Knife River Corp

Note 12 –Stock-Based Compensation

Periods Prior to the Separation

Prior to the Separation, certain key employees participated in stock-based compensation plans sponsored by MDU Resources. Under these plans, employees were granted time-vested restricted stock units and performance share awards. The shares vest over three years, contingent on continued employment. As previously discussed in Note 2, the outstanding restricted stock units and performance share awards granted to our employees were converted to restricted stock units of Knife River at the time of the Separation.

Prior to the Separation, stock-based compensation expense in the Consolidated Statements of Operations is representative of those employees of Knife River. Additionally, stock-based compensation expense was allocated to Knife River for corporate employees of MDU Resources. This stock-based compensation expense was allocated using a proportional cost allocation method and is included as a component of corporate allocations for periods prior to the Separation. The amounts presented for the periods prior to the Separation are not necessarily indicative of future awards and do not necessarily reflect the costs that we would have incurred as an independent company.

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Periods Post Separation

At the time of the Separation, each outstanding MDU Resources’ time-vested restricted stock unit and performance share award held by a Knife River employee was converted into Knife River time-vested restricted stock units. The conversion of the stock and the fair value of the awards was determined using the policies described in Note 2. As a result of the award modification, we will incur $185,000 of incremental stock-based compensation expense. Of this amount, $53,000 and $88,000 was recognized during the years ended December 31, 2024 and 2023, respectively, and approximately $44,000 will be recognized in 2025. There wasno incremental compensation expense incurred related to the performance share awards.

Effective June 1, 2023, we established a stock-based compensation plan under which we are currently authorized to grant 2.5 million restricted stock units and other stock awards. As of December 31, 2024, there were 2.4 million shares available to grant under this plan. Shares are either purchased on the open market or new shares of common stock are issued to satisfy the vesting of stock-based awards.

The following table summarizes stock-based compensation expense recorded in selling, general and administrative expense on the Consolidated Statements of Operations:

As of December 31, 2024, total remaining unrecognized compensation expense related to stock-based compensation was approximately $11.1 million (before income taxes), which will be amortized over a weighted average period of 1.8 years.

For the year ended December 31, 2024, the following summarizes the activity of the performance share awards and restricted stock units.

Restricted Stock Units

During the year ended December 31, 2024, we granted 68,859 restricted stock units to certain executive officers, employees and members of our board of directors. The restricted stock units generally vest over three years, contingent on continued employment for employees, and overone year for our board of directors. We use the straight-line amortization method to recognize compensation expense related to restricted stock units, which only has a service condition. The fair value of all restricted stock units is based on the market value of our stock on the date of grant.

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The weighted average grant-date fair value per share for the restricted stock units granted in 2024 and 2023 was $73.02 and $39.57, respectively. The total fair value of restricted stock units that vested during the years ended December 31, 2024 and 2023, was $2.5 million and $2.0 million, respectively.

Performance Share Awards

During the year ended December 31, 2024, we granted 101,688 performance share awards to certain executive officers and employees. The performance share awards vest over three years, contingent on continued employment for employees, and are tied to either a market condition or performance metric. We recognize compensation expense related to performance share awards with performance-based metrics on a straight-line basis over the requisite service period.

Under the performance metric for these performance share awards, participants may earn from zero to 200 percent of the apportioned target grant of shares. The performance metric is based on adjusted EBITDA margin growth. The weighted average grant-date fair value per share granted in 2024 was $72.14.

Under the market condition for these performance share awards, participants may earn from zero to 200 percent of the apportioned target grant of performance share awards based on our total stockholder return relative to that of the selected peer group. Compensation expense was based on the grant-date fair value as determined by Monte Carlo simulation. The blended volatility term structure ranges are comprised of 50 percent historical volatility and 50 percent implied volatility. Risk-free interest rates were based on U.S. Treasury security rates in effect as of the grant date. Assumptions used for grants applicable to the market condition for shares granted in 2024 were: