. Core to its operating success, management takes a conservative approach with respect to the balance sheet, focusing on maintaining prudent levels of leverage and liquidity through the business cycle.
Business Strategy
Knife River’s business strategy of maximizing its vertical integration, leveraging its core values to be the supplier of choice in all its markets and continued growth is underpinned by several key initiatives, including:
People. Knife River is committed to its employees, customers and communities by operating with integrity and always striving for excellence. To achieve this, Knife River continues to implement its “Life at Knife” philosophy, which is expressed in four core values: People, Safety, Quality and the Environment.
Safety. Knife River prioritizes safety for the wellbeing of its employees and for the bottom-line benefits of being a safe company. The Company focuses on the three Ts of Safety: Tools, Training and Time. Knife River provides employees the tools and training to safely and successfully perform their jobs, and asks that employees take the time to do their jobs safely.
Recruitment, development and retention of talented employees. Knife River has taken significant steps to showcase construction as a career of choice. Knife River recently finished building a world-class training facility to enhance the skills of current employees corporatewide as well as to recruit and teach skills to new employees through both classroom education and hands-on experience.
Sustainability. Sustainable practices, whether focused on environmental goals, business innovations, recruiting and retaining personnel, or other key factors, provide an opportunity for Knife River to focus on its long-term success and the success of the communities where it operates.
Environment. Every year, Knife River assesses its capital investment needs to further mitigate environmental impacts, particularly in regard to meeting or exceeding permit requirements and environmental regulations. Starting in 2022, Knife River began tracking its Scope 1 and Scope 2 carbon emissions as a first step in establishing its corporatewide baseline of emissions in support of developing future carbon intensity reduction goals. Knife River will continue to actively pursue various opportunities in the clean energy infrastructure build-out in both construction materials and contracting services.
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Long-term, strategic aggregate reserve position. Knife River supplies its customers with a large and growing volume of aggregates. In 2022, Knife River sold approximately 32.2 million tons from its aggregate reserves, which was a 4% increase from 2021 levels, leading to normal and scheduled depletion of its aggregate assets. To offset the normal asset base declines, Knife River continuously explores new opportunities to replenish its assets in existing and new geographies.
Enhanced value through vertical integration and strategic acquisitions. Vertical integration provides Knife River direct control over the production process, inventory planning, optimization of supply chain and delivery to end customers, thereby providing efficiencies that result in higher value and other benefits for customers, including greater reliability of supply. Furthermore, Knife River’s exposure to both public and private-sector customers across its vertical value chain provides better end market diversification and makes Knife River more resilient to economic downturns.
When exploring new acquisition opportunities, Knife River focuses on the additive margin potential to the overall business, as well as potential operating synergies following integration.
Supply chain. Knife River’s access to internal aggregate sources, processing plants and fleet delivery network, some with rail-to-road transloading capabilities, allows it to provide reliable, timely and efficient service to its end customers, further enhancing the value Knife River brings during complex construction projects.
Products and Services
Knife River’s product lines include: aggregates, ready-mix concrete, asphalt, and other. The Company also performs related contracting services. The following provides more information on the Company’s products and services.
Aggregates
Aggregates consist of crushed stone and sand and gravel and are a major component in the production of ready-mix concrete and asphalt. Knife River supplies high-quality aggregates through its 1.1 billion tons of permitted aggregate reserves, which are sourced from its aggregate sites across 11 states. The Company focuses primarily on supplying markets with strong local demand, and in most cases, serves customers close to its strategically located aggregate sites.
Ready-mix concrete
Ready-mix concrete is comprised of cement, aggregates, sand and water. It is the most widely used material in the construction sector today. Knife River produces ready-mix concrete through its 101 ready-mix plants situated across 13 states. Knife River’s vertically integrated portfolio of assets allows the Company to provide most of the aggregates it uses in the production of ready-mix concrete. Due to the time-sensitive nature of delivering ready-mix concrete, the Company focuses on supplying customers near its facilities.
Asphalt
Asphalt is a combination of approximately 95% aggregates bound together by approximately 5% of asphalt binder. It is the most common material used for roadways today. Knife River produces and delivers asphalt from 56 plants across 10 states, most often utilizing the Company’s own aggregates in the production process. Of the 56 plants, 22 are portable plants that support asphalt paving projects on roadways. Similar to ready-mix concrete, asphalt sets rapidly, limiting delivery to within close proximity to the production facility.
Other
Although not common to all locations, Knife River provides various other products and services, depending on customer needs. These include retail sales of cement in Alaska and Hawaii, production and distribution of modified liquid asphalt by its Energy Services business and other construction materials and related contracting services.
Contracting services
Knife River’s contracting services include responsibilities as general contractor and subcontractor, aggregate laydown, asphalt paving, concrete construction, site development and bridges, and in some segments the
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manufacturing of prestressed concrete products. In 2022, most of Knife River’s contracting services were related to “horizontal” construction, such as streets and highways, airports and bridges for customers in the public sector. In the private sector, Knife River’s contracting services projects were within the residential, commercial and industrial markets.
Customers
Knife River’s customers can be segmented into public and private-sector customers, with public-sector customers contributing about 80% of the Company’s revenues from contracting services. The public side includes federal, state and municipal governmental agencies with construction projects related to highways, streets and other public infrastructure. The private side includes a broad spectrum of customers across industrial, commercial and residential developers and other private parties. Note that the mix of sales by customer class varies year to year depending on the variability in type of work.
Summary of Risk Factors
An investment in Knife River Holding Company is subject to a number of risks, including risks relating to its business, the separation and distribution, and Knife River Holding Company common stock. Set forth below is a high-level summary of some, but not all, of these risks. Please read the information in the section captioned “Risk Factors” beginning on page 19 for a more thorough description of these and other risks.
Risks Related to Knife River Holding Company’s Business
Knife River Holding Company’s business is seasonal and subject to weather conditions that could adversely affect its operations, revenues and the timing of cash flows.
Knife River Holding Company operates in a highly competitive industry.
Significant changes in prices for commodities, labor, or other production and delivery inputs could negatively affect Knife River Holding Company’s businesses.
Knife River Holding Company’s operations may be negatively affected if it is unable to obtain, develop and retain key personnel and skilled labor forces.
Economic volatility affects Knife River Holding Company’s operations, as well as the demand for its products and services.
Knife River Holding Company’s backlog may not accurately represent future revenue.
Supply chain disruptions may adversely affect Knife River Holding Company’s operations.
Knife River Holding Company’s aggregate resource and reserve calculations are estimates and subject to uncertainty.
Knife River Holding Company depends on securing, permitting and economically mining strategically located aggregate reserves.
Knife River Holding Company operates in a capital-intensive industry and is subject to capital market and interest rate risks.
Reductions in Knife River Holding Company’s credit ratings could increase financing costs.
Knife River Holding Company may be negatively impacted by pending and/or future litigation, claims or investigations.
Financial market changes could impact Knife River Holding Company’s defined benefit pension plans and obligations.
Increasing costs associated with health care plans may adversely affect Knife River Holding Company’s results of operations.
Changes in tax law may negatively affect Knife River Holding Company’s business.
Knife River Holding Company’s operations could be negatively impacted by import tariffs and/or other government mandates.
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Knife River Holding Company’s operations could be adversely impacted by climate change.
Knife River Holding Company’s operations are subject to environmental laws and regulations that may increase costs of operations, impact or limit business plans, or expose Knife River Holding Company to environmental liabilities.
Costs related to obligations under Multiemployer Pension Plans (“MEPPs”) could have a material negative effect on Knife River Holding Company’s results of operations and cash flows.
Technology disruptions or cyberattacks could adversely impact Knife River Holding Company’s operations.
Pandemics, including COVID-19, may have a negative impact on Knife River Holding Company’s business operations, revenues, results of operations, liquidity and cash flows.
Risks Related to the Separation and Distribution
Knife River Holding Company has no recent history of operating as an independent, public company, and its historical and pro forma financial information is not necessarily representative of the results that it would have achieved as a separate, publicly traded company and may not be a reliable indicator of its future results.
Until the separation and distribution occur, MDU Resources has sole discretion to change the terms of the separation and distribution in ways that may be unfavorable to Knife River Holding Company, including to determine not to effect the distribution at all.
Knife River Holding Company may not achieve some or all of the expected benefits of the separation, and the separation may materially and adversely affect its financial position, results of operations and cash flows.
Failure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could materially and adversely affect Knife River Holding Company.
In connection with the separation from MDU Resources, Knife River Holding Company will incur debt obligations that could adversely affect its business, profitability and its ability to meet obligations.
A lowering or withdrawal of the ratings, outlook or watch assigned to Knife River Holding Company or its debt by rating agencies may increase its future borrowing costs and reduce its access to capital.
As an independent, publicly traded company, Knife River Holding Company may not enjoy the same benefits that it did as a segment of MDU Resources.
Knife River Holding Company could experience temporary interruptions in business operations and incur additional costs as it further develops information technology infrastructure and transitions its data to its stand-alone systems.
If the distribution, together with certain related transactions, does not qualify as a transaction that is generally tax-free for U.S. federal income tax purposes, MDU Resources, Knife River Holding Company and MDU Resources stockholders could be subject to significant tax liabilities and, in certain circumstances, Knife River Holding Company could be required to indemnify MDU Resources for material taxes and other related amounts pursuant to indemnification obligations under the tax matters agreement.
Risks Related to Knife River Holding Company Common Stock
Knife River Holding Company cannot be certain that an active trading market for its shares of common stock will develop or be sustained after the distribution, and following the distribution, its stock price may fluctuate significantly.
A significant number of shares of Knife River Holding Company’s common stock are or will be eligible for future sale, which may cause the market price of Knife River Holding Company common stock to decline.
There may be substantial changes in Knife River Holding Company’s stockholder base.
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Your percentage of ownership in Knife River Holding Company may be diluted in the future.
Knife River Holding Company cannot guarantee the timing, declaration, amount or payment of dividends on its common stock.
The Separation and Distribution
On August 4, 2022, MDU Resources announced its intention to separate Knife River from MDU Resources. The separation will occur by means of pro rata distribution to MDU Resources stockholders of 80.1 percent or more of the outstanding shares of common stock of Knife River Holding Company, which was formed to hold Knife River and its consolidated subsidiaries.
Following the distribution, MDU Resources stockholders will own directly 80.1 percent or more of the outstanding shares of Knife River Holding Company common stock, and Knife River Holding Company will be a separate public company from MDU Resources. MDU Resources will retain up to 19.9 percent of the outstanding shares of Knife River Holding Company common stock following the distribution. MDU Resources intends to dispose of all shares of Knife River Holding Company common stock that it retains after the distribution; such dispositions may include one or more exchanges of shares of the Knife River Holding Company common stock for debt, distributions to MDU Resources stockholders, exchanges for MDU Resources shares or one or more sales of such shares for cash.
On [   ], the MDU Resources board of directors approved the distribution of 80.1 percent or more of Knife River Holding Company’s issued and outstanding shares of common stock on the basis of [   ] shares of Knife River Holding Company common stock for each share of MDU Resources common stock held as of the close of business on [   ], the record date for the distribution, subject to, pursuant to the separation and distribution agreement, the satisfaction or waiver of the conditions to the distribution as described in this information statement. For a more detailed description of these conditions, see “The Separation and Distribution—Conditions to the Distribution.”
Knife River Holding Company’s Post-Separation Relationship with MDU Resources
After the distribution, MDU Resources and Knife River Holding Company will be separate companies with separate management teams and separate boards of directors. Prior to the distribution, Knife River Holding Company will enter into a separation and distribution agreement with MDU Resources, which is referred to in this information statement as the “separation agreement” or the “separation and distribution agreement.” In connection with the separation, Knife River Holding Company will also enter into various other agreements to effect the separation and provide a framework for its relationship with MDU Resources after the separation, such as a transition services agreement, a tax matters agreement, an employee matters agreement and a stockholder and registration rights agreement with respect to MDU Resources’ continuing ownership of Knife River Holding Company common stock. These agreements will provide for the allocation between Knife River Holding Company and MDU Resources of MDU Resources’ assets, employees, liabilities and obligations (including its investments, property, employee benefits assets and liabilities and tax liabilities) attributable to periods prior to, at and after the distribution, and will govern certain relationships between Knife River Holding Company and MDU Resources after the distribution.
For additional information regarding the separation agreement and other transaction agreements and the transactions contemplated thereby, see the sections entitled “Risk Factors—Risks Related to the Separation and Distribution,” “The Separation and Distribution” and “Certain Relationships and Related Person Transactions.”
Reasons for the Separation
The MDU Resources board of directors believes that separating Knife River from the remaining businesses of MDU Resources is in the best interest of MDU Resources and its stockholders for a number of reasons, including:
Enhanced strategic focus. The separation will allow Knife River Holding Company and MDU Resources to more effectively pursue their distinct operating priorities and strategies and will enable the management of both companies to pursue unique opportunities for long-term growth and profitability. Knife River Holding Company and MDU Resources will each be able to use equity tailored to its own business to enhance acquisition and capital investment programs. Knife River Holding Company’s management will be able to focus exclusively on its construction materials and contracting services business, while the management of MDU Resources will remain dedicated to its remaining businesses.
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Tailored capital allocation strategies. The separation will permit each company to concentrate its financial resources solely on its own operations, providing greater flexibility to invest capital in its business at a time and in a manner appropriate for its distinct strategy and business needs. This will facilitate a more efficient allocation of capital based on each company’s profitability, cash flow and growth opportunities.
Optimized capital structures. The separation will allow Knife River Holding Company and MDU Resources to each benefit from distinct capital structures and financial policies tailored to its separate business profile and needs. The separation will create independent equity securities for Knife River Holding Company and MDU Resources, affording each direct access to the capital markets and enabling each of them to use its own industry-focused stock to consummate future acquisitions or other transactions. As a result, Knife River Holding Company and MDU Resources will each have more flexibility to capitalize on its unique strategic opportunities.
Alignment of incentives with performance objectives. The separation will facilitate equity-based and other incentive compensation arrangements for employees more directly tied to the performance of each company’s business, and enhance employee hiring and retention by, among other things, improving the alignment of management and employee incentives with performance and growth objectives.
Distinct investment opportunities. The separation will allow investors to separately value Knife River Holding Company and MDU Resources based on their distinct investment identities. Knife River Holding Company’s business differs from MDU Resources’ remaining businesses in several respects, including customer bases, regulatory oversight, competitors, strategic initiatives, sales channels and technology needs. The separation will enable investors to evaluate the merits, strategy, performance, and future prospects of each company’s respective business and to invest in each company separately based on these distinct characteristics. The separation may attract new investors who may not have properly assessed the value of Knife River relative to the value it is currently accorded as part of MDU Resources.
The MDU Resources board of directors also considered a number of potentially negative factors in evaluating the separation, including, among others, risks relating to the creation of a new public company, possible increased costs and one-time separation costs, but concluded that the potential benefits of the separation significantly outweighed these factors. For additional information, see the sections entitled “Risk Factors” and “The Separation and Distribution—Reasons for the Separation” included elsewhere in this information statement.
Reasons for MDU Resources’ Retention of Up to 19.9 Percent of Knife River Holding Company Common Stock
In considering the appropriate structure for the separation, MDU Resources determined that, immediately after the distribution becomes effective, MDU Resources will own up to 19.9 percent of the outstanding shares of Knife River Holding Company common stock. The retention of Knife River Holding Company common stock will strengthen MDU Resources’ balance sheet. The retained shares can potentially be exchanged to accelerate debt reduction or sold for cash, thereby facilitating an appropriate capital structure and the financial flexibility necessary for MDU Resources to execute its growth strategy. Knife River Holding Company understands that MDU Resources intends to dispose of all shares of Knife River Holding Company common stock that it retains after the distribution, which may include one or more exchanges for debt, distributions to MDU Resources stockholders, exchanges for MDU Resources shares or one or more sales of such shares for cash.
Corporate Information
Knife River Holding Company was incorporated in Delaware on November 9, 2022, for the purpose of holding Knife River in connection with the separation and distribution described herein. Prior to the contribution of this business to Knife River Holding Company, which will be completed prior to the distribution, Knife River Holding Company will have no operations. The address of Knife River Holding Company’s principal executive offices is 1150 West Century Avenue, Bismarck, ND 58503. Knife River Holding Company’s telephone number after the distribution will be (701) 530-1400. Knife River Holding Company maintains an Internet site at www.kniferiver.com. Knife River Holding Company’s website and the information contained therein or connected thereto shall not be deemed to be incorporated herein, and you should not rely on any such information in making an investment decision.
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Reason for Furnishing this Information Statement
This information statement is being furnished solely to provide information to stockholders of MDU Resources who will receive shares of Knife River Holding Company common stock in the distribution. It is not, and is not to be construed as, an inducement or encouragement to buy or sell any of Knife River Holding Company’s securities. Knife River Holding Company believes the information contained in this information statement to be accurate as of the date set forth on the cover of this information statement. Changes may occur after that date, and neither Knife River Holding Company nor MDU Resources undertake any obligation to update such information except in the normal course of their respective disclosure obligations and practices, or as required by applicable law.
Summary Historical and Unaudited Pro Forma Consolidated Financial Data
The following tables summarize the historical financial data of Knife River Corporation and the unaudited pro forma consolidated financial data of Knife River Holding Company. The summary historical consolidated balance sheet data as of December 31, 2022 and 2021, and summary historical consolidated statement of income data for the years ended December 31, 2022, 2021 and 2020, are derived from the Company’s audited consolidated financial statements included elsewhere in this information statement.
The summary unaudited pro forma consolidated balance sheet data as of December 31, 2022, and summary unaudited pro forma consolidated statement of income data for the year ended December 31, 2022, are derived from Knife River Holding Company’s unaudited pro forma consolidated financial statements included elsewhere in this information statement. The summary unaudited pro forma consolidated data is presented assuming the completion of all of the transactions described in this information statement, including the separation. It is assumed that as of the dates disclosed in this section, Knife River Corporation was a subsidiary of Knife River Holding Company and Knife River Holding Company had no other assets, liabilities or operations.
The historical and pro forma results set forth below may not be indicative of Knife River Holding Company’s future performance as a stand-alone company following the separation and distribution. The selected consolidated financial data in this section is not intended to replace the Company’s consolidated financial statements and the related notes and should be read in conjunction with the information in “Capitalization,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Unaudited Pro Forma Consolidated Financial Statements” and the historical audited consolidated financial statements and the notes thereto included in this information statement. For factors that could cause actual results to differ materially from those presented in the summary historical and unaudited pro forma consolidated financial data, see “Cautionary Statement Concerning Forward-Looking Statements” and “Risk Factors” included elsewhere in this information statement.
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Consolidated Statements of Income
 
Pro Forma
Historical
 
Year Ended
December 31,
Years Ended December 31,
 
2022
2022
2021
2020
 
(In thousands, except per share amounts)
Total revenue
$2,534,729
$2,534,729
$2,228,930
$2,178,002
Total cost of revenue
2,187,455
2,173,835
1,881,981
1,807,424
Gross profit
347,274
360,894
346,949
370,578
Selling, general and administrative expenses
182,725
166,599
155,872
156,080
Operating income
164,549
194,295
191,077
214,498
Interest expense
61,773
30,121
19,218
20,577
Other (expense) income
(4,069)
(5,353)
1,355
835
Income before income taxes
98,707
158,821
173,214
194,756
Income taxes
26,310
42,601
43,459
47,431
Net income
$72,397
$116,220
$129,755
$147,325
Earnings per share - basic
$
$1,452.74
$1,621.93
$1,841.56
Earnings per share - diluted
$
$1,452.74
$1,621.93
$1,841.56
Weighted average common shares outstanding – basic
80
80
80
Weighted average common shares outstanding – diluted
80
80
80
Consolidated Balance Sheets
 
Pro Forma
Historical
 
As of
December 31,
As of December 31,
 
2022
2022
2021
 
(In thousands)
Working capital
$527,845
$91,677
$185,429
Due from related-party - noncurrent
7,626
Total assets
2,505,839
2,294,319
2,181,824
 
 
 
 
Related-party notes payable
446,449
575,457
Total liabilities
1,478,379
1,265,730
1,228,980
Total stockholder’s equity
1,027,460
1,028,589
952,844
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RISK FACTORS
Knife River Holding Company’s business and financial results are subject to a number of risks and uncertainties. References to Knife River Holding Company refer to Knife River and its subsidiaries, which are to be held by Knife River Holding Company. The factors and other matters discussed herein are important factors that could cause actual results or outcomes for Knife River Holding Company to differ materially from those discussed in the forward-looking statements included elsewhere in this document. If any of the risks described below actually occur, Knife River Holding Company’s business, prospects, financial condition or financial results could be materially impacted. The following are the most material risk factors applicable to Knife River Holding Company and are not necessarily listed in order of importance or probability of occurrence. You should carefully consider the following risks and other information in this information statement in evaluating Knife River Holding Company and its common stock. The risk factors generally have been separated into three groups: risks related to Knife River Holding Company’s business, risks related to the separation and distribution, and risks related to Knife River Holding Company common stock.
Risks Related to Knife River Holding Company’s Business
Knife River Holding Company’s business is seasonal and subject to weather conditions that could adversely affect its operations, revenues and the timing of cash flows.
A majority of Knife River Holding Company’s business is seasonal, with results of operations affected by weather conditions. Construction materials production and related contracting services typically follow the activity in the construction industry, with heavier contracting services workloads in the spring, summer and fall. Extreme or unusually adverse weather conditions, which have occurred and may reoccur, such as extreme temperatures, heavy or sustained rainfall or snowfall, wildfires and storms may affect the demand for products and the ability to perform services on construction work. Knife River Holding Company could also be impacted by drought conditions, which may restrict the availability of water supplies and inhibit the ability to conduct operations. As a result, extreme or unusually adverse weather conditions could negatively affect Knife River Holding Company’s results of operations, financial position and cash flows.
Knife River Holding Company operates in a highly competitive industry.
Knife River Holding Company is subject to competition. The markets Knife River Holding Company serves are highly fragmented and Knife River Holding Company competes with a number of regional, national and international companies. These companies may have greater financial and other resources than Knife River Holding Company. Some others are smaller and more specialized, and concentrate their resources in particular areas of expertise. Knife River Holding Company’s results are also affected by the number of competitors in a market, the production capacity that a particular market can accommodate, the pricing practices of other competitors and the entry of new competitors in a market.
In addition, construction materials, products and related services are marketed under highly competitive conditions and are subject to competitive forces such as price, quality, service, delivery time and proximity to the customer. Significant competition could lead to lower prices, higher wages, lower sales volumes and higher costs. Furthermore, new acquisition opportunities are subject to competitive bidding environments, which may increase the prices Knife River Holding Company must pay to successfully acquire new properties and acquisition opportunities to grow its business. Knife River Holding Company’s customers make competitive determinations based upon qualifications, experience, performance, reputation, technology, customer relationships, price, quality and ability to provide the relevant services in a timely, safe and cost-efficient manner. Increased competition may result in Knife River Holding Company’s inability to win bids for future projects and Knife River Holding Company’s failure to effectively compete could negatively affect its results of operations, financial position and cash flows.
Significant changes in prices for commodities, labor, or other production and delivery inputs could negatively affect Knife River Holding Company’s businesses.
Knife River Holding Company’s operations are exposed to fluctuations in prices for labor, oil, cement, raw materials and utilities, among other things. Prices are generally subject to change in response to fluctuations in supply and demand and other general economic and market conditions beyond Knife River Holding Company’s control. In 2022 and 2021, Knife River Holding Company experienced elevated commodity and supply chain
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costs including the costs of labor, raw materials, energy-related products and other inputs used in the production and distribution of its products and services. Recent inflationary pressures have significantly increased the cost of raw materials by greater than 10% in comparison to average annual historical increases of approximately 3%. Knife River Holding Company seeks to mitigate some or all cost increases through increases in selling prices of its materials, maintaining positive relationships with numerous raw material suppliers, escalation clauses in construction services contracts and fuel surcharges.
High energy prices, specifically for diesel fuel, natural gas and liquid asphalt, have impacted and could further affect the margins realized, as well as demand for construction materials and related contracting services. Increased labor costs, due to labor shortages, competition from other industries, or other factors, could negatively affect Knife River Holding Company’s results of operations. Due to their size and weight, aggregates are costly and difficult to transport efficiently. Knife River Holding Company’s products and services are generally localized around its aggregate sites and served by truck or in certain markets by rail or barge. Knife River Holding Company could be negatively impacted by freight costs due to rising fuel costs; rate increases for third-party freight; truck, railcar or barge shortages, including shortages of truck drivers and rail crews; rail service interruptions; and minimum tonnage requirements, among other things. To the extent price increases or other mitigating factors are not sufficient to offset these increased costs adequately or timely, and/or if the price increases result in a significant decrease in sales volumes, Knife River Holding Company's results of operations, financial position and cash flows could be negatively impacted.
Knife River Holding Company’s operations may be negatively affected if it is unable to obtain, develop and retain key personnel and skilled labor forces.
Knife River Holding Company must attract, develop and retain executive officers and other professional, technical and labor forces with the skills and experience necessary to successfully manage, operate and grow. Competition for these employees is high, due in part to changing workforce demographics, a lack of younger employees who are qualified to replace employees as they retire, and remote work opportunities, among other things. In some cases, competition for these employees is on a regional or national basis. At times of low unemployment, it can be difficult for Knife River Holding Company to attract and retain qualified and affordable personnel. A shortage in the supply of skilled personnel creates competitive hiring markets, increased labor expenses, decreased productivity and potentially lost business opportunities to support Knife River Holding Company’s operating and growth strategies. Additionally, if Knife River Holding Company is unable to hire employees with the requisite skills, it may be forced to incur significant training expenses. As a result, Knife River Holding Company’s ability to maintain productivity, relationships with customers, competitive costs, and quality services is limited by the ability to employ, retain and train the necessary skilled personnel and could negatively affect its results of operations, financial position and cash flows.
Economic volatility affects Knife River Holding Company’s operations, as well as the demand for its products and services.
Unfavorable economic conditions can negatively affect the level of public and private expenditures on projects and the timing of these projects which, in turn, can negatively affect demand for Knife River Holding Company’s products and services. The level of demand for construction materials and contracting services could be adversely impacted by the economic conditions in the industries and market areas Knife River Holding Company serves, as well as in the general economy. Local, state and federal budget limitations affect the funding available for infrastructure spending, which could have an adverse impact on Knife River Holding Company’s earnings and results of operations.
The debt capital market environment could impact Knife River Holding Company’s ability to borrow money in the future. Additional financing or refinancing might not be available and, if available, may not be at economically favorable terms. Further, an increase in Knife River Holding Company’s leverage could lead to deterioration in its credit ratings. A downgrade in Knife River Holding Company’s credit ratings, regardless of the cause, could also limit the ability to obtain additional financing and/or increase the cost of obtaining financing. There is no guarantee Knife River Holding Company will be able to access the capital markets at financially economical interest rates, which could negatively affect Knife River Holding Company’s business.
Knife River Holding Company may be required to obtain financing in order to fund certain strategic acquisitions, if they arise, or to refinance outstanding debt. It is possible a large strategic acquisition would
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require Knife River Holding Company to issue new equity and other debt and could result in a ratings downgrade notwithstanding Knife River Holding Company’s issuance of equity securities to fund the transaction. Knife River Holding Company is also exposed to risks from tightening credit markets, through the interest payable on any variable-rate debt, including the interest cost on future borrowings under Knife River Holding Company’s credit facilities. While Knife River Holding Company believes it will continue to have adequate credit available to meet its needs, there can be no assurance of that.
Knife River Holding Company’s backlog may not accurately represent future revenue.
Backlog consists of the uncompleted portion of services to be performed under job-specific contracts. Contracts are subject to delay, default or cancellation, and contracts in Knife River Holding Company’s backlog are subject to changes in the scope of services to be provided, as well as adjustments to the costs relating to the applicable contracts. Backlog may also be affected by project delays or cancellations resulting from weather conditions, external market factors and economic factors beyond Knife River Holding Company’s control, among other things. Accordingly, there is no assurance that backlog will be realized. The timing of contract awards and duration of large new contracts can significantly affect backlog. Backlog at any given point in time may not accurately represent the revenue or net income that is realized in any period. Also, the backlog as of the end of the year may not be indicative of the revenue and net income expected to be earned in the following year and should not be relied upon as a stand-alone indicator of future revenues or net income of Knife River Holding Company.
Supply chain disruptions may adversely affect Knife River Holding Company’s operations.
At times or in certain markets, Knife River Holding Company relies on third-party vendors and manufacturers to supply or transport many of the materials necessary for its operations. Disruptions, shortages or delays in the transportation of materials; price increases from suppliers or manufacturers; or inability to source needed materials have occurred and may continue to occur, which could adversely affect Knife River Holding Company’s results of operations, financial condition, cash flows and harm customer relationships. National and regional demand for cement and liquid asphalt may at times outpace the supply in the market. This imbalance creates a temporary shortage which may cause prices to increase faster than downstream products. Any material disruption at Knife River Holding Company’s facilities or those of its customers or suppliers or otherwise within its supply chain, whether as a result of downtime, pandemic-related shutdowns, work stoppages or facility damage could prevent Knife River Holding Company from meeting customer demands or expected timelines, require it to incur unplanned capital expenditures, or cause other material disruptions to its operations, any of which could have a material adverse effect on Knife River Holding Company’s operations, financial position and cash flows. Further, supply chain disruptions can occur from events out of the Knife River Holding Company’s control such as fires, floods, severe weather, natural disasters, environmental incidents or other catastrophes.
Knife River Holding Company’s aggregate resource and reserve calculations are estimates and subject to uncertainty.
Knife River Holding Company estimates aggregate reserves and resources based on available data. The estimates depend upon the interpretation of surface and subsurface investigations, major assumptions and other supporting data, which can be unpredictable. The quantity must be considered only an estimate until reserves are actually extracted and processed. This uncertainty in aggregate resource and reserve calculation may adversely impact Knife River Holding Company’s results of operations.
Knife River Holding Company depends on securing, permitting and economically mining strategically located aggregate reserves.
Knife River Holding Company must obtain governmental, environmental, mining, and/or other permits at many of its facilities. New quarry sites can take years to develop and in a number of states in which Knife River Holding Company operates, it can be difficult to permit new aggregate sites or expand existing aggregate sites due to community resistance and regulatory requirements, among other things. In addition, construction aggregates are difficult to transport efficiently and freight costs can make certain deposits uneconomical to mine if located in areas of little growth or without the ability to supply growing markets served by rail, barge or ship. Failure to secure, permit and mine such reserves could negatively impact Knife River Holding Company’s business, financial condition and results of operations.
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Knife River Holding Company operates in a capital-intensive industry and is subject to capital market and interest rate risks.
Knife River Holding Company’s operations require significant capital investment to purchase and maintain the property and equipment required to mine and produce its products. In addition, Knife River Holding Company’s operations include a significant level of fixed and semi-fixed costs. Consequently, Knife River Holding Company relies on capital markets, particularly in the first half of the year due to the seasonal nature of the industry, as sources of liquidity for capital requirements not satisfied by cash flows from operations. If Knife River Holding Company is not able to access capital at competitive rates, the ability to implement business plans, make capital expenditures or pursue acquisitions it would otherwise rely on for future growth may be adversely affected. Market disruptions may increase the cost of borrowing or adversely affect Knife River Holding Company’s ability to access one or more financial markets. Such market disruptions could include:
A significant economic downturn.
The financial distress of unrelated industry leaders in the same line of business.
Deterioration in capital market conditions.
Turmoil in the financial services industry.
Volatility in commodity prices.
Pandemics, including COVID-19.
Terrorist attacks.
War.
Cyberattacks.
The issuance of a substantial amount of Knife River Holding Company’s common stock, whether issued in connection with an acquisition or otherwise, or the perception that such an issuance could occur, could have a dilutive effect on stockholders and/or may adversely affect the market price of Knife River Holding Company’s common stock. Higher interest rates on borrowings have impacted and could further impact Knife River Holding Company’s results of operations.
Reductions in Knife River Holding Company’s credit ratings could increase financing costs.
There is no assurance Knife River Holding Company’s credit ratings will remain in effect or that a rating will not be lowered or withdrawn by a rating agency. Events affecting Knife River Holding Company’s financial results may impact its cash flows and credit metrics, potentially resulting in a change in its credit ratings. Knife River Holding Company’s credit ratings may also change as a result of the differing methodologies or changes in the methodologies used by the rating agencies.
Knife River Holding Company may be negatively impacted by pending and/or future litigation, claims or investigations.
Knife River Holding Company is, and may become party to, among other things, personal injury, environmental, commercial, contract, warranty, antitrust, tax, property entitlements and land use, product liability, health and safety, and employment claims. The outcome of pending or future lawsuits, claims, investigations or proceedings is often difficult to predict and could be adverse and material in amount. In addition to the monetary cost, litigation can divert management’s attention from its core business opportunities. Development of new information in these matters can often lead to changes in management’s estimated liabilities associated with these proceedings including the judge’s rulings or judgements, jury verdicts, settlements or changes in applicable law. The outcome of such matters is often difficult to predict and unfavorable outcomes could have a material impact to Knife River Holding Company’s results of operations, financial position and cash flows.
Financial market changes could impact Knife River Holding Company’s defined benefit pension plans and obligations.
Knife River Holding Company has defined benefit pension plans for some of its current and former employees. Assumptions regarding future costs, returns on investments, interest rates and other actuarial assumptions have a significant impact on the funding requirements and expense recorded relating to these plans.
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Adverse changes in economic indicators, such as consumer spending, inflation data, interest rate changes, political developments and threats of terrorism, among other things, can create volatility in the financial markets. These changes could impact the assumptions and negatively affect the value of assets held in Knife River Holding Company’s pension plans and may increase the amount and accelerate the timing of required funding contributions for those plans.
Increasing costs associated with health care plans may adversely affect Knife River Holding Company’s results of operations.
At the time of the separation, Knife River Holding Company intends to be self-insured for the health care benefits for eligible employees. Increasing quantities of large individual health care claims and an overall increase in total health care claims as health care costs continue to increase could have an adverse impact on operating results, financial position and liquidity. Legislation related to health care could also change Knife River Holding Company’s benefit program and costs.
Knife River Holding Company is exposed to risk of loss resulting from the nonpayment and/or nonperformance by its customers and counterparties.
Knife River Holding Company’s clients include public and private entities that have been, and may continue to be, negatively impacted by the changing landscape in the global economy. A recessionary construction economy can increase the likelihood that Knife River Holding Company will not be able to collect on all accounts receivable or may experience a delay in payment from some customers. If Knife River Holding Company’s customers or counterparties experience financial difficulties, which has occurred and may reoccur, Knife River Holding Company could experience difficulty in collecting receivables. While no one client accounted for over 10% of Knife River Holding Company’s revenue in 2022, 2021 or 2020, Knife River Holding Company faces collection risk as a normal part of business where Knife River Holding Company performs services and subsequently bills clients for such services. In the event that Knife River Holding Company has concentrated credit risk from clients in a specific geographic area or industry, continuing negative trends or a worsening in financial conditions in that specific geographic area or industry could make Knife River Holding Company susceptible to disproportionately high levels of default. Nonpayment and/or nonperformance by Knife River Holding Company’s customers and counterparties could have a negative impact on Knife River Holding Company’s results of operations and cash flows.
Changes in tax law may negatively affect Knife River Holding Company’s business.
Changes to federal, state and local tax laws have the ability to benefit or adversely affect Knife River Holding Company’s earnings and customer costs. Significant changes to corporate tax rates could result in the impairment of deferred tax assets that are established based on existing law at the time of deferral. A number of factors may increase Knife River Holding Company’s future effective income tax rate, including:
Governmental authorities increasing taxes or eliminating deductions, particularly the depletion deduction.
The mix of earnings from depletable versus non-depletable businesses.
The jurisdictions in which earnings are taxed.
The resolution of issues arising from tax audits with various tax authorities.
Changes in the valuation of our deferred tax assets and liabilities.
Adjustments to estimated taxes upon finalization of various tax returns.
Changes in available tax credits.
Changes in stock-based compensation.
Other changes in tax laws.
The interpretation of tax laws and/or administrative practices.
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Knife River Holding Company’s operations could be negatively impacted by import tariffs and/or other government mandates.
Knife River Holding Company operates in or provides services to capital-intensive industries in which federal trade policies could significantly impact the availability and cost of materials. Imposed and proposed tariffs could significantly increase the prices and delivery lead times on raw materials and finished products that are critical to Knife River Holding Company and its customers, such as cement and steel, among other things. Knife River Holding Company faces competition from manufacturers both in the U.S. and around the world, some of which may engage in competition and trade practices involving the importation of competing products in the U.S. or other foreign laws, regulations or practices. Prolonged lead times on the delivery of raw materials and further tariff increases on raw materials and finished products could adversely affect Knife River Holding Company’s business, financial condition and results of operations.
Knife River Holding Company’s business is based in part on government-funded infrastructure projects and building activities, and any reductions or reallocation of spending or related subsidies in these areas could have an adverse effect on us.
Certain of Knife River Holding Company’s businesses depend on government spending for infrastructure and other similar building activities. As a result, demand for some of Knife River Holding Company’s products is influenced by local, state and federal government fiscal policies, tax incentives and other subsidies, and other general macroeconomic and political factors. Projects in which Knife River Holding Company participates may be funded directly by governments or privately funded, but are otherwise tied to or impacted by government policies and spending measures.
Government spending is often approved only on a short-term basis and some of the projects in which Knife River Holding Company’s products are used require longer-term funding commitments. If government funding is not approved or funding is lowered as a result of poor economic conditions, lower than expected revenues, competing spending priorities, or other factors, it could limit infrastructure projects available, increase competition for projects, result in excess inventory, and decrease sales, all of which could adversely affect the profitability of Knife River Holding Company’s business.
Additionally, certain regions or states may require or possess the means to finance only a limited number of large infrastructure projects and periods of high demand may be followed by years of little to no activity. There can be no assurances that governments will sustain or increase current infrastructure spending and tax incentive and other subsidy levels, and any reductions thereto or delays therein could affect Knife River Holding Company’s business, liquidity and financial condition, and results of operations.
Knife River Holding Company’s operations could be adversely impacted by climate change.
Severe weather events, such as tornadoes, hurricanes, rain, drought, ice and snowstorms, and high- and low- temperature extremes, occur in regions in which Knife River Holding Company operates and maintains infrastructure. Climate change could change the frequency and severity of these weather events, which may create physical and financial risks to Knife River Holding Company. Such risks could have an adverse effect on Knife River Holding Company’s financial condition, results of operations and cash flows. Increases in severe weather conditions or extreme temperatures may cause infrastructure construction projects to be delayed or canceled and limit resources available for such projects resulting in decreased revenue or increased project costs. In addition, drought conditions could restrict the availability of water supplies or limit the ability to obtain water use permits, inhibiting the ability to conduct operations. To date, Knife River Holding Company has not experienced any material impacts to its financial condition, results of operations or cash flows due to the physical effects of climate change.
Climate change may impact a region’s economic health, which could impact Knife River Holding Company’s revenues. Knife River Holding Company’s financial performance is tied to the health of the regional economies served. Knife River Holding Company provides construction materials and services for some states and communities that are economically affected by the agriculture industry. Increases in severe weather events or significant changes in temperature and precipitation patterns could adversely affect the economies of the states and communities affected by that industry.
The insurance industry may be adversely affected by severe weather events, which may impact availability of insurance coverage, insurance premiums and insurance policy terms.
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The price of energy also has an impact on the economic health of communities. The cost of additional regulatory requirements related to climate change, such as regulation of carbon dioxide emissions under the federal Clean Air Act, requirements to replace fossil fuels with renewable energy or to obtain emissions credits, or other environmental regulation or taxes could impact the availability of goods and the prices charged by suppliers, which would normally be borne by consumers through higher prices for energy and purchased goods, and could adversely impact economic conditions of areas served by Knife River Holding Company. To the extent financial markets view climate change and emissions of greenhouse gas (“GHG”) as a financial risk, this could negatively affect Knife River Holding Company’s ability to access capital markets or result in less competitive terms and conditions.
Knife River Holding Company’s operations are subject to environmental laws and regulations that may increase costs of operations, impact or limit business plans, or expose Knife River Holding Company to environmental liabilities.
Knife River Holding Company is subject to environmental laws and regulations affecting many aspects of its operations, including air and water quality, wastewater discharge, the generation, transportation and disposal of solid waste and hazardous substances, aggregate permitting and other environmental considerations. These laws and regulations can increase capital, operating and other costs; cause delays as a result of litigation and administrative proceedings; and create environmental compliance, remediation, containment, monitoring and reporting obligations for construction materials facilities. Environmental laws and regulations can also require Knife River Holding Company to install pollution control equipment at its facilities, clean up spills and other contamination, and correct environmental hazards, including payment of all or part of the cost to remediate sites where Knife River Holding Company’s past activities, or the activities of other parties, caused environmental contamination. These laws and regulations generally require Knife River Holding Company to obtain and comply with a variety of environmental licenses, permits, inspections and other approvals. Although Knife River Holding Company strives to comply with all applicable environmental laws and regulations, public and private entities and private individuals may interpret Knife River Holding Company’s legal or regulatory requirements differently and seek injunctive relief or other remedies against Knife River Holding Company. Knife River Holding Company cannot predict the outcome, financial or operational, of any such litigation or administrative proceedings.
Existing environmental laws and regulations may be revised and new laws and regulations seeking to protect the environment may be adopted or become applicable to Knife River Holding Company. These laws and regulations could require Knife River Holding Company to limit the use or output of certain facilities; restrict the use of certain fuels; prohibit or restrict new or existing services; replace certain fuels with renewable fuels; retire and replace certain facilities; install pollution controls; remediate environmental impacts; remove or reduce environmental hazards; or forego or limit the development of resources. Revised or new laws and regulations that increase compliance and disclosure costs and/or restrict operations could adversely affect Knife River Holding Company’s results of operations and cash flows.
Stakeholder actions and increased regulatory activity related to environmental, social and governance matters, particularly climate change and reducing GHG emissions, could adversely impact the Company’s operation, costs of or access to capital and impact or limit business plans.
Knife River Holding Company could face stakeholder scrutiny related to environmental, social and governance matters (“ESG”). There has been an increased focus from stakeholders and regulators related to ESG matters across all industries in recent years, with investors, customers, employees and lenders, placing increasing importance on the impacts and social cost associated with climate change. Concern that GHG emissions contribute to global climate change has led to international, federal, state and local legislative and regulatory proposals to reduce or mitigate the effects of GHG emissions.
Knife River Holding Company monitors, analyzes and reports GHG emissions from its operations as required by applicable laws and regulations. Knife River Holding Company will continue to monitor GHG regulations and their potential impact on operations.
Due to the uncertain availability of technologies to control GHG emissions and the unknown obligations that potential GHG emission legislation or regulations may create, Knife River Holding Company cannot determine the potential financial impact on its operations.
In addition, the increasing focus on climate change and stricter regulatory requirements may result in Knife River Holding Company facing adverse reputational risks associated with certain of its operations producing
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GHG emissions. Although Knife River Holding Company has not experienced difficulties in these areas, if Knife River Holding Company is unable to satisfy the increasing climate-related expectations of certain stakeholders, Knife River Holding Company may suffer reputational harm, which may cause its stock price to decrease or difficulty in accessing the capital or insurance markets. Such efforts, if successfully directed at Knife River Holding Company, could increase the costs of or access to capital or insurance and interfere with business operations and ability to make capital expenditures.
Costs related to obligations under MEPPs could have a material negative effect on Knife River Holding Company’s results of operations and cash flows.
Knife River Holding Company participates in MEPPs for employees represented by certain unions. Knife River Holding Company is required to make contributions to these plans in amounts established under numerous collective bargaining agreements between the operating subsidiaries and those unions.
Knife River Holding Company may be obligated to increase its contributions to underfunded plans that are classified as being in endangered, seriously endangered or critical status as defined by the Pension Protection Act of 2006. Plans classified as being in one of these statuses are required to adopt Rehabilitation Plans or Funding Improvement Plans to improve their funded status through increased contributions, reduced benefits or a combination of the two.
Knife River Holding Company may also be required to increase its contributions to MEPPs if the other participating employers in such plans withdraw from the plans and are not able to contribute amounts sufficient to fund the unfunded liabilities associated with their participation in the plans. The amount and timing of any increase in Knife River Holding Company’s required contributions to MEPPs may depend upon one or more factors, including the outcome of collective bargaining; actions taken by trustees who manage the plans; actions taken by the plans’ other participating employers; the industry for which contributions are made; future determinations that additional plans reach endangered, seriously endangered or critical status; newly enacted government laws or regulations and the actual return on assets held in the plans; among others. Knife River Holding Company could experience increased operating expenses as a result of required contributions to MEPPs, which could have an adverse effect on its results of operations, financial position or cash flows.
In addition, pursuant to the Employee Retirement Income Security Act of 1974 (“ERISA”), as amended by the Multiemployer Pension Plan Amendments Act, Knife River Holding Company could incur a partial or complete withdrawal liability upon withdrawing from a plan, exiting a market in which it does business with a union workforce or upon termination of a plan. Knife River Holding Company could also incur additional withdrawal liability if its withdrawal from a plan is determined by that plan to be part of a mass withdrawal.
Technology disruptions or cyberattacks could adversely impact Knife River Holding Company’s operations.
Knife River Holding Company uses technology in substantially all aspects of its business operations and requires uninterrupted operation of information technology and operation technology systems, including disaster recovery and backup systems and network infrastructure. While Knife River Holding Company has policies, procedures and processes in place designed to strengthen and protect these systems, they may be vulnerable to physical and cybersecurity failures or unauthorized access, due to:
Hacking.
Human error.
Theft.
Sabotage.
Malicious software.
Ransomware.
Third-party compromise.
Acts of terrorism.
Acts of war.
Acts of nature.
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Or other causes.
Although there are manual processes in place, should a compromise or system failure occur, interdependencies to technology may disrupt Knife River Holding Company’s ability to fulfill critical business functions. This may include interruption of facilities for delivery of construction materials or other products and services, any of which could adversely affect Knife River Holding Company’s reputation, business, cash flows and results of operations or subject Knife River Holding Company to legal costs.
Knife River Holding Company’s accounting systems and its ability to collect information and invoice customers for products and services could be disrupted. If Knife River Holding Company’s operations are disrupted, it could result in decreased revenues and remediation costs that could adversely affect Knife River Holding Company’s results of operations and cash flows.
Knife River Holding Company, through the ordinary course of business, requires access to sensitive customer, supplier, employee, financial and other data. While Knife River Holding Company has implemented extensive security measures, including limiting the amount of sensitive information retained, a breach of its systems could compromise sensitive data and could go unnoticed for some time. Such an event could result in negative publicity and reputational harm, remediation costs, legal claims and fines that could have an adverse effect on Knife River Holding Company’s financial results. Third-party service providers that perform critical business functions for Knife River Holding Company or have access to sensitive information within Knife River Holding Company also may be vulnerable to security breaches and information technology risks that could adversely affect Knife River Holding Company.
Cyberattacks continue to increase in frequency and sophistication, which could cause Knife River Holding Company’s information systems to be a target of ongoing and sophisticated cyberattacks by a variety of sources with the apparent aim to breach Knife River Holding Company’s cyber-defenses. Knife River Holding Company may face increased cyber risk due to the increased use of employee-owned devices, work from home arrangements, and the proposed separation. Such incidents could have a material adverse effect on its business, financial condition or results of operations. Knife River Holding Company is continuously reevaluating the need to upgrade and/or replace systems and network infrastructure. These upgrades and/or replacements could adversely impact operations by imposing substantial capital expenditures, creating delays or outages, or creating difficulties transitioning to new systems. System disruptions, if not anticipated and appropriately mitigated, could adversely affect Knife River Holding Company.
While Knife River Holding Company’s insurance policies include liability coverage for certain of these matters, if it experiences a significant security incident, it could be subject to liability or other damages that exceed its insurance coverage and it cannot be certain that such insurance policies will continue to be available to it on economically reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim. The successful assertion of one or more large claims against Knife River Holding Company that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on its results of operations, financial condition and cash flows.
Pandemics, including COVID-19, may have a negative impact on Knife River Holding Company’s business operations, revenues, results of operations, liquidity and cash flows.
Pandemics have disrupted national, state and local economies. To the extent a pandemic adversely impacts Knife River Holding Company’s businesses, operations, revenues, liquidity or cash flows, it could also have a heightened effect on other risks described in this section. The degree to which a pandemic will impact Knife River Holding Company depends on future developments, including the resurgence of COVID-19 and its variants, federal and state mandates, actions taken by governmental authorities, effectiveness of vaccines being administered, and the pace and extent to which the economy recovers and remains under relatively normal operating conditions.
Other factors associated with a pandemic that could impact Knife River Holding Company’s businesses and future operating results, revenues and liquidity include impacts related to the health, safety, and availability of employees and contractors; extended rise in unemployment; public and private-sector budget changes and constraints; counterparty credit; costs and availability of supplies; capital construction and infrastructure operation and maintenance programs; financing plans; pension valuations; travel restrictions; and legal matters. The economic and market disruptions resulting from a pandemic could also lead to greater than normal uncertainty
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with respect to the realization of estimated amounts, including estimates for backlog, revenue recognition, intangible assets, other investments and provisions for credit losses.
General risk factors that could impact Knife River Holding Company’s businesses.
The following are additional factors that should be considered for a better understanding of the risks to Knife River Holding Company. These factors may negatively impact Knife River Holding Company’s financial results in future periods:
Acquisition, disposal and impairments of assets or facilities.
The cyclical nature of large construction projects.
Labor negotiations or disputes.
Succession planning.
Inability of contract counterparties to meet their contractual obligations.
The inability to effectively integrate the operations and the internal controls of acquired companies.
Risks Related to the Separation and Distribution
Knife River Holding Company has no recent history of operating as an independent, public company, and its historical and pro forma financial information is not necessarily representative of the results that it would have achieved as a separate, publicly traded company and may not be a reliable indicator of its future results.
The historical information of Knife River Holding Company in this information statement refers to its business as operated by and integrated with MDU Resources. The historical and pro forma financial information of Knife River Holding Company included in this information statement is derived from the consolidated financial statements and accounting records of MDU Resources and Knife River. Accordingly, the historical and pro forma financial information included in this information statement does not necessarily reflect the financial condition, results of operations and cash flows that Knife River Holding Company would have achieved as a separate, publicly traded company during the periods presented or those that Knife River Holding Company will achieve in the future, primarily as a result of the factors described below:
Prior to the distribution, Knife River Holding Company’s business has been operated by MDU Resources as part of its broader corporate organization, rather than as an independent company, and MDU Resources or one of its affiliates performed certain corporate functions for Knife River Holding Company. Knife River Holding Company’s historical and pro forma financial results reflect allocations of corporate expenses from MDU Resources for such functions and are likely to be less than the expenses Knife River Holding Company would have incurred had it operated as a separate publicly traded company.
Historically, Knife River Holding Company shared economies of scope and scale in costs, employees and vendor relationships. Although Knife River Holding Company will enter into a transition services agreement with MDU Resources prior to the distribution, these arrangements may not retain or fully capture the benefits that Knife River Holding Company has enjoyed as a result of being integrated with MDU Resources and may result in it paying higher charges than in the past for these services. This could have a material adverse effect on Knife River Holding Company’s business, financial position, results of operations and cash flows following the completion of the distribution.
Generally, Knife River Holding Company’s working capital requirements and capital for its general corporate purposes, including acquisitions and capital expenditures, have in the past been satisfied as part of the corporatewide cash management policies of Centennial. Following the completion of the distribution, Knife River Holding Company’s results of operations and cash flows are likely to be more volatile, and it may need to obtain additional financing from banks, through public offerings or private placements of debt or equity securities, strategic relationships or other arrangements, which may or may not be available and may be more costly.
After the completion of the distribution, the cost of capital for Knife River Holding Company’s business may be higher than MDU Resources’ cost of capital prior to the distribution.
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Knife River Holding Company’s historical financial information does not reflect the debt that it expects to incur in connection with the separation.
As a public company, Knife River Holding Company will become subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act and the Dodd-Frank Act and will be required to prepare its financial statements according to the rules and regulations required by the SEC. Complying with these requirements could result in significant costs and require Knife River Holding Company to divert substantial resources, including management time, from other activities.
Other significant changes may occur in Knife River Holding Company’s cost structure, management, financing and business operations as a result of operating as a company separate from MDU Resources. For additional information about the past financial performance of Knife River Holding Company’s business and the basis of presentation of the historical consolidated financial statements and the unaudited pro forma consolidated financial statements, see “Selected Historical Consolidated Financial Data,” “Unaudited Pro Forma Consolidated Financial Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the historical financial statements and accompanying notes included elsewhere in this information statement.
If the distribution, together with certain related transactions, does not qualify as a transaction that is generally tax-free for U.S. federal income tax purposes, MDU Resources, Knife River Holding Company and MDU Resources stockholders could be subject to significant tax liabilities and, in certain circumstances, Knife River Holding Company could be required to indemnify MDU Resources for material taxes and other related amounts pursuant to indemnification obligations under the tax matters agreement.
The separation and distribution agreement contains a condition that MDU Resources receive a private letter ruling from the IRS and one or more opinion(s) of its tax advisors, regarding certain U.S. federal income tax matters relating to the separation and the distribution. The IRS private letter ruling and the opinion(s) of tax advisors will be based upon and rely on, among other things, various facts and assumptions, as well as certain representations, statements and undertakings of MDU Resources and Knife River Holding Company, including those relating to the past and future conduct of MDU Resources and Knife River Holding Company. If any of these representations, statements or undertakings is, or becomes, inaccurate or incomplete, or if MDU Resources or Knife River Holding Company breach any of the representations or covenants contained in any of the separation-related agreements and documents or in any documents relating to the IRS private letter ruling and/or the opinion(s) of tax advisors, the IRS private letter ruling and/or the opinion(s) of tax advisors may be invalid and the conclusions reached therein could be jeopardized.
Notwithstanding receipt by MDU Resources prior to the distribution of the IRS private letter ruling and the opinion(s) of tax advisors, the IRS could determine that the distribution and/or certain related transactions should be treated as taxable transactions for U.S. federal income tax purposes if it determines that any of the representations, assumptions, or undertakings upon which the IRS private letter ruling or the opinion(s) of tax advisors were based are false or have been violated. In addition, neither the IRS private letter ruling nor the opinion(s) of tax advisors will address all of the issues that are relevant to determining whether the distribution, together with certain related transactions, qualifies as a transaction that is generally tax-free for U.S. federal income tax purposes. Further, the opinion(s) of tax advisors represent the judgment of such tax advisors and are not binding on the IRS or any court, and the IRS or a court may disagree with the conclusions in the opinion(s) of tax advisors. Accordingly, notwithstanding receipt by MDU Resources prior to the distribution of the IRS private letter ruling and the opinion(s) of tax advisors, there can be no assurance that the IRS will not assert that the distribution and/or certain related transactions do not qualify for tax-free treatment for U.S. federal income tax purposes or that a court would not sustain such a challenge. In the event the IRS were to prevail in such challenge, MDU Resources, Knife River Holding Company and MDU Resources stockholders could be subject to significant U.S. federal income tax liability.
If the distribution, together with related transactions, fails to qualify as a transaction that is generally tax-free for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Internal Revenue Code (the “Code”), in general, for U.S. federal income tax purposes, MDU Resources would recognize taxable gain as if it had sold Knife River Holding Company common stock in a taxable sale for its fair market value (unless MDU Resources and Knife River Holding Company jointly make an election under Section 336(e) of the Code with respect to the distribution, in which case, in general, (a) the MDU Resources group would recognize taxable gain as if Knife River Holding Company had sold all of its assets in a taxable sale in exchange for an amount
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equal to the fair market value of Knife River Holding Company common stock and the assumption of all of its liabilities and (b) Knife River Holding Company would obtain a related step-up in the basis of its assets) and, if the distribution fails to qualify as a transaction that is generally tax-free for U.S. federal income tax purposes under Section 355, MDU Resources stockholders who receive Knife River Holding Company shares in the distribution would be subject to tax as if they had received a taxable distribution equal to the fair market value of such shares. For more information, see “Material U.S. Federal Income Tax Consequences.”
Under the tax matters agreement that MDU Resources will enter into with Knife River Holding Company, Knife River Holding Company may be required to indemnify MDU Resources against any additional taxes and related amounts resulting from (a) an acquisition of all or a portion of its equity securities or assets, whether by merger or otherwise (and regardless of whether Knife River Holding Company participated in or otherwise facilitated the acquisition), (b) other actions or failures to act by Knife River Holding Company or (c) any inaccuracy or breach of Knife River Holding Company’s representations, covenants or undertakings contained in any of the separation-related agreements and documents or in any documents relating to the IRS private letter ruling and/or the opinion(s) of tax advisors. Any such indemnity obligations could be material.
U.S. federal income tax consequences may restrict Knife River Holding Company’s ability to engage in certain desirable strategic or capital-raising transactions after the separation.
Under current law, a separation can be rendered taxable to the parent corporation and its stockholders as a result of certain post-separation acquisitions of shares or assets of the spun-off corporation. For example, a separation may result in taxable gain to the parent corporation under Section 355(e) of the Code if the separation were deemed to be part of a plan (or series of related transactions) pursuant to which one or more persons acquire, directly or indirectly, shares representing a 50 percent or greater interest (by vote or value) in the spun-off corporation.
To preserve the U.S. federal income tax treatment of the separation and distribution, and in addition to Knife River Holding Company’s indemnity obligation described above, the tax matters agreement will restrict Knife River Holding Company, for the two-year period following the distribution, except in specific circumstances, from:
Entering into any transaction pursuant to which all or a portion of Knife River Holding Company common stock or assets would be acquired, whether by merger or otherwise.
Issuing equity securities beyond certain thresholds.
Repurchasing shares of its capital stock other than in certain open-market transactions.
Ceasing to actively conduct certain aspects of its business.
And/or taking or failing to take any other action that would jeopardize the expected U.S. federal income tax treatment of the distribution and certain related transactions.
These restrictions may limit Knife River Holding Company’s ability to pursue certain strategic transactions or other transactions that it may believe to be in the best interests of its stockholders or that might increase the value of its business.
Until the separation and distribution occur, MDU Resources has sole discretion to change the terms of the separation and distribution in ways that may be unfavorable to Knife River Holding Company, including to determine not to effect the distribution at all.
Until the separation and distribution occur, Knife River Holding Company will continue to be an indirect, wholly owned subsidiary of MDU Resources. Accordingly, MDU Resources will have the sole and absolute discretion to determine and change the terms of the separation and distribution, including the establishment of the record date for the distribution and the distribution date. These changes could be unfavorable to Knife River Holding Company. In addition, the MDU Resources board of directors, in its sole and absolute discretion, may decide not to proceed with the separation and distribution at any time prior to the distribution date.
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Knife River Holding Company may not achieve some or all of the expected benefits of the separation, and the separation may materially and adversely affect its financial position, results of operations and cash flows.
Knife River Holding Company may be unable to achieve the full strategic and financial benefits expected to result from the separation, or such benefits may be delayed or not occur at all. The separation and distribution are expected to provide the following benefits, among others:
A distinct investment identity allowing investors to evaluate the merits, strategy, performance and future prospects of Knife River Holding Company’s business separately from MDU Resources.
Enhanced strategic focus to more effectively pursue individualized strategies specific to the industries in which each operates and use equity tailored to its own business to enhance acquisition and capital programs.
More efficient allocation of capital for both Knife River Holding Company and MDU Resources based on each company’s profitability, cash flow and growth opportunities.
Direct access for Knife River Holding Company to the capital markets, while at the same time creating an independent equity structure that will facilitate its ability to deploy capital toward its specific growth opportunities.
And enhanced employee hiring and retention by, among other things, improving the alignment of management and employee incentives with performance and growth objectives.
Knife River Holding Company may not achieve these and other anticipated benefits for a variety of reasons, including, among others, that: (a) the separation will require significant amounts of management’s time and effort, which may divert management’s attention from operating and growing Knife River Holding Company’s business; (b) following the separation and distribution, Knife River Holding Company may be more susceptible to market fluctuations and other adverse events than if it was still a part of MDU Resources; (c) following the separation and distribution, Knife River Holding Company’s business will be less diversified than MDU Resources’ business prior to the separation and distribution; and (d) the other actions required to separate MDU Resources’ and Knife River Holding Company’s respective businesses could disrupt its operations. If Knife River Holding Company fails to achieve some or all of the benefits expected to result from the separation, or if such benefits are delayed, it could have a material adverse effect on its financial position, results of operations and cash flows.
Knife River Holding Company or MDU Resources may fail to perform under various transaction agreements that are expected to be executed as part of the separation or Knife River Holding Company may fail to have necessary systems and services in place when certain of the transaction agreements expire.
In connection with the separation and prior to the distribution, it is anticipated that Knife River Holding Company and MDU Resources will enter into a separation and distribution agreement and will also enter into various other agreements, including a transition services agreement, a tax matters agreement and an employee matters agreement. The separation agreement, the tax matters agreement and the employee matters agreement will determine the allocation of assets and liabilities between the companies following the separation for those respective areas and will include any necessary indemnifications related to liabilities and obligations. The transition services agreement will provide for the performance of certain services by MDU Resources for the benefit of Knife River Holding Company, or in some cases certain services provided by Knife River Holding Company for the benefit of MDU Resources, for a limited period of time after the separation. Knife River Holding Company will rely on MDU Resources to satisfy its obligations under these agreements. If MDU Resources is unable to satisfy its obligations under these agreements, including its indemnification obligations, Knife River Holding Company could incur operational difficulties or losses. If Knife River Holding Company does not have agreements with other providers of these services once certain transaction agreements expire or terminate, Knife River Holding Company may not be able to operate its business effectively, which may have a material adverse effect on its financial position, results of operations and cash flows.
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Knife River Holding Company’s inability to resolve favorably any disputes that arise between Knife River Holding Company and MDU Resources with respect to their past and ongoing relationships may adversely affect Knife River Holding Company’s operating results.
Disputes may arise between Knife River Holding Company and MDU Resources in a number of areas relating to the various transaction agreements, including:
Labor, tax, employee benefit, indemnification and other matters arising from Knife River Holding Company’s separation from MDU Resources.
Employee retention and recruiting.
Business combinations involving Knife River Holding Company.
And the nature, quality and pricing of services that Knife River Holding Company and MDU Resources have agreed to provide each other.
Knife River Holding Company may not be able to resolve potential conflicts, and even if it does, the resolution may be less favorable than if it were dealing with an unaffiliated party.
The agreements Knife River Holding Company enters into with MDU Resources may be amended upon agreement between the parties. While Knife River Holding Company is controlled by MDU Resources, it may not have the leverage to negotiate amendments to these agreements if required on terms as favorable to it as those it would negotiate with an unaffiliated third party.
After the distribution, certain members of management, directors and stockholders will hold stock in both Knife River Holding Company and MDU Resources, and as a result may face actual or potential conflicts of interest.
After the distribution, the management and directors of each of MDU Resources and Knife River Holding Company may own both MDU Resources common stock and Knife River Holding Company common stock. This ownership overlap could create, or appear to create, potential conflicts of interest when Knife River Holding Company’s management and directors and MDU Resources’ management and directors face decisions that could have different implications for Knife River Holding Company and MDU Resources. For example, potential conflicts of interest could arise in connection with the resolution of any dispute between MDU Resources and Knife River Holding Company regarding the terms of the agreements governing the distribution and the relationship with MDU Resources thereafter. These agreements include the separation and distribution agreement, the tax matters agreement, the employee matters agreement, the transition services agreement, the stockholder and registration rights agreement and any commercial agreements between the parties or their affiliates. Potential conflicts of interest may also arise out of any commercial arrangements that Knife River Holding Company or MDU Resources may enter into in the future.
No vote of MDU Resources stockholders is required in connection with the separation and distribution. As a result, if the distribution occurs and you do not want to receive Knife River Holding Company common stock in the distribution, your sole recourse will be to divest yourself of your MDU Resources common stock prior to the record date of the distribution.
No vote of MDU Resources stockholders is required in connection with the separation and distribution. Accordingly, if this transaction occurs and you do not want to receive Knife River Holding Company common stock in the distribution, your only recourse will be to divest yourself of your MDU Resources common stock prior to the record date for the distribution or to sell your MDU Resources common stock in the “regular way” market in between the record date and the distribution date.
Failure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could materially and adversely affect Knife River Holding Company.
As a public company, Knife River Holding Company will become subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act and the Dodd-Frank Act and will be required to prepare its financial statements according to the rules and regulations required by the SEC. In addition, following the effectiveness of the Form 10, the Exchange Act requires that Knife River Holding Company file annual, quarterly and current reports. Knife River Holding Company’s failure to prepare and disclose this information in a timely manner or to
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otherwise comply with applicable law could subject it to penalties under federal securities laws, expose it to lawsuits and restrict its ability to access financing. In addition, following the effectiveness of the Form 10, the Sarbanes-Oxley Act requires that, among other things, Knife River Holding Company establish and maintain effective internal controls and procedures for financial reporting and disclosure purposes. Internal control over financial reporting is complex and may be revised over time to adapt to changes in Knife River Holding Company’s business, or changes in applicable accounting rules. Knife River Holding Company cannot assure you that its internal control over financial reporting will be effective in the future or that a material weakness will not be discovered with respect to a prior period for which it had previously believed that internal controls were effective. If Knife River Holding Company is not able to maintain or document effective internal control over financial reporting, its independent registered public accounting firm will not be able to certify as to the effectiveness of its internal control over financial reporting. While Knife River Holding Company has been adhering to these laws and regulations as a subsidiary of MDU Resources, after the distribution it will need to demonstrate its ability to manage its compliance with these corporate governance laws and regulations as an independent, public company.
Matters affecting Knife River Holding Company’s internal controls may cause it to be unable to report its financial information on a timely basis, or may cause it to restate previously issued financial information, and thereby subject Knife River Holding Company to adverse regulatory consequences, including sanctions or investigations by the SEC, or violations of applicable stock exchange listing rules. There could also be a negative reaction in the financial markets due to a loss of investor confidence in Knife River Holding Company and the reliability of its financial statements. Confidence in the reliability of Knife River Holding Company’s financial statements is also likely to suffer if it or its independent registered public accounting firm reports a material weakness in its internal control over financial reporting. This could have a material and adverse effect on Knife River Holding Company by, for example, leading to a decline in the share price and impairing its ability to raise additional capital.
In connection with the separation from MDU Resources, Knife River Holding Company will incur debt obligations that could adversely affect its business, profitability and its ability to meet obligations.
Knife River Holding Company expects to enter into financing arrangements in connection with the separation of approximately $890 million in aggregate principal amount.
This amount of debt could potentially have important consequences to Knife River Holding Company and its debt and equity investors, including:
Requiring a substantial portion of its cash flow from operations to make interest payments on this debt following the separation.
Making it more difficult to satisfy debt service and other obligations.
Increasing the risk of a future credit ratings downgrade of its debt, which could increase future debt costs and limit the future availability of debt financing.
Increasing its vulnerability to general adverse economic and industry conditions.
Reducing the cash flow available to fund capital expenditures and other corporate purposes and to grow its business.
Limiting its flexibility in planning for, or reacting to, changes in its business and the industry.
Placing it at a competitive disadvantage relative to its competitors that may not be as highly leveraged with debt.
And limiting its ability to borrow additional funds as needed or take advantage of business opportunities as they arise, pay cash dividends or repurchase ordinary shares.
To the extent that Knife River Holding Company incurs additional indebtedness, the foregoing risks could increase. In addition, Knife River Holding Company’s actual cash requirements in the future may be greater than expected. Knife River Holding Company’s cash flow from operations may not be sufficient to repay all of the outstanding debt as it becomes due, and it may not be able to borrow money, sell assets or otherwise raise funds on acceptable terms, or at all, to refinance its debt.
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A lowering or withdrawal of the ratings, outlook or watch assigned to Knife River Holding Company or its debt by rating agencies may increase its future borrowing costs and reduce its access to capital.
The rating, outlook or watch assigned to Knife River Holding Company or its debt could be lowered or withdrawn entirely by a rating agency if, in that rating agency’s judgment, current or future circumstances relating to the basis of the rating, outlook, or watch such as adverse changes to Knife River Holding Company’s business, so warrant. Any future lowering of Knife River Holding Company’s or its debt’s ratings, outlook or watch likely would make it more difficult or more expensive for Knife River Holding Company to obtain additional debt financing.
As an independent, publicly traded company, Knife River Holding Company may not enjoy the same benefits that it did as a segment of MDU Resources.
Historically, Knife River Holding Company’s business has been operated as one of MDU Resources’ business segments, and MDU Resources performed substantially all the corporate functions for Knife River’s operations, including managing financial and human resources systems, internal auditing, investor relations, treasury services, financial reporting, finance and tax administration, benefits administration, legal, and regulatory functions. Following the distribution, MDU Resources will provide support to Knife River Holding Company with respect to certain of these functions on a transitional basis. Knife River Holding Company will need to replicate certain facilities, systems, infrastructure and personnel to which it will no longer have access after the distribution and will likely incur capital and other costs associated with developing and implementing its own support functions in these areas. Such costs could be material.
As an independent, publicly traded company, Knife River Holding Company may become more susceptible to market fluctuations and other adverse events than it would have been were it still a part of MDU Resources. As part of MDU Resources, Knife River Holding Company has been able to enjoy certain benefits from MDU Resources’ operating diversity and available capital for investments. As an independent, publicly traded company, Knife River Holding Company will not have similar operating diversity and may not have similar access to capital markets, which could have a material adverse effect on its financial position, results of operations and cash flows.
Knife River Holding Company could experience temporary interruptions in business operations and incur additional costs as it further develops information technology infrastructure and transitions its data to its stand-alone systems.
Knife River Holding Company is in the process of preparing information technology infrastructure and systems to support its critical business functions, including accounting and reporting, in order to replace many of the systems and functions MDU Resources currently provides. Knife River Holding Company may experience temporary interruptions in business operations if it cannot transition effectively to its own stand-alone systems and functions, which could disrupt its business operations and have a material adverse effect on profitability. In addition, Knife River Holding Company’s costs for the operation of these systems may be higher than the amounts reflected in the consolidated financial statements.
In connection with the separation from MDU Resources, MDU Resources will indemnify Knife River Holding Company for certain liabilities and Knife River Holding Company will indemnify MDU Resources for certain liabilities. If Knife River Holding Company is required to pay MDU Resources under these indemnities, Knife River Holding Company’s financial results could be negatively impacted. The MDU Resources indemnity may not be sufficient to hold Knife River Holding Company harmless from the full amount of liabilities for which MDU Resources will be allocated responsibility, and MDU Resources may not be able to satisfy its indemnification obligations in the future.
Pursuant to the separation agreement and certain other agreements with MDU Resources, MDU Resources will agree to indemnify Knife River Holding Company for certain liabilities, and Knife River Holding Company will agree to indemnify MDU Resources for certain liabilities, in each case for uncapped amounts, as discussed further in “Certain Relationships and Related Person Transactions.” Indemnities that Knife River Holding Company may be required to provide MDU Resources are not subject to any cap, may be significant and could negatively impact Knife River Holding Company’s business, particularly with respect to indemnities provided in the tax matters agreement (as described in more detail above). Third parties could also seek to hold Knife River Holding Company responsible for any of the liabilities that MDU Resources has agreed to retain. Any amounts
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Knife River Holding Company is required to pay pursuant to these indemnification obligations and other liabilities could require Knife River Holding Company to divert cash that would otherwise have been used in furtherance of its operating business. Further, the indemnity from MDU Resources may not be sufficient to protect Knife River Holding Company against the full amount of such liabilities, and MDU Resources may not be able to fully satisfy its indemnification obligations. Moreover, even if Knife River Holding Company ultimately succeeds in recovering from MDU Resources any amounts for which it is held liable, it may be temporarily required to bear these losses itself. Each of these risks could have a material adverse effect on Knife River Holding Company’s financial position, results of operations and cash flows.
The transfer to Knife River Holding Company of certain contracts, permits and other assets and rights may require the consents, approvals of, or provide other rights to, third parties. If such consents or approvals are not obtained, Knife River Holding Company may not be entitled to the full benefit of such contracts, permits and other assets and rights, which could increase its expenses or otherwise harm its business and financial performance.
The separation and distribution agreement will provide that certain contracts, permits and other assets and rights are to be transferred from MDU Resources or its subsidiaries to Knife River Holding Company or its subsidiaries in connection with the separation. The transfer of certain of these contracts, permits and other assets and rights may require consents or approvals of third parties or provide other rights to third parties. In addition, in some circumstances, Knife River Holding Company and MDU Resources are joint beneficiaries of contracts, and Knife River Holding Company and MDU Resources may need the consents of third parties in order to split or separate the existing contracts or the relevant portion of the existing contracts to Knife River Holding Company or MDU Resources.
Some parties may use consent requirements or other rights to seek to terminate contracts or obtain more favorable contractual terms from Knife River Holding Company, which, for example, could take the form of price increases. This could require Knife River Holding Company to expend additional resources in order to obtain the services or assets previously provided under the contract, or require Knife River Holding Company to seek arrangements with new third parties or obtain letters of credit or other forms of credit support. If Knife River Holding Company is unable to obtain required consents or approvals, it may be unable to obtain the benefits, permits, assets and contractual commitments that are intended to be allocated to Knife River Holding Company as part of its separation from MDU Resources, and Knife River Holding Company may be required to seek alternative arrangements to obtain services and assets that may be more costly and/or of lower quality. The termination or modification of these contracts or permits or the failure to timely complete the transfer or separation of these contracts or permits could negatively affect Knife River Holding Company’s business, financial condition, results of operations and cash flows.
Risks Related to Knife River Holding Company Common Stock
Knife River Holding Company cannot be certain that an active trading market for its shares of common stock will develop or be sustained after the distribution, and following the distribution, its stock price may fluctuate significantly.
A public market for Knife River Holding Company common stock does not currently exist. Knife River Holding Company anticipates that on or about the record date for the distribution, trading in shares of Knife River Holding Company common stock will begin on a “when-issued” basis, which will continue through the distribution date. However, Knife River Holding Company cannot guarantee that an active trading market will develop or be sustained for shares of Knife River Holding Company common stock after the distribution. Nor can it predict the prices at which shares of Knife River Holding Company common stock may trade after the distribution. Similarly, Knife River Holding Company cannot predict the effect of the distribution on the trading prices of shares of Knife River Holding Company common stock or whether the combined market value of the shares of Knife River Holding Company common stock and MDU Resources common stock will be less than, equal to or greater than the market value of shares of MDU Resources common stock prior to the distribution.
Until the market has fully evaluated MDU Resources’ remaining businesses without Knife River Holding Company, the price at which shares of MDU Resources common stock trade may fluctuate more significantly than might otherwise be typical, even with other market conditions, including general volatility, held constant. Similarly, until the market has fully evaluated Knife River Holding Company’s business as a stand-alone entity, the prices at which shares of Knife River Holding Company common stock trade may fluctuate more
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significantly than might otherwise be typical, even with other market conditions, including general volatility, held constant. The increased volatility of Knife River Holding Company common stock price following the distribution may have a material adverse effect on its business, financial condition and results of operations.
The market price of shares of Knife River Holding Company common stock may fluctuate significantly due to a number of factors, some of which may be beyond Knife River Holding Company’s control, including:
Actual or anticipated fluctuations in Knife River Holding Company’s operating results.
Declining operating revenues derived from Knife River Holding Company’s core business.
The operating and stock price performance of comparable companies.
Changes in Knife River Holding Company’s stockholder base due to the separation.
Changes in the regulatory and legal environment in which Knife River Holding Company operates.
And market conditions in the construction materials and contracting market, and the domestic and worldwide economy as a whole.
A significant number of shares of Knife River Holding Company’s common stock are or will be eligible for future sale, including the disposition by MDU Resources of the shares of Knife River Holding Company’s common stock that it may retain after the distribution, which may cause the market price of Knife River Holding Company common stock to decline.
Upon completion of the separation and distribution, Knife River Holding Company will have an aggregate of approximately [   ] million shares of common stock outstanding. Virtually all of those shares will be freely tradable without restriction or registration under the Securities Act of 1933, as amended (the “Securities Act”), except for the shares of Knife River Holding Company retained by MDU Resources. Knife River Holding Company is unable to predict whether large amounts of Knife River Holding Company common stock will be sold in the open market following the separation and distribution. Knife River Holding Company is also unable to predict whether a sufficient number of buyers of Knife River Holding Company common stock to meet the demand to sell shares of Knife River Holding Company common stock at attractive prices would exist at that time. It is possible that MDU Resources stockholders will sell the shares of Knife River Holding Company common stock they receive in the distribution for various reasons. For example, such stockholders may not believe that Knife River Holding Company’s business profile or its level of market capitalization as an independent company fits their investment objectives. The sale of significant amounts of Knife River Holding Company common stock or the perception in the market that this will occur may lower the market price of Knife River Holding Company common stock.
Following the distribution, MDU Resources will retain approximately [   ] shares of Knife River Holding Company common stock. Knife River Holding Company expects that pursuant to the IRS private letter ruling, MDU Resources will be required to dispose of such shares of Knife River Holding Company common stock as soon as practicable following the distribution. Knife River Holding Company understands that MDU Resources intends to responsibly dispose of all shares of Knife River Holding Company common stock that it retains after the distribution, which may include one or more subsequent exchanges for debt, distributions to MDU Resources stockholders, exchanges for MDU Resources shares or one or more sales of such shares for cash. Knife River Holding Company will agree that, upon the request of MDU Resources, it will use reasonable best efforts to effect a registration under applicable federal and state securities laws of any shares of Knife River Holding Company common stock retained by MDU Resources. See “Certain Relationships and Related Persons Transactions—Stockholder and Registration Rights Agreement.” Any disposition by MDU Resources, or any significant stockholder, of Knife River Holding Company common stock in the public market, or the perception that such dispositions could occur, could adversely affect prevailing market prices for Knife River Holding Company common stock.
If securities or industry analysts do not publish research or publish misleading or unfavorable research about Knife River Holding Company’s business, Knife River Holding Company’s stock price and trading volume could decline.
The trading market for Knife River Holding Company common stock will depend in part on the research and reports that securities or industry analysts publish about Knife River Holding Company or its business. Knife River Holding Company does not currently have and may never obtain research coverage for Knife River
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Holding Company common stock. If there is no research coverage of Knife River Holding Company common stock, the trading price for shares of Knife River Holding Company common stock may be negatively impacted. If Knife River Holding Company obtains research coverage for Knife River Holding Company common stock and if one or more of the analysts downgrades its stock or publishes misleading or unfavorable research about its business, Knife River Holding Company’s stock price would likely decline. If one or more of the analysts ceases coverage of Knife River Holding Company common stock or fails to publish reports on Knife River Holding Company regularly, demand for Knife River Holding Company common stock could decrease, which could cause Knife River Holding Company common stock price or trading volume to decline.
There may be substantial changes in Knife River Holding Company’s stockholder base.
Many investors receiving shares of Knife River Holding Company common stock pursuant to the distribution may hold those shares because of a decision to invest in a company with MDU Resources’ profile. Following the distribution, the shares of Knife River Holding Company common stock held by those investors will represent an investment in a company focused exclusively on the construction materials and contracting industry, with a different profile. This may not be aligned with a holder’s investment strategy and may cause the holder to sell the shares of Knife River Holding Company common stock they receive in the distribution. As a result, Knife River Holding Company’s stock price may decline or experience volatility as its stockholder base changes.
Your percentage of ownership in Knife River Holding Company may be diluted in the future.
In the future, your percentage ownership in Knife River Holding Company may be diluted because of equity awards that it will be granting to its directors, officers and employees or otherwise as a result of equity issuances for acquisitions or capital market transactions. Knife River Holding Company’s employees will have stock-based awards relating to shares of Knife River Holding Company common stock after the distribution as a result of conversion of their MDU Resources stock-based awards (in whole or in part) to its stock-based awards. Further, Knife River Holding Company anticipates that its Compensation Committee will grant additional stock-based awards to its directors, officers and employees after the distribution. Such awards will have a dilutive effect on Knife River Holding Company’s earnings per share, which could adversely affect the market price of shares of Knife River Holding Company common stock. From time to time, Knife River Holding Company will issue additional stock-based awards to its employees under its employee benefits plans.
In addition, Knife River Holding Company’s amended and restated certificate of incorporation will authorize it to issue, without the approval of its stockholders, one or more classes or series of preferred stock that have such designation, powers, preferences and relative, participating, optional and other special rights, including preferences over Knife River Holding Company common stock respecting dividends and distributions, as its board of directors generally may determine. The terms of one or more classes or series of preferred stock could dilute the voting power or reduce the value of Knife River Holding Company common stock. Similarly, the repurchase or redemption rights or liquidation preferences Knife River Holding Company could assign to holders of preferred stock could affect the residual value of the common stock. See “Description of Knife River Holding Company’s Capital Stock.”
Knife River Holding Company cannot guarantee the timing, declaration, amount or payment of dividends on its common stock.
The timing, declaration, amount and payment of any dividends following the separation and distribution will be within the discretion of Knife River Holding Company’s board of directors, and will depend upon many factors, including Knife River Holding Company’s financial condition, earnings, capital requirements of its operating subsidiaries, covenants associated with certain of Knife River Holding Company’s debt service obligations, legal requirements, regulatory constraints, industry practice, ability to access capital markets, and other factors deemed relevant by Knife River Holding Company’s board of directors. Moreover, if Knife River Holding Company determines to pay any dividend in the future, there can be no assurance that it will continue to pay such dividends or the amount of such dividends. For more information, see the section entitled “Dividend Policy.”
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Knife River Holding Company’s amended and restated bylaws will designate the Court of Chancery of the State of Delaware or, if the Court of Chancery of the State of Delaware does not have jurisdiction, another state court of the State of Delaware, or, if no state court located in the State of Delaware has jurisdiction, the federal court for the District of Delaware, as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by Knife River Holding Company’s stockholders, which could discourage lawsuits against Knife River Holding Company and its directors and officers.
Knife River Holding Company’s amended and restated bylaws will provide that, unless the board of directors otherwise determines, the Court of Chancery of the State of Delaware or, if the Court of Chancery of the State of Delaware does not have jurisdiction, another state court of the State of Delaware, or, if no state court located in the State of Delaware has jurisdiction, the federal court for the District of Delaware, will be the sole and exclusive forum for any derivative action or proceeding brought on behalf of Knife River Holding Company, any action asserting a claim of breach of a fiduciary duty owed by any director or officer to Knife River Holding Company or its stockholders, creditors or other constituents, any action asserting a claim against Knife River Holding Company or any director or officer arising pursuant to any provision of the Delaware General Corporation Law, as amended (the “DGCL”), or Knife River Holding Company’s amended and restated certificate of incorporation or amended and restated bylaws, or any action asserting a claim against Knife River Holding Company or any director or officer governed by the internal affairs doctrine.
In addition, Knife River Holding Company’s amended and restated bylaws will further provide that, unless the board of directors otherwise determines, the federal district courts of the United States of America shall be the sole and exclusive forum for any action asserting a claim arising under the Securities Act. The exclusive forum provision does not apply to actions arising under the Exchange Act or the rules and regulations thereunder. While the Delaware Supreme Court ruled in March 2020 that federal forum selection provisions purporting to require claims under the Securities Act be brought in federal court are “facially valid” under Delaware law, there is uncertainty as to whether other courts will enforce Knife River Holding Company’s federal forum provision described above. Knife River Holding Company’s stockholders will not be deemed to have waived compliance with the federal securities laws and the rules and regulations thereunder.
This exclusive forum provision may limit the ability of Knife River Holding Company’s stockholders to bring a claim in a judicial forum that such stockholders find favorable for disputes with Knife River Holding Company or its directors or officers, which may discourage such lawsuits against Knife River Holding Company and its directors and officers, and such provision may also make it more expensive for Knife River Holding Company’s stockholders to bring such claims.
Although Knife River Holding Company’s amended and restated bylaws will include the exclusive forum provision described above, it is possible that a court could rule that this provision is inapplicable or unenforceable. Alternatively, if a court outside of Delaware were to find this exclusive forum provision inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings described above, Knife River Holding Company may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect its business, financial condition or results of operations.
Provisions in Knife River Holding Company’s amended and restated certificate of incorporation and amended and restated bylaws and Delaware law may prevent or delay an acquisition of Knife River Holding Company, which could decrease the trading price of Knife River Holding Company common stock.
Knife River Holding Company’s amended and restated certificate of incorporation and amended and restated bylaws, and Delaware law, contain provisions that are intended to deter coercive takeover practices and inadequate takeover bids by making such practices or bids more expensive to the acquiror and to encourage prospective acquirors to negotiate with Knife River Holding Company’s board of directors rather than to attempt a hostile takeover. These provisions include rules regarding how stockholders may present proposals or nominate directors for election at stockholder meetings and the right of Knife River Holding Company’s board of directors to issue preferred stock without stockholder approval. Delaware law also imposes some restrictions on mergers and other business combinations between any holder of 15 percent or more of Knife River Holding Company’s outstanding common stock and Knife River Holding Company. For more information, see “Description of Knife River Holding Company’s Capital Stock—Anti Takeover Effects of Various Provisions of Delaware Law and Knife River Holding Company’s Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws.”
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Knife River Holding Company believes these provisions protect its stockholders from coercive or otherwise unfair takeover tactics by requiring potential acquirors to negotiate with its board of directors and by providing its board of directors with more time to assess any acquisition proposal. These provisions are not intended to make Knife River Holding Company immune from takeovers. However, these provisions apply even if the offer may be considered beneficial by some stockholders and could delay or prevent an acquisition that Knife River Holding Company’s board of directors determines is not in the best interests of Knife River Holding Company and its stockholders. Accordingly, in the event that Knife River Holding Company’s board of directors determines that a potential business combination transaction is not in the best interests of Knife River Holding Company and its stockholders but certain stockholders believe that such a transaction would be beneficial to Knife River Holding Company and its stockholders, such stockholders may elect to sell their shares in Knife River Holding Company and the trading price of Knife River Holding Company common stock could decrease.
These and other provisions of Knife River Holding Company’s amended and restated certificate of incorporation, amended and restated bylaws and the DGCL could have the effect of delaying, deferring or preventing a proxy contest, tender offer, merger or other change in control, which may have a material adverse effect on Knife River Holding Company’s business, financial condition and results of operations.
In addition, applicable state insurance laws and regulations could delay or impede a change of control of Knife River Holding Company.
Furthermore, an acquisition or further issuance of Knife River Holding Company’s stock could trigger the application of Section 355(e) of the Code, causing the distribution to be taxable to MDU Resources. For a discussion of Section 355(e) of the Code, see “Material U.S. Federal Income Tax Consequences.” Under the tax matters agreement, and as described in more detail above, Knife River Holding Company would be required to indemnify MDU Resources for the resulting taxes and related amount, and this indemnity obligation might discourage, delay or prevent a change of control that you may consider favorable.
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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This information statement and other materials Knife River Holding Company and MDU Resources have filed or will file with the SEC contain, or will contain, certain forward-looking statements regarding business strategies, market potential, future financial performance and other matters. The words “believe,” “expect,” “estimate,” “could,” “should,” “intend,” “may,” “plan,” “seek,” “anticipate,” “project” and similar expressions, among others, generally identify “forward-looking statements,” which speak only as of the date the statements were made. The matters discussed in these forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from those projected, anticipated or implied in the forward-looking statements. In particular, information included under “Risk Factors,” “The Separation and Distribution,” “Capitalization,” “Unaudited Pro Forma Consolidated Financial Statements,” “Business,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other sections of this information statement contain forward-looking statements. Where, in any forward-looking statement, an expectation or belief as to future results or events is expressed, such expectation or belief is based on the current plans and expectations of Knife River Holding Company’s management and expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the expectation or belief will result or be achieved or accomplished. Whether any such forward-looking statements are in fact achieved will depend on future events, some of which are beyond Knife River Holding Company’s control. Except as may be required by law, Knife River Holding Company undertakes no obligation to modify or revise any forward-looking statements to reflect new information, events or circumstances occurring after the date of this information statement. Factors, risks, trends and uncertainties that could cause actual results or events to differ materially from those anticipated include the matters described under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
You should read this information statement completely and with the understanding that actual future results may be materially different from expectations. All forward-looking statements made in this information statement are qualified by these cautionary statements. These forward-looking statements are made only as of the date of this information statement, and Knife River Holding Company does not undertake any obligation, other than as may be required by law, to update or revise any forward-looking or cautionary statements to reflect changes in assumptions, the occurrence of events, unanticipated or otherwise, and changes in future operating results over time or otherwise.
Comparisons of results for current and any prior periods are not intended to express any future trends, or indications of future performance, unless expressed as such, and should only be viewed as historical data.
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THE SEPARATION AND DISTRIBUTION
Overview
On August 4, 2022, MDU Resources announced its intention to separate its indirect, wholly owned subsidiary, Knife River, from MDU Resources. MDU Resources intends to effect the separation through a pro rata distribution of 80.1 percent or more of the outstanding common stock of a new entity, Knife River Holding Company. Knife River Holding Company was formed to hold Knife River and the assets and liabilities associated with it and its business. Following the distribution, MDU Resources stockholders will own 80.1 percent or more of the outstanding shares of Knife River Holding Company common stock, and Knife River Holding Company will be a separate public company from MDU Resources. MDU Resources will retain up to 19.9 percent of the outstanding shares of Knife River Holding Company common stock following the distribution. Prior to completing the separation, MDU Resources may adjust the percentage of Knife River Holding Company common stock to be distributed to MDU Resources stockholders and retained by MDU Resources in response to market and other factors, and it will amend this information statement to reflect any such adjustment. The number of shares of MDU Resources common stock you own will not change as a result of the separation.
On [   ], the MDU Resources board of directors approved the distribution of 80.1 percent or more of the issued and outstanding shares of Knife River Holding Company common stock, on the basis of [   ] shares of MDU Resources common stock for each share of MDU Resources common stock held as of the close of business on the record date of [   ], subject to, pursuant to the separation and distribution agreement, the satisfaction or waiver of the conditions to the distribution as described in this information statement.
At [   ] Eastern Time, on [   ], the distribution date, each MDU Resources stockholder will receive [   ] shares of Knife River Holding Company common stock for each share of MDU Resources common stock held at the close of business on the record date for the distribution, as described below. MDU Resources stockholders will receive cash in lieu of any fractional shares of Knife River Holding Company common stock that they would have received after application of this ratio. MDU Resources stockholders will not be required to make any payment, surrender or exchange their shares of MDU Resources common stock or take any other action to receive their shares of Knife River Holding Company common stock in the distribution. The distribution of Knife River Holding Company common stock as described in this information statement is subject to the satisfaction or waiver of certain conditions pursuant to the separation and distribution agreement. For a more detailed description of these conditions, see “—Conditions to the Distribution” within this section.
Reasons for the Separation
The MDU Resources board of directors regularly reviews MDU Resources’ businesses, operations and value creation opportunities. Pursuant to its review, the MDU Resources board of directors believes that the separation of Knife River from the remaining businesses of MDU Resources is in the best interests of MDU Resources and its stockholders. A wide variety of factors were considered by the MDU Resources board of directors in evaluating the separation. Among other things, the MDU Resources board of directors considered the following potential benefits of the separation:
Distinct investment opportunities. The separation will allow investors to separately value Knife River Holding Company and MDU Resources based on their distinct investment identities. Knife River Holding Company’s business differs from MDU Resources’ remaining businesses in several respects, including customer bases, regulatory oversight, competitors, strategic initiatives, sales channels and technology needs. The separation will enable investors to evaluate the merits, strategy, performance, and future prospects of each company’s respective business and to invest in each company separately based on these distinct characteristics. The separation may attract new investors who may not have properly assessed the value of Knife River relative to the value it is currently accorded as part of MDU Resources.
Enhanced strategic focus. The separation will allow Knife River Holding Company and MDU Resources to more effectively pursue their distinct operating priorities and strategies and will enable the management of both companies to pursue unique opportunities for long-term growth and profitability. Knife River Holding Company and MDU Resources will each be able to use equity tailored to its own
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business to enhance acquisition and capital investment programs. Knife River Holding Company’s management will be able to focus exclusively on its construction materials and contracting services business, while the management of MDU Resources will remain dedicated to its remaining businesses.
Tailored capital allocation strategies. The separation will permit each company to concentrate its financial resources solely on its own operations, providing greater flexibility to invest capital in its business at a time and in a manner appropriate for its distinct strategy and business needs. This will facilitate a more efficient allocation of capital based on each company’s profitability, cash flow and growth opportunities.
Optimized capital structures. The separation will allow Knife River Holding Company and MDU Resources to each benefit from distinct capital structures and financial policies tailored to their separate business profiles and needs. The separation will create independent equity securities for Knife River Holding Company and MDU Resources, affording each direct access to the capital markets and enabling each of them to use its own industry-focused stock to consummate future acquisitions or other transactions. As a result, Knife River Holding Company and MDU Resources will each have more flexibility to capitalize on its unique strategic opportunities.
Alignment of incentives with performance objectives. The separation will facilitate equity-based and other incentive compensation arrangements for employees more directly tied to the performance of each company’s business, and enhance employee hiring and retention by, among other things, improving the alignment of management and employee incentives with performance and growth objectives.
The MDU Resources board of directors also considered a number of potentially unfavorable factors in evaluating the separation, including:
Risk of Failure to Achieve Anticipated Benefits of the Separation. Knife River Holding Company may not achieve the anticipated benefits of the separation for a variety of reasons, including, among others: the separation will demand significant management resources and require significant amounts of management’s time and effort, which may divert management’s attention from operating the business; and following the separation, Knife River Holding Company may be more susceptible to market fluctuations and other adverse events than if it were still a part of MDU Resources because its business will be less diversified than MDU Resources’ business prior to the completion of the separation and distribution.
Disruptions and Costs Related to the Separation. The actions required to separate Knife River Holding Company from MDU Resources could disrupt its operations. In addition, Knife River Holding Company will incur substantial costs in connection with the transition to being a standalone, public company, which may include financial reporting, tax, legal and other professional services costs. Knife River could also experience some disruption costs for employee benefits, including health care costs, due to the new structure that will be adopted for the health care plan. Once the program has been in place for a full year and trends are developed, the risks are expected to lessen. Additionally, Knife River will be implementing stop loss insurance to assist with the volatility of high dollar claims.
Loss of Scale and Increased Administrative Costs. Prior to the separation, as part of MDU Resources, Knife River Holding Company takes advantage of MDU Resources’ size and purchasing power in procuring certain goods and services. After the separation and distribution, as a standalone company, Knife River Holding Company may be unable to obtain these goods and services at prices or on terms as favorable as those MDU Resources obtained prior to completion of the separation and distribution. In addition, as part of MDU Resources, Knife River Holding Company benefits from certain functions performed by MDU Resources, such as financial reporting, tax, legal, human resources and other general and administrative functions. After the separation and distribution, MDU Resources will not perform these functions for Knife River Holding Company, other than certain functions that will be provided for a limited time pursuant to the transition services agreement, and, because of the smaller scale as a standalone company, Knife River Holding Company’s cost of performing such functions could be higher than the amounts reflected in its historical financial statements, which would cause its profitability to decrease.
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Uncertainty Regarding Stock Prices. The effect of the separation on the trading prices of Knife River Holding Company or MDU Resources common stock is not predictable nor can it be known with certainty whether the combined market value of one Knife River Holding Company common stock and one share of MDU Resources common stock will be less than, equal to or greater than the market value of one share of MDU Resources common stock prior to the distribution.
In determining whether to pursue the separation, MDU Resources board of directors concluded that the potential benefits of the separation significantly outweighed these negative factors. See the section entitled “Risk Factors” included elsewhere in this information statement.
In connection with its review, the MDU Resources board of directors also considered certain alternatives to the separation of Knife River, including a combined spinoff of Knife River and MDU Construction Services Group, Inc. The MDU Resources board of directors determined, however, that spinning off Knife River and MDU Construction Services Group, Inc. together, as a combined company, would be less favorable given that, among other factors, the companies work in different industries, maintain different customers and have different business dynamics within each industry. As a result, this alternative would not result in the creation of a “pure play” business. These were some of the factors that the MDU Resources board of directors considered as part of its assessment of MDU Resources’ and Knife River’s businesses, operations and value creation opportunities. Following this assessment, the MDU Resources board of directors determined that the separation is the best path forward for MDU Resources and its stockholders. Additionally, as previously disclosed by MDU Resources, the MDU Resources board of directors has begun a strategic review of MDU Construction Services Group, Inc.
Reasons for MDU Resources’ Retention of up to 19.9 Percent of Knife River Holding Company Common Stock
In considering the appropriate structure for the separation, MDU Resources determined that, immediately after the distribution becomes effective, MDU Resources will own up to 19.9 percent of the outstanding shares of Knife River Holding Company common stock. The retention of Knife River Holding Company common stock will strengthen MDU Resources’ balance sheet. The retained shares can potentially be exchanged to accelerate debt reduction or sold for cash, thereby facilitating an appropriate capital structure and the financial flexibility necessary for MDU Resources to execute its growth strategy. Knife River Holding Company understands that MDU Resources intends to responsibly dispose of all shares of Knife River Holding Company common stock that it retains after the distribution, which may include one or more subsequent exchanges for debt, distributions to MDU Resources stockholders, exchanges for MDU Resources shares or one or more sales of such shares for cash.
Formation of Knife River Holding Company and Internal Reorganization
Knife River Holding Company was formed as a Delaware corporation on November 9, 2022, for the purpose of holding Knife River.
As part of the plan to separate Knife River and pursuant to the separation and distribution agreement that Knife River Holding Company and MDU Resources will enter into prior to the distribution, MDU Resources and its subsidiaries expect to complete an internal reorganization to transfer the equity interests of Knife River and its consolidated subsidiaries and the assets and liabilities associated with it and its consolidated subsidiaries to Knife River Holding Company.
The internal reorganization is expected to include various restructuring transactions that may take the form of asset transfers, mergers, dividends, distributions, contributions and similar transactions, and may involve the formation of new subsidiaries in the U.S. to own and operate Knife River or MDU Resources’ remaining businesses. Following the completion of the internal reorganization and immediately following the distribution, Knife River Holding Company will own Knife River and MDU Resources will continue to own its remaining businesses. In connection with the separation and distribution, Knife River Corporation intends to change its name to “KRC Materials, Inc.” and Knife River Holding Company intends to change its name to “Knife River Corporation.”
When and How You Will Receive the Distribution
With the assistance of Equiniti, MDU Resources expects to distribute 80.1 percent or more of the outstanding shares of Knife River Holding Company common stock at [   ] Eastern Time on [   ] the distribution date, to all holders of outstanding shares of MDU Resources common stock as of the close of business on [   ], the record date for the distribution. Equiniti, which currently serves as the transfer agent and registrar for MDU Resources common stock, will serve as the settlement and distribution agent in connection with the distribution and the transfer agent and registrar for Knife River Holding Company common stock.
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If you own shares of MDU Resources common stock as of the close of business on the record date for the distribution, the shares of Knife River Holding Company common stock that you will be entitled to receive in the distribution will be issued electronically, as of the distribution date, to you in direct registration form or to your bank or brokerage firm on your behalf. If you are a registered holder, Equiniti will then mail you a direct registration account statement that reflects your shares of Knife River Holding Company common stock. If you hold your shares through a bank or brokerage firm, your bank or brokerage firm will credit your account for the shares. Direct registration form refers to a method of recording share ownership when no physical share certificates are issued to stockholders, as is the case in this distribution. If you sell shares of MDU Resources common stock in the “regular-way” market up to and including the distribution date, you will be selling your right to receive shares of Knife River Holding Company common stock in the distribution.
Most MDU Resources stockholders hold their shares of MDU Resources common stock through a bank or brokerage firm. In such cases, the bank or brokerage firm would be said to hold the shares in “street name” and ownership would be recorded on the bank or brokerage firm’s books. If you hold your shares of common stock through a bank or brokerage firm, your bank or brokerage firm will credit your account for shares of Knife River Holding Company common stock that you are entitled to receive in the distribution. If you have any questions concerning the mechanics of having shares held in “street name,” please contact your bank or brokerage firm.
Transferability of Shares You Receive
Shares of Knife River Holding Company common stock distributed to holders in connection with the distribution will be transferable without restriction or registration under the Securities Act, except for shares received by persons who may be deemed to be Knife River Holding Company’s affiliates. Persons who may be deemed to be its affiliates after the distribution generally include individuals or entities that control, are controlled by or are under common control with Knife River Holding Company, which may include certain of its executive officers, directors or principal stockholders. Securities held by Knife River Holding Company’s affiliates will be subject to resale restrictions under the Securities Act. Knife River Holding Company’s affiliates will be permitted to sell shares of Knife River Holding Company common stock only pursuant to an effective registration statement or an exemption from the registration requirements of the Securities Act, such as the exemption afforded by Rule 144 under the Securities Act.
Number of Shares of Knife River Holding Company Common Stock You Will Receive
For each share of MDU Resources common stock that you own at the close of business on [   ], the record date for the distribution, you will receive [   ] shares of Knife River Holding Company common stock on the distribution date. MDU Resources will not distribute any fractional shares of Knife River Holding Company common stock to its stockholders. Instead, if you are a registered holder, Equiniti (which is sometimes referred to in this information statement as the “distribution agent”) will aggregate fractional shares into whole shares, sell the whole shares in the open market at prevailing market prices on behalf of MDU Resources stockholders and distribute the aggregate cash proceeds (net of discounts and commissions) of the sales pro rata (based on the fractional share such holder would otherwise be entitled to receive) to each holder who otherwise would have been entitled to receive a fractional share in the distribution. The distribution agent, in its sole discretion, without any influence by MDU Resources or Knife River Holding Company, will determine when, how, and through which broker-dealer and at what price to sell the whole shares. Any broker-dealer used by the distribution agent will not be an affiliate of either MDU Resources or Knife River Holding Company. Equiniti is not an affiliate of either MDU Resources or Knife River Holding Company. Neither Knife River Holding Company nor MDU Resources will be able to guarantee any minimum sale price in connection with the sale of these shares. Recipients of cash in lieu of fractional shares will not be entitled to any interest on the amounts of payment made in lieu of fractional shares.
The aggregate net cash proceeds of these sales of fractional shares will be taxable for U.S. federal income tax purposes. See “Material U.S. Federal Income Tax Consequences” for an explanation of the material U.S. federal income tax consequences of the distribution. Knife River Holding Company estimates that it will take approximately two weeks from the distribution date for the distribution agent to complete the distributions of the aggregate net cash proceeds. If you hold your shares of MDU Resources common stock through a bank or brokerage firm, your bank or brokerage firm will receive, on your behalf, your pro rata share of the aggregate net cash proceeds of the sales and will credit your account for your share of such proceeds.
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Treatment of Equity-Based Compensation
In connection with the separation and distribution, MDU Resources equity-based awards that are outstanding immediately prior to the separation and distribution and held by individuals who will serve as employees of Knife River Holding Company immediately following the separation and distribution are expected to be treated as follows:
Restricted Stock Units. At the effective time of the distribution, each award of MDU Resources restricted stock units held by an individual who will be an employee of Knife River Holding Company following the separation and distribution will be converted into an award of restricted stock units with respect to Knife River Holding Company common stock. The number of shares subject to each such award will be adjusted in a manner intended to preserve the aggregate intrinsic value of the original MDU Resources award as measured immediately before and immediately after the separation and distribution, subject to rounding. Such adjusted award will otherwise be subject to the same terms and conditions that applied to the original MDU Resources award immediately prior to the separation and distribution.
Performance Share Awards. Effective as of immediately prior to the separation and distribution, the level of achievement of performance goals applicable to outstanding MDU Resources performance share awards held by individuals who will be employees of Knife River Holding Company following the separation and distribution will be determined by the MDU Resources compensation committee. The performance level for each completed fiscal year(s) within the applicable performance period is expected to be determined based on actual performance results, and the performance level for each incomplete fiscal year within the applicable performance period is expected to be deemed to equal the target level. Then, at the effective time of the distribution, each award of MDU Resources performance shares held by an individual who will be an employee of Knife River Holding Company following the separation and distribution will be converted into an award of restricted stock units with respect to Knife River Holding Company common stock. The number of shares of Knife River Holding Company common stock subject to each such award will be adjusted in a manner intended to preserve the aggregate intrinsic value of the original MDU Resources award (taking into account the determination of performance as of immediately prior to the separation and distribution) as measured immediately before and immediately after the separation and distribution, subject to rounding. Such adjusted award will otherwise be subject to the same terms and conditions (other than performance-based vesting conditions) that applied to the original MDU Resources award immediately prior to the separation and distribution.
Results of the Distribution
After the distribution, Knife River Holding Company will be an independent, publicly traded company. The actual number of shares to be distributed will be determined at the close of business on [   ], the record date for the distribution, and will reflect any exercise of MDU Resources options prior to the record date for the distribution. The distribution will not affect the number of outstanding shares of MDU Resources common stock or any rights of MDU Resources stockholders. MDU Resources will not distribute any fractional shares of Knife River Holding Company common stock.
Knife River Holding Company will enter into a separation agreement and other related agreements with MDU Resources before the distribution to effect the separation and provide a framework for Knife River Holding Company’s relationship with MDU Resources after the separation. These agreements will provide for the allocation between Knife River Holding Company and MDU Resources of assets, employees, liabilities and obligations (including its investments, property, employee benefits assets and liabilities and tax liabilities) associated with Knife River and will govern the relationship between MDU Resources and Knife River Holding Company after the separation. For a more detailed description of these agreements, see “Certain Relationships and Related Person Transactions.”
Market for Knife River Holding Company Common Stock
There is currently no public trading market for Knife River Holding Company common stock. Knife River Holding Company expects to apply to list Knife River Holding Company common stock on the NYSE under the symbol “KNF.” Knife River Holding Company has not and will not set the initial price of Knife River Holding Company common stock. The initial price will be established by the public markets.
Knife River Holding Company cannot predict the price at which shares of Knife River Holding Company common stock will trade after the distribution. In fact, the combined trading prices, after the distribution, of the
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shares of Knife River Holding Company common stock that each MDU Resources stockholder will receive in the distribution and shares of MDU Resources common stock held at the record date for the distribution may not equal the “regular-way” trading price of shares of MDU Resources common stock immediately prior to the distribution. The price at which shares of Knife River Holding Company common stock trades may fluctuate significantly, particularly until an orderly public market develops. Trading prices for shares of Knife River Holding Company common stock will be determined in the public markets and may be influenced by many factors. See “Risk Factors—Risks Related to Knife River Holding Company common stock.”
Incurrence of Debt
In connection with the separation and distribution, Knife River Holding Company anticipates that it will incur long-term debt consisting of term loans, revolving credit facilities and other debt for an aggregate principal amount of up to $890 million. Knife River Holding Company expects that all or a portion of the net proceeds of such debt will be used to repay debt owed by Knife River to Centennial. Knife River Holding Company expects that Centennial will use such net proceeds to repay a portion of its existing third-party debt.
Trading Between the Record Date and Distribution Date
Beginning on or about the record date for the distribution and continuing up to and including the distribution date, MDU Resources expects that there will be two markets for shares of MDU Resources common stock: a “regular-way” market and an “ex-distribution” market. Shares of MDU Resources common stock that trade on the “regular-way” market will trade with an entitlement to shares of Knife River Holding Company common stock to be distributed pursuant to the separation. Shares of MDU Resources common stock that trade on the “ex-distribution” market will trade without an entitlement to shares of Knife River Holding Company common stock to be distributed pursuant to the distribution. Therefore, if you sell shares of MDU Resources common stock in the “regular-way” market up to and including the distribution date, you will be selling your right to receive shares of Knife River Holding Company common stock in the distribution. If you own shares of MDU Resources common stock at the close of business on the record date and sell those shares on the “ex-distribution” market up to and including the distribution date, you will receive the shares of Knife River Holding Company common stock that you are entitled to receive pursuant to your ownership of shares of MDU Resources common stock as of the record date.
Furthermore, beginning on or about the record date for the distribution and continuing up to and including the distribution date, Knife River Holding Company expects that there will be a “when-issued” market in shares of Knife River Holding Company common stock. “When-issued” trading refers to a sale or purchase made conditionally because the security has been authorized but not yet issued. The “when-issued” trading market will be a market for shares of Knife River Holding Company common stock that will be distributed to holders of shares of MDU Resources common stock on the distribution date. If you own shares of MDU Resources common stock at the close of business on the record date for the distribution, you would be entitled to shares of Knife River Holding Company common stock distributed pursuant to the distribution. You may trade this entitlement to shares of Knife River Holding Company common stock, without the shares of MDU Resources common stock you own, on the “when-issued” market, but your transaction will not settle until after the distribution date. On the first trading day following the distribution date, “when-issued” trading with respect to shares of Knife River Holding Company common stock will end, and “regular-way” trading will begin.
Conditions to the Distribution
The distribution will be effective at [   ] Eastern Time, on [   ], which is the distribution date, provided that the conditions set forth in the separation agreement have been satisfied (or waived by MDU Resources in its sole discretion), including:
The transfer of Knife River and the assets and liabilities associated with it and its business from MDU Resources to Knife River Holding Company shall be completed in accordance with the separation and distribution agreement that MDU Resources and Knife River Holding Company will enter into prior to the distribution.
MDU Resources shall have received a private letter ruling from the IRS, satisfactory to the MDU Resources board of directors, regarding certain U.S. federal income tax matters relating to the separation and distribution.
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MDU Resources shall have received one or more opinions from its tax advisors, in each case satisfactory to the MDU Resources board of directors, regarding certain U.S. federal income tax matters relating to the separation and distribution.
An independent appraisal firm acceptable to MDU Resources shall have delivered one or more opinions to the board of directors of MDU Resources at the time or times requested by the board of directors of MDU Resources confirming the solvency and financial viability of MDU Resources before the consummation of the distribution and each of MDU Resources and Knife River Holding Company after the consummation of the distribution, and such opinions shall have been acceptable to MDU Resources in form and substance in MDU Resources’ sole discretion and such opinions shall not have been withdrawn or rescinded.
The SEC shall have declared effective Knife River Holding Company’s registration statement on Form 10, of which this information statement forms a part, and this information statement shall have been made available to MDU Resources stockholders.
All actions and filings necessary or appropriate under applicable U.S. federal, U.S. state or other securities laws shall have been taken and, where applicable, have become effective or been accepted by the applicable governmental authority.
The actions and filings necessary or appropriate with respect to applicable state insurance and residential service contract regulators, shall have been taken or made, and, where applicable, have become effective or been accepted by the applicable governmental authority.
The transaction agreements relating to the separation that MDU Resources and Knife River Holding Company will enter into prior to the distribution shall have been duly executed and delivered by the parties.
No order, injunction, or decree issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the separation, distribution or any of the related transactions shall be in effect.
The shares of Knife River Holding Company common stock to be distributed shall have been approved for listing on the NYSE, subject to official notice of distribution.
Knife River Holding Company shall have entered into the financing transactions described in this information statement that are contemplated to occur on or prior to the separation and distribution.
No event or development shall have occurred or exist that, in the judgment of MDU Resources’ board of directors, in its sole and absolute discretion, makes it inadvisable to effect the separation, the distribution and other related transactions.
Knife River Holding Company cannot assure you that any or all of these conditions will be met. MDU Resources will have sole discretion to waive any of the conditions to the distribution. In addition, MDU Resources will have the sole and absolute discretion to determine (and change) the terms of, and whether to proceed with, the distribution and, to the extent it determines to so proceed, to determine the record date for the distribution, the distribution date and the distribution ratio, as well as to reduce the amount of outstanding shares of Knife River Holding Company common stock that it will retain, if any, following the distribution. MDU Resources may rescind or delay its declaration of the distribution even after the record date for the distribution. MDU Resources does not intend to notify its stockholders of any modifications to the terms of the separation and distribution that, in the judgment of its board of directors, are not material. To the extent that the MDU Resources board of directors determines that any modifications by MDU Resources materially change the material terms of the separation and distribution, MDU Resources will notify MDU Resources stockholders in a manner reasonably calculated to inform them about the modification as may be required by law, by, for example, publishing a press release, filing a current report on Form 8-K, or circulating a supplement to this information statement. For example, the MDU Resources board of directors might consider material such matters as significant changes to the distribution ratio, the assets to be contributed or the liabilities to be assumed in the separation.
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Regulatory Approval
Knife River Holding Company’s registration statement on Form 10, of which this information statement forms a part, must become effective prior to the distribution, and shares of Knife River Holding Company common stock to be distributed must have been approved for listing on the NYSE, subject to official notice of distribution.
No Appraisal Rights
Under the DGCL, MDU Resources stockholders will not have appraisal rights in connection with the distribution.
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DIVIDEND POLICY
The payment of any dividends in the future, and the timing and amount thereof, to its stockholders is within the sole discretion of Knife River Holding Company’s board of directors and will depend on many factors, such as its financial condition, earnings, capital requirements, potential obligations in planned financings, industry practice, legal requirements, Delaware corporate surplus requirements, and other factors that its board of directors deems relevant. Knife River Holding Company’s ability to pay dividends will depend on its ongoing ability to generate cash from operations and on its access to the capital markets. Knife River Holding Company cannot guarantee that it will pay a dividend in the future or continue to pay any dividends if it commences paying dividends.
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CAPITALIZATION
This section discusses financial data of Knife River Holding Company, assuming the completion of all of the transactions described in this information statement, including the separation. It is assumed that as of the dates disclosed in this section, Knife River Corporation was a subsidiary of Knife River Holding Company and Knife River Holding Company had no other assets, liabilities or operations.
The following table sets forth Knife River Corporation’s Cash and cash equivalents and capitalization as of December 31, 2022, on a historical basis, and Knife River Holding Company's Cash and cash equivalents and capitalization on an unaudited pro forma basis to give effect to the pro forma adjustments included in Knife River Holding Company’s unaudited pro forma consolidated financial statements and notes thereto. The information below is not necessarily indicative of what Knife River Holding Company’s Cash and cash equivalents and capitalization would have been had the separation, distribution and related transactions been completed as of the year ended December 31, 2022. In addition, it is not indicative of Knife River Holding Company’s future capitalization. This table should be read in conjunction with the “Unaudited Pro Forma Consolidated Financial Statements,” “Selected Historical and Pro Forma Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Description of Material Indebtedness” sections of this information statement and Knife River Corporation’s audited consolidated financial statements and notes thereto included in the “Index to Financial Statements” of this information statement.
 
As of December 31, 2022
 
Historical
Pro Forma
 
(In thousands, except share and per share amounts)
Assets
 
 
Cash and cash equivalents(1)
$10,090
$221,452
Liabilities
 
 
Debt, including current and long-term:
 
 
Long-term debt - current portion(1)
211
211
Related-party notes payable - current portion(1)
238,000
Long-term debt(1)
427
879,294
Related-party notes payable(1)
446,449
Total debt
$685,087
$879,505
Stockholder’s Equity
 
 
Historical Common stock, $10.00 par value: 80,000 shares authorized, issued and outstanding; Pro Forma Common stock, $0.01 par value: 1,000 shares authorized, issued and outstanding(2)
$800
$
Other paid-in-capital(2)
549,106
549,906
Retained earnings
494,661
493,532
Parent stock held by subsidiary(3)
(3,626)
Treasury stock at cost(3)
(3,626)
Accumulated other comprehensive loss
(12,352)
(12,352)
Total stockholder’s equity
$1,028,589
$1,027,460
Total capitalization
$1,713,676
$1,906,965
1.
The pro forma figures reflect the expected incurrence of indebtedness by Knife River Holding Company in an aggregate principal amount of up to $700 million, consisting of some combination of term loans and other debt, issued in connection with the separation. The debt maturities are expected to range from five years to eight years with an estimated weighted average interest rate of approximately 7.4 percent. Total deferred debt issuance costs associated with such indebtedness are estimated to be $11,133 thousand, which will be amortized to Interest expense over the terms of the respective instruments and are reflected as a reduction to Long-term debt. It is expected that Knife River will use all or a portion of the net proceeds of such indebtedness to repay its outstanding indebtedness with Centennial of $238 million that is reflected as Related-party notes payable – current portion and $446,449 thousand reflected as Related-party notes payable on the historical audited consolidated balance sheet as of December 31, 2022.
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The pro forma figures also reflect a 5-Year Revolving Credit Facility of $350 million that Knife River Holding Company expects to enter into in connection with the separation. As of the separation date, Knife River Holding Company expects to utilize $190 million of the facility, which is based on projected seasonal borrowing needs and fluctuates with the timing of the construction season and associated working capital needs. In addition, as of the separation date, Knife River Holding Company expects Cash and cash equivalents will be $50 million. The associated estimated debt issuance costs of $5,288 thousand are recorded to Investments and other and amortized to Interest expense over the term of the credit facility. Knife River Holding Company also expects to incur $1,005 thousand of fees based on the undrawn balance of the facility recorded to Interest expense. See “Management's Discussion and Analysis of Financial Conditions and Results of Operations - Liquidity and Capital Resources” and “Unaudited Pro Forma Consolidated Financial Statements” for additional details.
2.
Reflects the historical common stock with a par value of $10.00 of Knife River Corporation and the issuance of shares of Knife River Holding Company common stock with a par value of $0.01 per share on a pro forma basis pursuant to the separation and distribution agreement. Knife River Holding Company assumes the number of outstanding shares as of the distribution date shall be based on, among other things, (i) the number of shares of MDU Resources common stock outstanding as of the distribution date, and assumes a distribution of 80.1 percent or more of the outstanding shares of Knife River Holding Company common stock to MDU Resources stockholders, on a pro rata basis, (ii) the distribution ratio and (iii) the hook stock exchange (as defined below). The actual number of shares issued will not be known until the record date for the distribution. Knife River Holding Company expects up to 19.9 percent of Knife River Holding Company's common stock to be owned by MDU Resources at the time of separation.
3.
Knife River Corporation, presented here as a subsidiary of Knife River Holding Company, historically held 538,921 shares of MDU Resources common stock, through a subsidiary. The historical shares are presented as Parent stock held by subsidiary. In connection with the separation, the subsidiary of Knife River Corporation will enter into an exchange agreement with MDU Resources to transfer, prior to the record date, the Parent stock held by subsidiary to MDU Resources in exchange for MDU Resources agreeing to transfer, on or before the distribution date, an amount, approximately equal in value, of Knife River Holding Company common stock to the subsidiary of Knife River Corporation (such transactions, the “hook stock exchange”). The Knife River Holding Company common stock is presented as Treasury stock for pro forma purposes.
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SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
The following table presents the selected historical consolidated financial data for Knife River Corporation, as of and for each of the years in the three-year period ended December 31, 2022 and the selected unaudited pro forma consolidated financial data for Knife River Holding Company as of and for the year ended December 31, 2022. The selected pro forma consolidated data is presented assuming the completion of all of the transactions described in this information statement, including the separation. It is assumed that as of the dates disclosed in this section, Knife River Corporation was a subsidiary of Knife River Holding Company and Knife River Holding Company had no other assets, liabilities or operations.
The selected consolidated statement of income data for the years ended December 31, 2022, 2021 and 2020, and the selected consolidated balance sheet data as of December 31, 2022 and 2021, were derived from Knife River Corporation’s audited consolidated financial statements.
The selected unaudited pro forma consolidated financial data for the year ended December 31, 2022, has been derived from Knife River Holding Company’s unaudited pro forma consolidated financial statements included elsewhere in this information statement.
The selected historical consolidated financial data set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Unaudited Pro Forma Consolidated Financial Statements,” and the historical audited consolidated financial statements and the notes thereto included in this information statement. The selected historical consolidated financial data reflects Knife River Corporation’s results as historically operated as a part of MDU Resources, and these results may not be indicative of its future performance as a stand-alone company following the separation and distribution.
 
Pro Forma
Year Ended December 31,
Historical
Years Ended December 31,
 
2022
2022
2021
2020
 
(In thousands)
Results for Year:
 
 
 
 
Revenues
$2,534,729
$2,534,729
$2,228,930
$2,178,002
Gross profit
347,274
360,894
346,949
370,578
Net income
72,397
116,220
129,755
147,325
Other Data:
 
 
 
 
EBITDA
$278,278
$306,740
$293,406
$304,959
EBITDA margin
11.0%
12.1%
13.2%
14.0%
Adjusted EBITDA
$296,423
$313,413
$294,749
$304,290
Adjusted EBITDA margin
11.7%
12.4%
13.2%
14.0%
Balance Sheet Data:
 
 
 
 
Working capital
$527,845
$91,677
$185,429
 
Total assets
2,505,839
2,294,319
2,181,824
 
Total equity
1,027,460
1,028,589
952,844
 
Non-GAAP Financial Measures
The selected historical and pro forma consolidated financial data includes financial information prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”), as well as EBITDA, EBITDA margin, Adjusted EBITDA and Adjusted EBITDA margin financial measures on a historical and pro forma basis. Knife River Holding Company defines EBITDA as net income before interest expense, taxes and depreciation, depletion and amortization, and EBITDA margin as EBITDA as a percentage of revenues. Knife River Holding Company defines Adjusted EBITDA as EBITDA adjusted to exclude unrealized gains and losses on benefit plan investments, stock-based compensation and one-time separation costs and Adjusted EBITDA margin as Adjusted EBITDA as a percentage of revenues.
EBITDA, EBITDA margin, Adjusted EBITDA and Adjusted EBITDA margin are considered non-GAAP financial measures. Knife River Holding Company believes these non-GAAP financial measures are useful to investors by providing meaningful information about operational efficiency compared to its peers by excluding
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the impacts of differences in tax jurisdictions and structures, debt levels and capital investment. Management believes Adjusted EBITDA is a useful performance measure because it allows for an effective evaluation of the Company’s operating performance by excluding stock-based compensation and unrealized gains and losses on benefit plan investments as they are considered non-cash and not part of the Company’s core operations. The Company also excludes the one-time, non-recurring costs associated with the separation of Knife River Holding Company from MDU Resources as those are not expected to continue. Rating agencies and investors will also use EBITDA and Adjusted EBITDA to calculate Knife River Holding Company’s leverage as a multiple of EBITDA and Adjusted EBITDA. Additionally, EBITDA and Adjusted EBITDA are important metrics for debt investors who utilize debt to EBITDA and debt to Adjusted EBITDA ratios. Knife River Holding Company’s management uses these non-GAAP financial measures in conjunction with GAAP results when evaluating its operating results internally and calculating compensation packages, and leverage as a multiple of EBITDA and Adjusted EBITDA to determine the appropriate method of funding operations of the Company. EBITDA is calculated by adding back income taxes, interest expense and depreciation, depletion and amortization expense to net income. EBITDA margin is calculated by dividing EBITDA by revenues. Adjusted EBITDA is calculated by adding back unrealized gains and losses on benefit plan investments, stock-based compensation and one-time separation costs, to EBITDA. Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by revenues. These non-GAAP financial measures should not be considered as alternatives to, or more meaningful than, GAAP financial measures such as net income, and are intended to be helpful supplemental financial measures for investors’ understanding of Knife River Holding Company’s operating performance. Knife River Holding Company’s non-GAAP financial measures are not standardized; therefore, it may not be possible to compare these financial measures with other companies’ EBITDA, EBITDA margin, Adjusted EBITDA and Adjusted EBITDA margin measures having the same or similar names.
The following information reconciles net income to EBITDA and EBITDA to Adjusted EBITDA and provides the calculation of EBITDA margin and Adjusted EBITDA margin.
 
Pro Forma
Year Ended December 31,
Historical
Years Ended December 31,
 
2022
2022
2021
2020
 
(In thousands)
Net income
$72,397
$116,220
$129,755
$147,325
Adjustments:
 
 
 
 
Income taxes
26,310
42,601
43,459
47,431
Depreciation, depletion and amortization
117,798
117,798
100,974
89,626
Interest
61,773
30,121
19,218
20,577
Consolidated EBITDA
$278,278
$306,740
$293,406
$304,959
Unrealized (gains) losses on benefit plan investments
4,029
4,029
(2,294)
(4,026)
Stock-based compensation expense
4,098
2,644
3,637
3,357
One-time separation costs
10,018
Adjusted EBITDA
$296,423
$313,413
$294,749
$304,290
Revenues
$2,534,729
$2,534,729
$2,228,930
$2,178,002
EBITDA margin
11.0%
12.1%
13.2%
14.0%
Adjusted EBITDA margin
11.7%
12.4%
13.2%
14.0%
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UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
This section discusses financial data of Knife River Holding Company, assuming the completion of all of the transactions described in this information statement, including the separation. It is assumed as of the dates disclosed in this section, that Knife River Corporation was a subsidiary of Knife River Holding Company and Knife River Holding Company had no other assets, liabilities or operations.
The following unaudited pro forma consolidated financial statements of Knife River Holding Company consist of the unaudited pro forma consolidated statement of income for the year ended December 31, 2022, and the unaudited pro forma consolidated balance sheet as of December 31, 2022 (collectively, the “Unaudited Pro Forma Consolidated Financial Statements”).
The Unaudited Pro Forma Consolidated Financial Statements reflect adjustments to Knife River Corporation’s historical audited consolidated statement of income for the year ended December 31, 2022, and Knife River Corporation’s historical audited consolidated balance sheet as of December 31, 2022. Knife River Holding Company’s unaudited pro forma consolidated statement of income gives effect to adjustments as if the separation had occurred on January 1, 2022. The unaudited pro forma consolidated balance sheet gives effect to adjustments as if the separation had occurred as of December 31, 2022, the latest balance sheet date.
The Unaudited Pro Forma Consolidated Financial Statements are subject to assumptions and adjustments, including those described in the accompanying notes. Knife River Holding Company’s management believes these assumptions and adjustments are reasonable under the circumstances given the information and estimates available at the time. However, these adjustments are subject to change as MDU Resources and Knife River Holding Company finalize the terms of the separation, including the separation and distribution agreement and related transaction agreements. The Unaudited Pro Forma Consolidated Financial Statements are presented for informational purposes only and do not purport to represent what Knife River Holding Company’s financial position and results of operations actually would have been had the separation occurred on the dates indicated, or to project Knife River Holding Company’s financial performance for any future period following the separation.
The Unaudited Pro Forma Consolidated Financial Statements include adjustments (collectively, the “Pro Forma Transactions”) to reflect the following:
The expected incurrence of indebtedness by Knife River Holding Company, in an aggregate principal amount of up to $1.05 billion, consisting of some combination of term loans and other debt, and $350 million of a 5-Year Revolving Credit Facility, of which $190 million is expected to be utilized at the time of the separation. Knife River Holding Company's expectation is that all or a portion of the net proceeds of such indebtedness will be used to repay debt owed to Centennial;
The distribution of 80.1 percent or more of Knife River Holding Company issued and outstanding common stock to MDU Resources' stockholders on a pro rata basis in connection with the separation. MDU Resources will retain up to 19.9 percent of the outstanding shares of Knife River Holding Company common stock following the distribution;
The one-time transaction expenses associated with the separation of Knife River Holding Company;
Incremental costs expected to be incurred as an autonomous entity and specifically related to the separation;
Management adjustments which consist of reasonably estimated transaction effects related to synergies and dis-synergies expected to occur; and
The impact of, and transactions contemplated by, the separation and distribution agreement, the transition services agreement, the employee matters agreement, the stockholder and registration rights agreement and other transaction agreements described under “Certain Relationships and Related Person Transactions.”
The Unaudited Pro Forma Consolidated Financial Statements were prepared in accordance with GAAP and in accordance with Article 11 of the Securities and Exchange Commission’s Regulation S-X. In May 2020, the SEC adopted Release No. 33-10786 “Amendments to Financial Disclosures about Acquired and Disposed Businesses” (the “Final Rule”). The Final Rule became effective on January 1, 2021 and the Unaudited Pro Forma Consolidated Financial Statements herein are presented in accordance therewith.
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Knife River Corporation’s historical audited consolidated financial statements, which were the basis for the Unaudited Pro Forma Consolidated Financial Statements, were prepared on a carve-out basis as it did not operate as a stand-alone entity for the period presented. Accordingly, such financial information reflects expense allocations for certain corporate functions provided by MDU Resources and Centennial, including, but not limited to certain general corporate expenses related to finance, legal, information technology, human resources, communications, procurement, tax, treasury, payroll, internal auditing and risk management. These expenses have been allocated to Knife River Corporation on the basis of direct usage when identifiable, with the remainder principally allocated on the basis of percent of total capital invested or other allocation methodologies that are considered to be a reasonable reflection of the utilization of the services provided to the benefits received. See Note 2, “Basis of Presentation” and Note 19, “Related-Party Transactions” to the historical audited consolidated financial statements included elsewhere in this information statement for further information on the allocation of corporate costs. MDU Resources has also incurred separation-related transaction costs which are not reflected in the historical audited consolidated financial statements as the costs have all been borne by MDU Resources.
The Unaudited Pro Forma Consolidated Financial Statements have been prepared to include transaction accounting, autonomous entity and management adjustments to reflect the financial condition and results of operations as if Knife River Holding Company were a stand-alone entity in the period presented. Transaction accounting adjustments have been presented to show the impact and associated cost of the legal separation from MDU Resources, including the incurrence of indebtedness, transfer of additional employee benefit assets and liabilities, and reclassification of certain transactions historically included in related-party accounts. Autonomous entity adjustments have been presented to show the impact of items such as the transition services agreement and incremental costs expected to be incurred as an autonomous entity. In addition, management adjustments have been provided which management believes are necessary to enhance an understanding of the pro forma effects of the transaction. Actual post-separation costs incurred may differ from those included in the transaction accounting, autonomous entity and management adjustment estimates.
The Unaudited Pro Forma Consolidated Financial Statements should be read in conjunction with “Capitalization,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as the historical audited consolidated financial statements and notes thereto. For factors that could cause actual results to differ materially from those presented in the Unaudited Pro Forma Consolidated Financial Statements, see “Cautionary Statement Concerning Forward-Looking Statements” and “Risk Factors” included elsewhere in this information statement.
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Knife River Holding Company
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For the Year Ended December 31, 2022
 
Historical
(Note 1)
Transaction
Accounting
Adjustments
(Note 2)
 
Autonomous
Entity
Adjustments
(Note 3)
 
Pro Forma
 
(In thousands, except per share amounts)
Revenue:
 
 
 
 
 
 
Construction materials
$1,347,008
$
 
$
 
$1,347,008
Contracting services
1,187,721
 
 
1,187,721
Total revenue
2,534,729
 
 
2,534,729
Cost of revenue:
 
 
 
 
 
 
Construction materials
1,086,193
 
10,750
(K)
1,096,943
Contracting services
1,087,642
 
2,870
(K)
1,090,512
Total cost of revenue
2,173,835
 
13,620
 
2,187,455
Gross profit
360,894
 
(13,620)
 
347,274
 
 
 
 
 
 
 
Selling, general and administrative expenses
166,599
747
(C)
15,379
(J),(K),(L)
182,725
Operating income
194,295
(747)
 
(28,999)
 
164,549
Interest expense
30,121
31,652
(B)
 
61,773
Other (expense) income
(5,353)
 
1,284
(J)
(4,069)
Income before income taxes
158,821
(32,399)
 
(27,715)
 
98,707
Income taxes
42,601
(8,780)
(E)
(7,511)
(M)
26,310
Net income
$116,220
$(23,619)
 
$(20,204)
 
$72,397
 
 
 
 
 
 
 
Unaudited Pro Forma Earnings Per Share
 
 
 
 
 
 
Basic
$116,220.00
 
 
 
(H)
$
Diluted
$116,220.00
 
 
 
(I)
$
Average number of shares used in calculating Unaudited Pro Forma Earnings Per Share:
 
 
 
 
 
 
Basic
1
 
 
 
(H)
Diluted
1
 
 
 
(I)
See accompanying notes to unaudited pro forma consolidated financial statements.
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Knife River Holding Company
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
As of December 31, 2022
 
Historical
(Note 1)
Transaction
Accounting
Adjustments
(Note 2)
 
Autonomous
Entity
Adjustments
(Note 3)
 
Pro Forma
 
(In thousands, except share and share amounts)
Assets:
 
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
$10,090
$189,130
(A)
$22,232
(K)
$221,452
Receivables, net
210,157
9,972
(D)
 
220,129
Costs and estimated earnings in excess of billings on uncompleted contracts
31,145
 
 
31,145
Due from related-party
16,050
(9,972)
(D)
(6,078)
(K)
Inventories
323,277
 
 
323,277
Prepayments and other current assets
17,848
 
 
17,848
Total current assets
$608,567
$189,130
 
$16,154
 
$813,851
 
 
 
 
 
 
 
Noncurrent assets
 
 
 
 
 
 
Net property, plant, and equipment
$1,315,213
$
 
$
 
$1,315,213
Goodwill
274,540
 
 
274,540
Other intangible assets, net
13,430
 
 
13,430
Operating lease right-of-use assets
45,873
 
 
45,873
Investments and other
36,696
6,236
(A),(C)
 
42,932
Total noncurrent assets
1,685,752
6,236
 
 
1,691,988
Total assets
$2,294,319
$195,366
 
$16,154
 
$2,505,839
 
 
 
 
 
 
 
Liabilities and Stockholder’s Equity:
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
Long-term debt - current portion
$211
$
 
$
 
$211
Related-party notes payable - current portion
238,000
(238,000)
(A)
 
Accounts payable
87,370
16,209
(D)
 
103,579
Billings in excess of costs and estimated earnings on uncompleted contracts
39,843
 
 
39,843
Accrued compensation
29,192
 
 
29,192
Due to related-party
20,286
(20,286)
(D)
 
Current operating lease liabilities
13,210
 
 
13,210
Other accrued liabilities
88,778
4,983
(C), (D)
6,210
(K)
99,971
Total current liabilities
$516,890
$(237,094)
 
$6,210
 
$286,006
Noncurrent Liabilities
 
 
 
 
 
 
Long-term debt
$427
$878,867
(A)
$
 
$879,294
Related-party notes payable
446,449
(446,449)
(A)
 
Deferred income taxes
175,804
 
 
175,804
Noncurrent operating lease liabilities
32,663
 
 
32,663
Other
93,497
1,171
(C)
9,944
(K)
104,612
Total liabilities
$1,265,730
$196,495
 
$16,154
 
$1,478,379
Commitments and contingencies
 
 
 
 
 
 
Stockholder’s equity:
 
 
 
 
 
 
Common stock, $10 par value; 80,000 shares authorized, issued and outstanding
$
$
 
$
 
$
Common stock, $0.01 par value; 1,000 shares authorized, issued and outstanding
(F)
 
Other paid-in capital
549,906
(F)
 
549,906
Retained earnings
494,661
(1,129)
(C)
 
493,532
Parent stock held by subsidiary
(3,626)
3,626
(G)
 
Treasury stock at cost - [  ] shares
(3,626)
(G)