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Item 7. Management’s Discussion and Analysis

2021-03-02 compared with 2020-03-03 · 294 added, 303 removed, 264 unchanged (69% of the section changed)

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AND RESULTS OF OPERATIONS

This Management Discussion and Analysis should be read in conjunction with the accompanying consolidated financial statements and related notes contained elsewhere in this Annual Report on Form 10-K.

This Management Discussion and Analysis contains forward‑looking statements that involve risks, uncertainties, and assumptions as described under the heading "Cautionary Note Regarding Forward‑Looking Statements," in Part I of this Annual Report on Form 10-K.

This Management's Discussion and Analysis should be read in conjunction with the accompanying consolidated financial statements and related notes contained in "Item 8.

Financial Statements and Supplemental Data" of this Annual Report on Form 10-K.

This Management's Discussion and Analysis contains forward‑looking statements that involve risks, uncertainties, and assumptions as described under the heading "Cautionary Note Regarding Forward‑Looking Statements," in Part I of this Annual Report on Form 10-K.

Our actual results could differ materially from those anticipated by these forward‑looking statements as a result of many factors, including those discussed under "Item 1A.

Risk Factors" and elsewhere in this Annual Report on Form 10-K.

The discussion of our general financial condition and results of operations for 2019 compared with 2018 can be found in our Annual Report on Form 10-K for the year ended December 31, 2019 (“2019 Annual Report”).

See Item 7 - “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the 2019 Annual Report for further information on our prior period results of operations.

We are a diversified mineral company that delivers potassium, magnesium, sulfur, salt, and water products essential for customer success in agriculture, animal feed and the oil and gas industry.

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Until mid-2016, we also produced potash from our East and West mines in Carlsbad, New Mexico.

In April 2016, we converted our East facility from a mixed-ore facility that produced both potash and Trio ® to a Trio ® ‑only facility.

In addition, in early July 2016, we idled mining operations at our West facility and transitioned the facility into care and maintenance.

These changes were designed to increase our production of Trio ® , a product that had traditionally shown more resilience to pricing pressure than potash, and to lower costs in a time of declining potash prices.

We have water rights in New Mexico under which we sell water primarily to support oil and gas development in the Permian Basin near our Carlsbad facilities.

We continue to work to expand our sales of water.

In May 2019, we acquired certain land, water rights, and other related assets from Dinwiddie Cattle Company.

We refer to these assets and operations as "Intrepid South." The purchase price was $53 million, and we incurred $3.2 million in acquisition-related fees.

We are required to pay Dinwiddie Cattle Company an additional $12 million pending the resolution by Dinwiddie Cattle Company or others by May 1, 2020, of certain issues identified in the diligence process.

Dinwiddie Cattle Company also reserved a 20-year, 10% royalty, proportionally reduced as to our interest, on certain produced water disposal revenue relating to Intrepid South and certain other properties located near Intrepid South.

In May 2019, we acquired certain land, water rights, state grazing leases for cattle, and other related assets from Dinwiddie Cattle Company.

We refer to these assets and operations as "Intrepid South." Due to the strategic location of Intrepid South, part of our long-term operating strategy is selling small parcels of land to other companies, where such sales provide a solution to a company's need.

We have three segments:

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For each of the years ended December 31, 2020, 2019, and 2018, a majority of our byproduct sales were accounted for in the potash segment.

Recent Developments

Reverse Stock Split

On July 24, 2020, we received notice from the NYSE that we were not in compliance with Section 802.01C of the NYSE Listed Company Manual that requires listed companies to maintain an average closing share price of at least $1.00 over a period of 30 consecutive trading days (the “July Notice”).

Due to our reduced stock price, before we received notice of non-compliance we provided notice of a special meeting of stockholders to vote on four proposals that would allow our Board of Directors to effect a reverse stock split at a ratio between 1:3 and 1:15.

On July 28, 2020, we held the special meeting and all the reverse stock split proposals were approved.

On August 10, 2020, the Board of Directors approved an amendment to our Certificate of Incorporation to effect a reverse stock split of our common stock, par value $0.001 per share, by a ratio of one-for-ten.

The reverse stock split became effective August 14, 2020.

Additionally, the total number of authorized shares of our common stock was reduced to 40,000,000 shares.

Unless otherwise indicated, all share amounts, per share data, share prices, exercise prices and conversion rates set forth in these notes and the accompanying condensed consolidated financial statements have, where applicable, been adjusted retroactively to reflect this reverse stock split.

We believe the reverse stock split was in the best interests of us and our stockholders by allowing us more flexibility to, among other things, potentially improve the marketability and liquidity of our common stock and regain compliance with the

listing requirements of the NYSE, which will allow management to focus on our business strategy.

We received notice from NYSE that we regained compliance with all listing standards on September 1, 2020.

Significant Business Trends and Activities

Our financial results have been, or are expected to be, impacted by several significant trends and activities, which are described below.

We expect these trends to continue to impact our results of operations, cash flows, and financial position.

The novel strain of coronavirus (COVID-19) has surfaced in nearly all regions around the world.

As an essential business we continued to operate through-out the COVID-19 pandemic to produce potash and Trio ® and serve oil and gas markets through our oilfield solutions business.

The safety and protection of our workforce is our first and foremost priority.

We continue to follow various procedures we implemented to help minimize the risks to our employees, including changes in our operating procedures to accommodate social distancing guidelines, additional cleaning and disinfection procedures and requiring those employees who can work from home to do so.

We continue to monitor the guidance from various authorities, including federal, state and local public health authorities and may take additional actions based on their recommendations.

There may be developments outside our control that would require us to adjust our operating plans.

Our 2020 results were materially impacted by the COVID-19 pandemic, particularly our oilfield solutions segment as many of the actions taken to help prevent the spread of COVID-19 decreased demand for oil.

While many areas of the country have relaxed restrictions since the summer of 2020, we expect the economic effects of the COVID-19 pandemic will persist through most of 2021 and possibly longer.

Governmental authorities may reinstate other restrictive orders due to a continued resurgence of COVID-19 related cases.

Such restrictive actions may lead to further or continued decreases in the demand for oil and may impact our other operations if expanded restrictions are deemed necessary to mitigate the public health effects of the COVID-19 pandemic.

Given the dynamic nature of this situation, we cannot reasonably estimate the impacts of COVID-19 on our financial condition, results of operations, liquidity or cash flows in the future.

We expect that if governmental authorities increase other restrictive orders, such actions will have a material effect on revenue growth, financial condition, liquidity, and overall profitability in future reporting periods.

Our financial results have been, or are expected to be, impacted by several significant trends and activities, including impacts from the COVID-19 pandemic, as discussed below.

We expect that the trends described below may continue to impact our results of operations, cash flows, and financial position.

• Potash pricing and demand.

Potash remained a significant driver of our profitability, comprising 47% of our total sales in 2020.

Our average net realized sales price for potash increased in 2019 to $284 per ton compared to $256 per ton for 2018 due to price increases late in 2018 that we realized in 2019.

After the spring season, our competitors announced a summer fill program, reducing prices by $45 per ton.

Proposed price increases after summer fill did not materialize and we continued to sell at summer pricing levels during the second half of 2019.

Despite production curtailments of over four million tons by competitors in the second half of 2019, significant inventories remained available in early 2020.

In response to these above average inventories, our competitors announced a winter fill pricing program in January 2020, reducing potash price by an additional $25 per ton.

Customers had until January 22 to place orders for delivery through the end of the first quarter.

Price levels increased by $20 after the order window.

We expect good subscription under the program and expect to achieve higher pricing midway through the second quarter.

Similar to prior years, global effective capacity continues to exceed demand and larger producers have worked to balance stabilize the market through production curtailments.

Domestic pricing of our potash is influenced principally

by the price established by our competitors.

The interaction of global potash supply and demand, ocean, land, and barge freight rates, and currency fluctuations also influence pricing.

Our average net realized sales price for potash decreased in 2020 to $250 per ton compared to $284 per ton for 2019 due to multiple price decreases announced since the summer of 2019.

The potash market has rebounded since the 2020 summer fill program with current posted price for agricultural potash now $140 per ton higher than the 2020 summer fill price after multiple price increases in the fourth quarter of 2020 and another price increase in February 2021.

Similar to previous price increases, customers were offered the opportunity to book tons for delivery through the first quarter of 2021 ahead of the $40 per ton price increase announced in December 2020.

We have booked spot tons for immediate delivery in the first quarter of 2021 at the full December 2020 price increase and have seen full acceptance of that price level on our second quarter shipments.

We booked our historic second quarter volumes ahead of the $50 per ton February price increase and expect to book additional spot tons at the full $140 per ton increase from summer-fill pricing as the spring season continues.

We believe customers continue to see good value in potash at the current list prices due to strong and rising crop commodity values.

Our price expectations could be affected by, among other things, weather, planting decisions, rail car availability, commodity price decreases as a result of the COVID-19 pandemic, and the price and availability of other potassium products.

Our sales volumes into industrial markets decreased in 2020 compared to the prior year.

The majority of our industrial potash sales are into oil and gas markets and correlate to drilling and completion activity, which has slowed significantly during 2020 due to the containment actions taken to help reduce the spread of COVID-19.

We have been successful in shifting sales towards our growing animal feed and organic markets and also continuing to expand our sales into high-margin agricultural areas near our operations.

Additional or renewed restrictions enacted in response to the COVID-19 pandemic may impact our sales if such actions affect available labor, transportation logistics, or cause supply disruptions.

Global effective capacity continues to exceed demand and larger producers have worked to balance the market through production curtailments.

Domestic pricing of our potash is influenced principally by the price established by our competitors.

The interaction of global potash supply and demand, ocean, land, and barge freight rates, currency fluctuations, and crop commodity values and outlook, also influence pricing.

• Trio ® pricing and demand.

Wet weather in parts of the United States resulted in below-average application during the first half of 2019 leading to a summer-fill program that reduced domestic Trio ® pricing by $35 to $50 per ton depending on product grade.

This program erased the domestic pricing increases we achieved in 2018.

Two subsequent attempts to increase Trio ® pricing, after the summer-fill window and again after the October-fill window, failed to gain traction with buyers and we continued to transact near summer-fill pricing levels in the fourth quarter of 2019.

Shortly after the winter-fill price announcement for potash in January 2020, a competitor announced a new pricing program which reduced delivered pricing for langbeinite to the price offered during the October-fill window.

This price was in effect for orders placed in January and delivered by the end of the first quarter of 2020.

After the delivery window, our competitor's list price increased by $10 per ton.

We matched this pricing, effectively maintaining summer-fill pricing for tons delivered in the first quarter of 2020.

We expect to achieve the increased price midway through the second quarter, but this could be affected by, among other things, weather, planting decisions, rail car availability, and the price and availability of other potassium products.

Overall average net realized sales price per ton for Trio ® will continue be impacted by the percentage of international sales.

Internationally, competition from lower cost alternatives and freight costs continue to negatively impact our average net realized sales price per ton.

We continued, and plan to continue, our efforts to implement a price-over-volume strategy by focusing on international markets where we obtain the highest average net realized sales price per ton and thus the highest margin.

Our average net realized sales price for Trio ® was unchanged in 2020 compared to 2019.

We sold more tons of Trio ® into domestic markets in 2020, compared to 2019, and our average net realized sales price per ton for Trio ® domestic sales is higher than our average net realized sales price per ton for Trio ® international sales due to lower freight and handling charges incurred for domestic sales.

However, price decreases announced by competitors in late 2019 and in during the first half of 2020 negatively impacted our Trio ® average net realized sales price per ton during 2020.

Following the potash price increases announced in the fourth quarter of 2020, we have increased our posted price for Trio ® by $60 per ton compared to the 2020 summer fill price.

Before the most recent $20 per ton price increase took effect in December 2020, we offered customers the opportunity to purchase tons for delivery through the first quarter of 2021.

As a result we do not expect to realize the current posted price until the second quarter of 2021.

Our ability to realize the increased prices may be affected by, among other things, weather, planting decisions, rail car availability, commodity price decreases as a result of the COVID-19 pandemic, and the price and availability of other potassium products.

Overall average net realized sales price per ton for Trio ® will continue to be impacted by the percentage of international sales, particularly to offshore markets.

Competition from lower cost alternatives and freight costs continue to negatively impact our average net realized sales price per ton to offshore markets.

We continued, and plan to continue, our efforts to implement a price-over-volume strategy internationally, by focusing on those international markets where we obtain the highest average net realized sales price per ton and thus the highest margin.

We experience seasonality in domestic Trio ® demand, with more purchases coming in the first and second quarters in advance of the spring application season in the U.S.

In turn, we generally have increased inventory levels in the third and fourth quarters in anticipation of expected demand for the following year.

We continue to operate our facilities at production levels that approximate expected demand and allow us to manage inventory levels.

Water sales increased in 2019 to $25.7 million , compared to $19.8 million in 2018, primarily due to the acquisition of Intrepid South and associated water rights in May 2019.

Demand for water has been increasing due to increasing oil and gas activities in the Permian Basin near our facilities in New Mexico.

We have put in place a diverse set of arrangements aimed at generating a long-term recurring revenue stream from water sales.

We have contracts with various water customers from which we expect revenue of between $32 million to $45 million in 2020.

Water rights in New Mexico are subject to a stated purpose and place of use, and many of our water rights were originally issued for uses relating to our mining operations.

To sell water under these rights for oil and gas development, we must apply for a permit from the New Mexico Office of the State Engineer ("OSE") to change the purpose or place of use of the underlying water rights.

The OSE reviews and makes a determination as to the validity of the right and if it determines the requested change will not negatively impact other valid interests, the OSE can issue a preliminary authorization for the change.

The preliminary authorization allows for water sales to begin immediately, subject to repayment if the underlying water rights are ultimately found to be invalid.

Third parties may protest the preliminary authorization at minimal cost and frequently do so.

Once protested, the OSE is required to hold a hearing to determine if the preliminary authorization was appropriate.

A significant amount of our water sales are being made under preliminary authorizations issued by the OSE.

Third parties have protested these preliminary authorizations.

In February 2019, certain protestants filed an expedited inter se proceeding in New Mexico District Court as the adjudication court for the Pecos Stream System challenging the validity of our water rights relating to the Pecos River.

In August 2019, the parties stipulated to the jurisdiction of the adjudication court.

To promote settlement, the adjudication court established a settlement schedule and ordered a trial date in August 2020 if the parties have not reached a settlement by that time.

The OSE has temporarily stayed the hearing process until the adjudication process is complete.

We continue to operate under the preliminary authorizations until the adjudication and hearing processes are complete.

We may face political and regulatory issues relating to the potential use of the maximum amount of our rights.

However, we believe that our legal position with respect to the validity of our water rights is solid and that we will be able to meet our water commitments.

You can find more information about the adjudication and hearing processes in Note 15 to our consolidated financial statements.

We continue to operate our facilities at reduced production levels that approximate expected demand and allow us to manage inventory levels.

If we experience reduced demand for Trio ® due to warehouse closures or other effects from the COVID-19 pandemic, we may need to further reduce production rates to manage inventory levels.

• Water sales.

Water sales decreased in 2020 to $20.4 million, compared to $25.7 million in 2019, primarily due to the impact of the COVID-19 pandemic on oil and gas drilling activity.

While economic activity and oil demand has improved from the summer of 2020, there continues to be significant impacts from the COVID-19 pandemic and oil and gas drilling activity in the areas in which we operate has not yet returned to the levels seen prior to the COVID-19 pandemic.

Additional or renewed restrictions enacted in response to the COVID-19 pandemic may negatively impact the demand for oil and our expectations for water sales in 2021.

An update to legal proceedings concerning our water rights is contained in Note 14 to our audited consolidated financial statements included in "Item 8.

Financial Statements and Supplementary Data" of this Annual Report on Form 10-K.

• Byproduct sales.

Byproduct sales increased to $26.5 million in 2019 compared to $19.3 million in 2018.

This increase was primarily due to increased water and brine sales in support of well development and completion activities in the Permian Basin.

We also increased sales of salt during 2019, capitalizing on reduced availability in certain parts of the country.

Record wet weather in the summer of 2019 in Wendover limited our production of magnesium chloride and is expected to limit product available for sale until the summer of 2020.

While the market for magnesium chloride is

somewhat weather dependent, we believe the overall demand for this product remains strong and we expect to return to average production and sales rates in the second half of 2020.

Byproduct sales decreased to $20.5 million in 2020 compared to $26.5 million in 2019.

Water and brine sales decreased due to the COVID-19 pandemic, which reduced well development and completion activities in the Permian Basin.

Salt sales also decreased during 2020, as the salt shortages in certain parts of our country during 2019 abated, reducing our sales footprint.

Record wet weather in the summer of 2019 in Wendover limited our production of magnesium chloride, reducing sales in the first half of 2020.

While the market for magnesium chloride is somewhat weather dependent, we believe the overall demand for this product remains strong and we returned to average production and sales rates in the second half of 2020.

• Weather impact.

Evaporation rates in 2019 were below average across our facilities which will reduce production in the spring of 2020 when compared to the prior year.

Above average rainfall at our Wendover facility also decreased our magnesium chloride production in 2019 and we expect to have limited volumes of magnesium chloride available for sale until the evaporation season begins in 2020.

Evaporation rates in 2020 were above average across our facilities which will increase production in the spring of 2021 when compared to the prior year.

The production of magnesium chloride at our Wendover facility returned to historic averages in 2020 after an above average rainfall year in 2019 limited production during the first half of 2020.

• Diversification of products and services.

We continued to diversify our products and services in 2020 particularly with the acquisition of Intrepid South in May 2019.

In addition to water sales, Intrepid South also generates revenue from right-of-way agreements, surface damages and easements, caliche sales, and a produced water royalty.

In addition to water sales, Intrepid South also generates revenue from right-of-way agreements, surface damages and easements, caliche sales, brine sales, and a produced water royalty.

These sales generated revenue of $4.2 million in 2020 and incur either minimal or no operating expense.

We are in the process of adding a brine station at Intrepid South and are currently developing a produced water facility with a partner near Intrepid South.

As we continue to diversify our portfolio, we may enter into new or complementary business that expand our product and service offerings beyond our existing assets or products through acquisition of companies or assets or otherwise.

We added the brine station at Intrepid South in February 2020 and we are reviewing opportunities to develop a produced water facility near Intrepid South, although the COVID-19 pandemic has made the timing of this development uncertain.

Demand for our high-speed mixing service has also been negatively impacted as a result of the decrease in oil prices and oilfield activities.

In March 2020, we sold approximately 320 acres of fee land from our Intrepid South property for $4.8 million and recognized a gain on the sale of the land of $4.7 million.

The terms of the sale were highly restrictive and only allow the buyer to drill AGI wells on the property to dispose of natural gas with high concentrations of hydrogen sulfide (H 2 S).

No water rights were included in the land sale, we retained surface access, and we restricted the use of caliche located on the property to the acreage that was sold in order to prevent sales to third parties or decrease future sales to the buyer.

Our long-term strategic operating plan for Intrepid South includes selling small parcels of land to customers, where such sales provide a solution to a customer's specific needs.

We may have additional strategic sales of small parcels of land to customers in the future.

In May 2020, we acquired an 11% equity stake in the W.D.

Von Gonten Laboratories ("WDVGL"), a global industry leader in drilling and completion chemistry and a strong supporter of the use of potassium chloride in oil and gas drilling and completion activities.

With this investment we plan to revitalize our industrial sales and high-speed mixing service given the poor performance of clay-inhibition chemical substitutes in certain formations.

Our investment in WDVGL is also part of our strategy to leverage our existing oil and gas midstream businesses in southeast New Mexico and expand into additional oil and gas midstream and upstream activities.

This expansion may be through organic growth, other strategic investments, partnerships, or acquisitions of complementary businesses that expand our product and service offerings beyond our existing assets or products.

We believe that the long-term investment opportunities in the current market are generational and provide a unique opportunity to accelerate our pivot towards oil and gas through accretive transactions.

Additionally, we may expand into oil and natural gas exploration and production or into new products or services in our current industry or other industries.

Consolidated Results

(in thousands)

Year Ended December 31,

(in thousands) Year Ended December 31,

2020 2019 2018

$ 196,954 $ 220,075 $ 208,270

Cost of Goods Sold $ 135,843 $ 126,110 $ 121,955

Net Income (Loss)

Gross Margin $ 10,530 $ 43,478 $ 38,271

Net (Loss) Income $ (27,154) $ 13,631 $ 11,783

Average Net Realized Sales Price per Ton 2

Potash $ 250 $ 284 $ 256

$ 195 $ 195 $ 199

1 Sales include sales of byproducts which were $20.5 million, $26.5 million and $19.3 million for the years ended December 31, 2020, 2019, and 2018, respectively.

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Consolidated Results for the Years Ended December 31, 2020, and 2019

Our total sales increased $11.8 million, or 6% in 2019, compared to 2018, as a $7.2 million increase in byproduct sales, a $3.3 million increase in water sales, excluding byproduct water sales, and a $4.8 million increase in sales from other sources, was partly offset by a $3.0 million decrease in potash sales.

Our water sales, excluding byproducts, increased 21% primarily due to increased water sales from the additional water rights we acquired with Intrepid South in May 2019 and continued strong demand from oil and gas operators near our properties.

Sales from other revenue sources, which include high-speed mixing, right-of-way agreements, surface damages and easements, caliche sales, and a produced water royalty, increased as we completed additional mixing jobs in 2019, and due to the acquisition of Intrepid South in May 2019.

Potash sales volumes decreased 12% in 2019, compared to 2018, due to wet weather during the spring application season and reduced sales in the fourth quarter of 2019, as a result of a delayed harvest and an expectation of reduced pricing entering the 2020 spring season.

The decrease in potash tons sold was partially offset by an 11% increase in the average net realized sales price per ton in 2019, compared to 2018, as potash prices benefited from price increases late in 2018, that we captured during the first half of 2019.

Our total sales of byproducts derived from potash and Trio ® production increased $7.2 million, or 38% in 2019, compared to 2018.

The increase in byproducts sales was primarily driven by a $5.9 million increase in salt sales.

In 2019, we sold 40% more tons of salt and the delivered price per ton was higher due to increased freight costs included in the delivered price.

Like our potash and Trio ® sales, our salt sales revenue includes the freight costs to deliver the product to the customer.

Freight expense included in the delivered salt price increased in 2019, compared to the same period in 2018, as we expanded the geographic footprint of our salt customers.

Our byproduct water sales increased $2.5 million in 2019, compared to 2018, due to the ongoing oil and gas activities in the northern Delaware Basin near our facilities.

The increases in salt and by product water sales were partially offset by a $1.9 million decrease in magnesium chloride sales.

Wet weather in Wendover reduced our production volumes, which limited the amount of product that was available for us to sell.

Cost of goods sold increased $4.2 million, or 3% in 2019, as compared to 2018, primarily due to third-party costs incurred to move water at Intrepid South, costs associated with our high-speed potassium mixing service, additional depreciation expense for the Intrepid South assets, and below-average evaporation at our potash facilities, which increased our per ton potash production costs.

Our gross margin percentage increased to 20% in 2019, compared to 18% in 2018.

The increase was driven an increase in sales of higher-margin products, such as water and byproducts during 2019, compared to 2018.

Net income increased $1.8 million, or 16%, in 2019, compared to 2018, primarily driven by an increase in sales of higher-margin products, as discussed above, partly offset by an increase in selling and administrative expenses, as discussed below.

Selling and Administrative Expense

In 2019, selling and administrative expenses increased $3.1 million or 15% from 2018.

The increase was due to a $1.6 million increase in legal expenses associated with outstanding litigation and various water protests, a $0.5 million change in bad debt expense, and a $0.4 million increase in labor expense.

During 2018, we received payments on an account that had a full bad debt allowance against it.

Those payments reduced our bad debt allowance, with a corresponding decrease to bad debt expense.

Please see Item 3, "Legal Proceedings," contained in this Annual Report on Form 10-K, for further information on outstanding litigation.

Other Operating Expense

In 2019, we recognized other operating expense of $1.2 million compared to $0.1 million in 2018.

In 2019, we recorded a $0.3 million expense related to the disposal of an asset, a $0.3 million expense due to timing of remediation work, and a $0.2 million expense related to a product recall.

Interest Expense

Interest expense decreased $0.8 million in 2019 compared to 2018, primarily due to a decrease in outstanding borrowings on our senior notes.

Consolidated Results for the Years Ended December 31, 2018, and 2017

Our total sales in 2018 increased $30.4 million, or 17%, as compared to 2017 primarily due to an increase in potash tons sold, increases in both potash and Trio ® pricing, and an increase in water sales, primarily due to oil and gas drilling activity near our facilities in New Mexico.

Byproduct revenue increased $6.6 million as we continue to execute on our strategy to grow sales of our byproducts.

Cost of goods sold increased $4.0 million, or 3% in 2018, as compared to 2017, primarily due to increased sales discussed above.

Our gross margin percentage increased to 18% in 2018 compared to 7% in 2017.

The increase was driven the increase in average net realized sales prices for our products, coupled with an increase in sales of higher-margin products, such as fresh water and byproducts.

We also recorded fewer lower of cost or NRV inventory adjustments in 2018, as the average net realized sales price per ton for potash and Trio ® improved.

Net income increased $34.4 million, or 152%, in 2018 compared to 2017, primarily driven by higher gross margins, as discussed above, and the decrease in interest expense in 2018 compared to 2017, as discussed below.

Our total sales decreased $23.1 million, or 11% in 2020, compared to 2019, as potash sales decreased $12.3 million, water sales decreased $5.3 million, salt sales decreased $4.2 million, high-speed mixing services decreased $1.4 million, and brine water sales decreased $0.7 million.

These sales decreases were partially offset by a $1.0 million increase in Trio ® sales.

Our potash sales decreased 12% in 2020 compared to 2019 as our average net realized sales price per ton decreased 12% due to the various potash price decreases announced by our competitors during 2020.

Our water sales, high-speed mixing services and brine water sales all decreased in 2020 compared to 2019 due to the COVID-19 pandemic, which significantly decreased oil demand and decreased oil and gas activities during 2020.

Our salt sales decreased in 2020 compared to 2019, as our 2019 salt sales benefited from salt shortages in various regions of the U.S.

Our Trio ® sales increased 2% in 2020 as compared to 2019, as we sold 2% more tons of Trio ® .

Our cost of goods sold increased $9.7 million, or 8%, in 2020, as compared to 2019.

The increase in cost of goods sold in 2020 compared to 2019 was due mainly to the increase in Trio ® cost of goods sold.

During 2020, we operated at reduced rates to manage inventory levels and decreased Trio ® tons produced by 9% as compared to 2019.

We also experienced increased losses in our pelletization process in 2020 compared to 2019.

Reduced production and increased losses in the pelletization process both led to higher per-ton carrying costs.

Finally, we also sold 2% more tons of Trio ® in 2020, as compared to 2019.

Our gross margin percentage decreased to 5% in 2020, compared to 20% in 2019.

The decrease was driven primarily by a decrease in sales and an increase in cost of goods sold, as discussed above.

Net income decreased from $13.6 million in 2019, to a net loss of $27.2 million in 2020.

The decrease is primarily due to a $32.9 million decrease in gross margin in 2020 compared to 2019, as discussed above, a $10.0 million litigation settlement entered into in 2020 as discussed below, partially offset by the gain recorded on the sale of land in 2020, as discussed below.

Selling and Administrative Expense

In 2020, selling and administrative expenses increased $1.9 million or 9% from 2019.

The increase was primarily due to an increase in our share-based compensation expense in 2018 compared to 2017.

The increase in share-based compensation was due to granting awards earlier in 2018 compared to 2017, coupled with the 2018 grant vesting over a shorter time period as compared to the 2017 grant.

This was due to a $3.7 million increase in legal and other professional services expenses in 2020, as compared to 2019, due to increased expenses associated with the settlement of outstanding litigation during 2020, and defending various protests to our water rights.

The increase in legal and other professional services expenses was partially offset by decreases in certain employee benefits and a reduction in advertising expenses in 2020 compared to 2019.

Litigation Settlement

A settlement conference was held with Mosaic in late March 2020 related to ongoing litigation.

Intrepid and Mosaic agreed to settle the matter and we paid Mosaic an aggregate of $10 million to dismiss all claims against us in this litigation, and the matter is now closed.

Please see further information in Note 14 to our audited consolidated financial statements included in "Item 8.

Financial Statements and Supplemental Data" of this Annual Report on Form 10-K.

Gain on Sale of an Asset

In March 2020, we sold approximately 320 acres of fee land from our Intrepid South property for $4.8 million and recognized a gain on the sale of the land of $4.7 million.

The terms of the sale were highly restrictive and only allow the buyer to drill AGI wells on the property to dispose of natural gas with high concentrations of H 2 S.

No water rights were included in the land sale, we retained surface access, and we restricted the use of caliche located on the property to the acreage that was sold in order to prevent the buyer from selling caliche to third parties or decrease future caliche sales to the buyer.

Our long-term strategic operating plan for Intrepid South includes selling small parcels of land to other customers, where such sales provide a solution to a customer's needs.

We may have additional strategic sales of small parcels of land in the future.

Other Operating Expense

In 2020, we recognized other operating expense of $0.7 million compared to $1.4 million in 2019.

In 2017, we recorded a loss on a sale of an asset of $1.7 million, recorded an additional $1.1 million increase in our stores inventory allowance, and recorded a one-time $0.6 million accrual related to land impact issues on or adjacent to our property in New Mexico.

In 2020, we recorded $0.4 million in care and maintenance expense and $0.3 million in other expenses.

In 2019, we recorded $0.5 million in care and maintenance expenses, $0.2 million expense related to a product recall, $0.3 million in expense due to timing of remediation work, and $0.4 million in other expenses.

Interest Expense

Interest expense decreased $7.8 million in 2018 compared to 2017.

Approximately $4.2 million of the decrease was due to our weighted-average interest rate on our senior notes declining to 4.32% in 2018 from 7.65% in 2017.

Additionally, write-offs of deferred financing fees and make-whole payments related to principal prepayments on our senior notes decreased approximately $3.3 million in 2018 compared to 2017.

Interest expense increased $1.3 million in 2020 compared to 2019, driven by the $1.9 million make-whole payment associated with the prepayment of the Series C Senior Notes in July 2020 and we maintained a higher average amount borrowed on our credit facility during 2020 compared to 2019, partially offset by the reduced principal balance outstanding on our Senior Notes during 2020.

We repaid $20 million principal outstanding on our Series A Senior Notes at maturity in April 2020 and we prepaid $15 million principal outstanding on our Series C Senior Notes in July 2020.

Potash Segment Results

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(in thousands) 2020 2019 2018

$ 108,060 $ 124,648 $ 124,058

Freight costs 17,026 18,715 17,682

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Lower of cost or NRV inventory adjustments 1,130 — —

Gross Margin $ 11,551 $ 27,787 $ 29,008

Depreciation, Depletion, and Amortization Incurred 2

$ 26,536 $ 25,796 $ 25,134

Potash Sales Volumes (tons in thousands) 317 319 364

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Average Potash Net Realized Sales Price per Ton 3

$ 250 $ 284 $ 256

1 Potash segment sales include byproduct sales which were $15.6 million, $21.2 million and $16.6 million for the years ended December 31, 2020, 2019, and 2018, respectively.

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Potash Segment Results for the Years Ended December 31, 2020, and 2019

Our total potash segment sales in 2019 were similar to the prior year, as an increase of $4.6 million in byproduct sales was mostly offset by a $4.1 million decrease in potash sales accounted for in the potash segment, as detailed below.

Potash sales accounted for in the potash segment decreased 4% during 2019, compared to 2018.

The average net sales price per ton increased 11% to $284 per potash ton sold during 2019, compared to the same period in 2018, due to higher pricing in the first half of 2019.

This was offset by a 12% decrease in potash tons sold as a delayed harvest and an expectation of flat or declining potash prices entering the 2020 spring season limited purchases in the fourth quarter of 2019.

Our second half 2019 potash average net realized sales price per ton was also negatively impacted by a summer fill program announced in June 2019 by our competitors.

Under the program, the potash list prices decreased by $45 per ton for orders placed before June 27 and scheduled for shipment during the third quarter and list prices were scheduled to increase $25 per ton after the order window closed.

The increased list prices did not materialize and potash remained at the lower summer fill prices levels in the second half of 2019, which contributed to the decrease in potash sales revenue.

Total potash segment byproduct sales increased $4.6 million, or 28%, in 2019, as compared to 2018.

The increase was driven by a $5.4 million increase in salt sales, a $0.7 million increase in brine sales and a $0.5 million increase in potash byproduct water sales, partially offset by a $1.9 million decrease in magnesium chloride sales.

We saw increased salt sales into deicing markets due to severe weather in the 2019 winter and spring months.

We also capitalized on salt supply shortages in certain parts of the United States, which expanded our sales geography compared to the prior year.

As a result of this expanded geography, the delivered price per ton for salt increased as we incurred more freight to deliver salt to customers located farther from our facilities.

Our byproduct water sales increased in 2019, as compared to the same period in 2018, as a higher proportion of our total water sales was from byproduct water.

Wet weather in Wendover reduced our production of magnesium chloride in 2019 and we had less product available for sale.

Potash segment freight expense increased 6% in 2019, mainly driven by an increase in freight expense related to selling more tons of salt and the increased freight expense incurred to ship salt to customers located farther from our facilities as discussed above.

Our total potash segment sales in 2020 decreased $16.6 million, or 13%, as compared to 2019, as potash sales recorded in the potash segment decreased 11% and potash segment byproduct sales decreased 26%.

Potash sales recorded in the potash segment decreased $10.9 million, or 11%, in 2020 compared to 2019, as the average potash net realized sales price per ton decreased 12% while potash tons sold were virtually unchanged.

Our average potash net realized sales price per ton decreased due to the potash price decreases announced by our competitors in late 2019 and in 2020.

Potash segment byproduct sales decreased $5.6 million, or 26%, in 2020 compared to 2019, due to a $3.9 million

decrease in byproduct salt sales, a $1.1 million decrease in byproduct brine water sales and a $0.6 million decrease in byproduct water sales.

Our salt sales decreased in 2020 as compared to 2019, as salt shortages in many parts of the U.S.

during 2019, abated in 2020.

Our potash byproduct brine water sales and our potash byproduct water sales decreased due to the containment measures that were adopted in response to the COVID-19 pandemic which reduced oil demand and slowed oil and gas exploration activities.

Potash segment freight expense decreased $1.7 million, or 9%, in 2020, as compared to 2019, mainly driven by an decrease in freight expense related to selling fewer tons of byproduct salt.

Like most of our potash sales, we sell salt at a delivered price, which includes the freight expense incurred to ship the product to the customer, and in 2019 we incurred increased freight expense to ship salt to customers located farther from our facilities due to the salt shortages in various parts of the U.S.

Our freight expense is also impacted by the rates charged by carriers, geographic distribution of our products and by the proportion of customers arranging for and paying their own freight costs.

Our potash segment cost of goods sold increased 1% during 2019, as compared to 2018.

Potash tons sold decreased 12%, but we experienced below average evaporation across our facilities, which contributed to higher per ton production costs.

We also sold a higher percentage of potash tons from our New Mexico facility during 2019 as compared to 2018, which carry a higher average cost than potash tons produced from our Utah facilities because we incur more depreciation expense at our New Mexico facilities.

Our potash segment gross margin decreased $1.2 million in 2019, compared to 2018, due to the factors discussed above.

Potash Segment Results for the Years Ended December 31, 2018, and 2017

Potash sales increased in 2018 compared to 2017 due to a 3% increase in potash tons sold and an 8% increase in potash pricing as price increases announced earlier in 2018 were realized during the rest of 2018.

Increased demand from the oil and gas industry drove the $4.2 million increase in our byproduct sales.

Our potash segment gross margin increased due to increased sales and pricing partially offset by increased freight costs due to increased sales volumes and an increase in freight rates.

Potash freight costs also are impacted by the proportion of customers paying for their own freight, the geographic distribution of our products and the freight rates of our carriers.

Potash segment sales include sales of potash and sales of byproducts, such as magnesium chloride, salt, brines, and water used in the potash production process.

Our solar facilities experienced average evaporation rates during the 2017 evaporation season, while the 2016 evaporation season was slightly above average.

As a result, our potash production from our solar solution facilities for 2018 decreased slightly compared to 2017.

Our potash segment gross margin decreased $16.2 million in 2020, compared to 2019, due mainly to the $16.6 million decrease in potash segment sales, as discussed above.

Potash Segment - Additional Information

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Year Ended December 31,

2020 2019 2018

Agricultural 79 % 74 % 74 %

Industrial 3 % 12 % 14 %

Feed 18 % 14 % 12 %

Historically, sales into the industrial and feed markets have carried a higher average net realized sales price per ton compared to sales into the agricultural market.

As a result, we continue to work to increase the percentage of potash sales into the industrial and feed markets.

However, the negative economic effects related to the COVID-19 pandemic reduced our industrial sales in 2020.

Trio ® Segment Results

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(in thousands) 2020 2019 2018

$ 70,287 $ 69,551 $ 66,808

Freight costs 20,431 20,514 19,370

Warehousing and handling costs

4,574 3,876 4,225

Cost of goods sold

50,902 42,251 45,284

Lower of cost or NRV inventory adjustments

2,885 1,810 1,711

Gross (Deficit) Margin $ (8,505) $ 1,100 $ (3,782)

Depreciation, Depletion, and Amortization incurred 2

$ 6,068 $ 6,163 $ 6,343

Sales Volumes (tons in thousands) 230 225 225

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Average Net Realized Sales Price per Ton 3

$ 195 $ 195 $ 199

1 Trio ® segment sales include byproduct sales which were $4.9 million, $5.3 million and $2.7 million for the years ended December 31, 2020, 2019, and 2018, respectively.

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Trio ® Segment Results for the Years Ended December 31, 2020, and 2019

Trio ® segment sales include sales of Trio ® and sales of byproducts that are generated or used in the Trio ® production process.

Trio ® segment sales increased 4% in 2019, as compared to 2018.

The increase in sales was driven by a $2.6 million increase in Trio ® byproduct sales during 2019.

Trio ® sales for 2019, increased $0.2 million as compared to 2018, as Trio ® tons sold and Trio ® average net realized sales price per ton during 2019 were essentially flat compared to 2018.

Trio ® tons sold domestically decreased 9% in 2019, as compared to 2018.

Domestic tons of Trio ® sold were negatively impacted by wet spring weather in parts of the U.S.

Additionally, Trio ® domestic sales during the fourth quarter of 2019, as compared to 2018, were also negatively impacted by uncertainty in fertilizer pricing and buyers were reluctant to purchase Trio ® believing prices would decline.

The decrease in domestic tons of Trio ® sold were offset by an increase in international tons sold.

As we sold more Trio ® tons internationally during 2019 compared to 2018, our Trio ® average net realized sales price was negatively impacted due to higher freight costs incurred to ship product internationally.

Trio ® byproducts sales increased $2.6 million during 2019, as compared to the same period in 2018 driven by a $2.1 million increase in Trio ® byproduct water sales and a $0.5 million increase in Trio ® segment salt sales.

A higher proportion of our total water sales during 2019, as compared to the same period in 2018, was from Trio ® byproduct water.

Trio ® byproduct salt sales increased due to offering a new road salt product from our Trio ® facility in 2019.

Trio ® freight costs increased 6% in 2019, compared to 2018, as we sold more tons internationally in 2019.

Our total Trio ® segment sales increased $0.7 million, or 1%, in 2020, as compared to 2019, as Trio ® sales increased 2%, partially offset by an 8% decrease in Trio ® segment byproduct sales.

Our 2020 Trio ® sales increased $1.0 million, or 2%, in 2020, as compared to 2019, as we sold 2% more Trio ® tons.

Trio ® tons sold domestically increased 17% in 2020, as compared to 2019.

Good weather in most parts of the U.S.

during the 2020 spring application season drove increased sales as many parts of the U.S.

were negatively impacted by wet weather during the 2019 spring application season.

Additionally, Trio ® domestic sales during the fourth quarter of 2020, as compared to 2019, were higher as fourth quarter 2019 sales were negatively impacted by uncertainty in fertilizer pricing and buyers were reluctant to purchase Trio ® believing prices would decline.

The 2020 increase in domestic tons of Trio ® sold was partially offset by a decrease in international tons sold, as we focused sales on the domestic market.

Trio ® byproducts sales decreased $0.4 million, or 8% during 2020, as compared to the same period in 2019 driven by a $0.1 million decrease in Trio ® byproduct water sales and a $0.3 million decrease in Trio ® segment salt sales.

Our 2020 Trio ® byproduct water sales were negatively impacted by the COVID-19 pandemic and our 2020 Trio ® byproduct salt sales decreased as salt shortages in many parts of the U.S.

during 2019, abated in 2020.

Trio ® freight costs decreased slightly in 2020 as compared to 2019.

We sold more tons in 2020 compared to 2019, but we sold fewer tons internationally.

We incur more freight expense on international Trio ® sales compared to domestic Trio ® sales.

Our freight expense is impacted by the geographic distribution of our Trio ® sales and by the proportion of customers arranging for and paying their own freight costs.

Our Trio ® cost of goods sold decreased 7%, compared to 2018, due mainly to a slight increase in Trio ® tons sold and lower per ton production costs.

During 2019, we produced 5% more tons of Trio ® which lowered our per ton production costs as discussed below.

Our Trio ® production tons increased by 5% in 2019, compared to the same period in 2018, primarily due to increased conversion of work-in-progress inventory into premium Trio ® .

Most of our production costs are fixed and an increase in production tons lowers our per ton cost of Trio ® .

Our Trio ® segment generated gross margin of $1.1 million in 2019, compared to a gross deficit of $3.8 million in 2018.

The improvement to gross margin in 2019 was due to the factors discussed above.

Trio ® Segment Results for the Years Ended December 31, 2018, and 2017

Trio ® sales increased $0.8 million, or 1%, in 2018 compared to 2017.

The average net realized sales price per ton increased 5% but was almost entirely offset by a similar decrease in Trio ® tons sold.

Our percentage of domestic tons of Trio ® sold to total tons of Trio ® sold was higher in 2018 compared to 2017, which had a positive impact on our average net realized sales price per ton.

Internationally during 2018, we focused on a price over volume strategy.

International sales of Trio ® continue to be negatively affected by competition from lower-cost alternatives and higher freight costs to ship to international locations.

Trio ® segment gross deficit improved in 2018 compared to 2017, primarily due to a reduction in lower of cost or NRV inventory adjustments and increased sales of byproducts generated from the Trio ® production process.

Sales of byproducts increased $2.4 million in 2018 compared to 2017.

The increase was driven by an increase in sales of water that was used in the Trio ® production process.

With the significant oil and gas drilling activities in areas near our facilities in New Mexico, demand for water was strong.

Trio ® production decreased 11% in 2018 compared to 2017 as we curtailed production in the second half of 2017 to manage our product inventory levels.

Our Trio ® warehouse and handling charges increased $0.7 million, or 18%, in 2020, as compared to 2019, as we incurred increased contract labor costs, increased chemical costs, and increased rental costs.

Our Trio ® cost of goods sold increased $8.7 million, or 20%, in 2020, as compared to 2019.

During 2020, we operated at reduced production rates to manage inventory levels and decreased Trio ® tons produced by 7% as compared to 2019.

We also experienced increased losses in our pelletization process in 2020 compared to 2019.

Reduced production and increased losses in the pelletization process both led to higher per-ton carrying costs.

Finally, we also sold 2% more tons of Trio ® in 2020, as compared to 2019.

We recorded lower of cost or net realized value inventory adjustments of $2.9 million in 2020 compared to $1.8 million in 2019.

The increase in 2020 was driven by higher per-ton Trio ® carrying costs, as discussed above.

Our Trio ® segment generated a gross deficit of $8.5 million in 2020, compared to gross margin of $1.1 million in 2019, due to the factors discussed above.

Trio ® Segment - Additional Information

The table below shows the percentage of total Trio ® sales that were sold internationally in the past three years.

United States

United States Export

For the year ended December 31, 2020 85 % 15 %

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(in thousands) 2020 2019 2018

Sales $ 18,929 $ 27,894 $ 17,404

Warehouse and handling — — 10

Cost of goods sold 11,445 12,367 4,349

Gross Margin $ 7,484 $ 14,591 $ 13,045

Depreciation, Depletion, and Amortization incurred $ 2,663 $ 1,566 $ 343

Oilfield Solutions Segment Results for the Years Ended December 31, 2020, and 2019

Our oilfield solutions segment sales increased 60% in 2019, compared to 2018, as we continued to see strong demand for water and other oilfield related products and services.

Segment water sales increased primarily due to the acquisition of Intrepid South in May 2019, which increased our total water rights available for sale.

Intrepid South also generated sales from right-of-way agreements, surface damages and easements, caliche sales, and a produced water royalty.

Our oilfield solutions segment sales decreased 32% in 2020, compared to 2019.

Water and potash sales decreased as the COVID-19 pandemic pressured oil prices and U.S.

producers substantially reduced or suspended drilling activity, particularly in the second and third quarters of 2020.

Water sales decreased $4.6 million or 24% in 2020, compared to 2019, while potash sales in the oilfield segment decreased $3.0 million compared to 2019.

Water sales in the oilfield segment improved significantly in the fourth quarter of 2020 to $4.0 million, compared to $2.0 million in the third quarter of 2020 as oil and gas activity and the outlook for oil prices continued to improve.

Water we sell that was used in the production of potash and Trio ® is accounted for as byproduct water sales in the potash or Trio ® segments.

Intrepid South also generated sales from right-of-way agreements, surface damages and easements, caliche sales, brine sales, a produced water royalty and oilfield services.

These other sales totaled $4.2 million in 2020.

Cost of goods sold increased $8.0 million in 2019, compared to 2018, due to third-party costs to move water on Intrepid South, increased sales of potassium chloride used in our high-speed mixing service, and depreciation and amortization expenses for the Intrepid South assets acquired in May 2019.

