Knife River Corp

Note 11 -Fair value measurements

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

Financial instruments measured at fair value on a recurring basis

We measure our investments in certain fixed-income and equity securities at fair value with changes in fair value recognized in income. We anticipate using these investments, which consist of insurance contracts, to satisfy our obligations under our unfunded, nonqualified defined benefit and defined contribution plans for our executive officers and certain key management employees, and invests in these fixed-income and equity securities for the purpose of earning investment returns and capital appreciation. These investments, which totaled $27.3 million, $19.1 million and $24.9 million at June 30, 2024 and 2023, and December 31, 2023, respectively, are classified as investments on the Consolidated Balance Sheets. The net unrealized gains on these investments were $392,000 and $197,000 for the three months ended and $1.6 million and $1.1 million for the six months ended June 30, 2024 and 2023, respectively. The change in fair value, which is considered part of the cost of the plan, is classified in other income on the Consolidated Statements of Operations.

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

• The insurance contracts invest approximately 36 percent in fixed-income investments,23 percent in common stock of large-cap companies,15 percent in cash equivalents,9 percent in common stock of mid-cap companies,9 percent target date investments,5 percent in common stock of small-cap companies,1 percent in international investments,1 percent in real estate investments and 1 percent in high yield investments.

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• The insurance contracts invest approximately 47 percent in fixed-income investments,20 percent in cash equivalents,15 percent in common stock of large-cap companies,8 percent in common stock of mid-cap companies,6 percent in common stock of small-cap companies and 4 percent target date investments.

• The insurance contracts invest approximately 40 percent in fixed-income investments,19 percent in common stock of large-cap companies,18 percent in cash equivalents,8 percent in target date investments,8 percent in common stock of mid-cap companies,6 percent in common stock of small-cap companies and 1 percent in international investments.

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

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

Nonfinancial instruments measured at fair value on a nonrecurring basis

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

The assets and liabilities of the acquisitions that occurred during the second quarter of 2024 were calculated using a market or cost approach. The fair value of some of the assets was determined based on Level 3 inputs including estimated future cash flows, discount rates, growth rates and sales projections, all of which require significant management judgment.

The Company's long-term debt is not measured at fair value on the Consolidated Balance Sheets and the fair value is being provided for disclosure purposes only. The fair value was categorized as Level 2 in the fair value hierarchy and was based on

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discounted cash flows using current market interest rates. The estimated fair value of the Company's Level 2 long-term debt was as follows:

The carrying amounts of our remaining financial instruments included in current assets and current liabilities approximate their fair values.