Gross margin increased $1.5 million, or 12%, compared to 2018, due to the factors described above.

Oilfield Solutions Segment Results for the Years Ended December 31, 2018, and 2017

Sales increased 176% in 2018, compared to 2017, due to increased water sales into oil and gas markets.

During 2018, we also generated sales from high-speed potassium chloride mixing services, trucking services, and other oilfield related products.

In 2017, our only source of revenue in the oilfield solutions segment was from sales of water.

Cost of goods sold increased in 2018 compared to 2017 due to the costs relating to our new service offerings in 2018 and costs related to the increased sales of water.

We continued to generate strong gross margins in the oilfield solutions segment, mainly due to the high demand for water and the relatively low costs associated with selling water from our existing water rights.

Cost of goods sold decreased $0.9 million in 2020, compared to 2019, as reduced expense related to our high-speed mixing service was offset by increased water transfer expenses and increased depreciation expense for our water assets.

We also sold less water from our Pecos River water rights and from our other revenue sources, such as caliche and a produced water royalty, in 2020 compared to 2019.

These sales generally have very low cost of goods sold, which is why the decrease in sales did not result in a comparable decrease in cost of goods sold.

Gross margin decreased $7.1 million, or 49%, compared to 2019, due to the factors described above.

Specific Factors Affecting Our Results

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Freight rates have been increasing, and if we are unable to pass the increased freight costs on to the customer, our average net realized sales price per ton is negatively affected.

We manage our sales and marketing operations centrally and we work to achieve the

highest average net realized sales price per ton we can by evaluating the product needs of our customers and associated logistics and then determining which of our production facilities can best satisfy these needs.

We manage our sales and marketing operations centrally and we work to achieve the highest average net realized sales price per ton we can by evaluating the product needs of our customers and associated logistics and then determining which of our production facilities can best satisfy these needs.

The volume of product we sell is determined by demand for our products and by our production capabilities.

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Our water sales and other products and services offered through our oilfield solutions segment are driven by demand from oil and gas exploration companies drilling in the Permian Basin.

As such, demand for our water is generally stronger during a cyclical expansion of oil and gas drilling, which is currently occurring in the Permian Basin.

As such, demand for our water is generally stronger during a cyclical expansion of oil and gas drilling.

Likewise, a cyclical contraction of oil and gas drilling may decrease demand for our water.

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We also reduce deferred tax assets by a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Each reporting period we analyze if any additional valuation allowance is necessary using historical and anticipated earnings amounts to determine if it is more likely than not that amounts will not be recovered.

In determining how much of a valuation allowance to recognize we consider our projections of future taxable income.

All available evidence, both positive and negative, that may affect the realizability of deferred tax assets is identified and considered in determining the appropriate amount of the valuation allowance.

We have concluded valuation allowances of $217.9 million and $211.6 million were required as of December 31, 2020 and 2019, respectively.

The amount of valuation allowance decreased in 2019 as compared to 2018 as a result of recalculating our deferred tax assets at a lower effective tax rate due to changes in operations in the various states we conduct business as well as changes to state laws affecting state tax rates and apportionment.

The amount of valuation allowance increased in 2020 as compared to 2019 primarily from offsetting increases to our deferred tax assets for revenue recognized for income tax purposes before recognition for GAAP purposes, and from our 2020 net operating losses.

Our effective tax rate for the years ended December 31, 2020, 2019, and 2018 was 0.0%, 0.4%, and 0.9%, respectively.

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federal statutory rate due to the valuation allowance.

During the year ended December 31, 2017, our effective tax rate was primarily impacted by a $115.5 million decrease to our deferred tax assets resulting from a rate change under the Tax Cuts and Jobs Act, and a net decrease to our valuation allowance of $104.7 million.

We also recorded a receivable of $2.6 million related to the monetization of our alternative minimum tax carryforwards based on a carryback, and an election available to taxpayers for 2017.

During the years ended December 31, 2019, and 2018, we recognized income tax expense of $0.1 million.

During the year ended December 31, 2017, we recognized an income tax benefit of $2.8 million.

During each of the years ended December 31, 2020, 2019, and 2018, we recognized an immaterial amount of income tax expense.

The estimated statutory income tax rates that are applied to our current and deferred income tax calculations are impacted most significantly by the states in which we conduct business.

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As of December 31, 2020, we were in a cumulative three-year loss position.

The cumulative three-year loss position is significant negative evidence when evaluating the realizability of our deferred tax assets, and we have concluded it is more likely than not the deferred tax assets will not be realized, and we continue to have a full valuation allowance as of December 31, 2019.

However, if positive evidence trends, such as sustained profitability, were to continue then this conclusion could change.

Thus, we continue to have a full valuation allowance as of December 31, 2020.

However, if positive evidence trends, such as sustained profitability, were to emerge then this conclusion could change.

If we were to determine that we would be able to realize our deferred tax assets for which a valuation allowance has been recorded, then an adjustment would be made to the deferred tax valuation allowance which would result in a reduction to the provision for income taxes or the recording of an income tax benefit.

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During 2020, we generated $31.1 million in cash flows from operating activities and we ended the year with $19.5 million of cash on hand, compared with cash on hand of $20.6 million at December 31, 2019.

In December 2018, we repaid $10 million of the outstanding balance of our senior notes, leaving $50 million of senior notes outstanding at the end of the year.

As of December 31, 2019, we had $54.2 million available to borrow under our credit facility and $19.8 million in outstanding borrowings and $1 million outstanding in a letter of credit.

With the remaining availability under our credit facility and expected cash generated from operations, we believe we have sufficient liquidity to meet our obligations for the next twelve months, including the $20 million principal payment due on our senior notes in April 2020.

In April 2020, we repaid the full $20 million principal on our Series A Senior Notes at maturity.

In July 2020, we repaid the full $15 million of principal along with a reduced make-whole payment of $1.9 million on our Series C Senior Notes.

As of December 31, 2020, we had outstanding $15 million of Series B Senior Notes due on April 14, 2023.

In April 2020, we received a $10 million loan under the CARES Act Paycheck Protection Program (the "PPP").

The loan matures on April 18, 2022 and bears interest at a rate of 1% per annum.

We were required to begin monthly payments of principal and interest in the amount of $0.6 million in November 2020, but due to extensions of the program and delays in the forgiveness application process, we do not expect to make any payments on the loan until a decision is made regarding our forgiveness application.

We may prepay the loan at any time prior to maturity with no prepayment penalties.

We used the funds exclusively for allowed payroll, benefits and other expenses and expect the majority, if not all, of the loan will be forgiven.

During the second quarter of 2020, the program was amended to allow borrowers to choose either an eight-week or 24-week period to use the funds.

We elected to use the 24-week period, which ended in October 2020.

The amount eligible for forgiveness is based on the amount of loan proceeds used by us (during the 24-week period after the lender makes the first disbursement of loan proceeds) for the payment of certain covered costs, including payroll costs (including benefits), subject to certain limitations and reductions in accordance with the CARES Act.

We submitted our application for forgiveness of the full $10 million loan in November 2020.

No assurance can be given that we will obtain forgiveness of the loan in whole or in part.

In addition, as a borrower that received over $2.0 million, we expect to be subject to an audit to review our eligibility under the PPP.

We submitted a response to a questionnaire regarding the necessity of our PPP loan in January 2021.

The timing and scope of the audit or any additional review remains unclear and as a result we are not able to forecast when we can expect a decision on loan forgiveness.

We do not expect the audit will impact our eligibility for forgiveness under the PPP.

The loan contains customary events of default relating to, among other things, payment defaults, making materially false and misleading representations to the lender or breaching the terms of the loan documents.

As of December 31, 2020, we had $20.4 million available to borrow under our credit facility, $29.8 million in outstanding borrowings, and $1 million outstanding in a lette r of credit.

With the remaining availability under our credit facility and expected cash generated from operations, we believe we have sufficient liquidity to meet our obligations for the next twelve months.

We continue to monitor our future sources and uses of cash and anticipate that we will adjust our capital allocation strategies when, and if, determined by our Board of Directors.

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However, there is no assurance that we will be able to successfully raise additional capital on acceptable terms or at all.

In May 2019, we acquired certain land, water rights, and other related assets from Dinwiddie Cattle Company.

We refer to these assets and operations as "Intrepid South." The purchase price was $53 million, and we incurred $3.2 million in acquisition-related fees.

We are required to pay Dinwiddie Cattle Company an additional $12 million pending the resolution by Dinwiddie Cattle Company or others of certain issues identified in the diligence process.

We funded the purchase price from cash on hand and borrowings under our credit facility.

The following summarizes our cash flow activity for the years ended December 31, 2020, 2019, and 2018:

Year ended December 31,

2020 2019 2018

(In thousands)

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Cash flows used in investing activities $ (15,157) $ (80,641) $ (16,781)

Cash flows provided by (used in) financing activities

Cash flows (used in) provided by financing activities $ (17,043) $ 18,795 $ (15,301)

Our debt agreements contain restrictions on our ability to declare and pay dividends.

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Total cash provided by operating activities for the year ended December 31, 2020, was $31.1 million, a decrease of $18.2 million compared with the year ended December 31, 2019.

The primary drivers were an increase in inventory and decrease in prepayments from customers, which are recorded as a contract liability.

The decrease was mainly driven by the litigation settlement paid in May 2020 and decreased potash net realized sales price.

Investing Activities

Total cash used in investing activities increased $63.9 million in 2019 , compared to 2018 , primarily related to the $56.2 million Intrepid South asset acquisition in May 2019 and the $3.1 million acquisition of a 50% undivided interest in certain land in Texas.

Total cash used in investing activities decreased $65.5 million in 2020, compared to 2019, primarily related to the $56.2 million Intrepid South asset acquisition in May 2019.

Other additions to property, plant, equipment, and mineral properties decreased $8.1 million in 2020, compared to 2019.

Proceeds from sale increased $4.7 million due to a strategic sale of land on our Intrepid South property.

Financing Activities

Total cash flows used in financing activities increased $35.8 million in 2020, as compared to 2019.

In 2019, we received $19.8 million of net proceeds from borrowing under our credit facility.

In 2018, we made net repayments of $3.9 million on short-term borrowings under our credit facility and made a $10 million prepayment on our senior notes.

Senior Notes —As of December 31, 2019, we had outstanding $50 million of senior notes (the "Notes") consisting of the following series:

$20 million of Senior Notes, Series A, due April 16, 2020

$15 million of Senior Notes, Series B, due April 14, 2023

$15 million of Senior Notes, Series C, due April 16, 2025

The agreement governing the Notes contains certain financial covenants including those discussed below:

In April 2020, we paid $20.0 million to retire our Series A Senior Notes at maturity.

In July 2020, we paid $16.9 million, including the make-whole payment, to retire our Series C Senior Notes.

During 2020, we borrowed an additional $10.0 million under our credit facility and received $10.0 million under the CARES Act Paycheck Protection Program.

During 2019, we made net borrowings under our credit facility of $19.8 million.

We routinely review the creditworthiness of our customers and make decisions to limit our exposure whenever possible.

During 2020, we saw an increase in delinquencies from our smaller customers that purchase water and brine at our truck stations.

These smaller customers mainly serve oil and gas exploration companies and the COVID-19 pandemic has dramatically decreased oil and gas drilling activity.

We have not seen an increase in delinquencies from our larger water customers, who take delivery of water via pipeline or directly from our storage ponds or points of diversion, and are generally well-capitalized.

We have also not seen an increase in the account receivable delinquencies from our potash and Trio ® customers.

While we continue to monitor the creditworthiness of our customers and have made adjustments to reflect the increased uncertainty in specific markets, we don't believe this will have a material effect on our business.

Senior Notes —As of December 31, 2020, we had outstanding $15.0 million of Series B Senior Notes due on April 14, 2023.

In April 2020, we repaid our Series A Senior Notes ($20 million) at maturity.

In July 2020, we repaid our Series C Senior Notes.

As part of the repayment, we repaid the full $15 million of principal along with a reduced make-whole payment of $1.9 million.

The agreement governing the Series B Senior Notes contains certain financial covenants including those discussed below:

• We are required to maintain a minimum fixed charge coverage ratio of 1.30 to 1.0 as of the last day of each quarter, measured based on the previous four quarters.

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Our leverage ratio as of December 31, 2020, was 2.3 to 1.0, therefore we were in compliance with this covenant.

Fixed charge coverage ratio and leverage ratio are calculated in accordance with the agreement governing the Notes.

For the year ended December 31, 2019, the interest rates on the Notes were 3.73% for the Series A Notes, 4.63% for the Series B Notes and 4.78% for the Series C Notes.

These rates represent the lowest interest rates available under the Notes.

The interest rates may adjust upward if we do not continue to meet certain financial covenants.

Fixed charge coverage ratio and leverage ratio are calculated in accordance with the agreement governing the Senior B Notes, each of which includes earnings before interest, taxes, depreciation and amortization ("EBITDA") as a component.

Our EBITDA calculation for the twelve months ended December 31, 2020 has decreased from historical levels due to the economic contraction related to the COVID-19 pandemic, although we saw significant improvement in our fourth quarter 2020 EBITDA calculation when compared to the second and third quarters of 2020, as oil and gas activity improved and fertilizer demand and pricing showed considerable strength after the 2020 summer-fill program.

For the year ended December 31, 2020, the interest rates on the Series B Senior Notes was 4.63%.

This rate represents the lowest interest rates available under the Series B Senior Notes.

The interest rate may adjust upward if we do not continue to meet certain financial covenants.

We have granted to the collateral agent for the noteholders a first lien on substantially all of our non-current assets and a second lien on substantially all of our current assets.

We are required to offer to prepay the Notes with proceeds of dispositions of certain specified property and with the proceeds of certain equity issuances, as set forth in the agreement.

The obligations under the Notes are unconditionally guaranteed by several of our subsidiaries.

We were in compliance with the applicable covenants under the agreement governing the Notes as of December 31, 2019.

We are required to offer to prepay the Series B Senior Notes with proceeds of dispositions of certain specified property and with the proceeds of certain equity issuances, as set forth in the agreement.

The obligations under the Series B Senior Notes are unconditionally guaranteed by several of our subsidiaries.

We were in compliance with the applicable covenants under the agreement governing the Series B Senior Notes as of December 31, 2020.

Credit Facility

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For the years ended December 31, 2020, and 2019, we borrowed $10.0 million and $30.3 million, respectively, and repaid $0.0 million and $10.5 million, respectively, under the facility.

As of December 31, 2019, we had $19.8 million borrowings outstanding and $1.0 million in an outstanding letter of credit under the facility.

As of December 31, 2018, we had no of borrowings outstanding and $1.0 million in an outstanding letter of credit under the facility.

As of December 31, 2020, we had $29.8 million of borrowings outstanding and $1.0 million in an outstanding letter of credit under the facility.

As of December 31, 2019, we had $19.8 million of borrowings outstanding and $1.0 million in an outstanding letter of credit under the facility.

We have $20.4 million available under the facility as of December 31, 2020.

We were in compliance with the applicable covenants under the facility as of December 31, 2020.

In April 2020, received a $10 million loan under the CARES Act Paycheck Protection Program (the "PPP").

The loan matures on April 18, 2022 and bears interest at a rate of 1% per annum.

We may prepay the loan at any time prior to maturity with no prepayment penalties.

We used the funds exclusively for allowed payroll, benefits and other expenses and expect the majority of the loan, if not all, will be forgiven.